ONTARIO – Contracts – Agreements of Purchase and Sale – Interpretation of Termination Clause – An agreement for the purchase of a development project (“the APS”) gave the seller the right to terminate the agreement if the buyer did not complete a pre-consultation meeting with the municipality within four weeks after the signing of the agreement. A meeting with the municipality that took place two months before the APS was signed could not be treated as the pre-consultation meeting referred to in the APS. The seller had the right to terminate the APS.

Obolus Ltd. v. International Seniors Community Care Inc.
2023 ONCA 708  (CanLII) (October 27, 2023)
Ontario Court of Appeal (Fairburn A.C.J.O., Feldman and Sossin JJ.A.)

Background Facts

The Appellant ISSC entered into an agreement (“the APS”) with the Respondent Obolus for the purchase of a property known as Obolus Technology Park. The APS contained a Milestone Termination Option (“the MTO”) giving Obolus the right to terminate the agreement if ISSC did not complete a pre-consultation meeting with the municipality “prior [sic] four (4) weeks after the signing of this Purchase Agreement.” (para. 3)

Obolus terminated the APS just over four weeks after it was signed and commenced an application seeking a declaration that the APS was validly terminated. ISSC sought to have the application converted into an action. (para. 5)

ISSC alleged the pre-consultation meeting requirement of the MTO was fulfilled by a meeting between ISSC and representatives of the municipality that took place two months before the APS was executed. Obolus contended that the pre-APS meeting was a courtesy meeting and that the pre-consultation meeting had to occur after the APS was signed. No additional meetings occurred between ISSC and the municipality. (para. 4)

The Application Judge’s Decision

The application judge refused to convert the application into an action. She held that the case turned on the interpretation of the MTO and that all facts to determine that question were in the court record. (para. 6)

The application judge interpreted the contract to require that the pre-consultation meeting take place after the APS was signed. She found that this interpretation was supported by the pre-consultation meeting requirement not being removed after the pre-APS meeting took place. The application judge also concluded that it would not make sense for the parties to keep the MTO in the APS if they believed that the meeting requirement was already completed, nor would it make sense for a meeting to satisfy a condition in an agreement before that agreement was finalized. (para. 7)

Court of Appeal Majority Decision

Sossin J.A., writing the majority reasons of the ONCA, held that the application judge’s refusal to convert the application to an action under Rule 14.05(3) of the Rules of Civil Procedure was entitled to deference. ONCA affirmed that an appellate court will only interfere with such a determination if the “lower court misdirected itself, came to a decision that is so clearly wrong so as to amount to an injustice, or gave no or insufficient weight to a relevant consideration”. (para. 10)

The ONCA referred to the test for converting an application to an action as set out in Fort William Indian Band v. Canada (2005), 2005 CanLII 28533 (ON SC), at paras. 28-31. Sossin J.A. held that the application judge applied the correct principles and did not misdirect herself by dealing with the case as an application. The appeal on this procedural aspect of the case was dismissed. (paras. 11-13)

Interpretation of the Contract

Sossin, J.A. held that the appeal did not raise any extricable questions of law as to the application judge’s interpretation of the contract. Therefore, the appeal was on a mixed question of fact and law, which was entitled to deference. Appellate intervention was permissible only if the appellate court found a palpable and overriding error. (para. 16)

ONCA noted the application judge’s reference to the MTO clause and her conclusion that the “clear intention of the parties” was to hold the pre-consultation meeting within four weeks after executing the APS”. The majority of the ONCA panel found that the application judge relied upon objective evidence in reaching her conclusion, that a meeting held two months before the APS was signed did not qualify as the pre-consultation meeting contemplated by the APS and that it was open to the application judge to reach this conclusion, even though there was other evidence in the record to the contrary. (para. 19-24)

As a result, Sossin J.A. affirmed the application judge’s decision that the pre-consultation meeting had not taken place and that the Respondent Obolus had a right to terminate the APS. (para. 25)

Dissenting Reasons of Feldman J.A.

Justice Feldman agreed that the application judge did not err by refusing to convert the application into an action. However, Feldman J.A. held that the application judge’s interpretation of the MTO provision and her failure to treat the meeting with the municipality two months before the contract was signed as the “pre-consultation meeting” was a palpable and overriding error. (paras. 27-28)

Feldman J.A. opined that that the application judge failed to give effect to the word “completed” in the MTO clause and substituted the word “take place” and as such, made a legal error. Justice Feldman then reviewed the jurisprudence in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, especially at para. 47, referring “to the modern approach to the interpretation of contracts including the importance of the words used and the surrounding circumstances.” (paras. 29-31) Justice Feldman then provided a detailed analysis of the inconsistencies in the application judge’s conclusions. (paras. 32-49)

Feldman J.A. would have allowed the appeal and would have held that the appellant was not in breach of the agreement.