COURT OF APPEAL FOR ONTARIO
CITATION: Flintoff v. Crown William Mining Corporation, 2016 ONCA 86
DATE: 20160129
DOCKET: C60449
Pepall, Pardu and Roberts JJ.A.
BETWEEN
Kevin Flintoff, Ken Parish, Marie Parish, Stan Parish, Lois Parish, Connie Parkinson, Brian Parkinson, Ines Primc, Tari Rinder, Craig Robinson, Frank Workman and Gilbert Di Lucia
Plaintiffs (Respondents)
and
Crown William Mining Corporation, Sablo Management Inc. and Shamrock Group S.A.
Defendants (Appellants)
Douglas D. Langley, for the appellants
David Milosevic, for the respondents
Heard: January 7, 2016
On appeal from the judgment of Justice Wolfram Tausendfreund of the Superior Court of Justice, dated April 15, 2015, with reasons reported at 2015 ONSC 2027.
Pardu J.A.:
[1] Sablo Management Inc. and Shamrock Group S.A. appeal from the summary judgment motion judge’s decision holding that the respondents successfully exercised an option contained in an asset purchase agreement (“APA”).
[2] The respondents had been victimized by a fraudster, Emilia von Anhalt, and obtained judgments against her. Crown William Mining Corporation, a corporation controlled by the appellants, purchased the respondents’ judgments. In exchange, the respondents received two promissory notes and 200,000 shares of Crown William.
[3] The APA also contained a “Put-Right option” which provided that, following a two-year holding period, the respondents could compel the appellants to purchase the shares for $3.00 a share. The option could be exercised only during a one-year period commencing on January 22, 2013.
[4] The respondents attempted to exercise the Put-Right option, but the appellants did not purchase the shares as promised. The respondents then commenced the present action and, in the proceedings below, obtained summary judgment.
[5] The appellants argue that the motion judge erred in granting summary judgment in favour of the respondents in several respects:
The Put-Right option was a unilateral contract. The appellants were therefore not obliged to buy the shares unless the respondents were in strict compliance with the terms of the option. The motion judge erred by concluding that substantial compliance with the terms of the option was sufficient. The respondents’ failure to provide certificates pursuant to s. 116 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), vitiated the appellants’ obligation to purchase the shares. In addition, failure to give notice of default precisely as required by the APA means that the respondents were precluded from starting the present action.
One of the respondents, Tari Rinder, had signed a release that barred her claim in the present action.
The motion judge erred in the remedy granted. He could not require that the appellants fulfil the terms of the Put-Right option as this was not an action for specific performance. Moreover, he should have reduced the damages awarded by the value of the shares still held by the respondents.
A. Analysis
(1) Standard of Review
[6] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court declared that contractual interpretation will generally engage questions of mixed fact and law. A motion judge’s interpretation of a contract will attract deference and will not be overturned absent palpable and overriding error or an extricable legal error. As noted by Rothstein J. at para. 55, “the circumstances in which a question of law can be extricated from the interpretation process will be rare.”
(2) Was the Put-Right Option a Unilateral or Bilateral Contract?
[7] I begin with the observation that this was a highly idiosyncratic contract, the interpretation of which affected only these parties. Determining whether an option contained within a contract amounts to a separate unilateral agreement is an exercise driven by the context and the contractual language. In Sail Labrador Ltd. v. Challenge One (The), 1999 CanLII 708 (SCC), [1999] 1 S.C.R. 265, at para. 41, Bastarache J. stated that :
Whether a contract which contains an option clause establishes a single, bilateral contract or two separate contracts, one bilateral and the other unilateral, is a matter of construction. Courts must examine the text of the contract and the context surrounding it in order to determine the intention of the parties, keeping in mind that this Court has previously approved of the tendency by courts to treat offers as calling for bilateral rather than unilateral performance whenever a contract can fairly be so construed. [Citation omitted.]
[8] Deciding whether the Put-Right option was part of a bilateral agreement or a separate unilateral agreement is a question of mixed fact and law. The appellants have not identified an extricable legal error. Therefore, in the absence of a palpable and overriding error, the motion judge’s conclusion that the Put-Right option is part of a bilateral contract is owed deference.
[9] The motion judge’s conclusion that the Put-Right option was part of a bilateral contract contained in the APA was reasonable and supported by the evidence. Crown William, a company controlled by the appellants, purchased the respondents’ judgments against Ms. von Anhalt. As noted by the motion judge, the shares received by the respondents were essentially “security for the sum of $400,000” and that sum was part of the purchase price due to the respondents. Exercising the Put-Right option was the mechanism that would allow the respondents to receive that part of the purchase price. In other words, the option was part and parcel of the consideration received by the respondents and not just an isolated agreement separate from the rest of the APA.
(3) Were the Respondents in Substantial Compliance with the Notice Provisions of the APA?
[10] Having concluded that the APA was a bilateral contract, the motion judge also concluded that the doctrine of substantial compliance applied. Therefore, the respondents had sufficiently complied with the notice provisions of the APA.
[11] Article 5.2 of the APA provides that the respondents could compel the appellants to purchase their shares by delivering notice in writing to the appellants. Closing was to take place ten business days after the respondents gave notice. Article 9 provided that if the appellants failed to purchase the shares in accordance with Article 5, the respondents were entitled to exercise any remedies available to them five business days after providing written notice specifying the default and informing the appellants that the respondents intended to exercise their remedies.
[12] The respondents wrote to the appellants on February 25, 2013, to give notice that they wished to exercise the Put-Right option and requesting payment, failing which an action would be commenced. The appellants responded incorrectly that this notice was premature.
[13] On December 9, 2013, the respondents sent another letter in which they demanded payment for the shares no later than January 2, 2014. The respondents did not deliver any additional written notice of default.
[14] The motion judge concluded:
It should have been clear to all parties that Sablo and Shamrock did not purchase the [respondents’] shares of Crown William, as contemplated by section 5 of the [APA]. These [appellants] were thus in default on their obligation to purchase the [respondents’] shares. The notice of December 9, 2013 requested payment for the shares by January 2, 2014, a time period far longer than the five business days contemplated by section 9.2 of the [APA].
I find that the [respondents] have substantially complied with the notice requirement as contemplated by section 9 of the [APA].
[15] There is no basis to interfere with this conclusion.
(4) Did the Failure to provide s. 116 Certificates mean that the Respondents could not compel the Appellants to Purchase the Shares?
[16] The APA provided that:
On closing, Sablo and Shamrock (or either of them) shall pay the purchase price in full… as each Vendor shall direct, to or to the order of the Vendor (or as each Vendor shall direct), and the Vendor shall deliver the certificates representing the Shares, duly endorsed for transfer… If a Vendor is a non-resident of Canada, it will provide Sablo or Shamrock a certificate under section 116 of the Income Tax Act… failing which Sablo or Shamrock may be required to withhold and remit a portion of the purchase price as Canadian tax which the Vendor may recover by filing a Canadian tax return reporting the gain on the sale of the Shares.
[17] The motion judge held that this provision was not a precondition for the respondents to exercise the Put-Right option. Therefore, the respondents’ failure to provide s. 116 certificates did not vitiate the appellants’ obligation to buy the shares. That conclusion was reasonable.
[18] According to the express terms of the APA, a non-resident vendor had to provide a s. 116 certificate at the time of closing. If they did not provide such a certificate the appellants were to remit the appropriate withholding tax. This was not a precondition, but was a matter to be dealt with on closing.
(5) Did the Release bar Ms. Rinder’s Claim?
[19] The appellants and Ms. Rinder, but none of the other respondents, entered into a release and confidentiality agreement in addition to the APA. The agreement released the appellants from all claims that Ms. Rinder may have had against them as of the date of the agreement. The agreement was dated April 19, 2011.
[20] Before the motion judge, the appellants argued that this agreement barred Ms. Rinder’s claim against them. The motion judge concluded that, as Ms. Rinder’s claim arose after April 19, 2011, it was not barred.
[21] The motion judge’s interpretation of the release agreement was reasonable. The release expressly applied to claims “for any matter whatsoever from the beginning of time up through the effective date of this agreement.” The respondents could not exercise the Put-Right option until January 22, 2013. Their causes of action, including Ms. Rinder’s, did not arise until after notice was given and the appellants failed to purchase the shares, well after the effective date of the release agreement.
(6) Did the Motion Judge err in the Remedy Granted?
[22] The motion judge ordered that the appellants should pay $600,000 to the respondents and that “[u]pon payment of the amount due to each plaintiff, the number of shares held by such plaintiff shall be transferred to Sablo and Shamrock, or as they may direct”. The appellants argue that the motion judge erred by granting specific performance when the respondents’ notice of motion only asked for summary judgment and damages. I would reject that submission. The appellants were not prejudiced by a judgment squarely within the terms of the relief claimed in the statement of claim.
[23] The appellants also argue that the motion judge erred in setting the quantum of damages awarded. They argue that he should have reduced the damages awarded by the value of the shares still held by the respondents. However, given the motion judge’s order, there is no question here of the respondents collecting payment for the shares and also retaining them. Therefore, I would uphold the remedy granted by the motion judge.
B. disposition
[24] Accordingly, I would dismiss the appeal with costs to the respondents fixed at $11,000, inclusive of disbursements and HST.
Released: (L.B.) January 29, 2016
“G. Pardu J.A.”
“I agree S.E. Pepall J.A.”
“I agree L.B. Roberts J.A.”