Canada: PDM Entertainment Inc. V. Three Pines Creations Inc.: Correctness Standard Of Review For Contractual Interpretation

In its June 29, 2015 decision in PDM Entertainment Inc. v. Three Pines Creations Inc., the Ontario Court of Appeal held that an application judge's interpretation of a contract was to be reviewed on a correctness standard. Such cases will be rare in the aftermath of Sattva Capital Corp. v. Creston Moly Corp. ("Sattva", previously discussed here). Nonetheless, PDM Entertainment reminds litigants that a trial judge's exercise in contractual interpretation will occasionally be reviewed on a correctness standard, and gives guidance for future cases in this respect. The decision also provides helpful reminders that:

  • setting aside a decision on the ground of insufficient reasons is a very high threshold; and
  • appellate courts will give great deference to judges' exercising their equitable discretion to grant relief from forfeiture.

Background

This appeal arose from applications concerning the interpretation of a contract (the "Option Agreement") that gave a producer the option, upon payment of a pre-established sum, to extend its right to make made-for-television movies of an author's books. After it became apparent that the producer and the author had differing views about how the Option Agreement gave the producer the ability to extend its rights in this respect, duelling applications were brought, seeking vindication of the respective positions. The producer also sought relief from forfeiture, as it had mistakenly underpaid the author by $4,000 on a particular date.

The application judge found in the producer's favour. On appeal, the appellant argued that the application judge failed to give adequate reasons for judgment, erred in his interpretation of the Option Agreement, and erred in granting the producer relief from forfeiture.

Insufficient Reasons

The application judge's reasons were only eleven paragraphs. Justice MacPherson, for a unanimous Court of Appeal, "acknowledge[d] that the application judge's reasons on the contract issue are conclusory and that his reasons on the relief from the forfeiture issue are terse" (para. 31). He nonetheless held that the reasons met the rationales behind the duty to give adequate reasons as explained in the Supreme Court's decision in F.H. v. McDougall, specifically:

(1) to justify and explain the result;

(2) to tell the losing party why he or she lost;

(3) to provide for informed consideration of the grounds of appeal; and

(4) to satisfy the public that justice has been done.

Clearly relevant in Justice MacPherson's mind were:

  • the application judge's references to and agreement with (parts of) the comprehensive record and factums; and
  • the fact that there was a request to issue the decision on an urgent basis.

The Standard of Review for Contractual Interpretation

Turning to the interpretation of the Option Agreement, Justice MacPherson explained why he felt that the application judge's interpretation of the contract should be reviewed on the standard of correctness:

[42]      The Option Agreement is a contract. The respondent asserts that its interpretation presents a question of mixed fact and law because, as Rothstein J. stated in [Sattva], at para. 55, "the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific." Accordingly, the general rule "in favour of deference to first instance decision-makers on points of contractual interpretation" (Sattva, at para. 52) applies on this appeal.

[43]      I do not accept this submission. In his reasons, the application judge did not provide any analysis of ss. 2.3 and 2.3B of the Option Agreement; rather, all he said was, "I am of the view that the option agreement allows for an extension of a fourth year by the clearest language". He said nothing about s. 5.1 of the Option Agreement, on which the appellants heavily relied. I also observe that the decision in this case was made in relation to two applications, not a trial; that there are no credibility issues; and that there are only two or perhaps three contractual provisions that need to be considered. Taking these circumstances together, I think it is appropriate to review the decision under appeal on a standard of correctness.

These sorts of markers may prove helpful to future litigants arguing for a correctness standard of review on contractual interpretation, though none appears determinative.

In the result, however, Justice MacPherson agreed with the application judge. One cannot help but wonder if this decision on standard of review was influenced by the desire that justice "be seen to be done" in light of the application judge's very brief reasons.

Relief from Forfeiture

Finally, Justice MacPherson rejected the appellants "essentially technical argument" (para. 62) that the application judge did not have jurisdiction to grant relief from forfeiture. He noted that "court has a broad discretion to award relief from forfeiture under s. 98 of the Courts of Justice Act" (para. 62) and:

[66]      Although his reasons are brief, the application judge [...] found that PDM acted in good faith in the contract extension process; that its 'breach' (mistake) – the payment of $4,000 instead of $8,000 – was trivial in relation to a contract on which it had already paid well over $100,000; and that forfeiture would be a grossly disproportionate outcome in light of PDM's mistake – namely, "the loss of opportunity to create and produce a very valuable and successful film property."

[67]      Relief from forfeiture is a discretionary equitable remedy. A judge's decision in this domain is entitled to considerable deference. I see no basis for interfering with the application judge's exercise of discretion in this case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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