Oz Optics Ltd. v. Timbercon Inc., 2011 ONCA 714

• Judge: Simmons, Armstrong and LaForme, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: April 29, 2011
• Jurisdiction: Ontario
• Citations: 2011 ONCA 714;(2011), 285 O.A.C. 232 (CA)

Oz Optics Ltd. v. Timbercon Inc. (2011), 285 O.A.C. 232 (CA)

MLB headnote and full text

Temp. Cite: [2011] O.A.C. TBEd. NO.031

Oz Optics Limited (plaintiff/appellant) v. Timbercon, Inc. (defendant/respondent)

(C51799; 2011 ONCA 714)

Indexed As: Oz Optics Ltd. v. Timbercon Inc.

Ontario Court of Appeal

Simmons, Armstrong and LaForme, JJ.A.

November 15, 2011.

Summary:

Timbercon Inc. placed an order for 900 manual attenuators with Oz Optics Ltd. At the same time, Timbercon and Oz began developing an automated attenuator solution for sale to Lockheed-Martin. During the development phase, Timbercon and Oz shared information and ideas. Their relationship broke down and Timbercon also began working with an alternate supplier of attenuator components (DiCon). Ultimately, Timbercon presented two bids to Lockheed-Martin, one with Oz as the supplier and one with DiCon as the supplier. Lockheed-Martin chose the DiCon bid. Oz sued Timbercon. The issues were: (1) was the order for the 900 manual attenuators a consignment order only; (2) did Timbercon misappropriate confidential and/or proprietary information belonging to Oz; (3) did Timbercon make fraudulent and/or negligent misrepresentations to Oz concerning the opportunities for sales of both manual and automated attenuators; and (4) did Timbercon act in bad faith in the bidding process?

The Ontario Superior Court, in a decision reported at [2010] O.T.C. 310, dismissed the action, holding that: (1) the order for the manual attenuators was a consignment order only; (2) although Timbercon received a limited amount of confidential and/or proprietary information from Oz, they never misused that information; (3) Timbercon did not make any fraudulent or negligent misrepresentations to Oz concerning the opportunities for sales of the automated attenuators; and (4) although Timbercon did act unfairly in the bidding process, there was no legal obligation on Timbercon to act in good faith in the circumstances. Oz appealed on all the issues except (2).

The Ontario Court of Appeal allowed the appeal respecting the negligent misrepresentation claim only. The court ordered a new trial limited to damages before a different judge, because the trial judge had already made an adverse credibility finding against Sezerman, vice-president of Oz. The court ordered that Oz have its trial costs, but adjusted to account for the fact that it did not succeed respecting the manual attenuators issue. The court granted Oz costs of the appeal on a partial indemnity scale, fixed at $40,000 including disbursements and applicable taxes.

Contracts - Topic 1106

Formation of contract - General principles - Duty to negotiate in good faith - Timbercon Inc. placed an order for manual attenuators with Oz Optics Ltd. - At the same time, Timbercon and Oz began developing an automated attenuator solution for sale to Lockheed-Martin - Later, Timbercon also began working with an alternate supplier of attenuator components (DiCon) - Ultimately, Timbercon presented two bids to Lockheed-Martin, one with Oz as the supplier and one with DiCon as the supplier - Lockheed-Martin chose the DiCon bid - Oz sued Timbercon - The trial judge held, inter alia, that although Timbercon had acted unfairly in the bidding process, there was no legal obligation on Timbercon to act in good faith in the circumstances - The Ontario Court of Appeal stated that "The obligation to act in good faith has been the subject of considerable discussion both by the judiciary and the legal academy. As things currently stand, it is difficult to ascertain in what circumstances it will be applied" - The court discussed case law dealing with the obligation of good faith at various stages of the contractual process and in construction contracts in particular - The court stated that it was hesitant to invoke the doctrine in the present case where recovery could be grounded in negligent misrepresentation - Therefore, it did not deal with the issue further - See paragraphs 46 to 49 and 60 and 71.

Contracts - Topic 1144

Formation of contract - Signing - Failure to sign - Effect of - Timbercon Inc. placed an order for 900 manual attenuators with Oz Optics Ltd. - Although Oz did not sign the consignment agreement which was referenced in the purchase order and attached to it, it did not object to a consignment order - Oz shipped 900 manual attenuators to Timbercon - The nature of the order was left unresolved as between the parties - The trial judge concluded that it was a consignment order - The Ontario Court of Appeal found no basis to interfere with the trial judge's conclusion - See paragraphs 37 to 39 and 52 and 53.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - [See Contracts - Topic 1106 ].

Contracts - Topic 7415.1

Interpretation - General principles - Good faith - [See Contracts - Topic 1106 ].

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - Timbercon Inc. placed an order for manual attenuators with Oz Optics Ltd. - At the same time, Timbercon and Oz began developing an automated attenuator solution for sale to Lockheed-Martin - Later, Timbercon also began working with an alternate supplier of attenuator components (DiCon) - Ultimately, Timbercon presented two bids to Lockheed-Martin, one with Oz as the supplier and one with DiCon as the supplier - Lockheed-Martin chose the DiCon bid - Oz sued Timbercon - On appeal, the Ontario Court of Appeal held that Timbercon had made negligent misrepresentations to Oz concerning the opportunities for sales of the automated attenuators - The court held that the trial judge erred in failing to consider that the central misrepresentation by Timbercon was that Oz remained the sole potential supplier for the production of the attenuators - It was immaterial that the other representations referred to by the trial judge were "mostly accurate" - Oz acted reasonably in relying on the representation given the parties' ongoing relationship and that the representation was ongoing - Reliance on the representation was detrimental to Oz's bid - Oz's belief that it was the sole possible supplier caused it to stand firmly behind its proposal, including the proposed timeline, when it "would undoubtedly have acted differently" if it had been aware that there was a competing bid - The only significant difference between the two quotes was, ultimately, the delivery timeline - See paragraphs 40 to 45 and 54 to 60.

Fraud and Misrepresentation - Topic 2535

Misrepresentation - Elements - Reliance - [See Fraud and Misrepresentation - Topic 2508 ].

Fraud and Misrepresentation - Topic 2701

Misrepresentation - What constitutes misrepresentation - General - [See Fraud and Misrepresentation - Topic 2508 ].

Practice - Topic 9220

Appeals - New trials - General - Timbercon Inc. placed an order for 900 manual attenuators with Oz Optics Ltd. - At the same time, Timbercon and Oz began developing an automated attenuator solution for sale to Lockheed-Martin - During the development phase, Timbercon and Oz shared information and ideas - Their relationship broke down and Timbercon also began working with an alternate supplier of attenuator components (DiCon) - Ultimately, Timbercon presented two bids to Lockheed-Martin, one with Oz as the supplier and one with DiCon as the supplier - Lockheed-Martin chose the DiCon bid - Oz sued Timbercon - The trial judge dismissed the action, rejecting all four of its grounds - Oz appealed on three - The Ontario Court of Appeal allowed the action based on negligent misrepresentation - The court ordered a new trial limited to damages - The court suggested that it be before a different judge because the trial judge had already made an adverse credibility finding against Oz's vice-president - See paragraphs 72 to 74.

Sale of Goods - Topic 70

General - Definitions - Sale distinguished from consignments - [See Contracts - Topic 1144 ].

Cases Noticed:

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, appld. [para. 42].

Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860; 262 N.R. 285; 2000 SCC 60, folld. [para. 48].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, folld. [para. 52].

Mesa Operating Limited Partnership v. Amoco Canada Resources Ltd. (1994), 149 A.R. 187; 63 W.A.C. 187; 19 Alta. L.R.(3d) 38 (C.A.), leave to appeal to denied (1994), 179 N.R. 80; 162 A.R. 318; 83 W.A.C. 318; 21 Alta. L.R.(3d) xxxvii (S.C.C.), refd to. [para. 63].

Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; 219 N.R. 161; 123 Man.R.(2d) 1; 159 W.A.C. 1; 152 D.L.R.(4th) 1, refd to. [para. 64].

Keays v. Honda Canada Inc., [2008] 2 S.C.R. 362; 376 N.R. 196; 239 O.A.C. 299; 2008 SCC 39, refd to. [para. 64].

Shelanu Inc. v. Print Three Franchising Corp. (2003), 172 O.A.C. 78; 64 O.R.(3d) 533 (C.A.), refd to. [para. 64].

Peel Condominium Corp. No. 505 v. Cam-Valley Homes Ltd. et al. (2001), 142 O.A.C. 251; 53 O.R.(3d) 1 (C.A.), refd to. [para. 64].

978011 Ontario Ltd. v. Cornell Engineering Co. (2001), 144 O.A.C. 262; 53 O.R.(3d) 783 (C.A.), leave to appeal denied (2001), 284 N.R. 199; 158 O.A.C. 195 (S.C.C.), dist. [para. 66].

Coco Paving (1990) Inc. v. Ontario (Minister of Transportation) et al. (2009), 252 O.A.C. 47; 2009 ONCA 503, agreed with [para. 67].

Ron Engineering & Construction (Eastern) Ltd. v. Ontario and Water Resources Commission, [1981] 1 S.C.R. 111; 35 N.R. 40, dist. [para. 68].

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Co. et al., [1999] 1 S.C.R. 619; 237 N.R. 334; 232 A.R. 360; 195 W.A.C. 360, dist. [para. 68].

Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways), [2010] 1 S.C.R. 69; 397 N.R. 331; 281 B.C.A.C. 245; 475 W.A.C. 245; 2010 SCC 4, refd to. [para. 69].

Hollis v. Dow Corning Corp. et al., [1995] 4 S.C.R. 634; 190 N.R. 241; 67 B.C.A.C. 1; 111 W.A.C. 1, refd to. [para. 73].

Sharbern Holding Inc. v. Vancouver Airport Centre Ltd. et al., [2011] 2 S.C.R. 175; 416 N.R. 1; 306 B.C.A.C. 1; 516 W.A.C. 1; 2011 SCC 23, refd to. [para. 73].

Masterpiece Inc. v. Alavida Lifestyles Inc., [2011] 2 S.C.R. 387; 416 N.R. 307; 2011 SCC 27, refd to. [para. 73].

Authors and Works Noticed:

Finn, Paul D., The Fiduciary Principle, in Youdan, Timothy G., Essays in Equity, Fiduciaries and Trusts (1989), pp. 17, 18, 20 [para. 64].

Youdan, Timothy G., Essays in Equity, Fiduciaries and Trusts (1989), pp. 17, 18, 20 [para. 64].

Counsel:

Stephen Victor, Q.C., and David Cutler, for the appellant;

Jonathan Stainsby, Mark E. Davis and Andrew McIntyre, for the respondent.

This appeal was heard on April 29, 2011, by Simmons, Armstrong and LaForme, JJ.A., of the Ontario Court of Appeal. Armstrong, J.A., delivered the following decision for the court on November 15, 2011.