This is a discussion of the 2015 Court of Appeal for Ontario decision in Canaccord Genuity Corp. v. Pilot (2015 ONCA 716).
The Defendants, Pilot (“P”), Colosimo (“C”) and two others, were hired as agents for Canaccord Genuity Corp. (“CGC”) at CGC’s Thunder Bay office.
Each of the Defendants was provided a loan by CGC, which was forgiven at the rate of 20 per cent per annum. However, if the contract was terminated with or without cause, the remainder of the loan became immediately due. Notably, P and the other two defendants were operating under a contract that required repayment if the contract was terminated with cause; however, in July 2011, CGC presented a new contract that superseded the prior contract and included the “without cause” term.
As it happened, CGC closed the Thunder Bay office prior to the forgiveness period expiring, terminated the Defendants’ contracts, and sued for repayment. The Defendants alleged misrepresentation by omission (i.e., that CGC knew they were intending to close the Thunder Bay office at the time the contracts were entered into but did not disclose that fact to the Defendants) and equitable set-off for the revenues CGC continued to receive on account of the clients that the Defendants had brought to CGC. The Defendants counterclaimed for damages, largely on the same grounds as their defences.
CGC brought a motion for summary judgment against P and C as they were guarantors of the loan. CGC was successful on the motion. The motion judge held that even if CGC made a negligent misrepresentation to C, CGC was entitled to summary judgment. Her Honour’s reasons are summarized at paragraph 23 of the appeal decision:
(1) There was no genuine issue requiring a trial about the interpretation and application of the loan agreement;
(2) The wording of Schedule “C” to the Agreement clearly provided that the loan was repayable immediately upon termination for any reason;
(3) Even if there was a misrepresentation, it did not relieve Colosimo from repayment of the loan. In this regard, she held: “There are no factors contracted in the obligation for repayment of the loan, including misrepresentation. The defendant cannot rely on an unbargained right and retain the residual loan monies.”
(4) Colosimo could pursue his claim for misrepresentation by way of counterclaim; and
(5) The fact that litigation was to continue in this case did not offend the principles of proportionality and timeliness, as the remaining defendants “were not subject by agreement to immediate repayment for termination of [their] agency agreement[s] for any reason.”
In addition, in light of the Defendants’ claim for set-off, the Defendants submitted that enforcement of the judgment ought to be stayed until the set-off claim had been determined. The motion judge refused to exercise her discretion in that regard.
P and C appealed. The appeal was heard by Weiler J.A., Van Rensburg J.A., and Roberts J.A., with Justice Weiler writing for a unanimous panel.
The primary issue was, of course, whether summary judgment was appropriate.
The Court of Appeal also dealt with the tertiary issues of good faith in contracting and equitable set-off.
The Court of Appeal found that the motion judge did err in granting summary judgment. In particular, the motion judge was not capable of reaching a fair and just result with respect to C without considering the evidence of the other Defendants. The trial would consider the same defences advanced by the others as well as C’s counterclaim, so no significant time would be saved by granting summary judgment.
(Naturally, the Court of Appeal canvassed the principles from Hryniak v. Mauldin in canvassing whether summary judgment was appropriate, which is not rehashed here.)
P and C submitted that the motion judge had made a material error of fact in finding that the other Defendants were not subject to the same contractual terms that P and C were, which was part of the reason the motion judge held that she could treat the two groups of Defendants distinctly. P and C further submitted that the motion judge erred in considering set-off only in the context of the counterclaim when it was also pleaded as part of their Defence.
In reply CGC submitted that the motion judge’s decision was entitled to deference, that fraudulent misrepresentation (which was not pleaded) is the only basis for avoiding a contract, and that the entire agreement clause in the contract disposed of the claim for misrepresentation.
The Court of Appeal held that the motion judge did make an error of fact in finding that the terms of the appellants’ contracts were different from the terms in the contracts of the other Defendants. To come to that conclusion, the motions judge would have had to adopt and agree with the Defendants’ position that the July 2011 agreements were void and that the prior agreements applied, which was inconsistent with the result on the summary judgment motion. In so doing, the Court of Appeal held that the motion judge had ignored the context and CGC’s course of conduct in assessing whether there had been a misrepresentation.
In finding that “[t]here are no factors contracted in the obligation for repayment of the loan, including misrepresentation”, the motion judge had implicitly found that the entire agreement clause applied. The Court of Appeal held that this too was in error in that this analysis ought to engage considerations such as whether C relied on his contract continuing beyond a year, CGC’s evidence as to its knowledge of C’s reliance, and evidence of industry practice.
In essence, the Court found that since the contract contemplated the annual step-wise repayment of the loan, it may be an implied term of the contract that CGC would not terminate the contract during the repayment period (para. 44). The change to the contracts in July 2011 to include a “without cause” term was also, arguably, evidence that CGC knew they were going to close the Thunder Bay office in short order. There was therefore evidence from the other Defendants that could affect the determination of C’s defence and counterclaim.
Interestingly, the motions judge had relied on the reasons in two other cases where CGC had been plaintiff. Both of those cases in turn relied on a case from 2009: T.D. Waterhouse v. Little [TD] for the proposition that even if CGC had breached its duty to act in good faith, the loan was still repayable. The Court of Appeal held that TD was confined to its facts and, even if it were not, it predated the Supreme Court decision of Bhasin v. Hrynew, which set out that there is a “general organizing principle of good faith in contractual performance” and “a general duty to act honestly in the performance of contractual obligations.” The duty of good faith operates independently of the terms of the contract and operates regardless of an entire agreement clause. The Court of Appeal held that CGC’s termination of the prior contracts and its requirement that the other defendants enter into new contracts raised a good faith issue common to all of the Defendants (i.e., that it would be inequitable for CGC to retain the revenue from the Defendants’ clients after termination and that the Defendants could make out a claim for equitable set-off in that regard).
The Court of Appeal also disposed of the notion that only fraudulent misrepresentation can give rise to rescission. With specific reference to the texts of Professors Fridman, Treitel and Waddams, the Court held that misrepresentation generally can give rise to remedies other than damages, including rescission (paras. 52-53). The rationale is straightforward: it would be unjust for the party making the misrepresentation (innocent or otherwise) to retain the benefit of that misrepresentation.
The motion judge had held that the claim issue of set-off was not before her since C had not brought a motion for summary judgment on his Counterclaim. This too was an error of law. Namely, the motion judge ignored the fact that set-off had been pleaded in C’s defence. The motions judge held that assessment of credibility was necessary to deal with C’s counterclaim. That being the case, the Court of Appeal found that the same assessment would be necessary in order to deal with C’s defence of set-off. Following Siemens Electric v. Unident Ltd., the Court held that granting summary judgment on the defence of equitable set-off while sending the counterclaim to trial risks inconsistent findings – and, further, it undermines the defences of the other defendants who raised the same argument in their defences.
The Court of Appeal therefore reversed the motion judge’s decision on the basis that (para. 59):
1. A fair and just determination could not be made without taking into consideration the evidence of the other defendants;
2. The possibility of inconsistent verdicts with respect to the same agreement was a real concern; and
3. Since the defences put forward by the other defendants and C’s counterclaim would still need to be tried, no significant time saving would result from summary judgment.
(1) When considering whether to bring a summary judgment motion where
a. multiple parties are defending,
b. set-off has been raised as a defence, and
c. a Counterclaim has been brought on largely the same basis,
consider whether there is a risk of inconsistency that will give the Court pause for thought.
(2) Do not be too quick to rely on an Entire Agreement clause – a party cannot contract out of the “general organizing principle of good faith” that flows from Bhasin v. Hrynew.
(3) Even an innocent misrepresentation can give rise to the remedy of rescission.