Court File and Parties
COURT FILE NO.: C-6887-17 Al/B1 DATE: 2021-09-02 SUPERIOR COURT OF JUSTICE – ONTARIO
RE: CONRAD HOULE, by his Litigation Guardian, BORIS NANEFF, SHEILA HOULE, CS HOULE HOLDINGS INC., and KKP INVESTMENTS INC., Plaintiffs
AND:
ANDREW SOSTARICH, ALESIA SOSTARICH, TRACKS & WHEELS EQUIPMENT BROKERS INC., MICHAEL GOUGEON, SOSTARICH ROSS WRIGHT CECUTTI LLP, ARSENEAU POULSON and WORKERS AUTO SERVICES LTD., Defendants
AND:
THE TORONTO DOMINION BANK and KENNETH M. KOPPES, Third Parties
AND:
ANDREW SOSTARICH, ALESIA SOSTARICH, TRACKS & WHEELS EQUIPMENT BROKERS INC., MICHAEL GOUGEON, SOSTARICH ROSS WRIGHT CECUTTI LLP, ARSENEAU POULSON and WORKERS AUTO SERVICES LTD., Fourth Parties
BEFORE: The Honourable Mr. Justice R.D. Gordon
COUNSEL: Joseph Groia for the Plaintiffs Orlando M. Rosa, for the Defendants Tracks & Wheels Equipment Brokers Inc., Michael Gougeon and Workers Auto Services Ltd.
HEARD: July 29, 2021 via Zoom
ENDORSEMENT
Overview
[1] Tracks & Wheels Equipment Brokers Inc., Michael Gougeon and Workers Auto Services Ltd. (the “Gougeon Defendants”) brought a motion for summary judgment to dismiss the claims of the Plaintiffs as against them. They say the Plaintiffs have resiled from an agreement to settle the motion and seek judgment in accordance with the settlement they say was reached.
[2] The Plaintiffs argue the purported settlement lacks the certainty required to establish a legal agreement to settle or, in the alternative, the court should exercise its discretion and decline to enforce it.
The Legal Principles
[3] In their notice of motion, the Gougeon Defendants have framed this motion as one brought under Rules 49.09 and Rule 7.08.
[4] Rule 49.09 provides that where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant summary judgment accordingly.
[5] The application of Rule 49.09 calls for a two-step analysis. The first step is to determine whether there is any genuine issue about whether an agreement to settle was reached. The second step, once an agreement has been found to exist, is to consider whether, on all of the evidence, the agreement should be enforced. [See Capital Gains Income Streams Corp. v. Merrill Lynch Canada Inc., 2007 CanLII 39604 (ON SCDC), [2007] O.J. No. 3618 (Div. Ct.].
[6] As stated by the Ontario Court of Appeal in Olivieri v. Sherman 2007 ONCA 491 a settlement agreement is a contract and subject to the general law of contract regarding offer and acceptance. For a concluded contract to exist, the court must find that the parties: (1) had a mutual intention to create a legally binding contract; and (2) reached agreement on all of the essential terms of the settlement. When determining whether a concluded agreement exists, the court is not to inquire into the actual state of mind of the parties or either party’s subjective intention. Where the agreement is in writing, it is to be measured by an objective reading of the language chosen by the parties to reflect their agreement.
[7] A discretionary decision not to enforce a concluded settlement should be reserved for those rare cases where compelling circumstances establish that the enforcement of the settlement is not in the interests of justice. [See Srebot v. Srebot Farms Ltd., 2013 ONCA 84]. Among the factors to be considered in determining the interests of justice are: (i) evidence of mistake; (ii) the reasonableness of the agreement; (iii) the prejudice to the party seeking to uphold the settlement of the settlement is not enforced; and (iv) the effect on third parties. [See Milios v. Zagas, 1998 CarswellOnt 810 (C.A.)].
[8] In this case, Conrad Houle is a party under disability represented by a litigation guardian. As such, Rule 49.08 is also engaged. It provides that if approval of the settlement is required under Rule 7.08, no acceptance of an offer made by the party under disability is binding upon that party until that approval has been given. The requirement for court approval of settlements made on behalf of parties under disability is derived from the court’s parens patriae jurisdiction such that the duty of the court is to examine the settlement and ensure that it is in the best interests of the party under disability. [See Wu, Re, 2006 CanLII 16344 (ONCA)].
Analysis
Was there an Agreement to Settle?
[9] By summary judgment motion dated May 30, 2018, the Gougeon Defendants sought dismissal of the Plaintiffs’ claims against them on the basis there was no genuine issue for trial.
[10] On August 15, 2018 counsel for the Gougeon Defendants (Mr. Rosa) sent an email to then counsel for the Plaintiffs (Mr. Davis) in which he confirmed that “In regards to the SJ motion, we have an agreement that the action will be dismissed and that the costs of the motion and the action will be reserved to the trial judge.”
[11] At a case management conference held on September 10, 2018 both Mr. Rosa and Mr. Davis confirmed to the court that the motion for summary judgment had been resolved on agreement that the action against the Gougeon Defendants would be dismissed and that costs of the action and the summary judgment motions would be reserved to the trial judge.
[12] By letter dated September 12, 2018 Mr. Rosa forwarded a consent and draft order reflecting the settlement to all counsel. All counsel, including Mr. Davis, authorized Mr. Rosa to sign the consent on their behalf. The consent and draft order made it abundantly clear that the Plaintiffs’ action as against the Gougeon Defendants would be dismissed, and the costs of the summary judgment motion, a prior summary judgment motion and the costs of the action would be reserved to the trial judge. It also provided that the crossclaims involving the Gougeon Defendants would be dismissed without costs, as would be the fourth party claim against them. Finally, the consent and draft order provided that the counterclaim of the Gougeon Defendants would continue and be tried together with the main action.
[13] The Plaintiffs contend that because the Gougeon Defendants have not identified who made the offer, what the offer was, and what was accepted, they cannot satisfy the requirement that a valid contract of settlement was entered into. I disagree. The issue is whether an objective reading of the documents exchanged by the parties leads to the conclusion that the parties had a mutual intention to create a legally binding contract and whether agreement was reached on all essential terms of the settlement. Given that a solicitor of record has the ostensible authority to bind his or her clients and opposing counsel are entitled to rely upon that authority unless they have some indication to the contrary (see Dick v. McKinnon, 2014 ONCA 784) there can be no doubt the documents reflect a mutual intention to create a binding settlement and that agreement was reached on all the essential terms of the settlement.
[14] In my view there was clearly an agreement to settle.
Is the Settlement Binding on Conrad Houle as a Party Under Disability?
[15] The main action arises out of the sale of a business known as Tracks & Wheels Equipment Brokers Limited (“Tracks & Wheels”). Conrad Houle, Sheila Houle and CS Houle Holdings Inc., were the shareholders of Tracks & Wheels. They sold their shares to Workers Auto Services Ltd., a company controlled by Michael Gougeon. Tracks & Wheels operated its business out of premises located in Timmins, Sudbury, and North Bay. Those premises were all owned by KKP Investments Inc. and leased to Tracks & Wheels. Conrad Houle and Sheila Houle are equal shareholders in KKP Investments Inc. (“KKP”). On closing of the sale of the shares of Tracks & Wheels, KKP granted to Tracks & Wheels a commercial lease for each of the properties along with an option to purchase each property.
[16] The Plaintiffs’ claims against the Gougeon Defendants are for: (1) Recission of the commercial leases; (2) Rescission of the Options to purchase; (3) A declaration that the Gougeon Defendants were trespassers to the property and business of the Plaintiffs for the period April 1, 2014 to July 21, 2014 and illegally converted the business enterprise of Tracks & Wheels for that period; (4) Rectification of the commercial leases such as to void the options; and (5) Damages for breaches of one lease in respect of the premises in North Bay.
[17] As the Plaintiffs’ action is framed, Conrad Houle, as a shareholder of the corporate plaintiffs, can have no personal entitlement to any of the relief claimed. Early dismissal of claims that cannot possibly succeed is generally in the best interests of a plaintiff, as it limits the exposure to costs he would face personally should the claims proceed to trial and fail.
[18] Counsel for the Plaintiffs argued that where, as here, the party under disability is also one of the controlling minds of the corporate plaintiff making the claims in question, the court should, in effect, treat that corporate defendant as a party under disability as well. The effect would be to require the court to determine whether the settlement agreement is in the best interests of that corporate defendant.
[19] I am not prepared to accede to this argument. It cannot be the responsibility of the court or the parties adverse in litigation to determine who controls a corporate defendant and whether any such person is under disability. In this case specifically, Mrs. Houle is an equal shareholder, a director and officer of KKP. It does not lie to this court to question her authority to direct counsel on behalf of the corporation.
[20] Accordingly, given the claims of Mr. Houle as against the Gougeon Defendants cannot possibly succeed, it is in his interests that the settlement be approved notwithstanding that the documentation required by Rule 7.08(4) has not been provided.
Should the Court Decline to Enforce the Settlement Agreement?
Evidence of Mistake
[21] The Plaintiffs allege three mistakes made when Mr. Davis entered into the settlement agreement on their behalf. First, he was mistaken in his advice to the Plaintiffs that their claim for recission of the leases and option agreements was doomed to fail. Second, he was mistaken in his belief that he had authority to settle the entirety of the Plaintiffs’ claims when, in fact, his authority was limited to dismissal of the Plaintiffs’ claims of rescission. Third, he failed to obtain instructions from KKP as an independent client when he knew that Mr. Houle was the controlling mind of KKP and had been found by the court to be a party under disability.
[22] Whether Mr. Davis was mistaken in his advice to the Plaintiffs remains to be seen. He advised them that partial rescission of a contract was not available at law and therefore it would not be possible to undo the lease and option agreements without undoing the share purchase agreement which provided for them. The Plaintiffs would now argue that the leases and options are not so closely connected to the share purchase agreement as to prevent their rescission independently of it. In my view, it is far from clear that this new argument would carry the day. In any event, I am mindful of the decision of the Divisional Court in Crooks v. Foley, 2013 ONSC 3282 in which it held:
- This Court makes no finding as to whether the former solicitors for the plaintiff gave him good or bad legal advice. The point is that he gave instructions to his solicitors to negotiate a settlement, and acting on those instructions, his solicitors did so. The respondent was entitled to rely on the word of the plaintiff’s solicitors and to accept that they had authority to settle the action. If there is a remedy for the plaintiff based on the fact that he had a meritorious claim that he settled because of incorrect or negligent legal advice (about which this Court expresses no opinion), that remedy lies against the plaintiff’s former solicitors, not against the defendant Halton Police.
[23] It is to be noted that the Plaintiffs have begun an action against Mr. Davis alleging his negligence.
[24] On the issue of instructions received, the only written instructions to settle the motion received by Mr. Davis was on June 8, 2018 by email:
Milton,
We are confirming that you have our instructions to withdraw the claim for rescission of the options.
Sheila Houle
Andrew Katulka
[25] Notwithstanding Mrs. Houle’s insistence that she provided no other instructions to settle, a little more than an hour later Mrs. Houle sent Mr. Davis a further email asking that there be included in the settlement a paragraph that states “when the matter is settled he will not file any claims against Conrad Houle, Sheila Houle, and KKP Investments?”. To this Mr. Davis answered:
I appreciate the concern raised in the email below. As part of the settlement, each side (Gougeon and his companies) as well as you and Conrad will sign releases whereby each will completely release the other from any claims whatsoever. It will further provide that neither side can sue the other for any matter other than what is required to complete the settlement. In other words, the only issue that will be left outstanding is the completion of the transfer of the properties when the options require them to be transferred in July 2019. I hope this satisfies your concern.
[26] After several other emails, Mrs. Houle and Mr. Katulka participated in a teleconference with Mr. Davis on July 9, 2018 to discuss the action and the pending motion for summary judgment by the Gougeon Defendants. A memorandum summarizing the discussion was prepared that same day by Emily Duncan, an employee of Mr. Davis’ firm. It provides, in part, as follows:
Milton informs Sheila that he will go ahead and make a deal with Gougeon.
Sheila acknowledges this and gives instructions to do so.
The deal proposed by us and accepted by the clients on this call was for a dismissal of the action against Gougeon which would mean the options to purchase remain. Milton told the clients that we would propose either a complete dismissal without costs or costs to be determined by the trial judge.
[27] The very next day Mr. Davis sent email correspondence to Mr. Rosa:
I am writing to you to confirm and record our telephone conversation yesterday. At that time I advised you that the Plaintiffs will consent to an Order dismissing their action against your clients, Michael Gougeon, Tracks & Wheels Equipment Brokers Inc. and Workers Author Services Limited. That advice was unconditional save and except for the issue of costs for which I proposed one of two alternatives:
a. The action against your clients as well as the counterclaim will be dismissed without costs; or,
b. The costs of the action including the costs of the motions before Akbareli J. and the costs of the counterclaim will be left to the discretion of the trial judge.
The above proposal contemplates that the parties consent to an order that the counterclaim be dismissed without costs concurrent with the dismissal of the Plaintiffs’ claim. If that is not agreeable, then we are content that the counterclaim proceed to trial with costs of both the claim and the counterclaim to be decided by the trial judge.
[28] This correspondence was copied to Mrs. Houle and Mr. Katulka. Neither of them contacted him to advise that he improperly communicated the terms of the offer or his authority to make it.
[29] A further letter was sent from Mr. Davis to Mr. and Mrs. Houle and to Mr. Katulka on August 30, 2018 confirming the settlement:
The Claim against Mr. Gougeon.
Following our dialogue regarding you action against Mike Gougeon and his company, and on your instructions, we have agreed with their lawyers that it will be dismissed. The issue of who is entitled to the legal costs for that lawsuit will be left to the trial judge to decide. Otherwise, your claim against the Gougeon parties is now settled.
However, despite this settlement, the Gougeon parties are continuing their counterclaim against you. Mr. Gougeon is asking for:
The “adjustments” that he claims he was entitled to as decisions from the escrow fund (approximately $250,000); and
An HST rebate of approximately $33,000.00
[30] At no time did Mrs. Houle or Mr. Katulka communicate with Mr. Davis to challenge his confirmation that the summary judgment motion was settled in accordance with their instructions.
[31] The clear inference from this course of events is that Mrs. Houle and Mr. Katulka were perfectly aware of the summary judgment motion, received legal advice with resect to it, and communicated to Mr. Davis that it be settled on the terms eventually reached. Although they may not be happy with how matters have played out, or the advice they received, that is better determined through their action against Mr. Davis than being visited upon the Gougeon Defendants.
[32] With respect to the last mistake alleged, s. 118 of the Business Corporations Act, R.S.O. 1990, C. B.16 does provide that a person who has been found to be incapable by a court is disqualified from being a director of a corporation. Section 121 of that same Act provides that a director ceases to hold office when he or she becomes disqualified under s. 118. Accordingly, when Mr. Houle was determined to be a party under disability, he also ceased to be a director of KKP. That left Mrs. Houle as the sole acting director and officer of the company. It was fair for Mr. Davis to assume that her instructions were meant to bind not just her, but the company as well.
Reasonableness of the Settlement Agreement
[33] The Plaintiffs assert that the settlement agreement is patently unreasonable for two reasons: (1) The gravamen of the subject matter of the settlement is not damages but the ownership of real property and the uniqueness of the property would be lost to the Plaintiffs should the settlement be enforced; and (2) Enforcing the settlement would attract a damages claim against the other defendants who were professional advisors to the Plaintiffs during the transaction and exposes the Plaintiffs to the threat that entering into the settlement amounts to a failure to mitigate their damages.
[34] The property in question is comprised of industrial land and buildings. Although there is evidence that Mr. and Mrs. Houle wished to maintain the properties as an investment for their grandchildren, there is no evidence that the properties are unique or that damages could not be an adequate remedy should those properties be lost to them.
[35] The professional advisors to the Plaintiffs have defended this action on the basis that the Plaintiffs were fully advised of the terms of the transaction and that it was completed in accordance with the Plaintiffs’ instructions. An argument that the Plaintiffs failed to mitigate their damages by agreeing to release the Gougeon Defendants from the action would be a direct contradiction of their defence on the merits and is most unlikely to be accepted by the court.
Prejudice to the Gougeon Defendants if the Settlement is Set Aside
[36] Aside from losing the benefit of the settlement, the Gougeon Defendants are likely to be prejudiced by losing the ability to have the Plaintiffs’ action against them determined by way of summary judgment motion. The trial is scheduled to be heard early in 2022. No response materials have filed on the motion. No cross-examinations have been conducted. No time is scheduled for hearing. Given these facts and the looming trial date it is unlikely the Gougeon Defendants would be able to establish that the motion could be dealt with expeditiously and in a cost-effective manner. [See Butera v. Chown, Cairns LLP, [2017] O.J. No. 6267].
[37] Should the settlement agreement be maintained, although the properties would be lost, the Plaintiffs would retain their entitlement to claim damages from their professional advisors for the loss of the properties and against Mr. Davis for professional negligence. Given the lack of evidence concerning the uniqueness of the properties and that the Plaintiffs can still be made whole by way of damages if negligence, breach of contract or breach of fiduciary duty is established with respect to their professional advisors or previous counsel the prejudice to them is limited.
Effect on Third Parties
[38] The Plaintiffs allege that the children and grandchildren of Mr. and Mrs. Houle will be affected if the settlement is upheld because there will be a loss of the properties as a future income stream for them. However, if the Plaintiffs have been wronged and are awarded damages for those wrongs, other property or investments may be purchased with the damages award to secure that future income. There is no significant effect on third parties.
Conclusion
[39] There was an agreement to settle made by the parties. That agreement is in the best interests of Conrad Houle, a party under disability, and the requirement for filing of the documents prescribed under Rule 7.08 (4) is dispensed with. On consideration of all of the facts and balancing the factors reviewed above, this is not one of those rare cases where the court should exercise its discretion to not enforce the settlement and allow the proceeding to continue.
[40] It follows that the motion by the Gougeon Defendants is granted and an order to enforce the settlement of their summary judgment motion dated May 30, 2018 on the terms of consent and draft order dated September 10, 2018 shall issue. If the parties are unable to agree on costs, they may make written submissions to me, not to exceed 5 pages plus attachments each, within 45 days.
The Honourable Mr. Justice R.D. Gordon
Date: September 2, 2021