



COURT OF APPEAL FOR ONTARIO

CITATION: All-Terrain Track Sales and
    Services Ltd. v. 798839

Ontario Limited, 2020 ONCA 129

DATE: 20200219

DOCKET: C66985

Pepall, Pardu and Paciocco JJ.A.

BETWEEN

All-Terrain Track Sales and Services Ltd. and Andre Boudreau

Plaintiffs (Appellants)

and

798839 Ontario Limited, Jacobus Hanemaayer,
    153078 Canada Inc.,
Community Expansion Inc.,
Great Lakes Nickel Limited
,
Robin Lowe and Rio Tinto Exploration Canada Inc.

Defendants (
Respondent
)

Donald Rollo and Marc Chaput, for
    appellants

Steve Gearing, for the respondent

Heard: January 31, 2020

On
    appeal from the judgment of Justice Shaun OBrien of the Superior Court of
    Justice, dated May 16, 2019, with reasons reported at 2019 ONSC 2998.

REASONS
    FOR DECISION

[1]

The appellants are judgment creditors of 798839 Ontario Limited (39).
    The appellants sued the respondent, asserting that 39 had successfully
    exercised an option contained in a joint venture agreement with the respondent
    to acquire an interest in the Pardee Mining Development. The appellants hoped
    to obtain part of a revenue stream originating from that development, in
    satisfaction of the judgment against 39.

[2]

The summary judgment motion judge concluded that 39 had not satisfied
    the contractual prerequisites necessary to acquire an interest in the mining
    development. The appellants argue that the motion judge erred in failing to
    have regard to the factual matrix surrounding the formation of the contract and
    erred in her interpretation of the contract.

[3]

We do not agree and dismiss the appeal.

I.

DECISION BELOW

[4]

The contract at issue was dated December 5, 1988, more than 30 years
    before the motion judges decision. None of the affiants in the summary
    judgment motion had any involvement in the contract formation and there were no
    such witnesses available.

[5]

The motion judge began her analysis by examining the text of the contract.

[6]

The agreement recites that the respondent is the owner of the property
    and that it has agreed to grant to 39 an exclusive option to earn an undivided 80
    percent interest in the property upon the terms set out in the agreement.

[7]

39 could incur Expenditures in respect of the property of no more than
    two million dollars. Paragraph 3.2 provided that for each separate block of
    Expenditure of $250,000, 39 shall be deemed to have acquired an undivided ten
    percent right to the property, subject to the provisions of paragraph 3.1,
    which provided the right and option to acquire an undivided 80% interest in the
    property.

[8]

Paragraph 3.3 provided that the option granted to 39 would terminate if
    39 failed to expend two million dollars in the aggregate. Specifically, the
    option would terminate:

(a)

On November 30, 1989, unless on or before that date Ontario [39] has
    incurred $750,000 in Expenditures;

(b)

On November 30, 1990, unless on or before that date Ontario [39] has
    incurred a further $750,000 in Expenditures in the aggregate;

(c)

On November 30, 1991, unless on or before that date Ontario [39] has
    incurred a further $500,00 in Expenditures in the aggregate; or

(d)   if Ontario [39] gives notice in accordance
    with paragraph 3.7.

[9]

Paragraph 3.7 provided, amongst other things, that if 39 failed to make
    the requisite Expenditures under paragraph 3.3, the agreement would be of no
    further force or effect and 39 would have no interest in the property.

[10]

Paragraph
    3.9 defined the Participation Date for the joint venture as the date on which
    39 had exercised its option by incurring two million in Expenditures in the
    aggregate, according to the above timetable in paragraph 3.3.

[11]

Paragraph
    3.10 stipulated that on the Participation Date, 39 would be deemed to have
    earned an undivided 80 percent interest in the property and the joint venture
    would be formed to develop the property and operate it as a mine.

[12]

Paragraph
    5.2 set out a formula to calculate 39s interest in the joint venture if 39
    made subsequent contributions to Expenditures beyond the two million, using the
    two million dollar amount as a starting point.

[13]

Expenditures
    were defined in the agreement as follows:

(e) Expenditures means all cash, expenses, obligations and
    liabilities of whatever kind or nature, spent or incurred by the parties hereto
    prior to a Production Programme in connection with the exploration and
    development of the Property including, without limiting the generality of the
    foregoing:

(i) moneys expended in maintaining the Property in good
    standing by doing and filing assessment work;

(ii) moneys expended in doing geophysical, geochemical and
    geological surveys, drilling, assaying and metallurgical testing;

(iii) moneys expended in acquiring Facilities;

(iv) moneys expended in paying the fees, wages, salaries,
    travelling expenses, plus fringe benefits in an amount not in excess of thirty
    percent (30%) of salaries (whether or not required by law) of all persons
    engaged in work with respect to and for the benefit of the Property;

(v) moneys expended in paying for the food, lodging and
    other reasonable needs of the persons referred to in clause (iv) hereof;

(vii) a charge equal to ten percent (10%) of all
    Expenditures other than the charge refered to in this clause (vi) for
    unallocable overhead and head office expenses and all other expenses relating
    to supervision and management of all work done with respect to and for the
    benefit of the Property; and

(vii) all costs and expenses related to the preparation of a
    Feasibility Report;

but does not include any amount
    incurred in respect of Production Programme Costs.

[14]

39
    entered into a management contract with James Bay Company Mineral Resources
    Inc. (JBC) to manage the exploration and development of the Pardee claims. JBC
    had the necessary expertise, experience, and ability to carry out the
    exploration and testing program. The management contact provided that JBC would
    incur expenditures on the Pardee mining claims as mutually agreed upon with 39,
    from time to time. The respondent was not a party to this agreement.

[15]

All
    parties agreed for the purposes of the motion that, while 39 may have advanced two
    million to JBC, $360,687 of that two million advancement was not used on the
    Pardee project. Instead, it was diverted to another project, called the Kipling
    project. 39 had contracted with another development company, James Bay Kaolin
    Corporation (JBK), to develop the Kipling project. JBK and JBC were related
    corporations controlled by the same person.

[16]

Before
    the motion judge, the appellants argued that 39 had validly exercised the
    option because 39 had advanced two million to JBC, even if $360,687 was
    diverted to another project. In the alternative, the appellants argued that 39
    had acquired a 60 percent interest in the property.

[17]

The
    motion judge concluded that the plain language of the agreement meant that 39
    had to make the full two million in expenditures on the specified Pardee property.
    Otherwise, 39s option would terminate according to paragraphs 3.3, 3.7, 3.9
    and 3.10 of the agreement. She concluded that the joint venture agreement did
    not give 39 the right to a smaller stake in the joint venture proportionate to
    lesser expenditures.

[18]

The
    motion judge attached little importance to subsequent documents such as
    financial statements, correspondence, management information circulars,
    memoranda and legal opinions  as these were conflicting and based on uncertain
    provenance. None of these undermined her plain reading of the joint venture
    agreement.

II.

ANALYSIS

(1)

Did the motion judge err by failing to have regard to the factual
    context surrounding the formation of the contract?

[19]

The
    appellants focus on the factual findings made in other litigation between 39, JBK,
    and others in relation to the Kipling project.
[1]
The motion
    judge accepted the parties agreement as to the amounts 39 advanced to JBC and
    the amounts expended on the Pardee claims, mirrored in the other litigations
    findings. However, the appellants argue that the motion judge somehow failed to
    have sufficient regard to other findings made in that litigation.

[20]

We
    do not agree. The respondent was only peripherally involved in the other
    litigation and was not a party to the four contracts interpreted in that
    litigation. The Pardee joint venture agreement with 39 was not interpreted in
    that litigation.

[21]

There
    is no indication that the contracts in the other litigation formed part of a
    composite whole with the Pardee joint venture agreement.

[22]

As
    pointed out by Blair J.A. in the appeal from the other litigation, the appeal
    was confined to the issue of ownership of the Kipling claims, a matter in which
    the respondent had no interest:
798839 Ontario Ltd. v.
    Platt
, 2016 ONCA 488, 351, 350 O.A.C. 226, at para. 7.

[23]

The
    starting point for contractual interpretation is the language of the agreement.
    As indicated in
Sattva Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633,
at
    para. 57:

While the surrounding circumstances
    will be considered in interpreting the terms of a contract, they must never be
    allowed to overwhelm the words of that agreementWhile the surrounding
    circumstances are relied upon in the interpretive process, courts cannot use
    them to deviate from the text such that the court effectively creates a new
    agreement. [Citations omitted.]

[24]

Further,
    the factual matrix should consist 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):
Sattva
,

at para. 58.

[25]

We
    are at a loss to know what other aspect of the factual matrix as expressed in
    the other litigation should have been considered by the motion judge but was
    not.

(2)

Did the motion judge misinterpret the Pardee Joint Venture Agreement?

[26]

The
    key issue to determine in contractual interpretation is  the intent of the
    parties and the scope of their understanding:
Sattva
,
at para. 47.

[27]

As summarized in
Richcraft Homes Ltd. v.
    Urbandale Corporation,
2016 ONCA 622, 352 O.A.C. 186, at para. 58, this
    court reiterated that a commercial contract is to be interpreted:

(a) 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;

(b) by determining the intention of the
    parties in accordance with the language they have used in the written document
    and based upon the "cardinal presumption" that they have intended
    what they have said;

(c) with regard to objective evidence of the
    factual matrix underlying the negotiation of the contract, but without
    reference to the subjective intention of the parties; and (to the extent there
    is any ambiguity in the contract),

(d) in a fashion
    that accords with sound commercial principles and good business sense, and that
    avoids a commercial absurdity.

[28]

The
    motion judge analyzed the language used by the parties as a whole and gave the
    words their plain meaning. There was little evidence of the surrounding
    circumstances known to the parties at the time they entered the agreement. According
    to JBCs management contract with 39, JBC required 39s consent before
    incurring expenditures. Presumably, 39 had good reasons related to its own
    self-interest to agree to divert $360,687 to the Kipling project, rather than
    expend it on the Pardee project.

[29]

The
    motion judges interpretation of the contract was rational, rooted in the
    language of the contract and the evidence before her. There is no basis to
    depart from the deference owed to her interpretation.

III.

CONCLUSION

[30]

Accordingly, the appeal is dismissed, with costs to the
    respondent in the agreed amount of $20,000 inclusive of disbursements and taxes.
    The cross-appeal is dismissed as abandoned.

S.E.
    Pepall J.A.

G. Pardu
    J.A. 

David M.
    Paciocco J.A.






[1]

798839 Ontario Limited v. Robert Platt; and Robert Platt
    v. Community Expansion Inc.,
2013 ONSC 6879, affd 2016 ONCA 488, 350
    O.A.C. 226.


