) )) MBK Services Inc. Respondent/Plaintiff – v. –, 2013 ONSC 4506

CITATION : MBK Services v. PowerForward Inc., 2013 ONSC 4506 DIVISIONAL COURT FILE NO.: 401/12 DATE: 2013/07/04 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT BETWEEN: ) )) MBK Services Inc. Respondent/Plaintiff – and – PowerForward Inc. and 1551336 Ontario Inc.

Appellants/Defendants )) )) )) )) )))) Richard Keefe, for the Respondent/Plaintiff Kevin Quinn , for the Appellants/Defendants ) ) ) HEARD: June 27, 2013 Herman J. [ 1 ] The appellants, PowerForward Inc. and 1551336 (“PowerForward”) appeal from the order of Deputy Judge Winer of the Small Claims Court, dated July 14, 2011, granting judgment in the amount of $14,000, plus costs and prejudgment interest, in favour of MBK Services Inc. (“MBK”). [ 2 ] Mr. Kevin Quinn was given leave to represent PowerForward. Mr. Richard Keefe was given leave to represent MBK. [ 3 ] Mr. Quinn appeared in person. Mr.

Keefe participated in the hearing by way of teleconference. [ 4 ] PowerForward submits that the Deputy Judge made three errors: (

i) he erred when he admitted two affidavits as evidence; (ii) he based his decision on an irrelevant consideration, that is, the operability of the machine; and (iii) he erred in finding that PowerForward was responsible for MBK’s loss of $14,000.

[5] In its Notice of Appeal, PowerForward also indicated that the Deputy Judge erred when he found that it had failed or refusedto cooperate with respect to the examination of the machine. This ground of appeal was not pursued at the hearing of the appeal. Standard of Review [6] The Supreme Court of Canada clarified the standard of review on appeals in Housen v. Nikolaisen, 2002 SCC 33 ,[2002] 2 S.C.R. 235: (

i) on questions of pure law, the standard is correctness; (ii) on findings of fact, including inferred facts, the standard is palpable and overriding error; and (iii) on issues of mixed fact and law, the standard is palpable and overriding error if the issue is the

interpretation of the evidence as awhole, and correctness if the issue is

interpretation of a legal standard or its application. The Deputy Judge’s Reasons Findings of fact [7] Although PowerForward does not agree with every finding of fact made by the Deputy Judge, the key findings are not thesubject of this appeal, with one exception. The one factual issue raised in the Notice of Appeal is whether the Deputy Judge erred whenhe found that PowerForward had failed or refused to cooperate with respect to the examination of the machine.

However, this groundwas not pursued at the hearing of the appeal. [8] PowerForward, a company located in Scarborough, Ontario, is the manufacturer of a labeling machine. PowerForward andMBK, a company in Rock Falls, Illinois, entered into an agreement whereby MBK would be the distributor of PowerForward’smachine.

By the terms of their agreement, MBK agreed to pay PowerForward $135,000. [9] The parties’ agreement is reflected in the “Exclusive Distribution Agreement”, dated August 31, 2008. [10] According to paragraph 1.6 of the Agreement, the payment terms are as follows: Payments terms are 25% with order, 25% 30 days after order, 40% when product is fully completed and ready for inspection, 10% net 30days after receipt by Distributor. [11] By March 11, 2009, MBK had made the first two payments, totalling $70,000. [12] MBK, in turn, had an agreement with Greif, Inc. (“Greif”) to sell them the machine for $168,500.

This amount was to be paidin three payments, one-third when the payment terms were agreed to, one-third with the order, and one-third with the acceptance of themachine at the plant. MBK received the first $56,000 installment from Greif. [13] PowerForward advised MBK that the machine was completed and that payment of $54,000 was expected, with the balance of$10,000 to be paid after delivery. [14] Mr. Keefe, of MBK, met Mr. Quinn, of PowerForward, in Toronto on April 18, 2009. Mr. Keefe wanted to inspect themachine. Mr.

Quinn wanted to be paid the $54,000. [15] MBK had received the second payment from Greif of $56,000. However, Mr. Keefe refused to pay PowerForward until hehad inspected the machine. Mr. Quinn’s position was that the money had to be paid before Mr. Keefe could inspect the machine. [16] Mr. Quinn and Mr. Keefe were unable to resolve their disagreement. [17] Shortly after the meeting, Mr. Quinn e-mailed Mr. Keefe and told him he was formally cancelling the contract. Mr. Keefe e-mailed Mr. Quinn in response and said the contract was terminated. [18] PowerForward then sold the machine directly to Greif for $165,000.

Greif was credited with the $70,000 that PowerForwardhad received from MBK. [19] Greif found the machine to be defective, sued PowerForward and obtained default judgment. The Deputy Judge’s conclusion [20] The Deputy Judge concluded as follows: The case turns on the

interpretation of clause 1.6. I do not believe Mr. Keefe was allowed to inspect the machine at the meeting. Hewould only be allowed to inspect the machine on payment of $54,000. I do not see how he could ascertain if it was fully completed if hewas not being given the right to inspect. I do not believe he should take the defendant at his word that the machine is ready. Secondly, this machine turned out to be not fully completed. It was defective. And the defendant was successfully sued about it. Theplaintiff is entitled to damages for $14,000.

Grounds of Appeal Factual findings [ 21 ] PowerForward indicated in its Notice of Appeal that one of its grounds of appeal was that Deputy Judge erred in finding that PowerForward had failed or refused to cooperate with respect to the examination of the machine. This ground was not pursued at the hearing of the appeal. [ 22 ] Mr. Quinn and Mr. Keefe gave very different versions as to whether Mr. Quinn denied Mr. Keefe the opportunity to inspect the machine. It was open to the Deputy Judge to prefer one version over the other.

I see no basis upon which to conclude that the finding constituted a palpable and overriding error. Admissibility of affidavits [ 23 ] PowerForward submits that the Deputy Judge erred in admitting two affidavits, without PowerForward having the opportunity to cross-examine. [ 24 ] One affidavit was that of Salvatore Nastasi, an employee of Greif in Omaha, Nebraska. In his affidavit, Mr. Nastasi stated that the machine did not operate as specified. Greif was forced to acquire machines from others. PowerForward refused to reimburse Greif.

Greif sued PowerForward in Delaware County, Ohio to recover the purchase price and compensation. [ 25 ] The second affidavit was from Sudeep Menon, another employee of Greif. Mr. Menon’s affidavit was unsworn and undated. I was not provided with a copy of Mr. Menon’s affidavit. [ 26 ] Counsel for PowerForward objected to the admission of the affidavits on the basis that there was no authority to summon a witness in the United States and, as a result, there was no opportunity to cross-examine Mr. Nastasi and Mr. Menon. There was a further objection on the basis that Mr.

Menon’s affidavit was not sworn or dated. [ 27 ] In admitting the affidavits, the Deputy Judge relied on Rule 18.02 of the Rules of the Small Claims Court , O. Reg. 258/98 and s. 27 of . the Courts of Justice Act , R.S.O. 1990, Chap. C. 43, [ 28 ] Rule 18.02(1) provides that a document that has been served at least 30 days before the trial date, shall be received in evidence unless the judge orders otherwise.

The subrule applies to specified documents, including signed witness statements (Rule 18.02(2)). [ 29 ] Rule 18.02 further provides that a party who has been served with a written statement or document and wishes to cross- examine the witness or author of the document may summon that person (s. 18.02 (4)). Rule 18.03 deals with the procedure for summoning a witness. [ 30 ] The Deputy Judge appears to have accepted that Mr. Nastasi and Mr. Menon could not be summoned and cross-examined on the affidavits because they were in the United States. He then relied on s. 27 of the Courts of Justice Act . That

section provides that, subject to certain exceptions, the Small Claims Court may admit as evidence and act upon “any oral testimony and any document or other thing so long as the evidence is relevant”. [ 31 ] While that provision permits the Small Claim Court to admit any evidence, it does not require the Court to do so. Furthermore, while Rule 18.02(1) provides that a document that has been served within 30 days shall be received in evidence, the judge may order otherwise.

It is clear from Rule 18.02(3) and (4) that one of the reasons for service on the other party is to give the other party an opportunity to summon the author of the statement for the purpose of cross-examination. [ 32 ] In exercising his discretion to admit the evidence under s. 27 of the Courts of Justice Act or his discretion to order that the evidence not be admitted pursuant to Rule 18.02(1), the Deputy Judge should have considered the inability of the opposing party to cross-examine the two individuals.

In this case, there is nothing in the reasons to indicate that the Court did so. [ 33 ] In my opinion, the Deputy Judge erred in failing to consider PowerForward’s inability to cross-examine the deponents of the affidavits when he decided to admit the documents. [ 34 ] There is also no indication in the reasons that the Deputy Judge considered the effect of the inability to cross-examine on the weight to be given to the affidavits. [ 35 ] However, it does not appear that the Deputy Judge relied on the affidavits to reach his conclusion.

In dealing with the issue of whether the machine was defective, the Deputy Judge referred to the fact that Greif had sued the defendant on the basis that the machine was defective and obtained default judgment, a fact which was not in dispute. Furthermore, there was ample evidence before the Deputy Judge, apart from the two affidavits, to support a finding that there were problems with the machine. Relevance of operability of the machine [ 36 ] The Deputy Judge indicated that one of the reasons for reaching his conclusion in the case was that the machine was defective.

PowerForward submits that the operability of the machine was irrelevant. [ 37 ] The Deputy Judge noted that the case turned on clause 1.6 of the parties’ Agreement, which provides that MBK was required to make the payment “when product is full (sic) completed and ready for inspection ”. [emphasis added] [ 38 ] In my opinion, the Deputy Judge did not err when he concluded that whether the machine was operational was relevant to determining whether the product was “completed” at the time the payment was due. It was therefore relevant to determining whether MBK had to make the payment.

Furthermore, it is evident that what MBK agreed to pay for was a machine that worked.

[ 39 ] In any case, the Deputy Judge reached his conclusion for two reasons. He also found that Mr. Keefe should have been given the opportunity to inspect the machine, without which MBK could not be expected to make the payment. Either reason would have constituted a basis for the Deputy Judge’s conclusion that PowerForward was liable to MBK for any losses. Determination of damages [ 40 ] PowerForward submits that the Deputy Judge erred when he concluded that PowerForward owed MBK $14,000.

In its submissions, MBK should have sought the $14,000 from Greif, not from PowerForward. [ 41 ] The sum of $14,000 was calculated as follows. MBK paid $70,000 to PowerForward, pursuant to the agreement between MBK and PowerForward. MBK received $56,000 from Greif, pursuant to the agreement between MBK and Greif. The difference between the two figures is $14,000. [ 42 ] When Mr. Keefe met with Mr. Quinn on April 18, 2009, MBK had received a second payment of $56,000 from Greif.

When things fell apart at the April 2009 meeting, MBK returned the second payment to Greif. [ 43 ] When Greif agreed to purchase the machine directly from PowerForward, PowerForward gave Greif a credit for the full $70,000 it had received from MBK. [ 44 ] PowerForward submits that MBK should have deducted $14,000 from the second payment it received from Greif before it returned the money. When Mr.

Keefe was asked in cross-examination why he did not deduct $14,000, he said it was because Greif was threatening to sue MBK and he did not want to get involved in any litigation. [ 45 ] I cannot conclude that the Deputy Judge erred when he concluded that PowerForward was liable for MBK’s loss of $14,000. MBK’s loss was a direct result of PowerForward’s breach of their agreement. If PowerForward credited Greif with a greater amount than Greif had actually paid, that was a matter between PowerForward and Greif.

Conclusion [ 46 ] The one error the Deputy Judge made was in admitting the two affidavits without considering the effect of PowerForward’s inability to cross-examine. However, for the reasons given, it is my opinion that this error did not affect the result. [ 47 ] I cannot conclude that the Deputy Judge otherwise erred in law or made a palpable and overriding error of fact. [ 48 ] The appeal is therefore dismissed. I would encourage the parties to resolve the matter of costs. If they are unable to do so, MBK shall provide written cost submissions within 14 days.

PowerForward has a further 14 days within which to respond. The submissions shall not exceed 3 pages in length. Herman J. Date: July 4, 2013 CITATION : MBK Services v. PowerForward Inc., 2013 ONSC 4506 DIVISIONAL COURT FILE NO.: 401/12 DATE: 2013/07/04

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT BETWEEN: MBK Services Inc. Respondent/Plaintiff – and – PowerForward Inc. and 1551336 Ontario Inc. Appellants/Defendants REASONS FOR JUDGMENT Herman J. Released: July 4, 2013