COURT FILE NO.: CV-17-588951

DATE: 20180608

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Harry Voortman and Voortman Enterprises Trust, Applicants

AND:

Voortman Cookies Ltd. (Formerly SPCVC Acquisition Inc.) and SPCV Investments Inc., Respondents

BEFORE: H. McArthur J.

COUNSEL: Sean Dewart and Lindsay Beck, appearing for the Applicants

Alex Rose and Zev Smith, appearing for the Respondents

HEARD: April 30, 2018

ENDORSEMENT

H. MCARTHUR J.:

Introduction

[1] When sophisticated parties enter into an agreement, where “time is of the essence”, what happens if one party misses a deadline? Is a deal always a deal? Or, in certain circumstances, can the court provide equitable relief? That is the issue in the present case.

[2] Harry Voortman sold his cookie company to SPCVC Investments Inc. for $182.5 million.[^1] The agreement provided that on closing, $1 million of the purchase price was to be paid into an escrow account to secure any claim by the “purchasers for breaches of the sellers’ representations and warranties.” The agreement stipulated that SPCVC had 18 months during which to make any such claim. If the claim exceeded $1.825 million, then Mr. Voortman would become liable for damages not exceeding the $1 million in the escrow account.

[3] The agreement further provided that Mr. Voortman had 30 days to file a written objection to the claim. If Mr. Voortman failed to provide a written objection, he was deemed to have admitted the claim and given up his rights to the $1 million in escrow. The agreement stipulated that time was to be of the essence.

[4] SPCVC filed a claim. Mr. Voortman’s lawyer, Paul Grespan, wrote to SPCVC and asked for more particulars. After receiving particulars, Mr. Voortman met with Mr. Grespan and instructed him to file a written objection to the claim. Mr. Voortman’s lawyer, however, missed the 30-day deadline by seven days. Why? In the week leading up to the deadline, Mr. Grespan was told he required open heart surgery. Further, an associate at his firm suffered serious injury in an accident and was unable to return to work on an indefinite basis. In the midst of these troubling circumstances, Mr. Grespan inadvertently missed the deadline.

[5] Mr. Voortman now brings an application pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990. c. C.43, seeking relief from forfeiture. He argues that he acted reasonably in relying on his lawyer, that the breach was minor and that there is a significant disparity between the value of the property to be forfeited and the damage caused by the breach. This is a case, he argues, that cries out for equitable relief.

[6] SPCVC counters that relief from forfeiture is not available in this case, as Mr. Voortman did not breach the contract; rather, he failed to exercise an option. SPCVC further argues that in the event that forfeiture is found to be an available remedy, it should not be granted in this case as time was to be of the essence. If relief from forfeiture is granted, SPCVC argues that it should be given an extension and allowed to make claim for any amounts discovered within two months of the end of the 18-month period stipulated in the agreement.

[7] For the reasons that follow, I have determined that relief from forfeiture is an available remedy on the facts of this case. I have further concluded that given the unique facts of this case, relief from forfeiture should be granted. Finally, I have determined that a two-month extension for SPCVC to file a claim is not warranted.

[8] I do not propose to detail the facts, but will refer to them as necessary in my analysis, to which I now turn.

Analysis

1) Issue One: Is relief from forfeiture an available remedy in this case?

[9] The power of the Ontario Courts to grant relief from forfeiture is codified in s. 98 of the Courts of Justice Act. Section 98 provides:

A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

[10] Relief from forfeiture refers to the power of the court to protect a party against the loss of an interest or a right because of a failure to perform a covenant or condition in an agreement or contract. The remedy is equitable and purely discretionary. Relief from forfeiture should be granted sparingly and the party seeking the relief bears the onus of establishing the case for relief: Kozel v. The Personal Insurance Company, 2014 ONCA 130, at paras. 28-29; Ontario (Attorney General) v. 8477 Darlington Crescent, 2011 ONCA 363, at para 87.

[11] SPCVC argues that relief from forfeiture is not available in this case, as there has been no breach of contract. Mr. Voortman had an option to either; a) object to the claim notice within 30 days, or b) remain silent and be deemed to consent to indemnity claims. SPCVC argues that Mr Voortman’s failure to exercise an option “does not create an actionable breach of contract that can support a claim for relief from forfeiture.”

[12] In making this argument, SPCVC relies on Canadian Superior Oil of California Ltd. v. Kanstrup et al., 1964 CanLII 49 (SCC), [1965] S.C.R. 92. SPCVC argues that Mr. Voortman’s position was expressly rejected by the Supreme Court in Kanstrup and that he is asking for a “novel expansion” of the law by asking the court to apply the doctrine of relief from forfeiture to cases where there has been no breach of contract, but rather, a failure to exercise an option.

[13] I cannot agree with this argument for three reasons. First, in my view the reasoning in Kanstrup does not stand for the general proposition that in the absence of a breach of contract relief from forfeiture is not available. Second, the facts in the present case are distinguishable from Kanstrup and lead to a different analysis. Third, the argument advanced by SPCVC is inconsistent with Ontario Court of Appeal authorities. I will address each point in turn.

(i) The reasoning in Kanstrup does not stand for the general proposition that in the absence of a breach of contract, relief from forfeiture is not available

[14] SPCVC argues that Kanstrup stands for the broad and binding proposition that in the absence of a breach of contract, relief from forfeiture is not available. In my view, however, the comments in Kanstrup with respect to breach of contract were narrowly tailored to the facts in that case.

[15] Kanstrup involved a gas lease. Canadian Superior Oil had a 10-year lease. At the end of the 10 years, the lease would continue, so long as Canadian Superior Oil either produced gas or paid $100 annually. The company did not produce gas, and instead provided a cheque for $100. The cheque, however, was not provided until after the 10-year lease had already expired. Kanstrup thus took the position that the lease had been terminated.

[16] Canadian Superior Oil advanced a number of arguments as to why the lease should not be terminated. In particular, it pointed to a provision in the agreement which stipulated that if Canadian Superior Oil breached any terms of the agreement, such breach would not lead to forfeiture or termination of the lease.

[17] The court held at para. 37 that the provision did not assist Canadian Superior Oil, as the company did not breach the contract, rather it failed to take advantage of an opportunity to renew the lease. It is clear that the court’s comments about breach of contract and forfeiture were limited to an assessment of the impact of the particular provision being considered in that case. Contrary to the submission of SPCVC, the court in Kanstrup did not articulate a general principle that a breach of contract is always required before relief from forfeiture is available.

(ii) The facts in the present case are distinguishable from Kanstrup

[18] Moreover, the present case is distinguishable from Kanstrup. Canadian Superior Oil only had claim to the property because of the lease. The lease provided for a specified term, which would terminate automatically at the end of the term unless Canadian Superior Oil produced gas or paid $100. The company failed to take either action. The lease thus terminated. In this situation, the court found at para. 40 that there was simply “no forfeiture to relieve against.”

[19] In contrast, in the present case the $1 million in escrow belonged to Mr. Voortman. That money continued to be his unless SPCVC established a claim in excess of $1.825 million. By missing the deadline, Mr. Voortman was deemed to have admitted the claim. Thus, Mr. Voortman lost his right to the money because of his failure to perform a covenant in the agreement. Unlike in Kanstrup, Mr. Voortman clearly forfeited money in which he had an interest: there is forfeiture to relieve against.

(iii) The position of SPCVC is inconsistent with Ontario Court of Appeal authorities

[20] Finally, the position of SPCVC is inconsistent with Ontario Court of Appeal authorities. For example, in 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No 2801 (C.A.), the court found that it had jurisdiction to grant relief from forfeiture in cases where an optionee has failed to exercise an option. The court noted that while the jurisdiction to grant equitable relief in such cases is limited, it is available. (See also Ross v. T. Eaton Co. Ltd., 1992 CanLII 7470 (ON CA), [1992] O.J. No. 2239)

[21] In PDM Entertainment Inc. v. Three Pines Creations Inc., 2015 ONCA 488, at paras. 61-62, the Court of Appeal rejected the argument that relief from forfeiture can only be granted where the party seeking relief has breached a contract and the breach gives rise to a right to forfeiture essentially to secure payment of money. Macpherson J.A. made clear at para. 63 that relief from forfeiture is available in a wide range of cases.

[22] More recently, in Poplar Point First Nation Development Corporation v. Thunder Bay (City), 2016 ONCA 934, the court held that relief from forfeiture was available, even though there had been no breach of contract. In that case, the appellant had failed to pay municipal taxes on his property, and the property was sold by the Municipality. The money from the sale exceeded the amount owed for taxes and the money was paid into court. Under the Municipal Act, the appellant then had one year to make a claim for the money. He missed the deadline by three weeks, thus he was deemed to have forfeited the money. In finding that relief from forfeiture was warranted, van Rensburg J.A. noted at para. 36 that s. 98 provides the court with “what appears to be broad and unlimited authority” to grant relief from forfeiture.

(iv) Conclusion on whether relief from forfeiture is an available remedy in this case

[23] SPCVC relies on Kanstrup in arguing that relief from forfeiture is not available in the present case since there was no breach of contract. Kanstrup, however, does not stand for such a general proposition and, in any event, the facts in the present case are distinguishable. Moreover, SPCV’s position is inconsistent with Ontario Court of Appeal authorities. I find that I have jurisdiction to grant relief from forfeiture in this case. I turn now to consider whether relief from forfeiture should be granted.

2) Issue Two: Should relief from forfeiture be granted in this case?

[24] In considering whether to grant relief from forfeiture, the court must consider three factors: i) the conduct of the applicant; ii) the gravity of the breach; and iii) the disparity between the value of what has been forfeited and the damage caused by the breach: Kozel, at para. 31; Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490, at para. 32.

[25] As Paciocco J.A. recently explained in Scicluna v. Solstice Two Limited., 2018 ONCA 176, at para. 29, these factors do not create a three-part test requiring satisfaction of each; they are elements to guide the court in the exercise of its discretion. I will consider each factor in turn.

i) The Conduct of the Applicant

[26] The first factor requires an examination of the reasonableness of the breaching party’s conduct as it relates to “all facets of the contractual relationship, including the breach in issue and the aftermath of the breach”: 8477 Darlington Crescent, at para. 89. As Osborne J.A. explained in Williams Estate v. Paul Revere Life Insurance Co., 1997 CanLII 1418 (ON CA), [1997] O.J. No. 2773, at para. 49, the court should consider the nature of the breach, what caused it and anything that the party tried to do about it. All of the circumstances should be taken into account, including anything that tends to explain the act or omission that led to the forfeiture.

[27] In my view, the circumstances in the present case establish that Mr. Voortman acted reasonably. Mr. Voortman met with his lawyer after particulars had been provided and instructed him to file the required objection. Mr. Voortman reasonably relied on his long-time lawyer to follow his instructions and comply with the 30-day time frame in which to file an objection. This is similar to the case of Buurman v. The Dominions of Canada General Insurance Company, 2015 ONSC 6444. There, at para. 43, the court found that it was reasonable for the plaintiffs to believe that their lawyers would attend to the time limit for claiming accident benefits coverage under an insurance policy. (See also, Niagara Falls (City) v. Diodati, 2011 ONSC 2180, at para. 26)

[28] Mr. Voortman could not reasonably have anticipated that his long-time lawyer would suffer personal difficulties that would lead him to miss an important deadline contrary to his explicit instructions. Moreover, while it is Mr. Voortman’s conduct that must be assessed, when considering whether an equitable remedy is appropriate, the reason that Mr. Grespan missed the deadline is a relevant circumstance to consider. The lawyer missed the deadline because of inadvertence stemming from personal issues.

[29] It is true, as pointed out by SPCVC, that there were other lawyers at the firm. But in my view that does assist SPCVC for two reasons. First, the fact that there were other lawyers at the firm underscores that it was reasonable for Mr. Voortman to believe that his instructions to file a written objection would be followed. Second, other lawyers could not be expected to take over from Mr. Grespan unless they were aware of the need to do so. Mr. Grespan could not instruct other lawyers to take over unless he adverted to the deadline. But in the week leading up to the deadline, an associate at the firm had suffered serious injury and was unable to return to work. And Mr. Grespan had been told he required open heart surgery. The uncontroverted evidence is that Mr. Grespan did not advert to the deadline because of the challenging circumstances that arose in the week leading to the deadline.

[30] The context supports that the deadline was missed inadvertently. The day he received the claim, Mr. Grespan advised SPCVC that he was seeking particulars of the claim. Mr. Grespan’s uncontested evidence is that he was diligently engaged in reviewing and considering the Damages Claim Notice. The news that he would require open heart surgery and the injuries suffered by his associate led him to miss the deadline. The failure to comply did not arise because of indifference.

[31] Further, as soon as Mr. Grespan realized that the 30-day deadline had passed, he notified SPCVC of the objection. The rapidity with which he moved to address the missed deadline supports the conclusion that the failure to comply with the deadline did not stem from indifference. It also highlights that Mr. Voortman instructed his lawyer to file an objection. Again, it was reasonable for Mr. Voortman to rely on his lawyer to follow his instructions.

ii) The Gravity of the Breach

[32] When considering the gravity of the breach, the court should look at both the nature of the breach itself and the impact of that breach on the contractual rights of the other party: 8477 Darlington Crescent, at para. 19; Kozell, at para. 67.

[33] Mr. Voortman argues that the breach was minor; he was only seven days late in filing the objection and courts have granted relief from forfeiture where the breach was graver: Buurman, at para. 43-44. Mr. Voortman also argues that SPCVC has failed to articulate any actual prejudice flowing from the delay.

[34] SPCVC counters that since the contract stipulated time was of the essence, it is a serious breach; Ontario Courts have strictly enforced time is of the essence clauses: 2181050 Ontario Ltd. v. Strong et al., 2018 ONSC 442, at paras. 17-18; 1473587 Ontario Inc. v. Jackson, 2005 CanLII 4578 (ON SC), [2005] O.J. No. 710, at para. 19. SPCVC has been prejudiced by Mr. Voortman’s failure to comply with the time is of the essence provision.

[35] In my view, the fact that there was a time is of the essence provision renders the breach in this matter more serious than it would have been in the absence of any such clause. While SPCVC could not articulate any specific prejudice it suffered from the seven-day delay, prejudice can be inferred because of the time is of the essence clause. The need for certainty in commercial contracts militates in favour of finding prejudice in this type of situation.

[36] On the other hand, SPCVC could point to no actual prejudice it suffered as a result of the delay in filing the objection. No steps it took that it would not have, but for the seven-day delay. No steps it failed to take that it would have, but for the delay. No missed opportunities. No unnecessary expenditures. Thus, overall I find the seven-day delay in filing the objection to be a relatively minor breach.

iii) Any Disparity Between the Value of the Property Forfeited and the Damage Caused by the Breach

[37] The third factor requires the court to consider the disparity between the value of the property forfeited and the damage caused by the breach. This entails a “kind of proportionality analysis”: 8477 Darlington Crescent, at para. 92.

[38] Mr. Voortman points to the fact that SPCVC has failed to articulate any real damage caused by the breach. In contrast, he will forfeit $1 million if relief is not granted. He argues that there is a substantial disparity between the value of the property he will have to forfeit and any damage caused to SPCVC.

[39] SPCVC counters that Mr. Voortman is not required to pay $1 million as the money was already in the escrow account; Mr. Voortman is not required to “pay anything out of pocket”. Thus, SPCVC argues that Mr. Voortman has not suffered any real loss. This argument ignores the reality that the money paid into escrow belongs to Mr. Voortman unless and until SPCVC establishes a claim in excess of $1.825 million. Since Mr. Voortman did not file a written objection within 30 days, he is deemed to have admitted the claim and to have given up his right to that money. Contrary to the submission of SPCVC, Mr. Voortman has clearly forfeited $1 million.

[40] SPCVC has suffered some prejudice, as noted above. That said, the only prejudice is inferred because the contract specified that time was to be of the essence. SPCVC failed to articulate any actual prejudice suffered because Mr. Voortman was seven days late in filing the written objection. I find that there is a significant disparity between the money forfeited by Mr. Voortman and the prejudice suffered by SPCVC. The loss suffered by Mr. Voortman is disproportionate to the damages suffered by SPCVC.

iv) Conclusion on Whether Relief from Forfeiture Should be Granted

[41] Mr. Voortman acted reasonably in relying on his lawyer. He met with his lawyer and instructed him to file the objection. He could not reasonably have anticipated that his lawyer would have troubling personal circumstances that would lead him to inadvertently miss the 30-day deadline. The breach is not particularly grave. While SPCVC has suffered some prejudice, it is minimal. There is a significant disparity between the $1 million forfeited and minimal prejudice suffered by the seven-day delay in filing the objection. Balancing all three factors, I find that Mr. Voortman should be granted relief from forfeiture.

[42] The next issue is whether, as a result, SPCVC should correspondingly receive a two-month extension to file its claim. I turn to that issue now.

3) Issue Three: Should SPCVC receive a two-month extension to file its claim?

[43] Section 98 allows for relief from forfeiture “on such terms as to compensation or otherwise as are considered just.” SPCVC argues that if I grant relief from forfeiture to Mr. Voortman, it is just and equitable to grant SPCVC a two-month extension to file its claim.

[44] Mr. Voortman counters that for any additional terms to be just, they must relate to prejudice flowing from the seven-day delay. For example, if SPCVC had incurred expenses as a result of the seven-day delay, it would be a just and appropriate term to order that Mr. Voortman pay those expenses. Here, SPCVC has no losses to point to; instead, SPCVC is asking for a remedy in the absence of any damage.

[45] I agree. If SPCVC had been able to articulate any specific prejudice it suffered as a result of the delay, I would be prepared to impose a term to address that prejudice. In the absence of any articulable prejudice, however, I find that the remedy being sought by SPCVC is unjustified.

Conclusion

[46] Relief from forfeiture is an available remedy in this matter. While such relief should be granted sparingly, it is justified in this case; Mr. Voortman acted reasonably, the breach was minor, and the forfeiture of $1 million by Mr. Voortman is disproportionate to the damages suffered by SPCVC because of the seven-day delay. Finally, I find that SPCVC is not entitled to a two-month extension to file its claim.

Costs on this Application

[47] I encourage the parties to see if they can agree on costs. If the parties are unable to agree on costs, Mr. Voortman shall serve and file with my office written costs submissions within 15 days. SPCVC shall serve and file with my office any responding costs submissions within 15 days thereafter. The written submissions shall not exceed three pages in length, excluding the Costs Outline.

Justice Heather McArthur

Date: June 8, 2018

[^1]: The applicants are Harry Voortman and Voortman Enterprises Trust. For ease of reference, I will generally refer to the applicants as Mr. Voortman. The respondents are Voortman Cookies Ltd. (formerly SPCVC Acquisition Inc.) and SPCVC Investment Inc. I will generally refer to the respondents as SPCVC.