



COURT OF APPEAL FOR ONTARIO

CITATION: 1951584 Ontario Inc. (Maxium
    Financial Services Inc.) v. Altavision Plus Inc., 2019 ONCA 943

DATE: 20191128

DOCKET: C66708

van Rensburg, Paciocco and
    Thorburn JJ.A.

BETWEEN

1951584 Ontario Inc.

carrying on business as Maxium Financial Services Inc.

Plaintiff (Respondent)

and

Altavision Plus Inc., Bradley Klock,
Dr. Hugo Francis Sutton,

Dr. Hugo Francis Sutton Eyecare Inc., Hugo Sutton Professional

Corporation, and Donald M. Cameron

Defendants (
Appellants
)

Brian Illion and Desmond Ngai, for the
    appellants

Lyndsay Hone, for the respondent

Heard: November 18, 2019

On appeal from the judgment of Justice Benjamin
    T. Glustein of the Superior Court of Justice, dated February 21, 2019, with reasons
    reported at 2019 ONSC 1237.

REASONS FOR DECISION


OVERVIEW

[1]

This is an appeal from a summary judgment
    enforcing personal guarantees against the appellants, Dr. Hugo Francis Sutton,
    Dr. Hugo Francis Sutton Eyecare Inc., Hugo Sutton Professional Corporation, and
    Mr. Donald M. Cameron. The appellants are individuals and corporations who signed
    personal guarantees relating to the obligations of Altavision Plus Inc. (Altavision)
    under a 2009 equipment lease agreement that Altavision entered into with 1951584
    Ontario Inc., carrying on business as Maxium Financial Services Inc. (Maxium).
    The lease pertained to Altavisions medical aesthetics business in Fort
    McMurray, Alberta.

[2]

The appellants do not deny that Altavision
    defaulted on its obligations to Maxium under the lease agreement. Nor do they
    deny that they executed personal guarantees, and they take no issue with the use
    of summary judgment to resolve the action. They contend that the motion judge
    erred in enforcing the personal guarantees.

[3]

First, the appellants claim that the motion
    judge erred by misinterpreting the Governing Law or choice of law clause in
    the guarantees. The appellants contend that, properly interpreted, the law of
    Alberta applies, and under that law, the personal guarantees of the individual
    appellants would not be enforceable. They claim the motion judge mistakenly found
    that the law of Ontario governed.

[4]

Second, the appellants contend that the losses
    Maxium sustained occurred because one of the directors of Altavision, Mr. Klock,
    converted equipment required to operate the business. They say that Maxium
    carried insurance against this risk. They argue that the motion judge erred by
    wrongly holding that the appellants could not defend themselves based on
    Maxiums failure to claim coverage under this insurance policy.

[5]

Third, the appellants urge that Maxium lost
    standing to enforce the guarantees when, on February 12, 2010, Maxium assigned
    its receivables to Sun Life Assurance Company of Canada (Sun Life) under a
    Master Purchasing and Servicing Agreement (MPSA). The trial judge erred by
    permitting Maxium to sue on the guarantees.

[6]

The appellants also seek leave to appeal the
    costs order made by the motion judge, on the basis that it is unreasonable.

[7]

For reasons that follow, we dismiss the appeals
    from the summary judgment.

[8]

We grant leave to appeal the costs decision but
    deny the costs appeal.

ANALYSIS

A.

ISSUE ONE
: Interpretation of the Governing Law Clause

[9]

The personal guarantees included a Governing Law
    clause, clause 16:

This Guarantee shall be construed in
    accordance with the laws of the province where the Customers account is held
    and you irrevocably submit to the exclusive jurisdiction of the courts of that
    province.

[10]

When Maxium commenced its lawsuit in Ontario, one
    of the appellants, Mr. Cameron, brought a motion to stay the proceedings for
    lack of jurisdiction. He argued that the Governing Law clause required the
    action to be commenced in Alberta. Justice Dunphy dismissed the stay motion,
    holding that properly interpreted, the Governing Law clause required the action
    to be brought in Ontario (the Dunphy decision). Mr. Cameron agreed not to
    appeal that ruling if Maxium undertook not to argue in the action that the
    Dunphy decision was binding, including pursuant to the doctrine of
res
    judicata
.

[11]

The motion judge held that the phrase, where the
    Customers account is held describes the province where the Customers [Altavisions]
    account is held by Maxium. He found, as a fact, that Altavisions account was
    held by Maxium in Richmond Hill, Ontario. Hence, he found that Ontario law
    applies. In his decision, the motion judge said he agreed and adopted the
    conclusions of Justice Dunphy, who arrived at the same conclusion.

[12]

The appellants claim that the motion judge
    committed several errors in interpreting the Governing Law clause to find that
    Ontario law applies. Specifically, they argue that the motion judge erred by:
    (1) misapprehending their argument; (2) ignoring the factual matrix, which
    supports Alberta law as the choice of law; (3) failing to interpret the clause
contra
    proferentem
; (4) improperly applying the commercial absurdity principle;
    and (5) applying
res judicata
contrary to Maxiums undertaking.

[13]

It is convenient to begin with the last
    argument, which can be dismissed directly. The motion judge recognized and
    respected Maxiums agreement not to present the Dunphy decision as binding on
    the interpretation of the Governing Law clause. At no point did he treat the
    Dunphy decision as binding. Rather, after conducting his own interpretation of
    the Governing Law clause and before he set out certain paragraphs from the
    Dunphy decision, he stated, For the reasons I discuss above, I agree and adopt
    the conclusions of Justice Dunphy, who arrived at the same conclusion.

[14]

The interpretation arguments also fail. The
    motion judge stated and properly applied the governing principles of
    contractual interpretation.

[15]

He found that the Governing Law clause was not
    ambiguous. Read as a whole and given its plain and grammatical meaning, the phrase
    where the Customers account is held refers to another party, Maxium, holding
    the account of its customer, Altavision. He agreed with Dunphy J. that, in
    context, the term is held makes this clear: The customers account is held
    by the party who is doing business with the customer, not the customer itself.
    Nor can the clause be read as referring to the location of the customer, without
    improperly ignoring the word account.

[16]

Quoting from
Weyerhaeuser Company Limited v.
    Ontario (Attorney General)
, 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para.
    65, the motion judge concluded that this reading accords with sound commercial
    principles and good business sense, avoiding a commercially absurd result,
    since a financial services company would not want to agree to an ever-changing
    governing law, and irrevocably submit to the exclusive jurisdiction of
    undetermined courts. The motion judge then described the implications of
    reading the clause as referring to the place where the customers bank account
    is located, including that a customer could change the governing law by moving,
    a commercially absurd result.

[17]

The appellants first three challenges to the
    motion judges interpretation are linked. The appellants urge that if he had
    interpreted the provision in light of the factual matrix known to the parties
    at the time, an ambiguity in the clause would have become apparent, and that
    when the
contra proferentem

principle that applies in the
    interpretation of guarantees is applied to that ambiguity, the clause must be
    interpreted to mean the province in which the creditors branch or
    representative held and serviced the customers business. The trial judge
    erred in failing to appreciate the argument, and in his application of the
    principle of interpretation set out in
Sattva Capital Corp. v. Creston Moly
    Corp
.
, 2014 SCC 53, [2014] 2 S.C.R. 633.

[18]

We disagree.

[19]

It became apparent during oral argument that the
    appellants do not contest that the choice of law is to be determined by where
    the Customers account is held by Maxium. Instead, it is the appellants
    position that where the Customers account is held means Alberta and not
    Ontario, because the factual matrix suggests that the customers account would
    be held by Maxium in Alberta. In the appellants view, this creates an
    ambiguity about the location of the customers account, as understood at the
    time the guarantees were executed, that must be resolved in favour of the
    appellants.

[20]

With respect, the appellants argument confuses the
    interpretation of the clause and its application. By agreeing that the guarantees
    provide that the choice of law will be where the Customers account is held
    by Maxium, the appellants are conceding that the motion judge interpreted the
    contract properly. Any ambiguity that may exist is with the factual
    determination of where that place is. The motion judge considered the evidence
    and determined the place to be Ontario. We can find no overriding and palpable
    errors of fact or extricable errors of law arising from that holding.

[21]

Nor did the motion judge improperly apply the commercial
    absurdity principle when interpreting the Governing Law clause. In identifying
    sound commercial principles, the motion judge was entitled to consider the
    commercially unsound implications of competing interpretations, and he did so. We
    agree that one of the examples he used to demonstrate the implications of
    treating customers account as describing a location controlled by the
    customer is problematic. A customer could not affect the choice of law by
    moving their account out of the country because the Governing Law clause refers
    to the laws of the province where the Customers account is held. However, this
    example was redundant, and not central to the motion judges conclusion. Nor
    did he err in considering only the commercial implications for Maxium. As
    indicated, he considered the effect of the competing possibilities.

[22]

The motion judge did not err in interpreting the
    Governing Law clause.

B.

ISSUE TWO: The Insurance Policy

[23]

We do not agree with the appellants that the
    trial judge erred by depriving them of a defence based on Maxiums failure to
    claim coverage under an insurance policy for losses caused by Mr. Klocks
    alleged conversion of leased assets.

[24]

Specifically, the appellants rely on the so-called
    
Bauer Rule
 that imposes a duty on a creditor holding security for
    the performance of the obligations of the debtor or the surety [or guarantor]
    to protect and preserve the security:
Bauer v. Bank of Montreal
,
    [1980] 2 S.C.R. 102, at p. 106. The appellants say that by not claiming under
    the insurance policy, Maxium has failed to protect the security this policy
    provides.

[25]

We disagree. The insurance policy in question
    was obtained by Maxium to secure its unrelated MPSA contract with Sun Life. It
    was not held by Maxium to secure the performance of the debt that the
    appellants guaranteed. Indeed, the obligation the appellants guaranteed
    required Altavision to insure the leased property, which it failed to do. Even
    if the insurance policy covered the value of losses Maxium is seeking to
    recover by enforcing the appellants guarantee, this policy provides the
    appellants with no defence, as the so-called 
Bauer
Rule has no
    application in this case.

C.

ISSUE THREE: MAXIUMS STANDING

[26]

The appellants argue that the motion judge erred
    in permitting Maxium to enforce the guarantees. It contends that Maxium lost
    its right to enforce Altavisions debt when Maxium assigned its receivables to
    Sun Life in the MPSA. Its position is that only the assignee, Sun Life, has
    standing to enforce the guarantees.

[27]

We do not agree. The motion judge concluded that
    in the complex MPSA, Maxium assigned to Sun Life only the income stream from
    its receivables. It retained the power to enforce those receivables and bound
    itself under the agreement with Sun Life to do so. Since the enforcement
    authority it held against its debtors was not assigned to Sun Life, Maxium
    retained its own standing to sue.

[28]

The motion judge held, in the alternative, that even
    if Sun Life had acquired the enforcement rights, Maxium would nonetheless have standing
    to do so as Sun Lifes agent due to its contractual obligation with Sun Life to
    enforce the obligations.

[29]

We need not decide whether the motion judge
    interpreted the MPSA reasonably, since we agree with the motion judge that even
    if Maxium assigned its rights of enforcement to Sun Life, Maxium is obliged
    under the agreement to enforce the receivables as Sun Lifes agent. Whether
    Maxium has complied with its obligations to Sun Life relating to that enforcement
    is not a matter that concerns the appellants, who are strangers to that
    agreement. They cannot raise as a defence any concerns that Sun Life might have
    about the manner in which its agent, Maxium, has proceeded.

[30]

In the alternative, the appellants argue that clause
    15 of the guarantees restricts Maxiums authority to enforce assigned
    guarantees and Maxium has breached this clause by attempting to enforce the
    guarantees. Clause 15 provides:

We [Maxium] may, without notice, sell or
    assign the Obligations and in such case, our assignee may enforce this
    Guarantee and we may enforce this Guarantee for any part of the Obligations not
    sold or assigned.

[31]

We do not agree that Maxium breached clause 15
    by enforcing the guarantees. If Maxium assigned the appellants obligations in
    their entirety to Sun Life, Sun Life as assignee could enforce the guarantees,
    and Maxium would be authorized to do so as Sun Lifes appointed agent under the
    MPSA. If, on the other hand, Maxium assigned only its income stream while
    retaining the power to enforce its receivables, as the motion judge concluded,
    Maxium could enforce the guarantees in its own right as the part of the
    Obligations not sold or assigned. On either of the two possible assignment scenarios
    arising in the circumstances of this case, clause 15 provides for enforcement
    by Maxium.

D.

ISSUE FOUR: COSTS

[32]

The appellants seek leave to appeal the costs
    order imposed by the motion judge. They argue that the motion judge erred in
    imposing full indemnity costs without making a finding of egregious conduct on
    the part of the appellants.

[33]

We disagree. In the guarantees, the appellants
    agreed to pay the costs of enforcing those guarantees on a solicitor and own
    client basis. Where parties have contractually agreed to pay costs on the
    higher scale, costs can be awarded on that scale without showing extraordinary
    circumstances.

[34]

Although the court retains discretion in
    appropriate circumstances to disregard the contractual scale of costs, we see
    no basis for interfering with the motion judges decision to enforce the costs
    scale that the parties contracted for.

CONCLUSION

[35]

The appeal from the summary judgment is
    dismissed. Leave to appeal costs is granted, but the costs appeal is also
    dismissed.

[36]

We order the appellants to pay the costs of the
    appeal to the respondent at the partial indemnity rate of $29,009.79, inclusive
    of disbursements and applicable taxes. This costs award includes the $1,000 in
    costs ordered by Feldman J.A., on September 6, 2019, when granting a motion by
    the appellants to extend the time to appeal the costs order made by the motion judge.

K.
    van Rensburg J.A.

David
    M. Paciocco J.A.
J.A. Thorburn J.A.


