Ontario CA defers to lower court in case with awkwardly written commercial contract

In a recent Court of Appeal for Ontario decision involving an awkwardly written contract with a missing “to,” the court chose to defer to the lower court instead of addressing an error in fact-finding.

“When you look at the majority decision of the Court of Appeal, it really does reflect that even if one is able to establish an error in fact-finding, it is a high burden to overcome and have a decision below reversed, even when you can establish an error because it also needs to lead to an erroneous result,” says Eli Lederman, a litigator with Lenczner Slaght.

The case is Obolus Ltd. v. International Seniors Community Care Inc. 2023 ONCA 708  and involves a dispute about an agreement of purchase and sale for a piece of property. One of the conditions of the agreement was that the buyer, ISSC, was required to undertake a pre-consultation meeting with the local municipal government “prior four (4) weeks after the signing of this Purchase Agreement.” The seller, Obolus, terminated the agreement after more than four weeks had passed, reasoning that the meeting never happened.

The catch, however, is that a meeting occurred between ISSC and the municipality before the agreement was signed, and ISSC argued that this was the pre-consultation meeting.

During the lower court hearing, the application judge grappled with questions of grammar and language in the contract (“to” was missing in the awkwardly written four-week time clause) and decided that the meeting was required to have taken place after the contract was signed. Otherwise, it would not make sense to include the Milestone Termination Option in the agreement.

Obolus sought a declaration saying that the agreement was validly terminated. ISSC sought to have the application converted to an action. The application judge refused to convert the application to an action.

The court was split in the decision, with Justice Lorne Sossin and Associate Chief Justice Michal Fairburn in agreement and Justice Kathryn Feldman dissenting. In Sossin’s view, “it was open to the application judge to reach this finding on the record before her. The fact that other evidence in the record about the February 26, 2021, meeting might support a different finding does not lead to a conclusion that the application judge erred in preferring the evidence on which she relied. The application judge’s finding is entitled to deference. As a result, this ground of appeal fails as well.”

Justice Feldman offered this take on the interpretation of the meeting by the lower court judge: “I have had the benefit of reading my colleague’s reasons. I agree that the application judge did not err in refusing to convert the application to an action. I respectfully disagree, however, that the application judge made no error in her interpretation of the Milestone Termination Option. In my view, the interpretation by the application judge was based on a palpable and overriding error of fact regarding the surrounding circumstances, as well as a failure to give effect to the words of the agreement.”

Lederman believes the case and how the judges regarded the interpretation of the meeting is noteworthy.

“It certainly reflects a degree of inconsistency in how the appellate courts will apply the standard of review, making it very difficult to advise clients whether or not an appeal is likely to succeed where there is a view that there has been a palpable and overriding error in connection with fact-finding,” he says.

“The fact that there was a dissenting opinion here gives some comfort that at least some members of the Court of Appeal do consider palpable and overriding errors – or errors in fact-finding – if the evidentiary record is there to support a conclusion that there had been a palpable and overriding error. But, at the same time, I would strongly advise clients about the high burden that is associated with appealing on those grounds. As is certainly found by the majority, you need to have a strong basis and a strong evidentiary record to support an appeal on those grounds.”

Reflecting on the issues of grammatical awkwardness and unclarity of language, Lederman says that lawyers need to ensure that contracts are drawn up clearly and precisely because, as a litigator, that’s exactly what he will focus on while dissecting the contract to understand how the dispute arose and what happened.

But he also cautioned that lawyers need to make sure that their clients have shared all pertinent information regarding the business proceedings, especially if it involves an event which has already occurred.

“The time to speak up or raise that issue is before the contract is signed. Certain assumptions shouldn’t be made. Everybody should know that the condition has already been fulfilled. It should be spelled out in the contract, or the contract language should be modified to account for the facts or the circumstances that should be apparent to all parties before they sign the agreement.”