COURT OF APPEAL FOR ONTARIO
DATE: 20041123
DOCKET: C40438
GOUDGE, FELDMAN and LANG JJ.A.
B E T W E E N :
CHRIS ANTHOPOULOS and CHRIS ANTHOPOULOS, in trust
Plaintiffs (Appellants)
- and -
MAURICE J. LaPALME, 1077546 ONTARIO LIMITED, 636090 ONTARIO LIMITED and METCAN INFORMATION TECHNOLOGIES INC.
Defendant (Respondent)
Counsel:
Lou Brzezinski and John Polyzogopoulos for the appellants
Mark H. Arnold and Christopher J. Jaglowitz for the respondents
Heard: November 3, 2004
On appeal from the judgments of Justice Sarah E. Pepall of the Superior Court of Justice dated July 7, 2003, reported at [2003] O.J. No. 5452.
BY THE COURT:
[1] This is an appeal from the judgments of Pepall J. where she found that the parties entered into a contract, that the respondents breached that contract, and that the respondents’ conduct amounted to oppression. In the result, however, she limited the appellants’ damages to $1.00. The respondents resist the appeal of the judgment and seek leave to appeal the trial judge’s costs disposition ordering the parties to bear their own costs.
Issues
[2] The appellants argue that the trial judge erred:
in finding a performance guarantee to be a term of the parties’ contract in the absence of a pleading of that term by any party;
in finding on the evidence that the parties contracted for a performance guarantee; and
in failing to determine whether the performance guarantee was unenforceable because it was unconscionable.
[3] With respect to costs, the respondents argue that the trial judge erred by failing to take into consideration their rule 49.10 offer and by otherwise depriving them of costs.
Facts
[4] In 1989, the appellants or their corporate entities owned a commercial property valued at $13.1 million, subject to an outstanding $8 million mortgage to Sun Life Assurance Co. (“Sun Life”). In 1993, when the appellants defaulted on the mortgage, the property was appraised at $3.1 million.
[5] In August 1993, when Sun Life commenced power of sale proceedings, the appellant, Mr. Prenger, asked the respondent, Mr. LaPalme, whether he would be prepared to rescue the property. After conducting due diligence through his Chief Financial Officer, Mr. Ryan, Mr. LaPalme declined the investment in October 1993.
[6] In April 1994, the appellant, Mr. Prenger, again approached Mr. LaPalme advising Mr. LaPalme that he may be able to purchase the property from Sun Life for $3 million. As support for this advice, he gave Mr. LaPalme information that the judge found to be “confidential”, including information about a $518,000 deposit that the appellants had forfeited to Sun Life during their own unsuccessful attempt to acquire the property. As well, the appellants told Mr. LaPalme that the current rent roll for the property approximated $40,000 monthly.
[7] In May 1994, Mr. LaPalme wrote the appellants offering Mr. Anthopoulos a 40% interest and Mr. Prenger a 9% interest in the property, with the proviso that their shareholders agreement would stipulate that, if the property’s net rents fell below $30,000 for any month, the appellants would surrender their shares for $1.00 (the “performance guarantee”). Mr. Anthopoulos was to manage the property.
[8] Negotiations continued between the parties centered on the performance guarantee, but their agreement was not reduced to writing. The appellants took the position in their pleadings and at trial that they never agreed to a performance guarantee of any kind. The respondents took the position in their pleadings and at trial that the performance guarantee was varied by the parties to guarantee rent of $360,0000 annually, and was a condition precedent to the appellants’ share entitlement.
[9] In July 1994, the respondents purchased the property from Sun Life in the name of 1077546 Ontario Limited for approximately $2.9 million. No share certificates were given to the appellants. Under Mr. Anthopoulos’s management, the net rents in the first year fell well below the $360,000 figure and continued to be below that figure over the years.
[10] In subsequent years, despite the breach of the performance guarantee, the respondents made a number of offers to the appellants to make a financial investment in the property. The appellants refused those offers. After 1997, the appellants were no longer involved with the property. In 2000, the respondents sold the property for $6.75 million. The appellants sued, in effect, for a proportionate share of the proceeds of sale of the property.
[11] After a twenty-day trial, the trial judge, for the most part, rejected the evidence of the appellants and, indeed, of the respondent, Mr. LaPalme. She found, however, Mr. Ryan’s evidence to be reliable. She determined that the parties had agreed to the performance guarantee as a term of their agreement, but that they had amended it to specify the annual rather than the monthly guaranteed rental income. She also found that the performance guarantee was not a condition precedent to the issuance of shares. Therefore, she held that the respondents breached the contract by not initially providing the appellants with the share certificates to which they were entitled. However, the trial judge concluded that the breach was only technical because the appellants would have forfeited their shares when they failed to meet the performance guarantee. Accordingly, although she found that the respondent acted oppressively in failing to deliver the shares, she assessed the appellants’ damages at $1.00.
[12] In addition, the trial judge dismissed the appellants’ claims based on breach of confidence and breach of fiduciary relationship. On appeal, the appellants also raised the issue as to whether the performance guarantee was unenforceable because it was unconscionable.
Analysis
1. Pleadings Issue
[13] The appellants are correct that, over the series of amended pleadings, the appellants denied any performance guarantee, while the respondents alleged that the performance guarantee was a condition precedent to share entitlement. Rather than accepting either of these positions, the trial judge found that the performance guarantee was a term of the parties’ agreement.
[14] In the pleadings, both parties relied on Mr. LaPalme’s May 1994 letter to evidence the agreement between them. All parties examined and cross-examined at length with respect to the existence or non-existence of such a term, its amendment, and its interpretation.
[15] It is our view that it was well within the jurisdiction of the trial judge to reject the appellants’ pleading that there was no performance guarantee and the respondents’ pleading that any performance guarantee was a precondition to the appellants’ share ownership. The trial judge was entitled to conclude that the performance guarantee was a term of the ownership agreement between the parties.
[16] In this regard, and central in the pleadings of each party was the respondents’ offering letter, which stated:
I will require a performance clause in our shareholders agreement that stipulates if the net monthly rents drop below $30,000 for any month, both Chris, his family members and Harry Prenger will immediately surrender all of their shares for consideration of $1.
[17] On the basis of the pleadings as a whole, including paragraph 34 of the respondent Anthopoulos’s Amended Fresh Statement of Defence and Counterclaim and the evidence presented at the trial, the trial judge was entitled to find that the performance guarantee constituted a term of the agreement reached between the parties, and that the word “surrender” implied a preceding issuance of the shares to the appellants.
[18] We do not accept that the appellants suffered any prejudice or lack of due process as a result of the trial judge’s determination regarding the performance guarantee. The presence or absence of that term, and the intention of the parties, was the central issue in the trial, and one about which all parties examined and cross-examined. This was not a situation such as that in Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.), where the parties were prejudiced by the trial judge’s reliance on a different theory of liability than that framed by the pleadings and the evidence.
2. The Evidence
[19] The appellants have not established that the trial judge erred in her factual findings with respect to the performance guarantee. Absent palpable and overriding error, her factual findings are entitled to deference. In any event, there was ample evidence, including the evidence of Mr. Ryan and the initial proposal from Mr. LaPalme, from which the trial judge was entitled to conclude that the performance guarantee was an essential term of the parties’ agreement.
3. Unconscionability
[20] The appellants raise the issue of unconscionability for the first time on the appeal, in part by arguing that they did not have the opportunity to do so at trial because no party had pleaded the performance guarantee as a contractual term. In any event, there is no evidentiary foundation capable of supporting a finding that the performance guarantee rendered the agreement between the parties unconscionable.
4. Trial Costs
[21] On the cross-appeal, the respondents challenge the trial judge’s decision that the parties should bear their own costs.
[22] The respondents made a global offer to settle three actions with three sets of plaintiffs without differentiating as to the quantum to be paid by each set of plaintiffs. In these circumstances, the trial judge was entitled to conclude that the respondents’ offer was neither clear nor unambiguous and that, as a result, it did not attract the costs consequences of rule 49.10.
[23] Further, the trial judge considered the principles applicable to an award of costs, including the mixed result on the substantive issues and the respondents’ conduct, which she saw as unnecessarily prolonging the trial and as deficient in their obligation to produce documents.
[24] We see no reason to interfere with the exercise of the trial judge’s discretion. Accordingly, leave to appeal costs is granted, but the appeal is dismissed.
Costs of the Appeals
[25] The respondents were successful in resisting the appeal of the trial judgment. The appellants were successful in resisting the cross-appeal as to costs.
[26] The appeal of the trial judgment, however, occupied the bulk of the appellate preparation and argument. A fair disposition of costs accordingly requires a net award to the respondents. Costs of the appeals are awarded to the respondents, appellants on the cross-appeal, fixed at $5,000 plus disbursements and G.S.T.
Released: NOV 23 2004 Signed: “S.T. Goudge J.A.” “K. Feldman J.A.” “S.E. Lang J.A.”