COURT OF APPEAL FOR ONTARIO
WEILER, ROSENBERG and MACFARLAND JJ.A.
B E T W E E N :
JACOBUS HANEMAAYER, GRAND RIDGE ESTATE LIMITED
F. Stephen Finch, Q.C. and Stephen Cameron
for the appellant
(Plaintiff/Respondent)
- and -
HAROLD FREURE, FREURE HOMES LIMITED
Paul J. Pape and Irwin A. Duncan
for the respondent
(Defendant/Appellant)
Heard: January 12, 2006
On appeal from the order of the Divisional Court (Justice Nick Borkovich, Justice John H. Brockenshire and Justice Alan W. Bryant) dated April 28, 2005.
BY THE COURT:
1The appellant, Harold Freure, is a developer as is the respondent Jacobus Hanemaayer. They each own 50% of the shares of Grand Ridge Estates Limited (GREL). The assets of GREL consist of land for residential subdivision development. Freure and Hanemaayer reached a deadlock that prevented the smooth management and development work of GREL. In 1994 Hanemaayer commenced an action alleging oppression and requesting that GREL be wound up or in the alternative requiring either party to purchase the other’s shares for an amount set by the Court.
2On September 20, 1999 Reilly J. held that neither party had the right to an oppression remedy but that it was just and equitable to wind up GREL. He gave Freure the right to buy the 50% of GREL’s common shares held by Hanemaayer at fair market value as at September 20, 1999 within 60 days of either an agreement between the parties or a determination by the Court. If the transaction failed to close after 60 days of the valuation of fair market value, either party could apply to the Court for further direction. No attempt was made to appeal this order.
3There were several unsuccessful offers by both parties. As Freure and Hanemaayer could not agree on the fair market value, the Court directed a valuation of the land, then the shares. The valuation date was moved forward to January 30, 2002.
4The parties then returned to court in January 2003 for an asset valuation of GREL. Justice Reilly found proper valuation of the company $4,931,700 and directed this figure be given to the business valuators of the two parties so they could determine the fair market value of Mr. Hanemaayer’s shares. The parties returned once again to court in July 2003 for share valuation. While hearing evidence, the trial judge learned for the first time that Hanemaayer was willing to buy Freure’s shares for the sum of $2,133,965. This amount was about $100,000 more than the value placed on the shares by the valuator Mr. Lund, who found 50% of GREL valued at $2,055,965. The trial judge was inclined to accept Mr. Lund’s evidence over that of Mr. Ross, another valuator who had arrived at the amount of $1,620,500. Mr. Hanemaayer testified however, that he would consider an offer by Mr. Freure to purchase his shares for $2,500,000 if such offer was put in writing.
5The trial judge issued supplementary reasons on July 18, 2003. He fixed the value of the shares at $2,133,965 and ordered that Freure have the first right to acquire Hanemaayer’s shares for this price within 60 days of his judgment. If Freure failed to do so, Hanemaayer had the second right to acquire the shares at that price within 60 days. If both failed or waived their respective rights a descending auction was to occur with the first reduction being to $2,000,000 and thereafter reductions of $200,000 were to occur until an agreement was reached.
6Hanemaayer appealed. The Divisional Court concluded:
(a) that both Freure and Hanemaayer knew that the fair market value of the shares was greater than the $2,133,965 fixed by the trial judge;
b) that the purchaser of the shares at $2,133,965 would be purchasing those shares below their true value, and thus the purchaser would have an advantage over the seller; and
c) that, in fixing the value of shares at $2,133,965 together with giving the first option to purchase to Freure, Hanemaayer would be left at a disadvantage.
As a result, the Divisional Court ordered that the supplementary judgment dated July 18, 2003 be set aside and that the shares of Hanemaayer or Freure be sold by auction within 60 days with the reserve bid fixed at $2,133,965. If the parties were unable to agree on the terms of the auction they could apply to the Superior Court of Justice to have the terms fixed.
7Freure appealed with leave to this court. The appellant submits that the Divisional Court erred in ordering a sale by auction and in removing his right of first refusal to buy the shares of GREL. The appellant further submits that the trial judge did not err in that he fixed the fair market value of the shares as of January 30, 2002. Alternatively he submits that there is sufficient evidence on the record to permit this court to fix the value as of that date and then finally put an end to this prolonged litigation.
8The respondent seeks to uphold the decision of the Divisional Court, except in oral argument he conceded that the Divisional Court should not have deprived Freure of his right of first refusal.
9We are of the opinion that both the trial court and the Divisional Court erred. In fixing the price for the shares at $2,133,965 the trial judge did not determine the fair market value of the Hanemaayer shares as at January 30,2002. Rather, he chose a price for the shares that he believed the parties were prepared to accept and that he thought would resolve the dispute between them based upon “fairness and natural justice.” In attempting to treat the parties fairly, the trial judge abandoned the ordered dissolution mechanism he had imposed and created a shotgun auction with a price that he believed to be fair. However, before unilaterally abandoning the mechanism he had previously ordered without notice to the parties, he ought to have afforded them the right to make submissions on whether to roll the valuation date forward from January 30, 2002 and to present evidence of the current value of the properties or to impose a shotgun auction.
10The Divisional Court, in turn, erred by removing Freure’s first right to acquire the Hanemaayer shares. That portion of the order of the trial judge was not under appeal and Freure’s first right of refusal should have been maintained.
11We cannot accede to Freure’s submission to value the shares as at January 30, 2002. We are now four years after the events. The central concern of the trial judge and the principle that has guided his every decision in this difficult case has been to treat the parties fairly, and not give one party an unfair advantage because of the passage of time. The trial judge’s concern is evidenced by his order moving the valuation date forward from September 20, 1999 to January 30, 2002. The only issue before us is the propriety of the order of the Divisional Court setting up a new mechanism that deprived Freure of his first right to acquire the shares.
12In his original reasons the trial judge stated he considered himself seized of the issues until there was a final resolution and said the parties could address him at any time if necessary to vary an order he had made. We consider it appropriate to remit the matter back to the trial judge to hear submissions on whether he should vary the valuation date forward and fix the current fair market value of the shares or whether he should order a shotgun auction requiring Hanemaayer to fix the value at which he would be willing to sell his shares, in either case preserving Freure’s right of first refusal.
13On the appeal before us, Hanemaayer sought to file an affidavit as fresh evidence in which he offered to buy Freure’s shares or to sell his shares to Freure for the sum of $7,000,000. In view of our conclusion it is unnecessary to consider the fresh evidence.
14Accordingly, the appeal is allowed, the order of the Divisional Court and the Supplementary Judgment of July 18, 2003 are set aside. The matter is ordered remitted to the trial judge to hear further submissions and to make an order in accordance with the direction we have given.
15Having regard to the divided success achieved, we make no order as to the costs of the appeal before us or before the Divisional Court.
RELEASED: January 20, 2006 (“KMW”)
“Karen M. Weiler J.A.”
“Marc Rosenberg J.A.”
“J. MacFarland J.A.”