COURT OF APPEAL FOR ONTARIO

CITATION: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912

DATE: 20161202

DOCKET: C60982

Strathy C.J.O., Weiler and Watt JJ.A.

BETWEEN

Robert B. Shewchuk

Plaintiff (Appellant)

and

Blackmont Capital Inc.

Defendant (Respondent)

Joseph Groia and Kevin Richard, for the appellant

Nigel Campbell and Doug McLeod, for the respondent

Heard: September 9, 2016

On appeal from the judgment of Justice Suhail A.Q. Akhtar of the Superior Court of Justice, dated August 14, 2015, with reasons reported at 2015 ONSC 5079.

Strathy C.J.O.:

A. Introduction

[1] The trial judge found that the parties’ contract was ambiguous. He considered the factual circumstances surrounding the contract to interpret it and to resolve the ambiguity. The main question on this appeal is whether he erred in also considering the parties’ subsequent conduct – that is, their conduct after the formation of the contract.

[2] For the reasons that follow, I would dismiss the appeal. Because the contract was ambiguous, the trial judge properly considered the parties’ subsequent conduct to assess their evidence about the intended scope of their contract. The appellant has not identified either a palpable and overriding error in the trial judge’s factual findings about the parties’ subsequent conduct or an extricable error of law in his interpretation of the contract.

B. The Facts

The parties

[3] The appellant, a successful stockbroker, was employed by the respondent[^1] as an investment advisor (“IA”) in its Calgary office. He was a member of the respondent’s Retail Group brokers, whose clients were primarily individual investors. The respondent also had a Capital Markets group, based in Toronto, which procured financing for banks, public companies, and other institutional clients.

The IA Compensation Plan

[4] Each IA, like the appellant, had a Compensation Plan, which set out their commission scale. As a top-producing IA, the appellant was compensated at the highest level: 52 percent of the fees the respondent earned from a retail transaction.

[5] The IA Compensation Plan identified several “Special Payout Items,” including “Capital Markets Referrals.” If an IA referred business to the Capital Markets group, he or she could earn a referral fee of “up to 15% of the net revenue” generated by the transaction. The amount of the fee was discretionary and was determined by executives of the Retail Group and Capital Markets, depending on the “value added” of the IA’s relationship with the client, having regard to any pre-existing relationship between the respondent and the client.

[6] The appellant and other IAs were dissatisfied with their compensation for transactions they referred to Capital Markets. The appellant, who was particularly vocal, initiated discussions for a new contract for himself, making it clear that he would leave the company if his concerns were not resolved to his satisfaction. His negotiations with the Calgary branch manager of the Retail Group culminated in the execution of a letter agreement dated April 11, 2006 (the “April 11 Agreement”).

The April 11 Agreement

[7] The April 11 Agreement was, in essence, an amendment to the IA Compensation Plan. It had two financial components. First, it granted the appellant 100,000 deferred stock units in the respondent’s parent corporation, each of which entitled him to acquire one share. This was in addition to the stock units to which he was entitled as an IA upon meeting his investment targets in a given year. Second, it provided for compensation in addition to what he received under the IA Compensation Plan. Paragraph 3 of the April 11 Agreement provided as follows:

3. With respect to the broker warrants[^2] attributable to you for the transactions listed in Schedule “A” attached hereto and for all transactions (whether you are paid in the form of broker warrants, cash or fully paid shares) that are sourced directly by you following March 1, 2006, Blackmont shall pay to you an additional 10% over and above that which is payable under [the IA Agreement] (the “Finder’s Fee”).

[8] Schedule A to the agreement listed thirteen “Qualified options eligible for [a] 10% Finders Fee” and six “non-qualified options.” It provided that “[a] Finders Fee of 10% will apply to … new positions garnered which could come in the form of traditional Broker B-Warrants, free trading shares, restricted shares or cash. These new positions will be added to Schedule A as they arise.” The qualified options listed in Schedule A were related to Retail Group transactions.

[9] The April 11 Agreement was expressed to be in full and final satisfaction of all compensation-related disputes between the appellant and the respondent. Paragraphs 2 and 10 provided that the IA Agreement would continue to govern the relationship:

2. Except as outlined further below, payouts on broker warrants will be subject to Blackmont’s standard [IA Compensation Plan] (the “Broker Warrant Payments”).

3. Other than as specifically stated above, all other terms of your employment remain unchanged and shall continue to be subject to [the IA Agreement] in existence at the relevant time.

[10] The April 11 Agreement was expressed to be confidential and would be terminated if the appellant breached confidentiality, in which case his compensation would revert to the standard IA Compensation Plan. The appellant acknowledged that the confidentiality provision meant that he could not disclose the existence of the April 11 Agreement to Capital Markets personnel.

The disputed transactions

[11] In his statement of claim, the appellant asserted, among other things, that he was entitled to a 52 percent commission under the IA Compensation Plan, as well as a further 10 percent commission under the April 11 Agreement, on four Capital Markets transactions in which the respondent was a member of the underwriting syndicate or a participant in the financing. He claimed to have directly sourced these transactions for the respondent through his connections with the clients.

[12] The central issue at trial was whether the April 11 Agreement applied to Capital Markets transactions, as the appellant asserts.

The subsequent conduct

[13] I will discuss the parties’ subsequent conduct in more detail below. Briefly, however, the trial judge heard evidence of what the respondent characterized as ongoing attempts by the appellant to negotiate compensation for deals he introduced to Capital Markets. The respondent argued that this conduct was inconsistent with the appellant’s assertion that the April 11 Agreement applied to Capital Markets transactions.

C. The trial judge’s reasons

[14] The trial judge identified the primary issue as whether the disputed transactions fell within the scope of the April 11 Agreement. This depended on whether the April 11 Agreement was applicable only to retail transactions or whether it also applied to transactions involving Capital Markets. Each party argued that, properly interpreted, the agreement was unambiguous in its favour. The trial judge found that the agreement was ambiguous. The ambiguity could only be resolved, he said, by looking at the surrounding circumstances, including the parties’ conduct after the formation of the April 11 Agreement.

[15] In response to the respondent’s submission that the parties’ conduct subsequent to the making of the contract could only be considered in the event of ambiguity, the trial judge expressed the view, at para. 82, that “if subsequent conduct demonstrates the mutual and objective intentions of the words in the contract, it is as valuable as any conduct pre-existing the making of the contract.”

[16] The judge referred to Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, noting the role of the surrounding circumstances in determining the intentions of the parties at the time of formation of the contract. He proceeded to consider the events leading up to the execution of the April 11 Agreement, including:

• the Retail Group’s historical grievances concerning remuneration of IAs who introduced transactions to Capital Markets;
• the fact that Capital Markets personnel were not involved in the negotiation and execution of the April 11 Agreement; and
• the fact that the April 11 Agreement was to be kept confidential by the appellant and not disclosed to Capital Markets.

[17] He also noted the unlikelihood that the appellant would be entitled to a fixed commission on “bought deals,”[^3] as the appellant would bear none of the risk of these deals. And he noted the absence of any express provision in the April 11 Agreement that would supersede the Capital Markets Referrals provision in the IA Agreement.

[18] The trial judge also considered events occurring after the execution of the April 11 Agreement, including:

• a proposal made by the appellant on November 5, 2006, for the division of compensation and a 15 percent Finder’s Fee on deals he brought to Capital Markets;
• a meeting in November, 2006, in which the appellant attempted to negotiate an agreement with Capital Markets;
• the appellant’s attempts to negotiate fees on particular Capital Markets transactions – fees that differed from and were less favourable to him than the fees he claimed were payable under the April 11 Agreement; and
• other attempts by the appellant and his associate, Mr. Harris Watson, to negotiate an agreement with Capital Markets for a share of revenues from transactions arising out of the appellant’s relationship with clients.

[19] The trial judge found that this course of conduct supported the inference that the April 11 Agreement was not intended to apply to transactions involving Capital Markets. He found it significant that in the course of these negotiations, the appellant did not take the position that he was entitled to share in the fruits of Capital Markets transactions by virtue of the April 11 Agreement.

[20] He also found it significant that Capital Markets representatives were not involved in the negotiation of the April 11 Agreement; it was not signed by representatives of Capital Markets; and there were no terms dealing with transactions that included participation by Capital Markets. The appellant was expressly forbidden from even mentioning the existence of the agreement to Capital Markets. According to the trial judge, it would be unreasonable to expect that Capital Markets would agree to share the fees that it earned without any knowledge of or participation in the formation of the agreement.

[21] The trial judge found that the IA Compensation Plan permitted the appellant to make agreements with Capital Markets on joint ventures in which he would participate. He had done so after the execution of the April 11 Agreement without ever suggesting that he was entitled to a share in the revenues from them as of right pursuant to the agreement.

[22] In the course of analyzing the parties’ conduct after they signed the April 11 Agreement, the trial judge made adverse credibility findings against the appellant and Mr. Watson, who each testified that the agreement was intended to apply to Capital Markets transactions and fully resolve the appellant’s compensation dispute with the respondent.

[23] The trial judge concluded that the April 11 Agreement was intended to heal the rifts between the appellant and the respondent, but that it did not override the IA Compensation Plan. Rather, the April 11 Agreement coexisted with the IA Compensation Plan.

D. The parties’ submissions

[24] I will discuss the parties’ submissions on appeal in the Analysis section below. They focus on three principal questions.

[25] First: The Standard of Review. The appellant submits that, notwithstanding the Supreme Court of Canada’s decision in Sattva, the trial judge’s interpretation of the April 11 Agreement is reviewable on a correctness standard, because this is a case in which the factual matrix of the contract is relatively unimportant in the interpretive exercise. The respondent says that Sattva applies and that the trial judge’s decision is reviewable on a standard of palpable and overriding error.

[26] Second: Ambiguity. The appellant submits the contract was unambiguous. He argues that Paragraph 3 of the April 11 Agreement, when read together with Paragraphs 2 and 10, clearly superseded the Capital Markets Referrals provision of the IA Compensation Plan. Its result was to guarantee the appellant a referral fee of 10 percent over and above what would have been payable under the IA Compensation Plan for transactions he referred to Capital Markets. The respondent says the trial judge did not err by concluding that the contract was ambiguous. Although at trial each party argued that the contract was unambiguous, the trial judge correctly noted their respective arguments advanced different and incompatible interpretations.

[27] Third: Subsequent Conduct. The appellant submits the trial judge committed a legal error by placing undue weight on the parties’ conduct subsequent to the formation of the April 11 Agreement. He says that subsequent conduct is not part of the factual matrix. It is admissible only in the event of ambiguity and it has a limited role to play in the interpretive exercise. The respondent submits that evidence of subsequent conduct was properly admitted in view of the ambiguity of the contract. Although the respondent agrees that such evidence must be approached with some caution, it maintains that the trial judge did not err in using it the way he did.

[28] At the end of these reasons, I will briefly mention two additional grounds of appeal raised by the appellant.

E. ANALYSIS

The standard of review

[29] I reject the appellant’s submission that this court’s decision in Bell Canada v. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81, remains applicable in light of Sattva and that the trial judge’s interpretation of the contract can be reviewed on a correctness standard in the absence of an extricable error of law.

[30] The Supreme Court made clear in Sattva, at para. 55, that a question of contractual interpretation is “inherently fact specific” and that, usually, appellate courts should show deference to first-instance fact finders (at para. 52). A less deferential standard should be applied only if the appellant demonstrates an extricable question of law within what was initially characterized as a question of mixed fact and law (at para. 53). See also Fontaine v. Canada (Attorney General), 2016 ONCA 241, 130 O.R. (3d) 1, at para. 96; and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, 54 B.L.R. (5th) 1, at para. 21.

[31] The appellant’s reliance on this court’s decision in Bell Canada is misplaced. In that case, the majority described the exercise of contract interpretation as “a legal exercise” (at paras. 25, 30). This approach has been expressly overtaken by Sattva (at paras. 49, 50, 55).

[32] Finally, in Bell Canadathe majority held, at para. 26, that even where a question of contractual interpretation is one of mixed fact and law, an appellate court must determine whether the question is primarily legal or primarily factual to select the appropriate standard of review. In Sattva, however, there is no mention of such a spectrum-based approach to the questions of mixed fact and law raised in contractual interpretation. Instead, as stated above, an appellate court must identify an extricable question of law within what was initially characterized as a question of mixed fact and law before a correctness standard applies.

Ambiguity

[33] The appellant submits the trial judge made an extricable error in finding ambiguity in the April 11 Agreement. He says that the language of “all transactions” in Paragraph 3, quoted above, means precisely what it says and necessarily includes both Retail Group and Capital Markets transactions. He relies on Hobbs v. Esquimalt & Nanaimo Railway Co. (1899), 1899 35 (SCC), 29 S.C.R. 450, where the Supreme Court of Canada held that a sale of “land” included the transfer of rights to the minerals contained therein. If the vendor had meant to reserve the mineral rights by using the word “land” in the agreement of purchase and sale, he should have said so. Similarly, the appellant asserts that if the respondent wanted to exclude Capital Markets from “all transactions,” it should have said so. The effect, he says, is that the discretionary payment for Capital Markets referrals in the IA Agreement is replaced by a fixed 10 percent payment under the April 11 Agreement.

[34] Leaving aside the fact that the approach to contractual interpretation in Hobbshas been overtaken by a century of jurisprudence, culminating in Sattva, the appellant concedes that the trial judge was required to consider the IA Compensation Plan in interpreting the April 11 Agreement, which expressly referred to the plan and confirmed its ongoing application. Paragraphs 2 and 10 of the April 11 Agreement provided that the IA Compensation Plan, which included the discretionary Finder’s Fee provision, would continue, except as specifically set out in the April 11 Agreement. The trial judge found at para. 83 that the provision in the April 11 Agreement giving the appellant a 10 percent Finder’s Fee on “all transactions” collided “head on” with the Capital Markets referral provision of the IA Compensation Plan, which made the IA’s payment in the discretion of senior management of the Retail Group and Capital Markets, up to a ceiling of 15 percent.

[35] I agree with the trial judge that the foregoing gave rise to an ambiguity, which he was required to resolve through the application of the rules of contract interpretation, having regard to the factual matrix surrounding the April 11 Agreement.

[36] There was an additional source of ambiguity not considered by the trial judge. The wording of the April 11 Agreement that “Blackmont shall pay to you an additional 10% over and above that which is payable under Blackmont’s standard investment advisor compensation plan” does not fit easily with the argument that it was intended to apply to Capital Markets referrals. Compensation for Capital Markets referrals in the IA Compensation Plan was entirely discretionary. It was possible for the appellant to receive no fee for a referral to Capital Markets, which, unlike his compensation for retail transactions, did not entitle the appellant to a fixed or minimum percentage for revenue. The use of the phrase “over and above that which is payable” makes sense in the context of a fixed amount or percentage, but is awkward when applied to a purely discretionary amount.

Subsequent Conduct

[37] Having found ambiguity in the contract, the trial judge considered what he described at para. 84 as the “surrounding circumstances of the April 11 Agreement and what happened afterwards in its implementation.” He looked at the surrounding circumstances to see whether the parties intended the April 11 Agreement to apply to the disputed transactions involving Capital Markets. He looked to the parties’ subsequent conduct, he said at para. 85, to determine “their intentions and understanding of the agreement.”

[38] I will conduct my analysis of this issue by addressing three questions:

1. When is evidence of the subsequent conduct of the parties admissible to interpret their contract?

2. How should courts assess the weight or cogency of that evidence?

3. Did the trial judge make appropriate use of the evidence of subsequent conduct?

(1) The admissibility of evidence of subsequent conduct

[39] In Sattva, the Supreme Court held that evidence of the “factual matrix” or “surrounding circumstances” of a contract is admissible to interpret the contract and ought to be considered at the outset of the interpretive exercise. This approach contrasts with the earlier view that such evidence is admissible only if the contract is ambiguous on its face: see Eli Lilly & Co. v. Novopharm Ltd., 1998 791 (SCC), [1998] 2 S.C.R. 129, at paras. 55-56; and Seven Oaks Inn Partnership (c.o.b. Best Western Seven Oaks) v. Directcash Management Inc., 2014 SKCA 106, 446 Sask. R. 89, at para. 13.

[40] The issue addressed in this appeal is whether evidence of the contracting parties’ conduct subsequent to the execution of their agreement is part of the factual matrix such that it too is admissible at the outset, or whether a finding of ambiguity is a condition precedent to its admissibility.

[41] In my view, subsequent conduct must be distinguished from the factual matrix. In Sattva, the Supreme Court stated at para. 58 that the factual matrix “consist[s] only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting” (citation omitted and emphasis added). Thus, the scope of the factual matrix is temporally limited to evidence of facts known to the contracting parties contemporaneously with the execution of the contract. It follows that subsequent conduct, or evidence of the behaviour of the parties after the execution of the contract, is not part of the factual matrix: see Eco-Zone Engineering Ltd. v. Grand Falls – Windsor (Town), 2000 NFCA 21, 5 C.L.R. (3d) 55, at para. 11; and King v. Operating Engineers Training Institute of Manitoba, 2011 MBCA 80, 270 Man. R. (2d) 63, at para. 72.

[42] There is an additional reason to distinguish subsequent conduct from the factual matrix – a reason rooted in the reliability of the evidence. In Sattva, the Supreme Court stated at para. 60 that consideration of the factual matrix enhances the finality and certainty of contractual interpretation. It sheds light on the meaning of a contract’s written language by illuminating the facts known to the parties at the date of contracting. By contrast, as I will explain, evidence of subsequent conduct has greater potential to undermine certainty in contractual interpretation and override the meaning of a contract’s written language.

[43] There are some dangers associated with reliance on evidence of subsequent conduct. One danger, recognized in England where such evidence is inadmissible, is that the parties’ behaviour in performing their contract may change over time. Using their subsequent conduct as evidence of their intentions at the time of execution could permit the interpretation of the contract to fluctuate over time. Thus, in James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester Ltd.), [1970] A.C. 583 (H.L.), Lord Reid observed, at p. 603:

I must say that I had thought that it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reasons of subsequent events meant something different a month or a year later.

Indeed, in F.L. Schuler A.G. v. Wickman Machine Tool Sales Ltd., [1974] A.C. 235 (H.L.), at p. 261, Lord Wilberforce described reliance on subsequent conduct as “nothing but the refuge of the desperate.”

[44] Another danger is that evidence of subsequent conduct may itself be ambiguous. For example, as this court observed in Canada Square Corp. v. Versafood Services Ltd. (1981), 1981 1893 (ON CA), 34 O.R. (2d) 250 (C.A.), at p. 261 quoting from the writing of Professor Stephen Waddams, “the fact that a party does not enforce his strict legal rights does not mean that he never had them.” As a consequence of the potential ambiguity inherent in subsequent conduct, “some courts have gone so far as to assert that evidence of subsequent conduct will carry little weight unless it is unequivocal”: see Geoff R. Hall, Canadian Contractual Interpretation Law, 3d ed. (Toronto: LexisNexis, 2016), at p. 105.

[45] A third danger is that over-reliance on subsequent conduct may reward self-serving conduct whereby a party deliberately conducts itself in a way that would lend support to its preferred interpretation of the contract.

[46] These dangers, together with the circumscription of a contract’s factual matrix to facts known at the time of its execution, militate against admitting evidence of subsequent conduct at the outset of the interpretive exercise. Evidence of subsequent conduct should be admitted only if the contract remains ambiguous after considering its text and its factual matrix.

[47] This approach is consistent with the weight of authority: see Adolph Lumber Co. v. Meadow Creek Lumber Co. (1919), 1919 27 (SCC), 58 S.C.R. 306, at p. 307; Corporate Properties Ltd. v. Manufacturers Life Insurance Co. (1989), 1989 4262 (ON CA), 70 O.R. (2d) 737 (C.A.), at p. 745, leave to appeal to S.C.C. refused, [1990] S.C.C.A. No. 48; Arthur Andersen Inc. v. Toronto-Dominion (1994), 1994 729 (ON CA), 17 O.R. (3d) 363 (C.A.), at p. 372; Montreal Trust Co. of Canada v. Birmingham Lodge Ltd. (1995), 1995 438 (ON CA), 24 O.R. (3d) 97 (C.A.), at p. 108; and Hall, at p. 103. The leading Canadian case is Re Canadian National Railways and Canadian Pacific Limited (1978), 1978 1975 (BC CA), 95 D.L.R. (3d) 242 (B.C. C.A.), aff’d, 1979 229 (SCC), [1979] 2 S.C.R. 668, in which Lambert J.A. stated, at p. 262:

In Canada the rule with respect to subsequent conduct is that if, after considering the agreement itself, including the particular words used in their immediate context and in the context of the agreement as a whole, there remain two reasonable alternative interpretations, then certain additional evidence may be both admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable alternative interpretations is the correct one.

The types of extrinsic evidence that will be admitted, if they meet the test of relevance and are not excluded by other evidentiary tests, include evidence of the facts leading up to the making of the agreement, evidence of the circumstances as they exist at the time the agreement is made and, in Canada, evidence of subsequent conduct of the parties to the agreement.

[48] Despite its dangers, evidence of subsequent conduct can be useful in resolving ambiguities. It may help to show the meaning the parties gave to the words of their contract after its execution, and this may support an inference concerning their intentions at the time they made their agreement: see Montreal Trust Co., at p. 108; 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396, 239 O.A.C. 137, at para. 55; Whiteside v. Celestica International Inc., 2014 ONCA 420, 321 O.A.C. 132, at para. 58; and Sobocynski v. Beauchamp, 2015 ONCA 282, 125 O.R. (3d) 241, at para. 60 leave to appeal to S.C.C. refused, [2015] S.C.C.A. No. 243.

[49] Canadian courts have never adopted the absolute exclusionary rule prevailing in the United Kingdom: see Bank of Montreal v. University of Saskatchewan (1953), 1953 166 (SK QB), 9 W.W.R. (N.S.) 193 (Sask. Q.B.), at p. 199; Manitoba Development Corp. v. Columbia Forest Products Ltd. (1973), 1973 1074 (MB CA), 43 D.L.R. (3d) 107 (Man. C.A.), at p. 114; Gastel v. Methner, [1979] O.J. No. 1032 (S.C.), at para. 13; and Three Hats Productions Inc. v. RCA Inc., 1987 CarswellOnt 3295 (S.C.), at para. 36.

[50] However, the lesson learned in Canada from the British position is that the parties’ subsequent conduct is relevant only to inferentially establishing their intentions at the time they executed their contract. Like evidence of post-offence conduct in criminal matters, it is a kind of circumstantial evidence that “invokes a retrospectant chain of reasoning”; the trier of fact is invited to infer the parties’ prior intentions from their later conduct: see R. v. Rybak, 2008 ONCA 354, 90 O.R. (3d) 81, at para. 142, leave to appeal to S.C.C. refused, [2008] S.C.C.A. No. 311; and R. v. Vant, 2015 ONCA 481, 324 C.C.C. (3d) 109, at para. 121. As Juriansz J. (as he then was) wrote in Danforth-Woodbine Theatre Ltd. v. Loblaws Inc, [1999] O.J. No. 2059 (Gen. Div.), at para. 55:

[W]here evidence of the conduct of the parties and their method of performance is admissible, it is not admitted so that the contract may be construed to be consonant with the parties' conduct, but rather, it is admitted because the parties’ conduct and method of performance may be of assistance in determining what the signatories intended at the time they entered the contract.

(2) The weight or cogency of evidence of subsequent conduct

[51] In Canadian National Railways, Lambert J.A. suggested, at p. 262, that, once admitted, the weight or cogency of evidence of post-contractual conduct may depend on the circumstances:

However, to say that these types of evidence become admissible where two reasonable interpretations exist is not to say that the evidence, if tendered, must be given weight … In no case is it necessary that weight be given to evidence of subsequent conduct. In some cases it may be most misleading to do so and it is to this danger that allusions are made throughout the recent English cases, particularly L. Schuler A.G. v. Wickman Machine Tool Sales Ltd., and James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. In England the risks have been considered sufficiently grave that the possibility of illumination from the use of subsequent conduct has been ruled out. In Canada, they have not, but those risks must be carefully assessed in each individual case before determining to give weight to subsequent conduct. [Citations omitted.]

[52] I agree. The inherent dangers of evidence of subsequent conduct mean that when it is admitted it must be used cautiously and its weight will vary from case to case: see Danforth-Woodbine Theatre, at para. 55; Canada Square Corp., at pp. 260-261; and Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459, 57 B.C.L.R. (4th) 212, at para. 27. When ascertaining its cogency, a court should evaluate the extent to which its inherent dangers are mitigated in the circumstances of the case.

[53] In the usual course, evidence of subsequent conduct will be more reliable if the acts it considers are the acts of both parties, are intentional, are consistent over time, and are acts of individuals rather than agents of corporations: see Canadian National Railways, at p. 262. I agree with Kerans J.A. that “subsequent conduct by individual employees in a large corporation are not always reliable indicators of corporate policy, intention, or understanding”: Mesa Operating Ltd. Partnership v. Amoco Canada Resources Ltd. (1994), 1994 ABCA 94, 19 Alta. L.R. (3d) 38 (C.A.), at para. 52.

[54] Evidence of subsequent conduct will have greater weight if it is unequivocal in the sense of being consistent with only one of the two alternative interpretations of the contract that generated the ambiguity triggering its admissibility: Lewis v. Union of B.C. Performers (1996), 1996 661 (BC CA), 18 B.C.L.R. (3d) 382 (C.A.), at para. 14, leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 182; and Scurry-Rainbow Oil Ltd. v. Kasha, 1996 ABCA 206, 39 Alta. L.R. (3d) 153, at para. 44, leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 391. For instance, in Chippewas of Mnjikang First Nation v. Ontario (Minister of Native Affairs, 2010 ONCA 47, 265 O.A.C. 247, at para. 162, leave to appeal to S.C.C. refused, [2010] S.C.C.A. No. 91, this court found that the parties’ subsequent conduct was of assistance in determining which of two reasonable interpretations of a contract should be accepted because the conduct in question was “overwhelmingly consistent only with the trial judge’s interpretation.”

[55] Evidence of subsequent conduct may also be given greater weight in proportion to the proximity of the subsequent conduct to the time of the contract’s execution: see Union Natural Gas Co. v. Chatham Gas Co. (1918), 1918 2 (SCC), 56 S.C.R. 253, at p. 271; and Hall, at pp. 105-106.

[56] In summary, evidence of the parties’ subsequent conduct is admissible to assist in contractual interpretation only if a court concludes, after considering the contract’s written text and its factual matrix, that the contract is ambiguous. The court may then make retrospectant use of the evidence, giving it appropriate weight having regard to the extent to which its inherent dangers are mitigated in the circumstances of the case at hand, to infer the parties’ intentions at the time of the contract’s execution.

(3) Did the trial judge properly use the evidence of subsequent conduct?

[57] With one qualification, it is my view that the trial judge properly used the evidence of the parties’ subsequent conduct to resolve any residual ambiguity in the April 11 Agreement. The one qualification relates to the trial judge’s reference to subsequent conduct forming part of the factual matrix. As I have noted, since the factual matrix only encompasses circumstances at the time the contract was made, subsequent conduct does not enter into that part of the analysis.

[58] However, the trial judge did not consider the subsequent conduct as part of the factual matrix. He used it to test the appellant’s contention that the parties intended the April 11 Agreement to apply to Capital Markets transactions and to test the credibility of the appellant’s explanation of his subsequent conduct. He found that the appellant’s repeated attempts to negotiate a revenue sharing agreement with Capital Markets after April 11, 2006 were at odds with his contention that the relationship with Capital Markets had been resolved by the April 11 Agreement. He found the appellant’s conduct was consistent with the respondent’s interpretation of the contract and rejected as incredible the appellant’s attempts to explain his conduct.

[59] In my view, the trial judge did not err in giving undue weight to evidence of the appellant’s subsequent conduct. His considered the evidence to be relevant to the parties intentions at the time of executing the April 11 Agreement. The evidence was primarily about the appellant’s actions – the actions of an individual rather than corporate employees. The appellant’s repeated attempts to negotiate a new agreement after April 11, 2006 and his repeated failure to refer to the April 11 Agreement in these negotiations were deliberate and consistent over time. His actions after the formation of the April 11 Agreement were unequivocal and were consistent with the conclusion that at the time of execution neither he nor the respondent viewed the agreement as applicable to Capital Markets. To echo the words of this court in Chippewas of Mnjikang,the evidence was overwhelmingly consistent with the interpretation of the Agreement as being inapplicable Capital Markets transactions. It was also consistent with the trial judge’s conclusion that the factual matrix of the contract pointed to an agreement with the retail side of the business and not Capital Markets.

Other grounds of appeal

[60] The appellant argues that the trial judge failed to give adequate consideration to the defendant’s pleading, which did not specifically raise the applicability of the April 11 Agreement to Capital Markets transactions. The issue was, however, raised by the respondent well before trial and was the subject of evidence and full argument at trial. The trial judge did not err in considering this issue.

[61] Nor would I give effect to the appellant’s argument that the trial judge should not have considered the respondent’s “corrected” answers to undertakings. In accordance with settled authority, to which he referred, he was entitled to examine both the original and the “corrected” answers and to determine what weight, if any, to give to one or the other: Marchand (Litigation Guardian of) v. Public General Hospital Society of Chatham (2000), 2000 16946 (ON CA), 51 O.R. (3d) 97 (C.A.). Having done so, he concluded that the original answers contained errors that were made in good faith and that the corrected answers more accurately reflected the facts.

[62] I would not give effect to the other grounds of appeal, which were not pressed either in the appellant’s factum or in oral argument.

F. order

[63] For these reasons, I would dismiss the appeal, with costs to the respondent in the agreed amount of $55,000.00, inclusive of prejudgment interest and all applicable disbursements.

“George R. Strathy C.J.O.”

“I agree K.M. Weiler J.A.”

“I agree David Watt J.A.”

Released: December 2, 2016

[^1]: During the material time, the respondent’s name was Blackmont Capital Inc., but it is now owned by Richardson GMP. Richardson GMP defended the action at trial and responded to the appeal in this court.

[^2]: Broker warrants were a form of compensation provided by clients to the respondent and shared with IAs as part of their compensation. A warrant gave the holder the right to purchase a share of the issuer at a specific price and for a specific time. The warrant could be exercised or “cashed out” within the exercise time.

[^3]: A “bought deal” was a financial arrangement where the respondent, as an underwriter of an Initial Public Offering, agreed to finance the offering by purchasing securities from its client before the offering went public. If the offering was a success, and the shares were purchased in the market at or above the price at which the respondent bought them, it stood to make a substantial profit. If the IPO was not a success, the respondent bore the risk of substantial losses.