COURT OF APPEAL FOR BRITISH COLUMBIA
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Citation: |
IAT Air Cargo Facilities Income Fund v. BMO Nesbitt Burns Inc., |
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2011 BCCA 226 |
Date: 20110510
Docket: CA038329
IAT Air Cargo Facilities Income Fund,
International Aviation Terminals Inc.
Respondents
(Petitioners)
And
BMO Nesbitt Burns Inc.
dba BMO Capital Markets
Appellant
(Respondent)
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Before: |
The Honourable Madam Justice Newbury |
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The Honourable Mr. Justice Mackenzie | |
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The Honourable Mr. Justice Low |
On appeal from the Supreme Court of British Columbia, July 1, 2010 (IAT Air Cargo Facilities Income Fund v. BMO Nesbitt Burns Inc.,
Vancouver Registry, Docket S088519)
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Counsel for the Appellant: |
G.E.H. Cadman, Q.C. H. Craig |
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Counsel for the Respondent: |
M. Gianacopoulos S. Coulson |
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Place and Date of Hearing: |
Vancouver, British Columbia April 15, 2011 |
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Place and Date of Judgment: |
Vancouver, British Columbia May 10, 2011 |
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Written Reasons by: |
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The Honourable Madam Justice Newbury |
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Concurred in by: |
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The Honourable Mr. Justice Mackenzie The Honourable Mr. Justice Low |
Reasons for Judgment of the Honourable Madam Justice Newbury:
[1] BMO Nesbitt Burns Inc. (“BMO”) appeals a judgment of Mr. Justice Wilcock in chambers dated July 14, 2010 which granted the claim of the plaintiffs for a declaration that a so-called “Base Completion Fee” paid by them to BMO was not owing when paid. The order required BMO to return the sum of $525,000 to the plaintiffs.
[2] The case turned almost entirely on the interpretation of para. 2(c) of a letter agreement (the “Agreement”) between the parties dated June 24, 2008 under which BMO agreed to provide financial advice to the plaintiffs with respect to a possible takeover or change of control of the IAT Air Cargo Facilities Income Fund. The Fund, a trust, is one of the plaintiffs herein and owns the shares of the other plaintiff, International Aviation Terminals Inc. (“IAT”). A takeover bid for the Fund had been made by an outside party, “FrontFour”, in June of 2008, conditional upon the offeror’s acquiring 50% plus 100 units of the Fund, including any units it owned already – i.e., acquiring the number of units that would give the offeror 50.001% of the total outstanding units and thus control of the Fund.
[3] Under the Agreement, BMO agreed to assess the offer and advise the plaintiffs regarding it and any other mergers or change of control transactions (defined in the Agreement as “Transactions”), and to provide its opinion if requested by the Board of Trustees of the Fund. The Agreement defined “acquisition of control” to mean any transactions or series of transactions in which entities acting jointly or in concert acquired, directly or indirectly, at least 20% of the units of the Fund.
[4] Paragraph 2 of the Agreement provided for the plaintiffs’ payment of fees to BMO in the following terms:
2 For our services hereunder, you will pay us the following fees:
(a) Engagement Fee – A fee of $200,000 payable in cash upon execution of this agreement. The engagement fee will be credited against any Completion Fee (defined below) which becomes payable under this agreement.
(b) Opinion Fee – A fee of $250,000 (an “Opinion Fee”) payable in cash on the date that we are prepared to deliver the first Opinion ...
(c) Completion Fee – If, during the term of this engagement or within the period of 12 months from the date of this agreement, a Transaction is completed or you announce, or enter into an agreement in respect of a Transaction which is subsequently completed, you will pay us a completion fee (the “Completion Fee”) in cash equal to the Base Completion Fee (defined below) plus the Incentive Completion Fee (defined below).
Base Completion Fee means an amount equal to:
(i) in the case of a Transaction resulting in the acquisition of approximately [50.001%] of the units or assets of the Fund, $700,000;
(ii) in the case of (A) a Transaction resulting in the acquisition of more than 50.0001% of the units or assets of the Fund or (B) any Transaction at a price of greater than $7.40 per unit, $900,000.
Incentive Completion Fee means the product of
(i) the percentage of units or assets of the Fund acquired in the Transaction; multiplied by
(ii) 5.0% of the amount, if any, by which the Transaction Value (defined below) in respect of the Transaction exceeds the Transaction Value implied by the Offer announced by FrontFour, whether the Transaction results from an amended Offer or from a bona fide proposal made to compete with the Offer (or an amended Offer). [Emphasis added.]
[5] The Agreement was negotiated at some length and drafted and redrafted by the solicitors for the plaintiffs in discussions with BMO. The final form of the Agreement was signed on or about July 11, 2008. Evidently, the “Engagement Fee” was not paid at that time. BMO provided services under the Agreement, although no opinion was ever required or given.
[6] On August 15, 2008, BMO issued an invoice to the plaintiffs for the Base Completion Fee of $700,000 plus taxes and disbursements, for a total of $741,773.29. (This obviously included the $200,000 Engagement Fee.) This occurred five days before FrontFour’s offer expired, but the invoice was issued early to permit the fees to be put in escrow five days in advance of the proposed closing. On August 21, 2008, FrontFour announced that it had not received enough units to give it 50% plus 100 units of the Fund. The following week, however, it announced that it would waive the minimum bid condition in its offer and would pick up and pay for the units that had been tendered, being 38.4% of the outstanding units of the Fund. When added to the units it already owned, FrontFour had 44.5% of the outstanding units. For purposes of the Agreement, then, it had acquired “control” of the Fund.
[7] Apparently being of the view that the Base Completion Fee was payable, the plaintiffs paid the BMO invoice on or about August 29. In October, however, the plaintiffs’ solicitors notified BMO that they had been instructed to demand the return of the $500,000 (i.e., the Base Completion Fee less the $200,000 Engagement Fee credited against the Completion Fee) plus $25,000 in taxes, since under the Agreement, FrontFour had not acquired “approximately 50.001% of the units”. Evidently the Trustees of the Fund had “never considered the question of whether or not the completion fee was payable.” The plaintiffs sued for the return of what they characterized as the amount by which BMO had been unjustly enriched by the payment made on August 29. I note that no counterclaim for rectification was advanced by BMO.
[8] There being no doubt that the payment had been made, the principal issue was, as the chambers judge stated, whether there had been a juristic reason for the enrichment of BMO either in contract law or in equity. Counsel for BMO did not object to in this formulation of the question before the Court, nor to the ‘unjust enrichment’ approach taken by the plaintiffs. Since the Supreme Court of Canada’s decision in Air Canada v. British Columbia [1989] 1 S.C.R. 1161, it has been clear in Canada that moneys paid under a mistake (of law or of fact) may be recovered through a claim of unjust enrichment, provided the well-known requirements of that doctrine are met. (See also Maddaugh and McCamus, The Law of Restitution (2004) at 11-2.)
[9] In his reasons (given orally on July 14, 2010) the chambers judge correctly reviewed the principles of contractual interpretation, including those relating to the consideration of the factual matrix of contracts, as described in cases such as Glaswegian Enterprises Inc. v. BC Tel Mobility Cellular Inc. (1997) 49 B.C.L.R. (3d) 317 (C.A.) and Gilchrist v. Western Star Trucks Inc. 2000 BCCA 70. As well, he briefly reviewed the elements of unjust enrichment and the law relating to waiver and estoppel. He began his analysis of how the law applied to the facts of the case at para. 39 of his reasons, noting that “Words are always the starting point for the exercise and provide an anchor for the endeavour. Where the words of a contract are clear, the interpretive exercise can end with the words.” (Para. 40, citing G.R. Hall, Canadian Contractual Interpretation Law (2007) at 8.) The point of contention between the parties was the meaning of the phrase “approximately 50.001%” in subpara. (i) of the definition of “Base Completion Fee” in the Agreement. (I have underlined those words at para. 4 above.) In the chambers judge’s analysis:
Here the plaintiffs say the critical phrase “approximately 50.001%” means “nearly 50.001%” using the definition of “approximately” that appears in the OED, or “reasonably close to 50.001%” using the definition that appears in Webster’s. We need not go beyond that if it is possible to say that the parties cannot have considered 44.5% to be reasonably close or nearly 50.001%.
The phrase itself by the degree of precision expressed in three decimal spaces suggests the degree of approximation intended by the parties. If they had intended to draft a provision that could be satisfied by plus or minus 10%, there would be no need to include any decimal places. That same result could have been obtained by requiring payment of the base compensation [sic] fee upon acquisition of approximately 50% [of the Fund’s] units. Contractual interpretation requires that meaning be given to all of the provisions of the contract and I take that in the case at bar to extend to all of the decimals in the number.
In my view, the plain meaning of the words in the letter of engagement and the precision used do not permit BMO to say it is entitled to the base completion fee unless the number of units deposited very closely approximates the target of 50% plus 100 units. [Emphasis added.]
[10] BMO emphasized the definition of “Transaction” as referring to the acquisition of only 20% of units of the Fund and placed particular reliance on the fact that the Agreement had referred explicitly to the offer of FrontFour. That offer was said to be the “genesis” or “aim” of the Agreement (here echoing Lord Wilberforce in Prenn v. Simmonds [1971] 3 All E.R. 237 (H.L.)) and was said to indicate that the Base Completion Fee was to be payable if FrontFour completed its offer – whether or not it reached something very close to 50.001%.
[11] The chambers judge did not accept this submission. He considered that what constitutes approximately 50.001% of units could not “depend upon what FrontFour decides to do when its offer is not as successful as contemplated.” In his analysis:
... I cannot see anything in the contract as a whole that is inconsistent with the conclusion arising from the plain reading of the words “approximately 50.001%”, that the base compensation fee is only payable on a number of units acquired as close to the target of 50% of those outstanding plus 100 units. The use of 100 additional shares above 50% as a buffer or margin of error and the calculation of the decimal places by reference to that number lead me to conclude that the permissible variation from 50.001% is in the order of 100 shares.
In my view, there is no basis to accept BMO’s assertion at paragraph 51 of the argument that the parties clearly intended that the base completion fee would be paid in the event that the transaction with FrontFour completed. The contract, by providing BMO would be compensated when and if a transaction resulted in the acquisition of approximately 50.001% of units in the trust, relates compensation to the degree of success of the FrontFour offer or alternative offers and does not require payment for partial or incomplete success.
[12] The chambers judge also rejected BMO’s contention that the Agreement contained an inherent contradiction which would arise whenever a completed Transaction occurred and no Base Completion Fee was payable. As well, he rejected the notion that it would be an unfair and unrealistic commercial result to hold that BMO was not entitled to the Base Completion Fee. In the result, he granted a declaration that the Base Completion Fee had not been owing when paid and, no juristic reason for the “enrichment” of BMO having been shown, he required it to return $525,000 to the plaintiffs.
[13] In this court, Mr. Cadman reviewed many of the background facts I have summarized, emphasizing the fact that the terms of the Agreement had been hammered out in negotiations between counsel for IAT, the Fund and the Trustees, and the managing director of BMO, and that the wording for the “Completion Fee” provision in subparagraph 2(c) of the Agreement had been provided by the solicitors. The broad definition of “Transaction” had ‘tracked’ the condition stated in FrontFour’s formal offer and during the drafting process, various refinements had been made to reflect that offer more closely. Once the bid had expired, the solicitors for the plaintiffs had advised BMO on behalf of the Trustees that “Because FrontFour was successful in its Formal Bid, the [T]rustees considered that the [C]ompletion [F]ee of $700,000 was payable and that BMO would receive a cheque from funds held in escrow for the Fee payable on the Transaction.”
[14] As I understand it, Mr. Cadman also submitted that if the chambers judge’s interpretation of the Agreement was correct, there was a “gap” in the computation of the Completion Fee: if an acquisition of control as defined (i.e., the acquisition of at least 20% of the units) took place but fewer than 50.001% of the units were acquired, nothing (aside from the Engagement Fee of $200,000) would be payable – the very result the chambers judge arrived at. Mr. Cadman did not contend, however, that a mistake had been made in the drafting of the document and as already mentioned, BMO did not counterclaim for rectification.
[15] I agree, and I believe the chambers judge did as well, that the “genesis” of the Agreement lay in the offer made by FrontFour. It may well be that BMO assumed that subparagraph 2(c) would assure payment of $700,000 on any successful Transaction, i.e., a change of control as defined. Nevertheless, such an interpretation requires that the words “resulting in the acquisition of approximately 50.001% of the units or assets of the Fund” in para. 2(c) be effectively ignored.
[16] For their part, IAT and the Fund denied that the Agreement contained any “gap”. Counsel noted that the Agreement provided for an “incentivised” fee for services in four possible circumstances that could have arisen – (1) if no Transaction completed, only the $200,000 Engagement Fee would be payable; (2) if more than 20% but fewer than 50.001% of the units were acquired, again the Engagement Fee would be payable; (3) if approximately 50.001% or more of the units were acquired at not more than $7.40 per unit, a Base Completion Fee of $700,000 would be payable; and (4) if more than 50.001% of the units were acquired at a price greater than $7.40 per unit, a Base Completion Fee of $900,000 would be payable. (As well, the “Incentive Completion Fee” might become applicable in the conditions stated.) Thus, Mr. Gianacopoulos submits on behalf of the plaintiffs, there was no “gap” and, to the extent that reasonable expectations are relevant to a claim of unjust enrichment, those expectations were met: see Bond Development Corp. v. Esquimalt (Township) 2006 BCCA 248, 52 B.C.L.R. (4th) 243 at para. 30, citing Garland v. Consumers’ Gas Co. [2004] 1 S.C.R. 629 at paras. 44-6.
[17] While the plaintiffs’ claim was framed in unjust enrichment, I am not persuaded that we need stray beyond the central issue of contractual interpretation in this case, which is the meaning of the phrase “resulting in the acquisition of approximately [50.001%]” in para. 2(c)(i) of the Agreement. It is trite law that while evidence of the ‘factual matrix’ of a contract may be admitted (as it was in this case), the construction of contracts begins with the parties’ objective statement of their intentions – the words they have used in their contract. As the Supreme Court of Canada stated in Eli Lilly & Co. v. Novopharm Ltd. [1998] 2 S.C.R. 129:
The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time. Evidence of one party's subjective intention has no independent place in this determination.
Indeed, it is unnecessary to consider any extrinsic evidence at all when the document is clear and unambiguous on its face. ...
When there is no ambiguity in the wording of the document, the notion in Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co. [1980] 1 S.C.R. 888] that the interpretation which produces a “fair result” or a “sensible commercial result” should be adopted is not determinative. Admittedly, it would be absurd to adopt an interpretation which is clearly inconsistent with the commercial interests of the parties, if the goal is to ascertain their true contractual intent. However, to interpret a plainly worded document in accordance with the true contractual intent of the parties is not difficult, if it is presumed that the parties intended the legal consequences of their words. This is consistent with the following dictum of this Court, in Joy Oil Co. v. The King [1951] S.C.R. 624, at p. 641:
... in construing a written document, the question is not as to the meaning of the words alone, nor the meaning of the writer alone, but the meaning of the words as used by the writer. [At paras. 54-6.]
[18] Applying these principles, I am satisfied that the Agreement is not ambiguous or unclear and that the meaning of clause 2(c) of the Agreement is that if something very close to 50.001% of the units of the Fund was not acquired by an offeror, the Base Completion Fee was zero – only the Engagement Fee was payable in the circumstances. It was not seriously argued, nor could it be, in my view, that FrontFour’s acquisition of 44.5% of the outstanding units of the Fund constituted “approximately 50.001%” of the units. In these circumstances, I conclude that the appeal must be dismissed.
[19] We are indebted to counsel for their able arguments.
“The Honourable Madam Justice Newbury”
I Agree:
“The Honourable Mr. Justice Mackenzie”
I Agree:
“The Honourable Mr. Justice Low”