You have probably seen the words, "for greater clarity", hundreds of times in loan and security documents, and wondered if they were really necessary. A recent Ontario decision has shown that using these simple words may clearly come in handy in the event of a dispute over a fundamental contractual term.
In GolfNorth Properties,1 GolfNorth Properties Inc. ("GolfNorth") purchased agricultural lands intended to be rezoned as a golf course (the "Property") for $1,600,000 from Diana Vacca and her father, Vittorio Vacca (the "Vaccas"), by paying $800,000 in cash and the balance secured by a vendor take-back mortgage in favour of the Vaccas (the "VTB"). The VTB provided that if approval for rezoning as a golf course was not obtained by GolfNorth by a certain date and GolfNorth notified the Vaccas that it would not be paying the VTB, the Vaccas could elect to re-purchase the Property from GolfNorth. The relevant provision of the VTB is set out below:
"If [GolfNorth] notifies [the Vaccas] that it does not intend to pay out the Mortgage, [the Vaccas] shall have the option (the "Option") to purchase the Property from [GolfNorth] for $1,200,000.00 free of liens and encumbrances with the exception of the Mortgage. For greater clarity and in conjunction with the Option described above, [the Vaccas] shall upon exercising the Option, purchase the Property by paying to [GolfNorth] the sum of $1,200,000.00 whereupon [GolfNorth] shall be deemed to have satisfied the Mortgage in full."
As it turned out, approval for rezoning was not obtained and GolfNorth notified the Vaccas that it would not be paying the VTB. The Vaccas elected to re-purchase the Property, but the parties disputed the re-purchase price. The Vaccas argued that the price was $400,000, being $1,200,000 less the $800,000 VTB. GolfNorth disagreed and argued that the price was clearly set out in the Mortgage as $1,200,000. GolfNorth stated that it agreed to purchase the Property for $800,000 with an agreement to pay an additional $800,000 under the VTB if rezoning was obtained. Under GolfNorth's interpretation, if rezoning was not obtained, GolfNorth could elect to not satisfy the VTB and the Vaccas could re-purchase the Property for $1,200,000, representing the original $800,000 paid by GolfNorth and the costs of the application for rezoning and other expenses incurred by GolfNorth in respect of the Property. According to the Vaccas, this interpretation made no commercial sense, as it would in effect reward GolfNorth for failing to obtain rezoning approval.
The issue was left to the courts to decide. In determining the price to be paid by the Vaccas, the second sentence in the excerpt of the Mortgage above proved to be decisive. The court held that without this second sentence, there may have been some ambiguity as to the amount to be paid by the Vaccas to re-purchase the Property, and in particular, if the VTB was to be satisfied by GolfNorth on the transfer of the Property to the Vaccas. The second sentence commencing with the words "For greater clarity" removed that ambiguity; the Vaccas must pay $1,200,000 to re-purchase the Property, and in doing so, the VTB would be satisfied in full. GolfNorth's interpretation of the contentious provision ultimately prevailed, showing that the addition of those three words "for greater clarity" may come in handy when complex contractual terms come under the judicial microscope.
Footnote
1 457351 Ontario Inc. v GolfNorth Properties Inc, 2013 ONSC 5298 [GolfNorth Properties].
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