DATE: 20050112

DOCKET: C41504

COURT OF APPEAL FOR ONTARIO

RE:

MELINDA PATULLO (Plaintiff/Respondent) -and- DEAR‑BORN BABY EXPRESS INC., ROBERT J. COCKBURN, CATHERINE C. SCOTT, T. ROBERT HAMBLEY and BERNICE HARMAN (Defendants/Appellants)

AND RE:

DOCKET: C41505

CATHERINE C. SCOTT and BERNICE HARMAN (Applicants/Appellants) -and- ROBERT J. COCKBURN, DEAR‑BORN BABY EXPRESS INC., T. ROBERT HAMBLEY and MELINDA PATULLO (Respondents/Respondent in Appeal)

BEFORE:

CATZMAN, LANG and LaFORME JJ.A.

COUNSEL:

Lubomir Poliacik

for the defendants/appellants in C41504 applicants/appellants in C41505 Catherine C. Scott and Bernice Harman

David Preger

for the defendants in C41504 respondents in C41505 Robert J. Cockburn and T. Robert Hambley

Enzo Di Iorio for the plaintiff/respondent in C41504 respondent/respondent in appeal in C41505 Melinda Patullo

HEARD AND RELEASED ORALLY:

January 10, 2005

On appeal from the judgment of Justice Peter C. Jarvis dated February 24, 2004.

E N D O R S E M E N T

[1] On the primary issue raised on this appeal, the correspondence between counsel clearly provided for a $275,000 payment in exchange for the Patullo shares. The settlement was, however, subject to payment of those monies “contemporaneously with our clients [Scott and Cockburn] reorganizing their affairs.” An earlier paragraph of the same letter explained the contemplated reorganization by indicating that the shares would “probably be purchased by Cathy Scott’s holding company and Bob Cockburn’s holding company as a result of a reorganization relating to their affairs.” There was nothing to indicate that the reorganization might not be accomplished or that it would not be accomplished within a reasonable time. Further, the contemplated reorganization was exclusively within the control of Scott and Cockburn and not within either the knowledge or the control of Ms. Patullo.

[2] In concluding that the settlement was not contingent on the reorganization, the motion judge interpreted the reorganization caveat in a manner consistent with the intentions of the parties in the context of the settlement correspondence and surrounding circumstances. In that context, the motion judge was entitled to his interpretation that the payment would be made within a reasonable time. In so interpreting the language chosen by Scott and Cockburn’s counsel, the motion judge was entitled to draw the inference that, if the settlement was intended to be contingent on the reorganization, the letter would have said so. We do not see this as an application of the principle of contra proferentem. The motion judge did not find any ambiguity in the terms of settlement and neither do we.

[3] The motion judge, however, added an order for an additional payment to Ms. Patullo to compensate her for any tax consequences attracted by payment of the $275,000. On its face, the $275,000 was to be payable inclusive of tax consequences, subject to the right of Ms. Patullo to direct its payment to a corporate entity.

[4] Accordingly, we would allow the appeal to delete reference to the payment being net of all applicable taxes. The order remains requiring completion of the settlement. If the parties have any difficulty with that implementation, they may return to Jarvis J. for further direction.

[5] Finally, the letter suggesting that litigation should not be necessary to enforce the settlement contained no element of compromise. Further, given the issues addressed in that letter, it could not have been recognized as a Rule 49 offer. In those circumstances, the motion judge erred in awarding Ms. Patullo substantial indemnity costs against Ms. Scott. Rather, costs should have been awarded on a partial indemnity basis.

[6] In the result, the appeal is allowed only to the extent of providing that the settlement payment of $275,000 includes all applicable taxes and by reducing the costs awarded on the motion before the motion judge to partial indemnity costs fixed at $17,500, inclusive of G.S.T. and disbursements.

[7] The respondents were substantially successful on this appeal. Costs on a partial indemnity basis are awarded on a reduced basis reflecting the mixed result. Those costs, inclusive of G.S.T. and disbursements, are fixed at $5,000 for Ms. Patullo and $3,500 for Mr. Cockburn and Mr. Hambley together.

Signed: “M.A. Catzman J.A.”

“S.E. Lang J.A.”

“H.S. LaForme J.A.”