Court File and Parties

Oshawa Court File No.: CV-16-95681 Date: 20190313 Ontario Superior Court of Justice

Between: James Andrew Mulholland, Applicant – and – James A. Barrowman, Anne Reynolds, Maurice A. Hudon, Nancy Louise Mulholland, BMO Trust Company, William David III Mulholland, Matthew D. Nash, Charles Douglas Mulholland, John Mulholland, Patrick Henry Mulholland, Veronique G. Mulholland, Isabelle Mulholland, Elizabeth Mulholland, Madeline Louise Mulholland, Sarah Alexandra Mulholland, Caroline Marie Van Norstrand, Bruce Mulholland and The Children’s Lawyer, Respondents

Counsel: Laurie L. Aitchison, for the Applicant, James Andrew Mulholland Archie J. Rabinowitz and Josh Shneer, for the Respondent (Moving Party), BMO Trust Company David Shiller, for the Respondent, Nancy Mulholland Alyson Spaling, for the Respondent, Madeline Louise Mulholland Susan J. Stamm, for The Office of the Children’s Lawyer

Heard: January 16, 2019

Reasons for Decision

Charney J.:

Overview

[1] This motion is brought by the Estate Trustees for court approval of a Memorandum of Understanding and Minutes of Settlement, and to enforce the Memorandum of Understanding as against one of the beneficiaries.

[2] The issue before the court is whether there ever was an understanding or settlement that can be approved or enforced.

Facts

[3] BMO Trust Company (BMO) and Maurice Hudon (Mr. Hudon) are the Estate Trustees of the Estate of William D. Mulholland (the Estate). William D. Mulholland (the deceased) died on September 8, 2007. His last will and testament established three testamentary trusts, two of which are currently in existence: the trust established for the benefit of his wife, Nancy Mulholland (Nancy), during her lifetime (the Marital Trust), and the trust established for his nine children and his grandchildren for educational expenses (the Educational Trust).

[4] One of the deceased’s sons, James Andrew Mulholland (James) commenced an Application (Court File # 95681/16ES) seeking, inter alia, an immediate lump sum support payment of $15,000, interim support of $2,500 per month, occupancy rights to a farm property owned by the Estate, a constructive trust and ownership with respect to the same farm property, retroactive dependant support totalling $320,000 and punitive damages against the Estate and the Estate Trustees in the amount of $4,000,000 [1] for breach of fiduciary duty.

[5] In response to James’ application, the Estate Trustees commenced an Application for Directions (Court File # 97664/16) seeking the direction of the Court in regard to the Estate Trustees’ right to sell estate property held in the Marital Trust and Nancy’s right to continue to occupy the property. These two Applications were heard together by Woodley J. in November and December 2017.

[6] While there were numerous parties named in the Notices of Application, the only parties who appeared at the hearing were the Estate Trustees, Nancy and James. Also in attendance was counsel for The Office of the Children’s Lawyer (OCL), since a number of beneficiaries of the Educational Trust are minors.

[7] Woodley J. reserved her decision. Following the conclusion of the hearing and while the decision was still under reserve, the parties who attended the hearing participated in a judicial settlement conference before Shaughnessy J. in February 2018.

Memorandum of Understanding

[8] The Estate Trustees, Nancy, James and the OCL entered into a Memorandum of Understanding (MOU) dated February 27, 2018. The following is a summary of the terms most relevant to the legal issues raised in this motion:

1. James was to be paid the all-inclusive maximum sum of $500,000. Of that amount, $100,000 was to be paid by BMO and $100,000 from the Educational Trust, with the balance of $300,000 payable to James upon the successful closing of the sale of a farm property owned by the Estate.
2. Since James was not represented by counsel at the negotiation of the MOU, the MOU provided that James could obtain independent legal advice in respect of the MOU, to be funded to a maximum of $5,000 to be paid equally by BMO and the Educational Trust.
3. The farm property was to be listed for sale no sooner than July 1, 2018. Nancy, who lived on the farm property, was to remove all farm apparatus, equipment, implements, vehicles used in the farm business, machinery, supplies, crops and livestock, including horses by July 1, 2018.
4. The Estate Trustees were given the exclusive authority to list, market and negotiate an Agreement of Purchase and Sale with no interference from Nancy or her children.
5. Nancy was to vacate the property before the closing date, which was to be no earlier than August 1, 2018, or by July 1, 2019.
6. Nancy was to be responsible for the property’s expenses, including but not limited to insurance, property taxes and maintenance from December 1, 2017 to the date she vacates. After she vacates, the Estate Trustees were responsible for these costs to the date of closing, but with a right to reimbursement from the proceeds of closing.
7. The proceeds of closing were to be distributed in the following priority: a) Taxes, legal and brokerage fees, agent commission and costs incurred to effect the sale of the property including the Trustees’ carrying costs after Nancy vacated the property; b) $300,000 to James; c) $100,000 to Nancy; d) The Estate Trustees’ legal fees on a substantial indemnity basis; e) $300,000 for the Educational Trust; and f) Any additional surplus to be split between Nancy and the Educational Trust.
8. Nancy and James waived the right to compel the Estate Trustees to pass their accounts, including any assessment of the Estate Trustees’ legal fees.
9. The parties were to use their “best efforts” to implement the terms of the MOU in accordance with their overall intention and to execute such documents as may be reasonably necessary to give effect to the Minutes of Settlement.

[9] Of central significance to the motion before me was the right given to James to obtain independent legal advice in relation to the terms of the MOU. In that sense, James’ consent to the MOU was conditional consent. It is a basic principle of contract law that conditional assent to an offer does not constitute acceptance until the condition is satisfied, waived or expires. In M.P. Furmston, Cheshire, Fifoot, and Furmston’s Law of Contract, 17th ed. (Oxford: Oxford University Press, 2017), at pp. 53 – 54, the authors state:

A conditional assent to an offer does not constitute acceptance. A man who, though content with the general details of a proposed transaction, feels that he requires expert guidance before committing himself to a binding obligation, often makes his acceptance conditional upon the advice of some third party, such as a solicitor. The result is that neither party is subject to an obligation.

See also: 1175777 Ontario Ltd. v. Magna International Inc., 2006 CarswellOnt 7512, [2006] O.J. No. 4732, at para. 158, aff’d 2008 ONCA 406.

[10] James did exercise his right to obtain independent legal advice. On March 26, 2018, Mr. James Aitchison wrote to counsel for the other parties to the MOU to advise that he had been retained by James to give independent legal advice. He took the position that the MOU was not acceptable as written because James should be paid the entire $500,000 up front, and not have $300,000 deferred until after the sale of the property. His letter states:

After having explained the memorandum to Mr. [James] Mulholland, the most serious concern is with the delay in payment of the $300,000.00. Mr. [James] Mulholland is not satisfied to have the payment delayed and it needs to be paid on the 31st day following Court approval of the settlement, along with the $200,000.00.

If payment cannot be made as set out above, Mr. Mulholland is content to wait for Justice Woodley’s decision.

[11] I was advised by counsel during the argument of the motion before me that this position was being taken by Mr. Aitchison in order to structure the payments to James so as to preserve James’ Ontario Disability Support Program (ODSP) benefits. It is irrelevant to the motion before me whether this position was legally correct.

[12] As a result of this objection, the MOU began immediately to unravel.

[13] Counsel for Nancy wrote to Mr. Aitchison on March 29, 2018 requesting a complete list of all of Mr. Aitchison’s concerns so that he could consider them all at once. Mr. Aitchison responded on April 4, 2018, advising that James “does not want me to waste time if there is no agreement on the upfront $500,000 payment”, indicating that the other concerns “are simply language” and giving the other parties two days to agree or James “will await Justice Woodley’s decision”.

[14] On April 6, 2018, counsel for the Estate Trustees wrote to Mr. Aitchison, taking the position that “if you do not contact us by April 13, 2018 with your client’s agreement to abide by the MOU, we will proceed to file a motion to enforce the MOU”.

[15] On April 20, 2018, James wrote to the Court and the other parties to advise that the attempts to settle the Applications had failed “on multiple fronts”. He stated:

Therefore, as per the foregoing, the express purpose of this letter is to inform Her Honour [Woodley J.] that I wish for her to proceed with rendering her judgment(s) in the above noted court files.

[16] On April 22, 2018, counsel for the Estate Trustees sent the parties to the MOU draft Minutes of Settlement that reflected the terms of the MOU. In particular, the April 20, 2018 draft provided that the $300,000 payment would be paid to James following the successful closing of the sale of the property, as per the terms of the MOU. This version of the Minutes of Settlement (MOS) was never signed.

[17] Counsel for the Estate Trustees advised the other parties of his intention to bring a motion to enforce the MOU, although no date was scheduled.

Minutes of Settlement

[18] Some time in June 2018, counsel for the Estate Trustees and counsel for James began to negotiate revised Minutes of Settlement to accommodate James’ objection to the MOU. The Estate Trustees and James arrived at an agreement and signed Minutes of Settlement dated June 21, 2018. Counsel for the OCL consented to the revised Minutes. Counsel for Nancy was not invited to participate in this negotiation.

[19] On June 28, 2018, counsel for the Estate Trustees wrote to counsel for Nancy:

Please find enclosed executed Minutes of Settlement…We have obtained [OCL] consent to the executed Minutes of Settlement, which revise the Memorandum of Understanding dated February 27, 2018. We will be scheduling a return date for our motion for court approval of these Minutes of Settlement. Please confirm that you still act for Mrs. [Nancy] Mulholland and will remain counsel of record for out motion for court approval.

[20] Predictably, counsel for Nancy responded the next day, expressing some surprise and concern that the other parties had:

entered into negotiations and entered into minutes of settlement containing terms that differ significantly from the terms of the memorandum of understanding the parties signed on February 27, 2018. I would have expected that Nancy would have been included in any negotiations and I confess to being puzzled as to why the parties would see fit to conclude an agreement without involving her and on terms that will obviously not be acceptable to her.

[21] Counsel for the Estate Trustees replied on June 29 that he intended to bring a motion to enforce the MOU as against Nancy.

[22] The MOS signed on June 21, 2018 does differ from the MOU in several significant respects:

1. Unlike the MOU, the MOS agreed to pay the entire $500,000 to James within 45 days of court approval of the settlement and in advance of the closing of any sale of the property. The $300,000 that was to have come from the sale of the property was to be advanced by BMO as a loan secured by a first ranking mortgage on the property to be sold. This loan “shall be repaid in full, with interest, immediately from the sale of the proceeds of the Property”. The interest payment to BMO was to take priority over the surplus that was to have been split between Nancy and the Educational Trust following the sale of the property (see para. 8(7)(f) above). Thus, depending on the interest rate (which was not specified in the MOS) and the duration of the loan (also unknown), Nancy’s share in any surplus from the sale of the property would be reduced by the amount of interest paid to BMO so that James could get his money prior to the sale of the property.
2. While the MOU provided that James’ independent legal advice was to be funded to a maximum of $5,000 to be paid equally by BMO and the Educational Trust (see para. 8(2) above), the MOS provided an additional payment to James’ lawyer of $7,500 to be paid from the Marital Trust.
3. In addition to the property maintenance requirements set out in para. 9(3) above, Nancy was responsible for “ensuring compliance with any provisional (sic) regulations regarding the burial or disposal of horses”.
4. Only the OCL was to have standing to raise questions about the Estate Trustees’ legal fees.

Analysis

[23] The Notice of Motion brought by the Estate Trustees is for an Order approving both the Memorandum of Understanding (MOU) dated February 27, 2018, and the Minutes of Settlement (MOS) dated June 21, 2018, and to enforce the MOU against Nancy pursuant to Rule 49.09(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[24] Rule 49.09(a) provides:

FAILURE TO COMPLY WITH ACCEPTED OFFER

49.09 Where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may,

(a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly;

[25] The issue in this case is whether either of these two agreements – the MOU and the MOS – actually resulted in a settlement of the litigation.

[26] Putting aside issues of offer and acceptance for the moment, it is apparent that the Court cannot approve both the MOU and the MOS, since the two documents provide for inconsistent rights and obligations. Counsel for the Estate Trustees initially argued that both documents can be approved, and the parties left to figure out among themselves how to deal with the contradictions, and which provisions of which agreement apply to which party.

[27] I accept the argument of counsel for Nancy that proceeding on this basis is simply a recipe for further litigation. It would settle nothing. Nancy is not a signatory to the MOS, and none of its terms can be imposed upon her by way of this motion.

[28] Nancy is a signatory to the MOU, but the MOU cannot be enforced only as against Nancy, as requested in the Estate Trustees’ Notice of Motion. An agreement must be enforceable by and against all of the parties. Rule 49.09 provides that the court may issue a judgment “in the terms of the accepted offer”. Any such judgment would be enforceable by and against all of the parties to the litigation.

[29] Counsel for the Estate Trustees has indicated that the parties to the MOS have figured out a way to meet the terms of the MOS without involving Nancy. This involves certain side deals between James and the Estate Trustees that are inconsistent with the MOS, such as the provision of an unsecured interest free loan to make the $300,000 payment to James. Maybe that will work, but it makes no sense to seek Court approval of the MOS if the parties indicate that they do not intend to abide by its terms. Nor is it clear to me why the Court would approve the MOS if it has not been agreed to by all of the parties to the litigation or by all of the parties to which it purports to apply.

[30] Faced with the impossibility of Court approval of both the MOU and the MOS, counsel for the Estate Trustees took the position that the Court should approve and enforce only the MOU, which was signed by all the parties. The Estate Trustees and James would then use their “side deals” to ensure that James’ demands are accommodated without involving Nancy or compromising the terms of the MOU.

[31] That is a possible solution, but Nancy takes the position that she is no longer bound by the MOU because James’ conditional consent to the MOU was withdrawn by Mr. Aitchison in his correspondence dated March 26, 2018 and April 4, 2018, and certainly no later than James’ correspondence on April 20, 2018. As such, the February 27, 2018 MOU became void on April 20, 2018, and all the parties would have to agree to be bound by it again. Nancy no longer agrees to be bound by the MOU.

[32] James takes the position that the MOU was enforceable, but that his right to obtain independent legal advice meant that he could make changes to the “structure” of the MOU in order to preserve his ODSP benefits, and that these changes did not require the consent of Nancy, so that the MOU, as amended by the MOS, is an enforceable agreement. I reject this position. There is nothing in the MOU itself or the correspondence between counsel to support this interpretation of the MOU. The correspondence from Mr. Aitchison makes clear his understanding that James could propose changes to the MOU, but, without the agreement of the other parties to his proposed changes, the MOU would be void. The changes proposed by James were not mere “structural amendments”, but directly affected Nancy’s financial interests. Nancy was not obliged to agree with these proposals or the other changes contemplated by the MOS.

Conclusion

[33] James’ right to obtain independent legal advice meant that James’ agreement to the MOU was conditional. Having obtained independent legal advice, he decided to withdraw his conditional consent and advised the Court and the other parties of his withdrawal by correspondence dated April 20, 2018. While the correspondence from his lawyer dated March 26, 2018 and April 4, 2018 may have been posturing for the purposes of renegotiating the MOU, James’ letter of April 20, 2018 was a clear and unambiguous rejection of the MOU, as he was entitled to do. Accordingly, as of April 20, 2018, the MOU was void. There was no understanding or settlement to be enforced.

[34] Since the MOU was void as of April 20, 2018, it cannot be approved by the Court or enforced under Rule 49.09. Accordingly, the motion is dismissed.

[35] The parties have assumed that if the MOU was not enforceable under Rule 49.09, then they could just ask Woodley J. to release her decision. Things are not that simple. The argument before Woodley J. took place more than one year ago. It is not clear to me that the factual underpinning is the same today as it was in November and December 2017. In particular, it is not clear that the assets available to the Estate are the same today as they were over one year ago, or that a decision based on stale-dated facts would fairly resolve the various disputes. Accordingly, the parties are directed as follows:

1. The Estate Trustee should serve and file an updated statement of estate assets, including all assets held in all trusts, with an updated appraisal (or letter of opinion) for the real property;
2. The Estate Trustee should serve and file an updated statement of estate liabilities, including liabilities relating to the trusts;
3. The Estate Trustee should provide an updated statement as to the issues that remain outstanding and that are sought to be determined – and have the statement of outstanding issues approved by the parties who attended on the application before Woodley J.;
4. Any party to this motion that did not appear on the application before Woodley J. may participate in the proceedings only with the consent of all of the other parties or the approval of Woodley J.; and
5. If necessary, the parties may request a case conference before Woodley J.

[36] If the parties are not able to agree on the costs of this motion, the respondent Nancy Mulholland may file costs submissions of no more than 3 pages plus costs outline and any offers to settle, within 30 days of the release of this decision, and the moving party (BMO) may file responding submissions on the same terms within 20 days thereafter.

Justice R.E. Charney Released: March 13, 2019

Footnotes

[1] While the issue is not before me, I question whether an action for punitive damages for breach of fiduciary duty can be commenced by way of Notice of Application. Such relief does not appear to fall within the terms of Rule 14.05(3) of the Rules of Civil Procedure or s. 58 of the Succession Law Reform Act, R.S.O. 1990, c. S.26.