DATE: 2005-12-19
DOCKET: C43105
COURT OF APPEAL FOR ONTARIO
GOUDGE, CRONK and JURIANSZ JJ.A.
B E T W E E N :
MARKET LEADERSHIP INC. and J. BOAKES PROMOTIONS INC.
Robert J. Bassermann for the appellant
Plaintiff (Appellant)
- and -
LORETTA FOODS LIMITED, ALPEN REALTY INVESTMENTS LIMITED, JOHN PENNY and MARY PENNY
Thomas McRae and Madeline Ferreira for the respondents
Defendants (Respondents)
Heard: October 13, 2005
On appeal from the order of Justice Victor Paisley of the Superior Court of Justice dated February 15, 2005.
CRONK J.A.:
[1] This litigation arises from a dispute concerning compensation claimed by the appellant Market Leadership Inc. (“Market Leadership”) from the respondents following execution by the parties of an agreement for the provision of professional services regarding the proposed sale of a food business and associated real estate. The primary issue to be determined is whether the services contemplated under the agreement concern a “trade in real estate” within the meaning of s. 22 of the Real Estate and Business Brokers Act, R.S.O. 1990, c. R.4 (the “Act”), so as to preclude an action for the recovery of compensation for such services unless the claimant is registered or exempted from registration as a broker or salesperson under the Act.
I. Background
[2] At the relevant times, the respondent Loretta Foods Limited (“Loretta Foods”) carried on a food merchant business from leased premises in Mississauga owned by the respondent Alpen Realty Investments Limited (“Alpen”). The respondent Mary Penny was the sole shareholder and director of Loretta Foods. Her son, the respondent John Penny, was the president of Loretta Foods.
[3] In 2002, Mary Penny decided to sell Loretta Foods. To facilitate this sale, Loretta Foods and Alpen entered into a written agreement with Market Leadership dated January 29, 2003 (the “Agreement”), whereby they “engaged the professional services” of Market Leadership to “solely and exclusively sell [their] business and real estate”. Market Leadership is owned by Anthony Guido, a chartered accountant.
[4] The recitals to the Agreement provided :
WHEREAS:
LORETTA FOODS LTD. and ALPEN REALTY INVESTMENTS LTD. (herein, “The Client”) desires [sic] to sell its business and real estate respectively, to new owners and requires certain professional services from Market Leadership, Inc. to package and sell the business; AND
The Client has engaged the professional services of Market Leadership, Inc. to solely and exclusively sell its business and real estate located at 2405 Lucknow Drive, Mississauga, and Market Leadership Inc. hereby accepts to [sic] this engagement.
The client [sic] desires to sell its business in the range of $3.5 million to $5.0 million or any other price that may be offered and accepted by the client [sic].
[5] The Agreement contemplated four different types of payments to Market Leader-ship:
i) the sum of $4,000 plus Goods and Services Tax (“GST”) for the preparation of “a professional business package to facilitate the sale of the business”. This fee was expressed to be non-refundable;
ii) an additional sum equal to 5% plus GST of the gross selling price of the Loretta Foods business, subject to increase depending on the sale price of the business. This fee was “deemed to be earned and due in full amount payable upon the closing” of the sale of the business;
iii) an additional sum equal to 5% plus GST of the gross selling price of Alpen’s real estate. This fee was also “deemed to be earned and due in full amount payable upon the closing” of the sale of the real estate; and
iv) per diem compensation at the rate of $495 per hour “in respect of any additional professional work requested by [Loretta Foods and Alpen] for [Market Leadership] to do”.
[6] The term of the Agreement was three months, subject to extension upon the prior written agreement of the parties. In addition, the Agreement stated:
The commissions herein shall be valid and effective to any prior prospective purchaser of the subject business and/or real estate if any such purchase/sale transaction(s) shall take place within 12 months after the expiry of this agreement.
[7] The Agreement also provided that, “The purchase and sale of the business and real estate may be treated as independent transactions.”
[8] Neither Mary Penny nor John Penny were parties to the Agreement.
[9] Following the execution of the Agreement, Market Leadership entered into an arrangement with J. Boakes Promotions Inc. (“Boakes Inc.”), whereby Boakes Inc. agreed to assist Market Leadership in fulfilling its obligations under the Agreement in exchange for receipt of part of the fees payable to Market Leadership. Boakes Inc. is owned by James Boakes, a business associate of John Penny.
[10] In March 2004, the shares of Loretta Foods were sold by Mary Penny to Burgio Family Holdings Inc., a company controlled by Al Burgio, for what appears to have been approximately $2.74 million. At about the same time, Alpen agreed to extend the term of the lease governing Loretta Foods’ use of the Mississauga premises for its business.
[11] At the time of the Agreement and the subsequent sale of the shares in Loretta Foods, neither Market Leadership nor Anthony Guido were registered under the Act. There is no suggestion that Boakes Inc. or James Boakes were registered under the Act.
[12] When no compensation was paid to them following the sale of Loretta Foods, Market Leadership and Boakes Inc. sued the respondents, claiming damages in the sum of $500,000 for breach of contract or, in the alternative, on the basis of quantum meruit, unjust enrichment or breach by the respondents of good faith and fair dealing obligations. They also sought “rectification of contract”.
[13] In their statement of claim, Market Leadership and Boakes Inc. asserted that:
(i) Market Leadership prepared a professional business package for the respondents “in order to facilitate the sale of the business”, for which it was paid $4,000 plus GST;
(ii) they introduced Al Burgio “to the business and pro-perty” and to the respondents and provided him with the business package prepared by Market Leadership, together with other confidential information concer-ning the Loretta Foods business and the Alpen real estate;
(iii) although James Boakes attended several initial meetings with Al Burgio, both he and Market Leader-ship were thereafter excluded by the respondents from any further involvement in the negotiations regarding the sale of Loretta Foods;
(iv) at the request of John Penny, James Boakes was instrumental in persuading Al Burgio to increase the purchase price offered for the acquisition of Loretta Foods; and
(v) they played an integral role in arranging the sale of Loretta Foods and the extension of the lease of Alpen’s property and “were the effective cause thereof”.
[14] Market Leadership and Boakes Inc. claimed entitlement under the Agreement to compensation from the respondents: (i) in the sum of $125,000 based on the sale price for the shares in Loretta Foods; and (ii) a further sum equal to 5% of the value of the extended term of the lease of Alpen’s premises. Market Leadership also claimed the sum of $106,425 based on a per diem rate of $495 per hour for 215 hours of “further and other professional work” which it allegedly performed at the request of the respondents.
[15] On December 22, 2004, Boakes Inc. delivered a notice of discontinuance in the action, leaving Market Leadership as the sole plaintiff in the lawsuit.
[16] The respondents defended the action, asserting that the Agreement was not enforceable because none of Market Leadership, Boakes Inc., Anthony Guido or James Boakes was registered or exempt from registration under the Act when the Agreement was executed, when the Loretta Foods business was sold, and when the lease of the Alpen premises was extended. They also denied that Market Leadership or Boakes Inc. introduced them to the purchaser of Loretta Foods and alleged that neither company had any material involvement in effecting the sale of Loretta Foods. They further claimed that they did not request Market Leadership to perform “additional professional work” within the meaning of the Agreement, and that the negotiations leading to the sale of Loretta Foods occurred after the expiry of the Agreement.
[17] On January 27, 2005, the respondents moved to stay the action on the basis that the transactions contemplated under the Agreement constituted a “trade in real estate” within the meaning of s. 22 of the Act. That section states, in part: “No action shall be brought for commission or for remuneration for services in connection with a trade in real estate” unless the claimant is registered or exempt from registration under the Act. The respondents argued that no action by Market Leadership for the recovery of commission or other remuneration for services rendered was sustainable because neither Market Leadership nor Boakes Inc. was registered, or exempt from registration, under the Act at the relevant times.
[18] Market Leadership opposed the stay motion, primarily on two grounds. First, it argued that s. 22 of the Act does not apply to a sale of the shares of a corporation. Second, it submitted that it was not acting as a salesperson or broker in its dealings with the respondents so as to be subject to the Act but, rather, that it acted throughout in a consulting capacity, providing professional consulting services in respect of which the Act has no application.
[19] By order dated February 15, 2005, Paisley J. of the Superior Court of Justice stayed the action in its entirety. He held that there was no basis upon which to conclude that Market Leadership was exempt from the registration requirements of the Act; the fact that the sale of Loretta Foods was effected by a sale of shares was “irrelevant” given the terms of the Agreement; no quantum meruit claim could arise on the facts pleaded by Market Leadership; and Market Leadership’s compensation claim for “further profes-sional work relating to the transaction” could not survive under the Act.
[20] Market Leadership appeals. For the reasons that follow, I am of the opinion that the appeal must be allowed in part.
II. Relevant Statutory Provisions
[21] Section 22 of the Act reads as follows:
- No action shall be brought for commission or for remuneration for services in connection with a trade in real estate unless at the time of rendering the services the person bringing the action was registered or exempt from registration and the court may stay any such action at any time upon motion [emphasis added].
[22] Section 3 of the Act provides for the registration of brokers and salespersons under the Act. It states:
- (1) No person shall,
(a) trade in real estate as a broker unless the person is registered as a broker;
(b) trade in real estate as a salesperson unless he or she is registered as a salesperson of a registered broker;
(c) act on behalf of a corporation or partnership in connection with a trade in real estate unless the person and the corporation or partnership are registered as brokers.
[23] Section 5 of the Act, in turn, provides for certain exemptions from the registration requirements of the Act. There is no dispute that neither Market Leadership nor Anthony Guido were registered under the Act and, further, that they were not exempt from registration under s. 5 of the Act, at the relevant times.
[24] Finally, s. 1 of the Act contains the following pertinent definitions:
- In this Act,
“broker” means a person who, for another or others, for compensation, gain or reward or hope or promise thereof, either alone or through one or more officials or salespersons, trades in real estate, or a person who holds himself, herself or itself out as such;
“business” means an undertaking carried on for the purpose of gain or profit, and includes an interest in any such undertaking, and, without limiting the generality of the foregoing, includes a boarding house, hotel, store, tourist camp and tourist home;
“real estate” includes real property, leasehold and business whether with or without premises, fixtures, stock-in-trade, goods or chattels in connection with the operation of the business;
“trade” includes a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition or transaction, and any act, adver-tisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, trans-action, offer or attempt, and the verb “trade” has a corresponding meaning;
III. Issues
[25] There are two issues:
(1) Does s. 22 of the Act apply to Market Leadership’s compensation claim concerning the sale of Loretta Foods?
(2) Does s. 22 of the Act apply to the remainder of Market Leadership’s compensation claims?
IV. Analysis
(1) Does Section 22 of the Act Apply to the Compensation Claim Concerning the Sale of Loretta Foods?
[26] Mrs. Penny sold Loretta Foods to a third party through the disposition of her shares in the company. Market Leadership argued before the motion judge that the Act does not apply to the sale of a business effected by a share transaction. The motion judge rejected this contention, holding that the fact that the sale of Loretta Foods was accomp-lished by a sale of shares was “irrelevant”. I disagree.
[27] In Roche v. Marston, 1951 4 (SCC), [1951] S.C.R. 494, the Supreme Court of Canada held that the Real Estate and Business Brokers Act, 1946, S.O. 10 George VI, C. 85, a predecessor statute to the current Act, did not extend to the sale of a business effected by a sale of the shares of an incorporated company. Section 36 of the 1946 statute was virtually identical to s. 22 of the Act. In addition, the definitions of the terms “trade”, “real estate” and “business” under the 1946 statute were almost identical to the definitions of those words set out in the current Act. In Roche, the Supreme Court stated at p. 501:
Wide though these definitions are, I am in respectful agreement with the learned trial judge that it was not the intention of the legislature to include in the term “business” the shares of an incorporated company. The acquisition of shares in a company is not, I think, the acquisition of an interest in the undertaking carried on by such company. In Macaura v. Northern Assurance Company Limited, [1925] A.C. 619 at p. 626, Lord Buckmaster said:
Now, no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.
[28] Roche establishes that the disposition or acquisition of a company effected by the sale of shares is directly relevant to the question whether a claim for compensation concerning such disposition or acquisition fails for want of registration by the claimant under the legislation in Ontario governing real estate and business brokers. Under the holding in Roche, the Act does not extend to such transactions. Thus, the failure of the claimant to register under the Act is no answer to a claim for compensation in connection with the sale of a company accomplished by means of a share transaction.
[29] It is unclear whether Roche was brought to the attention of the motion judge. Roche, however, was binding on the motion judge and is binding on this court.
[30] That part of Market Leadership’s action that concerns its claim for compensation under the Agreement regarding the sale of Loretta Foods was stayed by the motion judge on the basis of his conclusion that the Act applied to this claim. Based on Roche, this conclusion was in error. Accordingly, on this ground alone, the stay of that part of Market Leadership’s action that pertains to compensation claimed in respect of the sale of Loretta Foods must be set aside.
[31] There is also an additional basis upon which to conclude that the stay of this part of Market Leadership’s action cannot stand.
[32] The definition of “trade” under s. 1 of the Act contemplates a “disposition or acquisition of or transaction in real estate” [emphasis added], accomplished by various means as stipulated in the definition. Loretta Foods owned no real estate and no “trade” of real property or leasehold owned by it formed part of the sale of Loretta Foods. Moreover, in this case, the parties expressly agreed that “the purchase and sale of the business and real estate may be treated as independent transactions”. Thus, under the bargain made by the parties, the sale of Loretta Foods was subject to discrete and potentially different treatment than the sale of Alpen’s premises for the purpose of determining Market Leadership’s rights and obligations under the Agreement. On this basis, as well, I am persuaded that s. 22 of the Act does not apply to Market Leadership’s compensation claim concerning the sale of Loretta Foods.
(2) Does Section 22 of the Act Apply to the Remainder of the Compensation Claims?
[33] The remainder of Market Leadership’s action concerns its compensation claims for part of the value of the extended term of the lease of Alpen’s premises, for the alleged provision by Market Leadership of “additional professional work” unconnected to the sale of Loretta Foods, and for the preparation by Market Leadership of a “business package to facilitate the sale of [Loretta Foods]”. I will consider these claims in turn.
(i) Extension of the term of the Alpen lease
[34] The word “trade” is defined under s. 1 of the Act as including a transaction in real estate by “lease, rental or otherwise”. The words “real estate” are defined under s. 1 as including both real property and leasehold.
[35] Given these broadly cast definitions, a “trade in real estate”, as that phrase is used in s. 22 of the Act, includes a leasing transaction in relation to real property. On this basis, the value of the benefit realized upon the extension of the lease of Alpen’s premises constitutes a “trade in real estate” within the meaning of the Act.
[36] In its pleading, Market Leadership claimed compensation concerning the Alpen lands based on a percentage of “the value of the lease to be paid over the term thereof” pursuant to the Agreement. However, the Agreement made no provision for payment to Market Leadership in respect of the extension of the term of the lease. Instead, the Agreement contemplated payment to Market Leadership of a percentage of the gross “selling price” of the Alpen property upon the closing of “any such purchase and sale transaction” concerning those lands. This did not occur. Rather, the Alpen property appears to have been leased to the purchaser of Loretta Foods. Consequently, Market Leadership cannot sustain a claim for compensation under the Agreement in respect of the extension of the term of the Alpen lease.
[37] Market Leadership also claimed compensation in relation to the Alpen property based on quantum meruit, unjust enrichment or breach by the respondents of duties of good faith and fair dealing. But in its factum filed with this court, Market Leadership admits that, “Market Leadership and/or James Boakes had no or only minimal involvement in respect to the amendments and the extensions [of the lease of the Alpen premises]” and that it did not act as an “agent” in respect of the lease extension.
[38] Nonetheless, Market Leadership asserts that it is entitled to compensation concerning the extension of the lease because the “changes and/or amendments [to the lease] occurred and accrued to the benefit of the [respondents] because of the efforts rendered by [Market Leadership]”.
[39] However, Market Leadership led no evidence on the stay motion to support its claim that it was instrumental in bringing about the extension of the term of the Alpen lease or, indeed, that it had any involvement in obtaining the extension. Market Leadership’s only evidence on the stay motion, an affidavit sworn by James Boakes, contained no assertion of involvement by Market Leadership, Boakes Inc. or their principals in arranging for or negotiating the extension. No affidavit by Anthony Guido or Market Leadership was filed on the motion.
[40] Thus, taking Market Leadership’s position at its highest, it appears that the only basis for its claim to compensation in relation to the extension of the term of the Alpen lease rests on its contention that it, or James Boakes on behalf of Boakes Inc. and Market Leadership, introduced Al Burgio and his company to the respondents. This assertion is flatly denied by the respondents.
[41] I see no basis to interfere with the stay of that part of Market Leadership’s action that pertains to compensation concerning the extension of the term of the Alpen lease. There was no evidence before the motion judge demonstrating that Market Leadership or Anthony Guido performed any work for the respondents regarding the Alpen lands so as to justify compensation under the Agreement or otherwise in respect of the extension of the term of the Alpen lease. Moreover, and importantly, a leasing transaction concerning the Alpen lands is a “trade in real estate” within the meaning of s. 22 of the Act. Because neither Market Leadership nor Anthony Guido was registered as a broker or salesperson under the Act and neither enjoyed the benefit of any registration exemption under the Act, a claim for compensation in relation to the Alpen lease extension is barred under s. 22 of the Act.
(ii) “Additional professional work”
[42] In its pleading, Market Leadership also sought compensation under the Agreement for “further and other professional work” performed for the respondents. Before this court, it maintains that these services were “stand-alone” and unrelated to the sale of Loretta Foods or the extension of the Alpen lease, with the result that they are not captured by s. 22 of the Act. I would not give effect to these submissions.
[43] On the record before the motion judge, it was unclear whether the claimed additional work concerned the proposed sale of Loretta Foods and Alpen’s lands or whether, as Market Leadership asserts on this appeal, it was unrelated to the res-pondents’ efforts to sell the business and real estate. The motion judge, however, appears to have understood that the claimed additional work related to the potential transactions contemplated under the Agreement. He held, “nor can the plaintiffs [sic] claim for further professional work relating to the transaction survive, pursuant to the Act” [emphasis added]. He also rejected Market Leadership’s quantum meruit claim, stating, “no claim for quantum meruit can arise on the facts pleaded.” I agree with these conclusions.
[44] In its statement of claim, Market Leadership merely asserted that it performed “further and other professional work” requested by the respondents having a total value of $106,425 in accordance with the hourly rate provided for under the Agreement. In the alternative, as I have said, it alleged that it was entitled to damages or compensation for services provided on the basis of unjust enrichment, quantum meruit or breach by the respondents of duties of good faith and fair dealing. However, the material facts necessary to support these claims were not pleaded.
[45] Furthermore, Market Leadership led no evidence before the motion judge to support its claim that it provided additional professional work to the respondents that was unrelated to the proposed sale of Loretta Foods and the Alpen lands. Indeed, there was no showing by Market Leadership that it provided additional professional work of any kind at the request of the respondents.
[46] Consequently, on the record before the motion judge, there was no evidentiary or pleadings foundation for the claim of compensation for additional work performed. This claim consisted of a bare assertion of services provided. The nature, extent, and timing of the claimed work were unknown. Moreover, for the reasons given in relation to Market Leadership’s claim for compensation concerning the extension of the term of the Alpen lease, to the extent that the alleged additional professional work involved a “trade” of Alpen lands within the meaning of the Act, this claim is also barred by s. 22 of the Act.
[47] Accordingly, I see no error in the motion judge’s stay of that part of Market Leadership’s action that concerns its compensation claim for “additional professional work”. I would maintain the stay of this part of the action.
(iii) Preparation of a business package
[48] Market Leadership submits that it is entitled under the Agreement to $4,000 plus GST as compensation for its preparation of a business package to facilitate the sale of Loretta Foods. The respondents acknowledge the preparation and receipt of this package, but claim that Market Leadership was paid the compensation owing. The motion judge did not consider this claim.
[49] In my view, in the circumstances, this claim must fail. In its pleading, Market Leadership admitted that it was paid $4,000 plus GST for its work in preparing the business package. Contrary to this admission, Market Leadership contends before this court that this payment is outstanding and seeks leave to amend its pleading to withdraw its admission of payment.
[50] I would deny the requested leave. Rule 51.05 of the Rules of Civil Procedure, R.R.O 1990, Reg. 194 provides that an admission in a pleading may be withdrawn only on consent or with leave of the court. The respondents oppose the withdrawal of the admission. In this case, it appears that no attempt to withdraw this key admission was made before Market Leadership’s appeal to this court. No explanation was advanced in proper form for the alleged mistaken admission or for the failure to seek its withdrawal earlier. I agree with the respondents that it is not open to Market Leadership to rely before this court on an intention to withdraw an important admission against interest made in its pleading.
(3) Other Issues
[51] It is necessary to address briefly two further matters. First, the respondents argue that the action should be stayed in its entirety as against the individual respondents because neither Mary Penny nor John Penny were parties to the Agreement. I would reject this submission.
[52] Market Leadership’s action is not framed exclusively in contract. As I have said, it also seeks damages or compensation based on quantum meruit, unjust enrichment and breach by the respondents of duties of good faith and fair dealing. These issues require a trial in respect of that part of Market Leadership’s action that concerns the sale of Loretta Foods. Accordingly, with respect to that issue, I would not grant the requested stay in favour of the individual respondents.
[53] Finally, the respondents argue that Market Leadership’s claims for compensation are barred because the sale of Loretta Foods and the extension of the term of the Alpen lease occurred after the expiry of the Agreement. This submission does not assist the respondents in respect of the continuation of Market Leadership’s compensation claim concerning the sale of Loretta Foods. As I have stated, this claim does not rest on the Agreement alone. To the contrary, as framed by the pleadings, this compensation claim is also anchored in quantum meruit, unjust enrichment and negligence. Although Market Leadership ultimately may not succeed with these causes of action, they do not depend upon the enforceability of the Agreement.
V. Disposition
[54] Accordingly, for the reasons given, I would allow the appeal in part. I would set aside the stay ordered by the motion judge in respect of that part of Market Leadership’s action that relates to its claims for compensation concerning the sale of Loretta Foods. I would affirm the stay granted by the motion judge in all other respects. Finally, I would deny leave to Market Leadership to withdraw the admission in its pleading concerning its receipt of payment for the business package that it admittedly prepared for the respon-dents.
[55] As success has been divided on this appeal, this is not a proper case for an award of costs of the appeal.
RELEASED:
“STG” “E.A. Cronk J.A.”
“DEC 19 2005” “I agree S.T. Goudge J.A.”
“I agree R. G. Juriansz”