COURT OF APPEAL FOR ONTARIO DATE: 20211220 DOCKET: C68546
Feldman, Harvison Young and Thorburn JJ.A.
BETWEEN
Jack Ganz Consulting Ltd. Plaintiff (Appellant)
and
Recipe Unlimited Corporation Defendant (Respondent)
Counsel: Patricia Virc and M. Michael Title, for the appellant Ken Prehogan and Max Skrow, for the respondent
Heard: April 12, 2021, by video conference
On appeal from the judgment of Justice Sandra Nishikawa of the Superior Court of Justice, dated May 28, 2020, with reasons at 2020 ONSC 3319.
By the Court:
A. Overview
[1] Jack Ganz Consulting Ltd. (“JGC”) brought a claim for breach of contract against Recipe Unlimited Corporation, formerly known as Cara Operations Limited (“Cara”). JGC claimed that the respondent, Cara breached its signed and executed consulting agreement of March 10, 2006 (“the Agreement”). JGC claimed damages, including damages for lost stock options, and common law reasonable notice on the basis that JGC was a dependent contractor.
[2] Cara brought a motion for summary judgment. The motion judge granted the motion for summary judgment, dismissing JGC’s action for breach of contract and failure to provide common law reasonable notice and other ancillary relief. We do not agree with the conclusion that there is no genuine issue requiring a trial.
[3] While it is clear that until October 31, 2014 there was a contractual arrangement in effect between the parties to engage the services of JGC, it is not clear whether and to what extent the terms in the March 10, 2006 Agreement were still in effect, save for the fact that JGC would continue to bill for its services on the terms set out in the Agreement.
[4] We find there is a genuine issue for trial as to the terms of the contractual arrangement between the parties at the time JGC’s services were terminated by Cara and the rights and obligations flowing therefrom.
[5] Therefore, for reasons that follow, we would allow the appeal, set aside the summary judgment and remit the matter for trial.
B. The Evidence
[6] Jack Ganz was the principal of JGC which offered information technology (“IT”) services.
[7] In March 2006, his firm was retained to assist Cara with IT infrastructure in accordance with the terms of a written consulting Agreement dated March 10, 2006.
The Relevant Terms of the 2006 Agreement
[8] The Agreement stipulated that JGC was an independent contractor who would be paid an annual consulting fee of $420,000 to provide IT consulting services and an additional $250 per hour for each additional hour that services were required in excess of 180 hours.
[9] The Agreement also provided that if Cara became a public corporation with shares listed on a public stock exchange and offered an employee equity incentive plan, JGC would have the opportunity to participate in the plan on the same terms and conditions offered to its other senior management level employees.
[10] The Agreement contained an automatic renewal of the three-year term “unless terminated prior to the expiration date in accordance with this Agreement”:
2.01 Term. The term of this Consulting Agreement shall commence on the date hereof and shall continue for a period of three consecutive (3) years thereafter. This Agreement shall automatically be renewed for additional three consecutive (3) year terms unless terminated prior to the expiration date in accordance with this Agreement.
[11] The relevant termination, amendment and waiver provisions in the Agreement are as follows:
5.03 Termination upon expiration. Either party shall have the right to terminate this Agreement upon the expiration of three (3) years from commencement by written notice to the other to be given at least one hundred eighty (180) days prior to the expiration of this Agreement. Notwithstanding the foregoing, in the event that the Corporation terminates this Agreement, the Consultant shall have the right to extend this Agreement, with fees as detailed in section 2.01, for a further twelve (12) months following the date of expiration.
5.04 Continuing Obligations upon Termination. […] The Corporation shall have no further obligations under this Consulting Agreement upon termination under Section 5.03 above, except to pay for services provided by the Consultant prior to termination.
6.06 Amendments and Waivers. No amendment to this Consulting Agreement shall be valid or binding unless set forth in writing and duly executed by the parties. No waiver of any breach of any term or provision of this Consulting Agreement shall be effective or binding unless in writing and signed by the parties, nor shall any such waiver be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior to subsequent time.
The Arrangement Between the Parties After August 2008
[12] On August 29, 2008 (12 days before the deadline to give notice that the Agreement would not be renewed), Steve Smith, then-Chief Financial Officer of Cara, met with Ganz. According to Smith, the purpose of the meeting was “to discuss the existing agreement and next steps with respect to that agreement” because “if Cara wanted to change the contract, it had to be done prior to six months otherwise it was an automatic renewal clause.”
[13] Following the meeting, Ganz sent an email to Smith advising him that,
It was a pleasure meeting with you today. I look forward to working with you and know the future is exciting. Let this email serve to remove the auto renewal from my contract. I look forward to our discussions, in early 2009, after the new HQ moves and Data Centre builds quiet down. [Emphasis in original.]
[14] Ganz confirmed that the words “auto renewal” refer to s. 2.01 of the Agreement. He stated however that this served to remove all of s. 2.01 of the Agreement (including the first sentence, which provided that the agreement shall commence on the date hereof and shall continue for a period of three consecutive years thereafter). He therefore takes the position that this was an agreement of indefinite term, terminable on 180 days’ notice pursuant to s. 5.03.
[15] Smith responded to Ganz on September 2, 2008 that,
I too look forward to discussing with you the terms of our new arrangement that will take effect after your current agreement with Cara comes to an end in March 2009.
[16] On September 2, 2008, Smith also sent an email to Cara’s in-house counsel, confirming that he and Ganz discussed the March 2009 expiration of the Agreement and the 6-month notice period to avoid automatic renewal, and that “we will come to a mutually agreeable position on a new agreement closer to the expiration date.” Smith advised that he had also told Ganz that there was an immediate need for a waiver of the automatic renewal clause as a result of Cara’s changing needs or for an equivalent notice letter from Smith to Ganz indicating that the current agreement would not be renewed under its current terms and would be allowed to expire.
[17] In early 2009, the parties met to discuss the terms of a new arrangement. Smith sent an email to Ganz on January 26, 2009 saying that the “[c]urrent agreement between Jack and Cara expires as scheduled March, 2009” and summarizing terms for a new agreement. Smith asked Ganz to advise if there was anything that he missed and recorded that Ganz had “no additional comments to add.” No new agreement was signed.
[18] Draft terms were again communicated in May 2010, and March 2012. The recitals in those draft agreements which were never signed provide that, “the parties hereto and to the Original Agreement, hereby mutually agree that the Original Agreement terminated fully effective midnight March 5, 2010, save and except for the Continuing Obligations upon Termination set out in section 5.04 of the Original Agreement.” Ganz struck all references to the “Original Agreement” from the draft agreements exchanged by the parties.
[19] Throughout the eight-year relationship, Ganz submitted his invoices with the words: “As per Agreement dated March-10-2006”.
[20] At one point, Cara suggested that Ganz’s remuneration be reduced to approximately $10,416.66 per month and that his hours be reduced. However, the original amount set out in the Agreement continued to be paid to Ganz until 2014, when the services of JGC were no longer required.
Evidence From Cara Representatives as to Whether the Agreement Was Terminated
[21] Smith left Cara in 2013. He was examined pursuant to r. 39.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, by a Summons to Witness served by Cara.
[22] When asked on examination, whether the Agreement was terminated, Smith said:
A. This is definitely part of the grey area.
Q. Part of the grey area. And what do you mean by grey area?
A. I mean that the question would arise, was the original agreement terminated or not? What role does Sean Reagan [sic] play going forward? What does the new agreement with Jack Ganz look like? There were a number of open-ended things and we continued to move along business as usual until we sorted that out. So we were in a very grey area as to where exactly we stood with respect to that contract. That's what I mean.
Q. The grey area was the Robinson instruction to keep Ganz in place.
A. And what that -- yes, and the ergo to that is what does that look like going forward and is it a continuation or is it a new contract or what is it? That was totally uncertain and Don left it that way. Our responsibility was to keep things going so we did in that time of uncertainty.
Q. So therefore, you and Mr. Ganz understood that post-March '09 nothing would change in relationship to his arrangements.
A. No, I can't say that. That's part of the grey area. I don't know. We were not given clarity from Don. All Don said was, "Jack can’t leave the business. I understand, Steve, you need to cut costs. Find a way to work with Jack to keep him in the business and keep IT running and you two sort out what that might look like going forward.” [Emphasis added.]
[23] Smith testified that Don Robinson, Cara’s President and Chief Executive Officer, wanted to ensure that Ganz remained in the business. He thought that Ganz added “tremendous value to the business and that we should find a way of dealing with the cost of the contract.”
[24] Smith later testified that the termination of the Agreement and the development of a new agreement were “inextricably linked.” Smith agreed that it was a “fine line to walk” to try to modify Ganz’s agreement without allowing or enabling Ganz’s whole team to walk away at a crucial time. Neither he nor Robinson nor Regan wanted Ganz or his team to leave Cara.
[25] Smith further testified that Sean Regan, Cara’s senior vice-president and principal shareholder, did not want anything changed in Ganz’s contract at any time as Regan felt that Ganz was essential to the overall plan to build the company and become a public company.
[26] In 2012, Sean Regan took over dealings with Ganz from Smith. On April 23, 2012, he sent an email to Cara’s general counsel discussing the possibility of a new arrangement with JGC. In that email, he stated that:
1.3 b. Although Jack does not have a contract (he actually does but he does not enforce it as he is too much of a gentleman), Cara should give him 6 months’ notice as Senior Technical Advisor before reverting to 2 days on this.
[27] While there were discussions about changing the arrangement and reducing the time and consulting fees, no changes to the fee arrangement were made.
[28] From the time the Agreement was entered into in March 2006 to the time JGC was advised their services were no longer required in October 2014, JGC invoiced Cara monthly for the $35,000 monthly fee set out in the Agreement. Throughout that time, all of JGC’s invoices read, “As per the Agreement dated March-10-2006”. Cara continued to pay JGC $35,000 every month, as it would have under the Agreement.
[29] Smith testified that Cara’s then CEO, Don Robinson was aware there was uncertainty as to whether the Agreement continued to govern the relationship but chose to leave it that way.
[30] In October 2013, Cara Operations Ltd. merged with Fairfax Financial Holdings Inc. and new management was put in place.
Termination of the Relationship
[31] In January 2014, Cara’s new chief financial officer, Kenneth Grondin advised Ganz that he understood that in 2014, Ganz had agreed to reduce his services and fees to approximately $10,000 per month.
[32] Ganz disputed the termination of his arrangement and the attempts to reduce his hours. He wrote to Grondin that in his view the Agreement remained in force and effect and that he expected the terms therein to be honoured.
[33] Grondin replied to say Cara’s records indicated that the Agreement had expired as of March 2009 and all of Cara’s obligations under the Agreement had been satisfied.
[34] Nevertheless, JGC continued to send monthly invoices for the amount set out in the Agreement and Cara continued to pay the amounts set out in the Agreement.
[35] On September 3, 2014, Grondin emailed Ganz confirming that Cara would no longer require JGC’s services beyond October 31, 2014.
[36] In December 2014, the appellant commenced this Claim for damages.
[37] In April 2015, Cara became a public corporation. Grants of options in the public corporation to Cara’s senior leadership team were ratified in December 2014.
JGC’s Claims
[38] JGC alleges that Cara terminated the Agreement in September 2014, shortly before going public in April 2015, thereby depriving Jack Ganz of the opportunity to participate in the employee incentive plan and receive Cara stock options.
[39] JGC claims damages for breach of the contractual terms in the Agreement in the amount of $2,000,000 as well as $25,000,000 representing the value of stock options that Cara awarded to its management. In the alternative, JGC claims damages in the sum of $2,000,000 representing reasonable notice at common law on the basis that Ganz was a dependent contractor. JGC also claimed that Cara breached its implied duty of good faith by terminating JGC shortly before its initial public offering to avoid including him in the employee incentive plan.
Cara’s Defence
[40] Cara claims the Agreement expired on March 9, 2009, although Cara acknowledged that JGC had extended it by a year so that the date of termination was March 9, 2010. Cara claimed that after March 2010, JGC provided services and was paid on a month-to-month basis for the next four years.
C. The Conclusions of the Motion Judge
[41] The motion judge held that there was no genuine issue for trial and granted Cara’s motion for summary judgment, dismissing JGC’s action.
[42] First, the motion judge found the automatic renewal provision in s. 2.01 of the Agreement was waived by Ganz. The Agreement was therefore terminated on March 9, 2009, subject to JGC’s right to extend it for a period of 12 months to March 9, 2010.
[43] At paras. 102-4 of her reasons, the motion judge held that after the termination of the Agreement in 2009 and the 12-month extension period ended in March 2010:
Based on the evidence on this motion, the arrangement appears to have been ad hoc. The only terms that are evidenced by the parties’ conduct is that JGC would continue to provide services and Cara would continue to pay the amount under the Consulting Agreement, until the parties agreed otherwise. Those were the essential terms. The parties’ conduct does not evince a mutual intent to be bound beyond those terms, for example, on the length of the engagement or when and how the arrangement could be terminated. There is no evidence of any agreement that further terms from the Consulting Agreement would apply, specifically, JGC’s ability to participate in the employee incentive plan.
There is little evidence to support Cara’s position that the parties agreed to a month to month arrangement. Mr. Ganz referred to the NetOps Group’s arrangement as month to month. However, there was never any contract for the NetOps services. There was no mention of “month to month” in relation to JGC in the documentary evidence until an email from Mr. Grondin dated September 3, 2014. By that time, Cara was transitioning JGC out. In his examination, Mr. Smith acknowledged that if the parties had a month to month arrangement, JGC could have left with a month’s notice.
Contrary to JGC’s position, however, Cara is not required to demonstrate no genuine issue requiring a trial as to whether there was a month to month arrangement in order to succeed on its motion. It is sufficient that Cara demonstrate that, due to the waiver of the Renewal Clause, the Consulting Agreement expired in March 2010 and that no other written agreement was struck to take its place.
[44] The motion judge also found that Ganz was not a dependent contractor, and, in any event, his claim for common law reasonable notice was statute barred under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, because it was commenced more than two years after the cause of action arose. The motion judge noted that neither JGC’s original nor amended pleadings alleged a breach of the duty of good faith, which served to demonstrate that the dependent contractor claim was very different from JGC’s original breach of contract claim, and thus statute barred.
D. The Issues
[45] The issues raised by JGC on this appeal are:
Did the motion judge err in law by finding that Ganz had waived the auto renewal provision of the consulting agreement?
What terms governed the parties’ relationship after Ganz sent an email purporting to remove the auto renewal provision in the Agreement?
Was Ganz a dependent contractor?
Was the reasonable notice claim statute-barred?
Did JGC plead a breach of the duty of good faith? and
Did the motion judge improperly shift the burden of proof to the responding party?
E. Analysis and Conclusion
(1) Did the Motion Judge Err in Law by Finding That Ganz Had Waived the Auto Renewal Provision of the Consulting Agreement?
[46] One party to an agreement may choose to forego reliance on a contractual right but only where the party making the choice has full knowledge of the right and makes an unequivocal and conscious decision to forego that right with full understanding of the consequences. The court must apply a stringent test before finding unilateral waiver of a contractual right because “no consideration moves from the party in whose favour a waiver operates. An overly broad interpretation of waiver would undermine the requirement of contractual consideration”: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, at p. 500.
[47] There is no question that after the parties met on August 29, 2008 (12 days before the deadline to give notice that the Agreement would not be renewed), Ganz sent an email to Smith stating, “Let this email serve to remove the auto renewal from my contract” and indicating that he was looking forward to discussions with Cara.
[48] The motion judge found that this constituted a waiver by JGC of the auto renewal provision in the Agreement and that the waiver was accepted by Cara in Smith’s email of September 2008. She found that as a result, the Agreement was terminated effective March 2010 (including the one-year extension exercised by JGC).
[49] In our view, the motion judge erred in law by concluding that Ganz unilaterally waived the auto renewal provision of the agreement for no consideration. It is not clear from the record that Ganz had full knowledge of his rights or an unequivocal and conscious intention to abandon those rights. Further, it is clear from the record, in particular the email exchange quoted at paras. 13 and 15 above, as well as the internal email quoted in para. 16, that in his discussion with Smith, Ganz was asked to remove the provision as a favour to Cara, and in exchange, they would negotiate the terms of a new agreement to govern their future relationship. This was not a waiver for no consideration in accordance with the doctrine in Saskatchewan River Bungalows.
(2) What Terms Governed the Parties’ Relationship After Ganz Sent the Email Purporting to Remove the Auto Renewal Provision in the Agreement?
[50] Although the motion judge erred in law by finding that Ganz waived the auto renewal clause, it is clear from the record that following the 2008 emails, the parties continued their relationship but did not come to an agreement on what governed that relationship.
[51] In our view, the following factors, taken together, suggest that the terms of the agreement between Cara and JGC after that and until JGC’s services were terminated, are not clear:
a) Cara’s representative, Smith testified that the termination date of the Agreement and establishment of a new agreement were intertwined;
b) He also said that whether the Agreement was terminated is a “grey area” and that another Cara representative, Sean Regan, did not want anything changed in Ganz’s contract at any time;
c) Smith testified that it was “totally uncertain” whether the arrangement going forward was a continuation of the Agreement or a new contract, and that another Cara representative, Don Robinson, “left it that way”;
d) Regan wrote that Ganz “actually does [have a contract] but he does not enforce it as he is too much of a gentleman”;
e) The recitals in the draft agreements in 2010 and 2012 refer to the Agreement and seem to indicate that the Agreement had not been terminated;
f) The invoices sent by JGC throughout the course of their relationship all read: “As per the Agreement dated March-10-2006” and the amounts billed to and paid by Cara throughout the course of their relationship were as set out in the Agreement;
g) Cara discussed reducing the remuneration from $35,000 per month to approximately $10,000 per month but the amounts paid were never reduced and JGC continued to invoice and be paid $35,000 per month until termination in 2014;
h) No new agreement was ever executed.
[52] Moreover, there is testimony that was not adduced on the motion by either party that may assist the trier of fact to understand the contractual terms between the parties. This includes:
a) Regan’s explanation of his statement that Ganz has a contract but chooses not to enforce it, and
b) Robinson’s awareness that there was uncertainty as to whether the Agreement continued to govern the relationship but chose to leave it that way.
[53] Ganz testified at his examination for discovery that he understood the Agreement to be for a 9-year term (3 consecutive renewals of 3 years) and that it would end in March 2015. On cross-examination he confirmed that that was his understanding at the time.
[54] The motion judge recognized that after Ganz purported to remove the auto renewal provision in the Agreement, “There is little evidence to support Cara’s position that the parties agreed to a month to month arrangement.” Instead, she held that they were operating pursuant to an ad hoc arrangement where the only agreed terms were the services to be provided and the amounts to be paid and that JGC waived the autorenewal provision in the Agreement such that it was terminated effective March 10, 2010.
[55] The removal of the auto renewal provision was not done in accordance with s. 6.06 of the Agreement which provides that, “No amendment to this Consulting Agreement shall be valid or binding unless set forth in writing and duly executed by the parties.”
[56] The motion judge correctly noted that parties can by their conduct, demonstrate that they do not intend to be bound by clauses in an agreement notwithstanding a clause in the agreement that requires changes to be executed in writing: Colautti Construction Ltd. v. City of Ottawa (1984), 46 O.R. (2d) 236 (C.A.); see also Shelanu Inc. v. Print Three Franchising Corp. (2003), 64 O.R. (3d) 533 (C.A.), at paras. 50-60.
[57] However, in this case, Cara’s own representative, Smith, acknowledged that “the question would arise, was the original agreement terminated or not? ... What does the new agreement with Jack Ganz look like? There were a number of open-ended things and we continued to move along business as usual until we sorted that out. So we were in a very grey area as to where exactly we stood with respect to that contract.”
[58] Long after Ganz sent his email in 2008, Cara recognized that it was important to preserve the relationship with Ganz and JGC. What is not clear is whether and to what extent other terms in the Agreement were still in effect, other than the payment terms. For example, was the stock option provision still in effect? Was there a notice requirement and if so, what was it?
[59] We therefore find that the motion judge made palpable and overriding errors in concluding on the basis of this record that there was no genuine issue for trial and that,
a) “[i]t is sufficient that Cara demonstrate that, due to the waiver of the Renewal Clause, the Consulting Agreement expired in March 2010 and that no other written agreement was struck to take its place” (emphasis added); and
b) the only terms evidenced by the parties’ conduct after March 2010 were that JGC would provide services and Cara would continue to pay the amount under the Agreement, until the parties agreed otherwise.
[60] Given the considerable uncertainty surrounding the contractual negotiations in the record and, in particular, evidence that verbal agreements were reached but not memorialized in correspondence or crystalized in a contract, there was simply not enough evidence to summarily dispose of the action.
[61] We therefore conclude that there is a genuine issue for trial as to the terms of the contractual agreement between the parties after August of 2008, and what rights flow from those findings.
[62] Because we would remit the issue of determination of the contractual terms governing the relationship between the parties at the time services were terminated, and given that further evidence may be adduced at trial, the issues of whether Ganz was a dependent contractor, whether there was a breach of good faith, whether the limitation period expired, and what right to remuneration may flow from these determinations, should be addressed by the trial judge once all of the evidence has been adduced and assessed.
F. Disposition and Costs
[63] For the above reasons, the appeal is allowed, the summary judgment is set aside, and the matter is referred for trial. Costs of the appeal are payable by the respondent to the appellant in the amount of $20,000, as agreed. If the parties cannot agree on the costs of the motion, they may file written submissions of no more than four pages, the appellant’s submissions to be filed by January 10, 2022, and the respondent’s by January 24, 2022.
Released: December 20, 2021 “K.F.” “K. Feldman J.A.” “Harvison Young J.A.” “J.A. Thorburn J.A.”