SUPREME COURT OF CANADA

[2007] 3 S.C.R. 679, 2007 SCC 55

Date: 20071220

Docket: 31561

Between:

Jedfro Investments (U.S.A.) Limited and Elsie Iwasykiw, in her capacity as Litigation Administrator for the estate of Morris Iwasykiw Appellants

and

Nadia Jacyk, in her capacity as Litigation Administrator for the estate of Peter Jacyk, Prombank Investment Limited, Prombank International (U.S.A.) Limited, Louis V. Matukas and Gramat Investments (U.S.A.) Limited Respondents

Coram: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Charron and Rothstein JJ.

Reasons for Judgment: (paras. 1 to 37)

McLachlin C.J. (Bastarache, Binnie, LeBel, Deschamps, Charron and Rothstein JJ. concurring)

Jedfro Investments (U.S.A.) Ltd. v. Jacyk, [2007] 3 S.C.R. 679, 2007 SCC 55

Jedfro Investments (U.S.A.) Limited and Elsie Iwasykiw, in her capacity as Litigation Administrator for the estate of Morris Iwasykiw Appellants

v.

Nadia Jacyk, in her capacity as Litigation Administrator for the estate of Peter Jacyk, Prombank Investment Limited, Prombank International (U.S.A.) Limited, Louis V. Matukas and Gramat Investments (U.S.A.) Limited Respondents

Indexed as: Jedfro Investments (U.S.A.) Ltd. v. Jacyk

Neutral citation: 2007 SCC 55.

File No.: 31561.

2007: October 11; 2007: December 20.

Present: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Charron and Rothstein JJ.

on appeal from the court of appeal for ontario

Contracts — Enforcement — Breach — Parties to joint venture agreement not abiding by its terms — Whether agreement terminated — Whether agreement still enforceable — Whether agreement breached — Whether agreement required repayment of defaulting party’s initial investment in joint venture.

I, J and M, via their corporations, entered into a joint venture agreement to purchase, develop and sell a property purchased from Air Products. Part of the purchase price was secured by a note and a trust deed in favour of Air Products. When Air Products demanded repayment, the joint venture agreement required each partner to pay its proportionate share of the sum demanded. Only J was prepared to meet this demand. As the parties agreed that the survival of the joint venture required the note to be paid, J had one of his companies, Prombank Investment, a non‑party to the joint venture agreement, purchase the note. Although I and M had defaulted on the joint venture agreement, the parties did not wish to abide by its default provisions. M reached an agreement with J, but I did not. Even when Prombank Investment indicated that it intended to foreclose, I took no steps to raise the money required. Prombank Investment did foreclose and I lost the investment he and his company had put into the joint venture. They sued J, M and their companies for breach of the joint venture agreement and related relief. The trial judge dismissed the action and the Court of Appeal upheld the decision.

Held: The appeal should be dismissed.

While the parties may have ignored the joint venture agreement, the obligations under it remained in effect as none of the ways in which a contract can be discharged is established on the facts. There was no discharge by agreement because the parties never reached a new agreement to terminate the joint venture agreement. Similarly, abandonment discharges a contract only if it amounts to a new contract in which the parties agree to abandon the old one; ignoring a contract does not establish a new contract to terminate the old contract. Nor was it established that the parties had elected to treat the breach as ending the joint venture agreement. [16‑17] [22‑23] [28]

The joint venture agreement was not breached because J did not advance funds under s. 4.02(a) of the agreement. That section only provided a right, not an obligation, to a non‑defaulting party to advance funds on behalf of a defaulting party. Instead, one of J’s companies purchased Air Products’ note, which any third party could have done. Section 8.03 of the agreement, which required the consent of all three members of the joint venture in order to make decisions relating to the joint venture project, did not assist because: Prombank Investment merely assumed the position Air Products had occupied as a creditor to the joint venture; s. 4.02(d) of the agreement removed the consent requirement under the circumstances arising here; and the foreclosure was simply the exercise of legal rights under the note. [24‑28]

I and his company are not entitled to the return of their initial investment in the joint venture. These monies were formally forfeited by the foreclosure by Prombank Investment. Furthermore, the doctrine of unjust enrichment did not apply. The joint venture agreement was a juristic reason why the money need not be repaid, and the foreclosure was a known and procedurally fair consequence of not paying the amount due. [29‑30] [35‑36]

Cases Cited

Referred to: Paal Wilson & Co. A/S v. Partenreederei Hannah Blumenthal, [1983] 1 All E.R. 34; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533; Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834; Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629, 2004 SCC 25; Pacific National Investments Ltd. v. Victoria (City), [2004] 3 S.C.R. 575, 2004 SCC 75.

Authors Cited

Chitty on Contracts, vol. 1, 29th ed. by H. G. Beale. London: Sweet & Maxwell, 2004.

APPEAL from a judgment of the Ontario Court of Appeal (Laskin, Borins and Juriansz JJ.A.) (2006), 2006 CanLII 16347 (ON CA), 80 O.R. (3d) 533, 210 O.A.C. 153, 18 B.L.R. (4th) 8, [2006] O.J. No. 1963 (QL), affirming a decision of Macdonald J. (2005), 2005 CanLII 3373 (ON SC), 2 B.L.R. (4th) 151, [2005] O.J. No. 514 (QL). Appeal dismissed.

James C. Orr and Kenneth A. Dekker, for the appellants.

Benjamin Zarnett and Julie Rosenthal, for the respondents Nadia Jacyk, in her capacity as Litigation Administrator for the estate of Peter Jacyk, Prombank Investment Limited and Prombank International (U.S.A.) Limited.

Andrew J. Macdonald, for the respondents Louis V. Matukas and Gramat Investments (U.S.A.) Limited.

The judgment of the Court was delivered by

[1] The Chief Justice — The appellants claim monies under a joint venture agreement entered into with the respondents for the purpose of holding and developing a property interest near Denver, Colorado. The respondents deny liability. The first issue on the appeal is whether the joint venture agreement is enforceable by the appellants and, if so, whether the respondents are in breach. The second issue is whether the respondents are required to reimburse the sums advanced by the appellants to acquire and maintain the property.

[2] I conclude that the joint venture agreement remained in effect and was not breached by the respondents. The respondents are not liable to the appellants for the monies advanced.

Background

[3] Morris Iwasykiw, Peter Jacyk and Louis Matukas were sophisticated businessmen who had known each other for a long time. In 1989, they registered a partnership in Colorado, Tower Centre Partners, to purchase the Denver property from Air Products and Chemicals Inc. (“Air Products”). Part of the purchase price was paid with advances made by the three partners. The balance was secured by a note and a trust deed in favour of Air Products.

[4] In 1991, Iwasykiw, Jacyk and Matukas entered into a joint venture agreement to purchase, develop and sell the Denver property, holding the following interests: Jacyk 60 percent; Iwasykiw 30 percent; and Matukas 10 percent. Each of the covenantors brought a corporate party into the joint venture agreement. The Air Products note was due in June 1991. The land was not as saleable as originally thought, and the note was extended. Payments reducing the principal were made consistently until 1995. However, in 1996 Air Products demanded repayment of US$3.8 million, failing which it would commence proceedings to enforce its security under the trust deed. Under the terms of the joint venture agreement, each partner was required to pay its proportionate share of the sum demanded.

[5] It emerged that only Jacyk was prepared to meet this demand. Neither Iwasykiw nor Matukas were in a position to harness the funds they needed to pay their respective shares. The parties agreed that the survival of the joint venture required the note to be paid; otherwise Air Products would foreclose and they would lose their investments. At a June 24, 1996 meeting, Jacyk offered to use one of his companies to avert the crisis precipitated by Air Products’ demand. The parties contemplated that Jacyk would advance funds on behalf of the other two to pay off the entire amount of the note. The possibility that Jacyk would purchase the note was also considered, according to Iwasykiw’s testimony at discovery that Jacyk was “telling us all the time that he’s going to buy the note”. On July 20, hearing that Jacyk had gone ahead and purchased the note, Iwasykiw, the trial judge found, recognized Jacyk’s purchase of the note as a strategic move benefiting all three parties to the joint venture.

[6] An unresolved issue remained as to what the defaulting parties, Iwasykiw and Matukas, would give in exchange for being bailed out of the crisis. The joint venture agreement contained default provisions, but none of the parties wished to abide by them. Iwasykiw and Matukas felt they were too onerous. Jacyk, for his part, wanted a bigger share of the profits. Matukas, in the end, agreed to Jacyk’s terms, including a 35 percent profit participation in favour of Jacyk. Iwasykiw, however, did not want to forego any profits from the project. He indicated that he would find the financing to meet his obligations under the note elsewhere and made an offer, which was not accepted, to give a first mortgage over certain unrelated property and a personal guarantee to Jacyk instead of profit participation. Iwasykiw voiced no objection to Jacyk’s purchase of the note. Moreover, despite knowing that foreclosure would occur if the note was not paid, Iwasykiw “took no meaningful steps to raise the money for his share through the many assets that were available to him” ((2005), 2005 CanLII 3373 (ON SC), 2 B.L.R. (4th) 151 (Ont. S.C.J.), at para. 30).

[7] Jacyk’s company Prombank Investment Ltd., a non-party to the joint venture agreement, now held the security interest with respect to which Tower Centre Partners was a debtor. Prombank Investment Ltd. indicated in mid-August that it intended to foreclose. When the note fell due, therefore, Iwasykiw faced Prombank foreclosing his interest in the Colorado property unless the obligations under the note were met. By this time, Jacyk had concluded its arrangement with Matukas and Matukas’s company Gramat. The same terms were agreed to by Jacyk’s other company — the one that was a party to the joint venture agreement. Not believing that Prombank Investment Ltd. would exercise its rights, Iwasykiw took no steps to raise the money required. In fact, Iwasykiw made no attempt to communicate with Jacyk until late September, when he requested a meeting to discuss refinancing his company’s (Jedfro Investments Ltd.) obligations under the note. Jacyk refused the request. Prombank Investment Ltd. foreclosed, with the effect that Iwasykiw lost the US$1.4 million he and Jedfro Investments Ltd. had invested in the joint venture. Iwasykiw appeared at the foreclosure proceedings in Colorado but was by that point unable to prevent it from happening.

[8] Iwasykiw and Jedfro Investments Ltd. sued Jacyk, Matukas and their companies for breach of the joint venture agreement and related relief. Jacyk and Matukas launched counterclaims. Jacyk and Iwasykiw both died between discovery and trial, but their estates carried on the litigation.

[9] The trial judge dismissed the action, holding that none of the parties had relied upon the provisions of the joint venture agreement. In her view, by failing to make a deal with Jacyk, unlike Matukas, Iwasykiw was the author of his own misfortune. He knew the consequences of the foreclosure but did not take steps to preserve his interest despite his ability to do so. The trial judge found that it was not reasonable under the circumstances for Iwasykiw, having reached no agreement with Jacyk, to think his interest in the joint venture lands was protected.

[10] The Court of Appeal for Ontario dismissed the appeal ((2006), 2006 CanLII 16347 (ON CA), 80 O.R. (3d) 533). It agreed that none of the parties, faced with the crisis precipitated by the calling of the loan, had relied on the joint venture agreement. Pursuing a strategy of self-interest, Iwasykiw and Jedfro Investments Ltd. had failed to object to the plan to foreclose on their interest. Laskin J.A., for the court, stated that when parties act in a way that shows they do not intend to comply with or be bound by the terms of their written agreement, one party cannot later ask to have the agreement enforced for its benefit.

[11] Iwasykiw’s estate and Jedfro Investments Ltd. now appeal to this Court.

Analysis

[12] Can the appellants sue on the joint venture agreement? There is no doubt that the agreement was a valid contract. The question is whether it has been discharged or, failing this, whether it is unenforceable for some other reason.

[13] The appellants’ position is that the joint venture agreement was never terminated and remains on foot. They submit that negotiations do not terminate an agreement, unless the negotiations result in a new agreement. In this case, they argue, the parties never got beyond the stage of attempting to negotiate a new agreement, and therefore the joint venture agreement remains in force.

[14] The ways in which a contract can be discharged are well established. It may be discharged by performance, by agreement, by frustration, and by repudiatory or fundamental breach. In addition to these major categories, it is possible to end a contract by merger, alteration or cancellation of a written instrument, and in particular circumstances not relevant here, such as by the death of a party (in the case of a personal contract), bankruptcy and winding up. (See Chitty on Contracts (29th ed. 2004), ch. 21 to 25.)

[15] The contract here at issue was clearly not discharged by performance. Nor was it frustrated. This leaves discharge by agreement or by repudiatory breach. Applied to the facts of this case, both these modes of discharge present problems.

[16] Discharge by agreement is problematic because, as the appellants point out, the negotiations between the parties never culminated in a new agreement. In order to discharge the joint venture agreement, a new agreement that it be terminated must be established. The facts as found by the trial judge do not support the conclusion that the parties had reached a new agreement to terminate the joint venture agreement. The trial judge found that both parties acted as if they were not bound by the joint venture agreement. They ignored it, or parts of it, as they saw fit. But this does not establish a new contract to terminate the old contract. To establish a new agreement it must be shown that there was an offer by one party, accepted by the other, or an exchange of promises, supported by consideration. There must be a meeting of the minds on the essential terms — in this case the ending of the joint venture agreement. There is no evidence that the parties ever arrived at a concluded agreement to end the joint venture agreement. What happened was that one party, Jacyk, bought the note that had precipitated the crisis and then tried to negotiate the terms under which he assumed the obligations of the others. He concluded a new agreement with Matukas. But no new agreement was ever concluded with Iwasykiw.

[17] It is suggested that if both parties are found to have abandoned a contract, that will terminate it. However, abandonment discharges a contract only if it amounts to a new contract in which the parties agree to abandon the old one. As Lord Diplock stated in Paal Wilson & Co. A/S v. Partenreederei Hannah Blumenthal, [1983] 1 All E.R. 34 (H.L.), at pp. 48-49:

To the formation of the contract of abandonment, the ordinary principles of the English law of contract apply. To create a contract by exchange of promises between two parties where the promise of each party constitutes the consideration for the promise of the other what is necessary is that the intention of each as it has been communicated to and understood by the other (even though that which has been communicated does not represent the actual state of mind of the communicator) should coincide. That is what English lawyers mean when they resort to the latin phrase consensus ad idem and the words that I have italicised are essential to the concept of consensus ad idem, the lack of which prevents the formation of a binding contract in English law.

[18] While both the trial and appeal courts referred saliently to the intention of the parties not to be bound by the joint venture agreement after the crisis precipitated by Air Products’ call for payment, the Court of Appeal per Laskin J.A. expressed the view that the principles in Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), meant the parties’ obligations under the contract had come to an end.

[19] The facts, however, do not support a finding of the consensus necessary for a new contract, as discussed above. Therefore the finding of the trial judge that none of the parties acted as though they were bound by the joint venture agreement after the note was called does not end the obligations under that agreement.

[20] It is also difficult to see how the doctrine of repudiation assists on the facts here. A contract may be said to be repudiated when one party acts in a way that evinces an intent to no longer be bound by the contract. The other party then may, at its option, elect to terminate the contract.

[21] It is submitted that Iwasykiw’s failure to pay his share of the debt (US$900,000) when the note was called constituted repudiation of the contract. However, it is questionable whether this failure to pay constituted repudiation. In the context of the present case, Iwasykiw’s refusal to pay does not amount to an intention to no longer be bound by the contract. Although Iwasykiw could not or did not wish to comply with his obligations regarding the note, the evidence demonstrates that he nevertheless wanted to keep the joint venture agreement on foot. The trial judge, to be sure, stated that the parties “had little regard for the terms of the [joint venture agreement]” (para. 39). However, having “little regard” for an agreement does not establish that a party is repudiating the agreement. Ordinary, non-repudiatory breach is consistent with ignoring the terms of an agreement. More is required to establish repudiation. In view of the evidence, I do not find it necessary to deal with the argument that, because the joint venture contemplated the result of non-payment, failure to pay did not constitute repudiation.

[22] If one could draw from this problematic evidence the conclusion that Iwasykiw’s failure to pay his share of the note constituted repudiation of the contract, it would be necessary to establish that Jacyk and Matukas elected to treat this breach as ending the joint venture agreement. This is not clear. Jacyk did not advise Iwasykiw that he was treating the joint venture agreement as at an end because of his failure to pay the US$900,000. Rather, he continued to ask for new terms to reflect the fact that he had bought the loan and saved the joint venture.

[23] In summary, none of the ways in which a contract can be discharged is established on the facts in this case. I therefore conclude that it has not been established that the joint venture agreement came to an end. We must therefore proceed on the basis that the joint venture agreement was not terminated and remained in force.

[24] This brings us to the appellants’ principal contention: that the respondents, and in particular Jacyk, breached the joint venture agreement. The appellants argue that Jacyk was bound by s. 4.02(a) to advance funds on behalf of the defaulting parties and, if they failed to repay their debts, to buy out their interests pursuant to s. 7.05. However, s. 4.02(a) of the agreement provided only a right to a non-defaulting party to advance funds on behalf of a defaulting party and eventually, should the party in default fail to repay those funds, to buy out that party’s interest. Section 4.02(a) did not oblige Jacyk to do anything. In fact, Jacyk did not advance funds under s. 4.02(a). He did something different — which any third party could have done — namely, to purchase Air Products’ note. Therefore, it cannot be said that s. 4.02(a) was breached.

[25] The appellants’ argument that s. 8.03 of the agreement was breached also fails. Section 8.03 required the consent of all three members of the joint venture in order to make decisions or take actions relating to the joint venture project or affecting the joint venture lands. The appellants contend that Jacyk’s purchase of Air Products’ note constituted a decision or action in relation to the joint venture or affecting the joint venture lands. They further contend that in any event Jacyk’s foreclosure on the joint venture property falls within this clause. On both or either of these grounds, the appellants assert that the respondents are in breach of the joint venture agreement.

[26] It is questionable whether the assignment of the note or the foreclosure could constitute a breach of this provision, considering that Prombank Investment Ltd. merely assumed the position Air Products had previously occupied as a creditor to the joint venture. In any case, s. 4.02(d) of the agreement removed the s. 8.03 consent requirement under circumstances such as those arising here. Section 4.02(d) provided that when a member was in default of its obligations, the non-defaulting member would be authorized to make decisions and take actions relating to the joint venture without requiring the approval or consent of the member in default. Having put Iwasykiw and Matukas on notice that they were in default of their obligations on the note, Jacyk was entitled, as the only non-defaulting member, to act unilaterally to avoid foreclosure by Air Products.

[27] For the same reasons, I cannot accept the argument that Jacyk’s foreclosure constituted a breach of the joint venture agreement. Jacyk was simply exercising his legal rights under the note that had been assigned to him. In any event, the appellants’ failure to pay the US$900,000 owing on the note brought s. 4.02(d) into play, removing the need for consent.

[28] I conclude that while the parties may have ignored the joint venture agreement, the obligations under it remained in effect and were not breached by the respondents.

[29] The appellants assert that, in any event, they should receive the return of their initial investment in the joint venture of US$1.4 million. I do not agree. These monies were formally forfeited by the foreclosure by Prombank Investment Ltd. on the note and trust deed it bought from Air Products. Air Products had the right to foreclose on the joint venture if the joint venture defaulted on the note. Prombank, having bought the note and trust deed, stood in Air Products’ shoes. Iwasykiw failed to meet his liability under the note. Prombank advised it would foreclose. Iwasykiw did nothing, except belatedly ask for a meeting with Jacyk. The foreclosure took place. At this point, Iwasykiw’s interest in the joint venture was terminated. Under the principles of mortgage law, he lost his investment. As the trial judge put it, he gambled that Jacyk would not foreclose, and he lost. I see no legal basis upon which this Court could revive that interest and hold that the respondents must return that investment.

[30] In the alternative, the appellants submit that this money should be returned on the basis of unjust enrichment. A finding of unjust enrichment has three requirements: an enrichment, a corresponding deprivation and an absence of any juristic reason for the enrichment. The fact that a party’s actions have benefited another is not enough; it must also be “evident that the retention of the benefit would be ‘unjust’ in the circumstances of the case”: Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at p. 848, per Dickson J. (as he then was).

[31] The first two requirements of unjust enrichment are present in the case at bar. The respondents enjoyed the benefit of the appellants’ investment money and the appellants suffered an uncompensated loss of those funds when the foreclosure occurred.

[32] With respect to the third requirement, the appellants must show that the facts do not fall within one of the “established categories” of juristic reason, such as contract or “other valid common law, equitable or statutory obligations”: Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629, 2004 SCC 25, at para. 44.

[33] The respondent Jacyk submits that the operation of the joint venture agreement provides a juristic reason why the US$1.4 million is not repayable to the appellants. The parties voluntarily contracted to invest money for the purpose of acquiring and maintaining the property, without providing for any right to have the money repaid under the circumstances that eventually arose.

[34] The respondent’s position is supported by the general rule “that it is not the function of the court to rewrite a contract for the parties. Nor is it their role to relieve one of the parties against the consequences of an improvident contract”: Pacific National Investments Ltd. v. Victoria (City), [2004] 3 S.C.R. 575, 2004 SCC 75, at para. 31.

[35] The foreclosure proceedings may also provide a juristic reason for the enrichment. It was the operation of the statutory regime surrounding foreclosures that led to the appellants’ “deprivation”. The foreclosure proceedings were a known and procedurally fair consequence of not paying the amount due. The appellants chose not to pay and suffered the consequence the law prescribed — foreclosure of their interest. They cannot now seek a return of the money on the basis of unjust enrichment.

[36] I conclude that the doctrine of unjust enrichment does not apply and that the appellants are not entitled to the return of their initial investment.

[37] For these reasons, I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellants: Affleck Greene Orr, Toronto.

Solicitors for the respondents Nadia Jacyk, in her capacity as Litigation Administrator for the estate of Peter Jacyk, Prombank Investment Limited and Prombank International (U.S.A.) Limited: Goodmans, Toronto.

Solicitors for the respondents Louis V. Matukas and Gramat Investments (U.S.A.) Limited: Markson Macdonald, Toronto.