Executive Summary: Key Legal and Evidentiary Issues

• Central dispute over whether a detailed Letter of Intent (LOI) and subsequent negotiations created a binding asset sale contract for a chicken farming operation.
• Effect of conditions precedent in the LOI, particularly Chicken Farmers of Saskatchewan’s (CFS) approval and execution of a formal Asset Purchase Agreement (APA), on the existence of any enforceable contract.
• Impact of an external regulator’s refusal to approve quota transfer on contractual obligations and the parties’ ability to complete the contemplated transaction.
• Question of whether material terms—especially how much quota would be transferred, on what terms, and by what structure—were ever fully agreed.
• Allegation of a duty to negotiate in good faith, and whether such a duty exists in Canadian law in pre-contractual negotiations once the LOI had effectively run its course.
• Appropriateness of resolving the dispute by summary judgment on a documentary record without viva voce evidence from the parties.

Factual background

The plaintiffs, Jocelyn and Marylene Leblanc, sought to purchase the defendants’ chicken farming operation in Saskatchewan, owned and run by Kenneth and Debra Schwaerzle. The contemplated deal covered the farm land, buildings (including barns and a house), machinery and equipment, computers, and a substantial portion of the defendants’ chicken production quota. The parties negotiated through late 2019 and, on November 28–29, 2019, signed a Letter of Intent (LOI) under which the plaintiffs would acquire these “Assets” for a purchase price of $7,829,000, with a $375,000 deposit to be paid and held by the vendors’ counsel as part of the closing arrangements. The farm’s existing employee and their family occupied the farmhouse, and the LOI also anticipated continuity of employment and tenancy as part of the overall transaction structure.

The letter of intent and its key terms

The LOI was detailed and framed as a purchaser’s “formal intent” to proceed with the sale of a defined bundle of agricultural assets: the described land parcel, all buildings, barns, the house, machinery and equipment (excluding a specified Bobcat tractor), computers and 61,000 units of chicken quota. It provided for a closing date “at the latest by March 6th, 2020” or another mutually agreed date, with the assets to be conveyed free and clear of liens or encumbrances, and with the defendants’ debt obligations expressly excluded from assumption by the purchasers. The purchase price was fixed and to be allocated among the assets in a later Asset Purchase Agreement (APA). The LOI also required the plaintiffs to pay a $375,000 deposit to the vendors’ counsel to be held and applied on closing, with the deposit refundable if either (i) the vendors breached their obligation to close the proposed transaction or (ii) the plaintiffs did not remove conditions contemplated in the APA. Importantly, the LOI contemplated that a comprehensive APA would be drafted and executed. Clause 3 required an APA “in the form and content satisfactory to the legal counsels of the Parties,” incorporating usual terms, conditions, and representations and warranties typical for such a transaction. The LOI also mandated due diligence: the vendors were to provide the plaintiffs and their advisors with full access to books, ledgers, permits, certificates, licences and other relevant material, and to cooperate in efforts to obtain all necessary permits and approvals for the transaction. Confidentiality and exclusivity were addressed in clause 10, which bound the defendants not to negotiate with others or disclose the fact of negotiations, subject only to legal requirements. If no successful conclusion was reached following due diligence and final negotiations, either side could terminate negotiations and the exclusivity period, with the deposit and due diligence materials to be returned to the appropriate parties. The most critical interpretive provision was clause 13, which addressed the “Effect of this Letter.” It described the LOI as a declaration of the purchaser’s intent to proceed, but expressly stated that, aside from the confidentiality/no-shop clause, “nothing contained herein shall be construed to create any obligation or liability of any nature” on either party. It further confirmed that neither party would be under any obligation to the other “with respect to the transaction contemplated herein” unless and until the APA had been executed and delivered.

Conditions precedent and regulatory approval of quota

The LOI contained specific conditions that had to be satisfied for the purchase price to be paid and closing to occur. Clause 7 made the “Purchase Price and the execution of Closing” subject to several conditions, including: completion of due diligence to the plaintiffs’ satisfaction, financing to the plaintiffs’ satisfaction, “the complete execution of the Asset Purchase Agreement,” and “approval in principal [sic] from CFS (Chicken Farmers of Saskatchewan) for the transfer of the Chicken Quota to the Purchaser.” The parties completed and submitted the necessary quota transfer form to the regulator, Chicken Farmers of Saskatchewan (CFS), on February 7, 2020, seeking approval in principle for the transfer of poultry production quota from the defendants to the plaintiffs. On February 14, 2020, CFS denied approval. The regulator explained that under the parties’ proposed structure, the defendants would retain a balance of quota after the transfer but would have no “OFF SP approved production facility” for that remaining quota, because all production facilities were to be sold with the farm assets. This refusal of approval was external to the parties’ control but went to the heart of the contemplated transaction, which was premised on the regulator’s willingness to authorize a partial quota transfer coupled with a sale of all physical production facilities.

Negotiations after the regulator’s refusal

Despite CFS’s denial, the parties attempted to salvage a deal. Their lawyers exchanged correspondence and draft versions of the APA and considered alternative quota structures that might satisfy the regulator. Two broad mechanisms were explored. First, there was an option model: all of the defendants’ quota would be transferred to the plaintiffs, who would then grant the defendants an option to repurchase the “excess” quota (that is, the balance beyond what the LOI contemplated transferring) for a nominal amount once the defendants had established or acquired other production facilities. Second, the parties considered a bare trust model: again, all quota would be transferred to the plaintiffs, but the “excess” quota would be held in bare trust for the defendants, allowing them to retain a beneficial interest while the plaintiffs held legal title acceptable to CFS. Through to the end of April 2020, the lawyers worked almost exclusively in writing, iterating a lengthy draft APA (eventually some 36 pages) that incorporated potential quota solutions via an option or nominee/bare trust arrangement. However, no final agreement crystallized on how much quota would ultimately be transferred, the pricing for any “excess” quota, or the precise legal structure that would be used. On April 29, 2020, the defendants advised they were withdrawing from negotiations and that there would be no sale to the plaintiffs. The plaintiffs responded by commencing litigation, seeking specific performance of what they alleged was a binding contract for sale, or in the alternative relying on the LOI together with subsequent agreement as forming a complete contract, and further alleging a duty on the defendants to negotiate in good faith.

Summary judgment framework

The defendants brought an application for summary judgment to dismiss the claim. The court approached the matter under Rule 7-5 of The King’s Bench Rules, which authorizes summary judgment where there is no genuine issue requiring a trial, and allows the judge to weigh evidence, assess credibility, and draw reasonable inferences where proportionate and in the interests of justice. Applying the Supreme Court of Canada’s guidance in Hryniak v Mauldin and local authorities such as Tchozewski v Lamontagne, the court assessed whether the record—comprised of extensive affidavits and documentary exhibits including the LOI, draft APAs, and email exchanges—provided a complete, largely uncontested factual foundation. The plaintiffs argued that credibility and subjective intention were central and could only be explored through oral testimony at trial. The judge rejected this submission, emphasizing that the parties themselves, including plaintiff Jocelyn Leblanc, had effectively acknowledged that the relevant sequence of events was accurately set out in the materials already before the court. The court held that there was no meaningful conflict in the evidence, no gaps, and that all issues raised—existence of a binding contract, effects of conditions precedent, good faith negotiations—could be determined on an objective assessment of the documents and conduct. Since contract formation turns on how the parties’ conduct would appear to a reasonable person, not on their unexpressed subjective intentions, the court found that oral evidence was unnecessary and that summary judgment was appropriate on all issues.

Analysis of contract formation and the LOI terms

Turning to the merits, the court considered three main contract formation questions: (1) whether there was a manifest “meeting of the minds” on essential terms; (2) whether all material terms, especially those concerning quota, were sufficiently agreed and certain; and (3) whether any agreement was expressly conditional on execution of a formal APA. On the conditions precedent, the court characterized the LOI’s requirement for CFS “approval in principle” as a hybrid condition precedent: it involved an external decision by a third-party regulator but also required reasonable efforts by the parties to obtain that approval. Applying the jurisprudence on “true” and hybrid conditions precedent, the judge found the defendants had taken all reasonable steps required under the LOI by completing and signing the quota transfer form and cooperating in submission to CFS. They were not obliged to pursue an entirely different transaction—such as a full quota transfer with an option or trust overlay—because the LOI contemplated a specific sale structure: transfer of approximately three-quarters of the quota with the defendants retaining the balance alongside no facilities. Once CFS refused to approve that structure, the condition in clause 7(d) failed, and, as drafted, the parties had agreed there would be no sale without that approval. This alone meant there was no binding contract for the sale contemplated by the LOI. Regarding the requirement for an APA, the court noted that clauses 3 and 7(c) provided that an Asset Purchase Agreement “must” be signed at closing and that closing was expressly conditional on “the complete execution of the Asset Purchase Agreement.” More significantly, clause 13 stated that, except for the confidentiality/no-shop provision, “nothing contained herein” created any obligation or liability and that neither party would be under any obligation to the other with respect to the transaction “unless and until” the APA was executed and delivered. Construed as a whole, the LOI therefore made the existence of any binding contract of sale conditional upon execution of the APA. Because the contemplated APA, reflecting the quota transfer and other terms envisaged in the LOI, was never executed—and indeed could not be executed in its original form after CFS’s refusal—the court held that no binding contract arose.

Lack of agreement on material quota terms

Even apart from the failed conditions precedent, the court found a further barrier to contract formation: there was never consensus on an essential term, namely how quota would be dealt with once CFS had blocked the original structure. The quota was central to the commercial purpose of the deal: without it, the plaintiffs could not operate the chicken farm. While the LOI specified an intended quota transfer, that arrangement became impossible once the regulator refused approval. The subsequent negotiations over full quota transfer with an option or bare trust were efforts to design an entirely new quota setup. However, the parties never reached final agreement on how much quota would ultimately move, at what effective price, or by which legally enforceable structure. The various drafts and emails showed substantial progress but not a concluded arrangement. The plaintiffs pointed to their own conduct—securing financing and insurance, applying for a provincial sales tax number, and the defendants’ introductions to potential trading partners—as evidence that everyone behaved as though a binding contract already existed. The court accepted the relevance of subsequent conduct in assessing whether an enforceable agreement has been reached, but interpreted these actions differently. In the judge’s view, the parties’ behaviour after February 14, 2020 showed that they were trying to craft a new, regulator-acceptable arrangement, not that they were performing under a concluded contract. An objective reasonable observer, the court held, would see that the first attempt at a contract (the LOI structure) failed when CFS declined approval, and that the parties’ efforts thereafter amounted to negotiations for a different and ultimately unsuccessful deal. Since no clear agreement was ever reached on the material quota terms that replaced the LOI structure, the overall arrangement remained incomplete and incapable of enforcement.

Duty to negotiate in good faith and outcome on costs

The plaintiffs also alleged that the defendants had a duty to negotiate in good faith and breached it by withdrawing from negotiations in April 2020. The court revisited an earlier interlocutory decision in the same action and leading authorities such as Bhasin v Hrynew. Those authorities recognize an organizing principle of good faith in the performance of existing contracts but stop short of imposing a general duty to bargain in good faith in pre-contractual negotiations, absent a specific contractual commitment. The judge accepted that, while the LOI was in effect, the parties had an agreed obligation to work toward an APA in good faith in the context of that preliminary framework, and the record showed they did so up to the point of CFS’s denial. Once CFS refused approval, however, the particular transaction contemplated in the LOI became impossible. At that stage, the only clause in the LOI with continuing effect was the confidentiality/no-shop provision. The parties’ later discussions about new quota structures were simply fresh negotiations toward a new contract, not performance of an existing one. In that context, Canadian law did not impose on either party a free-standing duty to negotiate in good faith, and the defendants were entitled to end discussions. Having found that (1) the conditions precedent to any binding contract were not satisfied, (2) execution of a formal APA was expressly required and never occurred, (3) the parties never reached agreement on essential quota terms after the regulator’s refusal, and (4) there was no breach of any legally recognized duty to negotiate in good faith, the court granted the defendants’ application for summary judgment. It declared that no binding contract existed, dismissed the plaintiffs’ claim for specific performance, and ordered the plaintiffs to pay the defendants one set of costs under Column 2 of the Tariff of Costs. The judgment does not specify the quantum of those Column 2 costs, so the exact amount awarded in favour of the successful party—the defendants—cannot be determined from the decision itself.