Court of Appeal for Ontario

Date: 2017-05-23 Docket: C62484

Judges: Strathy C.J.O., Cronk and Pepall JJ.A.

Between

Best Source Inc. Plaintiff (Appellant)

and

International Industries Corporation and David Cloer Defendants (Respondents)

Counsel

Ryan Wozniak and Carmine Scalzi, for the appellant

Michael F. Smith, for the respondents

Heard

May 11, 2017

On Appeal

On appeal from the order of Justice Robert F. Goldstein of the Superior Court of Justice, dated July 5, 2016.

Reasons for Decision

[1] The motion judge stayed this action for breach of contract because he found that the contract required disputes to be resolved by arbitration in South Carolina.

[2] The central issue was whether the contractual rights and obligations assigned to the appellant were limited to those set out in a Joint Venture Marketing Agreement ("JVMA"), which said nothing about arbitration, or whether they included the terms of an International Sales Agency Agreement ("ISAA"), which contained the arbitration clause.

[3] The background giving rise to this issue is, in brief, as follows. Headwaters Inc. ("Headwaters") was the exclusive sales agent in Canada for the respondent International Industries Corporation ("IIC") with respect to several products, including one called "Mean Green". The respondent David Cloer is the principal of IIC.

[4] Headwaters had two operative agreements with IIC – the JVMA and the ISAA.

[5] In February 2009, the appellant offered to purchase from Headwaters the exclusive right to sell "Mean Green" in Canada. Negotiations culminated in the execution of a letter agreement dated March 10, 2009, whereby Headwaters, with IIC's consent, assigned its rights and obligations with respect to "Mean Green" under the JVMA to the appellant.

[6] The assignment agreement contemplated that the parties would negotiate an "agency agreement" and that "in the interim and ultimately upon completion of a satisfactory agency agreement with IIC [the appellant] will now stand in the position of [Headwaters] under the [JVMA] with respect to the Mean Green product only … [The appellant] will represent Mean Green products as sales agents for [IIC] being the vendor" (emphasis added).

[7] This agency agreement was never finalized, but the motion judge found that the parties conducted themselves as if the sales agency agreement were in place.

[8] The issue before the motion judge was whether the contractual rights assigned to the appellant were limited to those set out in the JVMA, or whether they included those under the ISAA.

[9] On the motion, and in this court, the appellant claimed that the only contract assigned to it was the JVMA. The appellant's principal, Mr. Calabrese, said that he was unaware of the ISAA until after the litigation was commenced.

[10] The determination of the issue before the motion judge called for an examination and assessment of the parties' evidence given by way of affidavit and cross-examination, and in various documents and written communications.

[11] In resolving the conflicting evidence, the motion judge found that, contrary to the appellant's submission, the evidence supported the existence of the ISAA. Prior to the assignment, the ISAA was in force between Headwaters and IIC.

[12] The motion judge rejected Mr. Calabrese's evidence that he was unaware of the ISAA until the commencement of the litigation. He found as a fact that Mr. Calabrese was not only aware of the ISAA, but that he had received a copy of it. The motion judge noted that, while the assignment agreement was being negotiated, Mr. Calabrese's lawyer advised Mr. Calabrese that he had spoken to Mr. Cloer, who told him that IIC had a "written brokerage/sales agency agreement" with Headwaters, covering a number of different products, and was prepared to consent to the assignment of the agreement with respect to "Mean Green".

[13] The motion judge also found that the reasonable interpretation of the assignment agreement was that the parties intended that the appellant would step into the shoes of Headwaters as IIC's sales agent. In so doing, the appellant took on all the obligations of the ISAA, including the arbitration clause, and the parties conducted themselves in accordance with the ISAA.

[14] Moreover, as the motion judge found, the JVMA, which the appellant claimed was the only contractual document, did not cover any of the usual mechanics of a sales agency agreement. Those were set out in the ISAA.

[15] The appellant argues, however, that the assignment agreement makes no reference to the ISAA and only refers to the JVMA.

[16] While that is true, the assignment agreement contemplated that pending the negotiation of an agency agreement, the appellant would "stand in the position" of Headwaters in relation to the "Mean Green" product. In order to "stand in the position" of Headwaters, the appellant required an assignment of the ISAA, which set out the essential business terms of the sales agency arrangement.

[17] The appellant refers to a letter from IIC's lawyer, written in response to a letter from the appellant's lawyer protesting IIC's decision not to renew the agreement. The lawyer's letter made reference to the sales agency agreement with Headwaters and took the position that the agency agreement expired in 2010, and any rights inherent in the agency terminated with the lapse of the agreement.

[18] While the motion judge did not address this issue directly, he found as a fact that the appellant and IIC conducted themselves as if the sales agreement were in place. The appellant operated under the sales agreement and had the benefit of it. The parties' conduct did not constitute a waiver of the sales agreement or the arbitration clause in it. In our view, the lawyer's letter does not undermine the motion judge's conclusion that the ISAA was assigned to the appellant and that the parties acted in accordance with its terms.

[19] The motion judge's findings of fact are entitled to deference, as is his interpretation of the contractual documents, which is grounded in his appreciation of the factual matrix. Those findings support the conclusion that the bundle of rights possessed by Headwaters included those under both the JVMA and the ISAA, that both agreements were necessary to enable the appellant to act as the sales agent for "Mean Green" in Canada, and that both agreements were assigned to the appellant.

[20] The appellant has demonstrated no palpable and overriding error in the motion judge's assessment of the evidence. Nor has it demonstrated an extricable error of law in his interpretation of the agreements.

[21] The appeal is dismissed, with costs to the respondents in the amount of $9,000, inclusive of disbursements and all applicable taxes.

"G.R. Strathy C.J.O."

"E.A. Cronk J.A."

"S.E. Pepall J.A."