Admiralty Leasing Inc. v. Spence Manufacturing, 2021 BCPC 93

Citation: Admiralty Leasing Inc. v. Spence Manufacturing 2021 BCPC 93 Date: 20210421 File No: 7474 Registry: Western Communities IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: ADMIRALTY LEASING INC. CLAIMANT AND: SPENCE MANUFACTURING DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE GOUGE Appearing for the Claimant: Michelle Le Lievre Appearing for the Defendant: Jeff Spence Place of Hearing: Colwood , B.C. Date of Hearing: January 22, 2021

Date of Judgment: April 21, 2021 The Issue [ 1 ] The Claimant (“Admiralty”) claims damages from the Defendant (“Spence”), alleging that Spence provided inaccurate information to Admiralty, as a consequence of which Admiralty’s claim to a security interest in a piece of industrial machinery was rejected by the trustee in bankruptcy of Admiralty’s client, Abacus Welding Ltd. (“Abacus”). The Facts [ 2 ] Admiralty is a commercial lender. When it finances the purchase of industrial equipment, it sometimes purchases the equipment and leases the equipment to its customer.

This case is concerned with a bandsaw which Admiralty purchased from Spence and leased to Abacus. [ 3 ] The bandsaw was manufactured in Taiwan and shipped to Spence at Spence’s facility in Winnipeg in March, 2015. Some modifications were required to conform to Canadian regulatory standards, as established and supervised by the Canadian Standards Association (“CSA”). Spence completed those modifications in March – May, 2015.

Upon completion of the modifications, Spence affixed a name plate to the machine, bearing Spence’s name and contact information and the serial number for the modified machine; i.e. 12080646. [ 4 ] The bandsaw was then inspected by CSA, who placed a sticker beside the name plate, signifying CSA’s approval of the modifications. [ 5 ] In January, 2016, Abacus inspected the bandsaw at Spence’s premises and decided to purchase it. Abacus retained a leasing broker to assist Abacus in arranging financing.

The broker referred Abacus to Admiralty because Abacus was recognized as a high-risk borrower. [ 6 ] On May 12, 2016, Spence sold the bandsaw to Admiralty. The only contractual document was an invoice, which included a list of items of equipment (of which the bandsaw was one), a price for each item and a total price of $39,255.12. The price for the bandsaw was $8999. It was described in the invoice as “Horiz. Swivel Head Dual Mitre Bandsaw 220V 1 S/N 12080646”. No other contractual terms were stated in the invoice. [ 7 ] Admiralty paid the invoice.

Acting on Admiralty’s instructions, Spence delivered the bandsaw to Abacus. Admiralty registered its lease under the Manitoba Personal Property Security Act . [ 8 ] In December, 2019, Abacus became insolvent and filed an assignment in bankruptcy. Lazer Grant Inc. (“Lazer”) was appointed as Abacus’ trustee in bankruptcy. Lazer proceeded to sell Abacus’ assets (including the bandsaw). The bandsaw sold for $6000. Admiralty claimed the proceeds, relying on its status as a secured creditor.

Lazer rejected the claim because, it said, the serial number on the invoice (12080646), did not match the serial number which Lazer saw on the machine nameplate (12080649). [ 9 ] In this case, Admiralty says that Spence made an error in recording the serial number on the invoice.

Spence says that: a. each of the items referred to in the invoice had its own serial number; b. the various items were designed to be assembled together to create a functioning bandsaw; c. the serial number of each item was reproduced on a nameplate mounted on the item; d. after assembling the various items into a completed unit, and after CSA approved the completed unit, but, before Abacus inspected, Spence attached new nameplate, with a new serial number(12080646) for the completed unit; e.

CSA then attached its approval sticker beside the nameplate; f. the serial number for the bandsaw on the invoice was correct, and matched the nameplate which Spence installed after completing the modifications required by CSA; g. Lazer must have looked at the nameplate for one of the other items, and mistaken that for the nameplate installed by Spence, when it rejected Admiralty’s claim. Although it has not been proven that one of the other components bore the serial number 12080649, both parties accepted, for the purposes of argument, that that was the most likely explanation. Legal Principles a.

Contract [ 10 ] The question is whether the contract obliged Spence to alert Admiralty to the fact that the serial number on the invoice was only one of several serial numbers to be found on the completed unit. The only contractual document was the invoice. It contains no express term to that effect. The legal question is whether such a term may be implied. [ 11 ]

Section 15 of the Manitoba Sale of Goods Act CCSM c. S10 provides that, where there is a “sale by description”, “… there is an implied condition that the goods shall correspond to the description …”. However, I do not think that

section 15 assists Admiralty in this case because this was not a “… sale by description …”. Rather, it was a sale of a specific item selected by Abacus. [ 12 ] There remains the question of whether such a term would be implied at common law. The legal principles governing contractual terms implied at common law were recently summarized by Justice Levine in Moulton Contracting Ltd. v. British Columbia [2015] BCJ

No. 331; 2015 BCCA 89; 389 DLR (4th) 263; 67 BCLR(5th) 314 @ paragraphs 53 – 58: In M.J.B. Enterprises Ltd. v. Defence Construction

(1951) Ltd., (SCC), [1999] 1 S.C.R. 619 at para. 27 …, JusticeIacobucci for the Supreme Court summarized the three circumstances … where terms may be implied in a contract: (1) based on customor usage; (2) as the legal incidents of a particular class or kind of contract; or (3) based on the presumed intention of the parties where theimplied term must be necessary "to give business efficacy to a contract or as otherwise meeting the 'officious bystander' test as a termwhich the parties would say, if questioned, that they had obviously assumed" ….

Justice Iacobucci noted that while it was not clear from Canadian Pacific Hotels Ltd. whether the "business efficacy" and "officiousbystander" tests were two separate tests, what was "important in both formulations is a focus on the intentions of the actual parties", andnot "the intentions of reasonable parties" …: This is why the implication of the term must have a certain degree of obviousness to it, and why, if there is evidence of a contraryintention, on the part of either party, an implied term may not be found on this basis.

The key element is that the implied term is more than just reasonable; it is necessary to make the contract as the parties intended. That is,without the term, the contract, as intended by the parties, would not be effective. In Olympic Industries Inc. v. McNeil, (BC CA), 86 B.C.L.R. (2d) 273, [1993] B.C.J. No. 2565 at para. 31 (decidedbefore M.J.B. Enterprises), Finch J.A. (as he then was) set out the approach to analyzing the parties' intentions: The question as to what the parties must have intended as a matter of necessity is a question of fact to be decided in the circumstances ofeach case.

The party who seeks to have a term implied into the contract bears the onus of persuading the court of that necessity. It is notsufficient to show that it would be reasonable or logical to imply such a term, or that the parties would probably have agreed upon such aterm if they had put their minds to it, or, that having put their minds to it, chose not to express it.

A higher burden of proof must be met[.] * * * Thus, the intention of parties is not what reasonable parties would intend, but rather what the actual parties in the actual circumstances ofthe contract intended. [13] In this case, the evidence does not support a mutual intention that the contract would include the implied term which would benecessary to support Admiralty’s claim. b. Tort [14] Unless the contract contains an express or implied term: (

i) governing the respective rights and responsibilities of the parties inthe circumstances in issue; or (ii) limiting the parties rights and obligations to those defined by the contract, the existence of a contractbetween the parties is not a barrier to a claim in tort: B.G. Checo Ltd. v. British Columbia (SCC), [1993] 1 SCR 12. [15] The first question is whether, in the circumstances, Spence owed a duty to warn Admiralty of the presence of other serialnumbers on the various components of the finished product. The Supreme Court of Canada recently reviewed the governing principles inDeloitte & Touche v.

Livent Inc. [2017] 1 SCR 855. To summarize briefly, a duty of care will be found to exist where: (

i) the parties werein a sufficiently proximate relationship; and (ii) “… injury to the plaintiff is a reasonably foreseeable consequence of the defendant'snegligence …”. Where the loss claimed is “pure economic loss”, it may be recoverable if …. (iii) the defendant should reasonably haveforeseen that the plaintiff would rely on his or her representation; and (iv) … the plaintiff's reliance would, in the circumstances of thecase, be reasonable. [16] In this case: a. Spence knew that, although Abacus had inspected the machine, Admiralty had not.

There was no reason for Spence to believe thatAdmiralty knew that the machine bore several serial numbers, only one of which was correct. b. Spence knew that Abacus was regarded as a doubtful credit risk, and had been referred to Admiralty for that reason. c. Spence ought reasonably to have known that the correct registration of the serial number would be essential to preserve Admiralty’ssecurity interest in the event that Abacus became insolvent. d. It would have required little effort for Spence to: (

i) remove all serial numbers except the correct one; or (ii) alert Admiralty to thepresence of a variety of serial numbers on the machine, and to the location of the correct serial number. In the circumstances, I conclude that Spence owed a duty of care to Admiralty, which obliged Spence to inform Admiralty of thepertinent facts at the time that Spence rendered its invoice. Damages and Apportionment of Fault [17] Unfortunately, the relationship between Admiralty and Spence became confrontational very soon after Lazer rejectedAdmiralty’s claim to the proceeds of sale of the bandsaw.

If there had been a cooperative and constructive exchange of correspondence,they would very likely have succeeded: (

i) in persuading Lazer to accept the claim; or (ii) on an appeal of Lazer’s decision to theManitoba Court of Queen’s Bench under

section 135 of the Bankruptcy & Insolvency Act RSC 1985, c. B-3. In either of thosecircumstances, Admiralty would have received the proceeds and this lawsuit would not have ensued. [18] Having read the correspondence between Admiralty and Spence, I cannot conclude that one was more at fault than the other. Inthat circumstance, pursuant to

section 3 of the Negligence Act RSBC 1996, c. 333, I apportion fault equally between them.

Disposition [ 19 ] Admiralty is entitled to judgement against Spence in the amount of $3000, plus: (

i) prejudgment interest at the Registrar’s rate from December 31, 2019 to the date of this decision; and (ii) filing and service fees, to be assessed by the Registrar if the parties are unable to agree. April 21, 2021 ________________________ T. Gouge, PCJ