CITATION: McCracken v. Jacan Investments, 2018 ONSC 4212

COURT FILE NO.: DC-17-0086-00

DATE: 20180705

CORRECTED: 20180710

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

B E T W E E N:

RONALD McCracken

David R. Conway, for the Plaintiff/Respondent

Plaintiff/Respondent

• and -

JACAN INVESTMENTS CANADA INC.

Saba Ahmad, for the Defendant/ Appellant

Defendant/Appellant

HEARD: June 15, 2018, at Brampton

REASONS FOR JUDGMENT

(Corrected Decision: The first page of the decision dated July 5, 2018 was changed as follows:

(The title ‘Endorsement’ was changed to Reasons for Judgment)

[On appeal from a Decision of Deputy Judge Nadler of the Small Claims Court at Brampton dated August 30, 2017]

KURZ J.

Overview:

1This is an appeal of the order of Deputy Judge Nadler of the Brampton Small Claims Court dated August 30, 2017. Nadler D.J. granted judgment to the Respondent, Ronald McCracken (“McCracken”) for $15,000 plus costs for breach of a contract between the parties. Nadler D.J. also dismissed McCracken’s claim against certain principals of Jacan, personally.

2This appeal concerns the interaction of two collateral agreements which the parties signed in April, 2016. Those agreements are what the parties describe as the “incentive letter”, which they signed on April 22, 2016, and a full and final mutual release, which they signed five days later. Nadler D.J. found that the terms of the incentive letter constituted a binding agreement that Jacan pay McCracken the sum of $15,000 at a certain time. He did not find that the release terminated Jacan’s obligations under the incentive letter.

3Jacan’s key argument in this appeal is that Nadler D.J. erred in failing to find that the release terminated its obligations to McCracken under the incentive letter.

Background

4Jacan is a real estate developer. McCracken is an individual who entered into an agreement of purchase and sale with Jacan (“the purchase agreement”) for the purchase of an unbuilt condominium unit (“the unit”). About four years after signing the purchase agreement, McCracken contacted Jacan to indicate that he no longer wished to close the purchase agreement. He sought to cancel that agreement and obtain a refund of his deposit.

5While Jacan could have insisted on McCracken closing the transaction, failing which he would lose his deposit, Jacan did not take that tack. Instead it agreed to refund his deposit money. It further agreed to pay him $15,000 on the closing of the condominium project. One reason that it did so was the fact that unit’s value had increased by at least $15,000 by the time that McCracken sought to terminate the purchase agreement.

6On April 22, 2016, Jacan provided McCracken with three documents that it had prepared. The first was a letter of intent, on Jacan letterhead, dated April 22, 2016. The letter of intent states in part that Jacan accepted McCracken’s request for a mutual release from the purchase agreement. The letter continues:

Both parties have accepted [sic] to release each other from obligation [sic]. Henceforth, Mr. Ronald C. McCracken will have no objection after release [of the unit] to market by builder.

The letter of intent set out that the parties had agreed that McCracken would pay a $1,000 “legal fee for processing” to Jacan.

7Both parties signed the letter of intent on April 22, 2016. Ms. Mussarat Mian an officer and director, signed on behalf of Jacan.

8The letter of intent referred to and enclosed a document, entitled “Mutual Release and Termination Agreement” (“the release”). The terms of the release include the full and final release of each of the parties with regard to the purchase agreement. The relevant terms of the release read as follows:

AND WHEREAS for various pertinent reasons, the parties hereto now desire to terminate the Purchase Agreement, and wish to release each other from any and all claims that they may have arising under (or in connection with) the Purchase Agreement, and have accordingly entered into these presents in order to evidence and confirm the same;

1. The Purchase Agreement, together with any and all addendums thereto and amendments thereof, if hereby terminated and of no force and effect.

2. Forthwith upon execution of these presents by both parties hereto, the Vendor shall refund and remit to the purchaser the sum of $38,985 representing the aggregate of all deposit funds heretofore paid by the Purchaser to the Vendor on account of the Purchase Price of the Units…

3. The parties hereto mutually release each other, and each of their respective heirs, estate, trustees, successors and assigns, from and against any costs, damages, actions, proceedings, demands, and/or claims whatsoever which either of the parties hereto now has or may hereinafter have, against the other party hereto, by reason of, or in connection with the Purchase Agreement (and any and all addendums thereto or amendments thereof) and/or the termination thereof pursuant to the provisions hereof.

4. Without restricting the generality of the foregoing, it is expressly understood and agreed that that the Purchaser shall not make or pursue any claim(s) or proceedings(s) with respect to the Purchase Agreement, the Purchased Units, the Real property and/or the Deposit Monies, against the Vendor …in connection with the Purchase Agreement and termination thereof pursuant to these presents, or in connection with the aforementioned condominium project developed (or intended to be developed) on the Real Property.

5. Upon the execution of these presents by both parties hereto, all of the estate, right, title and interest of the Purchaser in and to the Purchased Units and the Real Property (both at law and in equity, and whether in possession, expectancy or otherwise) shall be automatically released and quit-claimed to and in favour of the Vendor and its successor and assigns forever.

9The third document that Jacan delivered to McCracken was the incentive letter. Like the letter of intent, it was printed on Jacan letterhead and signed by both parties on April 22, 2016. Again, Ms. Mian signed on behalf of Jacan. The letter of intent reads as follows:

This letter is to confirm that by the closing of the project Appleby Gardens 5001 Corporate Drive by September 30th, 2016, Mr. Ronald C. McCracken (Previous purchaser of unit #302) shall be paid $15,000 as incentive fee.

10Jacan and McCracken signed the release on April 27, 2016, five days after they signed the incentive letter and the letter of intent. Jacan argues that by signing the release after having signed the incentive letter, McCracken released any claims that he may have had against Jacan under the incentive letter. Accordingly, Jacan asserts that Nadler D.J. committed an error in law by failing to enforce the release and dismiss the action before him.

11However, Jacan never pleaded that defence. In fact, it never raised it until almost halfway through the trial. When it attempted to do so during McCracken’s cross-examination, his counsel objected. Nadler D.J. sustained the objection. Jacan asserts that Nadler D.J. committed a legal error by failing to allow it to cross-examine McCracken to show that the release terminated any claims that he had under the incentive letter. They continue, arguing that Nadler D.J. compounded his error by failing to allow Jacan to amend its defence at trial to claim that alleged effect.

12Jacan further asserts that in making his decision, Nadler D.J. reversed the onus of proof. It says that he made Jacan disprove the terms of the alleged agreement between the parties rather than make McCracken prove those terms.

13Finally, Jacan argues that Nadler D.J. impermissibly relied on the parties’ post-contractual communications in order to interpret the terms of the parties’ bargain.

Issues on Appeal

14Based on the arguments set out above, Jacan’s appeal raises the following issues:

1. What were the terms of the agreement(s) between the parties arising out of the termination of the purchase agreement?

2. Did Nadler D.J. err in refusing to consider the defence that the release terminated the incentive letter because that defence had not been pleaded?

3. Did Nadler D.J. err by reversing the onus of proof in the action before him? and

4. Did Nadler D.J. err by relying on the post-contractual correspondence of McCracken in order to interpret the agreement between the parties?

15For the reasons that follow, I find that Nadler D.J. committed no reversible error in finding that the incentive letter was binding on Jacan and ordering that it pay McCracken $15,000 for breach of that agreement.

Standard of Appellate Review

16Questions of law are subject to an appellate standard of correctness. Questions of fact are subject to an appellate standard of a palpable and overriding error, requiring appellate deference. Questions of mixed fact and law are:

“… based upon a spectrum between the standards of review for errors of fact or errors of law. The standard of review requires more of a palpable and overriding error the more the question involves a finding of fact, and leans more towards the standard of correctness where the alleged error is more one of law or principle. Where a question under appeal is one of mixed fact and law, the standard of review is based upon a spectrum between the standards of review for errors of fact or errors of law. The standard of review requires more of a palpable and overriding error the more the question involves a finding of fact, and leans more towards the standard of correctness where the alleged error is more one of law or principle:

(John v. Office of Independent Police Review Director, [2017] O.J. No 282 (Ont. Div. Ct) at par. 87

Issue No. 1: What were the terms of the agreement(s) between the parties arising out of the termination of the purchase agreement?

17Jacan claims that Nadler D.J. committed a number of errors in failing to confirm its position that the release terminated its obligations to McCracken under the commitment letter.

18Jacan begins by arguing that Nadler D.J. erred in law by failing to follow the pathway for the interpretation of contracts set out by Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. In particular, it argues that Nadler D.J. was required to rely on what it claims to be the clear wording of the release. Jacan asserts that Nadler D.J. could only consider the circumstances surrounding the signing of the release (including the incentive letter) if there is any ambiguity in the release’s clear wording. Jacan cites Sattva Capital Corp. at par. 57 to argue that the evidence of the circumstances surrounding the making of the release cannot be used to “overwhelm” it.

19Jacan continues by arguing that Nadler D.J. erred by ignoring the clear wording of the release, as it interprets the document, while relying on the incentive agreement. It says that the wording of the release was so clear that Nadler D.J. should have considered nothing else.

20I do not accept Jacan’s argument for three reasons. First, it ignores the wording of the incentive letter, which Nadler D.J. did not err in interpreting. Second, the clear wording of the release did not cover the incentive letter. Finally, as set out in response to issue number 2 below, it was open to Nadler J. to refuse to consider Jacan’s release defence because it failed to properly plead that defence.

Nadler D.J. did not err in Interpreting the Incentive Letter

21While Jacan concentrates on the release, Nadler D.J. properly looked first to the agreement that was the subject of both sets of pleadings, the incentive letter. He accepted McCracken’s uncontested evidence explaining the rationale for the $15,000 payment. McCracken testified that the value of the unit had increased by at least $15,000 in the four years between the signing of the purchase agreement and the time of the incentive letter. Thus Jacan had a commercially reasonable justification for entering into the incentive agreement and consideration for the $15,000 payment.

22Nadler D.J. accepted McCracken’s evidence that the $15,000 payment was contingent only on the closing of the condominium project. He rejected Jacan’s evidence (which reflected the defence set out in its pleadings) that the payment was contingent on McCracken finding a buyer for the unit. While Nadler D.J. made those findings for a number of reasons, he primarily relied on the wording of the incentive letter itself. That letter makes no reference to a requirement that McCracken find a buyer for the unit. Instead it tied the payment to Jacan’s closing date for the condominium project.

23Nadler D.J. added that Ms. Mian, who signed the incentive letter on behalf of Jacan, was “not an unsophisticated individual”. She was a real estate agent and the principal of a company that was developing a multi-unit residential condominium project. Those findings of fact are entitled to appellate deference.

24Further, as Nadler D.J. pointed out, Jacan prepared the incentive letter itself. Thus any ambiguities that cannot be resolved by ordinary methods of statutory interpretation should be interpreted against it (see Dunn v. Chubb Insurance Co. of Canada, 2009 ONCA 538, [2009] O.J. No. 2726 (O.C.A.) at par 36).

25In addition to the above, as will be discussed in greater detail below, Nadler D.J. also relied on Ms. Mian’s own evidence, including her admissions during cross examination, to reject Jacan’s claim that the payment was contingent on McCracken finding a buyer.

26In sum, Nadler D.J. had numerous reasons for his interpretation of the incentive agreement. He made no error in that interpretation.

Wording of the Release does not Include the Incentive Letter

27Jacan’s argues that the wording of the release, signed five days after the signing of the incentive letter, is so broad that it covers the payment obligations set out in the incentive letter. But even if the release were properly before the court, its plain wording does not support Jacan’s contention.

28Paragraph 4 of the release, upon which Jacan hangs its metaphorical hat, makes no reference to the incentive letter or the $15,000 payment obligation. Rather, it specifically calls for a release of any claims related to “…the Purchase Agreement (and any and all addendums thereto or amendments thereof) and/or the termination thereof pursuant to the provisions hereof.”

29Looked at closely, the ambit of the release is actually quite limited. It refers only to the purchase agreement and the terms of the release itself. While the release refers to the termination of the purchase agreement, it only does so only in the context of the release’s own provisions. Since the release fails to mention the incentive letter or its $15,000 payment obligation to McCracken, it does not release Jacan from that obligation.

30Finally, as Nadler D.J. pointed out, Jacan’s release defence was undermined by Ms. Mian’s own evidence. In cross-examination, she admitted that Jacan would still honour the terms of the incentive letter, as she interpreted it, even on the day of trial. That could not be the case if the obligation under the incentive letter had been terminated by the release.

Issue No. 2: Did Nadler D.J. err in refusing to allow evidence on an issue that had not been pleaded?

31At one point in his cross-examination of McCracken, Jacan’s representative attempted to raise the release defence. McCracken’s representative objected that this alleged defence had not been pleaded. Jacan argues that Nadler D.J. erred in law sustaining that objection and limiting its right to cross-examination on this point. It adds that he should have an amendment to the pleadings at trial (even though one was not requested).

32Although not alluded to in either party’s materials, I referred counsel to the decision of Heeney J. in 936464 Ontario Ltd. (c.o.b. Plumbhouse Plumbing & Heating) v. Mungo Bear Ltd. 2003 72356 (ON SCDC), [2003] O.J. No. 3795 (Ont. Div. Ct.). There, Heeney J. stated that the ordinary rules of pleading that apply in the Superior Court do not apply in the Small Claims Court. He stated at par. 44:

The higher standards of pleading in the Superior Court are simply unworkable in the Small Claims Court, where litigants are routinely unrepresented, and where legal concepts such as the many varieties of causes of action are completely foreign to the parties. Essentially, the litigants present a set of facts to the Deputy Judge, and it is left to the Deputy Judge to determine the legal issues that emerge from those facts and bring his or her legal expertise to bear in resolving those issues.

33Heeney J. continued, adopting this direction offered by the Newfoundland Court of Appeal in Popular Shoe Store Ltd. v. Simoni, 1998 18099 (NL CA), [1998] N.J. No. 57 (N. C.A.):

25A Small Claims Court judge has a duty, on being presented with facts that fall broadly within the umbrella of the circumstances described in the Statement of Claim, to determine whether those facts constitute a cause of action known to the law, regardless of whether it can be said that the claimant, as a matter of pleading, has asserted that or any other particular cause of action. Subject to considerations of fairness and surprise to the other side, if a cause of action has been established, the appropriate remedy, within the subject-matter jurisdiction of the court, ought to be granted.

34Despite the broad latitude offered to litigants in Small Claims Court, pleadings in that court are still be subject to a minimal standard of fairness. The pleadings must set out, at a minimum, sufficient facts to allow the party opposite and the court to determine the cause of action or defence being pleaded.

35As the Newfoundland Court of appeal stated in Popular Shoe Store Ltd. v. Simoni, the Small Claims Court’s broad rules of pleading are subject to considerations of fairness and surprise to the other side. Those broad and liberal rules are not an invitation to “lie in the weeds” or “sandbag” an opponent with a surprise claim or defence at trial.

36In reviewing Jacan’s defence in this action, I find that it was well within Nadler D.J.’s discretion to sustain McCracken’s objection that raising the release at trial was unfair and should not be allowed.

37Nothing in Jacan’s defence cited the argument that the release terminated Jacan’s obligations under the incentive letter. To the contrary, Jacan’s entire defence was premised on its interpretation of the incentive letter as requiring McCracken to find a new buyer for the unit before he was entitled to the $15,000 payment.

38In fact, the only reference to the release in Jacan’s defence implicitly contradicts Jacan’s appellate argument about its effect. At par 11 of its defence, Jacan pleads that the terms of the release were for McCracken’s benefit. Jacan stated:

The defendants deny that The Release and Termination Agreement were used by Jacan to benefit [its principals] Liaquat and Mussarat. To the contrary, the Release and Termination Agreement were done to alleviate McCracken’s financial obligations as the owner of the property. [emphasis added]

39Raising the release defence at trial was not simply a matter of fitting a different legal basis to facts already pleaded. It represented a new case altogether – both new facts and an entirely new argument. That was highly unfair and prejudicial to McCracken. He and his counsel had no notice that this defence was coming. In refusing to allow a surprise defence, Nadler D.J. properly exercised his role as procedural gatekeeper, charged with ensuring that the trial process was fair to each party.

40It is relevant to point out that, unlike the scenario described by Heeney J. in Mungo Bear, Jacan was represented throughout the proceeding below by a registered paralegal. As he admitted before Nadler D.J., that paralegal drafted Jacan’s defence. It was open to Jacan and its representative at any time prior to trial to amend its pleadings to include the claim that the release trumps the incentive letter. It failed to take that step.

41Jacan further asserts that Nadler D.J. erred in failing to allow it to amend its pleadings at trial. However it made no such request at trial. There is no air of reality to the assertion that Nadler D.J. erred in failing to grant a request that was not made.

Issue No 3: Did Nadler D.J. err by reversing the onus of proof in the action before him?

42It is difficult to give credit to the argument that Nadler D.J. reversed the onus of proof of the agreement between the parties. The agreement that both parties averred to in their pleadings was the incentive letter. Neither cited the release. The interpretation of that agreement was the key issue at trial. Since McCracken was suing to enforce the incentive letter, he bore the onus of proving it. Nadler D.J. clearly found, in reasons that are clear, that he had done so.

43In failing to make McCracken also disprove a release defence that was not properly placed before the court, Nadler D.J. committed no error.

Issue No. 4: Did Nadler D.J. err by relying on the parties’ post-contractual correspondence in order to interpret the agreement between the parties?

44In his reasons, Nadler D.J. cites post-contractual written communications between the parties to confirm his interpretation of the terms of the incentive letter. There are two reasons that Nadler D.J. considered these communications. First, they contradicted and impeached Ms. Mian`s testimony on behalf of Jacan (she was its only witness). Second it was evidence that Nadler D.J. considered in regard to Jacan’s claim that the incentive letter did not mean what it said. It was clearly open to Nadler D.J. to consider that correspondence for the first reason, and no harm was done in regard to the second purpose.

Contents of the Correspondence Between the Parties

45McCracken relied on the post-contractual correspondence between the parties to assert that Jacan itself believed that the $15,000 payment was due on the closing of the condominium project. Jacan’s only written explanation to McCracken for the delay in payment was the delay in closing.

46McCracken’s point was made in two emails sent by Jacan to him on September 27, 2016, three days before the $15,000 was originally due. McCracken had written to Jacan earlier that day to state that he expected payment of $15,000 by September 30, 2016, as called for in the incentive letter. He was clearly aware that the closing of the project, originally scheduled for September 30, 2016, would be delayed. But he clearly expressed the view that the delay should not affect his payment.

47Ms. Mian wrote back to explain that the closing had been delayed to December 31, 2016 because of a strike by the trades. Implicit in the letter was the view that the delay in closing was material to Jacan’s obligation to McCracken. Ms. Mian made no mention of any other contingency relevant to the financial obligation.

48Twelve minutes later, Phoung Nguyen, project coordinator of Jacan, wrote to McCracken. Mr. Nguyen referred to himself in his email as “… the [Jacan] contact person in regard to your matter going forward.” Conflating the release with the incentive letter, he wrote:

Please note that the mutual release signed states clearly that payment is due on closing which is currently set on December 31, 2016

49Once again this email appears to be premised on the supposition that the only contingency relevant to the payment was the closing of the project.

Post-Contractual Correspondence Relevant to Ms. Mian’s Credibility

50Ms. Mian insisted in her trial testimony that the agreement behind the incentive letter made the $15,000 payment contingent on McCracken finding a buyer for the unit. Yet Jacan’s own correspondence clearly belied her evidence. McCracken was entitled to confront her at trial with this discrepancy.

51Ms. Mian had to admit that nowhere in Jacan’s correspondence with McCracken was there any mention of the $15,000 payment being contingent on McCracken finding a buyer for the unit. Nadler D.J. relied on this admission. Thus the post-contractual correspondence between the parties is relevant to the credibility of both Ms. Mian in general and to her claim that the payment was contingent on McCracken finding a buyer.

Post-Contractual Correspondence may Assist to Resolve any Ambiguity in Incentive Letter

52Further, in the event of any ambiguity in the terms of the incentive letter, the correspondence between the parties had some potential, albeit limited, independent value in resolving that ambiguity.

53While such after-the-fact communication cannot be used to contradict the clear wording of a contract, subsequent conduct can be relevant in the event of ambiguity as to contractual terms. In relying on evidence of subsequent conduct, the court must be careful about its inherent dangers. As Strathy, C.J.O. wrote for the Ontario Court of appeal in Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, [2016] O.J. No. 6190 (O.C.A.), at par. 43 - 45, those dangers include the following:

• The post-contractual conduct may change over time, leading to a fluctuation of the interpretation of the contract.

• The evidence of post-contractual conduct may be ambiguous.

• Finally, reliance on post-contractual behaviour may reward self-serving behaviour.

54Nonetheless, Strathy J. found that evidence of subsequent conduct may be of some value in resolving an ambiguity as to the interpretation of contractual terms. As he wrote:

48 Despite its dangers, evidence of subsequent conduct can be useful in resolving ambiguities. It may help to show the meaning the parties gave to the words of their contract after its execution, and this may support an inference concerning their intentions at the time they made their agreement (references omitted)…

55Even then, the court must be careful of the use it makes of such evidence (see also Thunder Bay (City) v. Canadian National Railway Co., [2018] O.J. No. 3094 (O.C.A.) at par. 63-66).

56Here, to the extent that there was any ambiguity in the meaning of the incentive letter, as implicitly asserted by Jacan, it was open to Nadler D.J. to consider the parties’ subsequent written statements. He could consider them in order to see whether they assist him to determine the parties’ intentions at the time of contractual formation. Here that step was open to Nadler D.J. because none of the dangers identified by Strathy C.J.O. were manifest in the parties’ correspondence.

57That being said, the term of the incentive letter was clear enough on its face that post-contractual correspondence was not needed to resolve any ambiguity. It was sufficient to rely on the correspondence to impeach Ms. Mian’s credibility. Here, the use that Nadler D.J. made of the post-contractual correspondence accorded with the plain meaning of the incentive letter. To the extent that he considered that evidence in to resolve any conflict about the meaning of the incentive letter, no harm was done.

Conclusion

58For all of the reasons set out above, I dismiss this appeal.

59If the parties cannot agree with regard to costs, Mr. Conway may submit a costs submission of up to three pages, double spaced, along with any bill of costs, offer to settle and authorities within 14 days.

60Ms. Ahmad may respond in kind within a further 14 days.

Kurz J.