COURT OF APPEAL FOR ONTARIO
CITATION: Zachary Timoon Dentistry Professional Corporation v. Tonino Ciocca Dentistry Professional Corporation, 2015 ONCA 812
DATE: 20151125
DOCKET: C59901
Epstein, van Rensburg and Hourigan JJ.A.
BETWEEN
Zachary Timoon Dentistry Professional Corporation and Dr. Zachary Timoon
Respondents
and
Tonino Ciocca Dentistry Professional Corporation and Dr. Tonino Ciocca
Appellants
William H. Fysh for the appellants
Michael Burgar for the respondents
Heard: November 10, 2015
On appeal from the order of Justice J. Robert MacKinnon of the Superior Court of Justice, dated December 10, 2014, with reasons reported at 2014 ONSC 7171.
van Rensburg J.A.:
Overview
[1] This appeal concerns the termination of a business relationship between two dentists. The relationship was governed by a joint venture agreement, which provided for termination on notice, but was silent as to the consequences of termination. In these circumstances, did the application judge err in excluding the appellant Ciocca from the practice and providing for the sale of his interest to the respondent Timoon?
[2] For the reasons that follow, the answer to that question is “no”, and I would accordingly dismiss the appeal.
Facts
[3] The individual parties are dentists who began to practise together in Newmarket in 2003. In September 2005, they entered into a joint venture general dentistry agreement (“JVA”) through their professional corporations, the corporate parties. The JVA provided for termination of the joint venture on 90 days’ notice, but did not address the effect of termination, such as providing for dissolution or a buy-out by either party of the other’s interest.
[4] From 2007 until 2010, the appellant Ciocca pursued training in New York, with the intention of establishing himself in a separate location as a prosthodontic specialist. In September 2011, he purchased a building and developed two separate clinics in Newmarket for his new speciality. The new clinics opened in September 2013.
[5] From the time he began his specialist training, Ciocca continued to work one day a week in the parties’ general dentistry practice, receiving a draw of $10,000 per month. The financial statements for the practice allocated net income respectively 70%/30% to Timoon’s and Ciocca’s professional corporations.
[6] As the application judge observed, it was the parties’ understanding that their joint venture would terminate, that Ciocca would withdraw from the practice, that they would finalize their financial dealings and that the two would go their separate ways. Ciocca acknowledged his intention to sell his interest to Timoon and leave the practice. However he was reluctant to do so until his specialty practice had become sufficiently profitable.
[7] In March 2014, Timoon gave notice of termination pursuant to the JVA, with an effective date of June 30, 2014. Soon thereafter, Timoon sought to exclude Ciocca from the practice, but Ciocca resisted. Ultimately, they returned to their earlier schedule, with Timoon working three days a week in the practice, and Ciocca one day a week.
[8] While the parties agreed that Ciocca would leave the practice and be bought out by Timoon, they disagreed as to whether Ciocca had become overdrawn over time, whether an adjustment to Timoon’s compensation was necessary because he had income-split with his spouse, and the impact of any necessary financial adjustments on Ciocca’s buy-out rights. In other words, their dispute was financial.
[9] On May 28, 2014, Timoon applied to the court under rule 14.05(3)(d) of the Rules of Civil Procedure for an order terminating the joint venture, excluding Ciocca from the business and declaring him sole owner of the dental business. Ciocca did not oppose the right to terminate or the effective date of the termination. However he opposed Timoon’s right to assume sole ownership of the dental practice. At the time of the application, there had been no valuation of the practice. Ciocca asserted before the application judge and on appeal that he would sell to Timoon only once his prosthodontic practice was sufficiently profitable, and that he should not have to leave the practice until all of the parties’ financial arrangements had been resolved.
Decision of the Application Judge
[10] The application judge declared the joint venture terminated effective June 30, 2014. He declared Timoon to be the sole owner of the dental practice to the exclusion of Ciocca and that Timoon had the sole right to use the business name “Newmarket Dental Group”. He granted other relief, effectively excluding Ciocca from any ongoing involvement in the dental practice, prohibiting his solicitation and acceptance of current patients from the practice, and requiring the parties to cooperate in the transfer to Timoon of the ownership interests, assets and liabilities related to the dental practice. The application judge directed all outstanding financial disputes to proceed by further application or other civil process. Such disputes would include calculation of the buy-out value payable by Timoon to Ciocca based on the June 30, 2014 valuation date, and past accounting adjustments, if any, that would be fair or reasonable to deal with the past work inequality concerns raised by Timoon and the income-splitting issue raised by Ciocca.
Issues on Appeal
[11] On appeal, Ciocca argues that the application judge exceeded his jurisdiction in making the mandatory orders and declarations transferring ownership to Timoon and placing restrictions on him. He claims that the application judge had only two available options - terminate the joint venture and dissolve or liquidate the practice (which was not sought by either party and which Ciocca specifically did not seek), or refuse to divest Ciocca of his ownership interest until the parties had negotiated an acceptable buy-out.
[12] Ciocca also asserts that, while the application judge had the authority to terminate the joint venture, he exceeded his authority under Rule 14 in excluding Ciocca as an owner. Ciocca claims that he is entitled to maintain his ownership interest, including his right to work in the practice and to share in all of the financial attributes of ownership, pending the resolution of the parties’ financial issues and the buy-out of his interest by Timoon. Finally, Ciocca takes issue with the application judge’s order that the parties’ financial issues be determined in other proceedings, and not by trial within the application.
[13] Timoon asserts that the application judge effected a practical result that was open to him on the record, including Ciocca’s clear and unequivocal evidence that, for years leading up to Timoon’s notice of termination, he intended to leave the practice and be bought out by Timoon. Further, the only real issues between the parties are financial, and Ciocca’s right to pursue any and all financial claims is expressly preserved.
Analysis
[14] I do not agree with the appellants’ arguments.
[15] First, the application judge had the jurisdiction to make the order in question. There were no disputed facts with respect to the termination of the joint venture, and the appellants agree that the effective date of termination was June 30, 2014. It was also not disputed that, although the JVA was silent on the question of how termination would be effected, Timoon would purchase Ciocca’s interest. As Ciocca’s counsel confirmed, there was never any question of winding up the practice. With these acknowledged facts, the question was what relief was required to give effect to the contractual right of termination and the parties’ common intention that Ciocca would leave the practice and be bought out by Timoon.
[16] Second, there is no basis for the approach Ciocca advocates – that is, recognizing an ongoing ownership interest that would permit him to continue to participate in the practice as before, while the financial issues are determined. This would nullify the termination provision in the JVA, or at least make the termination meaningless.
[17] The application judge made the order that was just and reasonable in the circumstances and that was open to him on the evidence. Once the joint venture was terminated with the common intention that Ciocca would be bought out, there was no basis for Ciocca’s continued involvement in the practice: indeed, the evidence demonstrated that the conflict between the two dentists was disruptive to the practice, and ultimately could affect the value of the business, its continued viability and Ciocca’s pay-out. On this record, it is clear that termination of Ciocca’s ownership interest was required to give business efficacy to the JVA’s termination provision and advanced the parties’ common intention. As a practical matter, the only issue between the parties was financial – the purchase price for Ciocca’s interest, and the adjustments, if any, to the income allocation for the preceding years. As such, I see no error in the application judge’s approach to the issues and in the order he made.
[18] As for the financial issues, counsel for the appellants argued that Ciocca should be entitled to assert claims for loss of profits as owner after June 30, 2014 – up to the date of the application judge’s decision, and even beyond. In view of the broad statement of respondents’ counsel that all claims the appellants might choose to advance remain open, and having rejected the arguments on appeal, I consider it advisable to provide clarification to resolve any potential ambiguity raised by the terms of the order respecting what claims might remain open. While para. 1 of the order terminates the joint venture as of June 30, 2014, para. 4 simply declares Ciocca’s ownership interest terminated, without an effective date. However, when read in context, para. 4 must be understood as terminating Ciocca’s ownership interest effective the same date as the termination of the joint venture; that is, June 30, 2014.
[19] First, this is consistent with para. 17 of the application judge’s reasons, and second, para. 8 of the order directs that the valuation of Ciocca’s interest for the purpose of the buy-out is at June 30, 2014. Accordingly, for the purpose of the determination of the financial issues, both the joint venture and Ciocca’s ownership interest are terminated effective June 30, 2014. The value of his interest, including goodwill, is to be determined as of that date.
[20] Finally, I would not give effect to the appellants’ argument that the application judge erred in directing a further proceeding to determine the financial issues, if necessary, rather than directing the trial of an issue in the application. In the circumstances of this case, I am not persuaded that there would be any material advantage to directing a trial in the application of the financial issues; indeed, the application judge’s order provides for greater flexibility in the parties’ choice of dispute resolution process. I also observe that, now that the parties have certainty respecting the effective date of termination of both the joint venture and Ciocca’s ownership interest, which is also the date of valuation for Timoon’s buy-out of this interest, they are well-equipped to craft their own resolution of their financial issues. The parties are strongly encouraged to do so in order to avoid the delay and expense of further legal proceedings.
Disposition
[21] The appeal is accordingly dismissed. Costs to the respondents fixed at $15,000, inclusive of HST and disbursements.
Released: (G.E.) November 25, 2015
“K. van Rensburg J.A.”
“I agree Gloria Epstein J.A.”
“I agree C.W. Hourigan J.A.”