CITATION: Winfund Software Corp. v. Progressive Financial Strategy Capital Group Corp., 2021 ONSC 6568

COURT FILE NO.: DC-20-27

DATE: 20210929

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

RE: Winfund Software Corp.

Appellant

AND:

Progressive Financial Strategy Capital Group Corp.

Respondent

COUNSEL: B. Sells and C. Pilkington for the Appellant

D. Levangie for the Respondent

HEARD: September 17, 2021

JUDGMENT

THE APPEAL.. 2

BACKGROUND FACTS. 3

THE PLEADINGS. 8

THE DEPUTY JUDGE’S REASONS FOR JUDGMENT. 10

THE EVIDENCE CALLED AT TRIAL.. 10

THE ANALYSIS. 10

Standard of Review.. 10

The Construction of Contracts. 10

Was there an extricable question of law in this case and did the Deputy Judge err?. 12

i) Express language of the “agreement”, Objective intention and “Entire Agreement” Clause 12

(a) Use of Subjective Belief and Intention. 12

(b) Use of Conduct which pre-dated the Addendum.. 13

(c) Failure to properly consider Whole Agreement Clause. 14

(d) Evidentiary basis to support course of conduct 14

(e) Conclusion. 15

ii) Finding a 2014 agreement not pled by either party. 15

(a) Conclusion. 17

(iii)The Central Issue – No charge for Winfund installation and support 18

v) Imputing other terms. 19

vi) Essentially disregarding the Addendum.. 20

vii) Defective Software. 21

vii) Whether the breach deprived PFS of substantially the whole of the benefits of the Licensing Agreement/Addendum.. 22

Conclusion. 23

CONCLUSION.. 24

COSTS. 25

THE APPEAL

[1] There were two claims before the Deputy Judge at trial:

a) A claim by Winfund Software Corp. (“Winfund”) for damages of $25,000 for breach of a software license agreement; and

b) A claim by Progressive Financial Strategy Capital Group Corp. (“PFS”) for the return of $3,800 being ½ of the amount paid to Winfund after the Addendum (described below) to a software license agreement had been executed.

[2] This is an appeal from the trial judgment of Deputy Judge K. Twohig dated March 31, 2020 wherein Winfund was granted judgment for $2,274.33 and PFS was granted judgment for $3,505.00, both with additional pre-judgment interest.

BACKGROUND FACTS

[3] Winfund is a software license supplier.

[4] PFS is a company which provides investment advice to its clients.

[5] Winfund’s investment advisor software (“Winfund Software”) is used by some investment advisors, including PFS until March 2017.

[6] Winfund’s Software requires installation into the customer’s computer system and then the installation of updates to the Winfund Software on regular basis. Some updates are mandatory usually to meet trade and regulatory requirements. Both the installation and updates to the Winfund Software can be done by the customer, a third-party IT provider or by Winfund’s employees. Similarly, Winfund’s customers can hire a third-party IT provider or Winfund employees to provide any needed IT support or training.

[7] PFS and Winfund commenced their business relationship commencing 1998. In 2005, PFS and Winfund entered into a written agreement (the "Licence Agreement") to license Winfund’s Software on certain terms and conditions set out therein.

[8] The Licence Agreement was for a term of three years, automatically renewed for successive three-year periods on the same terms and conditions unless the Licence Agreement was terminated prior to the end of a three-year term.

[9] The Licence Agreement included the following terms:

Termination 14. c) Customer may terminate this Licence at any time for convenience by giving thirty (30) days’ prior written notice to Winfund. However, the Customer shall continue to pay the licence fees for the remaining of this Agreement as an administrative charge and not as a penalty … This administrative charge shall be inapplicable if Customer is serving written notice of termination thirty to sixty (30 – 60) days prior to the end of any three-year term.

Waiver 25 - Any waiver of, or consent to depart from, the requirements of any provision of this Agreement shall be effective only if is in writing and signed by the party giving it and only in the specific instance and for the specific purpose for which it is given. No failure on the part of any party to exercise any right under this Agreement shall operate as a waiver of such right.

[10] Appendix A.6 of the License Agreement set out the Winfund charges for various IT support services, if requested by PFS. These support services set out hourly rates for “installation”, “support”, “integration”, “training”, “analysis”, and “project management/consulting”.

[11] The Winfund Software included two modules: (1) the “Back Office” local component of the software ("Back Office”) and (2) the “w. Connect” online-based portion of the software ("w.Connect").

[12] Winfund also has other modules which its customers can license to use such as FundFacts.

[13] Up until 2016, PFS had not used the w.Connect portion of the Winfund Software.

[14] As the Licensing Agreement was ending a 3-year term in August 2014, PFS received an offer from a competitor of Winfund. PFS approached Winfund to discuss their terms and agreement.

[15] In the middle of 2014, PFS and Winfund had discussions about the License Agreement.

[16] No written agreement was reached. There is no written document evidencing any mutual agreement in 2014. Neither pleading alleges an agreement was reached during these discussions in 2014. The only apparent change was the reduced price that Winfund charged/PFS paid for the Winfund Software.

[17] The License Agreement automatically renewed for another 3-year term which would have ended in 2017.

[18] Discussions between the parties resumed in late 2015 or early 2016.

[19] Eventually, the parties entered into a written agreement, executed by both parties, dated February 18, 2016 was to be effective from March 1, 2016 to February 28, 2019 (the “Addendum”). It is ½ the payments PFS made under this Addendum (i.e. past March 1, 2016) that it sought to be returned under its Defendant’s Claim.

[20] Under the Addendum, Winfund was to continue to provide the Winfund Software to PFS, additional module(s) at an agreed upon new price. In return, the parties expressly agreed to a fresh three-year term – meaning that the new three-year term was to start before the end of the three-year term originally set out in the License Agreement – which new three-year terms started on March 1, 2016.

[21] The Addendum included the following provisions, regarding the new three-year term and that the Addendum superseded all prior agreements, understandings, negotiations, and discussions:

This Addendum Agreement will be effective upon its execution and will remain in force for three (3) years and be subject to the same termination provisions as set out in the Agreement except as set out below. The monthly Licence fees commence once the installation is complete and the Products are to be deemed by Winfund and Licensee as in good working order and in any event, no later than two (2) months after this Agreement is executed.

This Addendum Agreement, including the Schedule, constitutes the entire agreement between the parties in respect of matters dealt with under this Addendum Agreement, and, other than the Agreement, supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written. There are no terms, conditions, warranties, representations or other agreements between the parties in connection with the subject matter of this Agreement (whether oral or written, express or implied, statutory or otherwise) except as specifically set out in this Addendum Agreement. To the extent that there is a conflict between the terms of this Addendum Agreement and the Agreement, the terms of the Agreement shall prevail as paramount.

(emphasis added)

[22] The Addendum also included a new schedule A.6 which provided new hourly rates for Winfund to provide the same installation, support and training services set out in the License agreement with one additional change:

There is no charge for Application Support, however, if the client exceeds 5 hours per contract year, subsequent hours will be made available in blocks of 5 hours at a charge of $120/hour or as negotiated.

(emphasis added)

[23] PFSs started to use the Winfund Software and made payments to Winfund under the Addendum until November 2016.

[24] However, Winfund became dissatisfied.

[25] On December 16, 2016 at 12:36 pm PFS’ principal wrote to Winfund setting out the reasons for dissatisfaction:

When I signed up back In Feb 2016,1 had never used w. Connect, the online system that is absolutely needed now and going forward, before and I had no inclination that this is such a poorly designed product overall that will give me nightmares. Our Internal dissatisfaction with overall Winfund product, along with client's sarcasm on what we are providing in terms of online access. Is beyond tolerance now. Every time Winfund Issues a release requiring that we have to update our system, it has caused nightmares and 1 have expressed my concerns to all of you - but without any future solution. I took Brian's help yesterday to install the latest updates yesterday at a significant cost to us - that shall not be acceptable for future. Still, the system is broken and the 'fund fact' piece is causing the system to abort - a ridiculous system setup that indicates errors are not even properly caught and handled. This whole poor setup is costing our business a lot of stress and monetary loss that is neither needed or desired, I am giving six month notice to Winfund that unless there Is significant improvement In both user Interface (for our and client satisfaction) and maintenance requirements THAT DOES NOT REQUIRE EXTERNAL EXPERTISE at huge cost that we as an office are forced to face, I shall terminate the agreement and move my business elsewhere.

(emphasis added)

[26] Winfund responded to PFS on December 16, 2016 at 2:59 pm stating that Winfund would not provide further free support/training without PFS paying additional fees:

Thank you for your comments, and I'm disappointed that you have not been satisfied with Winfund software. We had an call on November the 25th lasting more than an hour where some of your challenges were discussed, and possible solutions were shared by Winfund. Mostly, my call notes show that you were not pleased with the software upgrade process and that you wanted Winfund paid resources to "hold your hand" through the upgrade process. We have provided this to you several times as goodwill, and at material cost to Winfund.

As far as Winfund upgrades are concerned, there were three go-forward options proposed by Winfund on November 25

(1) For PFS to follow Winfund detailed written instructions for upgrades. You indicated that you choose not to follow these instructions, and that you decline to use them in the future.

(2) For PFS to purchase additional IT hours, to "hold your hand" through future upgrade processes. A total of 15.25 hours has already been provided to PFS as Winfund paid goodwill in this respect. You indicated that you would not consider purchasing additional Winfund IT hours, to help Winfund recover our costs.

…..(sets out amounts paid by Winfund for “installation” “process” and “walthru”

(3) For PFS to directly contact Brian at Ondeck IT/hosting solutions to potentially negotiate an outsourced hosted solution. From your notes below, it appears you have contacted Brian and were successful.

[27] On December 16, 2016 3:55 pm PFS’ principal responded he wanted out of the agreement with Winfund but wanted to keep using the Winfund Software until he could migrate to another supplier:

Obviously there are Irreconcilable difference on hand. If winfund's stand is status quo on its product then 1 will want out. I will need time for migrating to another vendor

[28] On December 16, 2016, 4:08 pm PFS’ principal wrote again stating he wanted to end the agreement with Winfund but needed time to “move” to another supplier:

Yes - the agreement was signed in good faith and I had no desire to change. But little did I know about the online setup and the nightmare winfund is putting dealers through to maintain this. The user interface is totally unfriendly and my clients are not happy. We had good long relationship and now it is time to move on. I will simply keep paying while I use winfund. I do not anticipate moving out before May of 2017,1 am actually looking for intro-carrying dealer kind of arrangement so we won't have to deal with back office and its maintenance.

[29] Despite PFS stating that it would simply “keep paying” while it used the Winfund Software, PFS did not resume paying the monthly fee nor did it make any further payments under the License Agreement/Addendum before terminating the Licensing Agreement/Addendum at the end of March 2017.

[30] Winfund wrote on February 13, 2017 at 7:50 pm as follows offering to provide some Q and A support but there would be an additional cost for training:

Did you have a list of the questions you had regarding W. connect? I can work with support to have them answered. We can do training but there is a cost associated. And if the previous training wasn't beneficial then it might not be worthwhile to repeat it.

[31] PFS wrote on February14, 2017 at 7:50 pm as follows that the prior training was not enough and that PFS needed training “to use this system”:

We really need to understand how to use w.connect- reporting, statements, etc, etc. Your one hour training did not do any justice. So, how can we really learn how to use this system.

[32] During this period of time and through to March 2017, PFS continued to use the Winfund Software.

[33] On March 31, 2017, PFS terminated the License Agreement/Addendum.

[34] PFS did not pay the unpaid monthly invoices from November 2016 to March 2017 ($4,548.25) nor the administrative fee under the Licensing Agreement/Addendum ($20,921.95).

THE PLEADINGS

[35] In the Claim, Winfund alleged PFS had terminated the Licensing Agreement/Addendum in approximately April 2017 and claimed unpaid invoices and the amount of the fees remaining under the term of the License Agreement for a total of $25,470.20 (abandoning the $470.20 to remain within the jurisdiction of the Small Claims Court).

[36] In the Defence, PFS alleged that the renewal of the Addendum was based on Winfund providing “support and training at no cost to us”. PFS found the training “useless” and that the complexity of the software, updates required “strong technical knowledge”. When PFS requested help “installing the updates”, Winfund refused to provide the support “at no cost to us”. PFS alleged that “being forced to use outside consultants to install one release” had cost a considerable amount and Winfund typically provided multiple updates.

[37] PFS then advanced its own claim seeking to recover ½ of the payment it had paid since the execution of the Addendum. Certain portions of the claim included:

Based on promises and assurance given by Andrew Pullman over the phone and via emails during the period from June to Aug 2014, we agreed to renew the agreement with Winfund starting Sept 1, 2014. Winfund was to provide all updates and installations all required training at NO COST to PFS, There was never a mention of any cost or time limit by Winfund,

The online version of the software took almost a month to be Installed and we started using it later May, early June 2016. The software and related components are extremely complex.

On Nov 23, 2016 Mr. Hewitt asked to have a phone conversation with me. Mr. Hewitt, siting a strong negative balance on our invoice of hours of service provided refused to provide any further help or support unless we agreed to pay for it. This Is clear breach of agreement to provide no cost support or installation as well as training. There was never a mention of limit on such support until our operations was fully up and running smoothly.

Furthermore, the full Installation NEVER worked properly for the duration we used it. A key component called 'FUND FACTS' that was one of the main reason to choose the online version of Winfund NEVER WORKED properly. We were required to send out fund facts to clients BEFORE any purchase was made. The other key component of client statements via emails was never functioning. We were never able to properly use these feature. We had no idea what is wrong and what needs to be fixed. On Dec 15, 2016, I send an urgent request to support at Winfund siting 'FUND FACT' is not working - no body bothered to respond to that. When we approached Mr. Mario Chartland and said we need to be shown how to use it properly or figure out what is going on and we need help, he instructed us to go to Mr. Hewitt and get his authorization before he could help us.

Winfund breached its agreement after the attempted Installation (defective) of WConnect and other products during Mar thru June of 2016, when directly or Indirectly It began to Impose or demand additional charges for providing a working product and reasonable training for a complex product like Connect and other add ons. The product installed never worked properly and totally inadequate training was given to use the product. The support required did not materialize counter to the assurance given by Andrew Pullman that Winfund is there to support its clients.

I was prepared to do everything myself and requested handholding from Winfund until my comfort level was high enough to operate this complex product. Winfund refused to even provide this unless we pay for it. This Is unheard of as our office subscribes to various third party vendor tools and all technical support Is provided at no cost to us.

(emphasis added)

[38] There can be no doubt that the central issue in the case as pleaded by PFS was its objection to having to pay Winfund for any additional installation, support and training. PFS alleged that Winfund had agreed to this being provided at no cost and, without this additional support/training, some portion of the Winfund Software was not useably by PFS.

THE DEPUTY JUDGE’S REASONS FOR JUDGMENT

[39] The Deputy Judge identified the issues at para. 48 as being whether either party breached the contract and, if so, what damages flowed from the breach.

[40] Winfund’s position was for payment of outstanding invoices and the administration fee were payable pursuant to the terms in the License Agreement/Addendum.

THE EVIDENCE CALLED AT TRIAL

[41] Each party called one witness at trial and agreed that all documents provided in the document brief could be considered evidence.

THE ANALYSIS

Standard of Review

[42] There is no dispute that this court’s role, as an appellate court, is not to retry the case.

[43] Unless the trial judge made an error of law or a palpable and overriding error of mixed law and fact or fact, then this court should not interfere with the trial judgment.

The Construction of Contracts

[44] This was a contract case. There was a written agreement between the parties. In fact, two written agreements. One of the parties alleged there was a term that it would receive support/training at no additional cost. The other party alleged that the written agreement required payment for additional support/training. This is the issue that led to the end of the relationship and the termination of the License Agreement/Addendum.

[45] The leading decision on contractual interpretation is the Supreme Court of Canada in Creston Moly Corp. v Sattva Capital Corp., 2014 SCC 53. In Sattva, at para. 50, the Supreme Court of Canada held that contractual interpretation generally involves issues of mixed fact and law:

Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of a written contract, considered in light of the factual matrix.

[46] However, at paras. 53-55, the Supreme Court in Sattva set out that in some cases the construction of a contract may involve an extricable question of law:

Nevertheless, it may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law (Housen, at paras 31 and 34-35). Legal errors made in the course 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” (King at para. 21). Moreover, there is no question that many other issues in contract law do engage substantive rules of law: the requirements for the formation of the contract, the capacity of the parties, the requirement that certain contracts be evidenced in writing, and so on.

However, courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation. Given the statutory requirement to identify a question of law in a leave application pursuant to section 31(2) of the AA, the applicant for leave and its counsel will seek to frame any alleged errors as errors of law. The legislature has sought to restrict such appeals, however, and courts must be careful to ensure that the proposed ground of appeal has been properly characterized. The warning expressed in Housen to exercise caution in attempting to extricate a question of law is relevant here:

Appellate courts must be cautious, however, in finding that a trial judge erred in law in his or her determination of negligence, as it is often difficult to extricate the legal questions from the factual. It is for this reason that these matters are referred to as questions of “mixed law and fact”. Where the legal principle is not readily extricable, then the matter is one of “mixed law and fact”….[para. 36]

As mentioned above, the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare. In the absence of a legal error of the type described above, no appeal lies under the AA from an arbitrator’s interpretation of a contract.

(emphasis added)

Was there an extricable question of law in this case and did the Deputy Judge err?

[47] In my view, the Deputy Judge committed several extricable errors of in law in his approach and application of the legal principles of contract interpretation to ascertain what the agreement between the parties and whether there was a breach of that agreement.

i) Express language of the “agreement”, Objective intention and “Entire Agreement” Clause

[48] The first step in ascertaining the legal rights and obligations between the parties to a written agreement is to start with the plain and ordinary meaning of the words used by the parties.

[49] If there is ambiguity, then the court can look to surrounding circumstances to resolve any such ambiguity. In Sattva, the Supreme Court stated that while the surrounding circumstances will be considered in interpreting a contract, they cannot create a new agreement:

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 (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 3032). 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 …

[50] The surrounding circumstances includes looking at the objective intention of the parties to potentially resolve any ambiguity. Consideration of the subjective intention (or expectations) of a party to the agreement is not a proper principle of contractual interpretation.

(a) Use of Subjective Belief and Intention

[51] In this case, the Deputy Judge failed to commence his analysis by considering the plain and ordinary meaning of the wording in the written agreements between the parties.

[52] The Deputy Judge started with, reviewed and extensively relied on PFS’s subjective intention, expectations and understanding in determining the agreement between the parties. See example paras. 50, 54, 59, 62, 67.

[53] The Deputy Judge failed to first determine whether there was an ambiguity in the written agreements, and even if there was, consider what was the objective intention of the parties.

[54] In my view, the Deputy Judge permitted these subjective belief, intentions and expectations of one party to circumvent the clear and unambiguous language of the License Agreement/Addendum regarding the payment for additional support/training. In fact, the Deputy Judge failed to reconcile the written agreements which expressly and clearly set out Winfund’s obligation to provide support/training if PFS paid for that support/training at specified rates.

(b) Use of Conduct which pre-dated the Addendum

[55] The Deputy Judge stated in his reasons:

[69] Winfund was not entitled to rely on the contract regarding extra charges because it had, by its conduct over many years, and by the 2014 agreement between Mr. Pullman and Mr. Dharna evidenced an intention not to rely on that contractual provision. Nor could Winfund rely on the entire agreement provision in the Agreement. Tue Court of Appeal in the case of Shelanu Inc. v. Print Three Franchising Corp., 2003 52151 (ON CA), [2003] O.J. No. 1919 at par. 54 held "Where the parties have, by their subsequent course of conduct, amended the written agreement so that it no longer represents the intention of the parties, the court will refuse to enforce the written agreement. This is so even in the face of a clause requiring changes to the agreement to be in writing."

[56] The Deputy Judge also relied heavily on what he found was the prior conduct or performance of the parties, despite the fact that the conduct she relied on pre-dated the execution of the Addendum.

[57] The Deputy Judge relied on Shelanu Inc. v. Print Three Franchising Corp., 2003 52151 (ON CA), [2003] O.J. No. 1919 where the court held that a subsequent course of conduct by the parties might amend the terms of a written agreement. The first problem is that no estoppel was pled by either party. More importantly, the Deputy Judge was relying on prior course of conduct – prior to the execution of the Addendum – to vary the written and agreed upon obligations of the parties. The Deputy Judge never went on to discuss or deal with the fact the parties entered into a subsequent written agreement that was inconsistent with the Deputy Judge’s finding.

[58] The Deputy Judge also relied on a 2014 Agreement which I will deal with below.

(c) Failure to properly consider Whole Agreement Clause

[59] Given the Deputy Judge’s reliance on subjective belief and the prior conduct, the Deputy Judge should have, but failed to, deal with the “whole agreement” clause in the subsequently executed Addendum which excludes all “prior discussions, negotiations, agreements”.

(d) Evidentiary basis to support course of conduct

[60] Part of the inconsistency in the Deputy Judge’s reasons is that the found at para. 53 that PFS had made minimal use of the Winfund support in the past and was never charged for this support.

[61] This begs the question as to how this “minimal” use of support would amount to a course of conduct resulting in a contractual obligation that Winfund provide support/training at no cost.

[62] PFS agreed during the trial that it did not get the new Winfund Software that resulted in the dissatisfaction until 2016 – after the Addendum was signed. As a result, a proper evidentiary basis for the “prior course of conduct” that Winfund not charge for support/training is not available on the record.

[63] PFS submits that the Deputy Judge was permitted to come to this conclusion because of the following term in the Addendum:

…. To the extent that there is a conflict between the terms of this Addendum Agreement and the [Licence] Agreement, the terms of the [Licence] Agreement shall prevail as paramount.

[64] In my view, this makes no commercial sense that the parties would enter into the written Addendum to amend the License Agreement but only to then ignore what the parties expressly included in the Addendum such as the duration of the agreement, the obligation to get free 5 hours support/training and pay for additional support/training, but permit PFS to continue to get the benefit of the lower price (which the Deputy Judge relied on for the assessment of damages).

(e) Conclusion

[65] In my view, the Deputy Judge proceeded to essentially write or re-write the written agreement(s) executed by the parties with little or no consideration of the words in the written agreements.

[66] The failure to follow the proper principles of contract construction constituted an extricable error of law.

ii) Finding a 2014 agreement not pled by either party

[67] As set out in para 69 of the Reasons, the Deputy Judge relied in part on a 2014 agreement for his ultimate determination as to what the rights and obligations of the parties were under the “Agreement”.

[68] Neither party alleged, in their pleadings, that there was an agreement entered into in 2014. Estoppel was not pleaded nor was the course of conduct pled. Yet, the Deputy Judge went outside the pleading to find another agreement in August 2014.

[69] In my view, there was no evidentiary basis for the Deputy Judge’s finding of a 2014 agreement, making this a palpable and overriding error.

[70] In any event, the Deputy Judge failed to deal with or consider whether or the extent of the inconsistency with the express terms of the License Agreement/Addendum signed two years after the alleged 2014 agreement that the Deputy Judge found existed other than erroneously and perfunctorily relying on Shelanu.

[71] PFS’ counsel agrees that the genesis of this alleged 2014 agreement’s is PFS’ email to Winfund dated August 19, 2014.

[72] It is important to note that Winfund never responded in writing to PFS’s demands in the August 19, 2014 emails. There is nothing in the subsequent communications which would suggest an agreement and it is not included in the Addendum (and there is no discussion why it would not be included).

[73] The August 19, 2014 communication from PFS to Winfund, during their negotiations, was the following:

Here is what I need in order for me to effective meeting regulatory requirements.

1)Need help in installing and training in winfund connect, compliance etc. the online version. I want to move away from back-end desktop as soon as possible. I have been paying for it but never used it.

2)Client access to their portfolios as offered at no extra cost

3)Emailing capabilities for client statements

4)Help in automatic download setup with fundserv Vie fund has all these and other features built in the package. This will also help us become more efficient in operations.

Thanks. Harpal Dharna

[74] PFS’ counsel admits that communications between Winfund and PFS abruptly stopped in August 2014 “just as it appeared an agreement had been reached” – although there appears to be no evidentiary basis to suggest that an agreement had been reached and the wording of the email would suggest otherwise as it was simply stating what PFS “wanted”.

[75] The Deputy Judge’s finding that this 2014 agreement was that Winfund “was not entitled to extra charges”, is simply erroneous since it is only an email of what PFS’ principal wanted from Winfund.

[76] The PFS’ counsel goes on to submit that the parties “operated under the new terms of the License Agreement” but does not explain what those new terms were or the evidentiary basis for the submission made nor assist on the central issue – whether support/training was an additional cost?

[77] More importantly, PFS’ counsel does not deal with the express conflicting terms of the Addendum (signed well after the alleged 2014 agreement) nor the “entire agreement clause” in the Addendum excluding prior agreements or discussions. Nor did the Deputy Judge.

(a) Conclusion

[78] These errors were a failure to follow the proper and legal principles of contract interpretation and led to the Deputy Judge’s analysis and decision in this case in the determination at para. 57 that Winfund had fundamentally breached the “Agreement”.

[79] As an aside, it is not clear what the Agreement the Deputy Judge was referring to: to the License Agreement, a contract, the 2014 agreement, the Addendum.

[80] These errors constituted extricable errors of law.

(iii)The Central Issue – No charge for Winfund installation and support

[81] In paragraph 54 the Deputy Judge recognized the central issue in dispute:

The parties ' had different views as to whether Winfund was entitled to charge extra for online support. Winfund relied on the terms of the written contract whereas PFS relied on the fact that Winfund's programs had been user-friendly in the past and Winfund had never billed PFS extra for support or training. All of this changed in early 2016 after Mr. Hewitt took over as Winfund’s Manager of Client Solutions.

[82] PFS’ counsel relies on an email from PFS to Winfund dated December 16, 2016 to demonstrate its dissatisfaction with Winfund but, in my view, that email demonstrates that the central dispute that PFS did not want to pay for installation or support from Winfund, nor have to purchase that support from third parties. This is consistent with the allegations in the pleading.

[83] There can be no doubt that the refusal by Winfund to provide the additional support to PFS at no cost was THE central issue at the trial. PFS’ representative stated the following under oath at the trial:

A. I, no, I was going to – that was my agreement and I would have repaid him. So, installation was not the problem anymore, or update the file was not the problem. What the problem happened when I asked for additional help, for Andrew Pullman"Give me more software training, I don’t know how to use this thing." His response was, “You’ve got to pay for it” and that’s what broke the straw. That’s what broke the camel's back, what nonsense is this. What’s going on here? If I compare Mr. Brian Thornborough one, I had learned enough to carry on that steps myself, but if I needed, I could have retained him, twice, three times more, that was not the issue. But he cannot give me training in the software, that’s not his cup of tea. That training of the software has to come from Winfund.

(emphasis added)

[84] The dispute regarding payment for support/training is consistent with the following email sent by PFS:

…I am giving six months notice to Winfund unless there is significant improvement in both user interface (for our and client satisfaction) and maintenance requirements THAT DOES NOT REQUIRE EXTERNAL EXPERTISE at huge cost that we as an office are forced to face, I shall terminate the agreement and move my business elsewhere." [Emphasis in original]

[85] The Deputy Judge relied heavily on the Winfund’s failure to provide installation and support/training at no costs in arriving at her decision. For example, see paragraphs 53, 54, 62, 65, 67 of the Reasons for Judgment.

[86] What the Deputy Judge failed to do was deal with was the fact that both the License Agreement and Addendum expressly contained terms for payment of an hourly charge for Winfund’s installation, support and training. The Deputy Judge never reconciled the inconsistency between the Deputy Judge’s finding and the express provisions of the Licensing Agreement/Addendum.

[87] In addition, even if Winfund had provided some additional support/training prior to the execution of the Addendum, the Deputy Judge erred in failing to deal with the express “waiver” term of the License Agreement (incorporated by the Addendum).

[88] This constituted an error in law in failing to apply the principles of contract interpretation.

v) Imputing other terms

[89] The conclusion of the Deputy Judge was:

[69] In failing to provide a reasonably usable program including unlimited training and support, Winfund fundamentally breached its Agreement with PFS because it deprived PFS substantially of the whole benefit of the Agreement……

[90] The Deputy Judge found it was a term of the agreement between Winfund and PFS that Winfund’s Software “could be used easily” or it would “meet the needs” of PFS or would only require “reasonable training and instructions”. See paras. 58, 59, 60, 64, and 66 of the Reasons. However, there is no such provision, representation or warranty in the written agreements between the parties.

[91] The Deputy Judge found that Winfund had breached the “agreement” in this regard.

[92] This error underscores the Deputy Judge’s reliance on the beliefs or expectations of PFS rather than the wording of the written agreement. It also demonstrates the Deputy Judge’s failure to consider what the parties included in the written agreements, and what they did not, to determine the parties’ contractual rights and obligations.

[93] This was an error of law.

vi) Essentially disregarding the Addendum

[94] The Deputy Judge concluded:

[75] The term of the contract set out set out in the Agreement, that is the three-year renewal term expiring in August, 2017, therefore prevails over the term set out in the Addendum, which has an expiry date of February, 2019. This is clear from the provision in the Addendum set out above. It is therefore not necessary to resort to definitions and legal rules of the interpretation of contracts to decide the term of the contract.

[95] It is not clear why the Deputy Judge did not have to “resort” to the “legal rules of the interpretation of contracts” to decide the term of the contract.

[96] The parties agree that the three-year automatic renewal provision in the License Agreement no longer applied because the Addendum was for a fixed three-year term, March 1, 2016 to February 28, 2019. This was the primary reason for the Addendum.

[97] Yet, the Deputy Judge found that Licensing Agreement/Addendum ended in August 2017 because the License Agreement prevailed over the Addendum. See paragraph 75 of the Deputy Judge’s Reasons. The Deputy Judge rendered Schedule A6 meaningless because of the determination that Winfund had to provide any additional support/training for free. Essentially the Deputy Judge rendered the Addendum of no value to Winfund except that PFS got the benefit of the lower monthly rate and the Deputy Judge went on to calculate the damages based on the reduced rate in the Addendum.

[98] I agree with Winfund’s counsel that it would be a commercial absurdity for the parties to enter into the Addendum, which expressly modifies the term of the License Agreement and new support/training rates only to find that the term of the License Agreement superseded the written Addendum.

[99] Courts are to interpret the wording of the written agreement parties, but not in such a way as to render what the parties agreed to in writing meaningless or ineffective.

[100] This was an error of law in contractual interpretation.

vii) Defective Software

[101] The Deputy Judge found that the Winfund Software was “in some respects defective” but it is not clear from the Deputy Judge whether this was because of the lack of installation and support/training or was there some inherent defect in the Winfund Software.

[102] If it is the former then it takes this court back to the issue of providing the installation and support at no cost issue and is consistent with the pleading, the communications between the parties, the desire by PFS to continue to use the software until PFS could migrate to another supplier.

[103] If it is the latter, then there is no evidentiary support for this finding. The PFS witness admittedly did not have the expertise to provide this evidence having found the software complex, difficult to install and required technological support for him to understand the program. If what the Deputy Judge intended was the latter, it was a palpable and overriding error.

[104] It makes little sense to imply such ambiguous terms in an agreement when the parties do not include a specific term to this effect, as the technology sophistication of users and complexity of software varies greatly making the enforcement of such a term difficult at best.

vii) Whether the breach deprived PFS of substantially the whole of the benefits of the Licensing Agreement/Addendum

[105] The Deputy Judge found there was a “fundamental breach” but did so based on the errors described above. The Deputy Judge finding the fundamental breach was Winfund failing to provide a "reasonably useable program including unlimited training and support, Winfund fundamentally breached its Agreement with PFS because it deprived PFS substantially of the whole benefit of the Agreement".

[106] Despite the finding that Winfund was in “fundamental” breach because the Winfund Software was “unusable” in its form, the Deputy Judge nevertheless found that Winfund was entitled to ½ of the unpaid monthly fees until the termination (including for the months which PFS had refused to pay the monthly fees).

[107] The Deputy Judge used the concept of “fundamental breach” rather than considering whether the actions/conduct of one party constituted a repudiatory breach and then going on to determine whether the repudiation had been accepted. See Tercon Contractors Ltd. v British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 SCR 69 at paras 62 and 82. 68 and Shalanu Inc. v Print Three Franchising Corp., 2003 52151 (ON CA)

[108] Regardless of whether the term used is "fundamental breach""breach of a sufficiently important term", or "repudiatory breach", it is clear from recent jurisprudence that where one party deprives the other party of "substantially the whole benefit of the contract" it entitles the innocent party, upon acceptance of that breach, to treat the contract at an end.

[109] There are serious questions in this case whether substantially the whole of the benefit of the contract were deprived to PFS, as PFS wanted to continue to use the Winfund Software until it could transition to another supplier. Similarly, it is difficult to imagine that PFS was deprived of “substantially the whole of the benefit of the contract” when PFS said to Winfund it was giving Winfund 6 months to improve or it would terminate the License Agreement/Addendum. And it is inconsistent with the Deputy Judge’s finding that PFS got ½ the benefit and therefore, had to pay Winfund ½ the monthly fees.

[110] I find that it is not necessary for me to decide whether this error is reversible other than to point out that, even if there was a repudiatory breach, the Deputy Judge should have gone on to determine whether the repudiatory breach had been accepted. I agree that non-payment may be evidence of acceptance of a repudiatory breach. However, the evidence is not clear in this case. The non-payment had started months before the parties’ communications set out above and PFS wanted to continue to use the Winfund Software until it could transition to another software. This analysis was not undertaken by the Deputy Judge.

Conclusion

[111] With the greatest of respect to the Deputy Judge, the approach she applied in interpreting the written agreements and the rights and obligations of the parties, whether there was a breach, whether the breach was a repudiatory breach and whether there was acceptance of the repudiatory breach, were entirely inconsistent with the principles of contractual interpretation and the analysis.

[112] The above errors constitute an extricable error of law.

[113] The circumstances of this case are very similar to the Court of Appeal’s decision in Mohamed v. Information Systems Architects Inc., 2018 ONCA 428 where a contractual interpretation regarding the termination of an agreement was found to be reversible error:

[13] Having made the finding of breach, the motion judge nevertheless went on to find, essentially in the alternative, that the termination clause was void for vagueness. I would agree with the appellant that the motion judge made two extricable errors of law in the application of the principles of contractual interpretation in reaching this conclusion.

[14] First, having found that the meaning of the termination provision was clear when read literally, there was no basis to apply the contra proferentem rule. That rule may be used only to resolve an ambiguity (see: Consolidated-Bathurst v. Mutual Boiler, 1979 10 (SCC), [1980] 1 S.C.R. 888, at pp. 899-900), not to create one.

[15] Second, having found the meaning of the termination clause to be clear, the subsequent conclusion that the clause is vague and uncertain because of the differing notice requirements is inconsistent, and does not bear logical scrutiny. The motion judge identified no basis on the record for concluding that it was not the intention of the parties to require notice of termination only where the respondent’s engagement was being terminated for breach of the ICA, or that the clause could not be implemented as it reads.

[16] The result of finding two extricable errors of law in the motion judge’s finding that the termination clause is unenforceable is that the finding cannot stand and must be set aside….

CONCLUSION

[114] It would be unfair to the parties for this court to impose its decision on the parties.

[115] I recognize the parties have expended considerable monies to take this matter to trial and to appeal. The parties have agreed on costs of this appeal at $15,000. The amount at issue is, at most $25,000.

[116] However, I am not in a position to fairly and justly re-try the entire case based on the transcripts.

[117] The appeal is allowed.

[118] The Deputy Judge’s Judgment of March 31, 2020 is hereby set aside, and a new trial is ordered before a different judge.

COSTS

[119] Any party seeking costs shall serve and file written submission on entitlement and quantum within two weeks of the release of these reasons. Written submissions shall be limited to 3 pages, with attached Costs Outline and any authorities.

[120] Any responding party shall have one week thereafter to serve and file responding submissions. Written submissions shall be limited to 3 pages with any authorities relied on attached.

[121] There shall be no reply submissions without leave.

RSJ Ricchetti

Date: October 4, 2021