Judge should not grant damages that a party never sought: NL Court of Appeal

A judge should not award a monetary remedy that was neither pleaded nor requested, the Newfoundland and Labrador Court of Appeal said in a recent case arising out of a share transfer agreement.

In Parsons v. Babb Construction Limited, 2022 NLCA 16, the buyer, who was the individual appellant in this case, entered into a 2013 agreement in which he bound himself to pay $500,000 for shares that the respondent owned in the appellant corporation.

In 2019, the respondent filed an application claiming that the individual appellant paid only $100,000 of the purchase price, leaving $400,000 outstanding. The respondent asked the court to declare that the contract was fundamentally breached and void ab initio due to non-payment and sought a rectification order for the return of the shares.

The application judge ruled that the $400,000 remained outstanding. With respect to a debt swap agreement and a debt assignment agreement in 2016, the individual appellant failed to sign the first and failed to prove the existence of the debt referenced in both, so he could not use these agreements to establish that he paid the $400,000, the judge said.

The judge found that there was no fundamental breach and there was partial performance of the share purchase contract since it was partially paid. In lieu of granting the relief that the respondent sought, the judge ordered the individual appellant to pay the respondent $400,0000 in damages, even though the respondent did not request monetary damages or payment of the $400,000.

The Court of Appeal allowed the appellants’ appeal, set aside the judge’s order, and remitted the matter to the lower court without prejudice to the respondent’s right to pursue its claim and without prejudice to the appellants’ right to plead and, if proved, rely on the 2016 agreements as constituting payment of the balance.

First, the appellate court held that the judge denied procedural fairness and breached natural justice. The issue of whether the individual appellant signed the debt assignment agreement was never raised and was decided without the parties having the opportunity to tackle it, which raised concerns of litigation fairness and reliability, the appellate court said.

Second, the judge erred when he ignored the 2016 agreements in relation to the issue of whether the individual appellant proved the debt from the appellant corporation, the appellate court ruled. The agreements were relevant and material to the question of whether the individual appellant paid the respondent the $400,000 and were operative since there was no basis to find that they were invalid.

Third, the judge erroneously considered and relied on an agreement between the individual appellant and a third party, which occurred before the 2016 agreements, the appellate court concluded. This evidence was irrelevant to the issue of whether there was payment for the shares.