Coast Mountain Aviation Inc. v. M. Brooks Enterprises Ltd.

2014 BCCA 133 Coast Mountain Aviation Inc. v. M. Brooks Enterprises Ltd.

COURT OF APPEAL FOR BRITISH COLUMBIA Citation: Coast Mountain Aviation Inc. v. M. Brooks Enterprises Ltd., 2014 BCCA 133 Date: 20140408 Docket: CA040340 Between: Coast Mountain Aviation Inc. Appellant (Plaintiff) And A.K.S. Trucking Ltd. Respondent (Defendant) And M. Brooks Enterprises Ltd., Matthew Gregory McAmmond Brooks, and Envision Credit Union (Defendants) Before: The Honourable Madam Justice Saunders The Honourable Mr. Justice Low The Honourable Madam Justice MacKenzie On appeal from: An order of the Supreme Court of British Columbia, dated September 28, 2012 (Coast Mountain Aviation Inc. v. M. Brooks Enterprises Ltd., 2012 BCSC 1440, Vancouver Docket S084634). Counsel for the Appellant: G. Ritchey Counsel for the Respondent: K. P. Maki Place and Date of Hearing: Vancouver, British Columbia March 4, 2014 Place and Date of Judgment: Vancouver, British Columbia April 8, 2014 Written Reasons by: The Honourable Madam Justice MacKenzie Concurred in by: The Honourable Madam Justice Saunders The Honourable Mr. Justice Low Summary: The appellant loaned $1.1 million to a debtor who defaulted. The respondent guaranteed the loan, but denied liability because the appellant had breached a proviso in the guarantee stipulating a mortgage on the respondent's Whistler property was not to be registered until default by the debtor. The mortgage was in fact registered before the loan was

advanced. The trial judge held the respondent was released from liability. The appellant submitted the trial judge erred in failing to rectify the proviso and in concluding the respondent was an accommodation surety. Held: appeal dismissed. The trial judge did not err in concluding the proviso was not open to rectification. The evidence at trial did not disclose either a prior oral agreement or a common intention to remove the proviso. The loan agreement and the guarantee involved different parties and inconsistency with the loan agreement does not establish grounds for rectification of the guarantee. The trial judge did not err in concluding the respondent was an accommodation surety; the compensation the respondent received was relatively minimal and primarily for the benefit of the lender. Reasons for Judgment of the Honourable Madam Justice MacKenzie: Introduction [1] The central issues on this appeal are whether rectification is available to remove a condition, or "proviso", from a guarantee, and whether the respondent guarantor was a "compensated" or an "accommodation" surety. [2] The appellant, Coast Mountain Aviation Inc. ("Coast"), loaned $1.1 million to the respondent, M. Brooks Enterprises Ltd. ("MBE"). The loan was guaranteed by the respondent, A.K.S. Trucking Ltd. ("A.K.S."). MBE defaulted on the loan and went into bankruptcy. [3] Coast claimed against A.K.S. on

its guarantee. A principal issue at trial was whether A.K.S. was liable on the guarantee to repay MBE's loan. A.K.S. denied liability because Coast had breached the proviso in the guarantee stipulating the mortgage on A.K.S.'s Whistler property, granted as security, was not to be registered against the property until default by the debtor and demand by the creditor. The mortgage was instead registered prematurely before Coast advanced the loan to MBE. [4] Coast sought rectification of the instrument by removal of the proviso to reflect what it contended was the agreement between A.K.S. and Coast. Alternatively, Coast argued A.K.S. was a compensated surety which ought not to be released from liability under the guarantee. [5] The trial judge dismissed Coast's claim against A.K.S. because Coast had failed to meet the test for rectification based on unilateral mistake, and A.K.S. was an accommodation surety which was released from liability because Coast had breached a material term of the guarantee. [6] Coast appeals. [7] I find no reversible error in the decision of the trial judge, and would dismiss the appeal for the reasons that follow. Background [8] The trial judge concisely set out the background as follows: [2] Matthew Brooks had for more than 20 years run a successful road building company in the Lower Mainland, Aggressive Roadbuilders Ltd. ("Aggressive"). Mr. Brooks

regularly hired Dave Shokar to haul gravel and aggregate for Aggressive. Eventually, Mr. Shokar incorporated A.K.S. Trucking and expanded his truck fleet. A.K.S. earned about 25% of its revenues from Aggressive. [3] Over the years Mr. Shokar and Mr. Brooks developed both a strong business relationship and a good friendship. When Mr. Shokar was starting out, MBE would advance funds to cover the purchase of trucks by A.K.S. In 2007 Mr. Brooks hired Mr. Shokar to oversee all of Aggressive's trucking contracts, paying him a salary of $100,000 annually. Mr. Shokar viewed Mr. Brooks as a benefactor who had given A.K.S. a start in business and contributed significantly to its success. Mr. Shokar also trusted Mr. Brooks and expected Aggressive to weather any financial difficulties it might encounter. [4] Unbeknownst to Mr. Shokar, Matthew Brooks' personal and business affairs had begun to unravel in 2007. He borrowed heavily and early in 2007 obtained a $570,000 loan from Coast. Despite its name, Coast Mountain Aviation Inc. has nothing to do with aviation. It is, rather, a company wholly owned by Mr. Strato Malamas, who uses it as a vehicle for stock trading. Mr. Malamas is not generally in the business of loaning money; in 40 years he has made loans only twice before, once to his neighbour, and on another occasion to a man who did some painting for him. [5] In January 2008, Mr.

Brooks approached Mr. Malamas about having Coast make another loan to MBE. Although there had been some problems in the repayment of the first $570,000 loan, it had been reduced to $146,000 by January 2008. Mr. Malamas was willing to loan Mr. Brooks an additional $950,000 for his business ventures for a three-month term at a 55% interest rate, as long as adequate security was in place. [6] Mr. Brooks convinced Mr. Shokar to have A.K.S. act as a guarantor for the consolidated $1,096,000 loan from Coast to MBE and to put up a Whistler condominium owned by A.K.S. as security. [7] The loan agreement, A.K.S.'s guarantee and related documents were prepared by Coast's solicitor, Douglas Livesey, on an expedited basis in early February 2008. They were sent to Quiring Jellis & Company as Christopher Quiring of that firm had agreed to provide independent legal advice to MBE, Brooks, and A.K.S. On February 8, both Mr. Brooks and Mr. Shokar attended Mr. Quiring's office. Mr. Brooks provided a personal guarantee of MBE's loan and signed loan documents on behalf of MBE. A guarantee and other documents were also executed by Mr. Shokar on behalf of A.K.S. The meeting with Mr. Quiring took about 20 minutes. [8] The guarantee signed by A.K.S. provided that the mortgage on the Whistler property was not to be registered against the property until default by the debtor and demand by the creditor.

However, the mortgage was registered on February 8, 2008, the same day the documents were signed, and prior to default or demand. Immediate registration accorded with the terms of the loan agreement between Coast and MBE and other ancillary documents prepared as part of the transaction. Registration of the mortgage in advance of the debtor's default and in breach of the guarantee is central to resolution of the dispute between the parties and will be returned to later in these reasons. [9] Matthew Brooks and MBE failed to make any of the three monthly payments required during the term of the loan. Coast sent a demand letter to Brooks, MBE and A.K.S. on June 5, 2008, and commenced this action a few weeks later. [10] Coast received a payment of $242,159 in a foreclosure action commenced by Envision Credit Union against the property MBE had provided as security for the Coast loan. The remainder of the loan and interest, now in total close to three times the original principal, is outstanding. [11] A.K.S. denied liability for the loan under the guarantee . [9] Coast then commenced an action against Mr. Brooks, MBE and A.K.S. for the amount owing on the loan. The Trial Reasons [10] As bankrupts, Mr. Brooks and MBE were no longer parties to the lawsuit. The trial focussed largely on two issues between Coast and A.K.S. The first issue was whether A.K.S. was liable under its guarantee

in view of Coast's breach of the proviso term. Coast argued the proviso was inserted as a result of a unilateral mistake on its part. Based on this error, Coast sought rectification of the A.K.S. guarantee to reflect its contention that the actual agreement between A.K.S. and Coast required the mortgage on A.K.S.'s Whistler property to be registered before Coast's loan was advanced to MBE. [11] A.K.S. argued it was released from liability because Coast had breached the terms of the A.K.S. guarantee by immediately registering the mortgage against the Whistler property, rather than as required by the proviso. [12] The judge relied on Servus Credit Union Ltd. v. Waylan Mechanical Ltd., 2009 ABQB 754, which applied the principles in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 ("Sylvan Lake"), to determine a party seeking rectification of a contract for a unilateral mistake must show the existence and content of an inconsistent prior oral agreement. [13] The judge found Coast had not proved the existence of an inconsistent prior oral agreement. As a result, she held rectification was not available, and the agreement between A.K.S. and Coast was as reflected in the A.K.S. guarantee signed on February 8, 2008. [14] A.K.S. and Coast also disagreed on the effect of Coast's breach of the proviso in the guarantee. Coast submitted it could not relieve

A.K.S. from liability because the breach did not undermine or decrease the value of the security provided by the debtor, or increase the amount of risk assumed by A.K.S. A.K.S. contended that any breach of the A.K.S. guarantee, no matter how minor, relieved it of liability. The judge concluded neither party's characterization of the law was entirely correct. [15] The judge considered and rejected other arguments not in issue on appeal, then addressed whether A.K.S. had established a breach of a kind sufficient to relieve A.K.S. from liability. She traced the development of the law in this area to the decision in Citadel General Assurance Co. v. Johns-Manville Canada Inc., [1983] 1 S.C.R. 513 ("Johns-Manville"). The judge concluded Johns-Manville did not change the law pertaining to breaches of guarantees given by accommodation sureties. It followed that accommodation sureties will be discharged from liability for material breaches of a guarantee, but not for trivial or inconsequential ones. The judge decided the starting point as to whether Coast's breach of the guarantee was sufficient to relieve A.K.S. from liability was to determine whether A.K.S. was an accommodation surety or a compensated surety. [16] After setting out the definitions of the two types of sureties in question, the judge reviewed the case law since Johns-Manville which she determined had expanded the

category of compensated sureties beyond professional bonding companies. She concluded it was a question of fact whether a surety in a particular case is a compensated surety or an accommodation surety. On that question, the judge undertook a comprehensive consideration of each benefit, both direct and indirect, that Coast contended A.K.S. received from being a surety for MBE. She concluded A.K.S. was an accommodation surety. [17] The trial judge decided the law in relation to the discharge of an accommoda­tion surety remains as it was prior to Johns-Manville: an accommodation surety will not be relieved of liability for technical or trivial breaches of a guarantee. The judge moved on to address the nature of Coast's breach of the A.K.S. guarantee. She found it was not insubstantial or trivial. She considered there is a sound policy reason for the law to hold lenders to the strict terms of a guarantee with an accommodation surety. In summary on that issue, the trial judge concluded A.K.S. was not liable under the guarantee. [18] In the result, the judge dismissed Coast's claim against A.K.S. Issues [19] In its factum, Coast frames the issues on appeal as follows: A. The common intention of the parties in the transaction was to permit the Inter Alia Mortgage to be registered before the loan was funded and, therefore, the trial judge erred in failing to rectify the AKS Guarantee

by removing the Proviso. B. Alternatively, the trial judge erred in concluding there was no oral agreement to remove the Proviso from the AKS Guarantee. C. Alternatively, the trial judge erred in concluding AKS was an accommodation surety and not a compensated surety. At trial, Coast presented its case only on the basis of rectification for unilateral mistake. It did not raise mutual mistake which is the basis for the first ground of appeal. I will therefore address the second issue first because it is based on the case presented to the trial judge. Did the trial judge err in concluding there was no oral agreement to remove the proviso from the A.K.S. guarantee? [20] Coast registered the mortgage on A.K.S.'s Whistler condominium before MBE defaulted on its loan from Coast, and the early registration was contrary to clause 2 of the A.K.S. guarantee, the proviso, which reads as follows: 2. Security for Guaranteed Obligations The Guarantor agrees to execute a mortgage of their property described in Schedule A to secure their obligations herein on the proviso that the Creditor will not register said mortgage unless and until 5 days after there has been a Demand for repayment of the Guaranteed Obligations made by Creditor on the Debtor and payment in full of the Guaranteed Obligation[s] has not then been received. Upon registration the Creditor shall be free to pursue all rights of

an unpaid Mortgagee against the Guarantor or either of them as he in his sole and absolute discretion may determine. [21] The following clause in the A.K.S. guarantee contains similar wording: 5. Payment on Demand The liability of the Guarantor shall be payable immediately upon five days default by the Debtor in the payment of any amount(s) due to the Creditor and upon receipt by the Guarantors of written demand by the Creditor, such demand to be conclusively deemed to have been effectually made and given when a notice containing such demand, addressed to the Guarantor, is delivered to the attention of the Guarantor at the address of the Guarantor set forth in this agreement or at such other address as the Guarantor may from time to time designate to the Creditor in writing. [22] While A.K.S. contended at trial that Coast's breach of the proviso in clause 2 of the A.K.S. guarantee released it from liability under the guarantee, Coast argued the proviso was inserted in the guarantee as a result of a unilateral mistake. Therefore, Coast submitted the guarantee should be rectified to reflect the parties' actual agreement that the mortgage on A.K.S.'s Whistler condominium was to be registered before the funds were advanced to the debtor MBE. [23] The judge began her analysis of this issue by identifying the preconditions to establishing unilateral mistake and rectification. She

said: [17] Unilateral mistake and rectification are established when the following preconditions are met: (1) The party seeking rectification "must show the existence and content of the inconsistent oral prior agreement" (para. 37 [Sylvan Lake]). (2) The party seeking rectification must show "that the written document does not correspond with the prior oral agreement, but that [the other party] either knew or ought to have known of the mistake in reducing the oral terms to writing. It is only where permitting [the other party] to take advantage of the error would amount to 'fraud or the equivalent of fraud' that rectification is available." This is not a reference to the tort of deceit or strict fraud, but fraud in the "wider sense... where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained" (paras. 38-39, citing First City Capital Ltd. v. British Columbia Building Corp. (1989), 43 B.L.R. 29 (B.C.S.C.), at p. 37). (3) The party seeking rectification must show "'the precise form' in which the written instrument can be made to express the prior intention" (para. 40, citing Hart v. Boutillier (1916), 56 D.L.R. 620 (S.C.C.), at p. 630). (4) "[A]ll of the foregoing must be established by ... 'convincing proof'" (para. 41, citing Augdome Corp. v. Gray, [1975] 2 S.C.R. 354, at pp. 371-72). (Servus Credit Union Ltd. v. Waylan

Mechanical Ltd., 2009 ABQB 754 reviewing criteria outlined by the Supreme Court of Canada in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678) [24] In my view, the trial judge correctly identified the principles of law applicable to the rectification issue before her which was based on the unilateral mistake of Mr. Livesey, solicitor for Coast. Her reasons reflect the criteria in Sylvan Lake required for rectification. In Sylvan Lake, Justice Binnie explained the purpose and conditions precedent for rectification: [31] Rectification is an equitable remedy whose purpose is to prevent a written document from being used as an engine of fraud or misconduct "equivalent to fraud". The traditional rule was to permit rectification only for mutual mistake, but rectification is now available for unilateral mistake (as here), provided certain demanding preconditions are met. Insofar as they are relevant to this appeal, these preconditions can be summarized as follows. Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff must establish that the terms agreed to orally were not written down properly . [Emphasis added.] [25] Justice Binnie added that each of the conditions precedent for rectification must be proven to a standard of "convincing proof." He held this standard entails

"proof that may fall well short of the criminal standard, but which goes beyond the sort of proof that only reluctantly and with hesitation scrapes over the low end of the civil 'more probable than not' standard" (para. 41). [26] The Supreme Court of Canada reiterated the conditions precedent for rectification in Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, where Justice Rothstein, for the Court, held: [53] In Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, Binnie J., at paras. 37-40, set out the necessary requirements for rectification: (1) the existence and content of the inconsistent prior oral agreement; (2) that the party seeking to uphold the terms of the written agreement knew or ought to have known about the lack of correspondence between the written document and the oral agreement, in circumstances amounting to fraud or the equivalent of fraud; and (3) "the precise form" in which the written instrument can be made to express the prior intention. [27] The trial judge then said, "The only evidence of a prior oral agreement is the testimony of Mr. Livesey, Coast's solicitor at the time, who drafted the guarantee and other loan documents" (para. 20). The judge discussed Mr. Livesey's evidence in detail as follows: [20] Mr. Livesey said that the oral agreement was reached during a conversation he had with

Mr. Quiring on February 7, 2008. The first drafts of the documents were emailed to Mr. Quiring at 9:18 p.m. on February 7, 2008. The guarantee for A.K.S. included the clause in issue. It is not entirely clear from Mr. Livesey's evidence whether the conversation he recalls with Mr. Quiring occurred before or after the documents went over: at one point, Mr. Livesey said he did not know what motivated the conversation initially, at another Mr. Livesey said that he contacted Mr. Quiring when he was advised that Mr. Quiring was going to act for the borrower and guarantor, and at yet another point in his testimony he said that he may have looked at the draft documents, noticed the delayed registration clause in the guarantee, and called Mr. Quiring to talk to him about it and its removal. [21] In any event, Mr. Livesey testified that Mr. Quiring informed him that he wanted to insert a clause in the guarantee to provide that the mortgage security being tendered by A.K.S. was not to be registered unless there was a default and demand on the debtor. Mr. Livesey said that he objected to the addition of such a clause because he thought it would seriously affect his client's mortgage security. He testified that he told Mr. Quiring it was not acceptable from his client's point of view and noted that the mortgages were the "key part of the loan security". It was Mr. Livesey's recollection

that once the conversation finished, Mr. Quiring reluctantly agreed that the clause should be removed from the guarantee. [22] According to Mr. Livesey, after this conversation occurred, a second set of documents was sent to Mr. Quiring's office the next day, at about 10:30 a.m. on February 8. That set contained relatively minor amendments including corrections to the numeric description of the loan amount and the legal description of one of the properties referred to. The guarantee in this second set of documents again contained the clause that Mr. Livesey says Mr. Quiring had agreed should be taken out of the guarantee. [28] The judge noted that when A.K.S.'s witness, its solicitor Mr. Quiring, was asked in cross-examination whether he recalled "having a conversation with Mr. Livesey about this file", he said he did not recall "a conversation" with Mr. Livesey and had no specific recollection of the transaction. [29] The trial judge concluded Coast had not established the existence of an earlier and different oral agreement, the prerequisite for rectification based on unilateral mistake. I set out her reasoning at length because her analysis is relevant to several issues on this appeal. She said: [27] Having considered all of the evidence, I have concluded, for the following reasons, that Coast has not established the existence of an earlier and different oral agreement. [28]

First, the conversation recalled by Mr. Livesey is inconsistent with the scope of Mr. Quiring's retainer. Mr. Quiring testified that his practice was a transaction based one. He said "documents showed up" and he would be asked to set up an appointment to give independent legal advice; when documents were accepted by his firm that amounted to accepting the retainer. His retainer in relation to A.K.S. and Matthew Brooks was a limited retainer to give independent legal advice on the documents. He met Mr. Shokar for the first time on February 8, at the appointment to sign the documents and provide independent legal advice. [29] There is no evidence that Mr. Quiring spoke to Mr. Shokar before that meeting or had engaged in any way to act on his behalf in negotiating the terms of the loan and guarantee documents for A.K.S. To the contrary, when Mr. Livesey's legal assistant sent over the amended second set of documents on the morning of February 8, Mr. Quiring expressed some annoyance, immediately sending an email saying "I understood from Mr. Brooks that we would only be providing ILA". [30] Second, Mr. Livesey's office drafted all the documents sent to Mr. Quiring for signature, including the certificate of independent legal advice and opinion letter to be signed by Mr. Quiring. The guarantee and other key loan documents were provided in PDF format and could not be revised by Mr.

Quiring. Mr. Livesey agreed that Mr. Quiring's office could not and did not revise or amend any of the documents. [31] Mr. Livesey acknowledged that the proviso in Clause 2 must have been put into the guarantee by his office. He said that he had been retained on February 6 and that the funds had to be disbursed to the borrower by Friday, February 8, which meant his firm was working all out to get the deal done. He had himself, a very experienced assistant, a secretary, and an associate lawyer working on the file to complete the transaction in time. Mr. Livesey, when asked to explain how the proviso came to be in the guarantee, said: I think Jennifer Kraft who was the lawyer working on it -- she had a conversation with Mr. Quiring and did that and the documents went out with it in it. I can say, and I'm not sure on this either -- it may have been I looked at the documents, saw the guarantee, talked to Quiring and said this clause has to go out, and somehow the clause was not taken out in the rush. [32] It was apparent that Mr. Livesey's evidence on this issue was largely supposition. Ms. Kraft was not called to give evidence, nor was Mr. Quiring asked in cross-examination whether he recalled a conversation with the associate lawyer. [33] Furthermore, if Mr. Livesey had noticed that his associate had inserted the proviso into the guarantee, and if he then called Mr. Quiring to

make sure he understood that the proviso was not acceptable and would have to be removed from the guarantee, it would be expected that Mr. Livesey would review the guarantee to ensure that it had been removed. That is particularly so given that Mr. Livesey described the clause as a significant threat to his client's security for the loan. [34] Third, Mr. Livesey confirmed that it was his practice to always make notes of conversations he had with opposing counsel. When asked why there were no notes of the conversation with Mr. Quiring on the file, Mr. Livesey said he was not sure. He thought that probably when the deal closed on Friday they "wrapped it up after a long day and the notes did not make it onto the file". [35] There is no doubt that there is an inconsistency in the documents sent to Mr. Quiring and signed by MBE and A.K.S. The documents contained the proviso in the A.K.S. guarantee precluding registration of the Whistler mortgage until default, but also contained a guarantee for Mr. Brooks providing that the mortgage on his property was to be registered immediately. That is significant because both the A.K.S. and MBE mortgages were contained on one form for registration (an inter alia mortgage) which could only be filed in the Land Title Office at the same time. This inconsistency is, however, of no assistance in establishing a prior oral agreement, because the inter

alia form of mortgage might have been the error rather than the A.K.S. guarantee. [36] Coast argued that the conduct of A.K.S. following registration of the mortgage, and more particularly its failure to object to that registration, confirms that it had agreed to registration of the mortgage on its Whistler property prior to disbursement of the funds. Coast points to delivery of the registered mortgage and state of title certificate to Mr. Quiring within a week of the documents being signed. There was, however, no evidence that Mr. Quiring sent these documents on to A.K.S. To the contrary, the evidence of both Mr. Malamas and Mr. Shokar was that in early 2009, when they met to try to settle these proceedings, Mr. Shokar informed Mr. Malamas that he need not worry about the Whistler condominium because he, Mr. Shokar, did not plan on selling it before this dispute was resolved; Mr. Shokar was surprised to learn at that meeting that the mortgage was already registered on his property. [37] In summary on this issue, I find that the plaintiff has not proved the existence of a prior oral agreement which is a precondition to rectification of a contract for unilateral mistake. It follows that the agreement of the parties is that reflected in the guarantee signed on February 8, 2008. [30] I will address shortly Coast's argument that there was a substantial body of other evidence

consistent with the existence of an oral agreement and corroborating Mr. Livesey's evidence to which the trial judge did not refer. But first, I will consider Coast's argument that the judge erred in determining less weight should be given to Mr. Livesey's evidence because his version of the conversation was not put to Mr. Quiring. This is the "Browne v. Dunn" issue. Browne v. Dunn [31] Coast argues the trial judge erred in relying on the rule in Browne v. Dunn (1893), 6 R. 67 (H.L.), to give less weight to Mr. Livesey's evidence. [32] The trial judge described how the Browne v. Dunn issue arose: [25] Coast submits that since Mr. Quiring does not recall having a conversation with Mr. Livesey, and Mr. Livesey has a specific recollection of a conversation and its contents supporting an oral agreement, "Mr. Livesey's testimony must stand as accurate". With respect, the fact finding process is not quite that simple. Mr. Livesey's evidence must be weighed and assessed in the context of all of the evidence in this case. [26] Because of scheduling issues, Mr. Quiring, who was called by the defendant, testified before Mr. Livesey, who was called as part of the plaintiff's case. It is noteworthy that, while Mr. Quiring was asked if he recalled a general conversation with Mr. Livesey, he was never asked whether he recalled negotiating a term of the guarantee in relation to the timing of

the registration of the mortgage security, a more specific question which might have triggered Mr. Quiring's recollection or, at the very least, provided him with an opportunity to indicate whether that was likely or not, given the scope of his retainer. In accordance with the rule in Browne v. Dunn (1893), 6 R. 67 (H.L.), such a question should have been put to him, since whether the timing of registration was negotiated and agreed to is a material issue in this case. The evidence of Mr. Livesey carries less weight as a result of the failure of the plaintiff to put the question directly to Mr. Quiring. The judge then explained in the reasons, replicated above, why she concluded, based on all the evidence, that Coast had not established the existence of an earlier and different oral agreement. [33] Coast submits the trial judge incorrectly applied Browne v. Dunn because the rule was not engaged in the circumstances. Coast says it is unknown whether the judge would have reached the same conclusion regarding a prior oral agreement had she not applied the rule. [34] In R. v. Drydgen, 2013 BCCA 253, this Court confirmed Browne v. Dunn applies where counsel intends to impeach, by means of extrinsic evidence or on closing argument, the credibility of a witness, thereby giving notice to the witness. Relevant to this case, Donald J.A. said, "If the rule in Browne v. Dunn applies and it

is breached, particularly on significant matters, it is open to the trial judge to diminish the weight of the contradictory evidence " (para. 26, emphasis added). [35] Here, Coast's counsel never directly asked Mr. Quiring during cross-examination whether he recalled having a conversation with Mr. Livesey about negotiating the insertion and removal of the proviso. Yet Coast asked the judge to infer that Mr. Livesey's testimony was accurate, relying, in part, on Mr. Quiring's testimony. The judge's response was to give Mr. Livesey's evidence less weight, based on Browne v. Dunn, given the lack of cross-examination of Mr. Quiring on this issue. [36] Coast now concedes the trial judge was not obliged to accept the evidence of Mr. Livesey merely because it was not contradicted. But Coast also says it does not follow that Browne v. Dunn permitted the judge to give less weight to Mr. Livesey's evidence when Coast's counsel failed to ask Mr. Quiring specifically whether he recalled a conversation with Mr. Livesey or with Ms. Kraft (who was not called as a witness) about the insertion and removal of the proviso. Coast submits the confrontation may well have been a meaningless exercise because Mr. Quiring said several times he did not recall the transaction. [37] I observe Coast also submits that "[t]here is no dispute the evidence of Livesey was not perfect" and acknowledges the

judge's description of what I consider to be a most important part of Mr. Livesey's evidence (how the proviso came to be in the guarantee) as "largely supposition". Coast also agrees there were instances where Mr. Livesey was "uncertain as to the timing of the conversation and the manner in which the Proviso came to be in the AKS Guarantee". Nonetheless, Coast says Mr. Livesey did not resile from the aspect of his evidence that Mr. Quiring and he understood the proviso was not to be included in the guarantee. [38] I find it unnecessary in this case to resolve the Browne v. Dunne question. I observe though that the trial judge reasonably identified a void in the cross-examination of Mr. Quiring. This gap is underscored by the new argument on appeal that the trial judge erred in failing to address rectification based on mutual mistake. While Browne v. Dunn emphasizes the prudence of first hearing counsel's submissions on the issue, I find paras. 31 through 34 of the judge's reasons, quoted above, reflect the judge's view that Mr. Livesey's evidence was unreliable quite apart from her use of Browne and Dunn. [39] On reviewing the evidentiary record as a whole, I consider the judge's reliance on Browne v. Dunn was inconsequential and could not have affected the outcome of the trial. I conclude the testimonial evidence overwhelmingly supports the judge's finding that Coast failed to

establish the existence of an earlier and different oral agreement which is a pre-condition for rectification based on unilateral mistake. Other evidence [40] I turn to consider Coast's submission that the judge erred by failing to consider the "other documents comprising the transaction" which Coast says support the conclusion the proviso was not intended by "the parties" to be part of the guarantee. Specifically, Coast says the loan agreement between MBE and Coast expressly required the inter alia mortgage to be registered against both MBE's Surrey property and A.K.S.'s Whistler property before any funds could be advanced to MBE. This aspect of the loan agreement is inconsistent with the proviso in the A.K.S. guarantee. [41] Coast also says a consideration of other documents involving A.K.S., the evidence of Mr. Quiring, the actions of the parties and the purpose of A.K.S.'s involvement in the transaction, lead to the conclusion that including the proviso in the A.K.S. guarantee was a mistake requiring rectification. [42] Coast develops this thesis at length in support of its new argument on appeal that rectification was also available based on mutual mistake. But Coast also relies on this argument in attempting to show there was a body of other evidence, not considered by the trial judge, which was consistent with the existence of the requisite prior oral agreement, that

corroborated Mr. Livesey's testimony. Therefore, I will address this submission now. It is unnecessary to set it out in great detail because it essentially repeats argument advanced in the court below on the question of unilateral mistake. I consider the submission to be an attempt to effectively have this Court retry the case presented at trial. [43] First, I disagree with Coast that the judge failed to consider the totality of the evidence, including the other documents and the conduct of the parties, when she found Coast had failed to prove a prior oral agreement inconsistent with the terms of the A.K.S. guarantee. Instead, I see her consideration of that body of evidence reflected throughout her reasons for judgment, including at paras. 11 and 12, 20-26, 27-31 (some of which are set out above), and in particular, in the following, which I quoted earlier but set out here for ease of reference: [35] There is no doubt that there is an inconsistency in the documents sent to Mr. Quiring and signed by MBE and A.K.S. The documents contained the proviso in the A.K.S. guarantee precluding registration of the Whistler mortgage until default, but also contained a guarantee for Mr. Brooks providing that the mortgage on his property was to be registered immediately. That is significant because both the A.K.S. and MBE mortgages were contained on one form for registration (an inter alia

mortgage) which could only be filed in the Land Title Office at the same time. This inconsistency is, however, of no assistance in establishing a prior oral agreement, because the inter alia form of mortgage might have been the error rather than the A.K.S. guarantee. [36] Coast argued that the conduct of A.K.S. following registration of the mortgage, and more particularly its failure to object to that registration, confirms that it had agreed to registration of the mortgage on its Whistler property prior to disbursement of the funds. Coast points to delivery of the registered mortgage and state of title certificate to Mr. Quiring within a week of the documents being signed. There was, however, no evidence that Mr. Quiring sent these documents on to A.K.S. To the contrary, the evidence of both Mr. Malamas and Mr. Shokar was that in early 2009, when they met to try to settle these proceedings, Mr. Shokar informed Mr. Malamas that he need not worry about the Whistler condominium because he, Mr. Shokar, did not plan on selling it before this dispute was resolved; Mr. Shokar was surprised to learn at that meeting that the mortgage was already registered on his property. [44] Thus, I find no merit in Coast's submission that the trial judge failed to consider the totality of the evidence in reaching her conclusion on the rectification issue as presented to her. [45] Furthermore, and

importantly, the A.K.S. guarantee is the only document Mr. Shokar signed on behalf of A.K.S. A.K.S. was not a party to the loan agreement between MBE and Coast. Nor is there anything ambiguous about the meaning of the words used in the A.K.S. guarantee that must be resolved by reference to extrinsic evidence. The other documents, including the loan agreement between MBE and Coast on which Coast particularly relies, are not part of the A.K.S. guarantee. The A.K.S. guarantee stands alone. This is underscored by the fact it contains an "entire agreement" clause. [46] The judge clearly said, at para. 27, she had considered all of the evidence. I agree with her finding at para. 35: This inconsistency [in the documents sent to Mr. Quiring and signed by MBE and A.K.S.] is, however, of no assistance in establishing a prior oral agreement, because the inter alia form of mortgage might have been the error rather than the A.K.S. guarantee [emphasis added]. Contrary to Coast's contention, I see no commercial absurdity in such an explanation. [47] In my view, rectification is not available on the facts of this case to correct an inconsistency between different contracts involving different parties. The evidence as a whole simply fails to explain the inconsistency. [48] The only two witnesses who could have provided evidence of a prior oral agreement inconsistent with the A.K.S. guarantee

were Mr. Livesey, whose evidence the judge found to be unreliable, and Mr. Quiring, who could not recall the transaction. Their evidence could not support a finding that the preconditions for rectification had been met. I see no palpable and overriding error in the judge's application of the law to findings of fact that were open to her on the evidence. [49] I would not accede to the ground of appeal based on the contention that the trial judge erred in concluding there was no prior oral agreement between A.K.S. and Coast to remove the proviso from the A.K.S. guarantee. Was the common intention of the parties to permit the inter alia mortgage to be registered before the loan to MBE was funded? [50] This contention was not advanced before the trial judge. At trial, Coast presented its case on rectification based only on its alleged unilateral mistake, through Mr. Livesey. Coast now argues the trial judge erred in failing to also consider rectification based on mutual mistake. Coast is asking this Court to make a factual determination the trial judge was not required to make. We do not have the benefit of the judge's findings of fact on the issue of mutual mistake and A.K.S. defended the case on the basis of alleged unilateral mistake. [51] Despite these difficulties, I have considered the evidentiary record and Coast's argument, discussed above, regarding the whole of the

documents and the conduct of the parties, to address whether the common intention of the parties was different from the terms of the written instrument. As stated, Coast's argument on mutual mistake is very similar to its submission on rectification based on unilateral mistake made before the trial judge and before this Court. Essentially for the same reasons, I conclude Coast's argument based on rectification for mutual mistake must also fail. [52] The evidence does not prove that A.K.S. and Coast did not intend the proviso to be a condition of the A.K.S. guarantee. The fact Mr. Quiring, solicitor for A.K.S., could not recall the transaction, and Mr. Livesey, solicitor for Coast, gave unreliable evidence, simply means Coast could not prove the mutual mistake it asserted. [53] Coast's argument on this issue is largely captured in its factum as follows: 43. When considering this issue it is important to remember this was a complex commercial transaction and the entirety of the parties' agreement was not embodied in a single document. It included many documents, each of which was required and fulfilled a purpose in the transaction. No single document defined the full nature and extent of each of the parties' rights and obligations. Each played a role in the overall arrangement but the transaction depended on all of them. As such, it is submitted it would be artificial, and an error, to seek the intentions of the parties by referencing only the provisions of the AKS Guarantee, or the dealings of the parties with respect to that specific document.

44. However, in substance that is the approach the trial judge took. Apart from one instance, she did not consider the other documents comprising the transaction which, it is submitted, clearly established the parties, including AKS, intended the Inter Alia Mortgage to be registered on February 8, 2008 before any funds were advanced under the loan.

45. The starting point is the Loan Agreement which expressly required the Inter Alia Mortgage to be registered against both the Surrey Property and the Whistler Property before any funds could be advanced. In other words, by the terms of the Loan Agreement Coast had no obligation to advance the funds to MBE until registration was complete.

46. This aspect of the Loan Agreement is irreconcilable with the Proviso. Admittedly, if these two documents are considered in a vacuum, it does not assist in determining the true intent of the parties. However, it is submitted a consideration of other documents executed by AKS, the evidence of Quiring, the actions of the parties and the purpose of AKS' involvement in the transaction can only lead to the conclusion the inclusion of the Proviso in the AKS Guarantee was a mistake requiring rectification.

47. Although AKS was not party to the Loan Agreement, there can be no doubt AKS was aware of its terms and intended the transaction to proceed in accordance with its terms. In particular, the resolutions of AKS, which were also a necessary part of the transaction, expressly authorized AKS to guarantee the borrowing of monies "on the terms and conditions described in the Loan Agreement". In light of the terms of the Loan Agreement referenced above, this document is a clear expression by AKS of the intent that the mortgage be registered before any funds were advanced to MBE. [Emphasis in original.] [54] As on the issue of unilateral mistake, the evidence simply fails to establish that the common intention of A.K.S. and Coast was other than expressed by the plain meaning of the words in the A.K.S. guarantee. Again, there was nothing ambiguous about this guarantee, which contained an "entire agreement" clause. A.K.S. was not a party to MBE's loan agreement with Coast, and the intention of A.K.S. cannot be determined by the intentions expressed in a contract to which it was not a party. [55] Coast also relies on the A.K.S. directors' resolutions, which include: D. The Company is not insolvent and the Directors are of the opinion that it is in the financial interests of the Company to guarantee the indebtedness of [MBE] an affiliated company by way of mortgage on the Property in

favour of Coast Mountain. I do not consider that directors' resolutions can override a binding contract that contains an "entire agreement" clause where there is no ambiguity in that contract. [56] The trial judge assessed all the evidence adduced at trial, including the totality of the documents and the conduct of the parties to determine Coast did not establish the existence of a prior oral agreement inconsistent with the terms of the A.K.S. guarantee. In my view, similar reasoning inexorably leads to the conclusion that Coast has also failed to prove the common intention of A.K.S. and Coast was different from that clearly expressed by the terms of the A.K.S. guarantee. [57] Nor do the authorities on which Coast relies offer any support for its position. For example, in Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673 at para. 16, the court reiterated the established principle of contractual interpretation that if the court finds the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity. But Coast overlooks that this principle of contractual interpretation depends first on the existence of an ambiguous contract. Here, there is nothing ambiguous about the A.K.S. contract. The meaning of the proviso is clear. Timothy's Coffees does not assist Coast. [58] I note the very wording of this ground of appeal reflects the flaw in Coast's

argument. Coast says, "The common intention of the parties in the transaction was to permit the Inter Alia Mortgage to be registered before the loan was funded ." [emphasis added]. Throughout its submission, Coast refers to all of what Coast considers to be "the parties", including MBE. But the relevant parties on the rectification issue are only A.K.S. and Coast. MBE was not a party to the A.K.S. guarantee, nor was A.K.S. a party to MBE's loan agreement with Coast. [59] Coast uses the word "transaction" to refer not only to the A.K.S. guarantee, but also to include the MBE loan agreement and the inter alia mortgage. But the issue is narrow: it is only to discern the mutual intention of Coast and A.K.S. in their contract. [60] In summary, I agree with A.K.S. that even considering Coast's new argument on mutual mistake, the trial judge's findings of fact do not reflect a common intention of A.K.S. and Coast to remove the proviso from the A.K.S. guarantee. In my view, this ground of appeal is an attempt to recast the case to again have this Court retry it, which is not our function. [61] I would not give effect to this ground of appeal. Did the trial judge err in concluding A.K.S. was an accommodation surety rather than a compensated surety? [62] The judge, citing Gray v. Employers' Liability Corp. (1913), 23 W.L.R. 527 (Man. K.B.), observed that historically, "[g]uarantee

contracts had to be strictly complied with; if the creditor departed from the terms of the agreement with the surety, the surety would be discharged except in situations where the deviation was necessarily beneficial to the surety or plainly insubstantial or trivial" (para. 48). [63] The judge noted, however, the law of sureties became more complicated after the Court drew a distinction between accommodation sureties and compensated sureties in Johns-Manville. In that case, Justice McIntyre described at 521-522 the former as "sureties who have entered into their contract of surety in the expectation of little or no remuneration and for the purpose of accommodating others or of assisting others", and the latter as entities whose "business consists of guaranteeing performance and payment in return for a premium." [64] The judge concluded at para. 63 that Johns-Manville did not change the law regarding breaches by creditors of guarantees given by accommodation sureties. Accommodation sureties will be discharged from liability for material breaches of a guarantee, but not for trivial or inconsequential ones. [65] Based on this framework, the judge determined A.K.S. was an accommoda­tion surety since the compensation it received on the loan was minimal in relation to the degree of risk it assumed and the amount of the loan and because the compensation was made to benefit Coast. The

trial judge also held, "it is not enough, in order to establish a benefit to A.K.S. flowing from the loan to which the guarantee attached, to simply demonstrate that the guarantor and the recipient of the loan 'did business together'" (para. 102). [66] Finally, the judge held that Coast's breach of the proviso was not insubstantial or trivial because the term breached was a condition of the guarantee. Therefore, A.K.S. was discharged from liability under the A.K.S. guarantee. [67] Coast submits the judge erred in determining A.K.S. was an accommodation surety rather than a compensated surety. It says the determination of this question should depend on the character of the surety relationship, not the amount of compensation the surety receives. [68] I cannot accept this submission. [69] I agree with the judge when she concluded, "I take from [the jurisprudence since Johns-Manville] that it is a question of fact whether a surety in the circumstances of a particular case is a compensated surety or an accommodation surety" (para. 70). [70] The judge thoroughly analyzed the potential direct and indirect benefits A.K.S. received from Coast before determining A.K.S. was not a compensated surety. As to direct benefits, she reasoned as follows: [72] Although A.K.S. did not receive a fee in return for acting as a guarantor for MBE, it received a small portion of the funds advanced. The

payout statement included in the loan documents, and signed by Mr. Shokar on behalf of A.K.S., directed $2,135.66 be used to pay outstanding property taxes owing on A.K.S.'s Whistler condominium; and another $5,000 was directed to be held in trust to clear from title a judgment registered against A.K.S. which was subsequently determined to amount to $4,756.90. A.K.S. thus received direct benefits totalling $7,135.66. [73] Johns-Manville defined an accommodation surety as one who receives "little or no remuneration". It follows that a guarantor who receives a small recompense may still be an accommodation surety rather than a compensated surety. In considering the remuneration received by A.K.S. for outstanding taxes and the judgment registered against title, I conclude that this payment alone does not make A.K.S. a compensated surety. [Emphasis in original.] The judge concluded the $7,135.66 A.K.S. received to pay outstanding property taxes and a judgment was minimal in relation to the degree of risk assumed and the amount of the loan. [71] The judge then considered, at paras. 75-102, whether A.K.S. received indirect benefits sufficient to make it a compensated surety. She concluded the business dealings between the principal of A.K.S., Mr. Shokar, and the principal of MBE, Mr. Brooks, were insufficient to establish A.K.S. was a compensated surety. She summarized their business

dealings as follows (para. 75): 1. Mr. Shokar and MBE were co-owners of a commercial property; 2. A.K.S. received "free rent" from MBE; 3. Mr. Shokar received a salary from Mr. Brooks' company, Aggressive; 4. Aggressive owed money to A.K.S. for work done, and A.K.S. was paid for some of that work after the loan was made; and 5. The financial success of Mr. Brooks' companies would indirectly affect A.K.S., and Mr. Shokar and his companies. [72] Coast again contends the judge erred by failing to consider the directors' resolutions of A.K.S. authorizing the A.K.S. guarantee and mortgage, which stated, "the Directors are of the opinion that it is in the financial interests of the Company to guarantee the indebtedness of [MBE] an affiliated company " Coast submits the reference to "financial interests" in the resolutions demonstrates that A.K.S. hoped the transaction would be financially beneficial to both parties, so there was no policy reason why A.K.S. should receive the legal benefits afforded to accommodation sureties. [73] In my view, the references to "financial interests" and an "affiliated company" are not determinative of the application of the legal test to all the circumstances. The description of A.K.S. as being "affiliated" with MBE, in the sense of being in close formal or informal association, does not assist Coast, and "financial interests" is open to a number of

interpretations. Whether an entity is a compensated surety involves the application of a legal standard to all the facts. I see no error in the judge's analysis of the case law and would add nothing to it. The exercise of identifying the legal principles and applying them to the facts is the role of the trial judge. It is not determined by the words in a resolution. I see no palpable or overriding error in her analysis. [74] Furthermore, there is no obligation in law on a trial judge to record all or any specific part of her deliberation on the facts. As Chief Justice McLachlin said in R. v. R.E.M., 2008 SCC 51 at para. 64, "a trial judge is not obliged to discuss all of the evidence on any given point, provided the reasons show that he or she grappled with the substance of the live issues on the trial." In my opinion, the judge's reasons amply reflect that she grappled with whether A.K.S. was an accommodation or a compensated surety. That she did not explicitly mention the resolutions does not mean she ignored them. Reasons should not be read as a verbalization of the entire process engaged in by the trial judge: R. v. Morrissey (1995), 22 O.R. (3d) 514 (C.A.) at 525. It is for the trial judge to evaluate the evidence. Conclusion [75] In summary, I conclude this appeal is determined by the limited standard of review of an appellate court. Coast has failed to identify any error

of law, or any palpable and overriding error in the judge's findings of fact or application of the law to the facts that would justify our interference in this case. It is not for this Court to retry the case and to substitute our assessment or view of the evidence for that of the trial judge. [76] In the result, I would dismiss the appeal. "The Honourable Madam Justice MacKenzie" I agree: "The Honourable Madam Justice Saunders" I agree: "The Honourable Mr. Justice Low"