Schrager, Lavallée, Bachand

Appeal from a judgment of the Superior Court granting in part an application to cancel an agreement and a cross-application in damages. Allowed in part, with dissenting reasons ($4,850,000).

In 2016, Divertissement Wooky Inc., of which the appellant was the sole shareholder, was in serious financial trouble. The respondent Sirois and the appellant signed an agreement with the objective of saving Wooky. The agreement provided that Sirois [translation] “would eventually acquire all or substantially all of Wooky’s assets” (the proposed transaction) through one of his companies. During the same time period, Sirois became subrogated to the rights of Wooky’s guaranteed creditors. A few months later, Sirois indicated that he no longer wanted to pursue a business partnership with the appellant. When Sirois subsequently acquired Wooky’s assets, it was by exercising his rights as a secured creditor, not in the context of a concerted transaction done with the appellant’s agreement.

The trial judge refused to cancel the agreement between the parties. With respect to the cross-application, the trial judge found that the proposed transaction did not occur as the parties were not able to pursue Wooky’s normal operations together. Because the payment of the amounts set out in the agreement was conditional on the occurrence of the proposed transaction, the appellant was not entitled to the additional sums claimed under the agreement.

The condition to which the agreement referred, that is, the occurrence of the proposed transaction, was fulfilled when Sirois acquired Wooky’s assets. The way they would be acquired  was not specified in the agreement, and it certainly was not stipulated that the assets would be acquired through a private sale between Wooky and Sirois. The judge should not have added to the agreement, which was clear, by specifying conditions for the acquisition of the assets that the parties themselves did not spell out. If, however, such an exercise was justified, the evidence indicates that the parties foresaw an acquisition in a bankruptcy as a possible scenario and that the condition was fulfilled, such that the sums payable to the appellant under the agreement are due. In the alternative, if the payment of the sums claimed was conditional on the occurrence of a second contract, that condition should be considered of no effect because Sirois prevented it from being fulfilled within the meaning of article 1503 of the Civil Code of Québec (S.Q. 1991, c. 64). Indeed, Sirois confirmed to the appellant that he did not intend to give effect to their agreement, he did not respond to the appellant’s formal notice, and he excluded the appellant from Wooky’s activities. The appellant is entitled to $4.85 million.

Bachand J.A. would have dismissed the appeal, being of the view that the appellant’s arguments on the issue of the meaning of the expression [translation] “the occurrence of the proposed transaction” to which the agreement referred were inadmissible because they were an invitation to retry the case. In addition, even assuming that these arguments were admissible, the judge’s conclusion that the proposed transaction never occurred is sufficiently supported by the evidence adduced.

Text of the decision: http://citoyens.soquij.qc.ca