COURT OF APPEAL FOR BRITISH COLUMBIA
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Citation: |
Kuo v. Kuo, |
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2017 BCCA 245 |
Date: 20170628
Docket: CA43617
Between:
John Kuo
Respondent
(Plaintiff)
And
Hunter Kuo
Appellant
(Defendant)
And
Freiya Kuo and David Kuo
Respondents
(Defendants)
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Before: |
The Honourable Madam Justice Saunders The Honourable Mr. Justice Tysoe The Honourable Madam Justice Dickson |
On appeal from: An order of the Supreme Court of British Columbia, dated April 28, 2016 (Kuo v. Kuo, 2016 BCSC 767, Victoria Docket No. 06-2299).
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Counsel for the Appellant: |
P.I. Waldmann |
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Counsel for the Respondent Estate of John Kuo, Deceased |
J.A.S. Legh |
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Counsel for the Respondent David Kuo: |
S.W. Mar |
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Respondent appearing in person: |
Freiya Kuo |
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Place and Date of Hearing: |
Victoria, British Columbia December 2, 2016 |
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Place and Date of Judgment: |
Vancouver, British Columbia June 28, 2017 |
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Written Reasons by: |
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The Honourable Madam Justice Dickson |
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Concurred in by: |
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The Honourable Madam Justice Saunders The Honourable Mr. Justice Tysoe |
Summary:
Appeal from an order enforcing a settlement agreement. The judge found that the respondent, John Kuo, did not repudiate the agreement by including in a draft release a term imposing capital gains tax consequences on the other parties, followed by months of silence. Held: appeal dismissed. The judge did not err in finding that John’s conduct did not evince an intention not to be bound by the settlement agreement. The conclusion that John was not insisting on terms not agreed upon or reasonably implied, and remained open to negotiation and performance, was open to the judge in the circumstances.
Reasons for Judgment of the Honourable Madam Justice Dickson:
[1] This appeal concerns the validity of a settlement agreement reached by four elderly siblings caught up in complex, multifaceted estate litigation. Despite having agreed upon a mutually acceptable and comprehensive resolution, they continue to spend time, energy and resources on their seemingly intractable disputes. The question for determination is whether Mr. Justice Bracken erred in declining to find that John Kuo repudiated the Kuo siblings’ settlement agreement, thus reviving the disputes and enabling their continuation. For the reasons that follow, I conclude that he did not err and would dismiss the appeal.
[2] Yuan-Hsi and Louise Kuo had five children, one of whom died in early childhood. The surviving four are the parties in this litigation, although the youngest, John Kuo, died in 2015, while it was ongoing. Hunter Kuo, born in 1936, is the eldest; David Kuo, born in 1940, is next; Freiya Kuo, born in 1942, is now the youngest. Like the judge below, for clarity, I will refer to the Kuo family members by their given names.
[3] The Kuo parents were hard-working and successful. Over the years, they provided financial support and guidance to their children, especially John, who resided with them for most of his adult life. They also accumulated a solid asset base, including funds in bank accounts, personal property and several real properties. Despite their parents’ support, however, relationships between the Kuo siblings were difficult. Marked by rivalry and distrust, they involved frequent conflict, which, unfortunately, continues to this day.
[4] Louise predeceased her husband. Yuan-Hsi died in 2005, leaving two wills. In the first will, executed in 1995, he left his entire estate to John, with a gift over to Hunter. In the second will, executed in 2004, he divided the estate equally among Hunter, David, Freiya and John.
[5] When he died, much of Yuan-Hsi’s estate was comprised of real property located in the Victoria area. Some were held in John’s name or jointly with John, and two were held jointly with David and John. In particular, there were properties on Niagara Street, Glasgow Avenue and Judah Street registered in John’s name; a property on Chapman Street with a two-thirds interest in John’s name and a one-third interest in David and Yuan-Hsi’s names; and a property on West Gorge Road with a one-half interest in John’s name and a one-half interest in David and Yuan-Hsi’s names.
[6] Yuan-Hsi’s 1995 and 2004 wills spawned this, and other, related, litigation. In addition, John and David were already embroiled in litigation regarding an alleged debt. Wills variation claims were also commenced by each of the parties, but the trials were deferred to await a decision on the validity of Yuan-Hsi’s 1995 and 2004 wills.
[7] Following a lengthy and complex trial, the judge concluded that the 2004 will was invalid and the 1995 will was valid. He also found that John held the real property in question on a resulting trust for Yuan-Hsi’s estate and ordered an accounting and tracing of personal property and cash held in bank accounts. His reasons for judgment, released on March 27, 2014, are indexed as 2014 BCSC 519.
[8] Each of the parties filed an appeal of the trial order. Accordingly, by September 2014 the Kuo siblings were involved in six outstanding actions and four appeals.
[9] On September 8, 2014, John made a comprehensive settlement offer to Hunter, David and Freiya. His counsel, James Legh, wrote a letter to Peter Waldmann, counsel for Hunter and Freiya, and Michael Mark and David Mulroney, counsel for David, stating:
… I have been able to receive instructions to make the following offer:
1. John Kuo will transfer whatever interest he or the Estate has in the properties located on Chapman, Niag[a]ra and Gorge to his siblings as directed by them;
2. The parties would bear their own costs of these actions;
3. All other issues would be dismissed;
4. All other assets that John Kuo is on title to would remain his sole and separate property.
Basically this matter would come to a complete resolution.
This offer is open for acceptance until September 22, 2014.
[10] The settlement offer did not include a term regarding capital gains or any other tax liabilities in connection with the proposed property transfers.
[11] On September 22, 2014, in an email from his counsel to his siblings’ counsel, John repeated the settlement offer and extended the time for its acceptance. On September 26, 2014, Hunter, David and Freiya accepted the offer and, a few days later, Mr. Legh confirmed that the Kuo family disputes were settled (the “Settlement Agreement”). He also advised Messrs. Mark, Waldmann and Mulroney that he would draft a comprehensive release for all parties of all claims, actions and appeals.
[12] On October 14, 2014, Mr. Legh sent a draft release to Messrs. Mark, Waldmann and Mulroney and asked for their feedback. Amongst other things, it provided for: transfer of John’s interest in the Chapman, Niagara and Gorge properties as directed by Hunter, David and Freiya; mutual releases in respect of the six enumerated actions; acknowledgement that each party was entitled to the property in their possession or control free from any claims of the others; and agreement that there were no further claims regarding property or assets between John and Hunter, David and Freiya. It did not include a provision regarding tax liabilities for the transfers.
[13] On October 27, 2014, Mr. Legh sent Messrs. Mark and Waldmann a second draft release, which he called “an amended release to address any tax ramifications” (the “Second Draft Release”). It differed from the first draft in that it contained a new subsection which made David, Freiya and Hunter responsible for capital gains and other tax liabilities related to the properties to be transferred. The quantum of the tax liabilities was unknown at the time.
[14] Messrs. Mark and Waldmann objected to the Second Draft Release. In an email dated October 28, 2014, Mr. Mark described the draft as contrary to the Settlement Agreement “in that the tax liabilities are not the responsibility of my client or the other parties”. Rather, he asserted, either John or the estate was liable for the taxes. He went on to say that “John cannot now seek to substantially amend the settlement agreement in his favour” and he expressed the hope that further litigation could be avoided. However, if “John is now trying to avoid his obligations”, he warned, David would seek to enforce the Settlement Agreement in court. In a separate email, Mr. Waldmann agreed.
[15] Mr. Legh replied promptly to Messrs. Mark and Waldmann:
Well this may be a problem.
There was no value placed on the properties and as we all know they fluctuate.
The clear position of the family has been that this was a family enterprise and that the land is in trust and always has been.
The offer stands but clearly this is just a transfer of land between beneficiaries of the trust you have so clearly created through the courts. As beneficiaries of the trust the benefits and liabilities flow with the assets.
Perhaps we should meet to discuss.
[16] On October 29, 2014, Mr. Waldmann responded to Mr. Legh, again disputing the terms of the Second Draft Release. He began by stating “Certainly this is a problem, and we should discuss it and hope to resolve it. I welcome your invitation”. He went on to explain the reasons for his view that John or the estate were obliged to pay capital gains tax, not his clients. In a separate email, David’s counsel repeated his assertion that the Second Draft Release purported to impose additional terms not agreed upon by the defendants and warned that, if necessary, David would apply for judgment on the Settlement Agreement.
[17] For the next few months, there was no correspondence on the matter. In November 2014, David changed lawyers. In February 2015, Freiya became self-represented.
[18] On April 8, 2015, Hunter filed one of the two notices of application which underlie this appeal. He sought a declaration that the Settlement Agreement was rescinded or, alternatively, null and void, and special costs. In support, he submitted that John repudiated the Settlement Agreement by insisting on new terms that were not negotiated or agreed upon, and demonstrated an unwillingness to be bound, thus entitling him, as the innocent party, to rescind. On April 17, 2015, David and Freiya filed a joint response opposing the order Hunter sought and denying that John repudiated the Settlement Agreement. A few days later, John also filed a response opposing the application.
[19] On May 29, 2015, John died. John Romashenko is the executor and beneficiary of his estate.
[20] On August 6, 2015, David advised the other parties that he had changed his position and now agreed with Hunter that the Settlement Agreement was not binding. Shortly thereafter, Freiya filed a notice of dispute in relation to John’s estate.
[21] On September 17, 2015, Mr. Legh wrote to Freiya and to counsel for Hunter and David on behalf of Mr. Romashenko. He proposed that the Settlement Agreement be fulfilled and advised that John’s estate would pay any tax liabilities on the property transfers, with transfer values as of September 2014. The proposal included terms that there would be no further claim made against John or Yuan-Hsi’s estates and no challenge of John’s will.
[22] On September 22, 2015, Hunter filed a notice of application seeking an accounting of all assets held by John or his estate in trust for Yuan-Hsi’s estate.
[23] On November 16, 2015, Freiya reversed her position on the Settlement Agreement, asserting that it was never binding or, alternatively, had been repudiated. The following day, Hunter filed a notice of application for an order removing Mr. Romashenko as the manager of properties held in trust for Yuan-Hsi’s estate and granting leave to cross-examine him on his affidavit in connection with John’s estate.
[24] On November 19, 2015, Mr. Legh filed the other notice of application which underlies this appeal. He sought, amongst other things, an order declaring that the Settlement Agreement is confirmed as binding and dismissing the relief claimed by Hunter, David and Freiya.
[25] Hunter’s applications and the application brought on behalf of John’s estate came on for hearing before the judge on December 4, 2015.
[26] The judge began by describing the litigation history and the factual background. He summarised the circumstances surrounding conclusion of the Settlement Agreement, the two draft releases and the correspondence exchanged, as well as the applications and responses. After setting out the parties’ shifting positions, he found that, while there was silence for a time regarding the status of the settlement, “there was no evidence to suggest that John Kuo or the defendants did not intend to be bound by the settlement agreement”: para. 23. He framed the issue as whether the Settlement Agreement was repudiated by inclusion of the capital gains tax provision in the Second Draft Release or by the actions of Hunter, David and Freiya.
[27] The judge reviewed several authorities and foundational principles on repudiation. In doing so, he identified the two-question framework outlined in Fieguth v. Acklands Ltd. (1989), 37 B.C.L.R. (2d) 62 (C.A.): i) was a contract reached?; and ii) if so, was it repudiated by one party insisting on terms not agreed to? Noting that only the answer to the second question was in dispute, he summarised and considered the parties’ submissions. After distinguishing the authorities relied upon by Hunter, David and Freiya, he concluded that John did not repudiate the Settlement Agreement by adding the tax liability provision to the Second Draft Release or by any subsequent conduct:
[47] While the plaintiff’s draft release contained provisions that would have changed the value of the settlement to the defendants, the plaintiff gave no indication that he did not intend to be bound by the settlement. In his email correspondence to counsel for the defendants on October 28, 2014, suggesting the parties meet to discuss the matter, showed the plaintiff was open for further negotiations. There was no contrary indication from the plaintiff before communication stopped between the parties.
[48] I find that the parties did reach a full and final settlement of all matters and that the plaintiff did not repudiate the agreement when he forwarded a draft release that purported to impose tax liability to the defendants for the properties they were to receive. There had not been any previous discussion about tax liability and the issue was not addressed in the settlement agreement; therefore, the plaintiff was not attempting to change terms that had been part of the agreement.
[28] Given his conclusion that the Settlement Agreement was not repudiated, the judge granted John’s application and dismissed that of Hunter, David and Freiya. He also went on to determine Hunter’s applications for an accounting, removal of Mr. Romashenko as property manager and cross-examination on Mr. Romashenko’s affidavit.
[29] Hunter alleges six separate errors in the judge’s analysis, but all reduce to a single issue: did the judge err in declining to find that John repudiated the Settlement Agreement by including the tax liability provision in the Second Draft Release or by any subsequent conduct?
[30] David sought to raise a further issue concerning another alleged error in relation to his interest in the properties and the Settlement Agreement. However, that issue was not argued before or addressed by the judge and it is the subject of a separate appeal. If necessary, it should be resolved in that, not this, appeal.
[31] Hunter acknowledges that the standard of review is palpable and overriding error. In his submission, the judge committed several such errors in concluding that John did not repudiate the Settlement Agreement and confirming it as binding. In particular, he submits, the judge failed to consider whether the capital gains tax provision in the Second Draft Release could be reasonably implied by the terms of the Settlement Agreement, which, he says, it could not, rendering its inclusion and John’s long silence thereafter repudiation. The judge also overlooked defendants’ counsel’s October 29, 2014 emails objecting to the provision, he says, and erred in finding that John remained open to negotiation in the face of his subsequent silence. He erred further in accepting an unduly low estimate of the tax liability and misinterpreting Mr. Legh’s September 17, 2015 letter, which, he argues, confirmed John’s repudiation and unwillingness to be bound by the Settlement Agreement.
[32] In support of his submissions, Hunter notes that when a party insists on terms not agreed upon, such as an indemnity clause or increased consideration, this amounts to repudiation. If a party repudiates, the innocent party is entitled to accept that repudiation, thus bringing the agreement to an end. Citing Fieguth, he says that parties may propose such documents or releases as they wish to complete a settlement agreement without rescinding it, provided they do not insist on terms not agreed upon or not reasonably implied in the circumstances. However, when they insist on such terms, he submits, it demonstrates an unwillingness to be bound and thus amounts to repudiation. As in Moore v. Sundquist, 2009 BCSC 20 and Salminen v. Garvie, 2011 BCSC 339, he says, that is what happened in this case.
[33] David and Freiya support Hunter’s position.
[34] John’s estate responds that he did not repudiate the Settlement Agreement. Rather, in completing it, he merely asked Hunter, David and Freiya to provide an indemnity for tax consequences of the transfers and invited them to meet to discuss the matter. As in Fieguth, John’s Second Draft Release may have been an “overzealous attempt to get the best possible release”, but its proffer did not destroy the commercial purpose of the Settlement Agreement, the essential terms of which were all agreed upon. Nor did he insist upon the proposed tax liability provision or refuse to perform his contractual obligations.
[35] According to John’s estate, the mutual hiatus in communications following the defendants’ protest about the Second Draft Release did not suggest that he did not intend to be bound by the Settlement Agreement. On the contrary, he made it clear he was willing to discuss the tax liability issue and never resiled from that position. All things considered, the estate submits, the judge’s conclusion that the Settlement Agreement remained binding on all parties is unassailable.
[36] The question of whether a contract has been repudiated is a question of mixed fact and law, albeit one that is largely fact-dependent: Mantar Holdings Ltd. v. 0858370 B.C. Ltd., 2014 BCCA 361 at para. 12; Williams v. Ron Will Management & Construction Ltd., 2009 BCCA 543 at para. 15. Accordingly, an appellate court may interfere only if the judge made a palpable and overriding error or an extricable error of law: Housen v. Nikolaisen, 2002 SCC 33 at para. 36.
[37] There is a strong public interest in favour of resolving lawsuits by agreement. As Abella J. observed in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 at para. 11, “[s]ettlements allow parties to reach a mutually acceptable resolution to their dispute without prolonging the personal and public expense and time involved in litigation”. As a result, the policy of the courts is to promote settlement and to enforce settlement agreements: Catanzaro v. Kellogg’s Canada Inc., 2015 ONCA 779. This judicial policy contributes to the effective administration of justice: Kelvin Energy Ltd. v. Lee, [1992] 3 S.C.R. 235, at 259, citing Sparling v. Southam Inc. (1988), 66 O.R. (2d) 225 (Ont. H.C.).
[38] When a dispute arises, the first question is whether the parties have agreed on all essential terms of the purported settlement: Fieguth at 70. The usual principles of contract formation apply. The court must analyse the evidence to determine whether, in all the circumstances, it is clear to the objective, reasonable bystander that the parties intended to contract, and whether the essential terms of that contract can be determined with a reasonable degree of certainty: Lacroix v. Loewen, 2010 BCCA 224 at paras. 35-36. If they have, unless otherwise agreed, an obligation to furnish a release is implied: Fieguth at 69-70.
[39] After a settlement agreement has been reached, the next stage is its completion: Fieguth at 70. Unless the agreement is terminated, the parties must fulfill their obligations, express and implied. Termination by repudiation occurs when a party evinces an intention not to be bound by the agreement and the innocent party elects to accept the repudiation: Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423 at para. 40. A fundamental breach of a primary obligation may also constitute a repudiation because it deprives the other party of substantially the whole mutually intended benefit of the agreement and thus amounts to a refusal to perform: Mantar at para. 11; Doman Forest Products Ltd. v. GMAC Commercial Credit Corp. - Canada, 2007 BCCA 88 at para. 109.
[40] An intention not to be bound by an agreement may be evinced by words or conduct: Guarantee Co. at para. 40. Depending on the circumstances, this may include silence in response to a request for performance when and after the request is made. In some circumstances, a repudiation may be ongoing, which, unless the agreement is affirmed, provides the innocent party with a continuing right to accept it. However, regardless of how it manifests, the refusal to perform must be clear and unequivocal to amount to a repudiation: Dosanjh v. Liang, 2015 BCCA 18 at paras. 43-44; Doman Forest Products at paras. 108-109.
[41] It is rare for subsequent conduct to amount to a repudiation of a settlement agreement: Fieguth at 72. For example, while insisting upon an excessive release may evidence an unwillingness to be bound, the mere proffer of such a release does not necessarily have this effect. On the contrary, as Chief Justice McEachern explained in Fieguth at 70, 72:
… [Unless otherwise agreed] either party is entitled to submit whatever releases or other documentation he thinks appropriate. Ordinary business and professional practice cannot be equated to a game of checkers where a player is conclusively presumed to have made his move the moment he removes his hand from the piece. One can tender whatever documents he thinks appropriate without rescinding the settlement agreement. If such documents are accepted and executed and returned then the contract, which has been executory, becomes executed. If the documents are not accepted then there must be further discussion but neither party is released or discharged unless the other party has demonstrated an unwillingness to be bound by the agreement by insisting upon terms or conditions which have not been agreed upon or are not reasonably implied in these circumstances.
***
It should not be thought that every disagreement over documentation consequent upon a settlement, even if insisted upon, amounts to a repudiation of a settlement. Many such settlements are very complicated, such as structured settlements, and the deal is usually struck before the documentation can be completed. In such cases the settlement will be binding if there is agreement on the essential terms. When disputes arise in this connection the question will seldom be one of repudiation as the test cited above is a strict one … It will be rare for conduct subsequent to a settlement agreement to amount to repudiation.
[42] In my view, the judge applied the foregoing principles without palpable and overriding error. He also applied the sound judicial policy of enforcing settlement agreements. Although it may have been open to him to make different findings, so long as those he made are supported by the evidence they are entitled to deference. Hunter, David and Freiya have failed to demonstrate any basis upon which appellate interference is justified.
[43] As contemplated in Fieguth, the parties disagreed on the terms of the draft release consequent upon the Settlement Agreement. However, the judge was satisfied that John did not evince an intention not to be bound by it when he attempted to negotiate a favourable release and remained silent for five months after hearing from the defendants regarding their objections. This was a supportable finding of fact.
[44] As the judge noted, the parties had not previously discussed the tax liability issue. When the defendants objected to the impugned provision in the Second Draft Release, John did not explicitly insist on its inclusion, nor did he refuse to perform his contractual obligations. Rather, his counsel responded by suggesting a meeting to discuss the matter. In the five-month period of mutual silence that followed, David and Freiya both changed counsel. They also maintained that the Settlement Agreement was enforceable, although neither provided John with a direction to transfer the properties. These circumstances all formed part of the relevant context within which John’s manifest intentions were to be discerned.
[45] Contrary to Hunter’s submission, the judge did not overlook the October 29, 2014 emails explaining why the defendants objected to the impugned provision in discerning John’s manifest intentions. He expressly referred to them: para. 16. However, he rejected the defendants’ submission that John’s silence thereafter amounted to a clear and unequivocal refusal to be bound by the Settlement Agreement. In my view, given the context, the judge was not obliged to find John’s silence evinced such an intention. Unlike the circumstances in Dosanjh, that was not the only reasonable conclusion. I see no error in his choice not to reach it and thus to find that there was no repudiation.
[46] Further, it was unnecessary for the judge to analyse the merits of the defendants’ objections to the impugned provision or consider whether it could be reasonably implied in the Settlement Agreement. He recognised and accepted that liability for tax in connection with the transfers was not part of the Settlement Agreement, expressly or by implication. The salient question was not, as Hunter frames it, whether John was justified in putting forward the impugned provision and remaining silent after the defendants objected and explained their reasoning. The question was whether, in doing so, he unequivocally insisted on its inclusion, demonstrated an unwillingness to be bound by the Settlement Agreement or otherwise fundamentally breached its terms.
[47] The judge asked the salient question and, in answering it, applied the proper legal principles. In my view, it was open to him on the evidence to answer as he did.
[48] I would dismiss the appeal.
“The Honourable Madam Justice Dickson”
I AGREE:
“The Honourable Madam Justice Saunders”
I AGREE:
“The Honourable Mr. Justice Tysoe”