David Cooper Investments Limited v. Bermuda Tavern Limited et al.
Bermuda Tavern Limited et al. v. David Cooper Investments Limited et al. [Indexed as: David Cooper Investments Ltd. v. Bermuda Tavern Ltd.]
56 O.R. (3d) 243
[2001] O.J. No. 4185
Docket No. C32456
Court of Appeal for Ontario
Osborne A.C.J.O., Laskin and Feldman JJ.A.
October 30, 2001
Contracts -- Breach of contract for sale of tavern -- Defence that purchaser's action for breach of contract should be dismissed because of maxim ex turpi causa non oritur actio -- Maxim not applying -- Parties not participating in any illegal or immoral act with view to defrauding third party -- Contract not engaging public policy in any other manner -- No fraud, misrepresentation or breach of duty by purchaser in his dealings with vendor -- No basis for vendor to deny liability for breach of contract.
Irving Cooper, with the help of his brother David, negotiated an accommodation with the bank that was pressing Irving for payment of his indebtedness. The accommodation allowed Irving to retain the Brass Rail Tavern, a profitable business, but he was obliged to sell his second bar, the Bermuda Tavern, for a sum which the bank would be prepared to accept to discharge his entire debt. At Irving's request, David agreed to purchase the Bermuda Tavern, but this agreement followed David having arranged a very favourable lease of the Bermuda Tavern to a Mr. Pratt. In the negotiations with Pratt, David misrepresented that he then had the authority to deal with the property. After the bank had approved the sale to David, Irving reneged on his agreement with David, and with the approval of the bank, Irving entered into a lease with Mr. Pratt and his sister. David sued Irving for specific performance, and Irving counterclaimed, alleging, amongst other things, breach of fiduciary duty and fraud. Mandel J. dismissed the claim for specific performance, granted David substantial damages for breach of contract, and dismissed the counterclaim.
David appealed the denial of specific performance but later abandoned the appeal. Irving proceeded with a cross-appeal and submitted that David was not entitled to damages because: (1) when David dealt with Mr. Pratt, he acted as a self-appointed agent for Irving; (2) David had breached a fiduciary duty owed Irving; and (3) the claim was precluded by the maxim ex turpi causa non oritur actio.
Held, the cross-appeal should be dismissed.
The issue of whether David was a self-appointed agent of Irving was rejected by the trial judge on the facts as he found them. The trial judge found that although David had misrepresented that he had authority to deal, he was not dealing on behalf of Irving but on his own behalf. In other words, David never acted as self-appointed agent of Irving. The findings of the trial judge recognized that David did have authority from Irving to deal with Pratt. Although David was not candid, David did not misrepresent his authority, given by Irving, to enter into negotiations with the prospective tenants. David did not owe a fiduciary duty to Irving, and this finding was fully supported by the evidence. It was not the case that the parties contemplated that if David could make the transaction a lucrative one, he was to ensure that Irving would get the benefit of it. The contract between David and Irving did not amount to or involve an illegal or immoral act by David and the maxim ex turpi causa non oritur actio was not applicable. This was not a situation where the parties participated in an illegal or immoral act with a view to defrauding a third party. Nor did the contract between David and Irving engage public policy in any other manner. There was no fraud, misrepresentation or breach of duty by David in his behaviour to Irving. There was no basis for Irving to deny his liability to David. Accordingly, the cross-appeal should be dismissed.
CROSS-APPEAL of a judgment of Mandel J. (1999), 25 R.P.R. (3d) 161 (Ont. S.C.J.) awarding damages for breach of contract.
Cases referred to Continental Bank Leasing Corp. v. Canada, 1998 CanLII 794 (SCC), [1998] 2 S.C.R. 298, 163 D.L.R. (4th) 385, 229 N.R. 58, 98 D.T.C. 6505; English v. Dedham Vale Properties Ltd., [1978] 1 All E.R. 382, [1978] 1 W.L.R. 93, 121 Sol. Jo. 320, 35 P. & C.R. 148 (Ch.); Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, 97 B.C.L.R. (2d) 1, 117 D.L.R. (4th) 161, 171 N.R. 245, [1994] 9 W.W.R. 609, 16 B.L.R. (2d) 1, 22 C.C.L.T. (2d) 1, 57 C.P.R. (3d) 1, 95 D.T.C. 5135, 5 E.T.R. (2d) 1; Holman v. Johnson (1775), 1 Cowp. 341, [1775-1802] All E.R. Rep. 98, 98 E.R. 1120; Menard v. Genereux (1982), 1982 CanLII 2076 (ON SC), 39 O.R. (2d) 55, 138 D.L.R. (3d) 273 (H.C.J.); Pupiec v. Dereniowski (1998), 1998 CanLII 2070 (ON CA), 39 O.R. (3d) 150 (C.A.)
Martin Teplitsky, for appellants (by cross-appeal). John D. Campbell, for respondent (by cross-appeal).
The judgment of the court was delivered by
1FELDMAN J.A.: -- David Cooper and Irving Cooper are brothers. Through their respective corporations, they both operate bars on Yonge Street featuring nude female dancers, officially referred to as "adult entertainment". In 1992, Irving Cooper was overextended at the bank as a result of a real estate investment he had made. He asked his brother for help in dealing with the bank. With David's help, Irving was able to negotiate an excellent accommodation with the bank, allowing him to retain the Brass Rail Tavern, a profitable business, and to eliminate his other indebtedness to the bank. As part of this arrangement he was obliged to sell his second bar, the Bermuda Tavern, for a sum which the bank would be prepared to accept in order to discharge his entire indebtedness. Irving asked his brother if he would purchase the Bermuda Tavern. David eventually agreed to do so on the basis of a very favourable lease of the Bermuda Tavern which he had negotiated with another Yonge Street businessman, Mr. Pratt, who operated a gay bar which featured nude male dancers, and who needed an adult entertainment licence to operate legally. After Irving entered into an agreement to sell the Bermuda Tavern to David, which agreement was approved by the bank, Irving approached Mr. Pratt himself, reneged on his agreement with David, and entered into the favourable lease agreement directly with Mr. Pratt and his sister, with the approval of the bank.
2David sued Irving for specific performance of their agreement. Irving denied there was a finalized contract with David, saying that it was conditional, and counterclaimed for damages for sullying his reputation with the bank and for punitive and exemplary damages for breach of fiduciary duty and fraud. The trial judge found that the brothers had made an agreement, that there was a condition but that it was satisfied. He denied David the remedy of specific performance but granted him substantial damages against Irving for breach of contract, and dismissed Irving's counterclaim.
3Although David initially appealed the denial of specific performance, he later abandoned the appeal. However, Irving proceeded with a cross-appeal, seeking dismissal of David's claim. Irving raises three legal bases which he claims preclude David from receiving damages: that when David dealt with Mr. Pratt, he acted as a self-appointed agent for Irving; that in the circumstances, David owed Irving a fiduciary duty; and that the maxim ex turpi causa non oritur actio should have been applied on the basis that the contract between David and Irving was illegal or immoral. For the reasons that follow, I would dismiss Irving's appeal.
Facts
4There were three taverns on Yonge Street with adult entertainment licences: the Zanzibar Tavern (owned by David Cooper) and the Brass Rail and Bermuda Taverns (both owned by Irving Cooper). The Bermuda Tavern had been operated by the brothers' father and uncle. Irving purchased his uncle's interest in the Bermuda Tavern operation, then purchased the real estate from its owner. When his father died, Irving ran the Bermuda Tavern on his own. In 1992, the Bermuda Tavern was owned 50 per cent by Irving, 25 per cent by the father's estate and 25 per cent by their elderly mother. As the zoning for the area by that time prohibited adult entertainment, the three establishments were unique as prior legal non-conforming uses, as long as the premises continued to be used as adult entertainment taverns.
5Although both men had been very successful, street-wise entrepreneurs in the tavern and strip-club business, it was David Cooper who had more knowledge of real estate values, and who had political and financial connections and sophistication in dealing with business matters. He had also been very helpful to Irving over the years, assisting him, without compensation of any kind, when he faced financial difficulties of one sort or another.
6In 1992, Irving found himself in a situation where he was holding land he had purchased for $2,800,000 on Charles Street near the Brass Rail Tavern, intending to develop it as condominiums. However, the market had fallen and he was overextended with the carrying costs of the property. He asked his brother David for help. First he wanted to sell the property to the City of Toronto and David contacted people and attended meetings on Irving's behalf, but in the end the city did not buy the property. By the summer of 1992, Irving was at the point of losing everything he owned as a result of his indebtedness to the CIBC. David spoke to his own branch manager and through him was referred to a work-out specialist, Mr. Brawn, to negotiate for Irving with the CIBC.
7Mr. Brawn had Irving's loan transferred to the special loans department at the main branch of the bank. There were several meetings, some of which David attended. By September, an agreement for a restructuring was reached. The payments contemplated by the agreement were to be in full satisfaction of all indebtedness and would release all of Irving's companies as well as the personal guarantees he and his wife had given to the bank. The bank was to receive:
(1) $400,000 in cash from the Brass Rail. This money would be loaned to the Brass Rail by associates of Irving;
(2) $1,300,000 by way of first security interest on the lands, buildings and fixtures of the Brass Rail;
(3) the Charles Street lands;
(4) another $400,000 from Irving and his wife, who would acquire the money by raising it on mortgages on their son's condominium and on their home;
(5) the proceeds of the sale of the Bermuda Tavern, which was to be sold to retire the indebtedness. If there was any surplus, which was not contemplated, then it would be paid to another of Irving's companies, Highland Hotel Limited.
8The agreement was signed in December 1992, to close on January 22, 1993, with some modifications of the amounts. For example, the amount to be paid by Irving and his wife was reduced from $400,000 to $350,000. The bank was to discharge all of its existing security except for its second mortgage for $1,000,000 on the Bermuda Tavern property. The first mortgage in the amount of $330,000 was held by CIBC Mortgage Corp., a separate entity from the bank, and was not affected by the agreement in any way. The trial judge found that the bank took a loss of approximately $1,500,000 in respect of Irving, his wife and various corporations he controlled, allowing him to retain his profitable business, the Brass Rail Tavern, and to shed the financially draining Charles Street property.
9Irving was short of the funds he required for the closing and borrowed $35,000 from David, interest free.
10The agreement with respect to the Bermuda Tavern was that it should be sold, if possible, as a going concern. The bank agreed that it would absorb the ongoing operational expenses of the business pending the sale. Irving was obliged to list the property for sale within 15 days of the closing, although he never did. He began to spend the bank's money making improvements to the business. The agreement provided that for six months, as long as the property was listed for sale, the bank would not enforce its second mortgage. However, if after that time it had not been sold with a closing within one year, then Irving would cooperate in a power of sale. The bank had the power to dictate what offer would be accepted. This made sense because no matter what price was achieved, the bank was accepting it in full satisfaction of any further obligation on the part of Irving.
11In the spring of 1992, Irving had spoken to Mr. Pratt, the owner of the gay bar on Yonge Street, who, Irving had heard, was having problems operating without an adult entertainment licence. However, at that time, Mr. Pratt was not interested in the Bermuda Tavern. In November 1992, while he was negotiating with the bank, Irving again approached Mr. Pratt, who expressed some interest but was going on vacation at the time. They agreed that after Irving returned from Florida, where he was shortly going, Mr. Pratt would contact him.
12Irving and David were both in Florida in late December 1992, and early January 1993. At that time, Irving told David that Mr. Pratt was interested in acquiring the assets of the Bermuda Tavern and leasing the property, and suggested that David purchase the property. At that time, David told Irving he was not interested.
13After the closing with the bank in late January 1993, Irving appointed his son-in-law, Paul Krandel, to be manager of the Bermuda Tavern. Paul Krandel became interested in purchasing the property in March, and sought David's advice. David discouraged him on the basis that it would not be a good investment. Subsequently, Paul's uncle offered to purchase the realty from the bank for $450,000 in an attempt to facilitate a transaction whereby Paul would run the Bermuda Tavern and keep the profits but without any specific sale of the assets. The figure of $450,000 was enough to pay off the first mortgage of $330,000 and to release an outstanding loan of $120,000 which had been guaranteed by Irving. This price therefore suited Irving, but the bank would not accept it. The bank wanted $600,000, which is not surprising, as the bank had had the property appraised in 1992 at $850,000. David was again consulted by Paul. Again David discouraged him from increasing the offer.
14Nefarious motives are attributed to David by Irving, and it would appear that the trial judge seemed to accept that, at this time, David began to be interested in the property himself and therefore, in effect, pretended that the property was less valuable than it was. However, in my view, the evidence discloses that David perceived that the property was only worthy of investment if, rather than continuing to be operated as it was, it could be leased at a favourable rate to another operator, such as Mr. Pratt. Furthermore, it was this very opportunity that Irving had offered to David first in Florida, and again in February.
15During the week of April 12, 1993, David and Irving again had discussions about David buying the Bermuda Tavern. Irving wanted David to buy it. This would require an offer the bank would be willing to accept. By this time, the bank knew that Irving had not listed the Bermuda Tavern for sale and that it was operating at a loss for the bank. The bank wanted Irving to close down the Tavern in an orderly fashion and made Irving aware of the remedies it could exercise. Irving wanted to ensure that the employees and dancers would be paid so as not to reflect negatively on his Brass Rail Tavern business. He also wanted to maintain tax losses in the operating companies. In their discussions, David told Irving that he would not be prepared to buy the Bermuda Tavern unless he had a tenant for it.
16Apparently, Mr. Pratt never did get in touch with Irving again. However, in April, David asked Mr. Pratt to call him, which he did on April 12, and expressed interest in the Bermuda Tavern. David then arranged with Paul Krandel for Mr. Pratt to have a tour of the Bermuda Tavern. Paul Krandel obtained permission from Irving, although they did not know in advance who would be receiving the tour. Mr. Pratt and his lawyer toured the Bermuda Tavern with Paul Krandel at noon time on April 14. When they came outside, David and Irving were standing there. Irving claimed that David initially indicated that the person was not Mr. Pratt but someone else, but Irving and Mr. Pratt shook hands and exchanged pleasantries, and Irving knew at that time that it was Mr. Pratt who had had the tour and was the person interested in leasing the Bermuda Tavern.
17Irving acknowledged in his evidence that he was 99 per cent sure that Mr. Pratt was David's prospective tenant for the Bermuda Tavern. However, at no time did Irving take any step or indicate in any way that David was not to deal with Mr. Pratt, or that he did not have the authority to do so in order to arrange the tenancy he wished to have in place so that he could purchase the Bermuda Tavern.
18After speaking to Mr. Pratt, Irving and David walked over to Old Angelo's restaurant where they had lunch with Mr. McMurray from the bank. At that lunch there was some discussion of real estate in Toronto generally and on Yonge Street, and in an off-the-cuff remark, David expressed the view that the best use for the Bermuda Tavern would be as a retail outlet. Mr. McMurray told him he disagreed. Irving made much of this conversation in his evidence. He said it was here that David first misled him by suggesting that he intended to lease the Bermuda Tavern to a retail tenant and that was the basis upon which he (Irving) was operating when he agreed to sell the Bermuda Tavern to David.
19However, David was clearly directing his remarks to Mr. McMurray, with a view, it appears, to minimizing the sale price of the property.
20On April 16 and 19, David met with Mr. Pratt and his lawyer, as well as with Mr. Pratt's sister, Ms. Travers (who was entering into the business with her brother), and her lawyer. One of the lawyers had searched the title to the property and found that David was not the owner. David said that he had authority to deal and waived some papers, which he declined to show to the lawyer. Ms. Travers signed the lease document, but David did not sign at that time. He did not yet have a signed agreement with his brother and the bank to purchase the Bermuda Tavern.
21The trial judge found that David did not have the authority he said he had, that the papers he waived were false and that his representation was false. Although it is clear that David had no written authority to deal with the property, he certainly had been authorized by Irving to contact and deal with Mr. Pratt about leasing the Bermuda Tavern, and when Irving became aware that he had done so, he did not revoke that authority, nor did he advise Mr. Pratt that his brother had no such authority.
22Although David could proceed to negotiate with the prospective tenant, he clearly could not bind himself as landlord until he had concluded his agreement to purchase the Bermuda Tavern from Irving and the bank. He therefore declined to sign the lease with Ms. Travers until after the agreement to purchase the Bermuda Tavern was signed by Irving and approved by the bank.
23Irving had recently leased the second floor of the Bermuda Tavern building to a tenant who intended to operate another bar there. However, Irving had not deposited the $5,000 lease deposit cheque. On April 17, the tenant was in arrears of rent. Because David needed vacant possession of both levels of the Bermuda Tavern building, David and Irving evicted the upstairs tenant on that date, and Irving returned the deposit cheque.
24On Monday, April 19, David had an offer to purchase the assets of the Bermuda Tavern prepared by his son, a lawyer. Irving had learned that Mr. McMurray was intending to travel to the east coast for a few days and wanted the agreement to purchase signed before he left. They had knowledge that at that point the bank would not accept less than $525,000 as the purchase price. David told Irving he was only prepared to offer $500,000 and that if they waited two weeks, he believed the bank would be willing to accept $500,000. Irving suggested that they split the $25,000 difference in order to complete the deal immediately, and David agreed.
25The next day David and Irving met with Mr. McMurray and David presented the offer for $500,000. However, Mr. McMurray would not go lower than $525,000 and eventually that amount was agreed upon. The bank approved the terms of the offer. Irving had no input into the terms. The offer was conditional on the purchaser being able to assume the first mortgage in place to CIBC Mortgage Corp. in the amount of $330,000, although that condition could be waived by the purchaser. The agreement was also conditional on a covenant by the vendor, which was Irving's company, to transfer both the liquor and adult entertainment licences attached to the premises to the designate of the purchaser within 60 days. This condition could also be waived by the purchaser. The existence of this condition, which was accepted by Irving, belies any real belief that David's tenant was a retail operator.
26In the action, Irving claimed that the agreement was conditional from his side as well. He claimed that he made an oral condition that the agreement was not to be operative until it had been approved by his lawyer and his accountant. The trial judge reviewed the evidence on the issue and concluded that there was no such condition. That finding is not under appeal. The trial judge did find that Irving had made it a condition that the agreement would not jeopardize his general agreement with the bank and that he intended to show it to his lawyer and accountant for that purpose. The trial judge concluded that the purchase agreement did not in any way jeopardize Irving's general agreement with the bank, and therefore that condition was satisfied. That finding is also not under appeal.
27Although Irving was 99 per cent sure that Mr. Pratt was David's prospective tenant for the Bermuda Tavern, Irving waited to contact Mr. Pratt until April 21, the day after he signed the agreement to sell the Bermuda Tavern assets to David. That is when he learned the details of the agreement Mr. Pratt had made with David. Irving told Mr. Pratt that David did not have the authority to make the deal, but that he had the authority, and that he would make the same deal on the same terms with Mr. Pratt.
28The terms required the tenant to pay $50,000 for the Bermuda Tavern assets, and to enter into a ten-year lease with a minimum yearly rent of $86,000.
29After speaking to Mr. Pratt, Irving was upset because he thought his brother had taken advantage of him. He went to see Morris Krandel, his accountant and the father of his son-in- law, Paul Krandel. Morris Krandel advised him to try to resolve the matter with David. Irving and his son, Michael, then came to ask David to give Irving the Pratt deal. When David refused, Irving became angry and said he would not transfer the adult entertainment licences. In fact, he had already deliberately filled out the licence transfer forms incorrectly so that he could easily revoke them.
30Through his lawyer, Irving then took the position that the agreement with David was null and void based on the fact that his accountant and lawyer were not satisfied with its terms, and proceeded to enter into the lease and asset purchase agreement with Mr. Pratt's sister, Ms. Travers. He also finalized his arrangements with the bank: the general agreement was amended in his favour to facilitate the transaction, allowing him to now retain the Bermuda Tavern, but pay the bank $525,000 less the amount of the first mortgage, the same price as David had negotiated. The bank was prepared to agree to this arrangement even with the knowledge that Irving was securing a lucrative lease on the Bermuda Tavern property.
Issues on Appeal
Did the trial judge err in rejecting the application of the principle in English v. Dedham Vale Properties Ltd., [1978] 1 All E.R. 382, 121 Sol. Jo. 320 (Ch.), that a self- appointed agent is a fiduciary who must account for profits?
Did the trial judge err in failing to find that David Cooper breached a fiduciary duty he owed to his brother, thereby disentitling him to damages?
Did the trial judge err in failing the apply the maxim ex turpi causa non oritur actio and thereby not grant any relief to David Cooper?
1. Was David Cooper a self-appointed agent of Irving Cooper?
31This issue was addressed and rejected by the trial judge on the facts as he found them. In English v. Dedham Vale Properties, the defendant made an offer to purchase the plaintiffs' property in May 1971. At the time, the defendant told the plaintiffs that it was unlikely that the planning authority would grant permission for the redevelopment of the whole property. The defendant said nothing about the prospects for development of one small strip. On July 13, the plaintiffs' solicitors notified the defendant's solicitors that the plaintiffs were ready to exchange contracts formally. Armed with that information, on July 14, before the contracts were exchanged, an employee of the defendant submitted a written application to the planning authority for development of one strip of the property. He made the application in the names of the plaintiffs and signed as their agent with all correspondence to come to him. The plaintiffs were never told until after closing in December about the application nor the fact that it had been granted in October.
32On those facts, the court held the defendant liable to account to the plaintiffs for the profits accrued as a result of the grant of the planning permission. The court found that by submitting the application as self-appointed agent for the vendors during negotiations for the sale of property, but without their knowledge or consent, in circumstances where the outcome of the application could affect the price, a fiduciary relationship arose. As a result the defendant had a duty to disclose the application to the vendors before completion.
33In distinguishing that case, the trial judge pointed out that the purchaser, the Dedham Vale company, was not the agent of Mr. and Mrs. English, and had no authority to sign as such. Therefore "as between himself and the vendors he could not insist that he had obtained it for his own account" (para. 101). In this case, the trial judge found that David had misrepresented to Mr. Pratt and Ms. Travers that he had authority to deal, but that he did not deal on behalf of Irving but on his own behalf. Furthermore, the agreement that was entered into was between David's company and Ms. Travers. In other words, David never acted as self-appointed agent of Irving.
34In rejecting the appellant's claim that David misused confidential information, namely the fact that Mr. Pratt might be interested in leasing the Bermuda Tavern and buying its assets, the trial judge found that David had not made unauthorized use of the information because he had been expressly authorized by Irving to use it in order to facilitate his purchase of the property. The trial judge again noted:
Moreover, Irving was 99 [per cent] sure from the time he shook hands with Mr. Pratt outside of Bermuda that Mr. Pratt was the tenant and he did nothing about it and signed the agreement.
In my view, this conclusion amounts to a recognition by the trial judge that David did have authority from Irving to deal with Mr. Pratt by negotiating with him. Irving's evidence was that he became very suspicious and concerned once he saw Mr. Pratt was looking at the tavern, but he deliberately did nothing and allowed David to proceed to deal with Mr. Pratt and with the bank before he made any inquiry to, or regarding, Mr. Pratt. When it came time to sign his agreement with Ms. Travers, David could only do that once he had agreed to purchase the property from Irving. Although David was not candid with Mr. Pratt, Ms. Travers and their lawyers as to his capacity to sign the lease and indeed told a story about having to call his mother in order to explain his unwillingness to do so immediately, David did not misrepresent his authority, given by Irving, to enter into negotiations with the prospective tenants.
35I agree with the trial judge that this was not a case of self-appointed agency, and that the English v. Dedham Vale Properties case has no application.
2. Did David Cooper owe a fiduciary duty to Irving Cooper?
36The appellant says that based on the following factors, David owed a fiduciary obligation to Irving in helping him to execute the sale of the Bermuda Tavern property:
(1) historically Irving had turned to and relied on David in times of need;
(2) Irving was in dire financial straits and therefore particularly vulnerable;
(3) Irving had reason to trust him as David had acted in Irving's best interest in the past;
(4) Irving therefore reasonably expected that he could rely on David to provide selfless help in his time of need.
In Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377 at pp. 409-10, 117 D.L.R. (4th) 161 at pp. 176-77, the Supreme Court identified the following requirement for a fiduciary relationship:
[W]hat is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party.
37The trial judge's finding that there was no fiduciary obligation created is fully supported by the evidence. The real issue in this case is the basic disagreement between the parties as to whether, in agreeing to purchase the Bermuda Tavern property from Irving, it was understood and intended that David would relinquish his self-interest. In my view, to state the question is to answer it. It cannot possibly be the case that the parties ever contemplated that David would be making a financial sacrifice by purchasing the Bermuda Tavern, and that if he could make the transaction a lucrative one, then he was to somehow ensure that Irving would get the benefit of it. In other words, if the deal was a bad deal, then David should help out Irving by buying the property, but if it was a good deal, then David should not take the benefit of it but give that benefit to Irving.
38Irving could not have it both ways. He had no basis to expect David to purchase the Bermuda Tavern -- thereby assisting him in completing the excellent deal David had helped him negotiate with the bank -- but only if David did not stand to make money on the transaction.
39Furthermore, it was not contemplated in Irving's general agreement with the bank that he could retain the Bermuda Tavern, enter into a lucrative lease which made the property very profitable, and still be released from his financial obligations to the bank totalling approximately $1.5 million.
40Irving also argues that the bargain reached was an unconscionable one and unfair to him. Again, this submission does not accord with the reality of the situation. Irving's agreement with the bank involved him selling the Bermuda Tavern as a going concern. He would only receive money from the sale if it generated enough to repay his entire indebtedness to the bank of over $1.5 million. That was never a possibility. Whatever funds were generated by the sale would all go to the bank. As a result, Irving had no interest in the sale price. Therefore, again, any concept of unconscionability can only be based on the theory that if the Bermuda Tavern could be made to be a more valuable property, it was unconscionable for David to make that deal for himself rather than for Irving. In my view, there is no basis on the facts for such a conclusion.
3. Did the contract between David and Irving Cooper amount to or involve an illegal or immoral act by David? (Ex Turpi Causa Non Oritur Actio)
41The trial judge declined to exercise his discretion in David's favour to order specific performance of his agreement with Irving and instead awarded him damages for breach of contract. The trial judge believed that David made misrepresentations about the value of the property to Paul Krandel, about his authority to deal to Mr. Pratt, and to both Irving and the bank about his intention to lease to a retail tenant rather than to an adult entertainment operator. As a result of these misrepresentations, the trial judge concluded that David did not act with clean hands.
42From David's point of view, he owed no obligation to the bank to provide insight into the value of the property or to pay more than he could negotiate with the bank. Whatever amount he paid would not hurt his brother Irving.
43The trial judge also concluded that David took advantage of Irving by pressuring him into dealing with the bank quickly in April, and was unfair in asking Irving to contribute $12,500 to the purchase price. It is interesting to note that the finding that David put enormous pressure on Irving was denied forcefully by Irving in his evidence. Irving's complaint was that his brother asked him to contribute to the purchase price without disclosing how much he would be making from the sale and lease to Mr. Pratt. However, Irving acknowledged that despite knowing about Mr. Pratt and being suspicious about the deal, he made no enquiry whatever about it. Furthermore, he clearly did not believe that Mr. Pratt was going to operate a retail outlet from the premises when he knew Mr. Pratt's interest was in the adult entertainment licence.
44The specific performance issue is not under appeal. However, relying on the findings of the trial judge regarding David's conduct, Irving submits that the trial judge, of his own motion because the issue was not raised before him, ought to have declined to enforce the bargain on the basis of the ex turpi causa non oritur actio maxim. This maxim, that no court will lend its aid to a party who founds a cause of action upon an immoral or an illegal act, dates from Holman v. Johnson (1775), 1 Cowp. 341, 98 E.R. 1120. (See Continental Bank Leasing Corp. v. Canada, 1998 CanLII 794 (SCC), [1998] 2 S.C.R. 298 at pp. 342-43, 163 D.L.R. (4th) 385.) As stated by Krever J. (as he then was) in Menard v. Genereux (1982), 1982 CanLII 2076 (ON SC), 39 O.R. (2d) 55, 138 D.L.R. (3d) 273 (H.C.J.) at p. 64 O.R.:
It is, however, well established that whether or not they are pleaded, if facts are shown in the course of a trial which may render an agreement unenforceable by reason of illegality or public policy a court must take these facts into consideration and, depending on the circumstances, act upon them if necessary by refusing to lend its assistance to a party seeking to enforce his or her rights by relying on the agreement.
45The appellant relies on the authority of Pupiec v. Dereniowski (1998), 1998 CanLII 2070 (ON CA), 39 O.R. (3d) 150 at p. 152 (C.A.) for the proposition that:
. . . a plaintiff who is a willing participant in an illegal or immoral act may not have the assistance of the court if her damages flow from her involvement in the illegal or immoral act: see Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 CanLII 23 (SCC), [1983] 1 S.C.R. 452, 24 C.C.L.T. 111. Once the court finds that the plaintiff and the defendant participated in a scheme to defraud a third party, as this trial judge expressly found, it is wrong to suggest that the court should entertain an action between the participants to the fraud to allocate responsibility for the loss in reverse proportion to their guilt.
46The maxim has no application in this case. This is not a situation where the parties participated in an illegal or immoral act with a view to defrauding a third party. Nor does the contract between David and Irving Cooper engage public policy in any other manner. Here Irving complains about the ethics of David's behaviour in relation to him. The issue therefore is whether there was fraud, misrepresentation or breach of duty by David or another basis in law or equity upon which denial of Irving's liability could be based. In this case there was none.
Conclusion
47I would therefore dismiss the appeal with costs.
Order accordingly.
