Court of Appeal for Ontario

Date: 20200219 Docket: C66985

Before: Pepall, Pardu and Paciocco JJ.A.

Between: All-Terrain Track Sales and Services Ltd. and Andre Boudreau, Plaintiffs (Appellants)

And: 798839 Ontario Limited, Jacobus Hanemaayer, 153078 Canada Inc., Community Expansion Inc., Great Lakes Nickel Limited, Robin Lowe and Rio Tinto Exploration Canada Inc., Defendants (Respondent)

Counsel: Donald Rollo and Marc Chaput, for appellants Steve Gearing, for the respondent

Heard: January 31, 2020

On appeal from the judgment of Justice Shaun O’Brien of the Superior Court of Justice, dated May 16, 2019, with reasons reported at 2019 ONSC 2998.

Reasons for Decision

[1] The appellants are judgment creditors of 798839 Ontario Limited (39). The appellants sued the respondent, asserting that 39 had successfully exercised an option contained in a joint venture agreement with the respondent to acquire an interest in the Pardee Mining Development. The appellants hoped to obtain part of a revenue stream originating from that development, in satisfaction of the judgment against 39.

[2] The summary judgment motion judge concluded that 39 had not satisfied the contractual prerequisites necessary to acquire an interest in the mining development. The appellants argue that the motion judge erred in failing to have regard to the factual matrix surrounding the formation of the contract and erred in her interpretation of the contract.

[3] We do not agree and dismiss the appeal.

I. Decision Below

[4] The contract at issue was dated December 5, 1988, more than 30 years before the motion judge’s decision. None of the affiants in the summary judgment motion had any involvement in the contract formation and there were no such witnesses available.

[5] The motion judge began her analysis by examining the text of the contract.

[6] The agreement recites that the respondent is the owner of the property and that it has agreed to grant to 39 an exclusive option to earn an undivided 80 percent interest in the property upon the terms set out in the agreement.

[7] 39 could incur “Expenditures” in respect of the property of no more than two million dollars. Paragraph 3.2 provided that for each separate block of Expenditure of $250,000, 39 shall be deemed to have acquired an undivided ten percent right to the property, subject to the provisions of paragraph 3.1, which provided the right and option to acquire an undivided 80% interest in the property.

[8] Paragraph 3.3 provided that the option granted to 39 would terminate if 39 failed to expend two million dollars in the aggregate. Specifically, the option would terminate:

(a) On November 30, 1989, unless on or before that date Ontario [39] has incurred $750,000 in Expenditures;

(b) On November 30, 1990, unless on or before that date Ontario [39] has incurred a further $750,000 in Expenditures in the aggregate;

(c) On November 30, 1991, unless on or before that date Ontario [39] has incurred a further $500,00 in Expenditures in the aggregate; or

(d) if Ontario [39] gives notice in accordance with paragraph 3.7.

[9] Paragraph 3.7 provided, amongst other things, that if 39 failed to make the requisite Expenditures under paragraph 3.3, the agreement would be of no further force or effect and 39 would have no interest in the property.

[10] Paragraph 3.9 defined the Participation Date for the joint venture as the date on which 39 had exercised its option by incurring two million in Expenditures in the aggregate, according to the above timetable in paragraph 3.3.

[11] Paragraph 3.10 stipulated that on the Participation Date, 39 would be deemed to have earned an undivided 80 percent interest in the property and the joint venture would be formed to develop the property and operate it as a mine.

[12] Paragraph 5.2 set out a formula to calculate 39’s interest in the joint venture if 39 made subsequent contributions to Expenditures beyond the two million, using the two million dollar amount as a starting point.

[13] Expenditures were defined in the agreement as follows:

(e) “Expenditures” means all cash, expenses, obligations and liabilities of whatever kind or nature, spent or incurred by the parties hereto prior to a Production Programme in connection with the exploration and development of the Property including, without limiting the generality of the foregoing:

(i) moneys expended in maintaining the Property in good standing by doing and filing assessment work;

(ii) moneys expended in doing geophysical, geochemical and geological surveys, drilling, assaying and metallurgical testing;

(iii) moneys expended in acquiring Facilities;

(iv) moneys expended in paying the fees, wages, salaries, travelling expenses, plus fringe benefits in an amount not in excess of thirty percent (30%) of salaries (whether or not required by law) of all persons engaged in work with respect to and for the benefit of the Property;

(v) moneys expended in paying for the food, lodging and other reasonable needs of the persons referred to in clause (iv) hereof;

(vii) a charge equal to ten percent (10%) of all Expenditures other than the charge refered to in this clause (vi) for unallocable overhead and head office expenses and all other expenses relating to supervision and management of all work done with respect to and for the benefit of the Property; and

(vii) all costs and expenses related to the preparation of a Feasibility Report;

but does not include any amount incurred in respect of Production Programme Costs.

[14] 39 entered into a management contract with James Bay Company Mineral Resources Inc. (JBC) to manage the exploration and development of the Pardee claims. JBC had the necessary expertise, experience, and ability to carry out the exploration and testing program. The management contact provided that JBC would incur expenditures on the Pardee mining claims as mutually agreed upon with 39, from time to time. The respondent was not a party to this agreement.

[15] All parties agreed for the purposes of the motion that, while 39 may have advanced two million to JBC, $360,687 of that two million advancement was not used on the Pardee project. Instead, it was diverted to another project, called the Kipling project. 39 had contracted with another development company, James Bay Kaolin Corporation (JBK), to develop the Kipling project. JBK and JBC were related corporations controlled by the same person.

[16] Before the motion judge, the appellants argued that 39 had validly exercised the option because 39 had advanced two million to JBC, even if $360,687 was diverted to another project. In the alternative, the appellants argued that 39 had acquired a 60 percent interest in the property.

[17] The motion judge concluded that the plain language of the agreement meant that 39 had to make the full two million in expenditures on the specified Pardee property. Otherwise, 39’s option would terminate according to paragraphs 3.3, 3.7, 3.9 and 3.10 of the agreement. She concluded that the joint venture agreement did not give 39 the right to a smaller stake in the joint venture proportionate to lesser expenditures.

[18] The motion judge attached little importance to subsequent documents —such as financial statements, correspondence, management information circulars, memoranda and legal opinions — as these were conflicting and based on uncertain provenance. None of these undermined her plain reading of the joint venture agreement.

II. Analysis

(1) Did the motion judge err by failing to have regard to the factual context surrounding the formation of the contract?

[19] The appellants focus on the factual findings made in other litigation between 39, JBK, and others in relation to the Kipling project. [1] The motion judge accepted the parties’ agreement as to the amounts 39 advanced to JBC and the amounts expended on the Pardee claims, mirrored in the other litigation’s findings. However, the appellants argue that the motion judge somehow failed to have sufficient regard to other findings made in that litigation.

[20] We do not agree. The respondent was only peripherally involved in the other litigation and was not a party to the four contracts interpreted in that litigation. The Pardee joint venture agreement with 39 was not interpreted in that litigation.

[21] There is no indication that the contracts in the other litigation formed part of a composite whole with the Pardee joint venture agreement.

[22] As pointed out by Blair J.A. in the appeal from the other litigation, the appeal was confined to the issue of ownership of the Kipling claims, a matter in which the respondent had no interest: 798839 Ontario Ltd. v. Platt, 2016 ONCA 488, 350 O.A.C. 226, at para. 7.

[23] The starting point for contractual interpretation is the language of the agreement. As indicated in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57:

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement…While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement. [Citations omitted.]

[24] Further, the factual matrix should “consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting” (citation omitted): Sattva, at para. 58.

[25] We are at a loss to know what other aspect of the factual matrix as expressed in the other litigation should have been considered by the motion judge but was not.

(2) Did the motion judge misinterpret the Pardee Joint Venture Agreement?

[26] The key issue to determine in contractual interpretation is the “intent of the parties and the scope of their understanding”: Sattva, at para. 47.

[27] As summarized in Richcraft Homes Ltd. v. Urbandale Corporation, 2016 ONCA 622, 352 O.A.C. 186, at para. 58, this court reiterated that a commercial contract is to be interpreted:

(a) 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;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity.

[28] The motion judge analyzed the language used by the parties as a whole and gave the words their plain meaning. There was little evidence of the surrounding circumstances known to the parties at the time they entered the agreement. According to JBC’s management contract with 39, JBC required 39’s consent before incurring expenditures. Presumably, 39 had good reasons related to its own self-interest to agree to divert $360,687 to the Kipling project, rather than expend it on the Pardee project.

[29] The motion judge’s interpretation of the contract was rational, rooted in the language of the contract and the evidence before her. There is no basis to depart from the deference owed to her interpretation.

III. Conclusion

[30] Accordingly, the appeal is dismissed, with costs to the respondent in the agreed amount of $20,000 inclusive of disbursements and taxes. The cross-appeal is dismissed as abandoned.

"S.E. Pepall J.A."

"G. Pardu J.A."

"David M. Paciocco J.A."

Footnote:

[1] 798839 Ontario Limited v. Robert Platt; and Robert Platt v. Community Expansion Inc., 2013 ONSC 6879, aff’d 2016 ONCA 488, 350 O.A.C. 226.