COURT OF APPEAL FOR ONTARIO
Sharpe, van Rensburg and Benotto JJ.A.
BETWEEN
Alvaro D’Antonio
Plaintiff (Respondent)
and
Elio Monaco, Roko Dzeko and 2167661 Ontario Ltd.
Defendants (Appellant)
Micheal Simaan and Nathaniel Erskine-Smith, for the appellant
Rocco DiPucchio and Shaun F. Laubman, for the respondent
Heard: March 25, 2015
On appeal from the judgment of Justice Ruth E. Mesbur of the Superior Court of Justice, dated July 29, 2013, with reasons reported at 2013 ONSC 5007, and from the costs order, dated October 1, 2013, with reasons reported at 2013 ONSC 6157.
FACTS
1The appellant Elio Monaco, the respondent Alvaro D’Antonio and their friend Roko Dzeko entered into a business arrangement to acquire a property and to erect a large commercial sign on it. D’Antonio could provide the financing, Monaco had experience in commercial real estate and Dzeko had some expertise in the commercial sign business.
2The three men incorporated 2167661 Ontario Ltd. (“216”) to buy the property. They each acquired 100 shares, one third of 216’s 300 issued shares. D’Antonio provided $445,000 to 216. To secure that investment, Monaco and Dzeko signed promissory notes in favour of D’Antonio for one third of that amount. They also signed Share Pledging Agreements as security for their promissory notes, giving D’Antonio the right to forfeit their pledged shares upon written notice of default on the promissory notes. Finally, they each signed an Acknowledgment of Future Assumption of Unpaid Shareholder’s Loan (“Assumption Agreement”) promising to assume any unpaid debt to D’Antonio of the other in exchange for receipt of the other’s shares. These agreements were executed in early April 2008.
3In the initial stages, the project encountered legal and consequent financial difficulties and more funds were required from the shareholders. Dzeko was unable to satisfy those calls and, on December 13, 2008, he agreed to sign an Ownership Alteration Agreement in favor of D’Antonio and Monaco. That agreement provided that if Dzeko failed to provide the funds to 216 by December 15, 2008, 100% of his interest in 216 “shall be transferred and be divided equally between” D’Antonio and Monaco. Dzeko failed to provide the funds and he was no longer involved in the business.
4Monaco assumed responsibility for managing the property. He arranged a profitable lease for the erection of a commercial sign and another lease for a building on the land. D’Antonio disputed Monaco’s management of the property and the management fees he was paying himself.
5Of the $222,500 Monaco owed D’Antonio - for the one third interest in 216 that he acquired in the initial deal and for his half of Dzeko’s shares acquired pursuant to the Ownership Alteration Agreement - Monaco paid D’Antonio $100,000 on November 12, 2009, and a further $100,000 on March 2, 2010. He withheld payment of the remaining $22,500 he owed.
6D’Antonio commenced this action in December 2010 claiming, among other things, breach of fiduciary duty, oppression, and repayment of excessive management fees. He also sought a declaration that he was the sole owner of all the shares of 216, or, alternatively, the owner of two thirds of the shares.
7The trial judge allowed the claims for breach of fiduciary duty and oppression, and made several specific remedial orders including ordering repayment of certain management fees. The trial judge rejected D’Antonio’s claims for 100% or 66.67% ownership of the shares. She found that Monaco was only entitled to the shares he had paid for and accordingly declared D’Antonio to be the owner of 55% of the shares. She also ordered a “shot-gun” buy-sell arrangement of 216’s shares with Monaco making the buy-sell offer.
8In a separate costs order, the trial judge ordered Monaco to pay costs fixed at $145,000 all inclusive.
ISSUES
9The only issues raised by Monaco on appeal are the declaration as to ownership of the shares in 216 and a related issue as to costs of the trial. Monaco argues that the trial judge erred in failing to declare the parties to be 50% owners of the shares provided he (Monaco) satisfied the outstanding balance of his indebtedness, namely, $22,500. Needless to say, 5% of the shares of 216 now have a value substantially greater than $22,500.
ANALYSIS
10Monaco’s argument is that he acquired half of Dzeko’s shares by virtue of the operation of the Ownership Alteration Agreement, and that the trial judge erred in law in finding that his failure to pay the outstanding $22,500 allowed D’Antonio to forfeit or otherwise acquire more than 50% of the shares.
11For the following reasons, I am unable to agree with that submission.
12The interpretation of the relevant agreements and the intentions of the parties was a question of mixed fact and law and deference is owed to the decision of the trial judge: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. In my view, the trial judge’s interpretation and the result she reached were entirely reasonable in the circumstances of this case.
13Monaco argues that the Ownership Alteration Agreement simply states that one half of Dzeko’s shares were transferred to him upon Dzeko’s default and that there is nothing else in that agreement that permits D’Antonio to forfeit all or any of those shares for non-payment of the promissory notes. Monaco concedes that when he acquired Dzeko’s shares by virtue of the Ownership Alteration Agreement it was an implied term that he assumed responsibility for 50% of the debt which Dzeko owed to D’Antonio, but he submits that the Share Pledging Agreement and the forfeiture provisions in that agreement do not apply to the shares assigned by Dzeko. Monaco also submits that, in any event, D’Antonio did not give the written notice required to trigger forfeiture under that agreement.
14I am unable to accept Monaco’s submission that it is possible to read the Ownership Alteration Agreement as a stand-alone contract that confers rights unqualified by the Share Pledging Agreements and the Assumption Agreements. I agree with what is implicit in the trial judge’s assessment of this issue, namely, that the Ownership Alteration Agreement is simply one piece of a larger contractual matrix that includes the promissory notes, the Share Pledging Agreements and the Assumption Agreements.
15The most obvious point is that the Ownership Alteration Agreement makes no reference to the indebtedness associated with Dzeko’s shares. As I have mentioned, Monaco concedes that it was an implied term of the Ownership Alteration Agreement that he assumed responsibility for half of Dzeko’s debt to D’Antonio. The terms of that debt could only be determined by reference to the promissory notes, the Share Pledging Agreements, and the Assumption Agreements. I find it impossible to see how Dzeko’s shares could be transferred pursuant to the Ownership Alteration Agreement unburdened by the security afforded by the Share Pledging Agreements. D’Antonio had bargained for security for the debt attributable to the shares and there is nothing in the dealings between the parties or in the wording of the Ownership Alteration Agreement to support the contention that D’Antonio surrendered that security.
16In other words, to understand all the rights and obligations pertaining to the shares in 216, it is necessary to read all of these agreements as a whole. Monaco acquired Dzeko’s shares by operation of the Ownership Alteration Agreement, but he was obliged to pay for those shares by the Assumption Agreement and the shares were subject to D’Antonio’s security for the debt by virtue of the Share Pledging Agreement.
17Monaco relies on para. 45 of the trial judge’s reasons, where she stated:
The Ownership Alteration Agreement did not provide for any requirement that Monaco pay for Dzeko’s shares, or any timetable for his doing so. It seems to me there would be no legal basis for D’Antonio simply to assert that he now owned all of Dzeko’s shares.
18The trial judge’s rejection of D’Antonio’s claim to all Dzeko’s shares as being inconsistent with the contractual documents does not dispose of the very different claim being advanced by Monaco on appeal. Nor should this portion of her reasons be read in isolation or without regard to the position taken by Monaco at trial. Both in his statement of defence and in his evidence, Monaco admitted that he made the $200,000 of payments pursuant to the Acknowledgement of Debt and promissory note. In my view, there is nothing in para. 45 of the trial judge’s reasons inconsistent with the proposition that Monaco acquired the Dzeko shares subject to the burdens imposed by the Share Pledging Agreement, which gave D’Antonio the right to retain shares that had been pledged in the event of non-payment.
19I see no basis to interfere with the trial judge’s finding that the statement of claim amounted to written notice sufficient to trigger the forfeiture provision of the Share Pledging Agreement. This was a factual finding which attracts deference on appeal. The statement of claim gave unequivocal notice that D’Antonio claimed forfeiture of the shares. Monaco made no attempt to pay the $22,500 owing for more than two years. The trial judge reasonably found, at para. 113 of her reasons, that while Monaco was entitled to a reasonable period of time to make the payment after receiving written notice, more than two years was beyond a reasonable period.
20The appeal as to costs is contingent upon success on the substantive issue and as I would dismiss the substantive appeal, I would also dismiss the costs appeal.
DISPOSITION
21Accordingly, I would dismiss the appeal and award costs to the respondent in the agreed amount of $22,000, inclusive of disbursements and taxes.
Released: April 21, 2015
(RJS) “Robert J. Sharpe J.A.”
“I agree K. van Rensburg J.A.”
“I agree M.L. Benotto J.A.”
