



COURT OF APPEAL FOR ONTARIO

CITATION: AgriMarine Holdings Inc. v.
    Akvatech AS, 2019 ONCA 713

DATE: 20190911

DOCKET: C66498

Lauwers, van Rensburg and
    Roberts JJ.A.

BETWEEN

AgriMarine Holdings Inc. and AgriMarine
    Industries Inc.

Applicants (Appellants)

and

Akvatech AS

Respondent (Respondent in Appeal)

Adam D. H. Chisholm and Holly Sherlock,
    for the appellants

Jason W. J. Woycheshyn and Joseph N.
    Blinick, for the respondent

Heard: August 30, 2019

On
    appeal from the judgment of Justice Paul M. Perell of the Superior Court of
    Justice, dated December 31, 2018, with reasons reported at 2018 ONSC 7768.

REASONS FOR DECISION

[1]

This is an appeal by AgriMarine Holdings Inc.
    and AgriMarine Industries Inc. from an order dismissing an application for a
    declaration that Akvatech AS was in breach of contract and is not the holder of
    a license to certain fish-rearing technology owned by the appellants (the
    Technology).  The proceedings engage the parties rights and obligations
    under a contract dated November 20, 2012 (the Letter Agreement).  The Letter
    Agreement sets out the terms on which Akvatech would acquire ownership and
    licensing rights to the Technology for certain territories. Pursuant to the
    Letter Agreement, Akvatech paid AgriMarine the sum of $200,000 (the Pre-payment
    Amount). By January 18, 2013, the parties had not closed the transaction and
    Akvatech demanded repayment of the Pre-payment Amount. At issue in the
    litigation was whether either party was in breach of the Letter Agreement,
    whether, after AgriMarine failed to refund the Pre-payment Amount, Akvatech had
    obtained a license under the Letter Agreement, and whether the appellants
    claim was statute-barred or otherwise barred by laches or estoppel.

[2]

The application judge addressed the issues on
    the merits. He concluded that neither party was in breach of the terms of the
    Letter Agreement, having waived the initial closing date. Rather, on January
    18, 2013, AgriMarine and Akvatech had simply agreed to end the Letter Agreement
    and to implement the provisions that they had bargained for if the transaction
    was not completed: paras. 82 and 98.  He concluded that Akvatech was entitled
    to take the steps it did under s. 2 of the Letter Agreement when it: (1)
    demanded a refund of the Pre-payment Amount on the basis that the Definitive
    Transaction Documents had not been executed and delivered on or before the
    Target Closing Date; (2) issued a Default Notice when the Pre-payment Amount
    was not refunded; and (3) issued an Exercise Notice when the default in payment
    of the Pre-payment Amount was not cured within five days of the Default Notice:
    paras. 96-102. In the Exercise Notice, Akvatech elected option (i) under s.
    2(d) of the Letter Agreement, which allowed it to:

obtain a
    perpetual, irrevocable, transferrable, sole and exclusive, license to exploit
    the Technology in any manner whatsoever including, without limitation, the
    right to use, sell, have made, have sold, import or export, distribute,
    reproduce, offer for sale, market, advertise and promote the Technology within
    the Northern Europe Territory [as defined in the Letter Agreement] in full
    satisfaction of the Pre-payment Amount.

[3]

The application judge found that the essential
    terms of the license (respecting the specific Technology subject to the
    license, its geographic and temporal scope and the licensed activities) were
    defined with sufficient particularity and that the license was enforceable:
    paras. 105-106.

[4]

AgriMarine makes three arguments on appeal.
    First, it says that the application judge erred in permitting Akvatech to take
    advantage of its own breach of contract (having failed to deliver the
    Definitive Transaction Documents required by the Letter Agreement) in order to
    obtain the license to the Technology. Second, AgriMarine submits that the
    application judge erred, after concluding that the Letter Agreement had
    terminated, and where there was no default by AgriMarine, in permitting
    Akvatech to obtain a license. Third, AgriMarine contends that the license is
    unenforceable because it appears to be of unlimited duration but does not
    provide for any royalty payments. The appellants argue that it is unreasonable
    to conclude that the parties would have bargained for Akvatech, in default of
    payment of $200,000 by AgriMarine, to obtain a license worth $1 million.

[5]

We do not give effect to any of the appellants
    arguments. This is a case involving the interpretation of a contract which is
    typically a question of mixed fact and law, engaging a palpable and overriding
    error standard of review:
Sattva Capital Corp. v. Creston Moly Corp.
,
    2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 49-52. While the appellants seek to
    extract legal error from the application judges reasons, in our view the
    appeal is simply a challenge to the application judges interpretation of the
    parties rights and obligations under the Letter Agreement. The application
    judges reasons are thorough and comprehensive, and well support his reasonable
    interpretation of the parties contract. They reveal no reversible error.

[6]

AgriMarine points to the terms of the Default
    Notice issued by Akvatech to argue that Akvatech relied on the fact that the
    Definitive Transaction Documents had not been executed and delivered on or
    prior to the Target Closing Date. AgriMarine asserts that Akvatech was not
    entitled to a refund of the Pre-payment Amount under s. 2(b) of the Letter
    Agreement because Akvatech, and not AgriMarine, was the party that had failed
    to deliver the required documents and was not in any event in a position to
    close the transaction. AgriMarine highlights the evidence that the parties had negotiated,
    and counsel had prepared the Definitive Transaction Documents, and that
    AgriMarine had signed the documents and delivered them in escrow to Akvatechs
    counsel. By contrast, AgriMarine argues, Akvatech did not establish that it had
    delivered the documents. Nor, according to AgriMarine, was Akvatech in funds to
    complete the transaction. AgriMarine submits that in demanding repayment of the
    Pre-payment Amount in such circumstances, Akvatech would be relying on its own
    breach of the terms of the Letter Agreement. AgriMarine emphasizes that
    Akvatech did not rely on any other circumstance in claiming a refund of the
    Pre-payment Amount or in its Default Notice.

[7]

There is no question that it is a principle of
    law that a party should not be able to take advantage of its own contractual breach
    in order to claim a contractual benefit or remedy. This principle was accepted
    by the application judge at para. 97 of his reasons. We agree with the
    application judge, however, that this is not a case about the exercise of
    rights and remedies following a breach of contract. The application judge
    reviewed the chronology of events, as well as the communications between the
    parties and between their counsel. Notwithstanding the positions taken by the
    parties counsel as to their respective legal positions (each asserting that
    the other was in breach of contract), he concluded that neither party was in
    breach of the Letter Agreement. He also found that the parties, through their conduct,
    agreed to terminate the Letter Agreement. The appellants acknowledge that this
    finding was open to the application judge on the evidence.

[8]

Accordingly, the question before the application
    judge was the consequences not of a breach of contract, but of the termination
    of the Letter Agreement by consent or conduct of the parties. The real issue in
    this appeal is whether the application judges interpretation of the Letter
    Agreement, as entitling the respondent to a refund of the Pre-payment Amount,
    and, on default, to exercise the remedies under s. 2(d) of the Letter
    Agreement, reveals any reversible error.

[9]

The appellants say that the parties may have
    agreed to the termination of the Letter Agreement, but that they did not agree
    on what would follow. Specifically, there was no agreement about whether
    Akvatech would be entitled to a refund of the Pre-payment Amount, and no
    agreement that, on default, Akvatech could obtain a license to the Technology.

[10]

The appellants contend that, properly
    interpreted, s. 2(b) is meant to apply where AgriMarine has done something in
    breach of the Letter Agreement, and not where the Letter Agreement has come to
    an end by mutual agreement of the parties. Otherwise, Akvatech could take
    advantage of something it had failed to do, without any
bona fide

intent
    to close the transaction, and then invoke rights under ss. 2(b) and (d) of the
    Letter Agreement to acquire rights in the Technology. An interpretation of the
    Letter Agreement that would permit Akvatech to obtain a license worth $1
    million for only a payment of $200,000 would, argues AgriMarine, be
    unreasonable.

[11]

We disagree. The evidence of the communications
    between the parties recited at paras. 53 to 57 supports the application judges
    conclusion at paras. 98 to 101 that, notwithstanding the positions of their
    counsel, the parties had agreed that, once the Letter Agreement was terminated,
    the Pre-payment Amount would be demanded, and a Default Notice would issue.

[12]

In any event, we see no error in the application
    judges conclusion that the terms of the Letter Agreement applied in the
    circumstances of its termination, and not just in the event of breach: paras. 96
    and 101. We are not persuaded by the appellants argument that such an
    interpretation would have permitted Akvatech to simply invoke s. 2, in order to
    claim a license for the price of the Pre-payment Amount, and not to proceed
    with the transaction contemplated by the Letter Agreement. The parties were
    obliged to use commercially reasonable efforts to negotiate, execute and
    deliver the transaction documentsand appear to have done so in this case,
    except that, as a result of various circumstances, they were unable to complete
    the transaction, and had agreed to its termination. Under s. 2(b), they had not
    executed and delivered the Definitive Transaction Documents on or before
    December 7, 2012 (the initial closing date) or agreed in writing to a later
    date. In any event, AgriMarine could have avoided the transfer of the license
    by repaying the Pre-payment Amount upon demand. It is a reasonable
    interpretation of s. 2 of the Letter Agreement that, as the application judge
    concluded, it was meant to provide security for the refund of the Pre-payment Amount.

[13]

Turning to the application judges conclusion
    that the license granted to Akvatech was enforceable, we see no reason to
    interfere. The application judge considered all the relevant factors, including
    the terms of the license, and of the Letter Agreement as a whole, and the fact
    that the parties had agreed to this provision while represented by legal
    counsel.

[14]

The application judge specifically addressed and
    rejected AgriMarines argument that the license was insufficiently certain
    because it did not provide for a royalty payment to AgriMarine. In this regard
    he noted that the absence of a licensing fee or royalty rate would not make the
    license unenforceable. His reference to
Merck & Co., Inc. v. Apotex
    Inc.
, 2013 FC 751, which we agree is not on all fours with the present
    case, was only to support his observation that royalty-free licenses are not
    uncommon, and not as authority for his interpretation of the license here. He
    observed that the Letter Agreement contemplated the outright sale of the
    Technology in Northern Europe for $1 million, and that it did not seem unreasonable
    or uncertain that AgriMarine would agree to grant a royalty-free license as
    security for its obligation to repay the Pre-payment Amount. He also noted that
    both sides employed first-tier legal counsel, and that it would be no stretch
    to give operative meaning to the Letter Agreement, including the provisions
    associated with the Pre-payment Amount: paras. 107-108.

[15]

The issue was whether, when properly considered,
    the terms of the Letter Agreement, which by its terms would have given Akvatech
    a royalty-free license for the Technology for the northern European territory
    upon default of the refund of the Pre-payment Amount, were sufficiently certain
    to be enforced. The application judges interpretation is supported by the fact
    that, while the Letter Agreement provided for no royalties for the northern
    European territory, it did provide for royalties for other territories. And,
    while not importing an obligation to pay royalties, s. 2(d) contains a further
    assurances clause requiring the parties upon delivery of the Exercise Notice to
    execute and deliver all such further documents and instruments and [to] do all
    such acts and things as [Akvatech] may from time to time reasonably require in
    order to effect or better evidence and perfect the full intention of [the]
    section. In other words, it was anticipated that further documentation and
    actions by the parties might well be required in order to carry out their
    intentions with respect to the license granted upon default.

[16]

In summary, the appellants have not demonstrated
    that the application judge made any palpable and overriding errors of fact. Nor
    do we find any reversible error in his interpretation of the Letter Agreement,
    including the right of Akvatech to the license it had bargained for on default
    of the refund of the Pre-payment Amount.

[17]

Accordingly, the appeal is dismissed. The
    appellants shall pay the respondents costs fixed at $35,000, inclusive of
    disbursements and HST.

P. Lauwers J.A.

K. van Rensburg J.A.

L.B. Roberts J.A.


