CITATION: Pomeroy v. Couprie et al., 2017 ONSC 6906

COURT FILE NO.: CV-17-577329

DATE: 20171121

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Anthony (aka Tony) Pomeroy

AND:

Leo Couprie and Willian (a.k.a. Bill) Fenton

BEFORE: Madam Justice J.T. Akbarali

COUNSEL: Melvyn L. Solmon for the applicant

Sean N. Zeitz for the respondents

HEARD: October 31, 2017

ENDORSEMENT

Overview

[1] The applicant, Anthony Pomeroy, was a defendant in an action brought against him and seven others by the respondents, Leo Couprie and William Fenton. The action sought $3 million in damages against the main defendant, Li Shim, and the same amount against the other seven “secondary defendants”, including Mr. Pomeroy. The respondents settled the action against Mr. Pomeroy and another secondary defendant, Clement Fung, leaving the action to continue against the remaining six defendants.

[2] Mr. Pomeroy brings this application for a determination of his rights under the settlement agreement pursuant to r. 14.05(3) (d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. At the heart of the application is the nature of the release that Mr. Couprie and Mr. Fenton agreed to sign when settling the action. Mr. Pomeroy seeks an order requiring the respondents to execute a standard LawPro form of release, without amendment, which he argues is mandated by the parties’ agreement.

[3] Initially the application sought an order for the execution of the form of standard LawPro release attached as Schedule A to the Notice of Application. Mr. Pomeroy has since served a Notice of Motion seeking to substitute an up-to-date version of the release for that contained at Schedule A. The respondents do not object to the motion, although they do object to the application.

[4] First, the respondents argue that the application is improper, and should have been constituted as a motion under r. 49. Second, the respondents argue that the standard LawPro form of release has to be amended in two ways: (i) the claim-over clause in the release has to be removed or amended to account for their continuing action against Mr. Shim; and (ii) the release has to exclude from its scope Mr. Pomeroy’s obligations as trustee of the shares the respondents allege he holds in trust for them.

[5] It is important to note that no one seeks to resile from the settlement agreement. The respondents confirmed in oral argument that the form of release is not an essential term of the agreement. In other words, the parties agree that if they did not reach a meeting of the minds on the form of release, failure to do so does not render the settlement agreement a nullity.

Issues

[6] In this application, I must decide the following issues:

a. Do I have jurisdiction to deal with the issues raised on the application or are they properly the subject of a motion under r. 49?

b. If I do have jurisdiction, what form of release is required by the settlement agreement?

Do I have jurisdiction to deal with the issues on the application?

[7] The respondents argue that the r. 49.09 procedure to enforce a settlement agreement provides the appropriate framework to determine the form of release to be signed. They rely on the two-stage process set out in Sentry Metrics Inc. v. Ernewein, 2013 ONSC 959 at para. 12; the court should first determine whether an agreement was reached and then consider whether the agreement should be enforced.

[8] The second, discretionary, stage of the analysis appears to be grounded in the wording of the rule which provides that a judge “may grant judgment” in accordance with the terms of the accepted offer.

[9] In contrast, cases dealing with settlement agreements that have been decided under r. 14.03(5)(d) do not use the two-stage analysis from the r. 49.09 cases.

[10] I find that this application is an appropriate procedure to determine the issues raised herein. The parties agree there is a binding settlement agreement from which they do not seek to resile. They agree that the binding terms require a release to be signed. They disagree on the form of that release. They agree that the form of the release is not an essential term. In my view, they require the court’s assistance to determine rights that depend on the interpretation of a contract.

[11] Accordingly, I conclude I have jurisdiction to deal with the issues raised in this application on their merits.

What release does the contract require?

[12] To determine what the contract requires, I must first determine the terms of the settlement agreement, and then interpret them having regard to the words of the contract, the contract as a whole, the factual matrix and sound commercial principles: Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007) 2007 ONCA 205, 85 O.R. (3d) 254 (C.A.).

The Settlement Agreement and the Subsequent Negotiations about the Terms of the Release

[13] The settlement between the parties began with some verbal discussions between counsel. It appears that initially the respondents were discussing a settlement with Mr. Fung only. On April 13, 2017, the respondents’ counsel, Mr. Zeitz, emailed Mr. Solmon, counsel for Mr. Fung, and asked for Mr. Fung’s counter-offer in writing.

[14] Mr. Solmon responded in an email the next day, advising that Mr. Fung would settle all the claims made against him for $2,500 in return for a dismissal of the action without costs and mutual releases.

[15] Mr. Zeitz responded on April 17, 2017, advising that the respondents wished to deal with Mr. Pomeroy, whom Mr. Solmon also represented, and Mr. Fung together. He advised that the respondents were “agreeable to the terms” Mr. Solmon had set out in his April 14, 2017 email, subject to each of Mr. Pomeroy and Mr. Fung paying $5,000 “in return for a mutual release” and his clients serving a Notice of Discontinuance.

[16] On April 23, 2017, Mr. Solmon responded by saying:

My clients are agreeable to the terms set out below, subject to each of my clients paying $3,000.00 in return for a comprehensive mutual release (lawpro standard form) and your clients serving a Notice of Discontinuance (noting no Defence was filed).

[17] Mr. Zeitz replied on April 24, 2017 as follows:

My clients accept your clients’ counter-offer set out below. Please deliver the $6000 to my attention payable to LZW in trust.

We will serve a Notice of Discontinuance promptly.

Please provide a draft release in the form proposed for my review.

[18] Mr. Solmon provided two draft releases – one in favour of Mr. Pomeroy and one in favour of Mr. Fung – by letter dated April 27, 2017. He wrote:

Once you have confirmed and have had these Releases signed, I will have them signed by my clients and we will exchange the $6,000.00 in exchange for the Release that you will provide my client as well as the Notice of Discontinuance you are filing with prejudice.

[19] Later that same day, Mr. Zeitz responded by providing revised releases. Two changes he made to the releases are particularly relevant.

[20] First, he altered the scope of the release to limit it to matters connected to “all acts matters or things in any way relating to [the action].” Second, he amended the claim-over clause to carve out any action against Mr. Shim. This was a significant change, since the operation of the claim-over clause without the carve-out would leave the respondents’ claim vulnerable to dismissal if Mr. Shim claimed-over against Mr. Pomeroy or Mr. Fenton. The unamended claim-over clause would allow Mr. Pomeroy or Mr. Fung to, in effect, bring an end to the entire claim, including the respondent’s $3 million claim against Mr. Shim, if Mr. Shim added them to the action.

[21] Mr. Zeitz explained his proposed changes:

The Release is only a release of the matters in connection with the existing action. It cannot be a blanket release of anything involving your clients that may have nothing to do with the litigation. The Release also cannot preclude my clients from pursuing Mr. Li Shim.

[22] The Notice of Discontinuance was filed on April 28, 2017.

[23] On May 3, 2017, Mr. Solmon sent the settlement funds to Mr. Zeitz and confirmed that Mr. Zeitz had “raised some issues with regard to the standard lawpro form of Release” and that Mr. Solmon was obtaining instructions. Mr. Zeitz accepted the funds and deposited them into his trust account. Thus, apart from the release, the parties have implemented the significant terms of their settlement agreement.

[24] Mr. Solmon wrote Mr. Zeitz on May 11, 2017 to advise that Mr. Fung would accept Mr. Zeitz’s proposed amendments to the release but Mr. Pomeroy would not. Mr. Zeitz responded the same day to advise that his clients were not agreeable to signing the release without the amendments.

[25] Counsel exchanged further correspondence but it did not end the stalemate between Mr. Pomeroy and the respondents. However, a new issue arose as to the scope of the release.

[26] On May 3, 2017, Mr. Zeitz provided Mr. Solmon with copies of directions the respondents had sent to Mr. Pomeroy on March 22, 2017, requesting that he transfer shares that they state he holds in trust for them. Mr. Zeitz asked that Mr. Pomeroy complete the transfer before the releases were signed.

[27] Mr. Pomeroy has not responded to the request to transfer the shares. The parties now disagree on whether the release must be revised to carve out any claim against Mr. Pomeroy on the basis of his obligations qua trustee. The respondents argue that they did not know the transfer of shares was an issue until May 2017 when Mr. Pomeroy and Mr. Solmon failed to respond to their request for the share transfer. They argue that the claim did not include a prayer for relief relating to the return of their shares. Mr. Pomeroy argues that the claim includes allegations of breach of trust and makes extensive reference to the trust agreement under which Mr. Pomeroy is alleged to hold shares for the respondents, so the settlement must include a release of him qua trustee.

[28] On the facts as I have described them, I conclude that the parties agreed on a settlement agreement with the following terms:

a. Mr. Pomeroy and Mr. Fung would each pay $3000 to the respondents;

b. The respondents would discontinue the claims against Mr. Pomeroy and Mr. Fung; and

c. The parties would sign a mutual release in LawPro’s standard form.

How should “LawPro’s standard form” be interpreted?

[29] The question is whether “LawPro’s standard form” was its standard form mutual release unmodified, or whether the parties’ agreement contemplated that the release would be modified to fit the particular litigation which was being partially settled, in particular by (i) restricting the claim-over provision to carve out Mr. Shim from its operation, and (ii) restricting its scope, including by excluding Mr. Pomeroy’s obligations qua trustee from the release.

[30] In Ventas, the Court of Appeal identified that a commercial contract must be interpreted:

a. as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

b. by determining the intention of the parties in accordance with the language they have used in the written document and based upon the cardinal presumption that they intended what they have said;

c. with regard to the objective evidence of the factual matrix underlining the negotiation of the contract but without reference to the subjective intention of the parties; and

d. in a fashion that accords with sound commercial principles and good business sense that avoids a commercial absurdity.

[31] The contract should be measured by an objective reading of the language chosen by the parties to reflect their agreement: Olivieri v. Sherman, (2007), 2007 ONCA 491, 86 O.R. (3d) 778 at para. 44 (C.A.).

[32] I am entitled to consider the circumstances surrounding the giving of the release to determine what was specially in the contemplation of the parties: Biancaniello v. DMCT LLP, 2017 ONCA 386 at para. 42 (C.A.).

[33] Keeping in mind these principles, I find that the parties’ agreement must be construed so as to require the signature of a LawPro standard form of release modified to suit the particular litigation at issue. I reach this conclusion for the following reasons.

[34] First, Mr. Zeitz’s email accepting the terms of Mr. Solmon’s clients’ counter-offer specifically asked for a copy of the proposed release for his review. Mr. Solmon did not respond to that email to deny that Mr. Zeitz was entitled to review and comment on the release. Rather, he clearly understood that the terms of the release were subject to further negotiation. When he sent the draft releases, he sought confirmation that their terms were acceptable.

[35] Second, any standard form release operates only as a precedent. Precedents must be modified to suit their use in any particular situation. In preparing documents from precedents, lawyers exercise professional judgment. There is no reason to assume that no judgment is brought to bear because the precedent to be used is identified. Rather the scope of a release is a key matter to be addressed when a release is prepared.

[36] Third, Mr. Pomeroy’s theory that the respondents agreed to the standard form LawPro release without amendments makes no commercial sense. Were he correct, the respondents would have settled their actions against Mr. Pomeroy for $3,000 in circumstances where the defendant against whom they seek $3 million may avoid the entire litigation by simply adding Mr. Pomeroy as a third party, and relying on Mr. Pomeroy to move to enforce the claim-over clause. This is not a commercially reasonable result, especially when during negotiations, the respondents made it clear they wanted to deal with Mr. Pomeroy and Mr. Fung together, obviously contemplating ending the litigation against both of them while allowing it to continue against the other defendants.

[37] However, nor does it make sense that the release should be devoid of any claim-over clause. A claim-over clause is part of the standard LawPro release and would have been in the contemplation of the parties. The claim-over clause must thus be included, but amended to reflect the ongoing litigation which was only being partially settled.

[38] Fourth, the evidence does not support a conclusion that the parties agreed that the respondents would release Mr. Pomeroy from his obligations as bare trustee of the shares the respondents allege he holds in trust for them.

[39] In his email dated April 14, 2017, Mr. Solmon made an offer on behalf of Mr. Fung to settle “all of the claims made against Mr. Fung” in the action. Through Mr. Zeitz’s email of April 17, 2017 and Mr. Solmon’s response of April 23, 2017, those terms were extended to the offer to settle made by Mr. Pomeroy.

[40] The allegations against Mr. Pomeroy in the statement of claim include breach of trust and breach of contract. However, the breaches alleged relate to the respondents’ allegations that they have been defrauded of monies due to them as shareholders. There is no allegation made with respect to Mr. Pomeroy’s obligations as bare trustee. For the settlement to include releasing Mr. Pomeroy from those obligations, which are not pleaded in the statement of claim, there must be clear agreement between the parties. There is no such agreement on the evidence before me.

[41] Fifth, it would not be commercially reasonable to release Mr. Pomeroy from his obligations as bare trustee when the respondents still claim to be the owners of the shares. To release an alleged bare trustee from his trust obligations, a settlement would have to answer a fundamental question: what happens to the shares? The respondents have nowhere agreed that they are not the owners of the shares. It would be commercially unreasonable to conclude that they released Mr. Pomeroy in his capacity as bare trustee without resolving the question of what happens to the shares.

[42] I thus conclude that the parties’ agreement requires them to sign a release that (i) excludes Mr. Shim from the claim-over clause; and (ii) does not extend to Mr. Pomeroy’s obligations as bare trustee, but rather is limited to the claims advanced against Mr. Pomeroy in the action.

[43] I note that my conclusions are consistent with the Court of Appeal’s recent decision in Biancaniello, where the court confirmed that “the general words in a release are limited always to that thing or those things which were specially in contemplation of the parties at the time the release was given”: para. 23. The court also held that “the scope of the dispute provides a limiting background context” to the release: para. 38.

[44] In my view, whether interpreting a signed release or considering the scope of the release that the parties have agreed to sign, the matters that were specially in contemplation of the parties at the time the release was agreed to are relevant. Here, the parties would have considered the limiting background context to the release, and particularly (i) the ongoing litigation against Mr. Shim and the other defendants; and (ii) the fact that the respondents allege that Mr. Pomeroy continues to hold the shares for the respondents as bare trustee. The scope of the release should thus be consistent with these matters that were specially in contemplation of Mr. Pomeroy and the respondents at the time the settlement agreement was entered into.

[45] Of the various drafts of releases the parties have provided to me, the release at Tab N of the responding record comes the closest to reflecting the parties’ agreement. However, it excludes entirely the claim-over clause, which clause should be included, but amended to carve out the claims against Mr. Shim. Accordingly, I order that the parties sign the release at Tab N of the responding record, amended to reflect Mr. Zeitz’s revision to the claim-over clause which is located at p. 29 of the application record.

Conclusion

[46] The motion to substitute the release at Schedule A of the Notice of Application is granted.

[47] I find that I have jurisdiction to consider this application under r. 14.05(3)(d) of the Rules of Civil Procedure. In my view, the terms of the parties’ agreement required them to enter into the LawPro standard form mutual release, modified for the particular circumstances of the litigation which they were partially settling. The necessary modifications require a carve-out of Mr. Shim from the claim-over clause and a restriction on the scope of the release so that Mr. Pomeroy is not released from his obligations as bare trustee of the shares the respondents argue he holds in trust for them.

[48] The form of release to be signed is that included at Tab N of the responding record, amended to include the revised claim-over clause at p. 29 of the application record.

Costs

If the parties cannot agree on costs of this application, the respondents may deliver written submissions not to exceed three pages within two weeks of the date of these reasons. The applicant may deliver responding submissions not to exceed three pages within two weeks after receipt of the respondents’ submissions. Submissions may be delivered to my attention at Judges’ Administration, 361 University Avenue, or by email to my assistant.

J. T. Akbarali J.

Date: November 21, 2017