2005 BCSC 161err1.doc Gordon v. McDonald

Before: The Honourable Mr. Justice Johnston

Reasons for Judgment

Counsel for the Plaintiff	S. H. Ashcroft
Counsel for the Defendant	C. A. Millar
Date and Place of Trial/Hearing:	January 4 – 7, 2005
	Vancouver, B.C.

[1] On February 23, 1993 the plaintiff Mr. Gordon (“Gordon”) and the defendant Mr. McDonald (“McDonald”) entered into a contract in writing. By that contract Gordon purchased, for $50,000 paid that day, a one-half interest in McDonald’s 40-foot racing sailboat, Aquila I, referred to by the parties and in the balance of these reasons, as “Aquila”. In June of 1993 Gordon and McDonald had a falling out, resulting in Gordon never thereafter setting foot on Aquila and McDonald, save for one voyage up Indian Arm in the winter, never using the vessel again.

[2] In January of 1995 Gordon sued McDonald for damages for breach of contract and for the cost of some equipment purchased by him for Aquila. Additional claims for aggravated punitive or exemplary damages, costs on a solicitor and client basis or special costs were also pleaded. For the reasons that follow, the plaintiff’s claim is dismissed.

Background

[3] McDonald has sailed since 1980 or so. In March of 1990 he purchased Aquila in the United States for $85,000 American dollars. Aquila was designed and built to race under the International Offshore Rule (“IOR”). Sailboats built under that rule were fast but not necessarily comfortable, and the value of Aquila, at least in 1990, depended largely upon the popularity of the IOR racing rule in Vancouver’s sailboat racing community. In the early 1990’s there were ongoing attempts to build a racing fleet of similarly rated vessels in the Vancouver area, and McDonald, having some familiarity with the sailboat racing community, purchased Aquila in order to join the IOR fleet racing out of the Royal Vancouver Yacht Club.

[4] Gordon and McDonald knew one another through their common interest in racing sailboats based at the Royal Vancouver Yacht Club. Gordon owned and raced (and still owns) another sailboat against which McDonald had competed as a crew member, not as boat owner.

[5] Between March and December of 1992 Gordon was a crew member on Aquila during races in which Aquila competed. He became familiar with Aquila’s capabilities as a racing sailboat, and was also familiar with the IOR racing fleet in which Aquila competed.

[6] The parties disagree over how the subject of purchase of a half interest in Aquila by Gordon first came up. It is not necessary to resolve that question, as it is enough to say that Gordon did in fact purchase the half interest, for an agreed $50,000, by written agreement dated February 23, 1993. It is that contract on which Gordon now sues.

[7] The price was arrived at by the parties without benefit of either survey or independent valuation of Aquila. Gordon had wanted a survey, but decided to proceed without one because he was sufficiently comforted by the inclusion in the contract, which was prepared by his lawyer, of what he described in evidence as a “put option”, in case, he said, the boat broke down. This option would allow him to give notice, up to the anniversary of the purchase, that he wanted his money back. That clause is found at para. 8.13 of the contract:

Purchaser’s Option to Sell.

The Purchaser has the option, irrevocable within the time herein limited for its exercise, to sell his Interest to the Vendor for an amount equal to the Purchase Price notwithstanding the condition of the Vessel at that time. The option shall be open to the Purchaser to exercise effective the first anniversary date of the Closing. The option must be exercised by delivering a written notice to the Vendor before the first anniversary date of the Closing and the sale of the Purchaser’s Interest shall be completed within thirty (30) days after the first anniversary date of the Closing. Time shall be of the essence of the completion of the sale of the Purchaser’s Interest to the Vendor. [emphasis added]

[8] The emphasized phrase is central to Gordon’s claim for damages for breach of contract.

[9] For some time after the sale of the one-half interest by McDonald to Gordon the two did not sail together. McDonald was ill and Gordon had Aquila to himself. In May of 1993 however, an annual series of races held on Wednesday evenings began, and Gordon and McDonald began to sail together. It rapidly became apparent, to McDonald at least, that the two were not compatible shipmates. By the end of June 1993 McDonald had concluded that he could not sail with Gordon, and told him so. The circumstances under which the arrangement broke down, the reasons for McDonald’s decision, the validity of those reasons, and the manner in which McDonald communicated his view of the breakdown and its consequences to the contractual relationship between the parties are all disputed. Gordon says that he met McDonald on the wharf just before the regular Wednesday evening race on June 23, 1993, at which time McDonald informed him that he was “out of the boat”, that McDonald did not want to race with him any longer and that he, McDonald, would “buy me out of the boat”.

[10] McDonald testified that when he concluded that the two could not sail together, he arranged to meet with Gordon at a restaurant near Gordon’s office, on the Saturday after a weekend race during which it became apparent to him that the two were incompatible. McDonald says at that meeting he and Gordon talked about the members of McDonald’s crew who had quit the vessel since Gordon came aboard, and McDonald told Gordon he did not enjoy sailing with amateurs, including Gordon. McDonald said Gordon was offended at being called an amateur sailor. McDonald said Gordon suggested that McDonald buy him out, and McDonald suggested the reverse, but no price was discussed.

[11] It is not necessary to decide which version of events of late June 1993 are correct in order to decide the matters in issue at trial. The differences in the versions have assisted me in determining the credibility issues that are central to the outcome. It is sufficient to say that it was abundantly clear that by late June 1993 the relationship between Gordon and McDonald had broken down, that it was McDonald’s decision to do something about it, and that it was McDonald who communicated that decision to Gordon.

[12] At around the middle of 1993 there were signs that the attempt to build a viable fleet of IOR racing vessels in Vancouver was beginning to founder. It would have been abundantly clear to both parties as experienced yachtsmen that if there were no viable racing fleet for Aquila, its value would be adversely affected.

[13] Both parties seemed to treat McDonald’s announcement toward the end of June 1993 as a termination of their co-ownership, not just of the arrangement whereby they raced together on Aquila. Gordon does not appear to have challenged McDonald’s right to unilaterally end the arrangement or to prevent Gordon from using the boat in which he had an equal ownership interest. When the relationship ended around the end of June 1993, so did the use of Aquila by either Gordon or McDonald, save for a cruise by McDonald at the end of 1993.

[14] Gordon remains registered as a 50% owner, represented by 32 shares in Aquila, to the date of trial. McDonald sold his 50% interest, represented by an equal 32 shares, to a Mr. Abbott (“Abbott”) in April 1999.

[15] The issue central to Gordon’s case at trial is whether he delivered the notice required to trigger his entitlement under clause 8.13 of the contract, before the anniversary of the contract. Gordon says he did, McDonald says he did not.

[16] Gordon commenced this action in January of 1995.

Issues

[17] The statement of claim as amended recites clause 8.13 of the contract and then states in para. 7:

The Defendant has failed and/or refused to purchase the Interest of the Plaintiff for the amount of Fifty Thousand $50,000.00) dollars as required by the Contract notwithstanding the demands of the Plaintiff.

[18] McDonald argues that this is insufficiently pleaded to permit an order in favour of Gordon because he has not pleaded breach of contract directly, has not pleaded as material fact that he exercised the option open to him in clause 8.13, or that he delivered the notice required under clause 8.13 of the contract. No objection was taken at trial to evidence tendered by Gordon that he had served the notice as required by the contract. I take that as indicating that McDonald was not taken by surprise by the assertion that notice had been delivered in a timely way.

[19] Gordon says that he personally delivered the notice, found at Tab 14 of Exhibit 1, to McDonald at his home in Delta, on the evening of February 22, 1994. McDonald denies having received that notice then or at any other time.

[20] McDonald pleaded, and argued at trial, that Gordon has been guilty of “… prolonged, inordinate and inexcusable delay in bringing this action and seeking the relief claimed herein …” and as a result McDonald has acted to his prejudice by his belief that Gordon did not intend to pursue his claim. McDonald argued at trial that Gordon’s claim was, by its nature, for specific performance and that he was therefore entitled to the benefit of equitable defences. McDonald also pleaded that Gordon acquiesced in the matters he complains of. The question therefore arises whether the equitable defence of laches is available to McDonald in this action.

Discussion

[21] I will deal first with several arguments advanced on behalf of McDonald that can be briefly disposed of.

[22] As to the sufficiency of Gordon’s pleadings, McDonald contends that before he has an obligation to repay pursuant to clause 8.13 of the contract, Gordon must deliver the notice required by that clause, and before he can be found to be in breach of any obligation under clause 8.13, Gordon must plead as an essential fact that the notice has been delivered, and then prove that fact at trial.

[23] While the failure to plead the essential fact might have been fruitful ground for McDonald to plough in pre-trial applications, or might have permitted timely objection to evidence of delivery of the notice at trial, it is not sufficient to defeat Gordon’s claim when raised in final argument. There has been no suggestion of surprise arising from the evidence, and no assertion of prejudice to McDonald. Both parties proceeded as though delivery of the notice had been pleaded. I would, if necessary, permit amendment of the statement of claim to assert delivery by Gordon of the notice required under clause 8.13 of the contract on February 22, 1994.

[24] McDonald has argued that the true nature of Gordon’s claim is one of specific performance. This arises from the claim for the $50,000 purchase price under clause 8.13 of the contract with no attempt to prove, or to lead evidence of, actual damages in that or any other amount. McDonald’s arguments based in laches and acquiescence depend on showing that Gordon is claiming equitable relief. Bank of Montreal v. Awards-West Ventures Inc. (1990), 50 B.C.L.R. (2d) 363 (B.C.C.A.).

[25] It does not appear to me that the claim of Gordon in this case is a claim to equitable relief; rather it seems to me to clearly be a claim for damages for breach of contract. I find that there is no evidence that McDonald has altered his circumstances to his prejudice so as to enable a finding that the prolonged delay has tipped the balance of justice away from McDonald, who is innocent of the delay, in favour of Gordon, whose inaction is the cause of the delay. That is the test as I understand it. The significant change in circumstances during the period of delay, being the sale by McDonald of his interest in Aquila to Abbott, has not led to any demonstrated prejudice to McDonald if Gordon were to succeed this long after his right to claim arose.

[26] McDonald also argues that the contract was frustrated by the inability of the co-owners to own and race Aquila together. Frustration, or the material facts necessary on which it could be argued, was not pleaded. In any event there is no evidence of external conditions, or events beyond the control of either party, rendering performance of contractual obligations impossible. On the authorities cited by McDonald such evidence is necessary to provide a foundation for a finding that the contract has been frustrated. I do not accept that submission.

[27] I now turn to the main question to be decided: whether Gordon has proved that notice was delivered as required under the contract, which on the facts of this case, is to be decided on a question of credibility.

[28] The reasons for the breakdown in the relationship between Gordon and McDonald are not particularly instructive nor does a review of the evidence given by each as to the reasons for the breakdown offer much assistance in making the necessary determinations on credibility. There is little by way of external circumstances against which the evidence of either party can be measured as in Statton v. Johnson, 1999 BCCA 170. I have as well considered the evidence of each as it might accord with or diverge from the probabilities raised by the whole of the evidence as in Faryna v. Chorny (1951), 4 W.W.R. (N.S.) 171 (B.C.C.A.).

[29] I accept that the relationship between Gordon and McDonald had irretrievably broken down by the end of June 1993.

[30] Has Gordon proved that he delivered the notice as required by the contract in time to invoke the provisions of clause 8.13? A determination of that issue requires a review of the relevant evidence, and a determination of the admissibility of some of the evidence led.

[31] Gordon testified that approximately a week before the anniversary date of the contract and the expiry of his right to trigger compulsory purchase by McDonald of his interest, he instructed his lawyer to prepare the necessary notice. He testified that on February 22, 1994 he received, by facsimile from his lawyer, the notice that appears at Tab 14 of Exhibit 1. Gordon said that he signed the copy he received, and then photocopied it one or more times. He says he drove to McDonald’s home on the evening of February 22, 1994 to deliver a copy.

[32] Gordon said that he knocked on the door, McDonald answered it, there was a short conversation and then McDonald invited him into the kitchen. Gordon recalled that the television in the living room was on very loud, that there was some kind of sports event on, and that he saw McDonald’s spouse, Ms. Jenkins, briefly, and that she saw him as he was on his way to the kitchen. He says Ms. Jenkins went to another room and they did not exchange any words.

[33] Gordon went on to say that in the kitchen he gave the notice to McDonald, telling him that it had been prepared by his lawyer. He then left, and as he was leaving, he believed he saw Ms. Jenkins again.

[34] Gordon said that shortly after he left the McDonald home, either while he was in his car or just after he arrived home, he wrote the brief note that appears on both versions of the notice in evidence, Tab 14 of Exhibit 1, and Exhibit 2.

[35] McDonald denied having received the notice on February 22, 1994 or at any other time. He says he first saw the notice at a discovery. He denied that Gordon was in his home February 22, 1994 or at any other time.

[36] Linda Jenkins is McDonald’s spouse. She testified that she had no recollection of Gordon ever being in her home, and no recollection specifically that he was at or in her home on the evening of February 22, 1994. She said Gordon had been to the property on other occasions, either visiting McDonald in his shop/home office some three hundred feet from the home, or hunting ducks, something McDonald had agreed he could do on their land.

[37] Counsel for Gordon spent a fair amount of trial time and effort controverting McDonald’s evidence on a number of matters. As I shall explain, some of this effort was on matters collateral to the issues at trial, while some was not. Where the evidence of McDonald and the evidence rebutting it was collateral, I have disregarded it.

[38] As examples:

· McDonald testified that he used most of the money he got from Gordon for the half interest in Aquila to buy a truck. His spouse, Ms. Jenkins, was cross-examined on the point and said Gordon’s money had gone toward the purchase of their property in Delta;

· McDonald testified that he used Aquila only once after he told Gordon their partnership was over in June of 1993. Gordon called a Ms. Gainer in rebuttal, without objection, and she testified that she had crewed on Aquila while it was being skippered by McDonald, in a race to Silva Bay in October 1993;

· McDonald testified that there was a counter offer made to or by one of the people who had shown an interest in buying Aquila, and that counter offer was communicated by a broker, Mr. Shield. Gordon called Mr. Shield as part of his case and Mr. Shield testified that there was no counter offer;

· Discovery evidence by McDonald was introduced to establish that McDonald did not have a copy of the document evidencing the sale of his interest in Aquila to Abbott. Abbott was called as a witness by McDonald and was asked about that in cross-examination by counsel for Gordon. Abbott said he had given a copy of the bill of sale to McDonald;

· McDonald testified that Abbott was introduced to the Aquila interest purchase by a broker named Huntingord. Abbott, again in cross-examination, disagreed;

· McDonald’s discovery was put to him in cross-examination to show that he had said that he had asked Abbott for copies of documents requested by Mr. Ashcroft, counsel for Gordon. Abbott in cross-examination by Mr. Ashcroft said he had not been asked, and if he had, he would have given copies of the documents to McDonald;

· McDonald testified that he thought that he and Ms. Jenkins had bought their Delta property in the fall of 1992. Ms. Jenkins was cross-examined by Mr. Ashcroft and it was established, through a copy of a real property title search, that the transfer of title was in March of 1993.

[39] These are some examples of inconsistencies demonstrated through collateral evidence. In Mack v. Century Insurance Company Limited et al. (1984), 57 B.C.L.R. 12 (B.C.C.A.) Anderson J.A. said at paras. 19 and 20:

As a general rule, the evidence of a witness, including a party, on collateral matters going only to credit is not subject to rebuttal.

The rule is set out in Phipson on Evidence, 12th edition paragraph 1607, as follows:

“ The test whether a matter is collateral or not is this: if the answer of a witness is a matter which you should be allowed on your own part to prove in evidence -- if it had such a connection with the issues, that you would be allowed to give it in evidence -- then it is a matter on which you may contradict him."

[40] Mack was a case where the credibility of the plaintiff was in issue and on the facts of the case, the opportunities to contradict the plaintiff on the matters in issue were far more restricted than they are in this case. The application of the principles set out in Mack to the evidence in this case persuades me that much of the contradiction of McDonald’s evidence relied upon by Gordon to persuade me that his evidence should be preferred to that of McDonald is based on collateral matters. Even though the collateral attacks took place without objection by McDonald’s counsel, I will not consider them to affect McDonald’s credibility, as they were inadmissible when tendered.

[41] Leaving aside the collateral attacks, then, I next consider what I can make of the notations on Tab 14 of Exhibit 1 and Exhibit 2. The notations that might assist are twofold: the facsimile header that states the name of Gordon’s lawyer’s firm and his facsimile number, and the notation of delivery Gordon says he put on the document shortly after delivery.

[42] The first, the facsimile header, was a matter on which there was no other evidence. To be admissible at all, it must be something of which judicial notice can be taken. To be proof that the document was sent by facsimile to Gordon by his lawyer, it must be shown to be both reliable and necessary. No attempt was made to show the basis on which the Court should accept the header as proof that it was transmitted on the date set out, by the law firm noted or from the number stated. I do not accept the notation as proof that it was sent on the date and at the time noted, by the law firm noted, or from the number noted. It is not necessary to consider whether the imposition of such information by facsimile machines is so notorious that proof of the facsimile process need not be offered because if the banner cannot assist in proving the fact of delivery to Gordon from his lawyer, on the date and at the time stated on the document, it is of no relevance to the issues.

[43] As to the notation Gordon says he put on the document soon after delivery of a copy to McDonald, I consider that to be inadmissible as self-serving. Gordon testified quite clearly about the delivery. No note made by him confirming that is admissible as there was no attack on his testimony on the basis of recent fabrication.

[44] Other evidence considered is the letter from Gordon’s lawyer at the time, Mr. Rabson, to McDonald on March 21, 1994. In that letter, Mr. Rabson states:

We are advised that on February 22 1994 our client served you with notice that he was exercising his option to sell his interest in Aquila I to you pursuant to paragraph 8.13 of the Vessel Purchase and Co-Owners Agreement made February 23, 1993.

[45] The letter states that it was sent by courier. McDonald testified that he never received the letter, that he recalled one occasion where a courier’s card was left in the door of the office/shop building on his property, that the card was multi-coloured, and that was the closest he had been to a courier in relation to this dispute. I was presented with no other evidence, whether from the lawyer or the courier, to prove delivery of this letter. I am not prepared to draw an inference adverse to McDonald from his failure to object to the assertion that delivery of the notice had been made in a timely fashion.

[46] A Mr. Raucourt testified that he raced as crew on Aquila, with McDonald at the helm, on June 23, 1993. He said he was surprised Gordon was not on board. He testified that he heard, from his position at the mast, McDonald say to another crew member “I will buy him out anyway.”, a phrase that caught his particular attention because, as a crew member introduced to Aquila by Gordon, it had consequences for his continuation on the boat. Given that one co-owner buying the other out was a logical alternative at the time, I put little weight on the snippet of conversation overheard by Mr. Raucourt, and nothing in my view turns on whether his evidence as to the timing of that episode enhances Gordon’s recollection of events to the detriment of McDonald’s.

[47] My observation of the demeanour of each of the parties left little to choose between them insofar as demeanour in the witness box can assist in determining credibility. I found Gordon to be evasive, argumentative, and defensive in his evidence. McDonald suffered from far too many internal contradictions, between his evidence on discovery and his evidence at trial, and within his evidence at trial, to give me great confidence in the accuracy of his memory. I am mindful that many of the apparent contradictions and inconsistencies in the evidence of each of the parties might properly be explained by the inordinate delay in bringing this matter to trial. It is not hard to understand the difficulties a witness or a litigant can have in recalling events ten or eleven years later, or in keeping straight the chronology of events that old. I do say that I find it more difficult to make allowances for frailties in the memory of a plaintiff who has delayed matters so, than for a defendant who has not insisted on moving things along.

[48] Another circumstance I have considered is that the original statement of claim in this matter, filed January 24, 1995, does not plead that the notice was delivered as required by the contract to trigger McDonald’s obligation to repay Gordon’s purchase price in full. It recites clause 3.1, which sets the purchase price, and clause 8.13, set out above. After asserting that Gordon paid as required, it states that Gordon supplied equipment and paid for moorage and has been denied the benefits of them, and then asserts:

7. The Defendant has failed and/or refused to purchase the Interest of the Plaintiff for the amount of $50,000.00 as required by the Contract notwithstanding the demands of the Plaintiff.

8. The Plaintiff remains ready willing and able to execute any forms necessary to cause his interest in the Vessel to be conveyed to the Defendant.

[49] Amendments to the statement of claim dated January 9, 2004 did not significantly change these material assertions.

[50] Having reviewed my notes of the evidence, and having weighed all of the evidence, not just those portions set out in these reasons, I am not persuaded, on a balance of probabilities, that Gordon delivered the required notice to McDonald in time to invoke the provisions of clause 8.13 of the contract. I do not accept Gordon’s evidence that he did so. That evidence, I find, does not accord with the probabilities raised by the whole of the evidence.

[51] It is improbable, in my opinion, that Gordon would be told he was out of a boat in which he had an equal ownership interest in June of 1993, and do little or nothing, at least that can be verified from admissible evidence of external circumstances, for a considerable time. During that time, while Gordon was, as he would have me believe, waiting to be bought out of his interest, he asked and was granted permission from McDonald to hunt ducks on his land. It is improbable that, if notice were delivered as required under the contract clause 8.13, Gordon would wait almost a full year before commencing what should have been a straightforward action to recover his purchase price, and then, in his statement of claim not plead a fact essential to his claim: delivery of the notice. It is improbable in my view, if Gordon had delivered the notice as he claims, that he would wait almost ten years to bring what should have been a straightforward action to trial. In short, McDonald’s evidence that he told Gordon they could not sail together, discussed with him who would buy the other out of the boat, and then waited while Gordon did nothing, fits better with the known circumstances than does Gordon’s.

[52] The action is dismissed with costs to the defendant on Scale 3.

“R.T.C. Johnston, J.”
The Honourable Mr. Justice R.T.C. Johnston

March 2, 2005 – Revised Judgment

Corrigendum issued advising that the counsel for the plaintiff was listed incorrectly as “S.P. Ashcroft”. The proper listing should be “S.H. Ashcroft”.

Citation:	*Gordon v. McDonald,*
	2005 BCSC 161