Court File and Parties
COURT FILE NO.: CV-16-551560 DATE: 20170515 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Curtis Chandler, Bruce Chandler, Chandler Capital Management, LLC and Jake MacLeod Family Trust, Plaintiffs AND: Karl Hollett and Susanne Hollett, Defendants
BEFORE: Madam Justice Kristjanson
COUNSEL: R. Seumas M. Woods, for the Plaintiffs Mark A. Klaiman and Jeffrey Kroeker, for the Defendants
HEARD: February 14, 2017
Endorsement
[1] The plaintiffs seek summary judgment for the amount owing on a personal guarantee executed by the defendants, Karl and Susanne Hollett, in connection with a share purchase agreement (“SPA”) entered into between the plaintiffs and the Lavender Glen Holdings Inc. (“Lavender Glen”), which is the defendants’ holding company. Through Lavender Glen, the defendants purchased the shares of the plaintiffs’ solar energy companies. The purchase came after the plaintiffs provided the defendants with full disclosure about their business in the form of a data room of documents. All parties were represented by counsel, and negotiated a detailed SPA in which the plaintiffs made 96 specific representations, over 18 pages of the agreement. The SPA has an entire agreement clause. As part of the transaction, the defendants personally guaranteed Lavender Glen’s performance of its obligations under the SPA. The defendants failed to make the required payment. The defendants and Lavender Glen acknowledged the failure, and agreed to a new payment schedule which Lavender Glen again failed to meet. The plaintiffs now move to enforce the obligation on the guarantee, in the amount of $2,118,475.08.
[2] The defendants allege that the plaintiffs made false representations, before entering into the SPA, and as a result, Lavender Glen does not owe the amounts claimed, or owes a lesser sum.
[3] I find that there is no issue requiring a trial. The defendants' misrepresentation claims have no merit. The evidence the defendants have adduced in support of their claims is vague, based on bald self-serving statements and cannot stand in light of the entire agreement clause. There is no unconscionability in relation to the SPA or the guarantee. This Court grants summary judgment in favour of the plaintiffs.
The Parties
The Plaintiffs and the Blackstone Companies
[4] The plaintiffs, Curtis Chandler, his father Bruce Chandler, the Chandlers’ holding company Chandler Capital Management, LLC, and the Jake MacLeod Family Trust, owned a portfolio of companies (the “Blackstone Companies”) developing rooftop solar energy projects. A rooftop solar energy project typically involves leased rooftop space on which solar panels are installed. The solar panels generate electricity which is then fed into Ontario’s power grid under the terms of what are known as “Feed-in Tariff” or “FIT” contracts with the Independent Electricity System Owner (“IESO”), the entity that controls and operates Ontario’s electrical grid. Under a FIT contract, the IESO agrees to purchase the electricity generated by a particular project for a fixed rate on a long term basis.
[5] The plaintiffs decided to sell their business in 2015. They set up an electronic data room containing hundreds of documents relating to their companies and the projects in which they were involved, and began to solicit interest from others in the solar energy business.
[6] The data room contained copies of the FIT contracts the Blackstone Companies had in place, pending contract offers from the IESO, partnership or shareholder agreements between the Blackstone Companies and their business partners, the current budgets for the individual projects, the engineering, procurement and construction contracts in place with the companies with which the Blackstone Companies had contracted to design, procure and build the projects, and the operations and maintenance contracts in place with the companies retained to operate and maintain the projects. The projects were all at various stages.
The Defendants
[7] The defendants, Mr. Karl Hollett and his wife Susanne Hollett, were also in the solar energy business, and had their own portfolio of solar energy related companies with Lavender Glen at the top of the corporate pyramid.
[8] Mr. Hollett, his staff and counsel, reviewed materials in the data room. During the pre-sale process, Mr. Hollett also spoke with the plaintiff Curtis Chandler, who headed the plaintiffs’ team on the sale, as well as Grant McArthur, who was at the time was Vice President of the Blackstone Companies.
The Share Purchase Agreement
[9] Mr. Hollett and Curtis Chandler negotiated the final terms on which Lavender Glen would acquire the Blackstone Companies. Lavender Glen was represented by Cunningham Swan Carty Little & Bonham LLP throughout the SPA negotiation process. Mrs. Hollett signed the agreement on Lavender Glen’s behalf.
[10] The parties signed the SPA effective April 15, 2015. The Plaintiffs agreed to sell all of their shares of the Blackstone Companies to Lavender Glen for $3.8 million plus or minus certain adjustments. Lavender Glen agreed to pay the plaintiffs in a series of installments commencing on April 28, 2015. Subject to certain adjustments and milestones, the balance would be paid on dates in April, June and July, 2015, with potential for later adjustments.
Entire Agreement Clause
[11] Section 16 of the SPA is an entire agreement clause which specifically provides that the written SPA and accompanying documents constitute the entire agreement between the parties and that there were no other agreements understandings, or representations:
This Agreement and the Transaction Documents constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties. There are no conditions, warranties, representations or other agreements between the Parties in connection with the subject matter of this Agreement or the Transaction Documents (whether oral or written, express or implied, statutory or otherwise) except as specifically set out in this Agreement or the Transaction Documents. (emphasis added)
Mutual Drafting
[12] Section 12 of the SPA is a mutual drafting clause which specifically states that the SPA had been carefully negotiated and drafted mutually by sophisticated parties represented by lawyers as follows:
The Parties are sophisticated and have been represented by lawyers who have carefully negotiated the provisions hereof. As a consequence, the Parties acknowledge and agree that the presumptions of any laws or rules relating to the interpretation of contacts against the drafter of any particular clause shall not apply to this Agreement and the Transaction Documents contemplated herein (without specifically stating so in each such document) and therefore waive any such effects or interpretation hereunder or thereunder. (emphasis added)
Representations and Warranties of the Vendors/ Plaintiffs
[13] The plaintiffs made 96 specific representations in section 6 of the SPA. The representations covered each of the specific companies being sold and the projects with which they were involved, dealing with a wide range of matters such as the authority to enter into the SPA, ownership of the shares being sold, and the contractual framework and status of the various solar projects. In total, the representations cover 18 of the 62 pages comprising the text of the SPA.
The Guarantee and Share Pledge Agreement
[14] As security for Lavender Glen’s performance of its obligations under the SPA, Lavender Glen agreed to pledge back to the plaintiffs the shares of the Blackstone Companies it was purchasing from them. The terms of the share pledge were set out in a share pledge agreement made April 10, 2015.
[15] The Holletts also agreed to provide a personal guarantee (the “Guarantee”) under which they irrevocably guaranteed Lavender Glen’s performance of its obligations under the SPA. The Guarantee specifically provided that it was an absolute, primary, direct and independent obligation, and was not subject to any right of set-off, recoupment or counterclaim as against the plaintiffs, apart from certain specified situations. Under section 11 of the Guarantee, the defendants agreed to reimburse the plaintiffs for their “out-of-pocket” legal fees, disbursements, taxes and other expenses reasonably incurred in enforcing performance of Lavender Glen’s obligations under the SPA and the defendants’ obligations under the Guarantee. The Guarantee is one of the Transaction Documents and thus subject to the entire agreement clause.
Transaction Closes
[16] The sale closed on April 15, 2015, giving the defendants control of the Blackstone Companies and their solar projects through Lavender Glen. Lavender Glen operated the Blackstone Companies out of the same office premises that the Blackstone Companies had previously occupied. As part of the sale, the plaintiffs turned over all the servers and computer equipment used by the Blackstone Companies to Mr. Hollett and Lavender Glen, giving them access to all of the companies’ emails, staff, books and records.
[17] Once the sale closed, Grant McArthur (who the defendants say was a source of one of the pre-contractual misrepresentations) ceased to work for the plaintiffs. Instead, he worked for a company that was ultimately controlled by the defendants. Mr. McArthur continued to work for the defendants until he left the Blackstone Companies in August 2016.
Failure to Make the Payments and July, 2015 Amendment to the SPA
[18] Lavender Glen failed to make the required payments on time, or in the full amounts. The parties entered in an amending agreement in July 2015. Under the terms of the July 2015 Amendment, the cash component of the Purchase Price was increased from $3,800,000 to $4,116,400. The $4,116,400 was to be paid in a series of installments. Lavender Glen failed to comply with the payment terms of the July 2015 Amendment.
[19] Given Lavender Glen’s failure to make both the $687,500 payment due on August 31, 2015 and the $810,700 payment due on September 30, 2015, Curtis Chandler issued the first of what would become a series of default notices on October 2, 2015, and attempted to obtain payment.
[20] Mr. Hollett continued to ask for more time to pay. On October 19, 2015, Mr. Hollett claimed that he was in the process of obtaining close-out financing and was trying to sell some of the projects. Once he had done that he would be able to pay the plaintiffs the money owed them.
[21] Lavender Glen had made no further payments as of the middle of November. When Mr. Chandler and his lawyers pressed Mr. Hollett’s lawyer Ms. Asbreuk for details on November 18, 2015, she said her clients were on the verge of completing the close-out financing. The parties set up a call for Mr. Hollett to brief them, but he failed to show up for it.
[22] Given the continued lack of any payment and Mr. Hollett’s failure to attend the planned call, on November 20, 2015, the plaintiffs’ lawyers sent Lavender Glen and its counsel notice of the plaintiffs’ intention to exercise their rights under the Share Pledge Agreement. Lavender Glen responded, in the form of a letter from its lawyer Ms. Asbreuk dated November 23, 2015, in which she denied that her client was in default of any of its obligations under the SPA, claimed that her clients had overpaid the and for the first time submitted that some of the representations and warranties in the SPA, including the representation about the budgets for the FIT 2.0 projects, were not true, and that her client had suffered damages as a result. She provided a list of what Lavender Glen said required an adjustment to the Purchase Price.
[23] The plaintiffs issued a second notice of default on November 25, 2015 in which they reiterated that Lavender Glen had not made the payments it was required to make on August 31, 2015 and September 30, 2015, and confirmed that it remained in default under the SPA.
[24] The plaintiffs issued a third notice of default on December 21, 2015. By this time, Lavender Glen owed the plaintiffs at least $2 million; Mr. Hollett acknowledged on his cross-examination that he did not have the money.
The Acknowledgment and Agreement
[25] The plaintiffs entered into a further agreement amending the SPA with Mr. Hollett and Lavender Glen (the “Acknowledgment and Agreement”) made April 7, 2016. Mr. Hollett personally signed the document on behalf of Lavender Glen. Cunningham Swan was still acting at that point.
[26] In the Acknowledgment and Agreement, Lavender Glen agreed that all of the conditions precedent to the payment of amounts pursuant to Sections 4.5(b) and (c) of the SPA had been fully satisfied, and agreed to pay the plaintiffs outstanding amounts as stated in the Acknowledgment and Agreement, on a revised schedule.
[27] Commencing two weeks after signing the Acknowledgment and Agreement, Lavender Glen again failed to make the payments required under the Acknowledgment and Agreement. In total, Lavender Glen has failed to pay the plaintiffs a total of $2,118,475.08. On his cross-examination, Mr. Hollett admitted that in the Acknowledgment and Agreement he agreed that all the amounts set out in it were owing and promised to pay them. He also admitted that none of those amounts have been paid.
The Statement of Claim and Subsequent Events
[28] The plaintiffs commenced this action by statement of claim issued on April 25, 2016. Cunningham Swan served a statement of defence dated May 26, 2016 on behalf of the defendants. On August 29, 2016, Cunningham Swan obtained an order removing the firm as lawyers of record for the defendants. The defendants did not formally appoint new lawyers until after the original return date for this motion.
[29] The plaintiffs commenced this action before Lavender Glen failed to make the payments due on May 6, 2016 and June 9, 2016. Part of the relief sought on this motion is leave to amend the statement of claim at the hearing to claim the missed payments due on those dates, which I grant.
[30] At some point in the summer of 2016, Lavender Glen’s operating subsidiaries Strathcona and FATH PV, ceased to carry on any active business. In September 2016, both RBC and BDC made demands for payment of the loans they each made to Strathcona and FATH PV, over $4 million on various facilities. Both RBC and BDC made applications for the appointment of receivers, and ultimately a receiver was appointed.
ANALYSIS
ISSUE I: Should the Plaintiffs be granted leave to amend the Statement of Claim?
[31] Under Rule 26.01, the Court must grant leave to amend a pleading on such terms are just, unless prejudice would result that could not be compensated by cost or an adjournment.
[32] The plaintiffs seek leave to increase the amount claimed to include those payments which fell due after the original issuance of the statement of claim and which were not made, increasing the total claimed from $1,162,292.15 to $2,118,475.08.
[33] The plaintiffs moved for leave to amend as part of their original notice of motion which was served on the defendants in July 2016. I find that the defendants are not prejudiced; the amendment increases the size of the claim without changing the basis for the claim. All the defences advanced in the statement of defence apply to the increased claim as they did to the original one. As such, I grant the plaintiffs leave to amend the statement of claim and proceed to deal with the motion for summary judgment on the claim as amended.
Issue II: Should Summary Judgment be granted?
The General Test for Summary Judgment
[34] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if: "the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence." The Supreme Court in Hryniak held at para. 49:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
[35] A responding party may not rest solely on the allegations or denials in the party’s pleadings, but “must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial”: Rule 20.0(2). Each side must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried. A court is entitled to assume that the record contains all the evidence that the parties would present if the matter proceeded to trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (ONSC) at paras. 26-27; aff’d 2014 ONCA 878 (Ont. C.A.).
[36] The court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers set out in Rule 20.04(2.1) and (2.2). The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and summary judgment would be a timely, affordable and proportionate procedure. If there appears to be a genuine issue requiring a trial, then the court should determine if the need for a trial can be avoided by using the fact-finding powers under Rule 20.04. Their use will not be against the interest of justice if their use will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[37] I have determined that there is no genuine issue requiring trial based on the evidence filed on the motion. For the reasons set out below I grant summary judgment as there is sufficient evidence to fairly and justly adjudicate the dispute, and a summary judgment is a timely, affordable and proportionate procedure.
Elements the Plaintiffs Must Establish to Obtain Judgment
[38] To obtain judgment on their claim, the plaintiffs must establish, on the evidence currently before this Court, that:
(a) both the SPA and the Guarantee are legally binding on the parties which entered into them;
(b) the SPA, as amended, requires Lavender Glen to pay the plaintiffs $2,118,475.08 in addition to the monies paid thus far, and Lavender Glen has not paid this money’
(c) the defendants guaranteed Lavender Glen’s performance of its obligations under the SPA and therefore are liable to the plaintiffs in the event that Lavender Glen fails to perform its obligations under the SPA, and in particular fails to pay the plaintiffs money due them under the SPA; and,
(d) the defendants have not adduced evidence to support any valid defence that would eliminate or reduce Lavender Glen’s obligations to the plaintiffs, and by extension the defendants’ obligations under the Guarantee.
Unchallenged Evidence
[39] The evidence before the Court is that Lavender Glen freely entered into the SPA and the Holletts freely entered into the Guarantee. Neither Lavender Glen nor the Holletts challenge that they signed the SPA and the Guarantee. Mr. Hollett has admitted that Lavender Glen has not paid the plaintiffs the monies due to it under the SPA as amended by the Acknowledgement and Agreement, the total amount of which is $2,118,475.08. On the evidence before the Court, the plaintiffs have satisfied the first three requirements set out above.
[40] The plaintiffs have established that the SPA, as amended by the Acknowledgment and Agreement, requires Lavender Glen to pay the plaintiffs $2,118,475.08, the SPA is binding on Lavender Glen; and Lavender Glen owes and has not paid this amount as required. The plaintiffs have established that the Holletts entered into the Guarantee, and that it is binding on the Holletts. The defendants guaranteed the performance of Lavender Glen’s obligations under the SPA, and are liable for the failure of Lavender Glen to pay moneys owed to the plaintiffs under the Guarantee.
The Defendants’ Defence: Misrepresentations by the Plaintiffs
[41] The only real issue on this motion is whether the defendants have adduced sufficient evidence supporting a valid defence that would eliminate or reduce Lavender Glen’s obligations to the plaintiffs and thus the defendants’ obligations under the Guarantee. As set out in their statement of defence and supporting affidavits, the defendants allege that the plaintiffs made a series of pre-contractual misrepresentations that disqualify the plaintiffs from enforcing the payment provisions of the SPA and thus disqualify them from enforcing the Guarantee.
The Alleged Representations
[42] In his affidavit, Mr. Hollett claims that at some point prior to execution of the SPA the plaintiffs, and in one case Mr. McArthur, made a number of misrepresentations to him about the status of the projects which he later discovered were not true. In oral argument, counsel for the defendant conceded that a number of misrepresentations originally raised in the pleadings and affidavit evidence were known before the date of the Acknowledgment and Agreement, and are not being pursued. Only two alleged misrepresentations remain in issue relating to the First Nations Projects and the ArcStar Agreement.
(1) First Nations Projects Contracts
[43] Mr. Hollett claims that prior to the execution of the SPA, Grant McArthur on behalf of the plaintiffs represented that “agreements had been reached and entered into by First Nations Bands in respect of approved IESO projects.” In his affidavit, he goes on to allege that the “Agreement that was represented by the Plaintiffs to have been concluded with the First Nations Band was such that the Band would own 51% of the project on paper, but would only receive 7.5% of the net profits generated from the projects,” which turned out to be inaccurate (emphasis added).
[44] As with other representations relied on in the pleadings and affidavit evidence, Mr. Hollett does not provide any particulars of the circumstances as to when, where, to whom and how the alleged representations were made. The representation refers both to plural and singular (Bands and Band; agreements and agreement). Apart from the representation specifically said to have been made by Mr. McArthur (that there were binding agreements with Bands), details with respect to a Band receiving 7.5% of net profits are said to have been “represented by the Plaintiffs”, again without identifying who, when and how the representations were made. None of the representations were incorporated into the SPA.
[45] Mr. Hollett’s evidence is that he only became aware of the misrepresentation after the Acknowledgment and Agreement, a year after taking control of the Blackstone Companies, during which time he had complete access to both Mr. McArthur and the full records of the companies he had acquired. This is not credible, or speaks to a complete lack of diligence.
[46] The SPA does not contain any representation on this issue. In contrast to Mr. Hollett’s vague allegations, the plaintiffs have produced written evidence of actual agreements in place with First Nations that were in the data room for the defendants and their deal team to review and assess before Lavender Glen entered into the SPA.
[47] Mr. Hollett’s claim of misrepresentations about the relationships with the First Nations Bands are inconsistent with both the entire agreement clause of the SPA and Lavender Glen’s acknowledgment in the Acknowledgment and Agreement that all of the pre-conditions for the payments due to the plaintiffs had been satisfied.
ArcStar Misrepresentation
[48] Mr. Hollett swore: “I was advised by Curtis Chandler himself and the Plaintiffs before the SPA was executed that an agreement was in place with ArcStar and that they were going to participate in the development of the project.” He later refers also refers to “projects”. The exact nature of the representation regarding the project or projects is unclear, and there are no details with respect to who/what/where/when the representation about ArcStar’s participation in the development of unidentified projects involving First Nations was made. Mr. Chandler denies that he or any of the other plaintiffs ever made such a representation.
[49] There were no specific representations in the SPA to the effect that the plaintiffs had an agreement in place with Arcstar and that Arcstar was going to participate in the development of “the project” or projects with the plaintiffs. The agreements that the Blackstone Companies did have in place with Arcstar were in the data room and Mr. Hollett admitted on cross examination that the plaintiffs had included those agreements in the data room.
[50] Given the specific representations the plaintiffs made in the SPA, as well as the fact that the actual agreements that were in place with Arcstar were all in the data room, Mr. Hollett’s vague claim that someone represented something different at some unspecified time, does not raise a genuine issue requiring a trial.
[51] The only evidence that the plaintiffs made any pre-contractual representations to the defendants at all comes from the affidavit evidence of Mr. Hollett. The details of the alleged misrepresentations are vague, attributed in most cases simply to “the Plaintiffs” (who include two individuals, a corporation, and a trust), with no indication as to the date, time or place of the alleged misrepresentations. There is no contemporaneous documentary evidence of the misrepresentations having been made at the time, or at all.
Summary Findings
[52] The alleged misrepresentations are unclear as to who made the representations, where, when, to whom, and exactly what was said, and are bereft of information as to context. They were not raised immediately; there are vague suggestions and self-serving explanations in the affidavit as to the delay in raising the issues. I have already noted that the vendors (plaintiffs) were required to give 96 representations, over 18 pages of the SPA. In preparing such a long, detailed, list of specific representations, Lavender Glen, the defendants, and their counsel must have directed their minds to what was, and was not, important. To the extent some fact was important, presumably it was incorporated into the SPA. If the fact was not important, presumably it was not written into the document. What the defendants now say are critical representations were not incorporated into the SPA. In those circumstances, and without any sufficient explanation from the defendants as to why such critical representations were not in the SPA, the alleged misrepresentations are bald allegations in Mr. Hollett’s evidence, not supported by other evidence, contradicted by the contractual provisions, and don’t make sense in the context of this particular and detailed contract. Self-serving affidavits containing bald allegations or denials do not create issues requiring a trial; Mr. Hollett’s allegations lack “an air of reality” when viewed in the context of the evidence filed on this motion, the entire agreement clause, and the Acknowledgment and Agreement: Royal Bank of Canada v. Tie Domi Enterprises Ltd., 2011 ONSC 7297, para. 30 (SCJ); HITS Entertainment Inc. v. Zaakir, 2013 ONSC 7646 (SCJ).
Tortious Misrepresentation and Fraud
[53] The defendants have pleaded that the plaintiffs made representations and warranties which were untrue, incorrect and incomplete, and in so doing, breached their obligations under the contract. The pleadings are restricted to contractual defences, and do not advance claims of tort or fraud. However, the defendants sought to argue tortious misrepresentation, to take the claim outside the contractual bar.
[54] Contractual provisions like the entire agreement clause may limit a party’s right to sue in tort. The approach to tortious claims in the face of an entire agreement clause was considered by Binnie, J. in Tercon Contractors Ltd v. British Colombia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, speaking for the court at paras. 122-23:
The first issue, of course, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. This will depend on the Court's assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made, "as might arise from situations of unequal bargaining power between the parties" (Hunter, at p. 462). This second issue has to do with contract formation, not breach.
If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts.
Entire Agreement Clause
[55] As noted earlier, Lavender Glen specifically agreed that the SPA constituted the entirety of the agreement between the parties, and that there were in fact no pre-contractual representations. The defendants knew of this, having negotiated and signed the SPA and the Guarantee. The courts have routinely given effect to such clauses in the face of allegations based on pre-contractual representations, particularly in situations involving commercial contracts between sophisticated businesspeople represented by competent counsel: see Gutierrez v. Tropic International Ltd., [2010] O.J. No. 3079 (C.A.); Carevest Capital Inc. v. North Tech Electronics Ltd., [2010] O.J. No. 1939 (Div. Ct.); Hammer v. Cleeves, 2015 ONSC 2547.
[56] That is exactly the case here. As reasonably sophisticated businesspeople, represented by counsel who negotiated a relatively complex final share purchase agreement, the defendants cannot escape from Lavender Glen’s agreement. Whatever may or may not have been said before the SPA, it ceased to have any legal consequence after the parties signed the SPA.
[57] This is all the more true when one considers the 18 pages of representations contained in the SPA. None of what the defendants now say are critical representations were incorporated into the SPA. In those circumstances, and without any explanation from the defendants as to why such critical representations are not in the SPA, even if one accepts Mr. Hollett’s evidence that the representations were made, they cannot be given any legal force in light of the entire agreement clause.
[58] Even if the defendants were able to escape the consequences of the entire agreement clause, there is also the Acknowledgment and Agreement which Lavender Glen signed in April 2016, almost a year after acquiring the Blackstone Companies.
[59] Like the entire agreement clause of the SPA, the terms of the Acknowledgment and Agreement are totally at odds with the current misrepresentation claims. Even if Mr. Hollett and Lavender Glen really believed that the plaintiffs had made misrepresentations to them, by signing the Acknowledgment and Agreement Lavender Glen, and by extension Mr. and Mrs. Hollett, abandoned any ability to complain about them.
[60] The courts routinely give effect to entire agreement clauses, precisely to prevent this type of litigation, and to ensure the efficacy and efficiency of commercial arrangements. Here, the entire agreement clause applies to exclude the reliance on pre-contractual representations, since it is an express term of the contract that pre-contractual representations do not form part of the contract: Gutierrez v. Tropic International Ltd., 162 O.A.C. 247, 2002 CarswellOnt 2599 (C.A.) at paras. 24-25.
Inquiry into Unconscionability/Public Policy
[61] I then inquire into the second and third aspects. The Court of Appeal has recognized that under the doctrine of unconscionability, an entire agreement clause will be unenforceable “where one party to the contract has abused its negotiating power to take undue advantage of the other. This doctrine is generally applied in the context of a consumer contract or contract of adhesion”: Singh v. Trump, 2016 ONCA 747 at para. 114, citing Domtar Inc. v. ABB Inc., 2007 SCC 50, [2007] 3 S.C.R. 461 (SCC) at para. 82.
[62] There is no unconscionability here. The parties were all commercially sophisticated. They were all represented by counsel. They specifically agreed to the Mutual Drafting Clause confirming these points. The defendants conducted due diligence and had access to the data room. They negotiated a very detailed contract. The parties specifically negotiated 18 pages of vendor representations, but not the representations now relied on. After a year in which Mr. Hollett and Lavender Glen owned the shares and had full access to all the staff, books and records, they did not raise the concerns in a timely manner, and they executed the Acknowledgment and Agreement. There are no public policy reasons, on the facts of this case, which would lead the court to conclude that the entire agreement clause should not be enforced.
[63] On this motion, for the first time, the defendants submit it is “arguable that the misrepresentations made were reckless or fraudulent misrepresentations in that they were knowingly made and were not accurate.” The first mention of “reckless or fraudulent” misrepresentations is in the factum of the defendants, and appears nowhere in the pleadings or affidavit evidence. The Court of Appeal has allowed claims of fraudulent misrepresentation to be argued even if not pleaded, holding in Singh v. Trump at para. 142:
Provided that the particulars and material facts relied upon for a fraudulent misrepresentation claim are pleaded it is not essential that the word “fraud” or “fraudulent” be used: see Shoppers Drug Mart Inc. v. 6470360 Canada Inc., 2014 ONCA 85, 372 D.L.R. (4th) 90, at para. 54.
[64] In this case, the particulars and material facts relied upon fall far short of a pleading of fraud or fraudulent misrepresentation, and the plaintiffs were taken by surprise. The allegation of fraud was not put to Curtis Chandler on cross-examinations on affidavit. The argument as to fraud is not properly advanced in the circumstances, although it may well affect the scale of costs. In any event, the defendants have failed to make out the allegations of fraud; the evidence of Mr. Hollett does not cross that threshold.
[65] The defendants rely on CIBC v. Deloitte & Touche, [2016] ONCA 922 at paras. 42-43:
[42] Reckless misrepresentation is a kind of fraudulent misrepresentation: Redican v. Nesbitt, [1924] S.C.R. 135, at p. 154. In the law of torts, a fraudulent misrepresentation that causes loss to the recipient grounds an action in “deceit” or “civil fraud”: Bruce MacDougall, Misrepresentation (Toronto: LexisNexis Canada, 2016), at para. 5.8. Recently, the Supreme Court held that a claim for “civil fraud” requires proof of the following facts: (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss”: Combined Air Mechanical Services Inc. v. Flesch, 2014 SCC 8, [2014] 1 S.C.R. 126, at para. 21.
[43] The third element of civil fraud summarized in Combined Air entails considering inducement and reliance. As the Divisional Court noted in respect of the lenders’ claims in Canadian Imperial Bank of Commerce v. Deloitte & Touche (2003), 172 O.A.C. 59, at para. 24, “The claims of negligent and reckless misrepresentation both require the plaintiffs to prove at trial that there have been representations of fact by each of the defendants upon which they relied.”
[66] I find that there is no basis in the evidence to find that the plaintiffs fraudulently misrepresented anything to the defendants or Lavender Glen. In respect of the ArcStar and First Nations misrepresentations, the only evidence is the bald allegations, lacking specificity, in Mr. Hollett’s affidavit evidence. The plaintiffs deny the representations were made. The defendants have not established on the evidence that (a) the misrepresentations were made, or that the representations made were untrue; (b) that the plaintiff makers knew the statements were untrue; or (c) that the false representations were relied on by the defendants/Lavender Glen.
Conclusion
[67] This Court has sufficient evidence before it to grant the plaintiffs summary judgment against the defendants on the Guarantee. There is no issue that Lavender Glen entered into a binding agreement to purchase the shares of the Blackstone Companies owned by the plaintiffs, or that the defendants agreed to guarantee Lavender Glen’s performance of its obligations. There is no issue that Lavender Glen received those shares and then failed to pay all the money due for them under the SPA as amended.
[68] The defendants claim that judgment should not be granted against them because of pre-contractual representations they allege were made to them. The Court has ample evidence in the record before it to reject the defendants’ claims. No trial is necessary for it to do so. In those circumstances the Court should grant the plaintiffs the relief they seek, and order the defendants to pay them the money the defendants owe under the Guarantee, plus interest and costs.
[69] For the reasons set out above, I find that the alleged misrepresentations lack an air of reality; they do not contain any details as to who/what/where/when; there is no contemporaneous documentation; there is no explanation as to why there was no attempt to ensure that the representations were captured in the specifically tailored 18 pages of vendor representations contained in the SPA in the course of the long due diligence process; they are simply not concrete. The only evidence is that of Mr. Hollett, and the alleged misrepresentations amount to little more than self-supporting bare allegations. The defendants have not established that the pre-contractual representations were false and inaccurate, or any theory of the case that would render them legally binding. There is reason to doubt that the representations were even made. However, even if made, the defendants cannot rely on such representations in light of the Entire Agreement Clause and the Acknowledgment and Agreement.
[70] In the result, I grant summary judgment in favour of the plaintiffs. I grant leave to amend the Statement of Claim to award the plaintiffs judgment in the full amount of $2,118,475.08 plus prejudgment interest.
[71] If the parties are unable to agree on costs, the plaintiffs may make brief submissions to me through my assistant by May 23, and the defendants by June 2.
Kristjanson J. Date: May 15, 2017