Court of Appeal for Ontario

Date: November 28, 2019 Docket: C66708 Judges: van Rensburg, Paciocco and Thorburn JJ.A.

Between

1951584 Ontario Inc. carrying on business as Maxium Financial Services Inc. Plaintiff (Respondent)

and

Altavision Plus Inc., Bradley Klock, Dr. Hugo Francis Sutton, Dr. Hugo Francis Sutton Eyecare Inc., Hugo Sutton Professional Corporation, and Donald M. Cameron Defendants (Appellants)

Counsel:

• Brian Illion and Desmond Ngai, for the appellants
• Lyndsay Hone, for the respondent

Heard: November 18, 2019

On appeal from: the judgment of Justice Benjamin T. Glustein of the Superior Court of Justice, dated February 21, 2019, with reasons reported at 2019 ONSC 1237.

Reasons for Decision

Overview

[1] This is an appeal from a summary judgment enforcing personal guarantees against the appellants, Dr. Hugo Francis Sutton, Dr. Hugo Francis Sutton Eyecare Inc., Hugo Sutton Professional Corporation, and Mr. Donald M. Cameron. The appellants are individuals and corporations who signed personal guarantees relating to the obligations of Altavision Plus Inc. ("Altavision") under a 2009 equipment lease agreement that Altavision entered into with 1951584 Ontario Inc., carrying on business as Maxium Financial Services Inc. ("Maxium"). The lease pertained to Altavision's medical aesthetics business in Fort McMurray, Alberta.

[2] The appellants do not deny that Altavision defaulted on its obligations to Maxium under the lease agreement. Nor do they deny that they executed personal guarantees, and they take no issue with the use of summary judgment to resolve the action. They contend that the motion judge erred in enforcing the personal guarantees.

[3] First, the appellants claim that the motion judge erred by misinterpreting the "Governing Law" or choice of law clause in the guarantees. The appellants contend that, properly interpreted, the law of Alberta applies, and under that law, the personal guarantees of the individual appellants would not be enforceable. They claim the motion judge mistakenly found that the law of Ontario governed.

[4] Second, the appellants contend that the losses Maxium sustained occurred because one of the directors of Altavision, Mr. Klock, converted equipment required to operate the business. They say that Maxium carried insurance against this risk. They argue that the motion judge erred by wrongly holding that the appellants could not defend themselves based on Maxium's failure to claim coverage under this insurance policy.

[5] Third, the appellants urge that Maxium lost standing to enforce the guarantees when, on February 12, 2010, Maxium assigned its receivables to Sun Life Assurance Company of Canada ("Sun Life") under a "Master Purchasing and Servicing Agreement" ("MPSA"). The trial judge erred by permitting Maxium to sue on the guarantees.

[6] The appellants also seek leave to appeal the costs order made by the motion judge, on the basis that it is unreasonable.

[7] For reasons that follow, we dismiss the appeals from the summary judgment.

[8] We grant leave to appeal the costs decision but deny the costs appeal.

Analysis

A. Issue One: Interpretation of the "Governing Law" Clause

[9] The personal guarantees included a "Governing Law" clause, clause 16:

This Guarantee shall be construed in accordance with the laws of the province where the Customer's account is held and you irrevocably submit to the exclusive jurisdiction of the courts of that province.

[10] When Maxium commenced its lawsuit in Ontario, one of the appellants, Mr. Cameron, brought a motion to stay the proceedings for lack of jurisdiction. He argued that the Governing Law clause required the action to be commenced in Alberta. Justice Dunphy dismissed the stay motion, holding that properly interpreted, the Governing Law clause required the action to be brought in Ontario (the "Dunphy decision"). Mr. Cameron agreed not to appeal that ruling if Maxium undertook not to argue in the action that the Dunphy decision was binding, including pursuant to the doctrine of res judicata.

[11] The motion judge held that the phrase, "where the Customer's account is held" describes the province "where 'the Customer's [Altavision's] account is held' by Maxium". He found, as a fact, that Altavision's account was held by Maxium in Richmond Hill, Ontario. Hence, he found that Ontario law applies. In his decision, the motion judge said he agreed and adopted the conclusions of Justice Dunphy, "who arrived at the same conclusion."

[12] The appellants claim that the motion judge committed several errors in interpreting the Governing Law clause to find that Ontario law applies. Specifically, they argue that the motion judge erred by: (1) misapprehending their argument; (2) ignoring the factual matrix, which supports Alberta law as the choice of law; (3) failing to interpret the clause contra proferentem; (4) improperly applying the commercial absurdity principle; and (5) applying res judicata contrary to Maxium's undertaking.

[13] It is convenient to begin with the last argument, which can be dismissed directly. The motion judge recognized and respected Maxium's agreement not to present the Dunphy decision as binding on the interpretation of the Governing Law clause. At no point did he treat the Dunphy decision as binding. Rather, after conducting his own interpretation of the Governing Law clause and before he set out certain paragraphs from the Dunphy decision, he stated, "For the reasons I discuss above, I agree and adopt the conclusions of Justice Dunphy, who arrived at the same conclusion."

[14] The interpretation arguments also fail. The motion judge stated and properly applied the governing principles of contractual interpretation.

[15] He found that the Governing Law clause was not ambiguous. Read "as a whole" and given its plain and grammatical meaning, the phrase "where the Customer's account is held" refers to another party, Maxium, holding the account of its customer, Altavision. He agreed with Dunphy J. that, in context, the term "is held" makes this clear: "The customer's account is held by the party who is doing business with the customer, not the customer itself." Nor can the clause be read as referring to the location of the customer, without improperly ignoring the word "account".

[16] Quoting from Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65, the motion judge concluded that this reading accords with "sound commercial principles and good business sense, avoiding a commercially absurd result", since a financial services company would not want to agree "to an ever-changing governing law, and 'irrevocably submit to the exclusive jurisdiction' of undetermined courts." The motion judge then described the implications of reading the clause as referring to the place where the customer's bank account is located, including that a customer could change the governing law by moving, a commercially absurd result.

[17] The appellants' first three challenges to the motion judge's interpretation are linked. The appellants urge that if he had interpreted the provision in light of the factual matrix known to the parties at the time, an ambiguity in the clause would have become apparent, and that when the contra proferentem principle that applies in the interpretation of guarantees is applied to that ambiguity, the clause must be interpreted to mean "the province in which the creditor's branch or representative held and serviced the customer's business." The trial judge erred in failing to appreciate the argument, and in his application of the principle of interpretation set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633.

[18] We disagree.

[19] It became apparent during oral argument that the appellants do not contest that the choice of law is to be determined by "where the Customer's account is held" by Maxium. Instead, it is the appellants' position that "where the Customer's account is held" "means" Alberta and not Ontario, because the factual matrix suggests that the customer's account would be held by Maxium in Alberta. In the appellant's view, this creates an ambiguity about the location of the customer's account, as understood at the time the guarantees were executed, that must be resolved in favour of the appellants.

[20] With respect, the appellants' argument confuses the interpretation of the clause and its application. By agreeing that the guarantees provide that the choice of law will be "where the Customer's account is held" by Maxium, the appellants are conceding that the motion judge interpreted the contract properly. Any "ambiguity" that may exist is with the factual determination of where that place is. The motion judge considered the evidence and determined the place to be Ontario. We can find no overriding and palpable errors of fact or extricable errors of law arising from that holding.

[21] Nor did the motion judge improperly apply the commercial absurdity principle when interpreting the Governing Law clause. In identifying sound commercial principles, the motion judge was entitled to consider the commercially unsound implications of competing interpretations, and he did so. We agree that one of the examples he used to demonstrate the implications of treating "customer's account" as describing a location controlled by the customer is problematic. A customer could not affect the choice of law by moving their account out of the country because the Governing Law clause refers to "the laws of the province where the Customer's account is held". However, this example was redundant, and not central to the motion judge's conclusion. Nor did he err in considering only the commercial implications for Maxium. As indicated, he considered the effect of the competing possibilities.

[22] The motion judge did not err in interpreting the Governing Law clause.

B. Issue Two: The Insurance Policy

[23] We do not agree with the appellants that the trial judge erred by depriving them of a defence based on Maxium's failure to claim coverage under an insurance policy for losses caused by Mr. Klock's alleged conversion of leased assets.

[24] Specifically, the appellants rely on the so-called "Bauer Rule" that imposes a duty on a "creditor holding security for the performance of the obligations of the debtor or the surety [or guarantor]" to "protect and preserve the security": Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102, at p. 106. The appellants say that by not claiming under the insurance policy, Maxium has failed to protect the security this policy provides.

[25] We disagree. The insurance policy in question was obtained by Maxium to secure its unrelated MPSA contract with Sun Life. It was not held by Maxium to secure the performance of the debt that the appellants guaranteed. Indeed, the obligation the appellants guaranteed required Altavision to insure the leased property, which it failed to do. Even if the insurance policy covered the value of losses Maxium is seeking to recover by enforcing the appellants' guarantee, this policy provides the appellants with no defence, as the so-called "Bauer Rule" has no application in this case.

C. Issue Three: Maxium's Standing

[26] The appellants argue that the motion judge erred in permitting Maxium to enforce the guarantees. It contends that Maxium lost its right to enforce Altavision's debt when Maxium assigned its receivables to Sun Life in the MPSA. Its position is that only the assignee, Sun Life, has standing to enforce the guarantees.

[27] We do not agree. The motion judge concluded that in the complex MPSA, Maxium assigned to Sun Life only the income stream from its receivables. It retained the power to enforce those receivables and bound itself under the agreement with Sun Life to do so. Since the enforcement authority it held against its debtors was not assigned to Sun Life, Maxium retained its own standing to sue.

[28] The motion judge held, in the alternative, that even if Sun Life had acquired the enforcement rights, Maxium would nonetheless have standing to do so as Sun Life's agent due to its contractual obligation with Sun Life to enforce the obligations.

[29] We need not decide whether the motion judge interpreted the MPSA reasonably, since we agree with the motion judge that even if Maxium assigned its rights of enforcement to Sun Life, Maxium is obliged under the agreement to enforce the receivables as Sun Life's agent. Whether Maxium has complied with its obligations to Sun Life relating to that enforcement is not a matter that concerns the appellants, who are strangers to that agreement. They cannot raise as a defence any concerns that Sun Life might have about the manner in which its agent, Maxium, has proceeded.

[30] In the alternative, the appellants argue that clause 15 of the guarantees restricts Maxium's authority to enforce assigned guarantees and Maxium has breached this clause by attempting to enforce the guarantees. Clause 15 provides:

We [Maxium] may, without notice, sell or assign the Obligations and in such case, our assignee may enforce this Guarantee and we may enforce this Guarantee for any part of the Obligations not sold or assigned.

[31] We do not agree that Maxium breached clause 15 by enforcing the guarantees. If Maxium assigned the appellants' obligations in their entirety to Sun Life, Sun Life as assignee could enforce the guarantees, and Maxium would be authorized to do so as Sun Life's appointed agent under the MPSA. If, on the other hand, Maxium assigned only its income stream while retaining the power to enforce its receivables, as the motion judge concluded, Maxium could enforce the guarantees in its own right as "the part of the Obligations not sold or assigned." On either of the two possible assignment scenarios arising in the circumstances of this case, clause 15 provides for enforcement by Maxium.

D. Issue Four: Costs

[32] The appellants seek leave to appeal the costs order imposed by the motion judge. They argue that the motion judge erred in imposing full indemnity costs without making a finding of egregious conduct on the part of the appellants.

[33] We disagree. In the guarantees, the appellants agreed to pay the costs of enforcing those guarantees "on a solicitor and own client basis". Where parties have contractually agreed to pay costs on the higher scale, costs can be awarded on that scale without showing extraordinary circumstances.

[34] Although the court retains discretion in appropriate circumstances to disregard the contractual scale of costs, we see no basis for interfering with the motion judge's decision to enforce the costs scale that the parties contracted for.

Conclusion

[35] The appeal from the summary judgment is dismissed. Leave to appeal costs is granted, but the costs appeal is also dismissed.

[36] We order the appellants to pay the costs of the appeal to the respondent at the partial indemnity rate of $29,009.79, inclusive of disbursements and applicable taxes. This costs award includes the $1,000 in costs ordered by Feldman J.A., on September 6, 2019, when granting a motion by the appellants to extend the time to appeal the costs order made by the motion judge.

"K. van Rensburg J.A."

"David M. Paciocco J.A."

"J.A. Thorburn J.A."