Appeal-Judicial Review - Reasons Not Reflected in Pleadings. Bernier v. Kinzinger
In Bernier v. Kinzinger (Div Court, 2023) the Divisional Court allowed an appeal where the theory relied upon by the respondent was practically 'unpled', although here the proceeding was an application where no statement defence was required:
25. The appellant states that mutual rescission was not an issue raised by or argued by the parties before the application judge. It was a “novel legal theory” applied by the application judge, which “escaped the rigours of the adversarial process”. This, the appellant argues, raises issues of procedural fairness and substantive propriety of the application judge’s finding that the agreement had been rescinded.. R. v. Levely
30. An application judge’s interpretation of a contract is entitled to considerable deference in this court. However, when an application judge decides a matter on a basis that was not anchored in the pleadings, evidence, positions and submissions of the parties, principles of procedural fairness overtake principles of contractual interpretation: Union Building Corporation of Canada v. Markham Woodmills Development Inc., 2018 ONCA 401, para. 13. The following passage from the Court of Appeal’s decision in Rodaro v. Royal Bank (2002) 2002 CanLII 41834 (ON CA), 59 OR (3d) 74, para. 62 – was stated in respect to unargued theories of liability, but applies equally to unargued defences:
In addition to fairness concerns which standing alone would warrant appellate intervention, the introduction of a new theory of liability in the reasons for judgment also raises concerns about the reliability of that theory. We rely on the adversarial process to get at the truth. That process assumes that the truth best emerges after a full and vigorous competition amongst the various opposing parties. A theory of liability that emerges for the first time in the reasons for judgment is never tested in the crucible of the adversarial process. We simply do not know how Spence J.'s lost opportunity theory would have held up had it been subject to the rigours of the adversarial process. We do know, however, that all arguments that were in fact advanced by Mr. Rodaro and were therefore subject to the adversarial process were found wanting by Spence J.31. I appreciate that there is no formal statement of defence in an application. However, the parties filed extensive materials, including factums, and nowhere was the issue of mutual rescission mentioned. None of the cases relied upon by the application judge on this point were put to him by the parties. The application judge did not have the benefit of full argument from the parties on the impact of the sale of Northbud on the share acquisition agreement. In all of these circumstances, the application judge’s findings on the issue of mutual rescission are not entitled to deference in this court, and we are required to take a fresh look at the issue: Rodaro v. Royal Bank (2002) 2002 CanLII 41834 (ON CA), 59 OR (3d) 74.
39. The passage from Chitty highlights the procedural unfairness of deciding this case on the basis on an unargued ground. There was no express contract to rescind the agreement. The question of whether subsequent events rescinded, varied, or left the agreement essentially intact, is, at best, of “considerable difficulty” in this case. The parties did address this “considerable difficulty” before us, and we are persuaded the original agreement can be implemented, as originally agreed, with only minor adjustments.
In R. v. Levely (Ont CA, 2022) the Court of Appeal, here in a criminal case, considered the issue of the judge finding on a basis not advanced at trial:
 Generally, a trial judge is not limited to considering only the theory advanced by the Crown, but considerations of trial fairness may foreclose consideration of “[an] alternative base of liability inconsistent with the way the parties have conducted their respective cases”: R. v. R.H., 2022 ONCA 69, at paras. 19-20; R. v. Largie, 2010 ONCA 548, 101 O.R. (3d) 561, at para. 161, leave to appeal refused,  S.C.C.A. No. 460, and  S.C.C.A. No. 119. See also R. v. Lai, 2022 ONCA 344, at paras. 12-15. It is fundamentally unfair to convict a person on a basis of which they are unaware and to which they have not had an opportunity to respond, as it denies the right of an accused person to make full answer and defence: R.H., at para. 23.. RVR Concrete v. Windsor Wall Forming
In RVR Concrete v. Windsor Wall Forming (Div Court, 2022) the Divisional Court illustrated nicely how the Small Claims Court pleading rules differ from the Superior Court. Here the Divisional Court allowed a small claims decision based on unpled issues, a practice that would not have been allowed in the higher court:
Did the trial judge err in finding liability on a ground that was not pleaded or advanced by the parties?. Nicholls v. Zsiga
 In paras. 33-56 of its factum, Windsor Wall submits that the trial judge erred “by finding liability based on a ground that was neither pleaded nor advanced by the parties, … when he found that RVR Concrete was entitled to damages because of a ‘material change in the methodology.’” In particular, the appellant submits that the trial judge made an error of law “in finding liability based on a novel theory that was not pleaded, namely, a ‘material change in the methodology.’”
 There is no merit in this submission. Indeed, respectfully, the appellant’s argument fundamentally misapprehends the reasoning of the trial judge.
 As the contract between the appellant and respondent was never reduced to writing, the evidence before the trial judge as to the terms of the oral agreement was critical. At the trial of the action, three witnesses gave evidence before the deputy judge: Mr. Liburdi on behalf of RVR, Mr. Thompson on behalf of Windsor Wall, and Mr. Coupe on behalf of Essex Readymix. The trial judge had the benefit of hearing the witnesses’ viva voce testimony.
 In the course of his nine-page handwritten decision, the trial judge reviewed the two critical meetings when work to be performed by RVR was discussed and the parties’ understanding of what was to happen was shaped. The three witnesses who testified before the trial judge were all present at both of the two critical meetings.
 As reviewed above, the trial judge found that during the initial meeting in March 2015, the parties agreed that RVR was to be paid $0.63 per square foot of concrete. The trial judge expressly found that at the time the parties came to the agreement on the rate of payment to RVR, “none of the parties suggested that the substrate had to be protected while the cement floor was being poured,” and, as a result, the $0.63 per square foot of concrete rate to be paid to RVR was “not based on the fact that extra or special measures would be needed to protect the substrate.” The trial judge went out of his way to bring this point home in his decision, saying, that “what is important to note is that” none of the witnesses who testified before him said that there was any concern expressed at that initial meeting “about not being able to put cement trucks on the substrate.”
 To emphasize, the trial judge made a specific finding of fact that the price initially agreed upon was not based on any extra or special measures being needed to protect the substrate. There was an abundance of evidence before the trial judge to support that express finding of fact. It is entitled to high deference, and it has not been established, nor even suggested, by the appellant that the trial judge made any palpable and overriding error in making that finding of fact.
 However, as it turned out, precisely those conditions that the trial judge found did not underpin the agreement as to the price to be paid to RVR did, in fact, come to fruition. As it turned out, extra or special measures were in fact needed to protect the substrate. The Developer insisted on them at the second critical meeting, in mid-April 2015. It is clear that Windsor Wall agreed. Again, the trial judge made an express finding about the position taken by Windsor Wall at the second meeting. The trial judge found that: “Mr. Thompson, on behalf of Windsor Wall Forming, testified that the means and method of installing the concrete was to be other than using trucks on the substrate.”
 The trial judge, rightfully, was of the view that this was a significant change in the parties’ understanding of what was to happen. Again, he went out of his way to make clear to the parties that this was a significant change in the parties’ understanding, compared to their understanding at the time of contract formation. The trial judge expressly said: “[w]hat is important is that the Court accepts that this was the first time that [RVR] was told of this.” The original price was not based on any special measures having to be taken but, as it turned out, that was exactly what was thought to be needed – RVR was not to be permitted to use trucks on the substrate. Instead, the more expensive process of using motorized buggies was to be used. And it was in that vein that the trial judge concluded that, “this is a material change in methodology.”
 I would also pause to note that the trial judge made an express finding that Windsor Wall was well aware that this change in method would be a more expensive process. Again, Mr. Thompson testified on behalf of Windsor Wall at trial. The trial judge expressly found that, “Mr. Thompson admitted that using buggies would be a more expensive process.”
 Accordingly, the trial judge referred to the “material change in methodology” only to describe the significance of the change in the events, the parties’ understanding, and their agreement. He was in no way suggesting any novel theory of liability, as the appellant contends. It is not a “theory of liability” at all, novel or otherwise. It is not a cause of action. It is a description of the facts by the trial judge. It is the trial judge’s expression of the change in factual circumstances that occurred at the second critical meeting, in April 2015, as compared to the initial meeting. It is not a theory of liability; it is a description by the trial judge of the evidence before him. In short, it is a finding of fact.
 As I have said, in my view, the appellant’s argument, that is, that the trial judge’s finding that there was a “material change in the methodology” constitutes some theory of liability, fundamentally misapprehends the trial judge’s reasons for judgment.
 Given that the trial judge’s reference to the “material change in the methodology” was not some theory of liability or cause of action, it was not something that RVR was required to plead in its claim.
 Further, in considering Windsor Wall’s claim that the particulars of this claim were not specifically pled by RVR, I am mindful of the line of cases that have consistently held that a liberal and non-technical approach should be taken to pleadings in the Small Claims Court.
 Specifically, the courts have held that the rules surrounding parties’ pleadings in the Small Claims Court are less strict than those in other courts. In Kelava v. Spadacini, our Court of Appeal held that, “with respect to the pleadings, it has long been the case that a liberal, non-technical approach should be taken to the pleadings in Small Claims Court.”
 Our courts have also said that requiring “strict adherence to the rules of pleadings would be contrary to the role of the Small Claims Court in the administration of justice.” Our courts have instructed that a “liberal, non-technical approach should be taken to pleadings” in the context of the Small Claims Court.
 In 936464 Ontario Ltd. v. Mungo Bear Ltd., the court rejected the defendant/appellant’s argument that it was an error in law for a deputy judge of the Small Claims Court to have granted judgment based on quantum meruit when the claim, as pleaded, was one for breach of contract. In dismissing the appeal, Heeney J. of the Divisional Court very clearly said that the higher standards of pleading required in the Superior Court of Justice are simply unworkable in the Small Claims Court:
More important, though, is the fact that the case at bar was litigated in the Small Claims Court. The higher standards of pleading in the Superior Court are simply unworkable in the Small Claims Court, where litigants are routinely unrepresented, and where legal concepts such as the many varieties of causes of action are completely foreign to the parties. Essentially, the litigants present a set of facts to the Deputy Judge, and it is left to the Deputy Judge to determine the legal issues that emerge from those facts and bring his or her legal expertise to bear in resolving those issues. Relying on the Newfoundland Court of Appeal in Popular Shoe Store Ltd. v. Simoni, Heeney J. adopted that court’s “practical approach to the manner in which justice is and must be dispensed on a day-to-day basis in our Small Claims Court,” as follows:
A Small Claims Court judge has a duty, on being presented with facts that fall broadly within the umbrella of the circumstances described in the Statement of Claim, to determine whether those facts constitute a cause of action known to the law, regardless of whether it can be said that the claimant, as a matter of pleading, has asserted that or any other particular cause of action. Subject to considerations of fairness and surprise to the other side, if a cause of action has been established, the appropriate remedy, within the subject-matter jurisdiction of the court, ought to be granted. In any event, I find that RVR did in fact specifically plead these factual circumstances in its defendant’s claim. They are expressly laid out in paras. 19-24 of RVR’s pleading. In para. 20 of its pleading, RVR alleged that: “[d]ue to the condition of the subgrade, concrete buggies would need to be used to adequately pour the cement and apply the proper finish.” Paragraph 21 of the claim speaks to a meeting of the parties, i.e., the second critical meeting in April 2015. In para. 22, RVR alleges that it “advised all parties as to the additional costs that would be required to complete the concrete flooring under the new conditions.” [Emphasis added.] And in para. 23, RVR alleges, inter alia, that Windsor Wall approved the new fee schedule and agreed to compensate RVR accordingly.
 As such, there is no basis – at all – for Windsor Wall’s claim that it did not know of these allegations. There is no basis for Windsor Wall to claim that there was some fundamental unfairness in the process or that it was “denied the right to know the case it had to meet,” as it does in paras. 40-42 in its factum.
 In sum, the trial judge found that there was a “material change in the methodology” to be employed by RVR in the completion of its work under the contract. There was an abundance of evidence before the trial judge to support that finding of fact. As such, it is entitled to a high degree of deference. The appellant has not established that the trial judge’s finding was infected with palpable and overriding error, requiring an appellate court to intervene.
In Nicholls v. Zsiga (Div Ct, 2021) the Divisional Court considered on appeal based on the ground that the reasons below were decided on issues not pled or argued:
 It is well established that to decide a case on a basis never pleaded or raised amounts to a denial of procedural fairness.. Karasiewicz v. Collins
 In Garfin v. Mirkopoulos, 2009 ONCA 421 (CanLII), Sharpe J.A. wrote (at paras. 19 and 20):
Because the appellant did not plead that Mirkopoulos agreed with Crossen that he would pay the appellant’s legal fees, Mirkopoulos could not be expected to know that he should be prepared to meet that allegation. The trial judge erred in awarding judgment against him on a ground not pleaded and not litigated at trial. The Federal Court of Appeal offered a recent summary of the state of the law on the same principle in Tervita Corporation v Commissioner of Competition, 2013 FCA 28 at paras. 71-73:
It has been repeatedly held was held that it is inappropriate for a case to be decided on an issue not identified by the parties in the pleadings and dealt with at trial: see e.g. TSP-INTL Ltd. v. Mills (2006), 2006 CanLII 22468 (ON CA), 81 O.R. (3d) 266 (C.A.), at para. 35.
In the normal course of judicial proceedings, parties are entitled to have their disputes adjudicated on the basis of the issues joined in the pleadings. This is because when a trial court steps outside the pleadings to decide a case, it risks denying a party a fair opportunity to address the related evidentiary issues: Rodaro v. Royal Bank of Canada (2002), 2002 CanLII 41834 (ON CA), 59 O.R. (3d) 74 (C.A.) at paras. 60 to 63; Nunn v. Canada, 2006 FCA 403, 367 N.R. 108 at paras. 23 to 26; Labatt Brewing Company Ltd. v. NHL Enterprises Canada, L.P., 2011 ONCA 511, 106 O.R. (3d) 677 at paras. 4 to 9 and 21.
However, this does not mean that a trial judge can never decide a case on a basis other than that set out in the pleadings. In essence, a judicial decision may be reached on a basis which does not perfectly accord with the pleadings if no party to the proceedings was surprised or prejudiced: Lubrizol Corp. v. Imperial Oil Ltd., 1996 CanLII 4042 (FCA),  3 F.C. 40 (C.A.) at paras. 14 to 16; Barker v. Montfort Hospital, 2007 ONCA 282, 278 D.L.R. (4th) 215 at paras. 18 to 22; Colautti Construction Ltd. v. Ashcroft Development Inc., 2011 ONCA 359, 1 C.L.R. (4th) 138 at paras. 42 to 47.
A trial judge must decide a case according to the facts and the law as he or she finds them to be. Accordingly, there is no procedural unfairness where a trial judge, on his or her own initiative or at the initiative of one of the parties, raises and decides an issue in a proceeding that does not squarely fit within the pleadings, as long as, of course, all the parties have been informed of that issue and have been given a fair opportunity to respond to it: Pfizer Canada Inc. v. Mylan Pharmaceuticals ULC, 2012 FCA 103, 430 N.R. 326 at para. 27; Murphy v. Wyatt,  EWCA Civ. 408,  1 W.L.R. 2129 at paras. 13 to 19; R. v. Keough, 2012 ABCA 14,  5 W.W.R. 45.
In Karasiewicz v. Collins (Div Ct, 2021) the Divisional Court noted that a trial judge's reasons, where they were not anchored in the pleadings, is an error of law:
 As the Court of Appeal for Ontario stated in Labatt Brewing Company Ltd. v. NHL Enterprises Canada, L.P., 2011 ONCA 511, 106 O.R. (3d) 677, at para. 5, interpreting an agreement on a basis not being advanced by the parties is an error: “[t]he problem is that this central conclusion was not anchored in the pleadings, evidence, positions or submissions of any of the parties.”
 Like in Labatt, the problem with the motion judge’s central conclusion here – that the respondents made a “mistake” by not limiting or revoking their offer when circumstances changed – is that this conclusion was not anchored in the motion records, evidence, or the positions/submissions of either party.