829276 Ontario Ltd. v. 6711677 Canada Inc. et al., 2013 ONSC 2272

O/A LISA’S SERVICE STATION, 6711961 CANADA INC.,

O/A RAILWAY GARAGE and DEEPAK JULKA , 2013 ONSC 2272

COURT FILE NO.: 5034/08

DATE: 20130416

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

829276 ONTARIO LTD.

Plaintiff

• and -

6711677 CANADA INC., O/A LISA’S SERVICE STATION, 6711961 CANADA INC., O/A RAILWAY GARAGE and DEEPAK JULKA

Defendants

COUNSEL:

PETER DIAVOLITSIS, for the Plaintiff

TYLER VIBERT, agent for LISA NEIL, for the Defendants

HEARD: April 5, 2013

D E C I S I O N

WILCOX, J.

[1] INTRODUCTION

[2] This is a motion by the Defendants for:

a) an order enforcing the terms of the Offer to Settle served upon the Defendants/Moving Party on January 20, 2011, and accepted on April 5, 2011;

b) an order dismissing the main action and the counterclaim, and

c) an order directing the Land Registrar to discharge the mortgages bearing registration numbers DT7014 and DT7015 registered on March 15, 2007 from the title to the properties more particularly described in PINS 61338-0316(LT), 61338-0315(LT) and 61336-0103(LT).

[3] For the reasons that follow, the court grants the relief requested.

[4] FACTS

[5] The Plaintiff sold two commercial properties to the Defendants in 2007 and received mortgages back for part of the sale price. The Defendants stopped paying on the mortgages after August, 2007. On October 30, 2008, the Plaintiff issued a Statement of Claim claiming

a) Payment of $271,650.00 representing the total of the principal owed on two charge / mortgages given by the Defendants to the Plaintiff;

b) Outstanding interest payments on both charge / mortgages due since August, 2007;

c) All future interest payments due to and including March 14, 2012 on each mortgage;

d) Interest on all of the above noted outstanding amounts compounded monthly;

e) Special damages in an amount to be provided prior to trial,

plus pre- and post-judgment interest and costs.

[6] In January, 2009, the Plaintiffs defended, seeking dismissal of the claim, and counterclaimed for $450,000 plus special damages to be determined, plus pre- and post-judgment interest and costs. Their allegations included that the Plaintiffs had induced them to make the purchases with overstated fuel sales volumes, and other grounds. The Plaintiffs responded with a Defence to Counterclaim in February, 2009, seeking its dismissal.

[7] According to the pleadings, the following facts are agreed upon:

2. The Plaintiff, 829276 Ontario Ltd., carried on business at two locations known as Lisa’s Service Centre and Railway Garage.

3. The Defendant, Deepak Julka, is the President and a Director of the Defendant 6711677 Canada Inc. and the Defendant, 6711961 Canada Inc. and the operating mind of both corporations.

4. On or about the 14^th^ day of March, 2007, the Plaintiff sold to the Defendant, 6711677 Canada Inc., the premises located at 88340 Highway 65, Temiskaming Shores, Ontario, known as Lisa’s Service Centre. The Defendant, 6711677 Canada Inc. continued to carry on business under the name Lisa’s Service Centre.

5. On or about the 14^th^ day of March, 2007, the Plaintiff sold to the Defendant 6711961 Canada Inc., the premises located at 380 Whitewood Avenue, Temiskaming Shores, Ontario, known as Railway Garage. The Purchaser continued to carry on business under the name Railway Garage.

6. Along with the land and buildings at both locations, the Plaintiff sold to the Defendants the chattels, inventory, fixtures, and goodwill at both of the above locations.

7. The purchase price for Lisa’s Service Centre was $1,100,000.00. The purchaser paid a deposit of $10,000.00. The purchaser gave the Plaintiff a mortgage back in the amount of $165,000.00. The mortgage was given at an interest rate of 6.5% calculated monthly. The payment is $893.75, which represents interest only, and which is due on the 14^th^ of each month, with the first payment due on April 14, 2007 and the last payment due on March 14, 2012. The last payment due is $165,000 plus interest of $893.75.

8. The purchase price for Railway Garage was $711,000. The purchaser paid a deposit of $10,000. The purchaser gave the Plaintiff a mortgage back in the amount of $106,650. The mortgage was given at an interest rate of 6.5% calculated monthly. The payment is $577.69 which represents interest only, and which is due on the 14^th^ of each month, with the first payment due on April 14, 2007 and the last payment due on March 14, 2012. The last payment due is $106,650.00 plus interest of $577.69.

9. The Standard Charge terms which are applicable to and deemed to be a part of both of the aforementioned charge / mortgages provide, in Paragraph 13, that in default of payment, the full amount of the principal and interest secured by the charge / mortgage immediately becomes due and payable.

10. The closing date for the purchase and sale of both Lisa’s Service Centre and Railway Garage was March 14, 2007.

11. The Defendants each entered into a General Security Agreement (GSA) dated March 14, 2007 with the Plaintiff in which the Defendants gave the Plaintiff collateral security for the aforementioned mortgages. Pursuant to the terms of the GSA the Plaintiff has been given a continuing, specific and fixed security interest in all of the inventory, accounts receivable, equipment, intangibles and proceeds of the Defendants.

12. The Defendants have not made any payments on the above noted mortgages since August, 2007.

[8] The matter sat dormant for about two years. Then, the Plaintiff’s counsel at the time, Kathryn Pirie, sent defence counsel Lisa Neil a letter dated January 20, 2011 stating:

This matter has been “dormant” for some time. Upon discussing with David Bennett, he has advised us that this file was transferred to your office.

My client has instructed me to consent to a dismissal of this action on a without costs basis.

Please advise as to whether this is acceptable to your client. If so, we will provide you with the Consent and draft order.

[9] Ms. Neil responded with the following letter of February 11, 2011.

Please find enclosed our Notice of Change of Lawyer which is being served upon you in accordance with the Rules of Civil Procedure.

I wish to confirm that I have met with my clients with respect to the offer contained in your correspondence dated January 20^th^, 2011. My clients are inclined to accept the offer but they have a third partner with whom they must canvass the offer prior to providing me with instructions. Would you kindly confirm that your client is also willing to execute the necessary documents to have the mortgage discharged from the subject properties?

I expect to hear from my clients early next week and I will contact you at that time to discuss the resolution of this matter.

This is followed by defence counsel’s letter of April 5^th^, 2011 in which she wrote:

Further to your correspondence dated January 20^th^, 2011 and our subsequent telephone conversation, I wish to confirm that I have received instructions from my clients and that they are prepared to accept the settlement terms put forth by your client. Namely, that the parties shall consent to a dismissal of the actions on a without cost basis.

I also wish to confirm that Ms. Sheppard will execute a discharge of the mortgage on the properties. I will prepare the discharge and forward same to your office for your review and Ms. Sheppard’s signature. Would you kindly forward the release and draft order for my review and approval?

[10] In her Affidavit of February 4, 2013, prepared for this motion, Kathryn Pirie deposes in paragraph 25:

Also on April 20, 2011, I received a telephone call from Ms. Neil. During this conversation, Ms. Neil indicated that unless the mortgages were discharged, the defendants would not agree to a dismissal and would just forge ahead with the action. During this discussion with Ms. Neil, I told her that I did not have instructions to discharge the mortgages and that I had not discussed this issue with my client.

In response, in her Affidavit of April 1, 2013, Lisa Neil states:

2. I expressly deny the allegations as set out in paragraph 25 of Kathryn Pirie’s Affidavit sworn on the 4^th^ day of February, 2013. At no time did Ms. Pirie ever advise me that her client did not consent to the dismissal of the mortgages. In fact, she advised me during this telephone conversation that she was awaiting further instructions from her client on this issue. During this conversation, I clearly advised her that it was our position that we had a legally binding settlement agreement and that if she no longer agreed with this position that we would bring a motion to enforce the settlement under Rule 49.

3. I further expressly deny Ms. Pirie’s allegations in paragraph 25 that I advised her “that unless the mortgages were discharged, the defendants would not agree to a dismissal and would just forge ahead with the action”. In fact, during this conversation she advised me that she would seek instructions from her client to dismiss the mortgages and abide by the terms of our settlement and get back to me. My correspondence dated June 23^rd^, 2011, and again on June 27^th^, 2011, clearly outlines my clients’ position. At all times we intended to enforce the terms of the settlement and at no time did I ever advise Ms. Pirie that my clients would simply “forge ahead with the action”. The letters dated June 23^rd^, 2011 and June 27^th^, 2011, are appended to the Affidavit of Angela Nichol at Tabs D and E respectively of the Moving Parties’ Motion record.

4. At no time did Ms. Pirie ever confirm her alleged position or withdraw her Offer to Settle in writing or otherwise, notwithstanding the fact that she had some three months prior to the Status Hearing to reply to my numerous letters to her setting out that my clients accepted the settlement offer and would seek to enforce the settlement.

[11] In her letter of June 23, 2011, Lisa Neil had stated:

I wish to confirm that I remain surprised and confused by your client’s change of position. It is our position that a valid offer to settle was put forth by your client in or about January of this year and that my clients accepted that offer to settle in my correspondence to you dated March 18^th^, 2011. My review of your claim confirms that your client’s action is based solely upon the mortgage and the alleged breach resulting from my client’s failure to pay. As such, the discharge of the mortgage would logically follow any agreement to settle. It is unfortunate that you did not discuss the issue of the discharge with your client when you obtained his instructions to settle. However, the reality is, that the mortgage would have been unenforceable and rendered null and void by the dismissal of the action. Your client could not have commenced new litigation relating to the mortgage due to the dismissal and the releases which would have been signed by the parties. It is impossible to understand how your client could agree to a dismissal of the action on a without costs basis but then still wish to keep the mortgage registered on title.

It remains our desire to settle this matter on the terms which you set forth in your offer to settle of January of this year. If your client wishes to continue the action, I have instructions to bring a motion to enforce the terms of the offer to settle. I believe that the court will find that the parties have a valid and enforceable settlement agreement. The matter of the discharge was an ancillary part of the agreement and logically flowed from the agreement to dismiss the action without costs.

(The reference to March 18, 2011 appears to be an error. The letter appears to be the one dated April 5, 2011).

She wrote again to Ms. Pirie on June 27, 2011, ahead of that day’s status hearing, stating:

Further to my correspondence to you dated June 24^th^, 2011 and our brief conversation on Friday at lunch, I wish to clarify my client’s position with respect to this morning’s Status Hearing.

Due to your client’s delay in litigating this matter, we intend to ask the Court to dismiss the action this morning. If the Court does not see fit to dismiss the action, we will be seeking an Order setting out the timetable outlined in my previous correspondence to you. Finally, if this matter is not dismissed, we intend to bring a motion to enforce the terms of the settlement reached by the parties in March of this year.

I was hoping that you would contact me following my correspondence of last Thursday or that you would have replied in writing with your client’s position. We may have been able to come to some agreement on all of these issues. I must admit that I am still at a loss as to why this matter has not been resolved and why your client seemingly changed his position on the settlement?

[12] The Status Hearing took place on June 27, 2011 before Rivard, J. The transcript of it was filed in the Plaintiff’s materials for this motion. In it, Ms. Pirie stated that she had received instructions to dismiss the action, but not to discharge the mortgages. Her explicit position was that, even if the action and counterclaim were dismissed, the Plaintiff could still proceed to enforce the mortgages. Ms. Neil countered that, if the Plaintiff intended to try to enforce the mortgages, the Defendants would not be dismissing their counterclaims.

[13] Rivard J. then made comments to the effect that he would dismiss the action for delay, but not the counterclaim, and that it remained to be seen whether the mortgages were enforceable. His order was set aside on February 7, 2012 by the Court of Appeal which referred the action back to the Superior Court of Justice for a Status Hearing for full argument on the issue of the status of the action.

[14] On August 10, 2011, Ms. Neil wrote to a lawyer, William G. Scott. It is not clear what Mr. Scott’s role was, although the letter reads as if he was acting for Ms. Pirie. Ms. Neil’s stated position was that the parties had reached a settlement in March, 2011 in which their respective claims would be dismissed, which the Plaintiff had then resiled from. She took issue with the Plaintiff’s position that it agreed to dismiss the action but not to discharge the mortgages. She invited the Plaintiff to consider settlement, but stated that she did not have instructions in that regard.

[15] On June 25^th^, 2012, Ms. Neil wrote to the Plaintiff’s then new counsel, Ms. Rose Muscolini, saying that the Defendant’s position was as in the August 10, 2011 letter. She added:

In light of the additional legal costs involved in dealing with the Appeal and Ms. Pirie’s refusal to abide by the terms of the parties agreement to settle, I do not currently have instructions to settle this matter under the terms previously offered, namely, a dismissal of the action on a without costs basis. Would you kindly advise of your client’s position and I shall canvass my clients for instructions?

[16] The matter proceeded to another Status Hearing on October 15, 2012, at which time a timetable for it was consented to, starting with the bringing of this motion.

[17] POSITIONS

[18] Mr. Tyler Vibert argued the motion as agent for Ms. Neil. The Defendant’s position was that there was an agreement, expressed in Ms. Neil’s acceptance in her letter of April 5, 2011, of the offer in Ms. Pirie’s letter of January 20, 2011 to terminate the claim and the counterclaim, which included discharging the mortgages, which should be enforced.

[19] The Plaintiff’s current counsel, Mr. Peter Diavolitsis, countered that there never was an agreement to discharge the mortgages. If there is found to be a settlement terminating the Plaintiff’s in personum claim against the Defendants and the Defendants’ counterclaim against the Plaintiff, the Plaintiff continues to have in rem rights to enforce the mortgages. The Defendants’ motion to enforce the alleged agreement was brought knowing that that is the Plaintiff’s position. Ultimately, he took the position that there is no settlement, but, if there is found to be one, whether it included a discharge of the mortgages or not, it should not be enforced, because, either way, there would be prejudice to a party.

[20] ANALYSIS

[21] Rule 49.09 states as follows:

Where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may,

(a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly; or

(b) continue the proceeding as if there had been no accepted offer to settle.

[22] “A settlement is a contract. Thus, it is subject to the general law of contract regarding offer and acceptance. For a concluded contract to exist, the court must find that the parties:

1. had a mutual intention to create a legally binding contract;

2. reached agreement on all of the essential terms of the Settlement”. (per Gillese J. A. in Olivieri v. Sherman, 2007 ONCA 491, paragraph 41. See also Laskin J. A. in Capital Gains Income Streams Corporation v. Merrill Lynch Canada Inc., 2007 ONC 497 at paragraphs 25 to 29).

[23] The first question, then, is whether there was a mutual intention to create a legally binding contract.

[24] “Litigants must be bound by settlements made by counsel acting within the scope of their apparent authority.” (Per Himel J. in Perri v. Concordian Chesterfield Co., [2003] O.J. No. 5852 (Ont. Superior Court) paragraph 5). There is no suggestion that Kathryn Pirie was acting outside the scope of her authority as counsel of record for the Plaintiff when she wrote the letter of January 20, 2011 saying that she had instructions to consent to the dismissal of the action.

Again in the Olivieri case, Gillese J. A. indicated that, “(a) determination as to whether a concluded agreement exists does not depend upon an inquiry into the actual state of mind of one of the parties or on the parole evidence of one party’s subjective intention .… Where, as here, the agreement is in writing, it is to be measured by an objective reading of the language chosen by the parties to reflect their agreement”. He then set out a passage quoted by Middleton J. A. in Lindsey v. Heron and Co. (1921), 64 D.L.R. 92 (ONT. S.C. (App. Div.)) as follows:

The apparent mutual assent of the parties essential to the formation of a contract, must be gathered from the language employed by them, and the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. It judges his intention by his outward expressions and excludes all questions in regard to his unexpressed intention. If his words or acts, judged by a reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be the real but unexpressed state of his mind on the subject.

[25] Both Kathryn Pirie in her Affidavit of February 4, 2013 and Morgan Grant (the sole shareholder and director of the Plaintiff company) in his Affidavit of January 31, 2013 indicate that the intention behind the offer to dismiss the action did not include the discharging of the mortgages and the loss of other mortgage remedies against the Defendants. I find this position to be untenable. There is no evidence that the position was made clear to the defence until months later. An objective observer would not believe that the offer was for the Plaintiff to give up only its rights to enforce the mortgages against the Defendants personally in return for the Defendants giving up their counterclaim, the face value of which exceeded the Plaintiff’s claim, while preserving the Plaintiff’s other mortgage remedies against the Defendants. That is not reasonable, in my view. There is further support for this finding in the timing of the Plaintiff’s action and its lack of other efforts to enforce the mortgages. Although the Defendants’ default on the mortgages dated from August, 2007, the Statement of Claim was not issued until October 30, 2008. The Plaintiff’s Defence to Counterclaim was dated February 12, 2009, followed by the Defence to Counterclaim. It appears that the matter was then dormant for about two years until Ms. Pirie’s offer of January 20, 2011. The Plaintiff evinced no interest in pursuing any of its remedies before giving Ms. Pirie instructions to discontinue the action. There is no evidence that the Plaintiff has pursued other remedies in the two years since making the offer of January 20, 2011, nor any evidence to explain the Plaintiff’s lack of activity in this regard.

[26] Cases such as Olivieri and Perri, both cited previously, deal with situations in which there was dispute over whether there had been agreement on the essential terms of the alleged settlements. In the present case, Plaintiff’s counsel also argued that Ms. Neil’s correspondence following Ms. Pirie’s January 20, 2011 offer indicated that there was still a question as to whether the mortgages would be discharged as part of the settlement and that, therefore, there was no agreement on the essential terms of the settlement.

[27] Having reviewed the case law and the evidence, however, I find that, viewed objectively, the parties had reached a settlement on the essential terms when Ms. Neil wrote to Ms. Pirie on April 5, 2011 that the Defendants would accept the Plaintiff’s offer. The further statements dealing with the preparation and execution of mortgage discharges were not qualifications, conditions or counter offers, but dealt with the mechanics of putting a settlement into effect. The wording in this regard could have made this point more clearly, but I think that this is the better view in the context of the terms of the offer which were found above reasonably to include the discharge of the mortgages.

[28] I conclude, therefore, that there was a settlement agreed to, which included the discharge of the mortgages.

[29] Having concluded there was a settlement, the power of the court to enforce it is discretionary (Perri, at paragraph five). Defence counsel submitted that the settlement should be enforced because not to do so would be prejudicial to the Defendants. Plaintiff’s counsel argued that it should not be enforced because enforcing it would be prejudicial to one side or the other, depending on the court’s finding as to whether the settlement terms included the discharge of the mortgages.

[30] If there had been a finding that there had been a settlement which did not include the discharge of the mortgages, it would have been tempting not to enforce it because of the prejudice to the Defendants that would have resulted. They would have been faced with a Plaintiff who still had potential remedies against them under the mortgages, but would have lost the ability to pursue their only remedy against the Plaintiff, being the counterclaim.

[31] Even having found that the settlement did contain discharges of the mortgages, not enforcing it would still have prejudicial effects. Ms. Neil, in her Affidavit, notes the delay to date, the likely further delay before trial, difficulties in obtaining pertinent records due to the lapse of time, and the potential loss of witnesses. Ms. Pirie, in her Affidavit of February 4, 2013, notes in general terms that the issues raised by the counterclaim and the costs of proceeding with this action were behind her client’s decision to offer to dismiss the action. That will not have improved in the time that has passed since then. Exhibit O to her Affidavit, being the transcript of the Status Hearing before Rivard J. on June 27, 2011 reveals that neither Lisa Sheppard, a former owner of the Plaintiff company, nor some documentation could be found. In her Affidavit of August 30, 2012, Ms. Pirie says that both she and Morgan Grant tried to contact Ms. Sheppard without success. Consequently, a motion had been drafted to obtain the documents in question from Shell Oil or Shell Canada (the proper identification had not been determined), or possibly from Petro-Canada due to a corporate transfer. That motion has not been brought in the over a year and a half since.

[32] In these circumstances, it is apparent that there would be prejudice to one or both of the parties if the settlement was not enforced and the matter was allowed to proceed. Delay and its effect on the availability of documents and witnesses has undermined the ability to have the matter adjudicated on its merits. The Plaintiff, in particular, could have moved the case along more quickly so that this problem was less likely to have developed, yet it is the party that is pressing to have the case continue on.

[33] In light of the above, I decline to exercise the discretion to have the settlement set aside.

[34] COSTS

[35] The Defendants have fifteen days to serve and file written materials regarding costs. The Plaintiff will have ten days thereafter to serve and file responding materials.

Justice James A. S. Wilcox

Released: April 16, 2013