





CITATION:
Oz Optics Limited v. Timbercon, Inc., 2011
          ONCA 714



DATE: 20111115



DOCKET: C51799



COURT OF APPEAL FOR ONTARIO



Simmons, Armstrong and LaForme JJ.A.



BETWEEN



Oz Optics Limited



Plaintiff (Appellant)



and



Timbercon, Inc.



Defendant (Respondent)



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



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



Heard:
April 29, 2011



On appeal from the judgment of
          Justice Julianne A. Parfett, of the Superior Court of Justice, dated February
          10, 2010, with reasons reported at 2010 ONSC 310, 73 B.L.R. (4
th
)
          120.



Armstrong J.A.:



INTRODUCTION

[1]

Oz Optics Limited (Oz) appeals from the judgment of Parfett J. dated February
    10, 2010, in which she dismissed Ozs action against Timbercon, Inc. (Timbercon).  
    The action concerned the parties business relationship through which they had
    sought to design, manufacture and sell manual and automated attenuators for use
    in the construction of jet fighter planes.  The appeal raises issues relating
    to the nature of the business relationship between Oz and Timbercon, negligent
    misrepresentation and the breach of the obligation to act in good faith.

[2]

Specifically, Oz challenges the trial judges conclusion that the 900
    manual attenuators were provided on the basis of a consignment agreement and
    that, therefore, Timbercon is not liable for the cost of the unsold units.  Oz
    also challenges the trial judges conclusion that Timbercon was neither liable
    for negligent misrepresentation nor the breach of the duty to act in good faith
    with respect to the purchase of automatic attenuators.

[3]

For the following reasons, I would allow the appeal, in part, on the
    basis that the trial judge erred in dismissing Ozs claim for negligent
    misrepresentation.  I would dismiss the remaining grounds of appeal.

FACTUAL BACKGROUND

(i)        The Manual
    Attenuators

[4]

Oz and Timbercon are both engaged in the fibre-optic industry.  In late
    2002, Timbercon approached Oz to design and manufacture a fibre-optic product
    known as a manual attenuator, which Timbercon intended to supply to Lockheed Martin
    for use in the construction of jet fighter planes.  Attenuators adjust the
    amount of light passing through a fibre-optic component.

[5]

Initially, Oz manufactured ten manual attenuators, which were delivered
    to Timbercon and paid for by Timbercon.  By March 2003, Timbercon advised Oz
    that it expected a further order of 900 manual attenuators.

[6]

On March 27, 2003, Eric Meslow, the president of Timbercon, met with
    Omur Sezerman, vice-president of Oz, at a trade show in Atlanta, Georgia.  Each
    has a very different recollection of a discussion they had there about the
    manual attenuators.  According to Mr. Sezerman, he was told that Timbercon
    required the attenuators to be provided over a 12-month period and that
    Timbercon would pay when it received payments from Lockheed Martin.  According
    to Mr. Meslow, he was surprised to learn from Mr. Sezerman that Oz had already
    produced 900 attenuators.  Mr. Sezerman asked him to take the attenuators off
    his hands as a favour.  Mr. Meslow asserts that he responded that the sale of
    the manual attenuators should take place by way of a consignment order and that
    Mr. Sezerman agreed to proceed by consignment.

[7]

On March 31, 2003, Timbercon faxed a purchase order to Oz for 500 manual
    attenuators.  The purchase order contained the following notation:

This purchase order is issued for consignment
    agreement only.  Please review attached pages (exhibit A) for terms and
    conditions of the consignment agreement.  A signed and returned copy of this
    purchase order indicates acceptance of these terms.

[8]

Oz did not sign either the purchase order or the consignment agreement. 
    In an e-mail dated March 31, 2003 from Oz to Timbercon, a representative of Oz stated,
    thank you in advance for your understanding and co-operation for this
    matter.  Oz shipped 500 manual attenuators to Timbercon.  The invoice, which
    accompanied the delivery, indicated a payment due of $73,125.00 (U.S.) net 30 [days]
    for the order of 500.  Upon Ozs request, Timbercon increased the order to 900
    units.  During the spring of 2003, Oz shipped the additional 400 manual
    attenuators to Timbercon, bringing the total due to $131,565.00 (U.S.).

[9]

Timbercon paid approximately $52,650.01 (U.S.) for the attenuators, leaving
    an unpaid balance of approximately $78,974.99 (U.S.) remaining.

[10]

Although the consignment agreement was never signed, Oz did not advise
    that it was not accepting the order on a consignment basis before shipping the
    attenuators.

[11]

Oz claims that Timbercon owes the remaining $78,974.99 (U.S.) for the
    purchase and sale of the manual attenuators.  Timbercons position is that Oz
    delivered the manual attenuators on consignment for a potential sale to
    Lockheed Martin.  Since none of the manual attenuators, apart from the initial delivery,
    were sold to Lockheed Martin, nothing is required of Timbercon other than to
    return the unsold attenuators.

(ii)       The Automated
    Attenuators

[12]

The initial discussion between Oz and Timbercon only involved the design
    and production of manual attenuators.  However, by January 2003, they began to
    consider the design of an automated attenuator, which came to be known as the
    FiberStar Project.  In furtherance of this project, Oz and Timbercon entered
    into a non-disclosure agreement in order to protect their respective
    proprietary and confidential information.

[13]

From the outset, Timbercon represented that Oz would be the sole
    supplier of the automated attenuator.  In an e-mail of January 3, 2003, Timbercon
    advised Oz that: there is no competition.

[14]

On July 16, 2003, Timbercon reported to Oz on the current status of the
    project:

Little background.  [The situation is one
    of]...hurry up and wait, etc. etc....We are in a situation where they are
    asking for items without wanting to completely commit.  [Non-recurring
    engineering fee and purchase orders] have all be [
sic
] slow in coming;
    but at the same time the client wants our/your specific command list.  So there
    is little doubt we are in...just paperwork at this point.

[15]

Timbercon advised Oz that it anticipated an initial order of about 80
    automated attenuators with a forecast of 600 to 1,000 over the next three to
    five years.  A witness from Lockheed Martin testified at trial that less than
    70 to 90 units were contemplated as being required by Lockheed Martin.

[16]

Throughout the spring and early summer of 2003, Timbercon made a number
    of e-mail representations indicating that an order for the automated
    attenuators for Lockheed Martin was imminent.

[17]

Lockheed Martin requested a meeting at Timbercons facilities on August
    14, 2003 in order to conduct a technical audit of the product.  Timbercon asked
    Oz to send an engineer to Timbercons Portland, Oregon facilities for the
    meeting to answer technical questions raised by Lockheed Martin.  In preparation,
    a conference telephone call was arranged between Oz and Timbercon on August 4,
    2003 to discuss the details of the Lockheed Martin visit.

[18]

Oz was represented on the conference call by the following staff: Mr.
    Sezerman; Ersoy Uygur, the product manager; and Saidou Kane, the product
    engineer.  Timbercon was represented by James Davies, the executive
    vice-president, and Jayson Lizardo, the sales engineer.

[19]

There is a conflict in the evidence as to what was said during the
    conference call.  Mr. Sezerman testified that it was a very cordial
    discussion.  Mr. Davies testified that he was bullied by Mr. Sezerman, who is
    alleged to have made a number of insulting allegations against Timbercon. 
    According to Mr. Davies, Mr. Sezerman demanded an upfront fee for his
    engineers attendance at the meeting in Portland and Mr. Sezerman raised the
    issue of the outstanding payment for the manual attenuators.

[20]

After the August 4, 2003 telephone call, Timbercon adopted a completely
    different stance toward Oz and the FiberStar Project.  However, Oz was not
    advised of this change in position until several weeks later.

[21]

The day after the telephone call, Timbercon contacted DiCon Fiberoptics,
    Inc. (DiCon), a competitor of Oz, with a view to involving DiCon as a
    potential supplier of the automated attenuators.

[22]

Unaware of this turn of events, Oz continued to prepare for the meeting
    in Portland.  These preparations included answering technical questions posed
    by Timbercon in advance of the meeting, preparing a block diagram of an
    automated attenuator and providing draft specifications.

[23]

Ozs lead engineer, Mr. Kane, attended the meeting in Portland and
    answered Lockheed Martins questions.  While at the Portland meeting, Mr.
    Meslow confirmed to Mr. Kane that they were expecting a purchase order soon
    from Lockheed Martin.  In addition, Mr. Lizardo advised that there was no other
    bidder or competitor involved in the project.  The evidence regarding Mr.
    Lizardos statement was uncontradicted at trial.

[24]

On August 28, 2003, Mr. Davies of Timbercon sent an e-mail to An Thuan
    Triew of DiCon, which said:

We are very excited about this opportunity.  You
    have instilled a high level of confidence in this project being successful now
    that we understand DiCons delivery time and product capabilities.  We are
    looking forward to working with your team and on future opportunities.

[25]

Oz was still in the dark about Timbercons new initiative to involve
    DiCon.  It is significant that this e-mail was not included in Timbercons
    affidavit of documents in the action. The email only surfaced as a result of an
    order requiring DiCon to produce its documents.

[26]

Following the August 4, 2003 telephone call, Oz made some changes to its
    proposal.  The time for delivery was changed from 14-16 weeks to 22-24 weeks. 
    The NRE (non-recurring engineering) expenses were increased.  Oz added an
    expedited delivery fee of $110,000 for delivery within the 14-16 week
    timeframe.  Oz also requested that it receive certain deposits prior to
    commencing production.

[27]

On September 8, 2003, Messrs. Meslow and Davies met with representatives
    of Lockheed Martin in Orlando, Florida.  They informed Lockheed Martin that
    there was an alternative supplier for the FiberStar Project.

[28]

On September 9, 2003, Mr. Sezerman met with Messrs. Meslow and Davies in
    Orlando at the National Fiber Optic Engineering Conference.  They discussed
    Ozs quote for the FiberStar Project.  Mr. Sezerman was not told that there was
    a second bidder for the project.  The trial judge referred to Mr. Sezermans
    evidence on this point at para. 119:

Sezerman indicated that if he had been told that
    there was competition, and there was a risk they might lose the order, then he
    might have made changes to the quote to satisfy Timbercons concerns.  I accept
    this latter statement.  Sezerman was clearly frustrated with the pace of
    negotiations and he was legitimately concerned about whether the units could be
    produced on time.  He thought that he was the only supplier and could
    manipulate the process.  Had he known otherwise, he would undoubtedly have
    acted differently.

[29]

When Timbercon received the DiCon quotation, it informed DiCon that its
    price was higher than the competitors price.  At that point, as found by the
    trial judge, 
[
Ozs] prices were significantly lower
    than DiCons.  DiCon accordingly reduced its quote.  With both quotes in hand,
    Timbercon then marked up the Oz unit price by 72 percent and the DiCon unit
    price by only 42 percent and submitted them to Lockheed Martin.

[30]

The delivery dates quoted by Oz were less favourable than those quoted
    by DiCon.  However, the evidence at trial suggested that if production had
    proceeded on the basis of the expedited dates offered by Oz, the timeline would
    have been acceptable to Lockheed Martin.  Nevertheless, in this scenario, Lockheed
    Martin would have been charged an expedite fee.

[31]

Joseph Costro of Lockheed Martin was called as a witness at trial.  He
    testified that if Oz had been the only bidder, its bid would have been
    acceptable.  Specifically, during examination-in-chief, he stated in response
    to questions from counsel for the appellant:

Q.        If, if, if the OZ quote had been the only
    quote that had [been] submitted, would that have been accepted by Lockheed?

A.        I, I believe so.

Q.        And you had, you and your team had a
    greater understanding of the OZ solution at that time [when the competing bids
    were submitted]?

A.        Thats correct.

[32]

On October 3, 2003, Lockheed Martin sent a letter of contract to
    Timbercon incorporating the purchase of the automated attenuators as quoted by
    DiCon.  A purchase order followed on October 6, 2003.

[33]

The following day, Oz learned for the first time that another supplier
    was involved and that DiCon had been granted the order to supply the automated
    attenuators for the FiberStar Project.

[34]

Timbercon issued a press release in respect of the FiberStar Project on
    February 20, 2004.  In the press release, DiCon was referred to as Timbercons
    key strategic technology partner for the project and its primary technology
    partner.

THE TRIAL JUDGMENT

[35]

The trial judge considered the following issues:

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 Optics?

3.
         Did Timbercon make fraudulent and/or negligent misrepresentations to Oz
    Optics concerning the opportunities for sale of both manual and automated
    attenuators?

4.      Did Timbercon act
    in bad faith in the bidding process?

[36]

The trial judge observed that the first issue relates solely to the
    manual attenuators.  The remaining three issues relate to the automated
    attenuators.   The trial judges findings with regard to the use of
    confidential information (Issue 2) were not challenged on appeal. 
    Consequently, the trial judges discussion of this issue is not included in these
    reasons.

(1)

The Manual Attenuators

[37]

The issue concerning the manual attenuators was whether the deal was
    merely a consignment order or an outright sale to Timbercon.  The trial judge
    concluded that it was a consignment order and therefore the only obligations
    Timbercon had were to: (1) pay Oz for those units that were sold to Lockheed Martin,
    and (2) return the unsold attenuators to Oz.

[38]

Oz shipped 900 manual attenuators to Timbercon without advising the
    latter that Oz did not accept the consignment order.  The nature of the order
    was left unresolved as between the parties.  The trial judge discussed the
    impasse at para. 21 of her reasons:

The primary reason why the consignment order issue
    was never resolved was because both companies had bigger fish to fry  the
    automated attenuator solution.  The issue of the manual attenuators did not
    appear on the radar in any concrete form until the teleconference call of
    August 4, 2003.  During that call, Sezerman advised James Davies...that the
    manual attenuators had not yet been paid for, that Oz Optics was owed $132,000
    by Timbercon and that he wanted immediate payment.  Davies responded by
    advising him that the attenuators were on consignment only, very few had been
    purchased at that point, and that Timbercon would be more than happy to return
    the manual attenuators to Oz Optics.  Sezerman refused.

[39]

In concluding that the arrangement in respect of the manual attenuators
    was a consignment order, the trial judge relied on the following findings of
    fact:

(a)
       Oz was aware from the outset that Timbercon took the position that this was
    a consignment order;

(b)
       Oz delivered the manual attenuators to Timbercon although it did not sign
    the consignment agreement and it did not express any objection to a consignment
    order.   The first indication of a dispute appeared during the  August 4, 2003
    conference call, long after the goods had been delivered; and

(c)
       the trial judge did not accept Mr. Sezermans evidence concerning the
    meeting of March 27, 2003 where he and Mr. Meslow discussed the deal.

(2)       Negligent
    Misrepresentation

[40]

Oz alleged that Timbercon made a number of representations concerning
    the FiberStar Project and Ozs involvement in the project, which turned out to
    be false.  In general, Oz alleged that Timbercon misrepresented that it would
    receive large orders from Lockheed Martin for the supply of automated
    attenuators that were to be designed and manufactured by Oz, as the sole
    supplier.

[41]

The trial judge concluded that Timbercon was not liable for negligent
    misrepresentation.

[42]

She began her analysis of the issue by reference to the oft-cited case
    of
Queen v. Cognos Inc.
, [1993] 1 S.C.R. 87, at p. 110, which
    established that the following elements are required to make out a case for
    negligent misrepresentation:

(1)

there must be a duty of care based on a special relationship between
    the representor and the representee;

(2)

the representation in question must be untrue, inaccurate or misleading;

(3)

the representor must have acted negligently in making said
    misrepresentations;

(4)

the representee must have relied, in a reasonable manner, on said
    negligent misrepresentation; and

(5)

the reliance must have been detrimental to the representee in the sense
    that damages resulted.

[43]

In addressing the issue whether there was a special relationship between
    the parties, Oz submitted at trial that the description used by Timbercon in
    its press release, which described the position of DiCon as a key strategic
    technology partner, should apply to Oz.  Timbercon submitted that its
    relationship with Oz was simply that of customer and supplier.  The trial judge
    rejected Timbercons submission at para. 86 of her reasons:

I disagree.  Although the relationship was not one
    of joint venturers given the absence of any contract between the parties, it
    was certainly more than a customer/supplier relationship.  The parties
    relationship did share some of the characteristics of a joint venture  both
    parties contributed knowledge and effort in the pursuit of a common venture,
    and it was a single undertaking in which both parties had a mutual expectation
    of profit.

Accordingly, she concluded that there was a special
    relationship between Timbercon and Oz that gave rise to a duty of care.

[44]

The trial judge then turned to the issue whether the representations
    referred to above were untrue, inaccurate or misleading.  She concluded at
    para. 99 of her reasons:

In the present case, Timbercons assertions that a
    contract was 1) possible, 2) was in the works, 3) was imminent, and only needed
    the final details worked out, and 4) might involve large quantities, were in
    fact mostly accurate.  The contract  albeit only for a small quantity of units
     was awarded to Timbercon in October 2003.  Unfortunately for Oz Optics,
    Lockheed-Martin chose the quote involving DiCon as the supplier for the units. 
    Therefore, the Plaintiff has failed to show that the representations made by
    the Defendant were untrue, inaccurate or misleading.

I note that the trial judge made no reference to the
    representation made by Timbercon that Oz was to be the sole supplier for the
    FiberStar Project.  However, she did refer to this representation in her
    analysis concerning the alleged breach of duty of good faith.

[45]

The trial judges conclusion that Timbercons representations were
    mostly accurate effectively determined that the claim for negligent
    misrepresentation would fail.  However, she went on to conclude that the
    representations were not made negligently and that Oz did not rely on the
    representations to its detriment because it had accepted the risk that
    Timbercon would not be awarded the FiberStar contract.

(3)       Breach of Duty of
    Good Faith

[46]

The trial judge found that Timbercon was not liable for a breach of the
    duty of good faith.  In considering this issue, the trial judge found that
    Timbercon represented to Oz that Oz was the sole supplier for the FiberStar
    Project and that this representation was false.  She also found that DiCon was
    told that there was a competitor without telling Oz that it would be facing a
    competing bid.  To this effect, at para. 110 of her reasons, she said:

The only conclusion that can be drawn from this
    evidence is that Timbercon told DiCon that it was dealing with a competitor  a
    courtesy that they did not extend to Oz Optics  thereby providing DiCon with
    an unfair advantage in the bidding process.  As Sezerman pointed out in his
    testimony, knowing that a competitor is also working to get a contract has a
    significant influence on the price quoted.

[47]

The trial judge also concluded that Timbercon rigged the bids that were
    sent to Lockheed Martin so that the DiCon bid was clearly preferential.  The
    trial judge concluded at para. 124 of her reasons:

The only conclusion that can be drawn from
    Timbercons actions in manipulating their profit margins in preparing the two
    quotes that were sent to Lockheed-Martin is that they intended to make the
    DiCon quote more attractive and ensure that Lockheed-Martin chose that quote
    over Oz Optics quote.  I do not accept Timbercons argument that they did not
    intend to make the DiCons quote more attractive, since they would then make
    less profit.  The only possible reason for lowering their profit margin on the
    DiCon quote in comparison to the Oz Optics quote would be to compensate for
    DiCons higher prices, thereby making the DiCon quote more attractive to Lockheed-Martin.
I find that Timbercon did deliberately rig the two bids in a manner that was
    unfair to Oz Optics
.  [Emphasis added.]

[48]

Turning to the legal question of whether there was an actionable breach
    of a duty of good faith on the part of Timbercon, the trial judge concluded
    that there was none.  She cited
Martel Building Ltd. v. Canada
, 2000 SCC
    60, [2000] 2 S.C.R. 860 for the proposition that there is no duty to bargain in
    good faith.  She further concluded that there was no obligation on the part of
    Timbercon to treat Oz fairly in the tendering of the bids, because there was no
    contract governing their relationship and, in fact, Timbercon did not embark
    on a tendering process with respect to either Oz Optics or DiCon.  The
    tendering process was between Timbercon and Lockheed Martin.

[49]

In reaching her conclusion that there was no actionable breach of a
    duty of good faith, it is apparent that the trial judge was not impressed by
    Mr. Sezerman, whom she described as excitable, bellicose and loud and whom she
    found to be the author of Ozs misfortune.  According to the trial judge, this misfortune
    had its genesis in the August 4, 2003 telephone call.  At para. 146 of her
    reasons, the trial judge said:

Finally, although the evidence indicates that
    Timbercon did act unfairly in its dealings with Oz Optics with respect to the
    bidding process, absent a contractual relationship, a fiduciary relationship,
    or some other exceptional circumstance, there is no legal duty to act in good
    faith.  It also must be noted that Oz Optics brought much of its fate down on
    itself.  Sezermans behaviour at the August 4
th
meeting may have
    been considered quite normal by his employees, but it was considered over the
    top by Timbercon, and in the end that was all that mattered.

THE APPEAL

[50]

Counsel for Oz submits that the trial judge made three errors:

(1)

The trial judge erred in concluding that the order for the manual
    attenuators was a consignment order.

(2)

The trial judge failed to find that Timbercon committed the tort of
    negligent misrepresentation.

(3)

Although the trial judge found Timbercon acted unfairly in rigging the
    bids in favour of DiCon, she erred in failing to find that Timbercon breached
    its obligation to act in good faith.

[51]

In his factum, counsel for the appellant raises three other grounds of
    appeal related to procedural and evidentiary rulings made by the trial judge. 
    Counsel did not pursue these grounds in oral argument.  In any event, I do not
    find it necessary to address these grounds in order to decide the appeal.

(1)       Was the order for the
    manual attenuators a consignment order?

[52]

I see no basis upon which to interfere with the trial judges conclusion
    on this ground.  The trial judge reviewed and analyzed all of the relevant
    evidence on the factual issue whether the order was a consignment order.  In
    order to interfere with her factual finding in this regard, I must find a palpable
    and overriding error:
Housen v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R.
    235, at para. 10.  I can detect no such error.  It was open to the trial judge
    to conclude, on the evidence that she accepted on this issue, that the order
    was a consignment order.  In particular, it was open to her,
inter alia
,
    to: (1) reject the testimony of Mr. Sezerman on this point; (2) rely on the
    fact that Oz was aware from the beginning of Timbercons position that the
    order constituted a consignment agreement; and (3) rely on the fact that the
    written orders from Timbercon described the arrangement as a consignment
    agreement and that Oz proceeded to deliver the products as per the orders
    without express objection to the relevant terms.


[53]

I would not give effect to this ground of appeal.

(2)       Negligent
    misrepresentation

[54]

In my view, the trial judge erred in her analysis of the negligent
    misrepresentation claim.  She correctly concluded that there was a special
    relationship between Timbercon and Oz thereby satisfying the first requirement
    of the test set out in
Cognos
.  I part company with the trial judge,
    however, on the remainder of her analysis in respect of the
Cognos
criteria. 
    In particular, 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.  In my view, it is immaterial that the
    other representations referred to by the trial judge were mostly accurate. 
    From the initiation of the project until its conclusion, Timbercon represented
    to Oz that the latter was the sole supplier.  Oz accepted this representation
    and proceeded on that basis.  Once Timbercon began discussing a potential
    proposal with DiCon, the representation that Oz was the sole automated
    attenuator supplier for its bid was no longer accurate.

[55]

After the telephone call of August 3, 2003, which the trial judge
    referred to as a watershed moment, the nature of Oz and Timbercons
    relationship changed; however, Timbercon maintained the representation that Oz
    would be the sole supplier.  Indeed at the Portland meeting of August 14, 2003,
    Mr. Lizardo of Timbercon assured Mr. Kane of Oz that there was no other bidder
    or competitor involved on the project.  The trial judge made no reference to
    this evidence even though counsel for Oz requested that she draw an adverse
    inference from the failure of Timbercon to call Mr. Lizardo as a witness.  As
    indicated above, the evidence of Mr. Lizardos statement was uncontradicted at
    trial.

[56]

Turning to the remaining three elements of the test in
Cognos
,
    Timbercon acted negligently, if not nearly fraudulently, in continuing to make
    the representation that Oz remained the sole supplier under consideration.

[57]

Moreover, it is my view that Oz, in relying on the representation, acted
    reasonably and to its detriment.  That Oz was disadvantaged by virtue of not
    being informed of the competing bid is recognized by the trial judge in her
    analysis of the good faith obligation at paras. 119 and 136 of her reasons:

Sezerman indicated that if he had been told that
    there was competition, and there was a risk they might lose the order, then he
    might have made changes to the quote to satisfy Timbercons concerns.  I accept
    this latter statement.  Sezerman was clearly frustrated with the pace of
    negotiations and he was legitimately concerned about whether the units could be
    produced on time.  He thought that he was the only supplier and could
    manipulate the process.
Had he known otherwise, he would undoubtedly have
    acted differently
.

...

Sezerman indicated that if there is no competitor
    involved in a project, the company can charge a higher price and have a higher
    profit margin.  Oz Optics will generally ask if they are bidding against other
    suppliers, so that they know how competitive their quote has to be.  There was
    no dispute that this approach is a common custom or usage in this type of
    bidding situation.
Therefore, Oz Optics was disadvantaged by the fact that
    they did not receive the information that after August 4, 2003 a competitor was
    involved in the bidding process.
[Emphasis added.]

[58]

This reliance was reasonable in light of the ongoing relationship
    between the parties, and the ongoing representation throughout their
    relationship assuring Oz of its status as the sole supplier.

[59]

Finally, reliance on this representation was detrimental to Ozs bid. 
    Ozs belief that it was the sole possible supplier caused it to stand firmly
    behind the terms of its proposal  including the proposed timeline  when it
    would undoubtedly have acted differently if aware of the existence of a
    competing bid.  As the trial judge found, at para. 122, the only significant
    difference between the two quotes was, ultimately, the delivery timeline.

[60]

I am satisfied that Oz has established the case for negligent
    misrepresentation, and the appeal on this ground should be allowed.

(3)       Breach of duty of
    good faith

[61]

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.

[62]

The common law has not recognized a free standing duty of good faith based
    in tort.

[63]

Likewise, the law has not recognized a general duty to bargain in good
    faith in contract.  However, in specific circumstances, a duty to enforce or
    perform a contract in good faith has been recognized.  Notably, some courts
    have criticized the recognition of any duty of good faith in contract, holding
    that such a duty runs counter to the individualistic and adversarial nature of
    contracting: see,
e.g.

Mesa Operating Ltd. Partnership v. Amoco
    Canada Resources Ltd.
(1994), 19 Alta. L.R. (3d) 38 (C.A.), leave to appeal
    to S.C.C. refused (1994), 21 Alta. L.R. (3d) xxxvii.

[64]

The Supreme Court of Canada has recognized that an obligation of good
    faith exists in the context of termination of employment contracts: see
Wallace
    v. United Grain Growers Ltd. Ltd.
, [1997] 3 S.C.R. 701, at paras. 91-95, 98;
Honda Canada Inc. v. Keays
, 2008 SCC 39, [2008] 2 S.C.R. 362, at paras.
    58-59.  Members of this court have recognized the existence of a duty of good
    faith in various circumscribed situations including: between a franchisor and franchisee:
Shelanu Inc. v. Print Three Franchising Corp.
(2003), 64 O.R. (3d) 533
    (C.A.), at paras. 5, 66; and from a condominium developer to the condominium
    corporation:
Peel Condominium Corp. No. 505 v. Cam-Valley Homes Ltd.
(2001),
    53 O.R. (3d) 1 (C.A.), at paras. 50, 56, 97-100 (Weiler J.A., concurring in the
    result).

[65]

The existence of a pre-contractual duty of good faith is less certain. 
    According to the Supreme Court of Canada in
Martel
, at para. 73, a duty
    to bargain in good faith has not been recognized to date in Canadian law.  In
Martel
,
    the cause of action at issue concerned negligence by a party during contract
    negotiations; the court rejected the recognition of duty of care in that
    context.  Significantly, the duty of good faith was not raised as an issue on
    appeal, and thus, the court emphasized, the analysis in that case did not directly
    address the question of whether such a duty exists: at para. 73.  However, the
    policy considerations raised by the court in dismissing the existence of a duty
    of care in negligence between parties to contractual negotiations are,
    nonetheless, instructive on the question of whether a duty to bargain in good
    faith should be recognized.  Among the various policy considerations the court
    relied upon in this regard, it observed that other causes of action already
    provide appropriate remedies.  Among these, the court noted, that the doctrines
    of undue influence, economic duress and unconscionability provide redress
    against bargains obtained as a result of improper negotiation.  In addition, negligent
    misrepresentation, fraud and the tort of deceit cover much of the wrongful
    conduct committed during negotiations where an agreement is ultimately not
    concluded: at para. 70.

[66]

This court left open the possibility of a duty of good faith in
    bargaining in
978011 Ontario Ltd. v. Cornell Engineering Co
(2001),

53
    O.R. (3d) 783, leave to appeal to S.C.C. refused (2001), 158 O.A.C. 195,

at
    para. 32, where the court said, [a]bsent a special relationship, the common
    law in Canada has yet to recognize that in the negotiation of a contract, there
    is a duty to have regard to the persons interests, mainly, to act in good
    faith.  In considering what constitutes a special relationship, the court
    adopted an approach originally articulated by P. Finn in The Fiduciary
    Principle in T. Youdan, ed.,
Equity, Fiduciaries and Trusts
, (Scarborough,
    Ont.: Carswell, 1989) 1, at pp. 17-18, 20.  The court stated at para. 34:

The circumstances where the law requires more than
    self-interested dealing on the part of a party share certain characteristics. 
    Firstly, one party relies on the other for information necessary to make an
    informed choice and, secondly, the party in possession of the information has
    an opportunity, by withholding (or concealing) information, to bring about the
    choice made by the other party.  See Finn...at pp. 17-18 and Waddams,
The
    Law of Contracts
, 3d ed. (Toronto: Canada Law Book, 1993) at para. 438.  If
    one party to a contract relies on the other for information, that reliance must
    be justified in the circumstances.  Finn...suggests at p. 20 that the following
    five factors are indicative of situations where reliance is justified:

(1)

A past course of dealing between the parties in which reliance for advice,
    etc., has been an accepted feature;

(2)

The explicit assumption by one party of advisory responsibilities;

(3)

The relative positions of the parties particularly in their access to
    information and in their understanding of the possible demands of the dealing;

(4)

The manner in which the parties were brought together, and the
    expectation that could create in the relying party; and

(5)

[W]hether trust and confidence knowingly [has] been reposed by one
    party in the other.

[67]

Cornell Engineering
can be distinguished from the case at bar.
Cornell
    Engineering
dealt with a situation where a contract had eventually formed,
    however, one of the parties sought relief from the contract based on bad faith
    in the negotiation of its terms.  Arguably, if recovery had been granted in that
    case, the remedy would have been grounded in contract.  However, in the case at
    bar, no agreement was ever reached.  As this court recognized in
Coco Paving
    (1990) Inc. v. Ontario (Minister of Transportation)
, 2009 ONCA 503, 252
    O.A.C. 47, at para. 4, if a duty of good faith in bargaining does exist, it is
    a remedy grounded in contract; that is, it is not a freestanding obligation, which
    exists independent of a concluded contract.

[68]

Courts have also recognized that a duty of good faith and fair dealing
    arises during the commercial tendering process: see
Ontario v. Ron Engineering
,
    [1981] 1 S.C.R. 111, at pp. 113-14, 119;
M.J.B. Enterprises Ltd. v. Defence
    Construction (1951)
, [1999] 1 S.C.R. 619, at para. 41
.

[69]

In the commercial tendering process, the obligation arises in the
    context of a model of imputed Contract A/Contract B between the parties:
Ron
    Engineering
, at pp. 119, 121-122;

Tercon
    Contractors Ltd. v. British Columbia
,
    2010 SCC 4, [2010] 1 S.C.R. 69, at para. 17
.  Contract A is formed upon
    the submission of a tender and requires fair dealing with respect to the
    consideration of all bids.  Contract B is the actual agreement entered into between
    the successful bidder and the party seeking the bids.

[70]

The situation that exists in the case at bar does not fit within the paradigm
    of the traditional commercial tendering process.  There was no formal bidding
    process as is typically found in such situations.  Oz was totally unaware that
    there was any bid submitted to Lockheed Martin other than its own.  From the
    circumstances, it cannot be said that the intention of Timbercon and Oz was to
    enter into contractual relations with each other upon the submission of Ozs
    quote:
M.J.B. Enterprises Ltd.
, at para. 23.  The ordinary elements of
    contractual tendering relations were not present: there was no period of
    irrevocability of the quote, there was no requirement of bid security, there
    was no request for tender providing the specific terms of the request and procedure
    for assessment or other factors common to the tendering process: see
Tercon
    Construction,
at paras. 18-21.

[71]

I concede that it is tempting to extend the good faith doctrine to the
    present circumstances given the following factors:

(i)     the
    representation by the respondent that Oz would be the sole supplier and the
    failure to advise otherwise;

(ii)    the respondents
    involvement of DiCon;

(iii)
      the respondent provided advice to DiCon that its bid was not competitive,
    while not providing similar information to Oz; and

(iv)
      the respondent rigged the two bids in favour of DiCon.

It may be arguable  in light of that fact Timbercon
    chose to seek an alternative quote from DiCon  that Timbercon unilaterally imposed
    a commercial relationship akin to the tendering process.  In fact, if the duty
    of good faith applies to a formal tendering process, which all the parties
    enter into voluntarily, there is perhaps an even stronger argument to be made that
    a duty should be recognized in an analogous situation where the bidder is
    unknowingly considered as one bid among many.  In such a circumstance the
    bidder is placed in an even more vulnerable situation.  However, in light of
    the reluctance of the courts, in particular the Supreme Court of Canada, to
    extend the doctrine of good faith beyond the context of a contractual
    relationship (whether formal or implied) I would be hesitant to invoke the
    doctrine here given that recovery can be grounded in negligent
    misrepresentation. This approach is suggested by the Supreme Court in
Martel
. 
    Therefore, I do not find it necessary to consider this issue further.

DAMAGES

[72]

As indicated, I am satisfied that the appellant has made out a case for
    negligent misrepresentation.  I now turn to the quantification of damages. 
    Unfortunately, the trial judge did not make any assessment of the damages,
    which raises the question of whether this court should order a new trial in
    respect of damages or make its own assessment.  Given the amounts in issue and
    the costs already involved in this litigation, it would be preferable for this
    court to deal with the damages if at all possible.

[73]

The evidence in respect of the claim for damages at trial came mainly
    from the testimony of Mr. Sezerman.  Documentary evidence was filed setting out
    the heads of damages; however, it simply reflected the testimony of Mr.
    Sezerman, without further proof of the numbers provided.  If this court were to
    make the assessment of damages, we would do so without the advantage of seeing and
    hearing the testimony firsthand.  The Supreme Court of Canada has cautioned appellate
    courts against taking such action when the evidence is mainly testimonial  as
    opposed to documentary  and where credibility may be in issue: see
Hollis
    v. Dow Corning Corp.
, [1995] 4 S.C.R. 634, at p. 662;
Sharbern Holding
    Inc. v. Vancouver Airports Centre Ltd.
, 2011 SCC 23, [2011] 2 S.C.R. 175,
    at para. 174; and
Masterpiece Inc. v. Alavida Lifestyles Inc.
,
2011 SCC 27,
[2011] 2 S.C.R. 387, at para. 103.

[74]

In the circumstances of this case, I do not believe that we are in a
    position to make an assessment of quantum.  I would refer the matter back to
    the Superior Court for a new trial limited to the assessment of damages.

CONCLUSION

[75]

I would allow the appeal in respect of negligent misrepresentation and order
    a new trial limited to damages before a different judge.  I suggest that a
    different judge hear the damages trial, because the trial judge has already
    made an adverse finding of credibility against Mr. Sezerman in respect of part
    of his evidence in her reasons on liability.  The requirement that justice must
    appear to be done suggests that another judge should deal with the new trial on
    damages.  I would dismiss the appeal regarding the manual attenuators and take
    this fact into account on the costs of the appeal.

[76]

Since the majority of the trial concerned the various issues of
    liability in respect of the FiberStar Project, I would allow the appellant its
    costs of the trial; however, I would adjust those costs to account for the fact
    that Oz did not succeed in respect of the issue related to the manual
    attenuators.

[77]

If the parties cannot agree on the trial costs, they may make written
    submissions, double spaced and limited to 10 pages.  The appellants submission
    should be made within 15 days of the release of these reasons.   The
    respondents submission should be made within 30 days of the release of these
    reasons.

COSTS OF THE APPEAL

[78]

I would grant the appellant its costs of the appeal on a partial
    indemnity scale fixed in the amount of $40,000 including disbursements and
    applicable taxes.

RELEASED:

NOV 15 2011                                            Robert
    P. Armstrong J.A.

JS                                                                I
    agree Janet Simmons J.A.

I
    agree H.S. LaForme J.A.


