Court File and Parties
COURT FILE NO.: CV-15-530467 DATE: 20160907 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Rockface Capital Advisors Ltd., Plaintiff AND: Mountain Province Diamonds Inc., Defendant
BEFORE: Pollak J.
COUNSEL: Bruce O’Toole and Clarke Tedesco, for the Plaintiff Eric Fournie, for the Defendant
HEARD: June 9, 2016
Endorsement
[1] The plaintiff, Rockface Capital Advisors Ltd. (“Rockface”), brings this summary judgment motion against the defendant, Mountain Province Diamonds Inc. (“Mountain Province”), for judgment for US$126,500, plus interest and costs, for services performed pursuant to a contract.
Factual Background
[2] Mountain Province contracted with Rockface for its services as a debt consultant with respect to funds required for a diamond mine. Mountain Province agreed to pay Rockface 0.25 percent of the “total debt raised” under a loan facility. Mountain Province refused to pay $126,500 of the fees charged because it deducted some fees and interest from the calculation of the “debt amount”.
[3] Rockface’s position on the interpretation of the contract is that:
(a) the agreement does not, on its face, entitle Mountain Province to deduct any amounts from the debt raised; (b) Rockface’s interpretation of the words “principal debt” as the full amount raised is consistent with the commonly understood meaning. Mountain Province’s interpretation, which is the amount raised minus certain fees and estimated interest, is not consistent with the commonly understood meaning of this term; (c) the actual deductions made by Mountain Province from Rockface’s fees are not consistent with the wording of the agreement; and (d) Mountain Province’s first draw from the loan was based on an amount equivalent to the full amount sought by Rockface. That is, it borrowed the full amount of the payment from its lenders, but did not then make the full payment to Rockface.
[4] In the alternative, Rockface argues that, after the contract was entered into, the parties agreed that Rockface would get the full amount of the fee.
[5] On May 7, 2014, Rockface gave Mountain Province a draft agreement. Mountain Province made an amendment to the draft, to which Rockface agreed, and that is set out in bold below (the “first amendment”):
3.1 [Mountain Province] shall pay to [Rockface]: (b) a success fee (the “Success Fee”) on the signature of the definitive irrevocable debt facility agreement, and paid within 30 days thereof, equal to 0.25% of the debt raised, provided that the Success Fee shall only be paid in respect of the principal debt and shall not be paid in respect of accrued interest charges or capitalized financing fees. [emphasis added]
[6] It is the evidence of Mr. Patrick Evans (for Mountain Province) that on May 12, 2014, when the agreement was signed, he explained to Mr. Rogers (for Rockface) that the language of this amendment was added because “paying a fee on accrued interest and fees did not give our consultant the motivation to reduce interest rates and fees.” Mr. Rogers has no memory of this explanation by Mr. Evans.
[7] On July 29, 2014, after the agreement was signed but before the loan facility was finalized, an email was sent to Rockface which implied that Mountain Province’s interpretation of the term “principal debt” in the agreement was different from that of Rockface.
[8] In the e-mail, Mountain Province referenced the ‘net’ amount borrowed by Mountain Province - being US$370 million minus various expenses - as the ‘principal’ amount. The parties then corresponded with respect to the meaning of “principal debt”.
[9] In October of 2014, the parties discussed an amendment to the agreement to clarify the meaning of “principal debt” (the “second amendment”). Rockface alleges that during those discussions Mountain Province agreed that Rockface was entitled to the Success Fee on the full amount of the loan facility of $370 million.
[10] On November 6, 2014, Mountain Province emailed Rockface:
I’m working on it. We'll have to take things one step at a time. First, I want to amend the agreement to make provision for an additional success fee in respect of the COF. We’ll have to hold back a while longer on the expanded success fee on the main debt that we discussed, but you have my assurance that we'll make you good in respect of the issues discussed and in any event get that settled around the time that we get the loan agreement settled. It may be structured a little differently (perhaps a bonus payment), but the quantum will be what we discussed.
[11] On the basis of that alleged promise in the e-mail, and on the basis of Mountain Province’s alleged promise to agree to the second amendment of the agreement, Rockface continued to work to finalize the loan facility.
[12] In December 2014, when Rockface asked Mountain Province to sign the second amendment, it refused to sign because the board of directors “won’t accept any add-on charges above the principal amount”.
[13] At this time, even though it was clear that there was a dispute, because the work on the loan facility was almost finished and Rockface did not want to jeopardize its entitlement to the Success Fee, it continued its work to mitigate damages.
[14] It is the allegation of Rockface that Mr. Rogers had a telephone conversation with Mr. Evans wherein Mountain Province promised that the Success Fee would be based on the maximum facility amount, which would include all three components of the debt: the amount available for mine construction, the accrued interest and the capitalized fees. Mr. Evans denies this allegation.
[15] Mr. Rogers, however, admits that he does not have a precise recollection of the discussion. He was asked about this conversation on cross-examination:
Q. My question is, are you saying there [paragraph 13] that Mr. Evans said you deserve it or Mr. Evans said we’ll agree to amend the mandate letter? I could read that either way and I’m just asking you to clarify. A. Look, I’m sorry. I can’t remember the date of the conversation. I can’t remember the nature of the conversation. Certainly I came away with it...with the understanding and subsequently evidenced by his assurance in an email that he would deliver. I would therefore...whether he explicitly said, “Please send me a revised mandate”...he would...certainly he would have been expecting a revision to the mandate letter because that second paragraph in there is the change necessary with regards to the cost overrun facility so it’s...you know, I can’t say. I could speculate one way or the other but I won’t. But, you know, I would have put in that change on the expectation that he would sign it. You know, you don’t turn up to your client and just ask for changes without discussion. So, my recollection is that he would have been expecting that.
Q. All right. You also said in that answer, and I want to be fair, that you don’t recall the precise details of what was said. Is that fair? A. I think that that’s what I’m saying. I don’t recall the precise details and I’m inferring, not recalling, I’m inferring that because I was sending that amendment he would have been expecting it. I would not send an amendment that a client didn’t expect.
[16] Mr. Evans, on the other hand, testified that he did remember the discussion. He testified that he asked Mr. Rogers how much money he was asking for. He then told Mr. Rogers that if Mountain Province were able to conclude the financing on schedule he would recommend something to the board.
Calculation of the Success Fee
[17] The parties agree that the Success Fee was payable within 30 days of finalizing the facility agreement. At that stage the first draw was the only advance. The lenders had charged a fee of three and a half percent of the total facility. That amount was not included in the debt on which the Success Fee was calculated.
[18] Mountain Province calculated the Success Fee as follows:
Total Facility Fees to lenders (at 3.5%) Interest payable on the drawn part Subtotal of fees and interest Success Fee (at 0.25%)
370,000,000 (12,950,000) (37,500,000) (50,450,000) 798,875
Positions of the Parties
[19] Regarding the interpretation of the first amendment, Mountain Province argues that, with respect to calculating Rockface’s Success Fee as a percentage of “the debt raised”, the word “debt” in that phrase is ambiguous in the context of a loan of this nature: Mountain Province did not borrow funds with the full amount of the debt being advanced up front, but rather negotiated a debt facility with a maximum amount that could be borrowed under it.
[20] Mountain Province submits that it added the amended language to the agreement to remove any ambiguity. The language added the first qualification: “the success fee shall only be paid in respect of the principal debt” [emphasis added]. It is argued that the use of the word “only” restricts “principal debt” to something less than the “debt raised.”
[21] The parties agree that Mountain Province was borrowing money before it had the ability to repay it, in the period of time between the first cash advance and the sale of diamonds, such that interest would accrue but remain unpaid. That interest was calculated on the principal amount. It is submitted that Rockface knew that interest would accrue and, when unpaid, would be capitalized. Mountain Province had to borrow the money to pay the accruing interest until it had cash flow from sales. Mountain Province argues that, to be clear, it also added the words: “and shall not be paid in respect of accrued interest charges or capitalized financing fees.”
[22] It is submitted that the evidence shows that both parties understood that there are three components of the “debt raised”:
(a) the money available to the borrower for operating costs; (b) the money used for interest as it accrued before repayments could begin; and (c) the money used to pay the lenders’ fees.
[23] Mountain Province argues that Rockface’s argument is that the court should ignore the word “only” and the words that follow “principal debt.”
[24] Rockface’s position is that “principal debt” means the maximum amount of money which Mountain Province can borrow under the facility – $370 million.
[25] Mountain Province argues that if “principal debt” is the amount upon which interest is calculated the words that follow add clarity and particularity to the scope of the debt on which the Success Fee is calculated. It is submitted, based on the rule of contractual interpretation that the words of the contract should not be ignored, that even if the words “principal debt” could be read as being the maximum amount available under the loan facility ($370 million), the words that follow modify such obligation.
[26] Rockface however, argues that the reference to “accrued interest” in paragraph 3.1(b) meant that there would be no payment on the additional amount for interest that accrued over the life of the loan facility, and that is what the words of Mountain Province’s amendment were meant to address.
[27] Mountain Province counters that evidence in the written record shows its intention to ensure that the Success Fee was applied only to the portion of the total loan facility which represented funds available for operations, and the amended language it added is consistent with that intention.
[28] Although disputed, it is Mountain Province’s evidence from Mr. Evans that this intention was discussed with Mr. Rogers for Rockface at the time the agreement was signed.
[29] As alternate arguments, both parties have introduced evidence of their respective understanding of the agreement. It should be emphasized that both parties submit that the language of the agreement is clear and does not require an examination of any of the surrounding discussions.
The Law
[30] The issue in dispute in this action centers on the interpretation of the contract. Both parties argue that the agreement is clear and that no evidence of surrounding circumstances is necessary. The evidence on this motion does deal with this material issue in dispute.
[31] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court states the purpose of the parol evidence rule, at para. 59:
The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing. To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties. The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract [citations omitted]
[32] Both parties relied on the Supreme Court of Canada decision in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. The Supreme Court gave us a roadmap of the approach to follow on a motion for summary judgment, stating at para. 66:
On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a).
If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness…
Conclusions
[33] Based on the above, I agree with the parties that evidence of the surrounding circumstances is not necessary in this motion to determine whether there are genuine issues requiring a trial. I am of the opinion that I can make a fair determination on the basis of the record before me. I do not need to use my discretion to determine if the need for a trial in this case could be avoided by the use of the court’s fact-finding powers.
[34] I agree with the interpretation advanced by Mountain Province. It is Mountain Province who drafted and proposed the amendment, which was accepted by Rockface. I agree with both parties that the meaning of the words is clear – Mountain Province wanted to deduct certain fees from the amount on which the Success Fee was based. To find otherwise and to accept the interpretation advanced by Rockface would mean that I would have to refuse to give meaning to other words (which I have referred to above in my summary of the arguments of Mountain Province).
[35] To conclude, as the evidentiary record on this motion clearly supports the position of Mountain Province, I find that Rockface has not met its burden of proving that it is entitled to judgment against Mountain Province.
[36] The motion for summary judgment is dismissed.
[37] There is one further practical issue. The Supreme Court of Canada in Hryniak v. Mauldin also held, at para. 78, that:
Where a motion judge dismisses a motion for summary judgment, in the absence of compelling reasons to the contrary, she should also seize herself of the matter as the trial judge.
[38] In my view, this is an appropriate case for me to follow the Supreme Court’s direction. I must, however, qualify this to be subject to the practical reality of our court's ability to schedule trials in a timely and expeditious manner. I will not be seized of this trial if the effect of my unavailability would be to unduly delay the hearing of the trial between the parties. If it is possible to do so without adverse delay or consequences to the parties, I seize myself of the trial of this matter as directed in Hryniak.
Costs
[39] If the parties are unable to agree on costs, they may make brief written submissions to me no longer than three pages in length. The Defendant’s submissions are to be delivered by 12:00 noon on September 16, 2016, and the Plaintiff’s submissions are to be delivered by 12:00 noon on September 23, 2016. Any reply submissions are to be delivered by 12:00 noon on September 30, 2016.
Pollak J. Date: September 7, 2016