Canada: Location Matters: Superior Court Rescinds A $95,000 Contract For Toronto Maple Leafs' Season Tickets

In the recent decision TMJ Hygiene Service Corporation v Aces Capital Inc.,1 Monahan J. rescinded a $95,000 contract for the sale of two seat licenses at the Air Canada Centre. Justice Monahan found that the vendor, Aces Capital Inc. ("Aces"), misrepresented the location of the tickets associated with the seat licenses to the purchaser, TMJ Hygiene Service Corporation ("TMJ").

Background

A personal seat license, which is an asset that can be bought for a one-time fee and held indefinitely, is a paid license that entitles the holder to the exclusive right to buy seasons tickets for a certain seat in a stadium. The license holder can sell the seat license if they no longer wish to purchase season tickets.

In the summer of 2017, Teresa Galle and her husband made the decision to purchase two seat licences for Leafs and Raptors season tickets through their company, TMJ. The couple wanted to buy the seat licenses to give away hockey and basketball tickets to TMJ's referral sources, employees and suppliers, and also for their personal use.

During their search, Mrs. Galle came across an advertisement posted by Daniel Seca, the president of Aces, on Kijiji.ca for the sale of licenses for Leafs and Raptors tickets. Before purchasing the seat licenses, Mrs. Galle and Mr. Seca spoke over the phone, over text message, and in person. During their correspondence, Mrs. Galle inquired about the location of the Leafs seats and, in particular, whether they were closer to section 109 (towards the centre of the ice) or section 111 (towards the corner). On July 25, 2017, Mr. Seca confirmed by a text message that the seats were on the aisle closer to section 109, the centre ice side of section 110. Later that evening, Mr. Seca met with Mrs. Galle and reassured her that the seats were on the aisle closer to section 109.

On July 26, 2017, Mrs. Galle met Mr. Seca to finalize the purchase of the seat licenses. At this meeting, Mrs. Galle asked Mr. Seca to reconfirm the location of the seats, which he did. Following these representations, Mrs. Galle agreed to purchase the seat license for $95,000 plus HST and provided a cheque for $107,305.

In early September 2017, the Leafs tickets for the 2017-2018 season were sent to Mrs. Galle. At this point, Mrs. Galle realized that the seats were closer to section 111 rather than section 109, contrary to Mr. Seca's representations. Accordingly, Mrs. Galle contacted Mr. Seca to inform him of the error and to request a refund. Mrs. Galle refused to sign the license transfer application transferring title to the seat licenses from Aces to TMJ.

Mrs. Galle and Mr. Seca were unable to resolve the dispute over the seat licenses. TMJ brought a motion under Rule 14 of the Rules of Civil Procedure seeking a declaration rescinding the agreement for the purchase of the seats. TMJ also sought an order for damages as against Mr. Seca for the misrepresentation.

Analysis

Rescission

An innocent party who is able to establish that an agreement was induced by a material misrepresentation may seek the remedy of rescission, which involves an unwinding (or setting aside) of the contractual relationship between the parties. However, the innocent party is only entitled to rescission if the misrepresentation is substantial or "goes to the root of the contract."

Justice Monahan found that the misrepresentation regarding the location of the seats was material and went to the root of the contract. Mrs. Galle clearly communicated her concern over the seat location to Mr. Seca throughout the negotiations and Mr. Seca expressly represented verbally and in writing that the seats were closer to centre ice rather than the corner.

Although there are a number of limitations or "bars" to recessionary relief, including (1) a lack of prompt actions by a plaintiff; (2) the acquisition of rights by innocent third parties; and (3) the impossibility of restoring the parties to their pre-contractual position, Justice Monahan found that these limitations did not apply to the within transaction.

Justice Monahan held that the circumstances made it practical just to order the rescission of the contract. TMJ was induced to enter into a contract through the misrepresentation of Mr. Seca. Moreover, the contract for the seat licenses was never fully executed since TMJ refused to sign the transfer agreement and Aces continued to hold title to the licenses. Accordingly, it was possible to restore the parties to their pre-contractual position by requiring Aces to refund the purchase price.

Damages

Monahan J. ruled that he did not have the jurisdiction to award damages in a Rule 14 application. Rule 14.05(3)(h) authorizes an application where the relief claimed is "in respect of any matter where it is unlikely that there will be any material facts in dispute."

Based on the facts, Monahan J. recognized that the material facts in the context of the tort claim for negligent misrepresentation were in dispute between the parties. As such, ordering an award of damages for the claim of negligent misrepresentation was beyond the jurisdiction of the Court pursuant to Rule 14.05(3).

Notwithstanding, Monahan J. was mindful of the general principles that the Rules are to be "liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits." Justice Monahan was also mindful of the Supreme Court of Canada decision in Hryniak v Mauldin2 which held that a "culture shift" is required in civil litigation to create an environment promoting timely and affordable access to the civil justice system. Given these important considerations, Monahan J. seized himself of the matter and ordered a mini-trial on the tort claim if the parties wished to proceed on that basis.

Conclusion

The ruling in TMJ reaffirms that the doctrine of rescission is available as a remedy for negligent misrepresentation when the misrepresentation is substantial or "goes to the root of the contract."

The ruling also reinforces the Court's recognition that a "culture shift" is required in civil litigation to increase access to justice. This is evident in Monahan J.'s decision to order the proceeding to be treated as an action so that the plaintiff could have access to the summary judgment procedures under Rule 20. Moreover, Monahan J. seized himself of the issue in order to save judicial time and to provide predictability to the parties.

It may be hard for some to fathom that hockey tickets being slightly to the corner rather than centre ice would be material, let alone the "root" of the contract. That being said, words matter. Location matters. Promises matter. As the playoff season approaches, ticket vendors should be aware of the promises they make regarding the location of the seats they sell.

Footnotes

1 2018 ONSC 1572 [TMJ].
2 2014 SCC 7 [Hryniak].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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