COURT OF APPEAL FOR ONTARIO

2012 ONCA 630

DATE: 20120925

DOCKET: C55056

Winkler C.J.O., LaForme J.A. and Cunningham A.C.J.S.C.J. (ad hoc)

BETWEEN

Bank of Montreal

Applicant

and

Barber Glass Industries Inc.

Respondent

Jack B. Berkow and Scott A. Crocco, for the appellant, Danbury Industrial et al.

Harvey Chaiton and Maya Poliak, for the respondent, Grant Thornton Limited

Steven L. Graff, for the respondent, Bank of Montreal

Sam P. Rappos, for the respondent, Roynat Inc.

Heard: September 10, 2012

On appeal from the order of Justice James M. Spence of the Superior Court of Justice, dated February 6, 2012.

ENDORSEMENT

Introduction

[1] The respondent, Grant Thornton Limited (the court appointed “Receiver”) brought a motion for directions on the question of whether the appellant, Danbury Industrial et al. (the “Auctioneer”) was entitled to a “Buyer’s Premium” in connection with the sale of assets of the debtor, Barber Glass Industries Inc. (the Debtor”) pursuant to a court-approved Auction Service Agreement (the “ASA”). The motion judge ordered that the Auctioneer was: (i) entitled to a 12% buyer’s premium on the sale of certain assets to ToughGlaze (UK) Ltd.; but (ii) not entitled to a buyer’s premium on the sale of assets to 1762423 Ontario Inc. (the “Purchaser”). This second decision is the subject of this appeal.

Brief background

[2] Prior to a public auction, the Auctioneer entered into an Offer to Purchase (the “Offer”) with the Purchaser, wherein the Purchaser agreed to a private purchase of substantially all of the Debtor’s assets for $8.5 million. The Offer did not refer to a Buyer’s Premium. However, a Bill of Sale was also executed, and was later amended to include a handwritten amendment stating that the purchase price was “inclusive of the Buyer’s Premium”.

[3] After the Offer had closed, the Auctioneer provided the Receiver with a proposed distribution of the purchase price and claimed a Buyer’s Premium. The Receiver refused to pay any premium and the Auctioneer commenced legal proceedings.

[4] Under clause 2.5(1)(f) of the ASA, the Auctioneer was entitled to receive a share of the buyer’s premium of the sale of the assets (the “Buyer’s Premium”). Clause 1.1(12) defined the Buyer’s Premium as:

the fee charged to purchasers by the [Auctioneer] upon sale of the [a]ssets … which in no event shall be less than twelve (12%) per cent of the purchase price.

Reasons of the motion judge

[5] The motion judge acknowledged that the ASA entitles the Auctioneer to a Buyer’s Premium from the proceeds of the sale of the assets and that the terms of the auction stated a 12% Buyer’s Premium would apply. However, he concluded that the Auctioneer was not entitled to a Buyer’s Premium in connection with the Purchaser transaction for several reasons.

[6] First, the motion judge found that the Offer did not contain a provision for the Auctioneer to charge a Buyer’s Premium for the purchases. He noted that the Offer has an entire agreement clause that states that the Offer supersedes all prior agreements and understandings and that there are no such agreements or understandings. He noted also that the Offer requires all amendments and modifications be in writing and signed by the parties. Accordingly, he held that the Offer represents the entire agreement of the parties, which contains no provision for a Buyer’s Premium and, therefore, the Auctioneer is not entitled to one.

[7] Second, the motion judge observed that the Bill of Sale also did not refer to a Buyer’s Premium. Although it was revised later, he concluded that this was not evidence that a Buyer’s Premium was in fact charged upon the sale of the assets for the purposes of the ASA. He held that, for the ASA to apply, the Buyer’s Premium would have had to be charged at the time of the transaction.

[8] Third, the motion judge held that the purchase was completed in accordance with the terms of the Offer, not the auction.

[9] Finally, the motion judge held that there was conflicting evidence as to whether the Auctioneer told the Purchaser that the Buyer’s Premium would be included in the purchase price at the time the Offer was entered into and closed. He went on to hold that in view of the entire agreement clause in the Offer, it is not necessary to address the matter.

Analysis

[10] The Auctioneer on appeal agrees that the motion judge correctly identified the issue for determination as being whether a Buyer's Premium is payable to the Auctioneer under the ASA. However, it submits that he was in error in his analysis and conclusions. We agree.

[11] In our view, the motion judge erred in his conclusion that the 12% Buyer’s Premium did not apply in this case. The Buyer’s Premium was an unqualified entitlement pursuant to the ASA between the Auctioneer and the Receiver. In other words, the Buyer’s Premium, pursuant to clause 2.5 of the ASA was mandatory. All references to the Buyer’s Premium in the ASA leave little doubt that it was in any way negotiable.

[12] The motion judge placed too much emphasis on the provisions of the Offer between the Auctioneer and the Purchaser, such that it completely obscured the mandatory obligations between the Auctioneer and the Receiver under the ASA. More consideration ought to have been given to the true intent of the respective parties and their obligations under each of these agreements.

[13] Here, the Receiver clearly was aware of the Buyer’s Premium from the ASA. The auction catalogue set out the 12% buyer’s premium was annexed as a schedule to the Offer making the Purchaser aware of it. Thus, the Auctioneer’s entitlement to a Buyer’s Premium was a matter that was known to all the parties. Indeed, the Receiver in oral argument in this court, fairly and appropriately admitted that if it had been written into the Offer, it would have been obliged to pay it.

[14] Furthermore, the revised Bill of Sale between the Auctioneer and the Purchaser is a component of the Offer, and it documents the parties’ agreement that the purchase price included the Buyer’s Premium. The motion judge unduly expanded the scope of the entire agreement clause in the Offer, thereby preventing any further amendments from having any meaning.

[15] Notably, the motion judge permitted a Buyer’s Premium in the private sale to ToughGlaze for $650,000 even though the purchase agreement did not expressly reference one. Like here, it was revised later in the Bill of Sale to reflect that the purchase price included the premium. The difference, according to the motion judge, was that in this case there was the entire agreement clause. As we have explained, this difference incorrectly ignores the mandatory commitment under the ASA.

[16] Negotiated commercial documents are to be interpreted “so as to accord with sound commercial principles and good business sense and avoid commercial absurdity”: Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, para. 16. In this case, it would be commercially absurd for the Receiver to pay a Buyer’s Premium on a successful $6.5 million bid at auction, but not on a private sale which involved $8.5 million. But for the mistake of not including a Buyer’s Premium entitlement in the Offer, the Auctioneer expected to receive one and the Receiver was obliged to pay one.

[17] We take note of the fact that if the Purchaser had paid the amount the assets sold for at auction; it would have been obligated to pay approximately $6.5 million. Pursuant to the Offer, however, the Purchaser paid $8.5 million less a credit for the excluded assets. This resulted in a net price well above what it would have paid based on the prices bid at auction plus a 12% Buyer’s Premium.

[18] The Auctioneer’s award of a Buyer’s Premium does not produce an unfair result, whereas denying one does. That is, denying one ignores the impressive results achieved by the Auctioneer, the clear intention of the parties under clause 2.5 of the ASA and its compulsory application, and results in a $700,000 windfall to the Receiver.

[19] For these reasons, the appeal is allowed. The Auctioneer is entitled to a 12% Buyer’s Premium in the sum of $700,890 payable forthwith. Costs are awarded to the Auctioneer in the amount of $10,000, inclusive of disbursements and applicable taxes.

“Warren Winkler C.J.O.”

“H.S. LaForme J.A.”

“J.D. Cunningham A.C.J. S.C.J.”