Court File and Parties
COURT FILE NO.: CV-18-00602244-0000
DATE: 20201209
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: ALBERINO ALBERT SALVATORE, 2232465 ONTARIO LIMITED and SPRINT MECHANICAL INC., Plaintiffs
– and –
DAVID TOMMASINI, ANNA RUCCHETTO, FOUR SEASONS AVIATION LTD., and SKY SHIP CAPITAL CORP., Defendants
BEFORE: E.M. Morgan J.
COUNSEL: Alan G. McConnell, for the Plaintiffs
S. Dale Denis, for the Defendants
HEARD: November 13, 2020
SUMMARY JUDGMENT MOTION
I. The motion to dismiss
[1] On June 29, 2016, the Plaintiff, Albert Salvatore, through his company, the Plaintiff, 2232465 Ontario Limited, a large construction company, purchased a Sikorsky helicopter for USD $1.2 million. The individual Defendants own and operate the Defendant, Four Seasons Aviation Ltd., which operates helicopters for air charter. They also are the principles of the Defendant, Sky Ship Capital Corp., which owns a hanger for helicopter storage in Brampton, ON.
[2] The Plaintiffs needed someone to operate the helicopter that they purchased. They plead in the Statement of Claim that they entered what was essentially a co-ownership or joint venture agreement with the Defendants. They allege that the Defendants have breached that agreement by failing to fulfill their obligation to invest in the Sikorsky.
[3] Since the cause of action in the Statement of Claim is breach of contract and breach of the duty of good faith in contract, the Plaintiffs’ claim for damages and other relief is necessarily based on there being a complete and legally enforceable written contract between the Plaintiffs and the Defendants. That contract, they claim, obligated the Defendants to participate in the “acquisition and future operation” of the Sikorsky jointly with the Plaintiffs as a business. The Plaintiffs furher plead that this written contract is set out in four interrelated documents (collectively, the “Four Documents”):
a) a Letter of Intent dated June 24, 2016, referred to in paragraph 14 of the Statement of Claim (the “LOI”).
b) a letter agreement dated July 15, 2016, referred to in paragraph 20 of the Statement of Claim (the “July Letter Agreement”).
c) an Aircraft Management Agreement dated September 14, 2016, referred to in paragraph 27 of the Statement of Claim (the “AMA”).
d) a letter agreement dated September 14, 2016, referred to in paragraph 28 of the Statement of Claim (the “September Letter Agreement”).
[4] The Defendants deny that any enforceable contract exists. They submit that the Four Documents are at the most preliminary business plans, and that they add up to nothing more than an “agreement to agree” on an eventual arrangement by which the two groups would operate the Sikorsky together. It is the Defendants’ position that the Four Documents are so lacking in crucial terms that they are not, and could not possibly be, enforceable as a contract or a set of contracts.
[5] The Defendants bring this motion under Rule 20.01(3) of the Rules of Civil Procedure seeking to dismiss the claim.
II. The Four Documents
[6] In 2015, the parties began discussing the possibility of running a helicopter business together servicing lift jobs in the construction industry. It is not in dispute that ultimately the Four Documents were drafted by the Plaintiffs’ representatives. Counsel for the Defendants submit that as a consequence any reasonable interpretation of the Four Documents which is favourable to the Defendants ought to prevail contra proferentem.
[7] On June 29, 2016, when the Plaintiffs purchased the Sikorsky helicopter, the LOI was the only one of the Four Documents in existence. The gist of the LOI is contained in the following paragraphs:
On or before the first anniversary of the closing of the [Albert’s] purchase [of the Sikorsky] David/Anna shall pay or cause to be paid to the Purchaser [Albert] an amount equal to one-half of the Acquisition Costs (the “Buy-in Amount”). Upon receipt by the Purchaser of payment in full of the Buy-in Amount and the payment thereof to Albert, Albert shall cause to be conveyed to David/Anna (or as they may direct) a one-half interest in the Buyer [not a defined term], the entity that ultimately owns the Aircraft, and/or the Aircraft as the case may be.
Albert and David/ Anna acknowledge and agree that the legal form and structure of the ownership of the Aircraft has yet to be settled pending receiving further professional advice, providing that the end result is that the ownership and operation of the Aircraft is to be as a separate stand-alone business, directly or indirectly owned and controlled by Albert and David/Anna, each as to 50%. Hereafter, the entity that owns the Aircraft shall be referred to as the ‘Owner’…
This Letter does not constitute a legally binding agreement, nor does it create any legally binding obligation between you and me. This Letter sets out the principle upon which we intend to negotiate mutually acceptable binding contracts.
[8] As the Defendants submit, and as is self-evident from the wording of the document, the LOI did not settle the material terms of any participation by the Defendants in the “ownership and operation” of the helicopter. It likewise did not create or identify the terms of the “separate stand-alone business” that would be involved in that ownership and operation.
[9] In acknowledgement of those gaps, the LOI specifically states that the material terms of the arrangement were “yet to be settled” and that the LOI itself does “not constitute a legally binding agreement, nor does it create any legally binding obligation…” There was to be no buy-in by the Defendants until the “legal form and structure” of the joint venture was worked out between the parties in a yet-to-be-negotiated agreement.
[10] The July Letter Agreement, signed by the parties a month and a half after the LOI, refers to the LOI and identifies the Sikorsky helicopter that the Plaintiffs had purchased. It then states:
This confirmation constitutes an amendment to the LOI and, notwithstanding the penultimate paragraph thereof, the LOI as amended hereby constitutes a binding agreement between Albert and 2232465 on the one hand, and David, Anna and Four Seasons on the other.
[11] The July Letter Agreement contained no other substantive term. In other words, its purpose appears to have been to take a non-binding and unenforceable document – the LOI – and to declare it to be binding and enforceable. It purported to do so without filling in the missing material terms necessary to make an aspirational document like the LOI into a legal contract. It did not create the “separate stand-alone business” called for in the LOI, and did not settle the terms of the business arrangement envisioned between the parties.
[12] As Defendants’ counsel observes, it is trite law that a mere statement that something is a contract does not itself create a contract where none exists. The LOI specified that the parties “shall enter into a definitive agreement in respect of the Owner [of the Sikorsky]” which would define the terms of that ownership as between them. None of those rights and obligations of the parties inter se were spelled out in the July Letter Agreement. While the July Letter Agreement stated that the LOI is binding, it added none of the content needed to bind the parties.
[13] The AMA is an aircraft management agreement which on its face sets out the terms under which the Defendants (referred to as the Operator) would operate the Sikorsky on behalf of the Plaintiffs (referred to as the Owner). It is an odd document to include as part of what the Plaintiff calls the binding agreement defined by the Four Documents, as it expressly cancels the previous two documents – i.e. the LOI and the July Letter Agreement. Article 14.13 of the AMA provides:
Entire Agreement: This Agreement and the matters referred to herein constitute the entire agreement between Owner and Operator regarding the subject matter hereof and supersede and cancel all prior representations, alleged warranties, statements, negotiations, drafts, undertakings, letters, acceptances, agreements, understandings, contract[s] and communications, whether oral or written, between Owner and Operator or their respective agents, with respect to or in connection with the subject matter of this Agreement, and no agreement or understanding varying the terms and conditions hereof shall be binding either to Owner or Operator unless in writing and duly signed by their respective authorized representatives. In the event of any inconsistencies between this Agreement, any addendum clauses or Exhibits stated to be part of this Agreement, the order of precedence shall be: any addendum clauses; this Agreement; and other Exhibits.
[14] By specifically cancelling “all prior representations, alleged warranties, statements, negotiations, drafts, undertakings, letters, acceptances, agreements, understandings, contract[s] and communications, whether oral or written, between Owner and Operator or their respective agents”, the AMA leaves no co-ownership or joint venture business relationship between the parties. The terms of the AMA itself merely set up the Defendants as arm’s length independent contractors engaged by the Plaintiffs to manage the Sikorsky for a fee. In fact, it goes on to specify that, “In no event shall this Agreement be construed as creating a joint venture, partnership or other form of association or cooperative arrangement between the parties.”
[15] The AMA also explicitly states that the Defendants are “not to be construed as a participant in the acquisition and future operation” of the Sikorsky jointly with the Plaintiffs. Counsel for the Defendants points out that in cross-examination, the Plaintiff, Albert Salvatore, admitted that the AMA did not and was not intended to set out the terms governing any joint ownership of the helicopter that the Plaintiffs had purchased, and that “the terms of that relationship would be set out in a different document.” No such document has ever emerged.
[16] The September Letter Agreement does nothing to change this state of affairs. It simply amends the AMA by providing that “there shall be no Administrative Fee” payable to the Defendants for managing the Sikorsky until the Plaintiffs have received payment of the “Buy-in Amount” envisioned, but not determined, by the LOI. Nothing in the September Letter Agreement settles the “Administrative Fee” or the “management fee” referred to in the LOI as “yet to be settled”. In fact, the operative terms of the September Letter Agreement did not settle any of the unresolved terms of the future business relationship between the parties.
[17] The parties engaged in numerous negotiations, none of which resulted in any definitive agreement. Counsel for the Defendants has identified a series of emails in the record where the Plaintiffs’ lawyers confirm that no enforceable “partnership agreement” or “shareholders agreement”, or any “principal…key…operative document” governing the potential joint venture and co-ownership of the Sikorsky helicopter was ever concluded between the parties. Correspondence to this effect both pre-dates and post-dates the existence of the Four Documents:
On May 4, 2016, a lawyer for the Plaintiffs wrote: ‘This process has four steps’ and that one of these steps was ‘A partnership agreement – pending’.
On May 6, 2016, a lawyer for the Plaintiffs wrote: ‘The partnership agreement might take a bit of time, thus, to simplify the process, I have made a short Letter of Understanding [the LOI], this should really help sort out the framework and allow us the move forward on the deposit with the seller.’
On August 3, 2016, a lawyer for the Plaintiffs wrote: ‘This document [the AMA] is separate and apart from the document which will govern the ‘co-ownership’ arrangement between Albert and Dave/Anna.’
On August 31, 2016, a lawyer for the Plaintiffs wrote: ‘There [is] one further principal operating document, a Shareholders Agreement, which has not yet been drafted. It will come into effect once you and Anna buy into the Owner, 2232465 Ontario Limited, and it will govern such matters as the management and decision making of the Owner, restrictions on ownership, share transfers and the like.’
On December 5, 2016, a lawyer for the Plaintiffs wrote: ‘The key operative documents in respect of the ownership and operation of the S58 [the Sikorsky] are [the Four Documents]… the Shareholders Agreement which will cover the ownership (including the transfer of ownership, succession etc.) and governance (control, voting rights, management etc.) of the Owner – it has yet to be drafted, but a memo has been circulated internally’.
[18] As is obvious, the Four Documents do not include any “partnership agreement” or “Shareholder’s Agreement”. Despite this absence, the Statement of Claim alleges that the Four Documents amount to a complete and enforceable agreement compelling an unquantified investment by the Defendants on unknowable terms. It is this supposed contract that forms the basis of the entire claim, as set out in the substantive relief sought in the opening paragraph of the Statement of Claim:
- The plaintiffs claim:
(a) A declaration that the Contract as defined herein, and each of its related
documents, constitute a legally binding agreement;
(b) damages for breach of contract in the amount of $1,535,220.00;
(c) damages for breach of good faith performance of the Contract in the amount of $250,000.00…
III. No contract to enforce
[19] As indicated above, article 14.03 of the AMA – the ‘Entire Agreement’ clause – provides a complete answer to the Plaintiff’s claim. The Plaintiffs claim to enforce a written agreement composed of the Four Documents, of which the AMA itself is an integral part. They do not base their claim on any oral agreement or side deal that is collateral to the claimed written agreement. The AMA not only provides that it constitutes the entire agreement between the parties, but it explicitly cancels any prior agreements, letters, contracts, etc. This must also include the LOI and the July Letter Agreement, on which the Plaintiffs purport to rely in asserting that there is any contract at all.
[20] No supposed agreement between the parties can survive in the face of an Entire Agreement clause such as found in the AMA. Its very point, expressed with clarity, is to negate an argument such as that put forward by the Plaintiffs. There is nothing in the record that negates that clear language. “[W]hen the language of a written contract is clear and unambiguous, extrinsic evidence is not admissible to vary, qualify, add to, or subtract from, the words of the written contract”: Gutierrez v. Tropic International Ltd., 2002 CanLII 45017, at para 19 (Ont CA).
[21] Even if the AMA had not expressly cancelled the LOI and July Letter Agreement, those documents were lacking in sufficient material facts to characterize them as legal contracts. They are what Defendants’ counsel describes as inchoate arrangements, or “unenforceable ‘agreements to agree’”. The Court of Appeal in Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 CanLII 2734, at 13, was emphatic that such pre-contractual arrangements are not enforceable as contracts:
…when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract.
[22] Even if the LOI contained some important ingredients of a contract, the absence of the fundamental business terms on which the co-ownership of the Sikorsky and the jointly owned business of the parties in operating the helicopter would be built is fatal to the claim that the LOI is a contract. As in Consulate Ventures Inc. v. Amico Contracting & Engineering (1992), 2007 ONCA 324, at para 87 (Ont. CA), those fundamental terms of the arrangement “are necessary components of the overall development undertaking provided for under the [LOI]. Without specific agreement on these issues, the obligations assumed by the parties in respect of these two projects were unclear and uncertain. A purported agreement such as this “which lacks the essential terms is too uncertain to be enforceable”: Georgian Windpower Corp. v. Stelco Inc., 2012 ONSC 3759, at para 122.
[23] On its face, the LOI made any further business dealings with respect to the helicopter conditional on the negotiation of what it dubbed a “definitive agreement” settling all material aspects of the “separate stand-alone business” of owning and operating it. In my view, this is not only an objectively reasonable interpretation of the LOI, as Defendants’ counsel submits; it is the only reasonable interpretation. And since the Plaintiffs drafted all of the Four Documents, including the LOI, such an objectively reasonable interpretation is strengthened, and can prevail, on the basis of the contra proferentem rule of interpretation. “[A]ny ambiguity in a term of a contract must be resolved against the author if the choice is between him and the other party to the contract who did not participate in its drafting”: McClelland and Stewart Ltd. v. Mutual Life, 1981 CanLII 53 (SCC), [1981] 2 SCR 6, 15.
[24] The Plaintiffs rely heavily on the words in the July Letter Agreement that the LOI, contrary to its own self-definition as non-binding, is in fact “legally binding”. That suggests that the otherwise vague, inchoate, and inoperative words of the LOI can be made clear, binding, and operative merely by saying so and without changing their content. It is axiomatic, however, that “the fact that parties say that they have entered into a binding agreement…does not mean they have done so, in the absence of a consensus ad idem as to the essential elements of the bargain”: Lethal Energy Inc. v. Kingsland Energy Corp., 2014 SKQB 10, at para 63 (Sask QB).
[25] As a separate matter, counsel for the Defendants also argue that the Defendant, Sky Ship Capital Corp. (“Sky Ship”), is not a party to any of the Four Documents and is never mentioned in any of the Four Documents. Sky Ship is a sister company to the other corporate Defendant. It owns and operates a hanger where the Sikorsky would likely have been stored had the contractual relationship between the parties actually been consummated. Nothing in the LOI, the AMA, or either of the two letter agreements envisioned Sky Ship playing any role or assuming any obligations in respect of the proposed business relationship.
[26] But for the aversion of the courts to issuing partial summary judgments, the Plaintiffs’ claim against Sky Ship would likely have been dismissed regardless of the merits of the claim against the other Defendants: see Mason v. Perras Mongenais, 2018 ONCA 978, at para 41. Here, however, I need not consider the impact of a partial summary judgment ruling. The claim against Sky Ship is non-existent, but the claim against all of the Defendants likewise cannot succeed.
[27] It is by now well understood that “summary judgment must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims”: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87, at para 5. Rule 20.04(2)(a) provides that a motions court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial. I have little hesitation in coming to that conclusion with respect to the Plaintiffs’ claim of breach of contract.
[28] I come equally easily to the Plaintiff’s claim of breach of the duty of good faith in contracting. The doctrine of good faith does not impose extra-contractual or fiduciary duties on parties, but rather requires good faith performance of contract terms by parties with an ongoing, enforceable contractual relationship: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 SCR 494, para 60. No invocation of good faith can make a non-contract into a binding agreement. The LOI had insufficient terms to enforce, and so the parties’ good or bad faith performance of those non-existent terms cannot be measured and cannot form the basis for a liability claim.
III. Disposition
[29] Summary judgment is granted in favour of the Defendants. The Plaintiffs’ claim is dismissed in its entirety.
[30] The parties may make written submissions as to costs. I would ask counsel for the Defendants to provide me with their brief submissions (3 pages plus Bill of Costs) within two weeks of today. Since that takes us up to the Christmas-New Year’s week, counsel for the Plaintiffs may take an extra week and are requested to provide me with their equally brief submissions within three weeks thereafter.
Morgan J.
Date: December 9, 2020