Hole et al. v. Hole et al., 2016 ABCA 34

• Judge: Berger, McDonald and Schutz, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: December 01, 2015
• Citations: 2016 ABCA 34;(2016), 612 A.R. 164

Hole v. Hole (2016), 612 A.R. 164; 662 W.A.C. 164 (CA)

MLB headnote and full text

Temp. Cite: [2016] A.R. TBEd. FE.028

James F. Hole and Hole Consultants Ltd. (appellants/plaintiffs) v. James D. Hole, Jack Henry Hole, Harry Bruce Hole, Douglas Robert Hole, Hole Engineering Ltd., Kessa Holdings Ltd., Eloh Enterprises Ltd. and 512725 Alberta Ltd. (respondents/defendants)

(1403-0154-AC; 2016 ABCA 34)

Indexed As: Hole et al. v. Hole et al.

Alberta Court of Appeal

Berger, McDonald and Schutz, JJ.A.

February 8, 2016.

Summary:

The dispute underlying this action arose from the plaintiffs' withdrawal from a family business. The plaintiffs claimed that the defendants had not fulfilled their legal obligation to pay $1 million, as outlined in a Letter of Understanding (LOU) that the defendants had signed and delivered to the plaintiffs as an inducement to agree to a separate Transition Agreement. The defendants asserted that their only legal obligations to the defendants were contained in the Transition Agreement, which they had discharged, and that the LOU was not legally enforceable.

The Alberta Court of Queen's Bench, in a decision reported at (2014), 583 A.R. 340, dismissed the action. The court held that: (1) the plaintiffs failed to establish that the LOU intended to create legal relations; (2) some terms of the LOU were too uncertain to enforce, and (2) the limitation period had expired. The plaintiffs appealed.

The Alberta Court of Appeal allowed the appeal, holding that the trial judge erred in holding that the LOU was unenforceable.

Contracts - Topic 1465

Formation of contract - Intention - Intention to create a legal relationship - The dispute underlying this action arose from the plaintiffs' withdrawal from a family business - The plaintiffs claimed that the defendants had not fulfilled their legal obligation to pay $1 million, as outlined in a Letter of Understanding (LOU) that the defendants had signed and delivered to the plaintiffs as an inducement to agree to a separate Transition Agreement - The defendants asserted that their only legal obligations to the defendants were contained in the Transition Agreement, which they had discharged, and that the LOU was not legally enforceable - The trial judge dismissed the action, holding that the plaintiffs had failed to discharge their burden of proving either the intent or effect of the LOU - Some aspects of the context in which the LOU was executed and delivered, some of the words and expressions used in the document, and some subsequent events (including some which occurred fairly quickly after it was signed) supported the plaintiffs' position that it was intended to create legal relations - However, other aspects of the context in which the document was executed and delivered, some of its words and expressions, and some subsequent events supported the defendants' position - The LOU might have been intended to create a separate, binding legal obligation of the four individuals who signed it, used to induce the plaintiffs to then enter into an agreement at a lower price - However, it might also have been intended as a "gentlemen's agreement" - This was not a case where the judge could not prefer one party's evidence over the other's - Their evidence conflicted in several key respects - The imperfection of memories, the significant amount of time that had elapsed since the events occurred, and the deep rift that had developed between the parties had undoubtedly shaped their recall of what they intended and what occurred prior to their falling out - It was not clear which of the two possible interpretations was established by the evidence - The Alberta Court of Appeal allowed the plaintiffs' appeal - Evidence regarding what occurred after the LOU was signed or of the parties' subjective intentions was irrelevant and did not form part of the "surrounding circumstances" to be considered in contractual interpretation - Therefore, the trial judge erred in law by applying incorrect principles in her interpretation of the LOU - "In viewing the relevant and admissible contextual evidence surrounding the execution of the LOU, and disregarding the irrelevant and inadmissible evidence of subjective intention and circumstances which arose after the signing of the LOU, it is clear that the LOU represented more than a moral obligation. ... Moreover, given that the LOU was signed only eight days before the 1993 Transition Agreement was finally executed by all parties, after the exchange of multiple drafts over the course of two years, it can reasonably be inferred that the LOU was executed to induce the appellants to sign off on the 1993 Transition Agreement." - This was the commercially reasonable interpretation - See paragraphs 33 to 46.

Contracts - Topic 5643

Unenforceable contracts - Uncertainty and vagueness - Uncertainty - The dispute underlying this action arose from the plaintiffs' withdrawal from a family business - The plaintiffs claimed that the defendants had not fulfilled their legal obligation to pay $1 million, as outlined in a Letter of Understanding (LOU) that the defendants had signed and delivered to the plaintiffs as an inducement to agree to a separate Transition Agreement - The defendants asserted that their only legal obligations to the defendants were contained in the Transition Agreement, which they had discharged, and that the LOU was not legally enforceable - The trial judge dismissed the action, holding, inter alia, that the meaning of certain words and phrases in the LOU, including "non-callable promissory note", "Company" and "success and financial stability" were uncertain - Accordingly, the LOU was too uncertain to be enforceable - The Alberta Court of Appeal allowed the plaintiffs' appeal - One of the defendants drafted the words in the LOU on behalf of the other individual defendants, without the benefit or input of legal advisors who might otherwise have used more clear and precise language - The contra proferentum rule dictated that any ambiguities in the LOU ought to be interpreted against the defendants and in favour of the plaintiffs - It was clear from a contextual analysis that the indiviudals who signed this LOU understood that the term "Company" referred to the company or group of companies that would join together to form the new joint venture going forward - The term "non-callable promissory note" was not an essential term and was severable - The phrase "success and financial stability" was simply intended to allow the defendants to repay the $1 million obligation when the defendants were in a financial position to do so - On any reasonable interpretation of the factual matrix, the defendants' obligation to pay the plaintiffs was triggered by the year 2000 - See paragraphs 47 to 57.

Contracts - Topic 7401

Interpretation - General principles - Intention of parties - [See Contracts - Topic 1465 ].

Contracts - Topic 7406

Interpretation - General principles - Interpretation by context - [See Contracts - Topic 1465 ].

Contracts - Topic 7416

Interpretation - General principles - Most commercially reasonable interpretation - [See Contracts - Topic 1465 ].

Contracts - Topic 7526

Interpretation - Surrounding circumstances - Commercial setting - [See Contracts - Topic 1465 ].

Limitation of Actions - Topic 15

General principles - Discoverability rule - Application of - [See Limitation of Actions - Topic 2052 ].

Limitation of Actions - Topic 2052

Actions in contract - Actions for debt - When time begins to run - The dispute underlying this action arose from the plaintiffs' withdrawal from a family business - The plaintiffs claimed that the defendants had not fulfilled their legal obligation to pay $1 million, as outlined in a Letter of Understanding (LOU) that the defendants had signed and delivered to the plaintiffs as an inducement to agree to a separate Transition Agreement - The defendants asserted that their only legal obligations to the defendants were contained in the Transition Agreement, which they had discharged, and that the LOU was not legally enforceable - The trial judge dismissed the action - The judge held, inter alia that it was impossible to establish an exact date upon which the $1,000,000 would have become due, if it were payable - However, it was clear that the corporate plaintiff was treating it as a doubtful account in 1993 - More importantly, the plaintiffs clearly knew by September 1994 that the defendants were taking the position that the $1,000,000 referred to in the LOU was not an outstanding amount owing - The six year limitation period (Limitations Act, s. 2(2)) would have commenced in September 1994 - The plaintiffs' action was commenced in February 2001 and was therefore statute barred - The Alberta Court of Appeal allowed the plaintiffs' appeal - "The LOU is in effect a contract subject to a condition precedent. The obligation to pay $1 million did not arise until the [defendants'] joint venture companies were successful and financially stable. The trial judge did not make a finding that the companies were successful and financially stable in 1994, and there was no such evidence before her; in fact, the evidence was specifically that the companies were 'in a very challenging financial situation that they expected to continue for some time' in early 1994. The payment under the LOU could not have been due in 1994, and the defendants therefore could not have been in breach of the LOU at that time. The trial judge instead appears to have treated this as a situation of anticipatory breach or repudiation of contract, without expressing it in those specific terms. ... Although the trial judge essentially treated this as a situation of repudiation or anticipatory breach, she did not consider whether the [plaintiffs] elected to accept or reject the repudiation. On November 28, 2000 the [plaintiff] JF wrote to the defendants, and it was thereafter, by defendants' memorandum dated January 30, 2001, that the [defendants] denied any obligation to make any payments to the plaintiffs under the LOU. It was only upon being notified of this refusal to pay in light of the information about the 'success and financial stability of the Company' that the [plaintiffs] knew or ought to have known that legal proceedings against the [defendants] were warranted." - The limitation period under s. 3 of the Limitations Act applied (i.e., two years after the date on which the plaintiffs first knew, or ought to have known, that injury had occurred, was attributable to the defendants, and warranted bringing a proceeding) - Therefore, the plaintiffs' claim was not filed outside the applicable limitation period - See paragraphs 58 to 65.

Limitation of Actions - Topic 9305

Postponement or suspension of statute - General - Discoverability rule - [See Limitation of Actions - Topic 2052 ].

Practice - Topic 8800.1

Appeals - General principles - Duty of appellate court regarding findings of mixed law and fact by a trial judge - The Alberta Court of Appeal stated that "Contractual interpretation is a question of mixed fact and law that involves the application of interpretive principles to the words of a written contract, considered in light of the factual matrix ... Unless a pure question of law can be readily extricated, questions of mixed fact and law are reviewed for palpable and overriding error ... Because the goal of contractual interpretation is inherently fact specific, the circumstances in which a question of law can be readily extricated from the interpretation process are relatively rare ... However, applying incorrect legal or interpretive principles (such as considering the subjective rather than objective intentions of the parties at contract formation), failing to consider a required element of a legal test, or failing to consider a relevant factor in interpreting contracts remain legal errors reviewable for correctness" - See paragraphs 30 and 31.

Practice - Topic 8800.1

Appeals - General principles - Duty of appellate court regarding findings of mixed law and fact by a trial judge - The Alberta Court of Appeal stated that "Determining the applicable limitations legislation, the proper tests to be applied thereunder, and the interpretation of limitations legislation generally are questions of law reviewable for correctness ... Absent legal error, whether the limitation period has expired is a question of mixed fact and law to which this court owes deference" - See paragraph 32.

Practice - Topic 8800.2

Appeals - General principles - Duty of appellate court regarding findings of law - [See both Practice - Topic 8800.1 ].

Practice - Topic 8808

Appeals - General principles - Duty of appellate court respecting conclusions or interpretation of trial judge - Contractual interpretation - [See first Practice - Topic 8800.1 ].

Cases Noticed:

Sattva Capital Corp. v. Creston Moly Corp. - see Creston Moly Corp. v. Sattva Capital Corp.

Creston Moly Corp. v. Sattva Capital Corp., [2014] 2 S.C.R. 633; 461 N.R. 335; 358 B.C.A.C. 1; 614 W.A.C. 1; 2014 SCC 53, refd to. [para. 30].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 30].

Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. et al. (2015), 599 A.R. 363; 643 W.A.C. 363; 386 D.L.R.(4th) 482; 2015 ABCA 121, refd to. [para. 31].

Tien Lung Taekwon-Do Club et al. v. Lloyd's Underwriters (2015), 599 A.R. 39; 643 W.A.C. 39; 249 A.C.W.S.(3d) 194; 2015 ABCA 46, refd to. [para. 31].

Stewart Estate et al. v. TAQA North Ltd. et al. (2015), 607 A.R. 201; 653 W.A.C. 201; 2015 ABCA 357, refd to. [para. 32].

Stuffco v. Stuffco et al. (2006), 397 A.R. 111; 384 W.A.C. 111; 2006 ABCA 317, refd to. [para. 32].

Tran v. Kerr (2014), 584 A.R. 306; 623 W.A.C. 306; 2014 ABCA 350, refd to. [para. 32].

Gainers Inc. v. Pocklington Holdings Inc. (2000), 255 A.R. 373; 220 W.A.C. 373; 81 Alta. L.R.(3d) 17; 2000 ABCA 151, refd to. [para. 34].

Nexxtep Resources Ltd. v. Talisman Energy Inc. et al. (2013), 542 A.R. 212; 566 W.A.C. 212; 2013 ABCA 40, refd to. [para. 35].

Hillas & Co. v. Arcos Ltd, [1932] All E.R. 494; 147 L.T. 503 (H.L.), refd to. [para. 42].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488; 112 D.L.R.(3d) 49, refd to. [para. 42].

Catalyst Paper Corp. v. Companhia de Navegação Norsul (2008), 258 B.C.A.C. 273; 434 W.A.C. 273; 296 D.L.R.(4th) 513; 2008 BCCA 336, refd to. [para. 42].

Swan Group Inc. v. Bishop (2013), 542 A.R. 134; 566 W.A.C. 134; 2013 ABCA 29, refd to. [para. 42].

Bhasin v. Hrynew et al., [2014] 3 S.C.R. 494; 464 N.R. 254; 584 A.R. 6; 623 W.A.C. 6; 2014 SCC 71, refd to. [para. 45].

Mitsui & Co. (Point Aconi) Ltd. v. Jones Power Co. et al. (2000), 189 N.S.R.(2d) 1; 590 A.P.R. 1; 2000 NSCA 95, refd to. [para. 49].

Klemke Mining Corp. v. Shell Canada Ltd. et al. (2008), 433 A.R. 172; 429 W.A.C. 172; 2008 ABCA 257, refd to. [para. 49].

Continental Insurance Co. v. Law Society of Alberta (1984), 56 A.R. 98; 1984 ABCA 261, refd to. [para. 49].

James H. Meek Trust et al. v. San Juan Resources Inc. et al. (2005), 376 A.R. 202; 360 W.A.C. 202; 52 Alta. L.R.(4th) 1; 2005 ABCA 448, refd to. [para. 59].

Ali v. O-Two Medical Technologies Inc. (2013), 313 O.A.C. 189; 118 O.R.(3d) 321; 2013 ONCA 733, refd to. [para. 61].

Pedersen v. Soyka et al. (2014), 575 A.R. 217; 612 W.A.C. 217; 99 Alta. L.R.(5th) 139; 2014 ABCA 179, refd to. [para. 61].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 61].

Brown v. Belleville (City) (2013), 302 O.A.C. 354; 114 O.R.(3d) 561; 2013 ONCA 148, refd to. [para. 61].

Choma (R.P.) Financial and Associates Inc. et al. v. McDougall et al. (2008), 451 A.R. 278; 2008 ABQB 359 (Master), refd to. [para. 64].

Counsel:

J.K. McFadyen, Q.C., for the appellants/plaintiffs;

W.J. Kenny, Q.C., and D.C. Lister, for the respondents/defendants.

This appeal was heard on December 1, 2015, by Berger, McDonald and Schutz, JJ.A., of the Alberta Court of Appeal, who delivered the following memorandum of judgment on February 8, 2016.