968703 Ontario Ltd. v. Vernon et al., (2002) 155 O.A.C. 386 (CA)

• Judge: Carthy, Weiler and Cronk, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: February 20, 2002
• Jurisdiction: Ontario
• Citations: (2002), 155 O.A.C. 386 (CA)

968703 Ont. Ltd. v. Vernon (2002), 155 O.A.C. 386 (CA)

MLB headnote and full text

Temp. Cite: [2002] O.A.C. TBEd. FE.042

968703 Ontario Limited, c.o.b. as Headline Industries (plaintiff/respondent) v. Spencer Vernon, York Sand and Gravel Limited and Marketplace Equipment Limited (defendants/appellants)

Spencer Vernon, York Sand and Gravel Limited and Marketplace Equipment Limited (plaintiffs by counterclaim/appellants) v. 968703 Ontario Limited, c.o.b. as Headline Industries, Ernest Wilson and Aurora Wilson (defendants to counterclaim/respondent)

(C36260)

Indexed As: 968703 Ontario Ltd. v. Vernon et al.

Ontario Court of Appeal

Carthy, Weiler and Cronk, JJ.A.

February 20, 2002.

Summary:

Vernon owned companies whose assets he wished to liquidate. An auctioneer (Headline) agreed to auction off the assets and subsequently sell the assets unsold at auction. After the auction, Vernon learned that Headline breached the contract by not depositing sale proceeds in his account and breached its fiduciary duty in the manner in which the sale was conducted. Vernon denied Headline access to the balance of the assets, terminating all future contractual obligations. Headline sued for damages for lost profits on the balance of the assets. Vernon counterclaimed.

The Ontario Court (General Division) dismissed Headline's action and allowed Vernon's counterclaim, awarding $5,000 punitive damages. Headline appealed.

The Ontario Divisional Court, in a judgment not reported in this series of reports, allowed the appeal. Headline's breach did not entitle Vernon to terminate the contract and did not release Vernon from his future obligations under the contract. The court also set aside the $5,000 punitive damage award. Vernon appealed.

The Ontario Court of Appeal allowed the appeal, set aside the decision and restored the trial decision, including the punitive damage award. Headline's non-deposit of the sale proceeds was a substantial breach relieving Vernon from the performance of future contractual obligations. Vernon was also entitled to rely on the breach of fiduciary duty (learned after he terminated the contract) to relieve him from future contractual obligations.

Contracts - Topic 3667

Performance or breach - Repudiation - When available - Vernon contracted with an auctioneer (Headline) to auction off his companies' assets and subsequently sell the assets unsold at auction - Headline breached the contract by not depositing sale proceeds in Vernon's account and breached its fiduciary duty in the manner in which the sale was conducted - Vernon denied Headline access to the balance of the assets, terminating all future contractual obligations - Headline sued for damages for lost profits - The trial judge dismissed Headline's action - The Ontario Divisional Court allowed Headline's appeal - Headline's breach did not entitle Vernon to repudiate the contract - The Ontario Court of Appeal restored the trial decision - Headline's non-deposit of the sale proceeds was a substantial breach entitling Vernon to repudiate the contract and relieving him from the performance of future contractual obligations - Vernon was also entitled to rely on the breach of fiduciary duty (learned after he terminated the contract) to relieve him from future contractual obligations - See paragraphs 1 to 20.

Damages - Topic 1297

Exemplary or punitive damages - Conditions precedent (or when awarded) - Vernon contracted with an auctioneer (Headline) to auction off his companies' assets and subsequently sell the assets unsold at auction - Headline breached the contract by not depositing $100,000 in sale proceeds in Vernon's account and breached its fiduciary duty in the manner in which the sale was conducted - The Ontario Court of Appeal held that the trial judge did not err in awarding Vernon $5,000 punitive damages against Headline - Headline's conduct approached fraud when it took advantage of its position to "knock down" the price of assets - Headline refused to return the $100,000 for two years, ignoring three court orders - Headline's conduct deserved condemnation - The conduct (breach of fiduciary duty) was independent of the breach of contract - Society had an interest in ensuring that the powers of agents and auctioneers were not used corruptly and that court orders be obeyed - See paragraphs 21 to 26.

Damages - Topic 1309.1

Exemplary or punitive damages - Breach of confidence or fiduciary duty - [See Damages - Topic 1297 ].

Cases Noticed:

Robson et al. v. Thorne, Ernst & Whinney (1999), 127 O.A.C. 215 (C.A.), refd to. [para. 15].

Bayer Aktiengesellschaft v. Apotex Inc. (1998), 113 O.A.C. 1 (C.A.), refd to. [para. 13].

Raso v. Dionigi (1993), 62 O.A.C. 228; 12 O.R.(3d) 580 (C.A.), refd to. [para. 18].

Parker v. McKenna (1874), L.R. 10 Ch. App. 96, refd to. [para. 18].

Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085; 94 N.R. 321, refd to. [para. 22].

Hill v. Church of Scientology and Manning, [1995] 2 S.C.R. 1130; 184 N.R. 1; 84 O.A.C. 1, refd to. [para. 22].

Gerula v. Flores (1995), 83 O.A.C. 128 (C.A.), refd to. [para. 22].

Marshall v. Watson Wyatt & Co. (2002), 155 O.A.C. 103 (C.A.), refd to. [para. 22].

Royal Bank of Canada v. Got (W.) & Associates Electric Ltd. et al., [1999] 3 S.C.R. 408; 247 N.R. 1; 250 A.R. 1; 213 W.A.C. 1, refd to. [para. 23].

Norberg v. Wynrib, [1992] 2 S.C.R. 226; 138 N.R. 81; 9 B.C.A.C. 1; 19 W.A.C. 1, refd to. [para. 25].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 25].

K.M. v. H.M., [1992] 3 S.C.R. 6; 142 N.R. 321; 57 O.A.C. 321, refd to. [para. 25].

Authors and Works Noticed:

Waddams, S.M., The Law of Contracts (3rd Ed. 1993), pp. 401, 402 [para. 16]; 427, 428 [para. 14].

Counsel:

Charles C. Mark, Q.C., for the plaintiff/respondent/defendant by counterclaim;

Itzik Basman, for the defendants/appellants/plaintiffs by counterclaim.

This appeal was heard on January 11, 2002, before Carthy, Weiler and Cronk, JJ.A., of the Ontario Court of Appeal.

The judgment of the Court of Appeal delivered by Weiler, J.A., was released on February 20, 2002.