CITATION: Copperthwaite v. Reed et al., 2016 ONSC 1824

COURT FILE NO.: 15-55668

DATE: 2016/04/07

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: David Copperthwaite

Applicant

A N D:

Gary Michael Reed, Anchor Bar Hamilton Inc., and Restaurant Investments Inc.

Respondents

BEFORE: Justice J.R. Turnbull

COUNSEL: Sharoon J. Gill for the Applicant

Alan J. Butcher for the Respondents

HEARD: March 10th, 2016

E N D O R S E M E N T

Overview:

[1] The applicant has brought this proceeding to enforce a settlement he alleges was effected in correspondence between counsel.

The Facts:

[2] The applicant is an officer of the respondent, Anchor Bar Hamilton Inc. (ABHI) and is a 49% shareholder of the issued and outstanding shares of ABHI. Furthermore, the applicant also owns 100 non-voting common shares of the respondent, Restaurant Investments Inc. (RII).

[3] The respondent Gary Reed is a director and officer of ABHI and hold 51% of the issued and outstanding shares of that company. He is also director, officer and shareholder of RII. Mr. Reed is the principle and directing mind of ABHI and RII. As the sole director of ABHI, he is the only person with authority to bind the corporation, holding a majority of the shares. He is also the sole director and officer of RII holding 100% of the voting class A Common shares. I find as a fact that he was a duly authorized agent of ADHI and RII to instruct counsel to effect a resolution of the issues between the parties.[^1] The existence of an agency relationship can be implied from the behaviour, conduct or relationship of the parties. 1196303 Inc. v. Glen Grove Suites Inc., 2015 ONCA 580 at para. 71.

[4] The applicant was an employee of ADHI from July 1st, 2012 until September 8th, 2015, pursuant to an employment agreement. His employment was then terminated on September 8th, 2015 when the respondents discovered that he was allegedly pursuing a corporate opportunity to open and establish an Anchor Bar location of the same franchise in Burlington, Ontario.

[5] The applicant’s termination led to a dispute between him, ABHI and Mr. Reed over whether the termination was for cause and whether he was entitled to severance pay. Mr. Reed through his solicitor, Grant Buchan-Terrell made an offer to settle. That was contained in a letter dated November 10th, 2015 forwarded to Mr. Gill. The relevant excerpt from that letter is as follows:

“Notwithstanding the solid legal ground and good evidence readily available to prove our cases against your client and the Franchisor, we too recognize that pursuing litigation even, for several hundred thousand dollars, would be a long, expensive process. So, we are prepared to offer the following settlement proposal:

a) A full release and discharge of David’s personal guaranty to CIBC in respect of the obligations of the Corporation in the amount of $45,000, plus costs and interest;

b) Mutual releases in customary form;

c) The return by David of the Corporations Dell 115RM-2688s laptop and iPad Air 2 computers;

d) The transfer of all David’s shares in the Corporation and RII, for the subscription amounts paid, together with resignations and the signing of related corporate documentation; and

e) The payment of $1387.16 in wages.

If this is acceptable to your client, please have David sign below and we can proceed with the closing of this transaction as soon as practicable.”

[6] By letter dated September 17th, 2015, Mr. Gill replied to Mr. Buchan-Terrell as follows:

“Please be advised that Mr. Copperthwaite is prepared to accept your client’s offer as set out in your correspondence of November 10th, 2015. Specifically:

1. Mr. Copperthwaite will receive a full release and discharge of his personal guaranty to CIBC in respect of the obligation of the Corporation in the amount of $45,000.00, plus costs and interest;

2. The parties will exchange mutual releases;

3. Mr. Copperthwaite will return the Dell 115RM-2688s lap top. With respect to the iPad Air 2, the same was given to Scott, the ex-manager of Anchor Bar Hamilton Inc., and the same is not in the possession of Mr. Copperthwaite;

4. Mr. Copperthwaite will transfer all of shares in Anchor Bar Hamilton Inc. to Anchor Bar Hamilton Inc. and RII, for the subscription amounts paid, together with resignations and the signing of related corporate documentation; and

5. Mr. Copperthwaite will receive the sum of $1,387.16 in wages.

We will prepare the Mutual Release. Will you be preparing the corporate documentation? Furthermore, we look forward to receiving confirmation of the full release and discharge of Mr. Copperthwaite’s personal guaranty to CIBC, from the bank.”

[7] On November 18th, 2015, Mr. Buchan-Terrell sent the following email to Mr. Gill:

Thanks for the proposal set out in your letter. Assuming I am available to confirm Gary’s agreement on those terms shortly (the only change being the IPad possession), thank you for agreeing to prepare the customary releases and I will be happy to prepare the corporate documentation required. However, I am away for a week commencing Friday to November 30th inclusive so I don’t think we can complete everything until I get back.

[8] On December 7th, 2015, Mr. Gill sent a further email to Mr. Buchan-Terrell asking when the parties could expect to finalize the settlement and whether or not the required releases from CIBC had been obtained.

[9] In his letter of December 8th, 2015, Mr. Buchan-Terrell indicated he had finally spoken with his client Gary Reed and was advised that there were at least four important third party conditions that had to be met before any settlement between Anchor Bar Hamilton Inc. and the applicant could be effected. In particular his client had advised him that a pre-condition to any settlement would be the ability of ADHI to seek the landlord’s consent to the applicant’s exit as a shareholder. Secondly, the franchisee’s existing agreement with ADHI required consent for an exit by the applicant as a shareholder. ADHI had arrears of franchise fees of approximately $30,000.00 and the franchisor was not prepared to consent without payment in full of those arrears. Thirdly, the licensor which was owed $20,000 by ADHI also required its consent to be granted. The applicant was a signatory to that agreement and ADHI did not have sufficient funds to pay the arrears owing. Fourthly, Mr. Reed advised that due to the financial viability of ADHI, its banker may require additional collateral in exchange for releasing the applicant from his personal guarantee and apparently Mr. Reed was not in a position to do this. Hence the position of the respondent was that Mr. Reed’s and ADHI’s proposed settlement could not be implemented as originally contemplated without first satisfying all of the above third party consents and payment requirements.

[10] Mr. Gill responded expressing his client’s disappointment and dissatisfaction. Notably in the letter of December 8th from Mr. Buchan-Terrell there was no reference to the fact that the respondent was relying upon the fact that the Apple iPad 2 was no longer in the possession of the applicant.

The Law:

[11] A settlement agreement is a contract; thus, it is subject to the general law of contract regarding offer and acceptance. For a contract to exist, the court must find that the parties 1) had a mutual intention to create a legally binding contract, and 2) the parties reached an agreement on all of the essential terms of the settlement (see Olivieri v. Sherman, 2007 ONCA 491, [2007] O.J. No. 2598, at para. 41).

[12] I find that the correspondence of the lawyers clearly indicates the mutual intention of the parties to settle their dispute. The sole question is whether the delivery of the ipad2 was an essential term of the settlement.

[13] The parties must agree on all of the essential terms of the settlement. There can be sufficient uncertainty about the meaning of words or terms in an agreement that it will be held to be unenforceable. However, the court “should not be too astute to hold” that there is not the requisite degree of certainty in any of an agreement’s essential terms, since the policy of the courts is to encourage the settlement of litigation (see Olivieri v. Sherman, supra, at paras. 49-50). At para. 44 of the same case, The Court of Appeal held:

“… Where… 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.”

[14] Similarly, “[a]n inquiry into the subjective intention or actual state of mind of the parties is not proper if the essential terms of the agreement are clear” (see Galevski Estate, Re, 2012 ONSC 3460, [2012] O.J. No. 2657, at para. 23). The court should apply the “objective principle of contract formation” in determining whether the parties reached agreement on all of the essential terms (see Olivieri v. Sherman, supra, at para. 51).

[15] The basic principles of contract law suggest that any variation of the initial offer to settle amounts to a rejection of the offer and the making of a counter-offer, even if the modification suggested is very slight. This is based on the idea that an offer is not truly accepted unless all of it is accepted; the offeree cannot pick and choose to accept some parts of the offer and reject others. Further, the court cannot take it upon itself to determine what parts of an offer are vital and which parts should be disregarded (Seniw v. Seniw Estate, [2009] O.J. No. 1230, at paras. 6-7 (SCJ).

[16] The court in Timmy v. Campbell, 2014 ONSC 405, [2014] O.J. No. 300, at paras. 20-24 has explained the nature of the acceptance to an agreement in order to reach a binding agreement,

20 Chitty on Contracts defines "acceptance" as "a final and unqualified expression of assent to the terms of an offer" (A.G. Guest, Chitty on Contracts, 27th ed. (UK: Sweet & Maxwell Ltd., 1994), at p. 100). In the Law of Contract in Canada, the author writes: "The response of the offeree must be a clear indication that the offer has been accepted. It must be unconditional, clear and absolute" (G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at p. 46) (footnotes omitted). At p. 57 is the following passage:

More than once it has been said that an acceptance must correspond precisely to the terms of the offer. In Harvey v. Perry, 1953 64 (SCC), [1953] 1 S.C.R. 233, for example, Estey, J. in the Supreme Court of Canada referred to "...that absolute and unequivocal acceptance of terms required by the authorities to conclude a contract." There must be an acceptance simpliciter of the offer. If the acts or language of the offeree do not amount to an absolute and unqualified assent to the material terms and conditions of the offer, there is no acceptance, hence no binding contract. [footnotes omitted]

21 In addition to the authorities cited in the passages quoted above from Chitty on Contracts and the Law of Contract in Canada, the courts have repeatedly held that any words that seek to modify or change the offer result in either a finding that there has been no acceptance, or that a counter-offer has been made: [footnotes omitted]

22 The rationale for this requirement is that a contract depends for its foundation on there being a full agreement between the parties, and the offeror cannot have imposed on him an offer that he never intended to make.

[17] Professor McCamus has stated in The Law of Contracts (2012) at page 53 that “[t]here is no meeting of the minds or consensus ad idem unless the acceptance is a mirror image of the offer. … If the purported acceptance, however, varies in any respect the terms of the offer, it will be treated as a proposal of new terms and classified as a counteroffer rather than an acceptance.”

[18] The court has also found that no agreement is reached where the correspondence shows that the terms demanded by an offeror shifted, or in other words, “the settlement was something of a moving target” (see Thai Agri Foods Public Co. v. Choy Foong Int’l Trading Co., 2013 ONSC 88a3, [2013] O.J. No. 558, at paras. 6 and 8).

Analysis:

[19] In the case at bar, the applicant did not reject the term of the respondent’s offer with respect to the return of the iPad2 computer. He simply indicated that he did not have the iPad and that it had been earlier turned over to another employee. That employee filed an affidavit on this application swearing that he had never received that iPad2 from the applicant. That evidence was not countered nor was the affiant cross examined on his affidavit.

[20] The respondent’s offer to settle contained four terms. The applicant was willing to agree with three of the terms and asserted the fourth was no longer in his control. To settle the action based on his offer, the respondent had the right to rely on all four of his conditions being fulfilled. The applicant was unable to do so. In other words, full consideration could not be provided to the respondent for his offer to settle. That was not acceptable to the respondent. Hence, an enforceable agreement never existed. Perhaps that is why the applicant did not sign the letter which was sent to Mr. Gill on November 10, 2015 in the place provided on page two and return the signed document as requested.

Conclusion:

[21] The application is dismissed. Despite the respondents’ success, I do not feel that costs should follow the cause. The respondent clearly had not considered many factors involving third parties before making the initial offer to settle. It is clear to me that that is the real reason that the respondents decided to back out of the deal which they had originally proposed. While they had the legal right to do so as evidenced by this decision, it is their ill-founded, poorly considered offer to settle which ultimately led to this application. Each party should bear its own costs.

Turnbull, J.

DATE: April 7, 2016

[^1]: Gerald Fridman, Canadian Agency Law, 2d ed. (Markham: LexisNexis, 2012), at p.4.