Citation: 2010 TCC 117
Date: 20100302
Docket: 2006-2175(IT)G
BETWEEN:
ON-LINE FINANCE & LEASING CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Campbell J.
[1]
The hearing in these
appeals came before me in Vancouver, British Columbia on November 16,
2009. At the commencement of the hearing, Respondent counsel brought a
preliminary motion for a ruling respecting the admissibility/exclusion of all
documents/evidence extrinsic to various leasing agreements between the
Appellant and Municipal Finance Authority of British Columbia (the “MFA”).
The Respondent’s motion was in anticipation of the Appellant’s attempt to
introduce such evidence for the purpose of interpreting these leasing
agreements. Because of the nature of these appeals and the issues involved, a
decision in respect of this motion has significant implications in shaping the
future course and scope of the hearing.
[2]
I adjourned the hearing
until the following day so that I could consider the motion which involved the
application of the parol evidence rule and to give myself time to peruse the
various agreements comprising the leasing program.
[3]
I did not provide a
ruling the following day because I had insufficient time to adequately review the
agreements and research the law. In addition, there was no basis for an
objection based on the parol evidence rule at that point in time because there
had been no attempt to introduce extrinsic evidence.
[4]
The hearing
re-commenced on the condition that Respondent counsel would be entitled to
renew its motion at the appropriate point in the evidence. When the Appellant
sought to introduce into evidence correspondence between the Appellant and MFA,
the Respondent objected to its admissibility on the basis that it violated the
parol evidence rule. Respondent counsel submitted that this correspondence
related to the negotiation stage of the dealings between the parties and was
being tendered as evidence of their intentions for the purpose of interpreting
the leasing agreements.
[5]
Although it appears
that Appellant counsel had notice, several days prior to the hearing, that
opposing counsel intended to bring this motion, he seemed unprepared to deal
with it and because of the potentially severe restrictions which the outcome of
the motion might place upon the Appellant’s case, I adjourned the hearing to my
next sitting in Vancouver. In the interim, I requested that the
parties file written submissions specifically to address several questions
which had been posed during our initial discussions.
[6]
A brief summary of the
facts is essential to understand the importance of the outcome of the motion in
respect to both parties. The issue central to these appeals is whether the
Appellant received rental revenue from various lessees and whether that revenue
is properly included in computing the Appellant’s income. How these lease
payments will be treated is key to the outcome of these appeals.
[7]
Four written agreements
governed the relationship between the Appellant and MFA:
(a)
Services Agreement
dated April 1, 1995;
(b)
Pricing Agreement dated
April 7, 1998;
(c)
Leasing Program
Agreement dated April 5, 2000; and
(d)
Assignment of Lease
Agreements dated October 30, 2002.
The parties agree that the 1995 Services Agreement was
effectively renewed when the Appellant and MFA entered into the 2000 Leasing
Program Agreement.
[8]
Basically, the
arrangement between the Appellant and MFA involved the following:
(a)
MFA would advance funds
to the Appellant via a line of credit so that the Appellant could purchase
specific assets requested by Canadian municipalities;
(b)
The Appellant would
purchase the requested assets and lease them to the municipalities, while
retaining full ownership and legal title; and
(c)
The Appellant would
then assign the assets, lease agreements and lease revenue to MFA (the
“assignment”).
[9]
The issue in these
appeals arises as the result of the assignment referred to in (c) above. The
Respondent’s position is that the assignment should be characterized as
security for the Appellant’s indebtedness to MFA. Consequently, the debt would
be on-going and each payment from the municipality would be applied to the
outstanding balance. The Appellant’s position is that the funds received from
MFA to purchase the assets were interim loans which were immediately repaid
through the assignment. Consequently, the debt would be extinguished through
the absolute assignment.
[10]
The Order which I
issued on November 30, 2009 requested the parties to address two specific
questions:
(a)
Does the Court have to
deal with a parol evidence objection at the time the objection is raised or may
the Court hear it first and then deal with it at a later time or in the reasons
for judgment?; and
(b)
If the Court must deal
with the objection at the time it is raised, are the written agreements between
the Appellant and MFA ambiguous?
[11]
This motion is critical
as it will impact how and what the Appellant may adduce to support its
position. Specifically, the Appellant seeks to use the written agreements along
with other extrinsic documents/evidence to demonstrate that the assignments to
MFA, in fact, repaid the interim loan made by MFA to purchase the assets,
thereby extinguishing any debt and further right to receive income under the
lease agreements.
The Respondent’s Position:
[12]
The Respondent relies
primarily on the Federal Court of Appeal decision in The Queen v. General
Motors of Canada Limited (“GM Canada”), 2008 FCA 142, 2008 D.T.C. 6381,
to argue that the parol evidence rule must be applied and dealt with at the
time it is raised, not at a later date in the hearing. This requires a court to
examine written documents to first determine if an ambiguity exists. Only where
an ambiguity within the documents exists, can the court admit extrinsic
evidence which will assist with an interpretation of the ambiguous wording in
the documents. As a matter of trial procedure, before any evidence can be
considered, it must first be admitted. The Respondent suggests that the
decision in GM Canada stands for the proposition that extrinsic evidence
may not be examined until a ruling on the parol evidence objection has been
made.
[13]
With respect to the
second question posed in my Order, the Respondent’s position is that there is
no ambiguity in the leasing documents and points to recital D and clause 1
of the Assignment of Lease Agreements dated October 30, 2002 as supporting
that position. Those clauses specifically state that the assignment of the
lease agreements (payments and assets) to MFA are “security for the advance of
funds or financing” which was provided to the Appellant to secure the assets.
The Appellant’s Position:
[14]
The Appellant’s
submissions were disappointing and simply claimed significant prejudice
resulting from this motion. The Appellant’s claim that the Respondent should
have somehow included this within its Reply is simply incorrect. Part of proper
trial preparation is anticipation of such issues, particularly when it is the
Appellant that wishes to introduce such evidence. Aside from this, the
Appellant appears to have had several days’ notice of the Respondent’s
intention to bring this motion at the commencement of the hearing. If any
prejudice could be claimed, I believe the Appellant was fairly permitted time
to respond in writing when I delayed the hearing of the appeals. Therefore, I
do not believe it is in any way helpful for the Appellant to make this claim at
this stage. Counsel could have better spent his time addressing the questions
for which I directed a written response. Other than the prejudice claim, the
Appellant seemed to be saying that a court must always examine the context,
background and surrounding circumstances at the time a contract is made.
When Must the Court Rule on Parol Evidence Objections?
[15]
The Respondent argues
that, as a matter of trial procedure, when an objection is made on the basis of
the parol evidence rule, that objection must be dealt with immediately,
resulting in a determination of the admissibility of extrinsic evidence. There
is, of course, some authority that suggests that the parol evidence rule,
despite its name, is not a rule of evidence at all but rather substantive
contract law. For example, the British Columbia Court of Appeal in Zippy Print
Enterprises Ltd. v. Pawliuk, [1994] B.C.J. No. 2778, at paragraph 36,
stated:
The representations in this case were made on behalf of
Zippy Print in order to induce Mr. Pawliuk and Mrs. Peniuk to enter into the
license agreement. To exclude evidence of the representations on the basis of
the Parol Evidence Rule, which is no longer, in the context of trials conducted
by judges without juries, a rule of evidence at all, would be absurd. …
[16]
In Wigmore on
Evidence, vol. 9 (Boston: Little, Brown and Company, 1981), J.H. Chadbourn,
ed., at page 4, the following comments were made:
(1) First and foremost, the rule is in no sense a rule of
evidence, but a rule of substantive law. It does not exclude certain data
because they are for one or another reason untrustworthy or undesirable means
of evidencing some fact to be proved. It does not concern a probative mental
process – the process of believing one fact on the faith of another. What the
rule does is to declare that certain kinds of fact are legally ineffective in the
substantive law; and this of course … results in forbidding the fact to be
proved at all. …
[17]
If this viewpoint were
adopted, the Respondent’s argument would fail because a judge would not be
offending the laws of evidence by admitting inadmissible evidence. Instead, as
a substantive rule of law, a judge would have full discretion to examine it and
then assign it weight, if any.
[18]
The Respondent’s
position relied primarily on the GM Canada decision in which the Federal
Court of Appeal held that C. Miller J. erred in finding certain collective
agreement documents to be ambiguous and then considered extrinsic evidence to
assist with interpretation.
[19]
In overturning the Tax
Court decision in GM Canada, the Federal Court of Appeal examined a
number of authorities regarding the parol evidence rule, including the Supreme
Court of Canada decisions in Eli Lilly & Co. v. Novopharm Ltd., [1998]
2 S.C.R. 129, and United Brotherhood of Carpenters and Joiners of America,
Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316. At
paragraphs 54 to 59 of Eli Lilly & Co., Iacobucci J. stated the
following:
54 The trial judge appeared to take Consolidated-Bathurst to stand for the proposition that
the ultimate goal of contractual interpretation should be to ascertain the true
intent of the parties at the time of entry into the contract, and that, in
undertaking this inquiry, it is open to the trier of fact to admit extrinsic
evidence as to the subjective intentions of the parties at that time. In my view, this approach
is not quite accurate. 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.
55 Indeed, it is unnecessary to consider any extrinsic evidence at all when
the document is clear and unambiguous on its face. In the words
of Lord Atkinson in Lampson v. City of Quebec
(1920), 54 D.L.R. 344 (P.C.), at p. 350:
... the intention by which
the deed is to be construed is that of the parties as revealed by the language
they have chosen to use in the deed itself .... [I]f the meaning of the deed,
reading its words in their ordinary sense, be plain and unambiguous it is not
permissible for the parties to it, while it stands unreformed, to come into a
Court of justice and say: "Our intention was wholly different from that
which the language of our deed expresses... ."
56 … 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.
57 … the parties' intentions are clear on the face of the agreement.
Accordingly, it cannot properly be said, in my view, that the supply agreement
contains any ambiguity that cannot be resolved by reference to its text. No
further interpretive aids are necessary.
58 More specifically, there is no need to resort to any of the evidence
tendered by either Apotex or Novopharm as to the subjective intentions of their
principals at the time of drafting. Consequently, I find this
evidence to be inadmissible by virtue of the parol evidence rule: see Indian Molybdenum Ltd. v. The King, [1951] 3 D.L.R.
497 (S.C.C.), at pp. 502-3.
59 Moreover, even if such evidence were required, that is not the character
of the evidence tendered in this case, which sheds no light at all on the
surrounding circumstances. It consisted only of the subjective intentions of
the parties …
[20]
Sopinka J. made the
following comments in CJA, Local 579 at pages 341 to 342:
The
general rule prohibiting the use of extrinsic evidence to interpret collective
agreements originates from the parol evidence rule in contract law. The rule
developed from the desire to have finality and certainty in contractual
obligations. It is generally presumed that when parties reduce an agreement to
writing they will have included all the necessary terms and circumstances and
that the intention of the parties is that the written contract is to be the
embodiment of all the terms. Furthermore, the rule is designed to prevent the
use of fabricated or unreliable extrinsic negotiations to attack formal written
contracts.
One
of the exceptions to the parol evidence rule has always been that where there
is ambiguity in the written contract itself, extrinsic evidence may be admitted
to clarify the meaning of the ambiguous term. (See Leggatt v. Brown
(1899), 30 O.R. 225 (Div. Ct.).) However, determining when one falls within
the scope of this exception is far from easy, as even what can be said to
constitute a patent ambiguity is unclear. Some authorities have held that there
must be more than the arguability of different constructions of the agreement (Re
Milk & Bread Drivers, Local 647, and Silverwood Dairies Ltd.
(1969), 20 L.A.C. 406), while others suggest that the appropriate test is a
lack of clear preponderance of meaning stemming from the words and structure of
the agreement (Re Int'l Ass'n of Machinists, Local 1740, and John
Bertram & Sons Co. (1967), 18 L.A.C. 362). An ambiguity is to be
distinguished from an inaccuracy, a novel result or a mere difficulty in
construction. …
[21]
In summing up some of
Sopinka J.’s remarks, Nadon J. in GM Canada, at paragraph 34, stated the
following:
[34] After stating that extrinsic evidence is admissible
where there is ambiguity in the contract, Sopinka, J. writes that determining
whether a provision is ambiguous is "far from easy". Although Sopinka,
J. indicates that some cases have sown doubt as to whether arguability of
different constructions of a contract constitutes ambiguity, the prevailing
case law seems agreed that ambiguity exists when a contractual provision or
words thereof are capable of being understood in more ways than one (see G.H.L.
Fridman, The Law of Contract in Canada, 5th ed.
(Toronto, Thomson Carswell, 2006), p 446, Note 43). In that regard, G.H.L. Fridman,
summarizing the relevant case law, says at pp. 445-446:
... the court should not strain to create an ambiguity that
does not exist. It must be an ambiguity that exists in the language as it
stands, and not one that is itself created by the evidence that is sought to be
adduced.
However, it can be said with certainty that ambiguity in a
written document does not result simply because the document at issue poses
difficulties in interpretation.
[22]
Nadon J., at paragraph
35, went on to quote Saunders J. in Gilchrist v. Western Star Trucks Inc.
(2000), 73 B.C.L.R. (3d) 102, at page 108, where the relevant principles were
summarized as follows:
…
The goal in interpreting an agreement is to discover,
objectively, the parties' intentions at the time the contract was made. The
most significant tool is the language of the agreement itself. The language
must be read in the context of the surrounding circumstances prevalent at the
time of contracting. Only when the words, viewed objectively, bear two or more reasonable
interpretations may the Court consider other matters such as the
post-contracting conduct of the parties.
(Emphasis
added)
[23]
At paragraph 36 of GM
Canada, Nadon J. summarized three propositions which arise from the
authorities:
[36]
A number of
propositions emerge from the above authorities. First, failing a finding of
ambiguity in the document under consideration, it is not open to the Court to
consider extrinsic evidence. Second, where extrinsic evidence may be
considered, that evidence must pertain to the "surrounding circumstances
which were prevalent at the time". Third, even where there is ambiguity,
evidence only of a party's subjective intention is not admissible.
[24]
The Respondent submits
that the Federal Court of Appeal in GM Canada uses the terms
“admissibility” and “consideration” interchangeably when discussing extrinsic
evidence because that evidence would already be before the trial judge.
Consequently, according to the Respondent, there is no need to make a
distinction between these terms.
[25]
However, I do not agree
with the Respondent’s submissions because I believe the Federal Court of Appeal
has been consistent with its choice of terminology. Nadon J.’s reasons were
consistent throughout in the use of the term “consider” when referencing the
parol evidence rule. The decision is replete with examples throughout when the
Court discussed whether a judge might “consider” extrinsic evidence. In
contrast, when the Court uses the term “admissibility”, it is either referring
to the fact that:
(a)
even where extrinsic
evidence is permitted to be used, evidence of the subjective intention of the
parties remains “inadmissible”; or
(b)
the Court is adopting
the terminology of the Supreme Court of Canada; or
(c)
the Court is discussing
the “admissibility” of extrinsic evidence as a whole.
[26]
Therefore, I reject the
Respondent’s submission that the GM Canada decision stands for the
proposition that judges must immediately rule on objections involving the parol
evidence rule. Instead, I believe that GM Canada simply and clearly
states that judges may only “consider” extrinsic evidence if they determine
that written documentation is actually ambiguous. Use of the term “consider”
rather than “admit” implies that judges will be free to look at extrinsic
evidence and assign it the proper weight once a decision is made respecting the
ambiguity of the written agreements. In all cases, however, that evidence which
relates to subjective intent of the parties will always be inadmissible,
that is, it may not be examined. I do agree that, if the Federal Court of
Appeal had used the term “admit” where it chose to use the word “consider” then,
I would have concluded differently. In that case, it would have implied that
judges could not look at extrinsic evidence because it would first have to be
“admitted” which would necessitate an immediate ruling by a judge on the
ambiguity of the documents.
[27]
Unlike the view of the
Respondent, I believe the Federal Court of Appeal was most careful in its use
of the term “consider” and, in summary, I conclude that the decision does not
contain any specific statements that direct a judge on such an objection to
immediately examine the language of written agreements to determine the
existence or not of ambiguity from which flows the decision on the use of
extrinsic evidence. After all, judges every day examine evidence with a view to
assigning varying degrees of weight, depending on the circumstances of the
case. I do not see how invoking the parol evidence rule changes this in any
way. In addition, there may well be cases where the volume of documents to be
examined by a judge to determine ambiguity would make it prohibitive to do so
over a short recess period. A quick from-the-hip assessment of the ambiguity of
written documents, so essential to the outcome of a case, can never have been
intended. Postponement of an objection respecting the parol evidence rule does
not imply that a court would take into account this evidence once it is
admitted. Judges hear evidence and constantly make determinations with respect
to the proper weight at a later date. I believe that the main principle to be
gleaned from the GM Canada decision is straightforward: extrinsic
evidence/materials may not be considered absent an ambiguity in written
agreements.
[28]
Although there does not
appear to be a consensus in the approach taken by Canadian courts to the issue
of parol evidence, most courts appear to have admitted the evidence to be
heard, followed by an analysis in which weight, if any, was assigned to it
later on or in the judgment itself (VSA Highway Maintenance Ltd. v. British
Columbia, [2000] B.C.J. No. 1545; Shearwater Marine Ltd. v. Guardian
Insurance Co. of Canada, [1997] B.C.J. No. 519; Osooli-Talesh v. Emami,
[2008] B.C.J. No. 155).
[29]
In conclusion, I do not
believe that judges are bound to rule immediately on the admissibility of
extrinsic evidence at the time of an objection based on the parol evidence rule
and may, depending on the circumstances, determine that it be admitted and
assigned the proper weight, if any, at a later date. This is simply in keeping
with what judges do every day. It may be that a judge, faced with a short
concise document, could make an immediate determination respecting ambiguity at
the time of the objection. In other instances, that may not be expedient due to
the voluminous number of documents to be reviewed and assessed.
[30]
Therefore, I conclude
that I would have been correct in admitting the extrinsic evidence/materials
proposed by the Appellant when the objection was made and assessed the weight,
if any, to be assigned once I had determined the existence or not of ambiguity in
the leasing program documents. However, since I have requested submissions and
I have had ample time to review those leasing documents, it is only fair to
both parties that I provide a ruling on the objection in these Reasons.
Are the Written Agreements Ambiguous?
[31]
After examining the
Supreme Court of Canada decision in CJA, Local 579, the Federal
Court of Appeal in GM Canada stated at paragraph 34 that:
… the prevailing case law seems
agreed that ambiguity exists when a contractual provision or words thereof are
capable of being understood in more ways than one …
I believe the decision of the Federal Court of Appeal
provides five further general guidelines in determining whether ambiguity
exists:
(1)
The Court should not
strain to find ambiguity that does not exist;
(2)
The ambiguity must
exist in the word/document itself, not from further evidence;
(3)
Complexity in
interpreting a contract does not amount to ambiguity;
(4)
The words must be
ambiguous when reviewed objectively; and
(5)
Evidence relating to
the subjective intention of the parties may not be admitted as evidence.
[32]
According to the
Federal Court of Appeal, C. Miller J.’s error was in failing to heed guideline
number two above – that is, he found ambiguity not in the words/documents
themselves but rather from further evidence which the parties presented. At
paragraph 46, Nadon J. stated:
… In my respectful view, the Judge
fell in the trap which Fridman refers to in The Law of
Contract in Canada, above, when he says at page 446, that "the
ambiguity found by the court must not be one that results from the evidence
which the parties wish to present". …
[33]
Consequently, I do not
believe the Respondent is correct when he states:
… The proposition we say that [GM
Canada] stands for is that a court should not easily find that a term is
ambiguous. …
(Transcript,
page 68)
On
the contrary, it would appear that the Federal Court of Appeal in GM Canada
was merely highlighting some of the traps that may cause a judge to err when
making a determination respecting ambiguity.
[34]
In the present appeals,
to determine whether the leasing program agreements are ambiguous, it is
necessary to determine if the terms of these agreements can be interpreted to
mean both that:
(1)
the assignment of
assets, lease agreements and lease revenue was completed by the Appellant as
security for its indebtedness to MFA; and
(2)
the assignment of
assets, lease agreements and lease revenue was an absolute assignment by the
Appellant as repayment of its indebtedness to MFA.
[35]
The Respondent’s
position is that the assignment was completed as security and cited several
examples of wording within the documents to support this submission:
(a)
“assign all accounts …
as security for financing;
(b)
assign all lease
agreements … as security for the funding; and
(c)
On-Line hereby grants …
a continuing and specific security interest in …”.
[36]
The Appellant did not,
either at trial or in his written submissions, address the examples cited by
the Respondent. Instead, he simply stated that the Respondent had
misinterpreted and misrepresented the Appellant’s written agreements. I believe
that it is telling that, despite having two months to examine this issue and
prepare submissions, the Appellant did not attempt to explain why the contracts
are ambiguous nor did he attempt to rebut the Respondent’s arguments.
[37]
An argument could be
made that the phrase “security for the funding” could be interpreted to mean
that the assignment was made as security for the benefit of MFA for the funding
which requires interpreting the word “security” as being a reference to the
relationship between MFA and the lessees, the various municipalities. However,
if I seriously entertained this possible second interpretation, I would be
clearly violating the guideline set down in GM Canada which states that
a court should not strain to find ambiguity. In my opinion, the leasing program
documents contain no ambiguity and, therefore, the Appellant will not be
permitted to introduce extrinsic evidence to assist in explaining the
documents.
[38]
More specifically, at
the hearing, the Appellant attempted to introduce correspondence “… between the
two parties, the principal players representing the two parties to the
agreement, setting out what their initial discussions were … [h]ow this
agreement developed” (Transcript, page 104). I do not believe this
correspondence could now be admitted for two reasons: my conclusion that the
leasing documents on their face are not ambiguous and also this correspondence
is clearly evidence of subjective intent of the parties, which is never
admitted.
[39]
If I had pursued a
different course of action when the objection was made during the hearing, then
I would have allowed the evidence in and dealt with it in my reasons. The only
difference is that it would have been at the end of the day before I assigned the
extrinsic evidence no weight. With the submissions and the time period I have
had to adequately examine and review the documents for ambiguity, it is not
necessary now to admit this evidence.
[40]
In summary, I have
concluded the following:
(1)
A court is not required
to make a ruling on the parol evidence rule at the time such objection is made
and GM Canada does not stand for that proposition;
(2)
The courts’ use of the
term “consider” rather than “admit” in GM Canada implies that a
court may hear extrinsic evidence and then assign it weight, if any;
(3)
With the ample time to
examine the documents, I conclude that objectively there is no ambiguity contained
in the documents making the introduction of extrinsic evidence now unnecessary;
and
(4)
The evidence sought to
be introduced by the Appellant is subjective intention evidence, which may
never be introduced.
[41]
The hearing shall
resume at 9:30 a.m. on Tuesday, April 13, 2010.
Signed at Kelowna, British Columbia, this 2nd day of March 2010.
"Diane Campbell"
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