Court of Appeal for Ontario

Date: 2017-07-05 Docket: C62793

Judges: LaForme, van Rensburg and Huscroft JJ.A.

Between

Canadian Northern Shield Insurance Company and Royal & Sun Alliance Insurance Company of Canada

Plaintiffs (Appellants)

and

2421593 Canada Inc., The Co-operators Group Limited, Federated Agencies Limited, Vancouver City Savings Credit Union and 7081332 Canada Ltd.

Defendants (Respondents)

Counsel

Marg A. McKillop and J. Anthony Caldwell, for the appellants

Geoff R. Hall and Jacqueline L. Cole, for the respondents, 2421593 Canada Inc. and Vancouver City Savings Credit Union

Barry H. Bresner, for the respondents, The Co-operators Group Limited, Federated Agencies Limited and 7081332 Canada Ltd.

Heard: May 15, 2017

On appeal from: the order of Newbould J. of the Superior Court of Justice, dated September 19, 2016, with reasons reported at 2016 ONSC 5843.

By the Court:

A. Overview

[1] The appellants appeal the summary dismissal of their action against the respondents. The parties' principal dispute is about contract formation and interpretation.

[2] Canadian Northern Shield Insurance Company ("CNS") and Royal & Sun Alliance Insurance Company of Canada ("RSA") (together "CNS/RSA" or "the appellants") commenced an action against 2421593 Canada Inc. ("Vancity Insurance") and Vancouver City Savings Credit Union (together the "Vancity respondents") for damages and other relief following the alleged breach of an oral agreement. They also sued The Co-operators Group Limited ("Co-operators"), Federated Agencies Limited and 7081332 Canada Ltd. (together the "Co-operators respondents") for damages for inducing breach of contract.

[3] There were two motions for summary judgment brought by the Vancity respondents and the Co-operators respondents.

[4] The motion judge dismissed the action, primarily because he concluded on his review of the evidence that the parties expected and required there to be a signed written agreement in order for there to be a binding contractual agreement (referred to on appeal as his finding that there was a "Precondition"). This disposed of the claims for breach of contract and for inducing breach of contract. He also determined that in any event the decision of the Vancity respondents not to proceed with the alleged contract with CNS/RSA could not have been induced by Co-operators several months later.

[5] The appellants seek an order setting aside the dismissal and sending the entire action to trial.

[6] For the reasons that follow, we allow the appeal with respect to the action against the Vancity respondents, which we direct to trial. We dismiss the appeal with respect to the Co-operators respondents.

B. Background

[7] Vancity Insurance had non-exclusive broker agreements with CNS and RSA. In February 2008, it issued a request for interest ("RFI") seeking expressions of interest from insurers in developing an exclusive supplier arrangement. In June 2008, RSA/CNS were selected to enter exclusive negotiations to become Vancity Insurance's sole insurer. Various things took place in the following months, including a press release announcing the parties' relationship, notice by Vancity terminating its relationships with other insurers, and meetings and negotiations. By July 2009, when Vancity Insurance was purchased by Co-operators, no written agreement had been signed between RSA/CNS and Vancity.

[8] RSA/CNS asserted that the parties had concluded an oral agreement at meetings on July 3, 2008 and September 11, 2008. They claimed the parties had taken various actions in performance of their contractual obligations after the oral contract formed despite the absence of a written contract, actions that confirmed they had an agreement. Vancity Insurance asserted that no oral agreement was reached at those meetings on all essential matters and that, in any event, a signed written agreement was required, which never occurred.

C. The Decision Below

[9] In granting summary judgment in respect of the appellants' claims against the Vancity respondents, the motion judge determined that it was not necessary to decide whether an oral agreement on essential terms came into existence. He found a Precondition: on a review of the evidence, it was clear to him that the parties expected and required there to be a signed, written agreement in order for there to be a binding contractual relationship, and that the understanding or intention of the parties was that their legal obligations were to be deferred until a formal contract had been approved by both sides and executed. The motion judge stated that, if it had been necessary to resolve whether the parties had an oral agreement and the terms of any such agreement, he would have ordered a trial of that issue.

[10] As for the action against the Co-operators respondents for inducing breach of contract, the motion judge concluded that the claim was untenable in light of his conclusion on the first issue. He went on to provide alternative reasons for dismissing the claim for inducing breach of contract, including that there was no evidence that Co-operators deliberately sought to get the alleged oral contract terminated; that, on the evidence, Co-operators acted reasonably and did not turn a "blind eye" to any putative contract; and that, in any event, the decision of the Vancity respondents to explore the market to sell Vancity Insurance, and therefore not to settle the contract terms, predated Co-operators' involvement, and so could not have been induced by Co-operators several months later.

D. Appeal of Dismissal of Claims Against Vancity Respondents

[11] The central issue in this appeal relates to whether the motion judge erred in finding the Precondition – in his determination that CNS/RSA and Vancity Insurance had agreed that no binding contractual relationship would come into existence without a written, signed agreement.

[12] The appellants submit the motion judge made palpable and overriding errors in making this finding: he drew the wrong inferences from the documents and other evidence he assessed, and made this finding in the absence of any evidence to support it. Further, the appellants submit the motion judge erred in law when he concluded that the conduct of the parties was irrelevant to the Precondition question.

[13] For their part, the Vancity respondents urge deference. They say the motion judge made no error in assessing the extensive record on the summary judgment motion, including draft agreements, discovery evidence, affidavits and cross-examinations. Nor did he hold that conduct evidence was irrelevant. Rather, he expressly considered the parties' conduct, and simply disagreed with the inferences the appellants wished to draw from it.

(1) Analysis

[14] This court owes considerable deference to the motion judge's interpretation of the parties' agreement: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. Here, the motion judge's finding that there was a Precondition, that the parties' intended and agreed that their "legal obligations were to be deferred until a formal contract had been approved by both sides and executed", was a palpable and overriding error. As we explain, the evidence reviewed by the motion judge was not capable of supporting that conclusion.

[15] The Vancity respondents point to the following 11 pieces of evidence referred to by the motion judge at paras. 22–34 of his reasons, evidence they say supports his conclusion about the Precondition:

(a) CNS/RSA admitted in their pleading that the agreement "needed to be memorialized in writing", which indicated that the plaintiffs understood that the agreement had to be in writing in a form agreed by both sides;

(b) Mr. Hayes (RSA/CNS's representative on examination for discovery) admitted that the relationship between a broker and an insurer is "invariably documented" by an agreement in writing and that it would be "very foolish" to have a situation where a broker could issue policies without having some sort of signed document indicating the scope of their authority;

(c) CNS/RSA's written proposal to Vancity Insurance indicated that the parties intended to reach a non-binding Letter of Intent, followed by a period of exclusive, detailed negotiations which would result in a full legal contract;

(d) CNS/RSA's written proposal for discussion on June 10, 2008 contained a list of terms and conditions, one of which was "formal agreement";

(e) The minutes of the meeting of July 3, 2008 – at which CNS/RSA assert a binding contract was formed – state that CNS/RSA was "to provide boiler plate contract for review/discussion";

(f) CNS/RSA's own affiant, Mr. Pentland, gave evidence on cross-examination that the discussions at the July 3, 2008 meeting were "at a more conceptual level," that CNS/RSA was to provide a form of document to be further considered following the meeting, and that it was contemplated that there would be a written agreement between the parties;

(g) Prior to the parties' meeting of September 11, 2008, Mr. Pentland prepared a memorandum which expressly referred to the anticipated written contract;

(h) Mr. Hayes' affidavit expressly indicated that "the agreement at the September 11th meeting was that CNS/RSA would draft a written agreement";

(i) The minutes of the September 11, 2008 meeting, circulated by Vancity Insurance, state that Vancity would "wait until draft comes back from counsel – review", reflecting that they intended to receive a draft of a written agreement;

(j) An email of December 1, 2008 from Mr. Hayes to Mr. Terry Taciuk, president of Vancity Insurance, enclosed a draft written agreement and stated that it would serve "as a solid first draft for us to work on" and that it had been drafted "with the ability to add addendums for specific contract items such as service level agreements or claims satisfaction surveys"; and

(k) Mr. Hayes' evidence on discovery was that he did not expect Vancity Insurance to sign the draft contract delivered on December 1, 2008, and that the draft contained a number of points that had not been agreed.

[16] The difficulty for the Vancity respondents is that, whether considered individually or cumulatively, these aspects of the evidence only go so far as to support the conclusion the parties intended and agreed to eventually set out their agreement in writing, and that they were taking steps to negotiate the terms of their contract – what the Vancity respondents' counsel referred to as the "contract track". This evidence does not, in our view, support the motion judge's conclusion, on which he based his disposition of the Vancity motion, that they had "established that both sides acted on the understanding and intent that there was to be a formal executed written contract in order to be legally bound": at para. 21.

[17] The motion judge was tasked with answering two separate questions: (i) did the parties agree that they would set out their contractual arrangements in writing? and (ii) if so, did the parties agree that execution of a written contract was a precondition to the creation of legal obligations between them? It was not in dispute that the answer to the first question was "yes"; nonetheless, the motion judge appears to have treated the evidence providing an answer to the first question as dispositive of the second.

[18] Nor does the motion judge's conclusion take into account evidence of the parties' conduct that pointed to the existence of some type of contractual relationship between the parties, while they negotiated a formal contract – what the Vancity respondents' counsel referred to as the "operational track". Referring to evidence that the parties pursued the roll-over of the business from Vancity Insurance's other insurers to CNS and continued to work on the program, as evidence they had a binding agreement, the motions judge, at para. 36, discounted that conduct on the basis that it "ignores the need for a signed written contract that the parties pursued for many months". He pointed to the fact that the parties persisted in seeking a final written agreement while they were performing the actions relied on by the appellants. But as we have already observed, the parties' pursuit of a written contract could not furnish a basis to infer an intention that execution of a written agreement was to be a precondition to contractual obligations.

[19] Consequently, the motion judge provided no reasonable explanation for rejecting the appellants' arguments regarding the significance of the parties' conduct in performing on the terms of the deal. The Vancity respondents concede that such evidence is relevant in contractual interpretation, but say the motion judge considered and interpreted the evidence and, as he was entitled to do, reached a conclusion other than the one advanced by the appellants. In our view, however, the motion judge's treatment of the conduct evidence in para. 36 is tantamount to disregarding it: having concluded that the parties agreed the execution of the written agreement was a precondition to contractual obligation, he determined he did need to consider conduct that arguably undermined that view. Since, as we have said, the evidence the motion judge adverted to was not capable of supporting the inference for which it was relied upon, it also cannot be a basis for disregarding evidence that had a clear bearing on the very question he had to consider.

[20] For these reasons, we conclude that the motion judge erred in concluding that there was no issue requiring a trial on the question of a Precondition, and that therefore this permitted him to dismiss the action against the Vancity respondents.

(2) Remedy and Conclusion Regarding Claim Against Vancity Respondents

[21] The Vancity respondents submit that, even if the motion judge erred in granting summary judgment on the basis that there was a Precondition, the dismissal of the action against them should be upheld on the basis that there is no genuine issue requiring a trial. The Vancity respondents assert there was insufficient certainty of terms for there to be an enforceable contract between the parties. However, the motion judge stated, at para. 16, that if he had considered it necessary to decide whether an oral agreement had come into being, he "would be inclined to order a trial of the issue in spite of the agreement of the parties that the case can be decided on a motion for summary judgment without the need for a trial". We see no reason to interfere with this conclusion. There are considerable unresolved factual disputes that this court is not in a position to adjudicate.

[22] As a result, we conclude that the motion judge erred in determining, on a summary judgment motion, that the parties intended and agreed that their legal obligations were to be deferred until a formal written contract had been approved by both sides and executed. We therefore allow the appeal in respect of the appellant's claims against the Vancity respondents.

E. Appeal of Dismissal of Claims Against Co-operators Respondents

[23] The motion judge's dismissal of the action against the Co-operators respondents for inducing breach of contract followed automatically from his decision on the Precondition. If there was no agreement between the appellants and the Vancity respondents, because one could not come into existence without a written contract, then there could be no inducement of a breach of contract. The focus of the appellants' submissions on appeal was on the motion judge's conclusion that there was a Precondition.

[24] However, the motion judge articulated a reasonable, alternative basis for dismissing the claim against the Co-operators respondents that did not rely on his conclusions with respect to whether a binding contract had formed: see paras. 41–59 of his reasons. Essentially, he found that while Co-operators, through its due diligence, was aware of the nature of the business that was being conducted by CNS/RSA with Vancity Insurance, and that the parties were taking opposite positions as to whether there was a binding contract, Co-operators was in no position to make a determination as to which of the parties was correct in their positions. Further, there was no evidence that Co-operators deliberately sought to get the alleged oral contract terminated. In any event, since the Vancity respondents had decided to explore the market to sell Vancity Insurance and therefore not to settle the contract terms with the appellants by sometime in December 2008, the decision of the Vancity respondents not to proceed with the alleged contract with the appellants could not have been induced by Co-operators several months later.

[25] On appeal, the appellants did not attack these findings that were available to the motion judge on the evidence, and fully supported his alternative basis for dismissing the claim against the Co-operators respondents. Accordingly, there is no basis to interfere with the order dismissing the action against the Co-operators respondents.

F. Disposition

[26] For these reasons we allow the appeal in part. We set aside the dismissal of the action against the Vancity respondents.

[27] Success on appeal was divided. The Co-operators respondents were entirely successful and the Vancity respondents were entirely unsuccessful, while the appellants succeeded against Vancity only. The Co-operators respondents are therefore awarded costs in the agreed upon amount of $10,000 plus HST payable by the appellants. The appellants are in turn awarded costs in the agreed upon amount of $15,000 plus HST payable by the Vancity respondent.

Released: July 5, 2017

"H.S. LaForme J.A."

"K. van Rensburg J.A."

"Grant Huscroft J.A."