COURT OF APPEAL FOR ONTARIO

CITATION: Honey Bee (Hong Kong) Limited v. VitaSound Audio Inc., 2020 ONCA 629

DATE: 20201006

DOCKET: C66125

Rouleau, Miller and Zarnett JJ.A.

BETWEEN

Honey Bee (Hong Kong) Limited

Plaintiff/Defendant by Counterclaim

(Respondent)

and

VitaSound Audio Inc., and Mark Chamberlain and Gora Ganguli

Defendants/Plaintiffs by Counterclaim

(Appellants)

Mark Chamberlain, acting in person and for VitaSound Audio Inc.

Gora Ganguli, acting in person and for VitaSound Audio Inc.

Walter Kravchuk, for the respondent

Heard: September 23, 2020 by video conference

On appeal from the judgment of Justice Richard A. Lococo of the Superior Court of Justice, dated October 9, 2018.

REASONS FOR DECISION

[1] The corporate appellant, VitaSound Audio Inc., is a technology company in the business of developing personal audio devices. The respondent, Honey Bee (Hong Kong) Limited, is in the business of manufacturing electronic devices. They entered into three agreements related to the manufacture and sale of audio devices that Honey Bee manufactured using technology developed by VitaSound: a Loan Agreement, by which Honey Bee loaned $500,000 to VitaSound and for which the individual appellants executed personal guarantees; an Investment Agreement, by which Honey Bee would invest $2 million in VitaSound, partially by way of delivery of 10,000 units of a “PAE-300” audio device; and a Commercial Agreement, governing Honey Bee’s sale of the audio devices it manufactured and payments to VitaSound for those sales.

[2] Honey Bee sued both VitaSound for non-payment of the loan and the individual appellants pursuant to their personal guarantee. The appellants did not contest liability. They counterclaimed, however, on the basis Honey Bee breached the Investment Agreement after the parties orally amended it. The appellants sought a set-off of Honey Bee’s liability against their liability under the Loan Agreement and personal guarantees. The trial judge rejected VitaSound’s claims that the parties had amended the Investment Agreement orally, and that Honey Bee was in breach of it. Accordingly, he rejected VitaSound’s argument that it was entitled to a set-off from Honey Bee’s supposed breach. The trial judge found that the Commercial Agreement had no bearing on the matters in issue under the Loan Agreement or Investment Agreement.

The fresh evidence

[3] In support of the appeal, the appellants sought to introduce fresh evidence that they argue demonstrates that Honey Bee, contrary to its evidence at trial, sold units of an audio device in the Asian market. This was significant, the appellants argue, not only because it demonstrates that Honey Bee misled the court, but because it also established that Honey Bee triggered an obligation in the Commercial Agreement to make a payment to VitaSound of $500,000. Honey Bee therefore breached the Commercial Agreement, and the appellants argue that any damages for that breach should be set-off against their liability under the Loan Agreement.

[4] Applying the Palmer test, we are unable to accept the fresh evidence. The first branch of the Palmer test requires that the evidence not have been discoverable at trial through the use of due diligence. We do not find the appellants have satisfied this branch of the test. The emails that the appellants argue document the sale of the audio device by Honey Bee were found by the appellants accidentally when reviewing the contents of the spam folder of a departed employee’s email. The emails were at all times under the control of VitaSound and discoverable. The fact that they only discovered them accidentally after the trial does not mean that they were not discoverable through the use of due diligence beforehand.

[5] Neither do we find that the appellants satisfied the second branch of the Palmer test, which requires that the evidence be relevant, in the sense of bearing upon a decisive or potentially decisive issue. The evidence is tendered to establish a breach of the Commercial Agreement and support a claim for set-off. However, a breach of the Commercial Agreement was not pleaded by the appellants and accordingly was not addressed by the trial judge. The trial judge did find, however, that the Commercial Agreement was not relevant to the question of liability under the Loan Agreement.

[6] In any event, there is a real question of whether the breach alleged would have any impact on the result. Even if there had been a sale as alleged, Honey Bee’s obligation to advance $500,000 to VitaSound was to be credited against royalties from future sales, at $1 per unit. There is no basis in the evidence (including the fresh evidence) to support the conclusion that there were more than a handful of sales, and that VitaSound would have been entitled to keep the entirety of the advance payment.

[7] Finally, there are issues as to the reliability of the evidence. The fresh evidence consists of emails from a third party to persons at VitaSound, from whom no direct evidence has been elicited. The contents of the emails are hearsay. Accordingly, the fresh evidence motion is dismissed.

The appeal

[8] The appellants essentially rest their appeal on two bases. First, they argue that the trial judge erred in not finding that Honey Bee breached the Commercial Agreement. As already indicated, performance of the Commercial Agreement was not a live issue at trial, and the trial judge made no error in that regard.

[9] Second, the appellants argue that the trial judge erred in finding that Honey Bee did not breach the Investment Agreement. Essentially, the appellants argue that the trial judge ought to have accepted the appellants’ evidence that the Investment Agreement had been orally amended, such that VitaSound could choose to have Honey Bee’s investment obligations pursuant to the Investment Agreement be satisfied through the supply of audio units other than the PAE-300. The appellants argue that by failing to abide by the alleged amended terms, Honey Bee breached its obligations under the Investment Agreement. We do not agree. The trial judge gave cogent reasons explaining why he concluded that the Investment Agreement had not been amended, including why he preferred the evidence of Honey Bee. There is no basis on which we could interfere with his assessment of the evidence and conclusion.

Disposition

[10] The motion to introduce fresh evidence and the appeal are both dismissed. The respondent is entitled to costs in the amount of $23,000 inclusive of disbursements and HST.

“Paul Rouleau J.A.”

“B.W. Miller J.A.”

“B. Zarnett J.A.”