



COURT OF APPEAL FOR ONTARIO

CITATION: 798839 Ontario Limited v. Platt, 2016 ONCA 488

DATE
:
20160620

DOCKET: C58414

Strathy C.J.O., Blair and Lauwers JJ.A.

BETWEEN

798839 Ontario Limited
and
Jacobus
    Hanemaayer

Plaintiffs (
Appellants
)

and

Robert Platt
, James
    Bay Kaolin Corporation, James Bay Company Mineral Resources Inc., Black Gregor
    Explorations Ltd., Carlson Mines Limited, Source Resource Corp., Andre Boudreau
    and All-Terrain Track Sales & Services

Defendants (
Respondent
)

AND BETWEEN:

Robert Platt, Source
    Resource Corp., James Bay Kaolin Corporation and James Bay Company Mineral
    Resources Inc.

Plaintiffs

-
    and -

Community Expansion
    Inc., Great Lakes Nickel Limited, 153078 Canada Inc., 798839 Ontario Limited,
Great
    Lakes Kaolin Inc.
, Mineral Research Canada Inc., 894456 Ontario Limited,
    810031 Ontario Inc., 667188 Ontario Inc., 667190 Ontario Inc., 650326 Ontario Inc.,
    907248 Ontario Limited, Jacobus Hanemaayer, Jeffrey Hanemaayer, Earl Orth, Eric
    Kraushaar And Erin McGoey

Defendants (
Appellant
)

Paul J. Pape and Joanna L. Nairn, for the appellants

Robert Isles and R. Donald Rollo, for the respondent

Heard: May 12, 2016

On appeal from the judgment of Justice Michael A. Penny
    of the Superior Court of Justice, dated January 31, 2014, with reasons reported
    at 2013 ONSC 6879.

R. A. Blair J.A.:

[1]

This appeal involves the contractual interpretation of an agreement
    relating to the development of certain mining claims located in the James Bay
    lowlands of Northern Ontario.

[2]

The appellants, Jacobus Hanemaayer and 798839 Ontario Ltd., assert that
    the agreement was in effect an agreement of purchase and sale whereby full ownership
    of the Claims was transferred to them outright, in return for their undertaking
     but at their complete discretion  to do certain work in developing the
    Claims.

[3]

The respondent, Robert Platt says the agreement (which is called an Option
    Agreement, refers to the parties as Optionor and Optionee, provides that
    the Optionee 
will earn
a 100% interest in the mining claims by
    fulfilling certain conditions, and that the agreement is intended to operate as
    an actual
earn in of interest
 in the claims), is an option
    agreement. Because the appellants did not comply with the conditions
    underpinning the option, he therefore remains entitled to the Claims.

[4]

Penny J. agreed with Mr. Platt.

[5]

For the reasons that follow, I agree with Penny J.

Factual Background

[6]

This appeal is the culmination of a long-standing litigious war of
    attrition between Mr. Hanemaayer and Mr. Platt. The conflict began more than a
    quarter of a century ago and stems from a deal made between the two men and
    their respective corporations in 1988. The relationship fell apart in 1989, spawning
    at least three legal proceedings. This action was commenced in 1990. The trial
    extended over a period of 6 months in 2013.

The
    Genesis of the Project

[7]

In 1988, Mr. Platt was a mining promoter in Timmins. He owned the rights
    to a number of mining claims in Northern Ontario. While this lawsuit concerned
    several of these claims, the appeal is confined to the issue of ownership of what
    are known as the Kipling Claims, located in Kipling Township about 60 miles
    north of Kapuskasing.

[8]

The Kipling Claims were thought to contain valuable deposits of the
    mineral kaolin  a naturally white clay substance that is used as a filler in
    the pulp and paper, plastic, paint and rubber industries, as a coating for
    paper, and in the manufacture of ceramic products. The exploration and
    development of these claims is referred to in the proceedings as the Kaolin
    Project.

[9]

Mr. Platt had exhausted his own funding, however, and he needed
    financing or investors or both to continue his exploration and development
    activities in respect of the Kaolin Project and his other claims.

[10]

Mr. Hanamaayer was an investor and had, or had access to, financing.

[11]

Although he was not familiar with the mining industry at the time, Mr.
    Hanemaayer became interested in the project when he learned of the commercial
    potential of the kaolin ore body from Mr. Platt and coupled that information
    with what he learned elsewhere about the tax advantages then available for
    investments in the Canadian mining exploration field. He represented other
    investors who were also interested in the prospects of obtaining mining
    exploration tax write-offs. As the trial judge found, at para. 20, Hanemaayer
    proposed to take a very significant role in, and to arrange for the investment
    of very significant funds to finance, the initial exploration phase of the
    Kaolin Project.

[12]

Mr. Hanemaayer incorporated 798839 Ontario Limited (798 Ontario) to act
    as the flow-through Canadian resource corporation for purposes of developing
    the Claims. This meant 798 Ontario would issue what are known as flow-through
    shares to the Hanemaayer investors  principally Heinz Kraushaar (deceased by
    the time of trial) and Kraushaars two corporations  to raise the needed funding.
    Flow-through shares were the mechanism by which investors in mining
    exploration companies at the time were able to obtain tax write-offs against
    their other income by flowing the exploration costs incurred by the Canadian
    resource corporation directly through that corporation to the investors own
    tax returns to be set off against that other income.

The
    Agreements

[13]

Two agreements relevant to the appeal were entered into in order to
    effect the further exploration and development of the Kipling Claims and to
    accomplish the sought-after tax advantages. The first was the Option
    Agreement, dated November 1, 1988, between Mr. Platt and 798 Ontario. The
    second was a Management Agreement, entered into between Mr. Platts company,
    James Bay Kaolin Corporation (James Bay), and 798 Ontario on the same date,
    whereby it was agreed that James Bay would carry out the necessary exploration
    development of the Claims  at an amount mutually agreed upon  in order to
    prove or disprove the existence and extent of the kaolin ore body and then to
    facilitate a final feasibility study for a full production operation.

[14]

Although Mr. Platt provided what was apparently a common form of mining
    exploration agreement to Mr. Hanemaayer to work from, Mr. Hanemaayer was at all
    times represented by Eric Kraushaar  a lawyer and advisor, and the son of the
    investor Heinz Kraushaar. Mr. Platt was not represented.

[15]

James Bay subcontracted the work under the Management
    Agreement, or some of it, to the defendants Andr
é
Boudreau and his corporation All-Terrain Track Sales & Services. The trial
    judge dismissed the action as against them.
[1]


[16]

By the time the relationship between the Hanemaayer and Platt interests
    broke down in 1989, the investors had advanced $10.8 million to the exploration
    and development of the Kipling Claims through 798 Ontario. $1.2 million was
    ultimately returned to Mr. Hanemaayer and used for other purposes.

The
    Trial

[17]

There were many issues in play at trial.  The appellants argued that:

(i)

the Option Agreement transferred
    title and ownership to them completely and they therefore owned the Kipling Claims;
    and the agreement placed Mr. Platt in the position of trustee and the monies
    had been advanced to him in trust;

(ii)

Mr. Platt had misused the funds,
    or at least failed to account for them adequately, and the investors were
    entitled to several millions of dollars in credits as a result;

(iii)

the misuse of, or failure to
    account adequately for, the funds was the cause of the breakdown in the
    relationship; and,

(iv)

they were entitled to damages
    for the loss of certain tax benefits because Mr. Platt was obliged to ensure
    the monies were used in a fashion that would guarantee their entitlement to
    claim the deductions provided by the tax program.

[18]

By the time of the trial in 2013, both Mr. Hanemaayer and Mr. Platt were
    incapacitated by age and health concerns. Mr. Platt was incapable of testifying
    (his examination for discovery was accepted as his evidence at trial) and Mr.
    Hanemaayer testified via a number of limited and carefully monitored video
    conference appearances from his home. Although credibility was a difficult
    issue given these factors, the trial judge ultimately found Mr. Hanemaayers
    evidence was not reliable and made no adverse findings against Mr. Platt.

[19]

As noted, the trial issues referred to above also related to mining
    claims other than the Kipling Claims. In addition, the trial judge was faced
    with counterclaims by Mr. Platt and by Mr. Boudreau and his corporation for
    damages they alleged they had sustained.

[20]

With the exception of a claim by Mr. Boudreaus company for a loss
    sustained on the sale of a piece of heavy equipment that had been purchased for
    the project, the counterclaims were dismissed. The appellants action was
    dismissed in its entirety. More particularly, for the purposes of the appeal, the
    trial judge held, at para. 307, that Mr. Hanemaayer and 798 Ontario had no
    interest in the Kipling Claims and that,

Title to the Kipling Claims rests
    entirely with Platt and his assigns. As a result, ownership and title to the
    mining claims in Kipling township which are the subject of the Option Agreement
    dated November 1, 1988 between Platt and [798] Ontario shall revert and be
    restored to Platt.

Analysis

[21]

Although the appellants address items (i) through (iv) outlined in para.
    17 above in their factum, they nonetheless raise only one issue on appeal:

Did the trial judge err in
    interpreting the Option Agreement to include an automatic reversion of the Kipling
    Claims to Platt in the event that development of the project was not fully
    funded?

[22]

I see no basis for concluding that the trial judge erred in this respect. 
    Indeed, I am in substantial agreement with his interpretation of the Option
    Agreement and his reasoning on this point set out at paras. 295-307.

[23]

The trial judge properly held that in interpreting a commercial contract
    the court must give effect to the intention of the parties as derived from the
    words they have used, in the context of the contract as a harmonious whole and
    the factual matrix in which it was entered into. He relied on the following
    passage from this Courts decision in
Salah v. Timothys Coffees of the
    World Inc.
, 2010 ONCA 673, 268 O.A.C. 279, at para. 16:

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 of the underlying 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.
    Where a transaction involves the execution of several documents that form parts
    of a larger composition whole  like a complex commercial transaction  and
    each agreement is entered into on the faith of the others being executed, then
    assistance in the interpretation of one agreement may be drawn from the related
    agreements.

See also
Bell Canada v. The Plan Group
, 2009
    ONCA 548, 96 O.R. (3d) 81, at paras. 37-38, and
De Beers Canada Inc. v.
    Ootahpan Company Limited
, 2014 ONCA 723, [2014] O.J. No. 4904, at para. 3.

[24]

The Supreme Court of Canada has recently held that [c]ontractual
    interpretation involves issues of mixed fact and law as it is an exercise in
    which the principles of contractual interpretation are applied to the words of
    the written contract, considered in light of the factual matrix, and therefore
    that the trial judges interpretation is entitled to deference on appeal: see
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at
    para. 50. The appellants acknowledge this, but rely on the Courts recognition
    that if it is possible to identify an extricable error of law, a judges error
    on such an issue does not attract deference:
Sattva
, at para. 53. Citing
    this Courts decision in
First Elgin Mills Developments Inc. v. Romandale
    Farms Limited
, 2015 ONCA 54, 381 D.L.R. (4th) 114, at para. 9, they argue
    that an extricable error of law occurs where the judge misapprehended the
    evidence, reached an interpretation of the agreement that was commercially
    unreasonable, and improperly implied a term in the agreement when the legal
    standard for doing so was not met. They submit that the trial judges
    interpretation is caught within these categories.

The
    Trial Judge Did Not Fail To Give Effect To The Plain Wording Of The Agreement
    Or Misapprehend The Evidence In Respect Of It

[25]

First, the appellants contend that the trial judge failed to give effect
    to what they say is the clear language of s. 3 of the Option Agreement. Section
    3 provides that on closing
[2]
,
    the Optionor [Platt] shall transfer unto the Optionee [798 Ontario] 100% of its
    right, title and interest in and to the said Claims  to and for its sole and
    only use forever The appellants submit that this error was fed by a misapprehension
    of the evidence. What they characterize as the trial judges misapprehension of
    the evidence is his finding that the transfer of title provided for in s. 3 was
    simply to facilitate the flow through of the development and exploration costs
    to the investors under the tax program by giving 798 Ontario the legal title to
    the Claims without transferring the beneficial interest in them to the
    corporation.

[26]

I reject this submission.

[27]

There was evidence from Mr. Platt upon which the trial judge could find,
    as he did, that 798 Ontario held legal title [f]or tax and other reasons to
    protect its investment and that like a mortgagor, beneficial title remained
    with Platt (para. 303). Counsel for the appellants conceded that there was
    evidence the investors had to have title in order to enjoy the benefits of
    the tax program. What the appellants characterize as a misapprehension of the
    evidence, therefore, is more accurately characterized as a disagreement with a
    factual finding made by the trial judge. The finding was supported by the
    record and puts the language of s. 3 in its proper perspective in relation to
    the other terms of the Option Agreement.

[28]

The wording of the Option Agreement makes it clear: (i) that the
    Optionee (798 Ontario) would only 
earn a 100% interest
in the said
    mining claims by fulfilling its obligations, over a period not exceeding five
    years, to finance and carry out the required exploration, development and
    testing work (emphasis added: s. 2); (ii) that upon 798 Ontario satisfying the
    aforesaid obligations, [Platt] will retain a 5% net profit royalty interest in
    the said mining claims (s. 2); and (iii) that the Agreement was intended to
    be and shall
operate as an actual earn in of interest
in the Claims (emphasis
    added: s. 8). These provisions are reinforced by the recitals to the Option
    Agreement as well:

WHEREAS
the Optionor [Platt] is the beneficial owner
,
    free and clear of liens and encumbrances, of certain mining claims situated in
    the Province of Ontario;

AND WHEREAS the parties hereto have
    agreed that the
Optionee [798 Ontario] shall earn a certain interest in the
    mining claims of the Optionor [Platt] by financing and carrying out certain
    exploration development and testing work
on the said Claims as hereinafter
    set out. [Emphasis added.]

[29]

In my view, the trial judges interpretation is consistent with, and
    gives effect to, the language of the contract as a whole, having regard to the
    circumstances surrounding its negotiation and the purposes for which it was
    entered into  the twofold purposes of developing the Kaolin Project and
    providing the flow-through tax benefits to the investors.


The Factual
    Matrix and Commercial Sense

[30]

The appellants acknowledge the trial judges interpretation of the Option
    Agreement was rooted in his view of the surrounding circumstances, but their
    second submission is that he ignored at least two critical parts of the factual
    matrix.

[31]

The appellants say the trial judge failed to give effect to the fact
    that, at the time the Option Agreement was signed, Mr. Platt was in dire
    financial straits and in desperate need of an investor who could develop the claims.
    Accordingly, while the mining claims had significant potential value they were
    all but worthless to Mr. Platt without an investor willing to fund the
    development. It followed from this that Mr. Platt did not have the leverage to
    extract the type of unbalanced protection of his interests that emerged from
    the Option Agreement, the argument goes.

[32]

From there, the appellants move to the additional aspect of the factual
    matrix they contend the trial judge ignored. They argue the trial judges
    interpretation provides no protection for the up to $20 million that 798
    Ontario may have had to put up (for all of the projects) because, on the trial
    judges interpretation, they lose everything, and would be left with nothing to
    show for their investment, if the projects were not fully funded, while Mr.
    Platt would retain the Kipling Claims plus all the benefits of the investment
    in such circumstances.  They submit that this makes no commercial sense and
    does not reflect their superior bargaining power at the time the Option Agreement
    was made. In short, since Mr. Platt did not have the bargaining power to
    negotiate such an unbalanced outcome, the Option Agreement must not provide for
    such an outcome, and the contrary interpretation put forward by the appellants
    is the reasonable interpretation.

[33]

I see no merit in this argument.

[34]

The trial judge was aware of, and took into account, the fact that Mr.
    Platt was in need of funds to advance the project. There is nothing in the
    record to support either the contention that the parties were in unequal
    bargaining positions or, if they were, that this inequality somehow led to
    what, on the appellants interpretation would have been an equally unbalanced interpretation
    of the contract  one where Mr. Platt would give up all interest in his claims,
    and any control over and security for their exploration and development, in
    exchange for a potential 5% royalty (from a new company with no assets) at the
    end of the day. That is the logical end point of the appellants position that
    the Option Agreement was in effect an agreement of purchase and sale pursuant
    to which they acquired the full legal title and beneficial interest in the Kipling
    Claims at once, whether they carried out their exploration, development and
    testing obligations or not, or advanced any funds or not.

[35]

The reality is that option agreements are by nature instruments that can
    be viewed as providing for unbalanced outcomes from the perspective of either
    the optionor or the optionee. The optionor benefits from the price if the
    option is exercised (whether the price is in the form of a money payment or,
    as in this case, other consideration in the form of work performed), but runs
    the risk of being stuck with that price even if the value of the property or
    right that is optioned turns out to be considerably more that the optionor
    bargained for. The optionee buys the ability to obtain the property or the
    right optioned at the agreed price upon performing its obligations, but has
    the complete discretion or freedom whether to perform the obligations or not;
    however, if the optionor chooses not to do so, it loses the price paid for the
    option.

[36]

Either outcome can appear one-sided. However, the fact that one or
    another may occur does not indicate either that the negotiating table was
    tilted in favour of one party or another, or that the parties did not intend to
    enter into an option agreement.

[37]

Moreover, it is in the nature of an option agreement that the optionee
    typically loses the option price if it decides not to pursue the option by
    paying the price (in this case, by performing all the exploration, testing and
    feasibility study obligations). As Angela Swan and Jakub Adamski note in
Canadian
    Contract Law
, 3rd Ed. (Markham, ON: LexisNexis Canada, Inc., 2012), at p.
    276:

Option contracts are lopsided in
    the sense that, apart from the obligation to pay for the option, the optionee
    has complete freedom to exercise the option or not  and, of course, this is
    exactly what the optionee bought.  Generally speaking, options will be strictly
    construed and the optionee, in particular, required to exercise the option
    exactly in accordance with its terms. The reason for this attitude is that, by
    giving the option, the optionor is taking the risk that it will be held to the
    terms of the deal, particularly the price, that it offered. It should be able
    to rely on the optionee having to comply precisely with the terms of the
    option, particularly the deadline for acceptance.

[38]

This is the answer to the appellants assertion that it makes no
    commercial sense to interpret the Option Agreement in a fashion that requires
    them to advance $10.2 million towards the Kaolin Project without obtaining any
    interest in the Claim. The exploration development, testing and feasibility
    study work they agreed to do was simply the price they agreed to pay for the
    right to earn their 100% interest in the Kipling Claims and to move forward
    with the Kaolin Project in conjunction with Mr. Platt who would thereafter
    retain the right to a 5% royalty payment from the profits of the venture.

[39]

Mr. Platt also retained the right, after 798 Ontario had obtained its
    100% interest, to buy back a minimum 50% interest in the Claims if the
    appellants did not proceed further to bring the mine into production. The trial
    judge rightly concluded that the buy-back provisions found at ss. 5 and 6 of
    the Option Agreement did not come into play in the circumstances. Nor were they
    inconsistent with the trial judges interpretation of the Option Agreement. One
    might ask why Mr. Platt was being given the right to buy back a 50% interest
    (or more) in the Kipling Claims if the title and interest in the Claims had not
    been transferred as the appellants say was effected by s. 3. But the answer is
    that the buy-back provision only kicks in after the appellants have fulfilled
    the conditions necessary for earning their 100% interest; it is designed to
    ensure that once they had done so they continued to the production phase and
    that, if they did not, Mr. Platt was entitled to re-acquire an interest and do
    so himself.

The
    Implication of Terms

[40]

Thirdly, the appellants argue that the trial judge erred by improperly
    implying a term into the Option Agreement, namely that the rights in the Kipling
    Claims would revert to Mr. Platt if 798 Ontario did not fulfill the
    conditions precedent to its obtaining its 100% interest. Again, I disagree.

[41]

There was no need to imply a term that the beneficial interest in the
    Claim would revert to Mr. Platt, and the trial judge did not do so. The
    beneficial interest had never been transferred to 798 Ontario. What reverted
    back to Mr. Platt was the legal title, which had been transferred for the tax
    reasons outlined above.  This is what the trial judge found to be the case, at
    para. 303:

For tax and other reasons to
    protect its investment, [798] Ontario held legal title to the Kipling claims
    but, like a mortgagor, beneficial title remained with Platt.  Unless Hanemaayer
    financed the Project to the requisite state, legal title to the Kipling Claims
    would revert to Platt.

[42]

This is entirely consistent with the trial judges overall interpretation
    of the Option Agreement. In a fashion with which I agree, he summarized that
    interpretation, at paras. 298 and 301-302:

These expenditures,
[3]
and particularly the second of these expenditures, [were] specifically agreed
    to be discretionary to [798] Ontario. This does not mean, however that if, in
    its discretion, [798] Ontario chose not to finance the test facility, bulk
    sampling and material testing, it still earned its ownership interest of the
    Kipling Claims. To the contrary, the only interpretation of the Option
    Agreement that makes any sense is that while [798] Ontario could not be
    compelled to finance the test facility, bulk sampling and material testing (or
    be sued for failing to do so), if it did not finance these additional steps,
    the ownership of the Kipling Claims was not earned and reverted back to Platt.



In my view, Hanemaayers interpretation of the Option Agreement
    would defeat its entire purpose. According to Hanemaayer, the Option Agreement
    was not an option at all; it represented an outright sale of the Kipling Claims
    against the promise of future consideration.

That is not how I view the Option
    Agreement. The Option Agreement must be read in the context of the other
    Agreements made by the parties at the time.  Read as a whole and in the context
    of the surrounding circumstances, it is clear that the Option Agreement was
    critical to the protection of Platts principal interest in and contribution to
    this deal  his ownership of the Kipling Claims. In order to acquire the
    Kipling Claims, [798] Ontario had first to finance the two steps necessary to
    conduct a feasibility study to determine whether the Kaolin Project represented
    a commercially viable mining operation. [798] Ontario could not be compelled to
    do so but, if it did not, it would not earn its right to the Kipling Claims.

[43]

While the parties could have been more careful and included a specific
    term to this effect, it followed naturally from the failure of 798 Ontario to
    fulfill its obligation and earn its interest in the Claim. I observe again that
    Mr. Hanemaayer had legal advice and that Mr. Platt did not.

[44]

The trial judge summarized his findings and conclusions at paras.
    305-306:

I find, as a fact, that while [798] Ontario financed a drilling
    exploration program to prove or disprove the existence and extent of the kaolin
    ore body on the Kipling Claims, it did not finance pilot plant, bulk sampling,
    other material testing and other undertakings to the extent necessary to establish
    a final feasibility study for a full production mining facility.

Hanemaayer and [798] Ontarios
    failure to fulfill the second requirement to earn an interest in the Kipling
    Claims was not the result of Platts conduct. Rather, the Kaolin Project was
    not taken to the bulk sample/test facility/commercial feasibility stage
    because, by December 1989, Hanemaayer had sized up Platt as somewhat naïve and
    a bit of a dreamer. He took Platts vision of developing the Kaolin Project and
    used it to obtain an enormous tax benefit for the flow-through shareholder
    investors. He then concluded that he could easily squeeze Platt out of the
    Project and, with his superior financial resources, take over the entire
    Project for himself. Hanemaayer chose to cease all funding to Platt. The price
    of Hanemaayer doing so was to forfeit his interest in the Kipling Claims.

[45]

These findings and conclusions are fully supported by the record.

Disposition

[46]

For the foregoing reasons, the judgment below is affirmed and the appeal
    is dismissed.

[47]

In accordance with the agreement of counsel, the respondent is entitled
    to costs of the appeal fixed in the amount of $20,000 inclusive of all
    disbursements and applicable taxes.

Released: June 20, 2016

R.A. Blair J.A.

I agree G.R. Strathy
    C.J.O.

I agree P. Lauwers
    J.A.





[1]
The appellants originally appealed against this decision as well. However, the
appeal was dismissed as against Boudreau and All-Terrain by order
    of Rouleau J.A., dated February 18, 2015, for the failure of the appellants to
    comply with an order for security for costs granted in favour of Boudreau and
    All-Terrain by Simmons J.A. on December 17, 2014.



[2]

The closing apparently occurred on November 7, 1988.



[3]
The exploration, testing and feasibility study expenditures which constitute
    the condition set out in s. 2 of the Option Agreement.


