Case information

Contract — Nullity — Non-performance — Agreement for purchase of assets of toy company in situation of financial difficulty — Contract subject to condition that “planned transaction” be carried out, namely transfer of assets to purchaser — Company placed in receivership and eventually declared bankrupt — Purchaser seeking to have agreement annulled, while owner seeking to have it enforced — Whether transfer of assets occurred such that terms of agreement apply — Whether application for leave to appeal raises question of public importance.

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The applicant Sébastien Sirois and his company, the applicant Neon Buddha Ltd., entered into an agreement with the respondent, Kevin Richer, for the purposes of which Mr. Sirois and other companies controlled by him injected several million dollars into Wooky Entertainment inc. (“Wooky”), a toy company controlled by Mr. Richer that was in a situation of financial difficulty. If the parties were able to extricate Wooky from its situation, the agreement determined the terms of the partnership between Mr. Sirois and Mr. Richer for the continuation of Wooky’s operations (“Agreement”). Despite the sums invested by Mr. Sirois in conjunction with the Agreement, Wooky was placed in receivership and ultimately declared bankrupt. Mr. Sirois applied to have the Agreement annulled, while Mr. Richer claimed amounts that were still owed to him under the Agreement. The trial judge dismissed Mr. Sirois’s application to annul the Agreement. She found that there had been no induced error and that if Mr. Sirois had not been fully aware of Wooky’s poor financial situation, it was because of his own inadequate due diligence. With regard to the cross-application filed by Mr. Richer, the judge held that Mr. Richer was not entitled to the additional amounts claimed under the Agreement because the condition for the application of the contract had never been met. A majority of the Court of Appeal intervened to correct errors made by the trial judge in interpreting the Agreement, errors that it characterized as palpable and overriding. In the Court of Appeal’s view, the condition referred to in the Agreement had been met, with the result that Mr. Richer could claim amounts under the contract.