Linde Canada Limited v Luff Industries Ltd, 2016 ABQB 298

Court of Queen ’ s Bench of Alberta Citation: Linde Canada Limited v Luff Industries Ltd, 2016 ABQB 298 Date: 20160525 Docket: 1401 13728 Registry: Calgary Between: Linde Canada Limited Plaintiff Defendant by Counterclaim - and - Luff Industries Ltd Defendant Plaintiff by Counterclaim - and - Praxair Canada Inc Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice E.C. Wilson _______________________________________________________

Appeal from the Decision by K.R. Laycock, Master in Chambers Given on the 13th day of August, 2015 Introduction [1] The Plaintiff (hereafter “Linde”) applied for

Summary Judgment in favour of its claim against Luff Industries Ltd (hereafter“Luff”) as well as

Summary Dismissal of Luff’s Counterclaim. Praxair Canada Inc was not involved in that Application or this Appeal. [2] The Applications were heard by Master K.R. Laycock. On August 13, 2015 he dismissed both Applications. [3] Linde appeals those decisions. [4] For the reasons which follow I dismiss the Appeal against the refusal to grant

Summary Judgment but I allow the Appealregarding the refusal to grant

Summary Dismissal of Luff’s Counterclaim. Standard of Review [5] The process for an Appeal from a decision of a Master is set out in Rule 6.14. In this case the record before the Master –being the Pleadings, two Affidavits, transcripts of the questioning of those two affiants plus an undertaking response – are all beforeme. No further or additional evidence has been offered by either side. Of course, I also have the transcript of the proceedings before theMaster. [6] I understand that the parties agree that the standard of review on this Appeal is correctness. The Master’s decision is notentitled to deference – Bahcheli v Yorkton Securities Inc, 2012 ABCA 166 at paragraphs 19 and 30.

Summary Judgment Applications [7] This Application was brought pursuant to Rule 7.3 on the grounds that there is no defence to a claim or part of it. [8] The test to be employed was recently expressed by Master J.B. Hanebury in Kidco Construction Ltd v Griffith, 2015 ABQB814: [14] The test utilized by the court when considering an application for

summary judgment or dismissal is that the application should begranted where no genuine issue for trial exists. This occurs when the judge is able to make a fair and just determination on the meritswithout a trial, because the

summary judgment process allows him or her to make the necessary findings of fact, to apply the law to thosefacts and is a proportionate, more expeditious and just means to achieve a just result. Rule 7.3 provides that

summary judgment may begranted if a disposition that is fair and just to both parties can be made on the existing record: Maxwell v Walmart, 2014 ABCA 383, para. 12. [15]

Summary judgment is therefore no longer to be denied solely on the basis that the evidence discloses a triable issue. The question iswhether there is in fact any issue of “merit” that genuinely requires a trial, or conversely whether the claim or defence is so compellingthat the likelihood it will succeed is very high such that it should be determined summarily: WP v Alberta, 2014 ABCA 404 ,para. 26.

I would add that for a claim or defence to have merit, there must be a genuine issue of a potentially decisive material fact in the casewhich cannot be summarily found against the non-moving party on the record: 776826 v Ostrowercha, 2015 ABCA 49 (paragraphs 10and 11). The Facts [9] Linde is a supplier of welding gases and a number of related welding products. Luff manufactures conveyor systems for usein various industries. It is necessary to weld metal components together as part of this manufacturing process. [10] Linde and Luff have had a long-standing business relationship.

Prior to 2013 Luff had used welding products and weldinggases provided by Linde, among other suppliers. On November 22, 2013 Linde and Luff entered into a form of exclusive supply contractfor a term of three years under which Linde became the sole supplier of all of these products to Luff. [11] The parties had not previously operated under such a far reaching exclusive agreement. Luff was prepared to do so here for anumber of reasons. First, the contract would provide a level of consistency in pricing and second, a certainty of supply of the welding

materials and related products it required for its business. These were factors know to Linde to be importance to Luff. (See cross- examination of Linde representative Luke Balderson, p.8/7-27.) [ 12 ] Luff complains that very early into the life of this contract, Linde was unable to consistently and reliably deliver welding gases and other consumables which Luff required in its business. When welding gases or other critical supplies were exhausted, production would come to a halt.

The Luff representative deposed that a series of work stoppages occurred as a result of these welding supplies being exhausted costing Luff in excess of $80,000 (see affidavit of Cameron Howes, paragraphs 15, 36 and 37). [ 13 ] Luff’s brief at paragraph 18 provides details of some of these ongoing supply deficiencies, complaints to Linde concerning same and, in some cases, no response from Linde to their aggrieved customer. [ 14 ] In addition to these problems, Luff began experiencing significant and ongoing billing errors.

The Master discounted these deficiencies in his Reasons as the fundamentals of this contract were to supply goods – not to supply accounting services (page 35/30- 35). [ 15 ] But while that is true, the uncontradicted evidence is that Linde’s billing errors occasionally resulted in Luff being improperly placed on credit hold which led, in turn, to Linde stopping product delivery (see Howes’ affidavit, paragraphs 16 and 17).

In cross- examination Howes testified that one such shortage in late December 2013 – barely a month into this contract – hampered production (51/11-52/20). [ 16 ] Thus, there can be a tie-in from billing/accounting errors leading to the deliberate cessation or interruption of product delivery to Luff. [ 17 ] Accordingly I would not immediately discount such billing/accounting problems when it, even indirectly, led to the product delivery shortages. [ 18 ] Given the ongoing problems Luff was experiencing, a further meeting with Linde was scheduled for April 2, 2014.

In advance of this meeting, Robert Fasoli, Plant Manager of Luff, wrote to Linde to advise that Linde’s failure to properly service its contract was costing Luff money in lost productivity and wasted management time. Linde was asked to address these issues if it wished to salvage its business relationship with Luff. [ 19 ] Linde vowed, at that meeting, to address both the ongoing billing and supply problems.

However, Luff saw no satisfactory improvement and on May 14, 2014 notified Linde it was terminating the contract. [ 20 ] Key to Luff’s complaints about the supply problems was that Linde failed to provide “vendor managed inventory and service”. Luff’s view was that Linde, as vendor, took responsibility for monitoring Luff’s inventory of consumable welding supplies and ensuring that this inventory was re-stocked as required. A representative of Linde attended at Luff’s shop twice per week to assess Luff’s inventory of consumable welding supplies and then ordered replacement supplies as required.

This process relieved Luff’s management from having to monitor its inventory and arrange for welding purchases itself. [ 21 ] In large measure, Luff targets its complaints regarding deficiencies in the supply of essential products to Linde’s repetitive failures to properly execute this “vendor managed inventory” scheme. [ 22 ] Linde’s responses are essentially two-fold. First, claims of alleged welding supplies being exhausted were mistaken or overblown; secondly, the fault with an exhausted supply inventory lay primarily Luff’s shoulders due to their failure to properly order supplies.

This contract did not specify a “vendor managed inventory”. [ 23 ] Regarding the first point, Linde submits that most of Luff’s complaints are only “generalized allegations” insufficient to avoid

summary judgment. Having read Mr Howes’ affidavit and exhibits and his cross-examination, I am satisfied that there is sufficient detail provided to withstand a

summary judgment application premised upon a complaint of “generalized allegations”. [ 24 ] Regarding the specific complaint regarding the supply of welding tips being exhausted, I am satisfied that Luff’s complaint is without foundation. [ 25 ] Regarding the specific complaint that Luff was “100%” out of welding gases on March 18, 2014, I find that this appears to have been the case. [ 26 ] The Luff floor supervisor sent an email to Linde on March 18, 2014 with the subject heading “What is going on” and with the message “Guys, why am I out of consumables and gas?”.

His email is timed 3:28:13. [ 27 ] To apparently challenge this claim, Linde produced delivery receipts for three separate deliveries on March 18, 2014 showing a time for delivery of consumables at 2:54pm and 2:55pm and a time for delivery of gas at 3:21pm. [ 28 ] These times of delivery are practically coincidental to the time Luff emailed that its supplies were exhausted. In any event, there would be a time lag from product receipt to delivery to the shop floor.

More importantly perhaps, three separate deliveries within an approximately one half hour time period certainly suggests a significant, coincidental need for required supplies. [ 29 ] None of this, in any event, supports Linde’s submission that Luff’s claim is “bare and self-serving”.

Nor can I find that recorded deliveries by Linde on March 11 and March 19 provide any particular insight concerning supply deficiencies on March 18. [ 30 ] Linde further submits that the majority of Luff’s complaints related to problems occurring in March and April and that they constitute but a small part of the entire obligation under the agreement. [ 31 ] However, even if one puts the December 2013 incident aside, this contract was just over six months old when it was

terminated by Luff and it is within that brief time period that the complaints must be viewed and understood in terms of their significance to Luff. [ 32 ] Linde’s view seems to be that given time, everything would have worked out. Luff, however, had no such confidence.

Their view seems to essentially be that past behaviour was the best predictor of future behaviour. [ 33 ] There is, of course, a very interesting side light to this complaint of Luff and that is that upon its Notice of Termination it almost immediately contracted with the other Defendant, Praxair, for the supply of welding gases and at a price lower than Linde’s prices. [ 34 ] Linde’s sense is that this move by Luff to terminate the contract had little, if anything, to do with poor performance by Linde and everything to do with dollars and cents.

The timing of the jettisoning of the Linde contract and the taking on of the Praxair contract is immediately suspicious. For its part, Luff says it is all merely coincidental. Questions regarding motivation and integrity certainly are raised here. [ 35 ] Linde’s second prong in its response to Luff’s defence relates to the alleged “vendor managed inventory” service. [ 36 ] Linde correctly points out, and it is conceded by Luff, that nowhere in the contract is this phraseology to be found.

Linde is adamant that this was never part of the contract and therefore simply irrelevant to this lawsuit. [ 37 ] Linde however concedes that its representatives did attend Luff’s shop twice per week, met Luff employees to get feedback on requirements and then ordered the product. [ 38 ] Linde’s position is that they only did this as “best customer service possible” (Appellant’s brief paragraph 58).

Luff’s position is that this was not about customer service but was how they understood Linde was going to manage the contract; this was Luff’s understanding of how they expected Linde would fulfil the contract and how they did do it – albeit as it turned out in their view, in an unacceptably deficient fashion (Howes’ cross-examination 6/15-7/1). [ 39 ] Supplying welding gases was an interesting process. Apparently, no-one met anyone to determine what was required nor were messages sent. When a gas cylinder emptied, Luff put it in an outside cage easily visible from the roadway.

Linde’s drivers would drive by, note the empty cylinders and replace them with full containers. [ 40 ] Mr Howes, the Luff representative, deposed to the following at paragraph 14 of his Affidavit: 14. Linde was to monitor the cage of empty gas cylinders and replace these on a regular basis. It was however common for Linde to fail to replace the empty cylinders and for Luff’s supply of welding gas to be exhausted. On several occasions, Linde’s delivery truck did not attend at our shop, or if it did attend it did not have the required replacement gasses.

It was a safety requirement of Luff, and one which is always adhered to, that empty gas cylinders be placed outside the shop. Those empty cylinders were exchanged for full cylinders from another adjacent cage.

On no occasions were empty cylinders ever left inside the shop. [ 41 ] This monitoring and replacing process by Linde was part of what Linde’s counsel called “individual cylinder control” or “ICC” which was understood as such by Mr Howes (cross-examination 36/3-17; 46/1-5). [ 42 ] Notwithstanding this monitoring of empty gas cylinders and the replacement of same with full gas cylinders was part of Linde’s basic service and a basic requirement for Luff, it is not described anywhere in the contract nor is there any mention of the “ICC” protocol.

But, arguably, this process would certainly fall within the concept of what both parties understood was meant by the phrase “vendor managed inventory”. [ 43 ] Thus, when Linde complains that no reference in the contract to “vendor managed inventory” dooms Luff’s assertion of its existence, regard might be had to another activity which was basic to the parties’ contract and yet finds no place within the wording of that contract. [ 44 ] Nonetheless it provides an insight into the manner in which this contract was being performed and also assists when evaluating the significance of any alleged breach of the contract. [ 45 ] In that regard, Rothstein J said the following in Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53 at paragraph 47 : ... a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.

Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning: ‘No contracts are made in a vacuum: there is always a setting in which they have to be placed...

In a commercial contract, it is certainly right that the court should have the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating...’ [ 46 ] I find that the factual and legal record was correctly described by the learned Master when he observed: One of the real issues in this case is what was the real expectations of the parties to the contract in this concept of supply management, vendor managed inventory. Clearly it’s not mentioned in the contract and both parties have a different

interpretation of the facts. Mr. Leveque would have me believe that the fact that the Linde representative goes through the shop is evidence of supply management – vendor supply management. Mr. Marlowe says it was just good business to go through and try and assist in proper ordering. While there’s no vendor management clause or supply management clause in the agreement, it seems to me that the expectation of the defendant on – and the actual operation of how ordering was to be undertaken determines whether or not they have a position at all in

their notice of termination of the contract for substantial breach. If they had a real expectation and the contract and the operation of the contract was that the plaintiff took a real, substantial role in identifying products that the defendant needed, it supports their position that there was a substantial problem with the operation of this contract. If, on the other hand, the defendant simply had poor inventory control and they were responsible for their own ordering, the defendant’s position is bound to lose at trial. [ 47 ] I am satisfied that a genuine issue for trial exists.

A fair and just determination on the merits of the claim and the defence of a repudiatory breach cannot be decided on this record and without a trial. [ 48 ] Accordingly, the appeal of the decision refusing

summary judgment is dismissed and the Order of the learned Master that the claim must proceed to trial is confirmed. The Defendant’s Counterclaim [ 49 ] Luff’s claim against Linde is for business losses, loss of profits, overhead and productivity, and damage to its reputation arising from production stoppages due to Linde’s failure to supply welding gases and consumables. [ 50 ] Linde says this claim is however barred by the terms of the contract; in particular, a portion of

section 6(b): In all events, regardless of the legal theory (e.g. breach of contract or warranty, negligence, strict liability, etc.):

(1) Linde SHALL NOT BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL DAMAGES, OR ECONOMIC LOSS, INCLUDING ANY LOSS OF BUSINESS, PRODUCTION, OR PROFITS; [ 51 ] I understand Luff’s position to be that it agrees this exclusion clause apparently prevents these claims from being advanced but that, in these, circumstances, it would be either unconscionable or contrary to public policy to enforce the clause.

See Tercon Contractors Ltd v British Columbia , 2010 SCC 4 . [ 52 ] In the Tercon case, the majority determined that the claim did not fall within the exclusion clause (paragraph 66); alternatively, its language was at least ambiguous in that regard (paragraph 79). Binnie, J in dissent, concluded that the claim did fall within the exclusion clause. [ 53 ] Binnie, J discussed the three step analysis to be addressed by a party who seeks to escape the effect of an exclusion clause like the one in the case at bar. [ 54 ] Step one is to determine if the exclusion clause applies to the circumstances.

Regardless of Luff’s concession I am satisfied that as a matter of law it does. [ 55 ] Step two is to determine whether the exclusion clause was unconscionable at the time the contract was made ( Tercon , paragraph 122).

The four items to be reviewed when considering unconscionability are set out in the Alberta Court of Appeal decision of Cain v Clarica Life Insurance Co, 2005 ABCA 437 , 384 A.R. 11 at paragraph 32 as follows: 1. a grossly unfair and improvident transaction 2. victim’s lack of independent legal advice 3. overwhelming imbalance in bargaining power 4. other party’s knowing taking advantage of this vulnerability. In this regard Luft offers no evidence to support such a claim.

The evidence is that these two parties have had years of business association; they are both fairly large and apparently equally sophisticated companies.

In the formation of this contract, Luff was able to bargain equally with Linde; indeed, receiving several alterations to the contract’s terms in its favour. [ 56 ] There is absolutely nothing on the record to factually or legally support a claim of unconscionability at the time the contract was made. [ 57 ] Step three requires the Court to determine whether it would refuse to enforce the exclusion clause because of the existence of an “overriding public policy” ( Tercon , paragraph 123). [ 58 ] Luff claims that the overriding public policy here is that Linde should not be immunized from all such damage claims even when it fails to perform any of its obligations under the contract. [ 59 ] With respect, that would undoubtedly be the claim of all aggrieved parties such as Luff finding themselves in a similar situation.

But if effect was routinely given to such claims then, to use the words of Binnie, J, “there would be little room for the exclusion clause to operate” ( Tercon , paragraph 136). [ 60 ] Luff negotiated this contract freely, willingly and without any claim of duress. Luff offers no evidence supporting a claim for a public policy “exemption”. [ 61 ] Luff’s complaint does not begin to approach the examples given by Binnie, J required to outweigh “the very strong public interest in the enforcement of contracts” ( Tercon , paragraph 123). See also Plas-Tex Canada Ltd v Dow Chemical of Canada Ltd , 2004 ABCA 309 .

But perhaps Luff may choose to augment its argument regarding the significance of the “repudiatory breach” by pointing out that the exclusion clause would continue to prevent Luff from seeking damages from Linde for these claims flowing from the alleged contract breach.

[ 62 ] Undoubtedly due to the fact that counsel made but passing reference to the Counterclaim during argument, the learned Master did not specifically deal with it nor provide any specific reasons when he directed that both matters would have to proceed to trial. However, I am satisfied that there is no genuine issue for trial on the Counterclaim. There are no facts to support the bald claim.

The legal requirements to put the non-enforcement of an exclusion clause issue into play at a trial have not been met. [ 63 ] Accordingly, the appeal from the Master regarding the Counterclaim is allowed and Luff’s Counterclaim is summarily dismissed. Costs [ 64 ] There being mixed success on this appeal I order that each party will bear their own costs. Heard on the 18 th day of May, 2016. Dated at the City of Calgary, Alberta this 25 th day of May, 2016. E.C. Wilson J.C.Q.B.A. Appearances: K.D. Marlowe/Sean Fraser for the Plaintiff Peter Leveque for the Defendant Luff Industries Ltd