Roche v. Marston, [1951] SCR 494

Supreme Court of Canda

Roche v. Marston, [1951] S.C.R. 494

Date: 1951-05-18

Charles G. Roche (Plaintiff) Appellant;

and

A.H. Marston, (Defendant) Respondent.

1951: March 19, 20, 21; 1951: May 18

Present: Kerwin, Kellock, Estey, Cartwright and Fauteux JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Appeal—Trial before judge alone—Pure question of fact—Principles governing appellate court—Practice—Effect to be given on appeal to defence not raised in pleadings nor established in evidence—Rules of Practice (Ont.) r. 143.

The appellant, a business consultant, conducted lengthy negotiations with a view to securing a controlling interest in three companies on behalf of the respondent, a financier, as to all of which the latter finally

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decided not to purchase. The appellant brought an action upon an alleged verbal agreement by which he claimed he was to be paid a reasonable sum for services rendered. The respondent pleaded the agreement was that payment was to be made on a commission basis and only in the event of purchase, and further that the appellant was precluded from advancing his claim because of failure to register as a business broker pursuant to The Real Estate and Business Brokers Act, 1946 (Ont.) c. 85. Before the Court of Appeal he further argued that the services for which payment was claimed were such as, if rendered, brought the appellant within the term “investment counsel” as defined by The Securities Act, 1945 (Ont.) c. 22, and that he was prohibited from so acting unless registered as such under the Act.

The trial judge accepted the evidence of the appellant in preference to that of the respondent and awarded him judgment, but this judgment was reversed on appeal.

Held: That the Court of Appeal erred in over-ruling the findings of fact made by the trial judge and the appeal from its judgment should be allowed and the judgment pronounced at trial restored.

Per: Kerwin J.—The principles upon which an Appellate Court should proceed in dealing with the findings of a trial judge on a question of fact are those laid down in Hontestroom (Owners) v. Sagaporack (Owners) [1927] A.C. 37 at 50; Powell v. Streatham Manor Nursing Home [1935] A.C. 243 at 264; Caldeira v. Gray [1936] 1 All. E.R. 540.

Held: also that the defence as to The Securities Act should not be entertained, as it was not pleaded at the trial as required by the Ontario Rules of Practice, r. 143, and since a factual foundation was not clearly established in the evidence, no effect should be given to the allegation of illegality at this stage of the proceedings.

Held: further that as to The Real Estate and Business Brokers Act, the services rendered by the appellant did not fall within the section since it was not the legislative intention to include in the term “business”, the shares of an incorporated company. Macaura v. Northern Assurance Co. Ltd., [1925] A.C. 619 at 626, and the services rendered were in reference to the contemplated purchase of stock in the companies and not to the purchase of the business owned by such companies.

APPEAL from a decision of the Court of Appeal for Ontario reversing the judgment at the trial in favour of the appellant.

G.W. Mason K.C. for the appellant.

R.F. Wilson K.C. for the respondent.

KERWIN J.:—I agree with the reasons for judgment of my brother Cartwright. The principles upon which an Appellate Court should proceed in dealing with findings of a trial judge are found in the speech of Lord Sumner,

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approved by the other members of the House of Lords, in Hontestroom (Owners) v. Sagaporack (Owners)[1], and are as follows:

(1) Does it appear from the President’s judgment that he made full judicial use of the opportunity given him by hearing the viva voce evidence? (2) Was the evidence before him, affecting the relative credibility of the witnesses, which would make the exercise of his critical faculties in judging the demeanour of the witnesses a useful and necessary operation? (3) Is there any glaring improbability about the story accepted, sufficient in itself to constitute “a governing fact,, which in relation to others has created a wrong impression,” or any specific misunderstanding or disregard of a material fact, or any “extreme and overwhelming pressure” that has had the same effect?

While this was an Admiralty case, the same principles apply in ordinary common law cases: Powell v. Streatham Manor Nursing Home[2]; which latter is referred to in a decision of the Privy Council, Caldeira v. Gray[3]. These principles have been followed and applied in this Court.

In the present case, the trial judge accepted the evidence of the appellant in preference to that of the respondent, and his findings of fact should not be disturbed. In connection with the point as to the Securities Act of Ontario, the true rule is set forth by Anglin J., as he then was, in Antoniou v. Union Bank of Canada[4]. There, referring to a point taken for the first time in this Court, he says:

it should not be entertained, as, if it had been raised on the pleadings or at the trial, evidence might have been adduced to shew that these words import a definite and precise liability.

This was agreed to in terms by Sir Louis Davies and to the same effect are Mr. Justice Mignault’s remarks at page 262. While in the present case the objection was taken before the Court of Appeal, it was not dealt with by that Court, and, in any event, under the circumstances the same rule should be applied.

The judgment of Kellock, Estey, Cartwright and Fauteux JJ. was delivered by:

CARTWRIGHT J.:—This is an appeal from a judgment of the Court of Appeal for Ontario, setting aside the judgment of Wells J. in favour of the plaintiff for $5,300 and costs and directing that the action be dismissed with costs.

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The plaintiff’s claim was for services rendered to the defendant between May 23, 1947 and February 3, 1948. During this period the defendant was desirous of buying the control of a business and was prepared to pay a sum in the neighbourhood of $500,000 if he could find a business which he regarded as satisfactory. The plaintiff is described as a business consultant and was recommended to the defendant by a bank manager of whose branch both parties were customers.

It is common ground that the defendant asked the plaintiff to perform various services for him but there is direct contradiction as to the terms of the agreement between them. The position taken by the plaintiff was that during the period mentioned he performed numerous services for the defendant in connection with three different companies in each of which the defendant considered that he might purchase control, that from about June 27, 1947 to February 3, 1948, at the defendant’s request, he devoted most of his time to the defendant’s business and engaged in no other business activity without first obtaining the defendant’s consent, that the rate of remuneration to be paid was not discussed and that it was an implied term of the arrangement that the plaintiff should be paid a reasonable sum for his services. It is established that during the period in question the plaintiff received no remuneration from any other source.

As to White’s Hardware Limited, one of the three companies mentioned, the plaintiff testified that it was agreed between him and the defendant that if an option on the shares of such company was obtained by the defendant the plaintiff’s fees for all services in connection with that company should be fixed at $4,000, regardless of whether the defendant exercised the option. This option was obtained. The plaintiff testified that when it was obtained the defendant was very pleased and agreed to pay him $6,000 instead of the $4,000 previously agreed upon. The defendant later decided not to exercise this option.

The defendant asserted that it was expressly agreed that if as a result of the plaintiff’s services or efforts the defendant actually made a purchase he would pay a suitable commission to the plaintiff but that unless he made such a purchase the plaintiff was to be entitled to nothing.

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As to the option mentioned above the defendant said that he was pleased when it was obtained but that the agreement was that he should pay the plaintiff $6,000 only if it was exercised.

Faced with this conflict of evidence the learned trial judge has stated in terms that he accepts the evidence of the plaintiff in preference to that of the defendant and has found the facts to be as set out in the brief summary of the position taken by the plaintiff given above.

The learned trial judge while accepting the plaintiff’s evidence as to what was said between the parties in regard to payment for services rendered in connection with White’s Hardware Limited held that there was no consideration for the defendant’s promise to pay $6,000 instead of $4,000. In this I respectfully agree. At the time of the agreement to pay the $4,000 the plaintiff had an enforceable claim against the defendant for payment of a reasonable sum in consideration of the services which he had rendered at the defendant’s request. The defendant offered to pay and the plaintiff agreed to accept $4,000 in full satisfaction of such claim upon condition that the option was obtained. There is no evidence of any further consideration being given by the plaintiff for the defendant’s promise to pay the additional $2,000.

The learned trial judge fixed the sums of $1,000 and $300, respectively, as being reasonable remuneration for the services rendered in respect of the other two companies. I am not satisfied that either of these amounts is not warranted by the evidence.

The learned Justices of Appeal were unanimous in deciding that the learned trial judge had erred in accepting the plaintiff’s version of the facts. Their reasons for so holding were that the plaintiff’s story was too unlikely to be credited and that the finding of the learned trial judge was falsified by the following testimony given by the plaintiff himself:—

Q. Now am I right in saying these three transactions cover a period roughly from May 27, 1947, to February 3, 1948?

A. That’s right.

Q. During that period you were away on vacation for about one month?

A. That’s right.

Q. And so that the period covered was approximately seven months?

A. That’s right.

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Q. And did the defendant get any benefit from any one of these three transactions?

A. Well, he got a lot of experience. He picked my brains for seven months, asked me all kinds of questions. He said that I certainly knew my business and he was glad to be connected with a man like me. He was looking for a man like me for a couple of years. So I don’t know that he got any monetary rewards but he probably learned a few things. I know I learned a few things from him.

With the greatest respect to the learned Justices of Appeal, after a careful perusal of the evidence, I am unable to find any inherent improbability in the plaintiff’s story. Indeed it appears to me more likely that the arrangement between the parties should be that the plaintiff should receive reasonable payment for the time and skill he devoted to the defendant’s business than that for several months he should have applied himself almost exclusively to serving the defendant on the understanding that if in the end the defendant decided against making any purchase, as he was perfectly free to do, the plaintiff should receive nothing.

The evidence indicates that the plaintiff was not a business broker or a commission agent in the ordinary sense of such terms. His primary duty appears to have been not so much to bring about a completed transaction as to obtain information and to give advice which would assist the defendant in deciding whether or not to enter into transactions which were from time to time under consideration and some of which were proposed by the defendant himself. Situations might well arise where it would be the plaintiff’s duty to dissuade the defendant from entering into a proposed purchase.

I am unable to find in the extract from the plaintiff’s evidence, quoted above, anything inconsistent with his story. From the very nature of the services which the plaintiff was engaged to render it was obvious that the defendant would obtain no ascertainable financial benefit therefrom if he ultimately decided not to make a purchase. The consideration given by the plaintiff was the devotion of his time and skill over a considerable period to the defendant’s service at the defendant’s request.

In my respectful opinion the Court of Appeal erred in over-ruling the findings of fact made by the learned trial judge.

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Two points remain to be considered. The respondent argues that even if the findings of fact made by the learned trial judge are accepted the action must nonetheless fail, first by reason of the provisions of The Real Estate and Business Brokers Act, 1946, Statutes of Ontario 10 George VI Cap. 85 and alternatively by reason of the provisions of The Securities Act, 1945, Statutes of Ontario 9 George VI Cap. 22.

Paragraph 21 of the Statement of Defence as amended at the opening of the trial reads as follows:

The Defendant says, as the fact is, that the Plaintiff is precluded from advancing the claim set up in his Statement of Claim because of his failure to register himself as a Business Broker pursuant to the provisions of Sections 36 & 37 of the Real Estate and Business Brokers Act, Ch. 85, Statutes of Ontario, 1946.

It is conceded that the plaintiff was not registered under The Real Estate and Business Brokers Act at the time of rendering the services for which remuneration is claimed in this action. Section 36 of the Act is as follows:

No action shall be brought for commission or for remuneration for services in connection with a trade in real estate unless at the time of rendering such services the person bringing the action was registered or exempt from registration and the court may stay any such action at any time upon summary application.

If the words of this section are read in their ordinary and natural meaning it is obvious that the services rendered by the plaintiff do not fall within the section. It is necessary, however, to consider the artificial and greatly extended meanings given to the words “trade”, “real estate” and “business” in the interpretation section of the Act. These are as follows:

Section 1. (k) “trade” shall include a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition or transaction, and any act, advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb “trade” shall have a corresponding meaning.

Section 1. (e) “real estate” shall include real property, leasehold and business whether with or without premises, fixtures, stock-in-trade, goods or chattels in connection with the operation of the business;

Section 1. (b) “business” shall mean an undertaking carried on for the purpose of gain or profit and shall include an interest in any such undertaking, and without limiting the generality of the foregoing, shall include boarding house, hotel, stores, tourist camp and tourist home;

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Wide though these definitions are, I am in respectful agreement with the learned trial judge that it was not the intention of the legislature to include in the term “business” the shares of an incorporated company. The acquisition of shares in a company is not, I think, the acquisition of an interest in the undertaking carried on by such company. In Macaura v. Northern Assurance Company, Limited[5] at page 626, Lord Buckmaster said:

* * * Now, no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.

It is clear that the services of the plaintiff were in reference to the contemplated purchase of shares of stock in the companies mentioned in the pleadings and not to the purchase of the businesses owned by such companies.

The defence based on The Securities Act, 1945 is that the services for which the plaintiff claims payment are such that if the plaintiff rendered them he fell within the definition of “investment counsel” contained in the Act and that he was prohibited from so acting unless registered. Reliance is placed upon section 1(g), reading as follows:

(g) “investment counsel” shall mean any person or company who engages in or holds himself or itself out as engaging in the business of advising others, for compensation, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities, but shall not include,—

* * *

(v) such other persons or companies not within the intent of this clause, as the Commission may designate;

and upon section 7(1) (d):

7. (1) No person shall,—

* * *

(d) act as an investment counsel unless he is registered as an investment counsel and such registration has been made in accordance with the provisions of this Act and the regulations.

This defence was not pleaded, and no attempt appears to have been made at the trial to base any argument upon

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it. The following question and answer appear in the cross-examination of the plaintiff:

Q. You are not, I understand, registered under the Securities Act?

A. No, that is right.

But the purpose of this question appears to have been to negative, as regards the plaintiff, the exemption from the requirement of registration under The Real Estate and Business Brokers Act provided by section 16(b) of that act in certain circumstances for persons registered under The Securities Act.

We are informed by counsel that the Securities Act was mentioned in argument in the Court of Appeal and that counsel for the defendant asked in that Court for leave to amend the Statement of Defence by pleading the Securities Act “if necessary”. No order for an amendment was made. Henderson J.A., with whom Roach J.A. agrees says in his reasons for judgment:

The alleged necessity of his requiring to be licensed under The Real Estate and Business Brokers’ Act was argued before us but there was no argument before us with respect to The Securities Act. In the view I take of the case it is not necessary for me to deal with either of these issues.

Hogg J.A. who delivered separate reasons does not refer to the Act.

There is no reference to the Securities Act in the appellant’s factum. The only references to it found in the respondent’s factum are a sentence in Part I—”The plaintiff was not registered under the Securities Act”—and in Part II where the fourth point in issue in the appeal is said to be:

IV. Whether the Plaintiff has a right of action by reason of his failure to register under the Real Estate and Business Brokers’ Act, or The Securities Act, 1945. The Respondent contends that no right of action exists in the absence of registration.

Before us counsel for the respondent submitted that it was not necessary for the defendant to plead the Securities Act as it is a public statute, but asked leave to amend if the Court should be of the view that an amendment was necessary to enable the defendant to rely on this defence.

In my view under the Ontario practice it was necessary for the defendant, if he wished to avail himself of this defence, to so plead as to make it plain that he was relying on the fact that the plaintiff was not registered under the

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Act as rendering the contract illegal. This is, I think, the effect of Rule 143 of the Ontario Rules of Practice which provides:

143. A defendant to an action or counterclaim shall raise all matters which show the action or counterclaim not to be maintainable, or that the transaction is either void or voidable in point of law, and all such grounds of defence as if not raised would be likely to take the opposite party by surprise, or would raise issues of fact not arising out of the preceding pleadings, as for instance, fraud, the Statute of Limitations, release, payment, performance, facts showing illegality either by statute or common law, or the Statute of Frauds.

As was said by Brett J.A. in Clarke v. Callow[6]:

* * * If he (a defendant) means to deny the legality of a contract he has entered into, he must say so in plain terms.

I do not find it necessary to decide whether in the case at bar the amendment should be permitted. In my view the evidence is insufficient to support the defence. No doubt if the contract relied upon by the plaintiff was to render services which he was prohibited by the Statute from undertaking it would be illegal and the assistance of the Court would not be given to enforce it. This rule is clearly stated in the judgment of this Court in Commercial Life Assurance Co. v. Drever[7], a case in which the defence was sufficiently raised in the pleadings. But the statute renders the contract illegal only if the plaintiff was required by the terms of the Statute to be registered. Registration is required if he was acting as an investment counsel. It is, I think, doubtful whether the evidence as to the services which he rendered indicates prima facie that the plaintiff was engaged in the business described in the opening words of clause (g) of section 1, quoted above, but that clause excludes from the definition such persons not within the intent of the clause as the Commission may designate and section 78(e) provides:

78. The Lieutenant-Governor in Council may make regulations,—(e) designating any person or company or any class of persons or companies which shall be deemed not to be investment counsel;

For all that appears in the record even if otherwise he would have been required to register under the Act, as to which I express no opinion, the plaintiff may have been relieved from such requirement by designation of the Commission or by regulation made by the Lieutenant‑Governor in Council. It may be that had the defence of illegality

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by reason of the Statute been pleaded some onus would have fallen upon the plaintiff to establish his exemption from the obligation to be registered but, as has already been pointed out, not only was there no reference to this defence in the pleading but nothing occurred during the course of the trial to suggest that it was proposed to rely upon it.

We should not, I think, at this stage of the proceedings, give effect to an allegation of illegality which was not raised in the pleadings, was not mentioned at the trial and the factual foundation of which is not clearly established in evidence.

For the above reasons I would allow the appeal and restore the judgment pronounced at the trial, with costs throughout.

Appeal allowed

Solicitors for the appellant: Mason, Foulds, Arnup, Walter and Weir.

Solicitors for the respondent: Day, Wilson, Kelly, Martin and Morden.