Capital Gains Income Streams Corp. et al. v. Merrill Lynch Canada Inc.

[Indexed as: Capital Gains Income Streams Corp. v. Merrill Lynch Canada Inc.]

87 O.R. (3d) 443

Court of Appeal for Ontario,

Doherty, Laskin and Juriansz JJ.A.

July 4, 2007

Appeal -- Jurisdiction -- Final or interlocutory order -- Plaintiffs moving pursuant to rule 49.09 of Rules of Civil Procedure for judgment in terms of alleged settlement -- Motion judge dismissing motion and stating that proceeding was continued as if there had been no accepted offer to settle -- Despite those words, motion judge's reasons indicating that he was unable to find one way or another whether settlement had been reached -- Order interlocutory -- Court of Appeal not having jurisdiction to hear appeal from order -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 49.09.

The plaintiffs claimed to have reached a settlement of their litigation with the defendant. The defendant took the position that no final settlement was reached. The plaintiffs moved pursuant to rule 49.09 of the Rules of Civil Procedure for judgment in the terms of the settlement. The motion judge reviewed the affidavits of C and A, the chief negotiators for the plaintiffs and the defendant, respectively. He found that the affidavit evidence of A, if accepted as true, would mean that the parties had not reached a settlement. However, he found that he could not make any findings on the issue of whether there was a mutual intention to create a completed, legally binding settlement agreement on the basis of mere affidavit evidence. On that issue, he stated, there was a genuine issue for trial. In dismissing the motion, he stated that the "proceeding is continued as if there had been no accepted offer to settle". The plaintiffs appealed to the Court of Appeal.

Held, the appeal should be quashed.

Per Doherty J.A. (Juriansz J.A. concurring): The order in question was not final but interlocutory. If the motion judge on a rule 49.09 motion finds that there was no settlement agreement, thereby determining that issue for the purposes of the litigation, an order dismissing the motion on that basis would be a final order. Despite his concluding words that the proceeding was continued as if there had been no accepted offer to settle, it was clear from the rest of his reasons that the motion judge found that he could not determine one way or the other whether there was a settlement. That inability to decide the issue was not a finding that no agreement existed, and could not foreclose a full factual inquiry into the issue. The question of whether or not there was a settlement agreement remained a live issue in this proceeding. As the order appealed from was interlocutory, the Court of Appeal had no jurisdiction to hear the appeal. [page444]

Per Laskin J.A. (dissenting): Aspects of the motion judge's reasons suggested that his order was interlocutory. However, other aspects of his reasons suggested that the order was final. The words "The proceeding is continued as if there had been no accepted offer to settle" could only mean that, at least in this part of his reasons, the motion judge had finally determined that there was no settlement. That determination made his order a final order. Both counsel interpreted his words in that manner. Moreover, the motion judge found that if he accepted A's evidence that approval of the settlement by senior management was required, he was bound to conclude that the parties had not settled. The only reason the motion judge could not decide whether the parties had or had not settled was because he could not determine the veracity of A's statement. However, the credibility of A's statement was not in issue. Therefore, the motion judge's order finally determined the question of settlement. The order should be treated as if it were final.

The motion judge's failure to find that the parties reached a binding settlement was unreasonable. The only reasonable conclusion to be drawn from the evidence was that the requirement for senior management approval was a pretext proffered by the defendant because it had second thoughts about the deal.

APPEAL from the order of Cumming J., [2006] O.J. No. 2042, 148 A.C.W.S. (3d) 560 (S.C.J.), dismissing a motion for judgment in terms of an alleged settlement.

Cases referred to Chertow v. Chertow, [2001] O.J. No. 1833, 146 O.A.C. 141, 108 A.C.W.S. (3d) 413 (C.A.); Fusarelli v. Dube, [2005] O.J. No. 4398 (C.A.), consd Other cases referred to Ball v. Ball, [2002] O.J. No. 1772, 27 R.F.L. (5th) 229 (C.A.), affg [2001] O.J. No. 5196, 23 R.F.L. (5th) 14 (S.C.J.); Bogue v. Bogue (1999), 46 O.R. (3d) 1, [1999] O.J. No. 4310, 1 R.F.L. (5th) 213 (C.A.); H. (L.) v. Canada (Attorney General), [2005] 1 S.C.R. 401, [2005] S.C.J. No. 24, 262 Sask. R. 1, 251 D.L.R. (4th) 604, 333 N.R. 1, 347 W.A.C. 1, [2005] 8 W.W.R. 1, 2005 SCC 25, 29 C.C.L.T. (3d) 1, 24 Admin. L.R. (4th) 1, 8 C.P.C. (6th) 199; Milios v. Zagas (1998), 38 O.R. (3d) 218, [1998] O.J. No. 812, 18 C.P.C. (4th) 13 (C.A.); Royal Bank of Canada v. Central Canadian Industrial Inc., [2003] O.J. No. 5251, 180 O.A.C. 275, 128 A.C.W.S. (3d) 45 (C.A.); Van Patter v. Tillsonburg District Memorial Hospital (1999), 45 O.R. (3d) 223, [1999] O.J. No. 2477 (C.A.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 6(1) [as am.], 19(1) [as am.] Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 20, 49, 49.09, 62.02(4) Authorities referred to McCamus, John D., The Law of Contracts (Toronto: Irwin Law, 2005) Waddams, S.M., The Law of Contracts, 5th ed. (Toronto: Canada Law Book, 2005) Watson, Gary D. and Craig Perkins, Holmested and Watson Ontario Civil Procedure, looseleaf, vol. 5 (Toronto: Thomson Carswell, 1993)

Ronald G. Slaght, Q.C. and Paola Calce, for appellants. James D.G. Douglas and Angela Vivolo, for respondent. [page445]

DOHERTY J.A. (JURIANSZ J.A. concurring):

I

[1] The appellant corporations (the "appellants") claimed to have reached a settlement of litigation arising out of a contractual dispute with the respondent, Merrill Lynch Canada Inc. ("Merrill Lynch"). Pursuant to rule 49.09 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the appellants moved for judgment in the terms of the settlement. Merrill Lynch resisted the motion, claiming that no final settlement had been reached by the parties. The motion judge dismissed the appellants' motion.

[2] The appellants appealed the order dismissing their motion to this court. Prior to the date scheduled for oral argument, the court, through its senior legal officer, wrote to counsel raising the question of this court's jurisdiction to hear the appeal. This court has jurisdiction to hear the appeal if the order under appeal is final: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 6(1)(b). However, if the order under appeal is interlocutory, this court has no jurisdiction and the appellants' appellate remedy lies in an application for leave to appeal to the Divisional Court: Courts of Justice Act, s. 19(1)(b). Counsel for the appellants took the position that the order was final and provid[ed] the court with authority for that position.

[3] When the appeal came on for oral argument, the court asked for submissions on the jurisdictional issue. Counsel for the appellants reiterated the position taken in earlier correspondence and referred the court to some additional authority. Counsel for the respondent agreed with the position taken by counsel for the appellant. The court reserved on the jurisdictional question, heard argument on the merits of the appeal, and reserved judgment.

[4] This court must decide the question of jurisdiction on its merits even though counsel for both parties are prepared to acknowledge and accept the jurisdiction of this court. Despite the able arguments of counsel, I am satisfied that the order under attack is interlocutory. This court has no jurisdiction to entertain the appeal. I would quash the appeal.

II

[5] It is unnecessary to go into the facts underlying this appeal in any detail. It is sufficient to indicate that a dispute arose between the appellants and Merrill Lynch over the interpretation of certain contractual provisions relating to the [page446] quantification of fees to be paid by the appellants to Merrill Lynch. In October 2003, the appellants commenced legal action seeking, in effect, an interpretation of the contested provisions in the contracts. A year and a half of settlement discussions and mediation followed.

[6] In January 2005, after lengthy negotiations, the appellants circulated a draft settlement agreement in the form of proposed amendments to the terms of the existing contracts. The amendments were intended to clarify the basis upon which Merrill Lynch's fees would be calculated. The circulation of the draft agreements led to further discussions between the parties. The drafts were rewritten and re-circulated.

[7] By May 2005, it seemed to those directly involved in the negotiations that an agreement in principle had been reached. The appellants prepared settlement agreements reflecting the terms agreed upon by the negotiators as of early June 2005. These agreements were forwarded to Merrill Lynch for confirmation. After some delay, in August 2005, Merrill Lynch advised the appellants that the terms set out in the settlement agreements sent to them in June 2005 were not acceptable.

[8] The appellants moved for judgment under rule 49.09. They argued that those who negotiated on behalf of Merrill Lynch had actual, or alternatively, ostensible authority to bind Merrill Lynch. The appellants contended that the negotiators had agreed to a settlement in the terms of the documents circulated in June 2005. The appellants further submitted that Merrill Lynch had reneged on the settlement agreement because somebody at a senior management level in Merrill Lynch had balked at the amount that Merrill Lynch would have to pay to the appellant from funds being held by it pending resolution of the dispute.

[9] Merrill Lynch submitted those negotiating for the appellant were told and knew full well that any agreement in principle reached by Merrill Lynch's negotiators would have to be approved by senior business management personnel at Merrill Lynch before there was a binding agreement. Merrill Lynch contended that all of the negotiations were carried out on that basis and that while the negotiators ultimately came to terms, no settlement was reached because the settlement proposed was rejected by senior management at Merrill Lynch.

[10] The appellants' motion was brought under rule 49.09 which provides:

49.09 Where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may, [page447]

(a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly; or

(b) continue the proceeding as if there had been no accepted offer to settle.

[11] The motion judge reviewed the affidavits of a Mr. Cruickshank and Ms. Alexander. The former was the chief negotiator for the appellants and the latter the chief negotiator for Merrill Lynch. Neither affiant was cross- examined on his or her affidavit.

[12] The motion judge properly concluded that the terms of the purported settlement were not at issue between the parties. The issue was whether a binding contract had been reached by the parties. If the parties had reached an agreement, the terms of that agreement were as reflected in the agreements prepared by the appellants and sent to Merrill Lynch in 2005.

[13] The motion judge summarized the evidence and identified the legal test to be applied when determining whether negotiations had culminated in a contractual relationship. He then said [at paras. 32-34]:

In my view, the affidavit evidence of Ms. Alexander, if accepted as true, would mean that a reasonable person in Quadravest's position [the manager of the appellants' funds] would not have believed there to be a mutual intention that the "agreement" as of June 3, 2005 was to be a legally binding agreement. The parties would have thought that there was an agreement-in-principle and a probable "done deal", but one still subject to the formal agreement of Merrill's senior management, that is, management senior in authority to Ms. Alexander.

Considerable argument was advanced as to whether a final, binding settlement was, or was not, achieved by June 3, 2005 by looking to the correspondence between counsel. However, in my view, the evidentiary record neither confirms nor contradicts the statements of Ms. Alexander in paragraphs 7 and 24 of her affidavit as quoted above.

The material fact as to whether there was a mutual intention to create a completed, legally binding settlement agreement as of June 3, 2005 (not subject to approval by the senior management or Merrill before being binding) is in dispute. On the record before me, the determination of this issue turns upon findings as to credibility in respect of Ms. Alexander. I cannot make any findings in this regard on the basis of mere affidavit evidence (let alone affidavit evidence that is not contradicted by cross-examination).

(Italics in original; underlining added)

[14] These passages make it clear that the motion judge was not prepared on the record before him to make a finding as to whether the settlement agreement did or did not exist. [page448]

[15] The motion judge went on, however, to conclude his analysis in these words [at para. 37]:

In my view, and I so find, I cannot give summary judgment that there is a binding settlement agreement. There is a genuine issue for trial in this regard. For the reasons given, the motion is dismissed. The proceeding is continued as if there had been no accepted offer to settle.

(Emphasis added)

[16] Ms. Calce, counsel for the appellants, in an effective submission, fixes on this part of the motion judge's reasons. She submits that the last sentence must be taken as a finding by the motion judge that there was no settlement agreement. She contends that this finding determines the question of the existence of the settlement agreement for the purposes of any litigation arising out [of] this dispute. She completes the circle of her argument by making the point that a finding that no settlement agreement exists is a determination of a substantive issue in the proceedings, thereby rendering the motion judge's order dismissing the motion a final order for appellate purposes.

[17] I am prepared to accept the premise of counsel's submissions. If the motion judge on a rule 49.09 motion finds as a fact that there was no settlement agreement, thereby determining that issue for the purposes of the litigation, an order dismissing the motion on that basis would be a final order. I do not, however, read the passage relied on by the appellant -- "the proceeding is continued as if there had been no accepted offer to settle" -- as a finding by the motion judge that there was no settlement agreement.

[18] The phraseology used by the motion judge tracks the language of rule 49.09(b). That provision allows a party to an accepted offer to settle to proceed as if there had been no settlement where the other party has not complied with the accepted offer. Implicitly, the provision permits a court on a rule 49.09 motion to conclude that despite the existence of an accepted offer to settle, the matter should proceed "as if there has been no accepted offer". The language of rule 49.09(b) requires the existence of an accepted offer, that is, a settlement agreement, and a determination that the settlement should not be enforced against a party to the settlement. The discretion contemplated in rule 49.09(b) is exercised in a variety of circumstances, many of which are cases in which it would be fundamentally unfair to hold one party to the settlement bargain.

[19] Neither the appellants nor Merrill Lynch suggested that there was any reason not to enforce a settlement agreement in [page449] favour of and against both parties if, in fact, a settlement agreement had been reached. The possibility of continuing the proceedings "as if there had been no accepted offer to settle" was never an option.

[20] The interpretation urged on behalf of the appellants is also inconsistent with the rest of the paragraph in which the sentence is found. In that paragraph, the motion judge states that there is a genuine issue as to whether there is a binding settlement agreement. It is inconsistent to state on the one hand that the existence of the settlement agreement raises a genuine issue for trial and on the other hand to direct that the trial shall proceed as if that issue has been decided.

[21] The appellants' interpretation of the phrase, and I repeat it again for convenience -- "the proceeding is continued as if there had been no accepted offer to settle" -- is also inconsistent with the analysis found in the rest of the trial judge's reasons. As described above, in paras. 32-34, the motion judge describes his inability to make a finding one way or the other on the question of the existence of a settlement agreement on the record before him. The appellants' interpretation of the later sentence in the reasons renders the analysis in paras. 32-34 meaningless.

[22] The trial judge's order, the primary source to be consulted in determining appellate jurisdiction, does no more than dismiss the motion. There is nothing in the order directing that the trial should proceed on the basis that there was no settlement agreement. The terms of the order do not support the appellants' position.

[23] I think the motion judge dismissed the motion for judgment in the terms of the settlement agreement because he was unable to determine whether there was in fact a settlement agreement. As he could not conclude there was "an accepted offer to settle", he had no authority to make an order under either rule 49.09(a) or 49.09(b) and should have simply dismissed the motion. In essence, and despite the reference at one point in his reasons to the language of rule 49.09(b), I think that is what the motion judge did.

[24] I will briefly address the authorities put forward by counsel for the appellants. Some orders made under rule 49.09 are final. An order made under rule 49.09(a) granting judgment in the terms of the settlement is clearly a final order: see Royal Bank of Canada v. Central Canadian Industrial Inc., [2003] O.J. No. 5251, 180 O.A.C. 275 (C.A.). The cases referred to by the appellants provide other examples of final orders made under rule 49.09. [page450]

[25] In Chertow v. Chertow, [2001] O.J. No. 1833, 146 O.A.C. 141 (C.A.), this court rejected an argument that an order dismissing a motion for judgment under rule 49.09 was interlocutory. The court rejected the analogy between an order dismissing a motion for summary judgment and an order dismissing a motion for judgment under rule 49.09 in these terms:

The main argument was that this motion for judgment on the settlement, when dismissed, can be likened to a dismissed summary judgment motion -- the issues in the pleadings go forward for trial in both cases and the order has no impact upon the lis between the parties. This argument overlooks the fact that a new lis was created by the alleged settlement, supervening the issues raised in the pleadings. That lis -- was there a settlement? -- has been fully and finally disposed of by the motion judge and will not go forward to trial.

(Emphasis added)

[26] Chertow v. Chertow, supra, was a case where the motion judge found, on uncontested facts, that an offer to settle that had been served by one party had been effectively withdrawn under the Rules of Civil Procedure by that party before it was accepted by the other party. Unlike the motion judge in the present case, the motion judge in Chertow v. Chertow, supra, decided that there was no settlement agreement. In my view, that determination made his order final for the reasons set out above in the passage quoted from Chertow v. Chertow, supra.

[27] The appellants also rely on Fusarelli v. Dube, [2005] O.J. No. 4398 (C.A.), another case where this court held that an order dismissing a motion under rule 49.09 was final. In rejecting a motion to quash the appeal, the court said, at para. 1: "The order appealed from finally disposes of the fundamental issue of whether the action has been settled."

[28] Fusarelli v. Dube, supra, was a case in which it was argued that the solicitor for one party had agreed to settle the action for a certain amount. The other party moved for judgment in the terms of the settlement. On the motion, there were two questions: (1) had the solicitor agreed to settle the action? and (2) if so, should his clients be held to that agreement? The motion judge appears to have decided both issues against the party moving for judgment. In respect to whether an agreement had been reached, the motion judge said: "The e-mail letter lacked the substance of finality and to my mind, it did not constitute a binding agreement."

[29] Later in his endorsement, he indicated, "I find the requisite components of 'offer and acceptance' were not satisfied here and therefore [are] unenforceable by me." [page451]

[30] The motion judge in Fusarelli v. Dube, supra, made a finding that no agreement existed. Based on that finding, this court concluded that the question of whether the action had been settled could not be raised again in the litigation. There is no such finding by the motion judge here. To the contrary, he found, if that is the appropriate word, that he could not make a finding as to the existence of the alleged settlement agreement.

[31] The cases referred to by the appellants, and others (see for example Ball v. Ball, [2001] O.J. No. 5196, 23 R.F.L. (5th) 14 (S.C.J.), affd [2002] O.J. No. 1772, 27 R.F.L. (5th) 229 (C.A.)), demonstrate that in some circumstances, a motion judge, on a rule 49.09 motion will be able on the record before him or her to come to a definitive conclusion as to the existence of the alleged settlement agreement. Where the motion judge makes a determination as to the existence of the alleged agreement, the order should identify that finding. In other cases, of which this case is an example, a motion judge will be unable, on the record before him or her, to decide one way or the other whether a settlement was reached. That inability to decide the question is not a finding that no agreement exists and cannot foreclose a full factual inquiry into that issue.

III

[32] I would hold that the order under appeal is interlocutory. This court has no jurisdiction to hear the appeal. The appeal must be quashed. The question of whether or not there was a settlement agreement remains a live issue in this proceeding. That, of course, does not foreclose the appellants from pursuing their appellate remedies in the Divisional Court should they choose to do so.

[33] The parties are agreed that there should be no order as to costs.

[34] LASKIN J.A. (dissenting): -- Two questions arise on this appeal. The first question is whether the order of the motion judge is final or interlocutory. My colleague, Doherty J.A., has argued persuasively that it is interlocutory. I disagree. I would treat the order as a final order and, therefore, would hold that the appeal comes to this court.

[35] The second question is whether the motion judge's failure to find that the parties reached a binding settlement agreement was unreasonable. I would hold that it is. I would thus allow the appeal, set aside the order of the motion judge and grant judgment in accordance with the unexecuted settlement agreements. [page452]

1. Final or Interlocutory?

[36] The distinction between final and interlocutory orders bedevils this court. Far too much ink has been spilled over the pages of the Ontario Reports, grappling with this distinction. Even when the parties themselves do not raise the issue, the court itself often feels compelled to do so -- as it did in this case -- because the court's jurisdiction to hear an appeal turns on the distinction: final orders are appealable as of right to this court; [^1] interlocutory orders are not.

[37] And yet, despite the very large number of decisions on whether a particular order is final or interlocutory, our court's jurisprudence on the distinction has been anything but a model of consistency. See Garry D. Watson & Craig Perkins, Holmested and Watson Ontario Civil Procedure, looseleaf, vol. 5 (Toronto: Thomson Carswell, 1993) at 62-19 to 62-48. [^2] The litigation bar -- even the experienced members of that bar -- cannot always fathom whether an order is final or not. There is no better example than this case. Two first-class advocates, Mr. Slaght for the appellants and Mr. Douglas for the respondent, came to this court because, in both their opinions, the order of the motion judge was a final order. Even when pressed in oral argument, and even though it would have been very much in his client's interest to take the position that the order under appeal was interlocutory, [^3] Mr. Douglas, with his typical candour, maintained that the order was final.

[38] The majority of this panel, however, has said to both sides that the order of the motion judge is interlocutory. And, it has done so in reasons that, I accept, are cogent. But, I do not agree with them.

[39] The appellants, Capital Gains Income Streams Corporation and Income Streams III Corporation (collectively the "Funds" or "Quadravest" [^4]), brought a motion under rule 49.09 for [page453] judgment in accordance with a settlement they claim to have reached with the respondent, Merrill Lynch Canada Inc. The motion judge dismissed the motion. Although the court raised the preliminary issue whether the motion judge's order was final or interlocutory, both sides fully argued the merits of the appeal.

[40] On the preliminary jurisdictional issue, the question is whether the motion judge finally determined that the parties did not reach a settlement. If he did finally determine that there was no settlement, his order is final; if he did not, his order is interlocutory. See Chertow v. Chertow, [2001] O.J. No. 1833, 146 O.A.C. 141 (C.A.).

[41] In my opinion, the answer to this question is a close call, arguable on both sides. Because it is, I do not believe that we should be quick to dispose of the appeal on this preliminary jurisdiction issue raised by the court. In my respectful view, we do not serve the parties or their counsel well by doing so. I would treat the order as final and address the appeal on the merits.

[42] Aspects of the motion judge's reasons suggest that his order is interlocutory. Doherty J.A. has referred to those aspects. To me, however, other aspects of the motion judge's reasons suggest that his order is final. I point out two.

[43] First, the motion judge concludes his reasons, at para. 37, with these words: "For the reasons given, the motion is dismissed. The proceeding is continued as if there had been no accepted offer to settle" (emphasis added). As Doherty J.A. points out, these words seem inconsistent with the earlier part of the paragraph in which the motion judge says that whether there is a binding settlement agreement "is a genuine issue for trial".

[44] Yet, what else can these italicized words mean but that this action must proceed on the basis that there is no settlement? Despite what the motion judge said earlier in his reasons, the effect of these words is that the Funds cannot plead a settlement in this action. Consistent with this meaning, the motion judge did not grant the Funds leave to amend their statement of claim to allege a settlement, or even direct the trial of an issue on whether the parties reached a settlement. Thus, at least in this part of his reasons, the motion judge finally determined that for the purpose of this litigation there was no settlement. This determination makes his order a final order. Both counsel so interpreted his words.

[45] A second aspect of the motion judge's reasons that argues for treating his order as a final order is seen in the substance of what he decided. His statement that whether the parties reached a binding settlement raises a genuine issue for trial is [page454] itself based on a mistaken understanding of the Funds' position. The motion judge mistakenly believed that Quadravest challenged the credibility of a critical component of Merrill Lynch's defence. It did not. Once that mistaken understanding is corrected and given effect to, there can be no doubt from the motion judge's reasons that he found the parties had not reached a settlement agreement. In substance, he finally determined that question.

[46] On the motion, Merrill Lynch filed the affidavit of Jacquie Alexander, Director and Global Risk Manager of the Global Markets & Investment Banking Group of Merrill Lynch, who participated in the settlement discussions with Quadravest. In her affidavit, she said that anything she agreed to in principle "required approval from senior management on Merrill's business side, since they would be the ones most affected by the loss associated with any settlement". The motion judge seized on this statement in Ms. Alexander's affidavit. He examined the record on the assumption that her statement was true. And, he concluded that if it were true, the record showed that the parties might have reached an agreement in principle, but not a final deal. His conclusion is at para. 32 of his reasons:

In my view, the affidavit evidence of Ms. Alexander, if accepted as true, would mean that a reasonable person in Quadravest's position would not have believed there was a mutual intention that the "agreement" as of June 3, 2005 was to be a legally binding agreement. The parties would have thought that there was an agreement-in-principle and a probable "done deal", but one still subject to the formal agreement of Merrill's senior management, that is, management senior in authority to Ms. Alexander.

(Emphasis in original)

[47] On the motion judge's view of the record, senior management of Merrill Lynch had not given its approval. Thus, if he accepted Ms. Alexander's evidence that approval was needed, he was bound to conclude that the parties had not settled. The only reason the motion judge could not decide whether the parties had or had not settled was because he could not determine the veracity of Ms. Alexander's statement. For him, this was an issue of credibility that could not be resolved on affidavit evidence [at para. 34]:

The material fact as to whether there was mutual intention to create a completed, legally binding settlement agreement as of June 3, 2005 (not subject to approval by the senior management of Merrill before being binding) is in dispute. On the record before me, the determination of this issue turns upon findings as to credibility in respect of Ms. Alexander. I cannot make any finding in this regard on the basis of mere affidavit evidence (let alone affidavit evidence that is not contradicted by cross-examination). [page455]

[48] But the credibility of Ms. Alexander's statement was not in issue. Although Peter Cruickshank, Quadravest's Chief Financial Officer, disputed her affidavit evidence, for the purpose of the motion, Quadravest accepted that she made this statement and any agreement in principle was subject to the approval of Merrill Lynch's senior management. Quadravest argued that the correspondence showed that Merrill Lynch's senior management had approved the agreement reached after lengthy settlement discussions, but later, after reassessing the settlement's financial implications, reneged on the deal.

[49] Thus, no issue of credibility arises on the motion or on the appeal. Once the credibility of Ms. Alexander's statement is accepted, the disagreement between Quadravest on the one hand, and Merrill Lynch and the motion judge on the other, turns on their respective assessments of the written record. In substance, the motion judge has concluded that on the assumption Ms. Alexander's statement is credible, the parties did not reach a binding settlement. As Quadravest accepts that assumption, effectively the motion judge's order finally determines the question of settlement. In my view, we should treat the motion judge's order as a final order appealable as of right to this court.

[50] I turn to the merits of the appeal.

2. Is the Motion Judge's Failure to Find that the Parties Reached a Binding Settlement Agreement Unreasonable?

(a) The underlying dispute

[51] The two appellant corporations are mutual funds listed on the Toronto Stock Exchange. Quadravest Capital Management Inc. manages both funds. Merrill Lynch was the lead underwriter when the Funds were offered to the public. The Funds offered each investor a monthly dividend plus repayment of the investor's initial investment when the Funds terminate on December 1, 2013.

[52] The underlying lawsuit arises out of a dispute over the interpretation of the terms of two forward contracts entered into in 2001 by Quadravest and Merrill Lynch. The dispute concerns the fees payable to Merrill Lynch under these contracts.

[53] Quadravest entered into the two forward contracts to ensure that all investors received their initial investment on the termination date. Under the contracts, Merrill Lynch agreed to buy back on December 2, 2013 a basket of shares from Quadravest for a notional aggregate amount of $188 million, regardless of the market price of the basket of shares on that [page456] date. In consideration for its agreement to purchase these shares, Merrill Lynch receives an annual fee, calculated as a percentage of the amounts owing under the contracts.

[54] The Funds offer investors monthly redemption rights. From the Funds' perspective, redemptions by investors are involuntary. The Funds have no control over the level of redemptions at any given time. Redemptions, however, result in a liquidation or an "early termination" of a portion of the Funds' portfolio and thus reduce the amount of the forwards. Many investors have taken advantage of their redemption rights.

[55] Investor redemptions are not the only way to effect early partial termination of the forwards. The forward contracts themselves are subject to termination by Quadravest. Beginning in June 2002, Quadravest exercised its right under the contracts to early termination of the forwards.

[56] The question then became what amount was to be used to calculate Merrill Lynch's annual fee. The Funds took the position that under the contracts, early terminations would reduce Merrill Lynch's fee because it could not claim fees on the amounts terminated. Merrill Lynch took the position that under the contracts, early terminations did not affect its fees; it was still entitled to fees on the amounts of the early terminations.

[57] In October 2003, the Funds brought this litigation, seeking declaratory relief that Merrill Lynch was not entitled to fees on the amounts of the early terminations. A significant amount of money is at stake. At the date of the motion, Merrill Lynch claimed $800,000 in fees, which would otherwise be payable to the Funds' investors. That amount continues to increase.

(b) Relevant legal principles

[58] Broadly speaking, three legal principles come into play on the merits of the appeal: the test for determining whether the parties reached a settlement; the test on a Rule 49 motion; and deference.

[59] First, a settlement is a contract. To form a contract, the parties must mutually intend to create a binding agreement. The test is objective: would a reasonable person in Quadravest's position believe that the parties reached a settlement? See S.M. Waddams, The Law of Contracts, 5th ed. (Toronto: Canada Law Book, 2005) at 103. This is the test the motion judge said that he applied.

[60] Second, in applying this test, the motion judge used summary judgment principles under Rule 20 to the Rule 49 motion. He said, at para. 30, that "[t]he plaintiff's motion is in reality a [page457] summary judgment motion under Rule 20.01(1) in asserting that there is a binding legal settlement contract and, therefore, Rule 40.09 is operative." He then applied Rule 20 and held that there is a genuine issue for trial whether the parties settled. Nonetheless, in dismissing Quadravest's motion, he also granted relief under rule 49.09(b) by holding that the action should continue as if there had been no offer to settle.

[61] In its factum, Quadravest raised the question whether summary judgment principles should apply on a rule 49.09 motion. I do not think that question needs to be firmly decided on this appeal.

[62] On a motion under rule 49.09 to enforce a settlement, the court must address two issues: the threshold issue is whether there is an accepted offer to settle; and if there is, the second issue is whether the court should exercise its discretion to enforce that settlement. See Milios v. Zagas (1998), 38 O.R. (3d) 218, [1998] O.J. No. 812 (C.A.). Only the first issue arises on this appeal. If the parties did reach a binding settlement, the court should enforce it; no principled reason exists to exercise its discretion not to.

[63] On the threshold issue, instead of referring to Rule 20 principles, I think the preferable approach is for the motion judge to look at all the evidence and ask whether the parties reached a binding agreement. If the motion judge cannot answer this question because, for example, an important credibility issue arises that cannot be resolved, then the motion should be dismissed.

[64] Third, I do not view the motion judge's dismissal of Quadravest's motion to be a discretionary decision. I do, however, see it as a decision to which the principle of appellate deference applies.

[65] In the literal sense, the motion judge did not make a finding of fact to which we need defer. His decision is conditioned on his acceptance of Ms. Alexander's evidence for the purpose of the motion. The motion judge reasoned that if her evidence was accepted, there was no settlement. As I have said, in his view, her evidence raised an issue of credibility that he could not resolve on the motion. However, for the purpose of the motion and this appeal, Quadravest also accepts Ms. Alexander's evidence. So the credibility of her statement, in reality, is not in issue. Because of Quadravest's position, the condition on which the motion judge based his decision can be treated as a fact. Therefore, I treat as a finding of fact, the motion judge's finding, at para. 32, that "a reasonable person in Quadravest's position would not have believed there was a mutual intention that the [page458] 'agreement' as of June 3, 2005 was to be a legally binding agreement". That finding then attracts the usual appellate deference. It should not be overturned unless it is unreasonable or unsupported by the evidence. See H. (L.) v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, [2005] S.C.J. No. 24, at para. 4.

(c) The positions of the parties

[66] Settlement discussions began in late 2003 or early 2004 and lasted over a year. Ms. Alexander participated in the settlement discussions for Merrill Lynch, and Michael Penny of Torys LLP acted as its legal counsel. Peter Cruickshank represented the Funds, and Blake, Cassels & Graydon LLP acted as their legal counsel.

[67] At first, settlement discussions took place with the assistance of a mediator. After three sessions, the parties negotiated without a mediator. It was during the first mediation session in May 2004 that Ms. Alexander said that anything she agreed to in principle "required approval from senior management on Merrill's business side". In her affidavit, she also said that she reiterated this point in the second mediation session in September 2004.

[68] Quadravest contends that the parties reached a binding settlement agreement by May 17, 2005, which Merrill Lynch reneged on three months later, in August 2005. Merrill Lynch contends that, consistent with Ms. Alexander's position, the agreement reached in May 2005 was subject to the approval of its senior management in New York. After considering the financial implications of the agreement, Merrill Lynch's New York senior management refused to give its approval as it was entitled to do.

[69] Quadravest counters that a reasonable person in its position would have concluded that Merrill Lynch's senior management had given its approval to the agreement reached on May 17, 2005. Quadravest says that Merrill Lynch's New York office did not have some super added right to look at the financial consequences of the agreement and refuse to sign the agreement because it was too expensive.

[70] If Ms. Alexander's evidence is accepted, the motion judge found that a reasonable person in Quadravest's position would not have believed the parties had made a binding agreement; instead that reasonable person would have believed that there was a "probable done deal", but nonetheless a deal still subject to the approval of Merrill Lynch's senior management, that is management senior in authority to Ms. Alexander. The question [page459] on this appeal on the merits is whether the motion judge's finding is unreasonable or unsupported by the evidence. To answer that question, the record of the settlement negotiations must be examined.

(d) The settlement negotiations

[71] Unlike many cases where parties dispute whether they have reached an agreement, in this case there is no dispute over the terms of the settlement alleged by Quadravest. At para. 20 of his reasons, the motion judge found that "[t]he evidentiary record is clear that the terms of the purported settlement are clear if there was indeed a settlement." That finding is unassailable. The only issue is the question of senior management approval.

[72] The breakthrough in the settlement negotiations came after the first mediation session. As a way to resolve the impasse over its fees and achieve a compromise, Merrill Lynch suggested a settlement based on a distinction between terminations initiated by Quadravest (voluntary terminations) and terminations brought about by investor redemptions (involuntary redemptions). Merrill Lynch would be compensated for fees lost by voluntary terminations but not by involuntary redemptions. Quadravest accepted this distinction proposed by Merrill Lynch as the conceptual basis for a settlement. Using that concept as the basis for an agreement, the parties then negotiated the details.

[73] The record shows that the negotiations were quite transparent. It shows that throughout, Torys (through Mr. Penny and his associates) was seeking and obtaining its client's approval for every aspect of the proposed settlement. And, it shows that both Torys and Ms. Alexander consistently communicated to Quadravest, by email, the need for this approval.

[74] The email correspondence culminated with Mr. Penny's email of May 17, 2005 -- an email not referred to by the motion judge -- in which Mr. Penny confirms that a binding settlement had been reached. He wrote, "I believe this resolves all outstanding matters. Can you prepare a revised agreement for final review and approval by all parties?" In my opinion, a reasonable person in Quadravest's position would conclude that the parties had reached an agreement on the essential terms and therefore had a binding settlement agreement. See Bogue v. Bogue (1999), 46 O.R. (3d) 1, [1999] O.J. No. 4310 (C.A.), at paras. 13-15. The motion judge's finding to the contrary, respectfully in my opinion, is unreasonable. Here are the details of the chronology on which I base my conclusion. [page460]

[75] The parties began exchanging draft settlement agreements early in 2005. Time and again, Mr. Penny, or his associate working with him, alerted Quadravest and its counsel that draft settlement discussions were subject to Merrill Lynch's approval. For example:

-- On February 18, 2005, Mr. Penny's associate sent Quadravest's counsel, Ms. McKee at Blakes, a revised draft settlement agreement with the following covering email:

I'm working with Michael Penny on this matter. I attach a revised draft of the settlement agreement reflecting our comments. Please note that the draft is still subject to Merrill Lynch's comments, especially on the sections identified. The same comments also apply to the second settlement agreement.

Moreover, in several of their sections, the draft agreements expressly stated, "Note to Draft: Outstanding -- Merrill to review". [^5]

-- These notes stating that the draft agreements were subject to further review by Merrill Lynch concerned Quadravest. The following exchange then took place: On February 23, 2005, Mr. Cruickshank raised this concern in an email to Ms. Alexander. She replied the same day, stating that Merrill Lynch was working to get its comments back to its lawyers:

I understand and concur that we too do not want to incur more legal costs. We are working to have ML comments back to lawyers by Friday. I may call you tomorrow to discuss one issue I have.

-- On February 21, 2005, Ms. McKee emailed Mr. Penny's associate, asking if the latter had received Merrill Lynch's comments on the draft agreements. The associate responded by email the same day, and said that they had still not received all of Merrill Lynch's comments on the financial terms of the settlement. His email read:

I should have been more clear. We did receive some comments from Merrill, but are still waiting to hear back from one of our contacts (mainly on the financial terms set out in the settlement agreement). I will follow up to see when we should expect those comments.

Ms. McKee replied, "Our client is anxious to move this forward and would like all of Merrill's comments as soon as possible." [page461]

-- On March 2, 2005, Mr. Cruickshank emailed Ms. Alexander asking, "Have you finalized the Merrill comments on the draft settlement agreement?" Ms. Alexander replied, "You should hear from our lawyers either later today or tomorrow."

-- On March 4, 2005, Mr. Penny's associate sent a further revised draft settlement agreement to Ms. McKee, again accompanied by the following qualifying email:

Here is a revised draft of the settlement agreement that incorporates the present value formula. While we have discussed the document with Merrill, they have not reviewed the revised draft so it remains subject to their comments.

-- On March 17, 2005, Mr. Penny sent Ms. McKee another draft agreement with an email that said, "Attached is a blackline which reflects, I believe, the outstanding issues from our side."

-- After the exchange of further drafts, on May 5, 2005, Mr. Penny emailed Ms. McKee that only two minor issues needed to be resolved to reach a settlement:

Merrill does not believe there is any need for the time and expense of more trips to the mediator. We are down to two narrow and, in the scheme of things, relatively small, purely business points. Ms. Alexander proposes to call Mr. Cruikshank tomorrow to arrange a meeting between them to discuss these two issues.

-- Those minor issues were resolved, prompting Mr. Penny's May 17, 2005 email to Ms. McKee: "I believe this resolves all outstanding matters. Can you prepare a revised agreement for final review and approval by all parties?"

[76] It seems to me that a reasonable person in Quadravest's position could only conclude from these emails that the very approval of Merrill Lynch's senior management on the business side that Ms. Alexander referred to in her affidavit was obtained throughout the negotiations. In the light of what went before, the only reasonable inference from Mr. Penny's May 17 email is that Merrill Lynch's senior management had considered the business implications of the settlement and had approved it.

(e) Merrill Lynch refuses to complete the settlement

[77] On June 3, 2005, Quadravest's lawyers sent the final settlement agreements to Merrill Lynch's lawyers, Torys, for signature. Merrill Lynch did not sign them. Instead, in mid- June, [page462] Mr. Penny emailed Ms. McKee, sating that "[t]he final proposal is being reviewed by senior management."

[78] In late August 2005, almost three months after the final settlement agreements containing the agreed upon terms had been circulated, Merrill Lynch's New York office concluded that the cost of the settlement proposal was simply too high. Merrill Lynch refused to execute the agreements. Merrill Lynch's own counsel was unaware of this supposed requirement for further approval from his client's New York office until late July 2005. In a letter dated July 29, 2005, Mr. Penny wrote to Blakes:

[T]he matter, it now appears, must be approved by senior management at head office in New York. . . . I can say that I was unaware, when we last corresponded, of the need for the highest levels of management at head office in New York to review, understand and approve this settlement.

[79] On the motion and in this court, Merrill Lynch argued that its refusal to sign the agreements because its senior management in the New York office would not approve the settlement is entirely consistent with Ms. Alexander's limitation on her authority, which she stipulated at the beginning of the negotiations: anything she "agreed to in principle required approval from senior management on Merrill's business side". Merrill Lynch contended that its business side reserved the right not to approve any settlement and it exercised that right. I do not accept this contention.

[80] Sophisticated parties represented by highly competent counsel -- as these parties were -- do not negotiate that way. If any settlement negotiated in Toronto required the approval of Merrill Lynch's senior management on the business side in New York, one would reasonably have expected that added requirement to have been communicated to Quadravest. It is nowhere to be found. It is not in the agreements themselves, where one might logically expect it to be inserted. It is not in any of the email correspondence from Merrill Lynch's lawyers sent during the settlement negotiations. It is not even in Ms. Alexander's affidavit, in which she states that she told Mr. Cruickshank of her limited authority, and on which Merrill Lynch so heavily relies.

[81] The written record demonstrates that the approvals referred to in Ms. Alexander's affidavit were being obtained throughout the negotiations. Merrill Lynch's lawyers communicated with Quadravest only after they had received their client's business approval of each of the terms of the settlement. All parties to the negotiations knew this. When Mr. Penny signalled on May 17, 2005 that the last issue had been resolved, any objective [page463] observer would have taken his email at face value and concluded that the parties had a binding agreement.

[82] Long after the settlement was made and, unknown to its own counsel, Merrill Lynch claimed that any settlement required the approval of its senior management in New York. It reneged on the settlement reached in May because apparently its New York office thought that the settlement was too expensive.

[83] Even that explanation rings hollow. Merrill Lynch claimed that it had not appreciated that the level of involuntary redemptions was so high and that its fees were correspondingly so low. However, Merrill Lynch was told the level of involuntary redemptions in September of 2004; it knew that the level was unpredictable and not in either side's control; it knew that the level would necessarily increase with the passage of time; and it could have asked -- but did not -- about the level of redemptions at any time during the negotiations.

[84] In my view, the only reasonable conclusion to be drawn from the evidence is that the requirement for New York senior management approval was a pretext proffered by Merrill Lynch because it had second thoughts about the deal it had agreed to. As a matter of good policy, absent evidence of fraud, duress, mistake of fact or unconscionability, courts strive to uphold and enforce settlements. See Van Patter v. Tillsonburg District Memorial Hospital (1999), 45 O.R. (3d) 223, [1999] O.J. No. 2477 (C.A.), at p. 230 O.R. When a settlement has been reached, courts ordinarily hold parties to their bargains, even in a case where one of the parties has second thoughts or enters into the agreement without fully appreciating all the consequences. [^6]

[85] For the reasons set out above, in my respectful opinion, the motion judge's failure to find a concluded settlement was unreasonable. I would allow the appeal, set aside the order of the motion judge, and grant judgment under rule 49.09 in accordance with the unsigned, but agreed on, settlement agreements at tab 14 of Quadravest's compendium. I would award Quadravest its costs of the appeal, fixed in the amount of $25,000, all inclusive.

Appeal quashed. [page464]

[^1]: Subject, of course, to the qualifications in s. 6(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43.

[^2]: The authors comment at 62-24: "It would be wrong, however, to conclude that the courts have adopted a clear single test for determining finality that is applied easily and consistently across the board. There are areas in which there is confusion and uncertainty . . . and there are decisions which are different to reconcile.

[^3]: If the order is interlocutory, the appellants have no automatic right of appeal. They can appeal to the Divisional Court only by meeting the stringent leave test in rule 62.02(4).

[^4]: Quadravest Capital Management Inc. manages both Funds.

[^5]: There were two seperate agreements, one for each of the mutual funds.

[^6]: See John D. McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 526ff, for an excellent discussion on when mistaken assumptions can afford a basis to set aside agreement. This point was not argued on the appeal.