Canadian Kawasaki Motors Inc. v. Freedom Cycle Inc.

Canadian Kawasaki Motors Inc. v. Freedom Cycle Inc. Court Supreme Court Date 2006-11-21 Citation 2006 NSSC 347 Docket 262923A Judge/Registrar/Adjudicator Robertson, M. Heather (Honourable Justice) Document Type Decision Decision Content IN THE SUPREME COURT OF NOVA SCOTIA Citation: Canadian Kawasaki Motors Inc. v. Freedom Cycle Inc., 2006 NSSC 347 Date: Decision Date 20061121 Docket: 262923(A) Registry: Halifax Between: Canadian Kawasaki Motors Inc. Appellant v. Freedom Cycle Inc. Respondent Judge: The Honourable Justice M. Heather Robertson Heard: June 20, 2006, matter heard, in Halifax, Nova Scotia Written Decision: November 21, 2006 Counsel: Charles J. Ford, for the appellant Melanie Perry, for the respondent Robertson, J.: [1] This appeal arises from the findings of Small Claims Court adjudicator David T. R. Parker, who found the appellant Canadian Kawasaki Motors Inc. liable in negligence for damage arising from a gasoline spill attributed to a faulty installation of a motorcycle gas tank. The motorcycle was purchased by Gary Locke, from the retailer Freedom Cycle Inc. “FCI” who is the respondent. [2] The facts are not in dispute and as summarized by the appellant are as follows: Kawasaki is engaged in the manufacturing and sale of motorcycles. FCI, at all material times, was an authorized dealer of the Appellant’s products. The Appellant supplied the Respondent with a 2001 Kawasaki Voyager 1200 Motorcycle (the “motorcycle”) bearing serial number JKAZG9B171B512805. The motorcycle was partially assembled at the time it was shipped to the Respondent. Upon receipt of the motorcycle, the Respondent completed the assembly of the motorcycle. The motorcycle was then sold to Gary Locke on or about July 5, 2001. On July 14, 2001, Mr. Locke filled the motorcycle with gasoline following a trip to the Eastern Shore. Upon returning home, he parked the motorcycle in his garage. The following morning, Mr. Locke discovered a large amount of gasoline on the floor of his garage and on his driveway. At some point that evening/early morning, the gasoline line became partially detached from the gasoline tank causing the spill and the resulting damage. Mr. Locke commenced a claim in Small Claims Court against FCI wherein he claimed $15,000.00 for damages incurred in the cleanup of the gasoline on the basis that the gasoline line was defective and/or it had not been properly installed. FCI filed a Defence to Mr. Locke’s claim. FCI subsequently advanced a separate claim against Kawasaki in contract, negligence and for contribution and/or indemnification claiming that any defect relating to the gasoline line was the responsibility of Kawasaki as manufacturer of the motorcycle. Kawasaki filed a Defence to FCI’s claim and counsel for Locke, Kawasaki and FCI agreed that the two claims would be heard together pursuant to s. 25 of the Small Claims Court Act. It should also be noted that Mr. Locke did not advance a claim against Kawasaki but instead brought an action solely against FCI. A hearing was held on October 7 and 20, 2005 before Adjudicator Parker. Adjudicator Parker issued a written decision on January 21, 2006 and an Order reflecting his decision was filed with the Court on January 25, 2006. Adjudicator Parker allowed the claim of Gary Locke against the Respondent, FCI. Adjudicator Parker also allowed the Respondent’s claim against the Appellant based on a finding of negligence. A Notice of Appeal was filed by the Appellant on February 24, 2006. FCI did not appeal Adjudicator Parker’s Order allowing Mr. Locke’s claim against FCI. [3] The grounds of appeal of the adjudicator’s findings are as follows: Grounds of Appeal The Appellant is appealing Adjudicator Parker’s decision on the following grounds: 1. FCI did not call any evidence to support a finding of negligence or breach of contract against Kawasaki. 2. The evidence called by FCI was entirely supportive of Kawasaki’s position, namely, that there was no defect with respect to the motorcycle in question. 3. The learned Adjudicator failed to consider the evidence with respect to FCI’s role in physically testing the motorcycle in question. 4. The learned Adjudicator failed to consider clause 10, 11 & 20B of the Kawasaki Products Authorized Dealer Sales and Service Agreement. 5. The learned Adjudicator erred in law and in fact that the gas line was defective at the time that Kawasaki delivered the motorcycle to FCI. The Appellant states that no evidence was presented to support this finding of fact. 6. The learned Adjudicator erred in law by applying a test of strict liability in finding Kawasaki negligent. [4] With respect to the standard of review the appellant relies on Stein v. Kathy K. (The), [1976] 2 S.C.R. 802, where the court found that the findings of fact made at trial are not to be reversed “unless it can be established that the learned trial judge made some palpable and overriding error which affected his assessment of the facts” yet found it is not the function of the reviewing court to substitute its assessment of the balance of probability for the findings of the judge who presided at trial. In Stein, the court was a court of record. [5] However, in Small Claims Court there is no transcript of the proceeding. It is therefore incumbent on the adjudicator to expressly state the findings of fact and basis for these findings as the reviewing court must accept the adjudicator’s findings of fact. [6] In Laura M. Cochrane Trucking Ltd. v. Canadian General Insurance Co., [1995] N.S.J. No. 633 (N.S.S.C.) Justice Hall noted that the appeal court hearing an appeal from a Small Claims Court is as a matter of law, bound to accept their findings of fact. He stated at para 4: ...in order for the appellant to succeed it must establish that the Adjudicator applied some wrong principle of law which led to reversible error or that she misapplied the law leading to an incorrect result or conclusion. [7] I am required as a matter of law to show deference to any findings of fact made by the adjudicator and can only overturn his decision if the adjudicator has applied the wrong principle of law to the facts or misapplied the right principle of law to the facts; thus making an error in law that can be appealed under s. 32(1) of the Small Claims Court Act. ISSUES: 1. The learned adjudicator failed to consider clauses 10, 11 and 20B of the Kawasaki Products Authorized Dealer Sales and Service Agreement (the “Agreement”). [8] It is agreed by counsel that the appellant did argue clauses 11 and 20B of the Agreement before the adjudicator. The respondent however claims that s. 10 of the Agreement was not raised in argument and cannot now form the basis of this appeal. The respondent says because clause 10 was not raised at trial they did not have the opportunity to call evidence on whether the limiting provisions of the guide would be enforceable. [9] The relevant clauses of the Agreement are: 10. WARRANTY DISTRIBUTOR makes no representation or warranties, expressed or implied, with respect to the Products except as may be provided in a standard printed warranty offered with respect to a particular Product from time to time. THE FOREGOING IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, EXCEPT TITLE, WHETHER WRITTEN, ORAL OR IMPLIED, AND DISTRIBUTOR MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE. The fulfilling of the terms of the printed warranty shall constitute the sole remedy of DEALER and the sole liability of DISTRIBUTOR whether on warranty, contract or negligence. 11. PREDELIVERY SERVICE DEALER expressly recognizes its obligation to use its best efforts to effectively service and condition Products before delivery in accordance with predelivery service and conditioning schedules or instruction furnished from time to time by DISTRIBUTOR to DEALER. Upon request, DEALER will furnish evidence of performance of such predelivery services. A material or a continuing default in the DEALER’S obligation under this Paragraph constitutes a breach of the DEALER’s responsibilities under this Agreement. 20B. RELEASE AND INDEMNIFICATION B. DEALER agrees to hold DISTRIBUTOR harmless and to indemnify DISTRIBUTOR for any liability or costs, including lawyer’s fees which may be imposed on DISTRIBUTOR as a result of claims based in whole or in part upon DEALER’s negligence or faulty workmanship. [10] The appellant argues that the Agreement delineates the scope of Kawasaki’s obligation to FCI in contract, warranty and tort, saying that their sole liability to the dealer is limited as set forth in the standard warranty supplied with the product, which only covers the cost of repair or replacement of defective materials or workmanship and limits its liability with respect to negligence. [11] With respect to the limited warranty, the Kawasaki Owner’s Warranty sets out: Kawasaki Limited Warranty Canadian Kawasaki Motors Inc, 25 Lesmill Road, Don Mills, Ontario (hereinafter “Kawasaki”) warrants to the initial user and each subsequent owner of each new Kawasaki product during the warranty term, that said product shall be free, under normal use and maintenance, from any defects in material or workmanship, subject to the following exclusions, conditions and limitations. ... Limited Liability The liability of Kawasaki during the warranty term set forth in the TERM section is limited solely to the repair or replacement of defective material or workmanship by an authorized Kawasaki dealer at its normal place of business during normal working hours. The warranty does not include any expense of, or related to, transport of the product to a Kawasaki dealer, or compensation for loss of use or inconvenience while the product is being repaired. KAWASAKI SHALL NOT BE LIABLE FOR ANY OTHER EXPENSE, LOSS OR DAMAGE, WHETHER DIRECT, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY ARISING IN CONNECTION WITH THE SALE OR USE OF OR ABILITY TO USE THE KAWASAKI PRODUCT. [12] The adjudicator found that: This agreement limits the contractual liability of Kawasaki except as to the standard warranty offered with respect to the product manufactured by Kawasaki. That standard warranty is contained in the Kawasaki Owner’s Warranty Guild which states in part, “Kawasaki warrants ... that the said product shall be free under normal use and maintenance from any defects in material or workmanship, subject to the following exclusion, conditions and limitations.” The limitations do not appear to extend to environmental damage although it does not specifically exclude such damage which is what happened in this case. Even if there is a contractual limitation as to Kawasaki liability to the Claimant FCI there is the problem of negligence and that tort has been pleaded. I have considered the elements of negligence and there is certainly a duty owed by Kawasaki to its dealers. It had undertaken to ship the motorcycle to its dealer, FCI and to have assembled part of the motorcycle before it arrives at the dealership, including the gas line. I have determined that the gas line’s attachment was defective and consequently the standard of care that was required by Kawasaki was not met. I realize this conclusion is a result of drawing together all the evidence to reach a conclusion. There was consequently a breach of the requisite standard of care and damage ensued. The damage that can be caused by an expulsion of gasoline onto someone’s property is foreseeable. My order will reflect the consequences of this decision. [13] It is clear to me that both the Kawasaki Owner’s Warranty Guide and the Kawasaki Products Authorized Dealer Sales and Service Agreement were in evidence before the adjudicator and presented to him as part of the list of documents. His decision although it does not make reference to the specific clauses of these agreements does address the issue of the relationship and duties as between Kawasaki and FCI, which arise out of these documents. Argument concerning clause 10 is therefore properly before this court. [14] In my view these documents when read together, cannot limit Kawasaki’s liability in the manner the appellant wishes, i.e. providing a blanket limitation to Kawasaki for all but the repairs or replacement of a defective part. [15] The limited warranty does in fact address the correction of defective workmanship on the motorcycle and clearly wishes to restrict Kawasaki’s liability to the owner of the motorcycle with respect to repairs so that the owner will not seek other consequential expenses related to repair, such as use of a replacement vehicle, loss of use and enjoyment, etc. Kawasaki intends that it should not be liable in the event the motorcycle is used improperly as for example driven by a minor, or an individual without the requisite skill to drive it. [16] I do not agree that these limiting conditions can be read so broadly as to save Kawasaki harmless from the resulting damage that may occur if a defect resulted in catastrophe, such as death or foreseeable environmental damage arising from the defect. The respondent used the example of the bike blowing up because of the defective gas line installation or the actual environmental consequence that did occur when the defective gas line resulted in a spill on Mr. Locke’s driveway and property. I agree with this view. [17] I find that the adjudicator did not commit an error in law in construing the application of clause 10 of the Agreement. Clause 10 was to be read in light of the standard printed warranty offered. [18] The adjudicator made a finding of fact that the motorcycle was not free from defect and that the defect in workmanship was the responsibility of the appellant. [19] With respect to clause11 of the Agreement, the adjudicator found that FCI did fulfill their responsibility by completing the predelivery check list and visual inspection and test drive, all in evidence before the adjudicator. The adjudicator also found it was the responsibility of the appellant to ensure that the gas line was properly secured and not the responsibility of FCI. He found that the line coming loose resulted in the spillage of gas and foreseeable environmental damage. [20] The adjudicator accepted Mr. Locke’s testimony that he had not touched the fuel line and knew nothing about it until after the incident, when he then took the panel off and could see the gas dripping from the fuel line. The adjudicator concluded from all the evidence before him, including Mr. Randy Sutton’s evidence, that there had been no intervening cause for the line to come detached from the gas tank and that it was therefore the manufacturer’s fault. He found that Kawasaki and not FCI were responsible to assemble the fuel line. [21] I do not find that the adjudicator erred in law in not finding FCI liable to indemnify the appellant for its negligence. The adjudicator did not find FCI at fault with respect to their required visual inspections and test drive of the vehicle. 2. The learned adjudicator erred in law in applying a test of strict liability in finding Kawasaki negligent. [22] I will not disturb the findings of the adjudicator on this ground. The adjudicator in my view addressed the law of negligence and its requisite elements and he made findings of fact that relate to the standard test of negligence. He did not make finding on the basis of a test of strict liability. 3. FCI did not call any evidence to support the findings of negligence against Kawasaki. [23] All counsel agree that the first, second, third and fifth ground of appeal can be dealt with under this issue. [24] The respondent FCI says that at the hearing they made two arguments: (1) There was no defect in the motorcycle; (2) In the alternative, if the adjudicator found that there was a defect in the motorcycle, the defect was as the result of the appellant Kawasaki’s negligence. [25] To that end the respondent FCI says they called witnesses who testified that there was no defect and that Gary Locke tampered with the motorcycle. And further in support of the second argument they testified that the fuel system came pre-assembled from Kawasaki and that all FCI had to do was a visual inspection and since the test drive did not result in any leaks, they released the motorcycle to Mr. Locke. [26] The respondent FCI says that the appellant Kawasaki called Mr. Gary Comer of their own company who confirmed their pre-assembly of the fuel line, confirmed that only visual inspection was required by FCI and testified they “did a great job.” [27] The respondent FCI says that Mr. Comer agreed that pulling on the fuel line or adjusting it in any way would not have been required or expected of FCI. [28] Therefore the respondent argues that there was no need to contradict anything that was said by the appellant’s witness either on direct or cross-examination. [29] With respect to their alternate pleadings they rely on Atton (c.o.b. Millenium Mowing and Property Care) v. Malloy, [2004] N.S.J. No. 217 in which Murphy J., found that in the absence of Small Claims Court Rules the Civil Procedure Rules may be consulted for guidance. They also rely on Llewellyn (R) Building Supplies Ltd. v. Nevitt, [1987] N.S.J. No. 607 where the court found that C.P.R.’s 14.20 and 16 could inform s. 25 of the Small Claims Act, with respect to the adjudicator’s authority to “order the counterclaim to be excluded or tried separately.” A pleading in the alternative can be supported. [30] There is no transcript of these exchanges. However, in reviewing the adjudicator’s findings, I accept that he concluded that FCI’s argument in the alternative was of merit. [31] As the adjudicator said his decision on the issue of the appellant’s liability was “a result of drawing together all the evidence to reach a conclusion.” The adjudicator summarized the evidence of the witness for the FCI, Mr. Sutton. He stated: Mr. Sutton’s testimony stated that the assembly of the motorcycle involved the axle, handlebar, floor board, front fender, battery was recharged and back seat rest was put on the motorcycle. The fuel system itself comes fully assembled, however with respect to the fuel system he checked to make sure the hoses and clamps were properly attached. He “checked the fuel tank and top and the hoses to see there is not leaks.” On cross examination Mr. Sutton said “I am crystal clear I saw a clamp in correct place and fuel line on spigot.” Mr. Sutton was clear in his evidence that the line was secure when he examined the motorcycle prior to its delivery to the Claimant Locke. On cross examination he stated, “if it was off I would know it. If it was partially off I would I would know it. If the clip (clamp) was off I would see it.” There is a check list which FCI’s mechanic also has to go through and it has a category for the fuel system and fuel tank and top, which notes a checking on the fuel lines and their routing. This was however a visual inspection at least as to the area the Claimant is suggesting was defective. Mr. Sutton did not explain how he would know if the line was not totally attached or improperly attached and as I indicated it was a visual inspection not an intrusive or rigorous physical inspection to determine if there was some sort of latent defect nor was he require to inspect the motorcycle except in the way he did. There is no indication of negligence on the part of FCI and there is no indication that the motorcycle left the FCI premises after it was ready for the Plaintiff with anything observably wrong with the fuel line. [32] In my view the adjudicator reached common sense conclusions reasonably drawn in light of all of the evidence and in particular in light of his acceptance of Mr. Locke’s evidence that he had not tampered with the motorcycle before the fuel leak occurred. [33] The adjudicator has made findings of fact that should be accepted. He has made no error in law. [34] The appeal is accordingly dismissed. [35] In the absence of agreement by the parties the court is prepared to address the issue of costs. Justice M. Heather Robertson