Court File and Parties

COURT FILE NO.: CV-17-579691 DATE: 20190524

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

8254125 Canada Inc., 8254141 Canada Incorporated, and 8254133 Canada Ltd. Applicants – and – Celernus Investment Partners Inc. Respondent

COUNSEL: Ryan Atkinson and Rachel Mester for the Applicants (“Mortgagors”) Ronald Allan and Sunny Rehsi, for the Respondent (“Mortgagee”)

HEARD: March 20, 2019

Reasons for Decision

KIMMEL J.

1This application involves the interpretation of a settlement agreement dated November 15, 2016 (the “Settlement Agreement”) pursuant to which the parties settled the applicants’ default under mortgages (the “Charge”) that had been assigned to the respondent. The settlement was for a reduced amount of the balance owing to the respondent/Mortgagee and was entered into in order to facilitate a distress sale of properties (the “Pembrooke Properties”) that stood as security for the Charge. This application will determine which party is entitled to receive the $100,000.00 holdback from that settlement (the “Holdback Amount”). The Holdback Amount is being held by counsel for the applicants as escrow agent under an Escrow Agreement effective as of the 15th day of November 2016 (the “Escrow Agreement”) that was annexed as Schedule “C” to the Settlement Agreement.

2This application was commenced in July of 2017. The parties have filed extensive materials (that exceed the capacity of a banker’s box) and were embroiled in various procedural motions (and threats of law society complaints) leading up to the hearing of the application on its merits. I was referred during the course of oral argument (which took more than 5 hours to complete and exceeded the time reserved for the hearing) to 15 different briefs comprised of evidence, case law and submissions. The amount of time and effort that has gone into this dispute (over $100,000.00 ¹) appears to be disproportionate. I will have more to say about this if I am asked to adjudicate on costs.

The Contract Interpretation Issue and Positions of the Parties

3This application turns upon the interpretation of section 4 of the Settlement Agreement (a particular phrase contained therein, which is repeated in various other sections of the Settlement Agreement and the Escrow Agreement). Specifically, the outcome turns on the determination of what it means for: the Mortgagors to provide satisfactory registration of the sum of $200,000.00 on the Collateral Properties which said satisfaction shall be in the sole and absolute discretion of the Mortgagee (the “Additional Security”).

4The applicants contend that their registration of a $200,000.00 mortgage on or about December 30, 2016 in favour of the respondent against the title to the remaining Collateral Properties (as later defined, located in Orangeville, also known as the “Orangeville Properties”) was satisfactory registration and that the respondent/Mortgagee cannot unreasonably exercise its “sole and absolute discretion” to reject that registration and refuse to sign the joint irrevocable direction for the release of the Holdback Amount from escrow to the applicants/Mortgagors. The applicants contend that the respondent did not bargain for satisfactory or sufficient security and that it does not have an unfettered discretion to accept or reject the mortgage once registered, but, rather, has a good faith obligation to accept the registered mortgage as satisfactory.

5The respondent contends that unless and until it decides that the mortgage registered by the applicants, including the Additional Security that it represents, is satisfactory in its sole and absolute discretion, it is not obligated to sign the joint irrevocable direction for the release of the Holdback Amount. It further contends that it was fully within its rights to send a written notice, on or after the 1st day of January, 2017 (which it did do on January 5, 2017) advising that section 4 of the Settlement Agreement was not fulfilled and that the Holdback Amount should be released to the Mortgagee in accordance with section 7 of the Settlement Agreement.

Summary of Disposition

6For the reasons that follow, I agree with the respondent’s position concerning the proper interpretation of the Settlement Agreement and that the respondent is entitled to be paid the Holdback Amount.

7In terms of the other arguments raised by the respondent, I do not find that any misrepresentations were made by the applicants at the time that the Settlement Agreement was entered into, or that it can be rescinded by the respondent, or, in any event, that rescission would be an appropriate remedy in the circumstances.

Applicable Principles of Contract Interpretation

8The interpretation of the Settlement Agreement is governed by general principles of contract interpretation. The leading contract interpretation case from the Supreme Court of Canada, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, provides the following guidance (at paras. 47-48 and 57-58, with reference to various principles and authorities):

a. the overriding concern is to determine the mutual objective intent of the parties and the scope of their understanding as expressed in the words of the contract; b. the interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract; c. the contract must be read as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract; d. the meaning of the words can be derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by it. The meaning of the document is not necessarily the same thing as the dictionary meaning of its words; the meaning of the document is what the parties using the words against the relevant background would reasonably have understood those words to mean; e. the court should have regard to the surrounding circumstances and the factual matrix when interpreting a written contract; f. the surrounding circumstances should consist only of objective evidence of the background facts at the time of the execution of the contract; that is, facts that were known or reasonably ought to have been within the knowledge of both parties at or before the date of contracting; g. in a commercial contract the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the nature of the relationship between the parties both before and after the contract is entered into, the context, and the market in which the parties were operating; and h. the surrounding circumstances (factual matrix) should never be allowed to overwhelm the words of the agreement and should not be used to deviate from the text such that the court effectively creates a new agreement.

9The respondent also relies on recognized contract interpretation principles that have been developed in the context of contracts between commercial parties and recently summarized in the case of Shaun Development Inc. v. Shamsipour, 2018 ONSC 440, 94 R.P.R. (5th) 15, at para. 46, affirmed, 2018 ONCA 707, 94 R.P.R. (5th) 44:

a. the court presumes that the parties have intended what they have said; b. the court construes the contract as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective; c. the court may have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties; d. the court should interpret a contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity; e. extrinsic evidence may be resorted to in order to clear up an ambiguity; and f. while the factual matrix can be used to clarify the intention of the parties, it cannot be used to contradict that intention or create an ambiguity where one did not previously exist.

The Relevant Contractual Provisions

10Section 4 of the Settlement Agreement reads as follows:

In consideration of the reduced payout as referenced above, the Mortgagors agree to provide satisfactory registration of the sum of $200,000.00 on the Collateral Properties which said satisfaction shall be in the sole and absolute discretion of the Mortgagee (the “Additional Security”).

11Section 7 of the Settlement Agreement reads as follows:

The sum of $100,000.00 (the “Holdback Amount”) shall be held by the Mortgagor’s solicitor, subject to the terms of the escrow agreement annexed hereto as Schedule C (the “Escrow Agreement”) of this settlement agreement. The parties agree that the Holdback Amount shall be released to the Mortgagors upon the Mortgagors’ registration of the Additional Security which said registration must be to the sole and absolute discretion of the Mortgagee. In the event that the Mortgagors do not register the Additional Security satisfactory to the Mortgagee by the 31st day of December 2016, it is hereby agreed by all the parties that the Holdback Amount shall be released to the Mortgagee.

12Section 3 of the Escrow Agreement reads as follows:

Disposition of the Holdback Amount. The Holdback Amount shall be held by ATKINSON in accordance with the provisions of the Settlement Agreement. Following the Mortgagors’ fulfillment of Section 4 of the Settlement Agreement, ATKINSON shall release the Holdback Amount to the Mortgagors in accordance with a joint written irrevocable direction from the Mortgagors and the Mortgagee to be provided by said parties immediately upon the Mortgagors’ fulfillment of Section 4 of the Settlement Agreement. ATKINSON shall continue to hold the Holdback Amount until: (i) such time as ATKINSON receives a joint written irrevocable direction signed by each of the Mortgagors and the Mortgagee as contemplated in this Section 4; or (ii) ATKINSON is provided written notice, on or after the 1st day of January, 2017, from the Mortgagee advising that Section 4 of the Settlement Agreement was not fulfilled and that the funds are to be released to the Mortgagee in accordance with Section 7 of the Settlement Agreement.

Background Facts and Circumstances Surrounding the Settlement Agreement

13The following facts form part of the circumstances known to the parties surrounding the Settlement Agreement:

a. the original loan to the applicants was secured by first mortgage(s) registered against the Pembrooke Properties on or about April 3, 2013 and re-registered on or about February 11, 2016, in the principal amount of $1,200,000.00 (the “Charge”); b. the loan was collaterally secured by mortgage(s) registered on or about August 1, 2014 against title to certain properties in Orangeville (identified in the preamble to the Settlement Agreement as the “Collateral Properties” and also referred to as the Orangeville Properties), behind a first mortgage already registered against those properties; c. the loan and all of the security and collateral security was assigned to the respondent on or about May 22, 2015 although its predecessor remained named as the mortgagee on title until the mortgage(s) were discharged in accordance with the Settlement Agreement ²; d. the first mortgagee had commenced power of sale proceedings in respect of the Orangeville Properties by early 2016; e. as of the 1st day of November, 2016 the Charge had an outstanding balance in the sum of $1,469,840.43, which was confirmed in the payout statement annexed as Schedule “A” to the Settlement Agreement (the “Charge Payout”); f. by November 2016, the applicants had negotiated the sale of the Pembrooke Properties to a buyer for a purchase price that was expected to result in insufficient funds to payout the Charge in accordance with the Charge Payout, but was considered by all interested parties to be a provident transaction; g. in order to facilitate the sale of the Pembrooke Properties, the Mortgagee agreed, among other things, to: i. allow certain payments to be made out of the sale proceeds to subsequent and unsecured encumbrancers; and ii. settle all of its claims, debts and accountings in relation to the Charge and discharge and release its interest, claims and demands in the Pembrooke Properties for a reduced payout amount; h. the Settlement Agreement was drafted in haste in order to facilitate the closing of the purchase transaction involving the Pembrooke Properties because there was a concern by November 2016 that the purchaser might not close the transaction if it could not be completed immediately; i. the reduced payout amount that the Mortgagee agreed to accept under the Settlement Agreement (of $1,167,000.00) was negotiated based on what the Mortgagors anticipated and advised the available sale proceeds from the Pembrooke Properties would be. This and the other intended distributions of sale proceeds to other specified creditors were reflected in a trust ledger dated November 16, 2016 that the parties agree was intended to be annexed as Schedule “B” to the Settlement Agreement ³; j. the trust ledger specified a sale proceeds amount that was net of a credit that the purchaser had demanded for pre-paid rents of various tenants (totalling $24,163.74); k. the Settlement Agreement was dated and effective on November 15, 2016 and was executed on or about November 16, 2018; l. the reduced payout amount that was agreed to under the Settlement Agreement was paid to the respondent on or about November 21, 2016 and the discharge of the Charge was registered on that same day; m. after the Settlement Agreement was signed, the parties corresponded about the possible registration of a mortgage(s) (Additional Security) over the Collateral Properties, and counsel for the applicants reiterated in a December 22, 2016 email that the Mortgagee and its solicitor should “Please satisfy yourselves regarding the remaining equity in the condo properties….We make no representation in respect of the ownership of the condo properties at any given time, as there is a pending sales process, and expect that you independently verify and satisfy yourselves”; n. on December 24, 2016 counsel for the Mortgagee reviewed the status of the power of sale proceedings by the first mortgagee in respect of the Orangeville Properties (Collateral Properties) and advised that “After careful review, our client has determined that there is not adequate security to register a second mortgage to secure the remaining amounts owing to our client as per our charge and our settlement agreement. Given the foregoing, in the New Year we will be requesting that you forward the holdback funds to the sum of $100,000.00 to our office as per the escrow agreement.” o. on or about December 30, 2016, the applicants registered a charge against the remaining Collateral Properties (that had not as of yet been sold under the power of sale proceedings) in the principal amount of $200,000.00, which contained no other terms and had not been approved by the respondent or its counsel, and the applicants’ counsel took the position that the Mortgagee did not have a discretion that allowed it to reject the registration of the Additional Security on the basis of the amount of equity remaining in the Collateral Properties; and p. on or about January 5, 2017, the respondent sent a written notice to the applicants that Section 4 of the Settlement Agreement (requiring satisfactory registration of the sum of $200,000.00 on the Collateral Properties … in the sole and absolute discretion of the Mortgagee) was not fulfilled and demanding the release of the Holdback Amount from escrow pursuant to the Escrow Agreement.

14The applicants were aware of the following additional facts relating to the sale of the Pembrooke Properties that were not disclosed to the respondent at the time:

a. after the Settlement Agreement was signed but before the closing of the purchase transaction, it was discovered that the pre-paid rents that were being credited to the purchaser on the closing of the sale of the Pembrooke Properties might be lower than had been originally understood (and had been reflected in the net sale proceeds disclosed on the trust ledger at Schedule “B” to the Settlement Agreement); b. the closing of the purchase transaction in respect of the Pembrooke Properties took place on November 22, 2016; c. after the closing (also on November 22, 2016) $16,439.34 representing the challenged pre-paid rents were paid into trust and held by the applicants’ counsel; d. the challenged pre-paid rents were paid out of trust by the applicants’ counsel to the applicants on or about April 14, 2017; e. notwithstanding their release from trust to the applicants, as of November 2018 the purchaser was still disputing the pre-paid rents and counsel for the applicants advised at the hearing that the purchaser still claims entitlement to the disputed pre-paid rents, which entitlement remains to be determined through an alternative dispute resolution process.

Evidence of Subjective Intentions and Understandings and Subsequent Events not Relating to Contractual Performance

15The documentary record is the primary evidentiary foundation for my findings of fact above, which are not controversial. However, the parties both also referred me to affidavits and transcripts of evidence in chief and cross-examination about what certain individual party representatives (and/or their lawyers) intended or understood at the time the Settlement Agreement was negotiated and entered into. I have not taken into account this evidence of the subjective intentions and understandings of the parties as I do not consider that to be properly admissible in the contract interpretation exercise that has been engaged by the issues before me.

16I do not find the Settlement Agreement to be ambiguous, for the reasons outlined below. Notably, neither of the parties argued that it is ambiguous. In these circumstances, evidence of subjective intent is not relevant, is not part of the factual matrix, and should not be considered by the court: see Shaun Development Inc., at para. 46.

17The court was also provided with current information about events and circumstances arising long after the Settlement Agreement concerning the outcome of the power of sale proceedings over the Orangeville Properties. The first mortgagee’s pay out statement as of April 30, 2018 indicated a balance still owing to the first mortgagee of $497,455.08 with three condominiums still subject to sale. As of March of 2019, the first mortgagee indicated that it was unlikely there would be significant monies available after the last condominium is sold. This evidence of subsequent events does not rise to the level of evidence of the conduct of the parties in the performance of their duties under the Settlement Agreement (as they understood them), and is also not relevant or admissible to the issues to be decided by me. I have not taken it into account.

Contract Interpretation Analysis

18The starting point in the interpretative exercise must be to consider the words and text of the Settlement Agreement and the Escrow Agreement appended as Schedule “A”, reading them together and as a whole. When all of the related provisions of the Settlement Agreement and the Escrow Agreement are read together the objective intention of the parties is clear: that the Mortgagee’s sole and absolute discretion was with respect to the Additional Security, and not simply the act of its registration on title.

19The words of section 4 of the Settlement Agreement, which give the Mortgagee the sole and absolute discretion to determine whether the registration of $200,000.00 on the Collateral Properties is satisfactory are bound up in, and form part of, the very definition of the “Additional Security” that was being proffered. Section 7 of the Settlement Agreement repeats this concept of satisfactory registration but also provides additional insight into what the parties meant by it in the consequence provided for in the event that the Mortgagors do not register the Additional Security satisfactory to the Mortgagee by the 31st day of December 2016.

20The wording of the Escrow Agreement is also consistent with this interpretation in that it only provides for two circumstances under which the Holdback Amount can be released, both of which require the Mortgagee’s concurrence with the determination of whether or not section 4 of the Settlement Agreement has been fulfilled, either: (i) a joint written irrevocable direction signed by both the Mortgagee and the Mortgagors upon fulfillment of section 4 of the Settlement Agreement; OR (ii) a written notice from the Mortgagee advising that section 4 was not fulfilled.

21I was not referred to any evidence in the record to suggest that there was some anticipated issue with the manner or form of registration of a mortgage against title to the Collateral Properties. There was evidence that the parties agreed that the act of registering a mortgage was an administrative matter. In this context, there would be nothing for the respondent to have discretion over (or to be satisfied about in its sole and absolute discretion) in respect of the act of registration itself. In order to give meaning and effect to this provision, the Mortgagee’s discretion must have been intended to be over something more than the mere act of registration of the Additional Security.

22Furthermore, reading these provisions of the Settlement Agreement to mean that it is the Additional Security (under a new registered mortgage) that the Mortgagee must be satisfied with, in its sole and absolute discretion, is also consistent with the commercial context. That context included that:

a. This was a distress sale situation in which the Settlement Agreement was needed in order to permit the sale of the Pembrooke Properties. b. The respondent was being asked to take a reduced payout and agree to certain subsequent and unsecured creditors being paid ahead of its first mortgage security; c. The parties were engaged in negotiations over the final tranche of what the Mortgagee would receive in exchange for the settlement and discharge of its Charge while under the time pressure to complete the Settlement Agreement so that the sale transaction would not be lost. d. The Additional Security that was being offered included properties already known to be under power of sale proceedings.

23Interpreting the Mortgagee’s sole and absolute discretion as allowing for its assessment of the equity and strength of the Collateral Security is consistent with this commercial context and the tension that existed between the need to complete the purchase transaction for the Pembrooke Properties and the risks not yet fully assessed in respect of the Additional Security over the Collateral Properties that was being proffered. This interpretation is also consistent with the communications between the parties shortly after the Settlement Agreement was signed, that the Mortgagee should satisfy itself with regard to the remaining equity underlying the Additional Security.

Contra Proferentem

24The applicants argued that the doctrine of contra proferentem should be applied and that the words of the Settlement Agreement (“satisfactory registration”) should be read strictly against the Mortgagee because its lawyer drafted it. The circumstances of this case do not lend themselves to the application of this doctrine. My understanding of the evidence is that the reason that the Mortgagee’s counsel was left to draft the Settlement Agreement was because the applicants’ counsel had to leave for his honeymoon. Furthermore, both parties had equal opportunity to participate in the negotiation and drafting of the Settlement Agreement, which was a product of those negotiations: see Ironside v. Smith, 1998 ABCA 366, 223 A.R. 379, at para. 67. In any event, as outlined earlier in these reasons, I do not consider the strict interpretation that the applicants contend to be objectively reasonable.

The Alleged Lack of Good Faith on the Part of the Mortgagee

25Both parties (for different reasons) referred in their written submissions to the principle of good faith in the performance of contractual obligations.

26The applicants cited authority for the proposition that contractual conditions subject to discretionary judgments (sometimes referred to as “sole discretion clauses”) must be exercised honestly and in good faith (and the exercise of that discretion should not be capricious or arbitrary and must be reasonable): see Marshall v. Bernard Place Corp. (2002), 58 O.R. (3d) 97 (C.A.), at paras. 16-20. This is the objective standard of reasonableness that is applied to sole discretion clauses that are considered to relate to objectively verifiable matters, whereas a subjective standard may be applied to matters that are not readily susceptible to objective measurement.

27Arguably, the sole discretion clause in the Settlement Agreement could be considered to be subjective, but even applying the objective standard of reasonableness, I find that the Mortgagee did act reasonably and was not capricious or arbitrary. After the Settlement Agreement was signed it sought out and obtained information about the equity and strength of the Additional Security, having regard to the status of the ongoing power of sale proceedings. The Mortgagee’s counsel attested that it was only after contacting counsel with carriage of those enforcement proceedings that the Mortgagee learned that three of the Orangeville Properties had already been sold. Its counsel advised in an email on December 24, 2016 that:

After careful review, our client has determined that there is not adequate security to register a second mortgage to secure the remaining amounts owing to our client as per our charge and our settlement agreement. Given the foregoing, in the new year we will be requesting that you forward the holdback funds to the sum of $100,000.00 to our office as per the escrow agreement.

28I find this to be both an objective and subjective reasonable exercise of the Mortgagee’s sole and absolute discretion regarding the Additional Security.

29As I have already found, the Settlement Agreement afforded the respondent sole and absolute discretion in the determination of whether or not it was satisfied with the Additional Security. The Mortgagee’s good faith performance of the Settlement Agreement and the exercise of its discretion did not require it to take any specific further steps or conduct further diligence about the Additional Security, beyond the inquiries and assessments it made about the adequacy of the Additional Security (described above). The communications between the parties confirmed that it was left to the respondent to satisfy itself (or not) as to the underlying equity. While the respondent could have elected to accept the Additional Security with the associated uncertainty and risks arising from the ongoing power of sale proceedings, after receiving the requested update, it did not have any obligation to do so (or to accept the Mortgagors’ views about the remaining equity). In these circumstances, it had the option to elect to receive the Holdback Amount instead.

The Alleged Misrepresentations by the Mortgagors

30The respondent has made allegations about material misrepresentations of the applicants/Mortgagors concerning the ownership (and availability) of the Collateral Properties against which the Additional Security would be registered and about the accuracy of the trust ledger statement to be annexed as Schedule “B” to the Settlement Agreement, which the respondent relied upon in agreeing to a lower settlement amount in satisfaction of the Charge. The respondent contends that these misrepresentations entitle it to rescission of the Settlement Agreement, or damages in the alternative. The applicants deny making any misrepresentations.

31In this context, the respondent also relies upon the case of Gemeinhardt v. Babic, 2016 ONSC 4707, 68 R.P.R. (5th) 232, at paras. 482-487 for the proposition that the doctrine of good faith (imposing an obligation on parties to be fair and reasonable in the discharge of their contractual duties) also requires disclosure of facts and information unknown to the other contracting parties in certain circumstances.

32I do not accept the respondent’s first contention that there was a misrepresentation (non-disclosure of known facts) in the Settlement Agreement about the extent of the applicants’ ownership of the Collateral Properties because some of the Organgeville Properties had been sold under the power of sale proceedings. The preamble describes all of the Collateral Properties that the Charge was collaterally secured by. This is stated to be in the past tense and it was accurate at the time the Settlement Agreement was signed to say that the Charge was originally registered against those properties. I also do not accept the respondent’s contention that there was an implied representation in the Settlement Agreement that the applicants continued to own all of the Orangeville Properties. The Settlement Agreement does not say that and it is not a reasonable inference to be drawn in light of the common knowledge of the parties that those properties were under power of sale proceedings at that time.

33At the time of the Settlement Agreement it was discoverable by both parties (even if not actually known to them) that some of the Collateral Properties (Orangeville Properties) had been sold under the power of sale proceedings. It has not been established on the record before me that this was something that the applicants had actual knowledge of, and both the applicants and the respondent had the ability to determine this (as was demonstrated by the fact that the respondent did later obtain this information after the Settlement Agreement was signed and that informed the exercise of its discretion and determination that it was not satisfied with the Additional Security).

34I also do not agree with the respondent’s second contention that when the applicants (as vendor) challenged the purchaser’s credit for pre-paid rents and claimed an additional credit on the closing of the purchase transaction (of $16,439) they had a duty to disclose this to the respondent prior to the resolution of the dispute over these credits.

35It is apparent from the factual chronology (described above) that the purchaser has still not agreed to the adjustment and holdback of the challenged amount of pre-paid rents. Even at the closing of the purchase transaction, which occurred after the Settlement Agreement was signed, they only agreed to segregate them. Accordingly, the representation (contained in the trust ledger that has been identified as Schedule “B” to the Settlement Agreement) about the net sale proceeds was accurate at the time it was made.

36In my view, any good faith disclosure obligations that might have existed independent of this representation (for example such as those found in Gemeinhardt v. Babic) would also be in relation to facts known at the time of the Settlement Agreement. The possibility that the pre-paid rent credits might be challenged and that there might be an adjustment is not sufficiently concrete to require disclosure and an update to the trust ledger, in my view.

37To the extent that the representation in the trust ledger as to the net purchase monies received survived closing and continues (as the respondent contends, by virtue of section 3 of the Settlement Agreement), the duty to update it should be tied to the final resolution of the dispute concerning the amount of the credit for pre-paid rents as between the vendor and the purchaser.

38I do not foreclose the possibility that the respondent may become entitled to a payment or an adjustment to the settlement amount in the event that the applicants succeed in their dispute with the purchaser of the Pembrooke Properties over pre-paid rent amounts (such that the representation of the net sale proceeds disclosed in the trust ledger has to be updated, which may lead to corresponding adjustments in the distribution of the sale proceeds provided for). This may depend on the interpretation of what it means for a representation to “survive closing”, which I do not need to determine on this application based on the way in which the issues before me have been framed.

39In light of my findings that there were no misrepresentations or disclosures that the applicants should have made at the time the Settlement Agreement was signed, there is no foundation for an order for rescission of the Settlement Agreement. However, even if there had been a misrepresentation by the applicants with respect to the net sale proceeds, the alleged misrepresentations were not of a nature that would have warranted rescission in any event. They would more properly give rise to a claim for damages. In the three years since the Settlement Agreement was executed and performed, too much has changed that cannot be put back. The respondent in particular could never be put back into the position it would have been given the discharge of the Charge and the sale of the Pembrooke Properties: see Dick v. Northstar Tool Corp., 2010 BCSC 71, 4 B.C.L.R. (5th) 388, at paras. 49-53, cited by the applicants.

40I was directed during oral argument to evidence from the cross-examination of the applicants’ representative that identified another error on the Schedule “B” trust ledger (for a $55,000.00 line item from the sale proceeds to be paid in trust to a third party). However, this was not one of the misrepresentations alleged by the respondent. No specific relief was sought in respect of this $55,000.00 and I was not directed to evidence (if there was any) about what happened to these funds, so I have not made any order in respect of them. ⁴

Order and Directions

41This application is dismissed. Having regard to the relief requested by the respondent and Rules 1.05 and 38.10(1)(a), I direct the escrow agent under the Escrow Agreement to release the Holdback Amount to the respondent/Mortgagee in accordance with section 3 of the Escrow Agreement. I also direct that, if necessary, the parties are to co-operate and sign all necessary documents in order to discharge the $200,000.00 mortgage that was registered in favour of the respondent on December 30, 2016 against the title to the Collateral Properties (but deemed unsatisfactory by the respondent).

Costs

42There was no time to deal with costs at the end of the hearing. I am reluctant to invite costs submissions as I fear that they will further increase the legal expenses of the parties, and I would encourage them to try to reach an agreement on costs to avoid this further expense.

43As I noted at the outset, I believe the time and effort expended by both sides on this matter to be disproportionate to the amount at issue and I am not going to be favourably inclined towards making a costs award that represents a significant proportion of the Holdback Amount, so the parties should keep that in mind. I note that while the respondent was successful on the main contract interpretation issue in the application, it was not successful in its claims for misrepresentation, so, to that extent, there has been divided success.

44If the parties are able to reach an agreement on costs they should advise the court of such by May 31, 2019, and provide a draft order.

45If no agreement is reached on costs, then the respondent may provide the court with brief written submissions on costs (not to exceed 3 pages double spaced) together with its costs outline by June 7, 2019, the applicants may provide written responding submissions on costs (not to exceed 3 pages double spaced) together with their costs outline by June 14, 2019. The respondent may provide a brief reply submission on costs (not to exceed 1.5 pages double spaced) by June 21, 2019. All costs submissions should be served on the opposing party and delivered to my attention at Judges’ Administration, Superior Court of Justice at 361 University Avenue (Room 106), Toronto, Ontario M5G 1T3. If no costs submissions are received by the court by June 21, 2019, then the costs will be deemed to have been settled.

KIMMEL J.

Released: May 24, 2019

Footnotes

Footnotes

1. 1As detailed later in these reasons, there may be a further dispute over $16,435.00 representing pre-paid rents in a related purchase transaction.
2. 2No submissions or arguments were made about the chain of title to the subject Charge/mortgage(s) or the respondent’s standing as the beneficial Mortgagee, which is consistent with it having signed the Settlement Agreement as the “Mortgagee”.
3. 3Although not physically attached to the Settlement Agreement, this version of the trust ledger that was intended to be Schedule “B” was identified by counsel during oral submissions.
4. 4It was suggested that this late disclosure was relevant to the overall credibility of the applicants’ and indicative of their general lack of good faith. The respondent cited the case of Gemeinhardt v. Babic, which follows the leading case from the Supreme Court of Canada, Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, describing (at para. 93) the general organizing principle of good faith: a duty of honest performance which requires the parties to be honest with each other in the performance of their contractual obligations. Although both parties cited in their written and oral submissions examples of the other’s lack of good faith, these allegations were not relied upon for purposes outside of the primary arguments already discussed (the applicants’ arguments concerning the respondent’s failure to exercise its “sole and absolute discretion” in good faith, and the respondent’s allegations of misrepresentations by the applicants). I am not prepared to make any general findings of a lack of good faith on the part of either party based on the written record, nor do I consider it necessary to do so in order to decide the issues before me.