Court File and Parties

CITATION: UBS Securities Canada Inc. v. Sands Brothers Canada, Ltd., 2007 ONCA 405

DATE: 20072529

DOCKET: C46524

COURT OF APPEAL FOR ONTARIO

GOUDGE, ARMSTRONG and JURIANSZ JJ.A.

BETWEEN:

UBS SECURITIES CANADA INC.

Applicant/Appellant

and

SANDS BROTHERS CANADA, LTD.

Respondent/Respondent in Appeal

Counsel: Sheila Block and Ryan Morris for the appellant Morris Cooper for the respondent

Heard: April 23, 2007

On appeal from the judgment of Justice Norman D. Dyson of the Superior Court of Justice dated December 21, 2006.

ENDORSEMENT

[1] The appellant appeals from the trial judgment dismissing its application for declaratory and injunctive relief and specific performance as remedies for the respondent’s alleged breach of an agreement to sell 100,000 shares of the Montréal stock exchange (the “Bourse”) to the appellant. The judgment was rendered on a trial of the following issue: is there or is there not an agreement to sell the shares, and if there is an agreement, what are its terms and what is the remedy? The trial judge found that the parties had not reached a binding contract.

[2] We agree with the appellant’s submission that the trial judge erred by not applying the objective test for contract formation. The objective principle of contract formation is sufficiently summarized in Waddams, The Law Of Contracts (5th ed.), at page 103:

The principal function of the law of contracts is to protect reasonable expectations engendered by promises. It follows that the law is not so much concerned to carry out the will of the promisor as to protect the expectation of the promisee. This is not, however, to say that the will of the promisor is irrelevant. Every definition of contract, whether based on agreement or on promise, includes a consensual element. But the test of whether a promise is made, or of whether assent is manifested to a bargain, does not and should not depend on an inquiry into the actual state of mind of the promisor, but on how the promisor’s conduct would strike a reasonable person in the position of the promisee.

[3] The trial judge’s brief reasons focus entirely on the subjective intent of the individual who negotiated on behalf of the respondent, and did not consider, at all, the reasonable expectations of the appellant. As he applied the incorrect test in concluding there was no contract, his conclusion must be set aside.

[4] However, we do not agree that the appellant is entitled to a declaration that there is a valid and binding agreement and an order of a specific performance.

[5] The appellant’s position is that the contract was formed during a telephone call between Mr. Lalani and Mr. Sands on November 21, 2006. In earlier communications Lalani on behalf of the appellant had offered to buy 100,000 shares of the Bourse from the respondent at a price of $50 per share. The specific exchange upon which the appellant relies is indicated in the cross examination of Lalani as follows:

When I asked, “Do we have a deal?” He responded, “Draw up the papers”. To me that was an indication that we had a deal.

[6] The appellant relied on the subsequent conduct of Mr. Sands to submit that a reasonable person would conclude the parties intended to be bound. While that may be, in our view, it would also be open to a trier of fact applying the objective principle of contract formation to conclude that there was no contract. Depending on the findings of fact made, the respondent’s subsequent conduct after the appellant refused to include a “material event” clause could be viewed as part of the further negotiation of some other written protection of a similar nature.

[7] The appeal is allowed, the finding of the trial judge is set aside, and the matter remitted for a new trial of the issue. Costs of the appeal in favour to the appellant are fixed in the amount of $15,000 inclusive of disbursements. Costs of the first trial of the issue will be in the cause of the new trial of the issue ordered.

“S.T. Goudge J.A.”

“R.P. Armstrong J.A.”

“R. Juriansz J.A.”