COURT OF APPEAL FOR ONTARIO

CITATION: Packall Packaging Inc. v. Ciszewski, 2016 ONCA 6

DATE: 20160106

DOCKET: C60652

Doherty, Brown and Miller JJ.A.

BETWEEN

Packall Packaging Inc., Packall Consultants (1981) Limited, 967915 Ontario Limited and Henry Ciszewski, personally and in his capacity as Trustee of the Ciszewski Family Trust

Plaintiffs (Respondents)

and

Anita Ciszewski, personally and in her capacity as Trustee of the Ciszewski Family Trust and 2300078 Ontario Limited

Defendants (Appellants)

AND BETWEEN

Anita Ciszewski, personally and in her capacity as Trustee of the Ciszewski Family Trust and 2300078 Ontario Limited

Plaintiffs by Counterclaim

(Appellants)

and

Packall Packaging Inc., Packall Consultants (1981) Limited, 967915 Ontario Limited, Henry Ciszewski, personally and in his capacity as Trustee of the Ciszewski Family Trust, 835474 Ontario Limited, James F. Billett, in his personal capacity and in his capacity as Trustee of the Ciszewski Family Trust, Stephan Ciszewski and Frank Del Duca

Defendants to Counterclaim

(Respondents)

Peter W.G. Carey, for the appellants

Geoffrey D.E. Adair, Q.C., for the respondents

Heard: December 17, 2015

On appeal from the judgment of Justice Laurence A. Pattillo of the Superior Court of Justice, dated June 9, 2015, with reasons reported at 2015 ONSC 2837.

Brown J.A.:

OVERVIEW

[1] The appellants, Anita Ciszewski and her personal holding company, 2300078 Ontario Limited (“Anita Co.”), appeal from the judgment of Pattillo J. dated June 9, 2015. The appellants submit that the motion judge erred in granting a permanent injunction restraining Anita from selling or marketing her shares in Anita Co. without the consent of her husband, Henry Ciszewski, and in dismissing their motion for certain corporate governance relief in respect of the respondents, Packall Consultants (1981) Limited, 967915 Ontario Limited and 835474 Ontario Limited (which, together with Packall Packaging Inc. (“PPI”), are referred to as the “Packall Group of Companies”).

[2] Henry founded and operates PPI, a manufacturer of flexible food packaging. Ownership of PPI is split between Henry and Anita through a complex structure of holding companies and a family trust. In Anita’s case, she holds her interests in PPI through two chains of ownership. Under one ownership chain, Anita Co. holds shares in 967915 which, through Packall Consultants, holds shares in PPI. Under the other ownership chain, The Ciszewski Family Trust (the “Family Trust”) – of which Anita is one of three trustees and the residuary beneficiary – owns shares in PPI directly and indirectly through 835474 and Packall Consultants. Henry has effective voting control of PPI.

[3] Henry and Anita were divorced in June 2010, and entered into a written separation agreement on September 22, 2011 (the “Separation Agreement”). Both parties were represented by counsel during the negotiation of the Separation Agreement.

[4] The Separation Agreement provides for the financial support of Anita in several ways. First, shortly after the execution of the Separation Agreement, Anita received two lump-sum payments, one paid by Henry in cash and one funded by a dividend declared by PPI. Thereafter, during the joint lives of Henry and Anita, Anita is to receive a dividend of $575,000 in each fiscal year of PPI upon that company declaring a dividend on its common shares (s. 4.3). The Separation Agreement specifies how the dividend income is to flow from PPI to Anita through the intermediary holding companies and trust. If PPI does not declare a dividend or does not declare a divided sufficient to make the annual payment, Henry must make the payment to Anita or “top-up” the dividend to reach the required amount of annual support (ss. 4.6 and 4.7).

[5] In the event Henry predeceases Anita, s. 4.12 of the Separation Agreement provides that “financial provision for Anita shall be made for her by PPI in lieu of any such provision being made by Henry’s estate” in accordance with an agreement entered into concurrently by PPI and Anita. The latter agreement was attached as Schedule “C” to the Separation Agreement.

[6] Shortly before the execution of the Separation Agreement, Anita’s counsel requested the inclusion of what became s. 4.14 for tax and estates reasons. The motion judge summarized the substance of that article at para. 15 of his reasons:

Article 4.14 of the Separation Agreement provides that either Henry or Anita may reorganize the way in which they hold the shares by transferring all or part of them to a holding company controlled by each of them respectively, provided (a) completion of the transaction does not cause adverse tax consequences to the opposite party and (b) the holding company and not the individual will be the recipient of the dividend payments and will be deemed to be party to the Schedule “C” Agreement.

[7] Almost a year after the parties signed the Separation Agreement, Anita sought to open discussions with Henry about creating a succession plan covering potential tax liabilities in the event of the sale or deemed disposition of their shares in 967915. No agreement was reached. Anita then threatened to sell her shares in 967915 and, in early 2014, began to solicit interest from third parties – including competitors of PPI – to acquire the shares of her personal holding company, Anita Co., which held her interest in 967915.

[8] Henry thereupon moved to restrain Anita from selling or offering for sale her shares of 967915 or her holding company, Anita Co., without his consent. Anita brought a cross-motion seeking summary judgment dismissing Henry’s claim and partial summary judgment seeking a variety of relief regarding the corporate governance of the Packall Group of Companies, an accounting by Henry of all monies received by him from the Packall Group of Companies since June 1, 2005, and a declaration that she was free to sell her shares in Anita Co.

[9] The motion judge granted the order sought by Henry restraining Anita from selling her shares in Anita Co. in the absence of Henry’s consent, and he granted some of the corporate governance relief sought by Anita. However, the motion judge did not grant the orders sought by Anita that the Packall Group of Companies deliver audited financial statements (except for PPI, which already produced audited financial statements) or that Henry provide a complete accounting of all monies received by him from the Packall Group of Companies since June 1, 2005. Anita appeals the grant of the restraining order and the dismissal of her claim for audited financial statements and an accounting.

Motion for fresh evidence

[10] The appellants moved for leave to file fresh evidence consisting of the financial statements of the Packall Group of Companies delivered by the respondents pursuant to the judgment several weeks before the hearing of the appeal. The appellants submit that the fresh evidence satisfies the test for admission set out in Palmer v. The Queen, 1979 8 (SCC), [1980] 1 S.C.R. 759 and Sengmueller v. Sengmueller (1994), 1994 8711 (ON CA), 17 O.R. (3d) 208 (C.A.), because it is relevant to whether the motion judge erred in failing to order the production of audited financial statements under s. 148 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”). In my view, the recently-produced financial statements do not assist in determining the issue on this appeal which is whether, as a matter of law, the motion judge possessed any discretion to exempt the Packall Group of Companies from their financial statement obligations under the OBCA. Accordingly, I would dismiss the motion for leave to file fresh evidence.

First Ground of Appeal: Did the motion judge err in implying a term in the Separation Agreement?

[11] Anita Co. holds Anita’s shares in 967915, which holds an indirect interest in the operating company, PPI. There is no dispute that the articles of incorporation of 967915 restrain a shareholder from transferring his or her shares in that company without the approval of the Board of Directors or the consent of the shareholders holding 75% of the voting shares. There is also no dispute that the motion judge correctly held that s. 4.14 of the Separation Agreement – which permitted Anita to place her shares in 967915 into her personal holding company – does not restrict the ability of Anita to dispose of her shares in Anita Co.

[12] The appellants submit, however, that the motion judge erred in concluding that there was an implied term in the Separation Agreement which prevented either Henry or Anita from disposing of their shares in their respective holding companies without the consent of the other.

[13] The appellants acknowledge that the motion judge, at para. 36 of his reasons, accurately stated the law concerning the circumstances in which a court may imply a term in a contract. One such circumstance is based on the presumed intention of the parties where the implied term must be necessary to give business efficacy to a contract or as otherwise meeting the “officious bystander” test as a term which the parties would say, if questioned, that they had obviously assumed: Rankin Construction Inc. v. Ontario, 2014 ONCA 636, 376 D.L.R. (4th) 697, at para. 29. The appellants submit that the motion judge erred in applying that principle of law in two ways. First, he erred in finding that the implication of a term was necessary to give business efficacy to the Separation Agreement. Second, he erred in failing to find that the express terms of the Separation Agreement prevented the finding of an implied term.

[14] I am not persuaded by either submission.

Business efficacy

[15] The key findings made by the motion judge about the presumed intentions of the parties regarding the Separation Agreement are found in paras. 39, 40, 43 and 45 of his reasons where he stated:

[39] The Separation Agreement by its terms settles all issues between Henry and Anita arising from their marriage and divorce (Article 1.5). In particular, it provides for Anita’s annual financial support through the payment of dividends from the Packall Group of Companies, primarily through 967915. As a result, it is clear in my view that in agreeing to such a provision, Anita’s intention at the time she entered into the Separation Agreement was that she would not sell her shares in 967915 whether she owned those shares directly or through a holding company without Henry’s consent as a director and shareholder of 967915 given that Henry would be personally liable to her in the event she did not receive the dividends.

[40] Similarly, in order to ensure that Henry and the Packall Group of Companies met their obligations under the Separation Agreement, Henry would have to retain control of the Packall Group of Companies. Accordingly, it is clear that Henry too intended that he would not sell his shares in 967915 except to a holding company as agreed without Anita’s consent.

[43] In the absence of such an implied term, Anita would be free to sell her shares in Anita Co., which would result in her no longer being able to receive dividends from 967915, which are the primary means of her ongoing support. Such action clearly defeats the main purpose of the Separation Agreement which is to provide for the ongoing annual financial support for Anita. Further, if Anita Co.’s shares in 967915 were sold, Anita would cease receiving the dividends. Anita could then argue that Henry was liable for such payments pursuant to the Separation Agreement. That is not what the Separation Agreement intended.

[45] I am also satisfied that the “officious bystander” test is satisfied in respect of the implied term being sought. I am satisfied, given the circumstances and the provisions of the Separation Agreement, that if asked at the time the Separation Agreement was entered into, both Anita and Henry would have said at that any disposal of their shares in 967915, either directly or through a holding company, can only be done with the consent of the other party.

[16] Not only were those conclusions open to the motion judge to make on the record before him, but I agree with them. The Separation Agreement clearly expressed the parties’ intentions that Henry’s support obligations to Anita would be funded by dividends originating with the operating company, PPI. Only in the event that PPI was unable to declare such dividends would Henry bear personal responsibility for the support obligations. To give effect to that intention of the parties, Anita needs to remain a shareholder of her holding company to which PPI dividends flow through 967915.

[17] The motion judge also found that an implied term preventing Henry or Anita from disposing of the shares of any holding company having their shares in 967915 in the absence of the other’s consent was necessary to give business efficacy to the Schedule “C” Agreement to the Separation Agreement. The Schedule “C” Agreement concerns the 14 common shares of PPI held by the Family Trust (the “Trust PPI Shares”) which, upon Henry’s death, are to be conveyed to Anita. The Schedule “C” Agreement requires PPI to purchase a percentage of the Trust PPI Shares conveyed to Anita for cancellation each year based on a stipulated formula. At para. 44 of his reasons, the motion judge stated:

As noted, the Schedule “C” Agreement provides for financial provision for Anita in the event that Henry predeceases her through the mechanism of Packall Packaging repurchasing Anita’s shares. The purpose of the Schedule “C” Agreement, as noted in Article 4.12 of the Separation Agreement, is to both provide financial provision for Anita and remove any obligation in that regard from Henry’s estate. By selling her shares in Anita Co., who is deemed by Article 4.14(b) of the Separation Agreement to be a party to the Schedule “C” Agreement, Anita defeats the purpose of the Schedule “C” Agreement as she will no longer be entitled to any financial provision from Packall Packaging. [Emphasis added.]

[18] The appellants submit the motion judge fundamentally misunderstood the meaning of the Schedule “C” Agreement in reaching that conclusion because it could be implemented whether or not Anita Co. sold its shares in 967915.

[19] I accept that the motion judge was mistaken in concluding that a sale by Anita of her shares in Anita Co. would defeat the purpose of the Schedule “C” Agreement. Anita Co. has an indirect interest in 84 common shares of PPI through 967915. It is difficult to see how Anita’s sale of her shares in Anita Co. could affect the operation of the Schedule “C” Agreement because Anita Co. has no interest in the Trust PPI Shares which pass to Anita on Henry’s death. However, in my view that mistake by the motion judge has no effect on his conclusion that an implied term preventing Anita from selling her shares in Anita Co. without Henry’s consent was necessary to give business efficacy to the Separation Agreement. Anita’s continued ownership of Anita Co., while Henry lives, gives effect to the parties’ bargain that support payments to Anita will be funded by dividends declared by PPI. That bargain necessitates implying the term that prevents Anita from selling her shares in Anita Co. without Henry’s consent, as the motion judge found.

Whether the terms of the Separation Agreement preclude an implied term

[20] The appellants submit that three terms of the Separation Agreement prevented the motion judge from implying a term restricting Anita from selling her shares in Anita Co. without Henry’s consent. Section 1.6 states: “This Agreement replaces all oral or written agreements made between the parties.” Section 5.2 states:

Anita and Henry do not want any court to order a change which deviates from or overrides the terms of this agreement, and more particularly this release. Anita and Henry want the court to uphold this agreement in its entirety inasmuch as they are basing their future lives upon this release.

Finally, s. 9.1 states: “There are no representations, collateral agreements, warranties or conditions affecting this Agreement.”

[21] The motion judge referred only to s. 9.1, holding that it does not deal with implied terms: at para. 46.

[22] I do not accept the appellants’ submission on this issue. I agree with the motion judge that the language of s. 9.1 does not preclude the implication of a term. Nor does the language of ss. 1.6 and 5.2. In any event, as this court stated in CivicLife.com Inc. v. Canada (Attorney General) (2006), 2006 20837 (ON CA), 215 O.A.C. 43, at para. 52, the presence of an entire agreement clause will not preclude the implication of a term of the contract because the term is already part of the existing agreement: finding an implied term does not add a term to the agreement that was not part of the parties’ bargain, but enforces the parties’ reasonable expectations.

[23] Accordingly, I would give no effect to this ground of appeal.

Second Ground of Appeal: Did the motion judge err in refusing to require the delivery of audited financial statements?

[24] Of all the companies in the Packall Group of Companies, only PPI, the operating company, prepares annual audited financial statements. The appellants sought an order requiring all of the companies in the Packall Group of Companies to deliver, on an on-going basis, audited annual financial statements. The motion judge dismissed their request, holding, at para. 58:

The evidence of Mr. Billet, a chartered accountant who has done work for the Packall Group of Companies since their inception is that audited financial statements for the Packall Group of Companies other than Packall Packaging would not provide any additional useful information to the unaudited statements and would cost more money to prepare. Anita has provided no basis for her request for audited financial statements for all of the Packall Group of Companies. I consider the request to be a nuisance request rather than required. In the circumstances, therefore, it makes no sense in my view to require the financial statements of Packall Consultants, 967915 and 835474 Ontario Limited to be audited.

[25] The appellants submit that the motion judge erred in so holding because OBCA s. 148 makes it mandatory to provide audited financial statements unless all shareholders consent to an exemption from that requirement.

[26] I agree, but only in respect of 967915, of which Anita Co. is a shareholder.

[27] Each of the corporations in the Packall Group of Companies was incorporated under the OBCA. Part XII of the OBCA imposes certain audit and financial statement requirements on corporations, including the appointment of an auditor (s. 149), the placement by the directors before an annual meeting of shareholders of annual financial statements (s. 154(1)(a)), and the examination by an auditor of the financial statements placed before the shareholders (s. 153(1)).

[28] It is a core obligation of a corporation to its shareholders to provide them with an annual report card of the corporation's financial position in the form of audited financial statements: Pandora Select Partners, LP v. Strategy Real Estate Investments Ltd. (2007), 2007 8026 (ON SC), 27 B.L.R. (4th) 299 (Ont. S.C.), at para. 12. A shareholder's right to information or material, including audited financial statements, as granted to her under the OBCA is a clear, mandatory right, and it is not necessary for a shareholder to give any reason in exercising her directly held rights under the OBCA: Labatt Brewing Co. v. Trilon Holdings Inc. (1998), 1998 14697 (ON SC), 41 O.R. (3d) 384 (Gen. Div.), at p. 387.

[29] Section 148 of the OBCA provides a limited exemption from these obligations in the following terms:

148. In respect of a financial year of a corporation, the corporation is exempt from the requirements of this Part regarding the appointment and duties of an auditor if,

(a) the corporation is not an offering corporation; and

(b) all of the shareholders consent in writing to the exemption in respect of that year.

[30] As can be seen from s. 148, the decision whether to exempt a non-offering corporation from the requirements of Part XII regarding the appointment and duties of an auditor in respect of a particular financial year rests solely with the corporation's shareholders: Pandora Select Partners, para. 12. Section 148 of the OBCA does not authorize a court to exempt a corporation from complying with the mandatory requirement to provide shareholders with annual audited statements. Conceivably, a court could grant an exemption by way of relief in an oppression application pursuant to OBCA s. 248(3). However, the motion judge, at para. 52, specifically rejected the respondents’ request to exempt the corporations from such financial disclosure on that basis because they had not pleaded oppression in their statement of claim. As a result, it was not open to the motion judge to exempt the Packall Group of Companies from the requirements of OBCA s. 148.

[31] Since Anita Co. is a shareholder of 967915, it is entitled to current and on-going audited financial statements of that company.

[32] Neither Anita nor Anita Co. is a shareholder of Packall Consultants; 967915 and 835474 own the shares of that company. Accordingly, the appellants are not entitled to audited financial statements of Packall Consultants under OBCA s. 148.

[33] Finally, as to 835474, its shares are owned by the Family Trust. In her factum, Anita submits that as one of the three co-trustees of the Family Trust, she is “a direct shareholder” of 835474 and therefore entitled to its audited financial statements. I disagree. The record before us did not disclose whether the share register of 835474 recorded its shareholder as the Family Trust or the three individual co-trustees. Regardless, section 4.1 of the Trust Agreement provides that all questions requiring action by the trustees “shall be determined by the approval or consent of a majority of the Trustees for the time being in office.” Neither of the other two trustees – Henry and James Billet – support Anita’s position that 835474 should provide audited financial statements to the Family Trust. Consequently, Anita, in her capacity as a trustee of the Family Trust, is not entitled to audited financial statements of 835474 under OBCA s. 148.

[34] Accordingly, I would grant the appeal to the extent of varying paragraph 7 of the judgment to require 967915 to provide Anita Co. with current and on-going audited financial statements within 30 days following their completion.

Third Ground of Appeal: Did the motion judge err in not requiring Henry to disclose all monies taken from the Packall Group of Companies since 2010?

[35] In their factum the appellants raised a third issue, although they did not press it at the hearing. The appellants sought an order compelling Henry to provide a complete accounting of all monies received by him, directly or indirectly, legally or beneficially, from any of the Packall Group of Companies since June 1, 2005. The motion judge required 967915 to disclose the monies Henry had received from it after 2010, but dismissed the balance of Anita’s request, holding, at para. 62:

Anita is a director of 967915. In that capacity, she is entitled to information from that company as to the monies Henry has taken from 967915. Otherwise she is at best a shareholder or shareholder of a shareholder and, in the absence of some evidence of wrongdoing or suspicion of wrongdoing on Henry’s part, is not entitled as a shareholder to the information requested. In that regard, she has had the financial statements up to 2012 and has raised no concern in respect of remuneration as indicated on those statements.

[36] The appellants submit that this result is profoundly unfair and constitutes oppressive conduct on the part of Henry. However, the appellants have not demonstrated that in reaching his decision on this issue the motion judge erred in principle or law, failed to consider a relevant factor, took into account an irrelevant factor, or made a palpable and overriding error in respect of any finding of fact. As a result, I see no basis for appellate interference with his conclusion.

DISPOSITION

[37] For the reasons set out above, I would allow the appeal to the extent of varying paragraph 7 of judgment to require 967915 Ontario Limited to provide Anita Co. with current and on-going audited financial statements within 30 days following their completion. I would otherwise dismiss the appeal.

[38] If the parties are unable to agree on the costs of the appeal, they shall exchange and file written cost submissions no later than Friday, January 15, 2016. Those submissions, excluding any bill of costs, shall not exceed three pages in length.

Released: January 6, 2016 (DD)

“David Brown J.A.”

“I agree Doherty J.A.”

“I agree B.W. Miller J.A.”