2018 NLCA 56, 2018 NLCA 56

Donald Giles (appellant) v. Peter Stacey and Donna Stacey (first respondents) and SSR Holdings Inc. (second respondent) and Springdale Sales & Rentals Limited (third respondent) (17/63 and 17/67) Indexed As: Giles v. Stacey 2018 NLCA 56 3 C.A.N.L.R. 390 Court of Appeal of Newfoundland and Labrador Welsh, White and O’Brien JJ.A. October 1, 2018

Summary: The appellant, Mr. Giles , the sole shareholder in Springdale Sales & Rentals Limited, an automobile sales and rentals business, entered into an Option Agreement, an Assignment of Shares Agreement and a Share Purchase Agreement, to sell the business to SSR Holdings Inc., a holding company established by the respondents Peter and Donna Stacey. After a dispute, he notified the respondents that the Share Purchase Agreement was void. The respondents sued. A judge of the Newfoundland and Labrador Supreme Court determined that Mr.

Giles had breached the Share Purchase Agreement and the respondents were entitled to pursue a claim for damages. He dismissed Mr. Giles’ counter-claim alleging the respondents failed to provide payment in full for the vehicle inventory within the 18-month period prescribed in the Agreement. Mr. Giles appealed. Held: Appeal dismissed. Welsh J.A. (White and O’Brien JJ.A. concurring): While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement.

The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” should consist only of objective evidence of the background facts at the time of the execution of the contract that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. The trial judge relied on the evidence at trial as well as several provisions in the Share Purchase and Option Agreements in determining that there was no basis on which Mr. Giles could have declared the Agreements to be void.

The judge accepted that pursuant to clause 21 of the Share Purchase Agreement, the parties agreed, not that all inventory was to be paid within eighteen months, but that Mr. Giles would finance the inventory for eighteen months with payments to be made to him as each vehicle was sold. Further the trial judge accepted that clause 16(

a) specifically prescribed a limitation of two years within which the option to purchase could be exercised. He rejected Mr. Giles’ position that he was not obliged to honour the option to purchase the Property because the inventory had not been paid in full at the expiration of eighteen months. SSR Holdings was acting in accordance with the Share Purchase Agreement when it provided a letter to Mr. Giles indicating that SSR Holdings had the funds necessary to pay Mr. Giles in full. The enclosure of a cheque for 10% of the amount owing demonstrated good faith. When Mr.

Giles retained the funds provided by SSR Holdings, and refused to sell the Property for $250,000, he breached essential terms of both the Share Purchase and Option Agreements. Thus, the trial judge did not err in concluding that, as a result of the breach, SSR Holdings is entitled to pursue a claim for damages. The trial judge did, however, err by summarily dismissing the counter-claim without addressing Mr. Giles’ claim for unpaid rent. This matter should be dealt with when the damages claim by SSR Holdings is determined.

Cases cited: Sattva Capital Corp v. Creston Moly Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633 Potter v. New Brunswick Legal Aid Services Commission , 2015 SCC 10 , [2015] 1 S.C.R. 500 Counsel: Sheri Wicks, for the appellant; Gerald F. O’Brien Q.C., for the respondent. This appeal and cross appeal were heard on June 14, 2018 before Welsh, White and O’Brien JJ.A.

The judgment was delivered on October 1, 2018 by Welsh J.A. for the Court. ______________________________________________________________ Welsh J.A.: [ 1 ] Donald Giles, the sole shareholder in Springdale Sales & Rentals Limited, an automobile sales and rentals business, entered into a Share Purchase Agreement, dated November 30, 2011, to sell the business to SSR Holdings Inc., a holding company established by Peter and Donna Stacey. Disputes arose with Mr.

Giles ultimately notifying SSR Holdings that the Share Purchase Agreement was void. [ 2 ] The Staceys and SSR Holdings filed a statement of claim alleging that Mr. Giles had breached the Agreement. Mr. Giles filed a counter-claim. The trial judge concluded that, in fact, Mr. Giles had breached the Agreement and that the plaintiffs were entitled to pursue a claim for damages. He dismissed the counter-claim. Mr. Giles appeals, seeking to have the trial judge’s decision set aside, an award of damages, and a declaration that he is the rightful owner of the Springdale Sales shares.

BACKGROUND [ 3 ] The statement of claim names the Staceys, SSR Holdings and Springdale Sales as plaintiffs and Mr. Giles as the defendant. All the Agreements are between Donald Giles, SSR Holdings Inc., and Springdale Sales & Rentals Limited, except the initial memorandum of agreement, which also names Peter and Donna Stacey. The claim is based on breach of the Agreements for the sale and purchase of Springdale Sales. In addition, the Staceys claimed damages personally for loss of reputation and mental anguish. [ 4 ] Mr.

Giles counter-claimed on the basis that “SSR breached the Agreement by failing to provide payment in full for the Vehicle Inventory within the 18 month period prescribed in the Agreement” and that ten vehicles for which Mr. Giles has not been paid are missing from the inventory (statement of defence and counter-claim filed by Mr. Giles, at paragraph 23). I note here that Mr. Giles by and large chose to act without the assistance of legal counsel, though he did engage counsel on sporadic occasions. [ 5 ] The pertinent parts of the agreements between Mr. Giles, Springdale Sales and SSR Holdings provided:

(1) SSR Holdings would purchase all the common shares of Springdale Sales for $200,000;

(2) Mr. Giles would finance the 78 vehicles in the inventory and, when each vehicle was sold, SSR Holdings would pay Mr. Giles the cost of the vehicle plus 20% of the profit within 48 hours after the sale; (3) if Mr. Giles financed any new inventory, when the vehicle sold, SSR Holdings would pay him the cost of the vehicle plus 40% of the profit within 48 hours after the sale;

(4) SSR Holdings had an option to purchase the land and buildings of Springdale Sales (the “Property”) for $250,000 plus HST. Pending exercise of the option to purchase the property, SSR Holdings agreed to pay rent of $3,000 per month, due the first of each month. During that time, Mr. Giles was entitled to maintain an office in the main building without cost. [ 6 ] SSR Holdings’ counsel drafted a Share Purchase Agreement, an Option Agreement (regarding the Property), and an Assignment of Shares Agreement. He provided these to Mr. Giles’ counsel for review and comment.

The documents, executed without change, were returned to SSR Holdings’ counsel and the purchase price of $200,000 was paid to close the transaction. Although the documents were dated November 30, 2011, the effective closing date set out in the Share Purchase Agreement was September 30, 2011. SSR Holdings took possession of the business on October 1, 2011. [ 7 ] The trial judge found that, while SSR Holdings was frequently late with payments for the vehicles and with the rent, it was clear from the evidence that Mr.

Giles was always paid for the vehicles that were sold and, with the exception of June and July 2014, the rent was paid. Mr. Giles testified that he was aware that the late payments contravened the agreement, “but he let it go so to speak” because, having been in the business of selling vehicles for many years, “he was aware of the ups and downs in the business” (decision of the trial judge, (2017 NLTD(G) 47, at paragraph 24). [ 8 ] The difficulties began with a letter from Mr. Giles, dated June 19, 2013, informing SSR Holdings, without any explanation of how or why, that the Share Purchase Agreement was void. Mr.

Giles wrote a second letter addressed to Peter Stacey and Springdale

Sales & Rentals Limited, dated July 5, 2013: Our contract dated Sept. 30, 2011 and expired March 31, 2013, has been broken and is now void. I will give you 30 days to raise the financing to purchase the remaining stock owned or purchased by me, with a 10% non-refundable deposit up front. If payment is not received in 30 days you will transfer 100% of the shares owned by SSR Holdings Inc. of Springdale Sales & Rentals Ltd. and all inventory that I have supplied or purchased back to me. March 31, 2013 is eighteen months from September 30, 2011, the period of time set out in clause 16(

a) of the Share Purchase Agreement, discussed below. [ 9 ] Counsel for SSR Holdings responded by letter dated July 18, 2013, informing Mr. Giles that “our client will pay all funds owing under the said agreement by August 5, 2013 the amount of which we understand has been agreed at $431,684.38.” He confirmed that $43,168.43, being 10% of the amount owing under the Share Purchase Agreement, would be paid “forthwith” and that the balance of $388,515.94 would be paid on or before August 5, 2013. Finally, regarding Mr.

Giles’ allegation that the agreement was void, the letter advised: We understand also that you have indicated you consider the agreement to be void but we wish to advise you that in our opinion there is absolutely no basis for such assertion. [ 10 ] On August 2, 2013, counsel for SSR Holdings sent a letter, including a cheque for $43,168.43, to Mr. Giles along with a Release and an undertaking by SSR Holdings to pay the balance once the Release had been executed and returned.

The letter contained instructions regarding execution of the Release: The balance of the funds ($388,516.00) will be forwarded as soon as the enclosed release is signed. As per our usual practice, these payments are made on the condition that the enclosed release is executed and returned to us simultaneously with the final payment. The Release should be signed by you in front of a notary, lawyer, commissioner of oaths or Justice of the Peace and then returned to us at the time of making the final payment.

Please confirm that same has been signed and we will forward the final payment and pick up the release at the same time. Please feel free to take it to your lawyer should you wish advice. [ 11 ] Mr. Giles did not return either the Release or the 10% deposit. SSR Holdings’ counsel then recommended that Mr. Giles obtain legal advice on the Release or return it with comments regarding why he refused to sign. In addition, by letter dated August 12, 2013, SSR Holdings’ counsel gave notice to Mr.

Giles that SSR Holdings intended to exercise the option to purchase the Property and that he had “the funds available to effect payment in full” (decision of the trial judge, at paragraph 36). When Mr. Giles did not respond or return the Release or the money, SSR Holdings’ counsel sent a further letter, dated August 26, 2013, stating that SSR Holdings “hereby exercises its option to purchase” the Property. A letter from the bank was enclosed approving funding in the amount of $431,684.38 (decision of the trial judge, at paragraph 37). [ 12 ] On September 25, 2013, SSR Holdings’ counsel wrote to Mr.

Giles’ counsel confirming: At the present time we are willing to pay the full balance and the purchase price of $250,000.00 to you in trust once you indicate your client’s willingness to provide the necessary release and deed of conveyance for the property. If we do not hear from you by September 30, 2013 we will assume your client has no intention of honouring the agreement including the option [to purchase the Property] and we will respond accordingly. [ 13 ] On November 6, 2013, SSR Holdings’ counsel wrote again to Mr. Giles’ counsel proposing that Mr.

Giles would buy back the business, and setting out an offer. He cautioned that Mr. Giles could not sell the Property without first dealing with the SSR Holdings’ issues. [ 14 ] In response, by letter dated November 15, 2013, Mr. Giles’ counsel confirmed Mr. Giles’ position that SSR Holdings was in breach of the agreement and “indicating for the first time that Mr. Giles would sell the building but not for the $250,000.00 as stated in the Share Purchase Agreement, but he would only sell at fair market value” (decision of the trial judge, at paragraph 44). At trial, in cross-examination, Mr.

Giles “admitted that the original offer of $250,000.00 was off the table once SSR Holdings missed paying for the inventory within 18 months of signing the Share Purchase Agreement” (decision of the trial judge, at paragraph 45). ISSUES [ 15 ] At issue is whether the trial judge erred (1) in rejecting Mr. Giles’ position that the Share Purchase Agreement was void based on the failure of SSR Holdings to make full payment for the vehicle inventory within eighteen months, and (2) in concluding that Mr. Giles had breached the Share Purchase and Option Agreements.

ANALYSIS [ 16 ] In interpreting the terms of a contract, in Sattva Capital Corp v. Creston Moly Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633 , Rothstein J., for the Court, explained: [57] While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement ( Hayes Forest Services [2008 BCCA 31], at para. 14; and Hall [ Canadian Contractual

Interpretation Law ], at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The

interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). … [58] The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits.

It should consist only of objective evidence of the background facts at the time of the execution of the contract ( King [2011 MBCA 80], at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. … [ 17 ] In this case, the trial judge relied on the evidence at trial as well as several provisions in the Share Purchase and Option Agreements in determining that there was no basis on which Mr. Giles could have declared the Agreements to be void. [ 18 ] The judge accepted that payments to Mr.

Giles for vehicles that were sold and for rental of the Property were frequently late. However, he was satisfied that this was not a basis on which Mr. Giles could rely to conclude that the Share Purchase Agreement was void: [96] Although there were payments not made on time in relation to the sale of the Initial Inventory, these were not fundamental breaches of the Share Purchase Agreement. Giles accepted the late payments and continued to finance. The same can be said of late payment of the rent.

Vehicles sold were paid for in full. [ 19 ] Regarding payment for the inventory of vehicles, clause 21 of the Share Purchase Agreement provides: After closing the Vendor shall finance the vehicle inventory for 18 months and as each vehicle is sold and when full payment is received the Vendor shall be paid within 48 hours 20% of the gross generated profit of each sale plus the vehicle cost which shall be determined after deducting the cost of each vehicle from the selling price. (Emphasis added.) [ 20 ] This language is in contrast to the language in the earlier memorandum of agreement on which the Share Purchase Agreement was based.

Clause 2(

c) of the memorandum stated: The Purchaser shall pay the said price as follows: … (

c) Total vehicle inventory including cost and profit as each unit is sold and all inventory is to be paid within a period of 18 months which inventory is calculated at cost price. (Emphasis added.) [ 21 ] Clause 2(

c) of the initial memorandum of agreement was not included in the final Share Purchase Agreement entered into by Mr. Giles, SSR Holdings and Springdale Sales. Pursuant to clause 21, which is the governing provision, the parties agreed, not that all inventory was to be paid within eighteen months as set out in the memorandum of agreement, but that Mr. Giles would finance the inventory for eighteen months with payments to be made to him as each vehicle was sold. [ 22 ] That

interpretation, accepted by the trial judge, is further supported when considered with the clear language in clause 16 of the Share Purchase Agreement which specifically references circumstances requiring the payment for all of the inventory: (

a) The Purchaser shall have the option to purchase the land and building as described in

Schedule “B” free and clear of all encumbrances for a price of $250,000.00 plus HST, if applicable, which option shall be for a period of 2 years from the closing date and shall be exercised at any time after the inventory herein is paid in full. (

b) In the event the Purchasers chose not to exercise the option to purchase [the Property] or in the event the Environment Study is not satisfactory the Purchaser shall be permitted to relocate to another location after all inventory is paid for. [ 23 ] Further, relying on the clear language in clause 16(a), the trial judge rejected Mr. Giles’ position that he was not obliged to honour the option exercisable by SSR Holdings to purchase the Property because the inventory had not been paid in full at the expiration of eighteen months. Clause 16(

a) specifically prescribes a limitation of two years within which the option could be exercised. [ 24 ] In addition, clause 16(

a) provides that SSR Holdings could exercise the option before the expiration of two years if all monies owing to Mr. Giles had been paid. The trial judge concluded: [69] The Agreement is part of the sale of shares; if Mr. Stacey decides to purchase [the Property], it has to be within that two year period. The price is fixed within that two year period. Peter Stacey in his evidence said that at the time he signed the Agreement it was his intention to purchase the land and building. This would clearly make sense to Mr. Stacey as the business had been in that location for many years.

It was also contemplated in the Share Purchase Agreement at paragraph 22. The $200,000 for the shares certainly was a consideration worthy of any goodwill that had been built up in that location. [ 25 ] The Option Agreement does not reference the two-year period specified in clause 16(

a) of the Share Purchase Agreement, but clause 6 reiterates that all monies owing to Mr. Giles must be paid before the option to purchase the Property may be exercised: That before the option herein can be exercised all monies owing under the related agreement to purchase shares must be paid to the Vendor, Donald Giles, provided that the option may be exercised if the Purchaser agrees to pay the said funds by the closing date of the said purchase.

[ 26 ] Mr. Giles interprets clause 21 of the Share Purchase Agreement to mean that, if the initial inventory was not paid in full within 18 months, then the Option Agreement was, as a result, void, and he was no longer committed to sell the Property for $250,000. The trial judge rejected that

interpretation, pointing out that, if the obligation regarding the inventory was not satisfied, Mr. Giles had the option of acting on his security. The judge summarized the effect of Mr. Giles position: [77] The problem for [Mr. Giles] however, is that clause 21 says nothing about the purchaser having to pay the full inventory within the 18 months. What it does say, is that Giles does not have to provide financing after 18 months. If [Mr. Giles] is correct in [his]

interpretation, Mr. Stacey would have had to exercise this option 30 days before March 31, 2013 or risk not getting the property for $250,000. The effect would be to shorten the option to 18 months from 24 months. The [Share Purchase] Agreement clearly states [SSR Holdings] or Springdale Sales had 24 months to exercise the option to purchase. … [ 27 ] Mr. Giles also submits that, if SSR Holdings wanted to complete the agreement by making the final payment for the inventory and Property, it should have done so without requiring Mr. Giles to provide a release. Counsel for Mr.

Giles took the position that the release was unnecessary due to the operation of law. Whether or not Mr. Giles’ position is sound in law, it is clear that the parties had become distrustful of each other. In the circumstances it was not an unreasonable request. SSR Holdings’ counsel provided Mr. Giles with information as to executing the release and suggested that he seek the assistance of counsel, which Mr. Giles had done occasionally. [ 28 ] SSR Holdings was acting in accordance with the Share Purchase Agreement when it provided the August 2, 2013 letter to Mr.

Giles indicating that SSR Holdings had the funds necessary to pay Mr. Giles in full. SSR Holdings was not required, under the Agreement, to pay the 10% requested by Mr. Giles. The enclosure of the cheque for 10% of the amount owing demonstrated good faith. SSR Holdings undertook, and had the funds approved, to make the final payment on August 5, 2013.

That payment, made within two years from the closing date of the Share Purchase Agreement, would have completed SSR Holdings’ obligations under that Agreement and would have allowed SSR Holdings to exercise the option to purchase the Property at a price of $250,000. [ 29 ] When Mr. Giles retained the funds provided by SSR Holdings in the August 2, 2013 letter, and refused to sell the Property for $250,000, he breached both the Share Purchase and Option Agreements. Mr.

Giles’ conduct amounted to a breach of an “an essential term of the contract” and demonstrated that he “no longer intended to be bound by the contract”; the breach went to the root of the contract, bringing the Agreements to an end ( Potter v. New Brunswick Legal Aid Services Commission , 2015 SCC 10 , [2015] 1 S.C.R. 500 , at paragraphs 43 and 155 ).

The trial judge did not err in concluding that, as a result of the breach, SSR Holdings is entitled to pursue a claim for damages. [ 30 ] I note that the trial judge did not address the cause of action for mental anguish and loss of personal reputation claimed by Peter and Donna Stacey in the statement of claim. However, I accept the submission of Mr. Giles’ counsel that the basis for such claims is not pleaded and no evidence to support the claims was led at trial. There is, in fact, no basis on which to order damages in favour of the Staceys personally.

The entitlement to damages for breach of the Agreements to sell and purchase the business is limited to SSR Holdings. [ 31 ] Finally, the trial judge erred by summarily dismissing the counter-claim without addressing Mr. Giles’ claim for unpaid rent. This matter should be dealt with when the damages claim by SSR Holdings is determined. Similarly, the question of ownership of the business, which is a matter that may be relevant in the assessment of damages, was not addressed by the trial judge.

SUMMARY AND DISPOSITION [ 32 ] In

summary, the trial judge did not err in concluding that Mr. Giles breached the Agreements for the sale and purchase of Springdale Sales. In the result, SSR Holdings is entitled to pursue a claim for damages. [ 33 ] Accordingly, I would dismiss the appeal with costs of the appeal to SSR Holdings on column 3 under the scale of costs in the Court of Appeal Rules . Appeal dismissed.