Magnussen Furniture Inc. v. Mylex Ltd., 2008 ONCA 186

• Judge: Rosenberg, Cronk and MacFarland, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: March 14, 2008
• Jurisdiction: Ontario
• Citations: 2008 ONCA 186;(2008), 234 O.A.C. 329 (CA)

Magnussen Furniture Inc. v. Mylex Ltd. (2008), 234 O.A.C. 329 (CA)

MLB headnote and full text

Temp. Cite: [2008] O.A.C. TBEd. MR.070

Magnussen Furniture Inc. carrying on business under the name and style Magnussen/Presidential Furniture (plaintiff/defendant by counterclaim/respondent/appellant by cross-appeal) v. Mylex Limited (defendant/plaintiff by counterclaim/appellant/respondent by cross-appeal)

(C45092; 2008 ONCA 186)

Indexed As: Magnussen Furniture Inc. v. Mylex Ltd.

Ontario Court of Appeal

Rosenberg, Cronk and MacFarland, JJ.A.

March 14, 2008.

Summary:

Magnussen Furniture sued Mylex Limited for damages for breach of contract, misrepresentation, negligence and loss of profits. Mylex denied the claims and counterclaimed for the contract price of product delivered to Magnussen. Magnussen accepted the counterclaim as a debt validly owed to Mylex.

The Ontario Superior Court, in a decision reported at [2006] O.T.C. 169, allowed the action in both contract and tort and awarded Magnussen damages of $1,267,514.95. The parties made submissions on costs.

The Ontario Superior Court, in a decision reported at [2007] O.T.C. 980, assessed Magnussen costs. Mylex appealed the finding of liability and the assessment of damages. Magnussen cross-appealed the assessment of damages and applied for leave to appeal the costs award.

The Ontario Court of Appeal dismissed the appeal and the cross-appeal and granted leave to appeal costs, but dismissed the appeal.

Contracts - Topic 1505

Formation of contract - Consensus or agreement - Essential terms - What constitutes - Magnussen Furniture entered into a relationship with Mylex for the manufacture and supply of furniture - Problems ensued - Magnussen sued Mylex for damages - The trial judge held that by failing to meet the agreed delivery dates, Mylex breached both an "overall contract" entered into by the parties and the purchase orders - The trial judge also held Mylex liable in negligence for failing to deliver furniture of merchantable quality - The Ontario Court of Appeal held that the trial judge erred in finding that there was an overall contract between the parties for several reasons - Firstly, Magnussen neither pleaded the existence of an overall contract nor sought an amendment of its pleadings at trial to allege such, despite doing so in respect of its damages claim - Mylex's pleadings did not overcome the deficiencies - The case that Magnussen was entitled to pursue, and obligated to prove, was the one framed by its own pleadings, not that of Mylex - Secondly, the parties' conduct, objectively viewed, did not support the existence of a binding overall contract - Thirdly, it was difficult to reconcile the finding with sound business practice - Finally, the parties had not agreed on essential terms - For example, the pricing terms were not agreed upon and the extent and time of Magnussen's purchase obligations after the first purchase order were unresolved - However, the trial judge's error did not implicate trial fairness, where Mylex was not "blindsided" by the finding and ultimate liability was supported by the unchallenged findings of negligence and breaches of the individual purchase orders - See paragraphs 24 to 39.

Contracts - Topic 1508

Formation of contract - Consensus or agreement - Intention - Inference of - From conduct - [See Contracts - Topic 1505 ].

Courts - Topic 562

Judges - Powers - To grant relief notwithstanding pleadings - [See Contracts - Topic 1505 ].

Damages - Topic 5713

Contracts - Breach of contract - Loss of profits - Magnussen Furniture entered into a relationship with Mylex for the manufacture and supply of "ready-to-assemble" (RTA) furniture - Problems ensued - Magnussen abandoned the RTA program and sued Mylex for damages - The trial judge held that by failing to meet the agreed delivery dates, Mylex breached, inter alia, the purchase orders and was liable in negligence for failing to deliver furniture of merchantable quality - Mylex's failures caused Magnussen to lose revenue from both cancelled and future sales, the latter due to Magnussen's loss of reputation in the industry - However, there were significant contingencies that might have impacted on projected profits even if Mylex had delivered acceptable product in a timely way - Further, a significant deduction in damages was warranted where there was a reasonable possibility that Magnussen could have resurrected the RTA program - The trial judge concluded that Magnussen was entitled to a global damages award reflecting lost profits for two years - The trial judge set annual lost profits at $675,000 based on an expert valuator's opinion as to a reasonable figure following a transition period involving the conversion to the RTA program - This resulted in a total award of $1,500,000 before any deduction on account of a counterclaim for the product delivered - The Ontario Court of Appeal rejected an assertion that the trial judge erred by not calculating loss profits based on the two year period immediately following the breach - The trial judge was entitled to select the two year period that best reflected Magnussen's lost profit, taking into account all of the circumstances - See paragraphs 58 to 83.

Damages - Topic 5713

Contracts - Breach of contract - Loss of profits - Magnussen Furniture entered into a relationship with Mylex for the manufacture and supply of "ready-to-assemble" (RTA) furniture - Problems ensued - Magnussen abandoned the RTA program and sued Mylex for damages - The trial judge held that Mylex was liable for, inter alia, breaching the purchase order and failing to deliver furniture of merchantable quality - Mylex's failures caused Magnussen to lose revenue from both cancelled and future sales - However, there were significant contingencies that might have impacted on projected profits even if Mylex had delivered acceptable product in a timely way - Further, a significant deduction was warranted where there was a reasonable possibility that Magnussen could have resurrected the RTA program - The trial judge concluded that Magnussen was entitled to a global damages award reflecting two years' lost profits years - The Ontario Court of Appeal rejected Magnussen's assertion that the trial judge's restriction of its damages to two years of lost profits was based on the erroneous conclusion that Magnussen could have resurrected the RTA program and that its failure to do so warranted a reduction in damages - The trial judge did not find a failure to mitigate - Despite using the language of mitigation, the trial judge regarded the evidence respecting the program's termination as relevant to the sufficiency of the evidence to support Magnussen's lost profits claim and the soundness of the assumptions upon which that claim was based - The evidence formed part of all the circumstances that the trial judge considered in determining Magnussen's entitlement to recover in full its claims for lost profits in perpetuity - See paragraphs 88 to 98.

Damages - Topic 5715

Contracts - Breach of contract - Loss of business - [See first Damages - Topic 5713 ].

Damages - Topic 5715.1

Contracts - Breach of contract - Loss of business opportunities - [See first Damages - Topic 5713 ].

Damages - Topic 5832

Contracts - Sale of goods - Breach by seller - Measure of damages - [See both Damages - Topic 5713 ].

Damages - Topic 5838

Contracts - Sale of goods - Breach by seller - Mitigation of damages by the buyer - [See second Damages - Topic 5713 ].

Damages - Topic 5840

Contracts - Sale of goods - Breach by seller - Failure to deliver - [See first Damages - Topic 5713 ].

Damages - Topic 5841

Contracts - Sale of goods - Breach by seller - Breach of terms respecting quality or fitness - [See first Damages - Topic 5713 ].

Damages - Topic 5844

Contracts - Sale of goods - Breach by seller - Loss of anticipated profits - [See both Damages - Topic 5713 ].

Damages - Topic 5845

Contracts - Sale of goods - Breach by seller - Loss of reputation - [See first Damages - Topic 5713 ].

Practice - Topic 1335

Pleadings - The issues - Issues to be raised must be pleaded - [See Contracts - Topic 1505 ].

Practice - Topic 6923.1

Costs - General principles - What rules applicable - When to apply cost grid - A successful plaintiff claimed $122,872.50 for the attendance at trial of two senior counsel - The trial judge awarded $84,000 for counsel fees - The plaintiff, on a cross-appeal, asserted that the trial judge erred by applying the former costs grid set out in the Courts of Justice Act and by applying the grid in a mechanical fashion - The Ontario Court of Appeal rejected the assertion - The trial judge recognized that although the grid was in effect at the time of trial, it had been revoked prior to his costs ruling - Nonetheless, in his view, the grid was a reliable parameter for assessing counsel fees - There was no error in that discretionary decision - Further, the judge did not automatically or rotely apply the grid - He simply regarded the grid's provisions as a useful guide - Nor did he err in his consideration of the decision in Celanese Canada Inc. v. Canadian National Railway Co. (Ont. C.A.) - The judge's ruling reflected his appreciation that Celanese was "a grid case" and that the grid, having been revoked, did not bind him - He did not treat Celanese as dictating the maximum award - Rather, he regarded Celanese as determining the issue of appropriate block fees for counsel in cases where the grid applied and that he viewed those block fees as also appropriate in this case - Elsewhere in his ruling, the trial judge addressed the length and complexity of the trial, the nature of the services performed, the reasonableness of the hourly rates charged and the factors outlined in Civil Procedure Rule 57.01 - See paragraphs 99 to 108.

Practice - Topic 7060.1

Costs - Party and party costs - Counsel fees - At hearing of trial or appeal - [See Practice - Topic 6923.1 ].

Practice - Topic 7061.1

Costs - Party and party costs - Counsel fees - Hourly rates - [See Practice - Topic 6923.1 ].

Sale of Goods - Topic 6504

Breach - Remedies of buyer - Measure of damages for breach of warranty - [See first Damages - Topic 5713 ].

Cases Noticed:

Kalkinis et al. v. Allstate Insurance Co. of Canada (1998), 117 O.A.C. 193; 41 O.R.(3d) 528 (C.A.), leave to appeal refused (2000), 255 N.R. 199; 135 O.A.C. 197 (S.C.C.), refd to. [para. 30].

Authorson v. Canada (Attorney General), [2007] O.A.C. Uned. 330; 86 O.R.(3d) 321 (C.A.), refd to. [para. 30].

Naylor Group Inc. v. Ellis-Don Construction Ltd., [2001] 2 S.C.R. 943; 277 N.R. 1; 153 O.A.C. 341; 2001 SCC 58, refd to. [para. 71].

Woelk v. Halvorson, [1980] 2 S.C.R. 430; 33 N.R. 232; 24 A.R. 620, refd to. [para. 71].

Canlin Ltd. v. Thiokol Fibres Canada Ltd. (1983), 40 O.R.(2d) 687 (C.A.), refd to. [para. 77].

Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 49 D.L.R.(4th) 205 (B.C.C.A.), leave to appeal refused (1988), 89 N.R. 398 (S.C.C.), refd to. [para. 79].

Hamilton v. Open Window Bakery Ltd. et al., [2004] 1 S.C.R. 303; 316 N.R. 265; 184 O.A.C. 209; 2004 SCC 9, refd to. [para. 101].

Celanese Canada Inc. v. Canadian National Railway Co. (2005), 196 O.A.C. 60 (C.A.), leave to appeal refused (2005), 347 N.R. 199; 214 O.A.C. 398 (S.C.C.), refd to. [para. 104].

Boucher et al. v. Public Accountants Council (Ont.) et al. (2004), 188 O.A.C. 201; 71 O.R.(3d) 291 (C.A.), refd to. [para. 106].

Counsel:

Bryan Finlay, Q.C., and R. Ross Wells, for the appellant/respondent by cross-appeal;

Paul J. Pape and John J. Adair, for the respondent/appellant by cross-appeal.

This appeal was heard on October 1 and 2, 2007, before Rosenberg, Cronk and MacFarland, JJ.A., of the Ontario Court of Appeal. Cronk, J.A., delivered the following decision on March 14, 2008.