IN THE SUPREME COURT OF BRITISH COLUMBIA

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Nov 29, 2013 (3 years and 7 months ago)

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IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Mansonville Plastics (B.C.) Ltd.


v.
Kurtz GmbH,



2003 BCSC 1298

Date: 20030821

Docket:

C993594

Registry:

Vancouver

Between:

Mansonville Plastics (B.C.) Ltd.

Plaintiff

And:

Kurtz GmbH, Kurtz
Altaussee GmbH

and Kurtz North America, Inc.

Defendants





Before: The Honourable Mr. Justice Tysoe



Reasons for Judgment





Counsel for the Plaintiff:

Simon R. Coval

Sarah A. Pearson

and Michelle Booker



Counsel for the Defendants:

Leonard T. Doust,
Q.C.

and Warren B. Milman



Dates and place of trial:

April 16
-
18, 22
-
25, 28
-
30,

May 5
-
9, 12
-
13, 16, 20
-
23, 27
-
30

And June 18
-
19, 2003



Vancouver, B.C.





INDEX



Para No.



INTRODUCTION


1

FACTS




3

ISSUES




67

DISCUSSION



(a) Limitations Defence




69



(b) Late Delivery




75



(c) Statutory Warranties of Fitness




83



(d) Contractual Warranties




89



(e) Breaches of Contractual Warranties




117



(f) Duration of the Breaches




122



(g) Leaky Bearings




131



(h) Damages




135



(i) Identity of Liable Defendants




176

CONCLUSION






181





INTRODUCTION


[1]


The Plaintiff (“Mansonville”) claims damages in the approximate sum of
$2.7 million against the Defendants (collectively “Kurtz”) as a result of
deficiencies and defects

which Mansonville alleges in relation to two pieces
of equipment which Mansonville purchased from Kurtz.


Mansonville bases its
claim in breach of contract and breach of statutory warranties of fitness.

[2]


Kurtz defends the action on the
basis that there were no breaches of
contract or statutory warranties.


Kurtz also maintains that Mansonville’s
claims are time
-
barred under German law, which it says is the applicable law.



FACTS

[3]


Mansonville is in the business of
manufacturing a product known in the
industry as expanded polystyrene (“EPS”) and more commonly known by the
public under its trade name of styrofoam.


Mansonville is owned by Mr. Mario
Cormier, who has been involved in the industry for over 40 years.


It
has a
plant in Surrey, B.C., on property which it shares with other companies owned
by Mr. Cormier.


Mansonville has a number of EPS products which it produces
for sale into the construction, marina, packaging and forestry industries.

[4]


Kurtz is a European based organization which has been in existence for
over two centuries.


Kurtz GmbH is a German company, Kurtz Altaussee GmbH is
an Austrian company and Kurtz North America, Inc. is an American subsidiary.


Kurtz makes equipment used for

the production of EPS products.


In addition
to manufacturing equipment, Kurtz Altaussee GmbH has a plant in Austria which
utilizes Kurtz equipment to produce EPS blocks.

[5]


In simple terms, EPS products are manufactured out of a raw mate
rial
known as resin or bead containing a liquid called pentane which turns into
gas when exposed to heat.


The first main stage of the manufacturing process
is to treat the raw bead with steam in a machine called a pre
-
expander or
prefoamer (which can eith
er be of a batch or continuous variety).


This
process causes the bead to expand.


The expanded beads are then placed on a
fluid bed before they are stored for a period of time in bags made of porous
material called silos.


Both the placement of the beads
on the fluid bed and
their storage in the silos are for the purpose of allowing the beads to
stabilize and to permit most of the pentane gas to be replaced with air.

[6]


The beads are next placed in a machine called a block mould, where
ste
am, acting together with the pressure and heat caused by it, is used to
cause the beads to fuse in a single piece of EPS.


The size of the fused
block depends on the dimensions of the block mould or, if the block mould is
adjustable, the dimensions at whic
h it is set.


The block is then given a
further period of time to cure, after which it is cut or ground into the size
of the product which is needed.


If a block is required to be square or
rectangular but is irregularly shaped when it comes out of the mou
ld, it is
necessary to have the block trimmed so that it becomes square or rectangular.

[7]


A Canadian standard has been established for thermal insulation
products such as EPS.


It is necessary for a producer to meet the Canadian
standard
in order to sell EPS blocks into the construction industry in
Canada.


The standard creates four types of product which are differentiated
by the density of the product.


Mansonville produces Type 1 and Type 2
products, the latter of which has a higher den
sity and is not as
lightweight.


The two main tests which the product must pass in order to
fulfill the standard are a compressive test and a flexural test.


The
standards for the compressive test for Type 1 and Type 2 materials are a
minimum of 70 and 110

kilopascals (“kPa”), respectively, and the standards
for the flexural test for Type 1 and Type 2 materials are a minimum of 170
and 240 kPa, respectively.


The tests are administered by an independent
organization, which in the case of Mansonville is a fi
rm called Intertek
Testing Services NA Ltd. (“Intertek”).



[8]


In addition to Type 1 and Type 2 products, Mansonville manufactures
products which are called non
-
conforming products.


This means that they do
not need to conform to the Canad
ian standards.


These products are used for
packaging and landscaping fill.


The objective is to produce the non
-
conforming products at as low a density as possible because a lower density
means that fewer beads are required to manufacture the products (wh
ich
represents a saving in the cost of raw materials).

[9]


In the fall of 1996, Mansonville decided to upgrade its equipment
through the acquisition of a new pre
-
expander and block mould.


After
consulting with its accountants, Mansonville
decided to finance the purchase
of the new equipment by way of a lease transaction through National Capital
Leasing Ltd. (“National Capital”), a leasing company from which Mansonville
had previously leased other equipment.


This meant that the equipment
su
pplier would sell the equipment to National Capital which, in turn, would
lease it to Mansonville for a period of time, following which Mansonville
would have the option of purchasing it from National Capital.

[10]


The Mansonville employee cha
rged with the responsibility of making
inquiries and negotiating with equipment suppliers was Mr. Bob Teperto, the
General Sales Manager, but he was required to obtain final approval from Mr.
Cormier before making any commitments on behalf of Mansonville.


The
Mansonville employee given the responsibility to deal with the financing for
the purchase of the new equipment was Ms. Dona Hurry, Vice
-
President, and she
was similarly required to obtain final approvals from Mr. Cormier.

[11]


Mansonville
looked into several different brands of equipment.


It had
been Mr. Cormier’s initial inclination to purchase the block mould from a
manufacturer known as Idropress but Mr. Teperto investigated other types of
equipment.


Mansonville had previously purchase
d equipment from Kurtz and in
the fall of 1996 a Kurtz sales representative came to Mansonville’s plant.


Brochures containing information about pre
-
expanders and block moulds
manufactured by Kurtz were provided to Mr. Teperto by this sales
representative
or as a result of a subsequent inquiry by Mr. Teperto.

[12]


In December of 1996, Mr. Teperto wrote to Kurtz requesting that he be
provided with a quotation in respect of the pre
-
expander and block mould.


Kurtz provided two separate quotations
dated December 18, 1996, one relating
to the pre
-
expander and one relating to the block mould.


These became the
subject matter of negotiation between the parties and led to the agreement
between them.


Each of the quotations began with the phrase “We are
pleased
to quote in accordance with our general terms of sale and delivery as
follows”.

[13]


In January 1997, Mr. Teperto travelled to some locations in the United
States to investigate equipment and he then travelled with Mr. Cormier to
Europe

in the beginning of February 1997.


In the meantime, there were
apparently negotiations between Mansonville and Kurtz regarding the terms of
payment because a revised Kurtz quotation referenced a letter dated January
31, 1997, although neither party is ab
le to produce a copy of this letter.


The evidence was to the effect that the payment terms in the initial
quotation were in accordance with Kurtz’s normal policy (namely, 1/3rd down
payment, 1/3rd upon shipment and 1/3rd

within 60 days after shipment) and

that
Kurtz’s policy was to require security if the final payment was to be in an
amount greater than 1/3rd of the purchase price.

[14]


While in Europe, Messrs. Teperto and Cormier met with Kurtz
representatives and also travelled to Italy to v
iew the Idropress block
mould.


Mr. Teperto testified that he was told the following by the Kurtz
representatives, Mr. Herbert Jaksch and Mr. Rudi Albrecht, during this trip
and during their previous telephone discussions:

(a)


the Kurtz equipment was
high quality and state
-
of
-
the
-
art;



(b)


Kurtz was familiar with all world markets and was familiar with
Mansonville’s needs and there would be no problem with meeting
Canadian standards for EPS products;



(c)


the Kurtz equipment were simple machines
to operate and were very
operator friendly;



(d)


the Kurtz representatives referred to the Kurtz brochure in
connection with densities to be achieved for Type 1 product, which
referenced a density of 13 grams per litre (“g/l”) (which is
equivalent to .8
1 pounds per cubic foot (“lbs./cu. ft.”)), they said
that the equipment would yield 1.25 lbs./cu. ft. for Type 2 product
and they said that the equipment could achieve a density of .70
lbs./cu. ft. for non
-
conforming products;



(e)


the cycle times for
the block mould were 2 ½ to 3 minutes; and



(f)


there would be no draft or taper on the blocks in order to allow
them to be ejected from the mould (Mr. Teperto told Mr. Jaksch that
if Mansonville did not need to trim blocks for some of its products,
it
would save Mansonville a lot of money and make it more
competitive and more profitable).

[15]


Mr. Cormier testified that he was told the following by the Kurtz
representatives during the trip:

(a)


the moveable wall of the block mould could be

programmed so that
it would open at the same time as the block expanded in the mould;



(b)


the moveable wall would be dead straight and the blocks would not
have to be trimmed;



(c)


it would be no problem to reach a density of .70 lbs./cu. ft.
with
one pass of the bead on the pre
-
expander;



(d)


the block mould would pass the standards for Canada and the
United States; and



(e)


the equipment could be manufactured in four months.

[16]


As a result of their investigations, Messrs. Corm
ier and Teperto
decided that they preferred the Kurtz equipment and, when they returned to
Canada, Mr. Teperto wrote to Mr. Jaksch on February 7, 1997.


The letter
attached summaries of Mr. Teperto’s understanding of the equipment to be
purchased (as well
as some equipment which was not ultimately purchased) and
each of the two relevant summaries incorporated the terms and conditions as
quoted by Kurtz (as amended by the January 31, 1997 letter and as amended by
handwritten changes made by Mansonville on th
e quotations).


The aggregate
purchase price for the pre
-
expander and block mould was 992,000 German
deutsche marks (“DM”), or approximately $805,000 (Cdn.).

[17]


The quotation for the pre
-
expander contained certain specifications of
the equipm
ent.


It stated that the density range would be 12 to 30 g/l.


It
also stated the anticipated outputs according to various densities from 13
g/l to 25 g/l (for example, at a density of 18 g/l, the output was
represented to be 2480 kg/h), but it did not sta
te the anticipated outputs at
the two extremes of the density range.


The delivery time was expressed to be
four months after clarification of all technical and commercial details.


The
payment terms, as revised, referenced the missing letter of January 31
, 1997
and stated as follows:

30% Down payment with order confirmation (Note: order
confirmation can arrive with Letter of Intent from financial
institution until paperwork finalized).

30% Upon notification of shipment.

40% 60 days after delivery by an irr
evocable Letter of Credit to
be opened in our favor with Creditanstalt


Bankverein in A
-
8010
Graz, Herrengasse 13
-
15.


Payable at sight in Austria.


All
charges of the issuing bank are to be paid by the purchaser.


Part shipment and transhipment allowed i
n the L/C has to be
opened on receipt of the order confirmation as otherwise we might
not be able to meet the delivery date.

[18]


The quotation for the block mould stated its dimensions (which had been
revised by Mansonville and were set out in

Mr. Teperto’s summaries).


Added
to the quotation was the requirement that there be a program option to move
the sidewall during fusion as a secondary program at no charge.


The delivery
time and payment terms were the same as were contained in the quotat
ion for
the pre
-
expander.

[19]


In his February 7 covering letter, Mr. Teperto stated that the letter
of credit was in process and would be forwarded by February 14, 1997, and he
asked if Mansonville could still have shipping on May 20, 1997 as
discussed.


He asked Mr. Jaksch to sign each page of his summaries and to return them.


Mr. Jaksch did sign and return the summaries, and the only change he made was
to clarify that the quoted terms and conditions had been revised by the
January 31 letter.


Mr. Teperto, who was not involved in the
negotiation of the terms of payment, testified that he was leaving the
arrangements for a letter of credit to Mr. Cormier and Ms. Hurry.


Mr.
Cormier testified that he did not do anything to obtain
a letter of credit
and that he did not authorize anyone else to get a letter of credit.


Ms.
Hurry testified that she was unaware of the contents of Mr. Teperto’s
covering letter and that Mansonville was not making any effort to obtain a
letter of credit a
t the time.


Ms. Hurry explained that as the equipment was
to be leased by Mansonville from National Capital, she was leaving the
requirement for the letter of credit up to National Capital.


She was advised
by National Capital that there was a legal issue

which prevented an equipment
lessor arranging for a letter of credit and it was her expectation that
National Capital would deal with Kurtz on this point.

[20]


Mr. Jaksch of Kurtz travelled to Mansonville’s plant mid
-
February 1997
and one or
two other occasions leading up to the finalization of the order.


He was shown where Mansonville intended to install the new equipment within
its plant and he worked with Mr. Teperto on a footprint drawing of the plant
and the hook
-
ups for the equipment.

[
21]


On March 3, 1997, National Capital sent to Kurtz a document called a
purchase order in respect of the pre
-
expander, the block mould and another
piece of equipment which was later deleted from the transaction.


The
document stated that it wa
s given in reliance of Kurtz’s assurance that the
“Lessee” had selected the equipment and had agreed to accept it.


It stated
the purchase price and terms of payment as set out in Kurtz’s revised
quotations, but without reference to a letter of credit.

[22
]


In response to the purchase order sent by National Capital, Kurtz sent
it an order confirmation dated March 6, 1997 in respect of both items of the
equipment.


It repeated the specifications contained in Kurtz’s two
quotations, as revised by
the summaries sent to Kurtz by Mr. Teperto on
February 7 (including the program option to move the sidewall during fusion
as a secondary program).


Beside the heading “Delivery” was written “week
24/97” (i.e., the 24
th

week of 1997, which was the week of J
une 8).


It stated
that “delivery is carried out according to the ‘General Terms of Delivery of
the Kurtz Group’ ”.


The payment terms were as follows:

30% Down payment with order confirmation

30% Upon notification of shipment

40% 60 days after delivery by

an irrevocable Letter of Credit to
be opened in our favour with Creditanstalt


Bankvere in A
-
8010
Graz, Herrengasse 13
-
15, account no. 0087
-
76171/00.


BLZ 11870,
Swift Code CABVATWWGRA.


Payable at sight in Austria.


All
charges of the issuing bank are t
o be paid by the purchaser.


Part shipment and transhipment allowed.


The L/C has to be opened
on receipt of the order confirmation.

Subsequent order confirmations were issued by Kurtz to National Capital as a
result of the insertion and deletion of certai
n ancillary equipment in the
order but nothing material changed with respect to the pre
-
expander and the
block mould.

[23]


Kurtz invoiced National Capital for the 30% down payment on March 10,
1997 and payment was made on the same day.


The let
ter of credit was also to
have been opened at this time.


It appears that Mr. Holland of National
Capital had one or more conversations with Mr. Jaksch of Kurtz about National
Capital’s difficulty with respect to a letter of credit.


On May 2, 1997, Mr.
Ja
ksch wrote to Mr. Holland asking that he be provided with written
notification that the last payment of 40% would be effected either by bank
guarantee or by payment at the same time as the second payment of 30%.

[24]


In the middle of April 1997
, Mansonville had written to Kurtz
requesting that it provide the best shipping date for the equipment.


Kurtz
replied on May 7 that the pre
-
expander would be shipped at the end of week 22
and the block mould would be shipped at the end of week 24, with de
livery
approximately four weeks later.


In Mansonville’s next correspondence to
Kurtz, no mention was made of the shipping or delivery dates being late.

[25]


Payment of the second instalment of 30%, which was to be made on
notification of shipm
ent, was made by National Capital on May 21.


On that
same day, Ms. Hurry wrote to Kurtz about the fact that Kurtz had told
National Capital that the final payment was either to be made in advance or
with a letter of credit.


She raised the fact that if Ma
nsonville made the
final payment at that time, it would incur extra interest charges, and she
inquired whether Kurtz would be willing to pay for the extra interest.


She
also made the observation that Mansonville’s experience was that if a
purchase was pai
d 100% in advance, the attitude of the seller was to put the
buyer on the back burner, and she stated that it was imperative that
Mansonville receive the equipment as scheduled.

[26]


Mr. Walter Kurtz replied to Ms. Hurry’s letter on May 22.


He

stated
that due to negative experiences, Kurtz was insisting on getting a guarantee
and he pointed out that the opening of a letter of credit was part of the
conditions of payment.


He asked to be advised of the cost of a letter of
credit or advance payme
nt and stated what they would then decide how to come
to a mutual agreement.

[27]


Ms. Hurry replied on the following day and proposed that if Kurtz would
give a discount of 3/4% on the total contract price, Mr. Cormier would
personally deliver

a bank draft for the balance of the price when he
travelled to Kurtz’s plant to witness the commissioning of the block mould
upon the completion of its manufacture.


Further communications ensued and
Kurtz agreed to discount the purchase price by 4200 DM
(which was
approximately one
-
half of the cost of an early drawdown of the final
instalment of the lease financing) if the balance of the price was paid at
the time of the commissioning of the equipment.

[28]


Mansonville had decided that the per
sonnel which operated its existing
pre
-
expander and block mould were not sufficiently qualified to operate the
new Kurtz equipment.


It hired two graduates of British Columbia Institute of
Technology, Alfred Oostenbrink and Brent Foster, who completed a tw
o year
diploma course in plastics technology in the spring of 1997.


They commenced
work at Mansonville in May 1997 and spent their first few weeks working with
the staff operating the existing pre
-
expander and block mould.


In early
June, Messrs. Oostenbr
ink and Foster travelled to Germany and Austria for the
purpose of being trained on Kurtz equipment.


Mr. Oostenbrink testified that
they were taught for one day about basic block moulding principles and that,
while they observed Kurtz employees making som
e blocks, they were not given
the opportunity to make blocks on their own.

[29]


Mr. Cormier travelled to Kurtz’s plant in Altaussee, Austria, for the
commissioning of the equipment and he joined Messrs. Oostenbrink and Foster
in the middle of J
une 1997.


Mr. Cormier was not satisfied with the
commissioning of the equipment.


He testified that the construction of the
equipment had not yet been completed when he arrived (among other things, the
hydraulics for the programmable wall had not yet been

installed) and the
blocks which were made did not have good fusion.


Mr. Kurtz testified that
the purpose of the commissioning was to test the operational parts of the
equipment and that it was not expected to produce good blocks because the
Kurtz plant i
n Altaussee did not have sufficient steam capacity for a block
mould of that size.

[30]


As a result of Mr. Cormier’s dissatisfaction with the commissioning,
Mansonville did not release to Kurtz the bank draft it had been given by
National Capi
tal for the balance of the price of the equipment.


He also told
Mr. Jaksch that he wanted a guarantee from Kurtz that the block mould would
be as good as or better than the Idropress block mould in terms of quality,
fusion and cycle times.



[31]



Around the time Mr. Cormier returned from Austria, Mr. Teperto
requested Kurtz to provide shipping details for the equipment.


By fax dated
June 25, Kurtz advised that the pre
-
expander had been shipped, with an
estimated time of arrival in Vancouver of

July 11, and that the estimated
time of shipment of the block mould was July 2, with an estimated time of
arrival in Vancouver of July 28.


The fax also asked Mansonville to fax a
copy of the bank transfer regarding the final payment so that Kurtz could
c
onfirm the arrangement for the shipping of the block mould and so that the
block mould could leave the harbour at its scheduled time without incurring
storage charges.

[32]


On June 23, Mr. Kurtz wrote to Mr. Cormier stating that Kurtz did not
k
now what Idropress was guaranteeing its customers and that what he could
guarantee was that the block mould would produce blocks which are within the
standards set by the German Industry DIN.


A copy of these standards was
enclosed with the letter.

[33]


Mr. Cormier and Ms. Hurry sent a fax to Mr. Kurtz on June 29,
apparently following telephone communications between representatives of the
two companies.


The fax recounted that Mansonville had suggested that the
bank draft be put in the hands

of Kurtz’s lawyer on an undertaking that it
would not be released until the mould was set up and running.


The fax also
recounted that this suggestion had been rejected by Kurtz, which took the
position that it still wanted the letter of credit.


In view
of Kurtz’s
position, Mansonville stated in the fax that the bank draft would have to be
returned to National Capital and that the letter of credit would be in hand
by the end of the following week.

[34]


Mansonville apparently had a change of he
art, presumably because
National Capital was still declining to have the balance of the purchase
price paid by way of a letter of credit.


By letter dated July 3, Ms. Hurry
advised Kurtz that National Capital would be making a bank transfer to it.


In her
letter, Ms. Hurry complained that Kurtz would now have everything and
Mansonville had nothing so far.


The bank transfer was made and Kurtz
received the balance of the purchase price on July 9.

[35]


The pre
-
expander was shipped in late May or e
arly June 1997 and was
received at Mansonville’s plant in mid
-
July 1997.


Kurtz shipped the block
mould on or about July 16 (week 29) and it arrived at Mansonville’s plant in
mid
-
August (week 33).



[36]


Mr. Cormier wrote to Kurtz on July 23 se
tting out his perspective of
the events surrounding the letter of credit and the delay in shipping.


Mr.
Cormier made the following statements in his letter:

On May 8
th
, we received confirmation from you and a fax from Mr.
Sallfeldner May 7
th

stating that
the calendar week of shipping
would be week 22 for the pre expander and week 24 for the block
mold.

… The agreement being that I would be present in Austria for the
commissioning of the mold in week 24 and was prepared to hand
[the bank draft] over to you
or have it wired to your bank
immediately upon seeing the equipment up and running.

The prefoamer did leave on time as scheduled …

According to the shipping notice on June 25
th
, the block mold was
not scheduled to leave now until week 27, (July 2
nd
) …

… Th
is delay in your refusal to accept payment and still
insisting on a L/C … caused a weeks delay … Disgusted with the
whole affair, we sent the bank draft to your bank account by
courier.


Which obviously you received and now the container
left July 15
th
, th
irteen days later.


A delay which we consider
totally your responsibility.


We calculate a total delay of 32
days.

Kurtz did not respond to Mr. Cormier’s letter.

[37]


Kurtz technicians travelled to Mansonville’s plant near the end of
August 19
97 for the installation, start up and training in respect of the
equipment (the pre
-
expander, which had been shipped prior to the block mould,
had already been put into operation by Mansonville’s staff).


When the
technicians first arrived, Mr. Cormier had

an angry attitude towards Kurtz as
a result of the delay in the delivery of the equipment, but his anger
tempered after the block mould was set up and began producing blocks.



[38]


On September 4, Ms. Hurry signed a document acknowledging tha
t the pre
-
expander and block mould were running, that the Mansonville staff had been
trained and that 300 blocks had been made and were okay.


The document also
attached a list of nine mechanical items which Mansonville’s technician,
Alfred Oostenbrink, co
mpleted at Kurtz’s request.


Ms. Hurry testified that
she signed the document because the Kurtz technician, Karl Schnitzhofer,
wanted a senior Mansonville officer to sign it.


She said that when she
signed the document, she had attended at the plant and sa
w that the blocks
being produced appeared to be okay on the outside, but she had not seen any
of the blocks in a cut state (which would show the degree of fusion in the
centre of the blocks).


Mr. Schnitzhofer testified that the mould was making
good block
s and that he was able to see that they had fused properly when
they were cut into sheets.

The Kurtz technicians then left Mansonville’s
plant and returned home.

[39]


By mid
-
September, Mansonville was experiencing problems with the fusion
in t
he blocks.


Ms. Hurry attempted unsuccessfully to get in touch with Mr.
Schnitzhofer.


On October 2, Ms. Hurry wrote to Mr. Jaksch outlining three
problems with the manufacturing process which Mr. Oostenbrink had told her
about (namely, the start
-
up of the

pre
-
expander was blowing fuses, the
moveable sidewall was not properly returning to its position and there were
difficulties with getting fusion for Type 2 blocks).


Mr. Jaksch did not
respond to Ms. Hurry’s letter but it appears that he eventually had Mr
. Peter
van Deursen, an employee of Kurtz North America, get in touch with Mr.
Oostenbrink.


Mr. van Deursen made some suggestions to Mr. Oostenbrink in the
latter part of October.

[40]


On October 27, 1997, two Kurtz representatives, Mr. Ron Wa
tkins of
Kurtz North America and Mr. Rudi Knörzer of Kurtz GmbH, visited Mansonville’s
plant by way of following up on the sale of the equipment and to clarify the
outstanding problems.


They met with Mr. Cormier and Mr. Teperto, and
discussed the problems

with them.



[41]


A Kurtz technician, Mr. Randy Scholwin, attended at Mansonville’s plant
near the end of October 1997.


The Kurtz service report stated that the
purpose was to fix problems with the pre
-
expander and block mould.


Ms. Hurry
sig
ned the service report by way of confirming that Mansonville was satisfied
with the work completed.


In signing the report, Ms. Hurry added a
qualification that the work on the moveable wall was a temporary fix and that
there would have to be an eventual c
orrection to the software for the
moveable wall.


Ms. Hurry testified that in signing this document, she was
not intending to sign off on the fusion problem.

[42]


On November 11, each of Mr. Knörzer and Mr. Watkins wrote letters to
Mr. Cormier
with reference to their October 27 meeting.


Mr. Knörzer stated
that he was very keen on finding a solution for the problems with the pre
-
expander and the block mould as soon as possible and that Kurtz was doing
everything to put the machine in good operat
ing condition.


In his letter,
Mr. Watkins stated that Mansonville’s concerns and problems had been passed
on within Kurtz and that progress was being made.

[43]


There were further communications between Mansonville and Kurtz during
November, a
nd arrangements were made for Mr. Jaksch and Mr. Scholwin to
attend at Mansonville’s plant at the beginning of December.


Arrangements
were also made by Mansonville for the attendance of representatives of two of
its bead suppliers, Styrochem and BASF.


In

the meantime, Mansonville wrote
to Kurtz on November 27 stating that the major issues requiring discussion
were (i) controlling the density at the prefoaming state, (ii) getting fusion
in the blocks at the block moulding stage, and (iii) completing repair
s on
the block mould.


The letter also referenced program changes which needed to
be considered.

[44]


The representatives of Kurtz, Styrochem and BASF spent parts of the
first week of December at Mansonville’s plant.


Different Styrochem and BA
SF
beads were pre
-
expanded and a number of blocks were produced utilizing
different settings on the block mould.


No solutions to the density and
fusion problems were found.


When the Kurtz representatives left, they made
some suggestions with respect to t
he pre
-
expander process.

[45]


Kurtz then dispatched Mr. Schnitzhofer, who had been involved in the
start
-
up of the equipment, to the Mansonville plant.


He arrived at
Mansonville’s plant on or about December 12 and worked with Mr. Oostenbrink
f
or approximately one week.


Mr. Schnitzhofer made adjustments to the
settings and some improvement was made in the quality of the blocks.



[46]


Intertek, the independent testing firm, had been pressing Mansonville
to have its product re
-
certif
ied in view of the change in its moulding
equipment.


On December 16, an Intertek representative conducted a routine
inspection of Mansonville’s plant and took samples for testing.


When
subsequently tested, the samples did not meet the flexural strength m
inimum
requirement of the Canadian standards.


The samples did meet the compressive
strength minimum of the Canadian standard for Type 1 product but the samples
were of relatively high density and they did not come close to meeting the
Type 2 standard.

[4
7]


When Mr. Schnitzhofer left on December 17, there was a discussion about
him returning to the Mansonville plant in the second or third week of January
1998.


Mr. Schnitzhofer had understood that Mansonville was installing new
storage silos an
d a new mixing station.


Mr. Schnitzhofer did not return in
January because Kurtz felt that the new silo plant should be installed before
he undertook further testing.


On January 22, 1998 his supervisor, Mr.
Mittermair, wrote to Mansonville inquiring as t
o, among other things, whether
the work was completed on the silo plant and mixing station.

[48]


Mr. Mittermair apparently wrote a follow
-
up letter to Mansonville on
February 13 and Mansonville responded on the same day (Mr. Mittermair’s
letter

appears to have been misplaced by both sides but Mansonville’s
response references a fax of February 13 from him).


The letter opened with a
complaint that Mr. Schnitzhofer’s return to its Mansonville’s plant did not
need to await the completion of the in
stallation of the new silos and mixing
station.


The letter stated that the areas to be resolved were that (i) the
program for the moveable wall had to be fixed, (ii) the moveable wall was
crooked in the sense that it did not produce square or rectangular
blocks,
(iii) an adjustment had to be made to the chains on the moveable wall, (iv)
the steam piping had to be reconfigured as a result of an error in the Kurtz
blueprint showing where the piping connected to the block mould, (v) the
fusion in the blocks h
ad to be sufficient to meet the Canadian testing
standards, and (vi) the pre
-
expander had to be able to prefoam bead at a
density as low as .75 pounds per cubic foot for non
-
conforming products as
Mr. Jaksch had promised when the equipment was ordered.

[49
]


Mr. Schnitzhofer returned to Mansonville’s plant on or about March 5.


This was one day after an Intertek representative attended at the plant.


As
a result of the inspection, Intertek issued a discrepancy report which listed
three basic disc
repancies: (i) there was no in
-
house testing equipment, (ii)
the Styrochem beads were not qualified, and (iii) the requirement to meet the
Canadian standard was outstanding.


On or about March 12, Intertek told
Mansonville that it could no longer use the s
tamps in its possession
signifying certification of its product and it physically removed the stamps
from Mansonville on the same day or a few days later.

[50]


When Mr. Schnitzhofer arrived, the installation of the new silo plant
had not yet be
en fully completed.


He began giving instructions to Mr.
Oostenbrink in connection with the prefoaming of beads and production of
blocks on the first two days of his attendance at Mansonville’s plant.


He
was then postponed in his main endeavours for appro
ximately 10 days because
Mr. Cormier wanted Mansonville to fill an order and to bring in an outside
contractor to reconfigure the steam pipe leading to the block mould so that
it would no longer have a double bend in it.



[51]


Mr. Cormier and
Ms. Hurry attended an open house at the North American
head office of Kurtz in Wisconsin, where they met with Kurtz representatives,
including Mr. Walter Kurtz, on or about March 12.


While they were attending
the meeting, Mr. Cormier received a telephone
call from Mr. Teperto advising
him that the Intertek representative was at Mansonville’s plant for the
purpose of removing the certification stamps.


As a result, Mr. Kurtz and Mr.
Albrecht travelled to Mansonville’s plant, where a meeting was held on Marc
h
16 between them, Mansonville representatives and the Intertek
representative.


They discussed the test criteria and the types of beads
involved.


There was agreement between them with respect to a process upon
which Kurtz would embark to work through dif
ferent settings at different
densities on four types of beads in an effort to reach the certification
standards.


It was agreed that the first bead to be used was one manufactured
by Styrochem because it was the one which had been the most reliable in the
past.

[52]


Mr. Schnitzhofer recommenced his experimentation on March 17.


Mansonville did not have the Styrochem bead in stock and Mr. Schnitzhofer had
to work with a softer bead until some Styrochem bead was delivered.


He
worked for the next
week in an effort to improve Mansonville’s product.


Some
samples were taken to a less expensive testing agency, Powertech, on or about
March 25.


Powertech was able to immediately give the results of the flexural
tests for six samples taken from two of fo
ur blocks.


Five of these six
samples met the Canadian standard for the flexural test and Mr. Schnitzhofer
mistakenly believed that the sixth sample would have met the standard if it
had a thickness of one inch.



[53]


It was at this point that

Mr. Cormier told Mr. Schnitzhofer to leave
Mansonville.


Mr. Cormier testified that he told Mr. Schnitzhofer to leave
Mansonville’s plant on March 25 because he did not perceive any significant
improvement in the quality of the blocks and he believed that

the cost of
continued experimentation would lead Mansonville into bankruptcy.


Mr.
Schnitzhofer testified that although the samples had passed the flexural
test, Mr. Cormier expressed the view that the density was too high and that
after he answered an in
quiry from Mr. Cormier to the effect that he believed
that he had made good blocks when he was there in December, Mr. Cormier told
him to leave.

[54]


Powertech subsequently provided all of the test results to
Mansonville.


Other than 5 of the 6

samples in respect of which Mr.
Schnitzhofer learned the results prior to his departure, none of the other 12
samples passed the flexural test.


None of the 5 samples which passed the
flexural test also passed the compression test, with the result that no
ne of
the samples met the Canadian standards for Type 1 or Type 2 product.

[55]


An Intertek representative re
-
attended at Mansonville’s plant on March
30 and April 1 to take samples for testing.


The preponderance of the
evidence indicates tha
t the representative took the March 30 samples from
blocks that were moulded on the day of Mr. Schnitzhofer’s departure and that
the April 1 samples were moulded on March 31.


The evidence also indicates
that the beads for these blocks were not prefoamed a
t excessive densities.


Although it was not known until Intertek issued its report on May 15, the
samples passed the Canadian standard tests for both Type 1 and Type 2.


Mansonville’s product was again certified for Canadian purposes.

[56]


On
March 31, Mansonville wrote to Mr. Rainer Kurtz, the brother of
Walter Kurtz, complaining that its problems had still not been resolved and
that the product produced by the block mould had failed testing, resulting in
Mansonville losing its certification.


The letter complained about Mr.
Schnitzhofer and referenced the fact that Walter Kurtz was coming to
Mansonville’s plant on April 6 and 7 for the purpose of making decisions
pertaining to the performance of the block mould and the prefoamer.


The
letter s
tated that Mansonville needed to know the intention of the Kurtz
organization to correct the problems and requested Rainer Kurtz to also
attend the meeting.

[57]


Walter Kurtz wrote to Mr. Cormier on April 3 to advise that he would
not be able t
o come to Mansonville’s plant on April 6 as a result of
unforeseen urgent meetings (although he testified that the real reason he did
not come was because there was nothing further Kurtz was prepared to do in
view of the fact that Mansonville had sent its
top technician away).


Nor did
Rainer Kurtz travel to Mansonville’s plant.


He did write to Mansonville on
April 7 to state that he could not personally do more for Mansonville.


He
commented that while Kurtz’s customers normally conducted tests to determi
ne
the optimum production parameters based on the local situation and the raw
material which is used, Kurtz had sent Mr. Schnitzhofer to support
Mansonville, with the last visit being from March 4 to 26.


The letter
asserted that Mansonville seemed to have

its own ideas with respect to the
steps to determine the correct production parameters and that Kurtz was not
responsible in the event that Mansonville’s procedure was not successful.

[58]


The parties exchanged two more letters setting out the
ir perspectives
of the past activities and their positions.


In Mansonville’s letter dated
April 13, 1998, it enclosed invoices paid by it in connection with the
reconfiguration of the steam piping, the replacement of the contactors on the
block mould and
new hoppers Mansonville had to obtain because Kurtz had
shipped the wrong size of hopper.


Kurtz reimbursed Mansonville in respect of
these invoices in the amount of approximately $32,000.

[59]


In Kurtz’s final letter of June 9, 1998, it took
the position that the
block mould was mechanically in order and that it had fulfilled its normal
delivery range (although the letter ended off with a statement that Kurtz was
prepared to assist in the future).


Although Mansonville had been quick to
compla
in in writing about its problems in the past, it did not respond to
this letter.


When Mansonville next sent correspondence to Kurtz on September
29, 1998 regarding payment of an invoice, there was no mention of Mansonville
continuing to experience problem
s with the equipment.

[60]


Apart from one dealing in connection with a specific difficulty with
the equipment, there was no further communication between Mansonville and
Kurtz regarding the performance of the equipment and no further attendance
s
were made to Mansonville’s plant by Kurtz technicians.


The one dealing
occurred in November 1998 when the moveable wall was out of alignment by
almost five inches from its top to bottom.


Kurtz gave Mansonville
instructions with respect to the re
-
alignm
ent of the wall and these
instructions were carried out successfully by Mansonville.

[61]


Mr. Oostenbrink testified that after Mansonville got its certification
back in mid
-
May 1998, he continued making blocks with high density in order
to main
tain the certification and that the quality of the blocks improved
slowly as he made small changes to the settings.


He believes that the most
important changes he made related to two aspects of a butterfly valve which
regulated the amount of pressure in t
he block mould during the various stages
of production.



[62]


Mr. Oostenbrink testified that the first aspect involved a programming
change made by Mr. Schnitzhofer in respect of a butterfly valve when he came
to Mansonville’s plant in March 1
998 so that the steam pressure could reach a
higher level (although Mr. Oostenbrink had to concede in cross examination
when confronted with documentation that the setting had been at the higher
level in December 1997).


The second aspect was that Mr. Oost
enbrink ensured
that the setting of the butterfly valve was such that the steam flaps did not
vary by more than 5% during any of the stages of production of the block.


As
a result, it is Mr. Oostenbrink’s opinion that the steam is able to get all
of the w
ay through the block before the sealing of its outside surfaces and
that the fusion occurs at an earlier stage of the production.


The other
important change in the opinion of Mr. Oostenbrink is that commencing in June
1999, where lower densities are requi
red for approximately 40% of
Mansonville’s product, the beads have been given two passes during the pre
-
expansion stage (once with the Kurtz batch pre
-
expander and once with
Mansonville’s previous continuous pre
-
expander).

[63]


Mr. Oostenbrink
believes that most of the improvement occurred in the
first part of 1999 and that Mansonville turned the corner in mid
-
1999 when he
began giving beads a double pass through Mansonville’s previous continuous
pre
-
expander.


Other Mansonville witnesses testif
ied that the sales staff
began intensified marketing at some point in 1999 (Mr. Teperto testified that
it began in July 1999 and Mr. Cormier testified that it was near the end of
1999).


Mansonville’s sales started to climb significantly in July 1999.

[64]


Mansonville’s banker had become concerned about its performance.


It
was incurring losses and its operating line of credit had increased by a
substantial amount.


In October 1999, Mansonville’s banker engaged
PricewaterhouseCoopers (“PwC”) to
conduct a review and assessment of
Mansonville.


PwC issued a report dated November 29, 1999, in which it set
out certain statements made to it by Mansonville’s management.

[65]


Mr. Cormier testified that one of the reasons for purchasing the K
urtz
equipment was to expand Mansonville’s market into the United States,
particularly in the indirect sense of selling EPS to a related company which
would sell laminated products containing EPS into the United States.


In
order to sell product into the U
nited States, it is necessary for
Mansonville’s product to meet the U.S. standard, which is called ICBO.


Mansonville underwent ICBO testing in July 2001.


It has received its ICBO
certification for Type 1 product and it has been orally advised that it has

passed the ICBO test for Type 2 product.


Mr. Oostenbrink gave evidence of
his view that Mansonville’s product was ready for ICBO testing by the end of
1999.

[66]


Mansonville claims damages in respect of the inability of the Kurtz
equipment to

produce blocks of the quality anticipated by it for the period
from July 1, 1997 (the start
-
up date anticipated by Mansonville based on
delivery by mid
-
June 1997) to July 1999 (the earliest date Mansonville
concedes that the equipment was producing satisf
actory product).


In addition
to general loss of profit, these damages include (i) an alleged loss of a
contract in respect of a project involving the Seattle Music Museum in the
summer of 1997, (ii) the loss of sales to Mansonville’s related company which

was to sell laminated products into the United States market, and (iii) extra
interest charged to Mansonville by its banker.


Mansonville further claims
damages in respect of the following matters which it claims to be continuing
deficiencies in the equip
ment:

(a)


extra trimming costs as a result of the fact that the blocks are
not square;



(b)


the loss occasioned by the non
-
operation of the density reduction
program;



(c)


the extra cost of double passing beads in the pre
-
expansion stage
in order
to meet the required densities; and



(d)


the cost to rectify a leaky bearing on the pre
-
expander which has
water leaking through the seal and which can potentially cause
damage to the reduction gear and the electric motor of the pre
-
expander.

ISSUES

[67
]


The issues to be decided in this case are the following:

(a)


are Mansonville’s claims time
-
barred?

(b)


is Kurtz liable for late delivery of the equipment?

(c)


did the equipment breach statutory warranties of fitness?

(d)


what were the

contractual warranties given by Kurtz?

(e)


were there breaches of the contractual warranties?

(f)


what was the duration of the breaches?

(g)


is Kurtz liable in respect of the leaky bearings?

(h)


what are the damages suffered by Mansonville for
which Kurtz is
liable?

(i)


which of the Kurtz Defendants are liable to Mansonville?

[68]


No issues were raised with respect to the involvement of National
Capital as the buyer of the equipment from Kurtz and the lessor of the
equipment to Man
sonville.


For the purposes of determining the above issues,
I will treat National Capital and Mansonville as one and the same.



DISCUSSION

(a)
Limitations Defence

[69]


I start with this issue because the other issues become academic if
Mansonvi
lle’s claims are time
-
barred.

[70]


The parties agree that Mansonville’s claims are time
-
barred under
German law, but not under Austrian law.


The claims are not statute
-
barred
under British Columbia law.

[71]


The first sub
-
issue is whet
her the parties agreed that their contract
would be governed by German law.


Kurtz introduced into evidence a document
entitled “Terms and conditions of supply and payment” which was expressed to
be valid as of February 1996.


A clause in this document pro
vided that the
law of Germany shall apply.


However, there is no evidence that this document
was ever agreed to by or provided to Mansonville.


Mr. Walter Kurtz testified
that he saw a similar document in Mansonville’s file in connection with a
sale of equ
ipment by Kurtz to Mansonville in the 1980’s, but he did not
recall whether the governing law clause was contained in this document.



[72]


The facts that the Kurtz quotation referred to “general terms of sale
and delivery” and that the Kurtz ord
er confirmation stated that the delivery
was to be carried out according to the “General Terms of Delivery of the
Kurtz Group” are not sufficient to constitute agreement by Mansonville of a
governing law clause which was not proven to be expressly agreed t
o by
Mansonville or contained in a document provided to Mansonville.


I find that
Mansonville did not have notice of any standard terms which Kurtz may have
wanted to be incorporated into their contract.


There are no other
circumstances from which it can
be implied that the parties agreed that the
law of Germany would be the governing law.

[73]


As it was not proven that Mansonville agreed, expressly or impliedly,
that the governing law of the contract would be the law of Germany, it is
necessary
to determine the jurisdiction which has the closest and most
substantial connection to the transaction: see
Imperial Life Assurance Co. of
Canada v. Colmenares

(1967), 62 D.L.R. (2d) 138 (S.C.C.).


I agree with
counsel for Mansonville that the present case

is similar to
Deco Automotive
Inc. v. G.P.A. Gesellschaft Fur Pressenautomation MbH
, [1989] O.J. No. 1805
(Ont. Dist. Ct.), where the decision with respect to the governing law was
succinctly stated as follows:

As for the question of the applicable law, h
aving regard to the
test set out in
Imperial Life v. Colmenares,

62 D.L.R. (2d) 138
at 143 and 144 and the factors therein set forth, it appears to
me that a contract having as its subject matter a transfer system
designed for, delivered to, installed at a
nd put into operation
in a plant in Toronto, and the defendant’s forces attending in
Ontario in that regard, has its closest and most substantial
connection with Toronto and thus the law that should apply is the
Law of Ontario.


(p. 11)

Of the three jurisd
ictions involved in the contract (being British Columbia,
Austria and Germany), it is my opinion that Germany had the least connection
to the transaction.


The equipment was manufactured in Austria and was
delivered to, installed and made operational by Ku
rtz representatives at
Mansonville’s plant in British Columbia.


The only connections to Germany
were the facts that the head office of Kurtz is located in that jurisdiction
and that some of the individuals involved in the negotiations were employed
by Kur
tz GmbH.


These connections are less substantial than the connections
to British Columbia and Austria.

[74]


I hold that Germany was not the jurisdiction with the closest and most
substantial connection to the transaction and that Mansonville’s
claims are
not time
-
barred or statute
-
barred.



(b)
Late Delivery

[75]


Kurtz’s quotation stated that the delivery time would be four months
after clarification of all technical and commercial details.


The order
confirmation specified week 24/9
7 (i.e., the week of June 8, 1997) under the
heading “Delivery”.


The pre
-
expander was shipped at the end of May or
beginning of June 1997 and was received at Mansonville’s plant in mid
-
July.


The block mould was shipped on or about July 16 and arrived at
Mansonville’s
plant in mid
-
August.



[76]


It is the position of Kurtz that Mansonville forfeited the right to
complain about late delivery because it breached its obligations under the
contract.


There is no question that Mansonville did breach

the requirement
to provide a letter of credit from and after the time of the order
confirmation.


Its reasons for breaching the requirement are suspect and it
can be reasonably inferred that Mansonville misled Kurtz when Mr. Teperto
wrote the February 14,

1997 letter stating that the letter of credit was in
process.


However, the fact that Mansonville was in breach of its obligations
under the contract does not necessarily excuse Kurtz from the performance of
its obligations.

[77]


Kurtz relies
on the United Nations Convention on Contracts for the
International Sale of Goods (the “
Convention
”), which is made applicable in
British Columbia by the
International Sale of Goods Act
, R.S.B.C. 1996, c.
236 (and which is also applicable in Austria and Ge
rmany).


Article 71 of the
Convention provides that a party to a contract may suspend the performance of
his obligations if it becomes apparent that the other party will not perform
a substantial part of his obligations.


Subsection (3) of Article 71 state
s
that a party suspending performance must immediately give notice of the
suspension to the other party.

[78]


Counsel for Kurtz submitted that Kurtz had given notice of suspension
in its correspondence in May 1997.


I do not read the correspond
ence in this
fashion and, indeed, there is no evidence that Kurtz did actually suspend the
performance of its obligations until the block mould was ready for shipment.


Although the June 25, 1997 fax from Kurtz to Mansonville did not explicitly
state that
Kurtz would be suspending the performance of its obligations, the
fax was sufficient to convey the message that the block mould would not be
shipped until the final payment was made.


In view of the negotiations to
replace the letter of credit with an earl
y final payment (which was
discounted to take the early payment into account), it was reasonable for
Kurtz to refer in its fax to the final payment, rather than the letter of
credit.


Mansonville would not have been misled into believing that it could
not
post a letter of credit and, indeed, Ms. Hurry stated in her June 29
letter that the letter of credit would be provided to Kurtz.

[79]


I hold that Kurtz was entitled to suspend performance of its
obligations under the contract as a result of Ma
nsonville’s failure to
provide the stipulated letter of credit and that Kurtz did suspend
performance of its obligations for the period from July 2 to July 16, 1997.


The length of the delay in the delivery of the equipment is to be determined
on this basi
s.

[80]


The order confirmation indicates that the delivery of the equipment was
to take place in week 24/97, which was the week of June 8, 1997.


Mr. Kurtz
testified that Kurtz had made a mistake and had forgotten to make it clear in
the order

confirmation that delivery meant delivery to the port from which
the equipment would be shipped by boat.


He said that Kurtz accepted the
mistake and recognized that it had agreed to deliver the equipment to
Mansonville in week 24.

[81]


I have

reservations about whether Mansonville ever believed that the
equipment would be delivered to it in week 24.


There is evidence to suggest
that Mansonville may have had the same understanding as Kurtz; namely, that
the equipment would be ready for deliver
y during week 24.


This evidence
includes statements made by Mr. Cormier in his July 23, 1997 letter and the
fact that Mansonville did not complain when told in early May 1997 of the
shipping dates.

[82]


Despite my reservations, no submissions
were made by counsel on this
point and the order confirmation is not ambiguous with respect to the time of
delivery.


I consider myself bound to interpret the order confirmation
without the aid of extrinsic evidence.


On a literal interpretation of the
ord
er confirmation, Kurtz was required to deliver the equipment to
Mansonville in Surrey by the end of the week of June 8, 1997.


The block
mould was not delivered to Mansonville until mid
-
August and, after making
allowance for the two week period during whic
h Kurtz suspended performance of
its obligations under the contract, I find that Kurtz was in breach of the
contract for a six week delay in the delivery of the equipment.





(c)
Statutory Warranties of Fitness

[83]


Article 35 of the
Convention

reads, in part, as follows:

(1)


The seller must deliver goods which are of the quantity,
quality and description required by the contract and which
are contained or packaged in the manner required by the
contract.

(2)


Except where the partie
s have agreed otherwise, the goods
do not conform with the contract unless they:

(a)


are fit for the purpose for which goods of the same
description would ordinarily be used;

(b)


are fit for any particular purpose expressly or
impliedly made know
n to the seller at the time of the
conclusion of the


contract …

Sections 17 and 18 of the B.C.
Sale of Goods Act
, R.S.B.C. 1996, c. 410 are
to like effect.

[84]


Schreiber Brothers Ltd. v. Currie Products Ltd.
(1980), 108 D.L.R. (3d)
1 (S.C.C.)

is the leading Canadian decision dealing with the situation of
where the cause of a defect in goods is unknown.


It stands for the
proposition that the buyer is not required to show how the defect arose and
that it is sufficient for the buyer to exclude,
on a balance of
probabilities, other probable causes of the defect which would not be the
responsibility of the seller.


Afton Mines Ltd. (N.P.L.) v. Canadian General
Electric Company Limited

(1983), 44 B.C.L.R. 389 (S.C.) is an example of a
case where the

buyer was able to negative all other probable causes of
failure.


Kolibab v. Tenneco Canada Inc.,

[1996] 10 W.W.R. 53 (Sask. Q.B.) is
an example of a case where the buyer was not able to eliminate all other
probable causes because the court found that ope
rator error resulted in most,
if not all, of the problems.

[85]


Counsel for Mansonville points to the decision in
Wharton v. Tom Harris
Chevrolet Cadillac Ltd.
, 2002 BCCA 78 as authority for the proposition that
all accessories and components of the goods must be free from defects.


Counsel also argues that the test is performance based and relies on a
passage from
Altronics of Bethlehem, Inc. v. Repco, Inc.

957

F.2d 1102 (3
rd.
Cir. 1992) at p. 1105 stating that a product may be found defective if it
functioned improperly in the absence of abnormal use and reasonable secondary
causes.

[86]


The facts of the present case are different from the circumsta
nces of
the authorities relied upon by counsel.


The uniqueness of the case at bar is
that the equipment began producing acceptable EPS blocks without any repair
or other alteration to the mechanical functioning of the equipment.


If the
equipment is now f
it for the purpose for which it was intended, how could it
have been unfit at the time of its delivery if no change was made to it?

[87]


The evidence established that there are many variables involved in
making EPS blocks.


These include the s
ettings on the equipment, the quality
and age of the beads, the adequacy of the steam supply, the functioning of
the fluid bed, the quality of the storage silos, the length of curing time
between prefoaming and block moulding, and the ability of the operat
or.


Mr.
Schmit, who was the representative of Styrochem at Mansonville’s plant in
December 1997 and who testified as an expert witness on behalf of Mansonville
in the trial, called the production of EPS a “black art”.


Although the
reason for the inabilit
y of Mansonville to produce suitable blocks during the
initial period following delivery of the equipment remains a mystery, it does
not follow that the equipment was defective or unfit.

[88]


In a different context, Southin J.A. said the follow
ing in
Hollis v.
Birch

(1993), 81 B.C.L.R. (2d) 1 (C.A.):

Can a thing such as this be found not to be reasonably fit for
the purpose for which it was intended because, from some
unidentified cause, it breaks down more than a year after its
insertion?

I
think not.


The failure of a thing does not establish, as a
matter of law, that it is not reasonably fit for the purpose,
although the failure of an ordinary article of commerce often
leads, as a matter of fact, to such a conclusion.


(p. 33)

This case rep
resents the converse situation.


The equipment ultimately
produced suitable EPS blocks but for some unidentified cause it could not do
so for a period of time following its delivery.


As a matter of law, the
failure of the equipment to produce suitable EPS

blocks does not establish
that it was not reasonably fit for that purpose.


As a matter of fact, I
infer from the ability of the equipment to ultimately produce suitable EPS
blocks without any repairs or alterations to its mechanical functioning that
it w
as fit for its intended purpose at the time of its delivery.


Hence,
Kurtz did not breach the statutory warranty of fitness under either the
Convention

or the B.C. statute.



(d)
Contractual Warranties

[89]


Mansonville asserts that the followin
g promises were made by Kurtz
prior to the purchase of the equipment and that they were breached by Kurtz:

(i)


the machinery would be of the highest quality;



(ii)


the machinery would provide trouble
-
free, simple, reliable
performance and be easy to op
erate;



(iii) the machinery would produce good fusion at low densities;



(iv)


the cycle times for the block mould would be two to three
minutes;



(v)


the blocks would not need to be trimmed for certain applications;
and



(vi)


Kurtz would supply
with the equipment a density reduction program
which would allow the sidewall of the block mould to move during
fusion and thereby produce a savings in raw materials.

[90]


The topic of contractual warranties was thoroughly canvassed in
Gallen
v
. Allstate Grain Co.

(1984), 9 D.L.R. (4
th
) 496 (B.C.C.A.), which was applied
two years ago in
Peacock, Inc. v. Reliance Foundry Co.
, [2001] B.C.J. No. 226
(S.C.).


Representations do not need to be written in order to constitute
contractual warranties as long as it was not intended by the parties that the
written document would constitute the entire agreement between the parties.


The

distinction between innocent misrepresentations and contractual
warranties is that the former only gives rise to the remedy of rescission
while the latter may form the basis of a claim for damages.

[91]


In
Gallen
, Lambert J.A., for the majori
ty, said the following about the
determination of whether a representation constitutes a warranty:

More helpful than Halsbury, in my opinion, are the reasons of
Mr.

Justice Robertson in
Yorke v.
Duval, [1953] 3 D.L.R. 820, 9
W.W.R. (N.S.) 523, a decision o
f this court.


They contain two
guides for determining whether a pre
-
contractual representation
is a warranty.


First, at p. 524
-
5, Mr. Justice Robertson said
that the way to decide is to look at the contract in the light
of all the surrounding circumstanc
es, and that one of the first
things to look to is to what extent the accuracy of the
statement
-

the truth of what is promised
-

would be likely to
affect the substance and foundation of the adventure which the
contract is intended to carry out.


Then, se
cond, at p. 525, Mr.
Justice Robertson said that the essence of a warranty is that it
becomes plain by the words and actions of the parties that it is
intended that, in the purchase, the responsibility of the
soundness will rest upon the vendor.

That seems

to me to put the question squarely.


What the trier
of fact is trying to find out is this: who was to bear the risk
that the statement might be wrong, the person who made it, or
the person who acted on it?


If it must be taken to have been
intended, and u
nderstood, when said, to form a part of the
contractual relations between the parties, then it is a
warranty.

(p. 508)



[92]


In
Peacock
, the seller had sold steel castings to the buyer which
intended to utilize them in the manufacture of hydr
aulic cylinders.


At issue
was whether there were contractual warranties with respect to the proposed
casting process.


After reviewing the authorities, including
Gallen
, L. Smith
J. concluded that the alleged oral representations were made and were
contra
ctual warranties.


She went on to find that there had been a breach of
the warranties on the evidence before the court.

[93]


It is the position of Kurtz that the parties intended to have their
agreement entirely in writing and that any oral rep
resentations are of no
contractual force.


In this regard, counsel relies on the portions of
Gallen

(at p. 512) and
Toronto
-
Dominion Bank v. Johns,

[1987] B.C.J. No. 1876 (C.A.)
(at p. 8) quoting with approval the following passage from the article by
K.W.

Wedderburn entitled “Collateral Contracts”, [1959] Camb. L.J. 58 at p.
62:

What the parol evidence rule has bequeathed to the modern law is
a presumption


namely that a document which looks like a
contract is to be treated as the whole contract.


This
pr
esumption is “very strong” but “it is a presumption only, and
it is open to either of the parties to allege that there was, in
addition to what appears in the written agreement, an antecedent
express stipulation not intended by the parties to be excluded,
but intended to continue in force with the express written
agreement.

As in
Peacock
, there is no “entire contract” clause in the order confirmation
or any of the other written documents between Kurtz and Mansonville.


It is
therefore necessary to look at t
he documents and the other circumstances to
determine whether there is a document that looks like a contract and, if so,
whether the presumption that it is the whole contract has been rebutted.

[94]


Counsel for Kurtz points to two circumstances

as illustrating that it
was the intention of the parties to have their agreement set out completely
in writing.


The first is that in his covering letter of February 7, 1997,
Mr. Teperto asked Mr. Jaksch to sign each page of his summaries.


The second
is
that in June 1997, Mr. Cormier wanted a written guarantee from Kurtz that
the block mould would be as good or better than the Idropress block mould.

[95]


It is my understanding that, although it is arguable that the parties
entered into a bindi
ng contract when Mr. Jaksch returned signed copies of the
summaries faxed to him by Mr. Teperto on February 7, 1997, counsel are in
agreement that the order confirmation reflects the terms of the agreement
between the parties, and I concur.


In my opinion,

the order confirmation
itself contemplates that it was not intended to be the entire contract
between the parties.


The following three provisions of the order
confirmation illustrate that there were aspects outside the document which
were intended to be
part of the contract between the parties:

(a)



Warranty
:


according to VDMA terms”



(b)


“If not expressly arranged otherwise, the acceptance of the
machine takes place on delivery at the works.”



(c)


“The delivery is carried out according to the
“General Terms of
Delivery of the Kurtz Group”.”

I find that it was not the intention of the parties to have all of the terms
of the contract between them contained in the order confirmation.

[96]


Counsel for Kurtz also says that the representa
tions attributed to Mr.
Jaksch were mere statements of opinion or “puff” and were never intended to
form collateral warranties to the contract.


Counsel relies on
Fraser
-
Reid v.
Droumtsekas

(1979), 103 D.L.R. (3d) 386 at p. 392.


In my view, this involves
the same determination of the intention of the parties as was discussed in
Gallen
.

[97]


Counsel for Kurtz further attacked the credibility of Mansonville’s
witnesses.


While I have concerns about the credibility of Messrs. Teperto
and Cormier w
hich I will discuss later in these Reasons for Judgment, Kurtz
did not call Mr. Jaksch or any other witness to contradict their testimony
with respect to the representations.

[98]


I will now make my findings with respect to each of the alleged
contractual warranties.



(i)
Highest Quality

[99]


I find that Kurtz did represent that it produced high quality state
-
of
-
the
-

art equipment.


Mr. Walter Kurtz essentially admitted during his
examination for discovery and his cross examination
that Kurtz
representatives made statements to this effect.

[100]


Although I find that the representation was made, it is my view that it
was not intended or understood to form part of the contractual relations
between the parties.


It was a repres
entation about all of the equipment
manufactured by Kurtz and one would not expect a global representation of
this nature to be part of a contract for two items of equipment.


Even if the
representation could be interpreted to relate only to the equipment
which
Mansonville was going to purchase, it was too general and too difficult to
measure in order to constitute a contractual warranty.



(ii)
Easy to Operate

[101]


I find that Kurtz did represent that the equipment was simple to
operate and was
operator friendly.


This representation was consistent with
the evidence given by Mr. Walter Kurtz in his examination for discovery and
by Mr. Schnitzhofer during his cross examination.

[102]


I also find that this representation was intended to fo
rm part of the
contractual relations between the parties.


Had the parties turned their mind
to the question of who would bear the risk if representation turned out to be
wrong, it is my view that they would have agreed that Kurtz would be the one
at risk.



(iii)
Good Fusion at Low Densities

[103]


Mansonville asserts that Mr. Jaksch represented to it that the
following densities could be achieved with the Kurtz equipment:

(a)


Type 1 product


13 g/l (or .81 lbs./cu. ft.);



(b)


Type 2 product


1.25 lbs./cu. ft. (or 20 g/l); and



(c)


non
-
conforming product
-

.70 lbs./cu. ft. (or 11.2 g/l).

I accept that Mr. Jaksch made these representations with respect to the
densities for Type 1 and Type 2 products.


I find that the lowest density Mr.
Jaksch
represented in connection with non
-
conforming product was 12 g/l (or
.75 lbs./cu. ft.).

[104]


The evidence given by Mr. Teperto with respect to the density for non
-
conforming product was equivocal in my view.


Counsel ordered a transcript of
his t
estimony on this point, which I reproduce below:

Q


Did Mr. Jaksch say anything to you about the densities that
you’d be able to achieve in meeting the Canadian standards?


Let’s take it one at a time.


Did he talk to you at all about
the densities you’d b
e able to achieve for your type 1
product?

A


Yeah.


They referred back to their brochures and stuff that
showed, you know, 13 grams per litre, which suited our
needs.


I mean, we talked
-

-

they even said lower, but we
-

-

you know, we kind of accepted wh
at was in their brochure.


But we knew there was other opportunities for what we called
non
-
conforming materials, that they said it will get lower,
no problem.

Q


Did they give you numbers for how
-

-

for what you could get
for your
-

-

densities for your
non
-
conforming product?

A


Yeah, seven zero.


So, you know …

Q


So .7?

A


.7.


That was a number.


But, you know, they even showed
-

-

in their one thing is 12, which is .75 …

Q


So they showed 12 grams per litre, which is .75 pounds per
cubic foot?

A


Tha
t’s right.



The way in which Mr. Teperto testified that .70 “was a number” and then made
reference to the figure of 12 g/l in the “thing” (which was probably the
brochure) suggests that there may have been some conversation about a density
of .70 lbs./cu.

ft. but the representation made by Kurtz was the 12 g/l
density stated in the brochure (and the quotation).


Mr. Jaksch may have
mentioned a density of .70 lbs./cu. ft. but I find that the representation he
made was that the equipment could achieve a dens
ity of 12 g/l or .75 lbs./cu.
ft.


This was the lowest end of the density range contained in the quotation
and it is unlikely that Mr. Jaksch would have promised a lower density.


Mr.
Walter Kurtz testified that there was one block moulder in Europe with K
urtz
equipment who had reached a density as low as 11.5 g/l in 1997, but not
consistently, and that Mr. Jaksch would likely have told that to
Mansonville.


In my opinion, the fact that Mr. Jaksch may have mentioned that
one other block moulder had been suc
cessful in reaching a density below 12
g/l did not constitute a contractual warranty that Mansonville would
definitely be able to achieve the same low density if it purchased the Kurtz
equipment.

[105]


Mr. Cormier was not equivocal in his
testimony.


He testified that Mr.
Jaksch said that it would be no problem to reach a density of .70 lbs./cu.
ft.


However, I prefer the testimony of Mr. Teperto over the evidence of Mr.
Cormier, who did not appear to have as clear a memory.


In addition to

my
reservations about Mr. Cormier’s memory, I am also influenced by the fact
that in Ms. Hurry’s letter dated February 13, 1998 to Mr. Mittermair
outlining areas of concern, she stated that the “prefoamer must be able to
prefoam a constant level from .75
up as promised by Herbert at the time of
placing the order”.


Ms. Hurry would have received this information from Mr.
Cormier, whose memory would have been better five years ago.

[106]


The density range at which the Kurtz equipment could perform was

contained in the quotation and order confirmation prepared by Kurtz.


They
were intended to form part of the contractual relations between the parties,
and I find that the related promises made by Mr. Jaksch were also intended to
be part of the contract.

[107]


I hold that Kurtz made contractual warranties regarding the densities
at which Mansonville would be able to manufacture properly fused EPS product
of the various types; namely, .75 lbs./cu. ft. for non
-
conforming product,
.81 lbs./cu. ft. for
Type 1 product and 1.25 lbs./cu. ft. for Type 2 product.



(iv)
Cycle Times

[108]


Mr. Teperto testified that Kurtz represented that the block mould would
have a cycle time of 2 ½ to 3 minutes.


This is consistent with the Kurtz
brochures which
contained two references to cycle time


one stated that the
output would vary between 15 and 25 blocks per hour and the other stated that
the capacity was 18 to 25 blocks per hour.


It is also consistent with the
testimony of Messrs. Kurtz and Schnitzhofe
r.


I find that this representation
was made and was intended to form part of the contract between the parties.



(v)
No Trimming

[109]


As with most of the representations, Mr. Teperto testified in more
detail about the alleged warranty regarding tr
imming than did Mr. Cormier.


In his testimony at trial, Mr. Cormier testified that either Mr. Jaksch or
Mr. Teperto told him that a lot of Mansonville’s products would not have to
be trimmed if the blocks were made in the Kurtz block mould.


At his
examin
ation for discovery, Mr. Cormier was asked whether Mr. Jaksch said that
Mansonville would not have to do trimming or whether it was something Mr.
Cormier inferred from what he was told.


After evading the question, Mr.
Cormier eventually answered that he h
ad inferred it and he said that he did
not recall hearing Mr. Jaksch actually say that Mansonville would not have to
trim blocks.

[110]


I again have the benefit of the transcript of Mr. Teperto’s testimony
on this topic.


His evidence was as follows
:

Q


During this trip, what did Mr. Jaksch say to you,
if anything, about


the squareness of the blocks
that you could manufacture with the block mould?




A



With the Monoflex mould?



Q



Yes.



A


That there would be no draft.


Just
-

-

you'd hav
e
a square or rectangular block.


If you made it 54
inches, it would be rectangular; if you made it 50,
it would be square.


The wall was
-

-

you know, I
mean, it was solid.


It was gonna
-

-

that's what
they


did.



Q


Did you and he talk at all about th
e effect that
that would have on your need to trim?



A


Yeah.


That was a key feature that we discussed,
that if I didn't have to trim a lot of blocks for
geofoam and a lot of blocks for flotation and a lot
of blocks for Koraboid [phonetic], that was
going
to save us a lot of money, save us a lot of
material, save us a lot of handling and make us
more competitive and more profitable.


And I think
that was the whole reason we were spending all the
money, was we had to get what we needed.


We never
looke
d at the Economat [phonetic] block because of
some of those features.


Like, we didn't want a
taper.


Idropress had a taper.


You know, it put us
off the Idropress, you know, being a tapered
block.


It was a big feature to have the


square/rectangular blo
ck and then the movable wall
with the ability to expand the bead and move the
wall
-

-

back the wall out afterwards.


Those are,
like
-

-

it's hard to explain that you
-

-

because
you don't understand the full thing and yield, I
don't think, but that was k
ey for us.


It was the
difference of how we could pay for it and how we
could get profitable and how we could compete in an
industry that was competitive.


I do the sales.


I
know what we sell.


I know what the market bears.


I
-

-

I get input from the sal
es representatives
that are working for me, basically, as the sales
manager.


So we qualify our market.


All these
features that Kurtz had was a great advantage for
us to service our customers' needs, offer a
superior product at less cost to us and competi
tive
to the customer.


It was what we went for.


It was,
like, from
-

-

what you needed to go for.

[111]


I accept that Mr. Teperto did discuss the topic of trimming with Mr.
Jaksch.


Unlike previous block moulds manufactured by Kurtz and other blo
ck
moulds on the market, the current version of the Kurtz block mould did not
have a taper to facilitate the ejection of the fused block from the mould.

I
find that Kurtz did make a representation that the mould did not have a
taper.


However, it is my vi
ew that Mr. Jaksch did not go further and make a
contractual warranty that every block would be square or that Mansonville
would not have to trim blocks intended for certain purposes.

[112]


The manner in which Mr. Teperto testified about the conve
rsation
suggests that it was him, not Mr. Jaksch, who drew the conclusion that a lack
of taper could save on the need to trim certain types of blocks.


Even though
Mr. Jaksch may not have disagreed with him or made a disclaimer, the nature
of the discussio
n was such that Kurtz did not assume the risk in the event
that the lack of a taper did not eliminate the need for trimming certain
types of blocks.

[113]


I find that there was no contractual warranty with respect to the topic
of trimming.



(vi)
Density Reduction Program

[114]


The Kurtz block mould had a moveable sidewall which allowed blocks of
different widths to be produced.


Mr. Cormier came up with an idea which
became known as the density reduction program.


He reasoned that if the
wall
could open between 1 to 3 inches during fusion, the beads would expand into
the greater space.


This would create more product with the same amount of
bead or, in other words, it would create a savings in raw materials.


Mr.
Cormier testified that he
talked to Mr. Jaksch about it and that Mr. Jaksch
phoned Kurtz engineers to see if the moveable wall could be programmed to
move during fusion.


Mr. Jaksch told Mr. Cormier that it could be programmed
in this fashion.


Kurtz’s earlier quotation was revised

to specify that the
block mould was to include a “[p]rogram option to move sidewall during fusion
as a secondary program at no charge”.


The same phrase was included in the
order confirmation.

[115]


At trial, both of Mr. Cormier and Mr. Teperto e
ndeavoured to leave the
impression that the density reduction program was never installed in the
block mould.


Mr. Oostenbrink testified that it had been installed but
complained that the wall moves too quickly and at an inappropriate stage of
the producti
on to provide the savings in raw materials anticipated by Mr.
Cormier.

[116]


I find that, as stated in the revised quotation and the order
confirmation, there was a contractual warranty that the block mould would be
programmed to allow the sidewal
l to move during fusion.


As to Mr. Cormier’s
conclusion that this would save Mansonville on raw materials, I find that no
such representation was made by Kurtz and that, even if Mr. Jaksch had agreed
with Mr. Cormier’s conclusion, it did not become a cont
ractual warranty
because it was Mr. Cormier's idea and the risk of the conclusion not being
realized rested with Mansonville.





(e)
Breaches of Contractual Warranties

[117]


I have found that Kurtz made the following contractual warranties:

(i)


the Kurtz equipment was simple to operate and was operator
friendly;



(ii)


Mansonville would be able to manufacture properly fused non
-
conforming, Type 1 and Type 2 products at densities of .75 lbs./cu.
ft., .81 lbs./cu. ft. and 1.25 lbs./cu. ft., respe
ctively;



(iii) the cycle time for the block mould would be between 2 ½ and 3
minutes;



(iv)


the mould would not have a taper; and



(v)


the block mould would be programmed to allow the sidewall to move
during fusion.

As I indicated in the previous
section, Kurtz did program the block mould so
that the sidewall could move during fusion and I find no breach of the fifth
contractual warranty.


Similarly, although there were some deficiencies in
the operation of the moveable sidewall, there was no breac
h of the fourth
contractual warranty regarding the absence of a taper.

[118]


The evidence is clear the Kurtz equipment did not perform in accordance
with the first three warranties from the fall of 1997 until at least the
spring of 1998.


Accordin
g to the testimony of Mr. Oostenbrink, the cycle
times were slow and inconsistent in 1997 and 1998, and are still slower than
promised.

[119]


Counsel for Kurtz submitted that the equipment was operating properly
when it was set up in September 19
97 and suggested that the Mansonville
operators must have done something to cause the equipment to make faulty
blocks.


However, Mansonville was attempting to contract Mr. Schnitzhofer
within two weeks of his departure on September 4 and there is no eviden
ce
that the Mansonville operators did anything inappropriate to the equipment.


Mr. Oostenbrink testified that the equipment appeared to be running well at
first but a huge consistency problem soon developed.



[120]


In any event, even if the Mans
onville operators had improperly changed
the settings, Kurtz was still in breach of the warranty that the equipment
was easy to operate because Kurtz’s own technicians could not rectify the
problem when they came to Mansonville’s plant in December 1997.


E
ven though
Mansonville’s operators were inexperienced, Kurtz never made any negative
comments about the competency of the operators while it was attempting to
rectify the problems in December 1997 and March 1998.


In addition, Kurtz had
undertaken to provi
de one week’s training for Mansonville’s operators and it
never suggested that they required additional training.

[121]


Counsel for Kurtz also submitted that the equipment was only warranted
to work as represented in an optimum situation and that
it was not the fault
of Kurtz that Mansonville did not provide optimum circumstances for the
operation of the pre
-
expander and block mould.


I find that Kurtz did not
make any disclaimers along these lines.


Mr. Jaksch visited Mansonville’s
plant to prepar
e a footprint drawing of the plant and there is no evidence
that he expressed any concerns about the ability of the equipment to work
properly in the environment of the plant.



(f)
Duration of the Breaches

[122]


It is here where the credibility of Mansonville’s witnesses comes into
question.


Although Mansonville regained its Canadian certification as a
result of tests of blocks which were made around the time of Mr.
Schnitzhofer’s departure at the end of March 19
98 and which were not over
-
densified, the evidence of Mansonville’s witnesses was that the problems
continued until at least July 1999, when Mansonville’s sales started to
increase significantly.

[123]


In general, I agree with counsel for Kurtz t
hat Messrs. Cormier,
Teperto and Oostenbrink embellished the extent of the problems after Mr.
Schnitzhofer was told to leave in March 1998.


Although they may not have
intentionally varied from the truth, it is my view that some of their
memories were reco
nstructed and, although they may have genuinely believed in
them, the reconstructed memories were not accurate in some respects.

[124]


I agree with most of the examples relied upon by counsel for Kurtz
during the closing submissions as reasons il
lustrating problems with their
credibility, as well as their demeanour and attitude while testifying.


The
examples in relation to Mr. Cormier include the following:

(a)


on the issue in question, Mr. Cormier testified that he was
sufficiently satisfied w
ith the quality of the product at the end of
1999 and told his sales staff to go out and sell.


Mr. Teperto
testified that this occurred in July 1999.


In his examination for
discovery, Mr. Cormier said that he was not satisfied with the
blocks produced by

the equipment until 2001;

(b)


in his examination for discovery, Mr. Cormier denied that he had
stopped Mr. Schnitzhofer from testing the equipment in March 1998.


In his examination in chief at trial, he said that he had only
stopped Mr. Schnitzhofer fo
r a weekend.


In reality, Mr. Cormier
interrupted the testing for approximately 10 days;



(c)


I prefer Mr. Schnitzhofer’s recollection of the conversation on
or about March 25, 1998 when Mr. Cormier told him to leave
Mansonville’s plant.


Mr. Schnitzhof
er’s recollection is consistent
with the notes which he made within a few days of the conversation.


I find Mr. Cormier’s recollection of the conversation to be faulty;



(d)


Mr. Cormier testified that the block mould had never been
programmed to have th
e sidewall move during fusion, while Mr.
Oostenbrink agreed that the program had been installed.

I also found Mr. Cormier to be evasive on numerous occasions during his
cross
-
examination at trial.

[125]


Some examples in relation to Mr. Teperto’s
credibility include the
following:

(a)


like Mr. Cormier, he inaccurately testified that the block mould
had never been programmed to have the sidewall move during fusion;



(b)


Mr. Teperto wrote the misleading letter sent on February 14, 1997
stating
that the letter of credit was in process when Mansonville
never took any steps to open a letter of credit;



(c)


when questioned about the February 14, 1997 letter in cross
examination, Mr. Teperto tried to justify it on the basis that he
had written the

letter for his protection.

[126]


Some examples in relation to Mr. Oostenbrink’s credibility include the
following:

(a)


he gave answers to two outstanding requests from Mr. Cormier’s
examination for discovery which were not true;



(b)


he inco
rrectly attributed part of the improvement in the
operation of the block mould to a programming change made by Mr.
Schnitzhofer in March 1998 when the evidence was to the effect that
the change was made in December 1997 when the production was not
satisfac
tory;



(c)


e testified in examination in chief that 60% of the production
runs presently require double passes through the pre
-
expander, but
conceded in cross
-
examination that a figure of 40% was more
accurate.

[127]


There is another reason for

doubting the testimony of Mansonville’s
witnesses that the problems with the equipment continued into mid or late
1999.


The following paragraph is contained in the report dated November 29,
1999 which PwC prepared for Mansonville’s banker:

In the summer
of 1997, the Company acquired on lease a pre
-
expander and a new block mould from a German company with an
excellent reputation in the business.


Unfortunately,
considerable problems were experienced in achieving proper
running of this machine and all of th
e problems were not ironed
out until sometime in 1998.


The Company does not currently have
any operating problems and, indeed, the machines are now working
exactly as specified and the quality of the product has, in the
Company’s opinion, never been bette
r and cannot be matched by its
local competitors who have yet to invest in this latest
technology.

In his cross
-
examination at trial, Mr. Cormier agreed that the statements
contained in the paragraph were told to PwC by either himself or Ms. Hurry
but cont
ended that the 1998 date was a mistake.


I am not entitled to treat
the statements contained in the PwC report as evidence of the truth of their
contents but, being satisfied that the statements were made to PwC, I am
entitled to use them for the purpose o
f assessing the credibility of
Mansonville’s witnesses.

[128]


In closing submissions, counsel for Mansonville pointed to the evidence
that Mansonville’s sales began to materially increase beginning in July 1999
as corroboration of the testimony o
f the Mansonville witnesses that the
problems with the equipment continued until that time.


It is my view that
these witnesses reconstructed their memories on this point and used the date
of the commencement of the increase in sales as justification for t
heir
recollections.


This would not include Mr. Cormier, of course, because he
maintained that the problems persisted until at least the end of 1999, which
was after the PwC report stating that Mansonville did not have any operating
problems and that the m
achines were working as specified.

[129]


Mansonville regained its Canadian certification with blocks made around
the time of Mr. Schnitzhofer’s departure near the end of March 1998, although
it did not learn of it until mid
-
May 1998.


I accept tha
t there were still
problems with the operation of the equipment after Mr. Schnitzhofer left but
I find that most of the problems had come to an end within a couple of months
of the regaining of the certification.


I hold that, with the exceptions of
the le
ngth of the cycle times and the need for Mansonville to double pass the
bead through the pre
-
expander to achieve the required densities for some
products, Kurtz ceased to be in breach of its contractual warranties in July
1998.

[130]


Counsel for
Kurtz submitted that Mr. Schnitzhofer was able to get the
density down to 12.8 g/l (.80 lbs./cu. ft.) in one pass on the pre
-
expander
without burning the bead when he was at Mansonville’s plant in March 1998 and
that it is not necessary for Mansonville to
double pass bead on its
continuous pre
-
expander.


I find that Mr. Schnitzhofer was not able to
achieve a low density with one pass on a consistent basis and that it is
necessary for Mansonville to double pass bead on its continuous pre
-
expander
in order to

achieve the density represented by Kurtz.



(g)
Leaky Bearings

[131]


The sealing arrangement on the Kurtz pre
-
expander leaks through the
sealing gland and bearing arrangement.


This leads to water leaking into the
reduction gear and electrical motor.


Mansonville seeks damages to resolve
the problem in one of the two ways i
n which other Kurtz customers have dealt
with the bearing systems on their Kurtz pre
-
expanders.


One way was to
replace the bearing system and the other way was to have the bearing system
moved to the top of the machine.

[132]


Mr. Schnitzhofer re
placed the bearing in March 1998 as a preventative
measure.


Mr. Oostenbrink testified that the bearing started leaking and has
been leaking ever since.


On cross
-
examination, Mr. Oostenbrink conceded that
Mansonville has not had anyone look at it with a v
iew of changing the seal or
bearing.


I infer that Mansonville does not consider it to be a serious
problem.

[133]


Kurtz’s expert, Mr. Morris, gave the opinion that the seal often
requires replacement after several years of operation as a result o
f wear and
tear.


Mansonville’s expert, Mr. Sandilands, conceded on cross
-
examination
that one solution was to replace the seal.

[134]


In my view, Mansonville has not proven on a balance of probabilities
that the leaky bearings have resulted from
faulty design or other cause which
is the responsibility of Kurtz.


The fact that two other Kurtz customers did
something to the bearing system on their pre
-
expanders is not proof that the
bearing system on Mansonville’s bearing system is defective.


Altho
ugh Mr.
Schmit expressed the opinion that the leaking needs to be repaired for the
pre
-
expander to consistently make product to industry standards, Kurtz is not
responsible to remedy the effects of wear and tear.


The existence of the
leak is not, by itsel
f with nothing more, sufficient to prove liability on
the part of Kurtz.



(h)
Damages

[135]


I have held that Kurtz is liable in respect of the following:

(a)


the breach of contract arising from the delay in delivery of the
block mould for a per
iod of six weeks;

(b)


the breach of the contractual warranties regarding the
performance of the equipment until mid
-
summer 1998; and



(c)


the continuing breach of the contractual warranties relating to
cycle times and the density which could be achiev
ed by the pre
-
expander.

Mansonville is entitled to be compensated in damages in respect of these
breaches.

[136]


Counsel for Mansonville cited several authorities dealing with general
principles in the assessment of damages.


In
Pacific
Destination Properties
Inc. v. Granville West Capital Corp.

(1999) 65 B.C.L.R. (3d) 27 (C.A.), the
Court said the following:

In assessing damages for loss of opportunity the court must
reach a conclusion as to what would have taken place had there
been no
breach.


If it is shown with some degree of certainty
that a specific contract was lost as a result of the defendant’s
breach, some damages should be awarded.


Even though the
plaintiff may not be able to prove with certainty that it would
have obtained sp
ecific results but for the breach, it may be
able to establish that the defendant’s breach deprived it of the
opportunity to obtain such business.


See:
Houweling Nurseries
Ltd. v. Fisons Western Corp.

(1988), 37 B.C.L.R. (2d) 2
(B.C.C.A.)


(¶ 54)

The Cour
t also made reference to
Bradshaw Construction Ltd. v. Bank of Nova
Scotia

(1992), 73 B.C.L.R. (2d) 212 (C.A.), where it was stated that the
standard of proof for assessing the actual amount of loss is not as strict as
the standard of proof on a balance of

probabilities and that the best that
can be estimated are the possibilities, not the probabilities.

[137]


In
Pan
-
Asia Development Corp. v. Smith
, [1996] B.C.J. No. 1919 (S.C.),
Baker J. made the following comment regarding lost opportunity:

Where

the plaintiff proves that, but for the defendant’s
conduct, the plaintiff had a reasonable probability of realizing
an advantage of real monetary value, the court must attempt to
estimate the value of the lost chance and award damages on a
proportionate b
asis, by discounting the value of the chance by
the improbability of its occurrence.


(¶ 61)

Counsel referred to a passage in
Jenkins Road Developments Ltd. v. Willie
,
2001 BCSC 80 at ¶ 6 where Vickers J. relied on the
Pan
-
Asia
decision for the
proposition

that in a case such as this one, the court should not bring a
pessimistic approach to the task of assessing damages.


Although the Court of
Appeal reduced the award of damages in
Jenkins Road

[2002 BCCA 399], it
quoted ¶ 6 of the trial decision with appar
ent approval.



[138]


Mansonville’s expert on damages was Ms. McFarlane of BDO Dunwoody LLP.


She estimated Mansonville’s economic loss in respect of (i) losses from pre
-
existing operations caused by the delayed delivery of the equipment and the
f
ailure of the equipment to operate properly until June 1999, (ii) the loss
of the contract for the Seattle Music Museum project in 1997, (iii) the delay
in the commencement of sales of EPS by Mansonville to the related company,
Korolite Engineered Panel St
ructures Ltd. (“Korolite”), for the manufacture
and sale into the United States of laminated products, and (iv) extra
interest charges paid to Mansonville’s banker.



[139]


Mansonville’s controller, Mr. Khaddoura, provided an estimate for use
in c
alculating the extra costs in having to give a portion of the beads a
second pass during the pre
-
expansion stage of production.


No evidence was
proffered with respect to any continuing damage resulting from the length of
cycle times of the block mould.



(i)
Losses from Pre
-
Existing Operations

[140]


Ms. McFarlane calculated Mansonville’s loss on its pre
-
existing
operations caused by the delayed delivery and faulty operation of the
equipment by taking the difference between projected “contribution
margin”
and actual “contribution margin” for the period from July 1, 1997 to October
31, 2002.


The term “contribution margin” means revenue minus variable cost
of sales, variable general and administrative expenses, and variable selling
expenses.



[141]



In making this calculation, Ms. McFarlane “dragged back” the sales of
EPS (measured in board feet) made by Mansonville for a two year period on the
assumption that Mansonville would have accomplished those sales if the
equipment had been delivered

on time and operated properly.


In effect, she
assumed that the sales which Mansonville actually made in July 1999 would
have been made in July 1997 and that the sales in each of the 23 months
following July 1999 would have been made two years earlier.

[1
42]


However, it was only possible for Ms. McFarlane to use actual figures
up to October 2002 (the fiscal year end of Mansonville preceding the
preparation of her report in February 2003), which were dragged back to
October 2000.


For the period
from November 2000 to October 2002, the figures
to be dragged back two years are the projected sales of Mansonville from
November 2002 to October 2004.


This projection was made more difficult
because Mansonville’s sales have generally been declining since

July 2001 on
a 12
-
month rolling basis with some levelling off near the end of the fiscal
year ended October 2002.


Mansonville believes that this has been caused by
an illegal price war instigated by one of its competitors.


Ms. McFarlane
created the foll
owing three scenarios:

(a)


a worst case scenario in which she assumed that sales would stay
the same as their 2002 level;

(b)


a best case scenario in which she assumed that sales returned to
their level prior to the price war; and



(c)


a middle cas
e scenario in which she assumed that sales would
return halfway from the 2002 level to the level prior to the price
war.

Ms. McFarlane calculated the economic losses for the worst, middle and best
case scenarios to be $722,000, $913,000 and $1,105,000.

[14
3]


Kurtz’s financial expert was Mr. Bowie of KPMG.


He critiqued Ms.
McFarlane’s report and he did some of his own calculations using information
relied upon by Ms. McFarlane.


On this head of loss, Mr. Bowie criticized the
calculations of Ms. McF
arlane on the basis that in computing the contribution
margin loss, she used average historical variable expense relationships for
the period from 2000 to 2002.


It is the opinion of Mr. Bowie that this
creates a built
-
in or inherent contribution margin lo
ss of approximately
$173,000 and that it is more appropriate to use the actual variable expense
relationships during the relevant periods.


Using the actual expense
relationships, Mr. Bowie calculated the economic losses for the worst, middle
and best case

scenarios to be $301,000, $449,000 and $597,000.

[144]


In her rebuttal report, Ms. McFarlane did not deny that her approach
created a built
-
in contribution margin loss but she defended the approach on
the basis that the average cost relationships

are preferable to the actual
cost relationships.


She agreed that Mr. Bowie’s method would be correct if
there had been no loss of efficiency and effectiveness during the loss period
but she argued that the problems with the equipment created a diminishme
nt of
efficiency.


If the actual cost relationships are used, she reasoned,
Mansonville would not be compensated for the decrease in efficiency caused by
the problems with the equipment during the loss period.

[145]


It is my view that there is mer
it in the positions of both of Mr. Bowie
and Ms. McFarlane.


The damages to which Mansonville is entitled should
include losses brought about by lessened efficiency caused by the problems
with the equipment, but Mansonville should not be compensated in res
pect of
losses which it did not incur.


In addition, Ms. McFarlane’s approach assumes
that all of the inefficiency was caused by problems with the equipment and it
is my view that other potential causes of inefficiency should also be taken
into account.



[146]


In her computation of operating loss, Ms. McFarlane assumed a loss
period from July 1, 1997 to July 1, 1999, although her calculations included
a “market buildback period” of approximately 5 to 6 months.


In his report,
Mr. Bowie made calcul
ations for three different loss periods, including a
loss period from July 1, 1997 to March 31, 1998, but in his calculations he
used the actual cost relationships rather than the average cost
relationships.


His calculation of the loss period from July 1,

1997 to March
31, 1998 was $142,000.

[147]


In her rebuttal report, Ms. McFarlane did the calculations for these
three loss periods but used the average cost relationships as she had in her
initial report.


She calculated the loss in respect of a
loss period from
July 1, 1997 to March 31, 1998 to be $658,000.


In her calculation, she
assumed that the number of board feet of product which Mansonville would have
sold, but for the late delivery and problems with the equipment, from July 1,
1997 to Oct
ober 31, 1998 (which included a market buildback period) were the
actual number of board feet produced during the periods (i) April 1, 1998 to
October 31, 1998, (ii) July 1, 1999 to October 31, 1999 and (iii) November 1,
1999 to March 31, 2000.


The inclus
ion of a market buildback period in this
calculation is questionable because Mansonville’s actual sales remained more
or less level for the period from August 1998 until July 1999.

[148]


As a result of my earlier holdings, the loss period was from

mid
-
July
1997 until July 1998, a period of approximately one year.


The block mould
should have been delivered by mid
-
June, 1997 and, with a two week set
-
up
period, it should have been operational by the beginning of July 1997.


It
was not operational unt
il the beginning of September 1997 but I have held
that two weeks’ of delay were not the fault of Kurtz.


Hence, the loss period
began in mid
-
July, 1997.


The loss period ended in July 1998, when I have
held that the problems regarding production were esse
ntially resolved.

[149]


I have not endeavoured to calculate the lost contribution margin in
respect of a period from mid
-
July 1997 to July 1998.


The calculations done
by the experts are based on assumptions and projections which may not be
valid,

and the assessment of damages is not merely a mathematical calculation
(see, for example,
Houweling Nurseries Ltd. V. Fisons Western Corp.

(1988),
37 B.C.L.R. (2d) 2 (C.A.) at p. 6 and
Mulholland (Guardian ad litem of) v.
Riley Estate

(1995), 12 B.C.L.R.
(3d) 248 (C.A.) at ¶ 43).

I agree with the
submission by counsel for Kurtz that the fact that Mansonville’s sales
remained level for approximately a year after the problems with the equipment
were resolved tends to suggest that other factors were also at
work in
preventing the sales from increasing.


The “dragging back” of sales from the
period commencing July 1999 may well result in an overstatement of
Mansonville’s losses.

[150]


On the basis of all of the evidence, including the opinions of the
experts engaged by the parties, I assess the losses incurred by Mansonville
on its pre
-
existing operations as a result of the late delivery of the
equipment and the problems with the equipment which I have held to be in
breach of the contractual warranties

to be in the amount of $350,000.



(ii)
Seattle Music Museum Project

[151]


Ms. McFarlane calculates a loss of $139,000 as a result of
Mansonville’s inability to carry out a contract for the supply of EPS to Con
-
Force Structures Limited (“Con
-
Force”), a Vancouver contractor which wanted
to bid on the construction of a building tha
t came to house the Seattle Music
Museum.

[152]


Mr. Teperto began having discussions with Con
-
Force in early 1997.


The
concept was that the building would be constructed of concrete, and EPS would
be used as a mould for the concrete.


Discussion
s continued into the spring
but Mansonville informed Con
-
Force that it could not participate in the
project after Mr. Cormier returned from Europe in June 1997 (Mansonville’s
previous block mould could not produce the quantities of EPS which would be
requi
red for the project).


Mr. Teperto testified that he did not know
whether Con
-
Force continued with a bid after June 1997.


He was aware that
the building was ultimately constructed of steel, not concrete.

[153]


In my opinion, it is entirely too s
peculative to conclude that
Mansonville sustained a substantial loss with respect to this project.


There
is no evidence whatsoever that Con
-
Force would have been the successful
bidder if Mansonville had been able to supply the required EPS.


The fact
that

the building was constructed of steel suggests that Con
-
Force may well
not have been the successful bidder.


Mansonville may have lost an
opportunity to enter into a supply arrangement with Con
-
Force but the
opportunity would have led to nothing unless Co
n
-
Force was the successful
bidder.


There is no evidence with which I can properly assess the
possibility or likelihood of Con
-
Force winning the contract for the project
if Mansonville was in the position to provide EPS to it.

[154]


It is my view

that the following comments by Mackenzie J.A. in
Fraser
Park South Estates Ltd. v. Lang Michener Lawrence & Shaw
, 2001 BCCA 9 apply
to this claim of damages:

I think that the findings of the trial judge preclude any real
and substantial chance of benefit
from the respondents’ breach.


In my respectful view, any chance of loss to the appellant was no
more than speculative and a mere speculative chance was
insufficient to support any claim for damages beyond nominal
damages in contract.


(¶ 80)



[155]



I award Mansonville nominal damages of $100 in respect of the lost
opportunity to supply EPS to Con
-
Force for the Seattle Music Museum project.



(iii)
Korolite Delay Claim

[156]


When it decided to purchase the Kurtz equipment, it was Mansonvi
lle’s
intention to expand its market into the United States.


It principally
intended to accomplish this in an indirect fashion of selling EPS to the
related company, Korolite, which would manufacture laminated products with
the EPS and sell these products

in the United States.

[157]


Ms. McFarlane initially calculated Mansonville’s loss under this head
to be $1,217,000 consisting of a past loss of $316,000 and a future loss of
$901,000.


In making this calculation, Ms. McFarlane relied on the sale
projections of Ms. Hurry up to 2012.


She revised her calculations when Ms.
Hurry disclosed that she did not feel comfortable with her projections beyond
2005 because they were too speculative.


Ms. McFarlane revised her
calculations on the basis that sale
s would remain constant from 2005 to
2012.


The result of the revised calculations was that Mansonville’s claimed
loss was $457,000 consisting of a past loss of $305,000 and a future loss of
$152,000.

[158]


In her calculations, Ms. McFarlane was i
nstructed to assume that the
commencement of Korolite’s business was deferred from January 1, 1999 to
November 1, 2002 (a total of 46 months) as a result of the late delivery and
problems with the Kurtz equipment.


She also discounted future loss of
profit
s at a rate of 2.5% per annum, the time value of money established
pursuant to the
Law and Equity Act
, R.S.B.C. 1996, c. 253 (which more
properly should have been 3.5% per annum under s. 56(4) of the
Law and Equity
Act
).

[159]


In his report, Mr.
Bowie did some alternate calculations.


The first
difference in his calculations is that he assumed delay periods of 12 and 24
months, rather than 46 months.


The second difference is that he utilized a
risk
-
based discount rate of 30%.


On the assumption o
f a 12 month delay, he
calculated the loss to be $133,000, of which $28,000 is a past loss and
$105,000 is a future loss.


On the assumption of a 24 month delay, he
calculated the loss to be $294,000, of which $78,000 is a past loss and
$216,000 is a futur
e loss.

[160]


In my opinion, an assumption of a delay of 46 months caused by the late
delivery and problems with the equipment is not warranted by the evidence.


Mr. Teperto testified that Mansonville applied for its ICBO testing (the U.S.
standa
rd) for Type 1 products in January 2001 and obtained approval in June
2001.


He also testified that Mansonville has been orally advised that it
passed the ICBO test for Type 2 products but has not yet received written
confirmation.


Mr. Oostenbrink testifi
ed that Mansonville was in a position
to apply for its U.S. certification by the end of 1999.

[161]


I find that the delay in Korolite entering the U.S. market attributable
to Kurtz’s breach of contract is the same 12 month period as its loss perio
d
for its pre
-
existing operations.


The delay of the U.S. testing agency in
processing Mansonville’s application is not the responsibility of Kurtz.


Nor
is the delay in Mansonville’s application after Mr. Oostenbrink believed that
it was in a position to
make the application.


Of course, Mr. Oostenbrink’s
estimate in this regard must be tempered by my finding that the equipment was
working properly prior to the time he stated in his testimony.


The fact that
Korolite delayed much longer than 12 months befo
re entering the U.S. market
leads me to conclude that there were other factors which was also influencing
the decision.


I do not believe that it is appropriate to make Kurtz
responsible for any more of the delay than the 12 month period in respect of
whic
h the delivery of the equipment was late and the equipment was not
working properly.

[162]


In the calculation of the damages with respect to the Korolite delay
claim, the experts differed with respect to the appropriate discount rate.


Ms.
McFarlane chose a risk
-
free rate of 2.5% per annum, while Mr. Bowie chose
a risk
-
based rate of 30%.


Mr. Bowie testified that a discount rate of 30% is
basically a standard rate for startup businesses.

[163]


In my opinion, an appropriate discount
rate is between 20% and 25%.


Although Korolite could be viewed as a startup company, its business is
essentially an extension of Mansonville’s business and I believe that a
discount rate of 30% is too high in the circumstances.


I have chosen a rate
of 20

to 25% over a lower rate because Ms. Hurry has a tendency to be overly
optimistic in her projections (of the 8 sales budgets done by Ms. Hurry for
Mansonville from 1995 to 2002, 7 of them proved to be higher than the actual
sales).


In her rebuttal report
, Ms. McFarlane did the calculations for 12
and 24 month delays using discount rates of 15% and 20%.


Her calculation in
respect of a 12 month delay with a 20% discount rate produced a loss of
$168,000.

[164]


On the basis of all of the evidence, i
ncluding the opinions of the
experts engaged by the parties, I assess the losses incurred by Mansonville
as a result of the delay in Korolite commencing business caused by the late
delivery of the equipment and the problems with the equipment to be in the
amount of $150,000.



(iv)
Extra Interest Charges

[165]


Mansonville claims the sum of $12,331 in extra interest payments it
made to its banker as a result of the interest rates on its operating and
term loans being increased.


The rate on the oper
ating loan was increased
from the bank’s prime rate plus 0.875% to prime rate plus 1.375% in March
1999.


The rate on the term loan was increased from prime plus 1.250% to
prime plus 1.5% in November 2000.

[166]


There is no evidence as to why Mans
onville’s banker increased the
interest rates.


The interest rates charged on the two types of loans were
changed at different times and they were not lowered after Mansonville had a
very profitable year in fiscal 2000.


There is insufficient evidence for
me
to conclude that the interest rates were increased as a result of Kurtz’s
breaches of its contract with Mansonville.



[167]


I hold that Mansonville has not proved a loss under this head of
damages attributable to Kurtz’s breaches.



(v)
Double

Prefoaming Pass

[168]


Mr. Oostenbrink testified that in order to get the density of the EPS
product below .95 lbs./cu. ft., he began double passing bead on Mansonville’s
continuous pre
-
expander in June 1999.


This requires extra steam and
additio
nal labour.

[169]


Mansonville’s controller, Mr. Khaddoura, made a calculation of the
extra expenses for the period from November 1, 2002 to March 31, 2002, the
only period for which Mansonville had retained all of its prefoaming
reports.


He calcu
lated the variable overhead costs and labour costs
associated with the double pass during this period.


His calculation resulted
in a total of $9,696.


Based on evidence that this period represents 35% of
Mansonville’s annual sales and utilizing an 18 year

loss period, Mansonville
claims the sum of $498,000.

[170]


In the event that I found Kurtz’s representation to be that a density
of .75 lbs./cu. ft. (as opposed to .70 lbs./cu. ft.) could be achieved by the
pre
-
expander (as I have held), Mr. Bowi
e calculated Mansonville’s saving on
bead costs for this period to be $6,965 as a result of fewer beads being
needed to the extent that the double pass reduced the density below .75
lbs./cu. ft.


If this saving is netted out of Mansonville’s claim, the dam
age
figure is reduced to $134,000.

[171]


I have two reservations with respect to Mr. Khaddoura’s calculations.


In calculating the variable overhead costs, he took the annual depreciation
and repair costs for Mansonville’s entire plant and then co
mputed an hourly
overhead cost, which he then applied to the double pass on the continuous
pre
-
expander.


My first reservation is that it does not seem appropriate to
apply the same rate of depreciation to an old machine such as the continuous
pre
-
expander

as is applied to new equipment.


I doubt that very little, if
any, of the overall depreciation figure is attributable to the continuous
pre
-
expander.


My second reservation relates to the repair costs.


There is
no evidence of the level of repairs which i
s required by the continuous pre
-
expander and it may not be accurate to attribute the same proportionate cost
of repairs to it as is attributable to Mansonville’s other machinery.

[172]


It is also my view that the loss figure should be discounted to take
contingencies into account.


Although Kurtz’s equipment may have a 20 year
life span, it does not necessarily follow that Mansonville will keep using it
for the full 20 year period.


It c
ould become functionally obsolete or
uneconomic in a shorter period, much in the same fashion as personal
computers become obsolete even though they are still able to perform to their
initial specifications.


There are numerous other contingencies which ma
y
cause Mansonville to cease operating the equipment prior to 2017.


The time
value of money should also be taken into account in respect of future loss.

[173]


On the basis of all of the evidence, I assess the losses incurred by
Mansonville as a r
esult of Kurtz’s breach of the contractual warranty
regarding achievable density in the amount of $75,000.



(vi)
Total Damages

[174]


I find that Mansonville has sustained damages in the aggregate of
$575,100 as a result of Kurtz’s breaches of con
tract, allocated as follows:

$350,000
-

losses on pre
-
existing operations



100
-

Seattle Music Museum project


150,000
-

Korolite delay claim




nil
-

extra interest charges


75,000

-

double prefoaming pass




$575,100



[175]


Mansonville is also entitled to pre
-
judgment interest on its past
losses.


If the parties are unable to agree on the amount of pre
-
judgment
interest, I direct that there be an accounting in respect of the interest
before the registrar, who is to prepare a
report and recommendation.



(i)
Identity of Liable Defendants

[176]


Counsel for all of the Defendants concedes that if I find Kurtz to be
liable, the liability will extend to both of Kurtz GmbH and Kurtz Altaussee
GmbH.


Counsel for Mansonville
says that Kurtz North America should also be
liable.

[177]


Mansonville’s position on this point is based on the testimony of Mr.
Walter Kurtz that it was typical for all three of the companies to be
involved in a sale and that he represents all t
hree companies when he is
involved.


In my view, this is not sufficient to create liability on the part
of Kurtz North America.



[178]


There is no evidence that there was any involvement in the transaction
by Kurtz North America prior to the cons
ummation of the contract with the
issuance of the order confirmation.


If Mr. Teperto or Mr. Cormier had been
asked at that time which of the Kurtz companies Mansonville had contracted
with, they may have answered Kurtz GmbH, Kurtz Altaussee GmbH or both b
ut
they would not have referred to Kurtz North America.


The evidence is not
sufficient to establish that Kurtz GmbH or Kurtz Altaussee GmbH was acting as
agent for an undisclosed principal (namely, Kurtz North America) when they
entered into the contract
with Mansonville.

[179]


All the evidence establishes is that the Kurtz companies work together
and that Kurtz North America is involved in the set
-
up and servicing of
machines sold in North America.


The fact that Kurtz North America performs
cert
ain functions in relation to North American sales does not make it the
vendor of the equipment or a party to the contract of purchase and sale.

[180]


I find that Kurtz GmbH and Kurtz Altaussee GmbH were the parties to the
contract with Mansonville

and are liable to Mansonville for the breaches of
the contract.



CONCLUSION

[181]


I award Mansonville judgment against Kurtz GmbH and Kurtz Altaussee in
the amount of $575,100 plus pre
-
judgment interest.


Counsel did not make
substantive submissions with respect to the appropriate award of costs
(although they both claimed costs on beha
lf of their clients).


If counsel
are able to agree, they may include a costs provision in the Order reflecting
the decisions in these Reasons for Judgment.


If counsel are unable to agree
on the appropriate award of costs, arrangements for a costs hearing

may be
made through Trial Division.

“D.F. Tysoe, J.”

The Honourable Mr. Justice D.F. Tysoe