PDM Entertainment Inc. v. Three Pines Creations Inc. and Louise Penny, 2015 ONCA 488

On June 29, 2015, the Ontario Court of Appeal dismissed an appeal by best-selling Canadian author Louise Penny and her company Three Pines Creations Inc. seeking to end the made-for-TV rights of production company PDM Entertainment Inc.

Ms. Penny and Three Pines were appealing from a January 2015 decision of the Ontario Superior Court of Justice. The application judge found that an option agreement between Three Pines and PDM Entertainment permitted PDM Entertainment to extend its option for two one-year periods, and granted PDM Entertainment relief from forfeiture relating to its first, non-compliant extension of the option agreement.

The case is important for its holdings on what constitutes adequate reasons for decision and the standard of review for questions of contractual interpretation and on the court’s broad jurisdiction to grant relief from forfeiture even without a breach of contract.

Ms. Penny is the author of a series of novels featuring Chief Inspector Armand Gamache of the Sûreté du Québec, set in the imaginary village of Three Pines.

More than three million copies of her novels have been sold in 30 countries and 23 languages. Justice MacPherson, writing for the Court, is clearly a fan. In the decision, he stated, “Louise Penny is a wonderful writer. … [The Gamache] books are, in a word, delightful. (I have read them all, usually by a fireplace on Boxing Day.)”

“The first novel in the series, Still Life, was published in 2005. The second, Dead Cold, followed in 2007 and the tenth, The Long Way Home, in 2014. ... They have appeared on the bestseller lists of the Globe and Mail, the London Times and the New York Times.”

In 2011, Three Pines, which holds the intellectual property in the Gamache series, entered into an option agreement with PDM Entertainment granting PDM a two-year option to acquire certain rights in the Gamache series, which included the exclusive right to make a made-for-television film based on each of the novels.

In or around October 2012, PDM exercised its option to the first book in the series, Still Life. The movie aired on CBC on September 15, 2013, and was the highest-rated television movie that year for CBC.

In September 2013, PDM extended its option rights on the second book of the series by one year, relying on clause 2.3B of the agreement. PDM purported to extend this option by a further year in September 2014, again relying on clause 2.3B.

Ms. Penny and Three Pines disputed that PDM was entitled to extend twice pursuant to clause 2.3B, and PDM took the position that it had erroneously referred to the wrong clause (2.3B instead of 2.3) and paid the wrong, lower extension fee when it first extended the option in September 2013.

PDM sought relief from forfeiture to relieve it of the consequences of its errors.

The Court of Appeal (Justice James MacPherson, writing for the Court, with Justice Gloria Epstein and Justice Lois Roberts concurring) held that the application judge’s reasons on the interpretation of the option agreement were “conclusory,” but that they did not cross the line into “insufficient.”

With respect to the standard of review, the Court cited the Supreme Court of Canada’s decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. In Sattva, the SCC held that deference is generally owed to first-instance decision makers on points of contractual interpretation.

Nonetheless, the Court of Appeal applied a correctness standard to the application judge’s contractual interpretation.

In doing so, the Court relied on the fact that the reasons below had not mentioned an important contractual provision, that there were no credibility issues, that the matter had been determined on an application, not after a trial, and that only a few contractual provisions need be considered.

The Court agreed with PDM that the option agreement gave it two one-year extensions, one pursuant to clause 2.3 and a second, which will expire in September 2015, pursuant to clause 2.3B.

With respect to relief from forfeiture, Ms. Penny and Three Pines had argued that there was no jurisdiction to grant relief because the remedy is only available where a party has breached a contract, which PDM had not done. Rather, PDM simply relied on the wrong clause in extending the agreement. 

The Court rejected this argument. Its finding was that courts have broad jurisdiction to grant relief from forfeiture in a wide range of cases, including cases involving failure to renew a lease.

As to whether to grant relief, the Court found that there was no basis for interfering with the application judge’s exercise of discretion granting relief.

WeirFoulds LLP acted for Three Pines Creations Inc. and Louise Penny. The team consisted of Kenneth Prehogan and Hilary Book, with assistance from Tony Duarte of Duarte Spiel LLP and Christopher Reed of Laishley Reed LLP.

Scott Martin and Marco Falco of Torkin Manes LLP acted for PDM Entertainment Inc.