




CITATION:
Labatt
          Brewing Company Limited v. NHL Enterprises Canada, L.P., 2011
          ONCA 511





DATE:
          20110712



DOCKET: C53817 & C53818



COURT OF APPEAL FOR ONTARIO



OConnor A.C.J.O., MacPherson and Rouleau JJ.A.



BETWEEN



Labatt Brewing Company Limited and Labatt Breweries of
          Canada LP



Applicants (Respondents)



and



NHL Enterprises Canada, L.P., NHL Interactive
          Cyberenterprises, LLC, NHL Enterprises, L.P., NHL Enterprises B.V., Molson
          Coors Canada Inc. and Millercoors LLC



Respondents (Appellants)



Terrence J. O’Sullivan and James Renihan, for the NHL



Paul Steep, Thomas Sutton and Adam Ship, for Molson



Linda Rothstein, Richard P. Stephenson and Andrew Lewis, for
          Labatt



Heard: July 7, 2011



On appeal from the judgment of Justice Frank J.C. Newbould of
          the Superior Court of Justice, dated June 3, 2011, with reasons reported at
          [2011] ONSC 3219.



By The Court:



[1]

In this expedited appeal, the appellants NHL
    Enterprises, L.P. (NHL) and Molson Coors Canada Inc. (Molson) and several
    related companies appeal from the judgment of Newbould J. dated June 3, 2011. On
    an application brought by Labatt Brewing Company Limited (Labatt) and a
    related company, he held that the NHL and Labatt reached a binding sponsorship agreement
    on November 12, 2010. As a result, the NHL was not free to enter into a similar
    agreement (for substantially more money) with Molson on February 8, 2011.

[2]

In its application, Labatt sought an interpretation of
    the s. 7 renewal provision contained in the previous sponsorship agreement
    between the NHL and Labatt. The provision provided for a 60-day exclusive
    negotiation period.

[3]

The appellants advance four grounds of appeal as
    expressed in the NHLs factum:

(a)       Did
    the application judge err by considering whether the NHL and Labatt had reached
    a binding sponsorship agreement on November 12, given that such a position was
    not advanced by Labatt in the proceeding below and the NHL did not have an
    opportunity to respond to it?

(b)       Did
    the application judge err in finding that the NHL and Labatt reached a binding
    sponsorship agreement on November 12, given that neither party believed that
    such an agreement existed and both parties had agreed that any such agreement
    had to take the form of a signed document?

(c)       Did
    the application judge err by finding that (i) the doctrines of waiver and
    promissory estoppel could be used by Labatt to prevent the Exclusive
    Negotiating Period from expiring, and (ii) the NHL intentionally and
    unequivocally waived such expiry for an indefinite period of time?

(d)       In
    the event that Labatt was entitled to a remedy, did the application judge err
    by enjoining the NHL and Molson from implementing the Molson Agreement, rather
    than directing a reference for damages?

[4]

In our view, this appeal can, and should, be resolved
    on the basis of the first issue. The central conclusion of the application
    judge was that on November 12, 2010 the NHL and Labatt had reached a binding
    sponsorship agreement for the July 1, 2011  June 30, 2014 period.

[5]

The problem is that this central conclusion was not anchored
    in the pleadings, evidence, positions or submissions of any of the parties. Indeed
    the application judge recognized this when he said in his reasons: I realize
    that this result is not exactly what either side contended. As such, it was
    procedurally unfair, or contrary to natural justice, for the application judge
    to reach this conclusion on this record.

[6]

In
Rodaro v.
    Royal Bank of Canada
(2002), 59 O.R. (3d) 74 (C.A.), Doherty J.A. held that
    it was both fundamentally unfair and inherently unreliable for a trial judge to
    make findings against a defendant on the basis of a theory of legal liability
    not advanced by the claimant. He said, at paras. 61-63:

The injection of a novel theory of liability into
    the case via the reasons for judgment was fundamentally unfair to [the
    defendants].

In addition to fairness concerns which standing
    alone would warrant appellate intervention, the introduction of a new theory of
    liability in the reasons for judgment also raises concerns about the
    reliability of that theory.  We rely on
    the adversarial process to get at the truth.  That process assumes that the truth best emerges after a full and
    vigorous competition amongst the various opposing parties.  A theory of liability that emerges for the
    first time in the reasons for judgment is never tested in the crucible of the
    adversarial process.  We simply do not
    know how [the trial judges] lost opportunity theory would have held up had it
    been subject to the rigours of the adversarial process.  We do know, however, that all arguments that
    were in fact advanced by [the plaintiff] and were therefore subject to the
    adversarial process were found wanting by [the trial judge].

[The trial judge] erred in finding liability on a
    theory never pleaded and with respect to which battle was never joined at
    trial.  This error alone requires
    reversal.

[7]

In a similar vein, in
A-C-H International Inc. v. Royal Bank of Canada
(2005), 254 D.L.R.
    (4
th
) 327 (Ont. C.A.), Blair J.A. said, at paras. 15-18:

The trial judge dismissed the conspiracy claim, and
    appears on his own initiative to have shifted the ground for liability to a new
    theory, not pleaded or argued at trial, namely, conversion supported by a
    decision to pierce the corporate veil.

...

Similarly, we do not know how the trial judges conversion
    theory would have fared, had it been exposed to the rigours of the adversarial
    process.  Believing that the case against him was based upon the tort of
    conspiracy to defraud, as pleaded, Mr. Courtney elected to call no defence and
    to move for a non-suit at the end of the cross-claimants evidence.  Like
    the bank in the
Rodaro
case, he
    succeeded on the ground that had been litigated.  But the trial judge
    shifted to a new theory that had not been pleaded.

Had Mr. Courtney and his counsel known that they
    were required to meet a case based on the tort of conversion and the courts
    equitable jurisdiction to pierce the corporate veil, they might well have
    conducted their preparations for the case, and their handling of the case at
    trial, differently.  They might have conducted the cross-examination of
    RBCs witnesses on a broader basis.  They might have decided to call a
    defence, generally.  In particular, they might well have decided to call
    Mr. Courtney in his own defence (perhaps to provide the explanation that the
    trial judge felt was necessary in the context of the conversion claim, but that
    was apparently not necessary in the context of the conspiracy claim).

Because the appellant and his counsel did not know
    they were facing a case about conversion and personal liability based on
    corporate veil principles, they were not in an informed position to make the
    foregoing decisions.  As a result, we do not know how these theories of
    liability would have survived, had the battle been joined, as Doherty J.A. said
    in
Rodaro
.

[8]

In
Grass
    (Litigation Guardian of) v. Womens College Hospital
(2005), 75 O.R. (3d)
    85 (C.A.), leave to appeal refused, [2005] S.C.C.A. No. 310, Cronk J.A. stated,
    at para. 53:

I recognize that in complicated negligence actions,
    like this case, the parties positions are often refined, clarified and
    sometimes augmented over time during the pre-trial discovery and production
    processes and at trial.  Thus, the issues framed by the pleadings in such
    actions do not always reflect the developed positions of the parties or the
    precise issues as articulated and pursued at trial.  Nevertheless, at the
    end of the day, the issues between the parties are defined by and confined to
    those pleaded.  In this case, the respondents pleading supports the conclusion
    that the parties did not join issue on the risks management theory of
    negligence and the Transfer Option relied upon by the trial judge.  On the
    basis of the pleadings, it cannot be said that they were live issues in this
    action in any meaningful sense.

[9]

In
Garfin v. Mirkopoulos
(2009), 250 O.A.C. 168 (C.A.), Sharpe J.A. said, at para. 19:

Because the appellant did not plead that
    Mirkopoulos agreed with Crossen that he would pay the appellants legal fees,
    Mirkopoulos could not be expected to know that he should be prepared to meet
    that allegation. The trial judge erred in awarding judgment against him on a
    ground not pleaded and not litigated at trial.

See also:
Suddaby v. 864226 Ontario Inc.
, [2004] O.J. No. 2536 (C.A.), at
    paras. 6-9; and
TSP-INTL Ltd. v. Mills
(2006), 81 O.R. (3d) 266 (C.A.), at paras. 34-39.

[10]

With respect, the application judges conclusion that
    the NHL and Labatt reached a binding sponsorship agreement by the end of their
    meeting on November 12, 2010 runs aground when measured against these
    authorities. We say this for several reasons.

[11]

First, and of particular importance in light of the
    above passages, Labatt did not plead that the parties had reached a binding
    sponsorship agreement on November 12, 2010. There is not a word in the
    pleadings about the result of the November 12 meeting being a binding agreement
    giving Labatt Canadian sponsorship rights for the next three years.

[12]

Second, in its factum in support of the application,
    Labatt submitted that the term sheet (in effect, the rolling document the
    parties worked on for three months), was sufficient for the purposes of s. 7 to
    constitute the business terms for a yet to be negotiated binding agreement. This
    was on the basis that s. 7 did not impose a requirement that the parties enter
    into a free standing legally enforceable agreement.

[13]

Third, at no
    time during the application hearing did Labatt assert that a binding
    sponsorship agreement existed between the parties. At the hearing, Labatt
    expressly disavowed that it had reached a binding sponsorship agreement with
    the NHL on November 12 or any time thereafter. Labatt argued only that on
    November 12 the parties had reached Terms of Renewal, which it asserted was
    something less than a binding sponsorship agreement, and that as a result the
    NHL was obligated to continue negotiations toward a binding sponsorship
    agreement. When asked by the application judge whether the NHL and Labatt would
    be obligated to implement the Terms of Renewal on July 1, 2011 if negotiation
    for a binding sponsorship agreement were still ongoing, Labatts counsel
    expressly stated that any such implementation would be voluntary in the
    absence of a signed agreement.

[14]

Fourth, having heard Labatts negative response to his
    query about whether Labatt was asserting that a binding sponsorship agreement
    had been achieved on November 12, 2010, the application judge did not raise
    this issue with the NHL or Molson during their submissions. He did not, therefore,
    have the benefit of their position on what ultimately became the pivotal conclusion
    on which his judgment, and the rights of the parties, turned.

[15]

Fifth, we accept the NHLs submission that if it had
    known that the existence of a binding sponsorship agreement between the NHL and
    Labatt on and after November 12, 2010 was at issue, it would have conducted its
    defence to Labatts application in a very different fashion. The reality is
    that there is a significant difference between interpreting s. 7, the renewal
    provision, which is essentially a pure question of law, and determining whether
    the NHL and Labatt formed a binding agreement on November 12, 2010, which necessarily
    involves the determination of factual issues.

[16]

The NHL submits that this difference between the nature
    of the question posed by Labatt in its application (the interpretation of s. 7)
    and the nature  of the ultimate issue
    decided by the application judge (the formation of a binding sponsorship
    agreement) would have led it, if properly apprised of the application judges
    thinking, to take very different steps in the litigation, including: (1) moving
    for the application to be converted into an action, with attendant document
    production, discoveries, and trial procedures; (2) marshalling different
    evidence; (3) calling different witnesses; (4) asking different questions when
    cross-examining Labatts witnesses; (5) seeking to introduce
viva voce
evidence, as credibility is
    considerably more important in determining the state of contractual negotiations
    than in interpreting a provision of a contract; and (6) advancing different
    legal arguments and making different use of the existing evidence. Likewise,
    Molson says it would have proceeded differently in advancing its case. We
    accept this submission.

[17]

Labatt attempts to overcome these points by emphasizing
    that the application judge engaged in an extended analysis of the s. 7 renewal
    provision and ultimately provided a comprehensive interpretation of its wording
     precisely what Labatts notice of application sought.

[18]

We accept that the application judge interpreted s. 7.
    However, that is not the end of the inquiry. The motion judge used this
    interpretation as a springboard to reach a conclusion  indeed the crucial
    conclusion  resolving the rights of the parties. He found that the NHL and
    Labatt had entered into a binding sponsorship agreement on November 12, 2010, a
    position that none of the parties asserted, that one party (Labatt, the
    applicant) disavowed in oral submissions, and that the other two parties did
    not have an opportunity to fully address. The NHL did address Labatts
    submission that an agreement on Terms of Renewal was reached and, in doing so
    took the position that more was required to constitute a binding agreement.
    However, the NHL was never faced with, nor did it respond to, an allegation
    that a binding sponsorship agreement had in fact been entered into on November
    12, 2010. In short, it is the combination of the application judges analysis
    of s. 7 and his conclusion that a binding agreement was reached at the November
    12, 2010 meeting that creates the procedural unfairness problem in this case.

[19]

Labatts response to the case law cited above is
    reliance on
Oshawa Group Ltd v. Mason
    Homes Ltd.
, [2005] O.J. No. 4344 (C.A.). In that case, this court upheld
    the decision of a trial judge who found an independent oral contract formed on
    December 11, 1990, instead of the written contract asserted in the pleadings.

[20]

In our view,
Mason
    Homes
does not assist Labatt. The court reviewed the pleadings and
    concluded, at para. 10, that it was reasonable for the trial judge to conclude
    that the pleading raised the issue of the existence and breach of an agreement
    to lease between the parties, reached on or about December 11, 1990.

[21]

In summary, the NHL and Molson were not given an opportunity
    to address the ultimate conclusion reached by the application judge, the
    formation of a binding agreement between the NHL and Labatt on November 12,
    2010. In a real sense, this constituted for the NHL a finding [of] liability
    on a theory never pleaded and with respect to which battle was never joined (
Rodaro
, at para. 63). As Cronk J.A. said
    in
Grass
at para. 53, at the end of
    the day, the issues between the parties are defined by and confined to those
    pleaded. That did not happen in this case with the result that the NHL and
    Molson were denied procedural fairness.

[22]

The appeal is allowed and the judgment of the
    application judge is set aside. The matter is remitted to a different judge of
    the Superior Court of Justice for further proceedings if so advised.

[23]

The appellants are entitled to their costs of the
    appeal fixed at $17,500 each, inclusive of disbursements and HST.

RELEASED:  JUL 12 2011
    (D.R.O.)

D. OConnor J.A.

J.C. MacPherson J.A.

Paul Rouleau J.A.


