2249659 Ontario Ltd. v. Sparkasse Siegen, 2016 ONSC 2066

CITATION: 2249659 Ontario Ltd. v. Sparkasse Siegen, 2016 ONSC 2066

COURT FILE NO.: CV-10-411470

DATE: 20160429

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2249659 Ontario Ltd. and Rohwedder Canada Inc.

Plaintiffs

– and –

Sparkasse Siegen and Thomas Magnete GmbH

Defendants

James Renihan and Christine Muir, for the Plaintiffs

Evan L. Tingley, for the Defendant Sparkasse Siegen

P.A. Neena Gupta and Katherine Metcalfe, for the Defendant Thomas Magnete GmbH

HEARD: February 22, 23, 24, 25 and 29, 2016 and March 1, 2016

REASONS FOR JUDGMENT

S. F. DUNPHY, J.

[1] When the financial crisis exploded in 2008, few sectors were hit as hard and as deeply as the North American auto sector. This case concerns the fall-out of that crisis among two upstream suppliers whose arrangements with each other had failed to anticipate the insolvency of a major parts manufacturer. Hindsight is always 20:20, but provides no principled basis from which to imply tort obligations where the parties had the opportunity to create their own contractual arrangements but failed to do so.

[2] I have found the comfort letter upon which the plaintiff has based its claim of negligent misrepresentation to be clear and honest even if the pretext under which it was requested was misleading and the claim of a subsequent express agreement to be entirely without merit.

Overview

[3] In 2006 or early 2007, Chrysler partnered with a German manufacturer named Getrag to design and build the transmissions needed for a “next generation” platform. Their partnership came apart in October 2008, resulting in the cancellation of the orders given by Getrag to the various suppliers who had been subcontracted to supply needed parts.

[4] The plaintiff Rohwedder Canada Inc. (“RCI”) originally accepted a purchase order from the defendant Thomas Magnete GmbH (“TM Germany”) to build the three custom-designed and highly automated assembly lines designed to supply three components for the project. In December 2007, the plaintiff agreed to substitute the original purchase order with a replacement purchase order from an affiliated Canadian company, Thomas Magnete Canada Inc. (“TM Canada”). TM Canada was intended to be the Canadian manufacturer for whom that would fulfill the order. Thereafter, TM Canada became the plaintiff’s customer. The project financing had been arranged at the TM Canada level and TM Canada was intended to be the entity that actually produced the parts.

[5] Prior to finalizing the transfer of the purchase order, the plaintiff asked for a letter from TM Germany stating that “in case of illiquidity” of TM Canada, TM Germany “would assume the project completion and any outstanding payments” to RCI. The plaintiff said that it needed the letter for its own bank. The plaintiff’s request was based on a false pretext: the plaintiff’s bank had made no such demand.

[6] TM Germany arranged to provide a comfort letter from TM Canada’s bank (the defendant Sparkasse Siegen or “Sparkasse”) confirming the existence of adequate project financing to complete the project. The letter also noted TM Germany’s guarantee of the project financing to Sparkasse. Both statements made in the Sparkasse letter were true. TM Germany did not provide a letter of its own.

[7] RCI was satisfied with the Sparkasse letter it received and raised no objection. It accepted the substitute purchase order of TM Canada and issued invoices and received payments thereafter from TM Canada. Unfortunately, less than a year later the entire project was cancelled by Getrag after its partnership with Chrysler came apart. Instead of making good on its obligation to indemnify TM Canada for the start-up costs incurred, Getrag’s United States subsidiary filed for bankruptcy shortly thereafter. Despite the cancellation of the underlying project, Sparkasse nevertheless allowed one further payment to be released to the plaintiff (for just under $2 million). TM Canada finally halted further work on December 4, 2008 while exploring alternatives. Sparkasse permitted no further payments until a viable alternative business plan could be found and put in place. This did not occur and demand on the loan was ultimately made in June 2009.

[8] RCI claims to be owed approximately $1.418 million being the final payment installment for a project that was over 90% complete when work was halted. It claims that TM Germany and Sparkasse are liable to it for negligent misrepresentation for having failed to disclose in the Sparkasse letter all of the conditions attaching to the financing that Sparkasse was providing to TM Canada. It also claims against TM Germany alone on the theory that it independently agreed to re-purchase the partially completed assembly lines and become liable for the remaining amounts due in the course of a meeting held on January 28, 2009.

[9] For the reasons that follow, I have rejected both claims of the plaintiff.

Background Facts

(i) first purchase order with TM Germany

[10] In 2006 or early 2007, Chrysler awarded a major ($500 million +) contract for design and construction of a state-of-the-art automobile transmission destined for a new automobile platform. The builder was to be Getrag Transmission Manufacturing LLC, a United States subsidiary of Getrag Germany, a major transmission manufacturer. New platforms are a very big affair in the automobile manufacturing world. This is where there is an opportunity to redesign products from the ground up and introduce forward leaps in technology and efficiency.

[11] The defendant TM Germany is a family-owned, private German company based in Herdorf, Germany. It is part of a related group of companies that I will call the “Thomas Group”. Sparkasse is a regional bank located in Siegen, Germany and has long provided banking services to the Thomas Group of companies.

[12] At the time, the Getrag group of companies was one of the biggest and most important customers of TM Germany. In late 2006 or early 2007, Getrag asked TM Germany to take on the job of manufacturing three valves needed for the transmissions to be built for the Chrysler project. The parts needed to be manufactured within the NAFTA region. A group within TM Germany was formed to scout possible locations.

[13] Ontario was very interested in attracting as much of this new business as possible. A delegation of various government and business dignitaries including Mr. Dietrich Thomas of the Thomas Group came to visit the Markham, Ontario facilities of the plaintiff RCI in the early spring of 2007 to explore possibilities. There Mr. Thomas met the President of RCI, Mr. Mellema. Mr. Mellema delegated the job of negotiating a purchase order to RCI’s sales manager, Mr. Osim.

[14] The plaintiff RCI was then an indirect subsidiary of a German public company known as Rohwedder A.G. It was in the business of designing and building sophisticated automated assembly lines of the sort that would be needed for this project. TM Germany was not the only subcontractor RCI was dealing with in regards to the new Chrysler platform project – it also had contracts with Borg Warner and Bosch, both large parts manufacturers. Indeed, RCI considered TM Germany to be only a “Tier 3” manufacturer.

[15] Shortly after this visit, TM Germany chose Ontario as the location for the new manufacturing facility. A location in Cambridge, Ontario was selected. The project was, at least initially, on a relatively fast track. There was much to do since the goal was to be up and running by May 2008.

[16] The German side of the Thomas Group business was organized under a holding company known as Thomas Holdings Deutschland GmbH. TM Germany is a subsidiary of Thomas Deutschland. All of the international operations of the Thomas Group are under a sister company known as Thomas Holdings International GmbH. Both Thomas Deutschland and Thomas International have the same parent company however.

[17] Thomas International owns the international holdings of the Thomas Group in various countries including Russia, Korea and the United States among others. On July 11, 2007, Thomas International incorporated TM Canada as a wholly-owned subsidiary. The purpose of incorporating TM Canada was to carry on the Canadian manufacturing initiative for the Getrag/Chrysler project.

[18] Among other things, TM Germany’s role within the Thomas Group was to provide technical support to other affiliates including arranging for purchasing of all that they needed (facilities, equipment, etc.) through its purchasing group and negotiating financing through its finance group. At the relevant time, Mr. Himmelman was responsible for the purchasing group inside TM Germany while Mr. Gudelius was responsible for its finance group. Both testified at this trial, the former by way of video conference as he is no longer an employee of the Thomas Group. Mr. Himmelman’s purchasing group included Mr. Meyer and Mr. Haubrich, both of whom played a role in some of the events.

[19] While TM Canada was being organized, TM Germany was busy arranging for the purchase of the assembly line from RCI and for the project financing needed from its bank, Sparkasse. Ms. Mueller, who testified at the trial on behalf of Sparkasse, was the relationship manager in charge of the file for Sparkasse.

[20] Negotiations between RCI and TM Germany for the design and construction of the needed assembly lines continued through August 2007. These were conducted primarily between Mr. Osim (sales manager at RCI) and Mr. Meyer (a member of Mr. Himmelman’s purchasing department at TM Germany). Agreement was reached on a TM Germany purchase order dated September 7, 2007 for the purchase of the three required assembly lines at a total purchase price of $6,750,000. This first purchase order was accepted and signed back by Mr. Osim on behalf of RCI on September 12, 2007.

[21] The accepted purchase order contained the following payment terms:

“10% after confirmation by Rohwedder – with bank guarantee

20% after design freeze – with bank guarantee

50% after acceptance at Rohwedder Canada

20% after final acceptance at Thomas Magnete Canada”.

[22] The meaning of these payment terms attracted no serious dispute at trial and warrants explanation.

[23] The first milestone – confirmation by Rohwedder – was obvious enough. The purchase order was issued by TM Germany. As soon as it was formally accepted by RCI it was confirmed and TM Germany had an obligation to make the 10% “up front” payment in advance of delivery of the goods being purchased. The obligation to make this payment, however, was made subject to the furnishing by RCI of a bank guarantee. This was to secure RCI`s obligation to refund the payment in the event RCI failed to deliver as promised.

[24] The second 20% milestone was payable by the purchaser at “design freeze”. This was explained by Mr. Mellema, the president of RCI, as being the point where the engineering design of the project is agreed with the client and “frozen”. Again, this payment required posting by RCI of a bank guarantee to secure its refund should RCI fail to deliver.

[25] The third milestone payment was due at “acceptance at Rohwedder Canada”. Mr. Mellema explained that this step – referred to by the parties as “FAT” or “factory acceptance testing” – is where the three assembly lines are first completed at RCI’s own factory and demonstrated to be running and operational subject to noted deficiencies relative to specifications while still at the factory.

[26] Finally, the last installment was after “final acceptance” at TM Canada’s facility. This stage is called “SAT” or “site acceptance testing”. This is the last stage of delivery where the lines are disassembled from RCI’s factory in Markham, shipped to their final destination at TM Canada in Cambridge, reassembled and put through a series of tests to ensure that they will perform as required and to the contractual specifications. This last step had not occurred when work was halted on December 4, 2008. None of the three lines has ever performed to the contractual specifications of speed and accuracy. This case concerns the last milestone payment that would have been due had this final test been successfully performed for each of the three lines.

[27] The purchase order contained a number of milestones, expressed in terms of calendar week or “CW”. Design and review was to be completed by CW48 in 2007, FAT was to be accomplished by CW 15 in 2008 with SAT scheduled by May 14, 2008. There were penalties stipulated of up to 5% of the purchase price for delay. It is not disputed that RCI had missed these milestones – design freeze did not occur until early 2008 and, although a three month delay imposed by Getrag later in January could not be charged to RCI, the project was many months behind schedule when work was finally stopped in December 2008 with SAT still several weeks away. The 5% penalty to which RCI was potentially liable was thus $337,500.

[28] The original timetable was described by some witnesses as tight and that description appeared apt to me from the evidence of all of the witnesses.

(ii) initial organization of TM Canada

[29] After the TM Germany purchase order was accepted by RCI on September 12, 2007, TM Canada continued the job of getting organized. Two senior employees of TM Germany (Mr. Himmelman and Mr. Gudelius) were formally appointed as proxies for TM Canada on September 12, 2007.

[30] TM Canada began putting its project financing in place at this time as well, setting up a €3 million facility with Sparkasse guaranteed by various members of the Thomas Group including TM Germany. TM Canada also set up its operating bank account with Toronto-Dominion Bank in Canada on September 18, 2007.

[31] Effective October 1, 2007, TM Canada hired Mr. Ed Niewinski, a technical engineer, as its Chief Operating Officer and the first employee of the Canadian company. Mr. Niewinski set about the task of putting together a management team for TM Canada on site in Cambridge in order to be able to start production on schedule.

[32] On October 8, 2007, RCI provided TM Germany with the initial bank guarantee required to receive the 10% up-front payment. This done, an invoice in the amount of $675,000 plus GST (total $715,500) was sent that day to TM Germany for payment within thirty days. This invoice was paid by TM Germany by wire transfer on November 8, 2007.

[33] Between October 11, 2007 and November 20, 2007, TM Canada continued to put the remainder of its project financing in place. The details of the evolution of that process are of less importance than the finished product and the time it took to be finished.

[34] When the dust settled, there were two financing facilities: a €7 million facility that was administered by Sparkasse but funded by Kreditanstalt fur Wiederaufbau (or “KfW”, a German government-owned development bank) and the €3 million facility offered and administered by Sparkasse. TM Germany, Thomas Deutschland and Thomas International each provided a “surety bond” guaranteeing the €7 million KfW facility on November 9, 2007. The surety bonds were replaced with a more conventional form of guarantee in favour of Sparkasse of all of the obligations of TM Canada in January, 2008. There was no material difference between the two documents relevant to this case.

[35] As the amount of financing provided suggests, the scope of the project financed was not restricted to the three assembly lines being manufactured by RCI, although that was clearly a large component. The factory building had to be leased and renovated to the required specifications and other equipment and inventory purchased to enable the commencement of production. RCI’s component was important, but was by no means the entire project.

[36] The KfW portion of the loan was advanced in a single tranche in November 2007 that was deposited with Sparkasse but placed into an account in the name of TM Canada. The loan agreement provided that the funds could only be released according to the financing plan for the project. The lender had the right to terminate the loan at any time for an “important reason” defined to include “a significant deterioration in the asset situation of the end borrower or the intrinsic value of a security provided occurs or is at risk of occurring and, as a result, the repayment of the loan is at risk even if the securities are realized”. This clause appears to be quite similar to a material adverse change clause of the sort that is common in Canadian lending agreements.

[37] TM Canada’s accounts at Sparkasse were subject to a “Pledge of Balance” agreement dated November 20, 2007 granting Sparkasse a lien on the full balance in the account. As well, a security agreement granting Sparkasse a lien on the three assembly lines being purchased from RCI was delivered at the same time. The purchase order by which the three assembly lines were being purchased granted the plaintiff a purchase-money security interest in the assembly lines as well since title was reserved to the vendor until payment in full was received.

(iii) transfer of the purchase order to TM Canada

[38] In late November, Mr. Himmelman of TM Germany visited Canada and paid a call on Mr. Mellema at RCI. He mentioned to Mr. Mellema that TM Germany would be looking to move the purchase order from TM Germany to TM Canada. Mr. Mellema responded that they “would talk about it when it came up”. It was a brief encounter only.

[39] At this point, one of the first controversial questions arises. Was the transfer of the purchase order first broached in late November 2007 or had it been in the air before then? In my view, nothing in particular turns on the question. Until the financing of TM Canada was in place, it would have been a quite academic discussion. That did not come together until late November 2007.

[40] That being said, Mr. Osim and Mr. Meyer were in frequent communication about the project and were the parties who negotiated the purchase order on behalf of their respective organizations. Mr. Osim testified that he was aware that this request would be coming for some time but paid little attention to it because it was not “official”. He well understood that it would be needed for tax reasons and knew generally what those tax reasons were.

[41] I find that RCI fully expected to receive the request to transfer the purchase order that was formally made in December 2007 and that the matter had been discussed between them, at Mr. Osim’s level at least, and very likely from the earliest days of their negotiations. The matter was not viewed as controversial by either party.

[42] From the Thomas Group’s point of view, international operations would normally be undertaken within the Thomas Group by separate subsidiaries under Thomas International. There are a number of quite normal and legitimate tax planning reasons that favour foreign operations being placed into separate subsidiaries and this is very common. Dealing with GST, for example, is greatly simplified if the equipment purchaser is also the entity deriving sales revenue from it.

[43] TM Canada was not ready to issue the purchase order on its own in early September 2007. It did not then have its management team in place and had no project financing. The project was on a tight timeline and the parties needed to get the engineering and procuring work on the RCI assembly lines underway quickly. TM Germany therefore issued the purchase order itself and made the required first milestone payment. Once TM Canada was on its feet and had its initial complement of employees and financing in place, it would be a logical time to normalize matters and move the project formally into TM Canada. These elements came together in late November.

[44] From RCI’s point of view, the matter of replacing the purchase order was not a particularly momentous one. Mr. Osim was expecting the request from his frequent interactions with Mr. Meyer and fully understood the reasons. I find it likely that this subject came up during the negotiation of the TM Germany purchase order in the August/September timeframe.

[45] At no point in the negotiation process had RCI treated solvency risk of TM Canada as a very high or even important consideration. RCI considered there to be little solvency risk since it always expected to be able to rely on Getrag as the ultimate commercial source of its security. Neither of the parties gave any thought at all to the possibility or consequences of a Getrag or Chrysler bankruptcy. Mr. Osim had no particular reason to signal any potential resistance of RCI to a transfer of the purchase order to TM Canada when TM Germany was ready to request it provided the underlying project was moving forward and fully financed.

[46] If the plaintiff claims today to have been doubtful in 2007 of the wisdom of entering into a contract with a “start-up”, it did not have much better reason to have entered into the original agreement with TM Germany either. TM Germany was then a company that it had no prior history with, one it characterized as a “Tier 3” supplier and upon whom it had performed no financial due diligence whatsoever. Mr. Mellema downplayed the importance of any recommendation from his own German parent company in recommending them. If the Thomas Group appeared to be substantial, RCI had no basis to believe that TM Germany itself – one private company within a larger private company structure – had any material assets of its own given its entire lack of due diligence. There had been no verification of financial statements.

[47] This relative insouciance of RCI regarding TM Germany reflects what I find to have been the common understanding of the underlying commercial reality of the relationship. RCI clearly knew and understood that the start-up costs incurred by the subcontractor were subject to an indemnity from the project sponsor (Getrag) whose standing as a “Tier One” supplier it was already quite comfortable with. Its own contract had cancellation provisions that meshed with those indemnity obligations and it had years of experience in the industry. It assisted TM Canada in making its indemnity claim when the need arose and readily co-operated in putting production on hold when Getrag demanded it.

[48] I do not accept the testimony of Mr. Mellema or Mr. Osim on the credit concerns they claim to have had in 2007. Mr. Mellema’s actions at the time carry much more weight than the motives he attributes to himself in hindsight, particularly given his material interest in this law suit[^1]. The underlying project, sponsored by “Tier One” suppliers with whom RCI was comfortable, was the more important consideration. I find that RCI’s level of confidence in TM Germany or TM Canada derived primarily from the Getrag subcontract awarded as part of the Chrysler project – that subcontract was ultimately placed with TM Canada.

[49] Further, the payments provided for under the contract were phased such that nothing was released to the customer until 80% of the purchase price had been paid. Under its own internal budgeting for the project, that amount would cover its direct costs of labour and materials. Even those figures overstate the credit exposure of RCI since the budget model itself valued the labour cost component on a “fully loaded” pro forma blended value of $80 per hour as compared to actual direct costs of between $30 and $50 per hour that it recorded in its own internal costing documents.

[50] RCI never demanded any guarantees from TM Germany or its parent company. It is quite clear that the greater credit risk was being assumed by the purchaser who would potentially be paying up to 80% of the final price before anything at all was delivered to its own hands. RCI as vendor of a critical component in a time-sensitive project with large sponsors would be in a strong tactical position to ensure that it was paid come what may. The same could not be said for the purchaser if RCI were to default prior to delivery with 80% of the purchase price already paid.

[51] While I find that RCI “expected” the request to transfer the purchase order down to TM Canada would be made and had given TM Germany no reason to believe that it would be unfavourably received, it would be a stretch to conclude that RCI had actually agreed to the transfer in advance unconditionally. The impression Mr. Osim gave was that this question was a bridge to be crossed when they came to it, but a routine one. The relationship between the two companies was working well. That, in my view, is about as far as the issue can or need be taken.

[52] The formal request for a transfer came on December 17, 2007 when Mr. Meyer sent the replacement purchase order issued by TM Canada to Mr. Osim. The email that accompanied it said simply:

“Please find attached our PO 18658 TM Canada from [2]007-12-15. This order will replace PO 18658 from 2007-09-07. The original we will send by Fedex tomorrow. Please send me a copy back, confirmed and original signed by Fedex too.” (emphasis added)

[53] Mr. Osim was not at all surprised to get this request. He forwarded it to Mr. Mellema saying simply “Thomas Magnete has moved the PO from TM GmbH to TM Canada Inc. Are there any clerical issues since we have invoiced them already 10%” (emphasis added).

[54] The tenor of these two emails confirms the findings I have made about the dealings between the parties on this subject before December 17, 2007. Mr. Meyer was not asking permission for the transfer to TM Canada. His email effectively assumed that it was a non-issue. Mr. Osim appears to have taken the same view. He simply reported the fact that it had been moved and asked only if there were any clerical issues. This confirms the expectation of both that the transfer was something that was always intended and a matter of routine.

[55] Mr. Osim forwarded the email to Mr. Mellema at 9:35am on December 17, 2007. Mr. Mellema was out of the office. At 10:19, Mr. Mellema briefly responded: “We need a guarantee from Thomas Germany”.

[56] Both Mr. Osim and Mr. Mellema testified as to the discussions that followed shortly thereafter between the two of them. I attach little weight to their current recollections of those discussions and prefer the contemporary written record they left behind as being much more reliable.

[57] What the written record confirms is that Mr. Mellema’s first reaction was to suggest that a guarantee was needed on December 17, 2007 and that RCI (via Mr. Osim) sent a response two days later that did not ask for one. I cannot say what would have happened if they had. Mr. Himmelman – who was not involved in finance or the handling of this request – speculated that the request would have appeared “normal” to TM Germany. It may well have, but it was never made.

[58] RCI may have felt that their lack of prior objection to the transfer would have made it difficult to appear to be making new demands at this point. They may have wanted to avoid offending a new customer and a potentially useful relationship between two German groups of companies. They may have been looking to acquire some goodwill to avoid the imposition of late penalties given the tight timelines and the fact that the design-freeze milestone was already on the verge of being missed. There may be any number of reasons why a guarantee was not requested. Speculation can supply these and many other commercially reasonable explanations. I am not required to decide why they did what they did. I do conclude that the idea of asking for a guarantee came up internally and was not acted upon after a reflection period of two days. While Mr. Mellema may have hoped that TM Germany would “take the hint” that Mr. Osim dropped and offer a guarantee, I find that he well knew that RCI had not in fact asked for one.

[59] Instead of asking for a guarantee, Mr. Osim drafted this oddly-worded reply on December 19, 2007:

“Following our conversation today, I would just like to summarize the discussion.

Since we are transferring the PO from Thomas Magnete GmbH to Thomas Magnete Canada Inc. we would need a letter from TM GmbH that, in case of illiquidity of TMC Inc., TM GmbH would assume the project completion and any outstanding payments to Rohwedder Canada Inc. This request came to me from our Controller who was informed about this requirement from our Bank.” (emphasis added)

[60] Mr. Osim admitted that the comment in his email about the Controller receiving a request from RCI’s bank was pure invention on his part. RCI’s bank had nothing to do with this request.

[61] There is no suggestion on the evidence that Mr. Osim was acting without approval. The text of his email was clearly the product of some care on his part. Mr. Mellema, the company president, did not in any way seek to disavow it then or now.

[62] The email as sent references a telephone conversation that Mr. Osim had with Mr. Meyer shortly beforehand. I attach no weight to Mr. Osim’s attempt to reconstruct that phone conversation this many years after the fact. In particular, I cannot find that he mentioned the word “guarantee” to Mr. Meyer at all. Mr. Osim was able to recall little of these matters in 2011 when he was first asked in an email to reconstruct the events and I cannot accept that his memory has recovered the level of detail that he was able to supply when he testified in 2016.

[63] Mr. Meyer forwarded Mr. Osim’s request for a letter to Mr. Gudelius who was responsible for financing a few minutes after receiving it. Mr. Meyer’s email to Mr. Gudelius simply asked him to take care of it directly. The subject-matter appeared to be finance and that was not his departmental responsibility. If Mr. Meyer had received any additional information relating to this in his earlier call from Mr. Osim, including an oral request for a guarantee not contained in writing, he would have referenced it in his email to Mr. Gudelius or attached some additional explanation. Clearly he thought the matter self-explanatory as is and something for Mr. Gudelius’ finance department to handle.

[64] Mr. Gudelius received the forwarded request from Mr. Meyer and in turn forwarded it to Sparkasse where it soon came to Ms. Mueller’s attention as the relationship manager for the Thomas Group and head of the corporate section at Sparkasse. Both Ms. Mueller and Mr. Gudelius testified at trial. I found them to be credible. One thing on which they both concurred is that this request from RCI looked quite similar to a request they had dealt with from another Canadian supplier of TM Canada only a few days earlier and they assumed a similar response was appropriate.

[65] On November 29, 2007, the general contractor working on outfitting the new factory site for TM Canada told Mr. Niewinski that he needed to do a credit check on TM Canada. Mr. Niewinski passed this information on to Mr. Gudelius saying that the contractor would like “a letter of confirmation from the lender stating that funds are in place”, adding “this is standard practice in Canada”.

[66] Mr. Gudelius put Mr. Niewinski in touch with Sparkasse as the provider of the project financing. Ms. Mueller sent him a letter on December 3, 2007 entitled “Confirmation of Project Funding” stating that “the project of setting up a new production site by our client Thomas Magnete Group in Cambridge/Ontario is financially accompanied by Sparkasse Siegen” and that “we confirm that – in line with the project plan – the necessary funds for building and renovation expenses in favour of Thomas Magnete Canada Inc. are in place”. She explained that this type of comfort letter was something she was familiar with at Sparkasse and had sent similar letters for other clients many times. She also testified – and a review of the text confirms – that this December 3, 2007 letter was the template for the response dated December 21, 2007 that was subsequently sent to RCI.

[67] Both Mr. Gudelius and Ms. Mueller considered the email request from RCI to be of a kind with the one passed along earlier by Mr. Niewinski – a simple credit check. Mr. Gudelius was happy to pass it on to Ms. Mueller who had the greater experience in such things.

[68] Ms. Mueller sent a letter addressed to RCI back to Mr. Gudelius on December 21. The latter was crafted based on the earlier response to the general contractor. It was a Friday afternoon and he did not return to the office in time that day to deal with it. He saw the letter on Monday morning (December 24) and promptly attached it to an email and sent it to Mr. Osim. His cover email of December 24, 2007 simply said “[e]nclosed you’ll find a confirmation of our bank. I hope it will help you and your Controller to have a better feeling”.

[69] The attached December 21, 2007 letter from Sparkasse attached was short. It was just three sentences long:

“[t]he project of setting up a new production site by our client Thomas Magnete Group in Cambridge/Ontario is financially supported by Sparkasse Siegen.

We hereby confirm that – in line with the project plan – the necessary funds including expenses for the purchase of production lines and machinery are in place.

Thomas Magnete GmbH, Herdorf, provided a guarantee in our favour regarding the project’s financing scheme, thus accepting financial liability for the project”.

[70] The first two sentences are a near exact copy of the letter sent to Mr. Niewinski for the general contractor on December 3, 2007. The suggestion by the plaintiff that very minor differences in form reflect some deeper intention to mislead RCI is not a fair or reasonable inference, particularly considering that Mr. Gudelius and Ms. Mueller habitually conduct business in German and not in English. I find the letter to have been a sincere and genuine attempt to craft a response that would be meaningful for RCI’s bank – the party allegedly requesting it.

[71] Mr. Osim received this letter as soon as he came into the office in the morning and responded immediately. He asked no further questions. He did not ask why he was not receiving a letter from TM Germany as originally requested in his email. He did not question why the letter failed to provide the assurance in the terms originally requested. He sought no clarification on any points at all. He simply wrote “thank you very much for your fast response” and promised to put the signed purchase order in Mr. Himmelman’s hands when he came to visit in January, offering to send it by Fed Ex immediately if the need was urgent. It was not.

[72] Mr. Osim clearly felt no need to consult his boss Mr. Mellema prior to signaling RCI’s thanks for the swift response and undertaking to send the new, accepted purchase order.

[73] Mr. Osim and Mr. Mellema both testified in 2016 as to their impressions regarding an email received on Christmas Eve in 2007. I did not find the testimony of either on this subject to be reliable or useful.

[74] Mr. Osim signed the new purchase order with TM Canada on January 10, 2008 (the signature is dated “January 10, 2007” but all agree it was simply misdated and should have read 2008). The order indicated: “This Order will replace PO EB018658 dated from 2007-09-17” and directs all correspondence in relation to it to be sent to Mr. Ed Niewinski at TM Canada’s Cambridge address.

[75] With that signature, TM Canada became the purchaser and RCI ceased to have a direct contractual relationship with TM Germany of any kind. Thereafter, RCI rendered its invoices to TM Canada and received all of its payments from TM Canada.

[76] The suggestion that there was an intention at this early stage to build some kind of solvency firewall between TM Germany and TM Canada enabling TM Germany to walk away from TM Canada and hide that fact from RCI is simply not credible. This was a very minor incident in the complex process of getting TM Canada on its feet. None of the parties had turned their minds to the eventuality of the underlying project being abandoned by Chrysler and Getrag leaving the indemnity obligation in respect of start-up costs unsatisfied, still less to the possibility of one or both of these “major” players becoming insolvent.

[77] There was no intent to “cut and run” or to mislead RCI in any way in December 2007. The project finance having been put in place at TM Canada level, TM Canada was the logical purchaser. While even Mr. Himmelman thought that a discussion of a guarantee from TM Germany would have been “normal” at this stage, RCI itself did not raise the question and it was not TM Germany’s job to offer up security it was not asked to provide. Mr. Himmelman was not in the finance group and was not involved in the discussions at this point in any event. Hindsight has a way of attaching more importance to an event than the parties themselves did at the time – neither party had given any consideration to a bankruptcy of Getrag and the transfer of the purchase order was a very minor, routine event.

(iv) initial project delay

[78] On January 15, 2008, Getrag told its contractors to put the project on hold due to a dispute that had arisen in its relationship with Chrysler. RCI was advised of this by Mr. Meyer on January 16, 2008 in an email that said: “Yesterday we received the information from our customer GTC (Getrag), that they will put our common project on status “hold” for the next four months” (emphasis added). The email asked RCI “as chosen supplier” to stop activities that cause further expense, apologized for the inconvenience and concluded “we are sure that there is a high chance that Getrag and Chrysler come to a conclusion”. RCI was also aware of this from other sources since they had other clients involved in the Chrysler project that were similarly affected.

[79] I have highlighted the phrase “common project” in this email because it is consistent with what the project truly was – a “common project” of two relatively small suppliers dealing with a much larger supplier upon whom they both relied.

[80] This was viewed as a somewhat worrisome development. As Mr. Mellema put it, normally the manufacturers want to get to market as fast as possible once they decide to launch a new platform. While the development was somewhat worrisome, it was not more than that. The project was not in fact cancelled but only delayed. Indeed, RCI rendered its invoice for the second milestone (20% at “design freeze”) three days later (on January 18, 2008) and was promptly paid by TM Canada on January 29, 2008.

[81] On April 11, 2008, the project was restarted. Instead of an anticipated delay of four months, the delay had been less than three. RCI felt that some modifications to the payment arrangements were called for due to the delay. Mr. Mellema and Mr. Himmelman negotiated an arrangement to compensate RCI. TM Canada agreed to make a very substantial early payment. On May 1, 2008, RCI invoiced TM Canada for $500,000 plus GST as an advance against the third FAT milestone payment. This was swiftly paid by TM Canada on May 15, 2008. A further invoice for $1,000,000 plus GST was sent on July 3, 2008, and this too was paid swiftly by TM Canada on July 9, 2008. FAT did not in fact occur on the third of the lines until November 5, 2008.

(v) completion of third milestone (FAT) and project cancellation by Getrag

[82] A number of change orders, known as “CORs” (for “change order requests”) had been brought forward in the usual course and agreed upon by the parties in the first half of 2008. Both parties considered CORs to be routine with contracts of this sort. The parties had generally managed to meet and “sign off” on these change orders as they arose. Some represented credits for project modifications that saved expense; others represented debits for increased costs caused by the client asking for design changes.

[83] Most if not all of the day-to-day discussions about CORs took place between Mr. Haubrich, an engineer in Mr. Himmelman’s purchasing department at TM Germany, and the project manager at RCI (Mr. Chen and later Mr. Robertson). Delegating this kind of technical work to experts in an affiliated company within a corporate group is not at all unusual and was a source of no confusion to either party. Mr. Niewinski, the Chief Operating Officer at TM Canada is an engineer by training. His approval was required for final sign off by TM Canada. He is copied on most of the email traffic even if Mr. Haubrich “took the lead” on these discussions.

[84] As the project got closer to “FAT” or “factory acceptance test” in September and October 2008, communications about open CORs became more frequent and the backlog of CORs began to grow. Mr Robertson (who returned as the project manager for RCI in September 2008) testified that there was nothing unusual about this. Ideally, CORs are quoted and approved before the work is done. This is not always possible and sometimes there is a lag. So it was in this case.

[85] By mid-October 2008, the project was almost ready for FAT and the completion of the third milestone. The project was well behind schedule. RCI was in almost daily contact with TM Canada and engineers at TM Germany at this point. On October 14, 2008, the parties learned that Chrysler was suing Getrag. On October 18, 2008, Getrag announced that Chrysler had cancelled the project entirely. The news was shocking and, while some faint hope of revival was retained, this was no “temporary” halt as had happened in January. Getrag cancelled the project outright.

[86] Once again, RCI had access to information about these developments from its other clients as well as from TM Canada.

[87] On October 24, 2008, Mr. Mellema and Mr. Himmelman held a call to discuss these developments. Mr. Osim and Mr. Robertson from RCI were also on the call with Mr. Mellema while Mr. Haubrich of TM Germany was on the call with Mr. Himmelman.

[88] Mr. Himmelman discussed TM Canada’s options. Within the Thomas Group there was still a degree of optimism that the investment in the Canadian plant could be turned to account even if the means of doing so were not immediately apparent. It was decided to explore the possibility of exporting output from the Canadian plant for the European market. According to Mr. Mellema, the Thomas Group did not want to destroy its capital investment in Canada so close to completion. The task of completing the lines would continue while further explorations of the means of protecting the investment were undertaken.

[89] There was no material dispute between the parties on the content of this conference call. There was disagreement between the parties testifying at trial as to how realistic TM Canada’s prospects of salvaging value actually were at the time.

[90] RCI had no interest in discouraging TM Canada’s hopes in late October. It was in the midst of completing the factory acceptance testing process that would entitle it to be paid its third milestone payment of 50% (less the amounts paid early as per the arrangement made in April 2008). Those anticipated payments amounted to just under $2 million. If RCI viewed the prospects of salvaging value as slight, it kept its opinions to itself. RCI wanted to be paid and it wanted the full contract price, not the termination value that was restricted to costs incurred.

[91] The parties also discussed outstanding CORs and agreed that Rohwedder would submit all outstanding CORs by the following week so that the parties could start the process of finalizing them.

[92] Finally, there was the matter of Getrag’s obligation to reimburse up-front costs of its contractors including TM Canada. Mr. Himmelman asked RCI to accelerate its invoicing of the remaining two milestones: the remainder of the FAT (totaling $1,968,750 including GST) and the final 20% payment due on SAT being $1,350,000 plus GST). RCI agreed to send these two invoices to TM Canada immediately and to back-date them to September 30, 2008.

[93] RCI knew that the invoices were needed to permit TM Canada to get in its request for reimbursement to Getrag as soon as possible. RCI agreed to help TM Canada do this and issued the two back-dated invoices shortly thereafter. There was nothing nefarious in this – TM Canada was only initially requesting reimbursement of 80% of its costs from Getrag with the final balance to be reconciled later.

[94] TM Canada did with the two invoices exactly what it said it would do. On October 30, 2008, TM Canada filed a preliminary claim under its agreement with Getrag estimating its shut-down costs at US$16,109,130, subject to its obligation to mitigate and minimize accrued costs. The schedule attached to the claim outlined just under $10 million in supplier claim costs, of which $6.8 million was attributed to Rohwedder of Markham. The whole was to be subject to later reconciliation.

[95] I find that there was no intention to modify the existing contractual arrangements with these two invoices. The invoices, although delivered as agreed, were only due and payable in the time and subject to the terms of the purchase order (i.e. after completion of FAT and SAT, respectively).

[96] The behavior of the parties afterwards makes the lack of intention to change the payment terms of the TM Canada purchase order quite clear. Mr. Haubrich sent Mr. Niewinski a summary of the meeting that same day referencing the two invoices to be received and noting “20% balance after SAT (according contract)”. Mr. Robertson’s notes of the same meeting are to similar effect. Further, when FAT was completed for the third line a few days later (November 5, 2008), Mr. Mellema immediately followed up with a request for the remainder of the third milestone payment (which was in fact released to him shortly afterwards) but did not suggest that the last SAT milestone was also due.

[97] TM Canada made this substantial payment of the balance of the third milestone ($1.968 million) swiftly and despite the fact that (i) Getrag had formally cancelled the project that the assembly lines were intended to supply and (ii) the prospects of devising a viable “Plan B” to use the equipment were uncertain and unverified. Sparkasse did not attempt to prevent payment by enforcing its security or declaring a material adverse change under its financing agreements with TM Canada. The payment was released to RCI.

[98] There was still work to do before final SAT could be performed. The FAT process identified a number of performance deficiencies that required work. The lines had failed to satisfy the required performance benchmarks when the FAT tests were done. Mr. Robertson characterized the work needed as “tweaks”, but these were tweaks that required many more weeks of work. SAT was not yet finally scheduled.

[99] In early November, the three assembly lines were packed up and shipped to TM Canada’s factory in Cambridge while planning for the final assembly and testing process on site at TM Canada was continued.

(vi) TM Canada halts work and RCI disables the incomplete lines

[100] On November 17, 2008, Getrag’s U.S. subsidiary filed for bankruptcy in Michigan. What little hope remained that the Chrysler project might somehow be revived was gone. In addition, the prospect of receiving an indemnity payment for costs incurred was also in peril if not gone. However, Mr. Gudelius and Mr. Himmelman still believed other options for a “Plan B” could be found to make the plant viable. They were reluctant to stop work at first.

[101] On November 27, 2008, a meeting was held in Germany to update Sparkasse. Mr. Gudelius and Mr. Himmelman briefed Sparkasse on the Canadian project and its prospects. With the bankruptcy of Getrag and the loss of the Chrysler project, three options appeared open. They could liquidate TM Canada and make arrangements to satisfy the guarantees given to Sparkasse by members of the Thomas Group (including TM Germany); they could start “expensive and bureaucratic” bankruptcy proceedings in Canada or they could persevere with a small team and start up production selling the output, even locally, until the market returned to normal. Of these, the preference was to explore the third option further. Nevertheless, the decision was taken at or about this time to stop all further work in Canada for the time being at least.

[102] On December 4, 2008, RCI was advised by Mr. Himmelman to stop all work for the time being. Mr. Osim sent out a confirming email as follows:

“Following our telephone conversation today (attendees: Mr. Himmelman, Mr Haubrich, Mr. Osim) Rohwedder Canada is suspending all installation activities in Cambridge immediately. All other commercial closure activities (COR closures, etc.) between Thomas Magnete and Rohwedder Canada will continue as planned”.

[103] Earlier that day, RCI’s installation team at TM Canada’s premises in Cambridge had noticed that something appeared to be brewing shortly before the formal order to stop work actually arrived. Undoubtedly they were looking keenly for some sign given the bankruptcy of Getrag for whom the lines had been destined. A call was placed to Mr. Robertson by a member of the installation team on site for further instructions.

[104] Mr. Robertson instructed his team to remove the portable logic controllers (or “PLCs”) from the three assembly lines immediately. These memory cards represented the brains of these highly-automated assembly lines. Without them, the lines could not function. They were comparatively simple to remove and quite portable. The three PLCs were surreptitiously removed and placed in the car of one of the RCI employees on TM Canada’s premises, all without attracting any notice from TM Canada personnel. They were delivered to RCI shortly thereafter. The loss of the cards was only discovered by Mr. Niewinski afterwards.

[105] Mr. Robertson attributed his order to remove the PLCs to a desire to ensure “safety”. While the assembly lines clearly cannot hurt anyone if they are not turned on, I find this question to be a rather distant secondary concern, if not an outright pretext. The assembly lines were not yet ready for production and were not about to be put into operation in any event. They had not been accepted by the customer and all parties concur that further work was needed to put them into regular production at the required performance levels. The idea that RCI was worried about being held legally responsible for injuries arising from unauthorized use of equipment that neither vendor nor purchaser had accepted as being ready is not credible. A simple warning sign, a phone call or a formal letter would have dealt adequately with what few safety or liability concerns RCI might legitimately have harboured. Mr. Robertson knew exactly what he was doing and selected his target strategically (and very likely in advance).

[106] It is to be noted that the decision to remove the cards secretly was taken by Mr. Robertson before RCI was actually told to cease work and leave the premises. If Mr. Robertson’s suspicion that a down-tools order was about to be issued proved incorrect, the cards could have been returned and reinstalled just as quietly without anyone being the wiser. The timing of the decision and the fact it was carried out in secrecy belies the existence of any legitimate safety motivation.

[107] I find that the decision to remove the PLCs was taken by Mr. Robertson for tactical reasons. Safety was a pretext, leverage was the true goal.

[108] Once removed, the PLCs could be used as a bargaining chip in negotiations and were in fact used for precisely that purpose when Mr. Himmelman attempted to negotiate with Mr. Rohwedder in Germany in February. No attempt to complete or even demonstrate the lines could be made without RCI’s cooperation for as long as it possessed the PLCs. TM Canada had invested almost $6 million in the assembly lines at that point and considerably more in getting ready to start operations. Possession of the PLCs ensured that RCI had the leverage to demand payment in full of the remaining $1.4 million it claimed to be owed as the price of allowing TM Canada to mitigate damages arising from Getrag’s cancellation of the project. This too is exactly what happened in fact.

[109] RCI well knew that TM Canada could not practically finish the line without the PLCs absent a very high cost in terms of both time and money. Mr. Robertson estimated that something in the order of 1,500 programming hours had gone into them. At RCI’s “commercial” charge-out rate of $125 per hour plus $15,000 for the hardware itself, the PLCs would cost approximately $200,000 to replace and would require significant lead time during which the lines could not be demonstrated to a buyer. I accept Mr. Robertson’s estimate as very likely being on the low end of reasonable, but it is a serviceable estimate of the cost to replace the PLCs in the absence of better evidence.

[110] The parties offered differing interpretations as to just how close to completion RCI was on December 4, 2007 when its team was asked to leave the TM Canada plant. Part of the discrepancy depends on how one measures completion: by cost of completion, by labour hours, by cost of material or by some combination of these. I do not find that anything in particular turns on fixing a precise ratio. The range offered by the witnesses (between 90% and 97%) is reasonably adequate for purposes of this case. It is quite clear that SAT had not in fact occurred. The surreptitious removal of the PLCs makes the question rather academic in any event. There is no doubt that completion and delivery in accordance with the contract had not yet occurred and all activity to complete the remaining work had ceased until further order that was never received.

(vii) negotiations in January-February 2009

[111] There were meetings that took place in Germany between January 27, 2009 and February 3, 2009 to which both parties attached great importance. The plaintiff alleges that these meetings produced a direct agreement between it and TM Germany whereby the latter agreed to acquire the three incomplete assembly lines and pay the full purchase price for them forthwith and without completion.

[112] I shall review the events of the meetings themselves in further detail in answering the question of whether an agreement was reached.

[113] When RCI’s installation team was directed to leave the premises and stop all work on December 4, 2008, all parties knew that the Thomas Group was exploring ways of salvaging some value from its investment by looking for an alternative use for this state-of-the-art facility that was so close to completion. In 2016 and with the benefit of perfect hindsight, the witnesses had varying opinions as to how realistic those hopes of repurposing the facility were. Movies are seldom as suspenseful when watched backwards. The search for a Plan B was active and bona fide on the part of the Thomas Group when the meetings with RCI took place in late January.

[114] I am referring in this time frame to the Thomas Group since, indeed, the entire Thomas Group was now directly implicated (and not just TM Germany). Many millions of dollars – including but not limited to the almost $6 million already paid to RCI – had been invested in the venture through TM Canada. Those funds had come primarily by way of loan from Sparkasse but had been guaranteed by TM Germany, Thomas Deutschland and Thomas International.

[115] By late January, however, it was becoming evident that TM Germany’s financial results were evolving in an extremely negative direction. Any hope of absorbing the output of TM Canada in Germany had evaporated and TM Germany itself was under significant financial stress. The focus had shifted to exploring whether Borg Warner might agree to take the output for a project it was known to be working on.

[116] RCI was focused on getting paid. Mr. Mellema and Mr. Robertson had prepared draft calculations of what kind of claim might be advanced if the contract were cancelled outright. Mr. Robertson prepared six new CORs (COR 45 through 50) that were intended to quantify the credits that RCI might allow TM Canada for the cost of work that would not be performed in the event of non-completion. The six CORs prepared internally estimated more than $200,000 in such credits, but these were not shared with TM Canada or TM Germany.

[117] The plaintiff had made it a priority to get the 44 existing CORs cleared away as soon as possible. Mr. Osim referenced this issue in his email confirming the stop-work order on December 4, 2007, and the task of completing a review of these was the main lever used to request the meetings in January in Germany. As soon as the Christmas holidays were over, Mr. Mellema and Mr. Robertson put on a coordinated effort in early January 2009 to get the Thomas Group to focus on this issue. The goal was to gain agreement to a meeting as soon as this could be arranged.

[118] Mr. Robertson and Mr. Mellema sent separate emails requesting meetings in Germany with Mr. Himmelman and his purchasing department team. The decision to have a meeting in Germany was not that of TM Germany – it was RCI (Mr. Robertson and Mr. Mellema) who suggested a meeting in Germany and pushed to obtain agreement to do so. All of the pushing on this issue was coming from RCI.

[119] Two meetings took place at the offices of TM Germany on January 27 and January 28, 2009.

[120] The first meeting on January 27 was attended initially by Mr. Robertson and Mr. Haubrich and spent several hours going through technical issues relating to the 44 outstanding CORs. Mr. Mellema and then Mr. Himmelman joined the meeting later in the day. No agreement is alleged by the plaintiff to have emerged from this meeting; however, all of the figures that form the basis of the alleged agreement were discussed.

[121] The second meeting was attended solely by Mr. Mellema and Mr. Himmelman on January 28, 2009. It is at this meeting that the agreement relied upon by the plaintiff to make its direct claim against TM Germany is alleged to have been made.

[122] I shall review the differing accounts of the parties regarding these two meeting in more detail below when considering whether there was in fact an agreement reached.

[123] Following these two meetings, RCI sent TM Canada a new invoice dated January 29, 2009[^2] in the amount of $66,683 plus GST. The invoice referenced the TM Canada purchase order (EB018658) and the description: “CORS 1 THRU 44 - AS PER AGREEMENT ATTN: HELMUT HIMMELMAN”.

[124] If there had been an actual agreement with TM Germany directly as alleged, there has been no adequate explanation for why this invoice was sent to TM Canada instead of TM Germany. If the agreement was intended to be a “final” balance including all credits for incomplete work, there is no explanation for why the invoice does not refer to CORs 45-50 that included RCI’s estimate of these credits. The only agreement referenced by the invoice was in respect of the 44 already-issued CORs. If the invoice was in error, either for referencing the wrong agreement or for having been sent to the wrong party, there has been no explanation for why the “error” was never in fact corrected prior to litigation. The invoice had never been disavowed.

[125] Mr. Mellema and Mr. Himmelman subsequently both met with Mr. Rohwedder at the offices of Rohwedder A.G. in Bermatingen Germany on February 3, 2009, as referenced in Mr. Himmelman’s email. No agreement is alleged to have emerged from this meeting.

[126] Mr. Himmelman had little recollection of the meeting or its events. His testimony was to the effect that Mr. Rohwedder showed little interest in negotiating, so there seemed little to discuss.

[127] Mr. Mellema’s notes of the meeting were explained by him in testimony. They do not include any reference to discussing an agreement reached beforehand. The main messages attributed to Mr. Himmelman in Mr. Mellema’s notes included:

• Mr. Himmelman confirming that his company was losing substantial sums of money (Mr. Mellema’s notes put the figure at €500,000 per month; Mr. Himmelman did not remember the discussion but said that the figure appeared low);

• November, December and January had seen a 40% decline in sales (Mr. Himmelman denies that he would have shared that information with Mr. Mellema, but it is recorded in the notes);

• there had been a meeting the prior week with the banks and there was “no more money for Canada”;

• the Thomas Group had enough capacity for current production; and

• the options being considered included a sale of the line or selling output to Borg Warner.

[128] Mr. Mellema’s notes also include comments on RCI’s position. He asked (presumably of himself) “Can RCI put pressure on TM? Progress payments? Parts from the line?” These questions on February 3, 2009 cast great doubt on the allegation of a firm agreement having been reached on January 28, 2009. They strongly suggest an on-going negotiation process.

[129] Mr. Rohwedder was quoted in Mr. Mellema’s notes as saying that RCI needed payment by the end of April and there would be no sale of the line to Borg Warner.

(viii) March-June 2009

[130] The events subsequent to this are of only minor relevance to the case and will be quickly summarized.

[131] On February 19, 2009, Sparkasse formally withdrew its approval of the loan to TM Canada, giving notice that no further withdrawal of the €1,813,000 of loan proceeds that remained would be made available “unless there is a positive prospect about the continuation of the project”. This was the first positive action taken by Sparkasse towards terminating the facility or demanding its loan.

[132] On March 4, 2009, RCI’s parent company decided to get directly involved by means of a baffling series of emails. Rohwedder A.G. sent two invoices in its own name to TM Germany identical in amount to the invoices already sent by RCI to TM Canada in October 2008 and January 2009. The cover letter said “we are hereby referring to the guarantee given by Thomas Magnete GmbH with respect to Sparkasse Siegen with regard to securing the financing for Thomas Magnet Inc., Cambridge, Canada” and announced that its credit insurer was being copied on the correspondence.

[133] TM Germany replied on March 11, 2009 denying any liability to or agreement with Rohwedder A.G. The credit insurer appears to have sent a similar letter on April 27, 2009 that was similarly rebuffed by TM Germany with a letter dated May 6, 2009, and the matter appears thereafter to have been dropped, at the Rohwedder A.G. level at least.

[134] No explanation was offered at trial as to why Rohwedder A.G. felt itself entitled to claim the benefit of the contract and issue invoices to TM Germany in its own name. As of May 2009, therefore, RCI had sent invoices only to TM Canada whereas its parent company Rohwedder A.G. had sent identical invoices to TM Germany.

[135] Notably absent from this list of invoices extant at any point in time is any invoice issued by the plaintiff in its own name to TM Germany pursuant to the January 28, 2009 agreement now alleged.

[136] In April 2009, Mr. Niewinski became involved in an attempt to sell the assembly lines to Borg Warner. In starting negotiations, he sent an internal email indicating that “The PLCs, with the software to run the lines, were removed by Rohwedder and they are being held “hostage” by them. Makes it very difficult to sell a production line. If Borg is interested it very quickly becomes a messy three way negotiation”. This email was sent in response to an inquiry received from Borg Warner asking a number of questions, including whether it was possible to see the lines running.

[137] Mr. Niewinski subsequently wrote to Mr. Mellema asking whether RCI would work with them in trying to sell the lines saying “obviously you would not commit resources to finishing the lines until the liability issue was resolved to your satisfaction”. Mr. Mellema’s response was to say “we would be happy to support and work with you once the issue of Thomas Magnete’s outstanding overdue liability (CAD $1.418 million) to Rohwedder Canada Inc. has been resolved to our satisfaction”. At this time, RCI’s ultimate parent company was still claiming to be entitled to the same payment.

[138] Unable to obtain RCI’s cooperation, Mr. Niewinski arranged to meet with Borg Warner at the end of April without them. While it appeared at first that Borg Warner might be willing to take all three lines “as is” and deal with RCI separately, that ultimately did not come to pass and efforts to sell the line privately failed.

[139] On June 10, 2009, Sparkasse issued a formal demand letter for repayment of its loan. Similar demands were made on the guarantees. These demands were later satisfied by way of new term loans that Ms. Mueller indicated the Thomas Group is continuing to retire.

(ix) auction and sale of equipment: August 2009 – February 2010.

[140] I shall not attempt to provide any details regarding the sequence of events leading to the sale by auction of all of the assets of TM Canada in late 2009 and early 2010. Following the demand upon the loan and guarantees, Sparkasse assigned its security to Thomas Deutschland (one of the guarantors, along with TM Germany) who then attempted to enforce it. RCI objected that it had title to the equipment under the purchase order. Separate proceedings before this court ensued, resulting in an order of Roberts J. (as she then was) determining that RCI had priority to the proceeds of the sale and directing the proceeds of the auction sale to be paid to RCI. RCI was awarded costs of that proceeding in the amount of $44,100, which was paid. The auction took place in February 2010 and resulted in the auctioneer paying out proceeds of $131,860 net of commissions to RCI.

[141] The plaintiff presented evidence of its own legal invoices incurred in the course of the legal dispute over priority of security interests before Roberts J. and claimed that it only received $83,908.74 after payment of all such accounts and crediting the costs received by them pursuant to the order of Roberts J.

Issues

[142] This case raises the following issues to be resolved:

a. Did either of the defendants negligently make false or misleading representations to the plaintiff in December 2007 that the plaintiff relied upon to its detriment by accepting the replacement purchase orders of TM Canada?

b. Is the Statute of Frauds, R.S.O. 1990, c. S.19 applicable to the claim against TM Germany?

c. Was there a binding agreement reached regarding the amount of the debt owing by TM Canada to the plaintiff or the obligation of TM Germany to pay it on January 28, 2009?

d. Is the claim of an alleged agreement of TM Germany to assume the obligation to pay for the assembly lines or to guarantee to the plaintiff the unpaid obligations of TM Canada in January 2009 barred by reason of the Limitations Act, 2002, S.O. 2002, c. 24?

e. What are the proven damages of the plaintiff?

Analysis and Discussion

[143] The trial spanned five days of evidence. The plaintiff called three witnesses: RCI’s former President (Mr. Mellema), its former sales manager (Mr. Osim) and one of the two project managers for this project (Mr. Robertson). I have not found the evidence of any of them to be very reliable as all three showed a marked tendency to embellish events with liberal additions of hindsight or to minimize what they perceived to be negatives in their testimony. I need not attribute any motivation to mislead the court actively – and indeed I do not – so much as having allowed hindsight or suggestion to harden into certain memories where objectively only a general recollection subsists. I have attached very little weight to most of their testimony except where it provides useful and relevant context of the documentary record before me. That was not often true.

[144] The defendants’ witnesses were, by and large, credible in my view. I reach this conclusion not because their memories were remarkably clearer or more precise. They were not. They made honest attempts to interpret the documents before them while frankly admitting the limitations of their memories. I generally attached little weight to their attempts at trial to reconstruct their reaction to documents years in the past, particularly where they appeared to be doing little more than acknowledging suggestions put to them on cross-examination might have been true. They were generally willing to concede the limitations of their memories and seemed to me to be somewhat more impartial in their recollections. Mr. Gudelius testified on behalf of TM Germany and Ms. Mueller on behalf of Sparkasse.

[145] Two former employees, Mr. Niewinski (the former COO of TM Canada) and Mr. Himmelman (Vice-President, Purchasing for TM Germany) were also called by TM Germany. Neither is currently employed within the Thomas Group. I found Mr. Niewinski to be a careful, objective and fair witness. Mr. Himmelman testified by video link. Unfortunately, the interpreter he requested failed to appear. He agreed to continue notwithstanding. His command of English was sufficient but obviously limited him to some degree. It was clear that Mr. Himmelman had not had the opportunity to review the documents and prepare to the same degree as those witnesses who had come to Canada for the trial had been able. Accordingly, his memory had not been as thoroughly refreshed by a detailed reading of the documents. I found his testimony on the broad lines to be quite firm, even if his grasp of detail was extremely limited.

(a) Did either of the defendants negligently make false or misleading representations to the plaintiff in December 2007 that the plaintiff relied upon to its detriment?

[146] The well-known elements to be proved in establishing the tort of negligent misrepresentation were confirmed by the Supreme Court of Canada in Queen. v. Cognos Inc., [1993] 1 S.C.R. 87, 1993 146 (SCC) as follows:

a. there must be a duty of care based on a "special relationship" between the representor and the representee;

b. the representation in question must be untrue, inaccurate, or misleading;

c. the representor must have acted negligently in making said misrepresentation;

d. the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and

e. the reliance must have been detrimental to the representee in the sense that damages resulted.

[147] I shall review the evidence in respect of each of these elements separately.

(i) special relationship

[148] The test for the existence of a special relationship requires the court to consider whether (a) the defendants ought reasonably to foresee that the plaintiff would rely on the representation, and (b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable: Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, 1997 345 (SCC).

[149] There seems little doubt that the plaintiff can satisfy both aspects of this test subject to a closer examination of the issue of reasonable reliance.

[150] Sparkasse addressed its comfort letter directly to RCI. While it did not deliver the letter to RCI itself, Sparkasse fully expected TM Germany to deliver it to RCI. Sparkasse must have expected that RCI would rely on the letter to some degree.

[151] The defendants sought to attach some weight to the standard-form disclaimer attached to Mr. Osim’s email of December 19, 2007 requesting the letter from TM Germany. The banner at the bottom of Mr. Osim’s email proclaims that “this email and its content are not legally binding as long as not explicitly confirmed in writing by Rohwedder”. Mr. Osim indicated that this was a requirement of the plaintiff’s in-house legal department and he understood that contracts could not be made via email. The defendants suggest that such a disclaimer in the email request ought to be interpreted as extending to the legal effect of any reply to the same email communication.

[152] In my view, this disclaimer does not serve to negate the possibility of an email exchange giving rise to a “special relationship” that would satisfy the Cognos or Hercules Managements tests. However, it is relevant and does suggest that a cautious approach to the scope of the resulting relationship is warranted if the parties have not taken the trouble to confirm the details of their understanding in writing. The prior and subsequent history of the relationship between these parties suggests a general and consistent practice of reducing agreements to more formal documentation than a simple email exchange.

[153] The defendants also submit that since the letter was allegedly requested for the purposes of RCI’s bank, the only reliance that could reasonably have been foreseen to follow would have been in relation to RCI’s own bank financing. Since RCI’s bank had no such requirement in fact, no reliance could be reasonable.

[154] While it is true that the Supreme Court in Hercules Managements has somewhat circularly referenced the fourth Cognos condition (reasonable reliance) while attempting to clarify the first (special relationship), the confusion this suggests is only superficial. The special relationship review is intended to determine the existence of a relationship where it is rational and reasonable to impose a negligence duty of care as contrasted with, for example, a social or informal relationship where such a duty of care normally will not arise.

[155] Whether the actual reliance alleged to have been placed upon the representation will withstand scrutiny as reasonable in the circumstances requires an entirely different level of analysis. There is nothing inconsistent in finding that a special relationship exists but concluding that, in the circumstances of the case, the claimed reliance was not reasonable.

[156] The relationship that each of Sparkasse and TM Germany had with RCI was clearly not of a casual or informal nature. Both TM Germany and Sparkasse had a reason to wish to facilitate the transfer of the purchase order to TM Canada and they intended, at the very least, to further that limited business goal by responding to RCI’s request. The types of reliance and thus the claims that RCI can potentially make in consequence is a matter to be considered in relation to the fourth Cognos condition. I find that there was a special relationship sufficient to satisfy the first Cognos condition.

(ii) untrue, inaccurate or misleading representation

[157] The plaintiff does not seriously dispute that the response it received from the defendants on December 24, 2007 was in fact true. There is no doubt that it was. The project financing was in fact in place and TM Germany had provided a guarantee to Sparkasse as referenced. Rather, the plaintiff submits that in the light of the broader context of the request it originally made on December 19, 2007, the response received on December 24, 2007 was misleading by reason of the things it did not say. Accordingly, both the response given and the original request require careful examination.

[158] The request and the answer were both made via written email exchanges. The process of determining the meaning to be given to words in a document is no different in contract claims than in tort claims and requires the court to answer the question of what the parties to the document would have reasonably understood the contested words to mean bearing in mind the relevant background, the purpose of the document and the entirety of the document: Toronto-Dominion Bank v. Leigh Instruments Ltd., 1999 3778 (ON CA) at para. 9.

[159] I reproduce here again the full text of the December 19, 2007 email request:

“Following our conversation today, I would just like to summarize the discussion.

Since we are transferring the PO from Thomas Magnete GmbH to Thomas Magnete Canada Inc. we would need a letter from TM GmbH that, in case of illiquidity of TMC Inc., TM GmbH would assume the project completion and any outstanding payments to Rohwedder Canada Inc. This request came to me from our Controller who was informed about this requirement from our Bank.”

[160] I described the wording of the email request as being odd earlier because of some features that emerge from a close reading of this message.

[161] Firstly, there is nothing conditional about it. The clear implication is that RCI has already agreed to the transfer of the purchase order as requested: “we are transferring the PO”. This suggestion contrasts with the suggestions made in evidence at trial by Mr. Mellema and Mr. Osim that there was a great deal of concern about dealing with TM Canada as a start-up operation. If there was such a concern, they kept it to themselves.

[162] Secondly, despite Mr. Mellema having raised the subject of a “guarantee” from TM Germany with Mr. Osim internally two days earlier and despite the existence of requirements for two such guarantees from RCI in favour of TM Germany in the purchase order, no request for a guarantee from TM Germany was in fact made. The parties all knew what a guarantee was – the words used were carefully chosen. They may have been designed to hint that a guarantee might be offered, but none was actually requested. The parties were discussing, however casually, the terms by which TM Germany would be released from the existing contract and TM Canada would assume it. I attach considerable weight to the deliberate omission of the word “guarantee” from the communication sent by RCI and absolutely no weight to the testimony of RCI’s witnesses suggesting that the request made amounts to “the same thing”. It did not.

[163] Thirdly, the question about which Mr. Osim said that RCI was looking for some comfort was future “illiquidity” potentially interfering with “project completion”. The cure for illiquidity is financing. In that context, a response addressing the existence and adequacy of project financing appears objectively quite reasonable and responsive. The word “illiquidity” does not necessarily refer to solvency concerns.

[164] Fourthly, the attribution of the “requirement” for the letter to RCI’s bank rather than RCI was not simply a rhetorical device to ensure that his request was taken seriously as Mr. Osim suggested. The clear implication to an objective reader is that while RCI itself had no qualms about transferring the purchase order, it needed “something” to be able to show its banker to convince them that TM Germany remained committed and that the project had financing and thus was not facing a liquidity risk.

[165] I repeat here the full text of the Sparkasse letter that was sent back by Mr. Gudelius on December 24, 2007. His email to Mr. Osim said “enclosed you’ll find a confirmation of our bank. I hope it will help you and your Controller to have a better feeling” and attached the letter from Sparkasse:

“[T]he project of setting up a new production site by our client Thomas Magnete Group in Cambridge/Ontario is financially supported by Sparkasse Siegen.

We hereby confirm that – in line with the project plan – the necessary funds including expenses for the purchase of production lines and machinery are in place.

Thomas Magnete GmbH, Herdorf, provided a guarantee in our favour regarding the project’s financing scheme, thus accepting financial liability for the project”.

[166] Since the three statements made in the letter were all true the plaintiff’s path to succeeding in establishing this aspect of the Cognos test requires that it establish that the statements, though truthful, were nevertheless misleading by reason of what they omitted to say.

[167] I accept the plaintiff’s argument that a misrepresentation can arise if there is a failure to disclose information that, in context, made the statements, though literally true, misleading: Meridian Credit Union Limited v. Baig, 2016 ONCA 150 at para. 30. The plaintiff suggests that the failure to disclose the conditions attached to the loan by which Sparkasse could withdraw the funding was such an omission.

[168] I do not accept that characterization of the evidence and I certainly do not accept Mr. Mellema’s self-serving testimony that he never would have accepted the comfort letter had he but known of the financing conditions attached to the TM Canada loan.

[169] Mr. Mellema admitted on discovery that “banks impose terms and conditions on their financing” and “may have the right to terminate its financing arrangements if certain events occur”. He summarized his understanding of the letter as being “first of all, that the bank confirms that the financing is in place and secondly, that they’re for the project and secondly, that Thomas Magnete Germany has provided a guarantee for the financing of that project to the bank”. The plaintiff’s attempt to qualify those answers by a lawyer’s letter after the fact does not detract from the clear, common-sense response originally given by him.

[170] None of those formulations by Mr. Mellema in his own words proved false or untrue. Quite the contrary.

[171] Sparkasse had provided financing and was undoubtedly “for” the project as much as any bank could be so described. They in fact exercised the greatest of forbearance in administering this loan, permitting TM Canada to make the remainder of the third milestone payment – almost $2 million - after Getrag had cancelled the project. Sparkasse did not invoke the material adverse change provisions of the loan agreement at that time. The amount released to RCI in November far exceeded the liquidation value ultimately achieved for the equipment and the amount of RCI’s claim in this litigation. Sparkasse did not formally suspend the credit facility until February 2009 and the loan itself was not actually demanded upon until June 2009 when their client had finally given up hope of trying to find a Plan B and commenced liquidation of the assets.

[172] Sparkasse was definitely “for” the project and exercised contractual rights of a type that Mr. Mellema and RCI ought reasonably to have expected it to possess with only the greatest of restraint.

[173] TM Germany was also committed to the project and had provided a full guarantee for all of the bank indebtedness, not merely the portion that would fund payments to RCI. Its commitment to the project significantly exceeded the cost of the RCI contract.

[174] I find that RCI knew and expected that TM Germany’s financing had “normal” commercial conditions attached to it and could not reasonably have assumed that such conditions would have required Sparkasse to continue advancing even in the face of the complete cancellation of the underlying project by Getrag or the bankruptcy of Getrag. None of the parties considered the risk of Chrysler cancelling the project and Getrag filing for bankruptcy without satisfying its indemnification obligations to have been a serious or material risk in December 2007. It was simply not on their radar screen and it is not reasonable for RCI to claim that Sparkasse assumed that risk in releasing its comfort letter or that TM Germany assumed it by forwarding that letter to the plaintiff.

[175] RCI knew or ought to have known that TM Canada’s financing was subject to conditions and made precisely no inquiries about them. It was not reasonable to assume – as Mr. Mellema and Mr. Osim suggested at trial – that there were no conditions simply because none were specifically identified. Mr. Mellema well knew that commercial project financing was subject to commercial lending conditions just as RCI’s own financing was subject to conditions. These were sophisticated parties.

[176] This conclusion is all the more evident if one considers the guileful and misleading nature of Mr. Osim’s original request attributing the requirement for a letter to RCI’s bank. It is simply inconceivable that any bank in receipt of the Sparkasse letter could have been misled in any way as to the existence of ordinary banking conditions attached to Sparkasse’s financing commitment.

[177] The plaintiff submitted that the Sparkasse letter was misleading because it mentioned the guarantee of TM Germany and that this was “irrelevant with no place in the letter” unless it provided RCI with additional protection. I cannot agree.

[178] TM Germany had in fact provided a guarantee. The letter on its face makes it clear that the guarantee was to Sparkasse alone and, indeed, discovery admissions read into the record confirm that RCI fully understood that fact. The guarantee did in fact confirm the substantial commitment of TM Germany. The utility of the interest of the guarantors came to the fore in November 2008 when TM Canada was permitted to make a payment of $1.968 million to RCI while avenues to recover some value from their investment were being explored. In light of the guarantee, TM Germany was highly motivated to explore means of deriving value from the investment instead of simply cutting its losses and walking away. Receiving assurance of TM Germany’s on-going commitment by way of guarantee of the project financing was a very valuable assurance to receive.

[179] The plaintiff suggested that TM Germany’s support for the “project” should have been narrowly construed to refer only to the purchase of the assembly lines without regard to the underlying Getrag/Chrysler project that they were designed to supply. I cannot accept that narrow suggestion. The “project” was both the construction of the assembly lines and their intended deployment to fulfill the contract with Getrag and Chrysler. When Mr. Meyer wrote to Mr. Mellema to announce the pause ordered by Getrag in January 2008, he described it as “our common project”. That is how they both perceived it and it conforms to commercial common sense. The whole point of the assembly line construction project was to enable TM Canada to participate in the Getrag/Chrysler project. Mr. Mellema was disturbed by the January 2008 delay in the “project” because the delay in the underlying Getrag/Chrysler project was worrisome to him in that it would potentially put the smaller assembly line project at risk. The two were inextricably connected and treated as such by the parties – including by RCI who quoted for a purchase order that allowed termination at cost any time prior to final acceptance in order to dove-tail the smaller project with the large.

[180] I find that the Sparkasse letter was not misleading, inaccurate or untrue in the context in which it was made. It was, to the contrary, fully and accurately understood by RCI at the time it was received and current attempts to assert otherwise in hindsight are not credible.

(iii) negligently made

[181] I also conclude that the letter and email that accompanied it cannot be considered to have been negligently made.

[182] The plaintiff attached great weight to Mr. Osim’s email of December 19, 2007 that asked for a letter from TM Germany and suggested that it was somehow negligent for the defendants to have “misread” that request by sending a response from Sparkasse instead. The suggestion does not withstand scrutiny.

[183] It was not at all unreasonable for the defendants to have interpreted a “requirement” of RCI’s bank for a letter concerning TM Germany’s commitment to the “project” in the event of “illiquidity” as being fully addressed by an assurance of full project financing at the level of TM Canada. The defendants accepted Mr. Osim’s false assertion that he was trying to satisfy RCI’s bank at face value and gave a reply that would have been quite informative for the bank that Mr. Osim represented would be reviewing it. Adequate project financing would be needed to ensure the underlying contract from Getrag was not at risk and would thus be of great interest to a financial institution.

[184] It is strikes me as rather rich to claim that the defendants were negligent for failing to have fully and properly decoded what was an admittedly deceptive request of the plaintiff. The plaintiff cannot complain that the recipient of its opaque and deceptive request failed to read adequately between the lines.

[185] Further, if Ms. Mueller and Mr. Gudelius failed to understand the request, their failure was contagious. Neither Mr. Osim nor Mr. Mellema thought to reject the Sparkasse letter as being non-responsive to the specific request sent by Mr. Osim. To the contrary, Mr. Osim immediately accepted the letter with thanks. Given the timing, it is very likely that he did so without even consulting Mr. Mellema.

[186] RCI fully understood that it had received a letter from Sparkasse and not from TM Germany. Mr. Mellema and Mr. Osim both testified that they thought they had exactly what they were looking for. The suggestion of negligence in the form of reply sent cannot be supported.

(iv) reasonable reliance

[187] In my view, the plaintiff cannot satisfy the test for reasonable reliance in this case either.

[188] Firstly, the dishonest attribution in Mr. Osim’s email request for a letter to a non-existent requirement of its banks strongly suggests that the only “reasonable reliance” that could be placed on any response received would have been in the context of satisfying that non-existent requirement of RCI’s bankers. I am aware of no case where actionable negligent misrepresentation has been found in the face of a deliberately misleading request. This was not an innocent misrepresentation by Mr. Osim – it was a deliberate one.

[189] Secondly, I reject the self-serving evidence of Mr. Mellema and Mr. Osim that they would never have agreed to a transfer of the purchase orders had they but known the full details of TM Canada’s loan conditions or TM Germany’s guarantee. Mr. Osim fully expected the transfer request from the beginning and knew that the purchase orders had only been placed in TM Germany’s name due to time constraints. RCI had no information about the state of TM Germany’s finances. The stability of the underlying project – the Getrag/Chrysler project – was the true source of RCI’s comfort in dealing with the Thomas Group.

[190] Thirdly, there was no disparity of bargaining power or knowledge as between the parties. RCI was experienced in the industry and indeed had other contracts associated with the Getrag/Chrysler project with other major auto parts manufacturers (Borg Warner and Bosch), viewing TM Germany as a relatively unknown “Tier 3” player.

[191] Finally, it cannot be reasonable to have relied upon alleged omissions in the response made by the defendants when those very omissions - to the extent they can be considered such – were known to it. The plaintiff well knew that Sparkasse’s bank financing had conditions attached to it and made no inquiries to confirm what they were if those conditions were material to it. It cannot rely upon inferences it may have drawn about information it knew it did not have but did not take the trouble to request.

(v) resulting damages

[192] There is no real issue taken with the idea that the plaintiff’s reliance damages would be quantified as the amount owing by TM Canada under the purchase order since such amount would have been owed by TM Germany but for the transfer of the purchase order. The defendants dispute the amount owing by TM Canada. I consider the quantum of damages separately below.

(vi) conclusion on negligent misrepresentation

[193] In conclusion, I find that the plaintiff’s claim as against the defendants for negligent misrepresentation arising from the December 24, 2007 email attaching the Sparkasse letter must fail. While I have found that the first and fifth conditions (special relationship and resulting damages) are satisfied, the remaining three (misleading statement, negligently made and reasonable reliance) have not been proved.

[194] The negligent misrepresentation claim is accordingly dismissed as against both defendants.

(b) Is the Statute of Frauds applicable to the claim against TM Germany?

[195] The plaintiff’s Amended Statement of Claim (in paragraphs 31 and 32) advanced a claim in respect of the Sparkasse letter in contract separate and apart from the negligent misrepresentation claim. This contract claim (arising out of the Sparkasse letter delivered in December 2007) was not pursued at trial. The only subsisting contract with TM Germany relied upon by the plaintiff at trial is said to have arisen on January 28, 2009 and is considered later in these reasons.

[196] Were it necessary, I would find that nothing in the exchanges that took place in December 2007 constitutes an agreement by Sparkasse along the lines pleaded in paragraphs 31 and 32 of the Amended Statement of Claim. Sparkasse did not intend to enter into any direct contractual agreement with the plaintiff and the plaintiff had no expectation that Sparkasse had done so. The Sparkasse letter dated December 21, 2007 is the only communication between Sparkasse and RCI prior to the disputes giving rise to this litigation. I cannot accept that there was any contract arising out of that letter.

[197] As regards TM Germany, the claims advanced in those two paragraphs are little more than a claim that TM Germany agreed to provide a guarantee of the obligations of TM Canada. A claim of such an agreement would be barred by s. 4 of the Statute of Frauds unless evidenced in writing. The December 24, 2007 email of Mr. Gudelius expressing Christmas greetings and a hope that the Mr. Osim and RCI’s Controller would have a “better feeling” after reading the Sparkasse letter. This does not satisfy the requirement of s. 4 that such an agreement must either be in writing or evidenced by a note or memorandum thereof in writing. I would therefore dismiss the claim in contract arising from the Sparkasse letter as pleaded.

(c) Was there a binding agreement reached regarding the amount of the debt owing by TM Canada to the plaintiff or the obligation of TM Germany to pay it on January 28, 2009?

[198] The plaintiff’s written argument delivered at the hearing alleges (at paragraph 183) that “on January 28, 2009, [TM Germany] verbally agreed and confirmed by email the next day to pay the sum of $1,418,000 plus tax to [RCI] in satisfaction of all outstanding amounts, in return for which it would have received title to the Lines, which remained with [RCI]”. The plaintiff thus alleges a direct contract with TM Germany to acquire the three assembly lines that was reached on January 28, 2009. The claim as so expressed is somewhat broader than the claim pleaded.

[199] The original statement of claim made no allegation of a direct contract between RCI and TM Germany having been reached in January 2009. The original statement of claim alleged negligent misrepresentation and a guarantee by TM Germany of the purchase order issued by TM Canada in December 2007 and alleged that that the debt owing by TM Canada was settled by agreement in January 2009. TM Germany was only implicated in that alleged agreement by reason of its alleged guarantee from 2007.

[200] On August 1, 2014, the plaintiff amended the statement of claim. Although the statement of claim elsewhere clearly distinguishes between “Magnete GmbH” and “Magnete Canada”, the amendments refer rather ambiguously to “Magnete” without distinction.

[201] The amendments affected paragraphs 46 and 47 of the statement of claim and added a new paragraph, 48a. Paragraph 46 now pleads that “Magnete” instructed RCI to cease work on the contract prior to completion but that “Magnete” owed “additional monies as a result of Change Order Requests it had made during the project” and that in consequence, “the parties agreed [on January 28, 2009] that RCI was owed $1,418,000 plus GST”, which agreement Mr. Himmelman is alleged to have confirmed by email the next day. Paragraph 47 alleges that RCI invoiced Magnete Canada on January 29, 2009. As a result, paragraph 48 concludes, “as of January 29, 2009 following the two final invoices Magnete Canada owed RCI a total of $1,418,617” (emphasis added).

[202] Finally, new paragraph 48(a) alleges that “the agreement reached on January 28, 2009 between “Magnete” and RCI regarding the amount owing to RCI was a binding contract. It was a settlement of the dispute between the parties concerning the amount still owing to RCI” that “Magnete” is alleged to have breached.

[203] Prior to the (now) alleged agreement of January 28, 2009, there was no dispute of any kind between TM Germany and RCI. There was no contractual relationship between them at all and none was claimed to exist at the time. The alleged guarantee of the TM Canada purchase order originally pleaded was not pursued at trial and there was no evidence to support it. The only subsisting contractual relationship in January 2009 was between RCI and TM Canada. All deliveries, invoices and payments after December 2007 were with TM Canada and all parties acted consistently with the contract being with TM Canada alone. “Magnete” in the context of paragraph 48a of the statement of claim cannot reasonably be taken to refer to TM Germany since there was no dispute between RCI and TM Germany to resolve by agreement.

[204] The logic of its position has required the plaintiff to assert at trial that TM Germany agreed to buy the three lines for itself. That same logic leads to the corollary conclusion that if there were such an agreement with TM Germany, then TM Canada was no longer a debtor of RCI on January 29, 2009 after the alleged new contract had been entered into with TM Germany. The claim advanced is that TM Germany purchased the three lines in its own right. The plaintiff does not allege that TM Germany was simply becoming a mere co-owner of the equipment along with TM Canada (and there is not a shred of evidence to support that conclusion if it had been advanced). The conclusion that TM Germany (and not TM Canada) owed the balance due pursuant to the alleged agreement of January 28, 2009 would be contradicted by the admission in paragraph 48 of the statement of claim that as of January 29, 2009 TM Canada owed the plaintiff $1.418 million.

[205] The statement of claim as currently written does not allege a direct contract with TM Germany that involved acquisition of the three lines reached on or about January 28, 2009 and paragraph 48 would appear to contradict the existence of such an agreement.

[206] I am unwilling to dismiss the plaintiff’s claim on what was clearly one of the two cornerstones of the case it argued at trial on the grounds of an insufficient or unclear pleading. The plaintiff clearly spelled out the theory of its case in its opening and again at the close of trial with lengthy and detailed written submissions. The defendant responded to that claim in cross-examination and with its own written submissions. No objection to the insufficiency of the pleading was taken at trial. Pleadings can be amended, on terms if necessary, even at trial. The object of the Rules of Civil Procedure is to achieve a just, expeditious and efficient resolution of disputes placed before the court on the merits, not to spring procedural traps. The defendants addressed the (current) theory of the plaintiff’s case head-on in argument. Indeed, the gap between the case as argued and as pleaded only became evident to me when writing these reasons. In such a case, it would be an injustice to fail to consider the argument raised and to provide an opportunity at least to seek an amendment should it appear to have merit.

[207] Given the entire lack of objection to the sufficiency of the pleading at trial, I have decided to consider whether the evidence before me would permit a finding in accordance with the written argument as filed by the plaintiff (alleging a direct contract was reached between TM Germany and the plaintiff on January 28, 2009). Had I concluded that the evidence led at trial might support a finding in favour of the claimed agreement, I would have invited the defendant to make submissions on the question of leave to amend and what terms, if any, ought to be attached. Such terms might potentially include leave for one or both sides to make additional arguments or – if appropriate – to adduce additional evidence.

[208] Having carefully considered the evidence led at trial and the plaintiff’s argument (both written and oral), I have concluded that the plaintiff has at all events failed to prove the agreement it now alleges. Accordingly, the question of leave to amend or the terms that might accompany leave does not arise.

[209] There are three elements to the alleged agreement reached on January 28, 2009. Firstly, it is alleged to have settled the “final balance” due under the purchase order. Secondly, the agreement is alleged to have made that final balance immediately due. Since it is not denied that SAT had not occurred and payment of the contract price would only be due upon SAT (or “final acceptance”), this claim necessarily implies the existence of a waiver of that contractual condition precedent to the payment obligation. Thirdly, the agreement is alleged to have included an agreement by TM Germany to acquire the incomplete assembly lines for itself directly and to pay the final balance agreed to be due.

[210] The plaintiff was unable to demonstrate any of these three elements with consistent or convincing evidence. Mr. Robertson and Mr. Mellema were at best equivocal in providing evidence of an oral agreement and the entire written record fails to corroborate any of these three elements or contradicts it outright.

[211] Both plaintiff witnesses were somewhat confused as to which of the two meetings – the January 27 or January 28 – actually produced the alleged agreement even if the plaintiff’s argument clearly focused on the latter of the two dates. Mr. Mellema was unable to affirm any material negotiation of the “balance due” element on the January 28when the agreement was said to have been made. His notes of this second meeting are entirely silent on this point although they contain a wealth of details about the financial condition of the Thomas Group and its (lack of) ability to pay.

[212] The evidence of both witnesses regarding the discussions of the 27^th suggested no detailed consideration of the six undisclosed CORs (CORs 45 through 50) that RCI had prepared but not delivered containing over $200,000 in credits. It would stretch the imagination to believe that the parties had agreed to a “final balance” without having a full discussion of the value of those six CORs (with or without the documents in hand). Neither Mr. Robertson nor Mr. Mellema was able to relate any convincing details of a negotiation on that subject. Neither witness suggested that there was any direct discussion of the matter of waiver of the condition of SAT before payment was due and both agreed that SAT had not occurred and was not yet ready to occur for any of the three lines.

[213] Neither witness suggested that any agreement had been reached as to the terms of final payment and it would have been quite senseless for TM Germany or TM Canada to have waived the one condition (SAT) that enabled them to defer final payment without having come to an agreement on terms for that payment. Indeed, terms of payment continued to be negotiated on the 28^th (when Mr. Robertson sent an email that suggested interest should be paid a rate exceeding 19%) and on February 3^rd (when Mr. Himmelman made it clear that there would be no financial capacity to pay for some time and was met with an insistence that payment had to be made within weeks).

[214] Finally, neither witness was able to confirm that Mr. Himmelman ever discussed or agreed to acquire the equipment and make the payment in the name of TM Germany. This was simply an assumption on their part – an assumption I find to be entirely the product of hindsight and wishful thinking. The assumption that TM Canada was somehow out of the picture is and was factually incorrect at that time and they knew it. An invoice was sent on January 29, 2009 (or possibly later – a finding that would not improve the plaintiff’s position) to TM Canada for CORs 1-44 only. Mr. Niewinski continued to negotiate with Mr. Mellema into April and the discussion in Bermatingen on February 3 included options that would have entailed TM Canada starting up operations to sell parts (possibly to Borg Warner).

[215] I reject entirely the evidence of both plaintiff witnesses in regards to this alleged agreement.

[216] Mr. Himmelman’s evidence was lacking in detail, it is true, but was quite clear and cogent in its main themes. The negotiation in January was in respect of the 44 CORs that were on the table. A “commercial” arrangement was negotiated to resolve the dispute regarding these CORs only at the price of $68,000. There was no discussion of termination credits, there was no discussion of waiver of SAT and there was no agreement with TM Germany at all.

[217] I accept Mr. Himmelman’s evidence on these points without hesitation.

[218] His evidence is quite consistent with commercial common sense. TM Germany had been negotiating the technical aspects of the CORs for many months on behalf of TM Canada, including prior to the cancellation of the project by Getrag and Chrysler. TM Canada was kept involved nevertheless. There was no confusion of roles and no reason for anyone to assume that roles had changed. TM Germany had no reason to take ownership of the physical equipment on to its books, particularly when it was of such speculative value at that point with the project for which it was designed having been cancelled. The Thomas Group was continuing to explore means of using the equipment to produce parts. TM Canada was not yet believed to be beyond a viable launch. The hopes may have been slender – and in hindsight they may appear quite speculative – but they were legitimate at the time and being pursued in good faith. It would also have been commercially foolish for a financially stressed company such as TM Germany to have taken on an immediate payment obligation that it did not already have without an agreement on payment terms.

[219] The alleged agreement is not confirmed by the notes of either Mr. Robertson or Mr. Mellema from the two days whereas Mr. Himmelman’s claim of an agreement limited to the forty-four outstanding CORs is corroborated by those same notes and by the invoice of January 29, 2009 sent by the plaintiff to TM Canada. The notes of Mr. Mellema contain not even an oblique hint at any sort of agreement having been reached on January 28 as is now alleged. To the contrary, the entire tone of Mr. Mellema’s notes of January 28 is of a negotiation process that was to continue the following week at his own parent company’s head office in Germany after receipt of “another” protocol confirming the state of discussions.

[220] Mr. Himmelman’s email note of January 29 confirms a “discussion” on January 28 and not an agreement. It continues to refer to the SAT condition, confirms further discussions to be held on February 3^rd and makes no mention of TM Germany’s alleged role at all. This note supplies no corroboration of the alleged binding agreement. Further, the history of the parties does not support the idea that a binding agreement would be made in such a casual fashion. Email exchanges that resulted in contractual changes were confirmed by actual hard-copy documents such as purchase orders or invoices. RCI itself had a policy against concluding binding agreements via email and included a banner on the signature line of outgoing emails to that effect.

[221] The invoice sent by the plaintiff to TM Canada on January 29 has not been disavowed in any fashion. There is no evidence that anyone sought to withdraw it or claim it to be a mistake. This invoice is entirely inconsistent with the existence of an alleged agreement with TM Germany having been reached on January 28, 2009 or with an agreement that included the termination credits referenced in CORs 45 through 50 that were neither discussed nor delivered.

[222] The invoices sent by RCI’s parent company in March 2009 are also inconsistent with the alleged agreement.

[223] Mr. Mellema’s continued negotiations with Mr. Niewinski, still an employee of TM Canada in March and April 2009 are quite inconsistent with the assumption he allegedly made in January about TM Canada being out of the picture and their correspondence suggests an on-going dispute rather than an agreement in place.

[224] In short, there is simply nothing in the contemporary record of documents from 2009 to support the claimed agreement and everything in that record is entirely consistent with the testimony of Mr. Himmelman of an agreement limited to the CORs that the parties had been discussing for several months at that point. The oral evidence of the Mr. Robertson and Mr. Mellema on the subject was not convincing and failed to contain sufficient specifics of the alleged agreement.

[225] I find that there was no agreement of any kind reached between TM Germany and RCI in January 2009. There is accordingly no reason to consider the necessity of an amendment to allege it.

(d) Is the claim of alleged agreement of TM Germany to assume or guarantee to the plaintiff the unpaid obligations of TM Canada in January 2009 barred by reason of the Limitations Act?

[226] TM Germany submits that even if there were an agreement to assume liability for the unpaid obligations of TM Canada reached on January 28, 2009, no such claim on any such agreement was made within two years of the cause of action arising and the claim is accordingly barred by s. 4(1) of the Limitations Act.

[227] In my view, TM Germany is correct in its argument.

[228] If an agreement with TM Germany had been reached on January 28, 2009 as the plaintiff alleges, then a suit to enforce it would have been barred on the second anniversary of the loss or injury occurring.

[229] While no particular payment terms are alleged to have been agreed, Mr. Mellema’s notes indicate that RCI was insisting on payment by the end of April 2009 at the latest. It is not clear that even that delay was agreed. However, beyond that date, RCI well knew that TM Germany had no intention of honouring the agreement it alleges was made on January 28, 2009.

[230] The second anniversary of the latest date when, on the evidence, RCI would have discovered its claim would thus have been no later than May 1, 2011. Any claim of the plaintiff based on breach of the alleged new agreement reached with TM Germany on January 28, 2009 became statute-barred by no later than May 1, 2011. Since there was no claim made alleging such an agreement prior to that date, the claim is barred in my view.

(e) What are the damages of the plaintiff?

[231] I shall now consider the question of damages should it be found that I have made any errors in relation to the negligent misrepresentation or contract claims.

[232] In its closing argument, the plaintiff summarized its claim as follows:

Original Purchase Order Balance: $1,350,000

Jan 29 2009 Invoice: $ 68,000

Auction Proceeds Paid: ($ 131,860)

Net legal fees before Roberts J.: $ 47,951.26

Total: $1,334,091.26

[233] In my view, resolving the issue of damages requires the resolution of two issues. Firstly, what is the balance owing by TM Canada under the contract? Secondly, what credit is the plaintiff required to grant in respect of the value of the equipment that was sold?

[234] In my view, the premise of the plaintiff’s damages calculation is entirely wrong. The two invoices in question reflect the total amount of the contract as if completed. There is no dispute that the contract was not completed. SAT was never completed and it will never be known if the three lines could ever have performed to the required specification.

[235] I have also rejected the plaintiff’s claim that there was a waiver of final acceptance condition agreed to on January 28, 2009. In the absence of actual completion or waiver of the requirement for final SAT, the full purchase price is simply not due by the terms of the contract.

[236] If the plaintiff cannot claim the full purchase price, what can it claim? The fact that SAT had not occurred is of course not a complete answer. The work on the contract was suspended at the purchaser’s request more than seven years ago. Clearly purchaser-imposed delay must at some point reach the point of implied termination or cancellation of the contract at some point.

[237] There is no evidence that TM Canada as purchaser ever provided formal notice of cancellation or termination of the purchase order. It has now wound up its operations and will never do so.

[238] There is similarly no evidence that RCI ever purported to give formal notice that it was treating the contract as being at an end either. The RCI invoice of January 29, 2009 to TM Canada made no such claim.

[239] If the contract was still alive – even if on life-support – in early February 2009, when was it terminated?

[240] Mr. Niewinski was unable to pinpoint the time precisely but described the process by which the decision was finally taken to wind-down TM Canada. It is clear that TM Canada did decide to wind-down its operations by laying-off its employees and selling off its equipment. The date that this occurred is not clear. However, by late April 2009 or early May 2009, TM Canada had lost any hope of commencing operations in its own right and was seeking only to sell the lines in some fashion.

[241] The plaintiff was aware of that decision as Mr. Niewinski remained in touch with RCI and sought to enlist its assistance in the mitigation efforts undertaken. RCI was aware of the sales efforts with Borg Warner, if from a distance. I would therefore find that TM Canada impliedly cancelled the purchase order definitively on or about May 1, 2009. Thereafter, there was no intention on the part of any of the parties to complete it. The hope – faint or otherwise - had been extinguished.

[242] The agreement between the parties contemplated the measure of damages to be applied in the event of the cancellation of the purchase order prior to final acceptance. The termination clause provides for the following amounts to be payable in the event of termination or cancellation of the order:

“The purchase price of all items or services, which have been completed, in accordance with this order and not previously paid for, or the actual cost, not to exceed the aggregate purchase price, of the respective assembly line modules specified in this order, of work in process and raw materials incurred by the seller in furnishing the items or services under this order”.

[243] The above language was derived verbatim from the language originally proposed by Mr. Osim on August 27, 2007 during the course of negotiation of the original purchase order. That proposal had a somewhat easier to read formatting that I find reflected the intention of the parties more clearly:

“1) The purchase price [f]or (sic) all items or services which have been completed, in accordance with this order and not previously paid for; or

2. The actual cost, not to exceed the aggregate purchase price specified in this order, of work in process and raw materials incurred by the Seller, in furnishing the items or services under this order”.

[244] In short, there were two possible measures to be applied in the event of termination or cancellation. For items “completed in accordance with this order” the full purchase price for those items was payable. For all others, the amount payable was “actual cost…of work in process and raw materials incurred by the seller in furnishing the items or services under this order”, subject to a limit of the original purchase price.

[245] The plaintiff submits that the first measure ought to be applicable in this case since “almost everything was complete”. I cannot agree. Finding that “almost everything was complete” and finding that any particular items were in fact “completed in accordance with this order” are two very different things.

[246] The purchase order was for the delivery of three assembly lines able to perform at required specifications with a unit price of $2,250,000 per assembly line for a total purchase price of $6,750,000. The “items or services” referenced in the termination clause refers to a full assembly line performing at the required level. Payment for these was only due after SAT which never occurred. Since none of these three listed items were completed and delivered able to perform to the standards specified in the purchase order, the purchase price for none of them was due when the purchase order was terminated on or about May 1, 2009. The first prescribed measure for calculating the amount due on cancellation is thus inapplicable in this case. No item was “completed in accordance with the order and not previously paid for”.

[247] The plaintiff’s claim therefore must be calculated based on the second test being the “actual cost…of work in process and raw materials incurred”. The plaintiff alleges that its costs exceeded the purchase price pursuant to the contract in any event, making the exercise of analyzing costs incurred (beyond the amount of the purchase price) irrelevant. I disagree.

[248] The plaintiff produced internal budget status reports tracking progress on all outstanding projects on a monthly basis. Mr. Mellema explained that this was part of RCI’s internal accounting as a subsidiary (at that time) of a public company. The last such internal budget document for this project was dated December 4, 2008 (the date of the stop-work order) although Mr. Robertson – who supervised the preparation of the document as project manager at the time – indicated that the data included in the report would in all likelihood have been as of November 30, 2008.

[249] The December 4, 2008 status report indicates that “material costs” of $4,893,661 had been incurred as of that date. “Material costs” included materials ($4,446,226), fixed contract labour ($393,634), “other costs” ($25,598) and installation expenses ($25,283). It also showed “Actual Direct Labour Costs” of $1,409,652. The total of these two internal figures shows a total incurred “actual direct” cost of $6,303,313 as compared to a “full” purchase price of $6,750,000. This internal budget and cost records of RCI indicate that “actual cost” incurred was thus $446,687 less than the full purchase price.

[250] The plaintiff’s suggestion that the project was in fact operating at a loss is premised on using “pro forma” labour rates of $80 to $125 per hour as contrasted with the internal “actual cost” labour rates of between $34.01 and $54.52 per hour.

[251] The “actual cost” figures are from the plaintiff’s own internal budget document and “actual cost” is the amount required to be proved under the contract between the parties. Notional allocations of overhead or margin contribution do not enter into the value of work in process for accounting purposes. The plaintiff has called no expert evidence to establish that actual cost can be construed other than as shown by its own internal records.

[252] The burden of proof was upon the plaintiff to prove its damages. The plaintiff led no evidence of actual cost apart from the December 4 budget document. I find that the plaintiff has not led evidence sufficient to displace the inference of “actual cost” that I have derived from the December 4, 2008 project status report. If there were other costs not reflected on that report, the plaintiff has not proved them.

[253] Accordingly, I find that the amount payable by TM Canada upon termination of the contract on or about May 1, 2009 is $903,313 (the full incurred cost of $6,303,313 less payments received).

[254] I have not included any separate amount for the CORs in these calculations. The agreed price for the CORs would be relevant if the contract had been completed (it was not). The actual cost of labour and materials for the change orders is already included in the cost of labour and materials incurred. These costs cannot be counted twice.

[255] That leaves the question of mitigation and the credit due from the plaintiff for the proceeds of sale. This in turn raises two issues that I shall examine separately. Firstly, should the plaintiff account for the actual proceeds of sale received or the proceeds of sale less fees paid to its own lawyers in defending the priority of its security in the litigation proceedings before Roberts J. (as she then was)? Secondly, what impact if any should the removal of the PLCs and the defendants’ arguments regarding mitigation have upon the figure?

[256] As for the litigation costs, I would deduct from the plaintiff’s claim the full amount of the proceeds of sale of the three assembly lines received, being $131,860. Those proceeds were paid over to the plaintiff after it prevailed in legal proceedings that found its security interest to rank prior to that of Sparkasse (whose security interest had been assigned to Thomas Deutschland as guarantor).

[257] I decline to allow the plaintiff to add to the debt claimed the amount of its own legal expenses in that prior litigation. Costs were claimed, assessed and paid to the plaintiff in that proceeding. The plaintiff was not awarded full indemnity costs in that proceeding and cannot claim them here. I find that the matter of costs in that earlier proceeding is now res judicata as is the finding of priority made therein. If I am wrong in so holding, the difference between legal fees paid and costs awarded by Roberts J. is $47,951.26 and the plaintiff’s claim would be increased by that amount.

[258] I am also of the view that the plaintiff ought to be held accountable for an amount in respect of the removal of the PLCs that I have calculated at $80,000.

[259] By the terms of the purchase order between TM Canada and RCI, RCI retained ownership of all goods supplied until paid in full. If the plaintiff had a security interest in the PLCs, why should it be called to account for having removed them?

[260] The answer to that question lies in the difference between a purchase-money security interest (that RCI held after it shipped the three assembly lines to TM Canada in November 2008) and a possessory interest (that it held before then).

[261] Under the purchase order, RCI was required to ship each of the three assembly lines to the premises of TM Canada after FAT was certified. It did so and was duly paid the balance of the third milestone payment in November 2008. The equipment shipped to TM Canada included the PLCs without which none of the lines could be operated. Upon arrival, possession of the all of the equipment passed to TM Canada. RCI’s interest shifted from having a possessory interest in goods appropriated to a contract but subject to a title retention clause to having a purchase-money security interest securing payment of the balance of the purchase price in goods in the possession of the debtor (TM Canada).

[262] On December 4, 2008 RCI removed the PLCs secretly and without the consent of TM Canada as debtor. Nothing in either the security agreement (in this case, the purchase order containing the title retention clause) or Part V of the PPSA gave them the right to do so. This was an act of pure self-help. RCI acted before any default under the purchase agreement had occurred that might have rendered its security enforceable. There was no amount then due and payable. It acted based on Mr. Robertson’s hunch – a hunch that proved accurate – that his installation team would shortly be asked to leave the factory.

[263] The plaintiff submits that no damages have been shown to have flowed from this action. I disagree.

[264] Mr. Robertson’s testimony indicated that the PLCs had a replacement cost value in the range of approximately $200,000. This was determined using the hardware value of $15,000 that he estimated plus the 1,500 hours that he estimated went into programming the CORs at the same “charge out” rate of $125 per hour that he said RCI used at the time. This is indeed a rate reflected on some of the internal documents produced as part of the process of negotiating the CORs. If $200,000 was the “retail” value of the PLCs, it was not the cost value.

[265] The “cost value” of the PLCs can be estimated using Mr. Robertson’s testimony and the December 4, 2008 status report. The status report reflected a total of 4,059 hours of labour cost shown as “Programming/Controls” at a direct cost of $175,065. The hourly rate implied by this is $43.13, resulting in a cost value for the PLCs of 1,500 x $43.13 = $64,695. I have rounded this to $65,000 and added the $15,000 hardware cost estimated by Mr. Robertson to this to obtain a total estimated cost value of the PLCs of $80,000.

[266] While the plaintiff is correct that a precise amount of lost value in the realization process attributable to the missing PLCs is not in evidence before me, the fact that the removal was intended to impede the realization process and in fact did so is undeniable. Mr. Niewinski described the PLCs as being held “hostage” in an internal email and he was correct. Borg Warner – being the main “prospect” that TM Canada sought to work with prior to resorting to an auction sale – specifically asked for a demonstration of the equipment that TM Canada was unable to provide. The removal of the PLCs required Borg Warner to factor in a subsequent deal with RCI and ultimately they decided to move on. That is not evidence that the PLCs did not interfere and interfere substantially in any attempt to maximize value of the collateral. Having to make a deal with both RCI and TM Canada was more complicated and potentially expensive than having to deal with just one of them. There is no question that the removal of the PLCs played a role in Borg Warner’s decision.

[267] The defendants likened their task to trying to sell a car without having the keys or the ability to do a test drive and I agree. This was high-end, sophisticated automated equipment. It was not able to be demonstrated nor were any videos of it working available (another request made by Borg Warner that could not be fulfilled).

[268] While I find that the sales process was undoubtedly affected negatively, I must reluctantly agree with the plaintiff that the defendants have adduced no evidence to enable me to put a specific value on that negative impact. The equipment was ultimately sold, effectively, for scrap. The realized price was pennies on the dollar relative to the millions expended to produce it. What value might have been able to be realized had the equipment been able to be demonstrated and if a purchaser would not have had to incur $200,000 or more to program its own PLCs will never be known.

[269] On the other hand, I cannot ignore the fact that critical equipment of real value was removed without permission. This had certainly interfered with an eventual sale, even if the extent of the interference cannot now be known. Given the evidence before me and the very low values ultimately realized, I have decided that denying the plaintiff its claim in respect of the cost value of the PLCs that it removed is the fairest outcome in all of the circumstances. The purchase order entitled the plaintiff to claim its incurred costs upon termination – I find that it cannot include in that claim the cost of the PLCs that it removed without permission. I find that cost amount to be $80,000.

[270] Accordingly, I find that the plaintiff’s claim against TM Canada as of termination of the purchase order effective May 1, 2009 and thus its potential damages as against TM Germany or Sparkasse is $691,453 calculated as follows:

Actual cost of Work in Process and Materials: $6,303,313

Less Amounts Paid on Account: $5,400,000

Less actual cost of PLCs removed: $ 80,000

Less Proceeds of Auction Sale Received: $ 131,860

Total Claim: $ 691,453

Disposition

[271] I am dismissing the plaintiff’s claim. In the final analysis, this claim amounts to an attempt to apply hindsight to convert a non-contractual comfort letter into a de facto guarantee to allocate risks that neither party considered material at the time. I agree with the conclusion expressed by Winkler J. as he then was in TD Bank v. Leigh Instruments Ltd. (Trustee of), 1998 14806 (ON SC), aff’d 1999 3778 (ON CA) where he described comfort letters in the following terms (at para. 581):

“Letters of comfort are just that, comfort. They are not guarantees or formal security nor are they enforceable as such. They are gentlemen’s agreements and moral obligations. This is common knowledge in the business community.”

[272] Mr. Mellema essentially expressed this same “moral obligation” aspect when he originally characterized the Sparkasse letter as indicating to him that Sparkasse was “for” the project. If the Sparkasse letter evidenced a moral obligation, there is ample evidence that it had considerable value given the payment that was released in November 2008 despite ample grounds then existing to block it. It does not appear to me surprising that those moral claims did not survive the plaintiff’s surreptitious removal of the PLCs and its attempts to assert additional termination claims, including punitive interest payments, from a financially-challenged business partner in early 2009.

[273] The plaintiff expected the request to transfer the purchase order and agreed to it quite freely when the request was received. It had the opportunity to seek contractual assurances in connection with its agreement but, for its own reasons, chose not to do so. It is not for this court to make new bargains for the parties that they chose not to make for their own commercial reasons. The comfort letter was honestly given even if in response to a request that was rather guilefully made. It did not mislead the plaintiff in any way.

[274] I am reserving for the time being the question of costs including whether any non-parties should be ordered to pay them. The defendants have been successful. The plaintiff RCI has been a dormant company since Mr. Mellema acquired it in July 2010 following the bankruptcy of Rohwedder A.G. while 2249659 Ontario Ltd. is controlled by Mr. Mellema and appears to be RCI’s only creditor but is otherwise also dormant. If costs are being sought by the defendants from Mr. Mellema personally, I expect to see submissions directed to that question.

[275] It is my understanding that the parties have had some discussions regarding costs. I would of course encourage them to resolve the matter of costs if they are able. If there is any difficulty in doing so, I will receive written submissions. In that event, I would ask the parties to restrict themselves to five pages excluding outline of costs and to refrain from attaching cases unless not readily available on-line. Written submissions of all parties should be assembled and delivered to me together, electronically if possible, within 45 days of the date of release of these reasons. The defendants should deliver their submissions to the plaintiff first (within three weeks) leaving the plaintiff a further three weeks to respond. If it is thought necessary to reply, the defendants may do so briefly within three days.

[276] I would like to take this opportunity to commend the parties for a thorough and well-presented case. The parties co-operated in assembling a chronology, an agreed statement of facts and agreed documents. They provided electronic copies of all documents and cases. Written arguments were delivered at the close of trial and case books were delivered at the beginning supplemented only with a handful of additional cases at the end. In short, the case proceeded with model efficiency and the parties displayed a level of professionalism and courtesy during

the conduct of the hearing consistent with the finest traditions of the bar. Someone must emerge victorious from disputes such as this, but that reality in no way reflects upon the quality of the efforts expended.

S. F. Dunphy, J.

Released: April 29, 2016

CITATION: 2249659 Ontario Ltd. v. Sparkasse Siegen, 2016 ONSC 2066

COURT FILE NO.: CV-10-411470

DATE: 20160429

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2249659 Ontario Ltd. and Rohwedder Canada Inc.

Plaintiffs

– and –

Sparkasse Siegen and Thomas Magnete GmbH

Defendants

REASONS FOR JUDGMENT

S. F. Dunphy, J.

Released: April 29, 2016

[^1]: Mr. Mellema purchased RCI and all of its assets, including the claims asserted in this law suit, for €1 upon the insolvency of RCI’s parent, Rohwedder AG on July 13, 2010. RCI is now an inactive company. The plaintiff 2249659 Ontario Ltd. is also owned by him and is no more than a creditor of RCI added for the purpose of being bound.

[^2]: Mr. Robertson suggested that the invoice may have been sent in early February but dated January 29,2009. He was unable to provide any concrete evidence to substantiate the claim that it was sent on a date other than as stated on its face. He did have evidence of having provided spreadsheets for invoice back-up to RCI’s accounting department in February but could not verify if these preceded or followed the sending of the invoice.