ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-15-527015
DATE: 20150916
BETWEEN:
1871335 ONTARIO LIMITED
Applicant
– and –
ACCE INTERNATIONAL LTD. and RAYMOND BERTA
Respondents
Stephen M. Turk, for the Applicant
Peter M. Callahan, for the Respondents
HEARD: July 17, 2015
M. D. FAIETA, j
REASONS FOR JUDGMENT
INTRODUCTION
[1] The Applicant claims that the full amount owed under a Promissory Note became due and payable as a result of the operation of an acceleration clause in that Note following the Respondents’ failure to make two payments.
[2] The Applicant seeks an Order that the Respondents pay to the Applicant the sum of $516,670 owed under the Promissory Note issued by ACCE and guaranteed by Raymond Berta. There are no material facts in dispute. This Application under Rule 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, calls for the interpretation of the Promissory Note.
[3] This Application raises the following issues:
(1) Was ACCE obliged under the Note to pay $100,000 on the first day of each quarter?
(2) Was “written notice” provided by the Applicant under the Note?
(3) Did the “default continue for 30 days following receipt of written notice?
[4] For the reasons that I have described below, I answer all of the above questions in the affirmative. Accordingly, I have granted this Application.
BACKGROUND
[5] Joan Berta sold her interest in Applied Consumer & Clinical Evaluations Inc. to ACCE pursuant to a Share Purchase Agreement dated April 3, 2012. ACCE is a company owned and controlled by her ex-husband Raymond Berta. The sale price was $2.2 million inclusive of a Vendor Take Back Note for the amount of $1.85 million. The Note was issued to the Applicant which is a company owned and controlled by Joan Berta. The shares to be acquired were pledged as collateral for payment of the Note pursuant to a Share Pledge Agreement between the Applicant and ACCE.
[6] The Note issued by ACCE states:
For value received, the undersigned hereby promises to pay to the order of 1871335 ONTARIO LIMITED (the “Payee”) the sum of ONE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS ($1,850,000.00) in the following instalments:
Fifty Thousand Dollars ($50,000.00) on May 1, 2012;
One Hundred Fifty Thousand Dollars ($150,000.00) on July 1, 2012;
Sixteen (16) consecutive equal quarterly instalments of One Hundred Thousand Dollars ($100,000.00), commencing October 1, 2012; and a final instalment of Fifty Thousand Dollars ($50,000.00) on October 1, 2016.
Upon default in the making of any payment due hereunder such that 2 quarterly instalments are then due and outstanding, and such default continuing for 30 days following receipt of written notice by the undersigned from the Payee, the entire balance then outstanding under this note shall fall due for payment.
Provided that the undersigned shall have the privilege of prepaying the whole or any part of the principal amount outstanding at any time, without notice, bonus or penalty.
The undersigned hereby waives presentment, protest, notice of protest and notice of dishonor hereof.
[7] The acceleration provision of the Note also includes the following guarantee signed by Raymond Berta:
The undersigned hereby guarantees the due and punctual payment of the principal on the above Note when due, in accordance with the terms and conditions of the said Note.
[8] The default and acceleration provisions of the Note were repeated in sections 3.01 and 3.02 of the Share Pledge Agreement, respectively.
[9] The following payments were made by ACCE to the Applicant:
Due Date
Date of Payment
Amount of Payment
October 1, 2014
November 14, 2014
$25,000.00
December 5, 2014
$25,000.00
January 2, 2015
$25,000.00
February 6, 2015
$25,000.00
January 1, 2015
March 2, 2015
$33,330.00
March 26, 2015
$33,330.00
March 30, 2015
$33,330.00
March 31, 2015
$10.00
[10] This Application was commenced on April 28, 2015. The Application is brought pursuant to Rule 14.05(3)(d) of the Rules of Civil Procedure for the determination of rights that depend on the interpretation of a contract or other instrument. In my view, given that the outcome of this Application turns on the interpretation of the Note and given that there are no disputed facts that are material to the issues to be determined on this Application, this Application is properly brought pursuant to Rule 14.05.
ANALYSIS
[11] The principles for the interpretation of a contract were described by Justice D.M. Brown (as he then was) in 1214795 Ontario Inc. v. Dominion Realty, 2011 ONSC 704, at paras. 24-29:
24 No dispute exists between the parties about the principles guiding the interpretation of contracts, including leases:
(i) A court should give effect to the intention of the parties as expressed in their written agreement;
(ii) Where the parties’ intention is plainly expressed in the language of the agreement, the court should not stray beyond the four corners of the agreement, nor give the contract a meaning different from that which is expressed by its clear terms, unless the contract is unreasonable or has an effect contrary to the intention of the parties;
(iii) A contract must be construed as a whole in a manner that gives meaning to all of its terms. The words of each clause must be interpreted to bring them into harmony with the other provisions of the agreement. A court should avoid an interpretation which would render one or more of its terms ineffective. Where two possible interpretations of a clause exist, a court should interpret the clause to bring it into harmony with the other provisions of the contract;
(iv) A court may have regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties.
(v) A court should interpret a contractual provision in a fashion that accords with sound commercial principles and good business sense, and avoid an interpretation which would result in a commercial absurdity;
25 In addition, courts will try, wherever possible, to give the proper legal effect to any clause that the parties understood and intended was to have legal effect. To that end a court may imply a term in order to prevent an express term from being struck down as uncertain. However, an implied term must be based on (i) custom or usage, (ii) as the legal incident of a particular class or kind of contract, or (iii) on the presumed intention of the parties where the implied term is necessary to give business efficacy to a contract, or as otherwise meeting the “officious bystander” test as a term which the parties would say, if questioned, that they had obviously assumed. The focus must be on the intentions of the actual parties:
A court, when dealing with terms implied in fact, must be careful not to slide into determining the intentions of reasonable parties. This is why the implication of the term must have a certain degree of obviousness to it, and why, if there is evidence of a contrary intention, on the part of either party, an implied term may not be found on this basis. [M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 677 (SCC), [1999] 1 S.C.R. 619, at para. 29].
26 The reluctance of courts to find a provision in a document vague or uncertain was recalled by the Court of Appeal in Canada Square Corp. v. Versafood Services Ltd. where Morden J.A., after quoting the well-known comments of Lord Wright in Hillas & Co. v. Arcos that “business men often record the most important agreements in crude and summary fashion”, continued:
The same learned judge said this in G. Scammell & Nephew, Ltd. v. Ouston et al., [1941] A.C. 251 at p. 268:
The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted.
Issue #1: Was ACCE obliged under the Note to pay $100,000 on the first day of each quarter?
[12] The Respondents submit that the quarterly instalments of $100,000 were due on a quarterly basis but that not all the monies were due on the first day of the month. It is their position that so long as the full amount of the instalment was paid within the quarter then ACCE would not be in default of the Note.
[13] The Note issued by ACCE states:
…the undersigned hereby promises to pay … in the following instalments … consecutive equal quarterly instalments of One Hundred Thousand Dollars ($100,000.00), commencing October 1, 2012; and a final instalment of Fifty Thousand Dollars ($50,000.00) on October 1, 2016.
[14] The Note requires payments of $100,000 to commence on October 1, 2012. A further payment of $100,000 must be paid each quarter thereafter – meaning every three months thereafter. In my view, the Note clearly provides that the quarterly instalment is due in full on the first day of each quarter. I note from the Application Record that ACCE paid $100,000 on October 1, 2012, January 3, 2013, April 1, 2013 and July 1, 2013. Subsequently, with one exception, it failed to pay $100,000 on the first day of each quarter.
[15] There is nothing in the Note to suggest that the full payment of $100,000 can be deferred to after the first day of every quarter until the end of that quarter. Simply put, the Note does not state that the Respondents have an entire quarter or three-month period on which to pay $100,000 that was due on the first day of the quarter. In my view, the Respondents’ interpretation is unreasonable and has no basis.
Issue #2: Was “written notice” provided by the Applicant under the Note?
[16] The Note states that upon “…default in the making of any payment due hereunder such that 2 quarterly instalments are then due and outstanding, and such default continuing for 30 days following receipt of written notice by the undersigned from the Payee, the entire balance then outstanding under this note shall fall due for payment.”
[17] On January 16, 2015 the following letter was sent by counsel for the Applicant to the Respondents and their solicitor, Eric Dionne:
According to the default terms of the Share Purchase Agreement dated April 3, 2012, Part 3, Event of Default, Point 3.01, this agreement is in default of the payment terms agreement. The October 1, 2014 payment has not been received in full and the January 1, 2015 payment has not been received. This notice is in accordance with the terms of the Agreement. [emphasis added]
[18] On April 23, 2015 Mr. Dionne sent the following acknowledgement to counsel for the Applicant:
Thank you for your correspondence of February 5, 2015. As a courtesy to you, I believe that you mean that there is currently $125,000 still owing (i.e. $25,000 re the October 1 payment, and the $100,000 January 1 payment), and not $100,000 as stated.
In any event, I understand that my client will very soon be forwarding funds to your client in order to rectify the default which has triggered the acceleration clause under the VTB Note. [emphasis added]
[19] The Respondents submit that the letter of January 16, 2015 was not notice under the Note because it referenced the default provisions found in the Share Pledge Agreement rather than the Note. In my view, that is a weak submission. The letter of January 15 sufficiently communicated that ACCE was in default of two quarterly instalments and that notice was being provided.
[20] The fact that Mr. Dionne understood that the acceleration provision of Note had been triggered, as reflected by his letter shown above, supports the view that the letter of January 16 provided notice within the meaning of the Note.
Issue #3: Did the “default continue for 30 days following receipt of written notice”?
[21] The Note states:
Upon default in the making of any payment due hereunder such that 2 quarterly instalments are then due and outstanding, and such default continuing for 30 days following receipt of written notice by the undersigned from the Payee, the entire balance then outstanding under this note shall fall due for payment.
[emphasis added]
[22] ACCE made a further payment of $25,000 on February 6, 2015 which satisfied the $100,000 quarterly payment that was due on October 1, 2014. This payment was made within 30 days of the date of the notice provided by counsel the Applicant.
[23] The Respondents submit that the default of two quarterly instalment payments must continue for 30 days following the receipt of written notice in order for the acceleration clause to be triggered. Based on this interpretation, they submit that the acceleration clause was not triggered even though the payment for January 2015 remained due and outstanding after 30 days following the notice.
[24] In my view, the Respondents’ interpretation is not supported by the words of the Note nor is it commercially sensible. In my view, once the ACCE has defaulted on two instalments, it then had 30 days following notice being given to cure the default – not some of the default – in order to avoid the acceleration of the Note.
[25] The Note is commercially sensible in that it affords ACCE some flexibility in the event that it defaults on an instalment payment. If it is a day or a week or two weeks late in making an instalment payment there are no consequences under the Note. However, if ACCE defaults on more than one instalment payment then, in my view, the acceleration clause is triggered unless ACCE cures the defaulted instalment payments within the 30-day notice period. The phrase “such default” in the Note means whatever amounts are due and outstanding under the Note at the time that the notice is issued. Once the notice is issued, the full amount outstanding and due under the Note must be paid in order to avoid the acceleration of the Note.
CONCLUSIONS
[26] For the reasons given, I grant the Application, including pre-judgment interest and post-judgment interest as claimed.
[27] The Applicant seeks costs on a substantial indemnity basis in the amount of $20,805.00 exclusive of HST. I note that the Respondents sought costs in the amount of $17,950.96, exclusive of HST, also on a substantial indemnity basis. The Applicant submits that substantial indemnity costs should be awarded because Raymond Berta alleged in his affidavit that Joan Berta had lied. In my view, that is not a sufficient basis to find that substantial indemnity costs should be awarded as the Respondents overall behavior in respect of this motion was not reprehensible, scandalous or outrageous.
[28] Under Rule 57.01 a settlement offer is a relevant consideration. By letter dated June 11, 2015, the Applicant offered have this Application held in abeyance pending the completion of payments under the Note with a five-day period for rectification of any missed payments. The Respondents were also required to provide a Consent to Judgment which would be filed with the Court in the event that any default was not rectified. In my view, that offer was a reasonable proposal. In Boucher v. Public Accountants Council for the Province of Ontario et al (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291, the Ontario Court of Appeal stated that “…the objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the proceeding…”. I also have regard to other factors under Rule 57.01 including the lack of complexity of the proceeding. I order that costs of $14,000.00 inclusive of HST be paid by the Respondents.
Mr. Justice M. D. Faieta
Released: September 16, 2015
COURT FILE NO.: CV-15-527015
DATE: 20150916
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1871335 ONTARIO LIMITED
Applicant
– and –
ACCE INTERNATIONAL LTD. and RAYMOND BERTA
Respondents
REASONS FOR JUDGMENT
Mr. Justice M.D. Faieta
Released: September 16, 2015