Seip & Associates Inc. v. Emmanuel Village Management Inc., 2009 ONCA 222

CITATION: Seip & Associates Inc. v. Emmanuel Village Management Inc., 2009 ONCA 222

DATE: 20090313

DOCKET: C48308

COURT OF APPEAL FOR ONTARIO

Gillese, MacFarland and LaForme JJ.A.

BETWEEN

Seip & Associates Inc.

Plaintiff (Respondent)

and

Emmanuel Village Management Inc., Emmanuel Village Homes (Kitchener) Inc. and Emmanuel Village Residence Inc.

Defendants (Appellants)

Ross Earnshaw, for the appellants

Paul J. Pape, for the respondent

Heard: January 28, 2009

On appeal from the judgment of Justice James A. Ramsay of the Superior Court of Justice dated January 18, 2008, and reported at 2008 ONSC 4788, 44 B.L.R. (4th) 287.

Gillese J.A.:

[1] This is an appeal from a judgment in which damages were awarded for breach of contract. It raises two issues: whether the contract was properly enforceable against a non-party and whether damages were properly quantified.

[2] For the reasons that follow, I would allow the appeal in part and vary the quantum of damages.

BACKGROUND

[3] Strangers to this litigation had a dream of constructing town homes and a retirement apartment residence on lands adjacent to Emmanuel Bible College in Kitchener, Ontario (the “project”). They incorporated Emmanuel Village Homes (Kitchener) Inc. (“EVH”) as a vehicle for realising that dream.

[4] By late 1999 or early 2000, EVH had run into financial difficulty and accumulated $2,000,000.00 of debt. The EVH Board of Directors hired Brain Hunking, as a consultant, to help with the project.

[5] By the end of 2000, Hunking had agreed to buy the EVH shares and assume responsibility for financing and completing the project. As Hunking was employed fulltime elsewhere, he sought someone to be his ‘eyes and ears’ on the site, and was introduced to Robert Seip. Hunking employed Robert Seip to assist, as a consultant, on a short-term basis for the spring and summer of 2001.

[6] The original agreement between Hunking and Robert Seip was oral. It was made more formal pursuant to a letter dated April 3, 2001, which Robert Seip drafted. At the time, Robert Seip was operating as a sole proprietorship under the name and style of Seip & Associates.

[7] By the autumn of 2001, it had been decided that the town homes and the retirement apartment residence would be operated as two distinct business entities. Consequently, title to the property was severed and, on October 25, 2001, Emmanuel Village Residence Inc. (“EVR”) was incorporated. EVH conveyed to EVR, title to the retirement apartment residence and the property on which it stood. The intent was that EVH would operate the town homes and EVR would operate the retirement apartment residence.

[8] Shortly before, on about October 14, 2001, Robert Seip presented Hunking with a draft agreement that he had personally prepared (the “Original Draft Agreement”). Robert Seip is not a lawyer. He prepared the Original Draft Agreement with the intent that it would govern a long-term relationship between him and the then-unnamed entity or entities that owned the project’s lands and premises.

[9] The front page of the Original Draft Agreement appears as follows:

SEIP & ASSOCIATES

CONSULTING AND MANAGEMENT AGREEMENT

(name of owner)

(town or city and province)

October 14, 2001

[10] Hunking consulted a lawyer about the Original Draft Agreement. The lawyer produced a different draft agreement (the “McGowan draft”). Hunking presented Robert Seip with the McGowan draft in December 2001. Robert Seip flatly rejected it. He insisted that the Original Draft Agreement be used but agreed to make certain revisions to it. Robert Seip then prepared a further draft. The revisions were made in italicized type.

[11] In January 2002, Emmanuel Village Management (“EVM”) was incorporated for the purpose of being a signatory to the agreement.

[12] The revised agreement was executed on February 5, 2002 (the “Contract”). The revisions from the Original Draft Agreement are apparent in the Contract because they remain in italicized type.

[13] The front page of the Contract appears as follows:

SEIP & ASSOCIATES INC.

CONSULTING AND MANAGEMENT AGREEMENT

WITH

EMMANUEL VILLAGE MANAGEMENT INC. & EMMANUEL VILLAGE HOMES (KITCHENER) INC.

January 27, 2002

[14] The front page of the Contract is followed by a table of contents. The page thereafter reiterates the contents of the front page, showing EVM and EVH as the “Owner” and Seip & Associates Inc. as the “Consultant” or “Manager”. In addition, this page shows that the agreement was made as of January 1, 2002.

[15] The signature page of the Contract has provision for only two signatures. The first is for Seip & Associates Inc. (“Seip”), the successor to the sole proprietorship Seip & Associates. The second is for EVM.

[16] Robert Seip placed his signature next to the words “Seip & Associates Inc.” on the signature page of the Contract. He is Seip’s sole officer, director, shareholder and employee. Hunking signed next to the words “Emmanuel Village Management Inc.” on that same page. Hunking is the principal of EVM, EVH and EVR.

[17] Under the terms of the Contract, Seip was to provide consulting services during the construction phase of the project and management services thereafter. The Contract stipulated that it was to commence on January 1, 2002. The “Initial Term” was defined as a term of 5 years, beginning on January 1, 2002. The Contract could be indefinitely renewed by means of extensions. “Secondary Term” was defined as the term subsequent to the Initial Term plus any extensions thereof. Seip was to be paid a flat monthly fee of $6,000 while providing consulting services and then, when providing management services, a percentage of gross income from the project, subject to a minimum of $6,000 per month.

[18] On December 1, 2004, in anticipation of the project’s sale to a third party, Hunking terminated the Contract. The Contract provides that the owner may sell the facility but that the Contract will survive any such sale and the purchaser is obliged to deliver written acknowledgement of its agreement to assume, on a joint and several liability basis, the liabilities and obligations of the owner. Hunking made no effort to have the third party purchaser assume the Contract.

[19] Seip sued EVM, EVH and EVR (the “defendants”) for damages for breach of contract. It also sought punitive damages, based on allegations that Hunking told numerous third parties that the Contract had been terminated for cause, including Seip’s poor or improper management.

[20] The basic thrust of the defence was that the Contract had been terminated for cause. The defendants maintained this position until the eve of trial. In addition, the defendants contended that EVH and EVR were not bound by the Contract because neither was party to it.

[21] After a three-day trial, the trial judge found that the defendants had breached the Contract. By judgment dated January 18, 2008, (the “Judgment”), the court ordered the defendants to pay Seip the principal sum of $458,193, plus pre-judgment and post-judgment interest. In a supplementary judgment dated February 8, 2008, (the “Supplementary Judgment”) the amounts of pre-judgment and post-judgment interest were fixed and the defendants were ordered to pay those sums in addition to costs, on a partial indemnity basis, of $68,000.

[22] The defendants appeal. They argue that the Contract was not enforceable against EVR, a non-party, and that damages were not properly quantified.

[23] Seip cross-appealed. However, at the oral hearing of the appeal, it advised the court that it did not intend to pursue the cross-appeal.

THE TRIAL DECISION

[24] In several places in the Contract, EVH and EVM are listed by name and described as the “Owner”. However, on the signature page, there is a signature line for only EVM. In the trial judge’s view, despite the fact that only EVM appeared on the signature page, there was “no doubt” that Seip had contracted with both EVM and EVH and that Hunking had signed the Contract on behalf of both. Accordingly, he found that EVM and EVH were parties to the Contract.

[25] EVR was not named in the Contract. In determining whether EVR was bound by the Contract, the trial judge began by considering article 11.2 of the Contract. Article 11.2 states that the owner may sell the project “provided that such sale is made expressly in accordance with and subject to” the Contract. It goes on to provide that such a sale does not relieve the owner of its liabilities and obligations under the Contract and that the purchaser “shall” deliver to Seip a written acknowledgment of its agreement to assume, on a joint and several basis with the owner, the liabilities and obligations of the owner under the Contract.

[26] Although EVH had conveyed the retirement apartment residence to EVR, the trial judge concluded that article 11.2 did not have the effect of binding EVR to the Contract because EVR had never made a written acknowledgement in accordance with the provisions of article 11.2.

[27] However, the trial judge went on to find that EVR subsequently bound itself to the Contract through its conduct. He found that after EVR became the owner of the retirement apartment residence “[t]he work continued as if nothing had changed”. EVR had the same principal as the two corporate defendants who were parties to the Contract. Seip signed cheques for EVR and was paid by EVR. EVR got the benefit of Seip’s work.

[28] The trial judge then considered the issue of damages. While Seip argued that it alone had the power to terminate the Contract, the trial judge held otherwise. He interpreted the Contract as also giving the owner the power to terminate the Contract at the end of a term. Thus, he had to decide what the word “term” meant. He noted that the commencement date of the initial term, as specified in the Contract, was January 1, 2002. He held that a secondary term must be taken to have commenced when the first occupant moved into the retirement apartment residence, which was March 2003, because at that point Seip would have been providing management services, rather than consulting services. He determined that each term, whether initial or secondary, was to be for five years. Accordingly, he was of the view that the secondary term ran from March 2003 to March 2008.

[29] Based on these conclusions, the trial judge held that Seip was entitled to damages for the amounts that it should have been paid from December 1, 2004 – the date on which the Contract was terminated – to March 31, 2008. He assessed damages for breach of contract at $458,193.

[30] Next, the trial judge considered whether to award punitive damages. He rejected Hunking’s contention that termination of the Contract was not motivated by the prospect of a sale of the property to a third party. He found that Hunking was an “unsatisfactory witness” and that there was no justification for firing Seip. In the trial judge’s view, Hunking appreciated Robert Seip’s “bulldog determination” in seeing that the retirement apartment residence was constructed but did not view it as an asset when Seip was managing the residence.

[31] The trial judge concluded that Hunking wanted to sell the property free of his obligations under the Contract and that was Hunking’s motivation for terminating the Contract. He found that Seip’s reputation had suffered from the termination and the defendants’ conduct thereafter. However, the trial judge was not satisfied that the defendants had defamed the plaintiff, either intentionally or unintentionally. In addition, while he thought the defendants’ conduct was “shabby”, he did not see it as sufficiently extreme as to warrant punishment. Accordingly, the trial judge declined to award punitive damages.

THE ISSUES

[32] The defendants raise two issues on appeal. Those issues are whether the trial judge erred in:

(1) holding that EVR was bound by the terms of the Contract; and

(2) his calculation of damages.

[33] The court called on Seip to respond only to the second issue.

WAS EVR BOUND BY THE CONTRACT?

[34] Counsel for the defendants argues that as EVR was not a party to the Contract, it cannot be held liable for damages for its breach. He submits that by observing that Hunking was the principal of all three corporate defendants, the trial judge effectively pierced the corporate veil and ignored the separate legal identity of each defendant.

[35] I disagree. While the trial judge noted that EVR had the same principal as the other two corporate defendants, it does not necessarily follow that the trial judge pierced the corporate veil. In my view, the trial judge treated Hunking’s role in the three corporations as one piece of evidence on which to assess whether EVR had assumed the Contract through its conduct and, consequently, was bound by it.

[36] I find it unnecessary to decide this issue based solely on an assessment of EVR’s conduct as, in my view, EVR accepted the Contract when it purchased the retirement apartment residence with full knowledge of the Contract, including article 11.2, and thereafter conducted itself as an owner in accordance with the terms of the Contract. Unlike the trial judge, I do not read the stipulation in article 11.2 that the purchaser provide written acknowledgement as a condition of the sale or of the purchaser’s assumption of the Contract. Rather, the stipulation appears to have been intended simply to provide Seip with evidence that the purchaser had assumed the role of an owner under the Contract.

[37] In the present case, while EVR did not give such a written acknowledgment, the role played by Hunking in the three corporate defendants, coupled with EVR’s conduct, was tantamount to such an acknowledgement and indicates that the parties had dispensed with the need for strict compliance with the stipulation in article 11.2. Indeed, Hunking’s evidence was that the sale to EVR was “congruent” and “consistent” with article 11.2.

[38] Hunking was the directing mind of all three corporate defendants. At the time that EVR purchased the retirement apartment residence, Hunking was well aware of article 11.2 in the Contract, the clear intent of which was to bind EVR, as the purchaser, to the terms of the Contract. EVR’s conduct, as found by the trial judge, shows that it accepted the Contract and, in addition to the other corporate defendants, accepted the role of owner under the Contract. Recall the trial judge’s finding that after EVR purchased the retirement apartment residence and the land on which it stood, Seip’s work for the retirement apartment residence continued as if nothing had changed. Seip operated EVR’s bank accounts. EVR accepted Seip’s services, which were performed under the Contract. EVR paid Seip for those services in accordance with the terms of the Contract. The conduct of all parties demonstrated a common intention that the Contract continued with EVR as an owner, in conjunction with the other corporate defendants.

[39] Accordingly, I would not give effect to this ground of appeal.

WHAT IS THE PROPER MEASURE OF DAMAGES?

The Parties’ Positions

[40] No one takes issue with the trial judge’s determination that just as Seip had the right to terminate the Contract at the end of any given term, so too did the defendants. Nor is there any quarrel with the trial judge’s finding that the defendants terminated the Contract on December 1, 2004, without cause. Further, there is no disagreement that the defendants are liable for damages for breach of contract from December 1, 2004, to the end of the term of the Contract. The only point that divides the parties is this: at what date did the term of the Contract end?

[41] The defendants say that the trial judge erred in finding that the term ended on March 31, 2008. They contend that the initial term of the Contract began on January 1, 2002, and ran for five years until December 31, 2006. Thus, they argue, they should be liable only for damages from December 1, 2004, when the Contract was terminated, until December 31, 2006, when they say the term ended. They maintain that if there is ambiguity in the Contract with respect to this matter, that ambiguity should be resolved against Seip because Seip drafted the Contract.

[42] Seip says the trial judge correctly concluded that the term of the Contract was to have ended in March 2008. It points out that the trial judge’s conclusion rests on his finding that the consulting term ended and a management term began in March 2003, when the first occupants moved into the retirement apartment residence. While Seip admits that the definition of “term” of the Contract (i.e. the duration of each of the initial and secondary terms) could have been clearer, it contends that the trial judge’s finding is consistent with the parties’ intention that the initial term of the Contract was to run during the construction phase of the project, during which Seip would provide consulting services. However, once construction was finished and residents had moved in, a secondary term of five years’ duration would begin, during which Seip would provide management services.

Analysis

[43] The Contract was drafted by a layperson, Robert Seip. It is not a model of clarity. In fact, it is very confusing. Nonetheless, in my view, the trial judge’s interpretation cannot stand for two reasons. First, the trial judge’s interpretation is based on a finding of fact which was not available. Second, it offends basic principles of contractual interpretation. I will deal with each reason in turn.

[44] The trial judge found that the parties intended the secondary term to begin when residents first moved into the retirement apartment residence and Seip began providing management services, rather than consulting services. However, in light of article 6 of the Contract, it was a palpable and overriding error to so find.

[45] Article 6 deals with the fees that Seip was to be paid. Article 6.1(a) provides that during the initial term of the Contract, Seip would be paid a monthly flat fee of $6,000. In article 6, that fee is termed the “Consulting Fee”. However, article 6.1(b) contains an example which explicitly shows that Seip would provide both consulting and management services during the initial term and that the initial term would run for five years. Article 6.1(b) reads as follows:

In consideration of its services hereunder, in each Management Year the Owner shall pay to the Manager or at such address as the Manager may direct, a management fee (the “Management Fee”) equal to the greater of $6,000 per month or 5% of Gross Revenue, plus G.S.T., which fee shall be paid on account in monthly instalments on the first day of each month for the preceding month. Adjustments with respect to any overpayment or underpayment of the Management Fee calculated as aforesaid for each Management Year shall be made on the basis of the annual financial statements as required by Article 4.1.1(b) hereof within thirty (30) days of the delivery thereof to the Owner unless within fifteen (15) days after receipt by the Owner of such statements the Owner requests in writing an independent review of such statement under Article 6.3 hereof in which case such adjustments shall be made forthwith upon such statement becoming final and binding. Adjustments shall be made by way of payment of the required amount.

The following insertion has been provided to give the reader an estimate of the consulting and management fees payable over the initial 5-year period. It is recognized that this is an example only using the projections in the Care Planning Report and will vary based on revenue and occupancy rates etc.

Year one:

(construction) $6,000 per month equals

$72,000 plus G.S.T.

Year two:

5% of gross income projected at $1,524,870

$76,243 plus G.S.T.

$6,000 per month until 5% of monthly income is greater than $6,000

Year three:

5% of year two projections $2,734,037

$136,702 plus G.S.T.

Year four:

5% of year three projections $3,046,586

$152,329 plus G.S.T.

Year five:

5% of year four projections $3,122,751

$156,138 plus G.S.T.

Manager will disclose to the owner third party transaction, if any from which he receives financial benefit. [Emphasis added; italicized portions in original.]

[46] It will be recalled that those parts of the Contract that differ from the Original Draft Agreement are in italicized type. Thus, the example in article 6.1(b) must have been inserted after the Original Draft Agreement was prepared. As is explicitly stated in article 6.1(b), the example was inserted to enable the parties to estimate the fees that would be paid in the initial five-year period. Whatever ambiguity is engendered by virtue of other provisions in the Contract, the example in article 6.1(b) speaks directly to the matter in issue. The fees in the example are expressly estimated on the basis that Seip would provide both consulting and management services during the “initial 5-year period”. In light of the specificity of the example in article 6.1(b), despite the difficulties created by the poorly drafted Contract, the parties’ intention is clear: Seip was to provide both consulting and management services during the initial five-year term. Consequently, as I have said, it was not open to the trial judge to find that once Seip began providing management services, a secondary term began.

[47] In any event, in my view, interpreting the Contract to provide that the initial term was to run for five years, followed by one or more secondary terms, each of a duration of five years, is consistent with basic principles of contractual interpretation. Before considering the relevant provisions of the Contract, it is useful to recall certain of those well-established principles. The “normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract”: see Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance, 1979 SCC 10, [1980] 1 S.C.R. 888, at p. 901. To the extent possible, the contract should be construed as a whole and effect should be given to all of its provisions. The provisions should be read, not standing alone, but in light of the agreement as a whole: see Hillis Oil & Sales Ltd. v. Wynn’s Canada Ltd., 1986 SCC 44, [1986] 1 S.C.R. 57, at p. 66.

[48] Article 1 of the Contract is entitled “Definitions and Schedules”. The relevant parts of article 1 read as follows:

WHEREAS The Owner as the registered owner of the Lands and Premises has agreed to employ Seip & Associates Inc. as the Consultant and Manager thereof upon the terms and conditions hereinafter set forth.

1.1 The terms defined in this Article 1 shall, for all purposes of the Agreement, have the meanings hereinafter specified, unless the context otherwise requires:

(e) “Commencement Date” means January 1, 2002;

(g) “Consulting Term” means the Initial Term plus any extensions thereof;

(l) “Initial Term” means a term of 5 years commencing on the Commencement Date and subject to extensions as provided in the Agreement;

(r) “Management Term” means the Secondary Term plus any renewal thereof;

(w) “Secondary Term” means the term subsequent to the Initial Term plus any extensions thereof;

[49] The definitions appear to specify the duration of the initial term in two different ways. On the one hand, “Initial Term” is defined by duration (five years). On the other hand, “Consulting Term” is defined to mean “Initial Term” and thus Initial Term could be defined by reference to the type of service that Seip was to provide. In light of the obvious confusion caused by such definitions, the trial judge can hardly be faulted for interpreting the term of the Contract by reference to the type of service Seip provided. However, when the definitions are read in conjunction with article 6, as discussed above, and article 5, it leads to the conclusion that the Contract was to run for an initial five-year term followed by secondary terms of five years, subject to earlier termination by any party. Article 5 reads as follows:

ARTICLE 5 – TERMS

5.1 The Consultant’s appointment hereunder shall be for the Initial Term subject to earlier termination as herein provided and any extensions thereto.

5.2 The Manager’s appointment hereunder shall be for the Secondary Term subject to earlier termination as herein provided and any extension thereto.

5.3 This Agreement shall be deemed to be automatically extended without any formal amendment for 5 years from the present or any future expiration date unless the Manager gives written notice to the Owner not less than ninety (90) days prior to any such expiration date notifying the Owner that a renewal will not be exercised or granted. It is understood that if the Manager gives such written notice or if this Agreement is terminated pursuant to any provision herein, there shall be no further renewal options. [Emphasis added.]

[50] There are two additional factors that support the interpretation that the Initial Term of the Contract was a period of five years, to be followed by one or more Secondary Terms of the same duration. The first is that this interpretation gives “term” its normal meaning of duration. The second is that, on this interpretation, the word “term” is given a consistent meaning throughout. Whether an “Initial” or “Secondary” term, each term of the Contract would run for five years. On the trial judge’s interpretation, however, “term” means two different things. He first interpreted the “term” of the Contract to be the period during which Seip provided consulting services. Thereafter, he interpreted “term” to mean the five-year duration of the Contract. On basic principles of contractual interpretation, unless the context dictates otherwise, words in a single document should be presumed to bear the same meaning throughout.

[51] It remains only to quantify the damages. Based on the interpretation that the initial term of the Contract was a period of five years, the initial term ran from January 1, 2002, to December 31, 2006. Relying on the uncontradicted calculations of Seip’s expert, Brad Lund, damages for the period December 1, 2004, (when the Contract was terminated) to December 31, 2006, (when the initial term ended) are assessed at $278,741.00.

DISPOSITION

[52] Accordingly, I would allow the appeal in part by varying paragraph 1 of the Judgment to provide that the defendants pay to the plaintiff the principal sum of $278,741.00, plus pre- and post-judgment costs based on that sum. I would set aside paragraphs 1 and 3 of the Supplementary Judgment. If the parties are unable to resolve the matters of pre- and post-judgment interest, they shall return to the trial judge for resolution of those matters. I would not alter the costs award below, as only the quantum of damages has changed as a result of the appeal.

[53] I would order the cross-appeal dismissed as abandoned.

[54] The parties agreed that costs of the appeal should be fixed at $15,000. In light of the divided success on appeal, I would award costs of the appeal to the appellants fixed at $7,500, inclusive of disbursements and G.S.T.

RELEASED: March 13, 2009 (“E.E.G.”)

“E.E. Gillese J.A.”

“I agree J. MacFarland J.A.”

“I agree H.S. LaForme J.A.”