MacDonald v. Canada, 2002 FCT 372

Date: 20020404

Docket: T-2655-97

Neutral citation: 2002 FCT 372

OTTAWA, ONTARIO, APRIL 4, 2002

PRESENT: THE HONOURABLE MADAM JUSTICE DANIÈLE TREMBLAY-LAMER

BETWEEN:

                                   ROGER K. MACDONALD and WILLIAM CAMPBELL

                                                                                                                                                        Plaintiffs

                                                                            - and -

                                    HER MAJESTY THE QUEEN IN RIGHT OF CANADA

                                                                                                                                                   Defendant

                                                  REASONS FOR ORDER AND ORDER

[1]                 This is an action in contract to determine if a settlement agreement was entered into between the Plaintiffs and the Defendant on issues arising from the Plaintiffs' tax appeals to the Tax Court of Canada.

[2]                 The Plaintiffs each held partnership units in various general partnerships established in Calgary, Alberta in the late 1970's and early 1980's to develop large downtown commercial real estate projects. The partnerships are referred to as the "Odessa Partnerships".

[3]                 As a result of a severe downturn in Calgary's economy in the early 1980's each of the Odessa Partnerships incurred millions of dollars in business losses. The Odessa Partnerships claimed entitlement to certain tax relief. The Minister of National Revenue disallowed the losses for the tax years in question.

[4]                 The Plaintiffs appealed to the Tax Court of Canada. Prior to trial the parties attempted unsuccessfully to settle the matter. The trial of their appeals began on November 21, 1995. On the second day of trial, verbal discussions took place attempting again to resolve the appeals. A verbal settlement agreement appears to have been reached and the trials were adjourned. Minutes of settlement were drafted by counsel for the Defendant. They were forwarded to the Plaintiffs' lawyer, who then advised that the drafts were not in accordance with his understanding of the settlement terms.

[5]                 On January 24, 1997, the Defendant informed the Plaintiffs that he was unilaterally withdrawing from the agreement and would no longer be deemed to be bound by its terms.

[6]                 The Plaintiffs allege that they entered into a valid, binding and enforceable settlement agreement with the Defendant which was specifically predicted on the methodology for allocation of losses amongst the Plaintiffs.

[7]                 The Defendant first submits that the parties were not ad idem as to the terms of the settlement. The Defendant further submits that if a verbal settlement was reached in the terms alleged by the Plaintiffs, the Defendant is obliged to apply the law and is not bound by any purported settlement agreement that is unlawful.

          Was there a binding agreement between the Plaintiffs and the Defendant?

[8]                 The Plaintiffs' evidence was put before me by the testimony of Mr. R. MacDonald, one of the Plaintiffs, in his capacity as Managing Partner, and by Mr. Goldenberg, counsel for the Plaintiffs at the time. Ms. Bonnie Moon testified for the Defendant as senior counsel, Tax Litigation, who had carriage of the file in these appeals before the Tax Court of Canada.

[9]                 After hearing their testimony, it is not disputed that the parties have reached an agreement on the "quantum" issue. The contentious issue revolves only on the methodology for allocating the losses.

[10]            On one hand, Mr. MacDonald testified that he always took a consistent position which is that the "partnership unit" losses were to be allocated as follows: The total amount of negotiated losses per partnership divided by the number of partnership units owned by "net contributing partners" in that partnership.

[11]            On the other hand, Ms. Moon testified that this proposal was never accepted and that the amount of losses should be divided by the original number of partners.

[12]            The correspondence filed is convincing evidence that there was no acceptance by the defendant of the Plaintiffs' formula and that there was no "meeting of the minds" on that issue.

[13]            This is clearly reflected in a letter dated April 2, 1996 addressed to Ms. Moon by Mr. Goldenberg (Exh. P-1, Tab 21) at p. 2. In that letter, Mr. Goldenberg stated the following: "At no time can I in good faith state that there was an agreement between us as counsel on behalf of our respective clients on this particular issue."

[14]            Further, this same letter makes it abundantly clear that this issue was so important that no agreement could be reached without resolving it: "The resolution of this issue is fundamental to the entire settlement process because it effectively determines the amount of additional losses available to the qualified net remaining partners" [emphasis added]. This explains why the drafted minutes of settlement were never signed.

[15]            In order for there to be a binding agreement there must be consensus ad idem. In the present case, the evidence leaves no doubt that an essential element was missing.

[16]            The plaintiffs argue that if it is determined that the terms of the settlement did not include a methodology for allocating losses, because the parties were ad idem on all other relevant terms of the settlement agreement, the original trial should be recommenced on the issue of determining a formula for loss allocations only with the remaining terms of the settlement agreement confirmed by the Court.

[17]            In some cases, where a particular obligation is deemed uncertain, and therefore not enforceable, it will be possible to excise this obligation from the contract, if the rest of the agreement is capable of being enforced. The obligation which is not enforceable must not relate to essential aspects of the alleged contract:

[...] In the absence of the requisite certainty and clarity the courts will not declare that a contract exists. Another possibility is that the courts will not recognize a particular obligation asserted to be part of a contract. In such instances courts have stated that terms which are uncertain, and therefore not enforceable, may be excised from the contract, if the rest of the agreement is capable of being enforced. Uncertainty about some specific obligation may suffice to make impossible the conclusion that there is a contract in effect between the parties. The test would seem to be whether the term or terms in question relate to essential aspects of the alleged contract. [...]

[emphasis in original; footnotes omitted]

(G.H.L. Fridman, The Law of Contract in Canada, 4^th ed. (Toronto: Carswell, 1999) at 20-21.

[18]            In my opinion, the methodology for allocating losses did relate to an essential aspect of the agreement. Therefore, I am unable to sever this issue from the others. Unfortunately, the whole matter will have to be determined by the Tax Court. The action is dismissed with costs.

                                                O R D E R

THIS COURT ORDERS THAT:

[19]            The action is dismissed with costs.

                                                                      "Danièle Tremblay-Lamer"

JUDGE