108 Media Corporation v. BGOI Films Inc., 2019 ONSC 880

CITATION: 108 Media Corporation v. BGOI Films Inc., 2019 ONSC 880

                                                                                                  COURT FILE NO.: CV-18-589787

DATE: 20190205

ONTARIO

SUPERIOR COURT OF JUSTICE

108 MEDIA CORPORATION
(Applicant)

V

BGOI FILMS INC.
(Respondent)

 

M. D. FAIETA J.

REASONS FOR DECISION

 

INTRODUCTION

[1]               The Applicant, 108 Media Corporation, is a film and television distributor.  The Respondent, BGOI Films Inc., produces low-budget horror films.  BGOI produced a horror film “Pinup Dolls on Ice” (the “Picture”).  On July 15, 2015, the parties entered a Sales Agency Agreement (“SAA”) which provided that 108 would act as BGOI’s sales agent for the Picture outside of North America (the “Territory”) for five years.  Under the SAA, 108 promised BGOI a minimum guarantee of USD $55,000 upon the initial release of the Picture in the Territory payable within six months of the Movie’s initial release.  The SAA provides for arbitration of any dispute.

[2]               On September 8, 2015 the Movie was released in the Territory by Donau Films.   108 failed to pay BGOI the minimum guarantee by March 16, 2016.  BGOI terminated the SAA on June 1, 2016.

[3]               BGOI delivered a Notice of Request to Arbitrate under the Arbitration Act, 1991, S.O. 1991, c. 17, to enforce payment of the minimum guarantee.  An arbitration was held in November, 2017 and the Award was released on December 11, 2017.   The Arbitrator ruled that BGOI was entitled to the payment of the minimum guarantee.

[4]               The Arbitrator’s Award, at paras. 11-12, described the dispute as follows:

BGOI claims 108 Media breached its obligations relating to the marketing and distribution of the Picture and failed to pay money owing under the SAA, including a minimum guarantee of $55,000 USD.  BGOI also claims that it suffered damages because 108 Media’s actions made it impossible to distribute the Picture or derive any further revenue from it.

108 Media claims BGOI failed to deliver the Picture as required by the SAA and says it is not liable to BGOI for any losses it may have suffered as a result.  108 Media also seeks to set off its distribution expenses against any amounts otherwise payable to BGOI.

[5]               The Arbitrator found that BGOI failed to deliver the full English soundtrack of the Picture to 108 within 30 days of the date of execution of the SAA as required by Section 2 of the SAA (which would have been approximately August 15, 2015).  On the other hand, the Arbitrator found that 108 failed had to perform a number of “fundamental obligations” in connection with the marketing and distribution of the Picture.  Amongst other things, 108 failed to inform BGOI that it had signed a deal memo with Donau in February 2015 (even though 108 did not have a firm sales agency agreement with BGOI at that time), failed to pay BGOI its share of the initial license fee paid by Donau and failed to provide financial reports relating to its agreement with Donau.

[6]               The Arbitrator found, at para. 64, that 108 Media failed to perform its obligations under the SAA and that those breaches were not excused or justified by the failure of BGOI to deliver the Picture.  At para. 62, the Arbitrator stated:

108 Media argued that any failure to perform its obligations were caused by BGOI’s failure to deliver the Picture. I do not accept this argument.  Many of 108 Media’s breaches occurrred before BGOI was required to deliver the Picture.  BGOI’s ultimate reluctance to deliver the full English soundtrack was directly caused by 108 Media’s initial failure to disclose the Donau deal.

[7]               The Arbitrator also rejected the submission that BGOI was not entitled to payment of the minimum guarantee because BGOI had failed to deliver the Picture.  At paras. 71-73, he stated:

108 Media also argued that BGOI acted in bad faith in delivering the picture to Donau, with the intent that the release by Donau would trigger the guarantee, and at the same time refusing to deliver the full soundtracks and other materials to 108 Media, thereby frustrating any further exploitation of the Picture by 108 Media.

Ms. Mira’s evidence in this regard was that BGOI would have delivered the Digital Master to 108 Media at the beginning of August, if 108 Media had not requested that they send it directly to Donau instead.  She also said that BGOI was willing to deliver all necessary materials to any international distributors who entered into agreements for the Picture and would have delivered them to 108 Media, if it had been properly peforming its obligations under the SAA.

I have found that both parties failed to perform their obligations under the SAA. Nevertheless, the Picture was released by Donau, triggering the minimum guarantee of $55,000 USD under the SAA.  …

[8]               On January 10, 2018, 108 commenced this application for leave to appeal the Award.  In its Amended Notice of Application, 108 sought leave to appeal on three grounds which it characterizes as questions of law:

(1)   The arbitrator erred in law by finding that BGOI was entitled to fundamentally breach the SAA while simultaneously finding that BGOI was entitled to the benefits of the SAA months after 108 Media accepted the repudiation.

(2)   The arbitrator also erred in law by enforcing a clause, namely the payment of the Minimum Guarantee, in an agreement that fails for lack of consideration – the sole consideration provided by BGOI for entering into the SAA is the delivery of the Picture, which delivery never occurred.

(3)   The arbitrator also erred in law by allowing BGOI to benefit from a contract that it fundamentally breached, contrary to the principle that a party should not benefit from its own wrongdoing, which the arbitrator did not consider.

[9]               At the hearing of this application, 108 abandoned the second ground for leave to appeal.

[10]           On March 15, 2018, BGOI issued a notice of application that asks the court for a Judgment that recognizes and enforces the Award.

ANALYSIS

ISSUE #1: SHOULD LEAVE TO APPEAL BE GRANTED?

[11]           In support of 108’s request for leave to appeal the Award, the following matters were addressed:

  •     Does the SAA deal with “appeals on questions of law”?
  •     Does either of the two grounds of appeal advanced by 108 amount to a “question of law”?
  •     Does the importance to the parties of the matters at stake justify an appeal?
  •     Will the decision of the question of law at issue significantly affect the rights of the parties?

Does the arbitration agreement “deal with appeals on questions of law”?

[12]           An appeal from an arbitration award is governed by section 45 of the Act:

Appeal on question of law

45 (1)  If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,

(a)        the importance to the parties of the matters at stake in the arbitration justifies an appeal; and

(b)        determination of the question of law at issue will significantly affect the rights of the parties.  1991, c. 17, s. 45 (1).

Idem

(2)  If the arbitration agreement so provides, a party may appeal an award to the court on a question of law.  1991, c. 17, s. 45 (2).

Appeal on question of fact or mixed fact and law

(3)  If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law.  1991, c. 17, s. 45 (3).

Powers of court

(4)  The court may require the arbitral tribunal to explain any matter.  1991, c. 17, s. 45 (4).

Idem

(5)  The court may confirm, vary or set aside the award or may remit the award to the arbitral tribunal with the court’s opinion on the question of law, in the case of an appeal on a question of law, and give directions about the conduct of the arbitration.  1991, c. 17, s. 45 (5).

[13]           There is no dispute that the SAA does not provide for an appeal on a question of fact or on a question of mixed fact and law pursuant to s. 45(3) of the Act.

[14]           At issue in this case, is whether leave to appeal should be granted to 108 pursuant to s. 45(1) of the Act.

[15]           In addition, section 3 of the Act provides that the parties to an arbitration agreement may agree, expressly or by implication, to vary or exclude certain provisions of the Act, including s. 45 of the Act which provides that an application may be brought to set aside an award on certain limited grounds.

[16]           Reading s. 3 and s. 45(1) of the Act together, a statutory right of appeal on a question of law exists, subject to certain conditions, unless the parties by agreement, whether expressly or by implication, eliminate the right of appeal: Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27 et al., 1997 CanLII 1429 (ON CA), [1997] O.J. No. 2649, paras. 13, 14 (C.A.); Denison Mines Ltd. v. Ontario Hydro, 2002 CanLII 20161 (ON CA), [2002] O.J. No. 91, para. 4 (C.A.).

[17]           Section 18.2 of the SAA states:

Should there be a disagreement or a dispute between the parties hereto with respect to this Agreement or the interpretation thereof, the same shall be referred to a single arbitrator, selected jointly by the parties, and the determination of such arbitrator shall be final and binding upon the parties hereto. [Emphasis added]

[18]           108 submits that leave to appeal on a question of law is permitted under s. 45(1) of the Act as the SAA “does not deal with appeals on questions of law” for the following reasons:

  •     First, the phrase “final and binding” does not preclude an appeal on a question of law;
  •     Second, 108’s principal, believed that an appeal on a question of law was available;
  •     Third, Procedural Order Number 1 reflects the parties’ intention to permit an appeal on a question of law.

[19]           In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 S.C.R. 633, the Supreme Court of Canada stated a contract should be interpreted in a practical, common-sense manner applying the following principles:

  •     “The overriding concern is to determine “the intent of the parties and the scope of their understanding” [citations omitted]. To do so, a decision-maker must read the contract 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 formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. …” [para. 47]
  •     “Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.” [para. 50]
  •     “While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement [citations omitted]. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract [citations omitted]. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement [citations omitted]. [para. 57]
  •     Surrounding circumstances “… should consist only of objective evidence of the background facts at the time of the execution of the contract [citations omitted], that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.” [para. 58]  The surrounding circumstances may include the sophistication of the parties and the commercial context in which the contract was made. [para. 66]
  •     Surrounding circumstances does not include evidence of the subjective intentions of the parties. [para. 59]

“Final and binding”?

[20]           Unless the context indicates otherwise, it is generally accepted that where a legislative provision provides that an order is “final” there is no appeal from that order.  The phrase “final and binding” would have no meaning whatsoever if it did not exclude a right of appeal that had been given by statute: Yorkville North Development Ltd. v. North York, 1988 CanLII 4701 (ON CA), [1988] O.J. No. 410, paras. 7 & 8 (C.A.).

[21]           It is now well-established that an arbitration agreement which states that the parties agree to “final and binding” arbitration does not necessarily preclude judicial review, but it does reflect an intention to exclude a right of appeal: Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27 et al., para. 22;  Kucyi v. Kucyi, 2005 CanLII 48539 (ON SCDC), [2005] O.J. No. 5626 (Div. Ct.) para.14; Weisz v. Four Seasons Holdings Inc.,2010 ONSC 4456 (CanLII), paras. 22-25, 37-39; Nasjjec Investments Ltd. v. Nuyork Investments Ltd., 2015 ONSC 4978 (CanLII), paras. 30-35;

108 Did Not Intend to Contract Out of a Right of Appeal

[22]           Abhi Rastogi is the Chief Executive Officer of 108.

[23]           Mr. Rastogi states that the SAA was extensively negotiated.

[24]           He states that 108 and BGOI negotiated the SAA, and exchanged redline drafts, for more than six months.  In February, 2015 108 proposed that the parties use a form of agreement that 108 had obtained from the Independent Film and Television Alliance.  It contained the following arbitration provision:

16.12 Arbitration: Any dispute arising under this Agreement, including with respect to the right or obligation that survives termination or cancellation of this Agreement will be administered and resolved by Final and binding arbitration under the IFTA Rules for International Arbitration in effect as of the Effective Date of this Agreement (“IFTA Rules”).  Each Party waives any right to adjudicate any dispute in any other court or forum, except that a Party may seek interim relief before the start of arbitration as allowed by the IFTA Rules … [Emphasis added]

[25]           Mr. Rastogi states that the BGOI had broad concerns regarding the use of the standard IFTA sales agreement. As a result, Mr. Rastogi delivered a new draft contract that is very similar to the form of the SAA.  The draft sent by Mr. Rastogi contained Section 18.2 of the SAA including the “final and binding” clause.   He states that neither party commented on the “final and binding”  clauses found in either draft agreement.

[26]           Mr. Rastogi states that based on the wording of Section 18.2 of the SAA “108 understood that it retained a limited right of appeal following the arbitration.”  On cross-examination, Mr. Rastogi acknowledged that Section 18.2 did not expressly preserve a right of appeal, “… it did not say I didn’t have the right of appeal”.

[27]           Regardless of the sincerity of his views of the meaning of the phrase “final and binding”, Mr. Rastogi’s subjective view regarding the meaning of that phrase is irrelevant for purposes of interpreting its meaning.  There is no evidence that BGOI and 108 shared the view that Section 18.2 of the SAA preserved a right of appeal.   Accordingly, the surrounding circumstances advanced by 108 do not alter the ordinary and grammatical meaning of the phrase “final and binding” as found in Section 18.2.

Procedural Order No. 1

[28]           Prior to the hearing of the arbitration the parties consented to Procedural Order No. 1, dated May 2, 2017.  Section 6 of Procedural Order No. 1 states:

SECTION 6 – APPEALS

6.1 The Award of the Arbitrator shall be final and binding on the Parties.

6.2 The Award may only be set aside in accordance with the provisions of the Arbitrations Act. [Emphasis added]

[29]           108 submits that Section 6.2 of the Procedural Order No. 1 allows the parties to set aside the Award in accordance with Act which it submits refers to the appeal provisions of s. 45(1) of the Act.  There are two problems with this submission.  First, an arbitral award may be “set aside” under sections 45 and 46.   The parties cannot contract out of the right to apply to set aside an award under section 46.  Given that Section 6.2 may solely refer to applications under section 46 of the Act, there is no compelling reason to interpret Section 6.2 in the manner suggested by 108.   In my view, Section 6.2 need not be taken as referring to anything more that an application under section 46 of the Act.  Second, evidence of the subsequent conduct of a parties is admissible in limited circumstances where: (1) the contract remains ambiguous after considering its text and its factual matrix; (2) will be accorded greater weight if the subsequent conduct are the acts of both parties, are consistent over time and are acts of individuals rather than agents of corporations; (3) the subsequent conduct is consistent with only one of the two alternative interpretations that genereated the ambiguity triggering its admissibility: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912 (CanLII), 35 C.C.E.L. (4th) 1, at para. 46, 53, 54, 56.

[30]           In this case the subsequent conduct of the parties is of no assistance in interpreting section 18.2 of the SAA as I have found that there is no ambiguity in respect of the phrase “final and binding”.  Further, section 6.2 of Procedural Order No. 1 contains its own ambiguity (as just described) and as a result provides no insight into the meaning of Section 18.2 of the SAA.

[31]           Although, I have concluded that there is no right to seek leave to appeal on a question of law under the SAA, I will briefly turn to one further matter raised by108.

ISSUE #2: DO EITHER OF THE TWO GROUNDS OF APPEAL ADVANCED BY 108 AMOUNT TO A QUESTION OF LAW?

[32]           The distinction between a question of law, a question of fact and a question of mixed fact and law was summarized by Justice Perell in DesRochers v. Fis, 2013 ONSC 6467 (CanLII), at para. 43, as follows:

Questions of law concern questions about what is the correct legal test; questions of fact involve questions about what actually took place between the parties; and, questions of mixed fact and law are questions about whether the facts satisfy the legal tests. Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, para. 35; Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., 2013 ONSC 2662 (CanLII) at para. 21.

[33]           In Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., Justice D.M. Brown, as he then was, found at para. 35, that “… any question of repudiation reflected a disagreement by Ansarian about how the Arbitrator had applied the legal test to the facts. That is a question of mixed fact and law.”

[34]           It is my view that the two questions advanced by 108 are not questions of law.  The two questions reflect a dispute over a very particular set of circumstances rather than a dispute over a general proposition that can be expected to have an impact beyond the parties and thus  qualify as a question of law. In other words, the questions for which leave is sought provide a new forum for parties to continue their private litigation rather than ensuring consistency in the law: Sattva, para. 51 .

ISSUE #3: SHOULD THE COURT EXERCISE ITS DISCRETION UNDER SUBSECTION 50(3) OF THE ACT TO RECOGNIZE AND ENFORCE THE AWARD?

[35]           Under s. 50(3) of the Act, this court is required to give judgment enforcing an award made in Ontario unless one or more of the conditions described in that subection are satisfied. Given that 108’s application for leave to appeal has been dismissed, and given that none of the other conditions ins. 50(3) of the Act are engaged, I grant judgment enforcing the Award.

CONCLUSIONS

[36]           108’s application is dismissed.  BGOI’s application is granted.

[37]           I encourage the parties to make best efforts to resolve the issue of costs failing which BGOI may deliver its costs submissions by February 14, 2019 and 108 shall deliver its costs submissions by February 21, 2019.  Maximum length of these submissions is six pages excluding any settlement offers and a costs outline.  BGOI may deliver responding submissions by February 28, 2019.  Maximum length of these submission is three pages.

Mr. Justice M. Faieta