Canadian Mortgage Servicing Corporation Appellant (Plaintiff/Applicant/Cross-Respondent) v. Kordel Korf, 2024 SKCA 1

Court of Appeal for Saskatchewan Docket: CACV4161 Citation: Canadian Mortgage Servicing Corporation v Korf , 2024 SKCA 1 Date: 2024-01-03 Between: Canadian Mortgage Servicing Corporation Appellant (Plaintiff/Applicant/Cross-Respondent) And Kordel Korf Respondent (Defendant/Respondent/Cross-Applicant) Before: Leurer C.J.S., Tholl and Kalmakoff JJ.A. Disposition: Appeal allowed Written reasons by: The Honourable Mr. Justice Kalmakoff In concurrence: The Honourable Chief Justice Leurer The Honourable Mr.

Justice Tholl On appeal from: 2023 SKKB 27 , Saskatoon Appeal heard: September 21, 2023 Counsel: Jeffrey Lee, K.C. and K. James Rose for the Appellant Daniel Jukes for the Respondent Kalmakoff J.A. I. Introduction [ 1 ] Kordel Korf was the sole shareholder and director of a corporation that carried on business as Korf Properties Ltd. [KPL]. In late 2014, KPL obtained loan financing from a corporation that was a predecessor to Canadian Mortgage Servicing Corporation [CMSC]. Mr. Korf signed the loan agreement in his capacity as a corporate officer of KPL.

He also gave a personal guarantee [Guarantee]. [ 2 ] KPL eventually defaulted on the loan and its assets were insufficient to satisfy its debt to CMSC. As a result, CMSC commenced an action against Mr. Korf, seeking to recover under the Guarantee. Eventually, a Court of King’s Bench judge [Chambers judge] granted

summary judgment dismissing CMSC’s claim against Mr. Korf on the basis that it was statute-barred under The Limitations Act , SS 2004, c L-16.1 [ Act ] ( Canadian Mortgage Servicing Corporation v Korf , 2023 SKKB 27 [ Decision ]). [ 3 ] CMSC appeals against the Decision . It alleges that, in dismissing its claim, the Chambers judge erred by: (

i) improperly interpreting the terms of the Guarantee; (ii) improperly applying s.6(1) (

d) of the Act ; and (iii) failing to conclude that forbearance agreements executed between KPL and CMSC were intended to defer any litigation between the parties, including litigation on the Guarantee, until after December 31, 2019. [ 4 ] For the reasons that follow, I would allow the appeal and grant

summary judgment in favour of CMSC in the amount of $19,285,294, plus interest. II. Background [ 5 ] KPL was a real estate holding corporation. As mentioned above, Mr. Korf was its sole director and officer, and its only shareholder. KPL is no longer in business; it was struck off the Saskatchewan Corporate Registry in June of 2020. [ 6 ] In 2014, KPL needed to secure loan funding to refinance a portfolio of commercial, industrial and multi-family apartment buildings that it held in various locations in Saskatchewan and Alberta.

By way of a commitment letter dated October 29, 2014, [Commitment Letter], Atrium Mortgage Investment Corporation [AMIC] agreed to provide KPL with a loan in the amount of $18,500,000 [Loan]. [ 7 ] To secure the Loan, KPL granted a mortgage in favour of AMIC over KPL’s title to various industrial, commercial and residential properties in the principal amount of $18,500,000 [Mortgage]. As further security, KPL also granted to AMIC a security agreement [Security Agreement] and other security [collectively, Security]. Mr.

Korf also signed a directors’ resolution as well as other documents pertaining to the loan arrangement, in which he acknowledged that he was the president, sole director, and sole duly appointed signing officer for KPL, and that he owned 100 per cent of its shares. [ 8 ] By its terms, the Loan was to mature on December 1, 2016. However, by way of an extension agreement executed on February 23, 2017 [Extension Agreement], the maturity date was pushed back to January 15, 2018.

Among the terms of the Extension Agreement was a provision that “[a]ll terms and conditions of the Commitment Letter and any and all Security Documents executed by the Borrower and the Guarantors of the Loan shall remain the same and in full force and effect”. Mr. Korf signed the Extension Agreement on behalf of KPL and in his personal capacity as guarantor. [ 9 ] In 2017, KPL encountered financial difficulty due to a slowdown in the energy sector that had affected many of its tenants. It

fell into arrears of its payments against the Loan and also with respect to property taxes that it was required to pay. As a result of this, on October 11, 2017, Mr. Korf wrote to AMIC, on behalf of KPL, to request a reduction in the interest rate and a further extension of the Loan to January 15, 2019. In this letter, Mr.

Korf proposed that, in exchange for the extension and the reduction in the interest rate that he was seeking, KPL would do a number of things, including curing any existing interest arrears, and making a substantial payment toward the principal amount owing by December 31, 2017. [ 10 ] AMIC responded by way of a letter dated October 16, 2017, in which it noted that the Loan had been in default with respect to monthly interest payments for the preceding three months. The letter also set out a list of terms that KPL would be required to meet before AMIC would consider its request.

Among those were that KPL would have to “cure the default in respect to all past due monthly interest payments totalling $358,490.63 by October 31, 2017”, provide various other refinancing commitments, cure its property tax arrears, and provide “a written plan outlining how [KPL] proposes to repay the Loan in full at/or prior to the proposed maturity date of the requested extension”. AMIC’s letter also warned that, if the defaults were not cured by October 31, 2017, its legal counsel would be instructed to “demand repayment and enforce [AMIC]’s security”. [ 11 ] Mr.

Korf responded on behalf of KPL on October 26, 2017, indicating that KPL “expects to be in a position to pay down this loan by $3.948 million during Q4/17 and cure the interest payment arrears within 5 days of the lender agreeing to our proposal for a loan extension”. He also noted that KPL was prepared for any legal action that AMIC might take but it did not feel that such would be necessary or productive. [ 12 ] KPL did not meet AMIC’s conditions for the consideration of the grant of a further extension.

Accordingly, on December 1, 2017, AMIC delivered a letter to KPL, demanding payment in full of the outstanding indebtedness, along with interest and legal fees, by January 2, 2018. It delivered an identical letter that same day to Mr. Korf, demanding the same payment from him as guarantor, by the same date. [ 13 ] In a letter from their lawyer dated December 30, 2017, KPL and Mr. Korf proposed that the parties enter into a forbearance agreement. Its terms would involve KPL pledging another piece of property that it owned as additional security for the Loan and offering that Mr.

Korf would “provide an executed consent Receivership Order in trust that [AMIC would] be at liberty to use” if the Loan was not repaid in full by the end of 2018. In addition to the requested period of forbearance, this proposal sought an agreement from AMIC to amend the Guarantee “to limit Mr. Korf’s personal exposure to the sum of $1,000,000”. [ 14 ] AMIC rejected the proposal and KPL was not able to pay the full amount of the Loan by January 2, 2018. [ 15 ] On January 26, 2018, AMIC served KPL with an application for a court order appointing a receiver. Further negotiations between the parties ensued.

Those negotiations led to KPL and AMIC executing an agreement dated April 1, 2018 [Forbearance Agreement]. The Forbearance Agreement included the following term: 1. Acknowledgment The parties hereby acknowledge and agree: (

a) that the Indebtedness in its entirety is due and owing to the Lender by KPL; (

b) that the terms and conditions contained in the Security are valid and enforceable obligations owed by KPL to the Lender; and (

c) that unless expressly varied or amended by this Agreement, the terms and conditions contained in the Security shall continue in full force and effect. [ 16 ] Elsewhere, the Forbearance Agreement defined the “Indebtedness” as being $19,618,985.79 plus daily interest of $4,139.31 as of and from January 15, 2018. It also provided that, if KPL met certain conditions, AMIC would “neither demand repayment of the indebtedness nor proceed to enforce its rights under the Security” before the expiration of the forbearance period on August 31, 2018. [ 17 ] The Forbearance Agreement was twice amended by the parties.

Each amendment extended the period of forbearance. The first amending agreement was dated September 1, 2018, and extended the forbearance period to March 31, 2019. The second amending agreement was dated April 1, 2019, and extended the forbearance period to December 31, 2019. From this point on, I will refer to the original Forbearance Agreement, together with these two amendments, as the Forbearance Agreements. [ 18 ] The Forbearance Agreements were all styled as being agreements between KPL and AMIC. A representative of AMIC signed each of the documents on its behalf, and Mr.

Korf signed each of them on behalf of KPL. Mr. Korf was not individually named as a party in any of the agreements, and none of them made any direct reference to him in his personal capacity as guarantor. [ 19 ] KPL was ultimately unable to meet the conditions set out in the Forbearance Agreements. By way of a letter dated February 13, 2020, AMIC demanded that KPL repay the indebtedness by February 25, 2020, which, by that time, stood at $23,103,873.95, plus interest and legal fees. It made an identical demand of Mr.

Korf, as guarantor, on the same day. [ 20 ] On February 26, 2020, AMIC assigned and transferred all of its interests in the Loan, Mortgage, Security Agreement and Guarantee to CMSC. Shortly after this, CMSC determined that KPL was insolvent. Because of that, CMSC obtained a court order appointing MNP Ltd. as the receiver of KPL’s property. The receiver liquidated KPL’s assets. At the conclusion of the receivership process, the net amount owing by KPL to CMSC was $19,285,293.74. [ 21 ] CMSC commenced an action against Mr. Korf on June 2, 2021.

In its statement of claim, CMSC alleged that, by executing the Guarantee, Mr. Korf had “unconditionally guaranteed the payment and performance of the obligations of [KPL] to [CMSC] in regard to the Loan”. It also pleaded that Mr. Korf had, “in his own right and on behalf of [KPL]”, acknowledged that the indebtedness “was entirely due and payable” in 2017, and that he had “requested that [CMSC] forbear from enforcing the Security”. Finally, CMSC asserted that Mr.

Korf had “reviewed, approved the content of and executed” the Forbearance Agreements on behalf of KPL, and, as such, he was personally liable for the full amount of KPL’s indebtedness.

[ 22 ] In his statement of defence, Mr. Korf pleaded that CMSC’s claim against him on the Guarantee was statute-barred because, when CMSC commenced that claim, the limitation period set out in s. 5 of the Act had expired. He asserted that the Forbearance Agreements had not suspended or re-set the running of the limitation period against him personally because he was not a party to those agreements. [ 23 ] Ultimately, CMSC applied for

summary judgment against Mr. Korf pursuant to Rule 7-5 of what were then The Queen’s Bench Rules [ Rules ]. Mr. Korf cross-applied for

summary judgment dismissing CMSC’s claim. The matter came before the Chambers judge who dismissed CMSC’s claim on the basis that it had not been commenced within the limitation period. [ 24 ] In the Decision , the Chambers judge began by referring to Rule 7- 5 and citing the authoritative jurisprudence relating to

summary judgment applications. He concluded that the matter was appropriate for

summary judgment because none of the facts were in issue and the only defence being raised was the limitation period. [ 25 ] Before delving into a full analysis of the issues, the Chambers judge reviewed the relevant provisions of the Act , and aspects of the law governing the formation and

interpretation of contracts, and the effect of forbearance agreements on the operation of limitation periods. Next, he summarized the parties’ positions and, after doing that, stated that there were two key questions he needed to answer to determine the application, which were as follows: [40] … (

i) Did the Forbearance Agreement have the effect of suspending the limitation period against Mr. Korf? (ii) When the Forbearance Agreement was made, did that trigger s. 6(1) (

d) of the Act , on the basis that it was not legally appropriate for CMSC to sue Mr. Korf? [ 26 ] The Chambers judge answered each of these questions in the negative. [ 27 ] With respect to the first question, the Chambers judge made three main findings that drove him to conclude that CMSC’s action against Mr. Korf was time-barred. The first was that, although the Guarantee made Mr. Korf liable for all of the obligations owed by KPL, it did not make him a party to any agreements that he did not sign as guarantor. In other words, even though Mr.

Korf had agreed to the Forbearance Agreements on behalf of KPL, there was no evidence that he intended to be personally bound by those agreements and, as such, no basis to infer the existence of an agreement to toll the limitation period against him (at paras 49–67). [ 28 ] The second key finding was that the Forbearance Agreements had not re-set the limitation period concerning the Guarantee.

In that respect, the Chambers judge said, “when a principal debtor affirms the debt, that does not impact on the limitation period applicable to the guarantor of the principal debtor’s obligations, at least if the limitation period concerning the guarantor has already started to run” (at para 90). [ 29 ] The third key finding that the Chambers judge made in relation to this question was that KPL could only properly be viewed as having acted on its own behalf, and not as an agent for Mr. Korf, when it entered into the Forbearance Agreements. In other words, he found that, notwithstanding Mr.

Korf’s status as the sole shareholder of KPL, this was not a circumstance where the corporate veil could be pierced to attribute the actions of the corporation to its lone shareholder (at paras 93–98). [ 30 ] Having made those findings, the Chambers judge turned to the question of whether s. 6(1) (

d) of the Act operated to delay the running of the limitation period on the basis that it was not appropriate for CMSC to sue Mr. Korf on the Guarantee until the Forbearance Agreements had expired. The Chambers judge rejected CMSC’s argument on this point. In short, he found that s. 6(1) (

d) had no application in this case because the limitation period for CMSC’s claim against Mr. Korf in his personal capacity as guarantor had already started to run before CMSC entered into the Forbearance Agreements with KPL, and s. 6(1) (d) “does not have the effect of suspending an already running limitation period” (at para 103). [ 31 ] Accordingly, the Chambers judge dismissed CMSC’s claim as statute-barred. It is from that determination that CMSC appeals. III. Issues [ 32 ] CMSC’s arguments on appeal raise three questions: (

a) Did the Chambers judge err in concluding that the Forbearance Agreements did not suspend or re-set the limitation period with respect to CMSC’s claim against Mr. Korf under the Guarantee? (

b) Did the Chambers judge err by holding that s. 6(1) (

d) of the Act cannot suspend a limitation period that has already begun to run? (

c) Did the Chambers judge err in concluding that Mr. Korf was not a party, in his personal capacity, to the Forbearance Agreements? [ 33 ] As I will discuss, it is only necessary to address the first of these questions, as it is dispositive of the appeal. IV. Analysis A. The arguments

[34] CMSC’s position at the

summary judgment application was that, even though the Forbearance Agreements were styled asagreements between KPL and AMIC, they suspended or re-set the running of the limitation period against Mr. Korf under the Guaranteebecause they were collateral agreements that imposed continuing obligations upon him of the sort contemplated by the terms of theGuarantee. [35] On appeal, CMSC contends that the Chambers judge’s conclusion that the limitation period against Mr. Korf personally hadexpired before CMSC issued its claim was premised on a legal error in the

interpretation of the relevant contracts. In particular, CMSCsays the Chambers judge failed to consider or give effect to two key terms of the Guarantee, namely: (

i) the term that explicitly bound Mr.Korf to any agreements that were “collateral to” the Commitment Letter, which includes the Forbearance Agreements; and (ii) the termthat imposed “continuing obligations” on Mr. Korf and gave rise to a new cause of action “in respect of each default” by KPL, includingthe default that occurred at the end of the periods set out in the Forbearance Agreements. [36] Mr. Korf counters these arguments by asserting that the term upon which CMSC relies respecting collateral agreements isambiguous and that such ambiguity would properly have been construed in his favour.

He also contends, relying on Manulife Bank ofCanada v Conlin, (SCC), [1996] 3 SCR 415 [Conlin], that, even apart from the limitation period issue, the ForbearanceAgreements materially altered the terms of the Guarantee and, because he was not a party to the Forbearance Agreements in his personalcapacity, that material alteration effectively released him from liability under the Guarantee. B. Standard of review [37] Where an appeal is taken from a decision granting

summary judgment, the applicable standard of review depends on what is inissue. The usual standards specified in Housen v Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235 apply, meaning that questions of law areassessed on a standard of correctness and questions of fact are assessed on a standard of palpable and overriding error. Questions of mixedfact and law are also assessed on a standard of palpable and overriding error, absent an extricable error of law. The question of whetherthere exists a genuine issue requiring a trial in a

summary judgment application is one of mixed fact and law (see: Deren v SaskPower,2017 SKCA 104 at para 41; Ter Keurs Bros.

Inc. v Last Mountain Valley (Rural Municipality), 2019 SKCA 10 at para 23, 429 DLR (4th)269 [Ter Keurs]; Thomas Estate v Hess, 2019 SKCA 26 at para 29, 433 DLR (4th) 60; Mosten Investments LP v The Manufacturers LifeInsurance Company (Manulife Financial), 2021 SKCA 36 at paras 31–35, [2021] 9 WWR 1 [Mosten]; Zoerb v Saskatoon RegionalHealth Authority, 2022 SKCA 111 at paras 37–38; Klaptchuk v Johnson, 2023 SKCA 25 at para 63). [38] CMSC asserts that the Chambers judge failed to properly interpret certain provisions of the Guarantee. A guarantee is acontract. Appellate review of decisions concerning the

interpretation of contracts is generally conducted on the palpable and overridingerror standard. This is because contractual

interpretation involves applying principles of law to the words of the contract, considered in therelevant factual matrix and, as such, gives rise to questions of mixed fact and law (Sattva Capital Corp. v Creston Moly Corp., 2014 SCC53 at paras 46–50, [2014] 2 SCR 633 [Sattva]; Teal Cedar Products Ltd. v British Columbia, 2017 SCC 32 at para 47, [2017] 1 SCR 688[Teal Cedar]; Uniprix Inc. v Gestion Gosselin et Berube Inc., 2017 SCC 43 at para 41, [2017] 2 SCR 59; Wenkoff v Wenkoff Estate, 2021SKCA 5 at para 27; PS International Canada Corp. (Seaboard Specialty Grains and Foods) v Palimar Farms Inc., 2017 SKCA 78 atparas 20–21, [2018] 2 WWR 90). [39] There are two exceptions to this general rule.

The first is where the contractual

interpretation process gives rise to an extricablequestion of law, in which case a standard of review of correctness is applied. This may be so where the judge has made a legal error byapplying an incorrect legal principle, failing to consider a required element of a legal test, or failing to consider a relevant factor (Sattva atpara 53). Extricable questions of law are rare in disputes over contractual

interpretation, and courts should exercise caution incharacterizing the issue at hand in that way (Sattva at paras 54–55; Ter Keurs at para 43). Courts must be vigilant to recognize andpreserve the distinction between an allegation that a legal test was altered or misapplied (an extricable question of law) and an allegationthat the application of the legal test to the facts should have resulted in a different outcome (a mixed question of fact and law) (Teal Cedarat para 45). [40] The second exception to the general rule involves contracts of adhesion, or standard form contracts. Where the appeal involvesthe

interpretation of a standard form contract, a correctness standard of review is usually applied (Ledcor Construction Ltd. v NorthbridgeIndemnity Insurance Co., 2016 SCC 37 at para 46, [2016] 2 SCR 23 [Ledcor]). [41] As Cory J. observed in Conlin, guarantees are often contracts of adhesion, but that is not invariably the case. Where, forexample, the guarantee is a pre-printed contract, prepared by an institutional lender in a form that is repeatedly used, such a document willusually be seen as a standard form contract because the

interpretation of its terms will have precedential value and thus give rise toquestions of law, reviewable on a correctness standard (Ledcor at para 46; Mosten at paras 52–55, 2021 SKCA 36 , [2021] 9WWR 1; Posocco at para 22; Intercap Equity Inc. v Bellman, 2022 ONCA 61 at para 29).

In other circumstances, for example where aguarantee contains language that affects only the legal obligations of the present parties and will have no precedential value, theinterpretation of its terms will give rise to questions of mixed law and fact which, absent an extricable error of law, are reviewable on theSattva standard of palpable and overriding error (Posocco at para 22; Toronto-Dominion Bank v Konga, 2016 ONCA 976 at para 22). [42] In this case, the Commitment Letter stated that AMIC required a personal guarantee from Mr.

Korf for the full amount of theLoan as a condition of it agreeing to provide the Loan to KPL. The format and language of the Guarantee also suggest that it was preparedby a sophisticated party and with the assistance of someone experienced in the drafting of such documents. However, there is no evidencein the record as to who actually prepared the Guarantee. While there is no evidence as to whether there was any negotiation of its terms,KPL and Mr. Korf were, at the relevant times, represented by legal counsel. All of this would tend to take the matter out of approachingthe Guarantee as a standard form contract.

Finally, I do not understand either CMSC or Mr. Korf to take the position that the Guarantee inthis case was a standard form contract. Considering all of that, I am unable to conclude that the Guarantee should be viewed as a standardform contract for the purpose of appellate review. The “regular” Sattva standard of review applies. C. The effect of the Forbearance Agreements

[ 43 ] As I will discuss, I am of the view that appellate intervention is warranted in this case, because the Chambers judge erred in law by failing to consider a relevant term of the Guarantee, which led him to conduct a flawed analysis of whether the limitation period had expired before CMSC commenced its claim against Mr. Korf and, ultimately, to reach a result that cannot be sustained.

Let me explain why that is so. [ 44 ] The Chambers judge began his analysis of the question of whether CMSC had commenced its action prior to the expiry of the statutory limitation period by citing to the relevant sections of the Act , including s. 5 , which provides for a general limitation period of two years from the date a claim is discovered for the commencement of proceedings.

He also referred to s. 10 which provides that the discovery date for a claim based on a default in performing a demand obligation is the day on which the default occurs, and s. 21(1), which states that a limitation period may be extended “if an agreement expressly provides” for such an extension. [ 45 ] The Chambers judge then self-instructed on the legal principles relevant to the formation and

interpretation of contracts by citing this Court’s decision in AlumaSafway Inc. v The International Association of Heat & Frost Insulators and Asbestos Workers, Local 119, 2022 SKCA 99 at paras 49–53 , [2023] 6 WWR 74, and the Supreme Court of Canada’s decision in Sattva , respectively. He also reviewed the legal principles that govern the

interpretation of contracts of guarantee, citing and quoting from the Manitoba Court of Appeal’s decision in QK Investments at paras 37–43 in that respect.

He also referred to portions of the decision in Hamilton (City) v Metcalfe & Manfield Capital Corporation , 2012 ONCA 156 at paras 73–80 , 347 DLR (4th) 657, as a self-instruction on the nature of forbearance agreements. [ 46 ] Next, the Chambers judge turned to s. 21 of the Act , and his consideration of whether the Forbearance Agreements in this case were agreements that “expressly provided” for an alteration of the limitation period in relation to CMSC’s claim against Mr. Korf under the Guarantee. In that regard, he acknowledged and summarized CMSC’s arguments, as follows: [38] … 1.

The Guarantee was a continuing guarantee. Mr. Korf guaranteed obligations of the Borrower under agreements collateral to the Commitment. CMSC says the Forbearance Agreement was collateral to the Commitment. It says that the Forbearance Agreement had the effect of re-setting the time for payment of the Indebtedness, and temporarily suspended the obligation to pay it. The requirement to pay then resumed at the end of the forbearance period. That suspended the limitation period as it pertained to the Borrower. That effectively suspended the limitation period against Mr.

Korf because the Borrower’s contractual obligation to pay had been suspended. Upon expiry of the forbearance period, as extended, the Borrower defaulted, and a new cause of action arose. Under this argument, the main question to be answered is: Did the Forbearance Agreement have the effect of suspending the limitation period against Mr. Korf? 2. The Forbearance Agreement (and the extensions) was consented to by Mr.

Korf and is therefore binding on him. [ 47 ] After that, the Chambers judge noted that, in general, where the “loan in default is supported by a guarantee and forbearance terms are being negotiated”, the lender will usually require “any guarantor of the borrower’s obligations to sign the forbearance agreement and agree to be bound by it” for a number of reasons, including “to avoid the application of the rule (to which there are certainly exceptions) that a guarantor will be released from his covenant where the creditor and debtor agree to a material alteration without his consent, such as in [ Conlin ]” (at paras 44–45 ). [ 48 ] Then, Chambers judge set out what were, in his view, “the Guarantee provisions most relevant to this dispute”, at paragraph 47 of the Decision . [ 49 ] After he had done that, the Chambers judge observed that, while the provisions of the Guarantee did certain things, the more important consideration was “what those provisions do not do” (emphasis in original).

He went on to say: “Although the Guarantee makes [Mr. Korf] liable for all obligations owed by [KPL] to [CMSC], and to waive all manner of potential defences, they do not purport to make [Mr. Korf] a party to [KPL]’s agreements not signed by [Mr. Korf] nor deem anything to that effect” ( Decision at para 49, emphasis in original). [ 50 ] The Chambers judge also made the express finding that “[t]here can be no question that Mr.

Korf knew of and consented to the Forbearance Agreement, including in his capacity as guarantor” ( Decision at para 52). [ 51 ] Having made these findings, the Chambers judge concluded that Mr. Korf could not be sued on the Guarantee because he was not personally bound by the terms of the Forbearance Agreements. In that regard, he said: [65] Above, I found that nothing in the Guarantee purports to make Mr. Korf a party to agreements he did not sign.

Consenting to the forbearance arrangement is a far cry from agreeing to have its terms apply to him personally. [66] As there is no evidence before the Court to support that Mr. Korf made an agreement that “expressly provides for” extension of the limitation period applicable to him as guarantor, to find that any such agreement existed the Court would need to do so by inference or implication.

As noted by Clackson J. in Sucker Creek [ First Nation v Canada (Attorney General) , 2013 ABQB 199 ], in the context of the Alberta Act , finding the existence of an agreement by inference or implication is not permitted. [67] In my view, the Act should be interpreted similarly. Express agreement is required, and that did not occur here. Even if the “clear, unambiguous, and absolute” standard from AlumaSafway is applied, it would not be satisfied in my opinion. [68] CMSC argues that this creates an absurd outcome. Sometimes omissions have that effect.

If a lender leaves a gap in its security, that can create what the lender perceives as an absurd situation. Not every omission by a contracting party (in this case the Lender’s omission to include Mr. Korf as a party in his personal capacity) can be cured by implication. [ 52 ] The Chambers judge went on to find that “Mr. Korf did not agree by his actions or in writing to be personally bound by the Forbearance Agreement[s]” ( Decision at para 76), and that, although the Forbearance Agreements had re-set the limitation period as

against KPL, they had not “by extension re-set it for Mr. Korf as guarantor”, because “[s]uch re-setting cannot be by implication withrespect to a guarantor who is not a party to the Forbearance Agreement” (at para 91). [53] I will begin the discussion of why I conclude that the Chambers judge’s analysis in this case was marred by an error in law bypointing out that, noticeably absent from the list of what he considered to be the relevant provisions of the Guarantee, was the followingterm: 2. The Guarantor hereby jointly and severally unconditionally guarantees to the Lender the due payment and performance by theBorrower of: (

a) all principal, interest and other monies payable by the Lender pursuant to the Commitment Letter, the Security or any agreementcollateral thereto, as and when the same respectively become due and payable according to the terms of the Commitment Letter, theSecurity or any agreement collateral thereto; and (

b) all covenants, conditions, stipulations, provisos and obligations of any kind whatsoever (whether direct or indirect, joint or several,absolute or contingent, matured or unmatured) contained in the Commitment Letter, the Security or any agreement collateral thereto, (collectively, the “Obligations”).

Any amounts payable by the Guarantor under this Guarantee which are not paid forthwith upon demandby the Lender shall bear interest from the date of such demand at the rate or rates applicable to the corresponding Obligations. (Emphasis added) [54] The failure to consider a relevant term when interpreting a contract is a legal error.

While it is correct to say that a judge is notrequired to refer to every item of evidence to demonstrate that it has been considered, when the Decision is read as a whole, it is apparentthat the Chambers judge failed to consider this highly relevant term and that, by so doing, he erred in law. His failure to consider paragraph2 of the Guarantee caused him to focus on the wrong issue, namely the question of whether Mr.

Korf was a party to the ForbearanceAgreements in his personal capacity when determining whether the limitation period had expired against him before CMSC commencedits claim. [55] Guarantees are contractual in nature and, because of that, when a court is called upon to interpret a guarantee, the normal rulesof contractual

interpretation generally apply, which means that the contract must be read as a whole, and the words used in it must begiven their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of theformation of the contract (Sattva at para 47). [56] As with other types of contracts, the goal when interpreting a guarantee is to discover the parties’ objective intention, i.e., theintention that would have been apparent to an objective third party, at the time the contract was made.

This requires a court involved in theinterpretative exercise to take into account not only the words of the agreement, but also “the commercial purpose of the contract asgleaned from its genesis, the background, the context, and the market in which the parties are operating” (Halsbury’s Law of Canada,Guarantee and Indemnity at HGI-61 “Construing Terms of Contract” (2022 Reissue), citing Reardon v Smith Line Ltd. v Yngvar HasenTingen, [1976] 1 WLR 989 at 995–996, and British American Oil Co. v Ferguson, (AB CA), [1951] 2 DLR 37 (AltaCA); see also: Conlin at para 6).

The need to have regard for the commercial purpose of guarantee contracts means that “[a]s a generalprinciple, the courts always interpret a guarantee so that the protection or security which it affords to a creditor is rendered real rather thanillusory” (Madison Joe Holdings Inc. v Mill Street & Co. Inc., 2021 ONCA 205 at para 32, 155 OR (3d) 227, citing Kevin McGuinness,The Law of Guarantee, 3d ed (Toronto: LexisNexis, 2013) at 281–282). [57] In the circumstances of this case, it was important for the Chambers judge to have understood that the basis for CMSC’s claimagainst Mr.

Korf was the Guarantee, and not the Forbearance Agreements. Therefore, his focus should have been on determining what theprovisions of the Guarantee said with respect to Mr. Korf’s legal liability and with respect to the operation of the limitation period. [58] In that regard, paragraph 2 of the Guarantee was the principal term that defined Mr. Korf’s liability.

It provided that heunconditionally guaranteed all of KPL’s “Obligations”, as that term was defined in the Guarantee, “as and when they become due andpayable according to the terms of the Commitment Letter, the Security or any agreement collateral thereto”. Accordingly, a properinterpretation of the Guarantee necessarily invited a consideration of what KPL’s obligations were, and when they became due andpayable. [59] But the Chambers judge did not approach the analysis from that angle.

In fact, even though it is apparent from the Decision thathe was aware of CMSC’s argument that the Forbearance Agreements were “agreements collateral to” the Commitment Letter and theSecurity that had changed the date at which KPL’s obligations became due and payable and, thus, had re-set the limitation period againstMr. Korf personally, it does not appear that he actually addressed that argument. Instead, the Chambers judge became focussed on thequestion of whether Mr.

Korf was a party to the Forbearance Agreements in his personal capacity and found that the answer to thatquestion was determinative of when the limitation clock began to run against him. [60] This, in my respectful view, was an error, because a proper and contextual reading of the Guarantee and the associateddocuments, bearing in mind the commercial purpose of the Guarantee, points to no conclusion other than that the Forbearance Agreementsare agreements “collateral to” both the Security and the Commitment Letter.

This meant the Forbearance Agreements re-set the limitationperiod with respect to the Guarantee and gave rise to a new cause of action by CMSC against Mr. Korf when the Forbearance Agreementsexpired and KPL had not satisfied the Loan. As I will explain, this conclusion is unaffected by any determination about whether Mr. Korfwas a party to the Forbearance Agreements. [61] As set out in paragraph 2 of the Guarantee, Mr. Korf guaranteed the payment of KPL’s obligations under the “CommitmentLetter, the Security or any agreement collateral thereto” as and when they became payable.

This meant the focus of the determination as towhen a cause of action arose against Mr. Korf personally turned on two questions. The first was whether the debt that gave rise toCMSC’s claim against KPL fell within the scope of KPL’s “Obligations” under the Guarantee, and the second was when that obligationbecame payable.

[ 62 ] There can be little question in the circumstances of this case that the unsatisfied debt in issue fell within the scope of the obligations secured by the Guarantee.

In that regard, the Commitment Letter and the Security clearly defined KPL’s obligations, detailed what debts were owing to CMSC, and specified that those obligations would remain outstanding until the Loan was paid in full. [ 63 ] There can also be little doubt about whether the Forbearance Agreement was an agreement collateral to the Commitment Letter and the Security that provided for the continuation of KPL’s obligations to CMSC, as described in the Guarantee.

In that respect, the Commitment Letter contained a “Survival of Commitment” term, which read as follows: Survival of Commitment: The terms, conditions, representations and warranties expressed herein shall form part of the commitment upon approval and shall continue in effect as long as any part of the Loan remains outstanding and shall bind the personal representatives, heirs, successors and assigns of the Lender, the Borrower and each Guarantor, if any, and shall enure to the benefit of the successors and assigns of the Lender, and the Borrower. [ 64 ] The Commitment Letter also expressly contemplated the possibility of a forbearance agreement.

In

Schedule 4, where the lender administration fees were set out, it read, in part: During the Term of the Loan, should the Lender be asked to perform any of the following Requests, the Borrower shall pay the corresponding fee, which fee may be added to the principal amount owing under the Loan, if not paid by the Borrower: Request Fees … Forbearance Agreements $5,000 [ 65 ] The original Forbearance Agreement also made multiple references to the Loan as the source of the indebtedness to which it related, and to the Security in its recitals.

It made direct mention of the Mortgage and the Security Agreement, and contained explicit reference to, and a detailed description of, all of the other items listed as “Security” under the Commitment Letter. In short, the Forbearance Agreement left no doubt that it was referring to each and every aspect of the same transaction that was the subject of the Commitment Letter and the Guarantee, and that CMSC was agreeing that it would “neither demand repayment of the indebtedness nor proceed to enforce its rights under the Security” until the Forbearance Agreement had expired.

When the Guarantee is read as a whole, and in the commercial context of the entire transaction, there is no question that the Forbearance Agreement was an “agreement collateral to” the Commitment Letter and the Security. [ 66 ] It is also clear, in my respectful view, from a contextual reading of its provisions, that the Guarantee extended Mr. Korf’s guarantee obligation so that it continued to exist even if the lender granted an extension or other accommodation to KPL.

In that regard, paragraph 12 of the Guarantee read as follows: [12] The Lender, in its absolute discretion or in the absolute discretion of any officer or agent, and without diminishing the liability of the Guarantor, may grant time or other indulgences to the Borrower and any other person or persons now or hereafter liable to the Lender in respect of the Mortgage, interest or other monies payable to the Lender and may give up, modify, vary, exchange, renew or abstain from perfecting or taking advantage of the Security in whole or in part and may discharge any part or parts or accept any composition or arrangements or realize upon the Security when and in such manner as the Lender, or any officer thereof, may think expedient, and in no case shall the Lender be responsible for any neglect or omission with respect to the Security.

The Guarantor renounces all benefits of discussion and division. Any account settled or stated by or between the Lender and the Borrower or admitted by or on behalf of the Borrower may be adduced by the Lender and shall in that case be accepted by the Guarantor as conclusive evidence that the balance or amount thereof thereby appearing is due by the Borrower to the Lender. (Emphasis added) [ 67 ] In short, the fact that Mr. Korf was not a party in his personal capacity to the Forbearance Agreements had no bearing on whether he remained personally liable under the Guarantee.

As long as KPL’s obligations to CMSC continued to exist, so too did Mr.

Korf’s personal liability under paragraph 2 of the Guarantee. [ 68 ] The Chambers judge’s error in disregarding paragraph 2 of the Guarantee and conducting his analysis from the wrong angle also affected his consideration of paragraph 15 of the Guarantee, which provided that “[t]he obligations of the Guarantor hereunder shall be continuing obligations and a new cause of action shall be deemed to arise in respect of each default”. [ 69 ] In basic terms, the Forbearance Agreements had the effect of suspending KPL’s obligation to repay the indebtedness to CMSC during the forbearance period.

Paragraph 3 of the Forbearance Agreement provided as follows: Upon expiry or termination of the Forbearance Period, the total outstanding amount of the Indebtedness shall, without any requirement for further notice by the Lender, be immediately due and payable by KPL to the Lender. [ 70 ] When the Forbearance Agreements ended on December 31, 2019, KPL was obligated to make immediate repayment of the full amount of its indebtedness to CMSC. In other words, KPL’s obligation, as defined in the Guarantee, became immediately due and payable.

When KPL did not make the payment necessary to satisfy the debt, that amounted to a new default by KPL and gave rise to a new cause of action against Mr. Korf, in accordance with paragraph 15 of the Guarantee.

[ 71 ] However, the Chambers judge reached a different conclusion because he considered the fact that Mr. Korf did not sign the Forbearance Agreements in his personal capacity to be determinative of their applicability to the limitation period for CMSC’s claim against him under the Guarantee. As I have discussed, this conclusion was the product of a legal error, namely the failure to consider or give effect to paragraphs 2(a), 2(b), 12 and 15 of the Guarantee.

Had those terms been considered, there would have been no conclusion available to the Chambers judge other than that the Forbearance Agreements were agreements collateral to the Commitment Letter and Security Agreement that had the effect of re-setting the relevant date of default by Mr. Korf to December 31, 2019. That being so, the Chambers judge’s finding that CMSC’s claim against Mr. Korf on the Guarantee was statute-barred cannot be sustained because the action was clearly commenced within the limitation period. [ 72 ] As a final note, I also reject Mr.

Korf’s argument that the Forbearance Agreements materially altered the terms of the Guarantee in a way that he did not agree to, such that he should be personally released from liability under the principles set out in Conlin . From the foregoing analysis, it should be clear that, in the context of the entire transaction, the Guarantee specifically contemplated and made provision for the possibility of a forbearance agreement.

This is not a Conlin situation; the execution of the Forbearance Agreements between KPL and AMIC in this case did not alter the terms of the Guarantee at all. [ 73 ] Accordingly, I would allow CMSC’s appeal on the strength of this ground alone. It is therefore unnecessary to address CMSC’s other grounds of appeal. [ 74 ] Furthermore, because the only defence raised by Mr. Korf was the limitation period defence, this finding is also dispositive of the action. I would grant

summary judgment in CMSC’s favour. V. Conclusion [ 75 ] I would allow the appeal and grant

summary judgment in CMSC’s favour against Mr. Korf, in the amount of $19,285,294, plus pre-judgment interest. I would also award costs in favour of CMSC in this Court and in the Court of King’s Bench, calculated in the usual way. “Kalmakoff J.A.” Kalmakoff J.A. I concur. “Leurer C.J.S.” Leurer C.J.S. I concur. “Tholl J.A.” Tholl J.A.