Avoiding costly disputes regarding commercial retainer agreements

Service providers often enter into commercial retainer agreements or engagement letters outlining the scope of the services being provided. As demonstrated in A5 Investments Inc v Pro-Pipe Service & Sales Ltd,[1] courts have developed legal principles specific to commercial contracts and, in particular, the interpretation of retainer agreements and broker arrangements. As the application of these principles may determine whether one is entitled to payment for services rendered, commercial parties should be aware of the manner in which courts interpret such agreements.

Background

Pro-Pipe Service & Sales Ltd (“Pro-Pipe”), a corporation providing downhole tubulars for the oil and gas industry, engaged A5 Investments Inc (“A5”) for the provision of financial planning services and for assistance in obtaining project financing.[2] The parties subsequently entered into an engagement letter whereby A5’s compensation was to be on a commission-only basis. Specifically, A5 was to receive 6% of the total financing amount that Pro-Pipe “required and agreed to obtain”, or alternatively, 8% of the total financing if the amount obtained was more than Pro-Pipe required but which it agreed to receive (the “Retainer Agreement”).[3]

Pursuant to the Retainer Agreement, A5 brokered several credit facilities on Pro-Pipe’s behalf from Canadian Western Bank (“CWB”). The parties disagreed as to whether a line of credit in the amount of $1,300,000 (the “Equipment Line”) was financing that Pro-Pipe “required and agreed to obtain” under the Retainer Agreement.

In emails to A5, Pro-Pipe alleged that it had not been presented with a term sheet for the Equipment Line and, therefore, had not had an opportunity to review or accept its content.[4] Pro-Pipe thus denied that the Equipment Line was financing that it “required and agreed to obtain” under the Retainer Agreement. A5 subsequently brought action against Pro-Pipe, alleging it was owed commission in the amount of 6% of the Equipment Line’s financing.

The sole issue before the court was whether the Equipment Line was financing that Pro-Pipe “required and agreed to obtain,” such that A5 was entitled to compensation pursuant to the Retainer Agreement. The matter proceeded by way of summary trial, wherein no witnesses were called and the parties agreed that their respective affidavits would constitute the sole evidence to be considered by the court.[5]

Key legal principles applicable to retainer agreements

The court’s decision was guided by the legal principles of contractual interpretation, as established by the Supreme Court in Sattva Capital Corp v Creston Moly Corp:

  • Contracts must reflect the parties’ objective intentions: The goal of contractual interpretation is to determine the parties’ objective intentions at the time of contracting. Courts will “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 the formation of the contract.” Mere subjective evidence regarding a party’s intentions will not suffice.
  • Commercial agreements must align with business reality: Commercial contracts are “interpreted in accordance with sound commercial principles and good business sense.” Courts reject interpretations that defy economic realities.
  • Broker arrangements have special considerations: Ordinary principles of contract law apply in determining if commission is payable under a contract. However, where an agreement provides that commission is payable upon introducing a lender willing to lend, and a loan in fact occurs, the commission is payable. Commission is also payable where a lender is introduced and is prepared to lend upon acceptable conditions.[6]

Commercial contracts require a ‘meeting of the minds’ regarding their terms and conditions

In determining whether the Equipment Line was financing that Pro-Pipe “required and agreed to obtain,” the court was required to first determine the meaning of that term, as used in the Retainer Agreement. Given that the summary trial proceeded by way of written materials only, the court found that there was no evidence with respect to the Retainer Agreement’s negotiation or the surrounding circumstances regarding the contract’s formation.[7] Further, only limited evidence, in the form of email correspondence, was available regarding the parties’ discussions regarding the Equipment Line.

The court found that “[t]he ordinary and grammatical meaning of “agreed to” is that there must be some form of understanding or bargain between the parties.”[8] To this end, the parties must demonstrate consenus ad idem, or a ‘meeting of the minds,’ for a contractual term to have effect. In this case, the court found that A5 was required to show, on the basis of the written materials, some positive action by Pro-Pipe demonstrating its agreement to obtaining the Equipment Line.[9] A5 was ultimately unsuccessful in doing so; rather, the court determined that while A5 obtained CWB’s approval for the Equipment Line and that such approval had been communicated to Pro-Pipe, the terms of the financing remained unknown to Pro-Pipe. Accordingly, it was “unclear how Pro-Pipe could have agreed to obtain what it did not know.”[10]

Conclusion

Citing the Ontario Superior Court of Justice’s recent decision in Anbros Financial, the court found that, ultimately, “it is the terms of the parties’ bargain on the financing that must … govern whether a commission is payable.”[11] But, even where commission is payable upon the lender being prepared to make a loan on acceptable conditions, those conditions must still be known to the party accepting the loan.

Following this, the court found that Pro-Pipe did not “require and agree to obtain” the Equipment Line; despite email correspondence regarding CWB’s approval of the Equipment Line, Pro-Pipe remained unaware of the Equipment Line’s terms and conditions and, therefore, Pro-Pipe did not agree to the financing pursuant to the Retainer Agreement. Thus, no commission was payable to A5 on account of its procurement of the Equipment Line from CWB.

Practical takeaways

As retainer agreements constitute commercial contracts, the legal principles of contractual interpretation apply. Evidence demonstrating the parties’ intentions at the time of entering the agreement may be relevant, should there be confusion or ambiguity concerning a term or phrase in the agreement. To avoid similar disputes, businesses and legal teams should:

  • Define key terms clearly: Ensure the contract’s language expressly provides for commission-triggering events.
  • Document agreements with service providers: Maintain written records of negotiations, including emails and signed acknowledgments of financing terms.
  • Clarify the scope of financial services agreements: When working with brokers or financial advisors, clearly define when their services are considered complete and when payment obligations are triggered.
  • Assess the benefits and risks of a summary trial: Summary trials rely heavily on written evidence, which may be insufficient for determining the parties’ objective intentions at the time of contracting. Where key contractual terms are disputed, testimony may be necessary.

Unclear contracts can result in costly litigation. Miller Thomson’s Commercial Litigation team can assist you in drafting enforceable agreements and in resolving disputes efficiently. If your business needs guidance regarding contractual interpretation or dispute resolution, contact us today to safeguard your financial interests.

[1] 2024 ABKB 590 [A5 Investments].

[2] Ibid at paras 4-5.

[3] Ibid at para 6.

[4] Ibid at para 16.

[5] Ibid at para 2.

[6] Ibid at paras 36-37, 40, citing Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 at para 47 [Sattva Capital]; Anbros Financial Inc. v 2528367 Ontario Inc., 2024 ONSC 2202 at para 51 [Anbros Financial].

[7] Ibid at para 42.

[8] Ibid at para 52.

[9] Ibid.

[10] Ibid at para 55.

[11] Ibid at para 60.