CITATION: RF Real Estate Inc. v. Rogers Telecom Holdings Inc., 2009 ONCA 899
DATE: 20091218
DOCKET: C49442
COURT OF APPEAL FOR ONTARIO
MacPherson, Simmons and LaForme JJ.A.
BETWEEN:
RF Real Estate Inc.
Plaintiff (Respondent/Appellant by cross-appeal)
and
Rogers Telecom Holdings Inc., Rogers Telecom Inc. and Rogers Communications Inc.
Defendants (Appellants/Respondents by cross-appeal)
Matthew Milne-Smith and Derek Ricci, for the appellants
Michael Simaan, for the respondents
Heard: November 23, 2009
On appeal from the judgment of Justice Susan G. Himel of the Superior Court of Justice dated August 27, 2008, with reasons reported at (2008), 2008 42598 (ON SC), 51 B.L.R. (4th) 126.
MacPherson J.A.:
A. INTRODUCTION
[1] Both parties appeal from the judgment of Himel J. awarding the respondent RF Real Estate Inc. (“RF”), a real estate broker, $800,000 in commission for work it performed on a prospective real estate transaction before the appellant Rogers group of companies (“Rogers”) terminated its services.
[2] The relationship between the parties was governed by a contract consisting of a Letter of Representation and a Letter of Termination.
[3] In the appeal, the Rogers companies contend that the trial judge misinterpreted the contract in several respects and that the respondent was entitled to no commission or, at most, a $70,000 commission.
[4] In its cross-appeal, the respondent submits that the trial judge erred by accepting the appellant’s expert evidence relating to how much work the respondent had performed before it was terminated. The respondent seeks to increase the award of commission to $1,600,000.
B. FACTS
(1) The parties and events
(a) Call-Net and RF enter contract
[5] In 2003, Call-Net and its subsidiary, Sprint Canada, were struggling financially and were positioning themselves for acquisition by a larger competitor. Their leases for three of their four office locations in Toronto were expiring on December 31, 2006, and they were looking to either relocate or consolidate office locations. Because of the financial circumstances, Call-Net was unlikely to enter a long-term lease, but it did consider consolidating facilities into one building for a long-term lease, for which it would need approximately 250,000 square feet. Call-Net sought proposals for representation from real estate brokers. Call-Net selected RF’s proposal in November 2004 and negotiated a contract with RF in December 2004, which consisted of the Letter of Representation and the Letter of Termination.
[6] The Letter of Representation, dated December 10, 2004, provided that RF would be Call-Net’s exclusive broker for its “office space and real estate requirements in the Greater Toronto Area” until December 31, 2006. It further provided that RF would perform the steps outlined in its proposal document, which detailed an initial 19-step real estate process (“FLOW Process”) followed by a 23-step process for project management services. It also provided that Call-Net agreed to compensate RF with:
a normal brokerage commission for their services by our existing landlords(s) in the case of a renewal/extension/ expansion or the third party landlord in the case of a relocation, payable in the manner consistent with the real estate brokerage practices in the Toronto office leasing community.
In consideration of this appointment, RF will perform all the steps outlined in the proposal document presented to Sprint, “Real Estate FLOW Process …”, attached as Schedule “A”. RF will complete all project management services as outlined in the proposal document, ‘Project Management FLOW Process …”, attached as Schedule “B”.
[7] The parties did not commit to any particular transaction. RF’s President admitted that Call-Net would pay RF based on “whatever deal Call-Net ultimately did.” However, RF claims that the only mandate seriously discussed before executing the Letter of Representation was a 10-year, 250,000-square-foot lease in the GTA and that Call-Net later confirmed this mandate as the option RF would pursue.
[8] The Letter of Termination, dated December 9, 2004, governed the main issue that the parties negotiated, the termination of the relationship. Initially, RF drafted a letter providing that RF could only be terminated “with cause, acting reasonably”. Call-Net wanted to broaden the grounds and told RF that it would not limit itself to traditional legal cause, as it was concerned about “a significant change in the major players, either on your side or ours”. Call-Net informed RF: “We’d need to have the flexibility to make further changes while still recognizing that you should be compensated for the level of work that has already been completed.” RF’s representative in the negotiation and agreement, Stan Krawitz, replied that:
We consider all of your concerns valid reasons for termination. The authentic motivation for having a ‘cause’ clause in our agreement simply is to prevent new personnel on the client’s side from introducing a relative or friend to replace us, based purely on their personal relationship vs. our demonstrated performance ability.
[9] The final letter provided that Call-Net could terminate RF in the event of “unsolvable personality conflicts existing between RF and Sprint that would seriously jeopardize the successful completion of the Project.” It also provided that “Sprint may not cancel this agreement arbitrarily. In the event that Sprint terminates RF, Sprint will pay RF a percentage payment based on work completed at the date of termination.”
(b) RF works on its mandate & Rogers acquires Call-Net and terminates RF’s services
[10] Over the next several months, RF reviewed Call-Net’s facilities and proposed a plan to consolidate its operations into one of its locations, the Atria. As part of its proposed negotiating strategy, RF suggested sending a request for proposal (RFP) to Atria’s owner, Oxford, in May 2005. In the interim, Rogers announced that it was acquiring Call-Net on May 11, 2005, a transaction to be effective July 1, 2005.
[11] Because RF was making proposals to Oxford during this time, it attempted to discuss the project with its contact at Call-Net, Margaret Perrier, Sprint’s Director of Real Estate Operations. She did not know about the Rogers acquisition at that time. She told RF to proceed with obtaining the RFP response, saying that she had clear instructions from Roy Graydon, a Call-Net executive.
[12] In July 2005, Oxford delivered its proposal and RF submitted a report to Rogers outlining that it had completed 13 of the 19 steps in the FLOW Process discussed under the contract, though it was not yet negotiating the lease with Oxford. Rogers did not instruct RF to proceed. Rogers took Perrier off of the file and left RF without direction. Rogers told Graydon to stop dealing with RF. Rogers also felt that it had sufficient capacity in its existing facilities to accommodate Call-Net employees. Rogers told RF to stop working on the project on September 7, 2005, though it also said that it was not terminating the project.
[13] RF later attempted to arrange a meeting and felt that its phone calls were being avoided. Rogers informed RF that its services were no longer required in late September. Rogers’ counsel sent a letter dated October 6, 2005, informing RF that its services were terminated and invited RF to propose an amount as fair compensation based upon its expenses and the work completed. RF submitted a claim for $1,300,000 on October 12, 2005, but Rogers refused to pay the amount.
[14] By the end of 2006, Rogers extended Call-Net’s three expiring leases for six months because its process for integrating Call-Net’s employees into Rogers’ facilities took longer than expected. In 2007, after the expiration of RF’s exclusive broker status in the Letter of Representation, Rogers entered a 10-year lease for 62,000 square feet at Atria.
[15] RF sued Rogers seeking $2,000,000 for the normal commission for brokerage services for a 10-year lease for 250,000 square feet (at $8/square foot), which it had worked toward completing with Oxford for Atria. In the alternative, RF asked for $1,600,000 as 80% of the value because it had completed 15 of the 19 steps outlined in the Letter of Representation.
(2) The trial judgment
[16] The trial judge set out the starting point for her analysis in this fashion:
In the case before me, the essential terms of the agreement between the parties are set out in two items of correspondence: a Letter of Representation signed on December 10, 2004 and a letter concerning the termination provision signed on December 9, 2004. However, a number of important terms are not contained in the correspondence or are unclear. They include: the mandate of the project, the termination provision between the parties and the question of compensation.
[17] The trial judge reviewed evidence relating to surrounding circumstances and the intention of the parties and concluded that the Letter of Representation outlined a mandate of engaging RF to represent Sprint on a 10-year lease for 250,000 square feet of office space.
[18] On the termination issue, the trial judge said:
In my view, the question of termination is not relevant to the question of whether RF is entitled to compensation. The termination provision outlined in the Letter of Representation did not address the issue of compensation being linked to whether RF was terminated for cause or without cause. According to the written correspondence and the testimony of Mr. Krawitz, Mr. Beagan and Ms. Perrier, compensation was to be paid in either event. The compensation issue was linked to the services performed under the contract agreed upon by the parties. Janice Spencer testified on behalf of Rogers that her understanding was that payment would only be owed to RF if termination occurred for reasons other than those listed as enumerated grounds by the parties. However, that is not what the written words of the contract stipulated. Furthermore, it was never suggested by Rogers that RF was terminated for the reasons enumerated in the agreement which would have constituted cause.
[19] Finally, on the question of compensation, the trial judge held:
Given the evidence on what services were provided and those which were not provided or were deemed unnecessary, I am satisfied on a balance of probabilities that RF is entitled to be compensated for performing 40% of the services outlined in the proposal at schedule “A” of their agreement. RF should be paid $800,000 under the contract and Rogers is ordered to pay that amount as compensation arising from the termination of the agreement.
[20] The appellant appeals on the basis that the trial judge erred in her interpretation of the mandate, termination and compensation components of the contract. The result of a successful appeal would be either no compensation or, at most, $70,000 compensation payable by Rogers to RF for the short lease extensions that Rogers negotiated during RF’s mandate.
[21] The respondent cross-appeals on the compensation issue. If successful, the result would be $1,600,000 payable by Rogers to RF.
C. ISSUES
[22] The appellant raises three issues on the appeal:
(1) Did the trial judge err by concluding that cause was irrelevant in interpreting the Letter of Termination?
(2) Did the trial judge err in relying on the subjective intentions of personnel involved in negotiating the contract as a basis for interpreting the contract?
(3) Did the trial judge err by calculating compensation in terms of the work performed under the contract?
The respondent raises one issue on the cross-appeal:
(4) Did the trial judge err in calculating that RF had performed only 40% of the work contemplated by the contract?
D. ANALYSIS
The appeal
(1) Cause and the Letter of Termination
[23] Rogers contends that the trial judge erred by concluding that “the question of termination is not relevant to the question of whether RF is entitled to compensation” and that “it was never suggested by Rogers that RF was terminated for … cause.”
[24] The Letter of Termination identified several reasons that “could be construed as sufficient cause for termination”, including “[u]nsolvable personality conflicts existing between RF and Sprint that would seriously jeopardize the successful completion of the Project”. Rogers contends that the testimony on cross-examination of Stan Krawitz, RF’s principal, establishes that this ground for termination was made out at the trial:
Q. Unsolvable personality conflicts existing between RF and Sprint that would seriously jeopardize the successful completion of a project.
A. That’s an interesting one, because, uh, up until, um, Rogers’ involvement, the answer would absolutely have been there was – there were no personality conflicts whatsoever. Um, even in the original stages of the acquisition there were no personality conflicts whatsoever. Um, but clearly Rogers didn’t want to deal with us for whatever reason, and so it wasn’t a personality issue but it was we just couldn’t get ahold of them.
Q. Well, are you saying there was cause under this fourth ground?
A. I’m not a lawyer; I don’t know.
Q. I - - I don’t think it requires a lawyer to answer the question. I’m asking you as a matter of fact: do you think this fourth ground was satisfied?
A. Well, in my opinion, if you can’t talk to the client because the client’s not responding to you, then it seriously jeopardizes the success of a project, but that was brought upon by Rogers, not brought upon by us.
Q. So there was - - there was cause, then under the fourth.
A. They - - they created a cause. Again, I’m not a lawyer, so I don’t know what the implications of the word ‘cause’ is, but my concern here was that, um, it certainly was never intended this way, and there was a good - - there was good communication and no personality conflicts, um, but you can’t, uh - - you can’t complete a deal with a client who’s not - - who’s not communicative.
[25] I do not accept this submission. In my view, it cannot be that Rogers’ own failure to communicate with RF and to provide instructions to RF about the steps RF should take to fulfil its contractual mandate can bootstrap an argument that Rogers could terminate RF because of “personality conflicts”. This would turn the notion of cause, which is typically quite difficult to establish in employment law cases, on its head.
[26] Moreover, in its termination letter dated October 6, 2005, Rogers did not assert that it was terminating RF for cause; it simply said that “RF is incapable of fulfilling the mandate of the Agreement … for various reasons”.
[27] Accordingly, Rogers’ termination of RF was not termination for cause.
(2) Subjective intentions
[28] Rogers contends that the trial judge erred by considering the subjective intentions of the parties in interpreting the contract, especially its mandate. Rogers particularly challenges this sentence in the trial judge’s reasons:
On the evidence led concerning surrounding circumstances and the intention of the parties which I find to be admissible, I am satisfied on a balance of probabilities that the Letter of Representation outlined a mandate of engaging RF to represent Sprint on a ten year lease for 250,000 square feet of office space.
[29] It is Rogers’ submission that “the intention of the parties” portion of this passage is contrary to the case law, especially what Iacobucci J. said in Eli Lilly & Co. v. Novopharm Ltd., 1998 791 (SCC), [1998] 2 S.C.R. 129, at para. 54:
The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time. Evidence of one party’s subjective intention has no independent place in this determination. [Emphasis added.]
See also: Dumbrell v. The Regional Group of Companies Inc. (2007), 2007 ONCA 59, 85 O.R. (3d) 616, at para. 56 (C.A.).
[30] In my view, the impugned passage of the trial judge’s reasons does not run afoul of these authorities. In this passage, the trial judge refers to the “surrounding circumstances” relating to the Letter of Representation, as permitted by Eli Lilly. She does not refer to the “subjective” intention of the parties; rather, this passage and indeed the rest of the reasons evince a clear goal of “determin[ing] the meaning of the contract against its objective contextual scene”: Dumbrell at para. 56.
[31] In addition, and of particular importance in my view, is the fact, as noted by the trial judge in her reasons, that in his examination for discovery Rogers’ representative agreed that a 10-year lease for 250,000 square feet of office space was the mandate arising from the Letter of Representation.
(3) Compensation
[32] Rogers contends that if it terminated RF without cause, RF’s compensation should be calculated, as the Letter of Representation stated, “in the manner consistent with the real estate brokerage practices in the Toronto office leasing community.” This manner of compensation, Rogers submits, is an eight per cent commission on any deal completed. Since the deals ultimately completed during the life of the contract (until December 31, 2006) were short-term renewals of existing leases, RF’s compensation should be $70,000.
[33] I would agree with this submission – if Rogers had not terminated RF. But that is not what happened. Rogers fired RF without cause. A specific term in the Letter of Termination deals with this situation: “In the event that Sprint terminates RF, Sprint will pay RF a percentage payment based on work completed at the date of termination.”
[34] Importantly, in its termination letter sent to RF on October 6, 2005, Rogers acknowledged that it was this term – not something in the Letter of Representation – that entitled RF to compensation: “In the Agreement, Sprint agreed to pay RF based on the work completed at the date of termination.”
[35] In my view, the words “work completed at the date of termination” are clear. Their application is also clear – the only work RF had done on the contract before termination was work on the mandate the parties had agreed to a 10-year lease of a 250,000 square foot building.
[36] Rogers contends that this is an absurd result. It describes the result in this fashion – if the contract had continued until the end, RF would have continued to work and received $70,000 as commission for the short-term lease renewals that were ultimately negotiated; however, having been terminated, RF did no more work and received $800,000 as commission (40 per cent of the $2,000,000 contemplated in the original mandate).
[37] In my view, the result arrived at by the trial judge is not commercially absurd; rather, it is precisely what the parties agreed to in the Letter of Termination component of the contract. The reality is that Rogers’ decision to fire RF without cause changed everything. What might have happened if Rogers had not taken this step, including what deals might have been completed and RF’s role in those deals, is in the realm of speculation. What is not speculation is that for many months RF worked on precisely the mandate the parties had agreed to and that Rogers then fired RF without cause. This triggered a termination term with particularly clear wording. The trial judge interpreted this term correctly: “Under the agreement, if RF was terminated, it would be paid according to the work completed under the mandate.”
The cross-appeal
(4) RF completed only 40 per cent of the work
[38] RF cross-appeals on the basis that the trial judge made a palpable and overriding error of fact in concluding that RF completed only 40 per cent of the services contemplated by the contract. RF submits that it completed 15 of the 19 steps in the FLOW Process and therefore is entitled to $1,600,000, being 80 per cent of the projected commission of $2,000,000.
[39] I disagree. There are several ways in which the trial judge could have settled on the 40 per cent figure. The most obvious is acceptance that RF performed 15 of the 42 steps contemplated in the FLOW Process and Project Management documents that together described all the services RF would supply under the contract. This would be 36 per cent which could be rounded to 40 per cent.
E. DISPOSITION
[40] I would dismiss the appeal and the cross-appeal.
[41] The respondent is entitled to its costs of the appeal which I would fix at $30,000 inclusive of disbursements and GST. The appellant is entitled to its costs of the cross-appeal which I would fix at $10,000 inclusive of disbursements and GST.
RELEASED: December 18, 2009 (“J.C.M.”)
“J.C. MacPherson J.A.”
“I agree Janet Simmons J.A.”
“I agree H.S. LaForme J.A.”