Executive Summary: Key Legal and Evidentiary Issues

• Procedural fairness was compromised when the application judge awarded restitution for unjust enrichment that had not been properly pleaded in the Notice of Application.
• The evidentiary record was inadequate to support unjust enrichment, with no proof of the extent of Royal Paan’s use of the assets, their value, or Foodies’ ongoing obligations to BMO.
• Judicial management of the hearing was overly restrictive, with the judge effectively foreclosing argument on unjust enrichment and limiting counsel’s ability to make submissions.
• The appellant was denied a fair opportunity to know and meet the case, as required by principles affirmed in Rodaro v. Royal Bank of Canada.
• Practical defects in the order arose because the judge directed payment to BMO without providing for vesting of the assets in Royal Paan, while BMO was poised to enforce its security.
• The Court of Appeal ultimately allowed the appeal, set aside the judgment, and awarded the appellant $22,500 in all-inclusive costs of the appeal.

Factual background and commercial context
Foodies Curry & Shawarma Inc. operated a restaurant in Oakville and owned various business assets, including chattels, equipment, and accessories used in the restaurant. On March 22, 2023, Foodies entered into a written agreement to sell its restaurant business assets to Royal Paan Leasing Ltd. for a purchase price of $260,000. The asset purchase agreement contained a warranty that the chattels, equipment, and accessories being sold were free of encumbrances. By the extended closing date of May 31, 2023, two chattels remained subject to personal property security registrations: one in favour of VendorLender Funding Corp. and the other in favour of the Bank of Montreal (BMO). Royal Paan had made clear that it was prepared to close if it received appropriate payout statements, as it was concerned that the secured debt might exceed the purchase price and that Foodies might not be able to clear the liens. Foodies discharged the VendorLender registration but did not provide either a payout statement or a formal undertaking regarding the BMO registration. Its proposal was to pay BMO out of the sale proceeds, but this was never reduced to a formal undertaking acceptable to Royal Paan. In light of the continuing BMO encumbrance and the absence of clear arrangements for its discharge, Royal Paan advised that it would not complete the purchase.

Possession of the premises and use of the assets
Despite refusing to close the asset purchase, Royal Paan ended up in possession of the restaurant assets. Around the same time that it negotiated the asset purchase agreement, Royal Paan also entered into a lease for the premises where Foodies had been operating its restaurant. When Royal Paan took possession of the leased premises on June 1, 2023, the restaurant assets remained on site, and Royal Paan took possession of them even though it had not completed the purchase. Foodies alleged that Royal Paan proceeded to use these assets for its own benefit without compensation. Other than an initial $15,000 deposit that had been placed in trust with a realty company, Royal Paan did not pay any of the $260,000 purchase price. Royal Paan, however, enjoyed the use and benefit of the assets, while Foodies may or may not have continued servicing the BMO-secured debt.

The application for specific performance and the late unjust enrichment theory
Foodies commenced an application in the Superior Court of Justice. In its Notice of Application, Foodies sought specific performance of the asset purchase agreement. In practical terms, it asked the court to require Royal Paan to complete the transaction and pay the agreed purchase price. At the hearing, the application judge concluded that Foodies had breached the agreement by failing to provide clear, unencumbered title to the assets, and therefore denied specific performance. The dispute then shifted, in oral argument, to an alternative theory: restitution for unjust enrichment based on Royal Paan’s alleged use of the assets without paying for them. This unjust enrichment theory had not been properly pleaded in the Notice of Application. The closest the pleading came was a bare allegation that Royal Paan was “unjustly getting enriched”, without articulating the standard elements of the cause of action—enrichment, corresponding deprivation, and absence of juristic reason.

Procedural handling of unjust enrichment at first instance
During the hearing, the application judge expressly questioned whether unjust enrichment had been pleaded at all, repeatedly pointing out that the Notice of Application did not set out the familiar elements of the cause of action. In an extended exchange with Foodies’ counsel (not the counsel appearing on appeal), the judge emphasized that the alternative restitutionary remedy had not been properly advanced on the pleadings. He eventually directed counsel to abandon that theory and focus solely on the pleaded remedy of specific performance, telling counsel in substance that the “only remedy” being sought was to compel Royal Paan to pay the purchase price. In that procedural context, counsel for Royal Paan did not make submissions on unjust enrichment. This was not a strategic choice, but a consequence of the application judge’s restrictive approach to the hearing, which was conducted more like a cross-examination of counsel than a conventional application, and left little room for responding submissions beyond the judge’s narrow questions.

Evidentiary gaps relating to restitution and the security interests
The record before the application judge did not contain the kind of evidence normally required to adjudicate unjust enrichment. There was no evidence of the extent or nature of Royal Paan’s actual use of the assets, what benefit (if any) it obtained from them, or the market value of those assets. There was also no evidence of whether Foodies had attempted to recover the assets from Royal Paan, nor was there a clear picture of Foodies’ ongoing obligations to BMO—specifically whether it continued to pay financing charges and what amount remained outstanding. Royal Paan, having had no advance notice that unjust enrichment would be in issue, had not addressed these matters in its affidavits. The Court of Appeal accepted the appellant’s submission that, given the judge’s unwillingness to entertain the unjust enrichment theory at the hearing, Royal Paan was effectively prevented from raising concerns about these evidentiary deficiencies or from attempting to fill them. Compounding the problem, although the application judge ordered that BMO be paid out of the proceeds, he did not provide for vesting of the assets in Royal Paan. On the appeal, fresh evidence showed that BMO was preparing to enforce its security over the very assets at issue, highlighting the practical incoherence of the order and its failure to resolve the underlying secured transactions problem.

The Court of Appeal’s analysis on procedural fairness and pleadings
On appeal, Royal Paan argued that it had been denied procedural fairness because the application judge ultimately granted relief based on unjust enrichment after having told the parties that such a claim was not properly before the court and would not be considered. The Court of Appeal agreed. It held that by finding in favour of Foodies on a claim that was not properly pleaded and that lacked an adequate evidentiary foundation, the judge deprived Royal Paan of its right to know the case it had to meet and its right to a fair opportunity to meet that case. The court relied on established authority, including Rodaro v. Royal Bank of Canada, for the principle that parties are entitled to clear notice of the issues and remedies that will be decided against them. The appellate court also criticized the manner in which the hearing had been conducted, noting that the judge’s unusually restrictive and interrogatory style undermined counsel’s ability to make necessary submissions. In these circumstances, the decision to award restitution for unjust enrichment amounted to a denial of procedural fairness and could not stand.

Outcome of the appeal and financial consequences
The Ontario Court of Appeal admitted the fresh evidence, allowed Royal Paan’s appeal, and set aside the judgment of the application judge in its entirety. The court emphasized that it was not deciding the merits of any restitutionary claim, nor was it preventing such a claim from being advanced in an existing action between the parties, where proper pleadings and a full evidentiary record could be developed. As a result of the successful appeal, the prior restitution/unjust enrichment award in favour of Foodies was vacated, and Royal Paan emerged as the successful party at the appellate level. The Court of Appeal ordered Royal Paan its costs of the appeal, fixed at $22,500 on an all-inclusive basis, and no other specific monetary award, damages or quantified restitution was granted; any further financial exposure or entitlement will depend on future proceedings, and any additional amounts ordered beyond the $22,500 in appeal costs cannot be determined from this decision alone.