





CITATION: Cimmaster Inc. v. Piccione (Manufacturing
      Technologies Company), 2011 ONCA

DATE: 20110704


DOCKET: C51635


COURT OF APPEAL FOR ONTARIO


Rosenberg, Feldman and Juriansz JJ.A.


BETWEEN


Cimmaster Inc.


Plaintiff/Respondent


and


Lynda J. Piccione c.o.b. as Manufacturing Technologies
          Company


Defendant/Appellant


Michael G. McQuade, for the appellant


Kevin J. Scullion, for the respondent


Heard: February 2, 2011


On appeal from the order of Justice Douglas K. Gray of the
          Superior Court of Justice dated January 6, 2010, with reasons reported at
          2010 ONSC 96.

Rosenberg J.A
.:
[1]

The appellant, Lynda Piccione, appeals from the decision of Gray J.
    dismissing her counterclaim against the respondent, Cimmaster Inc.  She also
    seeks leave to appeal the costs order in respect of the claim and
    counterclaim.  The issue on the appeal concerns the application of s. 30(2) of
    the
Sale of Goods Act
, R.S.O. 1990, c. S.1, which deals with contracts
    for the sale of goods to be delivered by instalments.  The appellant submits
    that because of deficiencies in the first instalment, the respondent should be
    deemed to have repudiated the contract.  Accordingly, the appellant was
    entitled to compensation for the loss of profit she would have earned from the resale
    of the goods that were to have been delivered in the second and third
    instalments.
[2]

For the following reasons I would dismiss the appeal with respect to the
    counterclaim but grant leave to appeal the costs order, and reduce the costs of
    the trial payable by the appellant to $40,000.
THE FACTS
[3]

The appellant is a sole proprietor, who, along with her husband Nicholas
    Piccione, carries on a business as Manufacturing Technologies Company (MTC). 
    MTC carries on business as a broker of manufactured parts.  The parts in issue
    in this case are known as whistle castings.  In the summer of 2003, Rick Purdie
    of Canadian General Filters Limited (CGF) contacted Mr. Piccione, when he was
    working for another company, about supplying whistle castings to it.  However,
    CGF wanted a lower price than on prior shipments.  Mr. Piccione eventually
    found a company, Brampton Foundries, that could supply the castings at the
    required price.  He placed an order for 33,000 castings with Brampton Foundries
    to be supplied to CGF at a cost of $3.05 per piece.  Unbeknownst to Mr. Piccione,
    Brampton Foundries did not produce the part themselves, but rather contracted
    with the respondent.  The castings were supplied as required.  Mr. Piccione
    then had them machined at another shop.  There was no problem with this
    shipment.  A short time later, Mr. Piccione left his employer to set up MTC.
[4]

In January 2004, Mr. Purdie of CGF again contacted Mr. Piccione about
    supplying another product called adaptor plates.  Mr. Piccione again approached
    Brampton Foundries about supplying these parts, as he had previously dealt with
    Brampton Foundries in respect of this product as well.  Brampton Foundries told
    Mr. Piccione that they had obtained these parts from the respondent and he
    should deal with them directly.  Mr. Piccione accordingly contacted Mr. Leung,
    the respondents representative.  Mr. Piccione placed the order and
    received the adaptor plates.  Again there was no problem with the shipment.
[5]

The problem with Cimmaster began in June 2004, when CGF placed an order
    with MTC for 90,000 whistle castings to be delivered in 2005.  Mr. Piccione
    again approached Brampton Foundries and was told that the earlier shipment of
    whistle castings had also been obtained from the respondent and that Mr.
    Piccione should deal directly with the respondent and Mr. Leung.  Based on the
    price from the respondent, after machining and painting the castings, Mr.
    Piccione believed he could make a profit of approximately $100,000 on the
    90,000 castings.  Mr. Piccione told Mr. Leung that he would need the 90,000
    parts in three batches with the first batch required by December 1, 2004.  CGF
    placed the order with MTC on July 15, 2004.  Mr. Piccione, in turn, placed the
    order with the respondent on October 4, 2004.  The purchase order for 90,000
    castings includes these words:  First release 30,000 units required a.s.a.p.
    (Dec 1/04).  Mr. Piccione and Mr. Leung agreed orally that the second
    shipment would be ordered after the first shipment was delivered, and the
    parties were satisfied with the product.  The respondent in turn issued a purchase
    order with its supplier, Shenyang Construction in China.
[6]

The first indication of a problem came in late November 2004, when Mr.
    Leung told Mr. Piccione that there was a problem with the casting machine in
    China.  He asked if the respondent would take half of the order at that time. 
    After speaking to CGF, Mr. Piccione told Mr. Leung that a partial shipment
    would not suffice.  Over December 2004 and January 2005, Mr. Piccione kept
    calling Mr. Leung to check on the shipment but did not get satisfactory
    responses.  The parts finally arrived in Canada on January 25, 2005 and were
    delivered to the machine shop, Jroberts Mfg. Inc. (Jroberts), on January 31.
[7]

The next problem arose on February 7, 2005, when Jroberts called Mr.
    Piccione to say that they were having difficulty machining some of the parts. 
    Mr. Piccione called Mr. Leung to complain and to request new castings.  Mr.
    Leung refused, at least until he had spoken to the Chinese company.  In the
    meantime, Jroberts continued to try to machine the parts.  Jroberts told Mr. Piccione
    that it was taking two weeks to machine 2,500 parts; ordinarily they were able
    to do 2,000 in a day.  By March 22, 2005, Jroberts had machined about 8,700
    castings but refused to do any more because the machining was damaging its
    equipment.  Mr. Piccione had still not heard back from Mr. Leung.  Mr. Piccione
    was able to find another machine shop to complete the job.  This machine shop
    encountered the same types of problems as did Jroberts.  They were having
    problems with about 50 percent of the castings.  By April 20, 2005, MTC was
    able to deliver a further 6,860 castings to CGF.  However, MTC was incurring
    additional costs of its own because of the arrangement it had been obliged to
    make with the new machine shop.
[8]

Mr. Piccione testified that on April 25, 2005, he finally heard from Mr.
    Leung who had heard from his supplier in China.  According to Mr. Leung, the
    Chinese supplier said that half the castings were produced during the day
    shift and the other half were done during the night shift and at the cooler air
    at night, and apparently it was during the winter the cooler air at night would
    have gotten to those castings, chilled  so, okay, now we know  However,
    because there were no lot or batch numbers, it was impossible to tell which
    castings had been manufactured at night and which during the day.  On May 2,
    2005, Mr. Leung asked for 2000 castings so that he could conduct his own
    inspection and testing.  Mr. Piccione never heard back from Mr. Leung.  Two
    weeks later Mr. Piccione sent some castings to another company to try a
    different process.  This helped somewhat.
[9]

A few days later, CGF ordered another 40,000 adaptor plates.  Mr.
    Piccione in turn ordered the parts from the respondent.  He thought he might be
    able use this further order as an incentive to get some movement on the problem
    with the whistle castings.
[10]

By June 24, 2005, MTC had been able to deliver 26,589 castings to CGF. 
    MTC had incurred almost $10,000 in extra costs in order to do so.  Throughout
    this time, MTC had been keeping CGF apprised of the problems.  In early July,
    CGF cancelled the order for the further 60,000 pieces because of the delivery
    problems.  MTC, however, never cancelled the order with the respondent and
    never paid the balance owing for the 30,000 pieces that had been delivered.  It
    also never placed the order for delivery of the further 60,000 pieces.  After
    the 40,000 adaptor plates were delivered, MTC refused to pay the balance owing
    on that order as well.  The respondent commenced its action for the outstanding
    balance on the orders for the whistle castings (U.S. $7,623) and the adaptor
    plates (U.S. $16,132).  The appellant counterclaimed for her loss of profit of
    $70,403.88, being a combination of the loss from the first shipment because of
    extra costs incurred and the projected loss of profit from the balance of the
    contract, the 60,000 pieces.
REASONS OF THE TRIAL JUDGE
[11]

The trial judge held that resolution of the appellants counter-claim
    turned on s. 30(2) of the
Sale of Goods Act
, which provides as
    follows:
(2)
Where there is a contract for the sale of goods to be delivered by stated
    instalments that are to be separately paid for
and the seller makes
    defective deliveries in respect of one or more instalments
or fails to
    deliver one or more instalments or the buyer neglects or refuses to take
    delivery of or pay for one or more instalments,
it is a question in each
    case depending on the terms of the contract and the circumstances of the case
    whether the breach of contract is a repudiation of the whole contract or
    whether it is a severable breach giving rise to a claim for compensation but not
    to a right to treat the whole contract as repudiated
.  [Emphasis added.]
[12]

The trial judge accepted that there had been a defective delivery in
    respect of the first instalment but there had not been repudiation of the whole
    contract by the respondent.  In the result, what occurred was a severable
    breach entitling the appellant only to compensation for the problems with the
    first instalment but not loss of profit for the balance of the contract.  The
    trial judge applied the test from
Maple Flock Co. v. Universal Furniture
    Products (Wembley) Ltd.,
[1934] 1 K.B. 148 (C.A.) which had considered the
    identical United Kingdom legislation.  The court in
Maple Flock,
at p.
    156, characterized the issue as to whether the seller had delivered the earlier
    instalment in such circumstances as to lead to the inference that it cannot  or
    will not deliver any other kinds of goods in the future.  The trial judge
    applied the approach outlined at p. 157 of
Maple Flock
:
With the help of these authorities we deduce that
    the main tests to be considered in applying the sub-section to the present case
    are, first, the ratio quantitatively which the breach bears to the contract as
    a whole, and secondly the degree of probability or improbability that such a
    breach will be repeated.
[13]

The trial judge held that the defective delivery of the first instalment
    did not reasonably give rise to an inference that similar breaches would occur
    with respect to the other two instalments.  He relied on the following
    circumstances:
1.         The respondent had supplied satisfactory
    goods in the past, including a previous order of this same part.
2.         Time was not of the essence of the
    contract; the timing of the second and third instalments was left entirely
    open; even with the delay of the first instalment, the goods were accepted.
3.         The cause of the problem that one-half
    of the units had been cast at night was discovered by April 25, 2005; once the
    nature of the problem was discovered, it could not be assumed that the
    difficulty would be repeated in subsequent deliveries, particularly because
    there had been the previous satisfactory delivery.
[14]

The trial judge also noted that MTC never actually took the position
    with the respondent that the contract was repudiated.  As he said at para. 66:
I also note that MTC did not actually take the
    position, with Cimmaster, that the contract was repudiated as a result of the
    defective delivery of the first instalment. In my view, there is a strong
    argument to be made that it is incumbent on a party in the position of MTC to
    notify the other party that the contract was repudiated. In this case, MTC said
    nothing. Accordingly, for that reason alone I think it is doubtful that MTC can
    now take the position that the contract is repudiated, notwithstanding that it
    never advised Cimmaster that it took that position. However, in view of my
    conclusion that there was no repudiation in any event, I need not consider that
    issue further.
[15]

The trial judge awarded the respondent U.S. $16,132 that was owing for
    the adapter plates. He dismissed the respondents claim for the balance owing
    for the whistle castings and allowed the appellants counterclaim to the extent
    of $5,454.60 and U.S. $2,148.93, being extra expenses for machining the
    defective parts and an overpayment for 3,411 units that were never delivered.
    The counterclaim for lost profit was dismissed.
ANALYSIS
Repudiation of the contract
[16]

Counsel for the appellant submitted that the trial judge erred in law in
    finding that there had been no repudiation of the entire contract by Cimmaster by
    reason of the defective delivery of the first instalment.  He submitted that
    there was no evidence to give rise to an inference that similar breaches would not
    occur with respect to the other two instalments.  I do not accept that
    submission.  There was a body of evidence upon which the trial judge could find
    that there was no repudiation.
[17]

The real question is whether, in applying the
Maple Flock
test,
    the trial judge made palpable and overriding errors of fact.  It also became
    apparent in the course of oral argument that the appellants main complaint was
    that the trial judge relied upon the contents of the conversation of April 25,
    when Mr. Leung relayed the information that he had received from China as to
    the cause of the problem.
[18]

The evidence about the April 25 call was adduced by the appellant during
    the testimony of Mr. Piccione as part of the narrative of his dealings with the
    respondent.  The information relayed by Mr. Leung to Mr. Piccione about what
    the people in China said about the problem was obviously hearsay; in fact, it
    was double hearsay.  Nevertheless, it is apparent that Mr. Piccione accepted
    the statement as true.  This is what he said in his examination in chief:
Q.        Okay. So take your time, be clear.  What
    does Mr. Leung tell you at that point in time?
A.        He tells me that half the castings are
    hard and half the castings are soft.
Q.        How does he know that?
A.        Well, he says that the China factory
    reported back that half the castings were produced during the day shift and the
    other half were done during the night shift and at the cooler air at night, and
    apparently it was during the winter the cooler air at night would have gotten
    to those castings, chilled them, and that you know, so, okay, now we know.
Q.        You know what?
A.        We know that half the batch is hard. Now,
    then I say okay, half the batch is hard is there anyway, any information on the
    boxes that we can identify any kind of batch marking, traceability and he says
    that say no, theres no traceability. The castings are all mixed together and
    we have no idea. So, at that point I realize castings, from Arthurs source are
    six weeks away. For me for another source theyre five months away. If we look
    at the time that it took Arthur to produce the parts for BMP Metal on the first
    order it took five months from July through to November to produce the orders,
    so I know Ive got nowhere to go, yet. So I asked Arthur well okay now you know
    theyre hard. You know you sent me half garbage, but its more than half garbage
    really because its all mixed together. If we could separate the parts and know
    we could take this box out take that box out these are good okay then we can
    work with that, but as we all know these are all mixed together so potentially
    if theyre perfectly mixed every second one with a break an insert every second
    one would be hard. So I asked him to get me some more castings that these
    obviously you bought crap, you sold me crap, please get me some casings. Arthur
    says look they may be hard, but they can still be machined. I can machine
    them.
[19]

When Mr. Leung testified in examination in chief, he too related the
    contents of his call with Mr. Piccione on April 25.  There was no objection to
    the admissibility of this evidence.  The only objection from counsel for the
    appellant was earlier in Mr. Leungs evidence when he attempted to relay the
    results of tests that his own staff had done of the castings.  The following
    dialogue occurred:
MR. MCQUADE: Sorry, to interrupt. I dont know who the
    witness knows, is it something that was told to him?
THE COURT: Well go ahead. There was plenty of
    equivalent hearsay in your evidence, your friend didnt object.
MR. MCQUADE: I understand, but I want to understand
    what this gentleman knows that he saw or heard. We called other witnesses to collaborate
    what my client said Im wondering if they will be calling people to testify on
    this evidence.
MR. SCULLION: No, Im not and I will go past this.
    If the objection is to hearsay coming from him, Ill leave that topic alone.
THE COURT: Okay.
[20]

Counsel for the appellant returned to the April 25 conversation in
    cross-examination of Mr. Leung:
Q.        And then you told us about a conversation
    you had with Mr. Piccione on April 25th. Do you remember this conversation ...
A.        Yes.
Q.        ...this where you report that you tell
    Mr. Piccione that youve learned information from China that 50 percent are
    hard, 50 percent are soft  they were run some were run in the evening, some
    were run in the daytime kind of thing. Do you remember that, telling us about
    that conversation?
A.        Yes.
Q.        And what if anything did you tell Mr. 
    propose Mr. Piccione do to deal with this problem that you discussed on April 
    you never told him that you think the problem is they were hard and soft
    because of the cool of the evening. What if anything did you propose that Mr.
    Piccione do during the conversation on April 25th to address this problem?
A.        I proposed to him again that to resolve
    his problem I would do the machining for $1.00; the same price he would have
    given to other machine shop.
...
Q.        Youre now, in addition to what I asked
    you a moment ago, youve now been told that 15,000 of these parts are hard 
    you know theres a problem. Is this part of your normal business practice then?
    Is that what we understand?
A.        Having problem is very often in the
    manufacturing business. Dealing with the problem is therefore  its just normal
    to  in a normal business relationship would have quality  non-conformance
    issues, whether it is non-conformance to the strictest term is yet to be
    decided; um so the, in the manufacturing industries, problem occurs. Under
    normal business relationship, we find the root cause; we try to find a
    solution, to work through it under normal business relationship. Just like what
    Mr. Neil Andrews have referred to in his testimony.
Q.        So between April 25th  when you were told
    by China of this problem and the May 3rd email from Mr. Piccione, what
    investigation if any did you your company, what did you guys do?
A.        Actually, before we got um the answer
    from China we were doing our due diligence and agreed to that we would look
    into the problem, so we do whatever we could on our side including try to
    measure the hardness.
Q.        No, I asked you once youre told by China
    the problem is 15,000 hard and 15,000 soft, what investigation did you do?
A.        About which?
Q.        Any investigation. You now know where the
    problem  whats causing the problem. Correct? China finally comes back to you
    on April 25th and says heres whats causing the problem. What do you do at
    that stage? Do you do any investigation of your own to try and see what you can
    do to solve the problem?
A.        No, understanding that, there is [not] much
    we could do at this end other than you know sort them out and identify it in
    the hard and the soft, because even at that time we did not know the  how high
    the hardness. We did the testing; it was not as high as if were were in hard
    machining, so knowing that there isnt all that much we could do further, we
    know that there were hardness issue, so the annealing that was proposed would
    have one of very few solutions if any.
...
Q.        Can I ask you one more time, sir? You
    told me a moment ago, once you were advised by China of this 15,000 hard,
    15,000 soft problem, you said, There is not much we could do at this end,
    except you suggested for Mr. Piccione and you discussed annealing. Correct?
A.        I said it with the reason I gave you.
[21]

The evidence about the April 25 conversation was admissible as part of
    the narrative to explain the unfolding of the events that led to the eventual
    cancellation by CGF of the balance of the contract.  In my view, in the
    circumstances of this case, it was also open to the trial judge to use Mr.
    Leungs statement to Mr. Piccione for the truth of its contents.  In other
    words, the trial judge could take as a fact that the reason for the problem had
    been discovered.  I say that because all the parties proceeded on that basis at
    the trial, as is apparent from the testimony and from the appellants counsels
    opening statement to the trial judge:
MR. MCQUADE:
Basically what happens, and its
    not really disputed in this case
, in fact, its admitted by the defendant.
    We dont find out until much, much later. What happened in this when these
    parts were manufactured in China, admitted half of them were ...
THE COURT: When you say defendant, you mean
    defendant by counter claim?
MR. MCQUADE: Im sorry, defendant by counter claim,
    yes.
THE COURT: All right.
MR. MCQUADE: Thank you. By Cimmaster.
THE COURT: Yes.
MR. MCQUADE:
They come back then and say what
    happened was half of the parts were manufactured during the day at one
    temperature
. Half of them are manufactured at night by a different
    temperature. And youll hear evidence in this case  what happens is when you
    cool these things down too quickly ...
THE COURT: Yes.
MR. MCQUADE: ...the term that you heard from my
    friend is its apparently its not a technical term but they all use is glass
    hard.
THE COURT: Yes.
MR. MCQUADE: Basically what happens its almost
    like it...
THE COURT: It becomes brittle?
MR. MCQUADE: ...correct.
...
MR. MCQUADE: So, again he follows up with Cimmaster
    saying listen whats going on? I need an answer. April 25th, they finally got
    back to him to tell him they found out the problem.
Half of them were made
    in the day in China, half of them were made in the night. And this is what we
    believe is causing the hardness problem
. But thats from, you know they
    were delivered February, he doesnt get this information until April 25th. [Emphasis
    added.]
[22]

The issue at trial was not the truth of the explanation but whether,
    even accepting the explanation, the contract had been repudiated by Cimmaster because
    of the delays and the nature of the defects.  Having accepted that the
    explanation was accurate and not having objected to the admissibility of this
    evidence, in my view, it is not now open to the appellant to object on appeal. 
    Had the appellant objected to the admissibility or use of the evidence at the
    time, the respondent could at least have considered whether to adduce other
    evidence about the cause of the problem with the pieces. See S. Schiff,
Evidence
    in the Litigation Process
, 4th ed. (Scarborough: Carswell, 1993) vol. 1 at pp.
    178-79.
[23]

Accordingly, I would dismiss the appeal with respect to the
    counterclaim. There was evidence to support the finding that Cimmaster did not
    repudiate the entire contract based on the defective delivery of the first
    instalment and the trial judge did not err in relying on the contents of the
    April 25 conversation.
The costs appeal
[24]

The trial judge awarded $60,000 in costs to the respondent.  In doing
    so, the trial judge held that the respondent was entitled to costs on a partial
    indemnity basis to the date of its offer to settle, and substantial indemnity
    costs thereafter.  On appeal, the appellant submits that the trial judge erred
    in awarding substantial indemnity costs because the offer to settle did not
    contain an element of compromise.  Following oral argument the court requested
    further submissions with respect to Rule 49 and in particular whether the trial
    judge had erred in acting under rule 49.10(1), rather than rules 49.10(2) and
    49.14.
[25]

The respondent served an offer to settle which called for the appellant
    to pay $8,000, plus interests and costs.  The trial judge noted that after
    setting off the appellants modest success on her counterclaim, the respondent
    obtained a judgment of just over $9,000, slightly in excess of the respondents
    offer to settle.  The trial judge rejected the appellants submission that
    there should be no order for costs.  He noted that the significant issue at
    trial and the issue that required the bulk of the trial time concerned the
    appellants counterclaim for the lost profit.  He characterized the other
    issues in the case as relatively insignificant.
[26]

He then considered the question of the application of Rule 49 as
    follows:
In my view, there is insufficient reason to depart
    from the plain terms of Rule 49.10. I do not agree that Cimmasters Offer to
    Settle did not contain a real element of compromise. Cimmaster proposed a real
    compromise, consisting of a proposal that MTC abandon the major portion of its
    counterclaim, and make a modest payment to resolve the remaining claims. Had
    MTC accepted the offer, six days of trial would have been avoided. The
Celanese
case, relied on by MTC, is not analogous. In that case, the successful party
    had made an offer that was 3% less than the total amount claimed in the action.
    That is not this case.
In the result, Cimmaster is entitled to costs on a
    partial indemnity basis to the date of its Offer to Settle, and substantial
    indemnity costs thereafter.
[27]

The trial judge then awarded the respondent $60,000 in costs, slightly
    less than the approximately $67,000 sought by the respondent.
[28]

I agree with the trial judge that the offer to settle contained a real
    element of compromise.  In determining whether the offer contains a real
    element of compromise, as referred to in this courts decision in
Celanese
    Canada Inc. v. Canadian National Railway Co.
(2005), 196 O.A.C. 60, leave
    to appeal refused, [2005] S.C.C.A. No, 245, the comparison is with the amount
    of the claim, not between the amount of the offer and the amount of the
    judgment.  In this case, the respondents claim was for U.S. $16,132.00 for the
    amount owing on the adapter plates and U.S. $7,623.00 for the amount owing on
    the whistle castings.  An offer to settle this claim of over U.S $23,000.00 for
    U.S. $8,000.00 had a real element of compromise within the meaning of
Celanese
.
[29]

The more difficult issue is how to apply the cost consequences of this
    offer to settle given the prominence of the counterclaim.  While technically
    the respondent was the plaintiff, in reality this trial was about the
    counterclaim and the appellant was the plaintiff in the counterclaim.  The
    appellant never disputed that she owed the respondent money for the adaptor
    plates.  In these circumstances, some consideration had to be given to rule
    49.14, which provides as follows:
Rules 49.01 to 49.13 apply, with necessary
    modifications, to counterclaims, crossclaims and third party claims.
[30]

On the counterclaim, the appellant was in the position of plaintiff and
    the respondent was in the position of defendant.  Viewed in that way, rule
    49.10(1) had limited application to this case.  That rule provides as follows:
(1) Where an offer to settle,
(a) is made by a plaintiff at least seven days
    before the commencement of the hearing;
(b) is not withdrawn and does not expire before
    the commencement of the hearing; and
(c) is not accepted by the defendant,
and the plaintiff obtains a judgment as favourable
    as or more favourable than the terms of the offer to settle, the plaintiff is
    entitled to partial indemnity costs to the date the offer to settle was served
    and substantial indemnity costs from that date, unless the court orders
    otherwise.
[31]

The rule with somewhat greater application was rule 49.10(2), dealing
    with offers to settle from a defendant:
(2) Where an offer to settle,
(a) is made by a defendant at least seven days
    before the commencement of the hearing;
(b) is not withdrawn and does not expire before
    the commencement of the hearing; and
(c) is not accepted by the plaintiff,
and the plaintiff obtains a judgment as favourable
    as or less favourable than the terms of the offer to settle, the plaintiff is
    entitled to partial indemnity costs to the date the offer was served and the
    defendant is entitled to partial indemnity costs from that date, unless the
    court orders otherwise.
[32]

I recognize that the circumstances in which the court should exercise
    its discretion not to award costs in accordance with rule 49.10(1) are narrow. 
    On the other hand, there is no defined set of circumstances as to when the
    court should order otherwise.  As this court said in
Niagara Structural
    Steel (St. Catharines) Ltd. v. W.D. LaFlamme Ltd.
(1987), 58 O.R. (2d) 773
    (C.A.), at p. 777 :
As far as the occasions for resort to the exception
    are concerned, if the framers of the rules could have expressed the relevant
    bases or factors with any degree of comprehensive detail it may be assumed that
    this would have been done. Accordingly, it would be wrong, for several reasons,
    to attempt to do so by judicial declaration. Keeping the matter on a general
    plane, it can be said that resort should only be had to the exception where,
    after giving proper weight to the policy of the general rule, and the
    importance of reasonable predictability and the even application of the rule,
    the interests of justice require a departure.
[33]

In my view, an important consideration in this case was the prominence
    of the counterclaim and accordingly the quite different cost implications
    flowing through the combined effect of rules 49.14 and 49.10(2).  In theory,
    applying rule 49.10(1), the respondent might be entitled to those costs of the
    trial on a substantial indemnity basis attributable to the claim.  However, the
    claim was never in dispute and occupied little time at trial as is apparent
    from the trial judges reasons and the transcript of evidence.  In my view, given
    these circumstances, this was not a case for substantial indemnity costs and I
    would reduce the costs order at trial to $40,000 inclusive of disbursements and
    applicable taxes.
DISPOSITION
[34]

Accordingly, I would dismiss the appeal with respect to the
    counterclaim.  I would grant leave to appeal the costs order and reduce the
    costs to $40,000 inclusive of disbursements and applicable taxes.  In view of
    the divided success, I would give the respondent its costs of the appeal fixed
    in the amount of $6,000 inclusive of disbursements and applicable taxes.
Signature:      M. Rosenberg J.A.
I agree K. Feldman
    J.A.
I agree R. G.
    Juriansz J.A.
RELEASED: MR JULY 4, 2011