Court File and Parties

Newmarket Court File No.: CV-17-131614-00 Date: 2018-10-26 Superior Court of Justice - Ontario

Re: Raki Holdings Inc., Applicant And: Lionheart Enterprises Inc. and 583753 Ontario Inc., Respondents

Before: The Hon. Mr. Justice G.M. Mulligan

Counsel: R. Macklin and N.G. Wilson, Counsel for the Applicant K.A. Dhirani, Counsel for the Respondents

Heard: October 17, 2018

Endorsement

[1] This Rule 14 Motion requires the court to interpret a clause in Agreements of Purchase and Sale. The clause requires that an adjustment be applied to the purchase price upon approval of all planning and zoning issues by the Municipality. Four million dollars hang in the balance.

[2] The applicant is Raki Holdings Inc. (Raki), a land development company who purchased two large parcels from the respondents, Lionheart Enterprise Inc. and 583753 Ontario Inc. (Lionheart). The land purchased was in the Town of Richmond Hill, within the North Leslie Secondary Plan. The first parcel purchased was for $20,741,000. The second purchase was for $41,930,000. The purchase price was estimated based on $700,000 per acre of net developmental area of residential lands (NDA).

[3] These agreements were entered into in 2012, but the parties had a history. Similar agreements in 2005 containing the same clause did not come to fruition. The 2012 agreements went through numerous drafts with the assistance of their lawyers before the agreements were finalized.

[4] The following clause appeared in the agreements:

1. In this agreement, the words, phrases and expressions defined hereafter shall have the meanings hereinafter set forth: (c) “Net Developable Area” refers to the Gross Area of the property less those lands designated by the Town, the Region or the Toronto and Region Conservation Authority as: Environmental Protection Area 1 lands, Environmental Protection Area 2 lands, Buffer Areas, Zones of Influence, Ecological Corridors and Linkages, including but not limited to valley lands, wetlands, woodlots, open space lands (save and except tableland used for storm water management ponds) and Ecological Restoration Areas, Natural Heritage System as defined by Minister of Natural Resources and/or the Toronto and Region Conservation Authority, Protected Countryside as set out in the Greenbelt Plan (as established by the Province of Ontario) which is currently estimated to be 59.90 acres.

[5] As a guide to my understanding of the clause, I provide the following reformatted clause without adding or subtracting any key words.

1. In this agreement, the words, phrases and expressions defined hereafter shall have the meanings hereinafter set forth: (c) “Net Developable Area” refers to the Gross Area of the property less those lands designated by the Town, the Region or the Toronto and Region Conservation Authority as: Environmental Protection Area 1 lands, Environmental Protection Area 2 lands, Buffer Areas, Zones of Influence, Ecological Corridors and Linkages, including but not limited to valley lands, wetlands, woodlots, open space lands (save and except tableland used for storm water management ponds) and Ecological Restoration Areas, Natural Heritage System as defined by Minister of Natural Resources and/or the Toronto and Region Conservation Authority, Protected Countryside as set out in the Greenbelt Plan (as established by the Province of Ontario) which is currently estimated to be 59.90 acres.

[6] The discreet issue to be determined on this application is whether or not Raki is required to pay for the acreage covered by that portion of the storm water management ponds (SWM ponds) which are located within the Protected Countryside (Greenbelt lands) acquired by it.

The Position of the Parties

[7] As the applicant submits in para. 25 of its Factum:

Raki submits that the appropriate interpretation of the NDA definition is that Greenbelt Protected Countryside lands are deducted from NDA regardless of whether SWM ponds are placed upon those lands. Raki’s interpretation is based on the unambiguous wording of the defined term “NDA” agreed to by the parties, which deducts Greenbelt lands without exception.

[8] The position of the respondents is as set out in their Factum at para. 51:

In this case, it is clear that the definition of NDA in the agreements includes SWM ponds on tablelands on lands designated as open space by the Town, by way of an exception to the exclusion of open space lands. The SWM ponds on Raki North and South fall squarely within this exception. Reading the definition of NDA as a whole, the exclusion of Protected Countryside does not eliminate the exception.

The Record

[9] As part of the record for this proceeding, the parties filed various affidavits. The applicant filed an affidavit from Michael Pozzevon, signing officer for Raki, and Fraser Nelson, a former vice-president, now retired.

[10] The respondent filed an affidavit from Barry Lipson, counsel involved in the negotiations. Both parties also tendered affidavits from land use planning experts: Murray Evans, a land use planner for the applicant, and Rick Pennycooke, a land use planner for the respondents.

[11] All affiants were cross-examined.

[12] The applicant objected to the respondent’s preparation of an expert report on the basis that the expert attempted to opine on the very issue to be determined by the court. In response, the applicant filed a report from its own land use planner. I will have more to say about both planners’ opinions on the ultimate issue to be decided by the court later in these Reasons, however, I accept the planners’ reports as useful background to the planning development policies which informed the parties at the time the agreements were entered into.

Net Developmental Area of Residential Lands

[13] In general terms, the clause used in the agreements enabled the purchaser to deduct certain lands from the cost-per-acre calculations. For example, they could deduct “Ecological Corridors and Linkages”. The words in the middle of the paragraph provides in parenthesis, “save and except tableland used for storm water management ponds”. The paragraph then continues to provide an exception for Protected Countryside as set out in the Greenbelt Plan. The issue for determination is whether or not storm water management ponds, if located on Protected Countryside, fall into the NDA category and therefore require payment by the purchaser to the vendors on a per-acre basis.

[14] The following terms used in the agreement require some definition. “Storm water management ponds” (SWM ponds) are easily understood. According to the state of knowledge of the parties when the agreement was entered into, SWM ponds, subject to planning approval, could either be located on the Protected Countryside (Greenbelt lands) or on the purchaser’s remaining lands slated for residential development purposes.

[15] The term “Protected Countryside” was explained by Rick Pennycooke, the respondents’ planner, as follows:

The term “Protected Countryside”, while not defined in the agreements, has the following meaning from the Greenbelt Plan in the north of the Leslie Secondary Plan: The land designed pursuant to the Provincial Greenbelt Plan, which is to be protected from development.

[16] The Province’s Greenbelt Plan allows an exception for the location of SMW ponds on protected lands.

[17] As the provincial policy states at para. 4.2.3:

…The following policies apply to storm water management infrastructure proposals: (i) Storm water management ponds are prohibited. But the policy then contains an exception for protected lands in the Oak Ridges Moraine and other areas stating “In these areas, naturalized storm water management ponds are permitted provided they are located a minimum of three metres away from the edge of the river/stream…”

[18] The North Leslie Secondary Plan, covering the subject area, acknowledges the importance of the overriding provincial policies contained in the Greenbelt legislation. As the policy states at para. 9.6.8:

(f) Permitted uses in Protected Countryside shall be governed by the Greenbelt legislation. (i) Storm water management ponds may be permitted within the Protected Countryside designation subject to the following criteria…

[19] The term “open space” is discussed in the report of planner Pennycooke, who states at p.8, “Open space lands generally means lands that contain significant natural heritage features or ecological functions that have been identified for protection from development.”

[20] The applicant’s planner, Mr. Evans, provided this definition of “open space”:

Although many environmental features and designations are often categorized together and identified as “open space”, the general term “open space” does not solely encompass all environmental features. Open space lands may include environmental features, but they may also contain lands without any environmental features and may be identified as “open space” for alternate reasons. “Open space” is a general term used for lands that are not developed and are set aside from development for either environmental conservation or recreational purposes.

[21] The word “tableland” was also defined by Mr. Pennycooke, who stated, “Tableland generally means lands that are flat and do not contain hazard or other constraining physical features that would prohibit development.”

[22] Mr. Evans defined “tablelands” as follows:

The reference to tableland in the Raki agreements is an industry term that is not often defined within policy documents. Generally, tableland is the land located beyond the crest of a slope of a valley. While tableland is located beyond the extent of a valley feature, it can contain minor slopes and other environmental features such as ponds and woodlots. Therefore, tableland is developable land, less any lands that contain significant environment or hydrogeological features.

What the Parties Knew About SWM Pond Locations at the Time the Agreement was Entered Into

[23] As Michael Pozzevon, signing officer for the applicant, stated in his affidavit of July 19, 2018, at paras. 13 and 14:

[13] At the time of the agreement of Purchase and Sale for Raki North and Raki South were entered into, the parties were already aware that SWM ponds could likely be placed on Greenbelt Protected Countryside… [14] At the time of the 2012 agreements of Purchase and Sale were signed, the parties knew with even greater certainty that SWM ponds could likely be placed on Greenbelt and that the Municipality, Conservation Authority and the Province of Ontario accepted this concept, subject to obtaining the appropriate approvals.

[24] Fraser Nelson, former vice-president of the Applicant, gave similar evidence at para. 6:

By the time the 2012 agreements of Purchase and Sale at issue were entered into, both parties knew with more certainty that SWM ponds could likely be placed on Greenbelt Protected Countryside. By this time, the Municipality, Conservation Authority and Province of Ontario had all agreed that this could occur, subject to obtaining appropriate approvals.

[25] Barry Lipson, counsel for the respondents throughout the negotiations, gave similar evidence, stating at para. 13 of his affidavit:

By the winter of 2011/2012, it was known to both Nelson and I that the Conservation Authority would accept the concept of storm water management (“SWM”) ponds being sited on Greenbelt designated lands on Raki North and Raki South.

The Negotiated Clause

[26] Mr. Lipson, as counsel for the respondent vendors during negotiations, states at para. 15:

Paragraph 1(c) of Schedule “A” to the 2012 agreements provides that to determine the NDA, open space (non-developmental lands) is deducted from the gross area “save and except tableland used for SWM ponds” (the “qualifying or exempting words”). The presence of the qualifying or exempting words was never challenged, nor was it ever discussed. It was simply understood to be the accepted industry practice. [Emphasis in original.]

[27] The applicant took an opposite view about industry practice and about the cost of the SWM ponds when they were located within the Protected Countryside. As former Vice-President Fraser Nelson stated in his affidavit at paras. 8-11:

[8] First, the definition of “NDA” itself excludes Greenbelt land and does not include any exception for storm water management ponds. [9] Second, I was involved in the other similar transactions and to my recollection, in none of those transactions was Greenbelt land on which SWM ponds were paid for as a developable area. [10] These include the “Autumn Hill” and “Richview 19” transactions which, like Raki North and Raki South, were in the North Leslie West area. …It was not our practice on any of these transactions to pay for SWM ponds on Greenbelt as part of NDA. [11] As such, I do not believe it is industry practice for purchasers to pay for Greenbelt land on which SWM ponds are placed as developable land, and I believe the opposite is true. Moreover, aside from industry practice, the definition used in the Raki North and Raki South agreements was a contractual definition and part of the agreements negotiated between the parties, and so industry practice is of limited relevance.

[28] The respondent planner, Mr. Pennycooke, expressed his view as to the industry practice in his report at p.13 as follows:

My opinion is supported by industry practice, as well as the specific location of context and the planning policies applicable to the Raki properties in this case. Typically, in industry practice, natural or ecologically sensitive areas would be excluded from a property’s net developable area, and lands to be utilized for buildings, roads and supporting infrastructure (including SWM ponds) would be included in a property’s net developable area.

[29] I pause to note that Mr. Pennycooke did not comment on Raki’s “Autumn Hill” and “Richview 19” transactions using the same definition, but attracting the result opposite from Mr. Pennycooke’s suggestion as to industry practice.

Analysis

[30] This case involves the analysis of a clause in an agreement entered into by experienced parties with the assistance of legal counsel. A good starting point is to be found in the Supreme Court of Canada’s decision Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53. As Rothstein J. stated for the Court, at para. 57:

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text, such that the court effectively creates a new agreement. [Citations omitted.]

[31] In RBC Dominion Securities Inc. v. Crew Gold Corporation, 2016 ONSC 5529, aff’d on appeal, RBC Dominion v. Crew Gold Corporation, 2017 ONCA 648, Gans J. provided a helpful summary of the interpretive principles applicable to commercial contracts. As he stated at para. 52:

The principles that I find apply to the task with which I am faced can be expressed as follows: (1) When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. (2) The court construes the contract 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. (3) In interpreting the contract, the court may have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. (4) The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. (5) If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity. (6) While the factual matrix can be used to clarify the intention of the parties, it cannot be used to contradict that intention or create an ambiguity where one did not previously exist.

[32] More recently, in Richcraft Homes Ltd. v. Urbandale Corp., 2016 ONCA 622, [2016] O.J. No. 4298, Lauwers J.A. provided further context at para. 58:

This court summarized the principles applicable to the interpretation of commercial contracts in Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 2007 ONCA 205, 85 O.R. (3d) 254 (Ont. C.A.), at para. 24: Broadly stated…a commercial contract is to be interpreted, (a) As a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would tender 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 have intended what they have said; (c) With regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract), (d) In a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity. [Citations omitted.]

[33] But, Lauwers J.A. sounded this note of caution at para. 59, “This court has recognized that ‘it is an extricable error of law to read a provision of a contract in isolation rather than construe the contract as a whole’” (citations omitted).

[34] In Juol Sands Inc. v. Humberplex Developments Inc., 2009 ONCA 469, Winkler C.J.O. stated at para. 21:

In my view, where there are two possible interpretations that can be given to the words in question, the interpretation that is consistent with the language of the document when read as a whole ought to prevail. [Citations omitted.]

[35] In Amberber v. IBM Canada Ltd., 2018 ONCA 571, the Ontario Court of Appeal found no ambiguity when a particular clause was read as a whole. The Court stated at para. 59:

The fundamental error made by the motion judge is that she subdivided the termination clause into what she regarded as its constituent parts and interpreted them individually. In my view, the individual sentences of the clause cannot be interpreted on their own. Rather, the clause must be interpreted as a whole.

[36] In Maher v. Central Building Services Group Ltd., 2010 ONCA 415, the Court dealt with a situation where the indemnification provisions in a contract appeared to be in conflict. As the Court stated at para. 50, “Where contractual provisions are found to be ambiguous, the court is entitled to consider extrinsic evidence to resolve the ambiguity (citations omitted).

Opinion of the Experts

[37] In this case, both land use planning experts gave their opinions as to the interpretation of the contract. As Mr. Pennycooke stated in his expert report for Lionheart at 5.1:

It is my opinion, as a registered professional planner, that the areas in dispute respecting the SWM ponds are to be included in the net developable area as defined in the agreements. My opinion, as set out more specifically below, is based on my knowledge of the industry, meaning of the term used, and is further supported by an examination of the location of the properties, the applicable planning principles; the storm water management studies affecting the lands; and the draft plan of subdivisions of applications filed for the properties.

[38] Mr. Evans, the planning expert for the applicant, provided the following opinion in his report:

1.0 For the reasons outlined within this report, it is the writer’s opinion that the storm water management blocks contained within the “Raki North” and “Raki South” Plans of Subdivision that are located within the Protected Countryside lands within the Greenbelt Plan are not considered to be net developable area. Although the placement of storm water management ponds within the Protected Countryside has created additional lands to become available for urban development, the terms of the purchase and sale agreement are clear with respect to the calculation of lands identified as the net developable area.

[39] The Supreme Court of Canada has provided some guidance with respect to the role of experts in R. v. Mohan, [1994] 2 S.C.R. 9. As the Court stated at paras. 24 and 25:

[24] There is also a concern inherent in the application of this criterion that experts not be permitted to usurp the functions of the trier of fact. Too liberal an approach could result in a trial’s becoming nothing more than a contest of experts with the trier of fact acting as referee in deciding which expert to accept. [25] These concerns were the basis of the rule which excluded expert evidence in respect of the ultimate issue. Although the rule is no longer of general application, the concerns underlying it remain. In light of these concerns, the criteria of relevance and necessity are applied strictly, on occasion, to exclude expert evidence as to an ultimate issue.

[40] In Dow Chemical Canada Inc. v. Shell Chemicals Canada Ltd., 2010 ABCA 126, [2010] A.J. No. 432 at para. 17:

It is also clear that the parties cannot call expert evidence on the meaning of the contract. For example, neither party could retain a professor of law or English to prepare an expert report on the meaning of the terms of the contract. [Citations omitted.]

[41] Under the circumstances, I find that the opinion of the experts on the ultimate issue that I must decide falls outside the role of the expert, based on the Mohan factors.

Conclusion

[42] In my view, the applicant is entitled to a declaration that the SWM ponds located on the Protected Countryside do not form part of the definition of “net developable area”. In forming this view, I have considered the background context provided by the expert planners, the knowledge of the parties at the time the contract establishing the price was entered into, but more fundamentally, the wording of the clause itself. When read as a whole, the clause is unambiguous.

[43] As a further guide to my understanding of the clause, I provide the following reformatted paragraph without adding or subtracting any key words:

(c) Net Developable Area” refers to the Gross Area of the Property less Group “A” lands (save and except tableland used for SWM ponds) and Group “B” lands. [Emphasis added.]

[44] Note that Group “A” Includes:

Employment Lands and Environmental Protection Area 1 lands, Environmental Protection Area 2 lands, Buffer Areas, Zones of Influence, Ecological Corridors and Linkages, including but not limited to valley lands, wetlands, woodlots, open space lands.

Group “B” Includes:

Ecological Restoration Areas, Natural Heritage System as defined by Minister of Natural Resources and/or the Toronto and Region Conservation Authority, Protected Countryside as set out in the Greenbelt Plan (as established by the Province of Ontario) which is currently estimated to be 29.63 acres.

[45] As can be seen, the properties in the clause fall into two groups: Group “A” and Group “B”. The Group “A” lands have the following words in parenthesis “save and except tableland used for SWM ponds”. Significantly, the Group “A” and Group “B” lands are separated by the word “and”. The words in parenthesis “save and except tableland used for SWM ponds” are not shown in parenthesis with respect to the Group “B” lands. If the drafters had wanted to have the words in parenthesis also apply to the Group “B” lands, they ought to have said so in clear and unambiguous language. In my view, the interpretation sought by the respondents asks the court to add the words in parenthesis to follow Group “B” lands, which includes the Protected Countryside. I decline to do so.

[46] The application of Raki Holdings Inc. is granted.

Costs

[47] If the parties are not able to resolve the issue of costs, I will receive written submissions from the applicant, Raki, within 20 days of the release of this Endorsement. Submissions not to be more than five pages in length, plus a Bill of Costs. The responding parties, Lionheart and 583753 Ontario Inc. will then have 10 days to respond with submissions not exceeding five pages, plus a Bill of Costs. Submissions may be sent to my Judicial Assistant at Barrie.

MULLIGAN J. Date: October 26, 2018