



COURT OF APPEAL FOR ONTARIO

CITATION: 1004335 Ontario Ltd. (A.D. Metro) v. DW Digital
    Wireless LP, 2019 ONCA 461

DATE: 20190605

DOCKET: C65560

Feldman, MacPherson and Simmons JJ.A.

BETWEEN

1004335 Ontario Ltd.
    c.o.b. A.D. Metro

Plaintiff/Defendant by Counterclaim
(Appellant)

and

DW Digital Wireless LP

Defendant/Plaintiff by Counterclaim
(Respondent)

Christopher Rootham and Andrew Ferguson, for the
    appellant

Kiran Patel and Rebecca Torrance, for the respondent

Heard: May 28, 2019

On
    appeal from the judgment of Justice H.J. Williams of the Superior Court of
    Justice, dated May 24, 2018.

REASONS FOR
    DECISION

[1]

The appellant 1004335 Ontario Ltd. c.o.b. A.D. Metro (ADM) is a
    manufacturer and supplier of touchscreens. From 2008 to 2012, ADM supplied more
    than 17,000 touchscreens to the respondent DW Digital Wireless LP (DW), a
    designer and manufacturer of mobile display terminals (MDTs) used in taxis
    and buses.

[2]

After several years of a good relationship, in 2011 DW noticed a spike
    in customer complaints about its MDTs. ADM and DW communicated with each other
    over a period of several months but were unable to agree on the cause of the
    problem or an appropriate way of resolving it. In early 2012, their
    relationship ended and DW moved its business to a new supplier.

[3]

ADM commenced an action seeking payment for two outstanding invoices
    totalling $36,981. DW counterclaimed, seeking $704,068 for breach of contract.

[4]

At trial, the parties agreed that the counterclaim would be tried first.

[5]

The trial judge found that, based on s. 15 of the
Sale of Goods Act
,
    R.S.O. 1990, c. S.1, the touchscreens were sold under an implied condition of
    fitness for DWs purpose of manufacturing as MDTs, because ADM was aware of
    that purpose. In addition, since the touchscreens were purchased by
    description, there was an implied condition of merchantability. Based on the
    parties pre-litigation efforts at finding the cause of the touchscreen issues
    and the expert evidence provided at trial, the trial judge found that some of
    the touchscreens were defective and, therefore, were sold in breach of both
    conditions.

[6]

On the liability issue, the trial judge preferred the evidence of DWs
    expert to the extent that it differed from the opinion of ADMs expert, whose
    examination of the defective products was less thorough. Both experts agreed
    that there was a problem with the touchscreens lamination. ADMs expert
    theorized that the problem could have been caused by post-manufacture exposure
    to high temperatures where the touchscreens were being used (i.e. no fault).

[7]

The trial judge observed that this theory did not explain why the faulty
    touchscreens appeared to be manufactured at the same times. Instead, the trial
    judge found that the defect affected six bad batches which all turned out to
    have been supplied by one of ADMs subcontractors, Abon TouchSystems. The trial
    judge concluded:

I accept Mr. Phares [DWs expert] opinion that the touchscreen
    failures were caused by cover sheets that collapsed as a result of poor
    lamination on one of the edges of the touchscreens. I also accept Mr. Phares
    opinion that all of the defective touchscreens were manufactured by Abon
    TouchSystems and that the poor lamination was caused by a design and/or
    manufacturing issue.

[8]

In awarding damages, the trial judge awarded replacement costs,
    including labour and shipping costs as consequential damages. She also agreed that
    DWs decision to replace all 6,000 touchscreens from the bad batches, whether
    they had failed or not, for two customers who were threatening to discontinue
    their business with DW (or the related company it supplied) was reasonable in
    the circumstances. The trial judge set off these amounts against the amounts DW
    owed ADM under the invoices. In the result, the final award was $355,193.49 in
    favour of DW.

[9]

ADM appeals the trial judges conclusions on both liability and damages.

Liability

[10]

On
    the liability issue, ADM makes a single argument: the trial judge made a
    palpable and overriding error in the inference-drawing process. The error, says
    ADM, is in three paragraphs of the trial judges reasons forming part of her
    conclusions on liability:

I accept Mr. Phares opinion that the touchscreen failures were
    caused by cover sheets that collapsed as a result of poor lamination on one of
    the edges of the touchscreens. I also accept Mr. Phares opinion that all of
    the defective touchscreens were manufactured by Abon TouchSystems and that poor
    lamination was caused by a design and/or manufacturing issue.

My finding that this defect affected the
    six bad batches is based on the evidence touchscreen failure distribution by
    manufacturing date set out in the table and graph marked as Exhibit 3 combined
    with Mr. Phares evidence that Luxe began to receive touchscreens from a new
    supplier, Abon TouchSystems at the start of the high failure rate period.

I do not accept ADMs argument that Mr. Phares evidence is
    undermined by the fact that touchscreens manufactured after the 19th week of
    2011 did not fail even though Abon TouchSystems supplied Luxe [another
    subcontractor] with touchscreens manufactured at least until the 39th week of
    2011. ADMs suggestion was that if a design and/or manufacturing problem
    attributable to Abon TouchSystems had caused the touchscreens to fail, the
    failures would have continued for as long as Abon TouchSystems supplied
    touchscreens to Luxe
.
I
    find that a simple, alternative explanation is that sometime after the 19th
    week of 2011 and even before Luxe had started to make inquiries, Abon TouchSystems
    had fixed its problem.
[Emphasis added.]

[11]

ADM
    asserts that the inference that the timing of the defects shows that Abon
    TouchSystems caused the defects was refuted by the fact that Abon TouchSystems
    produced good batches as well as bad batches and there is nothing to
    support the trial judges inference in the final sentence of this passage.

[12]

We
    are not persuaded by this argument. The trial judge dedicated 121 paragraphs of
    her reasons to reviewing the evidence concerning the cause of the touchscreen
    failures and explaining the basis of her acceptance of Mr. Phares opinion. Additional
    evidence supported the inference created by the timing of the touchscreen
    failures. Having accepted Mr. Phares opinion, the trial judge was not required
    to explain how or why Abon TouchSystems produced some good batches following
    the six bad batches. The trial judges statement in the final paragraph of
    her reasons is expressly described as a potential alternative explanation in
    response to ADMs argument that the fact that Abon TouchSystems subsequently
    manufactured good touchscreens after the six bad batches somehow undermined
    Mr. Phares opinion. Regardless of the explanation for why these subsequent
    touchscreens did not fail, it does not displace or undermine the trial judges
    factual findings regarding why the six bad batches of the touchscreens did
    fail. The fact that the problem may have gone away does not detract from the
    fact that there was a serious problem and that its cause was as described by
    DWs expert, whose opinion the trial judge was entitled to accept.

Damages

[13]

ADM
    advances four arguments on this component of its appeal.

[14]

First,
    ADM contends that the trial judge erred by awarding damages for the cost of
    replacing certain touchscreens that were not defective. The challenged amount
    is $62,309.46. ADM does not appeal the award of $168,000 for the cost of
    replacing touchscreens from the six defective batches of touchscreens. The
    basis of the appellants argument is that the trial judge erred in law by
    failing to consider whether these damages were too remote to be compensable.

[15]

We
    do not accept ADMs submission. This head of damages relates to touchscreens
    provided to two of DWs major European customers  Taxi Stockholm and HDT
    Helsinki. The trial judge concluded that DWs decision to provide replacement
    touchscreens to these two major customers, who were clearly exasperated by the
    touchscreen failures and had made threats of contract cancellation and
    litigation, constituted reasonable mitigation damages in the circumstances. 
    She stated that because she found they were reasonable, she did not have to
    separately address remoteness. We understand that to mean that because the
    damages were reasonable, they were not too remote to be compensable. We see no
    error in that finding. We note that the trial judge was careful on this issue.
    Her award was $62,309.46, not the $115,967 sought by DW.

[16]

Second,
    ADM submits that the trial judge erred by awarding direct labour costs
    totalling $92,698.14 for repairing touchscreens. ADM says that there should be
    no recovery on this issue because all the repairs were done in-house by current
    DW employees. These employees would have to work on something, so it may as
    well be repairing defective touchscreens.

[17]

We
    disagree. In an appropriate case, there is no reason not to compensate for  the
    actual cost of repairs, even if they are performed by in-house employees and
    not as an overtime expense: see
Skyway Equipment co. v. Guardian Insurance
    Co. of Canada
(2005), 49 CLR (3d) 94 (Ont. Sup. Ct. J.), at 263; and
    Waddams,
The Law of Damages
(Toronto: Canada Law Book, 2008), at para.
    15. 310. Again, we observe that the quantum of damages awarded under this
    heading was modest  less than half the amount sought.

[18]

Third,
    ADM asserts that the trial judge erred by awarding shipping costs at $51,280 as
    damages. ADM says that there was insufficient evidence to support this claim 
    no receipts, no invoices, no bills of lading.

[19]

We
    do not accept this submission. The trial judge accepted the evidence of DWs
    principal witness on this issue, based on an example shipping invoice. She was
    entitled to do so. She was careful in her scrutiny of DWs claim  she awarded
    only about 40 per cent of the amount sought.

[20]

Fourth,
    ADM asserts that although DW suffered the damages claimed, it did not directly
    supply the screens and therefore was not the proper claimant on the
    counterclaim. We also reject this submission. Whatever pass-through
    arrangements were in place, it was DW that was legally responsible to make good
    on the defective screens that it supplied.

Disposition

[21]

The
    appeal is dismissed. The respondent is entitled to its costs of the appeal
    fixed at $40,000, inclusive of disbursements and HST.

K. Feldman J.A.

J.C. MacPherson J.A.

Janet Simmons J.A.


