Court File and Parties

COURT FILE NO.: CV-19-628992 DATE: 20201130

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

iPOLITICS LIMITED Plaintiff

– and –

NATIONAL ASSOCIATION OF FEDERAL RETIREES Defendant

Counsel: Robert B. Macdonald, for the plaintiff John Siwiec, for the defendant

HEARD: November 25, 2020

BEFORE: F.L. Myers J.

REASONS FOR JUDGMENT

The Motion

[1] The plaintiff seeks summary judgment requiring the defendant to pay $84,725.09 to reconcile the final profit split under an agreement between them that came to an end in 2019. The sole issue is one of interpretation of the applicable written contract term.

[2] The principal facts that form the objective factual matrix are contained in an agreed statement of facts. Both sides supplemented the agreed facts with further evidence concerning their pre-contractual expectations or their post-contractual conduct.

[3] The relevant principles of contractual interpretation are agreed between the parties.

[4] The parties also agree that there is no serious issue requiring a trial. There are no further facts to be adduced. There are no serious credibility issues. The parties argue more about admissibility of witnesses’ subjective views than the credibility of those views.

[5] This is a case in which I can fairly find the facts and apply the relevant legal principles. Summary judgment is efficient, affordable, proportionate, and a fair resolution process for this modest claim.

[6] There are two competing interpretations of the contract posed. For the reasons below, I find that the plaintiff is entitled to succeed in its claim and grant judgment accordingly.

The Issue

[7] The defendant is a large organization that publishes a quarterly magazine to its members. In 2014, the parties entered into a five year agreement under which the plaintiff would be responsible for the actual physical creation of the periodical.

[8] The contract calls for an annual sharing of profits after the plaintiff is reimbursed for its costs of production. The agreement was entered into and hence expired in mid-year. The issue in this case is whether the fact that there was only one edition published in the final year of the agreement affects the profit sharing for that year.

[9] Under the agreement, the defendant is required to provide a minimum of $150,000 in advertising revenue from its affinity partners to the magazine each year. The annual profit sharing formula provides that the defendant is to receive the first $150,000 and links that entitlement expressly to its advertising contribution.

[10] For 2019, because only one of the four quarterly editions of the magazine was produced, the defendant contributed only $62,625 toward ad revenues. The defendant submits that it remains entitled to the first $150,000 of profit for 2019. The plaintiff argues that the defendant is only entitled profit priority for the amount of ad revenue that it contributed.

The Agreement

[11] Relevant terms of the agreement are:

[The defendant] shall provide the following: a minimum of $150,000 per annum in advertising for Sage magazine as placed by [the defendant’s] affinity partner advertisers.

[The plaintiff] shall be permitted, but not obligated, to engage agents for selling advertising provided it is not to the insurance industry…

[The defendant] and [the plaintiff] agree that profit, after calculating annual revenues and subtracting all reasonable costs incurred by [the plaintiff], shall be distributed as follows:

(a) the first $150,000 of net profit* shall be paid to [the defendant] (reflecting affinity partners minimum contracted advertising); and

(b) the next $150,000 of net profit shall be paid to [the plaintiff]; and

(c) any remaining net profit shall be distributed with 50% of residual net profit payable to [the plaintiff], and 50% of residual net profits to [the defendant].

*For the year 2014 only, given that one edition of Sage magazine has already been produced with $67,000 affinity advertising revenue retained by [the defendant], that amount of profit will be deemed to have already been paid, so only the first $83,000 of profit from the remaining three 2014 editions will be paid to [the defendant] under (a) above (to bring the total for the year to $150,000).

[Emphasis added]

The Defendant’s Additional Facts

[12] The defendant argues that throughout the life of the contract, it brought in virtually all the revenue for the publication (other than government grants). It provided pre-contractual spreadsheets in which there were certainly pro forma calculations performed by the parties premised on the plaintiff bringing in substantial ad revenue too. The defendant argues that giving the plaintiff a piece of the first $150,000 for 2019 when it failed to bring in ad revenue as expected for five years is effectively giving the defendant’s money to the plaintiff for free.

[13] In 2018, the business of the plaintiff was sold to Torstar. In discussions concerning the transition of the business, it became apparent that the publishing contract was not going to be renewed. The parties entered into an agreement in which the defendant consented to the assignment of the business to Torstar. One of the terms of the consent was:

For further certainty, the March Edition shall be the sole edition of Sage that is included in the 2019 profit and loss calculation.

[14] The defendant argues that the parties recognized that the annual profit calculation for 2019 would consist only of the one edition to be published. However, no change was made to the $150,000 priority.

[15] I agree with the defendant that the plaintiff’s evidence largely consisted of subjective intention and legal interpretation. I ignore it for the purposes of this interpretive exercise.

The Legal Approach to the Contract

[16] In Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, the Court of Appeal instructs:

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. 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. In interpreting the contract, the court must 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. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity. …

[Notes omitted]

[17] To this I would add only the gloss from the Supreme Court of Canada that the exercise of contractual interpretation has evolved toward, “a practical, common-sense approach not dominated by technical rules of construction”. See: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 47.

Analysis

[18] Looking at the words of the contract, it is apparent that only the defendant had a binding obligation to bring in a minimum amount of advertising revenue. The plaintiff was entitled to but it had no obligation to do so. The defendant is relying on pre-contractual discussions to enlarge the plaintiff’s burden to obtain ad revenue beyond the words set out in the contract itself. That violates the parol evidence rule and is not a proper use of the “factual matrix” even if known to both parties prior to the signing of the agreement. The entire agreement clause prevents this as well.

[19] I have highlighted the words “(reflecting affinity partners minimum contracted advertising)” set out in clause (a) of the profit sharing formula. Those words did not have to be there. The formula could have just said “$150,000 to the defendant; the next $150,000 to the plaintiff; and split the rest 50/50.” Instead the parties felt it necessary to note specifically the link between the defendant’s entitlement to the first $150,000 and its mandatory contribution of at least that much ad revenue from its affinity partners. In effect, they are saying that the defendant is getting its money back out of the first tranche of profits up to its minimum spend.

[20] The strongest legal argument advanced by the defendant is that the asterisked paragraph gave an example of a pro-rated recovery and it said that it applied “[f]or the year 2014 only”. The parties did not apply any pro-rating for 2019 although it was apparent at the time that the agreement was signed that it would terminate mid-year. The defendant argues that this means that there is to be no pro-rating for 2019.

[21] I am not convinced that the parties meant to determine the outcome five years hence. Anything can happen in the future. The relationship could have flourished so that the agreement would have been extended and not ended mid-year. The asterisked example applied only to 2014 because it dealt with results that were specific to that year. The plaintiff is not arguing that the defendant’s $67,000 in ad revenue before the agreement was signed in 2014 has any bearing on the calculation of the outcome today.

[22] But I look at the principle applied in 2014 for an analogy of how the parties understood the link between ad revenue and profit priority was to work. In 2014, the defendant’s priority to profit recovery was reduced dollar-for-dollar by its ad revenue under $150,000. As the year started with $67,000 in ad revenue already being contributed to the first edition, the defendant was deemed to have received that much profit already. As a result, its profit priority was reduced to the remaining $83,000. The defendant was deemed to have been entitled to receive and to have received as profit the ad revenue that it contributed dollar-for-dollar.

[23] The parties’ agreement to pro-rate the results for the 2014 partial year stands directly against the defendant’s interpretation of the meaning of the profit sharing provision. If the defendant is correct that the parties intended that it would receive the first $150,000 regardless of its contribution of ad revenue to the magazine, the parenthetical that I highlighted above would be meaningless. Moreover, its profit priority for 2014 should not have been reduced either. If the defendant is correct that the principle enshrined in the contract is that it receives the first $150,000 irrespective of its ad revenue production, then the reduction in 2014 makes no sense. On the defendant’s understanding, it should have received the first $150,000 despite only being obliged to contribute a further $83,000 in ad revenue to the newly formed venture for calendar 2014.

[24] The defendant argues that when the parties agreed in the consent document that the 2019 profits would be premised on the one edition only, this “read down” or “disassociated” the bolded parenthetical that linked the defendant’s profit priority to its ad revenue obligation. In effect, it says that by agreeing that only the one issue would be produced, the plaintiff was agreeing to give the defendant a $150,000 profit sharing priority no matter what its ad revenue contribution might be. Apart from the fact that the words of the consent document do not say anything like that, I cannot fathom why they should apply to “read down” only the obligation and not the linked benefit. I do not accept that this is a practical, common sense approach to reading either document.

Outcome

[25] The plaintiff argues that under the agreement, the profits are effectively to be split equally between the parties with a priority payment mechanism to ensure that the defendant receives back its minimum ad revenue contribution first. It says therefore that its $150,000 priority in para. (b) of the profit split clause should also be reduced to the same $62,250 as the defendant to maintain the 50/50 split. Whether it had to make this concession, it has done so and it appears to me to be quite proper and appropriate.

[26] Order to go as sought in para. 59 of the plaintiff’s factum dated November 16, 2020.

[27] The plaintiff may submit no more than three pages of cost submissions by December 7, 2020. The defendant may submit no more than three pages of costs submissions by December 14, 2020. Both parties shall provide costs outlines and copies of any offers to settle on which they rely. All material shall be sent to the court as searchable PDF attachments to an email to my Judicial Assistant. No case law or statutory material are to be separately filed. Rather, references to case law and statutory material, if any, shall be embedded as hyperlinks in counsel's submissions.

F.L. Myers J.

Released: November 30, 2020

COURT FILE NO.: CV-19-628992

DATE: 20201130

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

iPOLITICS LIMITED Plaintiff

– and –

NATIONAL ASSOCIATION OF FEDERAL RETIREES Defendant

REASONS FOR JUDGMENT

F.L. Myers J.

Released: November 30, 2020