DATE: 20040607

DOCKET: C39091

COURT OF APPEAL FOR ONTARIO

RE:

EUGENE FOO, ADVANCED TECHNOLOGY CAPITAL CORP., KRYSTAL GROUP TRUST, 754969 ONTARIO INC., 866800 ONTARIO INC., 797581 ONTARIO INC., 660646 ONTARIO INC., 926441 ONTARIO LIMITED and VIRTUAL REALITY SYSTEMS CORP. and DANIELLE MAMONE, as trustee for EUGENE FOO (Plaintiffs/Appellants) – and – BOB YAKIMETZ, MICHAEL DUBREUIL, BGI SYSTEMS INTEGRATION LTD., BGI SYSTEMS LIMITED, MICHAEL DUBREUIL as trustee for the DUBREUIL FAMILY TRUST and BOB YAKIMETZ as trustee for the YAKIMETZ FAMILY TRUST and MARKEN CAPITAL CORP. (Defendants/Respondents)

BEFORE:

LABROSSE, GOUDGE and MACPHERSON JJ.A.

COUNSEL:

Gregory W. Roberts

for the appellants

Hillel David

for the respondents Yakimetz & BGI Systems Integration Ltd.

HEARD:

June 3, 2004

On appeal from the judgment of Justice Maurice Cullity of the Superior Court of Justice dated October 18, 2002.

E N D O R S E M E N T

[1] The appellants appeal the judgment of Justice Maurice Cullity dated October 18, 2002 declaring that Foo was not the beneficial owner of 5,413,097 common shares in the capital of BGI Systems Integration Ltd. (“BGI”).

[2] The appellants challenge the trial judge’s decision on two principal bases: (1) he improperly relied on extrinsic parol evidence in order to analyze several transactions involving the shares; and (2) he failed to give sufficient weight to an ‘entire agreement’ provision in the first agreement relating to the shares.

[3] We disagree. There were two agreements at the heart of the relationship between the parties. The May 14, 1996 Share Exchange Agreement transferred the disputed BGI shares to the appellant. However, in the October 1, 1996 Acknowledgement, Foo affirmed that he had no beneficial interest in the shares.

[4] Both parties introduced, without objection, extensive extrinsic evidence to try to explain a series of complicated transactions. The trial judge identified a number of problematic factors – transactions occurring over a three year period, overlapping documents, unclear revocations of some documents, absence of legal advice with respect to some documents and parties, inconsistencies in the documents, significant backdating of documents giving rise to uncertainty about the order of execution, and various trusts being treated as legal persons capable of being parties to contracts and of holding property beneficially. Because of these difficulties, the trial judge said:

The existence of these factors makes it impossible to adhere strictly to the principle that parties to commercial transactions should be held to the terms they have reduced to writing. Too often the documentation reflects either what the parties hoped to effect in the future – rather than what they intended to put in place when the documents were executed – or an attempt to give a false and misleading impression that certain dispositions had been made, or actions taken in the past.

[5] Based on his analysis of the documents and the testimony of all the principals involved in the transactions, the trial judge concluded that the Share Exchange Agreement was not effective to transfer ownership of BGI shares to Foo in May 1996 because the underlying purpose of the transaction was never fulfilled – namely, obtaining public financing for the company.

[6] In reaching this conclusion, the trial judge relied on extrinsic parol evidence, which the appellants challenge. However, their challenge places them on the horns of a dilemma. The trial judge also relied on extrinsic parol evidence to conclude that Foo’s October Acknowledgement that he was not a beneficial owner of the shares was also not effective. In short, the trial judge engaged in an identical analysis with respect to both documents.

[7] In these circumstances where there is essentially one course of dealings between the parties which had several episodes, it follows that if the appellants were successful in their submissions relating to the May document, the logic of the submission would need to flow through to the October transaction. The result would be that, although Foo would have become the owner of the shares in May, he would have given them back in October.

[8] We note also that the trial judge referred to Foo’s “private agenda” in his relationship with the respondents – namely, his desire “to preserve his claim to the BGI shares” after the May transaction, even if public financing was not achieved. The trial judge found that he proceeded knowing that the respondents were unaware of this and had a different approach. He maintained this position, which led to this litigation, even though he did nothing for four years (until 2001 when he learned of the proposed takeover of BGI) to indicate that he regarded himself as an owner of the shares.

[9] The appeal is dismissed with costs fixed at $15,000.00, inclusive of disbursement and GST.

“J. Labrosse J.A.”

“S. T. Goudge J.A.”

“J. C. MacPherson J.A.”