



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 Bees 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 Bees liability against
    their liability under the Loan Agreement and personal guarantees. The trial
    judge rejected VitaSounds claims that the parties had amended the Investment
    Agreement orally, and that Honey Bee was in breach of it. Accordingly, he rejected
    VitaSounds argument that it was entitled to a set-off from Honey Bees
    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 employees 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 Bees 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 Bees 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.


