EFI Technologies v. Silani Sweet Cheese Ltd., 2015 ONSC 789

COURT FILE NO.: CV-14-503618

DATE: 20150312

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: EFI Technologies Inc., Plaintiff/Defendant by Counterclaim

AND: Silani Sweet Cheese Ltd., Defendant/Plaintiff by Counterclaim

BEFORE: Mr. Justice G. Dow

COUNSEL: Matthew R. Law, for the Plaintiff/Defendant by Counterclaim

Ronald Lachmansingh, for the Defendant/Plaintiff by Counterclaim

HEARD: January 30, 2015

ENDORSEMENT

[1] The Plaintiff, EFI Technologies Inc., seeks summary judgment in the amount of $148,414.45 plus prejudgment interest of $931.32 arising from a Licensing Agreement it entered into with the Defendant, Silani Sweet Cheese Ltd., which involved being paid $0.03 per litre for milk that the Plaintiff had an agreement with Dairy Farmers of Ontario to produce. Under that agreement, the milk produced was to contain a “minimum DHA content of .30% and a total long chain Omega3 content of 1.00% of fatty acid in milk” (clause 5.1 of the License Agreement).

Issues for Determination

[2] The License Agreement is dated July 8, 2011 and was negotiated between the parties in the preceding months. It contains typical clauses providing for minimum volumes (3 million litres per year), quality of product, product supply, duration and termination of the Agreement. It also contains an acknowledgment by the Defendant (in capital letters) that the Plaintiff was not making “ANY REPRESENTATION OR WARRANTY AS TO THE MERCHANTABILITY OR FITNESS FOR ANY USE” of the Plaintiff’s “TECHNOLOGY” or “AS TO THE SAFETY, EFFICIENCY and ABILITY TO OBTAIN REGULATORY APPROVAL” (clause 8.6 of the License Agreement).

[3] It is clear the Defendant intended to and expressed to the Plaintiff its intention to use this milk to make and continue selling a product labelled “Omega3 Cheese” (see Exhibit 1 to Mr. Lanzino’s cross-examination transcript) given the Defendant’s belief there was a growing market for this product. Unfortunately, for the Defendant, its ability to label its product is subject to Canadian Food Inspection Agency (“CFIA”) review and by late July 2012 CFIA had begun to review the Defendant’s product labelling and required changes. This resulted in reduced sales and, presumably reduced profitability for the defendant. Mr. Lanzino testified in his cross-examination of a drop in sales from about $45 million to $30 million (questions 18-20). However, the defendant continued to accept the milk and incur the related expense, with the Plaintiff submitting a series of invoices between October 18, 2013 and April 11, 2014 totalling $198,414.45. For reasons detailed below, it is important to note that the Defendant made two $30,000 payments in January and February 2014, which results in the net claim of $138,414.45. Defence counsel advised during submissions that there is no issue as to the quantum claimed.

[4] The action was commenced by the Plaintiff on May 6, 2014 and defended with leave on consent for the defendant to amend its defence to add a counterclaim as of July 15, 2014. As part of the Plaintiff’s submissions, it raised a Limitations Act defence to the counterclaim, noting the amended pleading was not completed until July 30, 2014. While this decision does not require a conclusion on this issue, it is noted in the decision Philippine/Filipino Centre of Toronto v. Portugal, 2010 ONSC 956 (Div. Ct.) the date of filing prevails, and the claim is therefore within two years.

[5] The counterclaim seeks damages in the amount of $500,000.00 for “fraudulent and/or negligent misrepresentation, fraud, deceit, fraudulent concealment, and/or breach of contract.” The Plaintiff seeks dismissal of the counterclaim as part of its motion for summary judgment.

[6] The key aspects of the evidence are as follows:

a. The terms of the License Agreement do not include any indication the Plaintiff was representing or had any specific knowledge about how the milk was to be used (specifically made and sold as Omega3 Cheese) and whether that was possible. As already referenced, clause 8.6 indicated the contrary.

b. Mr. Lanzino, as Chief Executive Officer of Silani Sweet Cheese Ltd. admitted on cross-examination that while he believed the Plaintiff’s technology permitted his company to (actually, continue to) make and sell “Omega3 Cheese” the Plaintiff did not make any such representation (question 182).

c. The failure by the Defendant to raise its claim of fraudulent misrepresentation promptly after being advised by CFIA that changes were required to its labelling and, in fact, not doing so until after the action for non-payment had been commenced, suggests it did not believe or rely on any such representation by the Plaintiff.

d. The absence of any evidence that the Plaintiff through its key employees (being the General Manager, James McCurley and the President, Dr. Mahmoud Eino) had any specialized knowledge of what the CFIA would permit or not permit on cheese product labels.

e. The contrary evidence that the defendant’s reaction to the CFIA intervention was initially directed toward altering its labelling rather than raising any issue with the plaintiff’s representations.

f. The evidence that the Defendant’s initial reaction to the Plaintiff’s request for payment of outstanding invoices was to describe cash flow issues (see the email chains of November 26-27, 2013 contained in Exhibit I of Mr. McCurley’s Affidavit as well as comment about payment being “back on track.”)

g. Similarly, the absence of any concern or allegation against the Plaintiff when the $30,000 payments were made in February and March 2014.

Analysis

[7] The law subsequent to Hryniak v. Mauldin, [2014] S.C.R. 87 is clear and does not require repeating. Counsel for the parties agreed the summary provided by Justice Corbett in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 paragraphs 32-34 accurately summarizes the test which includes the Court assuming “that the parties have placed before it, in some form, all of the evidence that will be available for trial” (para. 33). The milk was provided and presumably used to make cheese but payment has not yet been made in accord with the Agreement. As a result, I would allow the Plaintiff’s motion with respect to its claim for $138,414.48 plus prejudgment interest in the amount of $931.32.

[8] The second part of the Plaintiff’s motion to dismiss the counterclaim requires a separate analysis. The key aspect is the distinction between the Defendant’s allegation the Plaintiff has kept hidden information it has rather than proof of any such information. Briefly, the Defendant alleges the Plaintiff had knowledge of CFIA regulations and that the Plaintiff knew it could not make cheese out of the milk that was being supplied which could be sold as “Omega3 Cheese.” However, there is no evidence of same. Counsel for the Defendant asks an adverse inference be drawn from the absence of evidence from the Plaintiff’s own President, Dr. Eino, but the Court prefers to rely on the Defendant’s failure to make indirect inquiries about Dr. Eino’s knowledge, information or belief through the representative of the Plaintiff it deposed, James McCurley, or to obtain some evidence in this regard from other sources. Further, the Defendant had other individuals at the meetings where the License Agreement was negotiated and offered no evidence from them.

[9] Counsel for the Defendant raises in support of the Defendant’s position the argument of misrepresentation by omission and cites a variety of cases where the party, who could be analogized to a tortfeasor, failed to provide all of the information it knew and should have provided to the injured party. For example, in the Engage Agro Corp v. Brewer, 2013 ONSC 3132 decision, the Defendant bank had failed to advise the claimant it had required the company the Plaintiff invested in to operate under a bank appointed manager as a result of non-payment of loans extended to the company by the bank. The situation at hand is far different. The Defendant is alleging the Plaintiff somehow knew it could not label and sell its “Omega3 Cheese” (as it had been doing before the CFIA intervened) but has no proof of same. It relies on its allegation and the Plaintiff’s denial to raise a triable issue. In my view, this is an attempt to use the weakness of its case as the basis for it being permitted to proceed to trial. I return to the Court assuming parties will place before it, in some form, all of the evidence that will be available for trial in a motion for summary judgment and the Defendant failing to do so.

[10] Moreover, counsel for the Defendant advised at the conclusion of his submissions that it would be inconsistent for me to allow judgment in the main action and yet let the counterclaim proceed. As a result and for the reasons stated, I find in favour of the Plaintiff and conclude the counterclaim fails and must also be dismissed.

Costs

[11] Counsel for the Defendant submitted a costs outline of $22,503.07 for partial indemnity while counsel for the Plaintiff advised his outline, through inadvertence, was not available. I received this material under cover of letter February 2, 2015, reviewed same and placed it in the file. I note the costs outline submitted is somewhat higher. In open court, counsel for the Plaintiff advised his costs outline reflected a claim for about $25,000, all inclusive. Counsel for the Defendant advised some reduction should be made if costs are to be awarded to the Plaintiff given this matter did not proceed in November 2014 when counsel for the Plaintiff failed to file the required Confirmation Form. In consideration of same, I have fixed costs at $22,500, inclusive of fees, HST and disbursements on a partial indemnity basis payable by the Defendant to the Plaintiff.

Mr. Justice G. Dow

Date: March 12, 2015