Court of Appeal for Ontario

CITATION: Hawley v. Pennington, 2012 ONCA 613

DATE: 20120917

DOCKET: C55317

Cronk, Epstein and Hoy JJ.A.

BETWEEN

James B. Hawley and the Aged Gingko Trust

Plaintiffs (Appellants)

and

John K. Pennington, The John K. Pennington Family Trust No. 1, Robert Fasken, Hubland Investments Ltd. and North Shore Mercantile Corporation

Defendants (Respondents)

Counsel:

Ronald S. Sleightholm, for the appellants

Craig R. Colraine, for the respondents

Heard and released orally: September 5, 2012

On appeal from the judgment of Justice C. William Hourigan of the Superior Court of Justice, dated March 12, 2012.

ENDORSEMENT

[1] The appellants appeal from the judgment of Hourigan J. dated March 12, 2012, granting summary judgment in favour of the respondents and inter alia, dismissing the appellants’ claims against them for relief under the oppression remedy section of the Alberta Business Corporations Act, damages as a result of a breach of duty of good faith and misrepresentation regarding the cost base of certain shares.

[2] In essence, the appellants allege that they were not told that North Shore Mercantile Corporation (“North Shore”) acquired the outstanding shares of 1083131 Ontario Inc. (“108”) from two of the respondents on a tax-deferred basis. The purchase price of approximately $1.2 million for the shares of 108 was satisfied by the issuance of shares of North Shore. The cost base of the shares of 108 at the time acquired by North Shore was $100.

[3] The effect of the tax-deferred transaction was that the vendors of the shares of 108 paid no capital gains tax on the sale of their shares to North Shore, and that on the disposition, deemed or otherwise, by North Shore of its shares of 108, a capital gain would be triggered, in an amount equal to the difference between the fair market value of the shares of 108 at the time of the disposition and the $100 cost base, and not the difference between their fair market value at the time of the disposition and their fair market value when acquired by North Shore. The individual appellant, a director and the chief financial officer of North Shore, approved the circular issued to shareholders in connection with the transaction.

[4] The appellants argue in their factum that the motion judge erred in making the finding, central to this appeal, that the “cost base for the shares was specifically listed in the circular. Clearly the tax consequences of the sale would have been apparent to anyone who took the time to review the document”. We do not accept this submission. The motion judge’s finding is supported by the record. And, given such a finding, there could have been no reasonable expectation that the cost base was otherwise.

[5] We agree with the conclusion of the motion judge that the appellants’ action is entirely without merit and it was therefore an appropriate case in which to grant summary judgment.

[6] The appeal is accordingly dismissed.

[7] Having disposed of the appeal on the foregoing basis, it is not necessary to address the respondents’ argument that the motion judge erred in not dismissing the action on the alternate basis advanced by them, namely, that the appellants’ claims were statute-barred due to the expiry of the applicable limitation period. We express no opinion on the motion judge’s findings or reasoning on the limitation period issue.

[8] The respondents are entitled to their costs of the appeal, fixed in the amount of $8,000, inclusive of disbursements and applicable taxes.

“E.A. Cronk J.A.”

“Gloria J. Epstein J.A.”

“Alexandra Hoy J.A.”