Court File and Parties

COURT FILE NO.: CV-18-00608051-00CL CV-19-614180-00CL DATE: 20230810

SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

RE: ANDREW STRONACH, Plaintiff AND: BELINDA STRONACH, NICOLE WALKER, FRANK WALKER and ALON OSSIP in their capacities as Trustees of the Andrew Stronach 445 Family Trust; BELINDA STRONACH and ALON OSSIP in their capacities as Trustees of the 445327 Trust; BELINDA STRONACH, NICOLE WALKER and FRANK WALKER in their capacities as Trustees of the Stroand 2011 Trust; BELINDA STRONACH in her capacity as Trustee of the Belinda Stronach 2011 Family Trust; BELINDA STRONACH in her capacity as Trustee of the BSFIN Investments Trust - 2011; BELINDA STRONACH in her capacity as Trustee of the Adena North Trust; NICOLE WALKER and FRANK WALKER in their capacities as Trustees for the Andrew Stronach Family Trust; NICOLE WALKER and FRANK WALKER in their capacities as Trustees for the Andrew Stronach Special Trust; BELINDA STRONACH, NICOLE WALKER and FRANK WALKER in their capacities as Trustees for the Andrew Stronach 2011 Trust; BELINDA STRONACH, NICOLE WALKER and FRANK WALKER in their capacities as Trustees for the Belinda Stronach 2011 Trust; BELINDA STRONACH, NICOLE WALKER and FRANK WALKER in their capacities as Trustees for the Elfriede Stronach 2011 Trust; BELINDA STRONACH in her capacity as Trustee of the Andrew Stronach Family Trust – 2015; BELINDA STRONACH, NICOLE WALKER and FRANK WALKER in their capacities as Trustees of the Belinda Stronach 445 Family Trust; 2305218 ONTARIO INC. in its capacity as Trustee for the Woodington Trust - 2011; BELINDA STRONACH, NICOLE WALKER and FRANK WALKER in their capacities as Trustees of the ST Trust; BELINDA STRONACH, ALON OSSIP, FRANK WALKER and NICOLE WALKER in their personal capacities and STRONACH CONSULTING CORP., Defendants

AND BETWEEN : SELENA STRONACH, Plaintiff

AND BELINDA STRONACH, NICOLE WALKER, FRANK WALKER, ELFRIEDE STRONACH and ALON OSSIP, in his capacity as Trustee of the Andrew Stronach 445 Family Trust; BELINDA STRONACH, ELFRIEDE STRONACH and ALON OSSIP, in their capacities as Trustees of the 445327 Trust; BELINDA STRONACH, FRANK WALKER, ELFRIEDE STRONACH and NICOLE WALKER, in their capacities as Trustees of the Strosel 2011 Trust; BELINDA STRONACH, FRANK WALKER, ELFRIEDE STRONACH and NICOLE WALKER, in their capacities as Trustees of the Stroand 2011 Trust; BELINDA STRONACH in her capacity as Trustee of the BSFIN Investment Trust; 2305218 ONTARIO INC. in its capacity as Trustee for the Woodington Trust; BELINDA STRONACH and ELFRIEDE STRONACH in her capacity as Trustee of the Adena North Trust; FRANK WALKER, ELFRIEDE STRONACH and NICOLE WALKER, in their capacity as Trustees for the Andrew Stronach Family Trust; BELINDA STRONACH, ELFRIEDE STRONACH, FRANK WALKER and NICOLE WALKER in their capacities as Trustees for the Andrew Stronach 2011 Trust; BELINDA STRONACH, NICOLE WALKER and FRANK WALKER, in their capacities as Trustees of the ST Trust; BELINDA STRONACH, ELFRIEDE STRONACH, FRANK WALKER and NICOLE WALKER, in their personal Capacities, Defendants

BEFORE: Penny J.

COUNSEL: Matthew P. Gottlieb, Shaun Laubman and Philip Underwood for Selena Stronach Marie Henein, Alex Smith and B. Studniberg for Andrew Stronach Peter Howard for the Defendant (Responding Party), Belinda Stronach Iris Fischer and Anna Christiansen for the Defendants (Responding Parties), Belinda Stronach and 2305218 Ontario Inc., in its capacity as Trustee for the Woodington Trust Alan Mark and Melanie Ouanounou for the Defendants (Responding Parties), Nicole Walker and Frank Walker Mark Gelowitz for the Defendant, Alon Ossip, in his capacity as Trustee of the Andrew Stronach 445 Family Trust Nina Bombier for the Defendant, Elfriede Stronach Linda Plumpton, Gillian Dingle and Stacey Reisman for the Defendant (Responding Party), Stronach Consulting Corp

HEARD: June 27 and 28, 2023

Endorsement

Overview

1In the summer of 2022, a six-week trial was pending in this action, scheduled to commence in the late fall. The parties participated in a three-day mediation with Justice McEwen on July 27 to 29, 2022. The mediation resulted in a July 29 written document styled “Outline of Terms of Settlement”. The parties’ counsel all signed this document on their clients’ behalf. The trial date was later vacated.

2It was understood by the parties that the implementation of the Terms contained in the Outline would require numerous steps which would have to be clearly set out in a “term sheet”. In the course of further negotiations about the term sheet, the parties ran into unreconcilable differences of opinion about various aspects of the Outline and its Terms. There was a further mediation with Justice McEwen on November 17 and December 7, 2022 during which there were additional negotiations and offers of compromise. The continued mediation was adjourned to permit the parties’ consideration of what had been discussed.

3On January 17, 2023, Belinda Stronach’s counsel, Mr. Barrack, advised that the most recent offer the plaintiffs had made at the continued mediation was not acceptable to her. He further advised that, in light of the failure of the parties to reach agreement and the disparity between the parties on significant issues, Belinda was no longer prepared to engage in further negotiations based on the Outline.

4Following additional back and forth, the plaintiffs ultimately took the position that the Outline constituted an enforceable agreement on all essential terms of settlement and brought this motion to enforce the Terms of the Outline. The defendants take the position that there was never an enforceable settlement; the Outline was never intended to be an enforceable agreement and many essential terms, such as those being unsuccessfully negotiated to prepare the term sheet, were never agreed upon.

The Issue

5The parties do not disagree about the applicable law. Their disagreement is over the application of the law to the unique circumstances of this case.

6Settlements are contracts and therefore subject to the basic principles of contract formation. A binding settlement is reached when the parties, measured objectively:

a. had a mutual intention to create a legally binding contract; and b. reached agreement on all the essential terms of the settlement.

7The common dispute, as it is in this case, is whether a final agreement has been reached which the parties intended to record in subsequent formal documentation or whether the parties have only reached a tentative or provisional agreement which will not be binding until the documentation is complete.

8It is also common ground that, in assessing the parties’ intention to enter into legally binding terms of settlement, regard may be had to both the written terms of what has been agreed to, read in the context of the factual matrix reasonably known to both the parties, and the subsequent conduct of the parties.

9In deciding whether a binding settlement exists, the language used by the parties, as well as their conduct, is viewed objectively in order to determine whether a contract has been made. The subjective intentions and actual states of mind of the parties are not relevant or admissible. In a commercial context, the lens is that of the commercially minded observer. What is relevant is whether, in the eyes of a hypothetical honest, sensible businessperson, the parties appeared to have reached an agreement. In other words, whether a concluded agreement exists does not depend on an inquiry into the actual state of mind of the parties. Indeed, there are may examples in the case law of situations where, although the parties believed they had a settlement agreement, there was a lack of agreement on all essential terms, such that the preconditions for an enforceable agreement were not met.

10Similarly, there is little dispute over the objective facts themselves. Again, where the parties part company is largely over the inferences and conclusions to be drawn from those facts, in light of the context and the applicable law.

11The sole issues on this motion are whether the parties objectively intended the Outline of Terms of Settlement to be legally binding and enforceable and whether the Outline resolved all essential terms required for the settlement.

Background

12To observe that this litigation involving the members of the Stronach family has been long, acrimonious, and expensive would be an understatement.

13The Stronach family wealth is held in a highly complex structure of multiple trusts, corporations, and other entities collectively known as The Stronach Group, or “TSG”. One of the key TSG corporate entities at issue in this litigation is 445327 Ontario Limited (“445 Ltd.”). A substantial portion of TSG’s assets are owned by 445 Ltd. through its subsidiary Stronach Consulting Corp (“SCC”). 445 Ltd. owns and operates the family’s valuable “racing and gaming” assets. The remaining TSG assets consist largely of landholdings in Canada and the United States owned by various trusts.

14The members of the Stronach family include Frank Stronach and his wife Elfriede (collectively referred to in the material as “FE”), their two children Belinda and Andrew Stronach, and Belinda’s children, Frank Jr. and Nicole, (the Belinda family branch is collectively referred to in the material as “BFN”) and Andrew’s child, Selena (the Andrew family branch is likewise collectively referred to in the material as “AS”).

15Andrew and Selina assert an “understanding” in their claim in this litigation that the family’s assets would ultimately be divided equally among the three grandchildren: Selena, Nicole, and Frank Jr. This understanding is referred to as the “one-third/two-thirds” principle, since it involves Andrew’s branch (which has one grandchild) holding one-third of the overall assets, and Belinda’s branch (which has two grandchildren) holding two-thirds.

16However, in an estate freeze and trust reorganization that occurred in October 2013, the shares in 445 Ltd. were allocated as follows:

i) 67.4% held indirectly (through a holding company, BSF Trust Holdings Inc., by the Belinda Stronach 445 Family Trust (“Belinda 445 Trust”) for the benefit of Belinda, Frank Jr. and Nicole; ii) 23.1% held indirectly (through a holding company, ASF Trust Holdings Inc.) by the Andrew Stronach 445 Family Trust (the “Andrew 445 Trust”) for the benefit of Andrew and Selina; and iii) 9.5% held indirectly (through a holding company, 445 Trust Holdings Inc.) by the 445327 Trust for the primary benefit of Elfriede.

These three trusts, the Belinda 445 Trust, the Andrew 445 Trust and the 445327 Trust are often referred to collectively in these proceedings as the 445 Trusts. The ownership structure is reflected in the chart below.

445327 Ontario Limited Ownership Structure Ownership is 100% unless otherwise noted

17The 2013 reorganization became the focus of litigation commenced against Belinda and others in 2018 by Frank and Elfriede, followed by this litigation commenced by Andrew and Selena, who sought to set the reorganization aside and remove Belinda and others from various trustee and senior management roles.

18The focus of Andrew and Selena’s respective claims is their allegation that, in 2013, the defendants improperly caused the shareholdings of 445 Ontario to be re-allocated from the commonly understood principle of one third/two thirds to one that disproportionately benefited and unjustly enriched the defendants, and which discriminated against and oppressed Andrew and Selena. They sought a reallocation of the assets and who controlled those assets or, in the alternative, a buy-out of their 1/3 interest at fair value.

19Following a mediation in 2020, Frank and Elfriede settled their litigation with Belinda and the other defendants. No settlement was reached with Andrew and Selena.

20The settlement with Frank and Elfriede was ultimately reflected in a detailed term sheet of August 10, 2020, which took months to negotiate and several more months to implement. The closing of that settlement involved the preparation and execution of over 700 documents. As conceded in the plaintiffs’ factum, it was only upon the signing of the term sheet that the “parties to the [Frank/Elfriede Action] settlement treated the agreement as being final and binding”. Likewise, it was only after execution of the detailed term sheet that a press release was issued by TSG and the action was dismissed by court order.

21The actions of Andrew and Selina continued. The parties produced documents, held examinations of discovery and argued several contested motions. The trial was scheduled for six weeks to commence in November 2022.

22The origins of the July 2022 mediation were in discussions between counsel commencing in October 2021, where it was suggested that a path to resolution could be a “1/3 stay-in proposal” which would recognize and maintain the plaintiffs’ 1/3 interest in TSG (as opposed to a but-out of their interest) but not involve Andrew and Selena having any role in managing TSG. The defendants produced a detailed 20-page term sheet to encapsulate possible terms for such a settlement. A very different, detailed term sheet was provided by the plaintiffs in response. Although the competing term sheets reflected many issues on which the parties disagreed, it provided a starting point for discussions which ultimately took place in the July mediation. It is common ground that the July 2022 mediation proceeded on the basis of a 1/3 stay-in proposal for Andrew and Selena.

The Outline of Terms of Settlement

23The evidence filed on the motion consists of competing affidavits from members of the legal teams of both sides (Mr. Levin for Andrew/Selina and Mr. Barrack for Belinda/Frank Jr./Nicole), communications between counsel and between counsel and various third parties and various documents, such as the Outline itself and draft term sheets exchanged between the parties.

24A good deal of the disagreement between the two sides is manifested in competing characterizations of the Outline and its Terms. This tends, however, to be somewhat conclusory in nature and very much in the eye of the advocacy-informed observers whose affidavits were relied upon as evidence. For this reason, it is appropriate, because the document is very short, to attach the Outline itself as Appendix A to these reasons.

The Plaintiffs’ Argument

25The plaintiffs argue that the parties demonstrated their intent to create a legally binding contract when they agreed to the Outline. At the close of the mediation, Justice McEwen and the parties’ counsel discussed the Terms to ensure they were all in agreement. Defendants’ counsel prepared the Outline to memorialize those agreed-upon Terms. Counsel then collectively reviewed and signed the document on their clients’ behalf. The plaintiffs also say that the context in which the Outline was made underscores its binding nature. It was the product of lengthy negotiations between the parties, all conducted with the assistance of experienced counsel and the court.

26The plaintiffs rely on the subsequent conduct of the defendants and their counsel which, they argue, reflects the intention that the Terms of the Outline were binding and enforceable. No one in the period which followed the mediation took the position that there was no agreement because the intent was not to create binding legal relations or because there were essential terms yet to be negotiated. To the contrary, in the days and weeks after the Outline was concluded, the defendants and their counsel confirmed that a settlement had been reached. The plaintiffs refer to a number of congratulatory messages that were exchanged celebrating the successful mediation and the settlement. Defendants’ counsel immediately began preparing documents for the closing that reflected the agreed-upon terms. The defendants agreed to vacate the trial date and took no steps to move the litigation forward.

27The plaintiffs also argue that the Outline captured all of the essential terms for a settlement of the litigation. They say the comprehensive nature of the Outline is apparent from comparing its the terms to the main issues in dispute in the litigation. At the time of the July 2022 mediation, the actions had been underway for more than three years, and the disputed points were well known to the parties. The Outline addresses all of these key issues as well as a number of other, more minor, points which arose during the mediation.

28The plaintiffs acknowledge that the parties had yet to reach agreement on a number of what they call “implementation terms” before the settlement agreement would be ready to close. However, as reflected in the cases, they say, this situation is common, particularly in the context of complex litigation like this. None of the terms remaining to be agreed upon as part of the implementation process were essential to the litigation or the settlement agreement. In any event, they say, the parties had agreed to a dispute resolution mechanism to address any disputes that might arise during the implementation process. That process was agreed to in the provision of the Outline which states: “Disputes regarding settlement and implementation documents to be resolved – Mr. Justice McEwen or designee or person agreed to by the parties”.

29Thus, the plaintiffs submit that the Outline manifests an intention to create binding legal relations, when read in the context of the factual matrix. And, they say, the Outline reflects all essential terms of the settlement. The remaining steps were merely implementation matters and the parties in any event agreed that all disputes would be resolved by Justice McEwen.

Analysis

30The plaintiffs’ argument has the merit of simplicity and of being consistent with the court’s policy of fostering and enforcing settlements in accordance with their terms. However, notwithstanding the very able and forceful arguments of plaintiffs’ counsel, I am unable to conclude that the Outline, properly considered in context, reflects a mutual intention to create a binding legal agreement or that it contains all essential terms necessary for a binding settlement agreement to have come into being.

Mutual Intention

31For a binding settlement to exist, there must be: i) a mutual intention to create a legally binding agreement; and ii) agreement on all essential terms of the settlement. The language used by the parties, the known factual context and the parties conduct is viewed objectively.

32The concepts of mutual intention and all essential terms are not mutually exclusive categories. Objective evidence going to one of these two issues may be highly relevant to, and inform, the other issue as well.

33The core document at the heart of this motion is styled an “Outline of Terms of Settlement” (emphasis added). It does not say, on its face that it is itself an agreement or that it is binding or enforceable. What it does say in the final bullet point is that “all steps set out above are to occur upon closing of a transaction”. It was commonly understood that there was still a lot of work to do after the July mediation. The evidence is that the closing would involve up to 500 separate long form documents and would require the assistance of sophisticated corporate and tax lawyers and planners to negotiate and draft those agreements. It was also commonly understood that the first order of business following completing the Outline was the negotiation and execution of a detailed term sheet.

34All parties were aware that the prior settlements with Frank and Elfriede and with Alon Ossip involved the negotiation and execution of a term sheet. The FE Settlement, for example, started with a framework agreement, followed by a term sheet, followed by the execution of definitive documents signed at a closing. It was the term sheet in that settlement, not the framework agreement, which expressly stated that it was a “binding agreement” and that any dispute relating to the agreement “shall be determined” by the court. The parties in this litigation attempted to negotiate a detailed term sheet in the period after October 2021 but were unsuccessful. This is what lead to the July 2022 mediation.

35Following the July mediation, on August 10 the defendants prepared a 30-page draft term sheet for the AS Settlement. This draft, following the approach of the two prior settlements, expressly provided that the term sheet, once signed, was a “binding agreement” and that any disputes relating to the agreement “shall be determined by” the court. The parties had many negotiations and meetings over the draft term sheet extending from August 10 to December 7. Altogether, the parties exchanged about ten drafts. The negotiations around the draft term sheet raised many significant issues. But the language about the term sheet being the “binding agreement” and disputes arising out of the term sheet being “determined by” the court did not change. At no time during the subsequent negotiations through to December 2022 did counsel for the plaintiffs ever take the position that the Outline was itself a binding and fully enforceable agreement or that there was no need for a term sheet or for further negotiations and agreements in order to conclude a settlement. Indeed, the plaintiffs actively and willingly participated in significant negotiations around the drafts of the term sheet and in the ongoing mediation in November and December, 2022.

36The plaintiffs rely on celebratory comments of defendants’ counsel about the settlement immediately following the July mediation, for the inference that they thought there was a binding agreement. In my view, however, these comments are: a) at best subject in nature; and, in any event, b) simply reflect an expectation that the parties were on a path to a settlement guided by the Outline. These comments cannot be regarded as constituting objective confirmation that all essential terms had been definitively agreed upon or that the parties had a final, binding and enforceable agreement. There are other comments, some made by representatives of the plaintiffs, which are equally suggestive of the opposite conclusion – that there was an “agreement in principle” only, that would still have to be fleshed out with definitive terms and documents. Alex Igelman, Andrew’s inhouse counsel, described the Outline as a “provisional” settlement “subject to closing documents.” Belinda’s counsel, in communication with counsel for the independent trustees of the AS 445 Trust, described the Outline as “a settlement in principle” and in another email noted that the parties still had “to get the settlement over the finish line.” How the parties characterized the Outline at the time is weak evidence which I do not regard as particularly helpful either way.

37There are several additional factors, however, which lead me to the conclusion that the Outline was not intended to be a final, binding and enforceable agreement.

38First, the Outline manifestly does not contain all essential terms. The Outline, for example, says nothing about what are called “drag along/tag along” rights. Drag along rights enable majority shareholders to effectively commit minority shareholders to a sale, whereas tag along rights effectively protect minority shareholders by allowing them to benefit from a favourable sale available to the majority shareholders. The parties discussed drag/along tag along rights during the mediation. Drag along rights are material to BFN; tag along rights are material to AS. The evidence is that provision for such rights was agreed to in principle during the mediation. Yet, while they were material and agreed to in principle, they do not appear in the Outline; the resolution of those rights was left to the term sheet negotiations. It cannot be that a party who claims a material right which has been agreed upon (at least in principle) but which has not been included in the agreement signed at the conclusion of the mediation, intends that agreement to be final, binding and enforceable.

39Second, both sides accuse the other of seeking to add into the term sheet issues that were not dealt with during the mediation at all (“new” issues) or issues that were raised in the mediation but rejected expressly in or by omission from the Outline (“re-trade” issues). I find that both parties did, to a greater or lesser extent, engage in this behaviour.

New Issues

40There are several issues that were raised for the first time during the term sheet negotiations. For example, while the Outline indicates that the current trustees of AS’ trusts will resign, the Outline does not specify which trusts they are resigning from. This became a source of disagreement.

41In their original August 10, 2022 draft term sheet, the defendants included a provision that, upon the dismissal of the various proceedings and the approval of the settlement by the Court, the Independent Observers (these are court-appointed monitors installed for the protection of the minority shareholders) would be discharged and provided releases. This is a material term. It has been acknowledged by the plaintiffs that releases for the Independent Observers was never discussed at the July mediation. It is not in the Outline. While it may be that the plaintiffs ultimately agreed to this, the parties were not in agreement on this term as of July 29, 2022 and it is not reflected in the Outline.

42Similarly, in the plaintiffs’ August 30, 2022 draft of the term sheet, they included a provision which provided that SCC was to pay the costs of all parties in respect of the settlement. This was never discussed or agreed upon at the July mediation and it is not in the Outline. The defendants never agreed to the inclusion of this provision in the term sheet.

43Advancing new issues not previously raised or agreed to and not in the Outline is not consistent with an intention that the Outline, standing alone, was a final, binding and enforceable agreement.

“Re-trade” Issues

44The evidence reveals numerous instances of the parties seeking to revisit benefits or rights they did not get during the mediation. An example of the plaintiffs attempting to “re-trade” appears in the context of ongoing, post-July mediation negotiations around governance issues. It was a fundamental principle of BFN’s willingness to engage in negotiations over the “stay-in” proposal at the July mediation that AS would have no or very limited ability to interfere in overall management of TSG and 445 Ltd. For example, this is why the shareholdings of AS were limited to just under a third, 32.6%, so that AS would not have statutory shareholder rights associated with fundamental corporate changes (even though their income distributions would be based on 33.3%). Several bullet points in the Outline deal with non-interference in governance by AS (#s 8, 14, 18, 19 and 20). In the term sheet negotiations, however, AS continued to bargain for “additional” rights as minority shareholders. They:

(a) sought to delete language from the BFN draft term sheet which made clear that they had no right to approval of fundamental changes; (b) added language that they could exercise their rights as a shareholder of 445 Ltd. as if they held one-third of the shares. This would potentially give them negative veto rights and was contrary to the Outline, which specifically limited their rights to a 32.6% ownership interest except in the case of distributions; (c) requested that proceeds of the sale of material assets would be distributed to the shareholders and not reinvested in the business. Influencing how proceeds of sale are dealt with is typically beyond the rights of a minority shareholder; (d) requested securities law level disclosure for related party transactions; (e) sought stringent material adverse change conditions if the target distribution number was not met and a catch-up provision that virtually guaranteed the target distributions (contrary to the language in the Outline “as a good faith target not guaranteed”); (f) restrictions on the ability to raise equity, including that additional funding could only be raised from shareholders if not otherwise available by conventional bank borrowings or the sale of assets, and that Andrew and Selena would have the right to participate on a pro-rata basis if new equity were required; (g) sought prior notice of any material transactions (in addition to notice of related party transactions, which had already been addressed in the Outline); (h) in addition to the term in the Outline regarding the provision of financial statements and MD&As, AS requested copies of other operating or business reports or business plans including for the benefit of current or possible investors, purchasers, lenders or regulators; (i) sought conditions on the transfer of shares; and (j) requested restrictions on the nature of the business which could be carried on.

45This behaviour is not consistent with a firmly held intention that the Outline contained the last, binding and enforceable word on what governance or other rights the plaintiffs would retain as minority shareholders in the “stay-in” scenario.

46The plaintiffs seek to characterize these issues as questions of contract interpretation. They say that if they were, during the term sheet negotiations, seeking a benefit not granted by the Outline, they should have been called on it and that Justice McEwen would, under the “Disputes” clause in the Outline, have determined the issue. I am unable to accept this approach. This is not what the plaintiffs said, or how they acted, at the time. The central issue on this motion has to do with contract formation, not contract interpretation. In my view, conduct by which a party seeks to obtain a concession or benefit not bargained for at all or which was bargained for and previously rejected, is inconsistent with an intention that the Outline represented a binding and enforceable agreement. Andrew and Selena considered they were free to seek these new or re-trade terms, which could only have been on the basis that the Outline was not regarded as a binding agreement; that it was still a work in progress. While these may not be dispositive facts, they are relevant facts making up part of the factual matrix and post-mediation conduct which the law requires me to consider. They lead me to the conclusion that the plaintiffs did not objectively intend the Outline to be the sole, final, binding and enforceable agreement on which their settlement would be based. Rather, that was the role of the term sheet, in respect of which negotiations were ongoing and no agreement could be reached.

Essential Terms Necessary for a Binding and Enforceable Agreement Remain Unresolved

47I have touched on the lack of agreement on all essential terms in the context of whether, viewed objectively, the evidence establishes a mutual intention that the Outline constituted a complete, stand-alone enforceable and binding settlement. I will now turn in more detail to the direct question of whether all essential terms had been resolved.

48As noted earlier, the corporate, tax, financial and trust structure of the entities involved in giving effect to the Terms of the Outline was complex and had to be laid out in a detailed term sheet. The ultimate closing of this transaction was expected to be very complicated – involving up to 500 documents which to be negotiated, drafted and executed. Counsel for the defendants prepared the first draft of the term sheet. It became evident from the plaintiffs’ first proposed revisions to that term sheet draft that there were many issues over which there continued to be disagreement. These disagreements continued for three months without resolution. This stand-off culminated in an October 11 email from Mr. Barrack to all counsel in which he advised that “In light of this suggested revision there appears to be no benefit to further meetings. If this matter is to settle it will only be after a further mediation session with Justice McEwen” (emphasis added).

49The plaintiffs did not take the position that there already was an enforceable settlement. They acknowledged there were differences that could not be resolved through discussions between counsel alone and agreed to, and actively participated in, continued mediation with Justice McEwen in an effort to achieve resolution.

50In anticipation of the further mediation with Justice McEwen in November, the defendants prepared an issues list summarizing outstanding material issues. There were nine such issues in respect of which no agreement had been reached, as well as categories of other, miscellaneous issues and information requests which were not necessarily regarded as unresolvable.

51The nine issues were described in a memo prepared by the defendants and circulated at the time as:

1. AS wants debt owed to BFN by the 445 Group
2. AS reaching for additional rights beyond that of a minority shareholder
3. AS wants BFN to pay two-thirds of expenses and debt of AS or AS trusts or corporations
4. Selena wants to receive the Woodington cottage on a tax-paid basis
5. AS wants the US$50M priority distribution from Ocala free of U.S. withholding tax
6. AS will not agree to interest on the BFN note for the deferred US$100M distribution
7. AS jeopardizes the trustee selection process by nominating problematic trustees
8. AS insists on a catch-all language for AS trusts
9. AS insists on the resignation of BFN as trustees of AS 2011 Trust, a trust with CRA audit risk

52I will deal with the first five or six of these outstanding issues because, in my view, they are, individually and collectively, dispositive of the issue in this case.

The Debt Reallocation Issue

53There is currently an imbalance in the respective debt obligations owed from TSG to BFN and those owed to AS. The post-July demand of AS is that there be a reallocation of these obligations so that 1/3 of the outstanding debt is payable to them, and only 2/3 is payable to BFN. The defendants say this was never discussed or agreed to in the July mediation, is not reflected in the Outline and that it is, as a matter of substance, unacceptable to them.

54In 2014 and 2015, 445 Ltd. declared various dividends to the intermediate family holding companies (BSF Trust Holdings Inc., ASF Trust Holdings Inc. and 445 Trust Holdings Inc.). These Trust Holding companies in turn declared capital dividends to the three 445 Trusts. These dividends, however, were “paid” by the issuance of promissory notes which enabled funds to be paid tax-free from 445 Ltd. to the Trust Holding companies and then from the Trust Holding companies to the 445 Trusts, so that the 445 Trusts could make tax-free distributions of capital to their various family member beneficiaries. It is important to emphasize that this “pipeline” of payments was comprised of two levels of debt: (i) debt owed by 445 Ltd. to each of the Trust Holding companies, and (ii) debt owed by the Trust Holding companies to each of the 445 Trusts. The aggregate debt owing by 445 Ltd. to the Trust Holding companies is greater than the amount of debt owed by the Trust Holdings companies to the 445 Trusts. This back-to-back debt structure was known to the plaintiffs and their counsel well before the July mediation.

55Over the years, the promissory notes issued to each of the 445 Trusts (i.e., the “Trust Debt”) had been drawn down by each trust’s respective family members at different rates. In the case of the 445327 Trust (Elfriede’s trust) and the Andrew 445 Trust, the tax free distributions had been entirely depleted by the time of the July mediation. BFN left proportionately more cash in the company than the other families. The accelerated draw-down by AS from the Andrew 445 Trust accounts for a significant portion of the “asymmetry” in the presently existing debt obligations owed to the 445 Trusts by TSG.

56Significant amounts of debt remain owing between 445 Ltd. and each of the Trust Holding companies: BSF Trust Holdings Inc.: $275,060,882; ASF Trust Holdings Inc.: $68,348,874; 445 Trust Holdings Inc.: $33,356,649. This reflects the indebtedness remaining to be paid out to the respective families in respect of dividends already declared years ago.

57It is common ground that, with one exception, there was no explicit discussion or agreement at the July mediation about previously declared dividends being clawed back or that there would be an adjustment in the amount of 445 Ltd.’s pre-existing debt owed to the Trust Holding companies. The one exception is the separate but expressly addressed issue of a $2.5 million replenishment of the Andrew 445 Trust’s capital dividend account (addressed in bullet point # 26). AS, therefore, acknowledge that the debt receivable issue they have now raised “is not dealt with specifically in the Outline” and arose following the conclusion of the July mediation.

58The plaintiffs argue, however, that this issue is implicitly subsumed by the reference to “2/3 1/3 on all other assets” in bullet point #7 of the Outline. There are a number of potential problems with this argument. The debt receivable is a liability (not an asset) of 445 Ltd. It is only an asset of BSF Trust Holdings Inc., BFN’s personal holding company in which AS have no interest. The Outline does not contemplate the reallocation of BFN’s “personal” assets based on promissory notes issued by 445 Ltd. years ago. The evidence rather, supports the conclusion that the “two thirds/one-thirds” principle was to apply to assets in which both Andrew, Belinda and their respective families held an interest; specifically, the assets involved in the Ocala Settlement, Triple Bell and Alpen House.

59The debt receivable issue was first touched on by AS’s counsel in a draft term sheet of October 11, 2022. It became a clear area of disagreement following the defendants’ responding draft term sheet of October 27, 2022 and a meeting amongst counsel on October 31, 2022. What AS demands is that there to be a true-up of assets of the BFN Trust, not of TSG or 445 Ltd., on the “one third/two thirds” basis. It is an item worth tens of millions of dollars. During the continued mediation in November and December, AS ultimately offered to abandon this debt reallocation issue and some other demands in exchange for a global payment of an additional $25 million. The mediation was adjourned to permit BFN to consider this request. Shortly thereafter, BFN rejected the AS proposal and took the position that all further negotiations were at an end.

60This issue is highly material, both in concept and in value. The AS claim to this debt re-allocation from BSF Trust Holdings or the Belinda 445 Trust is in dispute. Any agreement on this issue could only be described as “essential” to a binding settlement. The language of “1/3 2/3 on all other assets” in bullet point # 7, read in context of a single, specific adjustment to Andrew’s capital dividend account in the AS 445 Trust account, cannot, on its face, be read to include: a) TSG or 445 Ltd. debt, since the Outline specifically refers only to “assets”; or b) the assets of BFN’s personal Trust Holding company or the Belinda 445 Trust. There is no provision anywhere in the Outline for re-distribution of assets of BSF Trust Holdings or the Belinda 445 Trust, which are personal assets of BFN. It must be concluded on the evidence that this issue is essential to the settlement but that it has not been resolved by the Outline.

Additional Minority Shareholder Rights

61This issue has already been described in the section under Mutual Intention above – it is one of the “re-trade” issues. For clarity, the list of matters still being pursued during the term sheet negotiations following the July mediation which relate to TSG governance and minority shareholder rights is:

(a) seeking to delete language from the BFN draft term sheet which made clear that AS had no right to approval of fundamental changes; (b) adding language that AS could exercise their rights as a shareholder of 445 Ltd. as if they held one-third of the shares. This would potentially give them negative veto rights and was contrary to the Outline, which specifically limited their rights to a 32.6% ownership interest except in the case of distributions; (c) requesting that proceeds of the sale of material assets would be distributed to the shareholders and not reinvested in the business. Influencing how proceeds of sale are dealt with is typically beyond the rights of a minority shareholder; (d) requesting securities law level disclosure for related party transactions; (e) seeking stringent material adverse change conditions if the target distribution number of $26 million per year was not met and a catch-up provision that virtually guaranteed the target distributions (contrary to the language in the Outline, which stated that the $26 million target was “a good faith target not guaranteed”); (f) seeking to restrict the ability of 445 Ltd. to raise equity, including that additional funding could only be raised from shareholders if it was not otherwise available through conventional bank borrowings or the sale of assets, and that AS would have the right to participate on a pro-rata basis if new equity were required; (g) seeking prior notice of any material transactions (in addition to notice of related party transactions, which had already been addressed in the Outline); (h) in addition to the term in the Outline regarding the provision of financial statements and MD&As, AS requested copies of other operating or business reports and business plans including documents prepared the benefit of current or possible investors, purchasers, lenders or regulators; (i) seeking to impose conditions on the transfer of shares; and (j) requesting restrictions on the nature of the business which could be carried on by the TSG and 445 Ltd.

62It was made clear at the outset and throughout the settlement negotiations that a condition of BFN’s agreement to a “stay-in” approach for AS was that AS would have little or no capacity to participate in or interfere with management of TSG. This was, for example, the basis for AS’s ownership interest in 445 Ltd. being limited to 32.6%, stipulated in bullet point #4 of the Outline.

63The rights being sought during the term sheet negotiations by AS in their capacity as 445 Ltd. shareholders, and the concomitant restrictions on the conduct of the business and affairs of TSG, are individually and collectively highly material issues in the context of these negotiations. That they were still being negotiated (and hotly contested) during the negotiations over drafting the necessary term sheet for the settlement is clear evidence that there was no agreement on these issues, in the Outline or otherwise.

Tax Treatment of Ocala Priority Payment and Woodington Transfer

64Bullet point #5 of the Outline provided for a $50 million priority payment to AS from certain US business operations referred to in the material as the Ocala Settlement. The transfer of this priority payment was to occur “on closing in a tax effective way”. During the term sheet negotiations, AS demanded that this payment be made to them “free of U.S. withholding tax”. The defendants take the position that “tax effective” does not mean “tax free” and that, in the absence of another solution, receiving the benefit of the priority payment will have to include shouldering the risk of associated tax burdens.

65The Outline also contemplates a recreational property called “Woodington Cottage” being transferred to Selena and a different recreational property, called “Elk Track”, being transferred to BFN (bullet point #s 15 and 16). The evidence is that there was no discussion or agreement amongst the parties during the July mediation as to the valuations, adjusted cost bases or tax treatments of the proposed transfers of either property. The parties recognized that material tax issues were likely to arise and said in the Outline that they would “co-operate” on tax matters. In the term sheet negotiations, AS’s counsel demanded that the Woodington property be transferred to AS at its current value with tax being paid by the Woodington Trust on the appreciation in value up to the date of transfer. This would have triggered an immediate tax payable on capital gain of about $3.7 million. The Woodington Trust has no assets, other than the Cottage, to satisfy this tax liability.

66The defendants proposed that the Woodington Cottage be rolled over to AS at its original adjusted cost basis with the result that capital gains tax would be deferred until the property was sold. The defendants say they were advised that Selena had a desire to retain the Cottage, given her emotional attachment to it.

67In both these instances, the tax implications of the proposed actions were not agreed to, even though the parties were aware that there would, almost inevitably, be tax consequences to these transactions. It is often the case that tax consequences are a “zero sum game.” It is clear, having turned their minds to tax consequences, that the parties regarded this as an important issue. However, the Outline does not resolve how tax liabilities will be allocated. References in the Outline to “tax effectiveness” and “co-operation on tax issues” amount to no more than an agreement to agree. The tax consequences of these transactions were material to the parties. These were essential terms but there was no agreement on how they would be resolved.

Interest on the Deferred Ocala Distribution to BFN

68The flip side of the priority USD$50 million distribution to AS from the Ocala business in the U.S. was that a USD$100 million promissory note would be issued to BFN covering the deferred payment of the 2/3 allocation of that asset to them under the “one third/two thirds” approach. AS will receive their 1/3 share immediately on closing. BFN will have to wait, potentially for a number of years, for the distribution of their share. In exchange for this differential in treatment (AS paid now, BFN paid later), as part of the term sheet negotiations BFN sought interest at 4% on the USD$100 million until it is paid. AS took the position that there could be some interest but that it should be capped at a fixed limit.

69Any reasonable businessperson would regard this as a material issue. It is not dealt with in the Outline. There is no agreement on this issue.

Release of Ordinary Course Obligations to Pay Rent etc. for Use of 445 Ltd. Property

70The Outline contemplated payment for the use of various residences and other properties by various members of the Stronach family. For example, bullet point # 11 contemplates that Selena will pay market rent on certain barns and paddocks used for her cattle and horses. The defendants took the position that all ordinary course amounts owing by AS (or their trusts) to the operating corporations must be paid up prior to closing. AS rejected this term in the term sheet negotiations and took the position that their ordinary course expenses ought to be forgiven as part of the “clean start releases” clause in bullet point #10.

71This was estimated to be a $725,000 issue for a closing in 2022 (but would be larger now). This is a material issue. It is not dealt with in the Outline. There is no agreement on this issue.

Conclusion on Unresolved Essential Terms

72The point of reviewing these six issues is not to assess the merits of the parties’ positions or to make a determination of which position is the “correct” one. The point is merely that the six issues identified above go beyond formalities of implementation or routine language. The settlement contemplated by the parties under the Outline is not a conventional or simple agreement where all that remains is “boiler plate” to fill in gaps that the parties could implicitly be taken to have agreed upon. This settlement was intended to govern a lengthy and complex (as well as fraught) relationship. The terms upon which that relationship would be governed, such as the division of TSG assets one third/two thirds in relation to the treatment of personal assets held by the different family branches’ trusts, minority shareholder rights, treatment of tax liabilities from required transactions, interest on deferred payments and payment of ordinary course obligations for use and enjoyment by specific individuals of “family-owned” properties, are all manifestly essential issues -- issues which were not resolved in the Outline or indeed by subsequent negotiation and mediation: Bawitko Investments Ltd. v. Kernels Popcorn Ltd., 1991 CarswellOnt 836 (Ont. C.A.) at para. 26.

73There being no agreement on these essential issues in the Outline, they were left to further negotiations during the drafting of a term sheet. No agreement could be reached during further negotiation and mediation. There is insufficient clarity on these issues, as framed in the Outline, for the court to know what to order the parties to do. It is for these reasons I am bound to conclude that there was no agreement on all essential terms of the settlement.

Dispute Resolution by McEwen J. or Other Designee

74The plaintiffs argue that, even if there are essential terms which the parties did not resolve in the Outline, they nevertheless agreed that Justice McEwen, or a designee, or some other unnamed person chosen by the parties, would resolve them. The relevant passage (in bullet point #21) says: “Disputes regarding settlement and implementation documents to be resolved – Mr. Justice McEwen or designee or person agreed by the parties”.

75Thus, the plaintiffs say, for example, that the solution for the defendants, if they want to argue that the reallocation of the Trust Holdco debt owed to the BFN Trust is not subsumed in the “one third/two thirds” principle, is to put the matter before the court under the dispute resolution provision in the Outline and the court will decide whether the Outline requires a reallocation of the Trust Holdco debt as part of the settlement.

76The “Dispute” passage from the Outline relied upon by the plaintiffs for this conclusion is, in my opinion, insufficient to support to weigh of the suggested responsibility upon the court, essentially to make an agreement for the parties where they have themselves been unable to do so. Read in context, the role of the court under this provision was to facilitate exactly what actually happened – continued mediation in an effort to find a mutually acceptable compromise and resolution. The role of the court was not, by means of adjudication, to fill in essential gaps left where the parties were unable to agree on essential terms.

77This is exactly how the parties acted at the time. When they reached an impasse during the term sheet negotiations, they returned to Justice McEwen to continue the mediation. It was not until after that process had run its course, when BFN refused the AS offer that BFN pay AS an addition $25 million and terminated further negotiations, that the plaintiffs ever took the position that Justice McEwen, or his designee, had the power to decide essential, substantive issues in dispute such as the application of the “one third two thirds” principle to personal assets of BFN or who must bear the tax consequences of some of the allocations that were proposed to be made.

78I accept that once the intention to make a contract is clear and all essential terms are resolved, the court can fill in minor details or other matters that might reasonably be inferred were implicitly agreed to by the parties. This might be the case, for example, regarding the wording of a release. But the court cannot make for the parties a bargain which they did not themselves make. If there is insufficient clarity to enable the court to determine what it is that the parties are required to do, the court must find that there is no enforceable agreement: Shapiro v. Tanabe, 2002 CarswellOnt 171 (S.C.J.) at para. 62.

79To similar effect is the determination of the Saskatchewan Court of Appeal in Neigum v. Van Seggelen, 2022 SKCA 108 at para. 57, where the court said:

To put this succinctly, uncertainty created by the absence of an explicit term will not necessarily render a contract or settlement invalid on that basis. However, where the term is one that is essential to the agreement, in the sense that it is central to the parties’ own understandings of what has been offered and accepted, that uncertainty means there is a failure of consensus ad idem and, as such, no enforceable contract or agreement.

80Here, there are a plethora of outstanding issues that need to be resolved for there to be a term sheet and then a closing. The relief sought by the plaintiffs on this motion is, in effect, for an order requiring the court to preside over the negotiating table in an adjudicative role and, on the strength of “consistency” with the Outline, or some other unidentified criteria, write the contract for the parties by making a series of rulings on which party’s version of the issues still in dispute shall be adopted.

81All of the authorities touching on this subject are clear; this is not the role of the court. It is not what the parties agreed to in the Outline. Nor is it a result that could have been countenanced by Justice McEwen.

Conclusion

82For the foregoing reasons, the plaintiffs’ motion to enforce the Outline is dismissed.

Costs

83The parties agreed that partial indemnity, all inclusive costs of $125,000 should be awarded to the successful parties. Costs in that amount are awarded to the responding defendants.

Penny J. Date: 2023-08-10

Appendix A

OUTLINE OF TERMS OF SETTLEMENT

• Three independent trustees and the current trustees resign, with a mechanism to be determined and McEwen to arbitrate disagreement, from all AS/SS Trusts.
• Current trustees resign from all AS/SS trusts.
• Administration and costs of AS/SS trusts and trustees to be borne by AS/SS (not by TSG).
• 445 ownership interest is 32.6% for AS 445 Trust. 33.33% in distribution to AS 445 Trust.
• 50 million USD from Ocala to AS/SS on closing in tax effective way
• BFN promissory note next priority for 100 million USD paid in tax effective way
• 2/3 1/3 on all other assets including Alpen House (excluding Woodington and Elk Track).
• 26 million CDN in annual distributions from 445 as a good faith target not guaranteed
• Market rent on Res 3 to be paid until the last passing of Frank Sr. and Elfriede; format of the lease is the same as Res 1
• Clean start releases — everything in the past is in the past; no lawsuits relating to past behaviour.
• Selena will sign the lease for barns and fields in substantially the form presented — paddock outside of res 3 subject to Frank Sr. approval; 1 year subject to renewal — termination right for Selena on 30 days notice
• Confidentiality — benign press release — non- disparagement
• Kathleen — withdraw claim and release of Alpen House and family members USA's to conform with settlement
• AS/SS — Woodington Cottage BFN — Elk Track
• South Dakota — proceedings terminated and releases provided
• If MDA and quarterly's are prepared will be provided to trustees
• 30 days notice of related party transactions with reasonable particulars
• Best efforts to give 3 months' notice if full distribution not to be made
• Disputes regarding settlement and implementation documents to be resolved — Mr. Justice McEwen or designee or person agreed to by the parties
• Cooperation for tax and other structuring.
• Settlement conditional on Ossip, Equiom, Elfriede
• Court approval of settlement and dismissal of actions without costs with maximum confidentiality allowed by law
• Information sharing protocol no longer in effect
• To resolve Andrew's claim for special damages against SCC, SCC will replenish the AS 445 Trust capital dividend account in the amount of CDN$2.5 million
• all steps set out above are to occur upon closing of transactions