Coco Homes Inc v Caleron Properties Ltd, 2016 ABQB 30

Court of Queen ’ s Bench of Alberta Citation: Coco Homes Inc v Caleron Properties Ltd, 2016 ABQB 30 Date: 20160115 Docket: 1001 11347 Registry: Calgary Between: Coco Homes Inc. Plaintiff - and - Caleron Properties Ltd. Defendant _______________________________________________________ Memorandum of Decision of J. Farrington , Master in Chambers _______________________________________________________ The Application [ 1 ] This is an application is to enforce an alleged settlement agreement.

The issues are whether there is a settlement agreement, and if there is, whether there are issues of merit for determination at a trial as to whether it should be set aside on the basis of mistake or for some other reason. [ 2 ] The application is framed as a

summary judgment application within the main action.

The Background [ 3 ] The parties were scheduled to commence a trial on May 6, 2014. It was scheduled to be a five-day trial, although during argument there was some suggestion that it had been shortened to four days. Regardless, a trial of that approximate duration is a substantial undertaking and risk for all involved. [ 4 ] On the evening before trial, there were discussions between counsel for the plaintiff Coco Homes Inc. ( “Coco”) and the defendant Caleron Properties Ltd.( “Caleron”). There were also exchanges of emails.

The emails concluded with: May 5, 2014- 7:55 pm (From Caleron’s settlement counsel to Coco counsel) : This will confirm that your client has accepted Caleron’s offer to transfer its shares in the Chestermere Joint Venture in full satisfaction of the claim and counterclaim. I also confirm that you and Mr. Moroz will seek to adjourn the trial sine die tomorrow morning pending further arrangements to document the transfer. Thank you counsel for your efforts to resolve this matter. Regards, Chad May 5, 2014- 7:57 pm (From Coco counsel to Caleron counsel) Thank you.

Will touch base with you tomorrow about the paperwork. Matt [ 5 ] The next morning the following exchange took place between Caleron’s trial counsel and Mr. Justice Millar who was the assigned trial judge: Counsel: My Lord, I’m pleased to advise the Court that about 13 and a half hours ago, this matter settled. The Court: Well, good for you. Congratulations. Counsel: The—thank you. So the parties have settled. They are in the process of papering that settlement agreement so we would jointly ask that the trial be adjourned sine die and we will in due course file a consent dismissal order or a discontinuance.

The Court: Very good. Adjourned sine die. [ 6 ] Caleron now takes the position that there was not a settlement, or alternatively that there are issues of merit for determination as to whether the settlement should be set aside. [ 7 ] A brief understanding of the nature of the action and the item referred to as the “Chestermere Joint Venture” in the first email is important. [ 8 ] Coco claims as against Caleron for what it says was a misappropriation of deposits on residential lots in the Montreux subdivision in west Calgary, and for alleged damages for breach of contract and loss of opportunity.

Caleron defends and counterclaims alleging forfeiture of the deposits, damages and slander of title. [ 9 ] The Chestermere Joint Venture is a project in relation to an entirely different development located in the Chestermere area east of Calgary. Caleron and a number of builders, including Coco, are parties to a joint venture agreement regarding that development. [ 10 ] The Chertermere Joint Venture did not go smoothly. The agreement was signed in 2006.

The original arrangement was that Caleron would be a 50% interest holder in the joint venture and the builders, including Coco, would hold the other 50% equally as between them.

A lengthy and vigorously contested arbitration decision formed part of the materials before me and Caleron’s interest in the joint venture was reduced to8.75% from the initial 50% based upon the arbitrator’s analysis of the capital provided to the joint venture by the participants and the circumstances. [ 11 ] The joint venture assets were held at least partly in the name of Caleron Communities Ltd., which became Emerald Properties Ltd., which was said to hold the development lands in trust for the joint venture.

There was no serious dispute with respect to that trust characterization. [ 12 ] During the course of preparation of the documents to give effect to the settlement arrangement disagreements arose. As inevitably happens, each party to the commercial transaction sought to structure the matter in a way that best suited their interests. [ 13 ] A form of settlement agreement was prepared. No significant issues arose on that document, although Caleron initially insisted that a price of $510,000 be inserted for the transfer of the joint venture interest even though no price had been discussed.

It appears that this was the amount of the deposits that were claimed in the main action.

[14] In addition, there were rights of first refusal with respect to the transfer of Caleron’s interest that would give the other buildersthat were part of the Chestermere Joint Venture the opportunity to acquire the interest of Caleron as well. Settlement documents wereprepared on the basis that the transfer of the interest in the joint venture would go to all of the builders notwithstanding that they werenot a party to this action, and Caleron appeared to have no difficulty with that aspect of the prepared documentation. [15] Draft releases were also prepared. That is where matters became more contentious.

The original forms of release were infavor of Caleron on the one hand, and in favor of all of the builders, including Coco, on the other hand. [16] Difficulties then arose when the parties received a letter dated August 4, 2014 from an individual named Bruce McCloy. Mr.McCloy was claiming a commission regarding the Chestermere lands. Upon receipt of that letter Coco requested indemnity languagefrom Caleron pertaining to the commission claims. Caleron was not agreeable. [17] Caleron raised a further issue that regarding Mr. McCloy’s letter.

The letter described a number of details pertaining to thedevelopment of the Chestermere lands. In particular, it said: This letter is to confirm the commission and financial interests that I have with respect to the lands known as Edgewater CommunitiesInc. I confirm that the Lands legally described below are now under review with the Town of Chestermere for final Development applicationapproval. This action by the Town will permit the Joint Venture Group to begin development of the lands or to sell its interests of saidlands.

This approval will trigger the payment of my commissions that are due to me as per the commission agreement executed by Mr.Ronald Slater. [18] Caleron now takes issue with the settlement because Mr. McCloy’s letter informs that development on the Chestermere landswas nearing final approval. It argues that this progress was much further ahead than it understood it to be when the settlementdiscussions took place. Caleron further argues that it should not be bound by any settlement agreement in the circumstances. That is thedispute that brings the matter before the Court.

Summary Judgement [19] Given that the application is framed as a

summary judgment application, it is of course important to consider Hryniak v.Mauldin, 2014 SCC 7 , [2014] 1 SCR 87. At paragraphs 49 and 50 Karakatsanis J.held: [49] There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on themerits on a motion for

summary judgment. This will be the case when the process (1) allows the judge to make the necessary findingsof fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means toachieve a just result. [50] These principles are interconnected and all speak to whether

summary judgment will provide a fair and justadjudication. When a

summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trialwould generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in herconclusions can never be the proportionate way to resolve a dispute.

It bears reiterating that the standard for fairness is not whether theprocedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevantlegal principles so as to resolve the dispute. [20] I must decide whether determining the matter summarily is fair and proportional in the circumstances, and whether I can beconfident that I can reach a fair and just result based upon the record. [21] As a further matter of procedure, in Varsanyi v Mityok, 2002 ABQB 720 Master Laycock held that a settlement could beenforced in the main action as opposed to commencing a separate action based upon the settlement agreement.

I am satisfied that I candeal with the issue in the present context Mistake [22] Caleron argues mistake. It says that had it known of the true state of the development of the Chestermere lands andappreciated the value of its interest in the joint venture, it never would have agreed to settle on the basis of the transfer of the Caleroninterest in the joint venture. It also argues that it was entitled to regular reporting in relation to the Chestermere Joint Venture which itdid not receive. [23] In Ron Ghitter Property Consultants Ltd. v.

Beaver Lumber Co. 2003 ABCA 221, Fraser, CJA summarized the law ofmistake at paragraphs 10 to 13: [10] There are, of course, many reasons why parties may never reach consensus ad idem. Mistake is one of them. The manner in whichmistake may prevent formation of a contract was explained by Lord Phillips, M.R. in Great Peace Shipping Ltd. v. Tsavliris(International) Ltd., [2003] Q.B. 679 at 690 (C.A.): A mistake can be simply defined as an erroneous belief. Mistakes have relevance in the law of contract in a number of differentcircumstances.

They may prevent the mutuality of agreement that is necessary for the formation of a contract. In order for two parties toconclude a contract binding in law each must agree with the other the terms of the contract. Whether two parties have entered into acontract in this way must be judged objectively, having regard to all the material facts.

It may be that each party mistakenly believes thathe has entered into such a contract in circumstances where an objective appraisal of the facts reveals that no agreement has been reachedas to the terms of the contract. [11] But to prevent the formation of a contract, the mistake must be fundamental, in the sense that it must go to an essential term of the

alleged contract. As explained in Cheshire, Fifoot and Furmstom, Law of Contract , supra, at 270: Translated into the familiar rubric of offer and acceptance, this means that the only type of mistake which is ever capable of excluding offer and acceptance is one that prevents the mistaken party from appreciating the fundamental character of the offer and acceptance. [12] There are three types of mistake: common, mutual and unilateral: see Cheshire, Fifoot & Furmston, Law of Contract , supra at 252- 53 for a

summary of each. Common mistake occurs when the parties make the same mistake. For example, one party contracts to sell a vase to another when unbeknown to both, the vase was destroyed and no longer exists. Mutual mistake occurs when both parties are mistaken, but their mistakes are different. In this event, the parties misunderstand each other and are, to use the vernacular, “not on the same page”. Unilateral mistake involves only one of the parties operating under a mistake.

If the other party is not aware of the one party’s erroneous belief, then the case is one of mutual mistake but if the other party knows of it, of unilateral mistake. What adds to the confusion is that the distinction between mutual and common mistake is sometimes blurred when courts use the two terms interchangeably. [13] The presence or absence of an agreement is one of the foundational differences amongst the three types of mistake. With common mistake, the agreement is acknowledged.

What remains to be determined is whether the mistake was so fundamental as to render the agreement void or unenforceable on some basis. But in the case of a mutual or unilateral mistake, the existence of an agreement is rejected. As explained in Cheshire, Fifoot & Furmston, supra at 253: Where common mistake is pleaded, the presence of agreement is admitted. The rules of offer and acceptance are satisfied and the parties are of one mind. What is urged is that, owing to a common error as to some fundamental fact, the agreement is robbed of all efficacy.

Where either mutual or unilateral mistake is pleaded, the very existence of the agreement is denied. The argument is that, despite appearances, there is no real correspondence of offer and acceptance and that therefore the transaction must necessarily be void. [ 24 ] If Caleron is entitled to relief it would be on the basis of its mistake rather than on the basis of a mutual mistake.

It argues that its interest in the Chestermere Joint Venture was worth more than it believed it to be worth, and as such it should be entitled to relief. [ 25 ] In The Law of Contracts (6 th Edition), Waddams at paragraphs 356 and 357 the learned author attempts to reconcile the circumstances as to when relief will he granted as follows: 356. Where the mistake is not as to the terms of the contract itself, but as to some fact that induced the mistaken party to enter the contract, the question of when to grant relief is difficult.

Where there is a mistake as to terms, it can be said that the problem is soluble without challenging the basic values that contract law exists to hold. The question is whether the party seeking enforcement had a reasonable expectation. If the party had not, because she knew or ought to have known of the other’s mistake, then enforcement will be refused. If the primary purpose of the law of contracts is to protect reasonable expectations that purpose remains unchallenged. The enquiry simply addresses the question of whether a reasonable expectation exists. 357.

But when the mistake is only as to some background inducing fact, for example, the presence of minerals under a piece of land, the problem cannot be solved in purely contractual terms. By hypothesis in such a case, the vendor has a reasonable expectation of receiving the promised price, for the vendor believes and believes rightly that the purchaser has promised to pay the agreed sum.

If the purchaser is to be given relief in such a case, the reason cannot be based purely on contract values, it must be because contract values are outweighed by other values. [ 26 ] Professor Waddams then embarks upon a discussion of relief based upon the doctrine of restitution.

At best, the present case would appear to be of the latter type described by Professor Waddams. [ 27 ] While Caleron’s counsel makes a compelling and well framed argument, I find that it cannot be supported by the facts in this matter in the context of whether there was or was not a settlement, and whether relief on the basis of mistake ought to be granted. [ 28 ] On May 5, 2014 counsel for the parties clearly understood there to be a settlement based upon the exchange of emails. The next morning representations were made to the Court that there was a settlement.

Objectively, there is no doubt that there was a settlement. [ 29 ] The decision to settle on the agreed terms involved a number of assessments. At the very least, it would have involved weighing the parties’ own assessments of the risks and rewards of trial against their assessment of the approximate value of the interest of Caleron in the Chestermere Joint Venture. They did not exchange or share their assumptions in that regard. They simply assessed the situation and made their own decisions. Neither party had any basis for knowing the assumptions and motivations of the other.

It cannot be said that either party ought to have been aware of an obvious mistake made by the other. [ 30 ] The parties were represented by counsel throughout the trial preparation process. The corporate representatives involved were experienced. The principal of Caleron, Mr. Slater, was an engineer who had expertise in land development. In fact, that is what he brought to the table in terms of the joint ventures. Coco’s Mr. Bennett had experience in building. Everyone involved was familiar with residential building and development. [ 31 ] Trial was looming the next day.

The parties had every opportunity, if they wished, to formulate offers that included transfer of the Chestermere Joint Venture on the basis that disclosure or due diligence was required pertaining to what was involved. Neither did so. Coco took no precautions to protect against undisclosed potential liabilities such as the real estate commission issue, and Caleron took no precautions to protect against inaccurate assumptions as to the value of its own interest. [ 32 ] Caleron made the offer of the transfer of the interest in the Chestermere Joint Venture and it was accepted by Coco.

All of the parties knew that the relationship between the builders and Caleron had been acrimonious and strained. Mr. Slater on behalf of Caleron knew full well that he had not been receiving information about the Chestermere Joint Venture and Caleron nevertheless chose to make its settlement offer. [ 33 ] In my view, there is no issue of merit for determination at a trial as to whether relief ought to be granted on the basis of mistake. This case is far closer to a buyer’s remorse case than it is to a case where an innocent unilateral mistake leads to relief in law or

in equity. Duty of Good Faith [34] Caleron also argues that there was a breach of a duty of good faith that was owed by Coco to Caleron. It bases the duty ofgood faith argument on two foundations. [35] The first is the joint venture agreement itself, which had an express duty of good faith between the parties. The second is thatCaleron relies upon Bhasin v. Hrynew, 2014 SCC 71 , [2014] 3 SCR 494. In Bhasin, the Supreme Court held at paragraph 73: [73] In my view, we should. I would hold that there is a general duty of honesty in contractual performance.

This meanssimply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of thecontract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; itis a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honestperformance flowing directly from the common law organizing principle of good faith is a modest, incremental step.

The requirement toact honestly is one of the most widely recognized aspects of the organizing principle of good faith: see Swan and Adamski, at § 8.135;O’Byrne, “Good Faith in Contractual Performance: Recent Developments”, at p. 78; Belobaba; Greenberg v. Meffert (1985), (ON CA), 50 O.R. (2d) 755 (C.A.), at p. 764; Gateway Realty, at para. 38, per Kelly J.; Shelanu Inc. v. Print ThreeFranchising Corp. (2003), (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 69.

For example, the duty of honesty was akey component of the good faith requirements which have been recognized in relation to termination of employment contracts: Wallace,at para. 98; Honda Canada, at para. 58. (Emphasis added) [36] In this case there is no evidence of any misrepresentations as to the status of the Chestermere project by Coco.

The duty ofgood faith as set out in Bhasin does not go so far as to require Coco to question Caleron as to its state of mind, and make certain that ithas all possible information pertaining to the issue under discussion, and make certain that Caleron really wants to make its offer. Therewas no inequality of bargaining power. There is nothing unconscionable about the transaction. Caleron was facing a trial and it clearlydid not want to proceed.

Business people make business decisions, and once the decision was made to settle, Caleron ought not to bepermitted to reevaluate its decision in circumstances where it clearly knew that it was making its decision without full information or anyrecent updates or the status of the project. It was Caleron that chose to make its offer. Coco did not initiate the offer, or induce Caleron tomake the offer. The Result [37] I find that there is no issue of merit for trial as to whether there was a settlement or as to whether it should be set aside. Cocois entitled to

summary judgment enforcing the settlement agreement. The consideration granted by Coco is the acknowledgement ofsatisfaction of its action. The consideration granted by Caleron is the acknowledgment of satisfaction of its counterclaim, and thetransfer of its interest in the Chestermere Joint Venture. The mutual promises exchanged from a contract law perspective are identifiableand they are certain. [38] I also note that there are no apparent issues or conflicts as to the facts. The parties that were actually involved in thesettlement discussions, namely counsel, did not provide evidence.

That is not meant to criticize them in any way for not doing so, butmerely to emphasize that the facts pertaining to the settlement discussions are not in dispute. [39] In my view Hryniak, and the progressive litigation culture that it encourages, demands a result that the settlement beconfirmed. There are no significant conflicting issues of fact and further litigation would not be in either party’s interest. In fact, iffurther litigation is permitted, a four or five day trial will have turned into something much more complicated.

Logistical Matters [40] Finally, I must address how to give effect to the settlement. [41] First, I declare that the matter was settled in accordance with the emails of May 5, 2014. Second, the action must come to anend in terms of the Court record. That could be done with a discontinuance of action and counterclaim, or it could be done with adismissal order. A consent dismissal order was prepared as part of the settlement documentation. I am prepared to sign the consentdismissal order in light of the settlement. The third issue is that of releases. This action is only between Coco and Caleron.

Rather thanconsidering whether I can direct the parties to sign releases, I simply declare that I find that it was the intention of the parties that neitherCoco nor Caleron shall have any claims against the other pertaining to the matters raised in this action, or the Chestermere Joint Ventureproject. Caleron intended to transfer the interest in the Chestermere Joint Venture without further liability for that project, and Cocointended to accept the interest “as is” including any proper claims against the joint venture.

The transfer includes the shares in EmeraldProperties Ltd. held by Caleron as requested, or the land, if the transferee(

s) simply wish to receive the land subject to the trustobligations pertaining to the land. [42] Finally, there is an issue pertaining to the right of first refusal in the Chestermere Joint Venture that operates in favor of theother builders and participants in the Chestermere project. While the other participants appeared to be prepared to permit the settlementtransaction to happen when they were receiving a direct transfer of an interest in the joint venture from Caleron, that is not the settlementthat was agreed to on May 5, 2014.

The transfer from Caleron to Coco will need to happen, and Coco will need to deal with the otherjoint venture participants regarding any right of first refusal issues. If any issues or difficulties arise in that regard Coco and the otherjoint venture participants have leave to seek further directions from me. [43] Coco shall have its costs of this application. If the parties wish to speak to any logistical matters arising from theimplementation of these reasons I am happy to make myself available as needed for a reasonable period of time.

Heard on the 24 th day of November, 2015. Dated at the City of Calgary, Alberta this 15 th day of January, 2016. J. Farrington M.C.C.Q.B.A. Appearances: Machida James McGurk Matthew X. James for the Plaintiff Code Hunter LLP Chad Babiuk for the Defendant