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In Coco
Intl Inc v Green Infrastructure Partners Inc, the Ontario
Superior Court addressed an application ordering the release of $40
million of escrow funds.
Background: An Agreement Between Giants
The Applicants, Jenny Coco and Rock-Anthony Coco, the sibling
duo who ran Coco Paving, one of Canada’s largest paving
businesses (the “Coco’s”), sued Green Infrastructure
Partners, and its parent company, GFL Environmental Inc.
(“GFL”), a Canadian waste management giant headquartered
in Toronto, for $40 million following GFL’s acquisition of Coco
Paving.
Two months after entering into the Share Purchase Agreement
(SPA), the Coco’s informed GFL of a $213 million guarantee
given by Coco Paving four years earlier to CERIECO, a Chinese
state-owned lender, involving the development of a major
condominium project at 1 Bloor Street West, “The One.” As
a result, the Coco’s and GFL entered into subsequent
agreements, one of which suspended notice periods under the SPA.
According to the Coco’s the CERIECO guarantee was released on
agreement between the parties.
According to the SPA, $80 million was set aside in an escrow
account to fund any undisclosed legal liabilities, 50% of which
($40 million) would be released back to the Coco’s after 1
year, following the closing date in the event of no indemnity
claims.
As it turns out, the CERIECO guarantee was not released. Less
than a month after closing, CERIECO commenced a claim against the
Coco’s and others, asserting, among other things, damages
arising out of the $213 million guarantee. Two weeks later, the
Coco’s advised GFL of the claim and GFL assumed the defence of
the proceeding.
One year after the closing date, the Coco’s requested the
release of 50% ($40 million) of the escrow funds. GFL refused on
the basis that notice of an indemnity was given to the Coco’s
within one year of the closing date, as required by the SPA. The
Coco’s responded with a $40 million lawsuit against GFL,
arguing that GFL’s notice was deficient because it was not
delivered to the escrow agent prior to the one-year anniversary of
the closing date and because the notice did not provide an estimate
of damages.
Findings: Trying to Pull a Fast One? Try Again
Justice Osborne was unimpressed with the Coco’s attempt to
“pull a fast one.” He rejected the Coco’s narrow
interpretation of the SPA and noted artificiality of the entire
interpretive exercise proposed by the Applicants as they were
already made aware of the proceedings involving the guarantee as
they were each named as individual defendants in that proceeding
days prior to receiving notice from the purchasers.
Justice Osborne was led by the Supreme Court of Canada’s
doctrine on contractual interpretation that:
[52] The law is clear that the interpretation of written
contractual provisions must be grounded in the text and read in
light of the entire contract. The contract must be read as a whole,
giving the words used their ordinary and grammatical meaning,
consistent with the surrounding circumstances known to the parties
at the time of the formation of the contract […]
In dismissing Coco’s argument, Justice Osborne first looked
to the ordinary and grammatical meaning of the words contained in
the relevant provisions of the SPA, finding that while notice to
the Coco’s was to be provided within one year, based on the
SPA’s use of “must,” notice to the escrow agent was
not mandatory, based on the SPA’s use of “may,” and
that the SPA did not require the Coco’s to be provided with an
estimate of damages. Justice Osborne then turned to the other
agreements relating to the indemnity, finding that any timelines
under the SPA relating to the indemnity were suspended by
subsequent agreements.
Justice Osborne was also asked to consider whether relief from
forfeiture was available in this case and held that while it was
available, it was not necessary to be decided on the basis of the
contractual agreements in place, and based on Coco’s
opportunistic behaviour in the lawsuit. He was also asked to
consider whether the decision in of the Court of Appeal in 3 Gill Homes Inc v 5009796 Ontario Inc.
(Kassar Homes) fundamentally changed the legal approach to
“time is of the essence” clauses in the agreements
between the parties. In finding that Gill Homes did not change the
legal approach to such clauses, Justice Osborne held that the cases
were distinguished on their facts and in equity: there was no
dispute about the timeline in Gill, and that the “laying in
the weeds” strategy deployed by the vendors was
distinguishable from the conduct of an innocent party.
Key Takeaways: Precedent Still Stands
Justice Osborne’s analysis provides a helpful reminder to
practitioners and businesses that the wording and interplay within
and between contractual agreements will guide the analysis in a
contracts dispute. Furthermore, his decision suggests that courts
will not tolerate the dubious conduct of parties when commencing
proceedings.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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