Tracey v. Tracey, 2012 ONSC 3144
CITATION: Tracey v. Tracey, 2012 ONSC 3144
DIVISIONAL COURT FILE NO.: 11-DV-1777
DATE: 2012/06/14
ONTARIO
SUPERIOR COURT OF JUSTICE
(DIVISIONAL COURT)
Aston, Whitten and Corbett JJ.
B E T W E E N:
MARK TRACEY
Dana P. Tierney and Sabina J. Veltri for the Respondent
Applicant
(Respondent in Appeal)
- and -
ELIZABETH TRACEY, KENNETH TRACEY, JOHN TRACEY, TOM TRACEY, GERALD TRACEY, KATHLEEN TRACEY, DANIEL TRACEY
Judith E. Wilcox for the Appellants
Respondents
(Appellants in Appeal)
Heard in Ottawa: April 20, 2012
REASONS FOR DECISION
CORBETT J.
[1] This case concerns control of a family-owned ice cream business, known as “Centreside Dairy”.
[2] The trial, before Roy J., concerned a longstanding deadlock between the two owners of the business, Elizabeth Tracey and her eldest son, Mark. As noted in paragraph 1 of Roy J.’s reasons for judgment (the “Reasons”):
All the parties are in agreement that the Corporation is in a state of deadlock and that the only practical solution is for all of the shares to be transferred to either the applicant [Mark Tracey] or the respondent Elizabeth Tracey.
[3] Roy J. then summarized the long history of family conflict. He concluded:
In considering what has taken place over the last ten years one can readily appreciate why all of the parties would agree that there exists a deadlock for the management and control of the dairy. (Reasons, para. 13)
[4] Roy J. then characterized the legal dispute as follows:
The Ontario Business Corporations Act, sections 207 and 248 give the court a very broad discretion to fashion a remedy to rectify a problem such as this one. Clearly in this case the actions of the parties at various times have been burdensome, harsh or wrongful. The parties’ conclusion that there is a state of deadlock is certainly justified. The fact that this is a family owned corporation and there no longer exists any trust and confidence amongst the members of the family means the corporation cannot continue to function and meet the reasonable expectation[s] of the shareholders. The just and equitable remedy will be to either wind up the company pursuant to section 207 of the Act or to have one shareholder buying the others’ shares at a reasonable price. The parties are unanimous that the corporation should not be wound up and accordingly that leads to the only other remedy, that of a forced sale. In other words, should [the] applicant Mark Tracey be ordered to transfer his 49 shares to Elizabeth Tracey for reasonable consideration or should Elizabeth Tracey be ordered to sell her 51 shares to Mark Tracey? (Reasons, para. 15)
[5] The appellants do not contest this characterization. At paragraph 9 of their factum, they state:
It was agreed by all parties at trial that both sides were at loggerheads and that one faction or the other i.e. Mark or Elizabeth ought to end up owning Centreside Dairy.[^1]
[6] Accordingly, the inquiry at trial was focused on three issues:
(a) which side should be required to sell his/her shares to the other side?
(b) What should the sale price be?
(c) What terms and ancillary orders are appropriate?
[7] Roy J. concluded that Elizabeth should be required to sell her shares to Mark for the fair market value of $271,830. He made several ancillary orders to give effect to this judgment, to give Mark time to arrange financing to purchase Elizabeth’s shares, to enforce a continuing term in a shareholders’ agreement, and to prevent future interference in the business by the respondents.
[8] In respect to costs, Roy J. noted the protracted nature of the proceedings. He relied upon offers to settle made by Mark, which were more favourable for the appellants than the trial judgment. Mark claimed over $285,000 in costs. Roy J. fixed costs at $175,000, payable jointly and severally. He also ordered that the costs could be set-off against the purchase price, leaving it to Elizabeth to seek contribution and indemnity from the other appellants for their shares of the costs.
Issues On Appeal
[9] The appellants raise the following issues on appeal:
(1) The trial judge erred in ignoring Elizabeth’s “reasonable expectations as a shareholder”;
(2) The trial judge erred in ignoring Elizabeth’s security interest over the business’s assets;
(3) The trial judge erred in dismissing Elizabeth’s claim respecting Mark’s alleged misappropriation of corporate opportunity and/or self-dealing by creating and operating an ice cream distribution company known as “Tracey’s Dairy”;
(4) The trial judge erred in his award of costs.
[10] During argument of the appeal, the court sought to clarify the appellants’ position on the three issues that were before the trial judge, as described in paragraph 6 above. Initially, it appeared the appellants were not challenging the trial judge’s decision that Elizabeth should be required to sell her shares to Mark. As argument proceeded, it emerged that the appellants consider that Justice Roy erred in ordering the sale by Elizabeth to Mark. This issue was raised in the notice of appeal, and was a central concern for the appellants at trial. Fundamental to the appellants’ position on this issue is their argument that Mark was never the legal owner of the 49 shares upon which his claim is based in this proceeding, or alternatively, that he had agreed in 1999 to surrender all or some of his shares to other members of the family for no compensation.
Structure of these Reasons
[11] I start with this court’s jurisdiction and the applicable standard of review. I then address, as preliminary issues, the appellants’ claims that Mark is not entitled to his shares at all. I then organize these reasons around the primary issues decided by the trial judge.
Jurisdiction
[12] The appellants brought this appeal first to the Court of Appeal. Appeal properly lay to this court[^2] and so the Court of Appeal transferred the appeal to us.
Standard of Review
[13] The standard of review on this appeal is correctness for questions of law, and “palpable and overriding error” for questions of fact. Questions of mixed fact and law are subject to the “palpable and overriding error” standard unless there is some error of law or principle that can be identified independent of the judge’s application of law to the facts of the case. If the error of law is extricable from questions of mixed fact and law, it must be separated out and correctly applied to the findings of fact.[^3]
Issue One: Should Elizabeth be required to sell her shares to Mark?
(a) Preliminary Issue #1: 2 shares or 100 shares?
[14] The appellants argued before the trial judge that there are only two shares in the business, both owned by Elizabeth.
[15] The business was acquired by Kenneth Tracey and another man in 1980. Each owned one share in the business. In 1981, Kenneth acquired his business partner’s share.
[16] In the late 1980’s, at various times, Kenneth proposed to issue shares to his sons Mark and John, to the effect that they would each own a one-third interest and he would retain a one-third interest. It seems this was much discussed, but never implemented.
[17] In 1990, Kenneth and Elizabeth separated, and there were family law proceedings. Also in 1990, Kenneth caused the company to issue 49 shares to each of Mark and John. Elizabeth learned of this and in 1992 commenced proceedings against Mark, John, Kenneth and the company, claiming a constructive trust interest in the business, and seeking to set aside the share issuance to John and Mark as a fraudulent attempt to defeat her claims against Kenneth.
[18] The constructive trust action was settled in 1997. In the settlement, Elizabeth abandoned her claims against Mark and entered into an agreement with him that subsequently served as a shareholders’ agreement. John agreed to transfer the shares issued to him back to Kenneth. Thus, after the settlement, Mark retained 49 shares and Kenneth had 51 shares. Elizabeth’s legal proceedings then continued against Kenneth.
[19] The legal proceedings between Elizabeth and Kenneth concluded with the judgment of Sedgwick J. in 1998, who ordered that Kenneth transfer 25 shares to Elizabeth, left 26 shares with Kenneth, and confirmed Mark’s shareholding of 49 shares. Sedgwick J. also ordered that Kenneth’s 26 shares would stand as partial security for an equalization payment that Kenneth owed to Elizabeth. In November 1998, Elizabeth realized on this security, and thereby came to own 51 shares.
[20] Given this history, Roy J. concluded that “there is no basis for the court to conclude that there are only two shares in the company and they belong to Elizabeth Tracey”. I agree. The issue of Mark’s ownership of 49 shares is res judicata as among Mark, John and Elizabeth. Tom was not a party to the prior proceedings, but he was certainly aware of them. Moreover, he has not asserted a claim for constructive trust on his own behalf. Any claim by Tom at this late stage would be precluded by either the Limitations Act or the doctrine of laches. The trial judge preferred to base his decision on a factual conclusion. That conclusion is based on the evidence. There is no palpable and over-riding error; there is no error of law.
(b) Preliminary Issue #2: did Mark agree to “give up” his shares?
[21] Before Roy J., Elizabeth Tracey “continue[d] to insist that Mark Tracey’s shares should be transferred to the family without consideration” (Reasons, para. 18); “[Elizabeth Tracey] still maintains that she should have Mark Tracey’s 49 shares for nothing” (Reasons, para. 17); the appellants argued that “Mark had agreed to give up his 49 shares” (Reasons, para. 20).
[22] Roy J. concluded that Mark never agreed to give up his shares: “[t]he overwhelming evidence indicates otherwise” (Reasons, para. 20). Roy J.’s conclusion is a factual finding, firmly rooted in the evidence. There is no palpable and over-riding error, and I accept this conclusion.
[23] I would add that the appellants’ conduct from 1999 to 2007 was largely inconsistent with their position on this issue. They engaged in substantial self-help, but did not assert a claim that Mark was contractually bound to transfer any or all of his shares to them as a result of an alleged agreement in 1999. Any claim for breach of contract is now long out of time under the Limitations Act.
(c) Should Elizabeth be required to sell her shares to Mark?
[24] The learned trial judge considered a number of factors in coming to his conclusion that Elizabeth ought to be required to sell her shares to Mark:
(1) Who has the best ability to continue the business?
(2) What shareholder has contributed the most to the deadlock?
(3) Who has the ability to purchase the other’s shares?
(4) What weight should be accorded Elizabeth’s majority holding (51 shares) and Mark’s minority position (49 shares) in the company?
(5) What effect will the order have on the continued viability of the company?
(6) What effect will the order have on other stakeholders in the company, such as its long-term employees, customers and suppliers?
[25] These are appropriate factors that may be considered in deciding which party ought to be required to sell to the other.[^4]
[26] The appellants do not challenge this list of relevant factors. Rather, they argue that the learned trial judge failed to consider, or to place appropriate weight upon, certain aspects of the evidence while assessing these factors. In particular, they argue:
(a) Roy J. failed to consider oppressive conduct by Mark towards Elizabeth in various ways, including failing to call regular shareholders and directors meetings, thus excluding Elizabeth from meaningful participation in a company in which she held a majority of the shares. This combined with the other circumstances (such as Elizabeth’s status as the majority shareholder) led Roy J. to err by disregarding Elizabeth’s “reasonable expectations as a shareholder” in ordering that she sell her shares to Mark;
(b) Roy J. failed to consider Mark’s oppressive conduct in creating and operating “Tracey’s Dairy” to distribute ice cream products, including those of Centreside Dairy, a corporate opportunity from which Elizabeth was wrongfully excluded;
(c) Roy J. failed to consider or to place appropriate weight upon Elizabeth’s status as a security-holder and creditor of Centreside Dairy; and
(d) Roy J. failed to place sufficient weight on the fact that Elizabeth was the majority shareholder.
[27] The appellants argue that these errors, individually and cumulatively, should tip the balance in favour of an order that Mark sell to Elizabeth, rather than the other way around.
[28] I do not accept these arguments.
[29] First, the arguments raised by the appellants do not affect Roy J.’s findings under factors (1), (3), (4), (5) and (6), described at paragraph 24, above. The learned trial judge concluded that:
(i) Mark has the best ability to continue to operate Centreside Dairy effectively;
(ii) Mark has the wherewithal to purchase Elizabeth’s shares, but there is good reason to doubt that Elizabeth could pay for Mark’s shares;
(iii) the continued viability of the business would be jeopardized by removing Mark and placing control in Elizabeth’s hands;
(iv) the financial risk to the company would imperil the chances of Elizabeth being able to pay for Mark’s shares;
(v) long-term employees and other stakeholders in the company would be placed at risk if Mark was removed and Elizabeth placed in control of the business;
(vi) even though Elizabeth holds a majority of shares, this factor is overwhelmed by the factors that weigh in favour of requiring her to sell her shares to Mark.
[30] There was ample evidence to support the trial judge’s conclusions respecting points (i) to (v). Point (vi) involves a weighing of the various factors, and was a conclusion available on the evidence.
[31] The arguments raised by the appellants appear to relate to the second factor considered by Roy J., that is, which side was more responsible for the deadlock in the company. Roy J.’s findings respecting this issue were as follows:
Like in most disputes the blame is not only one-sided. Undoubtedly over the years Mark Tracey has not been easy to work with. It is obvious from the evidence that Mark and Melany’s[^5] attitude towards other family members can be categorized as condescending and impatient. Given the history of this business they could have shown more tolerance. Nevertheless Elizabeth Tracey, with the assistance of other family members, has engaged in a course of conduct which was oppressive and prejudicial to Mark Tracey’s interests. Much of that conduct has been detailed earlier.[^6] Some of it borders on being dysfunctional. The holding of a directors meeting without notice, repeated firing of Mark Tracey and Melany Tracey, cutting off the burglar alarm and changing the locks or occupying the premises with strangers for three days are just some of the most obvious incidents. Elizabeth Tracey has consistently refused to abide by earlier agreement[s] or court orders in refusing to sell her shares. She still maintains that she should have Mark Tracey’s 49 shares for nothing. There is no doubt that her conduct with the assistance of family members is mainly responsible for the present deadlock. (Reasons, paragraph 19).
[32] The evidence discloses that “blame is not one-sided”, as noted by the learned trial judge. Mark’s failure to hold regular meetings of directors or shareholders is subsumed in the trial judge’s findings that Mark was “condescending and impatient” and “not… easy to work with”. It was not necessary for the learned trial judge to consider whether this conduct constituted, in law, “oppression” of Elizabeth in her capacity as a shareholder. Had meetings been held, given the overall history, they would have been further occasions for strife. And the absence of meetings did not lead to some other oppression of Elizabeth in her capacity as a shareholder. This was all “part of the mix” of events, and the absence of specific reference to these facts does not mean that they were disregarded by the learned trial judge. With respect, the appellants have engaged in a consistent pattern of self-help that crossed the line into lawlessness on more than one occasion. There was a firm foundation for Roy J.’s conclusion that the appellants were more to blame for this deadlock than was Mark.
[33] I discuss the “security interest” issue in more detail below. I conclude that Elizabeth did not continue to have a security interest in the assets and undertaking of Centreside Dairy as of the time of trial, and so of course it was no error for the trial judge to fail to give this issue any weight. However, had I concluded otherwise, it would not have been material to whether Elizabeth should be required to sell her shares to Mark. If the security interest continued to exist, then its sole significance related to the price and ancillary terms upon which Mark would be permitted to purchase Elizabeth’s shares.
[34] I also discuss the issue of alleged misappropriation of corporate opportunity in more detail below. I do not consider that this issue has any bearing on whether Elizabeth should be required to sell her shares to Mark. Rather, it may bear upon the price for Elizabeth’s shares, or alternatively, may entitle her to a separate remedy for loss of participation in the corporate opportunity Mark pursued without her participation.
[35] I am satisfied that Roy J. properly identified the factors to be considered in deciding whether Mark should sell to Elizabeth, or whether Elizabeth should sell to Mark. Factors (1), (3), (5) and (6) weighed strongly in favour of Elizabeth being required to sell to Mark. On Roy J.’s analysis, factor (2) also weighed in this direction. I see no palpable and over-riding error in Roy J.’s review of the evidence or findings of fact on this issue, or with his conclusion that Elizabeth was more to blame for the deadlock than was Mark. Even if it was thought that the “balance of misconduct” was more equivocal than as found by the trial judge, however, this still would not have changed the overall balance of the factors. Indeed, in the context of this case, Mark is clearly the preferable choice on the basis of the practicalities of the case.
[36] Accordingly, I would not interfere with the learned trial judge’s decision that Elizabeth should be required to sell her shares to Mark.
(d) calculation of the sale price
[37] There were two expert reports before the court on the issue of the fair market value of Centreside Dairy. One concluded that the value of the company, as of December 31, 2006, was $533,000.[^7] The other placed the value of the company at $566,000 as of December 31, 2008.[^8] The valuation date used by the trial judge was January 31, 2007, and that approach was not contested on appeal.
[38] There was no evidence of any incremental increase in value of the company in the one month between December 31, 2006 and the valuation date of January 31, 2007. The later report, which showed a modest increase in the value of the company between December 31, 2006 and December 31, 2008, reinforces the reasonableness of the value ascribed in the earlier report. The learned trial judge accepted the $533,000 figure as the value as of the valuation date. He calculated that the fair market value of Elizabeth’s 51% of the shares was, therefore, 51% of $533,000, being $271,830.
[39] These findings of fact were available on the evidence. Indeed, there was no other evidence on which the learned trial judge could determine fair market value in this case.
[40] The appellants argue that the learned trial judge should have adjusted the price for Elizabeth’s shares on the basis of three issues:
(1) Elizabeth held a security interest in the assets and undertaking of the business to secure payment to her of the balance of the equalization payment owed to her by her late husband, Kenneth;
(2) Centreside had an equitable interest in, or Elizabeth had an equitable interest in, the distribution business owned by Mark, because he had misappropriated the corporate opportunity of that business. Thus the calculation of the value of the shares in Centreside ought to have reflected the value of the distribution business;
(3) Elizabeth’s “reasonable expectations” as the majority shareholder should be compensated by some payment beyond the strict arithmetical calculation of share value relied upon by the learned trial judge.
[41] For the reasons that follow, I would not give effect to any of these arguments. I conclude that:
(1) The security interest, and the underlying debt which it secured, were both extinguished in 1998 when Elizabeth foreclosed upon Kenneth’s 25 shares in Centreside Dairy. In any event, it appears that the underlying debt was discharged by receipt by Elizabeth of proceeds of sale of the matrimonial home and Kenneth’s life insurance policy. Alternatively, the appellants failed to prove that any balance remains outstanding.[^9]
(2) The appellants did not establish that Mark misappropriated a corporate opportunity that should have been available to Centreside, or that any self-dealing by Mark was wrongful or caused any damage to Centreside.
(3) In some circumstances, the fair market value of a controlling shareholding in a company may include a premium reflecting the value of holding, or gaining, control. This issue was not raised before Roy J., and there is, in any event, no evidence on which to increase the assessment of the fair market value of Elizabeth’s shares on this basis.
(1) Elizabeth’s alleged security interest
[42] Sedgwick J. found that, after applying his decision on the constructive trust claim, Kenneth owed Elizabeth an equalization payment of $158,834 (including prejudgment interest of about $59,000).[^10] Sedgwick J. ordered that the net proceeds of sale of the matrimonial home be paid to Elizabeth on account of equalization. Sedgwick J. ordered that the balance of the equalization payment be secured by:
(a) A pledge in favour of [Elizabeth] of all the common shares of [Centreside] beneficially owned by [Kenneth];
(b) A security interest… in favour of [Elizabeth] in all present and future real and personal property and assets of [Centreside] (including its goodwill); and
(c) An assignment and/or beneficiary designation to [Elizabeth] of the insurance policy on the life of [Kenneth] in the face amount of $91,000….[^11]
[43] Elizabeth failed to lead evidence of the amount she received on account of the equalization payment from the net proceeds of sale of the matrimonial home. She also failed to lead evidence of the life insurance proceeds she received after Kenneth died.
[44] On the basis of Sedgwick J.’s judgment, it appears that Elizabeth received at least $22,500 on account of the equalization payment from Ken’s portion of the net sale proceeds from the matrimonial home.[^12] This would have reduced the balance owed to her on account of equalization to no more than $136,334, plus post-judgment interest.
[45] On the basis of Sedgwick J.’s judgment, the benefit payable under the insurance policy should have been $91,000. If this payment was received, then the balance owing on the equalization payment would have been $45,334, plus post-judgment interest.
[46] Elizabeth exercised her security and took ownership of Kenneth’s shares in Centreside on November 11, 1998. Since that time, Elizabeth has acted as the owner of those shares; indeed, much of her complaint in this proceeding is based on her argument that she owns a majority of the shares in Centreside, a claim predicated on her having had ownership of Ken’s 26 shares in 1998.
[47] Assuming that Elizabeth received the life insurance benefit and Kenneth’s share of the remaining net proceeds of sale of the matrimonial home, the value of Kenneth’s 26 shares would have exceeded the balance owing for the equalization payment.
[48] It seems likely, therefore, that the equalization debt was retired. This has not been proved on the record before Roy J. But neither has Elizabeth proven that any balance does remain outstanding.
[49] In any event, the Personal Property Security Act provides that a creditor may do one of two things when realizing upon security for payment of a debt: (a) she may seize and sell the security and apply the net sale proceeds against the debt; or (b) she may accept the collateral in satisfaction of the indebtedness.[^13]
[50] It is apparent that Elizabeth received and kept Kenneth’s 26 shares. Clearly she did not sell them. And there is no evidence that she retained the shares for the purpose of selling them. Indeed, she subsequently pledged the shares, and in cross-examination acknowledged that she considers herself the owner of the shares. In these circumstances, the equalization payment was satisfied as a result of Elizabeth’s foreclosure against the shares.
(2) Alleged Diversion of Corporate Opportunity and/or self-dealing
[51] The appellants argue that Mark appropriated a business opportunity that properly belonged to Centreside when he established and operated “Tracey’s Dairy”, a distribution company. They also argue that “Tracey’s Dairy” diverted income and benefits from Centreside, and that this constituted self-dealing by Mark at the expense of Elizabeth, unfairly disregarding Elizabeth’s interests as a shareholder of Centreside.
[52] The appellants did not prove these claims at trial.
(a) No Misappropriation of Corporate Opportunity
[53] A director of a company has a fiduciary relationship to his corporation that requires him to be loyal to the corporation, to act in good faith, and to avoid conflict of duty. The nature and extent of fiduciary duties are examined in the overall context in which they arise.[^14]
[54] A director may not obtain for himself without the knowledge or consent of the company any property or business advantage which belongs to the company.[^15]
[55] A director is precluded from obtaining for himself, directly or beneficially, a maturing business opportunity for which the company has been negotiating, especially where the director has been negotiating for the business advantage on behalf of the company.[^16]
[56] A “mere idea” is not a business opportunity in this context. It is a “maturing” or “ripe” business opportunity, immediately available to the corporation, that constitutes a business advantage or opportunity that the fiduciary may not appropriate to himself. On the other hand, a director may pursue a business opportunity that the corporation has rejected, or that the corporation is unable or unwilling to pursue.[^17]
[57] Roy J. concluded that Tracey’s Dairy established its operations to distribute some of Centreside’s products, as well as products from other manufacturers, such as Breyers. The products distributed by Tracey’s were complementary rather than competitive. This opportunity was not available to Centreside: its banking restrictions would not have permitted it to raise the capital necessary to embark on this business. BRR Logistics, the master distributor of Breyer’s in Ontario, would not have agreed to distribution through Centreside. Finally, Roy J. concluded that the appellants had no intention of operating a distribution company, or distributing Centreside products through Centreside itself.
[58] On the basis of these findings, Roy J. concluded that the appellants and Centreside did not lose out on a business opportunity because Mark pursued Tracey’s Dairy.
[59] There was ample evidence for these findings; there is no palpable and overriding error.
(b) No Self-Dealing
[60] Mark caused Centreside to enter into an agreement with Tracey’s Dairy for the distribution of Centreside’s products. This agreement is not at arm’s length and so is a form of self-dealing: Mark caused one company, in which he was a 49% shareholder, to enter into a contract with another, in which he and his privies beneficially held 100% of the shares.
[61] This arrangement was in place for roughly seven years by the time of trial.
[62] Given Justice Roy’s finding that Centreside had neither the ability nor the intention to distribute its own products, the issue for trial is whether Mark’s self-dealing was wrongful, and if it was, whether it caused any damages to Centreside.
[63] There are no specific findings relating to these questions, because they were not raised specifically by the appellants. I have reviewed the entire trial proceedings and have not located any evidence that would bear on when Mark disclosed the distribution arrangements to Elizabeth, and when she objected to them. There is no evidence of how Centreside might otherwise have distributed its products, and how it would have made more money if it had done so. There was some evidence about trucks owned by Centreside being repainted with a “Breyer’s” logo, but no evidence of conversion or use of Centreside property for the use of Tracey’s Dairy on commercially unreasonable terms.
[64] On the record at trial, I conclude that it is not established that Mark’s self-dealing here was wrongful. If it was disclosed and approved by the shareholders of the company, either expressly or by acquiescence, then there was no wrongdoing. Further, there is no evidence that Centreside suffered any damages as a result of distributing its products through Tracey’s Dairy.
[65] Considerable latitude was accorded to the appellants at trial in the presentation of their case, as was appropriate for self-represented litigants. But it still remained for them to bring the evidence forward at trial to support their claims. Centreside’s accountant, Mr. Dempsey, testified that he scrutinized the arrangements between Centreside and Tracey’s Dairy and concluded that they were not disadvantageous to Centreside. He was not challenged on this evidence, nor was any evidence adduced to the contrary.
[66] Given the lack of evidence adduced by the appellants on this issue, Roy J. committed no palpable and overriding error in concluding that, on the facts, this claim was not made out.
(c) No basis for a control premium
[67] The issue of a premium for control of Centreside was not raised at trial. The expert reports do not address this issue. This issue cannot be raised for the first time on appeal, without evidence.
Additional Issue: alleged breach of the shareholders’ agreement by Mark
[68] In their factum, the appellants raise an issue about Mark’s alleged breach of the shareholders’ agreement. They say that Mark was obliged to pay Elizabeth $30,000, and that he failed to do so.
[69] The appellants have not indicated clearly why they say this issue is relevant to the primary issues in this case. On a broad reading of the factum, they could be arguing that:
(a) Mark was permitted to purchase shares from Elizabeth under an option to purchase in the shareholders’ agreement, and that his failure to comply with the terms of the option disentitle him from purchasing her shares now;
(b) Mark had a positive obligation to pay Elizabeth $30,000, in any event, and that his failure to do so is an example of his oppressive conduct towards Elizabeth.
[70] These arguments are without merit. Mark had an option to purchase 26 shares from Elizabeth pursuant to the shareholders’ agreement. If Mark wished to exercise this option, he was required to pay Elizabeth $30,000 within fifteen months as a non-refundable deposit towards the purchase of the 26 shares.
[71] Mark did not make the $30,000 payment.
[72] As a consequence of not making the $30,000 payment, presumably Mark’s option to purchase the 26 shares was extinguished.[^18] This termination did not preclude Mark from seeking to purchase Elizabeth’s shares on a basis other than his rights under the shareholders’ agreement, just as Elizabeth was not precluded from seeking an order permitting her to purchase Mark’s shares, even though she did not have a contractual right to do so.
[73] The language of the shareholders’ agreement respecting the $30,000 payment is clear on this point. The payment is not a freestanding obligation, but rather a condition precedent to the exercise of the option. Mark was not in breach of the shareholders’ agreement in failing to make the payment.
Costs of the Trial
[74] Costs are discretionary. This court should not interfere with Roy J.’s costs award unless we conclude that Roy J. considered irrelevant factors, failed to consider relevant factors, or reached an unreasonable conclusion.[^19]
[75] Roy J. considered and applied the factors in Rule 57.01, and the effect of the offers to settle made by Mark in accordance with rule 49.10. The litigation was protracted, and the actually incurred legal expenses, for Mark, were high relative to the monetary value of the issues between the parties. Mark sought costs of $286,613.14, a figure lamentably close to the value of Elizabeth’s 51% interest in Centreside.
[76] The appellants did not provide a bill of costs to Roy J. They were not obliged to do so. However, a costs award should reflect “what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant”.[^20] It is difficult to say that the costs claimed by Mark were more than the appellants would have expected to pay, since we do not know what they, themselves, paid in legal expenses.
[77] As noted by Roy J., the appellants’ costs submissions were of very little help in the exercise of fixing costs. The appellants focused their submissions on their substantive complaints against Mark, and not the issue of costs – what Roy J. aptly described as “a long diatribe against [Mark] about what they categorize as injustices over the last 30 years… irrelevant to the issue of costs”.[^21]
[78] Roy J. discounted Mark’s claimed costs significantly, from over $286,000 to $175,000. This discount reflects the value of the issues to the parties, and Roy J.’s assessment of the reasonable expectations of the losing parties. I see no error in this exercise of discretion.
Disposition and Costs of the Appeal
[79] At trial, the appellants focused on the preliminary issues: whether Mark owned his 49 shares, and whether he should be required to give up his shares, without consideration, to other members of the Tracey family.
[80] These issues were not the focus of Roy J.’s reasons. He disposed of them rather summarily. This was no error by the learned trial judge. Throughout the trial, Roy J. sought to assist the appellants, within the bounds of what a trial judge may do for self-represented litigants. He told them, several times, that he saw little merit to their arguments that he should go behind the judgment of Sedgwick J. The appellants did not heed these suggestions, and so the trial judge considered their evidence of events in the Tracey family going back to the 1970’s. In my view, the trial judge showed patience and forbearance in giving the appellants every opportunity to prove their case. The learned trial judge repeatedly directed the appellants to issues he considered of central importance in the case, but despite these suggestions, the appellants neglected to direct sufficient evidence to the central issues for decision.
[81] The trial judge correctly disposed of the preliminary issues. He identified the true issues for trial. He considered the evidence before him on those issues. He made no palpable and overriding error in coming to his factual findings. He correctly applied the law those findings. I see no error.
[82] I would dismiss the appeal.
[83] The parties agreed that costs of the appeal shall be $35,000, inclusive. The appellants shall pay this amount to Mark on the same basis as ordered by Roy J.
D.L. Corbett J.
I agree: __________________________
Aston J.
I agree: __________________________
Whitten J.
Released: June 14, 2012
CITATION: Tracey v. Tracey, 2012 ONSC 3144
DIVISIONAL COURT FILE NO.: 11-DV-1777
DATE: 2012/06/14
ONTARIO
SUPERIOR COURT OF JUSTICE
(DIVISIONAL COURT)
B E T W E E N:
MARK TRACEY
Respondent
- and –
ELIZABETH TRACEY et al.
Appellants
REASONS FOR DECISION
Aston, Whitten, Corbett JJ.
Released: June 14, 2012
[^1]: This was agreed at the outset of the trial, in clear terms: Trial Transcript, May 4, 2009, pages 47-48.
[^2]: Ontario Business Corporations Act, R.S.O. 1980, c.B.16, s.255.
[^3]: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 3-5,8,10,11,14,23,25. See also Mason v. Intercity Properties Ltd. (1987), 59 O.R. (2d) 631 (C.A.).
[^4]: See Liao v. Griffioen (2001), 20 B.L.R. (3d) 61 (Ont. S.C.J.) at paras. 14-20; Gold v. Rose, [2001] O.J. No. 12 (Ont. S.C.J. [Commercial List]), at paras. 18-28; Jansezian v. Hotoyan (1999), 1 B.L.R. (3d) 56 (Ont. S.C.J.) at paras. 4, 12; Viner v. Poplaw (2003), 38 B.L.R. (3d) 134 (Ont. S.C.J.) at paras. 33-34.
[^5]: Melany Tracey is Mark Tracey’s wife.
[^6]: See Reasons, paragraphs 2-12.
[^7]: Reasons, paragraph 22. Exhibit 2, tab 4.
[^8]: Reasons, paragraph 22. Exhibit 3, tab 3.
[^9]: As noted by the learned trial judge during the trial, it seems unlikely that Sedgwick J. intended that the judgment securing the assets of Centreside did anything more than further secure Kenneth’s 26% interest in that company. Otherwise, Kenneth’s debt would have been payable, beneficially, 25% by Elizabeth, a result that makes no sense. However, it is not necessary to decide this issue, given that the security interest has been extinguished in any event.
[^10]: The figure of $99,000 mentioned by Roy J. did not include interest. Prejudgment interest ran for over eight years, at a rate of 7.75%, for total prejudgment interest of $59,058.75.
[^11]: Judgment of Sedgwick J., paras. 20, 33-35.
[^12]: The net proceeds were $85,000. $40,000 was paid out to Kenneth and Elizabeth prior to the trial before Sedgwick J., leaving a balance held in trust of $45,000. Half of this would have belonged to Elizabeth, so the balance of $22,500 would have been held for Ken’s benefit. These calculations do not include any interest that may have accrued on this money while it was held in trust.
[^13]: Personal Property Security Act, R.S.O. 1990, c.P.10, ss. 63(1) and 65(2).
[^14]: Canadian Aero Services v. O’Malley, [1974] S.C.R. 592 (CanAero), at paras. 24-25.
[^15]: CanAero, at para. 48.
[^16]: CanAero, at para. 48.
[^17]: See Pizza Pizza Ltd. v. Gillespie (1990), 75 O.R. (2d) 225 (S.C.J. (Gen. Div.)), at para. 82; Donor Gateway Inc. v. Passero (2007), 28 B.L.R. (4th) 309 (Ont. S.C.J. [Commercial List]), at para. 12; Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673.
[^18]: I say “presumably” because this issue was not litigated before Roy J., and His Honour made no findings to this effect. Mark had sought to enforce his purchase option in the action tried before Roy J., but withdrew this aspect of his claims at the outset of trial: see Trial Transcript, May 4, 2009, pages 37-39, 43.
[^19]: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 29 (C.A.), at para. 19.
[^20]: Zesta Engineering Ltd. v. Cloutier (2002), 21 C.C.E.L. (3d) 161 (C.A.), at para. 4.
[^21]: Costs Endorsement of Roy J., para. 1.