Kobelt Manufacturing Co. v. Pacific Rim Engineered Products 1987 Ltd PDF

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COMM 393 Kobelt Manufacturing Co. v. Pacific Rim Engineered Products (1987) Ltd. Case Briefs

[2011] B.C.J. No. 286 2011 BCSC 224 84 B.L.R. (4th) 189 2011 CarswellBC 345 British Columbia Supreme Court Facts  This is a claim by the plaintiff, Kobelt Manufacturing Co. Ltd (Kobelt) for $116,333.30 being monies owing for brakes it sold to the defendant, Pacific Rim Engineered Products (1987) Ltd. (PREP).  The defendant says that it is not liable to pay the amount because the brakes were not fit for what it submits was the intended purpose, and counterclaims.  In 2005/2006, PREP retained Guide Technologies Inc. (Guide) to design a new drawworks system to be developed and assembled by PREP for two customers. o Guide and Kobelt communicated through email prior to the 51 brakes being ordered by PREP from Kobelt o the drawworks that PREP was building were assembled from various components and delivered to customers for installation as part of drilling rigs. The brakes were mounted on the frameworks with some modifications. The defendant noted that they did not have written agreement from Kobelt to the changes, but observed that there was no verbal warning in terms of warranty or responsibility denial by Kobelt.  Two types of leaking occurred o Pots leaking  corrected by Kobelt after the first few pots and has not proven to be a continuing issue o Seals leaking (between the cylinder and piston)  first leak occurred in April 2007  surfaced after the brakes were assembled and in the possession of the customers of PREP, most likely during the commissioning of the drawworks  Kobelt and PREP had tested the breaks prior to installation and they agree that there were no leaks at that time  after a certain number of cycles (opening and closing), the seals on the brakes would leak  Kobelt and PREP met in 2007, at which time Kobelt learned about the use of the brakes and says that they cannot be used in such a fashion and suggested a larger brake  PREP did some testing on the Kobelt brakes, showing leaking on cycling of the brakes done between December 4, 2008 and October 20, 2009, confirming the breaks leaked oil  In the fall of 2007, the defendant ultimately substituted brakes from a different manufacturer for its customers  The total costs of investigation, engineering a solution, and satisfying their customers total about $1,000,000.

COMM 393 Kobelt Manufacturing Co. v. Pacific Rim Engineered Products (1987) Ltd. Case Briefs

Issues  Has PREP demonstrated a breach of the implied warranty of fitness for purpose?  Was there an implied condition or warranty of fitness for the particular purpose for which the defendant intended to use the brakes pursuant to s. 18 of the Sale of Goods Act? Or, is any alleged warranty not applicable because the sale was of a specified article under its trade name or because any such warranty is excluded by the limited warranty and exclusion clauses that the plaintiff asserts form part of the terms of the agreement? o Can the reference to terms and conditions on Kobelt’s website in shipping documents, received after the contract was formed, introduce an exclusion clause as a binding term between the parties? o Was there, in any event, adequate notice or use of the website by the purchaser for the exclusion clause to be part of the contract? o Assuming the exclusion clause is part of the contract, is its wording sufficiently clear to oust the implied statutory condition or warrantiy under the Sale of Goods Act?  If there was a breach of contract and damages are not limited by the contractual warranty and exclusion clause, what amount by way of set-off or damages is PREP entitled to?

Reasons Kobelt states that the brakes leaked because they were being used in a “service mode”, as opposed to using the brake on a park or emergency basis (arising from misuse)  One of PREP’s affected customers may have been using the brakes in service mode; the other customer did not  Kobelt called upon an expert witness, Dr. Cepus, to which PREP claims that the evidence introduced is based on the assumption of the abuse of brakes. PREP states that the issue is that brakes were unfit for their intended purpose in that they leaked without abuse Dr.Cepus appeared to be a frank and helpful experienced witness  he claimed that the Kobelt brakes were undersized for service mode and that the unauthorized use of the brakes may have caused wear and tear on the seals of the brakes o PREP states that the unauthorized use was to combat existing leaks  he did not address the use of the brakes solely as a holding brake  he agreed that leaks may be caused by something other than heat, as shown during PREP’s testing  the possible theories for the leaking of the seas are o using the brakes in service mode o using the brakes as a holding brake with regular cycles o misaligned springs rubbing the piston wall causing contamination to the seals Law: Sale of Goods Act Section 18

COMM 393 Kobelt Manufacturing Co. v. Pacific Rim Engineered Products (1987) Ltd. Case Briefs

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to determine whether there is an implied condition of fitness for a particular purpose, o the contract must have been in the course of the seller’s business o the seller must have knowledge of the purpose of the goods, o the buyer must have relied on the seller’s skill and judgment the question is whether there was an implied warranty that the breaks would work when cycled as a holding brake (not as a service brake) the evidence does not disclose that the brakes were defective or that they did not comply with any specifications provided – the buyer has not shown that the brakes were not of merchantable quality or unfit for the use they would normally be purchased

Law: Town Concrete Pumping Ltd. v. Gegra Equipment Ltd. [1995] B.C.J. No. 1859 (S.C.)  states that the onus is on the plaintiff to show that it made known to the seller by implication the particular purpose it had in mind for the product when it was ordered Law: Henry Kendall & Sons v. William Lillico & Sons Ltd. [1968] 2 All ER 444 (H.L.)  states that a “communicated purpose, if stated with reasonably sufficient precision, will be a particular purpose”  states that a “sometimes, a particular purpose will be made known expressly: sometimes it will be known by implication” Law: Cammel Laird & Co. Ltd v. Manganese Bronze & Brass Co. Ltd. [1934] A.C. 402 Law: Fulks v. Inland Kenworth Sales (P.G.) Ltd. [1984] B.C.J. No. 743 (S.C.)  state that the burden is on the purchaser to show reliance, but reliance can be inferred if a particular purpose is known.  partial reliance will also suffice Kobelt states that it was never told that the brakes were going to be used on a drawworks  Mr. Strujic, a professional engineer employed by PREP, stated he he specifically told Mr. Kogler, the technical sales and production person at Kobelt, that the brakes were to be used on a drawworks.  Mr. Kogler testified that he understood they would be used on a mobile winch  However, this communication occurred after the ordering of the brakes PREP seeks to prove the required communication of purpose and reliance through email correspondence between Kobelt and Guide Technologies.  neither PREP nor Guide Technologies relied on Kobelt as a designer, but as a supplier. The circumstances could not imply reliance on Kobelt to ensure that its brakes performed on a drawworks  reliance could only be shown with respect to certain figures and specifications of the brakes

COMM 393 Kobelt Manufacturing Co. v. Pacific Rim Engineered Products (1987) Ltd. Case Briefs

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it is concluded that the buyer did not provide information to the seller that the brakes were to be able to perform in a drawworks in certain circumstances o the buyer did not inform the seller of the intended purpose o it was not implied that the buyer intended to use the brake for that particular purpose

Conclusion: There is no implied statutory warranty for fitness for the particular purpose which apparently caused the leaking. The continued efforts of the seller to fix the problem does not give rise to an implied warranty or a contractual obligation answerable in damages The question now is whether or not Kobelt’s terms and conditions on its website had the effect of excluding or limiting liability in accordance with its terms Law: The Law of Contract 11th ed. Law: Trigg v. MI Movers International Transport Services Ltd. (1991), 84 D.L.R (4th) 504 Law: Repap British Columbia Inc. v. Electric Technology Systems Inc. 2002 BCSC 539  exclusion clauses cannot be introduced by a document delivered after a contract has been formed  the contract between the parties was formed at the time of the first order of brakes, and thus not incorporated into the agreement as they were not a part of the agreement at the time the contract was formed. Kobelt states that PREP was nonetheless aware of the terms and conditions at the time of purchase and that there was adequate notice of the terms on the website so as to incorporate the limited warranty and exclusion clause into the contract Law: Henry Kendall & Sons  if a party has actual notice of the conditions at the time of entry into contract, these terms will be adopted into the contract Law: Boutique Jacob Inc. v. Pantainer Ltd. 2006 DC 217  terms and conditions may, in appropriate circumstances, be incorporated into an agreement by way of reference to a website link Conclusion: However, there is not evidence that the buyer had adequate knowledge of the particular warranty and exclusion clauses, as per evidence stated. The seller has not proven that the terms and conditions on its website formed part of the contract between these parties. The exclusion/limitation clause beneath the heading on the website can be read in two parts  the first part limits the amount of damages that can be claimed against cobalt

COMM 393 Kobelt Manufacturing Co. v. Pacific Rim Engineered Products (1987) Ltd. Case Briefs

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the second part states that Kobelt makes no warranties or representations with respect to its products and disclaims anything for non-conforming purpose

The second part of the clause is unclear and refers only to exclusion of liability from warranties, and only warranties, not conditions. The exclusion clause is not a part of the contract, and even if it were, it would not have had the effect of excluding liability for a breach of condition under the Sale of Goods Act, had a breach of condition been established. However, there has not been found a statutory condition or warranty of fitness for purpose in this case, so the exclusion clause and contract has no impact on the outcome of the case. The submissions on damages also are incomplete, but as the defence and its counterclaim fails, it was not necessary to do that. Conclusion: the plaintiff is entitled to judgment in the sum of $116,333.30 with interest and costs, and the counterclaim of the defendant is dismissed...