NTI BOILERS INC., PLAINTIFF - v. –, 2023 NBKB 004

File No. SJC-496-2019 IN THE COURT OF KING’S BENCH OF NEW BRUNSWICK TRIAL DIVISION JUDICIAL DISTRICT OF SAINT JOHN CITATION: 2023 NBKB 004 BETWEEN: NTI BOILERS INC., PLAINTIFF - and – MUELINK & GROL B.V. DURAVENT INC., DEFENDANTS REASONS FOR DECISION BEFORE: Justice Darrell J. Stephenson AT: Saint John, N.B. DATE OF HEARING: December 20, 2022 DATE OF DECISION: January 18, 2023 COUNSEL: Wayne Francis, for NTI Boilers Inc. John P. Morrissy, for Muelink & Grol B.V. Duravent Inc. Catherine A. Lahey, K.C. and Jeffrey Parker, for Engineered Products & Services. Inc.

Stephenson, J. [ 1 ] On December 20, 2022, I heard and granted the June 17, 2022 Motion brought by NTI Boilers Inc. to lift the stay of proceedings granted under my November 9, 2021 decision in this matter ( 2021 NBQB 245 ) (the “ 2021 Decision”) in favour of Engineered Products and Services Inc. I provided brief reasons on the record, and advised that more fulsome written reasons would follow. These are those reasons. [ 2 ] The within decision is intended to be read with the 2021 Decision.

Capitalized terms used herein and not otherwise defined, which are defined in the 2021 Decision, have the meanings assigned thereto in the 2021 Decision. The factual background to the 2021 Decision is set out in paragraphs 6 – 10 thereof. At that time, I found “the alleged torts of negligent manufacture, design and/or failure to warn, as

against Muelink/Duravent, to have occurred in New Brunswick. However, there is no evidence connecting EPSI with same. As noted, EPSI was not the manufacturer of the sensor plugs, had no dealings with NTI and there is nothing in the record that reflects EPSI had knowledge that the sensor plugs were being incorporated into flue vent assemblies for shipment to NTI in New Brunswick… there is nothing before the Court connecting EPSI to an alleged tort in New Brunswick…” (paragraph 25 thereof) [ 3 ] As a consequence of the various subsequent evidential filings in this matter, we now know:

a) the primary business of EPSI is “the design, manufacture and supply of rubber components which serve as masking solutions for original equipment manufacturers” (paragraphs 5 and 6 of Armen Sarajian’s May 13, 2022 Affidavit (the “ May Sarajian Affidavit ”) b) “EPSI has offices and conducts operations in several American states and countries beyond the United States of America.” Its headquarters are located in Wisconsin, and it has offices and conducts business in South Carolina, Indiana, California, Texas, Connecticut, Quebec, the United Kingdom, Germany, China and the Netherlands, and conducts business in Ontario (paragraph 10 of Armen Sarajian’s April 18, 2022 Affidavit); and

c) the sensor plugs in issue were manufactured by ERM Sealing Industrial Limited (“ ERM” ) in Yu Yao City, China at the request of EPSI – the design specification forwarded by EPSI to ERM was sent on EPSI letterhead and included the notation “the information contained in the drawing is the sole property of EPSI” (paragraph 18 of and

Schedule “B” to the May Sarajian Affidavit). [ 4 ] In the May Sarajian Affidavit, Mr. Sarajian also tells us that “Duravent had already determined the composition of the sensor plugs when it asked EPSI to supply them” (paragraph 14 thereof) and that “EPSI did not participate in either the design or manufacture of the sensor plugs, it merely served as a go-between or broker transferring design information from a customer requesting a particular rubber part to the third party manufacturer” (paragraph 17 thereof). Mr.

Sarajian states “all the information required to extrapolate the dimensions shown on the more detailed EPSI document was already provided in the Duravent design and the Duravent design accounts for all dimensions shown on the EPSI document” (paragraph 16 thereof). [ 5 ] By way of contrast, Mr.

Eric Dufour of Duravent tells us that the sensor plugs were ordered to serve as a masking solution in flue vent assemblies being produced by Muelink/Duravent for NTI and that additional design detail (rib spacing, tolerances and durometer) was added by EPSI to the design information it received from Muelink/Duravent prior to the forwarding of same to ERM (paragraphs 29 and 30 of Mr. Dufour’s October 31, 2022 Affidavit). In the May Sarajian Affidavit, Mr.

Sarajian postulates that “this information had to have been sourced directly from Duravent” (paragraph 17 thereof) and that the arrangement between Muelink/Duravent and EPSI was subject to an attornment to jurisdiction and choice of law clause in favour of Wisconsin (paragraph 21 thereof).

However, EPSI is unable to produce any correspondence between it and Muelink/Duravent regarding the additional design detail or a signed copy of the alleged contractual terms. [ 6 ] The relevance of who contributed/participated in the design of the sensor plugs ties directly to the legal authorities and factual determinations set out in the 2021 Decision.

The record now establishes that EPSI has for some time conducted business in numerous locations throughout North America (including Ontario and Quebec) and between 2013 and 2016 acquired from ERM and supplied to Muelink/Duravent 18,500 sensor plugs, the majority of which were shipped to a Muelink/Duravent facility in Albany, New York – see paragraphs 19-28 of the May Sarajian Affidavit. Mr. Sarajian tells us that the sensor plugs were intended to be incorporated into units of equipment and serve as a protective masking component in high temperature settings (paragraph 6 of the May Sarajian Affidavit).

In these circumstances, it was clearly reasonably foreseeable that the sensor plugs could be incorporated into an end product for use anywhere in North America, including New Brunswick.

Consequently, applying the Stanway test (paragraph 23 of the 2021 Decision), in the event deficient EPSI - designed sensor plugs caused (contributed materially to) the failure of the Muelink/Duravent supplied flue vent assemblies, the alleged tort of negligent design, in the case of EPSI, would also have occurred in New Brunswick. [ 7 ] However, it remains an open question whether EPSI contributed to the design of the sensor plugs and, if so, to an extent that could support a finding of negligence in respect of same.

Counsel for EPSI submitted a 31-page brief (referencing 48 Canadian, English and U.S. authorities) detailing why the 2021 Decision should not be revisited, arguing that EPSI did not contribute to the design of the sensor plugs and, even if that were the case, should not be subject to the jurisdiction of this Court. I will comment briefly upon each of these submissions. [ 8 ] With respect to the issue of res judicata , the stay of proceeding granted under the 2021 Decision in favour of EPSI was expressly subject to any further order of the Court.

At the time, I expressed concern regarding the fulsomeness of the record before the Court and the focus of counsel for EPSI on the status of Muelink/Duravent as Defendants and speculated that a more fulsome record might be forthcoming (see paragraphs 24, 30(

a) and 31 of the 2021 Decision) – that record is now before the Court. [ 9 ] Bottom line, I do not regard the principles of res judicata/estoppel to be of application in this instance and, even if that were the

case, would exercise my discretion to refuse to apply those doctrines. As observed by counsel for NTI during oral argument, when this matter was initially before the Court NTI had no knowledge that ERM was the manufacturer of the sensor plugs or the design detail that appears in the specification forwarded by EPSI to ERM. That is information that should have been before the Court. [ 10 ] With respect to the issue of design, EPSI contends that it was merely a broker between Muelink/Duravent and ERM and added no design detail to the sensor plug.

Muelink/Duravent maintain that was not the case and points out that the business of EPSI included both the design and manufacture of these type of products.

It was apparent to the Court that the design specification forwarded by EPSI to ERM included significantly more information and specificity than the drawing supplied by Muelink/Duravent to EPSI, and I accepted the submission from counsel for NTI that expert evidence would likely be required to determine exactly who contributed what to the design process. [ 11 ] Counsel for EPSI suggested an adjournment for purposes of hearing expert evidence on the design issue prior to ruling on the issue of jurisdiction.

I rejected that suggestion on the basis that the Club Resorts framework requires only the identification of a presumptive connecting factor which prima facie entitles the Court to assume jurisdiction (paragraph 11 of the 2021 decision). It will always be open to EPSI to bring a later motion for

summary judgment on the basis that it has no liability in tort in this matter supported by a further evidential record. Any such motion would, of course, require consideration on the basis of the principles of application for

summary judgement motions brought before this Court. [ 12 ] As observed in paragraph 6, if EPSI contributed materially to the design of the sensor plug, the alleged tort of negligent design, in the case of EPSI, would also have occurred in New Brunswick on the basis of the Stanway test for the reasons set out in paragraphs 22- 23 of the 2021 Decision.

There is also the open question, that was not fulsomely addressed before the Court, of whether EPSI can avoid being treated as the manufacturer given that the request from Muelink/Duravent was for a custom masking solution, EPSI was in the business of designing and manufacturing such products and had an office and carried on business in China. Specifically, nothing in the record before the Court establishes that Duravent/Muelink was aware that the supply of the sensor plugs was being outsourced to ERM.

There is a reference to air freight in the EPSI quotation and subsequent invoices, but that could have been attributable to the units being shipped from an EPSI facility in China. If Muelink/Duravent were unaware that EPSI was not manufacturing the sensor plugs, does that make a difference with respect to EPSI’s potential liability to NTI? Can a supplier avoid liability by outsourcing a product that it would normally be expected to manufacture in the ordinary course? What did Muelink/Duravent know and when did they know it and is that relevant?

Perhaps these questions will be addressed in a future evidential record before the Court. [ 13 ] For now I will restrict my comments to the issue of design. EPSI’s argument regarding the issue of “supply of component parts” is not applicable if it is determined that EPSI contributed materially to the design of the sensor plug. EPSI also put forward two authorities in support of its contention that, regardless of the issue of design, it was not reasonably foreseeable that the sensor plugs would be incorporated into a product used or consumed in New Brunswick – Sobeys Land Holdings Ltd. v.

Harvey , 2006 NLTD 67 , and Shah v. LG Chem, Ltd., 2015 ONJC 2688.

I note that the Harvey decision predates both Club Resorts and Stanway and that Shah was a price fixing case in which there was clear evidence that the proposed Defendants did not conduct business and had “non-existent” market share in Canada during the relevant period (see paragraph 36 of Shah ). [ 14 ] As observed in paragraph 6, when you carry on business throughout North America (including in the two most populous provinces of Canada) and supply 18,500 sensor plugs to a facility in Albany, New York, it is undoubtedly reasonably foreseeable that those units could end up being incorporated into an end product in New Brunswick [ 15 ] In view of the conflicting evidential submissions before the Court from Muelink/Duravent and EPSI, I think it is important to remind ourselves that, at this stage, we are dealing only with the question of jurisdiction in response to a motion brought by NTI.

In that regard, I took note of paragraphs 58-64 from the Shah decision, which read as follows: [58] Club Resorts Ltd. v. Van Breda, supra, holds that to establish a real and substantial connection between either the defendant or the subject matter of the claim and the forum, the plaintiff must establish one of four “presumptive connecting factors” a new connecting factor. In the case at bar, as already noted, NEC submit that Ontario courts do not have jurisdiction to determine the conspiracy claim made against it because

it submits that there is no connecting factor. [59] I shall begin my own analysis by first examining the law about the evidentiary burden on a plaintiff to show that there is a factual basis for the court assuming jurisdiction simpliciter. [60] this law was examined and applied by Justice Conway in her judgment in Ontario B. Rothmans, supra, which was affirmed by the Court of Appeal.

This case law establishes the following principles. [page 787] [61] an Ontario court will assume jurisdiction against a foreign defendant only where the plaintiff establishes a “good arguable case” for assuming jurisdiction through either the allegations in the statement of claim or combination of the allegations in the statement of claim and evidence filed on a jurisdiction motion: Tucows.Com Co. v. Lojas Renner S.A. (2011), 106 O.R. (3d) 561, [2011] O.J. No. 3576, 2011 ONCA 548, at para. 36; Ecolab Ltd. v. Greenspace Services Ltd. (1998), (ON SCDC), 38 O.R. (3d) 145, (ON SCDC), [1998] O.J. No. 653 (Div.

Ct.), at pp. 149-54 O.R.; Schreiber v. Mulroney (2007), (ON SC), (ON SC), 88 O.R. (3d) 605, [2007] O.J. No. 4997 (S.C.J.), at para 18. [62] if unchallenged, the facts pleaded in the statement of claim are taken as true, and if they are sufficient to establish a good arguable case, but pleadings alone can satisfy the court that it has jurisdiction simpliciter over the claim: British Columbia v. Imperial Tobacco Canada Ltd., [2005] B.C.J. No. 1400, 2005 BCSC 946, at paras. 32-134; Ontario v. Rothmans, supra, at para. 110 (C.A.); Ontario New Home Warranty Program v.

General Electric Co. (1998), (ON SC), 36 O.R. (3d) 787, (ON SC), [1998] O.J. No. 173 (Gen. Div.), at pp. 797-99 O.R.

[63] the good arguable case standard can apply solely to the pleadings, but where a defendant adduces evidence to challenge the allegations in the statement of claim, the plaintiff may respond with affidavit evidence and the good arguable case standard applies to the combination of the pleadings and the evidence adduced by the parties: Ontario v. Rothmans, supra, at paras. 101-102, 110 (C.A.); Vitapharm Canada Ltd. v. F. Hoffman-La Roche Ltd., [2002] O.J.

No. 298 , [2002] O.T.C. 57 (S.C.J.) , at para. 64 . [64] any allegation of fact that is not put into issue by the defendant is presumed to be true for the purposes of the jurisdiction motion, and the plaintiff is under no obligation to call evidence for any allegation that has not been challenged by the defendant; However, if a foreign defendant files affidavit evidence challenging the allegations in the statement of claim that are essential to jurisdiction, the low evidentiary threshold for the plaintiff to meet is that it has a good arguable case on those allegations: Ontario v.

Rothmans , supra, at para. 36(S.C.J.), at para. 74 (C.A.).” [ 16 ] In its Statement of Claim, NTI pleads that the recall of its boilers was attributable to a grommet seal (sensor plug) failure and claims against EPSI on various basis including improper design. As already observed, we know that the design specification forwarded to ERM was proprietary to EPSI and included design detail that does not appear in the drawing forwarded by Muelink/Duravent to EPSI. On that basis, the record now before the Court meets the low evidentiary threshold required to establish the existence of a good arguable case.

Consequently, the NTI motion was granted on December 20th, 2022.

On the same date, I also granted the motion of NTI to add ERM as a Defendant in the Action and the parties agreed that three other motions filed by EPSI and Muelink/Duravent, with respect to third party claims and/or the 2021 Decision, were rendered moot by the within decision. [ 17 ] It was agreed that, among the existing parties, the amended Statement of Claim would be filed and served by January 31, 2023 and amended Statements of Defence and any Cross Claims by February 28, 2023. [ 18 ] With respect to costs, I directed that costs would be in the cause.

NTI has been put to considerable expense by all of the jurisdictional wrangling in this matter – for this hearing, the Court had a 662-page record consisting of five motions, six Affidavits from Mr. Sarajian and two Affidavits from Mr. Dufour, as well as extensive briefs from counsel for EPSI and Muelink/Duravent. It would have been necessary for counsel for NTI to review and assess all of this. [ 19 ] In the case of EPSI, its position has remained the same throughout -namely, it did not manufacture or design the sensor plugs and served solely as a broker between Muelink/Duravent and ERM.

However, as noted earlier, it was initially very circumspect regarding the information it shared with the Court with respect to the sensor plugs and the origins and content of the design information it communicated to ERM. With respect to Muelink/Duravent, there has been a 180-degree shift in its position since the release of the 2021 Decision. Indeed, it would appear that Mr. Dufour did not investigate the “circumstances surrounding the manufacture and supply of the sensor plugs” until after the release of that decision (paragraph 3 of Mr. Dufour’s March 25, 2022 Affidavit).

[ 20 ] Bottom line, I want a more fulsome appreciation of the equities between the parties, and their conduct before the Court, before I make any award of costs. However, I want to be clear on the record that the time, delay and expense associated with these jurisdictional disputes will be taken into account in any ultimate assessment of costs. DATED at the City of Saint John, N.B. this 18 th day of January 2023 _____________________________ Mr. Justice Darrell J. Stephenson Court of King’s Bench – Trial Division