Skye Properties Limited et al. v. Wu et al. Wu et al. v. Skye Properties Limited et al. [Indexed as: Skye Properties Ltd. v. Wu]

101 O.R. (3d) 401

2010 ONCA 499

Court of Appeal for Ontario,

Doherty, Cronk and Watt JJ.A.

July 12, 2010

Contracts -- Interpretation -- Appellants offering investment units in limited partnership for sale to public by means of offering memorandum -- Subscription price for each unit to be paid in part through "second secured loan" -- Terms of memorandum relating to payment of second loans apparently ambiguous as payment clause could be interpreted as requiring only payment of accrued interest on second loan at time of refinancing of first loan or as requiring payment of second loan, inclusive of outstanding principal and accrued interest, when that refinancing occurred -- Payment clause not ambiguous when read as whole, in light of circumstances surrounding offering and financing and refinancing provisions of memorandum -- Memorandum contemplating payment of accrued interest and outstanding principal on second loans when refinancing of first loans acceptable to parties was achieved -- That refinancing not occurring -- Investors not contractually obligated to repay second loans.

Torts -- Misrepresentation -- Reliance -- Appellants offering investment units in limited partnership for sale to public by means of offering memorandum -- Memorandum issued pursuant to "sophisticated investor" prospectus-exception then provided for under s. 71(1)(d) of Securities Act and Regulation -- Contractual rights clause in memorandum providing that if memorandum contained any misrepresentation at time of investor's purchase of partnership unit, investor was deemed to have relied on such misrepresentation and had right of action for damages or right of rescission -- Both rights requiring notice given to partnership within 90 days of payment for unit -- Contractual rights clause included in memorandum to conform with requirements of Act and Regulation -- Clause not conferring any greater rights on limited partners than those envisaged by Act and Regulation -- Limited partners not entitled to bring action for misrepresentation based on deemed reliance outside of 90-day notice per iod -- Securities Act, R.S.O. 1980, c. 466, s. 71(1)(d).

The appellants offered investment units in a limited partnership for sale to the public by means of an Offering Memorandum (the "OM"). The OM was issued pursuant to the "sophisticated investor" prospectus-exception then provided for under s. 71(1)(d) of the Securities Act and R.R.O. 1980, Reg. 910. The subscription price for each unit was to be paid for in part through a "second secured loan". The appellants ultimately sued the respondent investors for payment of the second loan. The respondents maintained that they were not required to pay that loan and also counterclaimed against the appellants for damages for alleged misrepresentations in the OM. The action and counterclaim were dismissed. The appellants appealed and the respondents cross-appealed.

Held, the appeal and cross-appeal should be dismissed. [page402]

The payment clause in the OM could be interpreted in two different and conflicting ways: as requiring only the payment of accrued interest on the second loan at the time of a refinancing of the first loan; or as requiring payment of the entire second loan, inclusive of outstanding principal and accrued interest, when that refinancing occurred. However, when the OM was read as a whole, in light of the circumstances surrounding the offering and the financing and refinancing provisions of the OM, the payment clause was not ambiguous. Properly read, the OM contemplated payment of accrued interest and outstanding principal on the second loans when a refinancing of the first loans acceptable to the parties was achieved. The promoters marketed the partnership investment on that basis, but that did not occur. The trial judge was correct to hold that the respondents were not contractually obligated to pay the second loans. If that conclusion was wrong and the payment clause was ambiguous, then the contra profer entem principle applied, and the clause had to be construed against the appellants in respect of the respondents' liability to pay the second loans.

The contractual rights clause in the OM provided that if the OM contained any misrepresentation at the time of an investor's purchase of a partnership unit, the investor was deemed to have relied on such misrepresentation, and had a right of action for damages, or the right to elect to exercise a right of rescission, against the partnership. Both the right of action for damages and the right to elect to exercise a right of rescission required notice to be given to the partnership within 90 days of payment for the unit. Timely notice was not given by the respondents. The contractual rights clause was included in the OM to conform with the requirements of the Act and the Regulation. It did not confer any greater rights on the limited partners than those envisaged by the Act and the Regulation. In particular, it did not give investors a right to sue for misrepresentation based on deemed reliance where notice was not given within the required 90-day period.

APPEAL AND CROSS-APPEAL from the judgment of Pepall J., 2008 56016 (ON SC), [2008] O.J. No. 4349, 56 B.L.R. (4th) 68 (S.C.J.) dismissing the action and counterclaim.

Cases referred to Bell Canada v. The Plan Group (2009), 96 O.R. (3d) 81, [2009] O.J. No. 2829, 2009 ONCA 548, 252 O.A.C. 71, 81 C.L.R. (3d) 9, 62 B.L.R. (4th) 157; Dunn v. Chubb Insurance Co. of Canada (2009), 97 O.R. (3d) 701, [2009] O.J. No. 2726, 2009 ONCA 538, 75 C.C.L.I. (4th) 29 Statutes referred to Securities Act, R.S.O. 1980, c. 466, ss. 71(1)(d), 126, (1) Regulations referred to R.R.O. 1980, Reg. 910 (Securities Act), s. 21(1)(a), (3)

David C. Moore, Diana M. Soos and Kenneth G.G. Jones, for appellants (respondents by cross-appeal). Sheila Block, Andrew Gray and Molly Reynolds, for respondents (appellants by cross-appeal). [page403]

The judgment of the court was delivered by

CRONK J.A.:-- I. Introduction

[1] This litigation arose from a dispute between the appellants, the promoters of a limited partnership tax shelter known as the Jasper Avenue Limited Partnership (the "Partnership"), and the respondents, a group of investors in the Partnership. The business of the Partnership involved the ownership and management of a twin-tower condominium complex located on Jasper Avenue, in Edmonton, Alberta (the "Property"). Investment units in the Partnership were offered for sale to members of the public by means of an offering memorandum dated June 30, 1989 (the "OM"), issued pursuant to the Securities Act, R.S.O. 1980, c. 466 (the "Act"). The dispute centred on certain of the rights and obligations created by the OM.

[2] Before this court, the principal issue concerns the respondents' alleged obligation to pay certain loans made by the appellants in respect of the financing of the Partnership. The appellants maintain that the OM and associated Partnership subscription documents obliged the respondents, as investors and limited partners in the Partnership, to repay the loans in question on or before August 31, 1994. They appeal from the trial judge's ruling that the respondents are not contractually obliged to pay the loans.

[3] The respondents, in turn, allege that they sustained damages as a result of misrepresentations by the appellants in the OM concerning the value of the Partnership investment. They rely on the deemed reliance component of a contractual rights clause in the OM to support their misrepresentations claim. They cross-appeal from the trial judge's ruling regarding the scope of the contractual rights clause and from her rejection of their misrepresentations claim. II. Background

[4] Many of the background facts are not in dispute and were incorporated in a lengthy agreed statement of facts filed by the parties at trial. The following facts are relevant to the disposition of this proceeding. (1) Acquisition of the property

[5] The Property was originally operated as a rental apartment project, although it had been converted to condominium status by 1983. In 1984, the appellant Roycom Entrepreneurs [page404] Real Estate Fund Limited Partnership (the "Fund") and S.L. Sussex Leaseholds Limited ("Sussex"), a predecessor in interest to the appellant Skye Properties Limited ("Skye"), purchased the Property for approximately $10 million. They intended to renovate and to reduce rental vacancies in the Property, to raise rents to achieve acceptable operating cash flows and, by 1987, to begin selling condominium units in the project. The Fund had a 51 per cent interest in the Property, while Sussex had a 49 per cent interest. (2) Limited Partnership Agreement

[6] In mid-1987, the Fund and Sussex decided to sell the Property. Over the next several months, their efforts to dispose of the Property as an apartment building proved unsuccessful, although various offers to purchase were received and rejected.

[7] By the fall of 1987, a significant stock market crash had occurred, leading to a consequential downturn in the real estate market. Nonetheless, throughout 1988, the appellants continued to explore the sale of the Property under various scenarios, one of which involved the potential syndicated conversion of the Property from a rental project in order to sell individual condominium units in the Property. To this end, appraisals and valuation opinions pertaining to the Property were obtained. Also in 1988, Sussex transferred its interest in the Property to Skye, a related corporation.

[8] Eventually, the Fund and Skye decided to sell the Property to the public as a limited partnership. By June 30, 1989, a limited partnership agreement (the "LPA") had been entered into and the Partnership was formed.

[9] The LPA described the business of the Partnership in these terms: "to participate in the real estate rental business by acquiring, owning, leasing, managing and operating the Property and to conduct such other activities as may be necessary or incidental to the foregoing": s. 2.03, LPA.

[10] Under s. 3.03 of the LPA, the Partnership's General Partner, the appellant Jasper Avenue G.P. Inc. (the "General Partner"), was authorized to raise capital for the Partnership by offering and selling 122 limited partnership units to members of the public at the subscription price set out in the OM and by admitting the purchasers of such units as limited partners of the Partnership.

[11] Under the LPA, the General Partner was granted "exclusive authority to manage, control, administer and operate the business and affairs of the Partnership and, subject to [page405] the provisions of [the LPA], to make all decisions regarding the business of the Partnership": s. 6.01, LPA.

[12] Correspondingly, the LPA precluded the investors, as limited partners, from taking part in the control of the Partnership business, transacting any business for the Partnership and acting for or binding the Partnership. With the exception of certain specific transactions that are inapplicable in this case, all such powers were "vested solely and exclusively" in the General Partner: s. 4.01, LPA. (3) Offering Memorandum

[13] The OM was issued under a prospectus-exemption provision of the Act. Several other marketing documents were utilized by the appellants to attract investors in the Partnership, including a "Glossy Brochure", "green sheets" that described the highlights of the investment and "question and answer sheets".

[14] The OM stated that the Partnership had been formed "to acquire, own and operate 2 residential towers comprised of 284 residential condominium suites and 4 commercial condominiums" situated on Jasper Avenue, in Edmonton. The purpose of the offering was described in the OM in this fashion:

The purpose of the offering is to provide investors in Units with: (a) capital appreciation potential, which, if and when realized, may qualify as a tax free capital gain; (b) an escalating annual cash flow; and (c) the ability to use available provisions of the Tax Act permitting tax deferral and deductions.

[15] Under the OM, 122 limited partnership units were offered for sale at a subscription price ranging from $154,944 to $188,108 per unit, depending on the particular condominium units to which each limited partnership was referenced, for a total offering price of $19.7 million.

[16] Pursuant to the terms of the OM, the subscription price for each unit was to be paid through a combination of a cash deposit in the amount of $1,000 and various loans, as follows: (1) an "equity loan" for 27 per cent of the subscription price; (2) a "first secured loan" for 53.3 per cent (between $82,563 and $100,327) of the subscription price (the "First Loans"); and (3) the "second secured loan" for 19.2 per cent (between $29,683 and $36,105) (the "Second Loans") of the subscription price per unit. Each of these financing loans was paid by three promissory notes signed by the General Partner on behalf of investors in [page406] respect of each unit purchased, as I later describe. Of these loans, only payment of the Second Loans is at issue.

[17] In addition to the Second Loans, the Fund and Skye -- acting through the General Partner -- also provided cash flow loans to fund any Partnership cash flow deficiencies and to cover payments on the First Loans, up to a cumulative maximum amount of $2 million (the "Cash Flow Loans"). Liability for payment of the Cash Flow Loans is also at issue in this proceeding. (i) Subscription form

[18] The OM included a subscription form (the "Subscription Form"), which each investor was required to sign in order to purchase a Partnership unit. The Subscription Form contained a power of attorney in favour of the General Partner, an equity note, a first secured note, a second secured note and a direction concerning the financing loans to which the notes were referenced. Under the Subscription Form, the investor represented that he or she had read and understood the OM before subscribing for a Partnership unit and, further, that he or she was "aware of the characteristics" of the units subscribed for and their "speculative nature".

[19] Importantly, the Subscription Form also expressly provided that the investor subscribed for the unit(s) of the Partnership "on the terms and as described in the [OM]" (emphasis added).

[20] Pursuant to the power of attorney contained in the Subscription Form, the subscribing investor authorized the General Partner to execute and deliver "all documents relating to [the investor's] Equity Loan, First Secured Loan and Second Secured Loan". Further, the LPA contained a power of attorney in favour of the General Partner, authorizing it to execute the LPA and related documents, including promissory notes and loan documentation, on behalf of the affected limited partner.

[21] As mentioned, the Subscription Form also included promissory notes relating to each category of financing loan. In respect of the Second Loans, the "second secured note" in the Subscription Form (the "Second Notes") provided that unless the investor paid the Second Loan portion of the subscription price at the time of subscription, the investor "promise[d] to pay to or to the order of the Partnership . . . on written demand made by the Partnership at any time the [amount of the Second Loan] without interest". The parties agree and the trial judge accepted that this promise to pay was the only security provided by an investor in respect of his or her Second Loan. [page407]

[22] The Second Notes were signed by the General Partner on behalf of the investors pursuant to the powers of attorney granted by the investors. As executed, the Second Notes stated that interest and principal on the Second Loans "shall become due and payable on the 31st day of August, 1994". (ii) Terms of financing loans

[23] The equity loans were arranged through a Canadian financial institution. The OM provided that they were to be amortized over 15 years, have a three-year term and bear interest at the rate of "1[cents] per cent over prime from time to time". Interest and principal were required to be paid on a monthly basis.

[24] The First Loans were advanced by Confederation Trust Company. According to the OM, they were to be amortized over 30 years, have a five-year term and bear interest at the "Confederation Trust prime residential rate plus per cent ". Payments on the First Loans were stated to be "repayable in blended monthly payments of principal and interest".

[25] The OM also contemplated the refinancing of the First Loans. The following refinancing clause was set out in the "Loans" section of the OM:

Refinancing

The General Partner intends to arrange for the refinancing of the First Secured Loans to the extent possible for so long as the Second Secured Loans or any Cash Flow Loans remain outstanding. Such refinancing would be in an amount equal to a maximum of 75% of the appraised value of the condominium suites comprising Riverside Towers at the time of refinancing. The principal amount of the First Secured Loans may be increased on such a refinancing without the consent of the Limited Partners so long as the aggregate principal amount thereafter outstanding on the First Secured Loans and the Second Secured Loans does not exceed the aggregate amount of such loans on the date immediately preceding the date of such refinancing. (the "Refinancing Clause")

[26] The Second Loans were advanced by the Fund and Skye, as the owners of the Property. As payment of these loans is the central issue on the appeal, I set out in full the relevant provisions of the OM concerning the terms of the Second Loans:

The terms of the Second Secured Loans are to be as follows:

Interest: 10.00% (increasing to Prime plus 3% if not repaid on or before August 31, 1994)

Payments: Interest only; accrued until repaid from proceeds of refinancing of the First Secured Loan when the Second Secured Loan will be paid out. (the "Payment Clause") [page408]

[27] With respect to security for the Second Loans, the OM stated:

A Limited Partner's liabilities under his Second Secured Loan will be secured in the same manner as his liabilities under the First Secured Loan. Such security will rank behind that securing his First Secured Loan.

(iii) Cash Flow Loans

[28] The OM stipulated that from the closing date of the offering until August 31, 1994, the General Partner would provide funds, to the cumulative maximum amount of $2 million, to fund all "Cash Flow Deficiencies" of the Partnership and the total debt service deficiencies of the limited partners in respect of the First Loans. The Cash Flow Loans advanced from time to time under this "Cash Flow Support Agreement" were subject to the same security provided by the investors in relation to the Second Loans, that is, to their personal promises to pay. The obligations of the General Partner under the Cash Flow Support Agreement were secured by cash deposits in the sum of $2 million deposited with a Canadian financial institution.

[29] Under the OM, the Cash Flow Loans were to be repaid from two sources: (1) the Partnership's operating cash flow, as defined under the OM, after the investors had been distributed "enough cash to pay the total debt service on the First Secured Loans"; and (2) "from the proceeds of any refinancing of the Property in priority to all other distributions following from such a refinancing".

[30] The OM permitted a limited partner to withdraw from the Partnership and to have title to his or her residences transferred to him or her on or after September 1, 1994, or earlier as determined by the General Partner. (iv) Contractual Rights Clause

[31] The OM also contained a contractual rights clause in favour of the investors (the "Contractual Rights Clause"). In material part, it stated: PURCHASER'S CONTRACTUAL RIGHTS

If this Offering Memorandum or any amendment hereto contains an untrue statement of a material fact or omits to state a material fact necessary in order to make any statement herein not misleading in light of the circumstances in which it was made (a "misrepresentation") and it was a misrepresentation at the time of purchase (i.e. the time of acceptance and admission of the person as a Limited Partner), the subscriber will be deemed to have relied on such misrepresentation and, in addition to any other right or remedy available at law: [page409] (a) has a right of action for damages against the Partnership, which right is exercisable on notice given to the Partnership not later than 90 days after the date of payment for the Units acquired by such subscriber (or after the initial payment where subsequent payments are made pursuant to a contractual commitment assumed prior to or concurrently with the initial payment); or (b) may elect to exercise a right of rescission against the Partnership, in which case the subscriber shall have no right of action for damages against the Partnership. The right of rescission is exercisable on notice given to the Partnership not later than 90 days after the date of payment for the Units acquired by such subscriber (or after the initial payment where subsequent payments are made pursuant to a contractual commitment assumed prior to or concurrently with the initial payment).

(4) Post-closing events

[32] The closing of the transaction contemplated by the OM occurred at the end of August 1989. Thereafter, the Partnership made payments under the First Loans on behalf of the investors and the Fund and Skye advanced funds under the Second Loans and the Cash Flow Loans. In all, $2,898,422 was advanced in respect of the Second Loans and $1,710,493 was furnished via the Cash Flow Loans, exclusive of interest.

[33] For their part, commencing in 1989 and continuing until at least 1997, the respondents, having subscribed for units in the Partnership, claimed and apparently received annual tax benefits including, in particular, tax deductions relating to the Partnership.

[34] In 1993 and 1994, a major real-estate depression occurred. As a result, some five years after the closing, the original intention of selling the apartments in the Property to end-users as condominiums was not realized. On notice to the respondents, the General Partner began to explore the refinancing of the Second Notes.

[35] When refinancing was not forthcoming, the appellants took the position that the Second Loans were due and payable by the respondents on or before August 31, 1994. In the fall of 1994, the appellants demanded repayment of the Second Loans. They maintained, and the trial judge accepted, that the Partnership succeeded in 1994 in obtaining an offer from Confederation Trust, the first secured lender, to refinance the First Loans and also made arrangements with the Bank of Montreal to permit the respondents to apply for refinancing of their Second Loans. In the event, however, the respondents did not renew their First Loans or refinance their Second Loans.

[36] As a result, the First Loans went into default and Confederation Trust sued for repayment. In January 1997, with the [page410] respondents' consent, the Property was sold and the proceeds of sale were used to discharge the respondents' obligations under the First Loans. No surplus funds were realized. Thus, the amounts owing on the Second Loans remained unpaid.

[37] In accordance with the terms of the OM, the Cash Flow Loans became due in January 1997 when the First Loans were satisfied. However, as the proceeds from the sale of the Property were insufficient to pay the Cash Flow Loans, they, too, remained outstanding.

[38] Some of the investors paid the Second Loans and/or the Cash Flow Loans on demand but others did not. Other investors settled with the appellants or filed for bankruptcy.

[39] According to the appellants, approximately $31,500 per investor was owed on the Second Loans, while approximately $15,000 per investor was due on the Cash Flow Loans. When payment was not made, the appellants commenced individual collection actions against the respondents. The respondents defended the actions, maintaining that they were not required to pay the loans in question. They also counterclaimed against the appellants, seeking damages and other relief for alleged misrepresentations in the OM about the value of the Partnership investment. On consent, the various proceedings were consolidated and tried together in the Commercial Court. III. Trial Judge's Decision

[40] The trial judge accepted that by virtue of the subscription documents, the Second Loans were secured by the respondents' individual promises to pay. However, she concluded that the payment terms of the Second Loans, as set out in the OM, were ambiguous and confusing and, in these circumstances, that the OM should be construed against the appellants, the authors of the document.

[41] The trial judge also held that as the terms of the Second Notes did not accord with the payment terms for the Second Loans set out in the OM, the Second Notes were not authorized by the powers of attorney granted by the respondents to the General Partner. Consequently, the respondents were not bound by the Second Notes.

[42] In the result, the trial judge ruled that the respondents were not contractually obliged to pay the Second Loans under either the OM or the Second Notes.

[43] The trial judge reached a similar conclusion regarding the respondents' alleged obligations to pay the Cash Flow Loans. In her view: "[T]he OM language of the liability for the cash flow loan is even more obtuse than that relating to the second [page411] secured loan": at para. 122. She elaborated in the same paragraph of her reasons:

The cash flow loan is not included in the detailed description of loans in the "Loan" section of the OM nor in the subscription form. In addition, while the grant of the power of attorney specifically refers to the equity loan, the first secured loan, and the second secured loan, no express reference is made to liability for the cash flow loan. The selling documents are equally unclear.

[44] The trial judge therefore ruled that the respondents were not contractually obliged to pay the Cash Flow Loans.

[45] With respect to the respondents' counterclaim, the trial judge held that the respondents were not entitled to rely on the deemed reliance component of the Contractual Rights Clause for the purpose of their misrepresentations claim. Moreover, and in any event, the trial judge concluded that none of the various matters complained of by the respondents constituted an actionable misrepresentation by the appellants.

[46] Accordingly, by judgment dated October 31, 2008, the trial judge dismissed the appellants' collection actions, granted associated declaratory relief to the respondents and dismissed the respondents' counterclaim. The appellants appeal and the respondents cross-appeal. IV. Issues

[47] There are three issues: (1) Did the trial judge err by concluding that the respondents are not contractually liable to pay the Second Loans and the Cash Flow Loans? (2) Did the trial judge err by concluding that the respondents are not entitled to rely on the deemed reliance component of the Contractual Rights Clause in the OM to anchor their counterclaim? (3) Did the trial judge err by concluding that the appellants did not misrepresent the value of the Partnership investment in the OM? V. Analysis A. The appeal (1) Liability to pay second loans

[48] There is no dispute concerning the nature of the obligation under the Second Loans, or that it was secured by the respondents' individual promises to pay. The issue is when and [page412] how the respondents' obligations to pay the Second Loans were triggered, if at all.

[49] I agree with the trial judge that the respondents are not contractually liable to pay the Second Loans. I reach this conclusion for the following reasons.

[50] To begin, there was ample justification for the trial judge's holding that the terms of the OM relating to payment of the Second Loans are ambiguous. Recall that the Payment Clause in the OM relating to the Second Loans states in part:

Payments: Interest only; accrued until repaid from proceeds of refinancing of the First Secured Loan when the Second Secured Loan will be paid out.

[51] At first blush, the Payment Clause can be read as relating only to the obligation to pay interest on the Second Loans. This interpretation arises from the use of the words "interest only" and "accrued until repaid" in the Payment Clause. Interest accrues or accumulates over time. In contrast, principal indebtedness is fixed at the time a loan is made and does not "accumulate" or "accrue" in the normal sense of those words. The parties did not contest that the notion of "accrual" under the Payment Clause is referable to interest only.

[52] Further, the Payment Clause contains no express mention of payment of the principal owed under the Second Loans. This stands in stark contrast to the payment terms for the equity and First Loans. Those terms, which are set out in the OM immediately before the Payment Clause concerning the Second Loans, expressly contemplate monthly payments of "interest and principal" (the equity loans) and "blended monthly payments of principal and interest" (the First Loans).

[53] However, the Payment Clause also contains the following language: "accrued until repaid from proceeds of refinancing of the First Secured Loan when the Second Secured Loan will be paid out" (emphasis added). Nothing in this phrase or the context in which it is used suggests that it refers only to interest. The phrase is unqualified. Thus, on a plain reading, the phrase refers to the "Second Secured Loan" as a whole, that is, to both principal and interest. This suggests that the Payment Clause establishes the terms of payment for principal, as well as interest, owed on the Second Loans.

[54] Moreover, and importantly, the Payment Clause also addresses the source of funds to be used for payment. It refers to the refinancing of the "first secured loan" and states that the funds accrued -- namely, interest -- will be paid from the proceeds of such refinancing. On this reading, the trigger for the payment of interest was a refinancing of the First Loan. [page413]

[55] But the Payment Clause can also be read more broadly, such that the Second Loan in its entirety was to be paid "from proceeds of refinancing of the First Secured Loan". The trial judge concluded that this was a reasonable interpretation of the Payment Clause, reasoning in part as follows [at para. 112]:

[The Payment Clause] speaks of payment terms that are interest only and includes a term that suggests that the loan was going to be repaid on a refinancing of the first secured loan. A reasonable reading of the OM would suggest that while there was a personal covenant to pay, it was never triggered in the absence of a refinancing. Put differently, it was subject to a precondition that there be a refinancing and that the Limited Partners would account for their share. The only relevant identified risk in the OM was that refinancing on as favourable terms may be unavailable not that refinancing would be totally unavailable. (Emphasis added)

[56] I agree with the trial judge that the Payment Clause may reasonably be understood as providing that payment of accrued interest on the Second Loan was to be made on and from the proceeds of any refinancing of the First Loan and that the principal owing on the Second Loan was also to be paid when such a refinancing occurred. Read in this fashion, a refinancing of the First Loan was the trigger or, as the trial judge put it, a "precondition" to the payment of both interest and principal on the Second Loan.

[57] Thus, the Payment Clause can be interpreted in two different and conflicting ways: (1) as requiring only the payment of accrued interest on the Second Loan at the time of a refinancing of the First Loan; or (2) as requiring payment of the entire Second Loan, inclusive of outstanding principal and accrued interest, when that refinancing occurred. These interpretations cannot live together. Either the Payment Clause deals with payment of the principal owed on the Second Loan or it does not. In these circumstances, the trial judge cannot be faulted for holding that the Payment Clause is ambiguous.

[58] The appellants challenge this conclusion on several grounds. First, they submit that the OM must be read as a whole and in the overall context of the Partnership investment envisaged by the OM and the other subscription documents, with a view to ascertaining and giving effect to the intention and reasonable expectations of the parties and the need to interpret the OM in a commercially sensible fashion. I did not understand the respondents to dispute, and I agree, that these are the controlling interpretive principles: see, for example, Bell Canada v. The Plan Group (2009), 2009 ONCA 548, 96 O.R. (3d) 81, [2009] O.J. No. 2829 (C.A.), at paras. 37 and 170. There is no suggestion that the trial [page414] judge failed to identify the applicable principles of contractual interpretation.

[59] The appellants go on to assert that the proper application of these principles in this case results in the conclusion that the respondents were required to pay the principal and interest on the Second Loans by August 31, 1994. In support of this assertion, the appellants point first to the respondents' acknowledgement, contained in para. 45 of the agreed statement of facts, that:

Interest under each of the Second Secured Loans accrued at the rate of 10 per cent per year. Principal with interest under the Second Secured Loans became due and payable on August 31, 1994. (Emphasis added)

[60] The appellants also rely on the provisions of the Second Notes, which indicate that interest and principal on the Second Loans "shall become due and payable on the 31st day of August, 1994" and which contain each investor's personal covenant to pay the Second Loans.

[61] The appellants further submit that to interpret the OM and associated Partnership subscription documents as failing to oblige the respondents to pay the Second Loans in full is commercially unreasonable. This interpretation, they contend, means that notwithstanding the respondents' personal covenants to pay, the debt obligation underlying the Second Loans in effect "disappears" or "evaporates". Thus, the appellants argue, the trial judge's conclusion that the respondents are not contractually obliged to pay the Second Loans cannot stand in the face of the respondents' admitted personal covenants to pay the Second Loans.

[62] Finally, the appellants seek to buttress these arguments by emphasizing that the respondents realized significant tax benefits, in particular, tax deductions relating to interest on the First and Second Loans and Partnership losses, for several years. Pursuant to the applicable provisions of the Act and related policies of the Ontario Securities Commission, the tax benefits relating to the Second Loans would have been unavailable to the respondents, as a matter of law, if the respondents were not "at risk" in respect of these loans.

[63] I would reject these arguments for several reasons.

[64] As mentioned earlier, the Subscription Form completed by each investor stated that an investor acquired a unit in the Partnership "on the terms and as described in the [OM]". Accordingly, the investors' contractual obligations were established by the OM. [page415]

[65] The OM, however, contains provisions that are inconsistent with the contention that the investors were liable to pay the Second Loans in full on or before August 31, 1994. Three examples will illustrate this point.

[66] First, the Payment Clause contemplates an adjusted rate of interest on the Second Loans. It states that interest on these loans, initially 10 per cent, would increase to "Prime plus 3 per cent if not repaid on or before August 31, 1994". Thus, this part of the Payment Clause itself recognizes that at least the interest and, therefore, at least part of the principal owed on the Second Loans might not be paid until after August 31, 1994. Obviously, this is inconsistent with the notion that the respondents were contractually obliged to repay the entirety of the Second Loans by August 31, 1994 or, indeed, by any fixed date if a refinancing of the First Loans did not take place.

[67] Second, the OM provides that the term of a property management agreement concerning the Property "expires on the later of August 31, 1999 and the date that both the Cash Flow Loans and the Second Secured Loans have been repaid in full". This provision also leaves open the possibility that payment of the Second Loans could occur on a date other than on or before August 31, 1994.

[68] Finally, in the description of the Partnership financing set out in the OM, the following clause appears:

The Second Secured Loan is assumed to bear simple interest at 10% per annum non-compounding which will be accrued. It is assumed that the accrued interest and principal will be paid out at the end of a five year period ending August 31, 1994. (Emphasis added)

[69] While this clause supports the argument that the parties anticipated payment of both principal and interest on the Second Loans by August 31, 1994, this is expressed as an assumption. The clause does not state that investors will be required to actually pay either interest or principal on the Second Loans on or before August 31, 1994. This clause is the only provision in the OM that refers expressly to the payment of principal on the Second Loans.

[70] Perhaps more importantly, the appellants' interpretation of the investors' obligations concerning the Second Loans does not take adequate account of the refinancing language of the OM in general, and of the Payment Clause in particular.

[71] The OM must be read as a whole. Under the OM, the refinancing of the First Loans was to be arranged by the General Partner, "to the extent possible". While the OM did not impose an absolute obligation on the General Partner to obtain such [page416] refinancing, it did assign the burden of attempting to obtain it exclusively on the General Partner. This assignment of responsibility was consistent with the General Manager's broadly cast powers under the LPA regarding the Partnership and, correspondingly, with the narrow reach of the investors' powers concerning the Partnership, again as set out in the LPA. Thus, it was the Partnership, acting through the General Manager, that bore the risk of a refinancing failure -- not the investors.

[72] In addition, as the trial judge noted, the list of the "risk factors" pertaining to the Partnership investment disclosed in the OM did not include a refinancing failure. Rather, the only refinancing risk identified was the potential that the Partnership would be unable to refinance the First Loans "on terms as favourable as those available on the Closing Date".

[73] These provisions of the OM assist in the interpretation of the refinancing contemplated by the Payment Clause. In my view, they also undercut the appellants' claim that the trial judge's interpretation of the Payment Clause leads to a commercially absurd result.

[74] In particular, when the Payment Clause is read in conjunction with the financing and refinancing provisions of the OM, including the Refinancing Clause quoted earlier in these reasons, the Payment Clause can be viewed as contemplating that the First Loans would be refinanced, pursuant to the General Partner's contractual undertaking to attempt to arrange such refinancing, in an amount sufficient to fully retire both accrued interest and outstanding principal on the Second Loans.

[75] This interpretation of the Payment Clause does not yield a commercially absurd result. Nor does it mean that the obligation underlying the Second Loans disappears, along with any liability on the part of the respondents for payment of the debt created by the Second Loans. It simply means that if the First Loans were successfully refinanced for a higher principal amount, and the Second Loans were paid in full from the refinancing proceeds, the quantum of the respondents' liability on the First Loans would be increased. The respondents would remain liable for the full amount of the refinanced First Loans and for any renegotiated interest rate on those loans, including a potentially higher interest rate. This was the adverse refinancing risk forecast as a "risk factor" in the OM.

[76] In addition, under this scenario, if the First Loans were not refinanced before August 31, 1994, thus delaying the payout of the Second Loans, the respondents' liability for interest on the Second Loans would increase in accordance with the stipulation [page417] in the Payment Clause for a higher interest rate after August 31, 1994.

[77] In the end, therefore, on a refinancing of the First Loans, the respondents' liability for the debt created by the Second Loans would continue, although in the substituted form of larger First Loans. That liability is to be distinguished from an obligation to discharge the liability by paying the Second Loans at a set time, in the absence of a refinancing of the First Loans.

[78] The trial judge implicitly recognized this when she commented, at para. 113 of her reasons:

In attempting to construe the parties' intentions, it is reasonable to conclude that, while at risk, the parties contemplated that refinancing would be available and that the second secured loans would be repaid on that refinancing. I agree.

[79] In the same paragraph of her reasons, the trial judge went on to say: "The language of the OM and the surrounding circumstances support this interpretation." This comment was grounded in the evidence. It is well-established that the primary goal of contractual interpretation is to give effect to the intentions of the parties: see, for example, Dunn v. Chubb Insurance Co. of Canada (2009), 2009 ONCA 538, 97 O.R. (3d) 701, [2009] O.J. No. 2726 (C.A.), at para. 32; Bell Canada, at para. 37. In this case, as I have said, various additional documents apart from the OM were used by the appellants to market the Partnership investment. These documents formed part of the surrounding circumstances -- the factual matrix -- of the Partnership investment and, hence, could be examined by the trial judge to determine the intent of the parties at the time of investment in the Partnership: see Dunn, at paras. 33-34 and note 4.

[80] One of these documents, the "green sheets", contained an Executive Summary of the Partnership investment that was prepared for "internal use" by dealers involved in the marketing effort. It contained the following description of the Second Loans:

The second loan carries characteristics of a second mortgage and has been created as a vendor take back scenario. The promoter will loan the partnership $3,775,000 at a rate of 10% for five years. This is to be capitalized by the Partnership and paid out upon a sale or refinancing by Limited Partners at the time of title distribution after September 1, 1994. (Emphasis added)

[81] This contemporaneous description of the Second Loans, authored by the promoters themselves, strongly supports the trial judge's conclusion that payment of the Second Loans was contingent on a refinancing of the First Loans. [page418]

[82] There was also some evidence that the investors themselves understood that their admitted liability on the Second Loans was to be satisfied on a refinancing of the First Loans. One of the investors testified at trial as to his understanding, at the time that demand was made on the Second Loans, that if the General Partner could not "increase the first mortgage sufficiently" to pay the Second Loans, the investors were obliged to pay only the adjusted rate of interest on the Second Loans provided for in the Payment Clause. It is telling that at about the same time, in mid- August 1994, the Partnership wrote to the investors informing them: "With regard to the possibility of refinancing the second secured loan with an up-financing of the first mortgage, we have found that property values had not risen to a level where this was available" (emphasis added).

[83] Finally, I agree with the trial judge that the terms of the Second Notes do not establish an obligation by the respondents to pay the Second Loans in the absence of a refinancing of the First Loans.

[84] The Second Notes were executed on behalf of investors by the General Partner pursuant to the powers of attorney granted by the investors. Unlike the OM, the Second Notes expressly stated that payment of the principal and interest on the Second Loans was due on August 31, 1994. In this significant respect, as the trial judge found, the language of the Second Notes did not conform with that of the OM regarding payment of the Second Loans. And it was the OM that established the rights and obligations of the investors. Nothing in the investors' powers of attorney authorized the General Partner to unilaterally alter or expand the payment terms of the Second Loans and, hence, the investors' liability for those loans.

[85] To summarize, there were aspects of the OM, including of the Payment Clause, concerning payment of the Second Loans that were ambiguous. However, when the OM is read as a whole, in light of the circumstances surrounding the offering and the financing and refinancing provisions of the OM, it is my view that the Payment Clause is not ambiguous and the principle of contra proferentem is not engaged. Properly read, the OM contemplated payment of accrued interest and outstanding principal on the Second Loans when a refinancing of the First Loans acceptable to the parties was achieved. The promoters marketed the Partnership investment on this basis, but this did not occur. Accordingly, the trial judge was correct to hold that the respondents are not contractually obliged to pay the Second Loans. [page419]

[86] I would add that if I am wrong in this conclusion, and the OM (in particular, the Payment Clause) must be viewed as ambiguous with respect to the respondents' obligations to fully pay the Second Loans, I regard the trial judge's reliance on the contra proferentem principle as fully justified in the circumstances of this case. As observed by this court in Dunn, at para. 36, while the doctrine of contra proferentem is an interpretive rule of last resort, it may be applied to resolve an ambiguity against the party who drafted the contract in question. As found by the trial judge, the application of the doctrine in this case requires that the OM be construed against the appellants in respect of the respondents' liability to pay the Second Loans. (2) Liability to pay cash flow loans

[87] I also have no difficulty in concluding that the trial judge was correct to hold that the respondents are not contractually liable to pay the Cash Flow Loans.

[88] The OM does not stipulate that the investors were responsible to pay these loans. On the contrary, the OM indicates that they were to be paid from the Partnership's operating cash flow or from the proceeds of any refinancing "of the Property". Nor do the related subscription documents describe the funds advanced under the Cash Flow Support Agreement as an investor's liability or a loan to the investors, although the Cash Flow Loans were secured by the investors' personal promises to pay.

[89] Further, as the trial judge observed, the Subscription Form did not contain any promise or commitment by the investors to pay the Cash Flow Loans. In the absence of such a covenant by the limited partners, the powers of attorney granted to the General Partner did not extend to the creation of new or different investor liability. B. Cross-appeal

[90] In their counterclaim, the respondents alleged that the appellants materially misrepresented the value of the Partnership investment in the OM, thereby entitling the respondents to damages, relief in the nature of rescission of their Partnership investments, and associated declaratory relief. To succeed in these claims, the respondents were required to establish material misrepresentations by the appellants and reliance by the respondents on those misrepresentations, to their detriment. Failure to prove either of these requirements was fatal to the respondents' counterclaim. The trial judge ruled that neither requirement had been satisfied. [page420] (1) Scope of the Contractual Rights Clause: Deemed reliance

[91] I begin with the reliance requirement. At trial, the respondents did not assert actual reliance. Instead, they relied on the deemed reliance component of the Contractual Rights Clause contained in the OM. Under that provision, if the OM contained any misrepresentation at the time of an investor's purchase of a Partnership unit, the investor was "deemed to have relied on such misrepresentation" and had a right of action for damages, or the right to elect to exercise a right of rescission, against the Partnership. The Contractual Rights Clause expressed these rights as alternatives. It also stated that they were "in addition to any other right or remedy available at law". Further, the rights afforded under the Contractual Rights Clause were time-limited. Both the right of action for damages and the right to elect to exercise a right of rescission required "notice given to the Partnership not later than 90 days after the date of payment for the Units acquired by [the investor]".

[92] Timely notice in accordance with the Contractual Rights Clause was not given by the respondents in this case. Accordingly, they could not invoke either of the contractual rights provided for under the Contractual Rights Clause. However, they argued at trial that the provision applied to more than the specific rights identified and, as asserted in their factum before this court, that it provided the respondents "with the right to deemed reliance for all rights or remedies based on a misrepresentation in the [OM]". Thus, the respondents maintained that, as worded, the deemed reliance component of the Contractual Rights Clause was not restricted to the two time-limited rights expressly contemplated by the provision.

[93] The trial judge disagreed. She held [at para. 143] that the Contractual Rights Clause was unambiguous and that it was limited in scope to "the special time limited statute based remedies" mentioned in the provision. In this proceeding, the respondents renew their arguments regarding the Contractual Rights Clause and submit that the trial judge erred by interpreting it too narrowly.

[94] It is important to emphasize the legislative origins of the Contractual Rights Clause. The OM, as I have indicated, was issued pursuant to the so-called "sophisticated investor" prospectus-exemption then provided for under s. 71(1)(d) of the Act and R.R.O. 1980, Reg. 910 (the "Regulation"). This exemption applied where a purchaser purchased a security as a principal [page421] and the trade was in a security that had a cost to the purchaser of not less than $150,000.

[95] To rely on this exemption, certain legislative requirements had to be met. One of these, set out under s. 21(3) of the Regulation, required that the OM include a "contractual right of action" against the issuers of the OM (in this case, the Partnership) for damages or rescission where the OM contained a misrepresentation. Section 21(1)(a) of the Regulation defined "contractual right of action" as follows: (a) "contractual right of action" means a right of action against an issuer for rescission or damages, which right, (i) is available to an investor . . . if the offering memorandum contains a misrepresentation, (ii) is exercisable on notice given to the issuer not later than 90 days after the date on which payment was made for the securities or after the initial payment . . . , (iii) reasonably corresponds to the rights provided in section 126 of the Act applicable to a prospectus . . . , and (iv) includes a provision stating that the right is in addition to any other right or remedy available at law to the investor.

[96] Notably, under subpara. (iii) of this definition, the requisite contractual right of action had to "reasonably correspond" to the rights set out in s. 126 of the Act as applicable to a prospectus. Those rights included deemed reliance by a purchaser of a security on a misrepresentation contained in a prospectus, such that the purchaser was "deemed to have relied on such misrepresentation if it was a misrepresentation at the time of purchase". Where such deemed reliance applied, s. 126(1) also stated that the purchaser had a right of action for damages or a right to elect to exercise a right of rescission against, among others, the issuer of the prospectus.

[97] There is no dispute that the Contractual Rights Clause was included in the OM to conform with these requirements of the Act and the Regulation. The critical issue is whether, as drafted, the Contractual Rights Clause provided for broadly- based deemed reliance by investors, applicable to all rights of action whether under the Act or at common law, rather than deemed reliance in the narrower context of only the two statutory-based rights specifically identified in the Contractual Rights Clause.

[98] The trial judge concluded that the Contractual Rights Clause did not "confer any greater rights on the Limited Partners" than those envisaged by the Act and the Regulation. At para. 143 of her reasons, she stated: [page422]

It makes little sense to construe the OM [the Contractual Rights Clause] in the manner favoured by the Limited Partners either from an interpretive or business perspective. In addition, it would render actual reliance irrelevant and also renders the 90 day provision largely meaningless.

[99] I agree. Simply put, the Contractual Rights Clause does not bear the expansive interpretation urged by the respondents. It is clearly designed to respond and is confined to the legislative contractual right of action provided for under the Act and the Regulation. I see no indication in the Contractual Rights Clause of an augmented investor entitlement to deemed reliance for the purpose of causes of action beyond those specifically identified in the provision.

[100] I also agree with the trial judge that this interpretive conclusion is reinforced by two compelling factors. First, the effect of the interpretation of the Contractual Rights Clause urged by the respondents is to abrogate entirely, for the purpose of all causes of action, the need for a showing of actual reliance. In my view, had such a significant concession regarding liability to suit been intended by the Partnership promoters, much clearer contractual language would have been required and employed.

[101] Second, on the respondents' view of the Contractual Rights Clause, the 90-day notice requirement for the exercise of the right to an action for damages or the right to elect to exercise a right of rescission would never apply. An investor would be entitled to rely on contractual deemed reliance for any cause of action at any time after the purchase of an interest in a prospectus-exempt security offering. This would run counter to the contractual right of action provisions of the Act and the Regulation and expose the issuer of a prospectus-exempt offering to indefinite liability. Such an interpretation makes little sense from a policy perspective. It would seriously undermine the important goal of promoting certainty in commercial transactions of the kind at issue in this case: see, for example, Bell Canada, at para. 31.

[102] I would therefore reject the respondents' challenge to the trial judge's interpretation of the Contractual Rights Clause. I agree with her interpretation. The respondents, therefore, are unable to rely on deemed reliance under the Contractual Rights Clause to ground their claims against the appellants. As those claims were advanced outside the 90-day notice period set out in the Contractual Rights Clause and actual reliance on the appellants' alleged misrepresentations was not claimed, the respondents' counterclaim could not succeed. On this ground alone, the counterclaim was unsustainable. [page423] (2) Finding of no misrepresentations

[103] In light of my conclusion that the respondents are unable to resort to the Contractual Rights Clause, it is unnecessary to address their companion attack on the trial judge's finding that the appellants did not misrepresent the value of the Partnership investment in the OM. VI. Disposition

[104] For the reasons given, I would dismiss the appeal and the cross-appeal. As success in this court is divided, I agree with the parties that no award of the costs of this proceeding is appropriate.

Appeal and cross-appeal dismissed. SCHEDULE A Joan Smith, Brian Madill, Stephen R. Videki, Alan Wadham, Richard A. Szegidewicz, Joseph Julien, Namnarace Memraj, Masahiro Ando, Frank Rajk, Bonnie Griffin, Sai Lung Wong, Mila Smrz, Raymond Boulanger, E. Jean Gerrie, John A. Koszela, Anthony Bingham, Raymond Kiang, Mary Casiani, Bernie Winkelmann, Hugh J. Swain, Hartmut Nissen, Frank J. Perosa, Brian Ivory, Shirley Brown, McKenly Roberts, Robert Eu, Roaulo Anastasio, David Anderson, Peter Bonsu, Carmelo Camuti, M.F. Caria, Franca Carlesso, Cesar Cesaratto, Yun Chan, Lih-Jing Chang, Robert J. Chittenden, Alex Desouza, Henry Demuth, Henry Endres, Allan Forsyth, Ambrose Fung, Pauline V. Good, Steven Griffin, R.C. Jeram, George Kneider, Murray E. Kohlsmith, Robert J.H. Levack, Wilfred J. Maheu, Jack Mclean, Craig McMullan, Ayoob Mossanen, Michael B. Rose, Gordon Schmidt, John Seitl, Larry Stanshall, Hwan R. Tsai, Derek Twigg, Chris Veerappan, George P. Vitellaro, Richard Howitt, Keith Sinclair, Michael Cull, Henning Schlemmer, Gary Otten, Roderick Campbell, Patrick Tien, Michael Veenstra, Govin-darajaloo Veerappan, Sumita Chatterjee, Antonietta Camuti, Anita Duic, Rosemary Draper, Hagira Kuni, Hubert Pereira, William Kudlac, Luis Barreto, David Lund, Zarko Duma, Theodore Kudlac, Kanabathi Kuni, Robert MacLeod, Simon Cleaver, Nancy Lund, Ted Bellmore, Franklin Chow, Dr. Chi Wai Fong, Tim Tat Ming Ho, Wai How Hui, Vesa Uusitupa, Charlene Wayda, J.K. Yardley, Chung Wah Lau, Ronald J. Fidler, Michael Y. Van Vlymen and Robert Dekeers Jr., Robert Patterson and William White