DATE: 20040624

DOCKET: C39266

COURT OF APPEAL FOR ONTARIO

RE:

STEWART AITKEN (Plaintiff/Respondent) – and – ALLERGY & RESPIROLOGY ASSOCIATES, ONTAN MANAGEMENT LIMITED, 1263184 ONTARIO INC., 1263185 ONTARIO INC., 1263186 ONTARIO INC., 1263187 ONTARIO INC., 1263188 ONTARIO INC., 1263189 ONTARIO INC. AND 1263190 ONTARIO INC. (Defendants/Appellants)

BEFORE:

MCMURTRY C.J.O., GILLESE and BLAIR JJ.A.

COUNSEL:

Thomas J. Corbett

for the appellants

James J. Holloway

for the respondent

HEARD:

June 16, 2004

On appeal from the judgment of Justice John H. Brockenshire of the Superior Court of Justice dated November 29, 2002.

E N D O R S E M E N T

[1] The appellants appeal from the judgment of Brockenshire J. dated November 29, 2002 and seek leave to appeal the disposition on costs made by Brockenshire J. on June 24, 2003.

[2] The appellants’ real complaint in this appeal is that they were treated unfairly. Specifically, they say that the trial judge set aside fundamental formal admissions contained in an Agreed Statement of Facts and the pleadings, without a request to do so and without notice to the appellants. As well, they point to the trial judge’s reliance on the doctrine of frustration and lack of consensus ad idem when finding in favour of Dr. Aitken and say that neither ground was pleaded or argued.

[3] In our view, a close reading of the reasons reveals that the trial judge did not set aside fundamental formal admissions.

[4] Paragraph 5 of the Agreed Statements of Facts reads as follows: “At the time that the plaintiff joined ARA, every partner of ARA was required to agree to purchase shares of OML as a condition precedent to joining the partnership” [emphasis added].

[5] The trial judge found that Dr. Aitken was not required to complete a share purchase in Ontan before being entitled to the financial rewards of the partnership.

[6] The distinction between the admission and the finding is subtle but crucial.

[7] Dr. Aitken admits that before becoming a partner, he was required to agree to purchase shares of OML and he fairly concedes that he did agree to purchase such shares. However, there is a difference between agreeing to buy shares and actually purchasing the shares. He agreed to purchase the shares but it was then necessary for the parties to decide upon the terms of the purchase agreement. As a consequence, it was open to the trial judge to find that while Dr. Aitken had agreed that he would purchase shares and while there was an expectation on both sides that Dr. Aitken would purchase shares, there was never a specific agreement reached as to how he would satisfy these obligations, nor were the parties ad idem as to when he would pay for the shares once an agreement as to price had been reached.

[8] Having said that, we note with some concern the statement at the beginning of the reasons in which the trial judge states that his findings were based upon the “totality of the evidence, some of which is not in agreement with the agreed statement of facts”. This statement appears to be at odds with the clear law that formal admissions are conclusive as to the matter admitted and cannot be withdrawn except by leave of the court or the consent of the party in whose favour it was made. See Marchand v. The Public General Hospital Society of Chatham 2000 16946 (ON CA), [2000] O.J. No. 4428 (C.A.) at para. 77.

[9] We turn to the second alleged error, namely, the trial judge’s reliance on the doctrine of frustration and lack of consensus ad idem when neither had been pleaded or argued.

[10] Paragraph 8 of the appellants’ Statement of Defence states that the partnership agreement was “partly written, partly oral and subject to implied terms”.

[11] The evidence supports the trial judge’s conclusion that the parties were not ad idem as to the fundamental terms and conditions of the purchase of the shares. Dr. Aitken’s letter of June 24, 1997, and Dr. O’Neil’s responding letter of July 8, 1997, both clearly indicate that the parties recognized the need to alter the then existing financial arrangements among the partners and shareholders. This commitment to make adjustments so that the financial realities were satisfactory for Dr. Aitken remained throughout, as the evidence showed. Neither party expected that the pre‑existing agreements would govern the financial arrangements between them without alteration.

[12] Once the trial judge made the finding that the parties had not come to an agreement about the term that ought to govern the situation that arose with Dr. Aitken having become a partner and resigning from partnership before he had purchased shares in Ontan, he was obliged to find an implied term to govern the situation. The implied term which he found is consistent with paragraph 11 of 1995 partnership agreement, which reads as follows:

Upon termination of a partner’s interest in the partnership business under the provisions of paragraph 10 herein, the partner so terminated shall be entitled to his share of the net profits of the partnership, and that partner’s percentage of the partnership assets, as adjusted by the partnership’s accountant in accordance with the accounting procedure then in use, effective as of the date of such termination, said amount to be paid in eight (8) equal, quarterly instalments without interest, with the first payment due three (3) months after the date of the termination.

[13] It is also consistent with the equities of the situation.

[14] In our view, the trial judge reached his conclusions based on his determinations of the oral and implied terms of the agreement between the parties. In light of paragraph 8 of the Statement of Defence alone, it cannot be said that the trial judge was acting outside the scope of the pleadings in so deciding.

[15] We acknowledge that the legal principle of frustration referred to by the trial judge is inapplicable in the situation. Firstly, as it had been neither argued nor pleaded, it would have been inappropriate to decide the case on that basis. (Rodaro v. World Bank of Canada (2002), 2002 41834 (ON CA), 59 O.R. (3d) 74.) Moreover, frustration cannot apply where the supervening event results from the voluntary act of one of the parties, in this case the act of Dr. Aitken resigning from the partnership. See Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1976), 1975 726 (ON CA), 9 O. R. (2d) 617. Nonetheless, based on the implied term analysis above, the trial judge was entitled to reach the conclusion that he did.

[16] Accordingly, we would dismiss the appeal, grant leave to appeal the matter of costs and dismiss the appeal as to costs with costs to the respondents, fixed in the sum of $12,500, inclusive of GST and disbursements.

“R. Roy McMurtry C.J.O.”

“E. E. Gillese J.A.”

“R. A. Blair J.A.”