CITATION: Leader Media Productions Ltd. v. Sentinel Hill Alliance Atlantis Equicap Limited Partnership, 2008 ONCA 463 |
DATE: 20080611 |
DOCKET: C46267 |
COURT OF APPEAL FOR ONTARIO |
|
BETWEEN: |
LEADER MEDIA PRODUCTIONS LTD. |
Plaintiff (Respondent) |
And |
SENTINEL HILL ALLIANCE ATLANTIS EQUICAP LIMITED PARTNERSHIP, SENTINEL HILL PRODUCTIONS IV CORPORATION and SENTINEL HILL VENTURES CORPORATION |
Defendants (Appellants) |
Earl A. Cherniak, Q.C. for the appellants |
Chris Paliare for the respondent |
Heard: February 4, 2008 |
On appeal from the judgment of Justice William P. Somers of the Superior Court of Justice dated October 20, 2006, with reasons reported at [2006] O.J. No. 4238. |
MacFARLAND J.A.: |
[1] This is an appeal from the judgment of Somers J. wherein he awarded the respondent damages in the sum of $1,065,571.40 together with prejudgment interest from December 31, 2001 to the date of judgment.
[2] The appellants are in the business of complex film financing and the respondent is a small Canadian movie studio. In April 2001, the appellants and the respondent agreed to complete certain transactions involving two movies called “Say Nothing” and “Phase 4”.
[3] When the federal government changed its incentive scheme, the appellants ran into difficulty with their financing. They did not pay the respondent and took the position that the contract was conditional only and that the conditions had not been fulfilled. The respondent disagreed and sued for the full amount.
[4] The trial judge found for the respondent on the basis that there simply was no such condition.
[5] The appellants appeal his decision to this court arguing that the trial judge did not give sufficient reasons and did not hear oral argument before releasing his decision. The appellants also move to submit fresh evidence showing that the trial judge was unable to follow much of the trial evidence.
[6] At the heart of this contractual dispute is a program of tax incentives instituted by the Canadian federal government to those engaged in the film industry in Canada and those who invest in that business.
[7] The corporate appellants are in the business of organizing, promoting, and managing very complicated film financing arrangements or syndications. In the spring of 2001, the respondent became aware that some of the federal government’s tax incentives could apply to its work and it consulted with the appellants.
[8] The film financing arrangement proposed by the appellants was as follows. Funds for the syndicates were raised from private investors, who bought units from the appellants in a “Master Limited Partnership” (MLP). The chief attraction from an investor’s point of view was that almost the entire cost of the investment could be written off against current income.
[9] The MLP would own units in a number of “Production Limited Partnerships” (PLPs). Each PLP was assigned to a specific film and would be responsible for incurring all of the film’s expenses that fell into the category of “Non-Canadian Labour Expenditure” (NCLE). NCLE, in general terms, encompasses all expenses that do not relate to hiring Canadian labour.
[10] For the syndication to function, the appellants needed to have films willing to participate. Participating studios were paid a fee which was calculated as an agreed upon percentage of the total NCLE incurred on the movie.
[11] On April 9, 2001, the appellants and the respondent signed an agreement in the form of a letter. This agreement contemplated film financing transactions for two movies wherein the respondent would receive a fee of 6% of the NCLE on each movie.
[12] In the fall of 2001 the federal government announced changes to the tax incentive scheme and as a consequence the appellants had difficulty selling partnership units to investors. They could not raise enough money to close all the transactions they had hoped to on the basis of the 6% fee. They contacted the respondent and proposed reducing the fee to 3.5%. The respondent refused and commenced these proceedings for the full 6% it contracted to receive.
[13] At trial, the appellants took the position that it was a condition of their agreement with the respondent that if the appellants were unable to raise sufficient money from the sale of partnership units to cover the 6% fee owing to the respondent, the respondent would bear that loss. The respondent argued there was no such condition.
[14] The trial judge found that the contract did not contain this condition and granted judgment in favour of the respondent.
[15] The appellants in their factum raise three grounds of appeal. Those three grounds are:
1. The insufficiency of the trial judge’s reasons for judgment;
2. The failure by the trial judge to hear oral argument before releasing his reasons for judgment; and
3. The inability of the trial judge to follow much of the evidence led at trial.
[16] The appellants’ third ground of appeal is based on fresh evidence which is the subject of a motion before this court. In oral argument, counsel for the appellants conceded that this third “ground” is not really a separate, stand alone ground of appeal but rather is a factor that provides context for the other two grounds.
[17] A trial judge is required to give reasons for his or her decision. As this court noted in Lawson v. Lawson (2006), 81 O.R. (3d) 321 at para. 9:
It is the duty of a judge to give reasons for decision; it is an inherent aspect of the discharge of a judge’s responsibilities.… The appellant is entitled to reasons that are sufficient to enable him to know why issues were decided against him. The reasons need to be adequate also so that he can bring a meaningful appeal and this court is able to properly review the Order. The reasons do not need to be perfect. Nor do they necessarily need to be lengthy. But, they must be sufficient to enable the parties, the general public and this court, sitting in review, to know whether the applicable legal principles and evidence were properly considered.
[18] In this case, the appellants complain that the trial judge’s reasons do not contain the necessary findings of fact, nor do they address the issues and defences raised by the appellants. Specifically, the appellants argue that the trial judge did not address the following two arguments they made at trial:
1. The April 9, 2001 letter agreement was not a binding contract for the payment of money but was merely an agreement to complete certain other transactions. Further, the 6% fee would only be payable if and when the transactions closed and the obligation to complete the transactions was conditional and dependent on:
(i) The sale of sufficient units of the MLP to the public; and
(ii) The respondent completing certain preliminary steps, including setting up corporations, handling those corporations’ finances in a particular way, and providing related information to the appellants.
In the alternative, even if the contract did impose an unconditional obligation to pay the 6% fee, the respondent knew that the appellants did not intend to undertake such an obligation, and the law will not permit one party to enforce a contractual term that it knows the other party had not agreed to.
2. In the further alternative, the respondent failed to mitigate its losses when it rejected the appellants’ offer to pay a reduced commission of 3.5% with the respondent reserving all its right to sue for the balance of 2.5%.
[19] In my view, the trial judge adequately dealt with these issues in his reasons.
(i) The letter agreement was a binding contract for the payment of money and was not conditional on the sale of sufficient partnership units
[20] In his reasons, the trial judge clearly held that the letter agreement was a binding contract for the payment of money and that it was not conditional on the sale of sufficient partnership units. His explanation for these holdings is found in the following paragraphs of his reasons:
[8] … Clearly the April 9, 2001 agreement was intended by Sentinel Hill to be an operative document setting out the rules and guidelines within which it and its contracting parties should operate pending production of a formal written contract.
…
[11] … What the contract called for was that Sentinel Hill and Leader Media Productions Ltd. agreed “to complete the proposed transactions (the “Transactions”) in respect of all theatrical motion picture and/or television productions principal photography for which will occur primarily in Canada during 2001 … materially on the basis described in the advance Income Tax Ruling (the “Ruling”) dated December 13, 2000.”
…
[13] If one works one’s way through the intricate obstacle course erected by the tax department, one can see that there are several “agreements” required in order to meet the various requirements of the department raised at certain stages. They are, however, in my view, peripheral to the main agreement which was to “complete the proposed transactions”.
…
[15] … The money that the master limited partnership paid for the production limited partnership units would be used for a number of purposes, including payment of the co-ordination fee. It is likely that most of the production people on their side of this process understood that the money that was to pay their co-ordination fee would come from these payments. Certainly that was Mr. Liconti’s evidence. It was the position of the defendant that the payment of their fee was contingent upon there being a successful sale at the other end, and that if there was no such successful sale, the loss would be borne by them. I see nothing in the agreement which makes this a condition to the producers. Certainly they understood that the payment was to be forthcoming out of the proceeds of the sale, but I see nothing that suggests that they were in agreement that they were to bear any losses that might be incurred if the sales were unsuccessful.
…
[20] In my view, it was not a condition of the agreement between the plaintiff and any of the defendants that the plaintiff would be required to bear any losses caused by a reversal in the market.
[21] It is clear from these paragraphs that the trial judge considered the appellants’ arguments and rejected them.
[22] Also, in my view, the trial judge adequately addressed the appellants’ alternative argument that the law will not permit one party to enforce a contractual term that it knows the other party had not agreed to. In this respect, the appellants argued that the respondent knew and understood that the money to pay the 6% fee was to come from the proceeds of the sale of partnership units. They place much emphasis on the following piece of testimony from Mr. Carlo Liconti, the principal witness for the respondent:
Q. So you understood that the payment of the six percent fee was dependent upon investors purchasing these partnership units, correct?
A. That is correct.
[23] The appellants say this is clear evidence that the respondent knew and understood that the appellants’ obligation to pay the 6% fee was conditional on the sale of sufficient partnership units. The trial judge did not agree. Rather, he concluded that while the respondent understood the money to pay the fee would come from the sale of partnership units, there was nothing in the agreement to the effect that the respondent would bear the loss if sales were unsuccessful. This was a finding the trial judge was entitled to make on the record and is a complete answer to this argument.
(ii) The letter agreement was not conditional on the respondent completing certain preliminary steps
[24] The appellants also argued that their obligation to pay the 6% fee was conditional on the respondent completing certain critical preliminary steps, including setting up corporations, handling the corporations’ finances in a particular manner, and providing related information to the appellants.
[25] The evidence at trial was that all of the documents which the appellants required to close were in the appellants’ hands by about December 10, 2001. Although the appellants argue that the respondent had failed to provide the necessary “cheque stock”, their own witness admitted this was not required for closing. Further, in terms of completing certain preliminary steps, the respondent was simply following what was done when it had successfully closed an earlier production with the appellants called “The Red Door”. The trial judge found that proper documentation had been exchanged at that closing.
[26] While the trial judge did not make a specific finding that the necessary documentation had been provided, the uncontradicted evidentiary record showed that it had been.
(iii) The issue of mitigation was not triggered on these facts
[27] The appellants argue that the respondent failed to mitigate its damages by accepting their offer of a 3.5% fee with a reservation of its right to sue for the balance.
[28] While the trial judge did fail to make any specific finding in relation to the appellants’ mitigation argument, there was no merit to this argument and it is clear that the trial judge implicitly rejected it when he granted judgment in favour of the respondent for the full amount claimed.
[29] In my view, the principle of mitigation is not triggered in this case. On these facts, the respondent did not have an opportunity to reduce the appellants’ liability. Regardless of whether the respondent accepted the appellants’ offer and sued for the balance, or simply sued for the entire 6%, the amount payable to the respondent remained the same. I accept the respondent’s following submission made in its factum:
The appellants argued at trial that, because the respondent refused to accept less than it was entitled to under the Contract, the respondent forfeited its entitlement to the amount offered. However, this is not what is required by the principle of mitigation. The controlling authority is Red Deer College v. Michaels,[1] in which the Supreme Court of Canada held that: “the defendant cannot be called upon to pay for avoidable losses which would result in an increase in the quantum of damages payable to the plaintiff” (emphasis added). [Emphases in original. Citation added.]
[30] I would dismiss this ground of appeal.
[31] On the close of evidence it was agreed among counsel and the trial judge that the parties would file written argument and thereafter would attend before the trial judge for oral argument. The following exchange took place in the final minutes of the trial:
THE COURT: Well, what do you want to do about argument?
MR. PALIARE: Well, subject to what you say, Your Honour, what we propose is this that, picking up on your suggestion that we file with you written submissions, and if we could do that fairly quickly, and we would have between us an agreement as to the page length as well so that you don’t end up with an epic from both of us.
THE COURT: All right.
MR. PALIARE: And that what we had hoped was, if this is okay with you, is to find a half day somewhere, even if it’s in the early fall, where we can argue. Here is our thought, but I leave it to you, that we would get our written submissions in by a week Monday. It’s a long weekend.
MS. ROSENTHAL: Tuesday
MR. PALIARE: So it would be the Tuesday then, that’s July the 4th.
THE COURT: All right.
MR. PALIARE: My friend would have a week to respond which would be July the 11th. We would be able to get our reply in a week later, July the 18th and each of us would provide you with a maximum of 30 pages of written submissions and our reply would be eight pages, to a maximum of eight.
THE COURT: All right.
MR. PALIARE: But does that make sense?
THE COURT: Oh, yes.
MR. PALIARE: And that we would have that completed then by July the 18th and if we could then find – we just thought it would be useful to have a half day somewhere in case you had some questions or – I don’t know when you’re sitting, but we wouldn’t want you to do it at a time you’re not sitting.
THE COURT: I’ll have to think about it. Are you both going away in July or either of you?
MR. PALIARE: I won’t be away after July 18?
THE COURT: You will or won’t.
MR. PALIARE: Will not. So I’m available in July. I’m away the week of August the 21st.
THE COURT: I’m going to be away all August.
MR. PALIARE: Okay.
[32] On July 14, 2006, the trial judge’s secretary telephoned counsel and set the date of October 10, 2006 for oral argument. On October 6, 2006, four days before oral argument was scheduled, counsel were informed by the court office that the trial judge was ill in hospital and would be unable to hear oral argument as scheduled. It was agreed the matter would have to be adjourned to spring. On October 20, 2006, the trial judge issued his reasons for judgment without the parties having presented oral argument.
[33] The appellants argue that the failure to give counsel an opportunity to make argument is a denial of natural justice and entitles them to a new trial. The appellants rely on this court’s decision in Felker v. Felker, [1946] O.W.N. 368. The Ontario Weekly Notes summarized the court’s decision in Felker as follows:
At the conclusion of the argument, the Court delivered judgment orally, allowing the appeal and directing a new trial, on the sole ground that the trial judge had pronounced judgment before according to counsel the right to present argument, and that the defendant had thus been deprived of her substantive right to have her case fully presented.
[34] In the present case, the appellants had the opportunity to make written submissions but argue those were subject to a page limit and submitted on the understanding that there would be an opportunity for oral argument.
[35] However, on the facts of this case, I am not convinced that the absence of oral argument has resulted in a substantial wrong or miscarriage of justice.
[36] The cases relied on by the appellant all involve factual situations where the right to present argument – in either oral or written format – was denied entirely. However, this is not a situation where the appellants were denied entirely their right to present argument. In this case, the appellants were afforded the opportunity to file thirty pages of written argument. Also, the affidavit material filed on the mistrial application following receipt of the reasons for judgment does not disclose anything the appellants would have done differently or in addition had they been afforded the opportunity for oral argument.
[37] In my view, while it might have been preferable had the trial judge followed the original plan, on the particular facts of this case his failure to do so has not resulted in any substantial wrong or miscarriage of justice. The interchange between the trial judge and counsel indicates that in this case the purpose of oral argument was to address any questions of the trial judge. It was not primarily to give the parties an opportunity to make submissions as they had already been given that opportunity through their written submissions.
[38] As this court recently noted in FL Receivables Trust 2002-A (Administrator of) v. Cobrand Foods Ltd. (2007), 85 O.R. (3d) 561 at paras. 17 and 22:
[17] Not every error by a trial judge entitles an aggrieved party to a new trial. Section 134(6) of the Courts of Justice Act stipulates that this court should order a new trial only where “some substantial wrong or miscarriage of justice has occurred”. This stringent standard reflects the underlying policy that new trials ordinarily are contrary to the public interest.
…
[22] Second, and critically important, Robert Laba [the appellant] has not shown that if he had been given an opportunity to make closing argument, the result would have been different.
[39] If given the opportunity to present additional oral argument, I am not satisfied the result would have been different. I would dismiss this ground of appeal.
[40] The appellants have moved in this court to admit fresh affidavit evidence showing that the trial judge was unable to follow the evidence because he fell asleep repeatedly during the trial. The fresh evidence consists of five affidavits authored by appellants’ trial counsel and others. These affidavits suggest the trial judge fell asleep frequently but for only very brief periods of time.
[41] During oral argument counsel for the appellants said that the subject matter of the fresh evidence application did not constitute a separate independent ground of appeal. Rather, he said it should be considered contextually in relation to the other two substantive grounds raised.
[42] The respondent says that the fresh evidence does not meet the R. v. Palmer test. It says this evidence was available at the time of trial and that the appellants decided, as a matter of tactics, not to raise it at trial and preferred instead to “wait and see how things played out”.
[43] Despite the respondent’s argument, I would admit the fresh evidence because it relates to the validity of the trial process. As the majority of this court said in R. v. Rajaeefard (1996), 27 O.R. (3d) 323 at 325: “Where the new evidence sought to be admitted is relevant to the validity of the trial process itself, rather than directed at a finding made at trial, it is admissible.”
[44] In R. v. Widdifield (1995), 25 O.R. (3d) 161 at 169, this court explained that the criteria ordinarily applied to determine the admissibility of fresh evidence do not apply when the evidence challenges the validity of the trial process:
The Palmer criteria, do not, however, apply to all situations where fresh evidence is offered on appeal. Those criteria reflect the balancing of competing considerations relevant to the interests of justice when fresh evidence is offered to attack a determination made at trial. The same criteria cannot necessarily be applied where, as here, the fresh evidence is offered for a different purpose. The material sought to be admitted here is not directed at a finding made at trial, but instead challenges the very validity of the trial process.
[45] However, even where the fresh evidence is admissible, on the particular facts of this case, in my view, it does not assist the appellants.
[46] At trial, the appellants deliberately did not raise with the trial judge their concern that he might have been sleeping. Instead they made a deliberate tactical decision to in effect – as respondent’s counsel put it – “hedge their bets”. Instead of confronting the trial judge, after discussions among appellants’ counsel (including a senior litigator at the firm who remained at the office and was not directly involved in the trial per se), they made a deliberate decision not to raise the issue. As Mr. Bradley Sherman put it in his affidavit, they decided to “wait and see how things played out”. Presumably, if the trial result was in their favour they would do nothing; if not, they would have this additional evidence to use as a basis for appeal arguing that they were denied the right to a fair trial.
[47] Even after the reasons for judgment were released, the appellants did not base their motion for a mistrial on the drowsiness of the trial judge nor did they even raise the issue. The mistrial motion was based solely on the fact that the appellants had been denied the opportunity to make oral argument in addition to written argument. Only in this court, for the first time, is the issue raised that the trial judge was inattentive to the evidence.
[48] There appears to be little case law on point. In fact, the parties have only drawn the court’s attention to two similar cases. The first is a case decided by the Australian Queensland Court of Appeal. The second is a recent decision from the Alberta Court of Appeal which was only released several weeks after this appeal was argued.
[49] In the Queensland Court of Appeal case, Stathooles v. Mount Isa Mines Limited, [1997] 2 Qd. R. 106 the allegations were that the trial judge had dozed off or slept during part of the evidence. In making its decision, the court stressed the fact that the alleged drowsiness was not raised with the trial judge at any time during the trial, and dismissed the appeal. Macrossan C.J. noted at p. 111:[2]
A broad discretion does exist for an appellate court to order a new trial in civil cases where a first trial has been unfair … In civil, as in criminal cases, the discretion can be exercised when the first trial has resulted in a miscarriage of justice.
…
The exercise of the discretion to order a new trial on the basis that a miscarriage of justice has occurred may require a wide view to be taken of the circumstances but it is necessary to remember that our adversarial system requires parties to proceedings to accept responsibility for their own actions deliberately and consciously taken. Decisions taken by parties with a full awareness of relevant matters can strongly influence the way in which the discretion in cases of an alleged miscarriage of justice will be exercised.
[50] Macrossan C.J. then went on to quote from a joint judgment of the High Court of Australia in the case of Vakauta v. Kelly (1989), 167 C.L.R. 568 at 572:
[A] party who has legal representation is not entitled to stand by until the contents of the final judgment are known and then, if those contents prove unpalatable, attack the judgment on the ground that, by reason of those earlier comments, there has been a failure to observe the requirement of the appearance of impartial judgment. By standing by, such a party has waived the right subsequently to object. The reason why that is so is obvious. In such a case, if clear objection had been taken to the comments at the time when they were made or the judge had then been asked to refrain from further hearing the matter, the judge may have been able to correct the wrong impression of bias which had been given or alternatively may have refrained from further hearing. It would be unfair and wrong if failure to object until the contents of the final judgment were known were to give the party in default the advantage of an effective choice between acceptance and rejection of the judgment and to subject the other party to a situation in which it was likely that the judgment would be allowed to stand only if it proved to be unfavourable to him or her.
[51] The appellant’s argument in Stathooles was that the determination of the case turned on the credibility of witnesses and that the judge had been especially inattentive during the cross-examination of Stathooles, yet made a finding adverse to him. It was argued that the conclusion reached may have been different had there been no failure on the part of the trial judge to observe and listen to that witness throughout his testimony. In reaching a conclusion Macrossan C.J. noted at pp. 112-113:
The lack of reaction here by counsel fully aware of the situation is of importance from a different point of view. It cannot be accepted that there is an entitlement to do nothing at the time, hold the point in reserve until the decision is given and then, since it has proved to be adverse to the appellants, seek to set it aside.
…
In the present case, if what is alleged to have occurred is sufficient to constitute a significant defect in the proceedings, it should have been drawn to the attention of the trial judge at the time it occurred. To experienced counsel there should have been no difficulty other than perhaps some slight embarrassment in being required to draw the judge’s attention to the concern that was felt that he may be missing an important feature of the evidence. Experienced professional advocates may be called on to display conduct which will need to be more robust than that in their day to day practice in the courts. There should have been no fear that what needed to be done could not have been handled with the customary courtesy that should, and usually does, prevail between judge and counsel in the hearing of cases.
[52] The second case, R. v. Chan, [2007] A.J. No. 1522, was only released by the Alberta Court of Appeal after this appeal was heard. In this case, during the sentencing hearing, court staff noticed that the trial judge appeared to be sleeping during the appellant’s testimony. The judge was awakened and adjourned the proceedings. The appellant then applied for a mistrial.
[53] During argument on the mistrial, the trial judge advised that he had fallen asleep because of a medical condition. The appellant then filed an affidavit alleging that the trial judge’s posture while sleeping was the same as it had been during critical points of the trial. The trial judge refused to grant a mistrial, stating that lawyers are obligated to raise inattentiveness in a judge when they notice it. He directed another judge to deal with sentencing. The appellant appealed.
[54] Although the Court of Appeal ultimately allowed the appeal on other grounds, it rejected the appellant’s inattentiveness argument for the same reasons discussed above. Speaking for the court, Ritter J.A. stated:
[19] We conclude that Nicholas has failed to demonstrate that he suffered prejudice at the trial stage of these proceedings. The trial judge fell asleep during the testimony at the sentencing stage of the trial, several months after all evidence relating to Nicholas' guilt had been adduced. An accused person must, at a minimum, show a real danger of prejudice before judicial inattentiveness, that is sleeping, will call for the results of his trial to be set aside. [for authority, see Cesan v. Director of Public Prosecutions (CTH), [2007] NSWCCA 273 at paras. 190ff] In this case, Nicholas' affidavit accomplishes, at most, speculation that the trial judge's similar posture during the trial must mean he was asleep.
[20] Nicholas' affidavit does not identify exactly when he noticed this posture, so it is impossible to determine whether any crucial issues were being dealt with at the time. Moreover, it is incumbent upon counsel to immediately draw a trial judge's inattentiveness to his attention, so as to permit replacement testimony or other corrective procedures during the course of the trial. It is not enough, nor is it appropriate, to note the inattentive episode and then hold it on reserve in the event the result at trial was less than what is hoped for. We do not suggest that is what occurred here, but the effect is the same, whether the withholding of the concern was advertent or inadvertent.
[55] In my view, the same reasoning must apply here. While appellants’ trial counsel was not experienced (this was her first trial), the record discloses that she did consult with senior litigation counsel in her firm about the judge’s inattention. Together they made the decision to do nothing about it at the time but to, as respondent’s counsel put it, “roll the dice”.
[56] Counsel was obliged to bring the trial judge’s inattention home to him at the time. Not having done so, and having decided to wait and see what happened, they cannot now raise that inattention for the first time as a ground of appeal on either a substantive or contextual basis. I would dismiss this ground of appeal.
[57] In the result, I would dismiss the appeal.
[58] Costs to the respondent are fixed in the sum of $35,000.00 inclusive of disbursements and GST.
RELEASED: “MR” June 11, 2008
“J. MacFarland J.A.”
“I agree Marc Rosenberg J.A.”
“I agree David Watt J.A.”
[1] [1976] 2 S.C.R. 324.
[2] Pincus J.A. and White J. both concurred with the reasons of Macrossan C.J., and both also wrote concurring reasons.