



COURT OF APPEAL FOR ONTARIO

CITATION: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912

DATE: 20161202

DOCKET: C60982

Strathy C.J.O., Weiler and Watt JJ.A.

BETWEEN

Robert B. Shewchuk

Plaintiff (Appellant)

and

Blackmont Capital Inc.

Defendant (Respondent)

Joseph Groia and Kevin Richard, for the appellant

Nigel Campbell and Doug McLeod, for the respondent

Heard: September 9, 2016

On appeal from the judgment of Justice Suhail A.Q. Akhtar
    of the Superior Court of Justice, dated August 14, 2015, with reasons reported
    at 2015 ONSC 5079.

Strathy C.J.O.:

A.

Introduction

[1]

The
    trial judge found that the parties contract was ambiguous. He considered the factual
    circumstances surrounding the contract to interpret it and to resolve the
    ambiguity. The main question on this appeal is whether he erred in also considering
    the parties
subsequent
conduct  that is, their
    conduct after the formation of the contract.

[2]

For
    the reasons that follow, I would dismiss the appeal. Because the contract was
    ambiguous, the trial judge properly considered the parties subsequent conduct
    to assess their evidence about the intended scope of their contract. The
    appellant has not identified either a palpable and overriding error in the
    trial judges factual findings about the parties subsequent conduct or an
    extricable error of law in his interpretation of the contract.

B.

The Facts

The parties

[3]

The
    appellant, a successful stockbroker, was employed by the respondent
[1]
as an investment advisor (IA) in its Calgary office. He was a member of the
    respondents Retail Group brokers, whose clients were primarily individual
    investors. The respondent also had a Capital Markets group, based in Toronto,
    which procured financing for banks, public companies, and other institutional
    clients.

The IA Compensation Plan

[4]

Each
    IA, like the appellant, had a Compensation Plan, which set out their commission
    scale. As a top-producing IA, the appellant was compensated at the highest
    level: 52 percent of the fees the respondent earned from a retail transaction.

[5]

The
    IA Compensation Plan identified several Special Payout Items, including Capital
    Markets Referrals. If an IA referred business to the Capital Markets group, he
    or she could earn a referral fee of up to 15% of the net revenue generated by
    the transaction. The amount of the fee was discretionary and was determined by
    executives of the Retail Group and Capital Markets, depending on the value
    added of the IAs relationship with the client, having regard to any
    pre-existing relationship between the respondent and the client.

[6]

The
    appellant and other IAs were dissatisfied with their compensation for
    transactions they referred to Capital Markets. The appellant, who was
    particularly vocal, initiated discussions for a new contract for himself,
    making it clear that he would leave the company if his concerns were not
    resolved to his satisfaction. His negotiations with the Calgary branch manager
    of the Retail Group culminated in the execution of a letter agreement dated
    April 11, 2006 (the April 11 Agreement).

The April 11 Agreement

[7]

The April 11 Agreement was, in essence, an amendment to
    the IA Compensation Plan. It had two financial components. First, it granted
    the appellant 100,000 deferred stock units in the respondents parent
    corporation, each of which entitled him to acquire one share. This was in
    addition to the stock units to which he was entitled as an IA upon meeting his
    investment targets in a given year. Second, it provided for compensation in
    addition to what he received under the IA Compensation Plan. Paragraph 3 of the
    April 11 Agreement provided as follows:

3.       With respect to the broker
    warrants
[2]
attributable to you for the transactions listed in Schedule A attached hereto
    and for all transactions (whether you are paid in the form of broker warrants,
    cash or fully paid shares) that are sourced directly by you following March 1,
    2006, Blackmont shall pay to you an additional 10% over and above that which is
    payable under [the IA Agreement] (the Finders Fee).

[8]

Schedule
    A to the agreement listed thirteen Qualified options eligible for [a] 10%
    Finders Fee and six non-qualified options. It provided that [a] Finders Fee
    of 10% will apply to  new positions garnered which could come in the form of
    traditional Broker B-Warrants, free trading shares, restricted shares or cash.
    These new positions will be added to Schedule A as they arise. The qualified
    options listed in Schedule A were related to Retail Group transactions.

[9]

The April 11 Agreement was expressed to be in full and
    final satisfaction of all compensation-related disputes between the appellant
    and the respondent. Paragraphs 2 and 10 provided that the IA Agreement would
    continue to govern the relationship:

2.     Except as outlined further below, payouts on broker
    warrants will be subject to Blackmonts standard [IA Compensation Plan] (the
    Broker Warrant Payments).



10. Other than as specifically stated above, all other terms of
    your employment remain unchanged and shall continue to be subject to [the IA
    Agreement] in existence at the relevant time.

[10]

The April 11 Agreement was expressed to be confidential
    and would be terminated if the appellant breached confidentiality, in which
    case his compensation would revert to the standard IA Compensation Plan. The
    appellant acknowledged that the confidentiality provision meant that he could
    not disclose the existence of the April 11 Agreement to Capital Markets
    personnel.

The disputed transactions

[11]

In his statement of
    claim, the appellant asserted, among other things, that he was entitled to a 52
    percent commission under the IA Compensation Plan, as well as a further 10
    percent commission under the April 11 Agreement, on four Capital Markets
    transactions in which the respondent was a member of the underwriting syndicate
    or a participant in the financing. He claimed to have directly sourced these
    transactions for the respondent through his connections with the clients.

[12]

The central issue at
    trial was whether the April 11 Agreement applied to Capital Markets
    transactions, as the appellant asserts.

The subsequent conduct

[13]

I will discuss the
    parties subsequent conduct in more detail below. Briefly, however, the trial
    judge heard evidence of what the respondent characterized as ongoing attempts by
    the appellant to negotiate compensation for deals he introduced to Capital
    Markets. The respondent argued that this conduct was inconsistent with the
    appellants assertion that the April 11 Agreement applied to Capital Markets
    transactions.

C.

The trial judges reasons

[14]

The trial judge
    identified the primary issue as whether the disputed transactions fell within
    the scope of the April 11 Agreement. This depended on whether the April 11
    Agreement was applicable only to retail transactions or whether it also applied
    to transactions involving Capital Markets. Each party argued that, properly
    interpreted, the agreement was unambiguous in its favour. The trial judge found
    that the agreement was ambiguous. The ambiguity could only be resolved, he
    said, by looking at the surrounding circumstances, including the parties
    conduct after the formation of the April 11 Agreement.

[15]

In response to the
    respondents submission that the parties conduct
subsequent
to the making of the contract could only be considered in the event of
    ambiguity, the trial judge expressed the view, at para. 82, that if subsequent
    conduct demonstrates the mutual and objective intentions of the words in the
    contract, it is as valuable as any conduct pre-existing the making of the
    contract.

[16]

The judge referred to
Sattva
    Capital Corp. v. Creston Moly Corp
., 2014 SCC 53, [2014] 2 S.C.R. 633,
    noting the role of the surrounding circumstances in determining the intentions
    of the parties at the time of formation of the contract. He  proceeded to
    consider the events leading up to the execution of the April 11 Agreement,
    including:

·

the Retail Groups historical grievances concerning remuneration
    of IAs who introduced transactions to Capital Markets;

·

the fact that Capital Markets personnel were not involved in the
    negotiation and execution of the April 11 Agreement; and

·

the fact that the April 11 Agreement was to be kept confidential
    by the appellant and not disclosed to Capital Markets.

[17]

He also noted the
    unlikelihood that the appellant would be entitled to a fixed commission on
    bought deals,
[3]
as the appellant would bear none of the risk of these deals. And he noted the
    absence of any express provision in the April 11 Agreement that would supersede
    the Capital Markets Referrals provision in the IA Agreement.

[18]

The trial judge also
    considered events occurring
after
the execution of
    the April 11 Agreement, including:

·

a proposal made by the appellant on November 5, 2006, for the
    division of compensation and a 15 percent Finders Fee on deals he brought to
    Capital Markets;

·

a meeting in November, 2006, in which the appellant attempted to
    negotiate an agreement with Capital Markets;

·

the appellants attempts to negotiate fees on particular Capital
    Markets transactions  fees that differed from and were less favourable to him
    than the fees he claimed were payable under the April 11 Agreement; and

·

other
    attempts by the appellant and his associate, Mr. Harris Watson, to negotiate an
    agreement with Capital Markets for a share of revenues from transactions
    arising out of the appellants relationship with clients.

[19]

The trial judge found
    that this course of conduct supported the inference that the April 11 Agreement
    was not intended to apply to transactions involving Capital Markets. He found
    it significant that in the course of these negotiations, the appellant did not
    take the position that he was entitled to share in the fruits of Capital
    Markets transactions by virtue of the April 11 Agreement.

[20]

He also found it
    significant that Capital Markets representatives were not involved in the
    negotiation of the April 11 Agreement; it was not signed by representatives of
    Capital Markets; and there were no terms dealing with transactions that
    included participation by Capital Markets. The appellant was expressly
    forbidden from even mentioning the existence of the agreement to Capital
    Markets. According to the trial judge, it would be unreasonable to expect that
    Capital Markets would agree to share the fees that it earned without any
    knowledge of or participation in the formation of the agreement.

[21]

The trial judge found
    that the IA Compensation Plan permitted the appellant to make agreements with
    Capital Markets on joint ventures in which he would participate. He had done so
    after the execution of the April 11 Agreement without ever suggesting that he
    was entitled to a share in the revenues from them as of right pursuant to the agreement.

[22]

In the course of
    analyzing the parties conduct after they signed the April 11 Agreement, the
    trial judge made adverse credibility findings against the appellant and Mr.
    Watson, who each testified that the agreement was intended to apply to Capital
    Markets transactions and fully resolve the appellants compensation dispute
    with the respondent.

[23]

The trial judge
    concluded that the April 11 Agreement was intended to heal the rifts between
    the appellant and the respondent, but that it did not override the IA Compensation
    Plan. Rather, the April 11 Agreement coexisted with the IA Compensation Plan.

D.

The parties submissions

[24]

I will discuss the
    parties submissions on appeal in the Analysis section below. They focus on
    three principal questions.

[25]

First:
    The Standard of Review
. The appellant submits that, notwithstanding the Supreme
    Court of Canadas decision in
Sattva
, the trial judges interpretation
    of the April 11 Agreement is reviewable on a correctness standard, because this
    is a case in which the factual matrix of the contract is relatively unimportant
    in the interpretive exercise. The respondent says that
Sattva
applies
    and that the trial judges decision is reviewable on a standard of palpable and
    overriding error.

[26]

Second:
    Ambiguity.
The appellant submits the contract was unambiguous. He argues
    that Paragraph 3 of the April 11 Agreement, when read together with Paragraphs
    2 and 10, clearly superseded the Capital Markets Referrals provision of the IA
    Compensation Plan. Its result was to guarantee the appellant a referral fee of
    10 percent over and above what would have been payable under the IA Compensation
    Plan for transactions he referred to Capital Markets. The respondent says the
    trial judge did not err by concluding that the contract was ambiguous. Although
    at trial each party argued that the contract was unambiguous, the trial judge
    correctly noted their respective arguments  advanced different and incompatible
    interpretations.

[27]

Third:
    Subsequent Conduct
. The appellant submits the trial judge committed a
    legal error by placing undue weight on the parties conduct subsequent to the
    formation of the April 11 Agreement. He says that subsequent conduct is not
    part of the factual matrix. It is admissible only in the event of ambiguity and
    it has a limited role to play in the interpretive exercise. The respondent
    submits that evidence of subsequent conduct was properly admitted in view of
    the ambiguity of the contract. Although the respondent agrees that such
    evidence must be approached with some caution, it maintains that the trial
    judge did not err in using it the way he did.

[28]

At the end of these
    reasons, I will briefly mention two additional grounds of appeal raised by the
    appellant.

E.

ANALYSIS

The
    standard of review

[29]

I reject the
    appellants submission that this courts decision in
Bell Canada v. The
    Plan Group
, 2009 ONCA 548, 96 O.R. (3d) 81, remains applicable in light of
Sattva
and that the trial judges interpretation of the contract can
    be reviewed on a correctness standard in the absence of an extricable error of
    law.

[30]

The Supreme Court made
    clear in
Sattva
, at para. 55, that a question of contractual
    interpretation is inherently fact specific and that, usually, appellate
    courts should show deference to first-instance fact finders (at para. 52). A
    less deferential standard should be applied only if the appellant demonstrates
    an extricable question of law within what was initially characterized as a
    question of mixed fact and law (at para. 53). See also
Fontaine v. Canada
    (Attorney General)
, 2016 ONCA 241, 130 O.R. (3d) 1, at para. 96; and
Ledcor
    Construction Ltd. v. Northbridge Indemnity Insurance Co
., 2016 SCC 37, 54
    B.L.R. (5th) 1, at para. 21.

[31]

The appellants
    reliance on this courts decision in
Bell Canada
is misplaced. In that
    case, the majority described the exercise of contract interpretation as a
    legal exercise (at paras. 25, 30). This approach has been expressly overtaken by
Sattva
(at paras. 49, 50, 55).

[32]

Finally, in
Bell
    Canada
the majority held, at para. 26, that even where a question of
    contractual interpretation is one of mixed fact and law, an appellate court
    must determine whether the question is primarily legal or primarily factual to
    select the appropriate standard of review. In
Sattva
, however, there
    is no mention of such a spectrum-based approach to the questions of mixed fact
    and law raised in contractual interpretation. Instead, as stated above, an
    appellate court must identify an extricable question of law within what was
    initially characterized as a question of mixed fact and law before a
    correctness standard applies.

Ambiguity

[33]

The appellant submits
    the trial judge made an extricable error in finding ambiguity in the April 11
    Agreement. He says that the language of all transactions in Paragraph 3,
    quoted above, means precisely what it says and necessarily includes both Retail
    Group and Capital Markets transactions. He relies on
Hobbs v. Esquimalt
    & Nanaimo Railway Co.
(1899), 29 S.C.R. 450, where the Supreme Court of
    Canada held that a sale of land included the transfer of rights to the
    minerals contained therein. If the vendor had meant to reserve the mineral
    rights by using the word land in the agreement of purchase and sale, he
    should have said so. Similarly, the appellant asserts that if the respondent
    wanted to exclude Capital Markets from all transactions, it should have said
    so. The effect, he says, is that the discretionary payment for Capital Markets
    referrals in the IA Agreement is replaced by a fixed 10 percent payment under
    the April 11 Agreement.

[34]

Leaving aside the fact that the approach to contractual
    interpretation in
Hobbs
has been overtaken by
    a century of jurisprudence, culminating in
Sattva,
the appellant concedes that the trial judge was required to
    consider the IA Compensation Plan in interpreting the April 11 Agreement, which
    expressly referred to the plan and confirmed its ongoing application. Paragraphs
    2 and 10 of the April 11 Agreement provided that the IA Compensation Plan,
    which included the discretionary Finders Fee provision, would continue, except
    as specifically set out in the April 11 Agreement. The trial judge found at
    para. 83 that the provision in the April 11 Agreement giving the appellant a 10
    percent Finders Fee on all transactions collided head on with the Capital
    Markets referral provision of the IA Compensation Plan, which made the IAs
    payment in the discretion of senior management of the Retail Group and Capital
    Markets, up to a ceiling of 15 percent.

[35]

I
    agree with the trial judge that the foregoing gave rise to an ambiguity, which he
    was required to resolve through the application of the rules of contract
    interpretation, having regard to the factual matrix surrounding the April 11
    Agreement.

[36]

There was an additional
    source of ambiguity not considered by the trial judge. The wording of the April
    11 Agreement that Blackmont shall pay to you an additional 10%
over and above that which is payable
under Blackmonts
    standard investment advisor compensation plan does not fit easily with the
    argument that it was intended to apply to Capital Markets referrals.
    Compensation for Capital Markets referrals in the IA Compensation Plan was entirely
    discretionary. It was possible for the appellant to receive no fee for a
    referral to Capital Markets, which, unlike his compensation for retail
    transactions, did not entitle the appellant to a fixed or minimum percentage
    for revenue. The use of the phrase over and above that which is payable makes
    sense in the context of a fixed amount or percentage, but is awkward when
    applied to a purely discretionary amount.

Subsequent
    Conduct

[37]

Having found ambiguity
    in the contract, the trial judge considered what he described at para. 84 as
    the surrounding circumstances of the April 11 Agreement and what happened
    afterwards in its implementation. He looked at the surrounding circumstances
    to see whether the parties intended the April 11 Agreement to apply to the
    disputed transactions involving Capital Markets. He looked to the parties
    subsequent conduct, he said at para. 85, to determine their intentions and
    understanding of the agreement.

[38]

I will conduct my
    analysis of this issue by addressing three questions:

1)

When is evidence of the subsequent conduct of the parties
admissible
to interpret their contract?

2)

How should courts assess the
weight
or cogency of that evidence?

3)

Did the trial judge make
appropriate use
of the evidence of subsequent
    conduct?

(1)

The admissibility
    of evidence of subsequent conduct

[39]

In
Sattva
,
    the Supreme Court held that evidence of the factual matrix or surrounding
    circumstances of a contract is admissible to interpret the contract and ought
    to be considered at the outset of the interpretive exercise. This approach
    contrasts with the earlier view that such evidence is admissible only if the
    contract is ambiguous on its face: see
Eli Lilly & Co. v. Novopharm Ltd
.,
    [1998] 2 S.C.R. 129, at paras. 55-56; and
Seven Oaks Inn Partnership
    (c.o.b. Best Western Seven Oaks) v. Directcash Management Inc
., 2014 SKCA
    106, 446 Sask. R. 89, at para. 13.

[40]

The issue addressed in
    this appeal is whether evidence of the contracting parties conduct subsequent
    to the execution of their agreement is part of the factual matrix such that it
    too is admissible at the outset, or whether a finding of ambiguity is a
    condition precedent to its admissibility.

[41]

In my view, subsequent
    conduct must be distinguished from the factual matrix. In
Sattva
, the
    Supreme Court stated at para. 58 that the factual matrix consist[s] only of
    objective evidence of the background facts
at the time of
    the execution of the contract
, that is, knowledge that was or reasonably
    ought to have been within the knowledge of both parties
at
    or before the date of contracting
 (citation omitted and emphasis
    added). Thus, the scope of the factual matrix is temporally limited to evidence
    of facts known to the contracting parties contemporaneously with the execution
    of the contract. It follows that subsequent conduct, or evidence of the
    behaviour of the parties after the execution of the contract, is not part of
    the factual matrix: see
Eco-Zone Engineering Ltd. v. Grand Falls  Windsor
    (Town)
, 2000 NFCA 21, 5 C.L.R. (3d) 55, at para. 11; and
King v.
    Operating Engineers Training Institute of Manitoba
, 2011 MBCA 80, 270 Man.
    R. (2d) 63, at para. 72.

[42]

There is an additional
    reason to distinguish subsequent conduct from the factual matrix  a reason
    rooted in the reliability of the evidence. In
Sattva
, the Supreme
    Court stated at para. 60 that consideration of the factual matrix enhances the
    finality and certainty of contractual interpretation. It sheds light on the
    meaning of a contracts written language by illuminating the facts known to the
    parties at the date of contracting. By contrast, as I will explain, evidence of
    subsequent conduct has greater potential to undermine certainty in contractual
    interpretation and override the meaning of a contracts written language.

[43]

There are some dangers
    associated with reliance on evidence of subsequent conduct. One danger,
    recognized in England where such evidence is inadmissible, is that the parties
    behaviour in performing their contract may change over time. Using their
    subsequent conduct as evidence of their intentions at the time of execution
    could permit the interpretation of the contract to fluctuate over time. Thus,
    in
James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester
    Ltd.)
, [1970] A.C. 583 (H.L.), Lord Reid observed, at p. 603:

I must say that I had thought that it is now well settled that
    it is not legitimate to use as an aid in the construction of the contract
    anything which the parties said or did after it was made. Otherwise one might
    have the result that a contract meant one thing the day it was signed, but by
    reasons of subsequent events meant something different a month or a year later.

Indeed, in
F.L. Schuler A.G. v. Wickman Machine
    Tool Sales Ltd.
, [1974] A.C. 235 (H.L.), at p. 261, Lord Wilberforce
    described reliance on subsequent conduct as nothing but the refuge of the
    desperate.

[44]

Another danger is that
    evidence of subsequent conduct may itself be ambiguous. For example, as this
    court observed in
Canada Square Corp. v. Versafood Services Ltd
.
    (1981), 34 O.R. (2d) 250 (C.A.), at p. 261 quoting from the writing of
    Professor Stephen Waddams, the fact that a party does not enforce his strict
    legal rights does not mean that he never had them. As a consequence of the
    potential ambiguity inherent in subsequent conduct, some courts have gone so
    far as to assert that evidence of subsequent conduct will carry little weight
    unless it is unequivocal: see Geoff R. Hall,
Canadian Contractual
    Interpretation Law
, 3d ed. (Toronto: LexisNexis, 2016), at p. 105.

[45]

A third danger is that
    over-reliance on subsequent conduct may reward self-serving conduct whereby a
    party deliberately conducts itself in a way that would lend support to its preferred
    interpretation of the contract.

[46]

These dangers,
    together with the circumscription of a contracts factual matrix to facts known
    at the time of its execution, militate against admitting evidence of subsequent
    conduct at the outset of the interpretive exercise. Evidence of subsequent
    conduct should be admitted only if the contract remains ambiguous after
    considering its text and its factual matrix.

[47]

This approach is consistent with the weight of authority: see
Adolph
    Lumber Co. v. Meadow Creek Lumber Co.
(1919), 58 S.C.R. 306, at p. 307;
Corporate
    Properties Ltd. v. Manufacturers Life Insurance Co.
(1989), 70 O.R. (2d)
    737 (C.A.), at p. 745, leave to appeal to S.C.C. refused, [1990] S.C.C.A. No.
    48;
Arthur Andersen Inc. v. Toronto-Dominion
(1994), 17 O.R. (3d) 363
    (C.A.), at p.  372;
Montreal Trust Co. of Canada v. Birmingham Lodge
    Ltd.
(1995), 24 O.R. (3d) 97 (C.A.), at p. 108; and Hall, at p. 103. The
    leading Canadian case is
Re

Canadian National Railways and
    Canadian Pacific Limited
(1978), 95 D.L.R. (3d) 242 (B.C. C.A.), affd,
    [1979] 2 S.C.R. 668, in which Lambert J.A. stated, at p.  262:

In Canada the rule with respect to subsequent conduct is that
    if, after considering the agreement itself, including the particular words used
    in their immediate context and in the context of the agreement as a whole,
    there remain two reasonable alternative interpretations, then certain
    additional evidence may be both admitted and taken to have legal relevance if
    that additional evidence will help to determine which of the two reasonable
    alternative interpretations is the correct one.



The types of extrinsic evidence that will be admitted, if they
    meet the test of relevance and are not excluded by other evidentiary tests,
    include evidence of the facts leading up to the making of the agreement,
    evidence of the circumstances as they exist at the time the agreement is made
    and, in Canada, evidence of subsequent conduct of the parties to the agreement.

[48]

Despite its dangers,
    evidence of subsequent conduct can be useful in resolving ambiguities. It may
    help to show the meaning the parties gave to the words of their contract after
    its execution, and this may support an inference concerning their intentions
at the time they made their agreement
: see
Montreal
    Trust Co.
, at p. 108;
3869130 Canada Inc. v. I.C.B. Distribution Inc.
,
    2008 ONCA 396, 239 O.A.C. 137, at para. 55;
Whiteside v. Celestica
    International Inc.
, 2014 ONCA 420, 321 O.A.C. 132, at para. 58; and
Sobocynski
    v. Beauchamp
, 2015 ONCA 282, 125 O.R. (3d) 241, at para. 60 leave to
    appeal to S.C.C. refused, [2015] S.C.C.A. No. 243.

[49]

Canadian courts have
    never adopted the absolute exclusionary rule prevailing in the United Kingdom:
    see
Bank of Montreal v. University of Saskatchewan
(1953), 9 W.W.R.
    (N.S.) 193 (Sask. Q.B.), at p. 199;
Manitoba Development Corp. v. Columbia
    Forest Products Ltd.
(1973), 43 D.L.R. (3d) 107 (Man. C.A.), at p. 114;
Gastel
    v. Methner
, [1979] O.J. No. 1032 (S.C.), at para. 13; and
Three Hats
    Productions Inc. v. RCA Inc
., 1987 CarswellOnt 3295 (S.C.), at para. 36.

[50]

However, the lesson
    learned in Canada from the British position is that the parties subsequent
    conduct is relevant only to inferentially establishing their intentions
at the time they executed their contract
. Like evidence
    of post-offence conduct in criminal matters, it is a kind of circumstantial
    evidence that invokes a
retrospectant chain
    of reasoning; the trier of fact is invited to infer the parties prior
    intentions from their later conduct: see
R. v. Rybak
, 2008 ONCA 354,
    90 O.R. (3d) 81, at para. 142, leave to appeal to S.C.C. refused, [2008]
    S.C.C.A. No. 311; and
R. v. Vant
, 2015 ONCA 481, 324 C.C.C. (3d) 109,
    at para. 121. As Juriansz J. (as he then was) wrote in
Danforth-Woodbine
    Theatre Ltd. v. Loblaws Inc
, [1999] O.J. No. 2059 (Gen. Div.), at para.
    55:

[W]here evidence of the conduct of
    the parties and their method of performance is admissible, it is not admitted
    so that the contract may be construed to be consonant with the parties'
    conduct, but rather, it is admitted because the parties conduct and method of
    performance may be of assistance in determining what the signatories intended
    at the time they entered the contract.

(2)

The weight or
    cogency of evidence of subsequent conduct

[51]

In
Canadian
    National Railways
, Lambert J.A. suggested, at p. 262, that, once admitted,
    the weight or cogency of evidence of post-contractual conduct may depend on the
    circumstances:

However, to say that these types of evidence become admissible
    where two reasonable interpretations exist is not to say that the evidence, if
    tendered, must be given weight  In no case is it necessary that weight be
    given to evidence of subsequent conduct. In some cases it may be most
    misleading to do so and it is to this danger that allusions are made throughout
    the recent English cases, particularly
L. Schuler A.G. v. Wickman Machine Tool Sales Ltd.
,
    and
James Miller & Partners
    Ltd. v. Whitworth Street Estates (Manchester) Ltd
. In England the
    risks have been considered sufficiently grave that the possibility of
    illumination from the use of subsequent conduct has been ruled out. In Canada,
    they have not, but those risks must be carefully assessed in each individual
    case before determining to give weight to subsequent conduct. [Citations
    omitted.]

[52]

I agree. The inherent
    dangers of evidence of subsequent conduct mean that when it is admitted it must
    be used cautiously and its weight will vary from case to case: see
Danforth-Woodbine
    Theatre
, at para. 55;
Canada Square Corp.
, at pp. 260-261; and
Water
    Street Pictures Ltd. v. Forefront Releasing Inc
., 2006 BCCA 459, 57
    B.C.L.R. (4th) 212, at para. 27. When ascertaining its cogency, a court should
    evaluate the extent to which its inherent dangers are mitigated in the
    circumstances of the case.

[53]

In the usual course, evidence
    of subsequent conduct will be more reliable if the acts it considers are the
    acts of both parties, are intentional, are consistent over time, and are acts
    of individuals rather than agents of corporations: see
Canadian National
    Railways
, at p. 262. I agree with Kerans J.A. that subsequent conduct by
    individual employees in a large corporation are not always reliable indicators
    of corporate policy, intention, or understanding
: Mesa Operating Ltd.
    Partnership v. Amoco Canada Resources Lt
d. (1994), 19 Alta. L.R. (3d) 38
    (C.A.), at para. 52.

[54]

Evidence of subsequent
    conduct will have greater weight if it is unequivocal in the sense of being consistent
    with only one of the two alternative interpretations of the contract that
    generated the ambiguity triggering its admissibility:
Lewis v. Union of
    B.C. Performers
(1996), 18 B.C.L.R. (3d) 382 (C.A.), at para. 14, leave to
    appeal to S.C.C. refused, [1996] S.C.C.A. No. 182; and
Scurry-Rainbow Oil
    Ltd. v. Kasha
, 1996 ABCA 206, 39 Alta. L.R. (3d) 153, at para. 44, leave
    to appeal to S.C.C. refused, [1996] S.C.C.A. No. 391. For instance, in
Chippewas
    of Mnjikang First Nation v. Ontario (Minister of Native Affairs
, 2010 ONCA
    47, 265 O.A.C. 247, at para. 162, leave to appeal to S.C.C. refused, [2010]
    S.C.C.A. No. 91, this court found that the parties subsequent conduct was of
    assistance in determining which of two reasonable interpretations of a contract
    should be accepted because the conduct in question was overwhelmingly
    consistent only with the trial judges interpretation.

[55]

Evidence of subsequent
    conduct may also be given greater weight in proportion to the proximity of the subsequent
    conduct to the time of the contracts execution: see
Union Natural Gas Co.
    v. Chatham Gas Co.
(1918), 56 S.C.R. 253, at p. 271; and Hall, at pp.
    105-106.

[56]

In summary, evidence
    of the parties subsequent conduct is admissible to assist in contractual
    interpretation only if a court concludes, after considering the contracts written
    text and its factual matrix, that the contract is ambiguous. The court may then
    make retrospectant use of the evidence, giving it appropriate weight having
    regard to the extent to which its inherent dangers are mitigated in the
    circumstances of the case at hand, to infer the parties intentions at the time
    of the contracts execution.

(3)

Did the trial judge properly use the evidence of subsequent conduct?

[57]

With one
    qualification, it is my view that the trial judge properly used the evidence of
    the parties subsequent conduct to resolve any residual ambiguity in the April
    11 Agreement. The one qualification relates to the trial judges reference to
    subsequent conduct forming part of the factual matrix. As I have noted, since
    the factual matrix only encompasses circumstances at the time the contract was
    made, subsequent conduct does not enter into that part of the analysis.

[58]

However, the trial
    judge did not consider the subsequent conduct as part of the factual matrix. He
    used it to test the appellants contention that the parties intended the April
    11 Agreement to apply to Capital Markets transactions and to test the
    credibility of the appellants explanation of his subsequent conduct. He found
    that the appellants repeated attempts to negotiate a revenue sharing agreement
    with Capital Markets after April 11, 2006 were at odds with his contention that
    the relationship with Capital Markets had been resolved by the April 11
    Agreement. He found the appellants conduct was consistent with the
    respondents interpretation of the contract and rejected as incredible the
    appellants attempts to explain his conduct.

[59]

In my view, the trial
    judge did not err in giving undue weight to evidence of the appellants
    subsequent conduct. His considered the evidence to be relevant to the parties
    intentions at the time of executing the April 11 Agreement. The evidence was
    primarily about the appellants actions  the actions of an individual rather
    than corporate employees. The appellants repeated attempts to negotiate a new
    agreement after April 11, 2006 and his repeated failure to refer to the April
    11 Agreement in these negotiations were deliberate and consistent over time. His
    actions after the formation of the April 11 Agreement were unequivocal and were
    consistent with the conclusion that at the time of execution neither he nor the
    respondent viewed the agreement as applicable to Capital Markets. To echo the
    words of this court in
Chippewas of Mnjikang
,

the evidence
    was overwhelmingly consistent with the interpretation of the Agreement as being
    inapplicable Capital Markets transactions. It was also consistent with the
    trial judges conclusion that the factual matrix of the contract pointed to an
    agreement with the retail side of the business and not Capital Markets.

Other
    grounds of appeal

[60]

The
    appellant argues that the trial judge failed to give adequate consideration to
    the defendants pleading, which did not specifically raise the applicability of
    the April 11 Agreement to Capital Markets transactions. The issue was, however,
    raised by the respondent well before trial and was the subject of evidence and
    full argument at trial. The trial judge did not err in considering this issue.

[61]

Nor would I give effect to the appellants argument that the trial
    judge should not have considered the respondents corrected answers to
    undertakings. In accordance with settled authority, to which he referred, he
    was entitled to examine both the original and the corrected answers and to
    determine what weight, if any, to give to one or the other:
Marchand
    (Litigation Guardian of) v. Public General Hospital Society of Chatham
(2000), 51 O.R. (3d) 97 (C.A.). Having done so, he concluded that
    the original answers contained errors that were made in good faith and that the
    corrected answers more accurately reflected the facts.

[62]

I
    would not give effect to the other grounds of appeal, which were not pressed
    either in the appellants factum or in oral argument.

F.

order

[63]

For these reasons, I
    would dismiss the appeal, with costs to the respondent in the agreed amount of
    $55,000.00, inclusive of prejudgment interest and all applicable disbursements.

George R. Strathy
    C.J.O.

I agree K.M. Weiler
    J.A.

I agree David Watt
    J.A.

Released: December 2, 2016





[1]

During the material time, the respondents name was Blackmont
    Capital Inc., but it is now owned by Richardson GMP. Richardson GMP defended
    the action at trial and responded to the appeal in this court.



[2]

Broker warrants were a form of compensation provided by
    clients to the respondent and shared with IAs as part of their compensation.  A
    warrant gave the holder the right to purchase a share of the issuer at a
    specific price and for a specific time. The warrant could be exercised or
    cashed out within the exercise time.



[3]

A bought deal was a financial arrangement where the
    respondent, as an underwriter of an Initial Public Offering, agreed to finance
    the offering by purchasing securities from its client before the offering went
    public. If the offering was a success, and the shares were purchased in the
    market at or above the price at which the respondent bought them, it stood to
    make a substantial profit. If the IPO was not a success, the respondent bore
    the risk of substantial losses.


