In Foodies Curry & Shawarma Inc v Royal Paan Leasing Ltd, 2026 ONCA 26, the Court set aside a judgment of the Superior Court of Justice on grounds of procedural fairness. The judgment dismissed an application for specific performance of an asset purchase agreement but granted restitution on grounds of unjust enrichment. However, the restitution claim was not expressly requested in the Notice of Application and was raised for the first time at the oral haring. Based on the application judge’s interventions at the hearing, the defendant believed the restitution claim to have been foreclosed and made no submissions on the matter. In the circumstances, the Court held that the defendant was deprived of its right to know the case it had to meet and to meet that case.
Background – The plaintiff Foodies Curry & Shawarma Inc (“Foodies”) operated a restaurant. It entered into an agreement to sell its restaurant assets to defendant Royal Paan Leasing Ltd (“Royal Paan”). The agreement included a warranty that all chattels, equipment and accessories were free of encumbrances. By the closing date, two chattels remained encumbered. After unsuccessful attempts to resolve the matter, Royal Paan announced it would not proceed with the purchase. In the interim, Royal Paan concluded a lease through which it took possession of the premises where Foodies had operated a restaurant and where the restaurant assets were located. It thereby took possession of the assets.
Foodies brought an application for specific performance of the asset purchase agreement, essentially seeking payment of the purchase price. At the oral hearing, counsel for Foodies added a claim in restitution for unjust enrichment based on Royal Paan’s use of the restaurant assets.
The application judge objected to the restitution claim because there was no request for restitution in the Notice of Application. In its reasons, the Court of Appeal highlighted the following exchange between the application judge and counsel for Foodies concerning its restitution claim:
“The Court: [F]orget about that … let me do this because I – the horse is dead and it’s gone to heaven. The only remedy you’re seeking is specific performance. You want Royal Paan to pay you the money that is due under the agreement of purchase and sale.
Counsel: Yeah.”
Given this exchange, Royal Paan made no submissions on the restitution claim.
First instance judgment – The application judge dismissed the application for specific performance because of Foodies’ breach of the asset purchase agreement in failing to deliver the assets without encumbrances. It, however, granted Foodies’s restitution claim for unjust enrichment based on Royal Paan’s use of the assets.
Appeal – Royal Paan appealed the judgment on grounds that its right to procedural fairness was violated.
The Court of Appeal set aside the judgment. It determined that the manner in which the application judge proceeded was procedurally unfair and prejudicial to Royal Paan.
In its analysis, the Court of Appeal noted the following factors:
- The Notice of Application did not contain a request for restitution;
- The factual record that would have been required to adjudicate a claim of unjust enrichment was not before the court;
- The application judge appeared disinclined to hear submissions outside the confines of his questions to counsel; and
- The judge had given the parties a clear message (excerpted above) that he was not willing to consider the restitution claim.
The Court held that the application judge’s finding on the basis of a claim that was not properly pleaded and in respect of which insufficient evidence was led, deprived Royal Paan of “the right to know the case they had to meet and the right to a fair opportunity to meet that case” (citing Rodaro v Royal Bank of Canada, 2002 CanLII 41834 (ONCA).
Commentary:
First, though the decision on appeal does not arise from arbitration, arbitral awards are also subject to set aside on grounds of procedural fairness (see Arbitration Matters #704 – Myriam 2022 Hot Topic: Procedural Fairness in International Arbitration ). For example, art. 34(2)(a)(ii) UNCITRAL Model Law states that an arbitral award may be set aside by a court if the party making an application was “unable to present his case”. Accordingly, the factors considered by the Court of Appeal in determining that Royal Paan was denied its right to procedural fairness are relevant to set aside of an arbitral award.
Second, this case underlines the importance of recording arbitral proceedings. The Court of Appeal’s decision relied heavily on evidence relating to the application judge’s interventions during the hearing, and in particular on his clear indication to the parties that he would not consider the restitution claim.
Recordings are a matter of course in the Canadian court system. But in arbitration, especially ad hoc arbitration, recordings must be provided for and arranged by the parties. Though recording apparatus and services are an additional expense, they may prove invaluable. Indeed, a party seeking set aside of an arbitral award on grounds of procedural fairness under art. 34(2)(a) UNCITRAL Model Law must furnish “proof” in support of its application. The arbitral mandate, terms of reference, the award, as well as the originating documents and other proceedings can support a claim of procedural unfairness. This case demonstrates that hearing transcripts are also in some cases useful evidence to prove a denial of natural justice.
Third, the Court of Appeal’s reference to the application judge’s interventions during the hearing are of note. The Court stated that the “application judge was, to an unusual degree, disinclined to hear submissions outside of the narrow confines of his questions to counsel”. This appeared to excuse Royal Paan from having omitted to raise with the judge that there was insufficient evidence on the record to support a restitution claim after Foodies had raised restitution at the oral hearing. On the other hand, in another case, “vigorous” interventions made by an arbitrator were lauded as an indication that the arbitrator was “deeply invested, engaged” (see Arbitration Matters # 632 – “Vigorous” intervention and “difficult”, “incisive” questions by arbitrator not bias). The limits of intervention by a judge or arbitrator, if any, will of course depend on the specific circumstances of each case. The Court of Appeal’s analysis in this case suggests that interventionism which projects an unwillingness to hear argument could provide the basis, at least in part, for set aside based on a violation of natural justice.