Written Reasons by:
The Honourable Madam Justice Prowse

Concurred in by:
The Honourable Mr. Justice Donald
The Honourable Mr. Justice Low

[1] This appeal is one segment of an ongoing dispute between Native Citizens Fisheries Ltd., Donald Charles Yorke and Gale York ("NCF") and James Walkus and James Walkus Fishing Co. Ltd. ("Mr. Walkus" or "Walkus") originating in agreements made between the parties in 1983 (the "1983 agreements") with respect to two herring roe seine licences (the "licences"). The litigation between these parties commenced in November 1983 and has continued since then, except for a period between January 1991 and April 1997, when the parties pursued their dispute in another forum.

[2] NCF is appealing from the order of a trial judge, made January 24, 2000, dismissing its claims against Walkus for rescission of agreements entered into between the parties in 1985 (the "1985 agreements") to settle outstanding litigation between the parties. That litigation involved the interpretation of the "ongoing right of first refusal" (the "RFRs") contained in the 1983 agreements and the question of whether Walkus had exercised the RFRs in accordance with the terms of those agreements. Had rescission been granted, NCF sought an accounting by Walkus of all profits made by him under the licences since 1983.

[3] Walkus, in turn, has brought a cross-appeal with respect to the issue of costs.

[4] NCF alleges that the learned trial judge erred in:

[5] In the cross-appeal, Walkus alleges that the learned trial judge erred in failing to exercise her discretion, or, alternatively in failing to exercise her discretion judicially, in making her award of costs.

[6] The two licences in issue were purchased by Don Yorke and Gale York in 1977 for $10 each. In January 1983, the parties entered into written agreements whereby NCF leased the two licences to Walkus for the 1983 season with an option to lease for the 1984 season. The 1983 agreements also contained RFRs in favour of Walkus in the event NCF proposed to lease the licences for a term of more than one year.

[7] Walkus used the licences for the 1983 fishing season. Thereafter, a dispute arose between the parties as to the price to be paid by Walkus to NCF under provisions of the 1983 agreements relating to the sharing of profits from the herring catch. In November 1983, NCF commenced action against Walkus arising from this dispute seeking further payment under the 1983 agreements (the "Nanaimo action"). Walkus counterclaimed on the basis of alleged overpayment to NCF.

[8] The action was heard by Mr. Justice Gow. He rejected the parties' interpretations of the relevant provisions of the 1983 agreements and also rejected Walkus's claim for rectification. In the result, he awarded NCF $5,390.23 on the basis of quantum valebant (value of goods). His decision, rendered June 10, 1988, is reported at [1988] B.C.J. No. 1580 (Q.L.).

[9] On January 25, 1991, this Court upheld Mr. Justice Gow's decision in reasons reported at [1991] B.C.J. No. 3980 (Q.L.).

[10] In the meantime, a further dispute had arisen between the parties as to whether Walkus had properly exercised the RFRs under the 1983 agreements. As a result of this dispute, NCF commenced proceedings by petition against Walkus on June 14, 1985 seeking construction of the RFRs. Walkus responded by commencing an action on July 12, 1985 seeking specific performance of the RFRs. On August 15, 1985, counsel for Walkus prepared a special case to resolve all issues arising under both the petition and the specific performance action. Ultimately these actions were settled between the parties by two agreements entered into on October 25, 1985 (one agreement for each license). Under those agreements, NCF leased the licences to Walkus for a term of 99 years for a total consideration of $254,000. Consent dismissal orders with respect to the underlying actions were filed on November 1 and 7, 1985. (I will elaborate upon the factual background giving rise to the 1985 actions and their settlement later in these reasons.)

[11] Subsequent to the release of Mr. Justice Gow's reasons, Walkus commenced yet another action which ultimately resulted in the order under appeal. The action was commenced on August 3, 1988; the statement of claim was filed on December 19, 1989; Walkus obtained an injunction in the action on January 26, 1989; NCF's statement of defence and counterclaim were filed on January 18, 1990; the trial was heard in May and November, 1997; judgment was handed down dismissing NCF's counterclaim on July 27, 1998, and judgment was handed down granting the order of costs which is the subject of the cross-appeal on January 24, 2000.

[12] NCF's submission with respect to the validity of the 1983 agreements is based entirely on the effect of Mr. Justice Gow's decision in June 1988 and of the decision of this Court upholding Mr. Justice Gow's decision in January 1991. NCF submits that the inescapable inference from those decisions is that the 1983 agreements were so badly drawn that they did not constitute contracts in law, and, therefore, they must be set aside in their entirety. If they are set aside, then the RFR provisions in the agreements also fall. In that event, the 1985 settlement agreements relating to the RFRs are also invalid on the grounds that they were entered into on the basis of a mutual mistake; that is, the parties' mutual mistake that the 1983 agreements were valid. NCF describes this mistake as a mistake relating to the existence of a private right, rather than as a mistake of law.

[13] It is important to note that NCF did not refer to the 1983 agreements as a whole in support of this submission, but restricted its submission to the effect of the two court decisions to which I have referred.

[14] In my view, the decisions of Mr. Justice Gow and of this Court do not lead to the conclusion urged upon us by NCF. The only issue before the courts in those proceedings was an interpretation of clauses 3, 4 and 6 of the 1983 agreements relating to the splitting of profits. Neither party took the position that the 1983 agreements were not contracts. Rather, the dispute centred on a disagreement as to the meaning to be given to clause 4, in particular. In the result, Mr. Justice Gow found that the clauses relating to the splitting of profits were so badly drafted that they could not be said to support the interpretation placed upon them by either of the parties. He also found that Walkus had not provided the "clear and convincing proof" necessary to rectify the agreements to accord with his interpretation of the relevant clauses.

[15] In the result, Mr. Justice Gow based his award on the alternative ground pleaded by NCF, quantum valebant (erroneously referred to in the pleadings as quantum meruit). Mr. Justice Gow concluded that the "just, equitable and reasonable price" remaining owing by Walkus to NCF as profit was $5,390.

[16] NCF appealed and Walkus cross-appealed from Mr. Justice Gow's decision. Prior to the hearing, NCF abandoned its appeal. The hearing proceeded on the basis of the cross-appeal in which Walkus again urged his interpretation of the profit-sharing provisions on the Court.

[17] In discussing the 1983 agreements, this Court referred only to the first six clauses, and noted that "There follow clauses of no importance to the resolution of the issues before us . . . ." In other words, the very clauses which were the subject of the 1985 agreements relating to the exercise of the RFRs were not considered by this Court (nor by Mr. Justice Gow.) The focus in both courts was on the provisions of the agreement relating to the distribution of the profits arising from the herring catch, particularly clause 4. In the result, this Court concluded as follows (at p. 30):

[18] In the course of her reasons, Madam Justice Southin, speaking for the Court, made certain comments which are relied upon by NCF as constituting a finding that there was no contract between the parties. At p. 28 of the decision, in discussing Walkus's claim for rectification, Madam Justice Southin stated:

Immediately following this passage, Southin J.A. stated:

[19] In my view, in making these comments, Madam Justice Southin was doing no more than discussing possible inferences which might be drawn from Mr. Justice Gow's judgment. She was not purporting to interpret the 1983 agreements as a whole, or to rule on the validity of those agreements as contracts. Nor could she have done so, since there was no issue as to the overall validity of the contracts before either Mr. Justice Gow or before this Court. In particular, provisions of the agreements relating to the RFRs, which were clearly important terms of the agreements, were not before this Court in those proceedings.

[20] In essence, NCF is now asking this Court to draw an inference, from the inference drawn by Madam Justice Southin as to the possible implications of Gow J.'s judgment, that the 1983 agreements did not constitute contracts. Given the nature of the issue before the courts at that time, and the clearly obiter nature of the comments upon which NCF relies, I would not be prepared to draw such an inference.

[21] If NCF had wished to mount an attack on the validity of the 1983 agreements, it could have done so directly at an earlier stage of the litigation between the parties. In that event, the court would have analyzed the agreements as a whole, heard submissions of the parties directed to that issue, and come to a conclusion. That did not occur.

[22] In the result, I would reject NCF's invitation to find the 1983 agreements invalid. Since NCF's submission as to the validity of the 1985 agreements based on mutual mistake is premised on the assumption that the 1983 agreements did not constitute contracts, it must also fail.

[23] As earlier stated, the 1985 settlement agreements arose out of litigation between the parties as to whether Walkus had properly exercised his RFRs under the 1983 agreements. The relevant provisions of the 1983 agreements in that regard are clauses 15 and 18, which provide, in part:

[24] In early April 1985, NCF began negotiations with B.C. Packers Ltd. who were interested in leasing the licences. Ultimately the negotiations reached the stage at which B.C. Packers offered to lease the two licences for 99 years at $127,000 each. After consultation with Donald Yorke, Molly Yorke instructed NCF's lawyer, Mr. Thompson, to give notice to Walkus pursuant to the terms of the RFRs. Mr. Walkus was in Hawaii at the time. The two notices were posted in an envelope on the door of his home on April 19, 1985. The trial judge accepted evidence that Mr. Walkus's sister removed those notices from the door while Mr. Walkus was away and left them in a pile of papers on a table in his residence.

[25] Mr. Walkus returned home from Hawaii on April 23. The trial judge found, however, that Mr. Walkus did not see the notices until April 28 when his sister telephoned to ask if he had seen the envelope. The finding that Walkus did not see or become aware of the notices until April 28 is not challenged on this appeal.

[26] The trial judge also found that the notices were not "presented" to Walkus within the meaning of clause 15 of the 1983 agreements until he actually saw them on April 28. This finding is also unchallenged on this appeal.

[27] Following his review of the notices on April 28 (a Sunday), Walkus did the following to exercise his rights of first refusal to "purchase" both licences:

[28] In NCF's petition dated June 13, 1985 seeking construction of the RFRs, the statement of facts supporting the petition includes the following provision:

[29] In his affidavit sworn June 12, 1985, Mr. Donald Yorke swore that paragraph 16 was true.

[30] It was common ground between the parties at the time (and accepted by the trial judge) that "presentation" within the meaning of clause 15 of the 1983 agreements required that Mr. Walkus see or be made aware of the notices before they were effective and before the seven days for exercising the RFRs began to run. Since the trial judge found that Mr. Walkus did not see the notices until April 28, and since Walkus's notices exercising his RFRs were received by NCF on April 30, it might appear obvious that the RFRs were exercised within time. As events transpired, however, that which may have appeared obvious at the time became obscured by later information which did not come to the attention of NCF until shortly before the trial of this matter. This information was that, whereas Mr. Walkus had represented through his counsel, and in other ways, that he had not returned home from Hawaii until April 28, he had, in fact, returned on April 23. It is this fact which gave rise to NCF's allegations of fraudulent or innocent misrepresentation which, they alleged, should vitiate the 1985 agreements. In analyzing this issue, I will first set out the steps leading to the execution of the 1985 agreements.

[31] As earlier stated, NCF's petition for construction of the RFR provisions of the 1983 agreements (filed June 14, 1985) was followed by the issuance of an action for specific performance by Walkus (filed July 12, 1985) which, in turn, led to the preparation of a special case by counsel for Walkus with a view to resolving the issue concerning the exercise of the RFRs. During this period, NCF continued to negotiate with B.C. Packers who remained interested in purchasing the licences. It appears that NCF would have preferred to sell the licences to B.C. Packers rather than to Walkus. This is not surprising since NCF and Walkus were still engaged in the Nanaimo action with respect to the sharing of profits under the 1983 agreements. (For reasons best known to the parties, these actions were not consolidated, although both related to the interpretation of the 1983 agreements.)

[32] Discussions between NCF and Walkus continued and eventually resulted in a settlement whereby NCF was to "sell" the licences to Walkus on terms similar to those set out in the notices posted to Walkus's door on April 19, 1985. On October 24, 1985 one of NCF's counsel provided its other counsel, Mr. Thompson, with consent dismissal orders relating to NCF's petition and Walkus's specific performance action for signature. In the accompanying letter, these documents were referred to as "part of the transaction" to sell the licences to Walkus, which was set to close the following day.

[33] On October 25, 1985, the parties executed the 1985 agreements settling their actions.

[34] The consent dismissal orders were entered on November 1 and 7, 1985.

[35] Following the release of Mr. Justice Gow's reasons in June 1988, NCF endeavoured to revoke the powers of attorney granted to Walkus with respect to the licences, and the battle continued. Walkus commenced this action and obtained an injunction against NCF precluding NCF from interfering with Walkus's exercise of its rights under the powers of attorney.

[36] In its defence and counterclaim to Walkus's action, NCF alleged, amongst other things, that it had entered into the 1983 agreements through misrepresentation and as a result of a mistake. The misrepresentation referred to at that time related to the sharing of profits under the 1983 agreements. This claim was repeated in later amended pleadings and was dismissed by the trial judge. No appeal has been taken from that aspect of her decision.

[37] The claim for misrepresentation which is the subject of this appeal was raised for the first time in NCF's pleadings by virtue of amendments made November 3, 1997 pursuant to the order of the trial judge made during the trial. The relevant pleading is as follows:

(There is no plea specifically alleging either fraudulent or innocent misrepresentation.)

[38] This amendment followed the production by Mr. Walkus in May 1997 of extracts from his diary for the month of April 1985. It was those extracts which revealed to NCF for the first time that Mr. Walkus had returned home from Hawaii on April 23, 1985, and not April 28, 1985, as he had led NCF to believe.

[39] NCF submits that Mr. Walkus's representation that he had returned home from Hawaii on April 28, 1985, rather than on his true return date of April 23, 1985, was a material misrepresentation which induced NCF to enter into the 1985 agreements to their detriment and that, accordingly, the 1985 agreements should be set aside.

[40] The trial judge's findings relevant to this issue are set forth at paras. 39 and 40 of her decision:

[Emphasis added.]

[41] NCF has referred to numerous instances relating to the many proceedings between the parties between 1985 and 1997 in which Mr. Walkus represented, either directly, or through his silence, that he did not return home from Hawaii until April 28 and that it was then he saw the notices regarding the RFRs. All of that evidence was before the trial judge. She found that Walkus's actions, or inactions, in that regard were not fraudulent. In my view, there was evidence supporting her conclusion and there is no basis for interfering with it.

[42] In support of its alternative submission that the evidence supported rescission of the 1985 agreements on the basis of innocent misrepresentation, NCF submits that the trial judge applied the wrong test. NCF submits that the trial judge's reasons reveal that she considered only whether the misrepresentation was "fundamental" to NCF's decision to enter into the 1985 agreements, when the test she should have applied was whether the misrepresentation was "material" to that decision.

[43] In support of its submission that the proper test to be applied in assessing the significance of a misrepresentation in these circumstances is one of materiality, NCF relies on the decision of this Court in Kripps v. Touche Ross & Co. (1997), 33 B.C.L.R. (3d) 254, which dealt with allegations of fraudulent and negligent misrepresentation. At para. 85 of the Kripps decision, Mr. Justice Finch (as he then was), speaking for the Court, referred to various formulations of the test for materiality:

[44] In Kripps, the Court did not make any definitive statement as to which test applied, but concluded that, even applying the more stringent "would probably affect a decision" test, the misrepresentation in that case was material.

[45] In Kripps, as here, it was alleged that the trial judge erred in founding his decision on whether the misrepresentation was "fundamental", rather than on whether it was "material". The Court dealt with this submission at para. 104 of the decision, where Mr. Justice Finch stated:

[46] Walkus submits, first, that the trial judge used the word "fundamental" in relation to the issue of mistake, and not in relation to the issue of misrepresentation. In his view, misrepresentation was not clearly pleaded and the trial judge was not, therefore, bound to deal with it. In the alternative, Walkus submits that it does not matter whether the trial judge applied the wrong test for misrepresentation since NCF cannot establish that the representation made by Walkus as to his return date was material in any event.

[47] Walkus says that the representation made by Walkus that he did not get home until April 28 was clearly not material to NCF's decision to enter into the 1985 agreements since all parties agreed that the seven days to respond to the RFRs did not begin to run until Walkus actually saw the notices; he did not see the notices until April 28; and NCF received his letter exercising the RFRs on April 30. Even if one assumed (contrary to the unchallenged finding of the trial judge) that Walkus became aware of the notices on April 23, Walkus still would have exercised his right under the RFRs within time, since the evidence established that he took immediate steps to exercise the RFRs once he became aware of them.

[48] Walkus also submits that NCF has not established it suffered any detriment as a result of the representation as to Walkus's return date. In the event Walkus had not exercised the rights of first refusal in time, B.C. Packers was ready, willing and able to complete the sale of the leases on essentially the same terms. (B.C. Packers later accused NCF of reneging on their agreement.)

[49] In my view, it is far from clear from the passage quoted at para. 40 that the trial judge used the word "fundamental" as a test that applied to NCF's allegations of misrepresentation. I think it more likely that she was using the word "fundamental" in relation to the argument based on mistake, which was more clearly before her on the pleadings. In the result, however, I conclude that it makes little difference since I am satisfied that the misrepresentation by Walkus as to his return date was not material to NCF's decision to enter into the 1985 agreements.

[50] It is apparent from the evidence that the focus of the RFR discussions between the parties at the relevant time was on the date Walkus became aware of the notices, not on the date he returned from Hawaii. As it happened, NCF was led to believe that these two dates coincided, and Walkus did nothing to disabuse them of that belief. I am not persuaded, however, that Walkus's representation that he returned home on April 28 likely affected the decision of NCF to enter into the 1985 agreements. Or, to put it another way, I do not accept that if NCF had been advised prior to entering into the 1985 agreements that Walkus had returned from Hawaii on April 23, NCF would have declined to enter into the 1985 agreements or otherwise embarked on a different course of action.

[51] In coming to this conclusion, I am mindful of the evidence of Mr. Thompson, who testified at trial as follows:

[52] This evidence is not particularly helpful. First, it assumes that if Mr. Walkus had returned home on April 23, he would have seen the notices on that date. He did not. Secondly, Mr. Thompson was aware that NCF received Walkus's notice exercising his RFRs on April 30. If Walkus had returned home on the 23rd, seen the notices, and exercised his rights on that date, he would still have exercised them within the time provided for in the 1983 agreements.

[53] It may be that NCF's knowledge of Mr. Walkus's true return date may have made NCF even more suspicious of Walkus than it already was, but that does not lead to the conclusion that NCF would have refused to enter into the 1985 agreements. On the contrary, the other evidence available with respect to this issue indicates that there were many reasons militating in favour of NCF entering into the 1985 agreements when they did, despite their dislike of Walkus.

[54] First, the Yorkes had purchased a new boat in February 1985 upon which they had a substantial mortgage. Ms. Yorke wrote to Mr. Thompson on April 29, 1985 advising him that the purpose of the sale of the licences was to finance the purchase of their boat. Ms. Yorke resiled from this evidence to some extent at trial, but it was reinforced by a further letter she wrote to Mr. Thompson on October 3, 1985. In that letter Ms. Yorke emphasized that the Yorkes were in danger of losing their boat "as we are now unable to pay off the mortgage as anticipated by the sale of the licences."

[55] Secondly, Mr. Thompson and NCF's other counsel had advised the Yorkes that it may work to their advantage in the Nanaimo action if they were to sell the licences to Walkus. Apparently, this was on the basis that NCF's claim to profit-sharing was stronger if it could show that it had given Walkus a valuable right of first refusal reflected in the value of the licences.

[56] Thirdly, Mr. Thompson was clearly urging the Yorkes to settle because of the view Mr. Yorke had expressed to him that the value of licences was dropping.

[57] Fourthly, even though B.C. Packers Ltd. had continued to express an interest in the licences, it was far from certain that it would still be interested by the time the proceedings came to trial (assuming that NCF was successful in the action).

[58] Finally, the sale to Walkus was a "sure thing" and could be achieved without the further time, expense and delay of a trial.

[59] Thus, although NCF was far from enamoured with Walkus, there were many good reasons for it to enter into the 1985 agreements. These reasons, combined with the fact that, even if Mr. Walkus had seen the notices for the first time on April 23, his exercise of the RFRs was still within time, makes it highly unlikely that NCF would have done anything other than enter into the 1985 agreements.

[60] In the result, I am not satisfied that NCF was induced to enter into the 1985 agreements by a material misrepresentation by Walkus. It is unnecessary, therefore, for me to address Walkus's further submission that, in any event, NCF suffered no detriment.

[61] I would dismiss this ground of appeal.

(3) Compromise of an Honest Claim

[62] NCF submits that the trial judge erred in finding that the 1985 agreements were sustainable as a compromise of an honest claim. The essence of NCF's submission in this regard on appeal was that NCF did not receive valuable consideration for the 1985 agreements, but simply capitulated to Walkus. I disagree. In my view, there was clear evidence of consideration flowing to NCF by virtue of its entering into the 1985 agreements.

[63] Before NCF entered into the 1985 agreements it faced the spectre of a trial at an unknown future date with the attendant time and expense such a trial inevitably entails. At that time, according to its own lawyers' analysis of the case, NCF had little hope of success. By entering into the 1985 agreements, NCF obtained a further bargaining tool for use in the Nanaimo action, and it obtained payment for the licences when it needed the funds. NCF also obtained the dismissal of Walkus's action against them, without costs. All of these benefits constituted consideration supporting the 1985 agreements.

[64] In the result, I would also dismiss this ground of appeal.

[65] Walkus submits that the trial judge erred in failing to exercise her discretion with respect to the issue of the level of costs payable to Walkus, or, alternatively, in failing to exercise her discretion judicially in that regard. Walkus seeks an order remitting the issue of costs to the trial judge for further submissions.

[66] In its pleadings, Walkus asked for special, or, in the alternative, increased costs of the trial. As is often the case, no submissions were made with respect to costs at trial. At the conclusion of the trial, the trial judge requested written submissions from the parties. In its written submissions, Walkus requested that the matter of special or increased costs be spoken to upon suitable arrangements being made through the registry, and upon the filing of further written submissions.

[67] The trial judge dealt briefly with the matter of costs at para. 41 of her reasons for judgment in which she granted Walkus ordinary costs of 15 of the 17 days of trial. She granted NCF the costs of two days of trial on the basis that Walkus's deception as to his return date from Hawaii had extended the hearing to that extent. She invited counsel to make further submissions in that regard.

[68] Counsel contacted the registry to arrange a time to make further submissions with respect to costs. On November 18, 1999, the registry forwarded a memorandum directed to counsel headed: "Native Citizens Fisheries Ltd. v. Walkus & Others, Vancouver Registry C884030, Madam Justice Downs - Costs - 2 days". The memorandum provided, in part:

[69] In response to this memorandum, counsel for the parties prepared full submissions on costs, including submissions on special and increased costs. The day prior to the hearing, however, counsel for NCF forwarded a document to counsel for Walkus headed "Preliminary Objection Re Submission on Behalf of the Defendants". In that document, and in its oral submissions before the trial judge the following day, NCF took the position that Walkus should not be entitled to address special or increased costs, but only the two days of costs referred to by the trial judge in her reasons for judgment and in the heading of the November 18 memorandum sent to counsel. The trial judge gave effect to NCF's preliminary objection and refused to consider costs at large and, in particular, Walkus's submissions on special or increased costs.

[70] In my view, NCF's preliminary objection was entirely misconceived and should not have been given effect by the trial judge. It is an error in principle for a trial judge to refuse to permit counsel to address costs where counsel have not had the opportunity to do so and where they have requested that opportunity, as here. It is apparent that the issue of costs was a very significant one to the parties. This was a hard fought case and the actual legal costs of the parties appear to have approached the value of the herring roe licences. The transcript of the proceeding before the trial judge on costs indicates that she felt that she was precluded by the brief comments she made in her reasons for judgment with respect to costs from considering full submissions with respect to that issue. In my view, she erred in finding she was so constrained. It is apparent that her initial decision with respect to costs was made without the benefit of submissions.

[71] It is not uncommon for trial judges to provide for costs in their reasons for judgment, subject to further submissions by counsel. In most cases, costs follow the event and further submissions are unnecessary. In this case, however, it is apparent that Walkus at all times wished to make submissions with respect to special and increased costs. The trial judge erred in failing to give them this opportunity.

[72] I would allow the cross-appeal with respect to costs and remit the issue of costs to the trial judge for full submissions.

[73] I would dismiss the appeal. I would allow the cross-appeal and remit the issue of costs of the trial to the trial judge.

"The Honourable Madam Justice Prowse"

I AGREE:

"The Honourable Mr. Justice Donald"

I AGREE:

"The Honourable Mr. Justice Low"