DATE: 20040615

DOCKET: C39770

C39769

COURT OF APPEAL FOR ONTARIO

LABROSSE, GOUDGE AND MACPHERSON JJ.A.

B E T W E E N:

PATRICK SUDDABY

Plaintiff (Respondent in Appeal)

Christopher D. J. Hacio for the appellant

• and -

Morris Holervich

864226 ONTARIO INC., operating as BIOCAN WASTE MANAGEMENT SYSTEMS and GARY ZIMAK

for the respondent

Appellant

A N D B E T W E E N:

864226 ONTARIO INC., operating as BIOCAN WASTE MANAGEMENT SYSTEMS and GARY ZIMAK

Plaintiffs by Counterclaim (Appellants)

• and -

PATRICK SUDDABY, TIM FUCILE, and 1103408 ONTARIO LTD.

Defendants to the Counterclaim (Respondents in Appeal)

Heard: June 4, 2004

On appeal from the judgment of Justice H. M. Pierce of the Superior Court of Justice dated January 16, 2003.

BY THE COURT:

[1] This action began in July 1995 as a claim by the plaintiffs Suddaby and Fucile against the defendant Biocan Waste Management Systems for the repayment of the loans made by the plaintiffs to the company, and against the defendant Dr. Gary Zimak on his guarantee of those loans.

[2] The action proceeded through discoveries at a very leisurely pace over the next seven years. While this was going on, Biocan became worthless. Then in July 2002, three weeks before trial, the plaintiffs moved to amend their pleadings to claim that their funds had been advanced to Zimak on his promise to repay and that Zimak breached this contract of loan by failing to do so.

[3] The motion was dismissed by Pierce J. because she viewed the proposed amendment as superfluous.

[4] Counsel for the defendants remained concerned that at trial the plaintiffs would allege that their contracts were for the purchase of shares in Biocan rather than contracts of loan. He raised this when the trial was called, and in response, counsel for the plaintiff made clear that he was simply asserting a contract of loan against Zimak, and that having received the money from the plaintiffs, Zimak had a contractual obligation to repay it.

[5] In opening however, counsel for the plaintiffs put his case squarely on an alleged breach of contracts between each plaintiff and Zimak to purchase an interest in Biocan by buying some of his shares. Counsel for the defendants did not object, or ask for an adjournment, but responded on the merits in his own opening, and it appears that the trial proceeded with this as its basic issue.

[6] In final argument, counsel for the plaintiffs filed and made reference to a number of sections of the Ontario Business Corporations Act relating to the transfer of shares. When opposing counsel objected, he made clear that he was seeking no remedy pursuant to the OBCA, but merely sought to refer to these statutory provisions in the context of the evidence called at trial concerning whether the plaintiffs ever acquired shares in Biocan.

[7] After reserving for several months, the trial judge issued reasons which gave judgment to the plaintiffs against Zimak for the full amount of the monies which they had advanced together with interest. She based this remedy entirely on provisions of the OBCA relating to the obligations to provide a shareholder with a share certificate and to register the transfer of shares.

[8] The defendants appeal, saying that no remedy was requested pursuant to the OBCA and that they had no opportunity to call evidence or make argument relevant to these provisions.

[9] The respondents properly concede that the judgment based on the OBCA cannot stand. The trial judge was not entitled to proceed as she did. It is inconsistent with the principles of natural justice to grant judgment on a basis expressly disavowed by counsel and where there has been no opportunity for relevant evidence or argument.

[10] The respondents argue however that the result can be sustained by this court on the footing of fundamental breach of contract for the purchase of shareholder interests in Biocan coupled with the remedy of rescission. In making this argument counsel concedes that this, not the breach of contracts of loan, is now unequivocally the basis of his case.

[11] The appellants argue that if the respondents frame their action this way, this court should dismiss it for at least three reasons. They say that there was no fundamental breach of the contract to acquire shareholdings in Biocan because in real terms, the acquisition happened. Moreover, there could be no damages in any event because the shares were worthless. And finally the appellants assert significant equitable defences to the remedy of rescission.

[12] In our view, the appeal must be allowed and the judgment against the appellants including costs must be set aside. For clarity, this does not affect the dismissal of the appellants’ counterclaim which was not appealed.

[13] However, we cannot accede either to the appellants’ request to dismiss the action or the respondent’s request to sustain the result on a different basis. There is an absence of findings of fact on a number of issues that make either of these courses impossible. For example, there is no finding as to the precise terms of the contract alleged. Was it for the acquisition of shareholder interests or simply for the delivery of share certificates? There is no assessment of damages based on common law principles rather than the OBCA. Nor is there any finding concerning the alleged equitable defences to the remedy of rescission. Since we are not a trial court we cannot fill this void simply on reading the transcript of evidence.

[14] There must therefore be a new trial. If the respondents choose to proceed, they should amend their pleadings to set out the basis of their claim with precision. Given the first trial, discovery should not be necessary, but can be conducted if leave is given.

[15] As to costs, all participants have some responsibility for the unfortunate way in which these proceedings have evolved. In the circumstances, we think the costs order that best reflects this reality is that each side bear its own costs of the trial that has taken place.

[16] Since the appellants have been successful in this court they are entitled to costs of the appeal, at least if the respondents choose to proceed with the new trial. We fix those costs on a partial indemnity basis at $10,000 payable to the appellants in the cause of the new trial.

Released: June 15, 2004 “STG”

“J.M. Labrosse J.A.”

“S.T. Goudge J.A.”

“J.C. MacPherson J.A.”