Court of Appeal for Ontario

Date: September 11, 2019 Docket: C66498

Judges: Lauwers, van Rensburg and Roberts JJ.A.

Between

AgriMarine Holdings Inc. and AgriMarine Industries Inc. Applicants (Appellants)

and

Akvatech AS Respondent (Respondent in Appeal)

Counsel

For the Appellants: Adam D. H. Chisholm and Holly Sherlock

For the Respondent: Jason W. J. Woycheshyn and Joseph N. Blinick

Heard

August 30, 2019

On Appeal

On appeal from the judgment of Justice Paul M. Perell of the Superior Court of Justice, dated December 31, 2018, with reasons reported at 2018 ONSC 7768.

Reasons for Decision

Overview

[1] This is an appeal by AgriMarine Holdings Inc. and AgriMarine Industries Inc. from an order dismissing an application for a declaration that Akvatech AS was in breach of contract and is not the holder of a license to certain fish-rearing technology owned by the appellants (the "Technology"). The proceedings engage the parties' rights and obligations under a contract dated November 20, 2012 (the "Letter Agreement"). The Letter Agreement sets out the terms on which Akvatech would acquire ownership and licensing rights to the Technology for certain territories. Pursuant to the Letter Agreement, Akvatech paid AgriMarine the sum of $200,000 (the "Pre-payment Amount"). By January 18, 2013, the parties had not closed the transaction and Akvatech demanded repayment of the Pre-payment Amount. At issue in the litigation was whether either party was in breach of the Letter Agreement, whether, after AgriMarine failed to refund the Pre-payment Amount, Akvatech had obtained a license under the Letter Agreement, and whether the appellants' claim was statute-barred or otherwise barred by laches or estoppel.

Application Judge's Decision

[2] The application judge addressed the issues on the merits. He concluded that neither party was in breach of the terms of the Letter Agreement, having waived the initial closing date. Rather, on January 18, 2013, AgriMarine and Akvatech had simply agreed to end the Letter Agreement and to implement the provisions that they had bargained for if the transaction was not completed: paras. 82 and 98. He concluded that Akvatech was entitled to take the steps it did under s. 2 of the Letter Agreement when it: (1) demanded a refund of the Pre-payment Amount on the basis that the Definitive Transaction Documents had not been executed and delivered on or before the Target Closing Date; (2) issued a Default Notice when the Pre-payment Amount was not refunded; and (3) issued an Exercise Notice when the default in payment of the Pre-payment Amount was not cured within five days of the Default Notice: paras. 96-102. In the Exercise Notice, Akvatech elected option (i) under s. 2(d) of the Letter Agreement, which allowed it to:

obtain a perpetual, irrevocable, transferrable, sole and exclusive, license to exploit the Technology in any manner whatsoever including, without limitation, the right to use, sell, have made, have sold, import or export, distribute, reproduce, offer for sale, market, advertise and promote the Technology within the Northern Europe Territory [as defined in the Letter Agreement] in full satisfaction of the Pre-payment Amount.

[3] The application judge found that the essential terms of the license (respecting the specific Technology subject to the license, its geographic and temporal scope and the licensed activities) were defined with sufficient particularity and that the license was enforceable: paras. 105-106.

Appellants' Arguments

[4] AgriMarine makes three arguments on appeal. First, it says that the application judge erred in permitting Akvatech to take advantage of its own breach of contract (having failed to deliver the Definitive Transaction Documents required by the Letter Agreement) in order to obtain the license to the Technology. Second, AgriMarine submits that the application judge erred, after concluding that the Letter Agreement had terminated, and where there was no default by AgriMarine, in permitting Akvatech to obtain a license. Third, AgriMarine contends that the license is unenforceable because it appears to be of unlimited duration but does not provide for any royalty payments. The appellants argue that it is unreasonable to conclude that the parties would have bargained for Akvatech, in default of payment of $200,000 by AgriMarine, to obtain a license worth $1 million.

Standard of Review

[5] We do not give effect to any of the appellants' arguments. This is a case involving the interpretation of a contract which is typically a question of mixed fact and law, engaging a palpable and overriding error standard of review: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 49-52. While the appellants seek to extract legal error from the application judge's reasons, in our view the appeal is simply a challenge to the application judge's interpretation of the parties' rights and obligations under the Letter Agreement. The application judge's reasons are thorough and comprehensive, and well support his reasonable interpretation of the parties' contract. They reveal no reversible error.

Analysis of the "Own Breach" Argument

[6] AgriMarine points to the terms of the Default Notice issued by Akvatech to argue that Akvatech relied on the fact that the Definitive Transaction Documents had not been executed and delivered on or prior to the Target Closing Date. AgriMarine asserts that Akvatech was not entitled to a refund of the Pre-payment Amount under s. 2(b) of the Letter Agreement because Akvatech, and not AgriMarine, was the party that had failed to deliver the required documents and was not in any event in a position to close the transaction. AgriMarine highlights the evidence that the parties had negotiated, and counsel had prepared the Definitive Transaction Documents, and that AgriMarine had signed the documents and delivered them in escrow to Akvatech's counsel. By contrast, AgriMarine argues, Akvatech did not establish that it had delivered the documents. Nor, according to AgriMarine, was Akvatech in funds to complete the transaction. AgriMarine submits that in demanding repayment of the Pre-payment Amount in such circumstances, Akvatech would be relying on its own breach of the terms of the Letter Agreement. AgriMarine emphasizes that Akvatech did not rely on any other circumstance in claiming a refund of the Pre-payment Amount or in its Default Notice.

[7] There is no question that it is a principle of law that a party should not be able to take advantage of its own contractual breach in order to claim a contractual benefit or remedy. This principle was accepted by the application judge at para. 97 of his reasons. We agree with the application judge, however, that this is not a case about the exercise of rights and remedies following a breach of contract. The application judge reviewed the chronology of events, as well as the communications between the parties and between their counsel. Notwithstanding the positions taken by the parties' counsel as to their respective legal positions (each asserting that the other was in breach of contract), he concluded that neither party was in breach of the Letter Agreement. He also found that the parties, through their conduct, agreed to terminate the Letter Agreement. The appellants acknowledge that this finding was open to the application judge on the evidence.

Termination by Mutual Consent

[8] Accordingly, the question before the application judge was the consequences not of a breach of contract, but of the termination of the Letter Agreement by consent or conduct of the parties. The real issue in this appeal is whether the application judge's interpretation of the Letter Agreement, as entitling the respondent to a refund of the Pre-payment Amount, and, on default, to exercise the remedies under s. 2(d) of the Letter Agreement, reveals any reversible error.

[9] The appellants say that the parties may have agreed to the termination of the Letter Agreement, but that they did not agree on what would follow. Specifically, there was no agreement about whether Akvatech would be entitled to a refund of the Pre-payment Amount, and no agreement that, on default, Akvatech could obtain a license to the Technology.

[10] The appellants contend that, properly interpreted, s. 2(b) is meant to apply where AgriMarine has done something in breach of the Letter Agreement, and not where the Letter Agreement has come to an end by mutual agreement of the parties. Otherwise, Akvatech could take advantage of something it had failed to do, without any bona fide intent to close the transaction, and then invoke rights under ss. 2(b) and (d) of the Letter Agreement to acquire rights in the Technology. An interpretation of the Letter Agreement that would permit Akvatech to obtain a license worth $1 million for only a payment of $200,000 would, argues AgriMarine, be unreasonable.

Court's Rejection of Appellants' Arguments

[11] We disagree. The evidence of the communications between the parties recited at paras. 53 to 57 supports the application judge's conclusion at paras. 98 to 101 that, notwithstanding the positions of their counsel, the parties had agreed that, once the Letter Agreement was terminated, the Pre-payment Amount would be demanded, and a Default Notice would issue.

[12] In any event, we see no error in the application judge's conclusion that the terms of the Letter Agreement applied in the circumstances of its termination, and not just in the event of breach: paras. 96 and 101. We are not persuaded by the appellants' argument that such an interpretation would have permitted Akvatech to simply invoke s. 2, in order to claim a license for the price of the Pre-payment Amount, and not to proceed with the transaction contemplated by the Letter Agreement. The parties were obliged to use "commercially reasonable efforts to negotiate, execute and deliver the transaction documents"—and appear to have done so in this case, except that, as a result of various circumstances, they were unable to complete the transaction, and had agreed to its termination. Under s. 2(b), they had not executed and delivered the Definitive Transaction Documents on or before December 7, 2012 (the initial closing date) or agreed in writing to a later date. In any event, AgriMarine could have avoided the transfer of the license by repaying the Pre-payment Amount upon demand. It is a reasonable interpretation of s. 2 of the Letter Agreement that, as the application judge concluded, it was meant to provide security for the refund of the Pre-payment Amount.

Enforceability of the License

[13] Turning to the application judge's conclusion that the license granted to Akvatech was enforceable, we see no reason to interfere. The application judge considered all the relevant factors, including the terms of the license, and of the Letter Agreement as a whole, and the fact that the parties had agreed to this provision while represented by legal counsel.

[14] The application judge specifically addressed and rejected AgriMarine's argument that the license was insufficiently certain because it did not provide for a royalty payment to AgriMarine. In this regard he noted that the absence of a licensing fee or royalty rate would not make the license unenforceable. His reference to Merck & Co., Inc. v. Apotex Inc., 2013 FC 751, which we agree is not on all fours with the present case, was only to support his observation that royalty-free licenses are not uncommon, and not as authority for his interpretation of the license here. He observed that the Letter Agreement contemplated the outright sale of the Technology in Northern Europe for $1 million, and that it did not seem unreasonable or uncertain that AgriMarine would agree to grant a royalty-free license as security for its obligation to repay the Pre-payment Amount. He also noted that both sides employed first-tier legal counsel, and that it would be "no stretch" to give operative meaning to the Letter Agreement, including the provisions associated with the Pre-payment Amount: paras. 107-108.

[15] The issue was whether, when properly considered, the terms of the Letter Agreement, which by its terms would have given Akvatech a royalty-free license for the Technology for the northern European territory upon default of the refund of the Pre-payment Amount, were sufficiently certain to be enforced. The application judge's interpretation is supported by the fact that, while the Letter Agreement provided for no royalties for the northern European territory, it did provide for royalties for other territories. And, while not importing an obligation to pay royalties, s. 2(d) contains a further assurances clause requiring the parties upon delivery of the Exercise Notice to "execute and deliver all such further documents and instruments and [to] do all such acts and things as [Akvatech] may from time to time reasonably require in order to effect or better evidence and perfect the full intention of [the] section". In other words, it was anticipated that further documentation and actions by the parties might well be required in order to carry out their intentions with respect to the license granted upon default.

Conclusion

[16] In summary, the appellants have not demonstrated that the application judge made any palpable and overriding errors of fact. Nor do we find any reversible error in his interpretation of the Letter Agreement, including the right of Akvatech to the license it had bargained for on default of the refund of the Pre-payment Amount.

[17] Accordingly, the appeal is dismissed. The appellants shall pay the respondent's costs fixed at $35,000, inclusive of disbursements and HST.

"P. Lauwers J.A."

"K. van Rensburg J.A."

"L.B. Roberts J.A."