Court File and Parties

COURT FILE NO.: CV-16-564686 DATE: 20190724 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HOMELIFE/MIRACLE REALTY LTD., Plaintiff AND: VIRK HOSPITALITY CORP. and RON FOLKES and 2490793 ONTARIO LIMITED and 2503661 ONTARIO LTD., Defendants

BEFORE: Cavanagh J.

COUNSEL: Jeffrey S. Klein, for the Plaintiff Rajneesha K. Sharda, for the Defendant, 2503661 Ontario Ltd. Brendan Jones, for the Defendant, Ron Folkes No one appearing, for the Defendants, Virk Hospitality Corp. or 2490793 Ontario Limited

HEARD: June 12, 2019

Endorsement

Introduction

[1] The plaintiff Homelife/Miracle Realty Ltd. (“Homelife”) carries on a real estate brokerage business. Homelife entered into an agreement with Virk Hospitality Corp. (“Virk”), the owner of a commercial property, which provides that in consideration of Homelife introducing one of two specified buyers to Virk, Virk agrees to pay to Homelife commission on the sale of the property to the buyer. The agreement provides that successors of Homelife and Virk are bound by it.

[2] Virk entered into a contract of sale with one of the buyers (in trust for a company to be incorporated) which provides that the buyer has the right and option to convert the agreement prior to closing to a share purchase transaction whereby the buyer will purchase all of the issued and outstanding shares of the seller.

[3] The transaction was converted to a share purchase transaction. A separate share purchase agreement was made between 2503661 Ontario Ltd. (“250”) as vendor, Virk, and 2490793 Ontario Limited (“249”) as purchaser. The share purchase agreement provides that 250 will be responsible for payment of any commission due on the sale of shares to any broker or sales agent of 250 or Virk in accordance with commission arrangements made by 250 or Virk. There are other provisions in the SPA which refer to real estate commission.

[4] Mr. Rehan Chaudary is a director and officer of 250 and he was a director of Virk at the time of the relevant transactions. Mr. Chaudary executed the commission agreement and the agreement of purchase and sale on behalf of Virk. He executed the share purchase agreement on behalf of 250 and Virk.

[5] The share purchase transaction was completed. No commission was paid to Homelife.

[6] Homelife brings this action for payment of commission and moves for summary judgment against 250. In response, 250 asks that the motion be dismissed and that summary judgment be granted dismissing the action.

[7] For the following reasons, Homelife’s motion for summary judgment is dismissed and the request by 250 for summary judgment dismissing the action is denied.

Factual background

[8] Homelife carries on a real estate brokerage business.

[9] On or about January 27, 2015 Homelife’s representative, Ken Seghal, met with Ahmed Chaudary with respect to selling a property located at 1677 Wilson Avenue, Toronto (the “Property”). The owner of the Property was Virk. As noted, Mr. Chaudary was the president of Virk. The sole shareholder of Virk was 250. Mr. Chaudary was also an officer and director of 250.

The first commission agreement and the first sale transaction

[10] On January 27, 2015 Homelife (identified as the “Brokerage”) entered into a Seller Customer Service Agreement with Virk (identified as the “Seller”) (the “first commission agreement”) by which Virk agreed to pay Homelife commission on a sale of the Property for a buyer identified as “International Realestate Asset Inc. (In Trust For the Company to be Incorporated)”. Mr. Seghal executed the first commission agreement on behalf of Homelife and Mr. Chaudhary executed the agreement on behalf of Virk.

[11] On January 31, 2015 an agreement of purchase and sale was entered into between Virk and a purchaser, International Real Estate Asset Inc. (in trust for a company to be incorporated). This agreement provided for a sale of the Property by Virk to the purchaser for a purchase price of $17 million (the “first agreement of purchase and sale”). Homelife was identified as the listing broker in this agreement and RE/MAX Premier Inc. was listed as the cooperating broker. Mr. Chaudary signed this agreement on behalf of the seller, Virk. The first agreement of purchase and sale was amended by an amending agreement dated January 22, 2015 and executed on March 30, 2015 in which the parties agreed that the agreement of purchase and sale “can be transferred to a 100% share purchase agreement ...”

[12] The transaction provided for by the first agreement of purchase and sale with International was not completed.

The second commission agreement and the second sale transaction

[13] On October 8, 2015 a second Seller Customer Service Agreement (the “second commission agreement”) was made between Homelife (identified as the “Brokerage”) and Virk (identified as the “Seller”) for the Property and for the following “Buyer”: International and, through a handwritten addition, Mpire Capital Corporation in trust for a company to be incorporated (“Mpire”). The second commission agreement was executed by Mr. Seghal for Homelife, the “Brokerage”, and by Mr. Chaudary for Virk, the “Seller”.

[14] With respect to payment of commission, the second commission agreement provides:

In consideration of the Brokerage showing the Property to the Buyer and/or introducing the Buyer to the Seller for the purpose of discussing the sale or lease of the Property, the Seller agrees to pay to the Brokerage a commission of ... 5% plus HST Maximum up to $17,000,000.00 for a valid offer to purchase or lease the Property entered into between the Seller and the Buyer during the term of this Agreement.

The Seller agrees to pay such commission as calculated above if an agreement with the Buyer to purchase or lease the Property is agreed to or accepted by the Seller or anyone on the Seller’s behalf within 90 days after the expiration of this Agreement.

The Seller agrees to pay such commission as described above even if the transaction contemplated by an agreement to purchase or lease agreed to or accepted by the Seller or anyone on the Seller’s behalf is not completed, if such non-completion is owing or attributable to the Seller’s default or neglect. The commission as described above shall be payable on the date set for completion of the purchase of the Property or, in the case of a lease or tenancy, the earlier of the date of occupation by the tenant or the execution of the lease or the date set for commencement of the lease or tenancy.

[15] The second commission agreement provides that the successors and assigns of the Brokerage and the Seller are bound by the terms of the agreement.

[16] Bruno Maiolo, a real estate agent associated with ReMax Premier Inc., the cooperating broker acting on behalf of the purchaser in both of the first agreement of purchase and sale and the second agreement of purchase and sale, provided affidavit evidence in support of Homelife’s motion. In his affidavit, Mr. Maiolo gave evidence that the second agreement of purchase and sale was a continuation of the first agreement of purchase and sale, and he was involved as cooperating agent in both transactions. Mr. Maiolo gave evidence that when the second commission agreement was presented to Mr. Chaudary with respect to the second agreement of purchase and sale, Mr. Chaudary added words in handwriting at the end of the agreement which state “Ken Sehgal/Bruno Maiolo are both protected. This protects them in the new one. Both agents. This Agreement is based on the S/P dated 27 Jan 2015 being void. Ken Seghal/Bruno Mailo.”

[17] Both the first commission agreement and the second commission agreement were on a standard form of agreement developed by the Ontario Real Estate Board and used by the Toronto Real Estate Board.

[18] On October 11, 2015, three days after the second commission agreement, an agreement of purchase and sale was executed by the seller, Virk, and the buyer, Mpire (in trust for a company to be incorporated), by which Mpire agreed to purchase the Property from Virk for a purchase price of $17,500,000 (the “second agreement of purchase and sale”). The second agreement of purchase and sale included a provision in Schedule A by which the Mpire had the right and option to convert the agreement of purchase and sale to a share purchase transaction. Schedule A of the second agreement of purchase and sale also provides that the Seller, Virk, covenants and agrees to pay all real estate commissions due to Homelife or any other brokerage upon completion of the transaction and that the buyer shall not be liable for any realty commissions.

[19] A Share Purchase Agreement was made on the 26th day of February, 2016 between 249 (identified as the “Purchaser”), 250 (identified as the “Vendor”), and Virk (identified as the Corporation) (the “SPA”). Under the SPA, 250 agreed to sell and 249 agreed to purchase all of the issued and outstanding shares of Virk for the purchase price of $17,500,000.

[20] The SPA provided for an adjustment in the amount of $850,000 (excluding HST) to be given to the Purchaser on closing for real estate commission, defined as “the commission or remuneration owing to the real estate brokerage or brokerages for procuring the transaction leading to [the SPA]...” Virk covenanted and agreed to indemnify 250 from claims against 250 and Mr. Choudhry for real estate commissions or other remuneration payable or alleged to be payable to any broker who has acted in connection with the sale of the hotel business or the Property. 250 agreed to be responsible for payment of any commission due on the sale of the shares to any broker, consultant, or sales agent of 250 or Virk in accordance with commission arrangements made by 250 or Virk.

[21] The transaction provided for by the SPA was completed on or about February 26, 2016. As a result, 249 became the owner of all of the shares in the capital of Virk. Virk remained as the owner of the property. The purchase price for the sale of shares, after adjustments, was paid to 250.

Homelife demand for payment of commission

[22] Homelife wrote to Ron Folkes at Folkes Legal Professional Corporation on March 10, 2016 and asked Mr. Folkes to release “our commission in the amount of $960,500.00”.

[23] Homelife was not paid any commission.

Commencement of action and receivership of Virk

[24] Homelife commenced this action against Virk and Mr. Folkes as defendants. Homelife later amended the statement of claim to add 249, and later 250, as defendants. Mr. Folkes defended the action and commenced a third party claim against 249.

[25] Virk delivered a statement of defence. Virk was placed into receivership in early 2019 and the Property was sold by the receiver. 249, the owner of the shares of Virk, delivered a statement of defence in the main action and in the third party action. Homelife seeks no relief on this motion from 249, and it was not represented at the hearing of the motion.

[26] In the statement of claim, Homelife claims that 250 is liable to pay real estate commission of real estate commission together with applicable HST in the amount of $960,500. Homelife claims that Mr. Folkes was bound by an irrevocable direction to pay to Homelife the unpaid balance of the commission together with applicable HST from the proceeds of the sale.

Analysis

General principles with respect to summary judgment

[27] Rule 20.01(1) of the Rules of Civil Procedure provides that a plaintiff may, after the defendant has delivered a statement of defence, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim. Rule 20.04(2)(a) of the Rules of Civil Procedure provides that on such a motion the court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim.

[28] There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. There will be no genuine issue requiring a trial if the record before the court provides the motion judge with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure: Hryniak v. Mauldin, 2014 SCC 7 at paras. 49 and 66.

Does the summary judgment process allow me to reach a fair and just determination on the merits of this action?

[29] Homelife’s motion for summary judgment is brought against 250 and not against Mr. Folkes. At the hearing of the motion for summary judgment, counsel for Mr. Folkes advised that his client took no position on the position, and asked that no findings be made in relation to Mr. Folkes. I raised with all counsel my concern that the motion appears to be for partial summary judgment because whether it was successful or not, the action could proceed against Mr. Folkes. In response to this concern, Homelife’s counsel advised on June 21, 2019 that if the motion is successful, Homelife will not continue the action against Mr. Folkes.

[30] The questions on this motion are (i) whether summary judgment should be granted in favour of Homelife, and (ii) whether 250’s request for summary judgment dismissing the action should be granted.

[31] Homelife submits that the second commission agreement should be interpreted, and terms should be implied if necessary, such that 250 is bound by the second commission agreement as a “Seller” liable to pay commission to Homelife on a sale of the Property either directly or indirectly, through a sale of the shares of the owner of the Property. Homelife submits that Virk and 250 had the same principal, Mr. Chaudary, and that Virk should be treated as the agent of 250 and authorized to bind 250 to the terms of the second commission agreement. Homelife submits that to interpret the second commission agreement in a way that would allow 250 to escape liability for payment of commission would offend common sense and be commercially absurd.

[32] In the alternative, Homelife submits that the second commission agreement should be interpreted such that 250 is a “successor” to Virk and, as a result, it is liable to Homelife for payment of the commission.

[33] In the further alternative, Homelife submits that the privity of contract rule should be relaxed, and liability should be imposed on 250 in these circumstances where, Homelife submits, (i) the parties to the second commission agreement contemplated and intended that 250 would have an obligation under the second commission agreement to pay commissions to Homelife if the sale was converted to a share purchase transaction, (ii) the activities of 250 upon which Homelife relies to impose liability on it (selling shares of Virk) were within the scope envisaged by the second commission agreement, and (iii) 250, through its directing mind, Mr. Chaudary, who was also the directing mind of Virk, had knowledge of the provisions of the second commission agreement.

[34] Each of these submissions is based upon an interpretation of the second commission agreement.

[35] In Sattva Capital Corp. v. Creston Moly Corp., [2014] S.C.R. 633 at paras. 47, 57 and 58, the Supreme Court of Canada held that the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine the intent of the parties and the scope of their understanding. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. 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. The evidence that can be relied upon under the rubric of “surrounding circumstances” should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.

[36] The factual matrix extends to the genesis of the agreement, its purpose and the commercial context in which it was made: Calloway Reit (Westgate) Inc. v. Michaels of Canada, ULC at para. 2.

[37] In Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912 the Court of Appeal for Ontario considered the use of subsequent conduct in interpreting a contract. Strathy C.J.O., writing for the court, held, citing Sattva, that subsequent conduct must be distinguished from the factual matrix because the factual matrix consists only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Strathy C.J.O. held, in addition, that there are some dangers associated with reliance on evidence of subsequent conduct. Strathy C.J.O. held that evidence of subsequent conduct should be admitted only if the contract remains ambiguous after considering its text and its factual matrix and, despite its dangers, he observed that evidence of subsequent conduct can be useful in resolving ambiguities because it may help to show the meaning the parties gave to the words of their contract after its execution, and this may support an inference concerning their intentions at the time they made their agreement. The inherent dangers of evidence of subsequent conduct mean that when it is admitted it must be used cautiously and its weight will vary from case to case. See Shewchuk at paras. 39-52.

[38] The submissions of Homelife in relation to the proper interpretation of the second commission agreement are founded on the evidence of Mr. Seghal that this agreement was executed “[i]n conjunction with the further restructuring” of the “deal”, and Mr. Maiolo’s evidence that the second commission agreement was made in contemplation of the second agreement of purchase and sale. This evidence is fundamental to the submissions made by Homelife because Homelife relies on the terms of the restructured deal to inform the proper interpretation of the second commission agreement. According to Mr. Sehgal’s evidence, the “deal” was restructured on October 11, 2015 when the second agreement of purchase and sale was executed. This was subsequent to the second commission agreement which was signed three days earlier, on October 8, 2015.

[39] Homelife submits that in addition to the facts known when the second commission agreement was made, the second agreement of purchase and sale and the SPA are evidence of subsequent conduct by which the parties to these agreements recognized that upon completion of the SPA, 250 would be responsible for payment of commission payable to Homelife under the second commission agreement. For example, Homelife relies on the provision in the second agreement of purchase and sale by which the buyer had the right to convert the agreement to a share purchase transaction. Homelife relies upon provisions in the SPA under which the purchaser, 249, was credited with an amount described as real estate commission (a defined term in the SPA), leaving the seller, 250, responsible for payment of the commission. Homelife submits that the obligation of 250, the vendor, to pay commission was recognized in section 10.4 of the share purchase agreement. Homelife submits that I should take these provisions into account when I interpret the second commission agreement and that I should draw the inference from these provisions that Virk and 250 intended that 250 was liable to pay commissions to Homelife upon completion of a share purchase transaction. Homelife submits that I should conclude that 250 is liable to pay commissions to Homelife. However, I am able to consider evidence of subsequent conduct only if I decide that the second commission agreement is ambiguous after considering its text and its factual matrix.

[40] 250 submits that it is not a party to the second commission agreement and, on a proper interpretation of the second commission agreement, 250 is not liable for payment of any commission to Homelife. Mr. Chaudary disputes that he intended that 250 would be liable to pay commissions to Homelife if the sale of real property was converted to a share purchase transaction. Mr. Chaudary disputes that there was any intention that 250 would be subject to any obligation to pay commissions under the second commission agreement. 250 asks that the motion for summary judgment be dismissed and that summary judgment be granted in favour of 250 dismissing the action. Alternatively, 250 asks that the motion for summary judgment be dismissed and the action be allowed to proceed to trial.

[41] I have reviewed the evidence tendered on this motion and I have considered the submissions of counsel. I conclude that I am not able to make the necessary findings of fact and draw the necessary inferences from the evidence to interpret the second commission agreement and decide whether it is or is not ambiguous, such that I should go on to consider subsequent conduct, including the intentions of the parties to the SPA, and interpret the second commission agreement having regard to such conduct. Evidence with respect to negotiation of the terms of the SPA which might shed more light on the intentions of Virk and 250, acting through Mr. Chaudary, in relation to the provisions of the SPA that refer to real estate commissions appears to be incomplete. In order to interpret the second commission agreement and reach a fair and just determination of the issues raised by Homelife’s claim, more complete evidence of the surrounding circumstances that existed at the time that the second commission agreement was made, and more complete evidence of the subsequent conduct of Virk, 250 and 249 in relation to the SPA, including production of relevant documents and viva voce evidence of Mr. Seghal, Mr. Chaudary, and Mr. Maiolo, is needed.

[42] Homelife also relies upon evidence given by Mr. Sehgal who deposed that he believes that at all times, Homelife was advised by Mr. Chaudary that the commission would be payable by the seller who received the proceeds of the sale, and that Homelife never agreed to be paid by the purchaser of the Property. With respect to this evidence, such advice by Mr. Chaudary, if given at the time of or prior to the second commission agreement, would form part of the factual matrix that would be relevant to the interpretation of this agreement. However, Mr. Seghal did not provide particular evidence of the general statements to which he refers in this paragraph of his affidavit. I am not satisfied that Mr. Sehgal’s evidence concerning these statements allows me to make the necessary findings as to whether Mr. Chaudary made such statements, or to reach conclusions as to the legal effect that should be given to any such statements.

[43] As a result, on the evidentiary record before me, I am unable to fairly and justly resolve the issues in dispute on Homelife’s motion for summary judgment and grant judgment in favour of Homelife and I am unable to fairly and justly summarily dismiss the action, as 250 requests.

Disposition

[44] For these reasons, Homelife’s motion for summary judgment is dismissed. I also deny the request made by 250 for summary judgment dismissing the action.

[45] Each of the parties provided a costs outline and counsel agreed that the winning side would be awarded costs of $20,000, if there is a winning side. The result of the motion is that neither Homelife nor 250 was successful in obtaining judgment in its favour.

I am inclined to make an order that costs of this motion be reserved to the trial judge, but if any party wishes to make written submissions as to costs, I ask that counsel so advise me.

Cavanagh J. Date: July 24, 2019