Court File and Parties
CITATION: Foglia v. Grid Link Corp., 2024 ONSC 5715
DIVISIONAL COURT FILE: DC-23-007-00
Thunder Bay
DATE: 20241017
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
D.L. Corbett., S.T. Bale and S. Shore JJ.
BETWEEN:
Sebastiano Foglia and Jacqueline Mason
Respondents
– and –
Grid Link Corp., 1928025 Ontario Ltd. and Jody Bernst
Appellants
Counsel:
Nathan Wainwright, for the Respondents
Eric Zablotny, for the Appellants
Heard at Thunder Bay by ZOOM: June 18, 2024
REASONS FOR DECISION
S.T. Bale J.
OVERVIEW
[1] Grid Link Corp., 1928025 Ontario Ltd. and Jody Bernst appeal from the order of F.B. Fitzpatrick J. dated February 23, 2023 made under the Business Corporations Act requiring them to purchase Sebastian Foglia’s six per cent indirect interest in Grid Link (2023 ONSC 1322). Bernst, the president and sole director of Grid Link, owns the balance of the shares of the corporation. Foglia purchased his interest in Grid Link in February 2015, based on an offer from Bernst to him as one of five key employees of the corporation. However, the relationship between Bernst and Foglia later broke down. In December 2019, Foglia resigned his position with Grid Link and began employment with a competitor, Staal Irrigation Incorporated.
[2] Foglia and Grid Link are now suing each other. In addition to Foglia’s application under the Business Corporations Act, Grid Link has commenced an action against Foglia in which it alleges that it has suffered damages as a result of unlawful competition from Staal, aided by Foglia.
[3] Grid Link and Bernst moved under rule 38.10(2) of the Rules of Civil Procedure for an order that Foglia’s application be treated as an action. The motion judge adjourned the motion for that relief but ordered Grid Link and Bernst to purchase Foglia’s shares, and a timetable for the steps necessary to determine the value of the shares.
[4] On this appeal, Grid Link and Bernst argue that because the motion judge decided an issue that was not before him (whether they should be required to purchase Foglia’s shares), they were denied procedural fairness, and that the motion judge erred in law in ordering the sale and purchase of the shares.
[5] For the following reasons, I would dismiss the appeal.
REASONS OF THE MOTION JUDGE
[6] The motion judge found as a fact that the ultimate goal of both sides of the dispute was to adjudicate the question of how much, if anything, Foglia should be paid for his shares. As will be detailed below, that finding of fact was well-supported by the evidence.
[7] As of the date of the hearing, the motion judge had been case managing the application for almost three years and was intimately familiar with it. In January 2021, following two case conferences, he heard and dismissed a motion to strike the application. In his reasons for decision on that motion, he gave what he considered to be clear directions to the parties with respect to the need to organize the various claims so that they could be dealt with in the most cost-efficient and productive fashion possible. In March 2022, he held a further case conference.
[8] However, as the motion judge noted in his reasons for decision, it appeared that the directions he gave at the case conferences “were not sufficiently persuasive to the parties to have them focus their efforts on moving forward in an efficient manner.”
[9] In these circumstances, the motion judge, after referring to rule 1.04(1) and the principle that the Rules of Civil Procedure are to be “liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”, made the order under appeal: “I order that the Respondents or any of them, shall purchase all of Foglia’s shares in 1928025 Ontario Ltd. (the Shares). This is the ultimate outcome both parties want in this litigation. This is where this matter is ultimately going to land. I want to make a procedural order now to move this case towards that outcome as efficiently and quickly as possible.”
[10] The motion judge then went on to order a timetable for the steps necessary to determine the value of the shares, including, the production of documents, the retention of experts, determination of the valuation date and the exchange of expert reports.
ANALYSIS
Whether the motion judge erred in finding that the ultimate goal of both sides of the dispute was to adjudicate the question of how much, if anything, Grid Link and Bernst should pay Foglia for his shares
[11] The motion judge found as a fact that the ultimate goal of both sides of the dispute was to adjudicate the question of how much, if anything, Grid Link and Bernst should pay Foglia for his shares. In my view, that finding was open to him on the history of the matter and the materials before him.
[12] In an affidavit sworn February 7, 2022, Bernst says that he wants Foglia to be held accountable for the damages that he has caused by competing with Grid Link but also wants “any connection that [Foglia] has to Grid link severed, including his indirect minority equity interest.” He says that he disagrees with Foglia’s allegations and denies that his conduct has been oppressive but agrees “that [Foglia] must eventually dispose of his indirect shareholdings.”
[13] Later in the same affidavit, Bernst notes that Foglia was then the sole remaining minority shareholder and says again that he does not want Foglia to remain a shareholder and that he agrees that Foglia must divest his interest at some point. He then goes on to say:
But any valuation of [Foglia]’s shares, and the date or dates at which those shares should equitably be valued, will require consideration of the millions of dollars of annually recurring revenue and business opportunities that Grid Link lost from its long-standing clients as a result of [Foglia] assisting Staal to acquire contracts with Grid Link's primary clients of its Pipeline Division and Railway Division, and [Foglia]’s actions will also be relevant to any remedy considered in this Application. Accordingly, in order for there to be any proper, full, fair, and equitable resolution and remedy in this Application, this Application must be converted to an Action and consolidated with Court File No. 20-00440, such that the complex evidence in this matter can be fully put before this Honourable Court.
[14] In an affidavit sworn May 13, 2022, Bernst says:
[Foglia] should at some point dispose of his indirect shareholdings in the equity of Grid Link, but it should not occur as a result of a compelled sale in a fabricated oppression proceedings designed to be isolated from his gross misconduct and the grievous harm he has caused to Grid Link and its share value. A full and complete hearing of the material facts and issues will, I strongly believe, result in: (a) oppression relief being found to be not available to [Foglia]; and (b) [Foglia]'s misconduct generating damages in favour of Grid Link far beyond the value of his indirect shareholdings in the equity of Grid Link.
[15] Based on this evidence, the motion judge made no palpable or overriding error in finding that the ultimate goal of both sides of the dispute was to adjudicate the question of how much, if anything, Grid Link and Bernst should pay to Foglia for his shares.
Whether the appellants were denied procedural fairness
[16] In Singh v. Trump, 2016 ONCA 747, at paras. 148 to 149, in the context of a motion for judgment, the court said the following about the requirement that parties have notice of the matters that will be at issue on a hearing:
However, a motion judge may not grant or dismiss a claim on a motion for summary judgment that is not within the scope of the motion before him or her. Doing so would deny procedural fairness and natural justice.
A fair hearing requires that a party have notice of the matters that will be at issue at the hearing and of how that party may be affected by the hearing’s outcome. [Citation omitted.]
[17] In the present case, the appellants argue that the only issue before the motion judge was whether the application should be treated as an action pursuant to rule 38.10(2) of the Rules of Civil Procedure. They say that they had no notice that the issue of whether a sale of Foglia’s shares to them would be considered, and that as a result, they were denied procedural fairness.
[18] I agree that in the circumstances of this case, it would have been better if the motion judge, after coming to a preliminary conclusion that an order for sale of the shares was required to move the matter forward, had given the parties a further opportunity to argue that point. However, two factors attenuate concerns about procedural fairness.
[19] First, although the appellants did not have notice that the issue of whether Foglia’s shares should be sold to them would be dealt with on the motion, they did have notice of the argument that formed the basis of the motion judge’s decision. Second, the appellants have not shown any prejudice or substantive unfairness to have resulted from not being given a further opportunity to argue the issue.
Notice to appellants of argument forming basis of motion judge’s decision
[20] The order in this case did not come out of the blue from the judge’s chambers following the hearing. The basis on which the motion judge made the order – the fact that both sides wanted a sale of Foglia’s shares (at some point) – was raised in Foglia’s factum on the motion and was the subject of discussion at the hearing. In Foglia’s factum, in support of his position that the motion to treat the application as an action should be dismissed, he argued:
There is an absurdity in the record. Mr. Foglia wants Mr. Bernst to buy his shares, and Mr. Bernst wants to buy Mr. Foglia’s shares. The parties’ shared interest in Mr. Foglia’s shares calls into question the necessity of this motion and even the Application. Rhetorically, why have the parties not just agreed to a share purchase, with the valuation date and share price being agreed upon or determined by the court in this Application?
No prejudice or substantive unfairness
[21] While Grid Link and Bernst agree that an order for the sale of Foglia’s shares should eventually be made, they argue that the motion judge’s order was unfair, for several reasons:
• they argue that a finding of oppression on their part is inherent in the order (and that such a finding is unfair and unwarranted);
• they argue that an order for the sale of the shares should await disposition of their damages claim against Foglia (because they think that after a set-off of those damages, nothing will be owed to Foglia); and
• they argue that the possibility of a sale of the shares to a third party should be left open.
Whether a finding of oppression is inherent in the motion judge’s order
[22] The application was made under both s. 207 (winding up by court) and s. 248 (oppression remedy) of the Business Corporations Act. Grid Link argues that in order for a share sale to be ordered, a finding of oppression must first be made. I disagree.
[23] Under s. 207(1) of the Act, the court may order that a corporation be wound up where it is satisfied that it is just and equitable to do so. However, the remedies available under s. 207(1) are not limited to a winding up order. Pursuant to s. 207(2), on an application under s. 207, the court may make a winding up order or such order under s. 248 as it thinks fit. Under s. 248(3), the court may make any interim or final order it thinks fit, including, an order directing a corporation or any other person to purchase securities of a security holder.
[24] The motion judge made no finding of oppression on the part of Grid Link or Bernst. He was fully aware that Bernst disputed Foglia’s allegations and fully aware of the allegations made by Bernst in his action against Foglia. While he did not specifically refer to ss. 207 or 248, in the face of the competing allegations and the common goal of a sale of Foglia’s shares, it was open to him to order a sale of the shares without a finding of oppression.
Whether the order for sale of the shares is unfair pending disposition of Grid Link’s damages claim against Foglia
[25] Grid Link and Bernst argue that the order for sale of the shares is unfair pending disposition of Grid Link’s damages claim against Foglia. Their position is that Grid Link suffered damages as a result of Foglia’s actions that far exceed the value of Foglia’s shares, and that in the end, Foglia will be entitled to nothing.
[26] However, in his reasons for decision, the motion judge made the following comments on this issue with which I agree:
I appreciate the Respondents’ approach to value includes set off or discount or some kind of accounting of alleged damages they blame on Foglia. This is an issue to be decided at a later date and in my view should not interfere with the steps outlined above” [steps necessary to determine the value of the shares].
One of the objectives in all of this is to have the parties flesh out the extent of the claim in [Grid Link’s action against Foglia] so a more realistic assessment can be made about whether it will require that the $11 million dollar claim to be consolidated with the present litigation and what part, if any, those claims may play in an exercise of adjudicating the value of the shares.”
[27] I also note that if the two proceedings are not consolidated, the issue of the manner and timing of Grid Link’s purchase of Foglia’s shares would be an issue to be determined by the application judge.
Whether the possibility of a sale of the shares to a third party should be left open
[28] Grid Link and Bernst say that they never agreed to purchase Foglia’s shares themselves and that all Bernst said in the quoted passages from his affidavits is that Foglia would have to dispose of his shares. They argue that the order under appeal is unfair to them because they have lost the ability to have Foglia’s shares purchased by some hypothetical third party at a price not subject to determination by the court. For the following reasons, I disagree.
[29] First, it is unrealistic to suggest that some hypothetical third party would purchase a six per cent interest in a privately held company or that Bernst would be amenable to Foglia selling his shares to a third party of his choice. Such a suggestion lacks credibility.
[30] Second, if a third party is found who wants to purchase the shares from Foglia, they could be purchased by Grid Link or Bernst and re-sold to the third party, or the purchase agreement could be assigned to the third party. It would always be possible for the parties to return to the motion judge to request an amendment of the order based on changed circumstances.
[31] Third, I note that Bernst has purchased the interest of the other four key employees who purchased an interest in Grid Link leaving Foglia as the sole minority shareholder.
[32] Finally, in the absence of a court order, Foglia would have no obligation to sell the shares to a third party chosen by Grid Link and could refuse to do so, if he was not satisfied with the proposed purchase price. A court-ordered sale at a price determined by the court would then be required. If, on the other hand, Bernst were to find a third party prepared to buy the shares at a price acceptable to Foglia, I see no reason why the parties could not simply inform the court that they had reached an out-of-court resolution.
CONCLUSION
[33] The motion judge’s finding of fact that the ultimate goal of both sides of the dispute is a purchase by Grid Link of Foglia’s shares was open to him on the evidence. He made no error of law in exercising jurisdiction under the Business Corporations Act to order the sale. A decision under the Act whether to order a sale involves an exercise of discretion requiring deference from this court.
DISPOSITION
[34] For the reasons given, I would dismiss the appeal, with costs payable to the applicants by the respondents in the agreed-upon total of $12,000 ($4,000 for the leave motion and $8,000 for the appeal).
“S.T. Bale J.”
“I agree. D.L. Corbett J.”
“I agree. S. Shore J.”
Released: October 17, 2024
CITATION: Foglia v. Grid Link Corp., 2024 ONSC 5715
DIVISIONAL COURT FILE NO. DC-23-007-00
Thunder Bay
DATE: 20241017
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
D.L. Corbett., S.T. Bale and S. Shore JJ.
BETWEEN:
Sebastiano Foglia and Jacqueline Mason
Respondents
– and –
Grid Link Corp., 1928025 Ontario Ltd. and Jody Bernst
Appellants
REASONS FOR DECISION
. S.T. Bale J.
Released: October 17, 2024