COURT FILE NO.: CV-15-539645 DATE: 20190516 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
All-Terrain Track Sales and Services Ltd. And Andre Boudreau and Great Lakes Nickel Limited Plaintiffs – and – 798839 Ontario Limited, Jacobus Hanemaayer, 153078 Canada Inc., Community Expansion Inc., Great Lakes Nickel Limited, Robin Lowe and Rio Tinto Exploration Canada Inc. Defendants
Counsel: D. Rollo, for the Plaintiffs S. Gearing, for the Defendants
HEARD: March 28, 2019
O’Brien, J.
REASONS FOR DECISION
Overview
[1] This is a motion for Summary Judgment by the Plaintiffs, All-Terrain Track Sales and Services Ltd. (“ATTS”) and Andre Boudreau (the sole owner of ATTS) with respect to their attempt to enforce alleged rights under an option agreement. The option agreement addresses rights to a mining property in Pardee Township in northern Ontario (the “Pardee claims”). The Plaintiffs were not a party to the option agreement but seek to enforce rights on the basis that they are judgment creditors of one of the parties to the agreement. The option agreement, which was entered into in 1988, was between two of the Defendants in this matter: the Defendant, 798839 Ontario Limited (“39”) and the Defendant, Great Lakes Nickel Limited (“GLN”).
[2] The Plaintiffs bring this action because they otherwise have been unable to execute on a judgment against 39. They became judgment creditors of 39 in a separate action. That action involved a lengthy trial before Penny, J., which related to another, much larger mining development in northern Ontario, as well as to the Pardee mining property at issue in the option agreement. That action ultimately resulted in a decision in the Plaintiffs’ favour such that they are entitled to recover the amount of $812,281.03 from 39 and the Defendant Mr. Hanemaayer.
[3] The Plaintiffs have made various attempts to collect the amounts owed. However, Mr. Hanemaayer has been defiant in the face of the court order for payment, thwarting attempts by the Plaintiffs to execute on their judgment and otherwise avoiding any obligation to account to the court. As a result of his conduct, on May 16, 2016, Goldstein, J. found Mr. Hanemaayer to be in contempt of court. (See 796839 Ontario Limited v. Platt, 2016 ONSC 7097)
[4] Having been unable to execute on their judgment to date, the Plaintiffs now have commenced this action in an attempt to access what they consider to be 39’s rights under the option agreement. They seek a declaration that 39 had and maintains an interest in the Pardee claims, and that, as a judgment creditor, they are entitled to a remedy which would grant them access to funds flowing from that interest. Meanwhile, GLN denies that 39 ever acquired an interest in the Pardee claims. Further, in 2011, GLN sold its interest in the Pardee claims to Rio Tinto. However, the Plaintiffs assert a right to the portion of the payments flowing from Rio Tinto to GLN that they say otherwise would flow to 39.
[5] While the parties raised a number of issues on this motion, the primary issue argued before me was whether 39 has a valid and subsisting interest in the Pardee claims under the terms of the option agreement. The Plaintiffs submit that 39 had an option to acquire “up to” an 80% interest in the Pardee claims. They say that 39 either acquired the full 80% interest or, alternatively, only acquired a 60% interest, but that 60% interest remains valid and subsisting. GLN submits that 39 had an option to acquire an 80% interest only, failing which the option agreement would automatically terminate. As 39 did not invest the full amount to acquire the 80% interest, it never exercised its option and ultimately did not acquire any interest in the Pardee claims.
[6] In my view, as further detailed below, 39 ultimately has not shown that it acquired an interest in the Pardee claims. The evidence is that 39 only invested the funds required to obtain a 60% interest. On the plain wording of the option agreement, 39 was required to invest the full 80%, failing which its option terminated. In my view, none of the subsequent statements by GLN in its financial statements undermine this conclusion. Further, although I accept that 39 advanced the full $2M (which is the amount required for an 80% interest), and that some of the funds were diverted to the other mining development, the Plaintiffs have not proven that the parties agreed that advancing the full amount, if some of it was diverted, satisfied the terms of the agreement.
[7] Although not argued as fulsomely before me, GLN also submits that the Plaintiffs’ claim for the declaration is statute barred by the Limitations Act, 2002. They point to the Plaintiffs only having added the allegations to their Statement of Claim in February, 2019. They also raise an additional issue, that the Plaintiffs are not parties to the option agreement and cannot simply seek to enforce the terms of that agreement as a third party.
[8] I decline to decide these issues on this motion for Summary Judgment. As further set out below, this is a motion for partial Summary Judgment. It addresses only the question of 39’s rights under the option agreement. It does not address the additional fraudulent conveyance allegations set out in the Statement of Claim. Although I am of the view that I can decide the discrete question of 39’s interest in the option agreement on a motion for partial Summary Judgment, I decline to address alternative arguments, particularly to limit any concern about overlap and inconsistent findings at the trial of the remaining issues in the action.
Can the issue before me be decided by motion for partial Summary Judgment?
[9] In my view, the discrete issue of 39’s interest in the option agreement can be decided by way of partial Summary Judgment. Both parties seek Summary Judgment with respect to the claim that 39 has an interest in the Pardee claims. Although GLN has not brought a cross-motion, it advises that it seeks Summary Judgment on this motion. I am able to grant that relief, if appropriate, in the absence of a cross motion. (See Meridian Credit Union Ltd. V. Baig, 2016 CarswellOnt 2664 (C.A.), at para 17)
[10] By way of background, although the Plaintiffs now seek a declaration that 39 had and maintains an interest in the Pardee claims, this was not their claim in the original Statement of Claim in this matter. In their original Statement of Claim, dated November 2, 2015, the Plaintiffs sought to set aside what they alleged to be a fraudulent conveyance by 39 of its interest in the Pardee claims to GLN. On February 11, 2019, the Plaintiffs amended their pleading, acknowledging that the alleged fraudulent transaction had not occurred, but now adding a claim that, as judgment creditors, they were entitled to enforce 39’s rights under the option agreement. The Plaintiffs explain this change in their theory on the basis that they only learned that 39 had not transferred its interests during the course of examinations for discovery in this action. Given their understanding that there was no conveyance, the Plaintiffs now say that the interests of 39 in the Pardee claims are valid and subsisting.
[11] In addition to the claim for the fraudulent conveyance, which now has been amended to a claim for a declaration, this action also includes a separate allegation of fraudulent conveyance. The Plaintiffs also claim that in February, 2011, the Defendants, Community Expansion Inc. and Mr. Hanemaayer fraudulently conveyed to the Defendant, Robin Lowe (a director, officer and shareholder of GLN) all of the shares in the Defendant, 153078 Canada Inc. This acquisition gave Mr. Lowe control of GLN, whose only significant asset was the Pardee claims. I will refer to this claim as the “fraudulent conveyance claim.”
[12] The parties made submissions at the motion as to the appropriateness of Summary Judgment. However, their submissions did not focus on the fact that the Summary Judgment sought here is only partial. Even if I grant the relief sought by one of the parties, the fraudulent conveyance claim will remain to be determined. Therefore, I asked the parties to provide me with written submissions to address the issue of whether it is appropriate to grant partial Summary Judgment in this case.
[13] I note that all the parties who were permitted to participate were represented in the motion before me. This excludes Mr. Hanemaayer, 39, and Community Expansion Inc. These Defendants were prohibited from participating by the terms of the contempt order of Goldstein, J. Specifically, Goldstein, J. stated that Mr. Hanemaayer was prohibited from participating in any proceedings involving parties related to him, Mr. Boudreau, or ATTS. I understand that the order also includes companies controlled by Mr. Hanemaayer, such as 39 and Community Expansion Inc. Rio Tinto did not participate in the motion, as the claim against it has been discontinued.
[14] Rule 20.04(1)(b) of the Rules of Civil Procedure provides that the court shall grant Summary Judgment if “the parties agree to have all or part of the claim determined by a Summary Judgment and the court is satisfied that it is appropriate to grant Summary Judgment.” The parties have agreed to Summary Judgment in this case, but, nevertheless, I must be satisfied that it is appropriate to decide the issues by Summary Judgment: Anjum v. John Doe and State Farm, 2016 ONSC 7784, aff’d 2017 ONCA 821; Ahmed v. Elmarsafy, 2019 ONSC 388.
[15] On a motion for Summary Judgment, the court is required to determine whether, on the basis of the record before it, it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits. Each party must “put its best foot forward.” 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, aff’d 2014 ONCA 878, at paras 26-27, 33.
[16] In this case, I conclude that Summary Judgment on the issue of 39’s interest is appropriate. First, the parties have provided a documentary record with respect to the issue of 39’s interest in the option agreement. In my view, as discussed further below, the intention of the option agreement can be resolved by a reading of the terms of the option agreement itself. Further, the issue of how much money 39 expended can be resolved by relying on the findings of Penny J. in his trial decision. There remains the difficult issue of whether, even though 39 actually expended less money on the Pardee development, the parties ultimately agreed this would trigger the option. To that end, I have considered other documents that could be relevant to the intentions and dealings between the parties, such as notes to financial statements. Although neither party suggests that oral evidence is required to determine the meaning of or rights under the option agreement, I do think oral evidence, if it were available, could assist. The documents following the option agreement at times contradict one another, so there is not an entirely clear picture regarding the dealings between the parties and, in particular, whether there was any shift in the parties’ agreement when 39 only expended $1.6M rather than the full $2M.
[17] However, this is to be weighed against the fact that there is limited assistance to be gained from witnesses in this case. It is important to recall that the option agreement was executed in 1988, over thirty years ago. The only witness either party has identified as possibly having useful evidence to assist the court is Mr. Hanemaayer himself. Neither of the parties’ affiants (Mr. Boudreau for the plaintiffs and Robin Lowe for the defendants) was involved in the option agreement. With respect to Mr. Hanemaayer, as it currently stands, without a further court order, he is not permitted to take any steps in this litigation. He could be required to attend as a witness by subpoena, if one of the other parties determined it was necessary. However, the prior decisions of this court suggest that Mr. Hanemaayer would not be a helpful witness. In his 2016 decision on the contempt issues, Goldstein J. accepted that Mr. Hanemaayer was “a frail 89 year-old man with real and serious health problems,” although finding that this was not the reason he had failed to purge his contempt. He also suffered from cognitive impairment/mixed dementia. (See 796839 Ontario Limited v. Platt, 2016 ONSC 7097, at paras 22, 28). In addition, in Penny J.’s decision of 2013, now six years ago, he found Mr. Hanemaayer to be suffering from a physically debilitating illness. He required accommodations in order to provide his testimony. Further, his memory was questionable and his evidence was found to be unreliable:
I found Hanemaayer a thoroughly unreliable witness. His memory was highly selective. He was not forthcoming and became increasingly less and less forthcoming as his cross-examination progressed. Hanemaayer was evasive in his answers, demonstrating an almost pathological fear of getting drawn into a discussion of any details. He frequently fell back on his “party line” or “canned” version of events, even when this approach was not responsive to the question. His evidence was often inconsistent with contemporaneous documentary evidence. “I don’t recall” was often what he said when he did not want to answer a question. (798839 Ontario Limited v. Robert Platt; and Robert Platt v. Community Expansion Inc., 2013 ONSC 6879, “Penny Judgment” at para 91)
[18] In view of these findings, I conclude that any testimony provided by Mr. Hanemaayer, now six years later at the age of approximately 92, and when he has already been evasive and failed to purge his contempt in proceedings brought by the Plaintiffs, would be of limited assistance with respect to the matter before me.
[19] Given the absence of witnesses, and the availability of a documentary record, I am of the view that Summary Judgment is an appropriate method to decide this matter. I am able to apply the law to the facts before me. In the context of this longstanding litigation that the parties are attempting to bring to conclusion, and where it appears that witnesses are not available to assist, deciding this matter by Summary Judgment is a proportionate, less expensive and expeditious means to still achieve a just result. However, there remains the question of whether it is appropriate to do decide this matter by Summary Judgment given that the parties are only seeking partial Summary Judgment.
[20] Both parties argue that it is appropriate in this case for me to grant partial Summary Judgment. They say that the issue of 39’s interest in the option agreement is discrete from the fraudulent conveyance claim. As stated by the Plaintiffs, this is a “stand-alone” issue, which can be readily bifurcated from the fraudulent conveyance claim. The issue of 39’s interest relates to the interpretation of an agreement from 1988, whereas the alleged fraudulent conveyance took place in 2011. GLN points out that the parties involved in the two transactions are different.
[21] I am very mindful of the concerns about granting partial Summary Judgment. In accordance with Butera v. Chown, Cairns LLP, 2017 ONCA 783 (“Butera”), I have considered the advisability of partial judgment in the context of this litigation as a whole. While the Plaintiffs here have suggested that the transactions at issue are entirely separate, I am mindful that the parties are inter-related and the web of their dealings is complex. That said, I have not been able to identify any way in which a determination of the narrow issue of 39’s interest in the option agreement could lead to overlap with the issues in the fraudulent conveyance claim. The transactions are 23 years apart. As set out below, the evidence I rely on to determine the issue of 39’s interest is primarily the option agreement itself, with some consideration of documents within several years following it. I am also influenced by the finding of fact from the Penny Judgment regarding the amount of 39’s investment, which both parties accept cannot be relitigated. Further, the parties themselves submit there is no overlap and risk of inconsistent findings. Indeed, the Plaintiffs submit that the parties are “prepared to accept the risk” of the concerns raised in Butera.
[22] Finally, this is a matter that is complex and has been litigated over many years. The parties submit that they will benefit from an efficient procedure to determine the issue of 39’s interest, and that this will result in a narrower and more focused trial.
[23] In all of the circumstances, I conclude that I am able to grant partial Summary Judgment in this case. There appears to be no risk of overlap or inconsistent findings that would impact the fraudulent conveyance claim. It otherwise is appropriate to grant Summary Judgment. In my view, addressing the issue of 39’s interest by Summary Judgment would be a proportionate, more expeditious and less expensive means to achieve a just result.
Does 39 have an interest in the Pardee claims?
Plain Wording of the Agreement
[24] I turn now to the question of whether 39 had, and continues to have, an interest in the Pardee claims. The dispute between the parties centres on the provision of the option agreement that gave 39 the option to acquire an 80% interest in the Pardee claims. The Plaintiffs say 39 has an interest in the claims, either because it reached the 80% threshold set out in the option agreement, or, in the alternative, because, even if it did not achieve the 80% interest, it achieved a lesser interest (approximately 60%) that should be recognized. GLN says that in order to have any interest in the option agreement, it was necessary for 39 to acquire an 80% interest, which it did not do.
[25] I agree with GLN’s position. In my view, under the terms of the option agreement, 39 was required to acquire an 80% interest in order to have any interest at all. I arrive at this conclusion from a reading of the plain terms of the option agreement.
[26] The recitals in the option agreement reference the option to earn 80%, not “up to” 80%, stating: “GLN has agreed to grant to Ontario an exclusive option to earn an eighty percent (80%) interest in the Property upon and subject to the terms and conditions hereinafter set out.”
[27] Article 3 of the option agreement then sets out more specific terms of the option. Article 3.1 reiterates the entitlement to earn an 80% interest:
3.1 Subject as hereinafter provided, GLN hereby grants to Ontario [i.e. 39] the sole and exclusive right and option to acquire an undivided eighty percent (80%) right, title and interest in and to the Property.
[28] Article 3.2 then sets out that the interest is acquired in “blocks” of $250,000:
3.2 On or before the 30th day of November, 1991, Ontario may incur Expenditures of no more than $2,000,000. For each separate block of Expenditure of $250,000, Ontario shall be deemed to have acquired an undivided ten percent (10%) right, title and interest in and to the Property, subject to the provisions of paragraph 3.1.
[29] Article 3.3 sets out the payments that are required to acquire the 80% interest, without which the option “shall terminate.” It states:
3.3 The option granted to Ontario pursuant to paragraph 3.1 shall terminate: (a) On November 30, 1989, unless on or before that date Ontario has incurred $750,000 in Expenditures; (b) On November 30, 1989, unless on or before that date Ontario has incurred a further $750,000 in Expenditures in the aggregate; (c) On November 30, 1991, unless on or before that date Ontario has incurred a further $500,000 in Expenditures in the aggregate; or (d) If Ontario gives notice in accordance with paragraph 3.7. Any excess in the amount of Expenditures incurred to maintain the option during any one of the periods of time referred to in subparagraphs (a) to (c) hereof may be applied as a credit against Expenditures required to be incurred during any subsequent period of time. (emphasis added)
[30] Under Article 3.7, if 39 does not make the required payments, it will not have any interest and the agreement will be “of no further force and effect”:
3.7 At any time prior to the Participation Date, Ontario may terminate this Agreement so long as it is not in default of any of its obligations under this Agreement by giving notice in writing to that effect to GLN and on receipt of such notice, or if Ontario fails to make the requisite Expenditures under paragraph 3.3, this Agreement shall be of no further force or effect and Ontario shall have no interest in the Property provided, however that Ontario shall: [paragraphs (a) to (e) put various obligations on Ontario] (emphasis added)
[31] Articles 3.9 and 3.10 then address the “Participation Date,” which is the date on which 39 earns its “initial interest” as defined in those articles. Those articles require the payment of the full $2,000,000 and the 80% interest for a joint venture to be formed. They provide:
3.9 Subject to paragraph 3.7, the Participation Date shall be that date on which Ontario has exercised its option by incurring in the aggregate $2,000,000 in Expenditures within the time set forth in paragraph 3.3. 3.10 On the Participation Date, Ontario shall be deemed to have earned an undivided eighty percent (80%) right, title and interest in and to the Property and the joint venture referred to in Article 4 shall be formed.
[32] In my view, the only way to read these provisions is that 39 was required to acquire an 80% interest in order to exercise its option. The preamble and Article 3.1 both specifically say that 39 is entitled to earn an 80% interest. Although, as we will see later, there are references after-the-fact to earning “up to” an 80% interest, that wording does not appear anywhere in the Agreement.
[33] Moreover, Article 3.3 specifically provides dates by which portions of the $2,000,000 needed to be provided. The article says that, without the provision of each payment, on the date set out, “the Option granted to Ontario… shall terminate.” (emphasis added) In other words, by the last of the dates, November 30, 1991, 39 was required to have paid the full $2,000,000 for the 80% interest; otherwise its option terminated.
[34] The requirement that 39 make the full $2,000,000 payment is reiterated in Article 3.7, which provides that if 39 did not make the full expenditures, the Agreement would terminate: “…if Ontario fails to make the requisite Expenditures under paragraph 3.3, this Agreement shall be of no further force or effect and Ontario shall have no interest in the Property ….” (emphasis added) I emphasize that, according to Article 3.7, without the full $2,000,000 contribution, 39 would have “no interest.”
[35] Articles 3.9 and 3.10 further confirm that the joint venture would only proceed on the “Participation Date,” which would only occur once 39 had made the full $2,000,000 payment and at that point it would have an 80% interest.
[36] The Plaintiffs submit that according to Article 3.2, 39 was able to acquire less than an 80% interest. This is because Article 3.2 provides for an accumulation of a 10% interest on each payment of $250,000. However, it is important to note that Article 3.2 says that the provisions of that article are subject to Article 3.1, which provides for the option to obtain an 80% interest. In the context of the other provisions in the Agreement, the only possible meaning of Article 3.2 is that 39’s accumulation of interest 10% at a time and less than 80% did not entitle it to participation in a joint venture, but perhaps would be relevant should the joint venture never proceed (e.g. due to an acquisition).
Subsequent Documents
[37] There are subsequent documents that use slightly different wording in referencing the option agreement. However, in my view, none of them displace the plain wording of the agreement, that 39 was required to acquire an 80% interest for the joint venture to move forward, nor are they ultimately inconsistent with it. None of the statements suggest that a joint venture could move forward with less than an 80% interest.
[38] Further, although some documents suggest that 39 in fact did earn an 80% interest, I do not accept that ultimately to be the case. It is important to note that Mr. Hanemaayer was a shareholder and President of both 39 and GLN. He was in a position to make statements as suited his interests or priorities at various times. In addition, the documents are inconsistent. At various points, they acknowledge that 39 did not earn an 80% interest. In the end, GLN’s financial statements do not reflect that any interest was acquired by 39. Further, and as I will discuss below, the findings of Penny J., among other evidence, are that 39 invested approximately $1.6M as opposed to the full $2M.
[39] In addition, in my opinion, and as further discussed below, the evidence before me does not demonstrate that the parties considered this lesser investment to satisfy 39’s obligations under the agreement. The deadline for 39 to earn an 80% interest was November 30, 1991. There are repeated references, leading up to November, 1991, to the fact that 39 had earned only a 60% interest. This accords with Penny J.’s finding that $1.6M of the funds advanced by 39 was used for the Pardee claims, as discussed below. Although GLN’s financial statements subsequently state, for a period, that 80% was earned, they then reverse this position. There is some information to say that this was because of a lack of clarity about the amount that was invested. The evidence before me does not show that the parties intended an amendment to the option agreement whereby an investment of only $1.6M would trigger the option, and the terms of the option agreement itself do not otherwise support this conclusion.
[40] The following sets out the relevant excerpts from the documents.
[41] In May, 1989, GLN’s Management Information Circular referenced the ability of 39 to earn “up to” an 80% interest under the option agreement:
Ontario [i.e. 39], by expending $2,000,000 over three years on the properties subject to the Corporation’s mining claims, may earn up to an 80% interest in the mining claims. Ontario would earn a 10% interest for each $250,000 of expenditures, subject to the aforesaid maximum of 80%.
[42] The same document also suggests that Ontario paid the full $2,000,000 to acquire the 80% interest: “As Ontario incurred costs of $2,000,000 by February 28, 1989, accordingly, it has earned an 80% interest in the mining claims of the Corporation.”
[43] A note to GLN’s financial statements for the years ended December 31, 1990 and 1989 similarly referenced 39 acquiring “up to” an 80% interest:
During 1988, the Company entered into an agreement with 798839 Ontario Limited (Ontario) whereby Ontario would acquire up to an 80% interest in the Company’s mining claims by expending $2,000,000 on exploration over three years. Under the agreement, for each block of expenditure of $250,000, Ontario would acquire a 10% interest in the claims up to the aforementioned 80%. The President of Great Lakes Nickel Limited is also the President and a shareholder of 798839 Ontario Limited.
[44] However, this time there was different information about the amount expended by 39, suggesting that 39 had expended approximately $1,600,000, or 60%:
The 1989 audited financial statements included in their notes the statement that Ontario had expended the $2,000,000 by February 28, 1989 and thus the full 80% interest in future mining claims revenue has been transferred. However, subsequent to the issue of the financial statements, it was determined that the actual costs incurred were approximately $1,600,000; the difference being cash advances which were not expended by the company carrying out the exploration. There has been no further significant spending activity related to this issue and thus, to date, Ontario has acquired, through its exploration spending, a 60% share in the aforementioned claims.
[45] By handwritten letter dated April 4, 1991, Earl Orth, who was on the GLN board, wrote to Mr. Hanemaayer reiterating the expenditure of only approximately 60% and suggesting that, without further expenditure, 39’s option would expire:
Based on the present expenditure of $1,613,222 by 39 they hold an option on 60% of the property. As I understand the requirement, a further expenditure of $386,778 must be made for exploration work prior to Nov. 30/91 or the entire option expires. What is to happen in this regard? (emphasis added)
[46] A management information circular dated May 7, 1991 restates the comments in the 1989/1990 financial statements about the actual costs incurred being approximately $1,600,000:
In the management information circular, as at May 17, 1990, which was forwarded to shareholders in connection with the 1990 annual meeting of shareholders, it was stated that, as Ontario had incurred costs of $2,000,000 by February 28, 1989, accordingly, it had earned an 80% interest in the mining claims of the Corporation. However, subsequent to the issue of the 1989 audited financial statements of the Corporation, it was determined that the actual costs incurred were approximately $1,600,000; the difference being cash advances which were not expended by the contractor engaged by Ontario in carrying out the exploration. There has been no further significant spending activity pursuant to the joint venture agreement and thus, to date, Ontario has acquired through its exploration spending, a 60% interest in the aforementioned claims.
[47] In a memo dated September 25, 2001 from Ed Verby (then the President of GLN) to Mr. Hanemaayer, Mr. Verby references a May 10, 1991 President’s report. I do not have that President’s report before me, but Mr. Verby quotes it as saying the following:
To date the exploration work completed entitles 798839 to sixty percent and is subject to further exploration work being carried out by the participation date of November 30, 1991 to earn the balance of the rights.
[48] Then, the financial statements for the years ended December 31, 1991 and 1990 revert to the previous position on the amount of 39’s expenditure (although there is no evidence that further amounts were expended in the meantime), stating: “As at December 31, 1991, Ontario has expended $2,000,000 and accordingly holds an 80% interest in the mining claims.” GLN’s affiant, the Defendant Robin Lowe, states that a similar note carried forward in GLN’s financial statements for 1992, 1993 and 1997-1999, although I do not have them before me. He believes that financial statements were not prepared for 1994-1996.
[49] However, according to the September 25, 2001 memo from Ed Verby, Audit Committee Minutes of April 24, 1997 included the following statement about the note in the financial statements claiming an 80% interest:
It was decided to leave the note as it was in past years, until we obtain a proper legal opinion, which was only recently requested of our solicitor.
[50] GLN then obtained two legal opinions, one from the law firm Gowlings and one from the law firm Marler Kyle Andrew. I do not rely on the conclusions in those opinions, but the opinions do provide some additional background facts.
[51] The Gowlings opinion, dated May 26, 1997 states that there appears to have been a Memorandum of Understanding drawn up in June 1991 to clarify the result of 39 not making the requisite expenditures. The opinion states that “[i]f executed the MOU would have provided that if 39 had made some expenditures it would retain some interest in the property.”
[52] Minutes of an audit committee meeting with respect to the financial statements for the years ending December 31, 1999 and 1998, also question the validity of the statement that 39 had earned an 80% interest. They state:
Note 3 relating to the 80% agreement with 768839 Ontario Limited was questioned as to how long it would continue to exist under present circumstances; it was decided to bring this up at a full board meeting with the view to requesting another legal opinion from our new solicitor.
[53] The Marler Kyle Andrew opinion, dated May 16, 2000 also provides background information, which suggests that statements regarding a $2M investment were unreliable. It summarizes advice provided by Earl Orth for the purposes of the opinion as follows:
The figure of $1,600,000 referred to in the Management Information Circular, dated as at May 7, 1991, as confirmed by the President’s Report dated May 10, 1991, was taken from a preliminary forensic report prepared by Price Waterhouse, which preliminary report was based largely on information obtained from Robert Platt. The amendment to the financial statements authorized by the Audit Committee on April 27, 1992, and the determination that Ontario had expended $2,000,000 by November 30, 1991 and had accordingly earned an 80% interest in the mining claims of the Corporation, as set out in the Management Information Circular as at May 14, 1992, were not made upon the basis of new information, or additional expenditures between May 10, 1991 and November 30, 1991, but flowed from the opinion of the Corporation’s management to the following effect: (a) Robert Platt was known to be inherently unreliable; (b) The Price Waterhouse report was not a final report; (c) The Corporation had advanced $2,000,000 to a corporation controlled by Robert Platt, for the purposes of fulfilling its obligations under the agreement; (d) No reliable evidence existed that the said $2,000,000 had not been expended in accordance with the terms of the agreement.
[54] Subsequently, the financial statements for the years ended December 31, 2001 and December 31, 2000, reference the legal opinion that the agreement was terminated due to 39 not acquiring its full interest:
It is the opinion of a company solicitor that the Agreement was terminated by reason of the failure of Ontario to fulfill its obligations under the agreement. However, Ontario does not share that opinion. The solicitor has not been asked for an opinion as to the entitlement of Ontario based on the $2,000,000, which it expended under the terms of the Agreement. It is the intention of management to resolve this matter through the re-negotiation of the Agreement with Ontario.
[55] In spite of the final sentence about a renegotiation of an agreement, I am told that this never occurred.
Impact of Subsequent Documents on Reading of Option Agreement
[56] Counsel for the Plaintiffs submits that the documents stating that 39 could earn “up to” 80% support the position that the option could be triggered, under the terms of the option agreement, on earning less than 80%. I do not agree.
[57] In my view, on a review of the excerpts reproduced above, and all of the evidence before me, the documents following the option agreement do not undermine a reading of the plain wording of the agreement that, without an 80% interest, the option would terminate. Although there are some references to “up to” an 80% interest, it is not suggested anywhere that a joint venture would move forward with less than an 80% interest. This accords with the wording of the option agreement itself. While there are statements at various times suggesting that 39 did earn an 80% interest, as I will turn to next, I do not accept this to be the case.
Interest Acquired by 39
[58] On balance, on my review of the evidence, 39 has not shown that it acquired an 80% interest. The evidence before me supports that 39 did not invest $2M in the Pardee project. Rather, it advanced $2M, but approximately $1.6M of that amount was invested in the Pardee project, while the remainder was diverted. The evidence also does not support a finding that the parties agreed (essentially by way of amendment to the option agreement) that the lesser amount was sufficient to trigger the option.
[59] First, at the cross-examination of Mr. Boudreau for this motion, counsel for the Plaintiffs stated clearly on the record that the Plaintiffs’ position on this motion was that 39 spent approximately $1.6M on the Pardee claims, and not $2M.
[60] In addition, in his decision, Penny J. concluded that 39 had invested less than $2,000,000 in the project. Penny J. was required to determine the amounts spent because of the specific issues before him. There, one of the claims was that funds expended by 39 with respect to the Pardee claims (as well as the other, much larger claim) were mis-spent or misappropriated. Penny J. concluded that 39 advanced the full $2,000,000 for the Pardee claims, but that some amounts were not used. Specifically, $360,687 was not used and instead was transferred to the Kaolin project. (See Penny Judgment, at paras 183 to 186) I note that this amount means that a little over $1.6 million was spent on the Pardee project, an amount close to the $1,613,222 referenced by Earl Orth above.
[61] Although both parties before me accept that only approximately $1.6 million was spent, the Plaintiffs argue that it is meaningful that 39 “advanced” the full $2 million. It was argued before Penny J. that the reason for the excess funds was that the Pardee project was completed for less than the agreed-upon sum of $2M. The Plaintiffs on the motion before me make a similar argument, saying that 39 should have credit for the full $2M if the project was completed for less money, since 39 advanced the full amount. Although not specifically argued before me, another possibility is that the parties essentially agreed on an amendment to the option agreement, such that the approximately $1.6 million was sufficient in the circumstances to trigger the option.
[62] However, Penny J. did not reach any conclusion regarding whether the project was completed for the lesser amount and I otherwise do not have information before me to that effect. In addition, the terms of the option agreement do not reference payment up to the point of a completed project. Rather, the definition of “expenditures” in the agreement includes a wide range of expenditures, including money expended in maintaining the property, money spent in surveys, drilling and testing, money expended in acquiring facilities, and all costs and expenses related to the preparation of a feasibility report. I simply have no information as to whether the $1.6 million spent covered all possible costs as outlined in the definition of “expenses.” However, the agreement clearly provides for certain expenditures to be incurred, by certain dates, and it is evident from Penny J’s findings that 39 did not incur the full $2 million in expenditures.
[63] There is also no clear evidence that the parties agreed to an amendment to the option agreement, such that 39 should be considered to have earned the 80% interest, based on advancing the full amount but only expending $1.6M on the Pardee project. The evidence set out in the documents excerpted above suggests that, at the time leading up to the deadline for the $2M expenditure (November 30, 1991), 39 had not expended the full $2M and still needed to “earn the balance of the rights.” Further, it appears there was discussion of a Memorandum of Understanding to address what would occur if they did not expend the full $2M, but that this was never finalized. Although there is a period during which the financial statements claim the $2M expenditure and the 80% interest, the evidence does not indicate that this represented an agreement to treat the $1.6M as fulfilling the option requirement. The balance of the evidence instead suggests that $1.6M was spent and no option was earned, and that the statements to the effect that the option was earned were in error.
[64] The Plaintiffs submit that I should not interpret GLN’s change in position to say 39 did not earn an 80% interest, as set out in the documents starting in approximately 1997, as accurate. They submit that the reason for GLN’s change in position is that, by 2000, 39 and GLN were engaged in the litigation that resulted in the trial before Penny J.. However, even if that is the case, the Penny Judgment did in fact conclude that 39 spent less than $2M. On that point, GLN’s position was borne out in the court’s findings. In addition, the Plaintiffs have not proven that the references in the documents to earning 80% were the result of any agreement that the $1.6M investment would be treated as an amendment to the option agreement that would trigger the option. To the extent they address the issue, the documents instead suggest that the claims of an 80% investment were simply an error on the numbers. There is no statement to the effect that the claims about an 80% interest were connected to the $1.6M investment being treated as an 80% interest.
[65] Therefore, in my view, the evidence is that 39 did not incur the full $2 million as required by the option agreement and, on balance, that it did not earn the option.
[66] I note that the fact that 39 lost its interest is in keeping with the structure of option agreements and should not be viewed as untenable. That is, option agreements regularly result in “unbalanced” outcomes. In an appeal of the Penny Judgment, the Court of Appeal (addressing a different option agreement) specifically stated that “option agreements are by nature instruments that can be viewed as providing for ‘unbalanced’ outcomes from the perspective of either the optionor or the optionee.” The optionee, 39 in this case, buys the ability to obtain the right optioned at the agreed upon price, upon performing its obligations, but has the complete discretion as to whether to perform the obligations or not. However, if the optionee chooses not to perform its obligations, it loses the price paid for the option. Meanwhile, the optionor (here GLN) benefits from the price if the option is exercised but runs the risk of being stuck with that price even if the value of the right optioned turns out to be considerably more than the optionor bargained for. The Court of Appeal acknowledged that “either option can appear one-sided,” but that it was in the nature of an option agreement for the optionee to lose the option price if it does not pursue the option. (See 798839 Ontario Ltd v. Platt, 2016 ONCA 488, at paras 35-37).
[67] In other words, there is nothing unexpected or concerning about interpreting the option agreement as requiring 39 to have acquired the full 80%, failing which the agreement would terminate.
Other Issues
[68] This conclusion is sufficient to dispose of this motion. It is unnecessary to decide the other issues raised by GLN and I am not inclined to do so in the event there could be a risk of inconsistent findings. For example, GLN raises a limitations issue with respect to the current matter, as well as with respect to the fraudulent conveyance claim. The two arguments may be entirely distinct, but I do not have enough information before me to make that determination. Both involve issues of discoverability, and, I assume, may require an examination of the evidence of the same party (Mr. Boudreau). The parties and transactions at issue have complex interconnections and I cannot be sure that a finding related to discoverability here would not impact the discoverability analysis with respect to the second claim. I have limited information on this point and, given that it is unnecessary, I decline to address this issue.
Disposition
[69] Given my conclusion that 39 does not and did not have an interest in the option agreement, I grant summary judgment on this issue in favour of GLN.
[70] GLN may provide its submissions with respect to costs within 30 days from the date of this decision. The Plaintiffs then will have 15 days to provide responding submissions. The costs submissions should be no longer than three pages, not including costs outlines and other attachments. They may be provided to my judicial assistant, Anna Maria Tiberio, at annamaria.tiberio@ontario.ca.