COURT FILE NO.: CV-09-375888
DATE: 2021-09-08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AMELIN ENGINEERING LTD. and MICHAEL ELINSON
Plaintiffs
– and –
STEAM-ENG INC. and BLOWER ENGINEERING INC.
Defendants
Peter-Paul DuVernet, Matthew Diskin and Thomas Dumigan, for the Plaintiffs
Jonathan F. Lancaster and Rachel Laurion, for the Defendants
HEARD: February 16, 17, 18, 19, 22, 23, 24, 25, 26; March 1, 2, 3, 4, 2021 via zoom videoconference
A.Ramsay J.
[1] The trial in this matter proceeded by Zoom videoconference over 13 days from February 16, 2021 to March 4, 2021.
A. Nature of the Action
[2] The plaintiffs and defendants had almost a decade long business relationship, whereby the plaintiffs would promote and sell steam generators designed and manufactured by the defendants in the Former Soviet Union (“FSU”) and, later on, other territories. The business relationship ended in early 2004 at the instance of the defendants.
[3] The plaintiff, Michael Elinson (“Elinson”), submits that he received a brochure from the defendants containing representations about the capabilities of the steam generators and, in reliance upon those representations, entered into an agency relationship with the defendants, but the defendants’ steam generators could not operate as represented. The plaintiffs submit that the steam generators could not operate, as represented, between 1996 through to 2003. A statement of claim was issued on April 3, 2009, seeking damages for negligent misrepresentation.
[4] The plaintiffs allege at paragraphs 30 to 31 of the statement of claim that:
“30. On or about April 16, 2003, Bell Combustion delivered its report to the Plaintiff setting out its observations (the "Report"). In summary, the Report concluded that the Steam Generators could not operate at or near the specified maximum output without producing unacceptably high levels of CO and NO/NOx.
- Receipt of the Report was the first time the Plaintiffs became aware that the Steam Generators could not perform in accordance with the Representations and that the Representations were false.”
[5] The plaintiffs therefore rely on the April 16, 2003 report date as the date triggering the running of the limitation period.
[6] The defendants deny any misrepresentation and submit that the action is statute barred. The defendants issued a counterclaim on July 29, 2009 seeking a set-off for unpaid invoices. In turn, the plaintiffs have pleaded that the counterclaim is statute barred.
B. The Issues
[7] Is the plaintiffs’ action for negligent misrepresentation barred by statute?
[8] If no, are the defendants liable to the plaintiffs for negligent misrepresentation?
[9] Is the counterclaim for set-off barred by statute? If no, what are the damages?
C. The Parties
[10] The plaintiff, Amelin Engineering Ltd. (“Amelin”), was incorporated under the name 1031782 Ontario on May 31, 1993, later changing its name on June 26, 1997 to its current name.
[11] The plaintiff Elinson, an engineer, is the founder and principal of Amelin.
[12] Thomas Byrnes (“Byrnes”), an engineer, is the president of the corporate defendants Blower Engineering Inc. (“Blower") and Steam-Eng Inc. (“Steam-Eng.”). Blower was incorporated in Ontario on October 31, 1980, and Steam-Eng on January 16, 1998. Both Blower and Steam-Eng designed, manufactured, and sold the steam generators which are the subject of this action. Byrnes, in his personal capacity, is not a party defendant.
D. Procedural Matters
i) Bifurcation of Trial and Affidavits to Adduce Evidence at Trial
[13] On the consent of the parties, and by order dated February 11, 2019, Wilson J. directed that a trial on liability should proceed before the trial on damages. The parties also consented to evidence of witnesses in chief being adduced by way of affidavits. Almost without exception, the affidavits filed before the trial had issues.
[14] Subrule 4.06(1)(d) and 4.06(2) and (3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which govern the content of an affidavit and the manner in which exhibits are dealt with for use in a proceeding, provide as follows:
4.06 (1) An affidavit used in a proceeding shall (emphasis added),
(d) be divided into paragraphs, numbered consecutively, with each paragraph being confined as far as possible to a particular statement of fact; and
(2) An affidavit shall be confined to the statement of facts within the personal knowledge of the deponent or to other evidence that the deponent could give if testifying as a witness in court, except where these rules provide otherwise.
Exhibits
(3) An exhibit that is referred to in an affidavit shall be marked as such by the person taking the affidavit and where the exhibit,
(a) is referred to as being attached to the affidavit, it shall be attached to and filed with the affidavit;
(b) is referred to as being produced and shown to the deponent, it shall not be attached to the affidavit or filed with it, but shall be left with the registrar for the use of the court, and on the disposition of the matter in respect of which the affidavit was filed, the exhibit shall be returned to the lawyer or party who filed the affidavit, unless the court orders otherwise; and
(c) is a document, a copy shall be served with the affidavit, unless it is impractical to do so.
[15] Despite the mandatory requirement of the rule with respect to affidavits and exhibits, almost, without exception, there were issues with the affidavits of the witnesses which led to the striking, in some cases, paragraphs or sentences. A significant amount of trial time was devoted to addressing motions objecting to certain evidence in various affidavits. Even where no objection was raised with respect to some of the breaches of the rule, there remained a number of issues with some of the affidavits, some of which were only rehabilitated during direct questioning or on cross examination. By far, the most frequent breach related to hearsay evidence; not far behind, were objections related to deponents attesting to facts that they had no personal knowledge of and lay witnesses providing opinion evidence.
[16] As for the exhibits, referring to documents filed in the Joint Document Brief, incorporating, by reference, information contained in an external document, being proffered for the truth of its content, which is otherwise hearsay evidence, referring to information in a footnote to the affidavit, do not satisfy subrule 4.06(3), and is not sworn evidence. This practice was even more problematic given the restrictions and caveats by the parties on documents in the Joint Document Brief.
ii. The Pleadings
[17] The statement of claim only pleads negligent misrepresentation. At trial, the plaintiffs submitted that the claim was also based on a breach of contract, and sought to rely on the Sale of Goods Act, RSO 1990, c S 1 ss 2(1), 4 (“Sale of Goods Act”), and also advanced a claim, now recognized by the Supreme Court of Canada, based on the defendants’ breach of good faith in carrying out their contractual duties: see: Bhasin v Hrynew, 2014 SCC 71 at paras 63 and 73 and, CM Callow Inc v Zollinger, 2020 SCC 45, at para 3. The plaintiffs suggested that the cause of action against the defendants also encompasses a breach of contract alleging that the defendants breached both the 1995 exclusivity agreement and the 2000 Extension Agreement by breaching the implied condition that the steam generators would be fit for particular purposes.
[18] The plaintiffs did not seek leave to amend the pleadings but argued that the current pleadings should not be construed too narrowly.
[19] It is trite law to state that the pleadings govern the oral and documentary process. The Supreme Court of Canada commented that they define the issues in an action and give the other side notice of the case they must meet, setting the parameters and context for effective pre-trial management as well as the parameters of expert opinion: Lax Kw’alaams Indian Band v Canada (Attorney General), 2011 SCC 56 at para 43.
[20] The failure to plead a cause of action is not a mere technicality. Subrule 25.06 (1) of the Rules of Civil Procedure, provides that:
Every pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved (emphasis added).
[21] The Ontario Court of Appeal has stated that lawsuits must be decided within the boundaries of the pleadings so as to afford the opposing parties an opportunity to address the issues in evidence presented at trial: 460635 Ontario Ltd v 1002953 Ontario Inc, 1999 CanLII 789 (ON CA), [1999] OJ No 4071 at para 9 (ONCA), Kalkinis (Litigation Guardian of) v Allstate Insurance Co of Canada, 1998 CanLII 6879 (ON CA), 41 OR (3d) 528 at para 12 (ONCA), and Rodaro v Royal Bank, 2002 CanLII 41834 (ON CA), [2002] OJ No 1365 at para 60 (ONCA).
[22] While concurrent liability may exist in both tort and contract arising from the same acts or omissions, they remain two separate claims. On a generous reading of the statement of claim, the only cause of action against the defendants is based on the tort of negligent misrepresentation.
[23] It would be prejudicial to the defendants to consider any other claims, other than what is pleaded, so late in the day, and amend, indirectly, the statement of claim.
E. The Witnesses
[24] The plaintiffs’ witnesses were Michael Elinson, Douglas Whitelaw (“Whitelaw”), Paul Trauzzi (“Trauzzi”), John Litwin (“Litwin”) and an engineering expert, Robert Sparling.
[25] The defendants’ key witnesses were Thomas Byrnes and Heidimarie Beraldo.
F. Background
[26] In the 1980s, Byrnes invented a steam generator system that would produce steam by applying water spray to burner exhaust gases. The subject steam generator has a combustion chamber with a water spray nozzle at one end, and a burner at the other. The steam generator was to replace steam boilers in certain situations to heat water, concrete, or sand, among other applications.
[27] On December 5, 1989, Blower Engineering Inc. obtained a patent in the United States of the steam generator and a patent was issued in Canada on April 3, 1990. The Abstract describes it as:
“A compact instant steam generator is provided for on site use where various qualities of steam may be required. A water jacket cooled combustion chamber having a burner at one end and a water spray nozzle at the other end is used. In operation, a water spray is directed counterrourrently to the burner exhaust gases whereby instant vaporization of the water occurs due to the extreme turbulence and through mixing of the opposing steams. The water spray is located remote from the burner flame so that flame quenching by the water does not occur. The device of the invention is capable of generating steam while coproducing a very low level of carbon monoxide.”
[28] One of the early brochures created by Blower, said to be the first brochure, has the name Blower Engineering as well as its address at the time, 91 Fernstaff Court. Under the Heading “Eliminate Your Boiler and Save With Advanced Technology”, a description of the “direct fired steam generator” is provided with a diagram labeled “Energy Savings Justify Steam –“, followed by eight bullet points, followed by a description of the various 5 pounds per square inch gauge (PSIG) low pressure models, and their corresponding capabilities, as well as high pressure 15 PSIG models, and their capabilities as follows:
[29] Before June 5, 2000, Steam-Eng changed the orientation of the combustion chamber on its steam generators from a vertical to a horizontal layout some time before June 5, 2000.
[30] Byrnes created the brochures to market the steam generators. The first brochure was created in around 1990 and a second in mid-1995.
[31] There is some dispute between Elinson and Byrnes as to whether their initial meeting occurred in 1991 or in 1994. Byrnes does not recall giving a brochure to Elinson after the initial meeting but does not dispute his evidence. Both agree that they met shortly after the initial contact to discuss a business arrangement though their stories diverge as to what occurred after that initial meeting and the time that elapsed before the agency agreement in 1994 was completed.
[32] It is not disputed that on November 10, 1994, Amelin and Blower entered into an agreement whereby Amelin became the exclusive representative (“the agency agreement”) to sell certain direct fired steam generator manufactured by the defendants, and certain other products in states formerly in the USSR in exchange for a commission, with an option to renew the contract after 12 months (the “first agreement”).
[33] On January 29, 1995, Amelin and Blower Engineering signed a five-year renewable “Manufacturer’s Representative Agreement for Steam-Eng Products” (the “exclusivity agreement”). Under the 1995 exclusivity agreement, Blower undertook to sell steam generators to Amelin and Amelin agreed to obtain licensing and approval to sell those steam generators under its own name in the FSU (the “second agreement”). The five-year term was set to expire on January 29, 2000.
[34] The 1995 exclusivity agreement was revised by a letter from Blower to Amelin dated December 20, 1996 which, among other things, expanded Amelin’s exclusive territory, reduced Amelin’s purchase price for Blower’s steam generators, modified Amelin’s sales objectives, and voided some of Amelin’s discounts and commissions under the 1995 (the “third agreement”).
[35] In April 24, 2000, Amelin and Steam-Eng extended the January 1995 agreement to January 29, 2010 for a further five years (retroactive to January 2000) (the “fourth agreement”).
[36] On February 3, 2002, Steam-Eng. granted an exclusive licence to Amelin “to purchase parts for and assemble steam generators…for distribution and selling in that territory composed of all of the former USSR…” for steam generators “including, without limitation, present models ST02L, ST502H, ST302L, ST302H, ST102L and ST102H”.
[37] Between 2002 and 2003, Amelin had its employees complete repair work on customers steam generators in Russia.
[38] In April 2003, Amelin retained Bell Combustion to carry out a combustion emissions test at one of the defendants’ facility on a steam generator manufactured by the defendants.
[39] In May 2003, Amelin dispatched one of its employees to a customer’s plant in Russia to replicate the same combustion emissions test.
[40] On May 26, 2003, Amelin sent a letter to the defendants which chronicles issues with the steam generators.
[41] In a letter of November 26, 2003, the defendants demand payment from the plaintiffs for outstanding invoices.
[42] By letter dated January 12, 2004, the defendants terminated the agreements between the parties.
[43] The plaintiffs commenced this action for negligent misrepresentation and argue that they entered into the agency agreement, and the other agreements, on the strength of the representations made by the defendants in their brochure, and subsequent brochures, including such representations that the steam generators had an output of 5,000,000 BTUs (British Thermal Unit) per hour, produced emissions with minimal nitrous oxide (“NOx”), and produced emissions with less than ten parts per million (10 ppm) of carbon monoxide (“CO”). The plaintiffs submit that the 1994 and 2000 brochures include the following statements about the defendants’ generators:
[44] The plaintiffs submit that the Steam-Eng Brochures include charts which describe the performance capabilities and specifications of the defendants’ steam generators and models (the “Performance Charts”), also contained in at Schedule “E” of both the 1995 Exclusivity Agreement and the 2000 Extension Agreement, as follows:
[45] Between 1995 and the termination of the relationship in 2004, Amelin purchased 20 steam generators from the defendants which it sold to customers in the FSU.
[46] In or around July 1996, Amelin purchased one ST502H steam generator (the “Kiev steam generator”) for the Brovary Tire Repair Plant in Kiev, Ukraine (the “Kiev Tire Plant”).
[47] Amelin placed an order with Blower for one ST502H steam generator for the Berlek Block & Brick Factory in Ufa, Bashkortostan, Russian Federation (the “Berlek Factory”) on March 12, 1997.
[48] In or about September 1997, Amelin purchased two ST303 steam generators (the “Ufa Generators”) for a dam in Ufa, Bashkortostan (the “Second Ufa Plant”).
[49] On August 15, 2001, Amelin purchased, from Steam-Eng, three ST502Ls and one ST502H model for the Moscow Filit Plant (“Filit”), and two ST502Ls for the Oskol Steamwood Plant (“Steamwood”).
[50] On April 9, 2002, Amelin placed an order with Steam-Eng for 10 ST502 steam generators.
[51] The defendants admit, in their statement of defence, to selling 19 steam generators to the plaintiffs as follows:
a. One ST502H for the Brovary tire plant;
b. Two ST303H steam generators for Ufa, Bashkortostan;
c. Three ST502L steam generators and one ST502H steam generator for a pipe plant in Moscow;
d. Two ST502L steam generators for drying wood in Oskol; and
e. Ten ST502H steam generators for unspecified end users.
[52] There is no dispute that one of the steam generators installed for the Berlek Block and Brick Factory in 1998 was not accounted for in the admission. Exhibit 4 at the trial set out a Schedule of purchases, invoices, and the relevant dates and the number of units purchased for each of Amelin’s customer, as follows:
| Vendor | Serial Number | Invoice date (M/D/Y) | Location | Model | Qty |
|---|---|---|---|---|---|
| Blower Engineering Inc. | 502-082-896 | 09/03/1996 | Kiev (Brovary Tire Plant) | ST502H | 1 |
| Blower Engineering Inc. | 502-082-898 | 09/15/1997 | Ufa - Berlek Brick Factory | ST502H | 1 |
| Blower Engineering Inc. | 303-121-598 303-121-798 |
03/19/1998 | Ufa - Dam | ST303H | 2 |
| Steam-Eng Inc. | (ST502L) 502-1031-01; 502-1032-01; 502-1033-01 (ST502H) 502-1030-01 |
10/12/2001 | Filit (Moscow) | ST502L (3 units) ST502H (1 unit) |
3 1 |
| Steam-Eng Inc. | 502-1034-01; 502-1035-01 |
10/29/2001 | Oskol Steamwood Drying Plant | ST502L | 2 |
| Steam-Eng Inc. | 502-1053-02; 502-1054-02; 502-1055-02; 502-1056-02; 502-1057-02 | 09/19/2002 | N/A | ST502H | 5 |
| Steam-Eng Inc. | 502-1058-02; 502-1059-02; 502-1060-02; 502-1061-02; 502-1062-02 | 08/11/2003 | N/A | ST502H | 5 |
G. Evidence at Trial
Michael Elinson
[53] Elinson’s evidence in chief was adduced primarily through an affidavit and reply affidavit sworn on August 29, 2019. There were a number of paragraphs in his affidavits which were struck and others which remained, but not for the truth of the content. There are a number of remaining paragraphs which are in breach of r. 4.06, including legal argument and conclusionary statements (of law) based on proffered evidence in the affidavit.
[54] Elinson is the founder and president of Amelin. He founded the Amelin group of companies in 1991 and incorporated Amelin Engineering Ltd., the corporate plaintiff, in 1993. He has an engineering degree from Moscow Polytechnical (1974), obtained a Masters degree equivalency from the University of Toronto in 1978, and became a licensed professional engineer in Ontario in 1980. He has specialized in the fields of industrial water treatment and corrosion of metals and has extensive experience in the thermal generation (steam and hot water) and water treatment industry in various territories including the FSU, Canada, and the United States. Amelin acts as a representative for steam generation equipment manufacturers.
[55] Elinson was permitted to provide opinion evidence as a lay witness in accordance with the test in Hunt (Litigation Guardian of) v. Sutton Group Incentive Realty Inc. (“Hunt”), 2002 CanLII 45019 (ON CA), [2002] OJ No 3109 (ONCA).
[56] He first met Byrnes in 1994 at a trade show in Toronto, the same year that he and Byrnes attended the wedding of Bert Beraldo. As far as he was aware, Beraldo was married only once. Blower had a booth at the trade show to promote its products. He had a discussion with Byrnes about the capabilities of the steam generator at that time. At Byrnes invitation, he visited Blower’s manufacturing facility in Concord, Ontario, to discuss the prospect of Amelin and Blower working together to sell industrial steam generation equipment in the FSU. Byrnes made representations to him as to the performance capabilities of the steam generators.
[57] He was provided with a 1994 brochure, which was updated in 2000, which contained, among things, representations that the defendants’ steam generators were “[s]tate of the art” , had a tough, stainless steel, refractory-lined combustion chamber to ensure safety and efficiency, had specific steam generation capabilities (5 million BTUs (British Thermal Units per hour for Blower’s model ST502 steam generators sold to Amelin, had emissions with carbon monoxide concentration below 10 ppm, could perform at a system back pressure of up to 15 PSIG (pounds per square inch
gauge) for the ST502H and 5 PSIG for the ST502L model, required no chemical water treatment, were pre-assembled with pre-wired control panels for ease of installation and had low nitrous oxide emissions). He deposes that he relied on these representations.
[58] On January 29, 1995, Blower and Amelin entered into an exclusive sales representative agreement for a term up to January 29, 2000, whereby, Blower was required to sell equipment to Amelin, which, in turn, Amelin would re-sell under its own name in the FSU. Under the exclusivity agreement, Amelin agreed to maintain the ability to provide competent and adequate technical assistance, service, and support to customers. Amelin purchased 20 steam generators under the exclusive agreement from the defendants, which it sold under its own name in the FSU.
[59] The exclusivity agreement was revised by a letter from Blower to Amelin dated December 20, 1996, expanding the territory for which Amelin was Blower’s exclusive sales representative, reducing Amelin’s sales target and reducing Amelin’s purchase price for the steam generators. In April 2000, the Exclusivity Agreement was amended, and extended to January 29, 2010.
[60] On February 3, 2002, Amelin and Steam-Eng entered into an exclusive licence agreement, to expand Amelin’s distribution of the steam generators throughout the FSU, by assembling the steam generators at a higher rate in the Russian Federation. From 1995 to approximately 2003, he promoted the steam generators throughout the FSU and elsewhere. Amelin obtained permits and licences for the import and operation of the steam generators in the Russian Federation from 1997 to 2003.
[61] Amelin incorporated Amelin Promex in the Russian Federation. In 2002, the office in Moscow had 17 employees. Amelin was able to attract many prospective buyers for the steam generators.
[62] He would advise Byrnes of the intended purpose of the steam generator and Byrnes was responsible for recommending and designing the steam generation systems based on Amelin’s customers’ needs
[63] At paragraph 76 and 77 of his affidavit, Elinson deposes that:
- None of the steam generators purchased from the defendants complied with the
Representations as to their performance. Fundamental deficiencies manifested specifically with the installations of the defendants’ steam generators at Filit and Steamwood, as described in paragraphs 88 to 98, below. After the fundamental deficiencies in the defendants’ steam generators were discovered, Amelin told subsequent end-users (i.e. transactions 6 and 7) the true performance constraints of the steam generators in order to limit further reputational damage. Amelin told these customers that the steam generators could not operate at 5M BTU/hour and could only operate with back pressures of up to 8 PSIG.
- Contrary to the defendants’ Representations about the performance capabilities of their
steam generators, the steam generators failed catastrophically at Filit (and Steamwood) forcing shut-downs, attempted repairs, and below-capacity operation:
i. the equipment could not operate at its rated capacity (5M BTU/hour) for more than short periods of time without breaking down;
ii. when the equipment was operating at its rated capacity, critical components such as the gas gun would melt or disintegrate and fail;
iii. the water nozzles were poorly designed and caused significant damage to the refractories of the steam generators;
iv. when the system back-pressure was approaching the purported maximum of 15 PSIG8 (i.e. when running with back-pressures in the range of 9 to 11 PSIG), the refractories (essentially heat shields) on the steam generators would disintegrate after only a few days of operation and the inner walls of the combustion chamber would burn; and
v. when running at their rated capacity of 5M BTU/hour, the steam generators were producing excessive (and harmful) CO and NOx emissions
[64] Shortly after the Berlek factory installation in Ufa in 1998, he had discussions with a customer regarding issues with the steam generator which was failing. He was made aware of complaints regarding the Berlek steam generator “generating excessive CO emissions when operating at its rated capacity of 5M BTU/hour”, “. damaging ancillary systems (corroding the steam supply pipelines and steam chambers and acidifying the water in the heating system)”, and “failing due to melting/corrosion of the water nozzle and refractory, which negatively affected the steam generators’ ability to effectively generate steam”. He observed that “the combustion chamber walls on the steam generators were red hot”, and informed Byrnes of the issues. Berlek factory had to operate the steam generators at half its rated 5M BTU/hour capacity.
[65] Between 2002 to 2003, Amelin spent a significant amount of effort and capital repairing, redesigning, and incorporating improvements to the steam generators, in an attempt to make them operate at the capacity and within the parameters represented by the defendants which included redesigning and replacing the water nozzle, and replacing the refractory material with new material that could withstand higher temperature.
[66] He deposes that he relied on Byrnes’ assurances that the steam generators could perform in accordance with the representations and it was not until April 7, 2003 and the subsequent receipt of the Bell Combustion that Amelin knew that the steam generators were incapable of performing as rated. On May 26, 2003, he sent Byrnes a summary of Amelin’s findings and attempted repairs with respect to the installations at Filit and Steamwood from June 2002 to May 2003. The summary included the cost of $225,000 USD in addressing issues Some of the issues that he raised with Byrnes in the letter include that:
i. the control panels delivered with all six steam generators for Filit and Steamwood in June 2002 were faulty, requiring that Amelin spend two weeks re-wiring them;
ii. the motors powering the blowers on the ST502L units supplied to Filit and Steamwood had to be replaced with higher power motors, due to issues (in July
- with a steam generator at Filit on which the stock blower motor failed due to system back pressures greater than 5 PSIG;
iii. from November 2002 to January 2003, failing nozzles on the four steam generators at Filit caused significant damage to the burner refractories, requiring repair that took six weeks in total;
iv. the repair to the refractories meant that steam generation at Filit had to be shut down, leading to a lack of heat at Filit, labour unrest, and production losses, all of which Amelin was charged for;
v. in March 2003, Amelin discovered that all four steam generators at Filit were overheating, indicating issues with the stock refractory;
vi. in April 2003, Amelin was informed that the Russian Boiler Regulatory Agency found excessive CO emissions from the steam generators at Filit (exceeding 200 ppm) and intended to certify the steam generators to run at 3.5-4M BTU/hour, instead of 5M BTU/hour;
vii. in April 2003, Amelin hired Bell Combustion to test the defendants’ steam
generators, and found excessive CO emissions…;
Paul Trauzzi
[67] Paul Trauzzi worked for Amelin as a General Manager/Project Managers from 1997 to around to 2014.
[68] He has worked with direct fire steam generations and has worked with practically all the steam manufacturer in the world and has installed over forty machines. He has been licensed by various manufactuers of steam generators. He was introduced to the defendants’ steam generators in 1997 and trained by John Secord and Tom Byrnes. He was involved in the installation of all, but one, of the steam generators bought by Amelin. He was not involved in the Kiev (Brovary) installation. He has been involved in taking the machines completely apart, down to their last bolt, analyzing every part of them, and putting them back together.
[69] The defendants acknowledged that he met the test to provide opinion as a lay witness.
[70] He was involved first-hand in the on-site installation, commissioning, and repair of steam generators manufactured by the defendants and was involved with the installation. He was personally involved in the repair of steam generators at the Filit plant in Moscow, and the Steamwood plant in Stary Oskol. Three of the steam generators provided for Filit and both of the steam generators provided for Steamwood were ST502L models (low pressure). There were to operate with up to a maximum system back pressure of 5 PSIG2, i.e., “the force pushing back against the steam that exits the steam generator”. Byrnes calculated that the capacity for the steam generators to operate under a maximum back pressure of 5 PSIG was sufficient for Filit’s application but the back pressure on the machines at Filit and Steamwood were greater than 5 PSIG.
[71] He deposes in his affidavit that Amelin discovered that the steam generators’ 5 PSIG back pressure limit was insufficient in July 2002. He was able to modify blower motors at the direction of Byrnes.
[72] On cross examination, he testified that by late 2002 he was back in Russia at the Filit plant to carry out repairs on the steam generators. He took thousands of photos of the problems, some which he identified in the Sparling report. He testified that he observed, in some instances, “catastrophic failures” of the steam generators. He clarified, at one stage, a type of catastrophic failure that could lead to a fire. He admitted that the bundle of 143 photographs referenced in Mr. Sparlings affidavit was from a selection from the thousands of photos that he took in 2002 to 2003 at the Filet plant before he effected repairs. He admitted that some of those photos were taken by him at least by November 22, 2002 and January 3, 2003, showing what he described as “catastrophic failure” of the steam generators at Filet, and identified some of those “catastrophic failures” as including a worn away refractory caused by water spraying on it and flame burning a hole “right through the side of the burner chamber”. There were multiple “catastrophic failures”. He sent photos that he took of the Filet plant in emails to Byrnes and Elinson.
[73] During cross examination, he testified that any information that recorded on an ongoing basis the BTUs at which the steam generators were operating would be available off the gas metre, which would indicate how many cubic metres of gas it was burning, from which the BTUs could be calculated. With each installation that he did, he would do a report which would record, among other things, what the gas metre was reading on low fire and high fire. He was aware that the plants would send this information to Amelin when they noticed a problem. He was aware, by virtue of seeing emails and being present during conversations with Elinson and Brynes, that there were problems with the Berlek plant installation in 1999.
[74] Trauzzi was a credible witness acknowledging his memory issues with respect to dates, but able to recollect key dates based on his work troubleshooting and repair work at various plants in Russia.
Douglas Whitelaw
[75] Douglas Whitelaw, a former foreman and senior service technician employed with Bell Combustion, was retained by Amelin to do testing on a steam generator in Ontario. He possesses a license as a Gas Technician 1, allowing him to work on combustion engines, had experience on every type of boiler and was familiar with steam generators. At the time of this retainer, he had over thirty years’ experience in the industry. He was accepted as a participant expert in the area of emissions testing and burner operation.
[76] His evidence in chief was adduced primarily by way of an affidavit sworn on March 18, 2019. He conducted a combustion test on April 7, 2003 at the Steam Eng. plant on a direct fire steam generator. During the testing, he observed excessively high COs , an “awful lot of water was running out the back end of the machine that was unevaporated”, and noted the the burner was “under firing”. When he brought the burner up to “full input”, he noticed that the “CO became uncontrollable”. Attempts were made to place the nozzle on various places of the unit to increase oxygen flow, and correspondingly decrease CO, but it did not help.
[77] On cross examination he conceded that his report does not indicate if the combustion test was performed on an ST502L or an ST502H. He had no recollection as to whether the combustion test was done on high- or low-pressure steam generator. He testified that he used a Kane-May 900, later conceding that it may have been a Kane MayQuintox when confronted with documentary evidence, to perform the combustion test. He conceded that, as noted in the manual for the analyzer, the device should only be used by trained and competent persons. He was familiar with the device having ran thousands of tests on with it, and stated that “(it is) not something that is reliable if being done by untrained person for the first time “ and noted it would “not necessarily be successful”. He did not train John Litwin, who was present at testing, on how to conduct a combustion analysis or how to use the Kane-May 900.
[78] His report was signed by “Terry Bell” as he was out of town at the time, but the content of the report comes from him. He provided ballpark figures. He testified that had he known he would have been involved in litigation, he would have done a much different test to obtain a more fuel and air flow. He would have insisted on an accurate method of measuring gas flow, and connected to a data logging device; an accurate method of measuring air flow, and connected to a data logging device; he would use mass flow calculations to know the actual mass of fuel going in and the actual mass of the air going into the burner, to mathematically predict what the emissions should be, verified by an analyzer at the end. He would have had a pressure device to record the back pressure and putting that information as well thorough a data analyzer. He testified that it is possible he would have used the same analyzer but stated there were more sophisticated analyzers available to him at that time.
[79] He conceded some errors in his report, the type of device used, the unit of measurement for the temperature, but overall was a credible witness.
John Litwin
[80] Litwin’s affidavit, sworn on September 4, 2019, beyond the paragraphs or sentences struck following objections by the defendants with respect to certain evidence, still contains purported statements that offends subrule 4.06(1)(d) and (2), going beyond his personal knowledge, adopts, by reference, information in Elinson's affidavit, contains hearsay, to which certain stipulations were made at trial, and contains opinion and bald statements. The failure properly deal with his report as an exhibit to his affidavit was remedied by counsel taking him through his report at trial.
[81] Litwin was employed with Amelin full time as Manager of the Special Products Division from approximately 2002 to 2004 and did intermittent piece work from 2005 to 2015. His primary role was to source materials and equipment for Amelin's sales. In 2002, Elinson made him aware of complaints from Filit about “catastrophic failures” of the steam generators and excessive carbon monoxide output. In 2003, at the direction of Elinson, he hired Whitelaw (Bell Combustion) to conduct emissions tests of a steam generator in Aurora, Ontario. He was one of several people present for the Whitelaw combustion emission testing on April 7, 2003. He paid close attention to Whitelaw’s testing and took notes. On the recommendation of Whitelaw, he subsequently purchased a Kane May Quintox gas analyzer and travelled to Russia to replicate the combustion emissions test on a steam generator at the Filit plant and prepared a report in May 2003. At paragraph 17 of his affidavit, Litwin deposes that:
“I conducted my testing of the steam generators installed at Filit from May 1 to 3, 2003. By this time, Amelin had resolved many of the catastrophic failures of the defendants' equipment at Filit after months of troubleshooting.”
[82] Litwin’s conclusion was that the CO emissions was over 100 ppm, 10 times the allowable maximum, even when the steam generators were operating below their rated capacity of 5M BTU/hour.
[83] On cross examination, he testified that his work was on conventional water treatment while at Amelin and he had little involvement with the steam generator side until asked to be involved by Elinson. Given Whitelaw’s comments (he has done hundreds of tests) as to the reliability and probable success when the Kay May unit is not used by a trained and competent person, and his own recalibration at trial as to other measures that he would have taken to obtain a more accurate result of the emissions test completed in April 2003, little, if any weight, can be given to Litwin’s report.
Robert Sparling, P. Eng.
[84] Sparling is a professional engineer and Senior Vice President at -30- Forensic Engineering. He was qualified as an expert in the area of product failure analysis, including industrial steam generator equipment. He was asked by the plaintiffs to comment on any performance representations in the brochures, including whether the units were capable of operating as represented, and to comment on the issues at Filit. He relied on the Whitlaw’s Bell Combustion Report from April 2003, Litwin’s May emissions study and Steam-Eng’s emissions tests in June 2003. He was of the opinion that when the steam generators were operating at their rated capacity of 5,000,000 BTU per hour, high levels of carbon monoxide and nitrogen oxides (NOx) were emitted. At their rated capacity, the steam generators generated high burner temperatures which caused damage to the refractory, and absent any qualifications, ought to have been able to operate continuously at the rated maximum capacity.
[85] He acknowledged, on cross examination, the Guidelines for Forensic Engineers dated January 16, 20016, was in effect at the time of report, and acknowledged the best practice to investigate and seek maintenance records. He admitted he would have preferred to see the units, receive the plant records, including testing and operation of the units by the factory operators, if available. He has never spoken with Litwin or Whitelaw and only briefly spoke to Trauzzi. He did not receive or contact any of the customers nor received any maintenance records, or data from the factories. He was not given testing results for other steam generators at the facilities nor completed any testing of his own. He admitted that the elbow joints and vertical rises, and the number of right-angle bends in the length of the pipe would affect the back pressure so too would the water in the tank if different than specified by Steam-Eng. He acknowledged that it would have been helpful to have a video (better than a photo) and drawings from Filet and the other plants.
[86] He acknowledged that the bends and length of the pipes will affect the back pressure and received some, but not all drawings. He did not see photos of the as built refractories by the defendants and the rebuilt refectories by Amelin. He did not receive the as built drawings which he acknowledged would have been important to see. He was not aware of the six other units that Amelin sold after the Filet and Oskol and acknowledged that had he been advised he would have enquired about the test results on those units.
[87] For the most part, Sparling appeared to be an impartial witness. Given his admissions with respect to information that would have been helpful, the court can place little weight on the conclusion in his report.
Thomas Byrnes
[88] Byrnes is an engineer. He invented the steam generator. He created the First Brochure, shortly after the United States and Canadian patents were granted to Byrnes in 1989 and 1990.
[89] Between 1989 to 1990, he marketed the steam generator at trade shows and created a brochure entitled “Steam—Eng State of the art Instant Steam Generator” to explain the differences in between his newly invented steam generator and the steam boilers, already, in existence. He s made the first brochure very basic because the goal was to generate inquiry from a potential customer and then possibly a sale. The first brochure was not intended to be distributed to prospective sales representatives or agents.
[90] He met Elinson after his initial sale to a customer in around 1990 or 1991, when Elinson reached out to him. Elinson visited him at the Blower Engineering facility in Concord thereafter, though he has no recollection of it, he does not dispute that Elinson took a copy of a brochure at or around that time. Elinson came to Blower’s office at least half a dozen times or more during that timeframe seeking to become one of Blower’s representatives. He offered Elinson the chance to act as Blower’s representative in Quebec, which was declined. He was approached again by Elinson in 1993 or 1994, to sell steam generators in Russia, and he agreed.
[91] Fuel is turned into energy within the enclosed combustion chamber. The burner produces “a controlled flame” when air and the burner's fuel are mixed together, reacting together and producing a heat in the form of “a short flame”. When there is optimal combustion, i.e. if the gas is burning cleanly and it is a clean flame, then there are very low levels of carbon monoxide ("CO") and oxides of nitrogen ("NOx"). Optimal combustion may be arrived at with proper installation, calibration, and maintenance of the steam generator. He deposes that at the steam generator is being operated improperly. The refractory failed because moisture was able to get back into the combustion chamber. When the combustion tests were run at the Filit plant, the machines had been modified. Between 1990 to 2014, Blower and Steam-Eng sold approximately 400 steam generators without incident or a claim.
H. Is the plaintiffs’ action for negligent misrepresentation barred by statute?
What is the Applicable Limitation Period?
[92] Since the statement of claim was issued after the January 1, 2004, for causes of actions discovered before January 1, 2004, the transition provisions contained in s. 24 of the Limitations Act, 2002, SO 2002, c. 24, Sched B (the “Limitations Act, 2002), governs the applicable limitation period.
[93] The Limitations Act, 2002 came into force on January 1, 2004.
[94] Section 24(5) of the Limitations Act, 2002 provides as follows:
24(5) If the former limitation period did not expire before the effective date and if a limitation period under the Act would apply were the claim based on an act or omission that took place on or after the effective date, the following rules apply: 1. If the claim was not discovered before the effective date, this Act applies as if the Act or omission had taken place on the effective date. 2. If the claim was discovered before the effective date, the former limitation period applies (emphasis added).
[95] The “effective date” is defined in section 24(1) of the Act as the date on which the new Act (Limitations Act, 2002 ) came into force, which was January 1, 2004 and the"former limitation period" is defined as the limitation period applicable to a before the new Act (Limitations Act, 2002) came into force.
[96] Pursuant to s. 24(5) of the Limitations Act, 2002, the plaintiffs’ claim for negligent misrepresentation with respect act or omission that took place before January 1, 2004, discovered before January 1, 2004, 2003, and for which no action had been commenced by January 1, 2004, the date the Limitations Act, 2002 came into force, is governed by the former limitation period.
[97] Pursuant to s. 45(1)(g) of the Limitations Act, R.S.O. 1990, c. L.15 provides that:
45(1) The following actions shall be commenced within and not after the times respectively hereinafter mentioned,
(g) an action for trespass to goods or land, simple contract or debt grounded upon any lending or contract without specialty, debt for arrears of rent, detinue, replevin or upon the case other than for slander, within six years after the cause of action arose.
Does the Discoverability Rule Applies to Extend the Limitation Period, and if so, until When?
[98] The plaintiffs rely on the discoverability rule to extend the limitation period.
[99] The following principles are gleaned from the jurisprudence with respect limitation periods.
i. Limitation statutes have been described as “statutes of repose” or “statutes of peace”: M (K) v. M (H), 1992 CanLII 31 (SCC), [1992] 3 S.C.R. 6, at pp. 28-30) [M (K) v. M (H)], citing Doe on the demise of Count Duroure v. Jones (1791), 4 T.R. 301, 100 E.R. 1031, and A'Court v. Cross (1825), 3 Bing. 329, 130 E.R. 540; and Deaville v. Boegeman (1984), 1984 CanLII 1925 (ON CA), 48 O.R. (2d) 725 (C.A.) [Deaville v. Boegeman], citing, as well Tolson v. Kaye (1822), 3 Brod. & B. 217, 129 E.R. 1267; 9 at p. 332, 130 E.R. 540; Hunter v. Gibbons (1856), 26 L.J. Ex. 1 at p. 5; and Scales v. Jacob (1826), 3 Bing. 638 at p. 645, 130 E.R. 660. This is based on the principle that there comes a time when a proposed defendant may reasonably expect that they will not be held to account for old obligations.
ii. The principle recognizes that a proposed defendant need not be concerned about the preservation of evidence once the limitation period has expired: [M (K) v. M (H)], supra; Deaville v. Boegeman (1984), supra.
iii. Plaintiffs are expected to act diligently and not to “sleep on their rights” by commencing timely suits: (M (K) v. M (H), supra.
[100] The plaintiff who seeks to rely on the discoverability rule bears the burden of demonstrating that the cause of action was not otherwise discoverable before the statutory period expired: M. (K.) v M. (H.), 1992 CanLII 31 (SCC), [1992] 3 SCR 6, at para. 114.
[101] In the 1984 Supreme Court of Canada decision of Nielsen v. Kamloops (City), 1984 CanLII 21 (SCC) , [1984] 2 S.C.R. 2 (S.C.C.), at p. 42, the majority held that the running of the limitation period was postponed until “the acquisition of knowledge or means of knowledge of the facts giving rise to the cause of action”. The plaintiff was unaware of the deficiencies in the house that he had purchased, which had been concealed by the vendor. As for the evidence available to the court to determine whether the plaintiff had acquired or the means to acquire knowledge, the court commented as follows, at pp 39 -40:
“There was no evidence that would show or would tend to show that anyone who entered the crawl space in December 1977 would have seen the same sight as that which greeted the plumber, Mr. Nielsen and Mr. Hank in November 1978. There was no evidence that the defect which was apparent in November 1978 must have been apparent in December 1977, or that the structural deterioration had been gradual rather than sudden…..
There is no doubt that in the spring of 1974 and even earlier the building inspector was expressing concern about the inadequacy of the foundations. The defect which had the potential for damage was there, but was the damage? …
Applying Sparham-Souter then to s. 738(2) of the Municipal Act which bars an action on the expiration of one year from the date on which the cause of action arose, the plaintiff's cause of action would not have arisen until November 1978 when his plumber, called to fix a burst pipe, drew the damage to his attention (emphasis added).
[102] Two years later, the Supreme Court of Canada once again considered the discoverability principle in Central Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147, at para. 77, citing Kamloops (City of) v. Nielsen, the court held that “a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence”.
[103] The discoverability is said to be “a general rule applied to avoid the injustice of precluding an action before the person is able to raise it”: Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, at para. 36 [Peixeiro v. Haberman]; Grant Thornton LLP v. New Brunswick, 2021 SCC 31, at para. 29, and Sparham-Souter v. Town & Country Developments (Essex) Ltd., [1976] 1 Q.B. 858 (C.A.), at p. 868 per Lord Denning, M.R., citing Cartledge v. E. Jopling & Sons Ltd., supra:
It appears to me to be unreasonable and unjustifiable in principle that a cause of action should be held to accrue before it is possible to discover any injury and, therefore, before it is possible to raise any action (emphasis added).
[104] In the recent Ontario Court of Appeal decision of Dass v. Kay, 2021 ONCA 565, at para. 45, Miller J.A, speaking for the court, commented on the distinction between the concepts of “damage” and “damages”, by quoting approvingly, at the same time, from a decision of the Nova Scotia Court of Appeal, as follows:
The difference has been explained by the Nova Scotia Court of Appeal in Smith v. Union of Icelandic Fish Producers Ltd., 2005 NSCA 145, 238 N.S.R. (2d) 145, at para. 119, adopting A.I. Ogus’ explanation given in The Law of Damages (London, Butterworths, 1973), at p. 2: “‘damages’ should connote the sum of money payable by way of compensation …, while the use of ‘damage’ is best confined to instances where it refers to the injury inflicted by the tort or breach of contract” (emphasis in original). See also Hamilton (City) v. Metcalfe & Mansfield Capital Corporation, 2012 ONCA 156, 347 D.L.R. (4th) 657, at para. 55; Brozmanova v. Tarshis, 2018 ONCA 523, at para. 35 (emphasis added).
[105] As noted by Laforme J.A. in Hamilton (City) v Metcalfe & Mansfield Capital Corp., 2012 ONCA 156, at para. 54:
“Damage is the loss needed to make out the cause of action. Insofar as it relates to a transaction induced by wrongful conduct, as I have explained, damage is the condition of being worse off than before entering into the transaction. Damages, on the other hand, is the monetary measure of the extent of that loss. All that the City had to discover to start the limitation period was damage.”
[106] In Peixeiro v Haberman, supra at para. 18, the Supreme Court of Canada explained that:
…The authorities are clear that the exact extent of the loss of the plaintiff need not be known for the cause of action to accrue. Once the plaintiff knows that some damage has occurred and has identified the tortfeasor (see Cartledge v. E. Jopling & Sons, [1963] A.C. 758 (U.K. H.L.), at p. 772 per Lord Reid, and July v. Neal (1986), 1986 CanLII 149 (ON CA), 57 O.R. (2d) 129 (Ont. C.A.)), the cause of action has accrued. Neither the extent of damage nor the type of damage need be known. To hold otherwise would inject too much uncertainty into cases where the full scope of the damages may not be ascertained for an extended time beyond the general limitation period (see also.
[107] The determination of whether a person has discovered a claim requires fact-based analysis (see Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 CanLII 954, 38 OR (3d) 161 (ON CA), at p. 167 and Soper v. Southcott (1998), 1998 CanLII 5359 (ON CA), 39 O.R. (3d) 737 (C.A.) and McSween v. Louis (2000), 2000 CanLII 5744 (ON CA), 132 O.A.C. 304 (C.A.).
[108] In determining whether the limitation period had expired for negligent misrepresentation by the time the statement of claim was issued on April 3, 2009, in the court’s view the pleadings, in this lawsuit, is the appropriate place to begin followed by the evidence.
Admissions made in the Pleadings: the statement of claim
[109] At paragraph 18 of the statement of claim, the plaintiffs plead that:
- Pursuant to the Exclusivity Agreement, Amelin purchased six Steam Generators from the Defendant and sold them in Russia to two companies operating plants in Moscow and Oskol. The Plaintiffs encountered a number of difficulties and technical deficiencies with the Steam Generators and expended considerable time, effort and expense dealing with these problems. Of particular concern was that the Steam Generators could not attain an output the specified 5,000,000 BTUs promised by the Defendants for more than a short period of time without breaking down. 5,000,000 BTU output was required to be available when needed by the Russian purchasers of the Steam Generators.
[110] At paragraph 19 of the statement of claim, the plaintiffs plead that:
- When the Steam Generators were operated at full capacity and when the system back pressure was approaching IS PSIGs (9 - 11 PSIGs), after just a few days of operation the refractories, which are critical components of the Steam Generators, disintegrated or otherwise became badly damaged, forcing shut down and repairs. The Steam Generators could not attain a back pressure of 15 PSIGs without disintegrating.
[111] The plaintiffs admit that in 2002 they were aware of high CO, NO and NOx emissions from its customers in Russia and that the steam generators could only be operated at reduced limits at paragraphs 23 to 24 as follows:
- In or about late 2002, the Plaintiff was advised by the plant owners in Russia that the
CO output from the Steam Generators was vastly exceeding the CO Maximum, exceeding
300 PPM, and that the owners, and therefore the Plaintiff, would face fines and de-registration
of the equipment by the Russian government authorities if the CO levels were not reduced to
below the CO Maximum. Deregistration could result in a forced total plant shutdown by the
Russian government authorities. The plant owners in Russia also alleged that the emissions of
nitrogen oxides (NO/NOx) were also in excess of permitted levels and had to be reduced.
- As a result of the allegations regarding the high CO and NO/NOx emissions, the
Steam Generators could only be operated at significantly reduced levels of around 3,000,000
to 3,500,000 BTUs in order to meet the Russian emission standards and qualify for
registration by the relevant Russian government authorities. This, of course, was not what the
Plaintiffs were obliged to supply clients in the FSU (emphasis added).
Admissions made in the Pleadings: The Reply
[112] In addition to the admissions made in the statement of claim as to when the plaintiffs were aware of high CO and NO/NOx emissions from the steam generators supplied to its Russian clients, and the reduced levels at which the equipment had to be operated, the plaintiffs also made a number of admissions in its Reply at paragraphs 3 and 11 as follows:
Amelin states that none of the Defendants' steam generators purchased and installed by Amelin, regardless of their model number, could operate at their specified maximum BTU capacity without having critical parts disintegrating within very short periods of time (emphasis added).
With respect to the other allegations in paragraph 13 of the Defendants' Pleading, Amelin purchased and installed two ST502H generators for the Berlek facility in Ufa, each with a stated maximum output of 5,000,000 BTUs. The "H" in ST502H refers to "high pressure". These generators are not Steam-Eng's low pressure generators, as alleged by the Defendants. To this day these units can only operate at approximately 3,000,000 BTU (emphasis added).
[113] The plaintiffs knew, as early as the Berlek purchases in 1997 that the ST502H models could not operate at its rated maximum output of 5,000,000 BTUs (paragraph 11 of the Reply). At paragraph 76 of his affidavit, Elinson stated that: “None of the steam generators purchased from the defendants complied with the Representations as to their performance. On his own evidence, the steam generators could not operate at its rated capacity (5M BTU/hour) for more than short periods of time without breaking down. He was aware of this throughout the course of the parties’ business relationship. The plaintiffs were aware as of late 2002 of the high CO and NO/NOx emissions (paragraph 23 and 24 of the statement of claim).
[114] From his own evidence, he was aware in June 2002 of faulty wiring in the control panels.
[115] I find that by July 2002, the plaintiffs had actual knowledge that the steam generators 5 PSIG back pressure limit was insufficient at the Filit plant. Amelin had to replace the motors for the ST502L units for the Filit and Steamwood customers.
[116] Elison knew between November 2002 and January 2003 that that there many issues with the steam generators supplied to the Filit and Steamwood plant as a result of some unknown number of photos sent to him by Trauzzi from Moscow. He was aware during this time of the damage to the burner and refractories, which he himself deposes, took six weeks to repair. Exhibit 17, the 55 photos selected from the thousands of photos taken by Trauzzi reveals significant damage to the component parts of the steam generator.
[117] He was aware, by his own admission, in March 2003, that all four steam generators at Filit were overheating.
[118] The court can only infer from the photos which depict, what Trauzzi called “catastrophic failures”, that the damage occurred over time and that the plaintiffs would have been notified of the problems.
[119] It is Elinson’s team that carried out the repair work at the customer’s premises. Elinson is an engineer with experience and extensive experience in the thermal generation and water treatment industry. From June 2002 to May 2003, from his own evidence, the plaintiffs were attempting to carry out repairs and spent a significant amount of time and money doing so on site in Russia where his customers were. No report from Whitelaw of an emission test carried out on a steam generator in Ontario was required for the plaintiffs to know that they had suffered damage or injury. He knew or ought to have known since the installation at the Berlek Ufa in 1998 was not able to operate at its rated BTU, Amelin was swapping motors in 2001, and Amelin was occupied for months in 2002 effecting repairs due to significant damage to the burners and refractories at the Filite and Steamwood plants. No report from Whitelaw of an emission test in Ontario was required for the plaintiffs to know that they had suffered damage or injury.
[120] The plaintiffs knew or ought to have known that they had a potential claim for negligent misrepresentation as early as 1998 when the Berlek steam generator could not perform as rated, and certainly by November 2002 or January 2003 when Trauzzi took the thousands of photographs of the significant damage at Filit and Steamwood.
[121] The statement of claim, issued on April 3, 2009, was therefore issued beyond the six year limitation period, and even if extended by discoverability, the plaintiffs knew or ought to have known by January 2003, that they had a potential cause of action against the defendants.
Are the defendants liable to the plaintiffs for negligent misrepresentation?
[122] Given my finding on the limitation issue, there would normally be no need to address this issue. However, the court will address the merit of the claim nonetheless.
[123] In order to establish a claim for negligent misrepresentation the plaintiffs must establish:
i. the existence of a duty of care based on a special relationship between the representor and the representee;
ii. that the representation in question was untrue, inaccurate or misleading;
iii. that the representor must have acted negligently in making the misrepresentation;
iv. that the representee must have relied, in a reasonable manner, on the negligent misrepresentation; and
v. the reliance must have been detrimental to the representee in the sense that damages resulted: The [sic] Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87, at p. 110; Lana International Ltd. v. Menasco Aerospace Ltd. (1996), 1996 CanLII 7974 (ON SC), 28 O.R. (3d) 343 (Gen. Div.), at pp. 348 to 350.
[124] On the evidence at trial, the court accepts Byrnes evidence that the initial contact with Elinson was in 1991, and not in 1994 as Elinson believes. He tied that initial contact to the year the Beraldo’s were married as he and Byrnes were at the wedding. Mrs. Beraldo’s evidence on the date of her marriage is irrefutable. She and her husband were married in September 1991. There was, at least, a three-year gap then between the initial contact between Byrnes and Elinson and the agency agreement.
[125] There was a special relationship between Elinson and Byrnes. I accept Elinson’s evidence though that he had a brochure from the defendants. The second brochure came into existence in the mid-1990s, and, on the evidence, could have been as early as 1994. However, the court is not satisfied, on the evidence, that there was any representation that was untrue, misleading or inaccurate or that Elinson relied on any such representations. The plaintiffs’ own expert acknowledged factors that may impact the operation of the steam generators. And, given the extent of his access to information, or lack thereof, to carry out a more fulsome investigation for Sparling to review video(s) as opposed to photos, the court is not able to give much weight to his conclusion. Elinson, as a professional engineer, had the ability to determine if there were misrepresentations made in the brochures or otherwise.
[126] There was at least a three-year gap between the initial contact between Byrnes and Elinson. Amelin was not incorporated for another few years. While the court finds that Elinson would have had at least the brochure created by Byrnes in the mid-1990s before entering into the agency agreement, there is simply no evidence that he relied on any representations in a brochure to do so. Moreover, Elinson not only entered into the first agreement in 1994 but went on to renew and extend the agreement and securing a license in 2002 to expand distribution in Russia, even knowing the complaints from his customers in Russia. Lastly, the plaintiffs have not shown, in any literature, any representation of continuous operation at the rated capacity.
[127] The court finds that Elinson did not rely on any misrepresentation, negligent, or otherwise by the defendants, to his detriment, in entering the agency, and exclusivity agreement.
Counterclaim
[128] The defendants have counterclaimed for damages in the amount of $130,000.00 for components and service fees for the steam generators which remain unpaid.
[129] The plaintiffs have pleaded that the counterclaim is statute barred.
[130] By letter dated November 26, 2003, Byrnes wrote to Elinson seeking payment for unpaid invoices in the amount of $99,498.43 net of a credit of $26,000. The letter refers to overdue payment for the periods November 1, 2002 to October 31, 2003 and the period May 2002 to October 2002. It is not apparent to the court, based on the evidence, when the debts became due. The letter refers to multiple invoices for material supplied.
[131] It is up to the defendants/plaintiffs, by counterclaim to prove their claim. In addition, the plaintiffs have pleaded that the counterclaim is statute barred. The cause of action for the each of the debt would arise when the debt became due. Based on the timing of the letter and the date range for services, the court can only assume the Limitations Act, R.S.O. 1990 would govern, and a six-year limitation period would apply as the cause of action arose before the Limitations Act, 2002. The invoices are also disputed by the plaintiffs.
[132] In the absence of proof of the claim and evidence as to when the debts were due, the counterclaim is dismissed.
Disposition
[133] The plaintiffs’ action is dismissed.
[134] The defendants’ counterclaim is dismissed.
[135] The parties may contact my assistant to arrange a time to address costs.
A. Ramsay J.
Released: September 8, 2021
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AMELIN ENGINEERING LTD. and MICHAEL ELINSON
Plaintiffs
– and –
STEAM-ENG INC. and BLOWER ENGINEERING INC.
Defendants
REASONS FOR JUDGMENT
A. Ramsay J.
Released: September 8, 2021