Kal-Trading Inc. v. Plastics Processing Inc.

Decision 1: Move on summary judgment, not trial — this is a liquidated demand on dishonoured cheques

The conventional response to a goods-sold-and-delivered claim with an active counterclaim is to plead, exchange affidavits of documents, conduct examinations for discovery, attend mediation, hold a pre-trial conference, and proceed to trial. That sequence routinely takes 24–36 months. The seller’s loss compounds: USD $69,000 sits with the buyer; legal costs accumulate; and the further out the trial date, the more time the buyer has to manufacture a counterclaim record.

We elected instead to move for summary judgment. The claim was a liquidated demand on dishonoured cheques. The buyer had examined a sample, accepted delivery, tendered payment, then stopped payment. The court was being asked a narrow question: is there a genuine issue for trial as to whether the buyer must pay for goods it accepted and resold? The defendant itself conceded partial summary judgment of USD $27,513.42 on cheques unrelated to the LDPE film — a concession that established the defendant’s own view that this was, at least in part, a Rule 20 case.

Decision 2: Reframe the “set-off” defence as speculative damages, not a real cross-claim

The natural defensive instinct for a goods seller is to engage on quality — was the LDPE film really defective, were the contaminant levels above 3%, did the supplier breach a fitness warranty. We did not. Engaging on quality concedes the framing the buyer wants: a factual dispute that requires a trial.

Instead, we anchored on set-off doctrine. A legal set-off requires mutual debts that are ascertained or ascertainable. The buyer’s claim against Kal-Trading was for sums it might one day have to pay its own customers — an amount no one could fix because no customer had pressed any claim. The buyer was also asserting reputational harm, which is unliquidated by definition. Equitable set-off was the buyer’s remaining theory, but Ontario law — Iraco Ltd. v. Staiman Steel Ltd., [1986] O.J. No. 242 (Ont. H.C.), upheld by the Court of Appeal and confirmed in Marketing Products Inc. v. 1254719 Ontario Ltd., [2000] O.J. No. 5092 — held that equitable set-off probably does not apply to bills of exchange. Cheques are bills of exchange. The buyer’s entire set-off theory dropped out, leaving its counterclaim as a free-standing action that could not function as a defence to the cheques.

Decision 3: Object to the buyer’s expert report on Rule 53.03(1) compliance

The defendant filed an “expert report” on the quality of the LDPE film as part of its motion materials. That report was the buyer’s only documentary anchor for the proposition that the film actually deviated from the sample.

We objected on form, not content. Rule 53.03(1) of the Ontario Rules of Civil Procedure requires an expert report to be signed and to set out the qualifications of the expert. The buyer’s document did neither. The court agreed: “A purported expert’s report respecting the quality of the film cannot be accepted by the court as evidence. It does not comply with Rule 53.03(1). It is not signed by anyone, nor are the qualifications of an expert set out” (para. 5). With the report excluded, the defendant had no admissible evidence that the LDPE film as delivered failed to match the sample it had inspected and accepted.

Decision 4: Resist the stay request — sever the counterclaim from the cheque debt

The buyer’s fallback position was a stay: even if summary judgment issued, no enforcement until the counterclaim was tried. A stay would have neutralized our procedural win — we would hold a paper judgment but recover nothing for another two years.

We pressed that the counterclaim and the cheque debt are doctrinally separate. Justice O’Connor agreed (para. 9): “There will be judgment for the plaintiff in the amount of U.S. $69,000.35 plus pre and post judgment interest in accordance with the Courts of Justice Act. The defendant is at liberty to continue the prosecution of its counterclaim. Its request that this judgment be stayed pending a determination of the counterclaim is denied.” The judgment was immediately enforceable. The counterclaim continued separately. After 18+ months, the defendant had still produced no evidence of damages it had actually suffered — making the speculative nature of the cross-claim more, not less, apparent over time.

1. Equitable set-off probably does not apply to dishonoured cheques. The Ontario authority is settled: Iraco Ltd. v. Staiman Steel Ltd., [1986] O.J. No. 242 (Ont. H.C.), upheld on appeal, and confirmed in Marketing Products Inc. v. 1254719 Ontario Ltd., [2000] O.J. No. 5092. A buyer who stops payment on cheques and points to alleged product defects cannot reliably use the alleged defects as a set-off defence; cheques are bills of exchange. This pulls the rug out from the most common buyer defence in goods-sold-and-delivered cases.

2. Speculative damages do not delay a liquidated debt. A buyer’s counterclaim for amounts it “might” have to pay its own customers, where no customer has filed any claim, is speculative. Speculation grows weaker, not stronger, as months pass with no actual claim materializing. Press the timeline: 18 months in this case, no customer claim, no proof of damages. That alone made it untenable to keep a USD $69,000 cheque debt suspended indefinitely.

3. Rule 53.03(1) form-compliance objections can decide motions. Where the opposing side’s expert report is unsigned or fails to set out qualifications, object on form before engaging on substance. Here, excluding the unsigned report left the buyer with no admissible evidence that the LDPE film deviated from the sample it had inspected and accepted. Form objections are not a stylistic tactic — they decide whether the moving party has any evidentiary basis at all for its claim of a genuine issue requiring trial.