Quinlan Brothers Limited v. Coady, 2013 NLCA 31

Date: 201305 09 Docket: 12/ 20 Citation: Quinlan Brothers Limited v. Coady , 2013 NLCA 31 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN: QUINLAN BROTHERS LIMITED APPELLANT AND: WAYNE COADY RESPONDENT Coram: Barry, Harrington and Hoegg JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (G) 200201T0983 Appeal Heard: December 14 and 17, 2012 Judgment Rendered: May 9, 2013 Reasons for Judgment by Hoegg J.A. Concurred in by Barry and Harrington JJ.A. Counsel for Appellant: John Mate Counsel for the Respondent: John Sinnott, Q.C. Hoegg J.A.:

INTRODUCTION [1] This case concerns the enforceability of an agreement between Quinlan Brothers Limited (“Quinlans”) and Wayne Coady. [2] In 1992, Quinlans was a successful seafood enterprise primarily involved in the processing of cod, and Mr. Coady was asuccessful fish harvester and owner of a fishing business. Quinlans and Mr. Coady entered into several agreements in the first half ofthat year, of which one involved Mr. Coady buying a fishing vessel and two involved Mr. Coady buying fishing licences. One of thelicences Mr.

Coady bought was an otter trawl licence, which he acquired through the auspices of Quinlans and for which he agreed topay Quinlans. Mr. Coady did not pay for the otter trawl licence. Several years later, when Mr. Coady still had not paid for the licence,Quinlans filed suit. At trial, Quinlans’ claim was dismissed on the basis that Quinlans and Mr. Coady had “abandoned or walked away”from their contractual rights and obligations concerning the otter trawl licence. Quinlans appeals the trial judge’s decision. FACTS [3] The trial judge described the business relations between Quinlans and Mr.

Coady as an agreement entailing “three separate butrelated matters – Mr. Coady’s ownership of the vessel, his obtaining a fixed gear ground fish licence as well as his obtaining an ottertrawl licence”, adding that the matters were “related to [each] other in some fashion from a practical point of view” (Quinlan BrothersLimited v. Coady, (NL SC), 2012 NLTD(G)14, 317 Nfld. & P.E.I.R. 275, paragraph 8(iii)). The three mattersinvolved three separate agreements with separate documentation made at separate times over a period of five months.

The First Agreement [4] In December 1991, Patrick Quinlan, the principal of Quinlans, and another fishing enterprise owner, jointly approached Mr.Coady and asked him to inspect and assess the unfinished vessel Penney’s Dream. Mr. Coady said he understood he was being asked tooffer ideas as to how to rig the vessel for fishing. Shortly thereafter Mr. Quinlan asked Mr. Coady if he would be interested in acquiringPenney’s Dream for his own fishing business. Mr.

Coady had previously owned fishing vessels, but did not own one at that time. [5] The construction of Penney’s Dream was troubled, and the vessel was far from completion and launch. However, Mr. Coadywas interested in acquiring it. He inspected it, took a video of it and made notes on it before agreeing with Quinlans to buy it. OnJanuary 8, 1992, a Bill of Sale was registered in the Registry of Shipping transferring the vessel from Quinlans to Mr. Coady for $1.00. On the same date Quinlans and Mr.

Coady executed a document between themselves that stated that the Bill of Sale was issued in goodfaith and “to prevent any implications with respect to transfers of harvesting licences and Fisheries Loan Board (FLB) financingpolicies”. [6] When Mr. Coady acquired Penney’s Dream, it was not completely constructed. He and Mr. Quinlan agreed that Mr. Coadywould complete construction of the vessel but that Quinlans would pay the cost of the necessary materials and subcontractors. The trialjudge found that the parties planned that Mr.

Coady would pay approximately $1,000,000 for the vessel after it was completed to hissatisfaction and when he was in funds to pay for it. On February 3, 1992, Mr. Coady changed the name of the vessel to Atlantic Storm. [7] Mr. Coady intended to use the Fisheries Loan Board (“FLB”) in his financing of the vessel. The FLB provided substantialbenefits to an owner purchasing a vessel, including a provincial government guarantee of the bank loan to finance the purchase, aprovincial bounty, interest rate subsidization and a federal tax credit. [8] Both Quinlans and Mr. Coady had had previous dealings with the FLB. Mr.

Coady had used the FLB to finance fishing boatshe had previously owned, and Quinlans was familiar with FLB policies. In February 1992, Mr. Coady applied for FLB financingrespecting a loan he was able to get from the Canadian Imperial Bank of Commerce to pay for the vessel. The trial judge found that Mr.Quinlan had previously corresponded with the FLB respecting Penney’s Dream and that the FLB had advised him (Mr. Quinlan) in late1991 that FLB financing would not be available for Penney’s Dream because its design did not meet FLB requirements. The trial judgefound that Mr. Quinlan did not advise Mr.

Coady of this information prior to Mr. Coady acquiring Penney’s Dream. [9] Mr. Coady and some of his crew completed construction of the vessel during the winter and spring of 1992. The costs ofmaterials and the required subcontractors were borne by Quinlans. Mr. Coady was not compensated for his labour but, as the trial judgeobserved, he did not expect compensation as the vessel had been transferred to him and he was to pay for it as soon as his financing camethrough. The Second Agreement [10] In April 1992 Quinlans and Mr. Coady made another agreement.

This agreement pertained to a fixed gear ground fish licence. With Quinlans’ assistance, Mr. Coady obtained the fixed gear licence for $10,000 from Robert Rice. The sum was initially paid byQuinlans, but Mr. Coady reimbursed Quinlans the $10,000 on April 27, 1992. This agreement is not at issue and is of no consequence tothis appeal. The Third Agreement [11] A third agreement between Quinlans and Mr. Coady saw an otter trawl licence transferred to Mr. Coady in May 1992 fromWilliam Barnes. The transfer was facilitated by Quinlans and Mr. Coady agreed to pay Quinlans for the licence.

An otter trawl licenceallows for the lucrative harvesting of ground fish by dragging a mobile otter trawl along the ocean floor. [12] The parties executed two written documents respecting the otter trawl agreement. At paragraph 8(xi) of his judgment, the trialjudge described them as follows: ... I find that the document dated in February, 1991 was actually signed in early May of 1992… That agreement provided for the transferof the otter trawl license to the Defendant from William Barnes, who testified that he held that License for the Plaintiff. He transferredthis at the request of the Plaintiff in May, 1992.

The agreement signed stated that in future if the Defendant did “not wish, or is unable,

to prosecute the fishery as authorized by the licenses or should Coady not sell his catch at market prices from the prosecution of the said licenses to Quinlan, then Coady shall transfer the said licenses… to any party or parties designated” by the Plaintiff for one dollar. Shortly after signing that agreement, in fact I find within a day or two, another agreement was signed by both parties dated May 12, 1992. In that agreement, the Defendant agreed “to pay 10% of my total catch of otter trawl fish to Quinlan Brothers as payment on my otter trawl license.

Payment may be made in full to the sum of $100,000 (one hundred thousand dollars) at any time” [my emphasis]. Added in different script or handwriting was the following sentence: The terms of the agreement dated February 1992 also apply. While this sentence is not in the same script as the earlier parts of the agreement, based upon my consideration of the full testimony presented, I am satisfied on a balance of probabilities that both agreements were intended to somehow apply as regards the otter trawl license.

When the second agreement was signed, I am satisfied that another arrangement, aside from holding the license for the Plaintiff as apparently intended by the earlier document, was agreed to. Instead, the Defendant became the outright owner of that license and all that remained for the Plaintiff based upon my

interpretation of both agreements was a right to have the fish caught under that license supplied to it as well as the payment of 10 percent of the catch from the license or a lump sum payment of $100,000 to be paid at any time. The right to a return of the license in these circumstances was clearly not something that survived the second agreement in view of the fact that I find that full title for the otter trawl license was transferred to the Defendant. [ 13 ] The agreement respecting the otter trawl license is the subject matter of this litigation. A Fourth Agreement [ 14 ] In June, 1992, Mr.

Coady began to fish from the Atlantic Storm . In early July 1992, a cod fishing moratorium was announced by the Canadian government. The moratorium prohibited the fishing of northern cod in areas which would have been fished by Mr. Coady from the Atlantic Storm using the otter trawl licence. On July 20, 1992, Mr. Coady was advised in writing that he would not be receiving FLB financing for the Atlantic Storm. Mr.

Coady testified that he knew from a personal contact at the FLB, “probably in June 1992” that he would not be receiving FLB financing for the Atlantic Storm before he was formally advised by the letter. [ 15 ] Shortly after the moratorium was announced, the Atlantic Storm was boarded by Fisheries Officers while Mr. Coady was fishing. It is unclear whether the vessel was boarded because of a suspicion of illegal fishing or whether it was because of concerns about the volatile reaction of other fishermen to the Atlantic Storm being on the water when they could not fish.

Whatever the reason, Fisheries Officers brought the vessel into the port of St. John’s late one night. Mr. Quinlan subsequently advised Mr. Coady to leave the vessel where it was and not to take it back out on the water. [ 16 ] The trial judge found that the moratorium, as well as the refusal of the FLB to finance Mr. Coady’s purchase of the vessel, caused Mr. Coady to conclude that he would not be able to pay for it as contemplated. Mr.

Coady subsequently returned the “bluebook” for the Atlantic Storm to an employee of Quinlans, and on September 30, 1992, he formally conveyed his interest in the vessel back to Quinlans for $1.00. The vessel remained registered in Mr. Coady’s name at the Registry of Shipping until 1994. In effecting the return of the vessel, the parties did not discuss the otter trawl licence agreement. [ 17 ] The agreement between Quinlans and Mr. Coady that Mr. Coady return the Atlantic Storm to Quinlans is the fourth agreement.

From September 30, 1992 to April 16, 2002 [ 18 ] Nothing seems to have happened between the parties respecting the otter trawl licence agreement from the fall of 1992 until sometime during 1997, when Mr. Coady began to fish the otter trawl licence. He did not sell his catch to Quinlans, nor did he pay Quinlans for the licence in accordance with the May 12, 1992 agreement. On April 16, 2002, Quinlans filed suit, seeking return of the otter trawl licence and related damages. Shortly after Mr.

Coady learned of Quinlans’ suit, he sold the otter trawl licence to a third party for $275,000, composed of a $150,000 payment and a lease fee of $125, 000. Due to Mr. Coady’s sale of the otter trawl licence to a third party, it could not be returned as Quinlans claimed. Quinlans amended its prayer for relief at trial, and sought money damages based on the terms of the otter trawl licence agreement instead of return of the licence. THE TRIAL DECISION [ 19 ] The trial judge dismissed Quinlans’ suit, finding that Quinlans and Mr.

Coady had implicitly agreed to abandon or walk away from their rights and obligations pursuant to the otter trawl licence agreement in the summer of 1992. (September 1992 is referred to as the date of abandonment in the

summary of the trial judgment, and July 1992 is stated as the date of abandonment in paragraph 46 of the decision.) The trial judge acknowledged that there had been no meeting or discussion between the parties such that each expressly agreed to abandon the terms of the otter trawl licence agreement (paragraph 40). However, he inferred that the parties had agreed to abandon their agreement in the summer of 1992 on the basis of factual findings respecting the evidence, including the parties’ actions.

THE APPEAL [ 20 ] Quinlans appeals the trial judge’s decision, asserting that he erred in fact and in law by 1) misapprehending the evidence and drawing unreasonable inferences from it; 2) finding that the parties agreed to walk away from the otter trawl agreement when there was insufficient or no evidence to support such a finding; 3) determining the case on abandonment principles that were neither raised nor responded to at trial; and 4) admitting evidence respecting Quinlans’ dealings with third parties contrary to the parol evidence rule.

Quinlans also argues the trial judge erred in assessing the credibility of Quinlans’ witnesses and in his provisional assessment of damages. STANDARD OF REVIEW [ 21 ] Contractual

interpretation involves the application of a legal standard to a set of facts. Such an exercise engages questions of mixed fact and law to which the review standard of palpable and overriding error applies, unless the trial judge made some extricable

error in principle with respect to the characterization of the legal standard being applied, in which case the standard of review is one of correctness. When a legal issue is not readily extricable, and the issue on appeal involves the trial judge’s

interpretation of the evidence as a whole, the general rule is that this Court will not intervene in the absence of palpable and overriding error. [ 22 ] Error in fact finding is reviewable on a standard of palpable and overriding error. The standard of review for drawing inferences from facts is the same. It involves whether the trial judge made palpable and overriding error in finding the facts on which the inferences are based and whether the inference-drawing process itself is in error.

In these regards, it is open to an appellate court to find that the inference a trial judge drew to support his or her decision was based on a misapprehension of the evidence, unsupported by the evidence, unreasonable or clearly wrong. ( Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235 and Oppenheim v. Midnight Marine Limited , 2010 NLCA 64 , 302 Nfld. & P.E.I.R. 85). [ 23 ] In this case the trial judge inferred that the parties agreed to abandon the otter trawl licence agreement based on facts he found from the evidence.

Accordingly, this Court must review the trial judge’s factual findings on which he based his inference that the parties agreed to abandon their otter trawl licence agreement, as well as the trial judge’s inference-drawing process itself, which involves his application of the legal standard to the evidence. Both of these issues engage the review standard of palpable and overriding error. The Law [ 24 ] The concept of abandonment of a contract was discussed by Chief Justice McLachlin, speaking for an unanimous Court, in Jedfro Investments (U.S.A.) Limited v.

Jacyk , 2007 SCC 55 , [2007] 3 S.C.R. 679, at para. 17 : It is suggested that if both parties are found to have abandoned a contract, that will terminate it. However, abandonment discharges a contract only if it amounts to a new contract in which the parties agree to abandon the old one. As Lord Diplock stated in Paal Wilson & Co. A/S v. Partenreederei Hannah Blumenthal , [1983] 1 All E.R. 34 (H.L.), at pp. 48-49 : To the formation of the contract of abandonment, the ordinary principles of the English law of contract apply.

To create a contract by exchange of promises between two parties where the promise of each party constitutes the consideration for the promise of the other what is necessary is that the intention of each as it has been communicated to and understood by the other (even though that which has been communicated does not represent the actual state of mind of the communicator) should coincide.

That is what English lawyers mean when they resort to the latin phrase consensus ad idem and the words that I have italicised are essential to the concept of consensus ad idem, the lack of which prevents the formation of a binding contract in English law. [ 25 ] At paragraph 14 of Jedfro , McLachlin C.J., described that a contract can be discharged: … by performance, by agreement, by frustration, and by repudiatory or fundamental breach.

In addition to these major categories, it is possible to end a contract by merger, alteration or cancellation of a written instrument, and in particular circumstances … such as by the death of a party (in the case of a personal contract), bankruptcy and winding up. [ 26 ] The Chief Justice went on to explain that ignoring a contract does not discharge it. Rather, a new agreement terminating the former one must be established. That new agreement must show “an offer by one party, accepted by the other, or an exchange of promises, supported by consideration” (paragraph 16).

The Court rejected the notion that a contract can be put to an end in the absence of parties having reached a consensus ad idem on the terms to abandon it, saying there must be a meeting of minds on the essential terms to end the former contract. [ 27 ] In an abandonment case, evidence supporting the parties’ agreement to abandon the former agreement is required. Usually there would be some express evidence suggesting that the parties agreed with each other to abandon the former agreement.

However, it is possible that an agreement to abandon a contract can be inferred from the parties’ conduct, for the terms of a new contract can be expressly stated or implied from the surrounding circumstances. In order for abandonment to be inferred, it must be established that the parties agreed with each other to abandon the old agreement. As long as the evidence supports that a new agreement to abandon the old agreement was made, the Jedfro test is satisfied. ISSUE [ 28 ] In this case, there is no doubt that Quinlans and Mr. Coady had a valid agreement respecting Mr.

Coady’s acquisition of the otter trawl licence from Quinlans. The question is whether they agreed to abandon it. Although there was no express evidence of an agreement to abandon it, and both parties denied that there was an agreement to abandon it, the trial judge found that the parties had agreed to do so. The issue is whether the trial judge made palpable and overriding error in deciding as he did. ANALYSIS [ 29 ] It is agreed by the parties that after the otter trawl licence agreement was made in May 1992, it was not discussed by them until at least 1997. Mr. Philpott for Quinlans testified that he and Mr.

Coady had discussed the agreement in 1997, but Mr. Coady could not recall that this discussion took place and Mr. Philpott’s evidence was rejected by the trial judge. Mr. Coady’s evidence, which the trial judge accepted, was that the otter trawl agreement was not discussed by the parties at all despite continuous and frequent business contact between them. [ 30 ] At trial, Mr. Coady did not assert that he and Quinlans agreed to walk away from their otter trawl licence agreement. Rather, Mr. Coady claimed he and Quinlans had simply walked away from it and that they had not discussed it at all. Mr.

Coady’s position on this point was emphasized by his counsel in Mr. Quinlan’s direct examination: (Quinlans’ counsel to Mr. Quinlan) Q. It’s been alleged by Mr. Coady that you and he agreed to walk away from the agreement with respect to the otter trawl licence.

SINNOTT Q.C. (Mr. Coady’s counsel) Q. There’s been no allegation of that. There’s been no allegation that there was an agreement to walk away. There’s been an allegation that they walked away, but there’s no allegation that they agreed to walk away. Mr. Coady’s counsel repeated this point in final argument: Aside from the time issue, Your Lordship … my submission is that the deal went sour and the parties walked away. I don’t mean to suggest that they agreed to walk away, but I do mean to suggest and to submit that in fact that’s what they did, they both walked away.

And so it’s my submission that Quinlan - that Coady had a triable case to recover his losses there from Quinlan, which Coady placed at $250,000, and he walked away from it, he didn’t pursue it. Quinlan didn’t pursue Coady; Coady didn’t pursue Quinlan. [ 31 ] The evidence is unequivocal that the parties did not advertently agree with each other to set aside the otter trawl licence agreement, and it is abundantly clear that Mr. Coady did not assert that there was such an agreement. Neither did he assert that such an agreement could be implied.

Rather, he suggested that because he did not pursue a possible suit in relation to the purchase and sale agreement respecting the Penney’s Dream , the otter trawl licence suit should be decided in his favour. In other words, one suit should be traded off for the possible success of a suit which was not brought, presumably justified on some sort of equitable basis. On this point, the trial judge’s reference at paragraph 40 to “the parties’ agreement to walk away or abandon the agreement” is a mischaracterization of Mr.

Coady’s position. [ 32 ] The law requires that a new agreement to abandon an old agreement must be found to exist before abandonment is established. As noted above, despite Mr. Coady’s assertion that there was no new agreement to abandon the otter trawl licence agreement, and Mr. Quinlan’s evidence that there was no such agreement, the trial judge found that Quinlans and Mr. Coady did agree implicitly to abandon the otter trawl licence agreement in the summer of 1992.

He inferred the parties’ agreement from the evidence respecting the situation of the fishery and the conduct of the parties, and set out the reasons for his inference at paragraphs 40-43:

i) The Defendant had failed to secure Loan Board financing approval and, together with the impact of the moratorium announcement at or about the same time, the Defendant was told by the Plaintiff to return the vessel. At that time, I am satisfied that the Defendant had no means to pay for that vessel which was then in his name and nor did he want the vessel without the benefits earlier referred to that would have come had Loan Board financing been approved.

Upon delivery of the vessel in July, 1992 to the Plaintiff, it then had effective control over it and this was subsequently confirmed by the Defendant when he had nothing further to do with the vessel, gave up delivery of the bluebook for the vessel and later signed a bill of sale to the Plaintiff.

It was not until 1994 that the Registry of Shipping documentation was completed at the request of the Plaintiff but, notwithstanding this, I am satisfied that this vessel was effectively owned and controlled by the Plaintiff in or about the end of July 1992. ii) Upon the transfer of the vessel in 1992, no request or demand was made by the Plaintiff to enforce any legal right it may have felt it had under the agreement signed regarding the otter trawl license.

As found earlier, it is my determination that the parties had intended and did actually convey ownership of that license to the Defendant with payment to be 10 percent of the value of the catch under that license or $100,000 payable as a lump sum at any time.

As well, by virtue of what remained effective from the first agreement signed, the Defendant was obligated to land his catch while fishing under the otter trawl license at a facility of the Plaintiff. iii) Despite what I find was knowledge on the part of the Plaintiff in 1997 that the Defendant had fished the otter trawl license but had not landed the catch at a plant owned or designated by the Plaintiff or paid any amount for the license, the Plaintiff then took absolutely no steps to enforce its agreement with the Defendant.

In fact, no action whatsoever was taken by the Plaintiff to seek to enforce that agreement until five years later, in April 2002. iv) I am satisfied that throughout the time frame of 1992 to 2002 the Plaintiff was fully aware of the Defendant’s losses as regards their relationship, specifically the significant time, labour and supervision by the Defendant in the completion of the construction of the vessel from the end of 1991 until up to June of 1992.

While I am not able to assess an exact value for such contribution, I accept the testimony of the Defendant as to what his involvement was as well as the amount of time he put into this. Obviously with the return of the vessel to the Plaintiff, it got the benefit of having a fully constructed vessel returned to it with no compensation being paid to the Defendant for his involvement in seeing to this. As well, the Plaintiff was aware of the loss of income suffered by the Defendant as a result of what had transpired, particularly as regards his inability to get Loan Board approval for financing.

This is also to be understood in the context of the Plaintiff’s prior knowledge about Loan Board financing not being available for the vessel in question and the Plaintiff not advising the Defendant of this when the agreements were negotiated. [41] Two things should be noted in considering this defence put forward in response to the Plaintiff’s claim. First of all, I accept that the Defendant was unaware in 1992 of the Plaintiff’s prior involvement with the Loan Board and the vessel in question.

While such might well be argued as perhaps grounding a claim for negligent misrepresentation by the Defendant, this was not a basis upon which the Defendant acted in 1992 as regards the full arrangements entered into with the Plaintiff. [42] At the same time, I am fully satisfied that the Plaintiff was aware that the Loan Board was not accepting the vessel for financing prior to agreeing with the Defendant on him purchasing it. While they may well have thought that decision could be reversed, that did not happen.

They were also aware of the Defendant’s situation as a result of this. [43] As well, it is clear that the Defendant retained one of the benefits of the parties’ contractual relationship - ownership of the otter trawl license. However, it is reasonable here for me, as I have, to question the value of that license in July, 1992 after the announcement of the moratorium. The main species to be fished was to have been cod and the area intended to be fished for that species was closed as a result of the moratorium.

The trial judge reiterated the circumstances from which he inferred abandonment at paragraph 46. [ 33 ] In concise

summary, the trial judge inferred that Quinlans and Mr. Coady agreed to abandon the otter trawl contract because:

1) Quinlans had not pursued its contractual rights to enforce the otter trawl agreement for many years; 2) Quinlans received a more valuable vessel back from Mr. Coady in July 1992 than what they had sold to him in January of thatyear; 3) Mr. Quinlan did not tell Mr. Coady that the FLB had previously denied financing for Penney’s Dream; and 4) the otter trawl licence had diminished in value as a result of the moratorium. [34] With respect, it is my opinion that the trial judge made a palpable and overriding error or errors in inferring that Quinlans andMr.

Coady implicitly agreed to abandon the otter trawl licence agreement on the basis of his stated reasons. I will explain. Quinlans’ delay in pursing its rights [35] It is a fact that Quinlans did not take action on the otter trawl licence agreement until 2002. The trial judge relied on this fact tosupport his inference that both Quinlans and Mr. Coady had agreed to abandon it.

Although the trial judge did not explain how thissupported his inference, presumably he reasoned that Quinlans’ lack of action on the agreement was because they knew they hadabandoned their right to take action. [36] The first problem with drawing the inference of abandonment on the basis of delay is that Mr. Coady’s evidence, which the trialjudge accepted, refutes it. As indicated above, Mr. Coady denied that there was an agreement, implicit or otherwise, to abandon the ottertrawl licence agreement.

The second problem with drawing the inference of abandonment on the basis of delay is that Quinlans wasentitled to take action whenever it chose to do so, as long as it did so within the limitation period. There is no legal principle, exceptestoppel, which operates to deny a contractual claim if it is not asserted in a timely fashion as long as it is asserted within the applicablelimitation period. The trial judge found that Quinlans had sued within the applicable limitation period and no appeal was taken of thatfinding. There was no finding of estoppel.

Inferring that the parties agreed to abandon the otter trawl licence agreement from the factthat Quinlans waited a long time to take legal action is not reasonable. [37] Many factors influence whether and when parties seek to enforce their rights. It is a matter of record and evidence that in thesummer of 1992 the Newfoundland fishery was in a state of uncertainty due to the moratorium. This state of uncertainty continued forsome time. Neither Quinlans, Mr. Coady nor anyone else knew what the future would bring for the Newfoundland fishery.

In fact, Mr.Coady testified that in July 1992 when the moratorium was first announced, it was for two months; shortly thereafter it was extended totwo years, and in 1994 it was extended for five more years. He also said after the first extension, he and other fishermen were hopeful tobe back fishing northern cod in a couple of years. The trial judge also did not consider Quinlans’ business reasons for not suing earlier. Mr. Quinlan testified that Quinlans did not sue earlier because “the company had to be careful not to upset fishermen and create bad talkaround the waterfront”.

The trial judge’s finding that the parties agreed to abandon their otter trawl licence agreement in July 1992 is notreasonable. It makes no sense that either of the parties would agree to give up their rights under any of their agreements on the basis of atwo-month moratorium, or even a two-year moratorium, if September 1992 is the date of abandonment. Quinlans’ failure to disclose that Penney’s Dream had been denied FLB financing [38] The trial judge found that Quinlans failed to tell Mr. Coady about the FLB’s previous refusal to finance the purchase ofPenney’s Dream. Mr.

Coady testified that he knew about some of the problems with the Penney’s Dream. Indeed, he was experiencedwith fishing vessel construction and had taken care to video and inspect Penney’s Dream before agreeing to buy it, although he said hewas unable to find the video for the trial. He also insisted that the vessel had to be completed to his satisfaction before he was requiredto pay for it. [39] Mr.

Coady was also experienced with FLB financing, having availed of FLB financing himself on at least two prior occasions.He at no time testified that Quinlans represented to him, expressly or impliedly, that Penney’s Dream was eligible for FLB financing, nordid he say that he relied on any representation from Quinlans that he would receive the financing. [40] Mr. Quinlans’ evidence was that Mr. Coady was aware of at least some of the design issues with the vessel. As well, theevidence demonstrates that Mr. Quinlan was supportive of Mr. Coady’s FLB application, and that he (Mr.

Quinlan) continued to takesteps to encourage the FLB to change its position with respect to financing the purchase of Penney’s Dream or the Atlantic Storm, as thevessel came to be known. Eventually the FLB did change its position and permitted FLB financing for vessels constructed like Penney’sDream. [41] The trial judge offered that perhaps Mr. Coady would have had a claim based on negligent misrepresentation against Quinlans.Given that Mr. Coady never did pay for the boat, the damages from such a suit would seem to be based on compensation for his labourcontribution. (That is what Mr.

Coady focussed on in his defence.) Mr. Coady did not take such a suit. The possibility that he couldhave is not a defence to Quinlans’ suit for breach of the otter trawl licence agreement. What might be a claim respecting one agreementdoes not constitute a defence to another agreement, especially in the absence of a pleaded counterclaim. As well, the trial judge did notaddress whether Mr. Coady had already received any compensation for his work on the vessel by virtue of fishing during June and July1992.

The sale proceeds from the fish landed from these trips may have offset some of the value of his labour contribution. [42] In the circumstances of this case, identified in paragraph 38 above, Quinlans had no obligation to advise Mr. Coady that in 1991the FLB had refused financing for Penney’s Dream (See Queen v. Cognos Inc., (SCC), [1993] 1 S.C.R. 87). In anyevent, whether Quinlans had an obligation to compensate Mr. Coady for his labour contribution to Penney’s Dream relates to theagreement the parties had respecting Mr. Coady’s purchase of the vessel from Quinlans, and not to the otter trawl licence agreement.

Inrelying on this factor to support his inference of abandonment, the trial judge gave Mr. Coady the benefit of a separate claim that he didnot advance, and an unproved one at that. This is a clear error in his process of inference drawing. Accordingly, the fact that Quinlansdid not tell Mr. Coady about FLB’s earlier refusal to finance Penney’s Dream is not a proper basis from which to infer that Quinlansagreed to abandon the otter trawl agreement.

Was the Atlantic Storm more valuable than Penney’s Dream ? [ 43 ] The trial judge also rested his inference of abandonment on his finding that the Atlantic Storm , when returned to Quinlans in July 1992, was more valuable than Penney’s Dream was when Mr. Coady purchased it the previous January. Presumably the trial judge reasoned that Quinlans agreed to let Mr. Coady keep the otter trawl licence as compensation for his work in making the vessel seaworthy. To put the point another way, Mr. Coady’s labour contribution gave Quinlans a more valuable boat, so Mr.

Coady got to keep the licence. [ 44 ] The factual finding that the Atlantic Storm was more valuable than the Penney’s Dream is somewhat curious. When the Atlantic Storm was returned to Quinlans in July 1992, although fully constructed, it was tied up and not able to be used for its anticipated purpose due to the moratorium. There is no evidence as to what happened to the vessel after Quinlans took it back. While there is little doubt that a fully constructed vessel is better than an incompletely constructed vessel, the value of the Atlantic Storm may have been affected by the moratorium.

The trial judge found that the otter trawl licence was worth less as a result of the moratorium, but he did not apply similar reasoning to the value of the vessel. [ 45 ] In any case, whether the vessel was more valuable in July 1992 than it was in January 1992 has little or nothing to do with whether the parties agreed to abandon their otter trawl licence agreement. As stated above, Mr. Coady was entitled to pursue payment for his labour contribution to complete the construction of Penney’s Dream pursuant to his agreement to purchase the vessel from Quinlans, which he did not do.

He cannot now claim the benefit of a suit he neither advanced nor proved as a defence or counterclaim to a suit based on a separate agreement. Whether Mr. Coady had a cause of action based on something other than negligent misrepresentation respecting his agreement to purchase Penney’s Dream does not support the inference that Quinlans abandoned its rights under the otter trawl licence agreement and is not a proper basis on which to find that Quinlans implicitly agreed to abandon the otter trawl licence agreement. Again, this is an error in the trial judge’s inference drawing process.

Diminished Value of the Otter Trawl Licence [ 46 ] The trial judge also inferred that the parties agreed to abandon their otter trawl licence because the licence had diminished in value in the summer of 1992 due to the cod moratorium. He presumably reasoned that Quinlans intended to leave the licence with Mr. Coady and forgive payment for it because it was not worth much. [ 47 ] The fact is that in the summer of 1992 the licence could not have been fished as expected due to the cod moratorium.

However, the evidence is that despite the moratorium, the otter trawl licence maintained value because it could be used in zones not under the moratorium, and, in the summer of 1992, no one, including Quinlans and Mr. Coady, expected that the moratorium would last in the way that it ultimately did. Not even Mr. Coady asserted that he got to keep the licence because it was of little value.

While it was not unreasonable for the trial judge to find that the otter trawl licence had a diminished value in the summer of 1992, it was a misapprehension of the evidence to find that its value was so diminished as to motivate Quinlans to agree to abandon its rights under the otter trawl licence agreement, as the trial judge stated in paragraph 46 of his decision. In the summer of 1992, it was expected that the moratorium would be short lived.

It follows that fishing licences would regain any lost value in short order. [ 48 ] Whatever the value of the otter trawl licence in 1992, by 1997 the situation had changed. By 2002 the otter trawl licence had increased in value and was worth well over what Mr. Coady initially agreed to pay for it, as evidenced by the proceeds from his sale of it in 2002. While this fact does not show whether the parties agreed in 1992 to abandon their otter trawl licence agreement, it tends to support the fact that any devaluation of the licence in 1992 was not expected to last.

Aside from the trial judge’s misapprehension of the evidence regarding the value of the otter trawl licence in 1992, it is not reasonable to find that Quinlans was motivated to agree to abandon its rights under the otter trawl licence agreement in the summer of 1992 from the simple fact that the value of the licence was somewhat diminished at that time. Motivation is a reason for doing something. The fact that Quinlans could have been motivated to relinquish its rights due to a diminished value of the licence does not mean that they were motivated to do so.

Accordingly, without more, it is not reasonable to infer that Quinlans abandoned its rights under the otter trawl licence agreement in the summer of 1992 from the fact that the licence was diminished in value at that time. The evidentiary value of silence [ 49 ] Except for the evidence of Mr. Philpott, with which Mr. Coady neither agreed nor disagreed and the trial judge rejected, the evidence is that there was no discussion of or adversion to the otter trawl licence agreement until Quinlans filed suit. In my view, this silence has evidentiary value, which the trial judge did not consider. Mr.

Coady’s silence, up to when he discussed the otter trawl licence situation with Mr. Hickey and ultimately sold it to him, speaks volumes. If Mr. Coady had believed that the parties had abandoned their otter trawl licence agreement, he would have had no reason to be silent about it. Proving an agreement, implicit or otherwise, would be entirely within his power and interest, but he said nothing about the otter trawl licence agreement for years, and did not testify that he and Quinlans had agreed to abandon it. Mr.

Coady’s silence on the issue of the otter trawl licence agreement is strong evidence that there was no agreement, and the trial judge’s failure to consider Mr. Coady’s silence in this regard is an error. Moreover, Mr. Coady testified that he explained the otter trawl licence situation to John Hickey, who bought the licence from him shortly after Mr. Coady was sued by Quinlans, because Mr. Hickey was his “friend” and he “certainly wouldn’t want to mislead Mr. Hickey in any way”. If Mr.

Coady were so confident that both he and Quinlans had walked away from the otter trawl licence agreement, he would have no reason to be concerned about misleading Mr. Hickey. [ 50 ] In the final analysis, it cannot be overlooked that Mr. Coady at no time asserted that he and Quinlans had agreed to walk away from the otter trawl licence agreement. Mr. Coady’s position was only that he assumed that Quinlans was not standing on its contractual rights because the otter trawl licence had not been discussed.

Ignoring an agreement by the parties does not establish a new agreement to end the old one and an assumption on the part of one party does not amount to consensus ad idem of the parties. There is no direct evidence that the parties agreed to abandon the otter trawl licence agreement. And, for the reasons stated above, neither is there

evidence from which an agreement to abandon the otter trawl licence agreement can be inferred. The test for abandonment of contract asset out in Jedfro is not met. [51] In the result, the trial judge committed palpable and overriding error in applying the law respecting abandonment of contract tothe evidence, which led him to erroneously draw the inference that Mr. Coady and Quinlans had agreed to abandon their otter trawllicence agreement. The trial judge’s decision cannot stand.

Credibility [52] The trial judge stated, at paragraph 5: … The two witnesses offering the most significant testimony were Patrick Quinlan, president of the Plaintiff company and theDefendant, Wayne Coady. I find that these two individuals were primarily involved in the matter that comes before this Court. Ofparticular relevance here are the discussions had between these two parties as well as the resulting agreements and arrangementsreached. As the events occurred in late 1991 and 1992 for the most part, it is to be expected that the memories or recollections of eventswould diminish over time.

Recognizing this, the manner and content of their testimony as well as what appeared to me as some possibleeffects of advancing age for Mr. Quinlan when he testified, I have concluded that the testimony of Mr. Coady as to what occurred at thetime is far more reliable and credible than that of Mr. Quinlan… [53] The factual findings from which the trial judge inferred that Quinlans and Mr. Coady agreed to abandon their otter trawllicence agreement did not depend on credibility findings. Neither did the trial judge’s inference-drawing process depend on credibilityfindings.

This Court’s decision also does not depend on credibility findings. Rather, it is principally based on the evidence of Mr.Coady, whose evidence the trial judge accepted. Case decided on principles not argued [54] Quinlans argues that the trial judge decided the case on the basis of abandonment principles which were neither pleaded norargued at trial. [55] The record indicates that Mr. Coady defended Quinlans’ suit on the basis 1) that the limitation period had expired (decided bythe trial judge against Mr. Coady and not cross-appealed); 2) frustration of contract (decided by the trial judge against Mr.

Coady and notcross-appealed); and 3) the misrepresentation argument, which the trial judge seems to have accepted. Mr. Coady did not defend thecase on the basis of abandonment of contract. In fact, his position specifically diverted the court away from the legal concept ofabandonment. At the end of the trial, the trial judge asked the parties to submit authorities on estoppel and negligent misrepresentation. [56] The trial judge’s decision shows that he decided the case on the basis of abandonment of contract.

In so doing, he adopted atheory of the facts which was at odds with the position of both parties and the law. Given his decision, Mr. Coady is not apt tocomplain. Quinlans, being the loser, understandably complains. Quinlans was not only denied the opportunity to argue the law ofabandonment of contract, but it may also have been denied the opportunity to adduce evidence specific to abandonment of contract. Inthis regard, I endorse the comments of Doherty J.A. in Rodaro v.

Royal Bank of Canada (2002), (ON CA), 59 O.R.(3d) 74 (C.A.) at paras. 60 and 62: [60] It is fundamental to the litigation process that lawsuits be decided within the boundaries of the pleadings. As Labrosse J.A.said in 460635 Ontario Limited v. 1002953 Ontario Inc., (ON CA), [1999] O.J. No. 4071 at para. 9 (C.A.) (QL): 1. … The parties to a legal suit are entitled to have a resolution of their differences on the basis of the issues joined in the pleadings. Afinding of liability and resulting damages against the defendant on a basis that was not pleaded in the statement of claim cannot stand.

Itdeprives the defendant of the opportunity to address that issue in the evidence at trial. … [62] In addition to fairness concerns which standing alone would warrant appellate intervention, the introduction of a new theory ofliability in the reasons for judgment also raises concerns about the reliability of that theory. We rely on the adversarial process to get atthe 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 Spence J.’s lost opportunity theory would have held up had it been subject to the rigours of the adversarialprocess. We do know, however, that all arguments that were in fact advanced by Mr.

Rodaro and were therefore subject to theadversarial process were found wanting by Spence J. [57] In a trial where both sides are represented by counsel, it is generally unfair to decide a case on principles which the parties didnot have opportunity to address, with the possibility, like in Rodaro, that the result is not reliable. Damages [58] The fact remains that Mr. Coady had the benefit of the otter trawl licence for many years, did not pay Quinlans for it, and sold itat a handsome price.

The trial judge’s inference of abandonment being set aside, and there being no other ground on which to denyQuinlans’ claim, it is allowed. [59] Quinlans sought damages plus interest and costs on the basis of the otter trawl licence agreement, arguing that the best evidenceof the value of the licence was the price it fetched when Mr. Coady sold it, which was $275,000. Alternatively, Quinlans sought$150,000 plus interest and costs, and further in the alternative, $100,000 plus interest and costs.

[ 60 ] The trial judge provisionally assessed damages at $100,000 plus interest, which he stated he likely would have awarded from the date the statement of claim was issued. For the reasons that follow, I agree with the trial judge’s assessment. [ 61 ] The otter trawl licence agreement comprised two documents that the trial judge found were executed in May 1992. The first-in- time document essentially provided that Mr. Coady would sell his fish to Quinlans or give up the otter trawl licence. The second-in-time document (dated May 12, 1992) provided that Mr.

Coady could pay the lump sum amount of $100,000 for the licence at any time. In this second document there was inserted, in a different script or handwriting, that “the terms of the agreement dated February 1992 also apply”. Neither Mr. Coady nor Mr. Quinlan could recall how the February 1992 clause came to be inserted, and Mr. Coady could not recall whether it was part of the May 12, 1992 document when he signed it.

However, in the absence of positive evidence that the clause was a later insertion, the trial judge correctly held that the parties were bound by it. [ 62 ] Quinlans argued that the trial judge erred in finding that the earlier document was executed in May 1992 and not February 1992 as Quinlans maintained. Whether the trial judge is right or wrong on this point is irrelevant to the damages assessment. It matters only that the document in question preceded the second (May 12, 1992) document, which is not a matter of dispute between the parties.

The trial judge found that when the second document was signed, a new arrangement provided that Mr. Coady could pay for the otter trawl licence by selling his catch to Quinlans and paying installments, or by paying Quinlans $100,000 at any time. I agree. [ 63 ] In the result, I am satisfied that the trial judge correctly assessed the damages. Quinlans is entitled to be put into the position it would have been in if the otter trawl licence agreement had been performed. Whether the return clause applied or not, the agreement provided that Mr.

Coady could make payment in full by paying the sum of $100,000 at any time. If a party can perform a contract in more than one way, it is entitled to choose which way it wishes to perform it. In this case, Mr. Coady, had he honoured the contract, could have chosen to pay for the licence the cheaper way, and therefore it is appropriate for the Court to award Quinlans the lesser damages. Accordingly, Quinlans is awarded $100,000 in damages for the otter trawl licence. [ 64 ] I am also satisfied that pre-judgment interest would accrue to Quinlans from the date of service of the statement of claim.

Because a lump sum payment could be made to Quinlans by Mr. Coady “at any time”, and Quinlans did not assert its rights under the agreement until it served its suit, the appropriate date from which interest accrues is the date Mr. Coady was notified of the suit. DISPOSITION [ 65 ] In the result, Quinlans’ appeal is allowed, and Quinlans is awarded $100,000 plus pre-judgment interest accruing from the date of service of its statement of claim. [ 66 ] Quinlans shall have its party and party costs in this Court and in the Court below. L. R. Hoegg J.A. I concur: L. D. Barry J.A. I concur: M. F. Harrington J.A.