Court of Appeal for Ontario

Date: 2021-10-08 Docket: C68294

Before: Benotto, Brown and Harvison Young JJ.A.

Between: OMJ Mortgage Capital Inc., Plaintiff (Respondent) And: King Square Limited, Defendant (Appellant)

Counsel: Maurice J. Neirinck, for the appellant Melvyn L. Solmon and Rajiv Joshi, for the respondent

Heard: September 10, 2021 by video conference

On appeal from the judgment of Justice Sandra Nishikawa of the Superior Court of Justice, dated July 6, 2020, with reasons reported at 2020 ONSC 1188.

Reasons for Decision

Overview

[1] In 2014, the appellant, King Square Limited (“KSL”), was seeking construction financing for its project in Markham, Ontario. It engaged the respondent mortgage broker, OMJ Mortgage Capital Inc. (“OMJ”), in its efforts to obtain financing. In early February 2014, OMJ obtained an oral commitment from Firm Capital Corporation (“FCC”) for such financing.

[2] On February 4, 2014, OMJ and KSL entered into a Commission Agreement in respect of construction financing for the project.

[3] The Commission Agreement provided for a one-year term, running from January 25, 2014 until January 25, 2015, following which there would be a one-year holdover period expiring on January 25, 2016.

[4] Clause 1 of the Commission Agreement described the borrowing agreement in respect of which KSL would pay OMJ a commission:

As at Feb 3, 2014, OMJ Mortgage Capital has negotiated and arranged for financing for KING SQUARE PROJECT from FIRM CAPITAL CORPORATION, her[e]by referred to as Lender. This Agreement is to confirm that, King Square Limited understand[s] and agrees that during the period of this agreement, they will act in good faith and work exclusively with OMJ Mortgage Capital in order to complete the Construction Financing of this project with Firm Capital Corporation (the lender). This would apply to any type or amount of financing for 9390 Woodbine Avenue, Markham, Ontario.

[5] Clause 2 identified the circumstances in which KSL was obligated to pay OMJ a commission. The salient portions of clause 2 of the Commission Agreement stated: [1]

COMMISSION: In consideration of OMJ Mortgage Capital Inc., hereinafter referred to as the Mortgage Broker, undertaking to assist the Borrower [KSL], the Borrower agrees to pay commission to the Mortgage Broker as follows:

If during the currency of this agreement the Borrower enters into an agreement to borrow of the general description indicated above, or if the Mortgage Broker provides a letter of intent or mortgage commitment of the general description indicated above, then the Borrower agrees the Mortgage Broker is entitled to receive and retain any commission offered by the borrower and / or the lender. The Borrower understands that the amount of commission offered in that case may be greater or less than the commission stated below.

[I]f during the currency of the agreement, the Borrower enters into an agreement to borrow of the general description indicated above, closes any mortgage transaction in the general description indicated above, is provided a letter of intent or mortgage commitment of the general description indicated above then the Borrower agrees that the Mortgage Broker is entitled to be paid a commission of 3% of the amount borrowed or [blank] as well as any finder’s fee as hereinafter described.

The Borrower agrees to pay directly to the Mortgage Broker such commission if the Borrower enters into an agreement within 365 days after the expiration of the agreement (Holdover Period) to borrow any money from any Lender introduced to the Borrower from any source whatsoever during the currency of this agreement.

Said commission, plus any applicable taxes, shall be payable on the date set for completion of the financing.

[6] On April 23, 2014, FCC provided KSL with a commitment letter for $50 million in construction financing, which KSL accepted in May 2014 (the “Original Commitment”). That loan closed in November 2014. KSL paid OMJ a commission in accordance with the terms of the Commission Agreement.

[7] On January 9, 2017, KSL and FCC entered into a Mortgage Loan Amendment and Renewal Agreement with respect to the $50 million loan (the “Renewal Agreement”) that increased the amount loaned by an additional $12.9 million (the “Second Loan”). Later that year, on September 14, 2017, KLS and FCC entered into a second Mortgage Loan Amendment Agreement (“Amendment #2”) that provided for a further loan increase of $11.8 million (the “Third Loan”). KSL did not advise OMJ about the Second or Third Loans.

[8] When OMJ learned about the Second and Third Loans, it demanded payment of further commissions from KSL under the Commission Agreement. KSL refused to pay any further commissions. OMJ sued KSL.

[9] The trial judge held that OMJ was entitled to commissions on the Second and Third Loans pursuant to the terms of the Commission Agreement. KSL appeals that judgment.

Analysis

[10] KSL submits that the trial judge’s interpretation of the Commission Agreement was wrong as the Commission Agreement was susceptible of only one interpretation – namely, that OMJ was not owed a commission. KSL’s three core grounds of appeal are summarized at para. 72 of the appellant factum:

King Square respectfully submits that the Trial Judge was required to find that OMJ is not entitled to any commission on account of the two new loans in 2017 because (i) the $50 Million Commitment was only for the single $50 million loan and not for the two new loans in 2017 which were made years later pursuant to other Agreements in 2017 and, at that, for materially different reasons, based on a different foundation and on materially different and more onerous business terms, (ii) because the two new loans in 2017 were made to King Square pursuant to Agreements that were entered into in 2017 well after the deadline dates for the commission-earning events in the Commission Agreement ( the deadlines being (i) January 25, 2015, for an agreement to borrow, a letter of intent, a mortgage or commitment or the closing of a mortgage transaction for commission on proceeds therefrom and (ii) January 25, 2016, for an agreement to borrow with a lender introduced before January 25, 2015 ) and (iii) because the two new loans were made pursuant to the Agreements that were agreed upon/entered into in 2017. [Emphasis in original.]

[11] KSL’s grounds of appeal face a major obstacle in the standard of review now applicable to issues of contract interpretation. In Corner Brook (City) v. Bailey, 2021 SCC 29, 460 D.L.R. (4th) 169, the Supreme Court of Canada repeated the deferential standard of review applicable to most issues of contract interpretation stating, at para. 44:

In Sattva, this Court also explained that contractual interpretation is a fact specific exercise, and should be treated as a mixed question of fact and law for the purpose of appellate review, unless there is an “extricable question of law”. The exception is standard form contracts, which is not relevant here: see Ledcor Construction. Extricable questions of law in the context of contractual interpretation 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, quoting 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 extracted will be uncommon. Whether something was or should have been within the common knowledge of the parties at the time the contract was entered into is a question of fact: Sattva, at paras. 49-55 and 58.

[12] There is no dispute that the trial judge, at paras. 31-34 of her reasons, correctly identified the principles of contractual interpretation applicable to the issue before her.

[13] KSL’s first ground of appeal – that the trial judge failed to characterize the Second and Third Loans as “new loans” based on a different foundation than the Original Commitment – founders on the findings of fact made by her. The trial judge held that the Second and Third Loans were not new loans but further advances made by FCC pursuant to the original Loan Commitment. She concluded that KSL’s attempt to portray the Second and Third Loans as new loans found no support in the loan documents. The trial judge gave three reasons for reaching this conclusion:

(i) The Renewal Agreement and Amendment #2 refer to the Loan Commitment and incorporate its terms. Accordingly, they were not stand-alone loan agreements but were based on and connected to the original Loan Commitment;

(ii) When the Second and Third Loans were made, the original mortgage was not discharged, nor were new mortgages registered. Instead, the amount of the charge increased by the additional amounts advanced; and

(iii) Both KSL and FCC consistently treated the further advances as having been made pursuant to the original Loan Commitment.

[14] KSL has not demonstrated that these findings of fact are infected by palpable and overriding error.

[15] KSL’s second and third grounds of appeal concern errors it submits the trial judge made regarding how the timing of the Second and Third Loans affected OMJ’s entitlement to further commissions. KSL strongly contends that the trial judge did not analyze whether the commission-earning events for which the Second and Third Loans were made had occurred before the respective deadline dates set out in the Commission Agreement. This, it submits, amounts to an error on an extricable question of law.

[16] In our view, this submission mis-reads the trial judge’s reasons. She addressed the timing issue at considerable length at paras. 56-58 of her reasons:

[56] Clause 2 of the Commission Agreement states “if during the currency of the agreement, the Borrower enters into an agreement to borrow of the general description indicated above, closes any mortgage transaction in the general description indicated above, is provided a letter of intent or mortgage commitment of the general description indicated above then the Borrower agrees that the Mortgage Broker is entitled to be paid a commission of 3% of the amount borrowed…” The language of Clause 2 is broad and included an agreement, mortgage transaction, letter of intent or mortgage commitment. In this case, FCC provided a Loan Commitment during the currency of the agreement.

[57] The Loan Commitment from FCC resulted from OMJ’s introduction and work. KSL then received two additional advances from FCC based on the original Loan Commitment which were both done as amendments to the Loan Commitment and on the same security. Having benefitted from OMJ’s work in securing the Loan Commitment, KSL cannot exclude OMJ’s entitlement to a commission for amounts advanced pursuant to the same arrangement, even if they were made a year after the Holdover Period expired. The basis for the further advances was the original Loan Commitment, which was entered into during the currency of the Commission Agreement.

[58] While the Second and Third Loans were not made until over a year after the Holdover Period, interpreting the Commission Agreement to apply to those advances does not lead to an absurdity. The Commission Agreement applies to those advances because they were made pursuant to the Loan Commitment, which KSL and FCC continued to apply. Contrary to KSL’s submission, this does not result in OMJ being entitled to commissions indefinitely or for an unreasonable period of time. Construction on the Project, and KSL’s need for financing, would not have continued indefinitely. At some point, if the terms of the Loan Commitment were no longer suitable, KSL and FCC could have entered into a new loan agreement. In the circumstances, they did not opt to enter into a new loan agreement. As long as the Loan Commitment was the basis for the advancement of further funds by FCC to KSL, OMJ was entitled to a commission. [Emphasis added.]

[17] As with her reasons overall, this portion of her analysis was firmly anchored in the language of the Commission Agreement, as interpreted in light of the factual matrix, including the circumstances surrounding the Original Commitment, the Second Loan and Third Loan.

[18] Applying the required deferential standard of review, we see no basis for appellate intervention with the trial judge’s conclusion that the Commission Agreement required KSL to pay OMJ commissions for the Second and Third Loans in 2017. Her interpretation of the Commission Agreement was a commercially reasonable one, in the context of the entire agreement and the factual matrix, and is entitled to deference: see e.g., Harvey Kalles Realty Inc. v. BSAR (Eglinton) LP, 2021 ONCA 426, at para. 8.

Disposition

[19] For the reasons set out above, the appeal is dismissed.

[20] In accordance with the agreement of the parties, KSL shall pay OMJ its costs of the appeal fixed in the amount of $50,000, inclusive of disbursements and applicable taxes.

M.L. Benotto J.A. David Brown J.A. Harvison Young J.A.

[1] Clause 2 of the Commission Agreement is reproduced in its entirety at para. 29 of the trial judge’s reasons.