NEWMARKET COURT FILE NO.: CV-17-131412-00 DATE: 20230530 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: R-J MACHINERY INC. Plaintiff – and – EXEL CANADA INC. Defendant

Counsel: A. Schorr, for the Plaintiff A. Cofman, for the Defendant

HEARD: May 23 and 24, 2023

REASONS FOR DECISION Healey J.

Introduction

[1] The plaintiff, R-J Machinery Inc. (“R-J”), seeks judgment in the amount of $49,410.03 plus pre-judgment interest for work done in supplying an automated machine to the defendant, Exel Canada Inc. (“Exel”). The machine in question was a custom-built “Funpac Box Loader” (the “machine”). The machine’s intended use was to assist Exel to fulfil its contract with Kellogg’s to package “Fun Pacs”, comprised of eight small cereal boxes pre-filled with Kellogg’s cereal product. This production was already being performed by Exel on largely a manual basis other than the final shrink-wrapping stage. Exel’s purpose in purchasing the machine was to replace certain functions being performed by Exel’s labour force.

[2] There is no dispute that the parties formed a contract for the design and manufacture of the machine based on a quote dated April 17, 2015 for a price of $46,500 plus taxes. Acceptance of the terms of the quote was communicated by email dated May 4, 2015 from Terry O’Neill, who was a general manager in the packaging department of Exel. This amount was paid in full by Exel.

[3] However, after its initial delivery to Exel, during onsite testing issues arose with the machine’s performance.

[4] Exel counterclaims for damages in the amount of $150,000, comprised of the purchase price of the machine and consequential losses arising from its poor performance, requiring additional labour costs. The defendant alleges that the machine was neither fit for its purpose nor of merchantable quality.

[5] It is also undisputed that the parties had a long-standing, 20-year relationship, with Exel having ordered packaging machinery from R-J on many occasions over those years.

[6] This action was commenced in June 2017 when the monetary for claims under r. 76 was $100,000. As Exel’s counterclaim exceeded that amount, in its pleading Exel objected to the action proceeding under r. 76 and it continued under the ordinary procedure. By the time of trial, the monetary criteria under r. 76 had increased to $200,000 and the parties agreed to adopt the summary trial procedure set out in r. 76.12 for efficiency.

Issues

[7] The issues to be decided by this court are as follows:

1. Whether the plaintiff breached either the express warranty in the contract, or the implied warranty in s. 15 of the Sale of Goods Act, R.S.O. 1990, c. S.1 (the “Act”) that the machine would be reasonably fit for its intended purpose and/or of merchantable quality?
2. Whether the defendant is liable to the plaintiff for payment of additional charges beyond the contract price to fix or modify the machine?
3. Whether the defendant is entitled to damages for breach of warranty pursuant to s. 51 of the Act.

Disputed Issues

[8] There are several disputed issues of fact that require this court to determine. They are as follows:

1. Whether R-J knew or should have known that Excel would be receiving irregular product to use in the machine, such that the machine should have been designed with this inevitability in mind.
2. What caused the problems with the machine and the need for modifications.
3. Whether the terms of the contract required R-J to make modifications to the machine at no cost to Exel.
4. Whether R-J’s charges were excessive.
5. Whether the machine ever worked to fulfil its intended purpose, or whether it was of merchantable quality.
6. If there has been a breach of s. 15, whether the damages alleged in the counterclaim have been proven.

Evidence on the Disputed Issues

[9] Four witnesses gave evidence-in-chief by affidavit. On behalf of R-J, these were Ray Raamat and Anthony (Tony) Jackson. Mr. Raamat is the founder of R-J. He has a marketing management degree and, at the time that he was examined for discovery, had worked in the packaging machinery industry for 40 years. He is not an engineer. Mr. Jackson is an independent contractor engaged in designing industrial equipment and has worked with R-J almost exclusively for the last 25 years. Mr. Jackson was never asked whether he is an engineer, but Mr. Raamat described him as such during his discovery. Based on the evidence provided by Mr. Jackson, I accept that he is either an engineer or a technologist with extensive experience in designing automated equipment.

[10] On behalf of Exel, the court heard from Paul Djelaj and Mauricio Medeiros. Mr. Djelaj has been employed with Exel’s parent company, DHL Supply Chain, since 1999. At the time of the events giving rise to this action, his title was Director, Operations. His responsibilities covered the whole of the packaging plant, including human resources. Mr. Djelaj took over the project involving the machine from Terry O’Neil, which he believed took place around the end of 2015 or early 2016. This was the first and only R-J project with which Mr. Djelaj was involved. Mr. Djelaj was clear in his testimony that he has no technical expertise with machinery used in Exel’s packaging plant.

[11] During the time of the events giving rise to this action, Mr. Medeiros held the position of General Manager, Packaging. Mr. Medeiros is a certified packaging professional with over 30 years of management experience in production, packaging engineering and plant operations across several industries. He joined Exel on December 7, 2015. He reported to Terry O’Neil for a time, until Mr. Djelaj became involved.

[12] At the outset of the trial, an issue arose with respect to Mr. Raamat’s evidence. Mr. Raamat swore an affidavit on March 31, 2023 containing his evidence-in-chief. In that affidavit he deposed that he has been advised that he may have cognitive problems and that he does not have a clear recollection of many of the issues in this action. However, as an exhibit to his affidavit he attached several emails, letters and an invoice, all of which were generated by him in 2016. With respect to those documents, he deposed that he believes that they were true at the time that they were sent.

[13] On behalf of Exel, Mr. Cofman took the position that Mr. Raamat’s affidavit indicated that he is not a competent witness, and so he chose not to require that Mr. Raamat be produced for cross-examination. Mr. Cofman also advised that the authenticity of the documents attached to the affidavit was not in dispute, and that the court would have the benefit of his read-ins from the transcript of the examination for discovery of Mr. Raamat from June 2018. Mr. Cofman took the position that since he examined Mr. Raamat on the documents forming part of his affidavit, as well as all other documents contained in R-J’s affidavit of documents, this would satisfy any evidentiary problems caused by Mr. Raamat’s absence. For his part, Mr. Schorr for R-J, despite not having served a notice under s. 35 of the Evidence Act (nor did Mr. Cofman), took the position that the court could admit the entirety of the affidavit and that the issue was one of weight.

[14] The court took a different view from that of counsel. The issue of Mr. Raamat’s memory raised the question of whether the documents appended to the affidavit should be admitted under the principled approach to hearsay, so as not to lose the potential value of the evidence. I made a mid-trial ruling that those documents should be admitted despite the hearsay dangers raised by Mr. Cofman’s inability to cross-examine Mr. Raamat on the accuracy of the information contained within them. I did so for these reasons: there was necessity created by the witness’ lack of memory for the events; and threshold reliability of the documents was sufficient, in that Mr. Raamat had been examined for discovery for a full day and a transcript was available; the read-ins would undoubtedly be chosen to support only Exel’s allegations; the documents were created by Mr. Raamat, and he was in a position to have first-hand knowledge of the matters discussed in the documents; he created the documents either contemporaneously or close in time to the events in question; and, finally, he had no motive to lie with respect to the facts found in the documents. Particularly, with respect to the letters that were sent to Exel, their content indicates that he was attempting to preserve their commercial relationship at the time that those communications were sent.

[15] Mr. Cofman also proposed that the court could have the entirety of the transcript of the examination for discovery rather than just the parts that were being relied on by him and being read in as part of the defendants’ case. I agreed with that proposal to have all of Mr. Raamat’s evidence before the court.

[16] At the same time, Mr. Cofman volunteered that the court could receive into evidence R-J’s affidavit of documents together with Schedule A productions. This was marked as an exhibit without objection.

[17] Reviewing that transcript and the affidavit of documents, there are two documents from the productions that were not appended to either affidavit produced on behalf of R-J that have formed part of my decision in this case. The first of these is highly relevant. It is found at Tab 18 of the affidavit of documents, described as Exel Logistics Job Costing. It is a nine-page chronology of events and associated costs (the “chronology”). During his examination for discovery, Mr. Raamat confirmed that this document was not created for this litigation, but for his own internal use “in terms of costing, monitoring, keeping on top of, and you know, costing the project, and the calendar in which things happened”. I also infer that this document was an attachment to an email dated October 11, 2016, which forms part of Exhibit A to Mr. Raamat’s affidavit. There is no way to know for sure, as the attachment was not included in the affidavit. However, the description matches up and, in a later letter, also forming part of the affidavit, Mr. Raamat refers to the specific elements of the modifications undertaken being detailed on R-J’s nine page “Cost to Reconfigure the Line” document.

[18] If that is an inaccurate inference, I would nonetheless admit the document at Tab 18 as part of my gatekeeping function because it is highly relevant to many of the disputed issues in this action. For the same reasons earlier stated, I admit it as substantive evidence under the principled approach to hearsay.

[19] Of lesser importance, but still relevant to R-J’s claim, is the document at Tab 14. It is a quotation for work from Compliance Engineering for a review that was needed to comply with the legislated requirement for a “Pre-Start Health and Safety Review” (“PSSR”). As will be explained, the fee incurred by R-J for a PSSR was not included in the contract price and is part of R-J’s claim.

Issue 1 - Designing the Machine for the Product Supplied

[20] Exel’s position is that R-J, and particularly Mr. Raamat, should have foreseen that a machine would have to be designed that would take irregularity into account because of his familiarity with Exel and the typical quality of supply delivered to Exel from Kellogg’s. Exel was relying on R-J’s experience to design such a machine.

[21] R-J’s position is that it was designing a machine of precision that required uniformity in the source material that was being packaged. This meant that the cereal boxes had to be square, and the cardboard material that would be bent by the machine to form a u-shaped tray to hold the boxes initially had to be flat. For this reason, it inserted into its quote the following: “The cereal boxes and U-Boards must be of consistent quality to ensure efficient operation”.

[22] I find that the effect of this term in the quote is to vary the implied conditions contained in s. 15 of the Act, pursuant to s. 53 of the Act. Section 53 provides:

Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of the dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.

[23] Neither of Exel’s witnesses were involved in this project until the end of 2015 or early 2016. Both testified that they were not part of the negotiation process and only knew of the quote after taking up their positions. Consequently, neither of them could provide evidence contrary to that given by R-J’s witnesses about the initial design phase of the machine.

[24] Mr. Jackson deposed that the samples provided to them by Exel for the purpose of designing and testing the machine were very different from what was attempted to be introduced into the machine once it was installed at Exel’s plant. At the initial design stage R-J was provided with sample cereal boxes that were of consistent rectangular quality, meaning that there was no misalignment in how the flaps of the boxes were glued shut. The sample boxes were uniformly rectangular. The other part of the equation was card stock or “U-boards”, which one component of the machine was to take from a flat profile and mold into a tray by folding along predetermined crease lines. The card stock that was supplied by Exel for the design phase arrived in tight fitting cartons and was “dead flat” according to both of R-J’s witnesses.

[25] Similarly, in his letter of September 29, 2016, Mr. Raamat referenced the requirement in the quote that the boxes and u-boards “must be of consistent quality to ensure efficient operation”. In that letter he noted that the system was designed, built and tested to suit the packaging components that were originally shipped to R-J, and that the operating system relied on consistent [cereal] boxes. He also noted in that memorandum that the original U-boards were tightly packed into a heavy corrugated carton to maintain their flat profile.

[26] Mr. Raamat summarized in his letter of November 23, 2016,

…if the skewed cartons or bent U-boards had been supplied for the primary evaluation they would have been “red flagged” from the very inception of the project. Automatic equipment is reliant on working with consistent dimensions and profiles of the various packaging components for effective operation.

[27] Exel relies on the discovery evidence of Mr. Raamat, whereby he gave testimony that he had been at Exel’s facility many times over the parties’ history and had seen and analyzed their whole system. He had seen pallets of cereal boxes. Mr. Medeiros gave evidence that partial or full pallets of misaligned or skewed boxes was a common occurrence throughout his employment and was known to Exel. From this evidence I was asked to infer that Mr. Raamat should have anticipated that some of the small cereal boxes used in the Fun-Pac would be skewed. I would not draw that inference from this scant evidence.

[28] In fairness to Exel, at a later point in his testimony, and in a portion not read in, Mr. Raamat did testify that he had on one earlier occasion encountered a problem with skewing of very “huge” cereal boxes supplied by Kellogg’s in the past, and at the time that he drafted the quote he had had this experience with the quality of product from Kellogg’s (questions 1194 to 1209).

[29] I find that this experience likely did inform Mr. Raamat’s drafting of the quote. But that does not mean that R-J should have designed a machine that could adapt to changing sizes of boxes, and further, to adapt to the warped U-boards that were later introduced into the equation. The quote is clear in its requirement that these components were to be of consistent quality, for the reasons outlined by Mr. Raamat in his letters.

[30] When the quote was accepted, the email communication from Mr. O’Neill states that “[t]his project has been approved and accepted by Exel Canada Ltd. in accordance with the terms and conditions detailed in your quotation…”. On that assurance, R-J built the machine to meet the requirements of the samples supplied by Exel.

[31] Having accepted those terms and conditions, the responsibility rested with Exel for ensuring that the components needed to package the Fun-Pacs were of consistent quality on par with the samples provided.

Issue 2 - The cause of the problems with the machine and the need for modifications.

[32] The quote contains a guarantee that Exel required be inserted, which reads: “the machinery is designed and guaranteed to perform the specified functions at 30 cycles per minute”. It is immediately following this guarantee that the proviso of consistent quality was placed in the quote.

[33] Whether the machine could ever perform its intended functions, for 30 cycles per minute or at all, is a subject of controversy in the action. The cause of the problems encountered at Exel’s plant, however, is largely uncontested.

[34] The development history of the machine is described in Exhibit A to Mr. Jackson’s affidavit, in a document dated August 24, 2016. I found Mr. Jackson to be a reliable fact witness. He had a high degree of familiarity with the sequence of events that occurred between the parties, appeared to have a very good memory, and testified without hesitation about the technical aspects of the machine and the problems encountered after its delivery to Exel’s premises. During his oral evidence, his testimony aligned with the facts as set out in the August 24, 2016 document, and also aligned with the history set out in the chronology prepared by Mr. Raamat. From the entirety of his evidence, there is no question in my mind that the machine malfunctioned once delivered to Exel for two reasons: the cereal boxes attempted to be fed into the machine were skewed, and the U-boards were warped.

[35] Both Mr. Jackson and Mr. Raamat provided evidence that the U-boards that Exel was attempting to use were warped due to being placed on a wooden pallet, strapped down with wood, and tightly stretched wrapped. Rather than being flat, the sides bent up higher than the middle. An example of this is found in Mr. Medeiros’ affidavit in Exhibit A, being a photo showing the U-boards loaded inside the magazine. Both Mr. Djelaj and Mr. Medeiros agreed that the photo demonstrated that the U-boards had a curvature. I find that that is evident in the photo. The photo was taken at Exel’s premises and is marked as being taken in April 2016.

[36] Exel’s witnesses were not as helpful on the issue of the reasons for the machine’s malfunction. Mr. Djelaj, who I also found to be straightforward in his testimony, readily admitted that although he knew in 2016 that the machine was jamming, his greatest familiarity with the issue came through looking at production rates and labour expenses, from which he deduced that the machine was not running at the expected rate. When asked what was jamming, he said the U-boards or “perhaps the product”, but then admitted that he did not know the exact cause of the jamming. He was not there when the machine first malfunctioned, and it was clear to the court that most of his knowledge about the machine’s performance came from the comments of other individuals not called to testify. Accordingly, his unequivocal affidavit evidence that the “machine never worked” is not reliable.

[37] Similarly, Mr. Medeiros’ affidavit states that the notion that the machine never worked is attributed to hearsay information from “maintenance and supervisory leadership”. He also deposed that it was only on rare occasions that some of the U-boards were “slightly less than flat’, in which case the associates would bend them flat before placing them in the machine, which eliminated the U-board issue. Mr. Raamat testified that he had counselled Exel to bend the boards into a straight position to eliminate the problem, but that that step was not taken by Exel. As the chronology and Mr. Jackson’s evidence shows, extensive work had to be done to the system to accommodate the warped U-boards. It stands to reason that this was only done because the warped card stock issue was never adequately addressed at Exel’s end, causing the machine to continue to malfunction.

[38] After the machine was designed and tested at R-J’s premises, and before delivery, a 30-second video was made of the machine. There is some confusion in the evidence about when that video was taken. Mr. Jackson testified that he was present for the making of the video, which was taken when the machine was in its original configuration. Mr. Djelaj said that he was not present when the video was made. Although Mr. Medeiros placed the making of the video in mid-2016, after modifications had been made to the machine and during a testing at which he was present, I reject that evidence. Mr. Jackson has far greater familiarity with the sequence of events than Mr. Medeiros, who arrived part way through the project.

[39] Further, Mr. Raamat sent the video to Mr. Medeiros on November 22, 2016, with the following email message: “Video clip of box loader running the boxes prior to shipping to Exel. This shows the machine running the boxes and boards as supplied to us when the order was placed”. During his discovery Mr. Raamat confirmed that this video shows the machine in its original configuration, running flat cards and un-skewed boxes. He explained that the reason why the video was so short was that the cereal boxes had to be loaded manually (as they were to be at Exel’s plant), but that he did not have the manpower at R-J to load enough boxes to run it for longer than that.

[40] I do not place a great deal of weight on the video, as it proves nothing more than that the machine could run for 30 seconds. However, I do accept Mr. Jackson’s evidence that after the machine went to Exel, after a minor alteration to eliminate a problem created by friction between the boxes, the machine functioned so long as non-skewed boxes or U-boards were introduced. The chronology shows that the machine was shipped to Exel on August 15, 2015. The friction problem was resolved by raising a transfer plate at the loading station by 3/8”. According to the chronology, this was completed by September 29, 2015. During the period of August 13 to September 29, the chronology does record issues arising from the bent U-boards and skewed boxes while initial testing was still underway.

[41] The final safety review for the PSSR was completed on August 25, 2015, according to the chronology.

[42] I find that but for the warped U-boards and skewed boxes, the machine was in operational condition, fit for its intended purpose and working as guaranteed by September 29, 2015. Thereafter, the chronology shows that the next time that R-J attended Exel’s facility was October 21, 2015, notably well before either Mr. Medeiros or Mr. Djelaj were involved in the project, and the reason for the attendance is described as “troubleshoot continuing box jamming”.

[43] In reaching this conclusion, I have considered the evidence of Mr. Medeiros regarding what he described as the machine’s poor design and subpar craftsmanship. He stated that when he arrived on scene, the machine was non-functional and being stored under a tarp in their facility.

[44] The chronology shows that when Mr. Medeiros started in his role on December 7, 2015, only the pushdown and card folder portion of the machine was at Exel. The box conveyor had been returned to R-J for modifications as of November 11 and did not make it back to Exel’s facility until December 22, 2015. Mr. Jackson testified to that fact, stating that Exel had asked that the card folder part of the machine remain as they wanted to use it while the box loader was being modified.

[45] There was also evidence that the machine had various screws and pieces placed near it so that they would not be lost, and that when Exel’s employees moved the machine during its periods of non-use, they did not move it with care. I do not place any weight on the photos, or Mr. Medeiros’ evidence that it showed poor workmanship. The successful twenty-year history between the parties, as well as my conclusion that the machine operated following all modifications, does not support Mr. Medeiros’ evidence.

Issue 3 - Whether the terms of the quote required R-J to make modifications to the machine at no cost to Exel.

[46] The quote contains a note directly above the purchase price that states: “PSSR inspection and mandated modifications are NOT included. Start-up and installation services are available at our standard service rates”.

[47] Mr. Schorr has argued that the term “mandated modifications” means that any alterations were an additional charge to the quoted price, which was supported by Mr. Jackson’s testimony. Mr. Jackson stated that the clause was inserted because the machines built by R-J are inherently a development project, and “it’s not like buying a car off a lot”.

[48] This is the only aspect of Mr. Jackson’s testimony that I reject. The PSSR is a legislated requirement, as detailed in the document at Tab 14 of R-J’s affidavit of documents and discussed by Mr. Raamat in his discovery evidence at questions 510 to 515. Compliance with the legislation is required before the machine can legally operate. Further, at his discovery, Mr. Raamat confirmed that clause referred to modifications that arose from safety issues or as demanded by PSSR engineers. Mr. Raamat drafted the quote. I accept Mr. Raamat’s evidence and interpret the quote to mean that both the PSSR process and any changes that are mandated as a result of that review will be an extra charge.

[49] Accordingly, the quote does not, I find, contain an agreement that all work done to modify the machine was an additional charge.

[50] The quote does, however, include an understanding that the cost of start-up and installation will be charged at R-J’s standard service rates. As Mr. Raamat testified on discovery, Exel was well aware of the rates charged for travel and on-site attendance, as they had been paying for such services throughout the parties’ lengthy relationship.

[51] The invoice on which this action was based is Exhibit D to Mr. Jackson’s affidavit, and an identical one is in Mr. Raamat’s exhibits. It shows that Exel is being asked to pay for 22 round trips, the PSSR for the initial machine and a second PSSR once the box feeder was redesigned to accommodate the skewed boxes, the cost of parts to reconfigure the box and board feeders, and labour costs of 305.5 hours. All 22 trips, and the 305.5 hours of labour, are reflected and recorded in the chronology.

[52] Without further evidence, I am unable to piece together which charges on the invoice relate to work described in the quote, and which charges apply to the modifications that had to be made. For example, the invoice refers to the PSSR #1, which is described as being from Compliance Engineering for build #1. It therefore appears that the invoice includes more than just the modification work. Also, between the date of shipment until the end of the first PSSR, I conclude that some of the trips and labour charged should be considered charges for start-up and installation services under the initial quote. I accept that the rates shown on the invoice were the standard rates charged by R-J, as the court received no evidence from Exel that these rates were inflated beyond what was normally charged.

[53] With respect to these costs, Mr. Raamat outlined some of the challenges encountered by R-J during onsite setup and installation in his letter of November 23, 2016, such as staff not being allocated to facilitate the process, electrical and pneumatic services that were to be provided by Exel for the installation were unreliable and, on every call, a time consuming process of repositioning and realigning the machine had to be undertaken because of Exel’s failure to address a way to run their shrink wrapper without moving it. Exel did not provide any contradictory evidence.

[54] I find that Exel has breached its contract to pay for services contemplated under the original quote for installation and set-up, plus the disbursement paid to Compliance Engineering for the first PSSR in order to achieve compliance. The invoice indicates that the engineering disbursement was $2,610 but proof of that payment was not provided. Based on the quote from Compliance Engineering found at Tab 14 and, given the evidence that the initial PSSR occurred, I am prepared to find that Compliance Engineering’s quote of $2,565.10 inclusive of HST was paid by R-J.

[55] For the preceding reasons, I do not accept Exel’s submission that the modifications undertaken by R-J cost more than the original quote. However, significant additional charges arose from the work done from the fall of 2015 to final re-delivery to Exel on July 7, 2016, due to the irregular components that were being used by Exel.

[56] Extensive modifications had to be made to the machine to allow it to use the irregular boxes and warped boards, which are outlined in Mr. Jackson’s memorandum prepared in August 2016 and Mr. Raamat’s letters. As he stated in his letter of November 23, 2016:

the unforeseen supply of the skewed cartons and bend U-boards as supplied to R-J during the initial installation and start up ultimately precipitated a total redesign of the box feeding system…the unforeseen redesign and modifications added considerable complexity to the system…, [and] …the programming for revised operational changes was a major undertaking.

[57] R-J alleges that there was a further agreement with Exel to charge on a time and material basis for the required modifications. This is based on an email exchange between Mr. Jackson and Mr. O’Neill on November 4, 2015, as follows:

O’Neill: I was hoping to get an update on the status of this project as we are starting to get busier with volume on this package. As I mentioned when we spoke I am trying to get a feel for timing and cost. Given the fact that we are getting busier and run inefficiently without the loader we need to get this up and running as quickly as possible. Please advise at your earliest.

Jackson: We have reviewed what to do. In view of the your (sic) need to use the LBar for the other product package we have decided that a collating station with vertical push down would be best installed as part of the box transfer conveyor with appropriate plug connections to facilitate moving the 2 units separately. We would like to arrange picking up the transfer conveyor only to return it to our shop for the modifications. I will have Steve arrange a time with you to pick it up in our truck.

O’Neill: thank you for the information Tony. Can you give me a realistic timeframe for completing this modification? We have some flexibility in the production schedule and would defer production based on when you feel the equipment will be up and running. Please advise.

[58] The chronology shows that after this exchange, the box conveyor was returned to R-J for the work described in the email and was returned to Exel on December 22, 2015. However, as the chronology as well as the attachments to both Mr. Jackson’s and Mr. Raamat’s affidavits describe, this was not the end of the alterations that had to be made to the machine.

[59] Exel has led no evidence that these modifications were not undertaken, but takes the position that the work and associated cost is excessive, done without their knowledge, and/or not approved in advance through the usual procedures.

[60] Mr. Djelaj provided evidence that an internal approval process is required for any expenditure of more than $3,100, and no such process was initiated for the modification work.

[61] It is a fact that there is no contemporaneous documentary evidence showing that the ongoing and mounting costs were being communicated to Exel. However, what I do accept from the evidence is that Exel was at all times aware of the genesis of the problem and had told R-J that they could do nothing to correct the skewed boxes and bent U-boards. They expected R-J to re-make the machine so that it would work, as Mr. Raamat testified during his discovery. I find that Exel requested the modifications that were made to the machine to accommodate the irregular product. As Mr. Raamat commented in his letter dated September 29, 2016, R-J’s mandate was to reconfigure the line to make the necessary accommodations. In his letter dated November 23, 2016 Mr. Raamat summarized:

During the design & build stage of the modifications the evolving process was reviewed and vetted by Exel staff. We did not operate in a vacuum. Extensive dialog defined the specific actions that would be undertaken to cope with the skewed boxes. When we specifically asked about the need for quotes we were advised to get on with the project as the modifications need to be done expediently.

[62] Mr. Raamat’s comment is supported in the chronology by the number of trips made by R-J to the Exel plant in 2016 and, for example, the notation of a meeting on April 28, 2016 with Jim Lamb to “discuss resolution of the card loading line”. Jim Lamb was associated with Exel and was originally expected to testify at this trial but was unable to do so.

[63] Thereafter, the machine was returned to R-J on May 13, 2016 to undergo further modifications. According to the chronology, on June 16, 2016, testing of the machine in its final iteration was conducted at R-J’s facility in the presence of Misters Medeiros, Lamb and Jackson. Both Mr. Medeiros and Mr. Jackson testified about this testing. It was Mr. Jackson’s evidence that the machine ran in 30-second intervals for about 5 minutes. The reason that it was unable to run continuously was because Exel had supplied it with limited boxes to run, and some boxes had to be discarded during the trials. The boxes are only meant to go through the line only once, and some lost their integrity through the required re-use. However, his evidence, which I accept, was that Mr. Medeiros and Mr. Lamb were pleased with the test and asked that the machine be shipped back to Exel.

[64] Mr. Medeiros’ evidence is that “the subcontractors worked to pick and choose the “best” stock possible. Even then, it was not able to run for any meaningful period of time, and certainly not ever for a period that I would call ‘continuous’”. He testified that although there was no jamming during that testing, Exel wanted to do longer testing at their facility. This description does align with Mr. Jackson’s version of events, although Mr. Medeiros seems to have a different explanation for why the best boxes were being chosen for the testing. However, his evidence that the machine was still under-performing is belied by the fact that Exel took delivery of it for the final time on July 7, 2016. I infer that Exel would not have taken delivery of it if it was still not functioning well during that test, even with the caveat of wanting to do further testing at its own plant.

[65] Accordingly, based on the actions of both parties, I find that there was an agreement for the modifications to be performed on a time and material basis, at the same rates that R-J had always charged Exel for its work. This was an agreement reached with Mr. O’Neill. It must be remembered that Mr. Medeiros and Mr. Djelaj entered this project part-way through it, and neither can speak to discussions held with R-J in 2015.

[66] I find that Exel breached this agreement by refusing to pay the charges associated with the modifications.

Issue 4 - Were R-Js charges excessive

[67] As previously indicated, there is no evidentiary basis from which to conclude that R-J has “padded’ their invoice or charged a premium beyond their normal rates for the requested modification work.

Issue 5 - Whether the machine ever worked to fulfil its intended purpose, or whether it was of merchantable quality.

[68] It is the uncontested evidence from Mr. Jackson that once the machine was returned to Exel, R-J was never contacted to re-install it at Exel’s facility.

[69] From the evidence of Mr. Raamat, the final item needed was a new touch screen monitor to replace one that had been broken at Exel’s plant. In his letter dated September 29, 2016, Mr. Raamat indicated that the screen had arrived three days earlier and that R-J was “now ready to go through the start-up with the new push-down box aligner” and asked to be advised of the best time to initiate the process.

[70] Mr. Medeiros provided evidence that Mr. Jackson came to Exel’s facility on one further occasion to do testing, and his watch broke in the machine and disrupted any further testing. While this event may have occurred at some earlier time, I find it did not occur after final delivery on July 7, 2016. The chronology contains no record of travel charges or any other charges after that date.

[71] Mr. Medeiros also testified that no additional testing was undertaken after that event and that shortly thereafter, Exel lost its contract with Kellogg’s. His evidence was that the experience with the machine “could have been part of that” but was likely not the main reason. He stated that Kellogg’s first ended the U.S. contracts, and then moved on to terminate contracts in Canada.

[72] Having never tried to put the machine to use after its delivery, Exel has failed to prove that s. 15 of the Act was breached. To the contrary, the only evidence that exists about the machine’s functioning after all modifications were done was that it worked on June 16, 2016, during the limited testing, and did not jam. Accordingly, I conclude that there was no breach of s. 15 of the Act, or of the express warranty in the contract.

Issue 6 - The Counterclaim

[73] Having failed to prove a breach of s. 15 or any breach by R-J of the quote or their agreement, the counterclaim must be dismissed.

Conclusion

[74] The issues to be decided by this court are answered as follows:

1. No.
2. Yes.
3. No.

Order

[75] This court orders that R-J shall have judgment in the amount of $48,804.60. These damages are arrived at by removing the cost of the second PSSR approval process from the invoice, for which the court saw no supporting evidence.

[76] Pre-judgment interest is awarded at 2% from the date of the claim until December 31, 2021. This date is chosen so that the parties bear in approximately equal proportion the period from when the court suspended regular operations due to the pandemic until now, as it would be unfair to make the defendant pay interest for the entire time during which trials were unable to be heard.

[77] This court orders that the counterclaim is dismissed.

[78] Costs are awarded to R-J payable by Exel fixed in the amount of $25,000 inclusive.

Madam Justice S.E. Healey

Released: May 30, 2023