2017 QCCA 1835, 2017 QCCA 1835

Multibond inc. c. Lasido inc. 2017 QCCA 1835 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-025520-156 (500-17-027976-052) DATE: November 16, 2017 CORAM: THE HONOURABLE MARK SCHRAGER, J.A. ROBERT M. MAINVILLE, J.A. MARIE-JOSÉE HOGUE, J.A. MULTIBOND INC. APPELLANT/INCIDENTAL RESPONDENT – Defendant v. LASIDO INC. GUITABEC INC.

RESPONDENTS/INCIDENTAL APPELLANTS – Plaintiffs JUDGMENT [ 1 ] This is an appeal from a judgment rendered on July 14, 2015 by the Superior Court, District of Montreal (the Honourable Marie-Claude Lalande), granting Respondents’ action and condemning Appellant to pay damages.

After 13 days of hearing, 22 ordinary and expert witnesses and considering 84 exhibits, the judge analyzed the proof in 56 pages and found that the glue manufactured and sold by Appellant to Respondents for use in the fabrication of guitars was affected by a latent defect which resulted in Respondents suffering damages for lost profit and the loss of finished product inventory. [ 2 ] Respondents decided in 2000 to change suppliers of the glue used to manufacture their guitars. Appellant, aware of the use to be made, supplied two glues to Respondents on trial.

After completing certain tests, Respondents chose glue number G-2539, which in the latter half of 2001 became the glue used by them to assemble guitars. In March 2003, Respondents’ internal investigations lead them to believe that there was a problem with the glue; they so informed Appellant and stopped using it. [ 3 ] At some time after Respondents commenced using the G-2539, they noticed a significant increase (9%) over historical experience (1%) in the quantity of returns of finished product.

Respondents’ market is worldwide and their product guarantee is such that they accept the return for refund of any guitar with which the ultimate user is not completely satisfied. [ 4 ] It appears that in extreme humid conditions, the glue became viscous such that there was movement in or deformation upward of the harmony table at the bridge (i.e. where the strings are anchored to the guitar body) causing the action (i.e. distance of the strings to the frets) to increase. [ 5 ] Once Respondents stopped using the glue G-2539 by reverting to the glue sourced from their previous supplier, the problem disappeared and the number of returns reverted to normal levels. [ 6 ] The judge found for Respondents.

More specifically, the judge concluded that the glue G-2539 was defective; that the defect was latent (i.e. not apparent); that Appellant was legally presumed to know of the defect and that Respondents had proven the amount of their damages ($3,352,802 for loss of inventory and $1,191,902 for loss of profit). [ 7 ] The judge awarded interest not from the date proceedings were instituted (October 2005) but rather from the date that Respondents served amended proceedings (December 2010) in virtue of which their claim was substantially increased.

This interest start date is the subject of an incidental appeal. [ 8 ] Appellant raises four main grounds in the principal appeal. [ 9 ] Firstly, Appellant contends that the judge erred in concluding that the glue was defective. More precisely, Appellant argues that the judge only considered the alleged seriousness of the defect without examining the other three elements required by Quebec civil law for the vendor’s warranty of quality to apply, namely that the defect existed at the time of the sale, the purchaser was unaware and the defect was indeed latent. [ 10 ] We disagree with the Appellant.

Though the judge may not have structured her consideration of the evidence to Appellant’s satisfaction, she did analyze it in light of all the factors necessary to establish an actionable defect and specifically, the items enumerated above.

[ 11 ] The finding that the defect existed when the glue was purchased by Respondents from Appellant is implicit in the judge’s finding of causation – i.e. that the problem was caused by the use of the glue G-2539. She specifically addressed the expert evidence to the effect that with age the glue became less unstable such that guitars not returned for refund between 2001 and 2003 might no longer be affected by the problem.

Also, the disappearance of the problem once Respondents reverted to the old glue was compelling. [ 12 ] As to the hidden nature of the defect so that the purchaser (Respondents) were not aware of it, the judge specifically refers to testing of the glue prior to its purchase for production by Respondents. This testing done under normal levels of humidity did not disclose the defect. While the judge rejected the testimony of Respondents’ plant manager, the record discloses other sources of proof that the glue was tested by Respondents for its suitability prior to the purchase.

The judge also considered the expert evidence and the internal investigation conducted to identify the reason for the movement of the harmony table. This proof indicated the magnitude of the test that would have been needed to possibly identify the defect before purchasing the glue. In addition, she also considered the evidence proffered by an artisanal maker of high-end guitars who observed the same problem using the glue in question.

While the qualification of the defect as latent may be a question of law, the administration and consideration of the evidence tendered raises questions of fact. [1] Appellant has not convinced us of any reviewable error in the judge’s findings that the defect was latent and that Respondents were unaware and could not reasonably have discovered the defect prior to purchase. [ 13 ] Moreover, the consideration of the facts by the judge was exhaustive.

In this regard, the judge considered the evidence as a whole including the existence of other factors suggested by Appellant’s expert as possible causes of the problem. For instance, Appellant puts forward the theory that the defect was due to changes in design or in the method of fabrication of the guitars. The judge considered and rejected these theories and we are not convinced of any reviewable error in this regard. [ 14 ] It was not necessary for Respondents to prove, item by item, that each of the approximately 14 000 guitars suffered from the problem.

The judge was free to examine the proof as a whole to conclude, based on a balance of probability that, in the circumstances, all the guitars in question suffered from the defect.

It should be remembered that one element of proof is that the problem had not been experienced prior to the use of the glue G-2539 when returns represented 1% of production and that the problem was no longer observed once Respondents switched back to the old glue, in 2003. [ 15 ] Appellant incorrectly argues in the second ground that the judge erred by operating a shift of the burden of proof to require Appellant as vendor to prove that the defect was apparent. [ 16 ] Once the latent defect was established, the onus strategically shifted to Appellant to demonstrate that the glue was not defective or that any defect was apparent – i.e. that a reasonably prudent and diligent purchaser would have discovered it. [2] Again, the judge may not have articulated the analysis to Appellant’s liking but there is no lack of consideration of the issue.

There was certainly proof of a defect, and that it could not be uncovered by an examination by a reasonable purchaser. Moreover, Appellant did not prove, as it became its burden to do, that Respondents could have discovered the problem had they properly tested the glue and acted as a reasonable and diligent purchaser.

That the judge sometimes referred to Respondents’ actions as “not negligent” as opposed to “reasonable”, which is Appellant’s third ground of appeal, does not, in context, indicate to us that she somehow modified the standard against which to measure the Respondents’ behaviour as a purchaser taking reasonable measures to examine the quality of the object sold. Such vocabulary is not without precedent on the subject. [3] [ 17 ] As a fourth ground, the Appellant invokes errors in the consideration of the evidence to quantify the damages claimed.

More specifically, Appellant contends that there is no direct proof that each of the guitars for which compensation is claimed was damaged and that, if damaged, the guitar in question was manufactured with the glue G-2539. Respondents proved, based on the precise date that a guitar’s stem was constructed and the timing of the production

schedule (i.e. – generally, but subject to exception, a three-month lag after the stem) that the guitars were, on balance of probability, made using the glue in question. [ 18 ] As stated, the conclusion that any given guitar was defective was based on the evidence as a whole, and not direct evidence regarding each of the thousands of guitars, that humidity caused movement of the harmony table. Why then were there 9% of production returned instead of 100%?

Several answers were suggested: amateur musicians and people who keep the guitars as ornaments would not notice that the action changed, or guitars not exposed at the beginning of their life to high humidity would not exhibit the problem. The judge found these explanations sufficient. [ 19 ] The foregoing determinations are factual. Appellant has not satisfied us of any error, let alone that any such errors are palpable and overriding.

Accordingly, the appeal will be dismissed. [ 20 ] The incidental appeal, as indicated, questions the award of interest not from the institution of proceedings but rather from the date Respondents amended their proceedings in 2010 to increase their claim for damages overall from 3 million to 21 million dollars. [ 21 ] Trial judges have considerable discretion in establishing the start date of the calculation of interest and the special indemnity foreseen by the Civil Code. [4] This Court intervenes in such matters only where the exercise of the discretion appears unreasonable. [5] [ 22 ] This discretion has been exercised to grant interest, as did the judge in this case, from the date that a claim is substantially increased. [6] Here, the amendment was made after Respondents new attorneys mandated expert reports, not filed with the declaration of readiness. [ 23 ] In the circumstances, we are not convinced of any reviewable error in the exercise of the discretion by the judge to grant interest as of the date of the amendment, so that the incidental appeal must also fail.

FOR THE FOREGOING REASONS, THE COURT: [ 24 ] DISMISSES the principal appeal with legal costs; [ 25 ] DISMISSES the incidental appeal with legal costs.

MARK SCHRAGER, J.A. ROBERT M. MAINVILLE, J.A. MARIE-JOSÉE HOGUE, J.A. Mtre Louis P. Brien Mtre Julien Grenier LAPOINTE ROSENSTEIN MARCHAND MELANÇON For Appellant/Incidental Respondent Mtre Jean-Pierre Casavant, Ad. E. Mtre Isabelle Casavant CASAVANT MERCIER For Respondents/Incidental Appellants Date of hearing: October 25, 2017