



COURT OF APPEAL FOR ONTARIO

CITATION: Flintoff v. Crown William Mining Corporation, 2016
    ONCA 86

DATE: 20160129

DOCKET: C60449

Pepall, Pardu and Roberts JJ.A.

BETWEEN

Kevin
    Flintoff, Ken Parish, Marie Parish, Stan Parish, Lois Parish,

Connie Parkinson, Brian Parkinson, Ines Primc, Tari Rinder,

Craig Robinson, Frank
    Workman and Gilbert Di Lucia

Plaintiffs (Respondents)

and

Crown
    William Mining Corporation,
Sablo Management Inc.

and
    Shamrock Group S.A.

Defendants (
Appellants
)

Douglas D. Langley, for the appellants

David Milosevic, for the respondents

Heard: January 7, 2016

On appeal from the judgment of Justice Wolfram
    Tausendfreund of the Superior Court of Justice, dated April 15, 2015, with
    reasons reported at 2015 ONSC 2027.

Pardu J.A.:

[1]

Sablo Management Inc. and Shamrock Group S.A. appeal
    from the summary judgment motion judges decision holding that the respondents
    successfully exercised an option contained in an asset purchase agreement
    (APA).

[2]

The respondents had been victimized by a
    fraudster, Emilia von Anhalt, and obtained judgments against her. Crown William
    Mining Corporation, a corporation controlled by the appellants, purchased the
    respondents judgments. In exchange, the respondents received two promissory
    notes and 200,000 shares of Crown William.

[3]

The APA also contained a Put-Right option
    which provided that, following a two-year holding period, the respondents could
    compel the appellants to purchase the shares for $3.00 a share. The option
    could be exercised only during a one-year period commencing on January 22,
    2013.

[4]

The respondents attempted to exercise the
    Put-Right option, but the appellants did not purchase the shares as promised.
    The respondents then commenced the present action and, in the proceedings
    below, obtained summary judgment.

[5]

The appellants argue that the motion judge erred
    in granting summary judgment in favour of the respondents in several respects:

·

The Put-Right option was a unilateral contract.
    The appellants were therefore not obliged to buy the shares unless the
    respondents were in strict compliance with the terms of the option. The motion
    judge erred by concluding that substantial compliance with the terms of the option
    was sufficient. The respondents failure to provide certificates pursuant to
    s. 116 of the
Income Tax Act
, R.S.C.
    1985, c. 1 (5th Supp.), vitiated the appellants obligation to purchase the
    shares. In addition, failure to give notice of default precisely as required by
    the APA means that the respondents were precluded from starting the present
    action.

·

One of the respondents, Tari Rinder, had signed
    a release that barred her claim in the present action.

·

The motion judge erred in the remedy granted. He
    could not require that the appellants fulfil the terms of the Put-Right option
    as this was not an action for specific performance. Moreover, he should have
    reduced the damages awarded by the value of the shares still held by the
    respondents.

A.

Analysis

(1)

Standard of Review

[6]

In
Sattva Capital Corp. v. Creston
    Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme
    Court declared that contractual interpretation will generally engage questions
    of mixed fact and law. A motion judges interpretation of a contract will
    attract deference and will not be overturned absent palpable and overriding
    error or an extricable legal error. As noted by Rothstein J. at para. 55, the
    circumstances in which a question of law can be extricated from the
    interpretation process will be rare.

(2)

Was the Put-Right Option a Unilateral or
    Bilateral Contract?

[7]

I begin with the observation that this was a highly
    idiosyncratic contract, the interpretation of which affected only these
    parties. Determining whether an option contained within a contract amounts to a
    separate unilateral agreement is an exercise driven by the context and the
    contractual language. In
S
ail Labrador Ltd. v. Challenge One (The)
, [1999]
    1 S.C.R. 265, at para. 41, Bastarache J. stated that :

Whether a contract which contains an option clause establishes
    a single, bilateral contract or two separate contracts, one bilateral and the
    other unilateral, is a matter of construction. Courts must examine the text of
    the contract and the context surrounding it in order to determine the intention
    of the parties, keeping in mind that this Court has previously approved of the
    tendency by courts to treat offers as calling for bilateral rather than
    unilateral performance whenever a contract can fairly be so construed.
    [Citation omitted.]

[8]

Deciding whether the Put-Right option was part of a bilateral agreement
    or a separate unilateral agreement is a question of mixed fact and law. The
    appellants have not identified an extricable legal error. Therefore, in the
    absence of a palpable and overriding error, the motion judges conclusion that
    the Put-Right option is part of a bilateral contract is owed deference.

[9]

The motion judges conclusion that the Put-Right option was part of a
    bilateral contract contained in the APA was reasonable and supported by the
    evidence. Crown William, a company controlled by the appellants, purchased the
    respondents judgments against Ms. von Anhalt. As noted by the motion judge,
    the shares received by the respondents were essentially security for the sum
    of $400,000 and that sum was part of the purchase price due to the
    respondents. Exercising the Put-Right option was the mechanism that would allow
    the respondents to receive that part of the purchase price. In other words, the
    option was part and parcel of the consideration received by the respondents and
    not just an isolated agreement separate from the rest of the APA.

(3)

Were the Respondents in Substantial Compliance with the Notice Provisions
    of the APA?

[10]

Having
    concluded that the APA was a bilateral contract, the motion judge also
    concluded that the doctrine of substantial compliance applied. Therefore, the
    respondents had sufficiently complied with the notice provisions of the APA.

[11]

Article
    5.2 of the APA provides that the respondents could compel the appellants to
    purchase their shares by delivering notice in writing to the appellants.
    Closing was to take place ten business days after the respondents gave notice. Article
    9 provided that if the appellants failed to purchase the shares in accordance
    with Article 5, the respondents were entitled to exercise any remedies
    available to them five business days after providing written notice specifying
    the default and informing the appellants that the respondents intended to
    exercise their remedies.

[12]

The
    respondents wrote to the appellants on February 25, 2013, to give notice that
    they wished to exercise the Put-Right option and requesting payment, failing
    which an action would be commenced. The appellants responded incorrectly that
    this notice was premature.

[13]

On
    December 9, 2013, the respondents sent another letter in which they demanded
    payment for the shares no later than January 2, 2014. The respondents did not
    deliver any additional written notice of default.

[14]

The
    motion judge concluded:

It should have been clear to all parties that Sablo and
    Shamrock did not purchase the [respondents] shares of Crown William, as
    contemplated by section 5 of the [APA].  These [appellants] were thus in
    default on their obligation to purchase the [respondents] shares.  The
    notice of December 9, 2013 requested payment for the shares by January 2, 2014,
    a time period far longer than the five business days contemplated by section
    9.2 of the [APA].

I find that the [respondents] have substantially complied with
    the notice requirement as contemplated by section 9 of the [APA].

[15]

There
    is no basis to interfere with this conclusion.

(4)

Did the Failure to provide s. 116 Certificates mean that the Respondents
    could not compel the Appellants to Purchase the Shares?

[16]

The
    APA provided that:

On closing, Sablo and Shamrock (or either of them) shall pay
    the purchase price in full as each Vendor shall direct, to or to the order of
    the Vendor (or as each Vendor shall direct), and the Vendor shall deliver the
    certificates representing the Shares, duly endorsed for transfer If a Vendor
    is a non-resident of Canada, it will provide Sablo or Shamrock a certificate
    under section 116 of the
Income Tax
Act failing which Sablo or
    Shamrock may be required to withhold and remit a portion of the purchase price
    as Canadian tax which the Vendor may recover by filing a Canadian tax return
    reporting the gain on the sale of the Shares.

[17]

The
    motion judge held that this provision was not a precondition for the
    respondents to exercise the Put-Right option. Therefore, the respondents
    failure to provide s. 116 certificates did not vitiate the appellants
    obligation to buy the shares. That conclusion was reasonable.

[18]

According
    to the express terms of the APA, a non-resident vendor had to provide a s. 116
    certificate at the time of closing. If they did not provide such a certificate
    the appellants were to remit the appropriate withholding tax. This was not a
    precondition, but was a matter to be dealt with on closing.

(5)

Did the Release bar Ms. Rinders Claim?

[19]

The
    appellants and Ms. Rinder, but none of the other respondents, entered into a
    release and confidentiality agreement in addition to the APA. The agreement
    released the appellants from all claims that Ms. Rinder may have had against
    them as of the date of the agreement. The agreement was dated April 19, 2011.

[20]

Before
    the motion judge, the appellants argued that this agreement barred Ms. Rinders
    claim against them. The motion judge concluded that, as Ms. Rinders claim
    arose after April 19, 2011, it was not barred.

[21]

The
    motion judges interpretation of the release agreement was reasonable. The
    release expressly applied to claims for any matter whatsoever from the beginning
    of time up through the effective date of this agreement. The respondents could
    not exercise the Put-Right option until January 22, 2013. Their causes of
    action, including Ms. Rinders, did not arise until after notice was given and
    the appellants failed to purchase the shares, well after the effective date of
    the release agreement.

(6)

Did the Motion Judge err in the Remedy Granted?

[22]

The
    motion judge ordered that the appellants should pay $600,000 to the respondents
    and that [u]pon payment of the amount due to each plaintiff, the number of
    shares held by such plaintiff shall be transferred to Sablo and Shamrock, or as
    they may direct. The appellants argue that the motion judge erred by granting
    specific performance when the respondents notice of motion only asked for
    summary judgment and damages. I would reject that submission. The appellants were
    not prejudiced by a judgment squarely within the terms of the relief claimed in
    the statement of claim.

[23]

The
    appellants also argue that the motion judge erred in setting the quantum of
    damages awarded. They argue that he should have reduced the damages awarded by
    the value of the shares still held by the respondents. However, given the
    motion judges order, there is no question here of the respondents collecting
    payment for the shares and also retaining them. Therefore, I would uphold the
    remedy granted by the motion judge.

B.

disposition

[24]

Accordingly,
    I would dismiss the appeal with costs to the respondents fixed at $11,000,
    inclusive of disbursements and HST.

Released: (L.B.) January 29, 2016

G. Pardu J.A.

I agree S.E. Pepall
    J.A.

I agree L.B. Roberts
    J.A.


