Monteith Mineralized Solutions Inc. v. Nu-Gro Ltd, et al, 2018 ONSC 539
CITATION: Monteith Mineralized Solutions Inc. v. Nu-Gro Ltd, et al, 2018 ONSC 539 DIVISIONAL COURT FILE NO.: DC-17-1037-00 DATE: 20180124
SUPERIOR COURT OF JUSTICE – ONTARIO DIVISIONAL COURT
RE: Monteith Mineralized Solutions Inc, Plaintiff (Respondent) AND: Nu-Gro Ltd., Agrium Advanced Technologies Inc., and Agrium Inc., Defendants (Appellants)
BEFORE: Abrams, Matheson and Ryan Bell JJ.
COUNSEL: James R. Milne, for the Plaintiff/Respondent Brendan F. Morrison, for the Defendants/Appellants
HEARD at Oshawa: January 22, 2018
ENDORSEMENT
W. MATHESON J.
[1] This is an appeal, with leave, by the defendants Nu-Gro Ltd., Agrium Advanced Technologies Inc. and Agrium Inc. from the order of Justice Di Tomaso dated April 29, 2016 (the "Order").
[2] This appeal arises in highly unusual circumstances. After this action was commenced, an oppression application was commenced in Newmarket regarding the share ownership and management of the respondent. In the oppression application, two orders were made prohibiting the respondent from settling this action until disposition of the application, and sealing the entirety of the application court materials. The oppression application was also adjourned sine die.
[3] After unanswered requests for information about the Newmarket application, the appellants moved for a stay of this action pending the disposition of the oppression application. That motion was dismissed, giving rise to the Order appealed from. The main issues on the appeal relate to the significance of the two orders prohibiting settlement and the authority of the respondent to proceed given conflicting evidence from Robert Monteith on behalf of the respondent.
[4] For the reasons set out below, the appeal is granted.
Brief Background
[5] In the action, the respondent is suing the appellants for breach of a distributing agreement (the "Action"). Because it is a corporation, the respondent would ordinarily be required to be represented by counsel in the Action. However, at the outset of this matter, the respondent sought leave to be self-represented in the Action by Barry Sherman, its then VP and COO. Mr. Monteith swore an affidavit in support of that motion. He attested that he was the respondent's president and "sole shareholder." The motion was granted. Mr. Sherman was permitted to represent the respondent. The statement of claim was served. Productions were exchanged in 2013.
[6] By email dated July 31, 2013, Mr. Sherman notified the appellants of two Newmarket orders, although the orders themselves were not provided with the email. He acknowledged that the appellants were affected by those orders. The email stated as follows:
Good Day This is to inform you that on July 25 Madam Justice Vallee gave an order restraining the owners of [the respondent] from effecting any settlement of the [Action] until further order of that court in Application # CV-13-114694-00. This is being sent to you as your clients are parties affected by the order. The contents of that Application file are sealed pursuant to the order of Madam Justice Mullins of July 9. Please make sure as well that your client is also aware of this letter to you and please confirm to me that this has been done. It is important for me to know that your client is aware in the unlikely event that you cease acting for them. Thank you. Brian Sherman Partner, Monteith Mineralized Solutions Inc.
[Emphasis added.]
[7] The appellants made numerous requests for further information and sought evidence from the respondent's then counsel about his authority to proceed with the Action in the circumstances. Those requests went unanswered.
[8] The appellants were eventually provided with redacted versions of the Newmarket orders, which show that Mr. Sherman is the applicant and Mr. Monteith is the respondent in the Newmarket application. The orders provide as follows:
Order of Justice Mullins dated July 9, 2013:
Until further Order of this Court and without prejudice to the rights of the parties to contest the issues raised by this Motion as they see fit on the return of this Application, the parties to this Application are hereby restrained, pending the return date of this Application, from effecting a settlement of Ontario Superior Court of Justice action #11-0245 (at Barrie) [the Action] through their corporation Monteith Mineralized Solutions Inc.
The contents of this Application file are ordered sealed and treated as confidential, not forming part of the public record.
Order of Justice Vallee dated July 25, 2013:
In the interim, until the final hearing of this Application or the trial of the issues of this Application or in the event that one of the parties proposes the making of or the acceptance of a settlement offer and without prejudice to the rights of the parties to contest the issues raised by this Motion as they see fit on the return of this Application, the parties to this Application are hereby restrained, pending the return date of this Application, from effecting a settlement of Ontario Superior Court of Justice action #11-0245 (at Barrie) [the Action] through their corporation Monteith Mineralized Solutions Inc.
The balance of this Application shall be adjourned sine die [rest of order redacted]. [Emphasis added.]
[9] Thus, these two orders prevent Messrs. Monteith and Sherman from settling this Action until the hearing of the application, which has been adjourned sine die.
[10] One of the two orders shows that the application is for shareholder oppression. At a later stage, after a cross-examination and a refusals motion in the stay motion, Mr. Monteith answered that he and Mr. Sherman were parties to a contested oppression application in Newmarket in which Mr. Sherman claims an ownership interest in the respondent. Mr. Monteith also indicated that Mr. Sherman is no longer involved in the direction of this Action and is not entitled to full information about it.
[11] In response to the appellants' stay motion, the respondent delivered an affidavit of Mr. Monteith sworn February 5, 2014, in which he described himself as the "sole director" of the respondent, but did not mention his shareholdings.
[12] On his further cross-examination in early 2016, Mr. Monteith attested that he was the "sole shareholder" of the respondent, as he had said in his affidavit at the outset of the Action.
[13] However, just days prior to the return of the stay motion, another affidavit of Mr. Monteith was delivered. This time, Mr. Monteith swore that he was "the majority shareholder" and "controlled the majority of seats on the board of directors." He further swore as follows: "I have always been the majority shareholder of [the respondent] and always controlled the majority of the seats of the board of directors of [the respondent]."
[14] The stay motion was dismissed. The motion judge noted that the oppression application involved a dispute between Mr. Sherman and Mr. Monteith regarding the ownership and management of the respondent. However, he disagreed with the appellants, without explanation, about the significance of the two Newmarket orders prohibiting the settlement of the Action. Further, he held as follows: "I do not find Mr. Monteith's position as being inconsistent regarding his control of the company as the sole director and majority shareholder. This is something he has always maintained." He therefore did not accept the appellants' position that there was significant uncertainty regarding the authority of the respondent corporation to continue the Action.
[15] On March 10, 2017, Justice J.R. McCarthy granted the appellants leave to appeal.
Analysis
[16] It is agreed before us that the standard of review on this appeal is as set out in Ontario v. Chartis Insurance co. of Canada, 2017 ONCA 59, at para. 57, because the decision to deny a stay was discretionary. Accordingly, the decision is only reversible where "the court has misdirected itself, has come to a decision that is so clearly wrong that it amounts to an injustice, or where the court gives no or insufficient weight to relevant considerations."
[17] The appellants put forward two main issues regarding the respondent's authority to pursue the Action at this stage, which they submit satisfy all three branches of Chartis:
(1) that the motion judge erred in failing to grant the stay when two court orders prohibited the settlement of the Action; and,
(2) that the motion judge erred in finding that the respondent's evidence about shareholders and directors was consistent when it plainly was not.
[18] Two other grounds for appeal were also raised, which we address only briefly. The appellants challenge the motion judge's decision to permit the late delivered affidavit of Mr. Monteith. We see no reason to interfere with that decision on appeal.
[19] The appellants also challenge the failure of the motion judge to deal with the sealing order, given the strongly affirmed open court principle that applies in this country. The appellants question whether the orders were wrongly based upon the consent of the parties, rather than the required affidavit evidence for such an order: Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] S.C.J. No. 42, at paras. 1 and 53. This is speculation. We do not know what was before the motion judge who made the sealing order. Further, questions arise because the entire court file was sealed, rather than parts of the file, because the whole file therefore had to meet the high threshold for a sealing order. As well, no justification has been presented for failing to produce the entirety of the court orders themselves. Despite these potential problems, it remains the case that the sealing order is not under review on this appeal. As submitted by the respondent, if the appellants wish to challenge the sealing order, they ought to do so directly.
[20] However, the issues regarding the respondent's authority do meet the high standard of review and justify granting this appeal.
Respondent's authority
[21] The appellants submit that the ability to settle an action is an important component of the authority of a plaintiff to pursue an action. I agree. The importance of that authority was well-described by Justice McCarthy on the leave motion, who was, in turn, referring to reasons given by Justice Mulligan on the refusals motion regarding Mr. Monteith's cross-examination:
In my view, the issue of whether a stay of proceedings in an action is appropriate when one of the litigants is restrained from settling the action for an indeterminate period is one that is of great importance. There exists a clear tension between one litigant's right to have a civil matter move forward without undue delay and the opposite litigant's right to pursue and conclude a resolution of that civil dispute in a timely and cost-effective manner. Here, a court has imposed a restraint upon the ability of the [respondent] to effect a settlement of the [Action] because of the unresolved issue of ownership of the [respondent] corporation. That issue, which remains to be determined in the Application, leaves the purported owner of the corporation, in Mulligan J.'s words, unable to "control these proceedings." … In the present case, settlement, which is the most desirable outcome of any civil dispute, is rendered impossible by the orders made in the Oppression Application. [Emphasis added.]
[22] As put by the Supreme Court of Canada in Kelvin Energy v. Lee 1992 38 (SCC), [1992] 3 S.C.R. 235 at 259, citing Sparling v. Southam Inc., et al (1998) 1988 4694 (ON SC), 66 O.R. (2d) 225 at 230 (H.C.J.):
The courts consistently favour the settlement of law suits in general. To put it another way, there is an over-riding public interest in favour of settlement. This policy promotes the interests of litigants generally by saving them the expense of trial of disputed issues, and it reduces the strain upon an already over-burdened provincial court system.
[23] The motion judge gave no or insufficient weight to the considerable incursion on the respondent's authority caused by the Newmarket orders and the resulting prejudice to the appellants of having to incur the time and expense of defending an action that cannot be settled. This is further exacerbated by the adjournment of the oppression application sine die.
[24] Since the Newmarket orders were on consent, this appears to be a self-imposed limitation on the respondent's authority to some extent, and the respondent also consented to a sealing order and relies on it for its refusal to provide any meaningful explanation of what is transpiring in the Newmarket application. The appellants have little information about the Newmarket application and it has been hard work for them to obtain the little information that they do have.
[25] The respondent submits to us that the issues in the Newmarket application are not relevant to the Action. This is completely inconsistent with the little information before us, specifically the two Newmarket orders. Both orders refer expressly to this Action, and prohibit its settlement. There is obviously a connection between the two proceedings.
[26] The respondent further submits that there are steps that could still be taken in furtherance of a potential settlement. It submits that there could be negotiations. There could be a mediation. There could be an application to the court in Newmarket for a settlement approval. This suggests that the appellants should expend time and effort on these steps, despite knowing that the parties who claim to be in charge of the respondent cannot cause it to settle. As well, one of the two potential shareholders is being excluded from involvement in the Action. Further, the appellants do not know what context would be brought to a theoretical approval in Newmarket since the underlying issues and evidence in that proceeding are not known. The Newmarket orders do not even provide for court approval of a proposed settlement, let alone a legal basis for such a requirement.
[27] The respondent also seeks to analogize this situation with court approval of the settlement of a claim for a person under disability or the settlement of a class action. Those analogies fail. In those situations, there is an established legal framework for the settlement approval, with known obligations and criteria to meet for court approval. That is not the case here. Those situations are exceptions from the general rule that parties are able to settle their litigation.
[28] The Newmarket orders undercut the respondent's authority to pursue this Action so significantly that the failure to grant the stay pending disposition of the application amounts to an injustice. On this basis alone, the appeal is granted.
[29] Briefly with respect to the last ground of appeal, contrary to the findings of the motion judge, there is also no doubt that there are obvious conflicts in the evidence of Mr. Monteith regarding the shareholders and directors of the respondent. In two affidavits he swore that he was the sole shareholder of the respondent. On cross-examination, he swore that he was the sole shareholder of the respondent. Then, in his most recent affidavit, he swore that he was a majority shareholder and always had been, without explanation. The evidence regarding the directors of the respondent corporation is similarly conflicting. The record amply supports the appellants' position that the evidence gives rise to significant uncertainty about the respondent's authority to continue the Action. The finding regarding Mr. Monteith's evidence is a palpable and overriding error that also meets the Chartis standard of review.
[30] The appeal should therefore be granted and the requested stay put in place. Recognizing that circumstances may change, the stay should be subject to further order of the Superior Court.
Disposition of appeal
[31] The appeal is granted and this Action is staying pending the final disposition of the Newmarket application or further order of the Superior Court.
[32] The respondent shall pay costs of the appeal to the appellants, fixed at the agreed upon amount of $8,000, inclusive of disbursements and applicable taxes. In addition, the respondent shall re-pay the costs ordered below of $11,000, which have been paid by the appellants.
Matheson J.
I agree _______________________________
Abrams J.
I agree _______________________________
Ryan Bell J.
Date: January 24, 2018