



COURT OF APPEAL FOR ONTARIO

CITATION: Maple Leaf Foods Inc. v. Ryanview Farms, 2015 ONCA
    566

DATE: 20150731

DOCKET: C58682

Simmons, Tulloch and Pardu JJ.A.

BETWEEN

Maple Leaf Foods Inc.

Plaintiff (Respondent)

and

Ryanview Farms, James Theodore Smith and Velma
    Jean Smith

Defendants (Appellants)

Martha Cook, for the appellants

Joan Mouland, for the respondent

Heard: March 16, 2015

On appeal from the judgment of Justice Roland L. Haines
    of the Superior Court of Justice, dated March 18, 2014.

By the
    Court:

[1]

The appellants appeal from a judgment requiring that they pay
    $16,503.71 to the respondent and dismissing their counterclaim. The main issue
    on appeal is whether the trial judge erred in assessing damages on the
    appellants counterclaim.

A.

Background

[2]

The appellants are pig farmers. In 2004 and 2005, they decided to
    depopulate their existing barns; clean and disinfect them; and repopulate their
    herds with healthy maiden breeding pigs (gilts) and boars to be purchased from
    the respondent.
[1]


[3]

In making the decision to purchase from the respondent, the
    appellants had spoken to a party interested in purchasing high health
    segregated early weaners (SEWs) (piglets 17 to 21 days old that have been
    weaned from their mother) for sale to the United States.

[4]

The appellants eventually entered into a contract with the
    interested party (the Werden contract) for the sale of approximately 550 SEWs
    per week at a price based on a percentage of the prevailing Hog Forward
    Contract Price, with a floor price of $36 and a ceiling price of $46.

[5]

The appellants chose to purchase from the respondent because the
    respondent represented their gilts would produce healthy SEWs.

[6]

In February 2006, the respondent delivered 1,130 gilts and 10
    boars to the appellants. One truckload (245 gilts) was delayed 20 hours in
    transit, with the result that these gilts were stressed on arrival and became
    ill with a respiratory virus. Over time, the sick gilts infected the entire
    herd (a total of 910 gilts) at the barn where they were housed.

[7]

The appellants and the respondent had continuing negotiations
    about how to resolve the issue of the sick gilts. In October 2006, the
    respondent agreed to provide 300 replacement gilts  100 free, 100 at slaughter
    price and 100 at standard price. One hundred and fifty eight
[2]
replacement gilts were delivered in November 2006. They, too, were sick on
    arrival because of transport issues.

[8]

The appellants and the respondent continued discussions into
    2007. The appellants claim the respondent agreed to provide 450 replacement
    gilts. The appellants also wanted purebred animals for breeding purposes, so
    they could begin breeding their own stock.

[9]

Between April and July 2007, the respondent delivered a further
    350 replacement gilts and 87 purebred animals. The trial judge found that, of
    these animals, the appellants rejected 22 gilts and 11 purebred animals as
    unsatisfactory.

[10]

The appellants and the respondent disagreed over the terms on
    which the replacement animals were delivered. The respondent delivered
    invoices, which the appellants did not pay. In 2008, the respondent sued the
    appellants for the balance owing on the sale of animals; the appellants counterclaimed
    for damages arising from loss of production due to the unsatisfactory quality
    of the gilts delivered.

[11]

Subsequently, in 2009, the appellants enrolled in the Hog Farm
    Transition Program, a federal government program created in response to low
    prices in the hog industry, under which payments were made to hog farmers who
    agreed to cease production for three years. Eventually the appellants lost
    their farm through foreclosure.

[12]

The calculation of damages on the appellants
    counterclaim was complicated by the depressed swine market. It was also
    complicated by the fact that, during the relevant period, through no fault of
    the respondent, the appellants animals became sick with porcine reproductive and
    respiratory syndrome (PRRS)  one barn in November 2006, and two barns in
    December 2007  with the result that the affected animals were unsaleable under
    the Werden contract and the parties to that contract treated it as terminated.

B.

The trial judges decison

[13]

Multiple issues were litigated at trial. The
    trial judges findings included the following:

·

the parties did not have a written contract;

·

the appellants never agreed to any terms or
    conditions that limited the liability of the respondent;

·

the sale of animals from the respondent to the
    appellants was subject to an implied warranty of fitness under the
Sale
    of Goods Act
, R.S.O. 1990., c. S.1, that the respondent
    would supply healthy, properly conformed gilts capable of producing healthy SEWs;

·

given the number of diseased animals supplied,
    and the conformation issues encountered, the appellants had demonstrated that
    the respondent breached the implied warranty of fitness;

·

the appellants failed to prove that they
    suffered any damages as a result of the respondents breach of warranty;

·

in 2007, the respondent agreed to supply
    replacement animals free of charge;

·

although Mr. Smith acknowledged during
    cross-examination that he believed the respondents agreement to provide
    replacement animals free of charge resolved all issues between the parties and
    that he would have honoured that agreement had he not been sued, the respondent
    was not entitled to hold the appellants to a bargain the respondent had failed
    to honour;

·

the balance owing to the respondent for pigs
    delivered is $16,503.71.
[3]


[14]

Concerning the appellants claim for damages for
    breach of warranty, the trial judge noted that Mr. Kertzman provided expert
    evidence for the appellants, and Mr. Hoare provided expert evidence for the
    respondent. Each party also called expert veterinarian evidence.

[15]

Mr. Kertzman calculated the appellants lost
    profits at $1,005,092 if the appellants continued to operate through to 2012  and
    at $635,679 if they participated in the Hog Farm Transition program. He
    calculated these figures by assessing the difference between anticipated
    revenue net of anticipated costs of production and actual revenue
[4]
net of actual costs of
    production. He made a 7% adjustment for contingencies.

[16]

In arriving at his conclusions, Mr. Kertzman accepted
    that, but for the delivery of the sick pigs, the appellants would have produced
    25 SEWs per sow per year, 550 SEWs per week and that the piglets would have
    been sold within the price range provided in the Werden contract. He used
    Ontario Ministry of Agriculture Food and Rural Affairs (OMAFRA) data for
    costs  as opposed to the appellants 2005 cost data  because he concluded the
    appellants current farrow to early wean operation was different than their
    2005 operation. He also used OMAFRA data as a reasonable proxy for the price
    the appellants would realize for the sale of non-productive sows into the
    market.

[17]

Mr. Hoare used the same methodology to calculate
    damages as Mr. Kertzman, but he relied on different assumptions. For example,
    his opinion was premised on an assumption, supported by the respondents
    veterinarian evidence, that the PRRS outbreaks precluded attributing any losses
    suffered subsequent to the outbreaks to the respondent. He therefore calculated
    losses for each barn up to the point where the PRRS outbreak for that barn had
    occurred. Using this methodology, he calculated lost profits to November 30,
    2007 as $164,883.

[18]

Further, unlike Mr. Kertzman, Mr. Hoare
    concluded that the appellants pre-2006 operation was sufficiently similar to
    their current operation to justify using their pre-2006 cost figures when
    calculating lost profits. In calculating projected revenues, he assumed the
    appellants would have produced between 21.2 and 22 weaners per sow per year,
    based on actual production in one barn that had healthy animals through to
    November 2006  and based on OMAFRA data for 2007. However, he too assumed the
    Werden contract price range would be available.

[19]

The trial judge reviewed the conflicting veterinarian
    evidence concerning the impact of the PRRS outbreaks. Although he observed that
    the evidence of both veterinarian experts appears to support the conclusion
    that the initial disease process and conformation issues [attributable to the
    respondent] had some continuing impact on the [appellants] operations
    subsequent to the outbreaks of PRRS, he concluded that he was unable to find
    any loss subsequent to November 2006 and  to determine the extent of any loss
    prior to that date.

[20]

The trial judge relied on several factors for these
    conclusions, including: he found the production records were contradictory, as
    a result, despite the obvious problems with the animals delivered, he was not
    satisfied the appellants had proven a loss in production; he concluded that the
    evidence relating to actual sales was incomplete; and he was not convinced the
    Werden contract price range would have been available as a result of the PRRS
    outbreak.

C.

the issues on appeal

[21]

The appellants raise multiple issues on appeal.
    However, their arguments come down to two main points. First, the trial judge
    erred in assessing damages on the appellants counterclaim. Second, after
    finding that the respondent agreed to supply replacement animals free of charge,
    the trial judge erred in failing to find how many free replacement animals the
    respondent agreed to provide and in failing to factor the shortfall into his
    calculation of the balance owing by the appellants to the respondent.

[22]

The respondent asserts that there is no merit in
    the appellants grounds of appeal. However, in the event this court decides to
    order a new trial, the respondent says that the trial judge erred in finding
    that the sale was subject to an implied warranty under the
Sale of
    Goods Act
and asks that that issue be addressed at any
    new trial.

D.

discussion

[23]

In our view, the trial judge erred in his
    approach to the assessment of damages. Although satisfied that the respondents
    breach of warranty had an impact on the appellants operation, both before and
    after the PRRS outbreaks, he concluded he was unable to find any loss
    subsequent to November 2006 and  to determine the extent of any loss prior to
    that date.

[24]

The trial judge reached his conclusion, at least
    in part, because he relied on production evidence set out in Canadian
    Agricultural Income Stabilization (CAIS)
[5]
records to draw conclusions about production as opposed to production evidence
    set out in PigCHAMP
[6]
records, which he found to be incomplete.

[25]

In our opinion, the trial judge erred in so doing.
    All the experts who testified at trial concerning lost profit calculations relied
    on the PigCHAMP records in making their calculations and only one  the
    respondents veterinarian  was in anyway challenged about the decision to do
    so. In chief, she noted that she was unable to correlate 2008 PigCHAMP records
    with 2008 CAIS records. In cross-examination, she was asked why she did not use
    the CAIS records. She explained that she did not have any concerns about the
    quality of the PigCHAMP records, and that when she was unable to reconcile
    certain aspects of the records, she chose to use the PigCHAMP records.

[26]

Further, Dr. Charbonneau, an expert in
    collection, presentation and interpretation of pig production data, gave
    evidence about the PigCHAMP record system and pig production generally. He
    explained that PigCHAMP is a computerized record keeping system developed
    through the University of Minnesota. It allows pig producers to submit data
    that is then analyzed by PigCHAMP. He viewed Canadian PigCHAMP statistics as a
    reliable source of information. Despite his expertise, he was not asked to
    comment on the appellants production records or the discrepancy between their
    PigCHAMP records or their CAIS records.

[27]

Equally significant is the fact that, on appeal,
respondent's counsel was unable to explain on what basis the trial
    judge arrived at certain conclusions using the CAIS records. Nor have we been
    able to determine that basis. The problem inherent in the trial judges
    decision to use the CAIS records, when none of the experts at trial used them,
    is the absence of evidence to explain how the records should be applied.

[28]

Further, the trial judge did not resolve some of
    the differences in the assumptions made by Mr. Kertzman and Mr. Hoare.

[29]

We also accept the appellants submission
    that the trial judge erred by failing to make a finding concerning the number of
free replacement animals the respondent agreed to
    provide and by failing to consider how, if all, any shortfall should factor into
    his calculation of the balance owing by the appellants to the respondent (and
    potentially into his damages calculation).

[30]

In the circumstances, we see no alternative but
    to order a new trial to address the following:

·

The assessment of damages for the respondents
    breach of implied warranty;

·

The number of replacement animals that were
    promised to the appellants, and the impact, if any of that determination on the
    calculation of the balance owing to the respondent (and potentially on the
    calculation of damages).

[31]

We see no error in the factual findings or legal
    conclusions drawn by the trial judge establishing the respondent's liability
    for breach of implied warranty.

[32]

In the result, a new trial is ordered on the
    issue of damages, the issue of the number of replacement animals that were
    promised to the appellants and the impact of the determination of that issue on
    the calculation of the balance owing to the respondent (and potentially
    damages). The costs award below is set aside and costs of the trial reserved to
    the judge hearing the new trial.

[33]

Costs of the appeal are to the appellants on a
    partial indemnity scale fixed in the amount of $15,000, inclusive of
    disbursements and applicable taxes.

Released:

KMvR                                    Janet
    Simmons J.A.

JUL 31 2015                           M. Tulloch J.A.



G. Pardu J.A.






[1]

The appellants dealings were actually with a predecessor of
    the respondent. For simplicity, we will refer simply to the respondent throughout.



[2]

One, out of the 159 animals transported, was dead on delivery.



[3]
In his reasons, the trial judge states that the appellants claimed that the
    amount owing to the respondent after all appropriate credits was $16,503.71.
    However, the invoice summary filed by the appellants during closing submission
    indicates the appellants claimed that was the amount owing subject to set
    off.



[4]

Mr. Kertzman relied on Ryanviews general ledgers to calculate
    actual revenue.



[5]
The CAIS records were prepared by the appellants accountant, Mr. McNeil. He
    explained that the CAIS program was designed to stabilize farm income and used
    a calculation to which he was not privy to do so. He confirmed that the
    appellants provided opening and closing inventory and births and deaths so he
    could complete the CAIS application. Although the appellants disputed it, he
    claimed the appellants also provided him with information concerning the SEWs
    sold. He would then estimate the number of pigs transferred in and out of
    various categories. He testified that the ending numbers in the CAIS records
    correspond to the Ryanview financial statements. He was not asked to reconcile
    any discrepancy between CAIS records and PigCHAMP records.



[6]
As explained by the trial judge,
PigCHAMP is a recording
    service that pig producers use as a management tool to record and track the
    various production aspects of their operations.


