Court of Appeal for Ontario
Citation: 2017 ONCA 648 Date: August 10, 2017 Docket: C62781
Judges: Weiler, van Rensburg and Huscroft JJ.A.
Parties
Between
RBC Dominion Securities Inc. and Royal Bank of Canada Europe Limited Plaintiffs (Appellants)
and
Crew Gold Corporation Defendant (Respondent)
Counsel
Jeremy Devereux and Michael Bookman, for the appellants
Alistair Crawley and Natalia Vandervoort, for the respondent
Hearing and Appeal
Heard: June 9, 2017
On appeal from: The judgment of Justice Arthur M. Gans of the Superior Court of Justice, dated September 13, 2016, with reasons reported at 2016 ONSC 5529, [2016] O.J. No. 4862.
Decision
van Rensburg J.A.:
I. Overview
[1] This is an appeal in a contract interpretation case.
[2] The central facts are not in dispute. The appellants, RBC Dominion Securities Inc. and Royal Bank of Canada Europe Limited (together "RBC"), sued the respondent, Crew Gold Corporation ("Crew"), for a fee, described as a Success Fee, that they argued was owed to them under an engagement letter for the provision of investment banking services (the "Agreement"). RBC provided services under the Agreement to assist Crew in developing and implementing "strategic alternatives". The Agreement provided for service fees based on specific work performed by RBC, and for a Success Fee, payable on completion of a "Transaction", as defined by the Agreement.
[3] In the course of the Agreement, Crew, then a public company, was the subject of a takeover, an event that was not anticipated by either party. The sole issue at trial was whether, under the Agreement, RBC was entitled to a Success Fee in respect of any or all of the transactions involved in the takeover even though it played no part in the transactions. The trial judge found that RBC was not entitled to a Success Fee under the Agreement and dismissed RBC's action.
[4] RBC appeals, asserting that the trial judge made extricable errors of law in his interpretation of the Agreement. I find no such errors, and for the reasons that follow, would dismiss the appeal.
II. Facts
[5] Crew was a gold mining company whose principal asset was a gold mine in West Africa. At all material times, Crew's shares were publically traded on the Toronto and Oslo Stock Exchanges (the "TSE" and the "Oslo Bors").
[6] In October 2008, the mine was not yielding sufficient net revenue to service Crew's significant debt obligations. Crew's board of directors (the "Crew Board") retained RBC as a financial advisor for a term of 18 months to develop, evaluate and potentially assist the company in implementing strategic transaction alternatives based on its valuation of the company (the "2008 Engagement"). After RBC presented its strategic alternatives to Crew, RBC invoiced the company and was paid US$95,000 for its work under the 2008 Engagement.
[7] In late November 2008, using a Norwegian securities firm, Crew undertook a rights offering on the Oslo Bors to meet its cash flow needs.
[8] In March 2009, RBC made a further presentation to the Crew Board on Crew's strategic alternatives in light of the rights offering and improved market conditions. These generally contemplated either an en bloc sale of shares for cash or shares, or the disposition of Crew assets or some form of strategic partnership (the "RBC Alternatives"). In October 2009, RBC made another presentation to the Crew Board, outlining, among other things, its strategies for implementing one of the RBC Alternatives.
[9] The parties entered into the Agreement in mid-December, dated as of October 20, 2009. The term of RBC's engagement under the Agreement was until the earliest of "the closing of the Transaction", the termination of the engagement by either party upon written notice, and 12 months after the Agreement's commencement.
[10] The relevant terms of the Agreement are as follows:
Crew engaged RBC "as its financial advisor in connection with a potential transaction (the "Transaction") involving the direct or indirect sale or disposition of the Company".
The Transaction "may involve (i) a sale of all or a substantial portion of the shares, business or assets of the Company to a third party, (ii) an investment by a third party in the Company that results in a change of control of the Company or (iii) an amalgamation, arrangement or other business transaction involving the Company and a third party to effect such sale or disposition".
RBC agreed to provide services "in connection with a Transaction", which included financial analysis and advice on structuring, planning and negotiating a Transaction; if requested, the furnishing of fairness opinions; assistance in preparing a confidential information memorandum ("CIM") for prospective investors; and managing the sale process, including contacting prospective purchasers, evaluating offers, and assisting in the completion of a Transaction.
The fees for RBC's services consisted of a Work Fee of US$25,000 per month for each month that RBC was actively involved in assisting in the execution of the Transaction; an Announcement Fee/Opinion Fee of US$750,000 payable on the earlier of the public announcement of the Transaction or the delivery of a fairness opinion; an Additional Opinion Fee of US$125,000 payable upon the delivery of each additional fairness opinion provided by RBC (after its initial opinion); and a Success Fee.
The Success Fee was to be calculated as the greater of US$2,000,000, and 0.95% of the Transaction Proceeds up to US$325,000,000 plus 1.75% of the Transaction Proceeds in excess of US$325,000,000, against which was to be credited 100% of the other fees paid or payable under the Agreement.
"Transaction Proceeds" included "all amounts received by the Company or any affiliate or shareholder of the Company… from the purchaser".
RBC was entitled to the Success Fee "if a Transaction [was] completed involving any party, whether or not solicited by RBC, pursuant to an agreement to effect or otherwise complete a Transaction entered into during the term of its engagement or for a period of twelve months after termination of its engagement" (the "tail provision").
[11] While the Agreement was in force, Crew concluded a restructuring agreement with its debenture holders that closed in December 2009, and was also handled by the Norwegian securities firm. As a result of the restructuring, the debenture holders came to own 95% of Crew's issued and outstanding equity. GLG Partners ("GLG"), a London-based hedge fund and former debenture holder, became Crew's largest shareholder, with a control block of approximately 31.6% of Crew's shares, and appointed three new directors to the Crew Board.
[12] RBC made another presentation to the Crew Board on December 15, 2009 regarding the RBC Alternatives. RBC asserted that the time was right to engage in a "broad solicitation" of potential bidders under RBC's stewardship. At a meeting on January 22, 2010, the Crew Board approved by resolution "the implementation of the RBC plan involving the marketing and sale or partial sale of the Company". In December 2009 and January 2010, RBC worked on numerous tasks to prepare a sale process, including the preparation of a draft CIM and identifying potential bidders to purchase GLG's control block.
[13] RBC and Crew were aware that GLG could sell its interest to a third party without their involvement. Neither contemplated, however, that a serious purchaser would conclude an agreement without some form of due diligence, which would require a CIM and standstill agreement.
[14] In fact, Endeavour Financial Corporation ("Endeavour"), a Vancouver-based investment bank, was in serious discussions with GLG to buy its control block, and was prepared to buy the block without reliance on the RBC/Crew-controlled due diligence process and without the execution of a CIM. In January 2010, Endeavour purchased GLG's shares and that of another institutional investor through one of its subsidiaries on the Oslo Bors, bringing its holdings in Crew to just under 38%. Endeavour was not on RBC's list of potential bidders and RBC played no part in brokering the deal.
[15] Immediately after the Endeavour purchase, OAO Severstal ("Severstal"), a Russian mining company, began to significantly increase its holdings in Crew. As the trial judge described it, "the race was then on between Endeavour and Severstal for the ultimate control and ownership of Crew." By early April 2010, each had increased its absolute position – Severstal owned almost 27% and Endeavour owned almost 43% of the company. In July 2010, Severstal had increased its shareholdings in Crew to just over 50%. Endeavour then sold its interest in Crew to Severstal in mid-September. Severstal eventually acquired the remaining Crew shares in January 2011 through a plan of arrangement.
[16] While the takeover was unfolding, RBC offered to assist the Crew Board, but the offer was refused. Instead, Crew engaged Genuity Capital Markets to assist it in the takeover matters. On April 29, 2010, Crew terminated the Agreement. RBC immediately invoiced Crew for the Work Fee covering a six-month period, ending January 2010, which Crew paid.
[17] In late August 2010, RBC sent the first in a series of Success Fee invoices to Crew, claiming an amount in excess of US$5,700,000, calculated on amounts paid by Severstal and Endeavour for the shares they acquired in the open market or by agreement with institutional vendors in 2010. Later, after Severstal purchased Endeavour's block, RBC sent an amended invoice for the Success Fee for in excess of US$7,200,000.
[18] As the trial judge explained, with the exception of the acquisition of the last remaining shares, each of the trades leading up to the takeover by Severstal, including those obtained by Endeavour, was through an open market transaction concluded on the Oslo Bors, and none of the transactions triggered Canadian or Norwegian takeover laws.
[19] After Crew refused to pay the Success Fee invoices, RBC started the underlying action.
III. The Trial Judge's Reasons
[20] The trial judge rejected RBC's claim. After setting out the facts, he turned to consider the positions of the parties.
[21] RBC argued that the language of the Agreement was so broad and general as to permit the claim even though RBC was not involved in Endeavour's or Severstal's purchases of Crew shares. RBC argued that Severstal's activities between February and December 2010 in purchasing the entirety of Crew's shares and thereafter taking the company private amounted to the sale of all of the Company's shares to a third party. Alternatively, RBC argued that the separate purchases by Endeavour and Severstal amounted to the sale of a "substantial portion of the shares… of the Company to a third party". RBC relied on what it asserted was the expanded definition of Transaction in the definition of "Transaction Proceeds" to argue that these purchases constituted Transactions under the Agreement. RBC also asserted that, unlike the other fees payable under the Agreement, there was nothing to tie the Success Fee to services provided by RBC; and that the payment of the Service Fee depended only on the closing of a Transaction. Finally, RBC relied on the tail provision in support of the argument that it was entitled to a Success Fee so long as a Transaction was concluded within 12 months of the termination of the Agreement, regardless of RBC's contribution.
[22] Crew argued that, for a Transaction to have taken place, RBC had to be involved in some manner and that a Success Fee was only payable as a consequence of the provision of financial advisory services. For a fee to be payable upon the "closing" of the Transaction, the Transaction must arise from the work effort of RBC. The description of services contained in the RBC proposals tabled before and after the execution of the Agreement underscored the notion RBC would be controlling any process connected to a Transaction, and that the Success Fee was payable as a function of the services performed. Crew also argued that RBC's interpretation, which would require it to pay a Success Fee upon the conclusion of any transaction between a third party and Crew's shareholders who were disposing of a control block, made no commercial sense.
[23] After setting out the relevant principles of contractual interpretation, which were not in dispute, the trial judge interpreted the Agreement.
[24] First, he noted there was no ambiguity in the language used in respect of the terms "Transaction" or "Success Fee". He held that, in interpreting the term "Transaction" and determining the intention of the parties at the time the Agreement was drawn, it was too limiting to simply have regard to the preamble and the extended definition found in "Transaction Proceeds", as proposed by RBC, and that regard must be had to the Agreement as a whole.
[25] The trial judge held that the Agreement was intended to speak to the rights and obligations of the parties in engaging RBC as the "financial advisor in connection with a potential transaction… involving the direct or indirect sale or disposition of the Company". The Agreement described a range of services RBC was to provide, which anticipated RBC's involvement in the Transaction. Under the Agreement, according to the trial judge, RBC was to be the "composer, arranger and orchestrator – if not the orchestra leader – of the Transaction, in all its facets, for which it was to be paid a series of fees for services rendered".
[26] The trial judge concluded that RBC was not intended to receive a Success Fee unless there was some causal link between its activities and the completed transaction, even though RBC was not required to introduce the successful purchaser to the transaction and even though RBC's involvement was not required to be a material cause of the transaction. The trial judge rejected RBC's submission that the wording of "Transaction Proceeds" expanded the definition of Transaction, concluding instead that it described the amounts to be included for Success Fee calculation purposes.
[27] The trial judge then reviewed the factual matrix. He found that the entire thrust of RBC's strategy after the debt restructuring was to maximize shareholder value by creating and rolling out an RBC Alternative, namely a process for the sale of Crew's assets or control shares. RBC's presentations all emphasized some form of an en bloc sale of assets or shares through a process orchestrated by RBC. RBC never spoke of the possibility of a third party purchase. Further, it was "not on anyone's radar" that any one of the RBC Alternatives would include a purchase of control through the acquisition of sufficient shares on the Oslo Bors, or that any purchaser would acquire a significant interest in Crew without a due diligence inquiry, which would have involved RBC.
[28] The trial judge offered an alternative ground for his interpretation of the Agreement that was not argued by the parties. The Agreement provided for the negotiation of an additional fee in the event that there was "an investment by a third party in the Company that does not result in a change of control". The trial judge characterized the share purchases by Severstal and Endeavour in the first six months of 2010 to be a "substantial portion" of Crew's outstanding shares, but concluded that these purchases did not amount to a change of control. Therefore, RBC would not be entitled to a Success Fee on the purchases that took place in the lead up to an actual change of control. I note here that Crew does not necessarily agree with this characterization and does not seek to uphold the trial judge's decision on this basis.
IV. Standard of Review
[29] The primary goal of contractual interpretation is to determine the objective intent of the parties at the time the contract was drawn. Contractual interpretation involves the application of contractual interpretation principles to the words of the contract, considered in light of the factual matrix, and is therefore a question of mixed fact and law, which is entitled to deference absent a palpable and overriding error: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50, 55. The palpable and overriding error test is met if the trial judge misapprehended the evidence in that the findings are "clearly wrong", "unreasonable" or not "reasonably supported by the evidence": L.(H.) v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, at paras. 55-56.
[30] Where an extricable error of law can be identified independent of the trial judge's application of the law to the facts, the error is to be reviewed on a standard of correctness. Extricable errors of law made in the course of contractual interpretation may include "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor": Sattva, at para. 53, citing King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man. R. (2d) 63, at para. 21. The circumstances in which a question of law can be extricated from the interpretation process will be rare: Sattva, at para. 55.
V. Issues
[31] RBC contends that, although the trial judge correctly identified the proper principles of contractual interpretation, he did not apply these principles and, as such, committed errors of law. RBC argues that there were three categories of extricable errors of law in the trial judge's interpretation of the Agreement, which can be broadly described as follows:
The trial judge failed to consider the plain words of the Agreement in the context of the contract as a whole, and in a manner that gives meaning to all of its terms and that avoids an interpretation that would render one or more of its terms ineffective.
The trial judge failed to correctly consider the objective evidence of the surrounding circumstances and relied on his findings as to the parties' subjective intentions or the lack thereof, and allowed those findings to overwhelm the wording of the Agreement.
The trial judge failed to consider the commercial reasonableness of the interpretation of the Agreement advanced by RBC.
[32] Within these three categories, RBC seeks to identify specific errors. I will address each category in turn.
VI. Discussion
(1) Alleged Failure to Consider the Plain Words of the Agreement in the Context of the Contract as a Whole
[33] RBC contends that the trial judge failed to determine the meaning of the words in the Agreement by construing the contract "as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective": Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16.
[34] Here RBC relies on many of the same arguments it advanced at trial – essentially that "Transaction" is broadly defined in the Agreement; that the purchases by Endeavor and Severstal fell within the enumerated examples of "Transaction" in the Agreement, as Endeavor's purchased a "substantial portion" of Crew's shares and Severstal's purchases resulted in a "change of control"; and that the definition contained no express requirement for the involvement of Crew or RBC in the Transaction.
[35] As well, RBC says the trial judge ignored the fact that, while the other fees under the Agreement are expressly linked to services provided by RBC, the Success Fee is payable upon "the closing of the Transaction". RBC contends that this distinction supports the conclusion that a "causal link" between its services and a Transaction was not necessary for entitlement to a Success Fee. RBC also argues that the trial judge disregarded the broad definition of "Transaction Proceeds", which it says does not exclude the sale of Crew shares from qualifying as a "Transaction" simply on the basis that the shares were purchased on a stock exchange.
[36] All of these arguments were addressed by the trial judge at paras. 56 to 61 of his reasons. As the trial judge observed, the specific words RBC relied on had to be considered in the context of the Agreement as a whole. In rejecting its proposed interpretation, the trial judge did not, as RBC alleges, fail to apply proper contract interpretation principles; rather, the trial judge applied the principles, just not in the manner proposed by RBC.
[37] The trial judge's interpretation of the Success Fee requirement as being linked to some action on the part of RBC is a reasonable interpretation borne out by a consideration of the Agreement as a whole.
[38] As the trial judge observed, the Success Fee was payable in the context of RBC's engagement as a financial advisor to Crew in connection with a potential Transaction. The range of services to be provided by RBC covered the entire sale process, whatever form that took, and the Agreement anticipated RBC's involvement in the Transaction. In exchange for these services, RBC was to receive a variety of fees. RBC was unable to provide most of the anticipated advisory services because of the intervention of the takeover and the way it took place. Indeed, the Agreement was terminated only a few months after it had been concluded and, at that point, RBC was only on the cusp of providing services with respect to the RBC Alternatives.
[39] The Transaction was the culmination of RBC's financial advisory services, and the provision of a very large "Success Fee" to be paid on completion of the Transaction was presumably meant to reward RBC for its success in completing the Transaction and implied that there must be a connection between the services provided by RBC and the Transaction. Indeed, all of the fees payable under the Agreement, including the Success Fee, are stated to be "for its services hereunder". This contemplates a nexus between RBC's services and all of the fees payable to RBC under the Agreement, including the Success Fee.
[40] RBC's approach to interpreting the Agreement is too narrow – focusing on the terms "Transaction" and "Transaction Proceeds", without considering the nature and substance of the Agreement as a whole. In my view, there would have been an extricable error of law if the trial judge had adopted the approach advocated by RBC and read the "provision[s] of [the] contract in isolation rather than construe[d] the contract as a whole": 1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802, 122 O.R. (3d) 401, at para. 8.
[41] In addition to the arguments set out above, RBC claims that the trial judge ignored the tail provision, which provided that RBC would be entitled to a Success Fee even if RBC did not solicit the Transaction and where the agreement to effect the Transaction was entered into in the 12-month period after the termination of the engagement (in other words, at a time when RBC had no obligation to provide Crew with services under the Agreement). RBC says the tail provision expressly contemplates that RBC will be paid for a Transaction in respect of which it did not provide services, and that the trial judge failed to deal with this provision.
[42] I agree with Crew that, while the trial judge might have fleshed out in greater detail his analysis of this provision and its impact on the interpretation of the Agreement, he adverted to the wording of the tail provision at para. 60 of his reasons, where he stated that a causal link was required even though "RBC was not required to introduce the successful purchaser to the transaction", and even though "RBC's involvement was not required to be a material cause". As well, his reasons as a whole reject the interpretation advanced by RBC. The tail provision simply provides for the payment of a Success Fee if a mandate is carried out after the Agreement has been terminated. This interpretation of the tail provision is not inconsistent with the requirement that the Transaction in respect of which a Success Fee is payable relate to work performed by RBC before the Agreement was terminated. Nor is this interpretation inconsistent with the evidence of Patrick Meier, relied on by RBC, who testified about the commercial purpose of the clause.
[43] Finally, RBC argues that the trial judge failed to recognize and apply the case law holding that a contract may call for payment based solely on the occurrence of an event, without the service-provider having to demonstrate that it caused or contributed to the event. RBC says that the Agreement is similar to that in Galan v. Alenkno, [1950] O.R. 397 (C.A.) where the plaintiff was entitled to a commission on any sale effected during the currency of its authority, including sales that occurred without the plaintiff's intervention or assistance.
[44] To the contrary, the trial judge did not dismiss out of hand RBC's claim for a Success Fee because RBC had not provided services in respect of the transactions that occurred. Rather, he interpreted the Agreement to determine whether a Success Fee was payable in such circumstances, and concluded that in respect of this Agreement, a "causal link" was required before a Success Fee was payable. Similarly, the fact that there are reported cases involving contracts that anticipate a fee being paid on the occurrence of an event, without the provision of services in respect of the transaction, does not assist: See, for example, Re Hemosol Corp., 37 C.B.R. (5th) 128. As RBC's counsel submitted in argument, these cases simply stand for the principle that each contract must be interpreted according to its own terms and factual context.
(2) Alleged Reliance on the Parties' Subjective Intentions and Failure to Consider the Objective Surrounding Circumstances
[45] In Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 50, Doherty J.A. emphasized that, when interpreting written contracts in the context of commercial relationships, it is not helpful to frame the analysis in terms of the subjective intention of the parties at the time the contract was drawn. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text they adopted, but to determine the meaning of the contract against its objective contextual scheme. The focus must be on the intent expressed in the written words. The court must consider, among other things, the contract as a whole, the factual matrix underlying it, and the need to avoid commercial absurdity. But the court does not consider the subjective intention of the parties: Downey v. Ecore International Inc., 2012 ONCA 480, 294 O.A.C. 200, at paras. 37-38 and Salah, at para. 16.
[46] RBC argues that the trial judge based his decision that RBC was not entitled to a Success Fee unless there was some causal link between its activities and the Transaction, in large part on his findings as to the parties' subjective intentions, or lack of thereof, and that he allowed evidence of subjective intention to overwhelm his interpretation of the plain meaning of the Agreement. RBC contends that the trial judge did not limit himself to the parties' objective intentions as expressed in the words of the contract, as required.
[47] There is no indication in the trial judge's reasons that he relied on any evidence of the parties' subjective intentions in interpreting the Agreement. The passages RBC relies on (which appear to be every occasion where the trial judge uses the words "intention" or "intended") simply do not support this argument. An example is para. 57, where the trial judge stated that it was his view that the Agreement was intended to speak to the rights and obligations of the parties in engaging RBC as Crew's financial advisor, and that the words in the Agreement were intended to describe the services RBC would undertake. The trial judge here was doing no more than determining, based on his review of the Agreement, what was objectively intended by the Agreement, or the "intent expressed in the written words". There is no reference to either Crew's or RBC's subjective intentions.
[48] Nor is the trial judge's description of the takeover as "not on anyone's radar" a statement of the parties' subjective intentions. This was simply a statement of an obvious background fact. The parties agreed that the takeover was an unexpected event they had not contemplated when they entered into the Agreement. And there is no indication, as argued by RBC, that the trial judge dismissed its claim simply because it arose from an unanticipated transaction (which RBC contends is an "absence" of subjective intentions). Rather, the trial judge was interpreting the Agreement to determine whether the unanticipated transaction was a Transaction that would give rise to the payment of a Success Fee under the Agreement.
[49] Finally, RBC argues that the trial judge erred in interpreting the contract by relying on the parties' conduct following the execution of the contract. RBC points to the trial judge's reference to the conduct of the parties after learning of GLG's intention to sell its shares in Crew at paras. 70 and 71 of his reasons – namely, that RBC attempted to ensure that either GLG's shares were sold to a compliant buyer or that a standstill agreement would be concluded. RBC contends that this contravened this court's caution that "evidence of subsequent conduct should be admitted only if the contract remains ambiguous after considering its text and its factual matrix": Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512, at para. 46.
[50] I disagree that, in interpreting the contract, the trial judge relied on the subsequent conduct of the parties. These observations were made after he had interpreted the Agreement. They were not part of his analysis of the meaning of the Agreement but confirmatory of his conclusions. The trial judge specifically stated that this was "not part of the classical factual matrix" and was "consonant with [his] conclusion on the intention of the parties at the time the Agreement was executed".
[51] There is simply no merit to this ground of appeal. The trial judge did not make findings as to the parties' subjective intentions in entering the Agreement, nor did he allow evidence of subjective intention to oust the plain words of the Agreement, as alleged by RBC.
(3) Commercial Common Sense
[52] RBC contends that the trial judge adopted an interpretation of the Agreement that was not "in accordance with sound commercial principles and good business sense": Kentucky Fried Chicken v. Scott's Food Services Inc., 41 B.L.R. (2d) 42 (Ont. C.A.), at para. 27. In particular, RBC argues that the trial judge failed to recognize the business reasons for allocating risk in contracts by providing for payment based on the occurrence of an event rather than services rendered, and that the trial judge failed to appreciate that it would be impracticable to require RBC to demonstrate the extent to which it caused or contributed to a transaction.
[53] RBC relies principally on the evidence of its witness, Patrick Meier, RBC's lead investment banker on the Crew mandate, who provided an explanation of the commercial purposes for transaction-based fees in investment banking contracts. In Kentucky Fried Chicken, however, this court cautioned that the construction of contracts in accordance with sound commercial principles and good business sense must be done objectively rather than from the perspective of the contracting parties. Further, Mr. Meier's evidence did not fully support RBC's interpretation. He acknowledged under cross-examination that some connection to the services provided would be required before a Success Fee would be payable.
[54] Simply because the trial judge did not analyze the parties' arguments on this point under a separate heading does not mean that he ignored the commercial realities in interpreting the Agreement. Considerations of commercial reasonableness permeate his reasons. The objective evidence of the circumstances or factual matrix in this case was that both parties had a plan to embark on a sale process, which they were unable to complete because of the unanticipated takeover. The trial judge made a specific finding on the evidence that was available to him (and which has not been argued or demonstrated to be a palpable and overriding error) that the parties anticipated a sale process. The expectation was that RBC would have provided services in connection to the process culminating in the closing of a Transaction to warrant payment of a Success Fee.
[55] I agree with Crew that the interpretation adopted by the trial judge was not commercially unreasonable and made commercial sense. Although the words of the Agreement might bear the interpretation RBC proposes, the interpretation advocated by RBC would have resulted in a significant windfall, with RBC receiving a very large Success Fee where there was no association between any services it provided Crew and the transactions, and where Crew was not in a position to avail itself of RBC's services.
[56] RBC also argues that the trial judge failed to recognize the commercial sense in the allocation of risk in contracts that call for payment upon the occurrence of an event, such as in the real estate context. I agree with Crew that the commercial context here is very different from an exclusive listing agreement in the real estate agency context. Here, the Crew Board retained RBC to assist the company in pursuing specific strategic alternatives to maximize shareholder value. In my view, the requirement to pay the significant fee claimed by RBC in respect of the transactions that occurred, which did not relate in any way to RBC's financial services would be commercially unreasonable.
VII. Conclusion and Disposition
[57] For these reasons I would dismiss the appeal. I would award Crew its costs fixed at $40,000, inclusive of HST and disbursements.
"K. van Rensburg J.A."
"I agree K.M. Weiler J.A."
"I agree Grant Huscroft J.A."
Released: August 10, 2017
