COURT OF APPEAL FOR ONTARIO

CITATION: Laurel Oak Marketing Ltd. v. Royal Canadian Golf Association, 2010 ONCA 62

DATE: 20100127

DOCKET: C49057

Sharpe, MacFarland and Watt JJ.A.

BETWEEN:

Laurel Oak Marketing Ltd.

Plaintiff (Appellant)

and

Royal Canadian Golf Association

Defendant (Respondent)

AND BETWEEN:

Royal Canadian Golf Association

Plaintiff by Counterclaim (Respondent)

and

Laurel Oak Marketing Ltd. and Wayne Narciso

Defendants to the Counterclaim (Appellants)

John E. Callaghan and Louis Frapporti, for the appellants (Laurel Oak Marketing Ltd.)

Fred Leitch and W. Bastien, for the respondents

Heard: January 19, 2010

On appeal from the judgment of Justice Nick Borkovich of the Superior Court of Justice, dated June 10, 2008.

ENDORSEMENT

[1] This is an appeal from the judgment of Borkovich J., dated June 10, 2008, wherein he granted judgment in favour of the appellant in respect of certain contractual claims which the defendant conceded it owed and dismissed the balance of the appellants’ action.

[2] The appellants’ argument in summary form is that the trial judge either ignored entirely, failed to appreciate or misapprehended material evidence, which formed the factual matrix within which the contract in issue was negotiated, in interpreting the subject contract.

[3] They argue, the factual matrix must inform the interpretation process. As this court said in Dumbrell v. The Regional Group of Companies Inc. et al. (2007), 2007 ONCA 59, 85 O.R. (3d) 616 at paras. 53 through 57:

[53] The text of the written agreement must be read as a whole and in the context of the circumstances as they existed when the agreement was created. The circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement: see [page 631] BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12, [1993] S.C.J. No. 1, at pp. 23-24 S.C.R.; H.W. Liebig & Co. v. Leading Investments Ltd., 1986 CanLII 45 (SCC), [1986] 1 S.C.R. 70, [1986] S.C.J. No. 6, at pp. 80-81 S.C.R., La Forest J.; Prenn v. Simmonds, [1971] 1 W.L.R. 1381, [1971] 3 All E.R. 237 (H.L.), at pp. 1383-84 W.L.R.; Staughton, “How Do the Courts Interpret Commercial Contracts?”, supra, at 307-08.

[54] A consideration of the context in which the written agreement was made in an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11.

[55] There is some controversy as to how expansively context should be examined for the purposes of contractual interpretation: see Geoff R. Hall, “A Curious Incident in the Law of Contract: The Impact of 22 Words from the House of Lords” (2004) 40 Can. Bus. L.J. 20. Insofar as written agreements are concerned, the context, or as it is sometimes called the “factual matrix”, clearly extends to the genesis of the agreement, its purpose, and the commercial context in which the agreement was made: Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd. v. Scott’s Food Services Inc., 1998 CanLII 4427 (ON CA), [1998] O.J. No. 4368, 114 O.A.C. 357 (C.A.), at p. 636 O.A.C.

[56] I would adopt the description of the interpretative process provided by Lord Justice Steyn, “The Intracticable Problem of the Interpretation of Legal Texts”, supra, at 8:

In sharp contrast with civil legal systems the common law adopts a largely objective theory to the interpretation of contracts. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text, which they adopted. The aim is to determine the meaning of the contract against its objective contextual scene. By and large the objective approach to the question of construction serves the needs of commerce.

(Emphasis added)

(c) The interpretation of this contract

[57] The context in which the written words used in this agreement must be understood begins with the parties who negotiated the agreement.

[4] In 1995 the RCGA was unhappy with the quality of its published magazine, Golf Canada, and approached the appellant about taking over the publishing. Negotiations followed among Wayne Narciso and Mary Ann Crooker on behalf of the appellant and Scott Simmons on behalf of RCGA.

[5] The respondent provided the appellant with a copy of its 1994 inaugural magazine to enable the appellant to familiarize itself with the type of publication.

[6] Eventually the parties came to agree on a number of essential terms of an agreement referenced in these proceedings as the “Handshake Agreement”.

[7] In his reasons for judgment the trial judge concluded:

5 It is the position of LO that Wayne Narciso, the President and Mary Anne Crooker representing it, met with Scott Simmons representing the RCGA. As a result of this meeting, the parties entered into an agreement that LO would be the new publisher and that LO accepted that offer on the understanding that:

• Circulation would be negotiated
• The contract term would be ten years
• The magazine would have a new design
• The RCGA would hire a new editor

6 It is the position of LO that there was a deal.

7 This contract allegedly entered into between the parties was an oral contract. In deciding what agreement was reached, if any, the credibility of the individuals involved is of prime importance.

8 I am satisfied on all the evidence before me, including the subsequent events and including the signing of the contract, that Narciso and Crooker both knew that Scott Simmons had no authority to negotiate and/or enter into a contract on behalf of the defendant. In particular, and, whether or not in fact, there was a handshake; I find Narciso knew there was no agreement reached at that time. His testimony at trial that an agreement was reached is not credible.

[8] The appellants did not argue that the “handshake agreement” was the agreement of the parties. They argued only that the “handshake” was an important part of the factual matrix to be considered by the trial judge, in particular in interpreting the renewal clause of the final written agreement between the parties. The trial judge misapprehended this argument. Further, he rejected Mr. Narciso’s evidence as “not credible” but gave no reason why he rejected his evidence. It is clear from the reasons that the trial judge accepted little if any, of Mr. Narciso’s evidence, but nowhere in his reasons does he disclose the basis for his disbelief.

[9] Reading the trial judge’s reasons Mr. Narciso would have no idea why the trial judge did not believe him – neither does this court.

[10] It is apparent on the record that Laurel Oak was desirous of a long-term contract in view of the considerable investment that would be required of it if it agreed to publish Golf Canada. While it was able initially to negotiate a 10-year term with Mr. Simmons, the directors of the respondent (to whom Simmons reported) would not agree to 10 years. Instead, after much to-ing and fro-ing, the parties settled on a fixed 5-year term and an extension or renewal clause as follows:

This agreement shall commence on the date executed beginning with the April 1996 issue and shall continue until the publication of the Fall issue of the year 2000. On January 1, 2000, the RCGA and Laurel Oak shall initiate good faith negotiations concerning the extension of this agreement for the publication of Golf Canada for a further 5 year period. If Laurel Oak has discharged its obligations under this Agreement in a reasonably satisfactory Manner throughout the term hereof, and if at the end of such term RCGA has not decided to discontinue the endorsement of the Publication, Laurel Oak shall have preferred status over any other potential publishing group to publish the publication for the said five year extension.

[11] The contract required that the parties would on January 1, 2000, “initiate good faith negotiations” concerning the extension of the contract for a further five years. There is no issue but that Laurel Oak had discharged its obligations in a reasonably satisfactory manner – and the respondent was desirous of continuing to publish the magazine. The appellant was to have “preferred status” over any other potential publishing group to publish the magazine for the next five years.

[12] It was the position of the appellants that the respondent did not “negotiate” a renewal with it at all. It requested a written proposal and thereafter issued a Request for Proposal to the appellant and other publishers. They further say the respondent had decided to issue a request for proposal before the January 1, 2000 deadline and never intended to negotiate with the defendant in good faith or otherwise.

[13] Three important pieces of evidence in relation to the “good faith” renewal obligations are not dealt with by the trial judge.

1. an internal email exchange in June, 1998 between Yomada and MacDonald (of RCGA), where Yomada makes it clear that “the sooner the RCGA can take control of the publication and its marketing the better” to which MacDonald responds about Narciso “Lets gas him”.

2. October 13, 1999, in camera meeting minutes of the Golf Canada committee which stated: “objectives: The Publications Committee will develop a long-term business plan for the RCGA Publications Dept. including a Request for Proposal for Golf Canada, which will be issued in January.

3. February 8, 2000, minutes of an in camera RCGA meeting in which it decided than an RFP “would be circulated by March 1^st to a number of publishers, with RFP presentations to be finalized by April 1.

[14] This evidence was material and yet it appears to have been entirely ignored by the trial judge.

[15] There were difficulties with the publication from the outset. It is obvious from the copy of the 1994 inaugural magazine that was provided to the appellant as a template, and filed in evidence, that advertising, which the respondent would not permit the appellant to accept, had been permitted to the previous publisher. Indeed, the record discloses that similar advertising – denied to the appellant – was permitted to the subsequent publisher.

[16] Nowhere in his reasons does the trial judge deal with this important evidence. Similar complaints were made in relation to the editorial content where it appeared the appellant may have been treated differently from the former and subsequent publishers, yet this evidence is not considered anywhere in the reasons.

[17] The written agreement between the parties provided for bulk delivery of the magazine to golf clubs. It was subsequently agreed that the bulk delivery could be done by courier rather than postal delivery to reduce costs. Teri Yomada of the respondent confirmed that arrangement by correspondence, dated March 22, 1996, to Wayne Narciso which stated “all shipments will be via courier”. In paragraph 37 of his reasons the trial judge states “There was no evidence that RCGA agreed that bulk deliveries would be done by courier rather than postal delivery to reduce costs”. That statement appears to be contradicted by the respondent’s March 22, 1996, letter with which the trial judge does not deal.

[18] Overall the trial judge’s reasons are conclusory and do not provide to the reader the path followed by the trial judge to reach the conclusions he did on important points.

[19] In addition the appellant filed detailed written submissions in reply which were never reviewed by the trial judge.

[20] When it became apparent on receipt of the reasons for judgment that the trial judge had not read the reply submissions, counsel for the respondent quite properly wrote to the trial judge, included a copy of the appellants’ reply submissions with his letter and invited the trial judge to make whatever changes he considered appropriate to his reasons in light of those submissions. It is not clear from the record whether the trial judge ever, in fact, read those submissions as was his obligation.

[21] In our view, in light of these shortcomings and others, the judgment below cannot stand. We appreciate that this was a lengthy trial and it is not without some regret that we conclude there must be a new trial.

[22] Counsel for the respondent candidly conceded, and properly so in our view, that if this court were of the view that a new trial was required on liability that trial would of necessity have to deal with both damages and liability. The factual findings in relation to liability are inextricably linked to the damage calculations.

[23] The appeal is allowed, the judgment of Borkovich J. is set aside and the matter is remitted to the Superior Court for trial on all issues before a different judge.

[24] As counsel have agreed, costs of the appeal to the appellant are fixed in the sum of $50,000 inclusive of disbursements and GST.

“Robert J. Sharpe J.A.”

“J. MacFarland J.A.”

“David Watt J.A.”