2023 MBKB 121, 2023 MBKB 121

Date: 20230803 Docket: CI 21-01-33312 (Winnipeg Centre) Indexed as: Canadian Western Bank et al. v. Capitol Steel Corporation Cited as: 2023 MBKB 121 COURT OF KING’S BENCH OF MANITOBA B E T W E E N: CANADIAN WESTERN BANK and ) Travis J. Webber CANADIAN WESTERN BANK LEASING INC., ) for the plaintiffs and ) defendants to the counterclaim plaintiffs, ) ) - and - ) Robyn L.

Graham ) for the defendant and CAPITOL STEEL CORPORATION, ) plaintiff by counterclaim defendant. ) ) A N D B E T W E E N: CAPITOL STEEL CORPORATION, ) ) plaintiff by counterclaim, ) ) - and - ) ) CANADIAN WESTERN BANK, CANADIAN ) WESTERN BANK LEASING INC., AND ) VFS CANADA INC., ) ) Judgment Delivered: defendants to the counterclaim. ) August 03, 2023 GRAMMOND J. Introduction [ 1 ] The plaintiffs seek

summary judgment granting their claim relative to the lease of four 2015 tractor trucks (the “Trucks”) to the defendant Capitol Steel Corporation (“Capitol”). I granted permission to file the motion on October 18, 2022. Capitol argued that there are genuine issues for trial, and that the motion should be denied. Background [ 2 ] A timeline of the relevant events is as follows:

a) November 18, 2019 : Volvo Financial Services (a division of VFS Canada Inc.) (“VFS”) leased the Trucks to Capitol;

b) April 8, 2020 : VFS assigned the lease to the plaintiffs;

c) April 23, 2020 : Capitol instructed its bank to stop making monthly payments pursuant to the lease;

d) September 2020 : The Trucks were seized;

e) December 7, 2020 : The Trucks were sold for $21,525.00 each; and

f) October 20, 2021 : The plaintiffs gave Capitol notice of the assignment of the lease.

Summary Judgment [ 3 ] The plaintiffs requested

summary judgment in this matter pursuant to Rule 20 of the Court of King’s Bench Rules, M.R. 553/88 , the material portions of which provide:

Summary judgment motion 20.01(1) A party may bring a motion, with supporting affidavit material or other evidence, for

summary judgment on all or some of the issues raised in the pleadings in the action. … Responding evidence 20.02 In response to affidavit material or other evidence supporting a motion for

summary judgment, a responding party may not rest on the mere allegations or denials of the party's pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial. Granting

summary judgment 20.03(1) The judge must grant

summary judgment if he or she is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. Powers of judge 20.03(2) When making a determination under subrule (1), the judge must consider the evidence submitted by the parties and he or she may exercise any of the following powers in order to determine if there is a genuine issue requiring a trial: (

a) weighing the evidence; (

b) evaluating the credibility of a deponent; (

c) drawing any reasonable inference from the evidence; unless it is in the interests of justice for these powers to be exercised only at trial. [ 4 ] The leading case on

summary judgment is Hryniak v. Mauldin , 2014 SCC 7 , where the court stated: [49] There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for

summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. [ 5 ] In Dakota Ojibway Child and Family Services et al v. MBH , 2019 MBCA 91 , the court stated: [108] At the hearing of [a

summary judgment] motion, the moving party must first satisfy the motion judge that there can be a fair and just determination on the merits (i.e., that the process will permit him or her to find the necessary facts and to apply the relevant legal principles so as to resolve the dispute, and that proceeding to trial would generally not be proportionate, timely or cost-effective). In so doing, the moving party bears the evidential burden of establishing that there is no genuine issue requiring a trial.

[109] If those requirements are met, the responding party must meet its evidential burden of establishing “that the record, the facts, orthe law preclude a fair disposition” (Weir-Jones at para 32; and Stankovic v 1536679 Alberta Ltd, 2019 ABCA 187 at para 22; see alsoStankovic at para 29) or that there is a genuine issue requiring a trial (e.g., by raising a defence). In other words, the responding partymust establish why a trial is required (see Hryniak at para 56). If the responding party fails to do so,

summary judgment will be granted. [110] The analysis contemplated by Karakatsanis J in Hryniak is itself a two-step analysis (see para 66). First, the motion judge mustdetermine if there is a genuine issue requiring a trial based only on the evidence, without using any additional fact-finding powers.

Ifthere is such an issue, the second step requires the motion judge to determine if the need for a trial can be avoided by weighing theevidence, evaluating credibility, drawing inferences and/or calling oral evidence (see r 20.07(2)). [111] There is no shifting onus; the standard of proof is proof on a balance of probabilities; and the persuasive burden of proof remainsat all times with the moving party to establish that a fair and just adjudication is possible on a

summary basis and that there is no genuineissue requiring a trial. Analysis [6] The parties agree that the lease was entered into in November 2019, for a three-year term, after which Capitol would have theoption to purchase the Trucks for $400.00. The parties also agree that all discussions about the Trucks prior to the lease being signedwere between Calmont Truck Center Ltd. (“Calmont”), which supplied the Trucks, and Capitol.

In other words, the plaintiffs andCapitol had no direct discussions prior to the lease being signed, or thereafter. [7] The plaintiffs seek payment for all unpaid lease payments from April 2020 through the remaining term of the lease, plus specificexpenses and accrued interest. The parties agree that, should the claim be granted, the principal sum of $5,800.00 will be deducted fromthe claim, relative to the “headache racks” that Capitol installed on the Trucks. [8] The plaintiffs have established that Capitol entered into a lease and did not make all of the payments under the lease.

As such,the plaintiffs have met the evidential burden of establishing that there is no genuine issue requiring a trial relative to the claim as filed. Imust consider, then, whether Capitol has met its evidential burden of establishing that the record, the facts, or the law preclude a fairdisposition on

summary judgment. [9] Capitol argued that there are multiple genuine issues for trial in this matter. I will consider first whether the lease wasfundamentally breached and repudiated because the Trucks were not fit for the purpose due to mechanical issues. [10] Capitol alleged that both VFS and Calmont knew that it wanted to use the Trucks for long haul deliveries within Canada, and thatit intended to buy out the lease at the end of the term.

Capitol argued that VFS did not deliver the Trucks contemplated by the lease, andtherefore fundamentally breached the agreement, because from and after January 2020 the Trucks experienced significant engine,mechanical, or electrical issues, such that they were substantially impaired, unsafe, and inoperable.

Accordingly, Capitol wassubstantially deprived of what it bargained for, which was not rectified, so it demonstrated its intention to no longer be bound by thelease, and repudiated it by ceasing to make payments. [11] The plaintiffs argued that there is no evidence of a fundamental breach of the lease, and pointed to

article 8 of the lease, whichprovides: NO WARRANTY.

LESSEE ACKNOWLEDGES THAT THE LEASE OF THE UNITS IS ON AN “AS IS” BASIS AND LESSOR,NOT BEING THE MANUFACTURER, SUPPLIER, DISTRIBUTOR OR VENDOR OF THE UNITS HAS NOT MADE AND DOESNOT MAKE AND WILL NOT MAKE, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, ORAL ORWRITTEN, STATUTORY OR OTHERWISE, AS TO THE VALUE, CONDITION, QUALITY, MATERIAL, WORKMANSHIP,DESIGN, CAPACITY, SPECIFICATIONS, MERCHANTABILITY, DURABILITY, FITNESS, OR SUITABILITY OF THE UNITSFOR ANY USE OR PURPOSE, OR ANY GUARANTY OR WARRANTY AGAINST … LATENT DEFECTS OR ANY OTHERREPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED … WITH IT BEING AGREED THAT ALLSUCH RISKS AS BETWEEN LESSOR AND LESSEE ARE TO BE BORNE BY THE LESSEE. … Lessee agrees that any defect latentor otherwise in or failure of the Units (including a total failure) shall be irrebuttably presumed not to be a fundamental or other breachhereof by Lessor or failure of performance or consideration on the part of the Lessor. … The Units are subject only to the manufacturer’sstandard written warranties which accompany the Units, said warranties being hereby assigned for the term of any applicable Schedulefrom Lessor to Lessee to the extent they are assignable and provided no Event of Default has occurred and is continuing. … [12] The plaintiffs also argued that they had no knowledge of the state of the Trucks at the time of the lease, and that while Capitolprovided 18 repair invoices for the Trucks, half of them were for less than $1,000.00.

The plaintiffs argued that Capitol has failed toadvance evidence sufficient to support a fundamental breach and that it should not be permitted to rewrite the agreement between theparties. The plaintiffs also submitted that to succeed in defending this motion, Capitol needed to provide clear evidence that the Truckscould not be fixed, including expert evidence as to what work constitutes normal repairs or regular maintenance (which were Capitol’sresponsibility under

article 11 of the lease), which evidence it did not advance. [13] The leading case on fundamental breaches of contract is Hunter Engineering Co. v. Syncrude Canada Ltd.,

(SCC), [1989] 1 S.C.R. 426, where the court stated, citing Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827 (H.L.) atp. 849 that: ... A fundamental breach occurs "Where the event resulting from the failure by one party to perform a primary obligation has the effectof depriving the other party of substantially the whole benefit which it was the intention of the parties that he should obtain from thecontract". This is a restrictive definition and rightly so, I believe.

As Lord Diplock points out, the usual remedy for breach of a "primary"contractual obligation (the thing bargained for) is a concomitant "secondary" obligation to pay damages. The other primary obligationsof both parties yet unperformed remain in place. Fundamental breach represents an exception to this rule for it gives to the innocent partyan additional remedy, an election to "put an end to all primary obligations of both parties remaining unperformed" (p. 849).

It seems tome that this exceptional remedy should be available only in circumstances where the foundation of the contract has been undermined,where the very thing bargained for has not been provided. [emphasis added] [14] In Overly v. Guertin Equipment Ltd., 2012 MBQB 301, Greenberg J. stated: [22] Whether there has been a fundamental breach of the contract is a question of fact. In Fridman, The Law of Contract (5th ed., 2006),at 589-90, the author gives several examples: Providing a truck with a defective steering system was a fundamental breach in Davis v. Chrysler Canada Ltd.

So, too, was the supplyof an unsatisfactory boiler system for a ship in Peabody Engineering Canada Ltd. v. Johnstone Shipping Ltd. In Rosseway v. CanadianKenworth Ltd., a truck sold by the defendants broke down. The seller knew that the buyer needed the truck to earn income. The completeuselessness of the truck in such circumstances was a fundamental breach of the contract of sale, justifying the recovery of the buyer'spurchase price, even though he had used the truck for some time prior to its final breakdown. Similarly, in Bagnell's Cleaners &Launderers Ltd. v.

Eastern Automobile Co., the defendants were guilty of fundamental breach when they supplied a van to be used in theplaintiff's business and the van had problems with its engine, transmission and radiator that necessitated considerable maintenance andreplacement. ... [footnotes omitted] [15] Capitol has advanced as evidence on this motion a series of email messages exchanged between it and Calmont from January 9,2020 to April 29, 2020 and a series of invoices for work performed on the Trucks from February 20, 2020 to July 14, 2020.

AlthoughCapitol did not organize the evidence well or explain it in detail, I am satisfied that there is some evidence that:

a) one of the Trucks was unable to complete a single trip;

b) by February 20, 2020, issues had been identified relative to each of the Trucks, including a variety of error codes, air manifoldmodule leaks, oil leaks, coolant leaks, power steering leaks, and other issues;

c) the issues with the Trucks continued in March 2020; and

d) Calmont agreed, on April 29, 2020, to “switch out” one of the Trucks, which was never done (perhaps because Capitol ceasedmaking lease payments on April 23, 2020). [16] Capitol admitted candidly that it did not bring forward on this motion all of the evidence relative to the deficiencies in the Trucks,and that more would be forthcoming at trial. This approach is unfortunate, because it runs contrary to

summary judgment law inManitoba, and is not to be condoned. Moreover, there is evidence absent from the record before me that would have been valuable to myanalysis on this motion, such as how many kilometres Capitol put on each truck. [17] Having said that, I have reviewed very carefully the evidence that Capitol did advance, and I have concluded that Capitolprovided enough evidence on this motion to satisfy me that the Trucks may not have been fit for the purpose intended due to mechanicaland other issues, and that the lease may have been fundamentally breached.

Accordingly, I have determined that there is a genuine issuerequiring a trial in this matter relative to whether the lease was fundamentally breached. [18] I am also satisfied, for the purposes of this motion, that if there was a fundamental breach,

article 8 of the lease may not applypursuant to the principles articulated in Rivtow Equipment Ltd. v. Watt (W.

J) Construction Ltd., (SK KB) (at para.21), Chrysler Credit Canada Ltd. v. Shipperbottom, [1993] O.J. No. 1707 (QL) (at paras. 26 and 27), and Prairie Petroleum ProductsLtd. v. Husky Oil Ltd. et al., 2008 MBCA 87. The impact of

article 8 is another genuine issue requiring a trial in this matter. [19] For the foregoing reasons, the plaintiffs’ motion for

summary judgment is dismissed. [20] I will add that there were other issues raised on the motion, including whether:

a) Prior to entering into the lease the plaintiffs should have inspected the Trucks or inquired into previous maintenance performedon the Trucks;

b) Calmont acted as an agent of VFS in the lease transaction;

c) The lease was properly assigned to the plaintiffs, and whether Capitol received adequate notice thereof;

d) The plaintiffs sold the Trucks for fair market value; and

e) There is merit to Capitol’s counterclaim. [ 21 ] Given my findings as set out above, these issues are not relevant to this motion, and can be addressed at trial. Conclusion [ 22 ] The plaintiffs’ motion is dismissed. [ 23 ] If costs cannot be agreed upon, counsel may seek an appearance to make submissions. ________________________ J.