COURT FILE NO.: CV-18-592-00
DATE: 2020-12-18
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Rockwater Construction Inc.
Mr. E. Dreyer, for the Plaintiff
Plaintiff
- and -
Charles Douglas Coppin, The Residence TBCC Limited, 2485439 Ontario Limited, M. Jurcik Investments Limited, Dawson Cove Holdings Inc., 2485649 Ontario Limited and Gino Arnone
Mr. M. Smiley, for the Defendants
Defendants
HEARD: September 18, 2020, at Thunder Bay, Ontario
Mr. Justice W.D. Newton
Reasons on Motion
Overview
[1] On this motion, the Defendants seek a judgment declaring that a binding settlement was reached between the parties by Minutes of Settlement dated April 2, 2019. If there is a binding settlement, then the defendants seek an order that the Plaintiff (“Rockwater”) complies with the Minutes of Settlement within 30 days as follows:
i. The Plaintiff shall execute the Shareholders' Agreement as drafted and provided by the Plaintiff on June 12, 2020, and signed by the Defendants;
ii. The Plaintiff shall execute the Mutual Release as drafted and provided by the Plaintiff on June 12, 2020, and signed by the Defendants on June 30, 2020;
iii. The Plaintiff shall issue an invoice to the Defendants in the amount of $452,000.00, inclusive of HST, in accordance with Paragraph 2 of the Minutes of Settlement dated April 2, 2019; and
iv. The Plaintiff shall discharge the registered liens against:
the golf course property, PIN 62118-0121; and
the parking lot property, PIN 62118-0123 (LT); and shall further reduce the currently registered liens against the condominium development property, PIN 62118-0122 (LT), to a total of $500,000.00, in accordance with Paragraph 5 of the Minutes of Settlement.
[2] Rockwater opposes the motion, arguing that the settlement was an “unenforceable agreement to agree” and that the Minutes of Settlement were repudiated by the Defendants, The Residence TBCC and Coppin (the “Owners”), because of delay.
The Facts
[3] Rockwater is a real estate development and construction management company. In December 2016, Rockwater entered into a contract with the Owners to supply services for a condominium/golf course project on lands owned by The Residence TBCC. In addition to fees, Rockwater was also to receive a 15% equity stake in the condominium and golf course.
[4] In October 2018, the Owners gave notice to Rockwater that they were terminating the contract. Subsequently, Rockwater registered two claims for liens against the project totalling slightly in excess of $1.5 million. Rockwater also sought $3 million representing the value of their 15% equity stake.
[5] The parties proceeded to mediation on April 2, 2019, and Minutes of Settlement were entered into which provided that:
(a) In 30 days the Owners would issue a promissory note to Rockwater in the amount of $400,000 plus HST. The note will be payable upon the earlier of the refinancing of the Project or two years.
(b) Rockwater will issue an invoice to the Owners in the amount of $400,000 and cancel all previous invoices.
(c) Within 30 days the parties shall enter into a shareholders agreement pursuant to which Rockwater shall receive 15% of the common shares of the Residence TBCC. With respect to the form of the shareholders' agreement, the Minutes said the following:
The shareholders' agreement shall be in the usual form and shall contain provisions providing that any future share distribution shall be on a basis that is nondilutive to the interests of the plaintiff. The shareholders' agreement shall also contain standard tag-along and drag-along provisions, rights of audit, and the right of the plaintiff to sell or assign his shares to a related company or a bona fide third-party purchaser, provided that the defendants are offered a right of first refusal in the standard terms. The shareholders' agreement shall not contain a shotgun buy sell agreement.
(d) The parties shall execute a full and final mutual release within 30 days.
[6] The Minutes of Settlement also provided that if there are “any issues with respect to these minutes of settlement or their implementation, including settling in terms of the shareholders’ agreement… The parties agree to submit those issues to the mediator for resolution.”
[7] On April 9, 2019, Rockwater sent the invoice as required. On April 12, 2019, Rockwater sent a draft mutual release and on May 7, 2019, a draft unanimous shareholder agreement.
[8] Disagreement arose over the terms of the unanimous shareholder agreement and the parties returned to the mediator on July 30, 2019. Subsequently, other issues were raised and not resolved.
[9] A significant new issue raised by the Owners in February 2020 was the need for Rockwater or its principal personally to be a guarantor for bank financing for the project. Rockwater was not prepared to commit as a guarantor. Its principal was not prepared to grant a personal guarantee.
[10] By June 12, 2020, Rockwater advised the Owners that the settlement agreement needed to be finalized by June 26, 2020, failing which Rockwater would terminate the settlement and proceed with litigation. On July 3, 2020, Rockwater announced that the settlement was over since it had not been finalized by the deadline.
[11] On July 6, 2020, the Owners delivered a new draft unanimous shareholder agreement with terms not agreed to by Rockwater. Rockwater responded that these terms were not acceptable and advised that attempts to complete the settlement had ended.
[12] Thereafter, on July 30, 2020, the Owners purported to accept the conditions as set out by Rockwater in its ultimatum of June 12, 2020. They executed the shareholder agreement as proposed by Rockwater and delivered the executed shareholder agreement, promissory note, and mutual release as drafted and provided by Rockwater on August 27, 2020.
[13] The Owners then brought this motion on September 9, 2020.
Positions of the Parties
Agreement to Agree
[14] Relying upon Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 CanLII 2734 (ON CA), 79 D.L.R. (4th) 97 (Ont. C.A.), Di Gennaro v. BMO Nesbitt Burns Inc., 2013 ONSC 37, and Brager v. Ontario (Minister of Natural Resources), 2017 ONSC 1759, the Owners argue that all essential terms had been agreed upon at mediation and the settlement is, therefore, binding.
[15] Relying upon the same cases, Rockwater argues that there was not an agreement on the essential terms of the agreement. In the affidavit filed by Mr. Waters, the president of Rockwater, he deposed that the terms not agreed upon included over twenty discrete items, the following of which were still outstanding when Rockwater withdrew from the settlement:
- Using the Owners' email of July 6th, 2020, as a point of reference, when Rockwater withdrew from the settlement on July 3rd, 2020, the following issues remained outstanding:
Whether Rockwater would remain a shareholder of The Residence TBCC at all or participate in a profit sharing agreement?
If Rockwater refused to sign a personal or corporate guarantee, would it be in material breach of the Shareholder Agreement and would its shares be sold at a 20% discount?
Whether The Residence TBCC could sell the Lands without the consent of Rockwater if it is unable to secure financing for the Project?
Whether 948 would be required to maintain 50% of the shares in the Residence TBCC?
Should the Owners be permitted to reduce the payment to Rockwater by $38,429.20 plus HST with respect to the Stubbe's deposit?
If not, should the form of the Mutual Release permit the Owners to bring a claim against Stubbe's to recover the deposit from Stubbe's?
[16] Further, Rockwater submits that cases relied upon by the Owners are easily distinguishable from the present case.
Delay
[17] Notwithstanding that the Minutes of Settlement executed in April 2019 required steps to be completed within 30 days, including the execution of a shareholder agreement, the parties continued to attempt to negotiate the terms of the shareholder agreement until June 2020 when Rockwater imposed a deadline.
[18] The Owners argue that the timelines were mutually waived by both parties and that the delay was caused by Rockwater who refused to provide guarantees to potential lenders. In any event, the Owners argue that they ultimately delivered the signed documents as requested by Rockwater.
[19] Rockwater argues that it was open for it to withdraw from the settlement upon reasonable notice that it was insisting upon completion. The delivery of executed documents two months after the deadline is not completion according to Rockwater.
Return to the Mediator
[20] The Owners argue that repudiation of the Minutes of Settlement is not appropriate when the parties have agreed to return to the mediator for the resolution of any disputes, including relating to the shareholder agreement.
[21] Rockwater points out that this was tried once, on the consent of both parties, on July 30, 2019, and was unsuccessful in resolving all issues. Given the failure of the parties to agree on such significant matters as the requirement for a corporate or personal guarantee, Rockwater submits that it would be pointless to return to the mediator.
The Law
Agreement to Agree
[22] In Bawitko, the Court of Appeal addressed the issue of “agreement to agree” in the context of a franchise agreement. The Court noted, at pp. 12-13:
As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement, necessarily discuss and negotiate the proposed terms of the agreement before they enter into it. They frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way of memorandum, by exchange of correspondence, or other informal writings. The parties may "contract to make a contract", that is to say, they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When they agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.
However, 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. In other words, in such circumstances the "contract to make a contract" is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself. See, generally, Von Hatzfeld Wildenburg v. Alexander, [1912] 1 Ch. 284; Canada Square Corp. Ltd. et al. v. Versafood Services Ltd. et al. (1980), 1979 CanLII 2042 (ON SC), 25 O.R. (2d) 591 (H.Ct.), aff'd., (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.); Bahamaconsult Ltd. v. Kellogg Salad Canada Ltd. (1976), 1975 CanLII 379 (ON SC), 9 O.R. (2d) 630 (H.Ct.), rev'd, (1977), 1976 CanLII 554 (ON CA), 15 O.R. (2d) 276 (C.A.); Chitty on Contracts, 26th ed. (1990), at pp. 79-91; Corbin on Contracts, (1963), Vol. 1, s. 29-30; and Treitel, Law of Contract, 7th ed. (1987), at pp. 42-47. [Emphasis added.]
[23] Both Di Gennaro and Brager involved situations in which the only unresolved issue between the parties was the form of the release to be provided.
Delay
[24] Neither party provided any authorities to support their positions on delay.
[25] It is trite law that settlement agreements are contracts subject to the general law of contract: see, for example, Struik v. Dixie Lee Food Systems Ltd., 2017 ONSC 551.
[26] As the Court of Appeal stated in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 74 B.L.R. (4th) 161:
The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity.
[27] This is as applicable to deadlines as to any other provision.
Analysis and Disposition
[28] I begin by acknowledging that litigants, the courts, and society in general all have an interest in resolving disputes by settlement if a settlement can be reached.
Agreement to Agree
[29] I accept that the parties entered into the Minutes of Settlement in good faith but it is undisputed that the Minutes of Settlement did not address issues that could and should have been addressed at the mediation, such as whether Rockwater would incur guarantee obligations on becoming a 15% shareholder. This was a significant issue impacting on the financial obligations of Rockwater in a project in which they were a minority shareholder. The fact that this issue was not raised until February 2020 and remained unresolved between February 2020 and June 2020 supports the conclusion that this issue was not initially contemplated by the parties and of significance to both.
[30] As such, following Bawitko, as essential provisions were not agreed upon then, I conclude that there is no agreement. I agree with counsel for Rockwater that this case is different than the cases in which only the terms of a release were in dispute. Material terms of the alleged agreement were not agreed upon. Therefore, the matter was only an agreement to agree.
Delay
[31] At mediation in April 2019, the parties agreed to terms requiring completion within 30 days, including execution of the shareholder agreement. In good faith, the parties continued to attempt resolution, returning once before the mediator.
[32] However, by June 2020, a year later, there was no shareholder agreement. Rockwater delivered an ultimatum and imposed a firm deadline. The Owners ignored that deadline and continue to act as if negotiations were ongoing. That the owners executed the shareholder agreement as demanded by Rockwater two months after the deadline calls into question the Owners’ “good faith” and suggest that the Owners were continuing to advance their interests and extract from Rockwater concessions that were not made at the time of the mediation.
[33] There is no evidence that there was a waiver of the timelines other than the conduct of the parties in continuing to negotiate after 30 days. For me to find that Rockwater waived timelines completely would require clear evidence that both parties agreed that there would be no deadline for completing the shareholder agreement. A complete waiver of the timelines would make no commercial sense in the circumstances. Following Salah, it would be absurd to conclude that there was no deadline for completion of the agreement and that one party or the other could not insist on compliance with the deadline after reasonable notice.
Return to the Mediator
[34] After returning to the mediator once, I agree with Rockwater that to require the parties to return once again would be pointless. The affidavits filed by both parties, including the affidavit filed by Mr. Arnone, a very experienced corporate and commercial lawyer acting for the Owners, indicate that both parties recognized and understood the importance of the outstanding issues. Further, there is nothing in the evidence to suggest that the Owners wanted or suggested that the parties return to the mediator. On the contrary, the evidence indicates that the parties were fully engaged in these protracted, but failed, negotiations.
[35] For the foregoing reasons, the motion is dismissed.
Costs
[36] If parties cannot agree on costs, then the party seeking costs shall deliver written submissions on costs, limited to three pages plus costs outline, within 30 days of the date of this decision. Any response may be delivered within 10 days thereafter, subject to the same limitations.
“Original signed by”
The Hon. Mr. Justice W.D. Newton
Released: December 18, 2020
COURT FILE NO.: CV-18-592-00
DATE: 2020-12-18
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
Rockwater Construction Inc.
Plaintiff
- and -
Charles Douglas Coppin, The Residence TBCC Limited, 2485439 Ontario Limited, M. Jurcik Investments Limited, Dawson Cove Holdings Inc., 2485649 Ontario Limited and Gino Arnone
Defendants
REASONS ON MOTION
Newton J.
Released: December 18, 2020
/lvp