ONTARIO – Contracts – Interpretation — To interpret the intention of the parties, the Court should consider the context, the surrounding circumstances and the whole agreement between the parties. Commercial practice at the time of the agreement may also be considered. — Settlement Agreements between shareholders of a real estate development that provided one party with an advance payout from the proceeds of sale of the project superseded the shareholders’ agreements between the parties. The fact that the developments sold for more than the applicant expected when the Settlement Agreements were made was not a reason not to enforce the Settlement Agreement.

Voreon Inc. v. Matas Management Services Inc. 2023 ONCA 745
2023 ONCA 745 (CanLII) (November 9, 2023)
Ontario Court of Appeal (Roberts, Favreau and Copeland JJ.A.)

This was an appeal from the decision of Justice Markus Koehnen of the Ontario SCJ.  There were two appeals arising from applications related to two real estate developments known as Higher Living (“HL”), Eminence Living (“EL”) and a third appeal as to the validity of a mortgage by Matas-Hueton Holdings Inc. (“MHH”).

The application judge held that in accordance with a Settlement Agreement, the Appellant Voreon was limited to the payment of $7.4 million the from the proceeds of sale of the Higher Living property, (para. 22), that the MHH mortgage was valid and that the claim had been settled. (para. 5)

ONCA dismissed the HL and EL appeals and allowed the MHH appeal in part. (para. 109)

Background Facts

Voreon invested about $2 million into HL, a planned development in Mississauga, and loaned a further $1 million to fund the investment by ZamanCo. for shares in HL. On the application, Voreon sought payment of $10 million on account of these amounts from proceeds of sale of the HL project, which were held in trust. (paras. 11-15) The Respondent Matas contended that Voreon was entitled to only $7.4 million of the trust fund. (para. 16) Voreon also sought repayment from Matas of promissory notes totalling $6.5 million out of the EL project sale proceeds. (paras. 19-20)

The Application Judge’s Decision

The application judge prefaced the decision by noting that “the difference about the amount owing to Voreon arises because the parties relied on different agreements to justify the Voreon payout. Voreon relied on the terms of a shareholders’ agreement that governed the project and on the terms of the promissory notes Matas signed in favour of Voreon. The Respondent relied on the terms of a Settlement Agreement dated January 28, 2016, which the Respondent submitted superseded the shareholders’ agreement and the promissory notes.” (para. 52)

The application judge held that the appellant Voreon was entitled to only $7.4 million under the Settlement Agreement (‘the SA”) on the sale of the HL property on the basis that the SA superseded the shareholders’ agreement and discharged the Voreon promissory notes in exchange for payment of the first $6.5 million from the sale of the HL property. (para. 22)

The application judge noted that: “Presumably when the Settlement Agreement was signed in 2016, Voreon believed that receiving $6.5 million on a total investment of $3.963 million amounted to a satisfactory return. The only thing that changed in the interim was that the property was sold in 2019 for $11.4 million. It appears that, with the benefit of hindsight, Voreon has concluded that it would have done better without the Settlement Agreement than with it. While that may be the case, that does not give it the right to walk away from the settlement.” The application judge reached a similar conclusion in respect of the EL project. (paras. 72-73) (Editor’s italics.)

The application judge found that, reading the relevant provisions together and in the context of the entire agreement, they provided that the promissory notes were to be discharged and Voreon was to surrender its interest in HL and EL in exchange for Voreon receiving the first $6.5 million from the sale of each property. The application judge found that the terms of the SA were implemented.  (para. 25)

ONCA Appeal Decision

The central issue in the HL and EL appeals was whether the SA superseded the shareholders’ agreement and, as a result, that promissory notes were discharged pursuant to the terms of the SA. (para. 2)

The appellant raised several procedural unfairness arguments as to the process followed by the application judge in granting unpleaded relief, refusing to convert the applications into an action and depriving the appellant from raising defences to unpleaded claims. After a detailed analysis of each of these arguments, the ONCA found no error in the procedure followed by the application judge. (paras. 29-48) The ONCA concluded that all of the evidence and arguments were properly before the application judge. (paras. 57-58 and para. 62)

Relying on Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at paras. 50-55, the ONCA held that the appellant had not identified any extricable errors of law in the application judge’s interpretation of the SA. The SAs of the HL and EL projects were essentially the same. (para. 68)

Copeland J.A. then meticulously addressed the application judge’s findings and held that an interpretation of the terms of the SA clearly addressed the appellant’s surrender of its interest in the HL and EL projects in consideration of receiving the first $6.5 million of the proceeds of sale of each project. Accordingly, the ONCA found no error in the application judge’s conclusion that the promissory notes were discharged. (para. 71)

ONCA also found no error in the application judge’s explanation that his reading of the SA accorded with commercial practice at the time the agreement was made. (paras. 72-73)

ONCA rejected the appellant’s submission that the application judge misread the provisions of the SA, which allegedly preserved the promissory notes irrespective of the settlement. ONCA found no error in the application judge’s conclusion that the relevant provision of the SA was included to provide security for the appellant if the properties did not sell for a sufficient amount. However, that was not the case, and the security was not required. ONCA held that the application judge made no error in his interpretation of the SA and that he applied the correct principles by considering the context and the whole agreement between the parties. (paras. 80-83)

ONCA Decision on the MHH Appeal

This appeal raised three issues: (i) whether there was a valid mortgage in the amount of $220,983 registered against title to 114 Maurice Drive, Oakville in favour of MHH; (ii) a claim for set-off in relation to a $64,135 promissory note; and (iii) whether the transfer of a parking unit and storage unit in Halton Standard Condominium Corporation No. 627 should be set aside. (para. 87)

Copeland J.A. noted that “the thrust of the argument before the application judge was about the validity of the mortgage and not the $64,135 note.” The ONCA found no error in the application judge’s reasons or conclusion that the $220,983 mortgage on the Oakville property was valid. The application judge properly considered the language used in the relevant provisions of the Settlement Email, read in light of the settlement as a whole, and the surrounding circumstances. That conclusion was consistent with the test for contract interpretation: Sattva, at paras. 57 and 60. (para. 97)

ONCA rejected the appellant’s argument that the application judge erred by refusing to consider alleged breaches of the settlement by MHH, including the assertion that MatasCo did not “pay a debt to Voreon in the amount of $64,135, plus interest” due on November 30, 2018. Voreon argued that MHH did not comply with its obligations under the settlement agreement because MatasCo failed “to pay” the $64,135, plus interest. (paras. 99-101)

Referring to 1100997 Ontario Limited v. North Elgin Centre Inc., 2016 ONCA 848, at para. 17, Copeland J.A. noted that on an application, a court must look beyond the notices of application and consider supporting affidavit material to determine whether a cause of action has been raised. Given the lack of clarity in some of the materials, it was understandable that the set off amount had been overlooked by the application judge but it was still a live and unadjudicated issue. (para. 104). Therefore, the ONCA remitted (referred) this issue to the Superior Court for determination of the set off issue.

There were other minor issues relating to an appeal as to the transfer of title of a parking space and storage unit referred to in the ONCA’s reasons, which are not referenced in this summary. (paras. 105-108)