GenRep Ltd./Ltee v. G & D Shipping Ltd., 2012 NLCA 50

Date: 20120730 Docket: 10/48 Citation: GenRep Ltd./Ltee v. G & D Shipping Ltd. , 2012 NLCA 50 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN : GENREP LTD./LTEE APPELLANT AND : G & D SHIPPING LTD. FIRST RESPONDENT AND : GEORGE SAUNDERS SECOND RESPONDENT AND : DIANNE SAUNDERS THIRD RESPONDENT Coram: Welsh, Harrington and Hoegg JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (General) 200201T4320 Appeal Heard: May 15, 2012 Judgment Rendered: July 30, 2012 Reasons for Judgment by Hoegg J.A. Concurred in by Welsh and Harrington JJ.A. Counsel for the Appellant: Owen Myers Counsel for the Respondents: Peter Shea

Hoegg J.A.: INTRODUCTION [ 1 ] This appeal concerns whether the plaintiff fishing enterprise can recover damages from the distributor of a malfunctioning marine engine with whom the plaintiff had no contract of purchase. CASE HISTORY Facts [ 2 ] In the spring of 2002, G & D Shipping Ltd. (G &

D) purchased a Daewoo marine engine for the fishing boat Lady Cavell from Air Cooled Engine Service Limited (ACE) for $89,518.27. Mr. Jerry Parsons of ACE travelled with the engine to Cobb’s Arm where the Lady Cavell was located and met George Saunders, an owner of G & D. Mr. Parsons then assisted Mr. Saunders with the engine’s installation. [ 3 ] As soon as the engine was turned on, excessive smoke came from the exhaust and the engine overheated. Mr. Parsons advised Mr. Saunders that the smoke would abate once the new paint burned off. [ 4 ] The Lady Cavell left for the fishing grounds.

While at sea, the engine overheated, causing water to come out of the expansion tank, fuel to leak from the engine, and excessive engine shaking. The exhaust was very hot and blood red. [ 5 ] The Lady Cavell subsequently made three trips to the fishing grounds to prosecute G & D’s crab quota. The engine problems worsened with each trip. [ 6 ] G & D contacted ACE to try to resolve the problem with the engine. This was to no avail. G & D then contacted GenRep Ltd./Ltee(“GenRep”), the distributor for Daewoo , which is located in Ontario. Genrep’s president, Mr.

Jay da Silva, and a technician traveled to Little Bay, Newfoundland where the Lady Cavell was docked to try to remedy the situation. On July 4, 2002, Mr. da Silva and his technician spent between 5 and 7 hours working on the engine problems. While they worked, Mr. Saunders and his friend (who was considering buying one or two Daewoo engines) were present. Before Mr. da Silva and the technician left, Mr. da Silva penned in his own hand the following, which he personally delivered to Mr.

Saunders (the Document): This is to certify that the engine model # MDK222LE Serial #EAYOA1003 will perform effectively for the period required for Mr. George Saunders to finish his fishing season. Approx. 6 wks to 8 wks. We will endeavour to correct the engine management problem sooner, as the resources become available. If the engine incurs damage due to its operation in this state Genrep Ltd. will repair or replace the engine to Mr. Saunder’s satisfaction. We will work with Mr. Saunders, at the time of his convenience to correct the other problems that have been identified today.

Jay da Silva, President – Genrep Ltd (signed). [ 7 ] The Lady Cavell departed for the fishing grounds. En route, the engine problems worsened to a point considered dangerous by Mr. Saunders. The trip was aborted and the Lady Cavell slowly motored back to port. [ 8 ] Mr. Saunders and his then counsel again tried to resolve the situation by corresponding with both ACE and GenRep but these efforts proved futile. By letter dated July 7, 2002, Mr. da Silva advised Mr. Saunders’ counsel that he was withdrawing his “earlier offer”, referring to his handwritten note of July 4th.

The next day the Lady Cavell was prevented from leaving port as a result of an order arising from a Canadian Steamship Inspection which determined that the “running condition” of the engine was mechanically unsound with “numerous major defects”. [ 9 ] Additional legal efforts to resolve the situation so that the Lady Cavell could return to fishing were also fruitless. On July 26, 2002, Mr. Saunders purchased a new engine so as to be able to mitigate his losses by returning to the water to fish G & D’s quota before the season expired.

He replaced the Daewoo engine with the new engine, whose installation required significant modifications to the boat, and the Lady Cavell returned to the water. [ 10 ] The Lady Cavell was tied up in port for three weeks (July 4 to July 24, 2002) of a very active fishing season. Nevertheless, G & D was able to fish its full crab quota. However, the down time resulted in G & D’s inability to fish its caplin quota, and its inability to fish a crab quota for another fisherman, Kevin Decker, whose crab quota G & D had fished the previous year.

The Trial Decision [ 11 ] G & D filed suit against Genrep and the matter went to trial. Two witnesses testified: Mr. Saunders and Mr. Parsons. Mr. da Silva did not testify. In addition, some documents were admitted into evidence. The trial judge, in an oral decision, determined that the Document Mr. da Silva gave to Mr. Saunders on July 4, 2002 constituted a warranty for which consideration was given and on which G & D was entitled to sue for breach and damages.

The trial judge concluded that the Document was a warranty and was “effective for enforcement”, having found that it was “clear and undisputed” that the Daewoo engine on the Lady Cavell failed to operate after the Document was given.

The trial judge went on to determine that the commercial relationship between GenRep and G & D was such that GenRep’s written undertaking was justifiably relied upon by G & D to its detriment, and that this detrimental reliance also gave effect to the terms of the written warranty such that G & D could recover damages from GenRep. [ 12 ] The trial judge ordered Genrep to pay damages to G & D in the following amounts: $89,518.27 for the cost of the engine, $47,500 for G & D’s loss of the value of its capelin quota, and $57,700.00 for G & D’s loss of the opportunity to fish Mr. Decker’s crab quota.

G & D was awarded its party and party costs. The trial judge ordered the return of the Daewoo engine to Genrep upon its

payment of the judgment and costs. The Appeal [13] GenRep appeals to this Court, maintaining that the trial judge erred in finding that the written Document that Mr. da Silva gaveto Mr. Saunders constituted an enforceable warranty on which G & D could recover damages. Genrep continues to assert that Mr. daSilva’s Document was merely an offer which Mr. da Silva withdrew on July 7th. Genrep also argues that the trial judge misapprehendedthe evidence he used to support his findings of both liability and damages.

In particular, GenRep says the evidence respecting G & D’sdamages was insufficient to support the trial judge’s findings that the damages were proved on a balance of probabilities. ISSUES Liability 1. Was the Document enforceable as a warranty on which G & D could sue and recover damages? If not, did the relationship between G& D and GenRep create a situation of detrimental reliance sufficient to give effect to a binding obligation on GenRep to honour the termsof the Document? Damages 2.

Did the trial judge commit palpable and overriding error in his appreciation of the evidence (including its sufficiency) in finding thatit supported the damages award? STANDARD OF REVIEW [14] Whether the July 4, 2002 undertaking of Mr. da Silva is enforceable as a warranty and whether there was detrimental reliancesufficient to give effect to a binding obligation are both issues of mixed fact and law. Whether the damages award is supported by theevidence raises factual questions. In both cases, the standard of review is that of palpable and overriding error. (Housen v.

Nikolaisen,2002 SCC 33, [2002] 2 S.C.R. 235.) The parties agree that this is the applicable standard of review. ANALYSIS Liability [15] The existence of the basic elements of a contract – offer, acceptance and consideration – raise questions of mixed fact and lawand often involve factual findings derived directly or inferred from the evidence respecting the conduct and actions of the parties. (Donovan Homes Ltd. v. Modern Paving Ltd., 2011 NLCA 39, 308 Nfld. & P.E.I.R. 180; and Seadane International Inc. v. MorganInternational Marketing Co. et al. (1999), (NL CA), 180 Nfld. & P.E.I.R. 97 (Nfld.

C.A.).) [16] In order for Mr. da Silva’s Document to be enforceable as a warranty, basic contractual principles require that considerationmust have been given by G & D to Genrep. As indicated above, the trial judge found that G & D gave consideration for the Documentfrom Mr. da Silva, describing it as avoidance of the rescinded sale of the engine and/or avoiding exposure (through G & D’s claimagainst ACE) to G & D’s damages claim. The trial judge relied on the evidence of Mr. Saunders as to what transpired on July 4 betweenhim and Mr. da Silva to support his findings.

Mr. da Silva did not testify and there is no evidence which refutes that of Mr. Saunders. [17] In finding that consideration had passed from G & D to Genrep by G & D’s forbearance to sue, the trial judge stated: Is there then consideration flowing to Genrep in its giving the undertaking on July 4, 2002. Genrep would have an interest in this salenot being rescinded and/or damages not being claimed by G & D. To the extent that the Plaintiff has a claim against Air Cooled forreturn of the engine and/or for damages, that claim could expose Genrep to a claim back by Air Cooled.

In that context, an interventionby Genrep which could avoid the claim to any right, or serve to discourage such claim and/or control the extent of damage which mightbe occasioned, could be of benefit to Genrep. In its view of the problems and their continuing unrectified, it would not then be unreasonable for Genrep to give an undertaking towarrant against further difficulties, concurrent with its effecting repairs. This would avoid an immediate decision by the Plaintiff to actagainst Air Cooled, and consequently Genrep’s interest. In fact, this written undertaking did secure Mr.

Saunders continued dealingswith the Daewoo engine, as a result of his having just received presumably properly effected repairs and a written undertaking to dofurther repairs, and if necessary, replace the engine. In the end, Mr. Saunders waited until July 23, 2002, with discussions of how to look after the problem continuing between the partiesthrough July 10 and 12, 2002. I conclude that there was consideration flowing from G & D to Genrep for the written undertaking byGenrep, securing a continued relationship with Mr. Saunders consistent with it avoiding a claim of a right by G & D.

That claim of a right, though it might have to be taken against Air Cooled, did have consequences for Genrep. This undertaking served todiminish, defer, and if not by Genrep’s acting by it had it chosen to do so, to eliminate that exposure for Genrep. [18] Forbearance from suing can constitute good consideration, as per R.E. Lister Ltd. v. Dunlop Canada Ltd., (SCC), [1982] 1 S.C.R. 726. Lister involved a claim for damages emanating from the seizure of assets which was prosecuted despite theparties’ subsequent agreement for which there was consideration.

Estey J. explained beginning at page 742-743: … The consideration moving to the Listers was the response by Dunlop to the request for time to realize on their assets in an orderlyfashion so as to reduce the debt to Dunlop. Dunlop benefitted from the receipt of mortgages to secure the performance of the Listers oftheir previously unsecured undertaking. The adequacy of consideration supporting a contract has not been the subject of court scrutinyfor several centuries: Cheshire and Fifoot’s Law of Contract, 10th ed., at p. 70. The comments of the learned authors of Chitty on

Contracts, 24th ed., at pp. 82-83 are directly on point: But if the validity of the claim is doubtful, forbearance to enforce it can be good consideration. And the same rule applies even if theclaim is clearly invalid in law, so long as it was in good faith and reasonably believed to be valid by the party forbearing. Justice Estey then reviewed the authorities for the principle at 743: The old authority of Callisher v. Bischoffsheim (1870), L.R. 5 Q.B. 449, is cited in support. Bowen L.J. may be seen to the same effect inMiles v.

New Zealand Alford Estate Company (1886), 32 Ch.D. 266, at p. 291: It seems to me that if an intending litigant bona fide forbears a right to litigate a question of law or fact which is not vexatious or frivolousto litigate, he does give up something of value. It is a mistake to suppose it is not an advantage, which a suitor is capable of appreciating,to be able to litigate his claim, even if he turns out to be wrong. [19] This Court dealt with the same issue in Roberts v. Browning Ferris Industries Ltd. (1998), (NL CA), 170Nfld. & P.E.I.R. 228 (Nfld. C.A.).

Browning Ferris had laid off an employee with a promise to rehire him, but did not rehire him. Anapplications judge struck the former employee’s statement of claim.

In reversing the lower court decision, Wells C.J. said: [70] … If the allegations described above are proven then, subject to consideration of all of the evidence relating to the circumstances,it would be open to the appellant to argue that he accepted the respondent’s offer of lay-off, in circumstances where he would receiveunemployment insurance, on the basis of the representation by the respondent’s manager that the appellant would thereafter be recalledor be taken care of, and that as a result he forbore, as the respondent knew and intended he would, taking action open to him at the timeunder the collective agreement or under the Human Rights Code.

It could be argued at law that such forbearance was consideration forthe undertaking allegedly given by the respondent that the appellant would be recalled or taken care of. See also Angela Swan, Canadian Contract Law, 2d ed. (Markham, Ont.: LexisNexis, 2009) at 53: [20] Genrep argued on appeal that Mr. da Silva’s note was merely an offer and not a warranty. Genrep has neither argued nor shownthat the trial judge misapprehended the evidence or drew unreasonable inferences from it so as to undermine his finding ofconsideration.

Accordingly, the trial judge did not err in finding that G & D’s forbearance was good consideration, and that Mr. daSilva’s warranty is enforceable and binding so as to ground G & D’s damages claim. [21] While not decisive on the issue of consideration, I note that Mr. Saunders’ friend, who was present while Mr. da Silva wasattempting to fix the engine at Cobb’s Arm, was interested in possibly buying some Daewoo engines.

This fact could have underscoredMr. da Silva’s desire to avoid a law suit with G & D over the defective engine, thereby contributing to support for the finding that G &D’s forbearance constituted good consideration. [22] The trial judge also found that G & D relied to its detriment on the representations made by Mr. da Silva. These representationswere that the engine would perform effectively for the rest of the fishing season and that Genrep promised to correct the enginemanagement problem, and repair or replace the engine to Mr. Saunders’ satisfaction as resources became available.

In view of the factthat G & D has established breach of warranty for which consideration was given, it is unnecessary to consider the issue of detrimentalreliance. Damages [23] Genrep appeals the trial judge’s damages award saying that it is not reasonable and that the evidence is insufficient to supportit. Genrep did not raise any issue with respect to the forseeability of any aspect of the damages award, nor whether the damages asawarded are equally available when liability is grounded in contract or based upon detrimental reliance. Genrep argues principally thatthe evidence from Mr.

Saunders on which the damages award was based is not enough to prove, on a balance of probabilities, that thealleged damages were in fact suffered. [24] It is important to note that the evidence of Mr. Saunders with respect to the value of the loss of his ability to fish G & D’scapelin quota and the loss of his opportunity to fish Mr. Decker’s crab quota is unrefuted. It was open to Genrep to call evidencecontradicting that of Mr. Saunders, if indeed Genrep desired to do so or was able to do so.

For example, Genrep argues that there wasno evidence that G & D had a capelin quota or that there was even a capelin fishery that year. The clear inference from Mr. Saunders’viva voce and documentary evidence was that there was a capelin fishery during the year in question and that G & D did have a capelinquota. It was open to Genrep to challenge that evidence through cross-examination or by calling contradictory evidence, which it did notdo. Despite Genrep’s cross examination of Mr. Saunders respecting the value of G & D’s losses related to the loss of its capelin catchand the loss of its opportunity to fish Mr.

Decker’s crab quota, the trial judge accepted Mr. Saunders’ evidence of G & D’s losses asattributable to the engine troubles and was satisfied as to the quantum. Genrep has not shown that the trial judge misapprehended theevidence or made any factual errors in his findings. Although remoteness was not argued by Genrep, G & D maintains, and the recordindicates, that Genrep knew well in advance of the suit that G & D, in addition to wanting the engine fixed or replaced, was concernedabout the loss of its ability to fish both its capelin quota and Mr.

Decker’s crab quota in addition to its own crab quota. [25] Accordingly, the trial judge did not err in respect of the award of damages. [26] In the result, the appeal is dismissed, with costs to the respondent on a party and party basis. In accordance with this decision,there will be an order for the payment out of the money previously paid into court. ______________________________ L. R. Hoegg J.A.

I Concur: _____________________________ B. G. Welsh J.A. I Concur: _____________________________ M. F. Harrington J.A.