ECI Medical Technologies, Inc. Plaintiff v. Preston Phipps, Inc. Defendant D E C I S I O N Judge: The Honourable Justice Gerald R.P. Moir, 2003 NSSC 81

IN THE SUPREME COURT OF NOVA SCOTIA Citation: ECI Medical Technologies, Inc. v. Preston Phipps, Inc. , 2003 NSSC 081 Date: 20030402 Docket: S.H. 186241 Registry: Halifax Between: ECI Medical Technologies, Inc. Plaintiff v. Preston Phipps, Inc. Defendant D E C I S I O N Judge: The Honourable Justice Gerald R.P. Moir Heard: March 3, 4 and 14, 2003 Counsel: George W. MacDonald, Q.C., for the plaintiff David P.S. Farrar and Andrew McFarlane for the defendant Moir, J: [ 1 ] ECI Medical Technologies, Inc. manufactures surgical gloves at its plant in Bridgewater.

Moulds shaped like hands are dipped into a solution of plastics and solvents and, then, they are dried so that the solvents are removed by evaporation and the plastics remain behind in the form of a glove. It is important to keep the solvents from getting into the outdoor environment. So, during evaporation the gas is passed through a charcoal filter, which captures the solvents. The filter will regularly become saturated. It is

steamed and, this way, the solvents are removed for disposal. The boiler which produces the steam is the focus of this suit. [ 2 ] The plant went into operation in 1995. A Clayton coil tube boiler had been selected to produce the steam. Mr. Paul Clarke is now ECI’s Vice-President of Operations and General Manager. He had been one of the consulting engineers when the plant was designed and constructed. Later he was hired by ECI as Systems Engineering Manager. Mr. Clarke testified that he had expected to get about fifteen years out of the coil.

It leaked after three years and, for another year, ECI tried to cope with the boiler by making repairs to the coil. After exploring the possibilities for using alternative kinds of boilers, ECI replaced the coil at a cost of about $30,000. Where the old coil only lasted four years, the new coil was disguarded in April 2000, less than a year after it had been installed. ECI blames the failure on a water treatment system sold by Preston Phipps, Inc. to ECI. [ 3 ] Mr. Peter Soley testified for ECI. He went to work for it as Assistant Engineering Manager in 1999 and moved on to another company lately. Mr.

Soley is a professional engineer in the mechanical discipline. His testimony was direct and to the point and he was co-operative on cross examination. I found him credible and I accept what he said. The old coil was on its last legs when Mr. Soley arrived. He became involved in the search for a new boiler system. This brought him into contact with an old friend, Mr. Andrew Napier, the Atlantic Regional Manager of Preston Phipps. Preston Phipps had made a proposal for a new system before ECI decided to replace the coil rather than acquire a new system.

Preston Phipps is primarily a sales agency for industrial equipment in the United States and Canada. According to Mr. Napier, the company operates in a “buy/sell capacity”. His friendship with Peter Soley, ECI’s decision to stick with the Clayton coil tube boiler and ECI’s use of chemicals to treat water in the boiler combined to produce an opportunity for Mr. Napier to make a sales call upon ECI in the company of Mr. John Dresty of Clearwater Systems LLC, a manufacturer who had recently developed a new technology for treatment of water within boilers and coolers. [ 4 ] Mr. Soley and Mr.

Paul Clarke testified for the plaintiff. Both are professional engineers. Mr. Napier and Mr. Dresty testified for the defendant. Mr. Napier is a professional engineer. Mr. Dresty is a metallurgical scientist. Although neither party gave notice and noone was qualified to provide expert evidence and although some objections were made and some rulings had to be given respecting opinion evidence, the four witnesses provided much technical information, as did some of the exhibits that were tendered.

I was allowed to receive technical information and some technical explanations that would be hard to distinguish from opinion. What follows are my findings based upon the technical information provided. I am not embracing any opinion given by any witness as to why the boiler failed. Where a witness’ understanding is relevant, I take account of the witness’ explanation as going to that understanding. Where I reach a conclusion similar to a witness’ it is because the evidence leads me to that conclusion and not because I have accepted the witness’ opinion.

Fortunately, there was little disagreement over the technical information. [ 5 ] The boiler system at ECI begins with the water pipe from the Bridgewater water system. At this stage the water is referred to as make-up water. The pipe leads to a chamber where cold town water is sparged with steam. This chamber is called a hot well. According to Mr. Soley, the purpose of heating the water in the hot well before it hits the boiler is to avoid stressing the boiler metals. According to Mr. Napier and Mr. Dresty, heating the water in the hot well also drives out most of the oxygen if the temperature exceeds 200 ° F.

The heated water, referred to as feed water, is pumped through pipes from the hot well to an entry into the boiler referred to as the coil inlet. The feed water enters the boiler’s steel coil, a complex of piping at numerous levels and various sizes over and surrounding a combustion chamber. Here hot water is converted to steam, most of which is transferred by pipe to the plant for steaming the filter. Some of the steam is diverted back to the hot well to sparge the cold town water. The diverted steam passes to the hot well by means of a pipe with a controlled valve. Mr.

Dresty thought the valve was controlled by pressure. He thought it had been set to open at 15,000 psi although the boiler never achieved that much pressure. I accept the evidence of Mr. Soley given in rebuttal that there were no pressure valves directly related to the hot well at ECI. The valve in question is controlled by a thermostat inside the hot well. It was always set at 200 ° F. An additional source of heat for the hot well involves a steam separator. Water not turned to steam is fed from the boiler back to the hot well.

Apparently, the heat transferred through the steam separator is not nearly so great as the heat transferred through the diversion. To conclude this description of the boiler system at ECI, cold water is drawn from the town water system, it is pre-heated, it is converted to steam in a boiler and the steam is transferred to the plant with a small amount diverted back for the pre- heating. This particular system draws over a thousand gallons of make-up water an hour.

This is considered a high make-up water rate. [ 6 ] The presence of chemicals besides water in ordinary water supplies causes two types of problems for boilers: scaling and corrosion. With scaling the enemies are minerals such as calcium, magnesium and iron. These come free from oxide compounds and the mineral ions will form a rock-like substance grafted onto the interior surfaces of the boiler, insulating the coil and eventually clogging narrower passages. This reduces efficiency and, thus, drives up fuel consumption. In a July 1998 publication, Mr.

Dresty identified “seven different types of corrosion that can cause boiler system failure”. They were “uniform attack, acid corrosion, pitting, hot spots, oxygen corrosion, steam corrosion, and electrochemical corrosion”. When he testified, Mr. Dresty identified an eighth type of corrosion in boilers: “under-deposit corrosion”. Where Mr. Dresty refers simply to pitting, Mr. Soley, Mr. Napier and some of the Clearwater literature refer to this as oxygen pitting. This is not to be confused with acid corrosion or oxygen corrosion. Oxygen corrosion and acid corrosion appear uniformly throughout a steel system.

Pitting is local. [ 7 ] Oxygen pitting might be poorly named. The pitting cannot take place without oxygen but oxygen does not do the pitting. As Mr. Soley put it, oxygen “contributes” to a localized, pitting type of corrosion. Further information is provided by a Clearwater publication. The corrosion is very localized. Chloride ions are attracted to the depths of a scratch or pit in steel. Metal chloride compounds are formed and they react with hydrogen ions to produce acid, which rapidly corrodes iron or steel if there is a nearby source

to consume electrons, which are loosed in the corrosion at the rate of two for each corroded iron atom. If there is nowhere for those electrons to go, corrosion will not take place. Of course, lots of water is available and if there is some oxygen also, the following will take place near the top edge of the pit: O 2 + 2H 2 O + 4e ‾ → 4OH ‾ .

Four free standing electrons will be consumed in combination with two water molecules and one oxygen molecule to produce four hydroxide molecules, a harmless chemical to have in this system except that its production permits the acidic corrosion at the depth of the pit. (I think that Mr. Napier regards this pitting as being the result of oxidation, with chloride acting as the catalyst. This is one of the few disagreements among the witnesses about a technical subject. The difference may not matter but I do note that Mr.

Napier accepted the equation but mistook its significance.) [ 8 ] There are at least three approaches to the problems occasioned by minerals, acid and oxygen. One approach is to do nothing except good maintenance. There are some mechanical things that can be done to keep pH up and to expel oxygen, but otherwise one accepts that the life of the machine will be shortened by scaling or corrosion. For example, Mr.

Napier said that a pH of 9.5 would prevent uniform acid corrosion from destroying a coil of the kind at ECI for up to fifteen years, but in many situations the expense of maintaining that pH level is less than the cost of a new coil amortized over the shortened life. [ 9 ] It is very common to treat against scaling, uniform corrosion and pitting by adding chemicals to the boiler water. This involves three components. The first is water softener to overcome scaling. In the words chosen by Mr. Napier in a letter to Mr.

Soley, “a salt based water softener is used to remove the dissolved solid that forms scale (calcium, magnesium [or] iron)”. The softener is added just before the hot well in the boiler system at ECI. It reacts with calcium ions and other mineral ions and the results are removed as sludge whenever the system is blown down. According to Mr. Dresty’s publication, “chemical additives that inhibit the precipitation of calcite lower pH.” Mr. Soley and Mr. Napier agree that the chemical treatment of oxygen also makes the liquid more acidic.

Sulphites are used to react with the oxygen and produce a harmless compound, but “the ...chemical reaction causes the boiler water to go strongly acidic”, to use Mr. Napier’s words. The pH level is controlled by introducing yet another chemical, such as caustic soda. In addition to these chemical treatments, problems of acidity and aeration may be treated mechanically. At the cost of the fuel needed to reheat the boiler, frequent blow downs will keep the pH up when the water has been chemically treated.

Heating all water before it gets into the boiler to a temperature above 200 ° F will expel most of the air including the oxygen in it. [ 10 ] A third approach was developed recently by Clearwater Systems LLC of the State of Connecticut. In an environment such as one finds inside a boiler, minerals are crystalized or nucleated on a surface, a process called superficial nucleation. In other environments these may be nucleated on a tiny free-floating particle, such as a bit of sand floating in the solution. This is called colloidal nucleation.

For example, a solution saturated with calcium carbonate as in a boiler will “nucleate solid precipitates of calcite on a surface”, but in other environments the same solution may precipitate aragonite. Calcite is a major component of the scale which clogs boilers. Aragonite sinks to the bottom. Yet they are chemically identical. The difference is in their crystalline structure. So, if one could get the calcium carbonate solution in a boiler to preform colloidal nucleation rather than superficial nucleation, there would be sludge instead of scale. The technology developed by Clearwater does just that, or so Mr.

Dresty’s 1998 study and some subsequent commercial experience tend to show. Water passing through a pipe, even rapidly through a pipe, is subjected to a complex and dynamic electromagnetic field. Somehow, this imparts energy which “lowers the activation energy of colloidal nucleation” and “aragonite forms before calcite has a chance to form, from an energy point of view”. The same goes for other mineral ions in the ordinary water supply. The technology is referred to as a pulsed power system, it is packaged as a small machine that fits on a pipe and it is marketed by Clearwater under the name “Dolphin”.

Its purpose is to avoid scale. It does not remove oxygen but the claim is credibly advanced that the risk of oxygen pitting is reduced because, without the softeners, additional chloride ions are not introduced. It does not directly increase pH but claims are credibly made that, without the sulphites, pH is not artificially lowered and that, in fact, pH is allowed to rise by natural processes. [ 11 ] Mr. Napier testified that ECI had informed him of a number of problems with its original boiler. These included that the coil had been repaired on account of oxygen pitting.

Further, they were having trouble maintaining a proper dose of water treating chemicals. After ECI decided not to replace the entire system, Mr. Napier and Clearwater’s John Dresty made the sales call on Mr. Soley. Mr. Napier described the meeting as brief and the information imparted as cursory. Apparently though, Mr. Soley was interested. He said ECI believed that, at $15,000 a year, it was spending too much money on water treatment chemicals. Mr. Soley was able to follow up on the brief meeting by calling Mr. Napier a few weeks later, towards the end of May 1999. Mr. Napier and Mr.

Soley discussed ECI purchasing one Dolphin at $5,800. (Later, it seemed advisable to install two, one before the hot well and one along the feed water pipe.) Mr. Soley testified that, generally speaking, Mr. Napier advised that the Dolphin would replace all chemicals and adequately treat the water. Mr. Napier testified in direct examination that he understood the pulse power technology was a scale inhibitor and, on cross-examination, he took issue with the proposition that he had said the Dolphin would do everything the chemicals were doing. However on 25 May 1999, shortly after this call, Mr. Napier wrote to Mr.

Soley. He said “your salt for the softener, sulfite injection to anime injection, chemical and maintenance costs are eliminated.” Where in conflict, I accept the evidence of Mr. Soley in preference to that of Mr. Napier. I found Mr. Soley more credible. When the new coil was installed in June 1999, ECI requested further advice from Preston Phipps. It requested references for the Dolphin especially where it is used on a coil tube boiler with a high make-up water rate. Secondly, ECI requested “any further explanation of what this thing does”. At that, it was hoping for “an explanation suitable for the layman”. Mr.

Soley explained on the stand that his superior, Mr. Clarke, had been skeptical about the new technology. He had had a poor experience with the original boiler coil and wanted to get the full life out of the new coil. He did not want to take chances. Mr. Soley said and I accept that he advised Mr. Napier of these concerns whenever he asked for more information. Although Mr. Soley and Mr. Clarke are both professional engineers, Mr. Clarke’s scepticism and concern lead Mr. Soley to ask for a lay explanation of “what this thing does”.

Clearly, ECI was relying on Preston Phipps for its specialized knowledge and professional skill

and judgment. The request lead to a two page memo prepared by Mr. Napier explaining in lay terms what the Dolphin does, together with a product bulletin put out by Clearwater and a list of references. I find that ECI relied upon Preston Phipps to interpret technical information provided by Clearwater and that Preston Phipps knew that ECI was relying upon the

interpretation it provided. This was not a case of a mere middleman. Mr. Napier did not merely relay questions and answers. He was being asked to explain a machine Preston Phipps was marketing to ECI and to provide an explanation.

His customer employed professional engineers but it relied, in that regard, upon his expertise, not theirs. [ 12 ] After explaining the effects of water softening, sulphite (including, “sulphites are used as the oxygen scavenger in boiler water systems”) and amine, an equivalent of caustic soda, Preston Phipps wrote “The Pulsed Power technology works in almost the opposite way, yet accomplishes the same or even better results.” This is followed by a more detailed explanation following the three subjects of softening water, scavenging oxygen and increasing pH.

As regards the second, Preston Phipps wrote “the oxygen is used up in the production of hydroxide ions.” And, “it scavenges oxygen by producing hydroxide”. These statements concerning treatment of oxygen are wrong. They misinterpret the Clearwater literature including the bulletin that was delivered with the memorandum. This bulletin includes the electron reduction equation I referred to earlier. This shows four parts hydroxide being produced to one part oxygen and two parts water, but it clearly does not suggest that oxygen is significantly scavenged by this process.

Rather, the literature shows that oxygen is left in the system, but, because there is no water softener added, chloride ions are not added and there are fewer chloride ions to fuel the primary corrosive reaction for which the reaction involving oxygen is necessary but secondary. The claim made by Clearwater Systems is far more modest than the representations made by Preston Phipps: “ a small amount of oxygen becomes much less a concern”.

And, Clearwater warns: if the water source for the boiler... contains an unusually high concentration of chloride ions, then Clearwater recommends that a mechanical de-aerator or a de-aerating heater be used to control oxygen in the boiler. When tested many months later, in March of 2000, the water at ECI showed 176 parts per million of chloride ions, which, according to Preston Phipps “is noticeably high and certainly higher than you’d like”. Indeed, 200 ppm is the maximum for a chemically treated system operating with a de-aerator and at low make-up water rates.

To the knowledge of Preston Phipps, the ECI hot well did not consistently achieve temperatures that would de-aerate the make-up water and the system operated at a high make-up water rate. [ 13 ] On 1 September 1999, ECI issued a purchase order to Preston Phipps for two Dolphins at $5,800.00 each. It provided these terms for payment: “net 90 operating days but not later than 03/31/00 with return of goods being acceptable if unit does not perform as advertised.” From the beginning of negotiations in May 1999, Preston Phipps had offered the Dolphin on a trial basis.

Based upon the written explanations of June 1999, ECI considered the risk it was taking was that the new technology might fail to prevent a small build- up of scale. It was not exposed for the purchase price if that happened and serious corrosion over such a short period was beyond contemplation. Nothing happened between 22 June 1999 and 1 September 1999 to change Preston Phipps’ description of the functions or purposes of a Dolphin.

Although I accept that there were some discussions after the 22 June 1999 memorandum and although two months elapsed between the memorandum and the purchase order, I am satisfied that the memorandum formed part of the contract. Nothing happened between 22 June 1999 and 1 September 1999 to change Preston Phipps’ description of the functions or purposes of a Dolphin. ECI offered to purchase and Preston Phipps accepted to sell two machines that were to fulfill the purposes (“what this thing does”) described in the June memorandum. [ 14 ] The new coil was installed in June 1999.

The Dolphins were installed by Preston Phipps during a scheduled shut-down at the end of October and the chemicals were stopped and the pulsed power system was initiated at the beginning of November. To accommodate a trial, the terms were changed so the units could be returned within 140 days of 1 November 1999. The trial would start with a change in production lines that required ninety days of continuous production. [ 15 ] Mr. Napier of Preston Phipps admits that one must analyse the incoming water to see that its chemical make-up is suitable to the Dolphin technology. Mr.

Dresty of Clearwater Systems says that they get a sample of the local water to see if there is anything unusual and they ask if the system includes a de-aerator or a hot well. Mr. Napier asserted that a “pretty thorough investigation” was carried out by Preston Phipps before installation. This was challenged in cross-examination. One challenge related to a letter of Mr. Farrar’s following up on discovery undertakings. Read in the context of the exchange at discovery, I am satisfied that Mr. Farrar’s letter must refer to records of investigations and does not contradict the assertion.

However, I find Preston Phipps made no investigation of the water supply before installation and it inadequately inquired into the capacity of the boiler system to expel oxygen. The only effort towards investigating the water supply Mr. Napier could identify was a conference call he claimed was held by himself, Mr. Soley and the Town Engineer. I accept Mr. Soley’s evidence that no such call ever took place. At the end of November 1999, Mr. Soley, and only Mr. Soley, spoke with the Town Engineer, who indicated “pH values of 9.5 in our neighbourhood are to be expected”. Mr. Soley reported this in writing to Mr.

Napier. No investigation of the water supply was made by anyone before installation. No investigation of acidity or alkalinity was made by Preston Phipps following installation. Water samples were not tested and the concentration of chloride was not identified until February 2000, after the boiler had been in continuous operation for months. [ 16 ] As I said, the inquiry into ECI’s boiler system was also inadequate. Preston Phipps assertained that the system included a hot

well. However, it also received detailed information on the system from ECI such as the boiler horsepower, the pounds of steam per hour, the gallons of make-up water per hour. Included was “feed water temperature 160 - 200 ° F”. At discovery Mr. Napier said he took no notice of this. On direct examination, he explained why this would be a cause for concern. If make-up water is only heated in the hot well to 160 ° F, it may remain saturated with oxygen. Heat will start driving it off at a little over 160 ° F. At 200 ° F, 75% may be driven off. Mr.

Dresty explained that oxygen scavenging chemicals are really meant to polish off the remnants of oxygen. Thus, I assume, the reference in the Clearwater bulletin to “a small amount of dissolved oxygen” being “much less a concern” with the Dolphin. I was left with the impression on Mr. Napier’s direct examination that the reference in ECI’s report to “160 - 200 ° F” would, should or did raise a concern. On cross-examination Mr. Napier denied it raised a concern with him and he referred to discussions he had first with Clearwater, then with ECI. I think he was referring to discussions months after Mr.

Soley’s report on boiler operations was produced. In the end Mr. Napier asserted that Preston Phipps did not realize that ECI might operate a full cycle at 160 ° F. Mr. Soley testified and I accept that he regularly read the thermometer attached to the heat well, it would start at 200 ° F, it would drop some degrees suddenly and it would gradually drop to 160 ° F. It would not run a full cycle at 160 ° F, but clearly some make-up water was being introduced into the system without being heated to levels that would drive off a significant amount of dissolved oxygen.

This information was readily available to Preston Phipps had it made any inquiry upon being advised that the feed water temperature was between 160 ° F and 200 ° F. [ 17 ] One recalls the Clearwater Systems recommendation that, in areas of unusually high chloride concentrations, oxygen levels should be controlled with a mechanical de-aerator or a de-aerating heater. Preston Phipps knew ECI did not have a mechanical de- aerator. Based on Mr.

Napier’s own understanding of what is required for heat de-aeration and the further information that would have been provided if any investigation had been carried out, Preston Phipps ought to have known that ECI had a heat well that was often not functioning as a de-aerating heater. [ 18 ] During the trial runs, ECI expressed concerns and passed along observations to Preston Phipps, who relayed advice from Clearwater. Early on, ECI became concerned about extraordinarily dirty boiler water and pH not increasing during the process. Mr. Soley asked Mr.

Napier for assurances “before any costly or irreversible damage is done”. He gathered and relayed information on the water supply. As of the end of November, Mr. Soley and Mr. Napier understood that the Bridgewater water supply started at an acidic pH 5.5 and was then treated with lime to achieve a neutral pH. One recalls that Clearwater recommended de-aeration if “the water source for the boiler must come from a water softener or contains an unusually high concentration of chloride ions”.

However, Preston Phipps did not include, along with the various suggestions it did make, any advice to stop the hot well from dropping to 160 ° F as ECI had reported it was doing. By early February 2000 ECI was blowing down excessively because of dirty boiler water and ECI had become “extremely concerned about corrosion”. Clearwater sent a Mr. Beaupré to the ECI plant late in February 2000. He interviewed Mr. Soley, Mr. Clarke and the stationary engineers who tended the boiler. Early in March 2000 Preston Phipps reported to ECI. The high levels of chloride were commented upon.

The failure to increase pH was discussed. A possible explanation for the dirty water was offered. Preston Phipps suggested even more blow downs, contact with another customer for suggestions on removing the dirt and “a thorough cleaning after this latest production period”. [ 19 ] At the next scheduled shut down the coil was to be cleaned of any scale and checked for damage. As indicated by a memo to Andrew Napier dated 5 April 2000, Mr. Soley threw in the towel. The inspection revealed corrosion damage. One could see the first six inches of the coil at the intake end and it was pitted.

The coil was full of dirt and all of it could not be cleaned out. I find that there were several major pits in the six inches that could be observed and that leaks developed during the cleaning process. It was impossible to identify the places where the leaks occurred. Because of his previous experience with trying to repair a leaky coil, Mr. Clarke decided to order a new one and avoid interrupting scheduled production. [ 20 ] Clearwater investigated. It found that the Dolphin did its job, changing the precipitate from adherent scale to a bulk solution power.

The dirt was this powder and what was needed was to better expel the powder from the system during operations. In Clearwater’s opinion the corrosion was galvanic rather than oxygen pitting. Apparently galvanic corrosion results from the association at high temperatures of steel, oxygen and the sludge or powder. It occurs within an under-deposit cell. Perhaps it is within Mr. Dresty’s eigth category of corrosion, “under deposit corrosion”. Or, “galvanic” suggests it may be “electrochemical corrosion”. Or, perhaps the one is a subcategory of the other.

Whether the observed pitting and the leaks in places that could not be observed resulted from oxygen pitting or from under-deposit corrosion or from galvanic corrosion, the presence of oxygen was a cause of the failure. No witness seems to disagree that the periods of low temperature in the heatwell allowed oxygen to enter the boiler. Clearly, the presence of oxygen caused corrosion. This is the important point. It is important because, in the beginning, Preston Phipps told ECI that the Dolphin removes oxygen. [ 21 ] Findings on the Status of the Coil .

Based upon the observed pitting and the leaks that sprung during cleaning and upon the technical information about corrosion, I find that the boiler coil was heavily corroded after nine months of use, from June 1999 to March 2000. I find the corrosion was localized. It occurred near the entry to the coil. It also occurred elsewhere. There was more than one leak. [ 22 ] Findings on Cause . It is argued that I have not been provided with sufficient evidence to make a finding on cause, that the plaintiff has failed to discharge its burden in that regard. I disagree. Firstly, there is the short life of the coil.

The original coil served from 1995 to June 1999 with leaks having been repaired in the later stages. Apparently, improvements were made in the care with which the water was chemically treated. It is argued that because I do not have evidence of production levels over those three and a half years I am not in a position to compare the life of the original coil with the nine month life of the second. In cross-examination it was made

clear that Mr. Soley, who joined ECI in 1999, did not know earlier production levels. Mr. Soley kept records of steam production but that data was not collected before his time. Mr. Clarke was not asked specifically about the numbers of gloves produced from year to year. He did say that it would be possible to calculate the steam produced from the operations log. I do not have the impression of any sudden change in the amount of product. Although he does not appear to have been asked directly about it, the tone of Mr.

Clarke’s evidence suggested a plant that operated in 1995 and went into production going all day seven days a week until inventory levels were reached. He spoke of the boiler steadily running ten to fourteen steam cycles a day and a shut down when inventory levels were achieved followed by a start up when inventory was required. There is a new line now but there is no evidence that causes the plant to run much longer. The evidence does not support the suggestion of a significant change in production.

Further, there does not seem to be any contest that the coil should last for ten to fifteen years if pH is consistently kept up and the system is properly treated. The second coil had a very short life. Something besides amount of use caused it to fail. [ 23 ] There is also more recent experience. The hot well temperature sunk so low because the valve that let the steam into it had too narrow a gage. It would open when the temperature dropped below 200 ° F but it did not let in enough steam to bring cold town water to the boiling point.

This was proved when a larger gaged valve was installed and significant improvements were noted. [ 24 ] Clearly, oxygen in the system caused the coil to corrode. One could say that oxygen was in the system because ECI let it in. By failing to heat the town water properly it failed to sufficiently de-aerate the water whenever the temperature dropped well below 200 ° F. However, before the Dolphins were installed ECI was coping, perhaps imperfectly, with the oxygen by injecting sulphites. It stopped doing that when the Dolphins were installed because it understood the Dolphins removed oxygen.

I find that the statement by Preston Phipps to ECI that the Dolphins remove oxygen lead directly to the destruction of the boiler coil. [ 25 ] Liability .

Section 17 (

a) of the Sale of Goods Act R.S.N.S. 1989, c. 408 provides: Subject to this Act and any statute in that behalf, there is no implied warranty or condition as to the quality or fitness, for any particular purpose, of goods supplied under a contract of sale, except as follows: (

a) where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the sellers skill or judgement and the goods are of a description that it is in the course of the sellers business to supply, whether he be the manufacturer or not, there is an implied condition that the goods shall be reasonably fit for such purpose, provided that, in the case of a contract for the sale of a specified

article under its patent or other trade-name, there is no implied condition as to its fitness for any particular purpose; [ 26 ] So, firstly, ECI must establish that ECI made known to Preston Phipps the particular purpose or purposes for which the Dolphin was required. The purpose was to eliminate all chemicals used to heat water in the ECI boiler system by treating the water electro magnetically. This was explicit in the discussions between ECI and Preston Phipps and it was recorded by Preston Phipps in its 25 May 1999 memorandum to ECI.

As the 22 June 1999 memorandum made perfectly clear, this purpose was to be fulfilled through three component purposes, one of which was “the oxygen is used up in the production of hydroxide ions” (emphasis added). A purpose, stated by Preston Phipps itself at the request of ECI, was to fully scavenge oxygen from the town water supply before it got into the boiler. [ 27 ] Secondly, the buyer must have relied on the seller’s skill or judgment. Indeed, this reliance must have been evident in the buyer having made known the particular purpose for which the goods were being purchased.

There can be no question of that in this instance. I have found that ECI relied on Preston Phipps’ skill and judgment. Preston Phipps’ is not a mere distributor. It is a seller of industrial equipment that employs professional engineers.

ECI asked for a detailed, lay-worded explanation of “what this thing does” in circumstances where it was clear that ECI was concerned about risk of damage to its other equipment and that ECI would rely upon Preston Phipps’ advice in assessing that risk. [ 28 ] Thirdly, ECI bore the burden of establishing that “the goods are of a description that it is in the course of the seller’s business to supply”. This does not mean that the seller had to sell this particular good in the past, usually or at all: see G.H.L. Fridman Q.C., Sale of Goods in Canada 3 ed (Carswell, Toronto, 1986), p. 186-187.

Rather, it is enough that ECI is in the business of sourcing, buying and re- selling industrial equipment and it sourced the Dolphin to meet ECI’s needs, bought two and re-sold them to ECI in the usual course of Preston Phipps’ business. [ 29 ] There is not evidence that the Dolphins were ordered under a trade mark and the exception in 17(

a) was not set up by Preston Phipps. In my opinion, Preston Phipps was clearly within the meaning of “seller” s. 2(

m) of the Act , although Preston Phipps submitted otherwise in its pre-trial brief. In that regard the decision in MacGregor v. Production Equipment Limited (1984), 1984 CanLII 5423 (NS SC) , 66 N.S.R. (2d) 80 (NSSC) does not assist the defendant. There, the manufactures rather than the actual seller was liable because an agent of the manufacturer actively entered into the negotiations and made direct representations such that “the manufacturer should be treated as a seller”, para. 21. Nothing of that kind happened here. The defendant also relies upon Central Realties Ltd. v.

Westburn Industrial Enterprises Ltd. (1978), 1978 CanLII 3821 (NS SC) , 31 N.S.R. (2d) 64 (NSSC) where Chief Justice Cowan found the plaintiff had not relied upon the defendant’s skill and judgement in purchasing a boiler. I have found that ECI relied upon Preston Phipps’ skill and judgment. [ 30 ] The plaintiff has established that the contract between Preston Phipps and ECI for sale of two Dolphins included a statutorily implied warranty of fitness for purposes. These purposes included that the machine would scavenge oxygen from the town water supply before it entered the boiler coil.

[ 31 ] ECI urges other grounds for liability. It is said that even if the bases for the statorily implied term had not been established, a warranty should be implied in accordance with The Moorcock that replacing the chemicals with the Dolphin would not damage the coil . My findings have actually gone further than implied term. In the circumstances, the purchase order of 1 September 1999 does not supply all of the actual terms of the contract.

In my assessment, the parties contracted on the basis of the 25 May 1999 and the 22 June 1999 memoranda, such that these documents go further than supplying evidence for assessing implied terms. They supply terms. They are part of the contract because the purchase order was for novel goods as would function according to the terms set out in the memoranda. In effect, I agree there is contractual liability whether or not there was a fitness for purpose warranty under s. 17 (

a) of the Sale of Goods Act . In my view, this alternate source of liability is based upon express term rather than implied term. [ 32 ] The plaintiff also argues that the defendant is liable in negligence. I have provided my detailed findings. It is not necessary to discuss negligent misrepresentation and, in the circumstances, I think it inappropriate to do so. [ 33 ] Damages . The cost of the coil is the loss that needs to be redressed if ECI is to be restored to the position it would have been in had the warranty of fitness for purpose not been breached. Oxygen would not have got in the system.

The coil would not have been destroyed when it was less than a year old. The compensation does not exceed the remoteness limit upon damages for breach of contract. One in the position of the contracting parties at the time of contract would contemplate this type of consequential loss if the fitness for purpose warranty were breached. [ 34 ] It cost $34,534 to replace the coil. When in full production, ECI spends $1,200 per month on water treatment chemicals. It was saved this cost during the period in which the coil corroded, about four and a third months.

However, it also experienced excessive blow downs with additional fuel costs and some extra electrical power costs. These have not been quantified but they should not be ignored. Two hundred dollars a month would be minimal. I assess ECI’s damages at $31,134. [ 35 ] Conclusion . The plaintiff will have judgment for $31,134 plus pre-judgment interest. Counsel may contact my office if there are any issues respecting interest or costs. J. Halifax, Nova Scotia 2 April 2003