DATE: 20060612

DOCKET: C44695

COURT OF APPEAL FOR ONTARIO

RE:

BRIAN J. WALTERS, DREW F. WILLIAMS, RONALD E. SHUTTLEWORTH (Plaintiffs/Appellants) – and – JOHN CLARK (Defendant/Respondent)

BEFORE:

DOHERTY, BLAIR and LAFORME JJ.A.

COUNSEL:

Christopher Stanek

for the appellants

David Sterns

for the respondent

HEARD & ENDORSED:

June 9, 2006

On appeal from the judgment of Justice H.J. Wilton-Siegel dated December 9, 2005.

A P P E A L B O O K E N D O R S E M E N T

[1] The appellants seek to set aside the summary judgment granted by Wilton-Siegel J. dismissing their action and allowing the respondent’s counterclaim on a promissory note.

[2] The parties were shareholders in Drums Inc. When the respondent resigned as an employee of the company he was obliged, under an Employee Shareholder Agreement, to sell his shares to the others at fair market value (“FMV”). He did not so immediately, but did so on June 30, 2000 – on the eve of and in the heat of the closing of another transaction in which the shares of Drums Inc. were being sold to a third party.

[3] In the Share Purchase Agreement (“SPA”) reflecting the respondent’s sale to the appellants, the parties agreed the FMV of his shares was U.S.$24,170. At the same time as the SPS was executed, the parties also executed a Release and a Confidentiality Agreement. The respondent was paid the U.S.$24,170 plus an additional $75,000, and he received as well a $50,000 promissory note. The promissory note is the subject of the counterclaim.

[4] In the action, the appellants attack the agreements on grounds of unconscionability, economic duress and oppression. They assert in the counterclaim that the equities entitle them to decline payment.

[5] Although the respondent’s motion for summary judgment was based on the ground that the Release was a bar to the action, the motions judge did not decide it on that basis. Instead, he analysed whether, on the record, there was a basis for the claims of duress, unconscionability and oppression. He concluded there was not – principally because he inferred that there was no evidence to support the appellants’ belief that the FMV of the shares was $24,170. As this fact is a crucial first premise in establishing the appellant’s claims, they therefore failed, in his view. He also examined the evidence to determine whether the various criteria for economic duress were met, and concluded they were not.

[6] Respectfully, he erred in law in taking this approach on the motion for summary judgment. Apart from the fact that this was not the basis upon which the motion was put to him and upon which the record had been created, the motion judge was wrong in saying there was no evidence to support the FMV of $24,170. There was, in the SPA. He simply inferred from the other evidence that there might be another value and refused to accept the $24,170 value. On a motion for summary judgment, however, it is not open for the judge to decide which competing inferences should be preferred from primary facts in evidence: see Riviera Farms Ltd. v. Paegus Financial Corp. (1988), 29 CPC (2d) 217 (Ont. H.C.); Folland v. Reardon (2005), 74 O.R. (3d) 688 (C.A.). In our view, the motion judge made this error throughout in his analysis of the various claims.

[7] There are genuine issues of material fact that require a trial for determination in this case. These include, but are not limited to (a) whether the transaction is to be considered as a whole or as a separate sale and release transaction, and (b) whether the respondent received an inordinately high consideration for the sale of his shares leading to inferences supporting unconscionability and duress.

[8] In these circumstances there must be a trial. The appeal is therefore allowed.

[9] The appellants are entitled to their costs of the motion, fixed at $9,000 all-inclusive, and of the appeal, fixed at $5,000 all-inclusive.