COURT OF APPEAL FOR ONTARIO DATE: 20231027 DOCKET: COA-23-CV-0190
Fairburn A.C.J.O., Feldman and Sossin JJ.A.
BETWEEN
Obolus Ltd. and Composite Investments Ltd. Applicants (Respondents)
and
International Seniors Community Care Inc. Respondent (Appellant)
Dimitrios Mylonopoulos, for the appellant Myron W. Shulgan, K.C., for the respondents
Heard: September 11, 2023
On appeal from the judgment of Justice Maria V. Carroccia of the Superior Court of Justice, dated January 4, 2023, with reasons reported at 2023 ONSC 90, and the costs order, dated March 3, 2023, with reasons reported at 2023 ONSC 1505.
Sossin J.A.:
OVERVIEW
[1] This appeal concerns the interpretation of a termination clause in an agreement of purchase and sale.
[2] In November 2020, the appellant, International Seniors Community Care Inc. (“ISSC”), and the respondents, Obolus Ltd. and Composite Investments Ltd. (“Obolus”), entered into negotiations concerning the purchase of Obolus Technology Park, a large property in the municipality of Lakeshore.
[3] The parties signed an agreement of purchase and sale on March 14, 2021. The agreement contained a Milestone Termination Option giving Obolus the right to terminate the agreement if ISSC did not complete a pre-consultation meeting with Lakeshore municipality within a set period of time. The clause reads:
Buyer and Seller mutually agree that the Seller will have its sole option to terminate the purchase and sale agreement without penalty, and the Buyer's deposit shall be returned without penalty following the two conditions: (i) the Buyer has not completed a pre consultation meeting with the Municipality of Lakeshore prior four (4) weeks after the signing of this Purchase Agreement , and (ii) a site plan application has not be submitted to the Municipality of Lakeshore prior to three (3) months after the signing of this Purchase Agreement for the proposed development of parts 8,9,10,11. [Emphasis added.]
[4] On February 26, 2021 – before the agreement was executed – representatives from the municipality and ISSC met. ISSC claims that this meeting was the requisite pre-consultation meeting. This view was supported by officials from the municipality who referred to it as a pre-consultation meeting and a prior email from Obolus that referenced setting up a pre-consultation meeting “in the new year.” Obolus contends that the February 26 meeting was a courtesy meeting and that the pre-consultation meeting had to occur after the agreement was signed. No additional meetings occurred between ISSC and the municipality.
[5] Obolus terminated the APS on April 16, 2021, just over 4 weeks after it was signed. They then commenced an application seeking a declaration that the agreement was validly terminated. ISSC sought to have the application converted to an action.
[6] The application judge refused to convert the application to an action. She characterized the dispute as being limited to a question of contractual interpretation: whether the APS required the pre-consultation meeting to occur after the agreement was signed. With this focus, the application judge concluded that there was no need for the matter to proceed by way of action. She found that the record before her was sufficient to rule on the contractual issue, that there was no need for additional complex evidence, and that there were no material facts in dispute that might affect a proper determination of the matter.
[7] The application judge interpreted the contract to require that the pre-consultation meeting must take place after the agreement was signed. She found that this interpretation was supported by the pre-consultation meeting requirement not being removed after that meeting allegedly took place. Similarly, the application judge also concluded that it would not make sense for the parties to keep the Milestone Termination Option in the agreement if they believed that the meeting was already completed, nor would it make sense for a meeting to satisfy a condition in an agreement before that agreement was finalized.
ISSUES
[8] The appellant’s grounds of appeal may be grouped into two issues. First, the appellant argues that the application judge erred in not converting the application to an action given key evidentiary questions in dispute. Second, the appellant argues that the application judge erred in her interpretation of the Milestone Termination Option in the APS.
[9] Each issue is addressed in turn.
ANALYSIS
(1) The application judge did not err in not converting the application to an action
[10] The application judge’s decision with respect to converting an application to an action under r. 14.05(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 is entitled to deference. The application judge was required to review evidence to make findings of fact to determine whether the proceeding was properly commenced by way of an application and whether it could be properly resolved as an application. An appellate court will only interfere with such a determination if the “lower court misdirected itself, came to a decision that is so clearly wrong so as to amount to an injustice, or gave no or insufficient weight to a relevant consideration”: Genstar Development Partnership v. The Roman Catholic Episcopal Corporation of the Diocese of Hamilton in Ontario, 2019 ONCA 506, at para. 23; Pennyfeather v. Timminco Limited, 2017 ONCA 369, at para. 135, citing Penner v. Niagara Regional Police Services Board, 2013 SCC 19, [2013] 2 S.C.R. 125, at para. 27.
[11] There is no dispute as to the test for converting an application into an action. In Fort William Indian Band v. Canada (2005), 76 O.R. (3d) 228 (S.C.), at paras. 28-31, G.P. Smith J. outlined the principles underlying this determination:
[28] As a general principle, it is well established that an application should be used when there is no matter in dispute and when the issues to be determined do not go beyond the interpretation of a document.
[29] An application proceeding will not be converted into an action unless there is a good reason to do so, such as when the judge who will hear the matter cannot make a proper determination of the issues on the application record.
[30] When issues of credibility are involved or when viva voce evidence is required, a matter should proceed as an action.
[31] When a factual dispute simpliciter is involved, this by itself is not sufficient to convert an application into an action. The fact(s) in dispute must be material to the issues before the court. [Citations omitted.]
[12] In this case, the application judge referred to these principles, properly considered the reasons for conversion, and found them to be insufficient.
[13] The primary ground asserted by the appellant to justify conversion was the need to obtain evidence relating to the February 26, 2021 meeting – as both parties have limited recollection of the Milestone Termination Option. The understanding of this meeting could be a material issue in the dispute if the intention of the parties was ambiguous in light of the wording of that clause. However, the application judge resolved the matter entirely though an interpretation of that clause – finding that the clause requires that the pre-consultation meeting take place after the APS is executed.
[14] In doing so, the application judge’s approach avoided the need to address the February 26, 2021 meeting, and thereby the requirement for further credibility or viva voce evidence. As such, in my view, the application judge did not misdirect herself, come to an unjust decision, or give insufficient weight to relevant evidence in finding that there was no good reason to convert the application to an action.
[15] This ground of appeal fails.
(2) The application judge did not err in her interpretation of the APS
[16] The appellant has not raised an extricable question of law concerning the application judge’s interpretation of the contract. As such, a review of the application judge’s interpretation involves mixed fact and law and an appeal will only be allowed if there is palpable and overriding error: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, 135 O.R. (3d) 241, at para. 49, leave to appeal to S.C.C. refused, 37039 (October 19, 2017); Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50, 52.
[17] The appellant argues that the pre-consultation meeting condition was met by the meeting held on February 26, 2021, and therefore that the application judge committed a palpable and overriding error in finding that the respondent could trigger the Milestone Termination Option in the APS.
[18] The application judge referred to the language in the Milestone Termination Option as “grammatically awkward,” but nonetheless was able to conclude that the “clear intention of the parties” was to hold the pre-consultation meeting within four weeks after executing the APS.
[19] While the application judge does not elaborate on what, in her view, was “grammatically awkward” in the provision, it is clear from her interpretation that she was referring to the missing word “to” in the first subclause. If that missing word is inserted, the Milestone Termination Option reads as follows:
Buyer and Seller mutually agree that the Seller will have its sole option to terminate the purchase and sale agreement, and the buyer’s deposit shall be returned without penalty following the two conditions: (i) the buyer has not completed a pre consultation meeting with the Municipality of Lakeshore prior [to] four (4) weeks after the signing of this Purchase Agreement, and (ii) a site plan application has not be submitted to the Municipality of Lakeshore prior to (3) months after the signing of this Purchase Agreement for the proposed developments of parts 8,9,10,11. [Emphasis added.]
[20] Support for this understanding of the grammar of the provision may also be found in the second subclause dealing with the site plan, which enabled the Milestone Termination Option to be triggered if the site plan was not submitted to Lakeshore “prior to (3) months after the signing of this Purchase Agreement …” (emphasis added). Adding “to” in the first subclause would provide a natural and logical symmetry between the grammar of the two clauses and supports the application judge’s reading of the text.
[21] Therefore, the application judge was able to resolve the dispute before her based on the wording of the Milestone Termination Option alone, which reflected an intent to hold a pre-consultation meeting within 4 weeks after executing the APS.
[22] The application judge characterized the meeting held before the execution of the APS on February 26, 2021, as “simply an initial or introductory meeting” but she need not have done so. Whether it was in fact understood to be a “pre-consultation” meeting or something else, it occurred prior to the execution of the APS on March 14, 2021 and therefore its characterization had no bearing on her conclusion. The application judge reasoned that it would make no sense to include a condition in the APS that had already been satisfied.
[23] The undisputed fact the parties took no steps to revise that wording of the Milestone Termination Option after the February 26, 2021 meeting and prior to executing the APS, and the undisputed fact that no further meetings with Lakeshore occurred, constituted objective evidence on which the application judge relied in reaching her conclusion.
[24] In my view, it was open to the application judge to reach this finding on the record before her. The fact that other evidence in the record about the February 26, 2021 meeting might support a different finding does not lead to a conclusion that the application judge erred in preferring the evidence on which she relied. The application judge’s finding is entitled to deference.
[25] As a result, this ground of appeal fails as well.
Disposition
[26] I would dismiss the appeal, with costs in the amount of $14,000, all inclusive, to the respondents.
“L. Sossin J.A.”
“I agree. Fairburn A.C.J.O.”
Feldman J.A. (Dissenting):
A. OVERVIEW
[27] I have had the benefit of reading my colleague’s reasons. I agree that the application judge did not err in refusing to convert the application to an action. I respectfully disagree, however, that the application judge made no error in her interpretation of the Milestone Termination Option. In my view, the interpretation by the application judge was based on a palpable and overriding error of fact regarding the surrounding circumstances, as well as a failure to give effect to the words of the agreement.
[28] The application judge made two related errors. First, the application judge concluded, contrary to the record filed, that the February 26 meeting between the parties and the Lakeshore municipality was not a “pre-consultation meeting”. This was a palpable and overriding error that resulted in a misapprehension of the circumstances surrounding the making of the agreement. Second, the application judge failed to give effect to the word “completed” that was used in the Milestone Termination Option in relation to the pre-consultation meeting, and instead substituted the words “take place”. The result was that the application judge failed to give effect to the words used and gave the agreement a meaning that is inconsistent with the surrounding circumstances known to both parties at the time of the agreement. This was a legal error.
B. Analysis
(1) The proper approach to contract interpretation from [Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, 2 S.C.R. 633](https://www.canlii.org/en/ca/scc/doc/2014/2014scc53/2014scc53.html)
[29] At para. 47, Rothstein J. explained the modern approach to the interpretation of contracts including the importance of the words used and the surrounding circumstances:
… the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:
No contracts are made in a vacuum: there is always a setting in which they have to be placed…. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. ( Reardon Smith Line, at p. 574, per Lord Wilberforce).
[30] To review, the Milestone Termination Option reads:
Buyer and Seller mutually agree that the Seller will have its sole option to terminate the purchase and sale agreement, and the buyer’s deposit shall be returned without penalty following the two conditions: (i) the buyer has not completed a pre consultation meeting with the Municipality of Lakeshore prior four (4) weeks after the signing of this Purchase Agreement , and (ii) a site plan application has not be submitted to the Municipality of Lakeshore prior to (3) months after the signing of this Purchase Agreement for the proposed developments of parts 8,9,10,11. [Emphasis added.]
[31] The clause to be interpreted is the first condition: “(i) the buyer has not completed a pre consultation meeting with the Municipality of Lakeshore prior four (4) weeks after the signing of this Purchase Agreement”. I agree that the word “to” appears to have been left out before “prior”, so that it should read “prior to” as it does in the second condition (ii).
[32] The starting point for the application judge’s interpretation was the respondent’s argument that if the pre-consultation meeting had already been held prior to signing the Agreement of Purchase and Sale (“APS”), that would render the inclusion of condition (i) in the March 14 APS meaningless. Accepting that logic, the application judge concluded that the meeting already held with the municipality was not a pre-consultation meeting and that condition (i) requires a pre-consultation meeting to occur after signing:
Although the terminology of the Milestone Termination Option is grammatically awkward, it appears that the parties to the Agreement contemplated that a pre-consultation meeting would take place after the execution of the APS. It would make little sense to include the term in the Agreement if the parties were of the view that the pre-consultation meeting had already taken place .
In my view, the clear intention of the parties was that a pre-consultation meeting would take place within four weeks after the execution of the APS and the meeting on February 26, 2021, was simply an initial or introductory meeting. [Emphasis added.]
[33] The first error with this logic is that it fails to consider and give effect to the actual words of the condition. The condition requires that a pre-consultation meeting be “completed”, not that it “take place”, within the designated time period. In fact, the record makes it clear that the pre-consultation meeting had been held on February 26, but that there were items that had to be completed following the meeting.
[34] The second error is that while the application judge appreciated that she must interpret the contract in the context of the surrounding circumstances, instead of determining those circumstances from the record, she made a finding inconsistent with the record in order to fit the circumstances to her interpretation of the condition. This finding constituted a palpable and overriding error of fact.
[35] The broader approach of interpreting the factual circumstances to match a preferred interpretation of the contract, rather than interpreting the contract to match the factual circumstances, as instructed by the Supreme Court in Sattva at para. 47, is an error of law. This court has confirmed that failing to account for relevant factual circumstances when interpreting a contract is an extricable error of law: Estate of William Albin Herold v. Attorney General of Canada et al., 2021 ONCA 579, 157 O.R. (3d) 561, at para. 55; 1079268 Ontario Inc. v. Goodlife Fitness Centres Inc., 2017 ONCA 12, 411 D.L.R. (4th) 558, at paras. 26, 40.
(2) The application judge erred in finding that the February 26 meeting was not a pre-consultation meeting
[36] The application judge concluded that the meeting already held on February 26 was not a pre-consultation meeting but “simply an initial or introductory meeting.” This finding runs counter to all contemporaneous documentary evidence, which was unequivocal in referring to the meeting as a pre-consultation meeting. The documentary evidence was filed as part of the record before the application judge, who decided that the record was sufficient and that no trial of an issue was necessary.
[37] On December 23, 2020, the principal of Obolus, Mr. Meyer, sent an email to the principal of International Seniors, Mr. Out. In it, he advised Mr. Out that he had informed Mr. Donally, the Economic Development Officer for the Town of Lakeshore, of Mr. Out’s offer to purchase the property. Mr. Meyer then outlined the steps proposed by Mr. Donally:
- Ryan [Donally] has proposed a conference call with you and Obolus next week as an initial conversation on Tuesday 29 DEC 2020 at 10:00am. Is that a good time for you?
- Ryan [Donally] has also offered to arrange a pre-consultation meeting with himself, both of us and a few members of the Lakeshore team as the best starting point to initiate a more comprehensive development schedule, and this would need to occur in the new year . This usually includes planning, building, and engineering. [Emphasis added.]
[38] The initial conversation by conference call proposed in item 2 of the email ultimately took place on February 1, 2021 at 10:00 a.m. This was the parties’ “initial or introductory meeting”.
[39] Following that meeting, at 5:58 p.m. on February 1, Mr. Meyer sent an email to Mr. Donally with the Obolus Tech Park development proposal attached. On February 2, 2021, Mr. Donally responded to Mr. Meyer by email. He confirmed receipt of the document and reiterated that they “will need to have a pre-consultation meeting in the coming weeks”.
[40] On February 11, 2021, Mr. Donally followed up with Mr. Out, explaining that “the next formal step would be to have a pre-consultation meeting” and asking whether he had “completed the pre-consultation form”. Beginning on that date, the parties began exchanging versions of an APS, each of which contained the Milestone Termination Clause giving the respondent the right to terminate if the appellant did not “complete a pre consultation meeting with Lakeshore prior [to] four weeks after signing”.
[41] On February 19, another member of the Lakeshore team, Mr. Hair, sent a Zoom invitation to the rest of the Lakeshore team and to Mr. Out by email. The subject of the email was Pre-Consultation – 0 Patillo Rd. (Roll# 210-07250) Industrial Development . The invitation specified that the meeting would take place on February 26, 2021, at 2:30 p.m. On February 23, Mr. Out forwarded the Zoom invitation to Mr. Meyer under the same subject line. The pre-consultation meeting was held on February 26 as planned with Mr. Meyer in attendance.
[42] On March 12, 2021, Mr. Hair sent an email to Mr. Out summarizing the February 26 meeting and subsequent conversations. The topics that had been covered at the meeting pertained to “planning, building, and engineering”, in line with how Mr. Donally had described the pre-consultation meeting in his initial email. For instance, they had discussed, among other things, how many industrial units would be built and that they would be separated by a condominium; the planning approvals from the County of Essex that were necessary to move forward; and the sanitary treatment capacity available to service the development.
[43] The email confirmed that follow-up issues had been discussed. Importantly, Mr. Out had been advised that he would need to hold a pre-consultation meeting with the County of Essex “as well”. This statement is a further indication that Lakeshore understood that its pre-consultation meeting with the parties had been held. It also identifies that arising out of the meeting, a similar pre-consultation meeting had to be held with the County of Essex, which is the approval authority for the Plan of Subdivision process. Another matter for Mr. Out was a required Major Site Plan Application and Condominium Application.
[44] To summarize, the parties and Lakeshore had a meeting on February 1, 2020, which was, in their own words, an “initial meeting”. On February 26, they had a second meeting, which was, in their own words, the “pre-consultation” meeting. The finding that the February 26 meeting was an “initial or introductory meeting” and not a pre-consultation meeting has no basis on the evidence and is contrary to it.
[45] In addition, the subsequent correspondence from the municipality sets out follow-up items that had to be completed (although that word was not used) from the pre-consultation meeting.
[46] It was not open to the application judge to ignore the evidence from the parties and from Lakeshore that the meeting held on February 26 was a pre-consultation meeting and that there were items to be completed following that meeting, and to find instead that the February 26 meeting was not a pre-consultation meeting. No deference is owed to an interpretation that is premised on a palpable and overriding error of fact: Horn Ventures International Inc. v. Xylem Canada Company (ITT Canada Ltd.), 2021 ONCA 341, at para. 3.
[47] I respectfully disagree that the application judge’s characterization of the February 26 meeting was immaterial on the basis that it took place prior to signing the APS. The February 26 pre-consultation meeting was a key element of the surrounding circumstances known to both parties at the time. Properly characterizing the meeting was necessary to properly interpret the APS.
[48] This error led the application judge to give the condition an unavailable meaning, including by reading out the word “completed” and substituting the words “take place”, and by finding, contrary to the unequivocal evidence of the surrounding circumstances, that no pre-consultation meeting with the municipality had already been held.
[49] The application judge’s mischaracterization of the February 26 meeting also impacted her understanding of the fact that the Milestone Termination Option had been retained with slight wording changes in the February 26, March 11 and March 14 versions of the APS. The word “completed” was used in each version. Giving effect to the term “completed”, in the circumstances, the retention of the Milestone Termination Option throughout the time when the APS was being negotiated and the pre-consultation meeting was being arranged and held reflects the parties’ ongoing interest in completion of the follow-up items from the February 26 meeting.
[50] In addition, requiring a second pre-consultation meeting is an untenable interpretation, given that both parties testified that they only contemplated one pre-consultation meeting, and it assumes, without evidence, that the municipality would be willing to attend a duplicative, second pre-consultation meeting.
C. Result
[51] I would allow the appeal, set aside the decision of the application judge, and find, based on interpreting the words of the Milestone Termination Agreement in the context of the surrounding circumstances, that the APS did not require that a second pre-consultation meeting with the municipality take place after the APS was signed, and therefore the appellant was not in breach of the agreement on that basis.
[52] I would grant the costs of the appeal to the appellant fixed in the amount of $11,519 inclusive of disbursements and HST.
Released: October 27, 2023 “J.M.F.”
“K. Feldman J.A.”
