COURT OF APPEAL FOR ONTARIO

CITATION: Bank of Montreal v. Ismail, 2012 ONCA 129

DATE: 20120228

DOCKET: C54380

Lang, LaForme JJ.A. and Pattillo J. (ad hoc)

BETWEEN

Bank of Montreal

Plaintiff (Appellant)

and

Fawzia Ismail and Khalid Ismail

Defendants (Respondents)

Joshua J. Siegel, for the appellant

Darren J. Smith, for the respondents

Heard: February 16, 2012

On appeal from the order of Justice Gisele M. Miller of the Superior Court of Justice, dated August 31, 2011.

By the Court:

OVERVIEW

[1] The Bank of Montreal appeals from the order of the motion judge enforcing a settlement that she concluded the parties had reached under rule 49.09 of the Rules of Civil Procedure.

[2] The motion judge decided that the settlement included a provision that the respondents, Fawzia Ismail and Khalid Ismail, would pay the Bank $357,000 on account of the approximately $390,000 owing on their outstanding mortgage. In reaching her decision that the Bank had agreed to this reduction in the debt owing, the motion judge primarily relied on two pieces of correspondence between the parties’ counsel – the Bank’s April 8 letter and the respondents’ April 19 letter.

[3] In our view, the motion judge made a reversible error of interpretation when she relied primarily on these two pieces of correspondence without taking into consideration the earlier correspondence that was incorporated by reference. A review of the whole of the correspondence establishes that the parties did not reach an agreement on the essential term of the amount required to payout the mortgage.

[4] In light of this error, we would allow the appeal, set aside the order of the motion judge, and dismiss the respondents’ motion.

DISCUSSION

[5] In her endorsement, the motion judge set out the undisputed test to be applied on a motion under rule 49.09: (1) was an agreement to settle reached; and, (2) if so, should it be enforced based on all the evidence: Milios v. Zagas (1998), 1998 CanLII 7119 (ON CA), 38 O.R. (3d) 218 (C.A.)

[6] The Bank’s primary argument on appeal is that the motion judge made a reviewable error in concluding that the correspondence between the parties’ counsel was sufficient to establish an accepted settlement. The Bank further submits that the motion judge erred in failing to exercise her discretion not to enforce the settlement. The respondents argue that the motion judge was entitled to rely on the two pieces of correspondence to conclude that the parties had reached a meeting of the minds on the essential term of the amount of the mortgage payout.

[7] The motion judge considered the Bank’s April 8 letter and determined that its contents did not constitute an “offer to settle”. However, she concluded that the respondents’ April 19 letter set out “clear, unequivocal terms” of settlement, including payment of $357,000, which were accepted by the Bank by its letter of April 26.

[8] However, this correspondence formed only part of a series of letters exchanged between counsel as a result of their litigation. That litigation included the Bank’s June 2010 action against the respondents for monies due under the mortgage. At the end of June, the Bank also obtained default judgment against the respondents and filed a writ of seizure and sale in relation to the respondents’ separate unsecured debt that they also owed to the Bank.

[9] Settlement discussions commenced. The correspondence as a whole demonstrates that the primary focus of the discussion concerned payment terms and security for the amount owed on the default judgment. The secondary focus was the issue of the payout of the respondents’ mortgage and the terms of its refinancing. The negotiations began with a discussion of whether the respondents would pay $1,000 or $500 monthly towards the default judgment. The payout amount for the mortgage was not part of that discussion.

[10] It is in this context that the respondents’ April 19 letter must be read. However, the first sentence of the letter states: “Further to your last correspondence, I confirm that I have instructions to agree to those terms proposed.” In other words, the respondents were agreeing to the Bank’s earlier terms. The letter then advanced terms to be included in minutes of settlement, including a mortgage refinancing of $357,000 with “pay-out” by May 16. While this is the letter that the motion judge found to be clear and unequivocal, given its plain wording the letter must be read with reference to the earlier “terms proposed”.

[11] The earlier correspondence goes back to the March 10 letter on behalf of the respondents confirming resolution of the issue of the payment terms for the default judgment. It goes on to state that the settlement “will allow for the writs of execution [in relation to the default judgment] to be removed on a temporary basis to allow our clients to refinance the mortgage in order to pay out [the Bank].” To that end, the respondents sought a “payment amount” for the mortgage in order to obtain their refinancing.

[12] The Bank responded on March 22. After addressing terms concerning payment of the default judgment, it required that the refinanced mortgage be in an amount “no greater th[a]n the principal now outstanding on my client[’]s mortgage, so that my client’s writ [of seizure and sale] shall only be subject to that amount”. The letter also referred to “payout” of the Bank’s mortgage, as a separate matter. The payout was not tied to the amount of the refinanced mortgage. Finally, the Bank required that the mortgage be paid out within 30 days.

[13] In response on March 29, the respondents took issue with the Bank’s restriction of 30 days to accomplish the refinancing and advised that if the Bank insisted on that time limit, there would be no settlement. The respondents again requested a payout amount for the mortgage. On March 31, the Bank provided a letter showing the amount owing on the mortgage as at that date was $356,885.47 for principal, $29,040.31 for interest and $4,679.50 for tax account debit for a total amount of $390,605.28. In addition, the letter set out approximate legal fees for the Bank’s solicitors of $8,971.57.

[14] When the respondents replied on April 4, they only took issue with the “approximately $9,000 for legal fees” and said there had been no agreement on that issue. The respondents otherwise took no issue with the amount of $390,000 required for the payout of the mortgage. There certainly was no suggestion of a $357,000 payout. Besides the amount of the legal fees, the only other contentious issue was the proposed extension of the refinancing period from 30 to 60 days.

[15] On April 8, the Bank wrote to the respondents’ counsel referencing the earlier March 10 letter and specifying a refinancing date of “May 16, 2011 failing which this settlement is null and void”. The Bank was offering no concession on this or any other point. The April 8 letter again mentioned a refinancing of $357,000, but that reference was in connection with the amount it was prepared to allow the respondents to refinance in priority to the unsecured debt.

[16] It is with that background that the respondents wrote the letter of April 19. As noted, that letter agreed to the Bank’s terms, which in earlier correspondence clearly included a payout of at least $390,000. While the respondents’ April 19 letter set out terms to be included in the Minutes Settlement, it did not provide draft Minutes of Settlement or specify a payout figure for the mortgage. What the letter did do on page 2 was add a sentence asking the Bank to advise if “these terms do not properly reflect the contents of your latest correspondence and my previous letter”. It is worth repeating that the terms in the April 19 letter specifically referenced the respondents’ acceptance of the terms proposed by the Bank.

[17] In no correspondence, or any other communication between the parties, was there any discussion or agreement to a payout figure other than the approximate amount of $390,000 and arguably the proposed legal fees.

[18] The determination of whether a settlement was reached in this case did not require an inquiry into the parties’ subjective intentions. Since the correspondence was in writing, the issue could be determined based on an objective reading of the contents: Olivieri v. Sherman, 2007 ONCA 491, 86 O.R. (3d) 778 (C.A) at para. 44.

[19] In any interpretation exercise, the supporting documentation must be read in context. In this case, the motion judge erred in focusing on particular letters without considering them in the context of the history of the correspondence, particularly the correspondence to which they specifically referred.

[20] When the correspondence between the parties’ solicitors is considered in context, there was no agreement on the amount of the payout of the mortgage. The parties were at cross purposes on that issue. There was no settlement.

[21] In view of this conclusion, it is unnecessary to deal with the Bank’s secondary argument that the motion judge also erred in failing to exercise her discretion to refuse to enforce the settlement.

RESULT

[22] Accordingly, the appeal is allowed, the order below is set aside, and the respondents’ motion is dismissed.

[23] Finally, the costs awarded to the respondents by the motion judge are set aside and costs of the motion in the agreed-upon amount of $2,300 are awarded to the Bank. As well, costs of the appeal are awarded to the Bank, fixed in the amount of $7,500, inclusive of disbursements and applicable taxes.

Released: Feb. 28, 2012 “S.E. Lang J.A.”

“SEL” “H.S. LaForme J.A.”

“L.A. Pattillo J. (ad hoc)”