A majority on the B.C. Court of Appeal has rejected the arguments of a major real estate developer that a letter of intent it entered into with a Singapore-based billionaire over a failed development in Vancouver was a legally binding contract, but a dissenting judge is saying the standard set in the case could have an enormous impact on the business community going forward.
The case in Concord Pacific Acquisitions Inc. v. Oei 2022 BCCA 16 involves a dispute over one of the last undeveloped plots of land on the Vancouver waterfront. The property, which had originally been used as part of the Expo celebrations in 1986, was supposed to have been the site of a $1.4-billion condo development. Developer Concord Pacific signed a two-page document described as the “heads of agreement” with financier Hong Leong Oei to purchase a 50 per cent interest in H.K. Expo, the company which indirectly owned the land, and that the two parties intended to jointly develop the property.
But the deal fell apart, leading Concord Pacific to launch a lawsuit saying Oei had breached the terms of their sales agreement and acted in bad faith, and that the heads were intended to be a binding initial agreement in respect of three covenants: a loan, a share sale and a governance provision for future development of land. But then-B.C. Supreme Court Justice Peter Voith (in Concord Pacific Acquisitions Inc. v. Oei 2019 BCSC 1190) held the heads weren’t legally binding because it lacked certain essential terms of a contract, such as when Oei was to transfer his H.K. Expo shares to Concord. And the B.C. Court of Appeal declined to interfere with that ruling.
Justice David Harris, writing for the majority, noted that Concord’s arguments that the judge “repurposed” the heads to do more than what was originally contemplated “does not engage an extricable legal error.”
“[The argument] is, in substance, an attack on the judge’s findings of fact or mixed fact and law about the nature and purpose of the heads within the relevant factual matrix, as well as on the judge’s interpretation of the heads. In my view, this case falls to be decided on the standard of review,” he wrote. “The alleged errors must be reviewed on the deferential standard, but no palpable and overriding error has, in my respectful view, been established. Indeed, no effort has been made to meet this standard. Accordingly, this court should defer to the judge’s conclusions.”
Justice Harris was joined by Justice Gail Dickson in his ruling, but Justice Sunni Stromberg-Stein wrote a vigorous dissent, arguing the heads were binding and the standard set by the trial judge “could have an enormous impact on the business community.”
Irwin Nathanson, Nathanson Schachter & Thompson
But Irwin Nathanson of Nathanson, Schachter & Thompson, who represented Oei, said he disagreed with that statement.
“The law has been developed in this country for many years that what the parties think might be an agreement is not an agreement at law if it doesn’t contain all the essential terms,” he said. “And what Concord was essentially arguing was if the parties think they have got enough, then the court has no business getting involved and second-guessing them — which is contrary what has been around for 100 years.”
For his part, Concord Pacific counsel Geoff Hall said it was “very likely” his client would seek leave to appeal.
“It was part of our complaint that the trial judge had effectively tried to get a three-page letter to govern many aspects of this project — but you can’t do a billion-dollar development in one agreement. I think that is something the Supreme Court might be interested in looking at,” he said. “You need the certainty of these initial umbrella agreements so that people just can’t walk away when they get mad at the other side.”
Hall’s co-counsel Connor Bildfell said the majority’s decision continues the trend of appellate courts deferring to trial judges on the interpretation of contracts, a trend which has been building over the past several years.
“One of the main justifications that courts have offered for the deferential approach is the notion that the trial judge is the one who heard all of the evidence and is in the best position to make factual findings based on that evidence,” he said. “There may be justification for that deference, but the buck stops where the trial judge makes an error of law — and our position is that is precisely what happened.”
But Michael Litchfield, director of the Business Law Clinic at the University of Victoria, said he believed the majority judgment essentially got it right. He noted the case boiled down to whether the basic elements of a contract were present, and both the trial judge and the Court of Appeal identified the two primary tests as being whether there was an intention to enter contractual relations and whether there was certainty of terms.
“In this case the parties actually did intend to bind themselves, but the terms were not certain — so that is a lesson for corporate commercial solicitors who are drafting these kinds of agreements,” he said. “And I do think the concerns in the dissent may be somewhat overstated because I do believe that people are aware, especially when they are dealing with billion-dollar transactions like this, of what constitutes a binding contract and what doesn’t.”
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