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CFI vs CMI Cosmetic Manufacturers Inc

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					        CITATION:Canadian Faces Inc. v. Cosmetic Manufacturing Inc., 2011 ONSC 6171
COURT FILE NO.: 08-CV-349874PD2
                                                                    DATE: 20111018

                                           ONTARIO

                             SUPERIOR COURT OF JUSTICE
BETWEEN:                                     )
                                             )
Canadian Faces Inc., a body corporate        ) Jane O’Neill, for the Plaintiff
                                   Plaintiff )
– and –                                      )
Cosmetic Manufacturing Inc.,                 )
a body corporate                             ) James Morton, for the Defendant
                                 Defendant )
                                             )
                                             )
                                             ))
                                             )
                                             )
                                             ) HEARD: September 19 - 22, 2011
ALLEN J.

                              REASONSFORDECISION
THE PARTIES AND THE CLAIMS
[1] Canadian Faces Inc. (“CFI”) brings this action seeking damages from Cosmetic
Manufacturers Inc. (“CMI”) for breach of contract, or in the alternative, negligent representation.
CFI’s stronger claim lies in breach of contract and I will therefore decide the matter in contract.

[2] CMI counterclaims for amounts it alleges CFI owes for breach of another version of the
contract.

[3] CMI is engaged in the business of manufacturing, marketing and distributing cosmetics. CFI
sought the services of CMI tomanufacture, distribute and initially to assist with marketing a
product called NeoDerm, an anti-aging skin care product. NeoDerm was developed by a
pharmacist who is the aunt of the principals of CFI. The evidence seems to be that at the time of
the contract, NeoDerm had unique qualities that would potentially have rendered it a success in
the market. CFI was established with the sole purpose of seeking a manufacturer and market for
NeoDerm.

[4] The principals of CFI, Tracy Williams (“Williams”) and Neil Vibert (“Vibert”) are siblings
who in 2006 began to search the internet for a manufacturer. Neither of them had any previous
experience with the cosmetics industry. The search turned up CMI. In June 2006, CFI and CMI
entered a contract in which CMI undertook to manufacture and to assist with the distribution of
NeoDerm on a television shopping channel. CFI paid CMI for the production of a portion of the
product which ultimately was not advertised or distributed through a shopping channel or
otherwise.

[5] Williams and Vibert drew on limited personal funds and a line of credit to pay CMI. CFI sues
for the $105,000 it paid CMI and for consequential damages for loss of future profits it alleges
result from CMI’s breach of its obligations under the contract.
[6] Valerie Dicianna (“Dicianna”), the President of CMI and a self-described, self-taught
chemist and an aesthetician, and Kirit Kumar Patel (“Patel”), a manager and chemist, and the
second in command at CMI, testified on behalf of CMI.

EVIDENCE AND FINDINGS

Credibility

[7] Credibility is at the heart of this case. It will become clear from the evidence why I prefer the
evidence of Williams and Vibert over that Dicianna’s and Patel’s. I was astounded by the
testimony and conduct of Dicianna ― that she would attempt to persuade the court to accept
some of the most absurd and implausible versions of what happened in her dealings with
Williams and Vibert ― accounts the court would have to be a fool to believe.

The April 7, 2006 Meeting

[8] CMI has for many years been involved in the development, packaging, distribution and,
marketing of its own products and those of other companies. Dicianna says she has had extensive
experience and success with promoting products on shopping channels, particularly in Canada.
This, in addition to CMI being a Canadian company, is what made involvement with CMI
exciting for Williams and Vibert.

[9] On about April 7, 2006, Williams and Vibert met for several hours with Dicianna at the CMI
facilities (“the meeting”). Williams and Vibert brought to the meeting samples of the three lines
of their NeoDerm product, the day cream, night cream and eye cream. Dicianna was very excited
about the product referring to it as“cutting edge”. There is wide divergence between Williams’
and Vibert’s version of that meeting on one hand and Dicianna’s on the other. Both Williams and
Vibert took contemporaneous notes of the meeting which were before the court. Dicianna took
no notes of what transpired. Williams and Neil testified that certain agreements were nailed
down at that meeting. Dicianna denies this.

[10] In chief and cross, Williams and Neil were questioned extensively about the meeting
principally by reference to their respective contemporaneous notes and the confirmatory e-mails
they sent to Dicianna following the meeting.

[11] Williams’ confirmatory e-mail dated April 10, 2006, Vibert’s dated April 13, 2006 and their
testimonies are essentially uniform in providing evidence that the following agreements were
made at the meeting:

   • that Dicianna would contact QVC UK to market and distribute the products
   • that CMI would produce four additional lines ― a toner, cleanser, eye serum and face
       serum, making a total of seven lines
   • that CMI would produce and ship to QVC UK a total of 35,000 units, 5000 of each of the
       seven lines
   • that CFI would cover the cost of 1000 of each of the seven products (7000 units) for a total
       price of $85,100 and CMI would cover the cost of 4000 of each of the seven products
       (28,000 units)
   • CFI was to pay $42,550 up front and pay the balance before shipment to the UK
   • that QVC UK would pay in 60 days for the products sold
   • that from sales QVC UK would take its 10% fee, then CMI would take its cost per unit and
       CFI would be paid the balance
   • the segment on QVC UK marketing the product would first air at the end of June2006
[12] Vibert sent his April 13, 2006 e-mail to Dicianna and requested she advise if his summary
contained any inaccuracies. CFI never received a response from Dicianna or anyone from CMI
disputing the contents of either Williams’ or Vibert’s e-mails.

[13] Subsequent to the meeting, Williams spoke on the telephone with Dicianna several times
making notes of the calls, and e-mailed Dicianna numerous times from April 2006 to the end of
the year about the contract, pricing, CFI’s and CMI’s payment obligations, production,
packaging, clinical trials, before and after pictures, and about the date of airing. It is clear from
those communications Williams understood QVC UK was the shopping channel Dicianna was
accessing to sell CFI’s product. The communications contained references to QVC, the UK and
QVC UK as the place where the product was to be aired and marketed. There is no reference to
any other entity in the UK or to QVC US. Nor did anyone from CMI ever respond that CFI was
mistaken about where the product would be aired.

[14] Dicianna’s evidence is that not much was agreed upon at the meeting. She said she agreed to
give initial assistance to Williams and Vibert to market their product with a shopping channel in
the UK. She insisted there was no discussion at all about QVC UK because she had no
connection with that company. Dicianna further contends however she did not mention the name
of the shopping channel with which that she had a business arrangement. She says the discussion
about QVC was about QVC US and that Williams and Vibert had said they had contacts at QVC
US and had come to the meeting with an interest in pursuing QVC US. Dicianna says she told
Williams and Vibert she had no connections with QVC US and she could not help them
distribute their product through that channel.

[15] In contrast, Williams’ and Vibert’s evidence is that they had no contacts at QVC US. They
say they had taken up a friend’s suggestion to approach QVC US with their product so they came
to the meeting with an application for QVC US hoping to get assistance from Dicianna with
completing it. They abandoned the idea of QVC US when they learned Dicianna was connected
to QVC UK. Williams testified it was not until a phone call with Dicianna on October 7, 2006
that Williams first heard that the shopping channel was called Ideal World. Although none of
CMI’s e-mails or correspondence had mentioned Ideal World up to that point, and CMI never
corrected CFI’s references to QVC UK, Dicianna maintained to Williams and at trial that Ideal
World was always the shopping channel where she was planning to have CFI’s product aired.

[16] Williams’ and Vibert’s testimonies on the one hand, and Dicianna’s on the other, are a study
in contrasts. Williams’ and Vibert’s testimonies were clear, straightforward and consistent with
each other and with their respective contemporaneous notes. They were both very well organized
and business-like witnesses. Despite their obvious frustrating experiences with CMI, they
remained objective and dispassionate in their presentations. I found their notes of the meeting
and of subsequent conversations with CMI and their follow-up e-mails to be indicative of their
diligence and efficiency in their dealings with CMI.

[17] I find Dicianna’s evidence about the meeting for the most part cannot be believed. In
addition to the fact that her version of the meeting is not plausible, her presentation as a witness
was remarkable in the negative. She wavered back and forth on both controversial and
uncontroversial matters at times giving different answers to the same question, so much so that at
times I had difficulty making heads or tails of what her evidence was. Dicianna contradicted her
testimony from discovery, for instance, as to when her brother Sam Dicianna was employed at
CMI. This evidence is important as we will see because of the peculiar evidence as to who
witnessed Dicianna’s signature on the contract. She gave different evidence at trial than she
did at discovery as to whether she told Williams and Vibert at the meeting about her
contact with Graham Wright of Ideal World. These are a small sampling of the many ways
in which Dicianna evaded questions and contradicted her own evidence.

[18] Without reservation, I prefer Williams’ and Vibert’s evidence. To believe Dicianna that the
discussion about QVC was about CFI’s interest in pursuing QVC US, that Ideal World rather
than QVC UK was all along the operative shopping channel and that there were few if any terms
agreed to between CMI and CFI at the meeting would be for me to accept, as Dicianna alleges,
that Williams and Vibert fabricated their detailed accounts of the meeting. There is absolutely
nothing that leads me to believe they colluded or concocted anything or misunderstood the name
of the shopping channel or the terms agreed to. I am further fortified in my view by evidence
pertaining to the contract as I discuss below.

Parties’ Performance under the Contract

[19] CFI fulfilled its payment obligation to cover the cost of the initial 1000 units of each of the
seven lines. CFI was also without prior agreement asked to make additional payments to CMI. In
April 2006, CFI made the first payment of $42,550, paid $2,530 for the production of four
samples and covered the associated shipping costs. At the end of June 2006, CFI made the
remaining payment of $42,550.

[20] In the fall 0f 2006, without prior agreement, CMI requested additional payments from CFI.
To CFI’s surprise, CMI asked for $1,000 for a DIN number, $2,200 to register a trade mark in
the UK and the European Union, and $6,000 for clinical trials. I discuss more fully below the
problem that developed over the clinical trials. Also without previous notice, Dicianna advised
CFI that before and after pictures were required which would cost $72,000 if done
professionally. Williams and Vibert decided to do the pictures themselves and delivered them to
CMI.

[21] Adding insult to the injuries already meted out by Dicianna, Williams found out through
speaking directly to Debbie Houghton an assistant buyer for Ideal World that Ideal World had
never heard of NeoDerm or CFI.

[22] CMI filed a letter and two invoices dated June 19, 2007 indicating CMI was holding two
lots of products for CFI, a lot of smaller quantities of the product for which CFI had paid and a
lot of approximately 4,000[1] of each line that was unpaid for, which CMI contends in its
counterclaim that CFI is required to pay. CMI offers that CFI pick up the first lot immediately
and the second lot upon payment. Because of the offer to pick up the products, I am prepared to
accept that CMI produced in excess of the 5000 of each of the seven lines of NeoDerm, although
CFI only saw small quantities of the product.

Which Contract

[23] CFI argues the contract dated June 5, 2006 signed by Williams and Dicianna is a valid
contract that governed the obligations of CMI and CFI. CMI argues a subsequent contract dated
June 30, 2006 was the operative and valid contract.

[24] Subsequent to the meeting, by e-mail dated May 29, 2006, Dicianna forwarded a draft form
of contract to CFI. The draft contract contains the terms as to production, payment and the air
time that Williams and Vibert testified were agreed to at the meeting. However, neither the
Recitals nor subsequent clauses identify the broadcaster that would air the product.
[25] In an e-mail dated May 24, 2006, Tracey advised Dicianna of changes CFI wished to make
to the draft to which Dicianna responded that the changes should be made and delivered for
CMI’s review. In an e-mail dated May 26, 2006, Williams outlined in considerable detail the
proposed changes mainly to clarify payment terms, the relationship between the parties and the
identity of the broadcaster. Attached to an e-mail to Dicianna dated May 26, 2006, Williams sent
CFI’s re-draft of the contract prepared by CFI’s counsel.

[26] On June 5, 2006, Williams sent by FedEx two notarized copies of the contract dated June 5,
2006 (“the June 5 contract”)containing CFI’s corporate seal and Williams’ witnessed signature,
signed in her capacity as President and CEO of CFI. On June 6, 2006, Dicianna returned a copy
of the June 5 contract with Dicianna’s signature in her capacity as President and CEO of CMI,
her signature witnessed by “Sam Dicianna”.

[27] CMI offers another version of the contract dated June 30, 2006 (“the June 30 contract”) as
the valid agreement between the parties. Williams and Vibert however testified they had never
seen the June 30 contract before CMI produced it for discovery. The June 30 contract alters
clauses in the June 5 contract in a fundamental way. Most important among those alterations are
the changes to the clause that confers on CMI the obligation to pay for the remaining 4,000 of
the 5,000 of each of the seven lines of products and the removal of QVC UK as the broadcaster
including instead reference to“any shopping channel in the UK.”. Under the June 30 contract CFI
purportedly agrees to pay for the remaining 4,000.

[28] CMI founds its counterclaim on the June 30 contract alleging CFI breached its obligation to
pay for the remaining 4,000 units of each of the seven lines of NeoDerm and owes CMI
$325,000.

[29] The circumstances around the generation of the June 30 contract are peculiar to say the least.
When asked about the origin of the June 30 contract, Dicianna indicated she simply used the
June 5 contract, re-dated it to June 30, 2006 and made changes to the recitals and to some
clauses and she and “Sam Dicianna” initialled the changes. She admitted she simply
removed the signature page from the June 5 contract and attached it to the altered
contract. Dicianna testified she then sent the June 30 contract to Williams for signature, but
Williams never returned it.

[30] When asked about who witnessed her signature, the evidence was nothing short of
incredible. Although the name under the witness signature line is handwritten as “Sam
Dicianna” and the signature is“S. Dicianna”, Dicianna testified her production manager,
Kirit Kumar Patel, signed Sam Dicianna’s name, that Patel also goes by the name “Sam”
and that he had a blanket authorization to sign Sam Dicianna’s name. Both Dicianna and
Patel testified that the e-mails to Williams and Vibert from “Sam” were actually from Patel
going under the name “Sam”.

[31] Patel supported that evidence in his testimony, although he appeared less than
enthusiastic when doing so. Perhaps, he felt his position with CMI might be at stake if he
did not go along with the charade.

[32] It appears for some reason Dicianna is attempting to protect her brother from this litigation
even to the extend she would advance what I find to be a preposterous story about Patel also
being called “Sam” and having a blanket authorization to in effect forge Sam Dicianna’s
signature on legal documents. I do not believe Patel signed Sam Dicianna’s name. That
fabrication simply adds to the already mounting reasons why I accept Williams’ and
Vibert’s versions of the evidence over Dicianna’s.
[33] I fully believe Williams’ and Vibert’s evidence that they never saw the June 30 contract
until document discovery. There is no correspondence or e-mail that shows Dicianna delivered it
and given Williams’diligent practice of e-mailing and calling Dicianna and making notes even
about less significant matters, it stands to reason Williams would have communicated her
concern to Dicianna about such a substantial change in CFI’s obligations. There is no such
communication to CMI.

[34] It is clear to me that the generation of the June 30 contract was a dishonest and opportunistic
attempt by Dicianna to avoid CMI’s financial obligations and to foist them upon CFI. I do not
accept the June 30 contract as valid and binding on the parties.

[35] I find the contract that binds CMI and CFI is the June 5 contract. It was signed by the
principals of both parties, contains their corporate seals. Neither party claims the validity of
either version of the contract should be affected by the manner in which Dicianna’s signature
was witnessed and I do not see the June 5 contract should be set aside for that reason. There is no
dispute that the June 5 contract contains Dicianna’s signature.

Breach of Contract

[36] CMI raised the argument that there is no term in the contract by which CMI undertakes to
arrange for CFI’s product to be aired on QCV UK. The only mention of QVC UK is contained in
the recitals which CMI argues have no binding effect. This being the case according to CMI,
CMI did not breach an undertaking to arrange for the broadcast on QVC UK.

[37] CFI argues on the other hand that the intent that CMI undertook to arrange for airing on
QVC UK can be derived through reading the contract as a whole.

[38] I think the basic principles of contract law operate in favour in CFI’s position. The
principles that govern the interpretation of a contract are of long standing. The goal in
interpreting a contract is to arrive at an understanding of the objective intentions of the parties at
the time the contract was made. Evidence of one party’s subjective intention has no independent
place in this determination [Bank of Credit & Commerce International SA (In Liquidation) v. Ali
(No.1) , [2002] 1 A.C. 251 (Eng. H.L.); Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791
(SCC), [1998] 2 S.C.R. 129, paras. 54-56; and Metropolitan Toronto Condominium Corp. No
1250 v. Mastercraft Group Inc. (2009), 310 D.L.R. 256, at para. 59, (Ont. C.A.)] To achieve that
goal, the courts have interpreted the various parts of an agreement in the context of the intentions
of the parties as evident from the contract as a whole.

[39] It is recognized that the recitals or preamble to a contract standing alone are not legally
binding. However, courts have turned to recitals to resolve ambiguity in the operative provisions
of the contract and to answer concerns about the intent or goals of the parties.

         The preamble to a contract is nothing more than an introduction to that about which the parties
         have actually agreed. It puts the agreement into context. It describes the goals of the agreement.
         It speaks to what went before and the spirit in which agreement was achieved. On the other
         hand, it does not contain any promises. It does not contain any restrictions or commitments.
       [Sherbrooke Community Centre v. Service Employees International Union, 2002
       CanLII SK 101 (SKQB), at para. 16]

[40] Terms in a contract can be implied by statute, by custom, or by the court as a matter of fact.
In the latter situation the court may imply terms because it is obvious from the contract as a
whole such a term should be implied to make sense of the agreement.
[41] The recitals in the June 5 contract bear being reproduced:

         AND WHEREAS the Contractor is engaged in the development, manufacture, marketing and
         distribution ofcosmetics products;

         AND WHEREAS the Sub-Contractor has developed a number of cosmetic products marketed
         under the Trademark NeoDerm;

         AND WHEREAS the Contactor has entered into a contract with QVC UK (“Broadcaster”) to
         provide products to be marketed and sold through television broadcasts and websites;

         AND WHEREAS the Contractor and Sub-Contractor wish to enter into a relationship in which
         and the Contractor will manufacture NeoDerm products to be sold through the Broadcaster and
         to other customers of the Contractor;

[42] I find it is evident from the recitals that the intent of the parties was for CMI, the Contractor,
to enter into a contract with QVC UK, the Broadcaster, to air CFI’s, the Sub-Contractor’s,
product NeoDerm. The terms under Article 2 “Remuneration and Benefits” speak of: the
products being aired on television; CMI’s obligation to produce and ship the product for the first
showing; CFI’s payment obligations prior to shipment to the Broadcaster; and the arrangement
as between CMI, QVC UK and CFI for payment from the funds raised through airing the
product.

[43] I find based on the context set by the recitals that a term can reasonably be implied that CMI
undertook to enter into a contract with QVC UK to provide QCV UK with CFI’s product to be
aired on the QVC UK shopping channel. Otherwise, the other terms of the contract make no
practical sense.

[44] There is no dispute CMI failed to deliver CFI’s products to QVC UK for airing on
television. CMI clearly breached the June 5 contract by failing to do so.

Amount of Damages

[45] CFI claims $105,000 for out-of-pocket amounts paid to CMI: $89,527 (including the
$4,427.50 deposit) for the production and packaging of 1000 of each of the seven lines of
NeoDerm, and various amounts for the production and shipping of samples, for trademarks for
the U.S. and Europe, for a DIN number, for brokerage fees, for inserts and for clinical trials.

[46] CFI also claims special damages of $384,393 for lost future profits. Vibert calculated that
about $1.5 million (CDN) in gross sales would have been generated if 5,000 units of each of the
products had been sold. Vibert prepared a document he entitled “NeoDerm Projected Income
Statement”. Based on the Vibert’s calculations, CFI argues that but for CMI’s breach it could
have earned net income of $67,691 for 2007, $112,750 for 2008 and $162,852 for 2009, totalling
$384,393, after deductions for the cost of sales, business expenses and taxes. Vibert arrived at
prices for each of the seven products through internet searches of similar products produced in
the U.S.

[47] It is no doubt difficult to prove loss of anticipated profits. Courts have long held to prove
future loss the plaintiff must establish the loss is the direct and natural consequence of the
breach; it is reasonably probable the profits would have been earned except for the breach; and
that the amount of loss can be shown with reasonable certainty [Hadley v. Baxendale (1854),
[1843–60] All E.R. Rep. 461 (Ex. Div.) and Victoria Laundry (Windsor) Ltd. v. Newman
Industries Ltd., [1949] 2 K.B. 528 (C.A.)]. On the question of determining the amount of future
losses, the Supreme Court of Canada held that difficulty in arriving at an amount should not
alone foreclose an award beyond nominal damages:

         The fact that assessment is difficult is no ground for awarding nominal damages: Messer v. J.
         Clark & Son Ltd.[5] The broad general rule is that damages which are uncertain, contingent
         and speculative in their nature cannot be made a basis of recovery; but this rule against
         recovery of uncertain damages is directed against uncertainty as to the cause rather than as to
         the extent or measure: Kranz v. McCutcheon [6].

         [Webb& Knapp (Canada) Limited et al. v. City of Edmonton, 1970 CanLII 173
         (SCC), [1970] S.C.R. 588].
[48] In addition to the broader problem I address below, I find there are intrinsic weaknesses in
CFI assessment of future lost profits. The projections for the three years are based on full success
in selling all units of NeoDerm each year without considering some percentage discount for
contingencies. There is also an absence of supporting corporate financial data to justify the
amounts for the costs of sales and expenses.

[49] Courts have grappled with quantifying damages where there is no expert evidence and
where limited or no historical economic data is available to the court. The Ontario Court of
Justice, General Division, drawing on U.S. jurisprudence, addresses the issue of proof of loss of
future profits for a new enterprise:

         In assessing the reliability of projected future profits, a record of past earnings will obviously
         increase the certainty of such a prediction. However, a lack of evidence of past earnings does
         not automatically preclude a new business from recovering for lost profits. Rather, a new
         business must be allowed to prove lost profits to a reasonable level of certainty by expert
         testimony, by evidence of actual profits of similar businesses, by evidence of proven
         managerial experience and expertise, and by evidence of subsequent earnings if such evidence
         is available. Nevertheless, damages should not be awarded for lost profits which are entirely
         speculative and uncertain. See Al Edwards v. Container Craft Carton and Paper Supply
         Company, 327 P. 2d 622 (Calif. Dist. Ctr. App. 1958) and Cooke Associates Inc. v. Warnick et
         al, 664 P. 2d 1161 (Utah Sup. Ct.1983). But once a defendant has been shown to have caused a
         loss, liability should not be escaped because the amount of the loss cannot be proven with
         precision. Consequently, the reasonable level of certainty required to establish‘the amount’ of
         the loss is generally lower than that required to establish‘the fact or cause of a loss’. See Cooke
         Associates v. Warnick, supra, at p. 156 and Bradshaw Construction Ltd. v. Bank of Nova
         Scotia, supra, at p. 28.

       [Murano et al v. Bank of Montreal and Peat Marwick Thorne 1995 CanLII 7410
       (ON SC), (1995), 31 C.B.R. (3d) 1, supplementary reasons 41 C.P.C. (3d) 143
       (O.C.J. Gen. Div., Comm. Court); upheld in part on appeal, aff’d on the issue of
       damages for future business losses at 41 O.R. (3d) 222 (Ont. C.A.)].

[50] Murano cited the following passage from a South Carolina Court of Appeal decision:

         If the fact of damages is established, the law does not require the amount of damage to be
         proven with mathematical certainty; damages may be recovered if there is evidence upon
         which a reasonable assessment of the loss can be made. The estimation of damages, however,
         cannot be based on conjecture or speculation; it must pass the realm of opinion not founded on
         the facts and must rest on evidence from which a reasonable accurate conclusion regarding the
         amount of loss can be logically and rationally drawn. There must be a certain standard or fixed
         method by which the loss may be estimated with a fair degree of accuracy.

[51] The court concluded in Murano that where expert evidence is tendered and the entrepreneur
has established a track-record, it may be possible to assess damages with the required certainty.
[52] Vibert and Williams have no past experience in the production, marketing or sale of
cosmetics. Vibert is a civil engineer with some seven years’ experience in sales related to
industrial products and has a two-year diploma in business tailored to engineers. He is by no
means, nor does he purport to be, an expert on sales projections and trends in thecosmetics
market. CFI is asking the court to consider Dicianna’s past success in television channel sales as
a basis to support CFI’s projections of substantial success. I have some difficulty doing this for a
number of reasons. It appears not in dispute that Dicianna only offered to help with the television
sales on a start up basis. But the more critical problem is the obvious credibility concerns with
Dicianna being the main source of the evidence of her prowess in television cosmetic sales.

[53] It might not be beyond reason to think that were CMI to have honoured its obligation to
deliver the products for airing with QVC UK, CFI might have earned some amount of income.
However, viable proof of quantum of future lost profits is difficult to achieve with a new
business like CFI that lacks a proven historical track record in the business. Expert evidence,
empirical data and industry publications forecasting industry growth and profitability during the
three years might have assisted the court in arriving at a reasonable assessment of CFI’s future
lost profits. Absent a supporting evidentiary basis from which to assess CFI’s lost future profits,
CFI’s special damage claim is founded on not much more than conjecture. I therefore will not
allow that claim.

[54] I will allow CFI’s claim for damages of $105,000.

Mitigation of Damages

[55] CMI says CFI failed to mitigate its damages. It argues CFI had the opportunity to mitigate if
it had taken CMI’s offer in June 2007 to pick up the product held in CMI’s warehouse. CFI says
it made reasonable efforts to attempt mitigation but could not find a financially feasible avenue
through which to sell its product and recoup its losses.

[56] The law does not permit a plaintiff to stand idly by and allow losses to accumulate while
expecting to recover damages for losses they should have avoided. The common law obligation
is clearly set out by the Supreme Court of Canada:

         The general rule of mitigation of damage applicable to both breach of contract and tort is that
         the aggrieved party must take all reasonable steps to mitigate the loss and cannot claim for
         avoidable loss … In the case of contract, damages for breach are reduced by the amount of loss
         that should have been avoided if the plaintiff had taken reasonable steps to mitigate.

         [Janiak v Ippolito 1985 CanLII 62 (SCC), (1985), 16 D.L.R. (4th) 1 (S.C.C.)]

[57] Professor Waddams discusses the notions that underlie that principle:

         A further restriction on recoverable damages lies in the principle that the plaintiff cannot
         recover for losses that could have been reasonably avoided … behind this principle there lie
         two notions, one of causation, that the defendant’s breach does not cause losses that were
         reasonably avoidable, the other of the desirability of avoiding economic waste.
       [S.M. Waddams, The Law of Contracts, 5thedition (Toronto: 2005), pp 543-544].

[58] It is the defendant that carries the burden to prove the plaintiff has failed in his duty to
mitigate. [Red Deer College v. Michaels (1975), 57 D.L.R. (3d) 386 (S.C.C.)]. The plaintiff is
not expected to take every possible avenue to reduce the loss caused by the defendant’s breach.
He is required to take all reasonable steps to mitigate his lossand may recover loss incurred in
taking reasonable steps even though he did not succeed. [Pilkington v Wood, [1953] Ch 770]. It
has been held that the reasonableness of the plaintiff’s decision is not to be scrutinized too
harshly by the defendant since it was the defendant’s breach that brought about the necessity to
make that decision so it does not lie with the breaker of the contract to be overly critical. [Banco
de Portugal v. Waterloo & Sons Ltd., [1932] A.C. 452 (H.L.) and Kamlee Construction v. Town
of Oakville (1906), 26 D.L.R. (2d) (S.C.C.)].

[59] Williams and Vibert took a number of steps with the view to trying to mitigate their loss.
When it was clear to them CMI would not be assisting them with airing their product through
QVC UK, they began investigating other avenues for marketing and distribution.

[60] In October 2006, Williams and Vibert contacted Beauty Links, a cosmetic distribution
company in the UK. Vibert made contemporaneous notes of the discussion that Williams and he
had with Beauty Links. They learned that an up-front amount of $15,000 to $20,000 would be
required for a test launch of the product and that sales staff for the launch would have to be
retained. Vibert testified Beauty Links wanted to take only 100 products per month. CFI shipped
a small number of samples of NeoDerm products to Beauty Links but Williams and Vibert
realized the expenses to launch and to travel back and forth to and from the UK would be
prohibitive given the amount of money they had already paid to CMI. Furthermore, at 100
products per month it would take an eternity to sell the $85,000 worth of products through
Beauty Links.

[61] In November 2006, Williams contacted Michael Long of MGL Associates in New York
City, a company that tests the viability of products and then sells them through retail stores like
Macy’s. Williams made contemporaneous notes of this discussion. However, MGL also required
considerable funds up-front for marketing, money which Williams and Vibert say they were not
in a position to expend.

[62] In November 2006, Vibert made contact with Tom Czar of QVC US to inquire about
marketing and distributing the product. Czar indicated third party clinical trials would have to be
conducted. In their previous dealings with Dicianna, Williams and Vibert had learned the cost of
third party clinical trials would be about $25,000 per product. Dicianna had charged only $6,000
agreeing to be compensated for the balance of the cost from sales. On the strength of Dicianna’s
assurance that third party clinical trials had been done in preparation for QVC UK airing, Vibert
and Williams attempted to obtain the clinical trial report from Dicianna.

[63] After some delay, Dicianna eventually sent the clinical trial report to Vibert. However, the
trials were not conducted by a third party but rather by CMI itself, and the trials were conducted
not on all seven lines but just on the day cream. Dicianna denied undertaking to have third party
trials conducted. However, I have no difficulty accepting that Dicianna had once again deceived
Vibert and Williams and was also attempting to deceive the court.

[64] Vibert and Williams were discouraged by the additional funds they would have to invest to
do business with QVC US and withdrew their interest.

[65] I find CMI has failed to meet its burden to prove CFI failed to take reasonable steps to
mitigate its loss. As previous courts have observed, the wrong doer or contract breaker is not in a
position to too closely scrutinize the reasonableness of the innocent party’s attempts to mitigate.
I find that principle is ever so applicable to the case before me. Given Dicianna’s multifaceted
deceit in breaching her company’s contractual obligations and her subsequent attempts to cover
up her misdeeds, it does not lie with CMI to cast too disparaging an eye on CFI’s attempts to get
out of the financial jam CMI drew it into.
[66] The reasonableness of attempts to mitigate is a question of fact. I am satisfied in all the
circumstances that Williams and Vibert took reasonable steps in contacting the other companies
to look into the marketing and sale of their products. The innocent party is not obligated to
search out every avenue. Williams and Vibert had already invested $105,000 and lost it entirely.
I do not find they should be required to undergo any further financial risk.

THE COUNTERCLAIM

[67] The counterclaim must fail as being based on the June 30, 2006 contract which I found to be
invalid and unenforceable.

COSTS

[68] The trial occurred over three and a half days from September 19 to September 22, 2011.

[69] CFI was substantially successful in the action. It succeeded on the principal damage claim
and failed on the future loss claim, the latter being the more difficult claim to prove. In
accordance with the principle that costs follow the cause, I award the plaintiff a substantial
portion of their costs. The question of quantum of costs is to be determined.

[70] CFI bills costs, exclusive of HST, as follows: $51,290 on a partial indemnity scale; $76,935
on a substantial indemnity scale and $55,340 as actual costs. Disbursements total $5,646.59.

[71] In addition to the factor of success, I took the other factors set out in Rule 57.01(1) of the
Rules of Civil Procedureinto account.

[72] I do not find the issues raised in this action were particularly complex or novel and the
materials filed were not extensive. The breach of contract and quantum of damages issues raised
have long been settled by the courts.

[73] While the proceeding in itself was not lengthy, it was made more lengthy than necessary by
Dicianna’s conduct in the witness stand. I cannot leave this case without summarizing my
impressions of Dicianna and I find when deciding costs is an appropriate time to register my
concerns.

[74] I have rarely, if ever, experienced a witness like Dicianna. Throughout the several hours she
spent on the stand she routinely avoided answering questions, obfuscated, made bald denials,
contradicted herself and generally attempted to advance the most implausible versions of her
various interactions and dealings with Williams and Vibert. On countless occasions, the court
had to interject and direct Dicianna to answer questions.

[75] Of course, underlying Dicianna’s conduct at trial was her attempt to avoid owning up to her
deceptive and dishonest business practices which I find permeated her relationship with Williams
and Vibert from start to finish. Dicianna ought to have known CMI’s position was unsustainable
but she persevered and in doing so wasted Williams’, Vibert’s, their counsel’s and the court’s
time and expense. This cannot be overlooked in deciding costs.

[76] The Ontario Court of Appeal sets out the principle that the objective of a determination on
costs is to fix an amount the unsuccessful party is required to pay that is fair and reasonable
rather than an amount reflecting the actual costs of the successful party. The quantum of costs
allowed must be fair, within the reasonable expectations of the parties, and in accord with the
principles set out by the Court of Appeal in Boucher v. Public Accountants Council for the
Province of Ontario 2004 CanLII 14579 (ON CA), (2004), 71 O.R. (3d) 291 (Ont. C.A.).

[77] I find an award of costs fixed at $50,000 to be reasonable. I think that amount is fair, within
the reasonable expectations of the parties and in accord with the principles set out by the Court
of Appeal inBoucher.

ORDER

[78] THIS COURT ORDERS:

       (a) judgment to the plaintiff Canadian Faces Inc. for damages in the amount of $105,000
               (CDN) bearing pre- and post-judgment interest pursuant to s. 128 and s. 129
               respectively of the Courts of Justice Act, R.S.O. 1990, C. c-43 as amended; and

       (b) costs in the amount of $50,000 to the plaintiff Canadian Faces Inc. inclusive of H.S.T.
               and disbursements payable within 30 days of this Judgment.


                                                                                            Allen J.

Released: October 18, 2011
        CITATION:Canadian Faces Inc. v. Cosmetic Manufacturing Inc., 2011 ONSC 6171
COURT FILE NO.: 08-CV-349874PD2
                                                                    DATE: 20111018

                                                                         ONTARIO

                                                          SUPERIOR COURT OF JUSTICE


                                               BETWEEN:

                                               Canadian Faces Inc., a body corporate
                                                                                                         Plaintiff
                                               – and –
                                               Cosmetic Manufacturing Inc.,
                                               a body corporate
                                                                                                      Defendant
                                                              REASONS FOR DECISION

                                                                                                         Allen J.

Released: October 18, 2011




[1] The invoices actually show that CMI billed CFI for several hundred more than 4,000 of each of the seven lines.

				
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Description: CITATION:Canadian Faces Inc. v. Cosmetic Manufacturing Inc., 2011 ONSC 6171 COURT FILE NO.: 08-CV-349874PD2 DATE: 2011 10 18 breach of contract, negligent representation