COURT OF APPEAL FOR ONTARIO DATE: 20210616 DOCKET: C66936 & C67356

Pepall, Roberts and Thorburn JJ.A.

BETWEEN

Emily Murray and 2327342 Ontario Inc. Plaintiffs (Respondents/Appellants)

and

Pier 21 Asset Management Inc., David Star and 8165246 Canada Inc. Defendants (Appellants/Respondents)

Counsel: Igor Ellyn and Kathryn J. Manning, for the appellants (C66936)/respondents (C67356) Edward J. Babin, Cynthia L. Spry and Michael Bookman, for the respondents (C66936)/appellants (C67356)

Heard: May 26, 2021 by video conference

On appeal from the judgment of Justice Michael A. Penny of the Superior Court of Justice, dated April 12, 2019 and September 25, 2020, with reasons reported at 2019 ONSC 316, 2019 ONSC 4501, 2019 ONSC 7230, 2020 ONSC 2153, 150 O.R. (3d) 419, and 2020 ONSC 5606.

REASONS FOR DECISION

A. Background Facts

[1] The appellants, David Star, Pier 21 Asset Management Inc., and 8165246 Canada Inc., (hereinafter referred to as the “Defendants”) appeal from the judgment and orders of Penny J. dated April 12, 2019, July 29, 2019, July 10, 2020, and July 27, 2020, and seek leave to appeal his costs award of September 25, 2020. [1]

[2] The respondents, Emily Murray and 2327342 Ontario Inc., (hereinafter referred to as the “Plaintiffs”), cross-appeal from the same judgment and the orders dated April 12, 2019, July 29, 2019 and April 8, 2020, and seek leave to appeal the costs award of September 25, 2020.

[3] Mr. Star launched Pier 21 Asset Management (“Pier 21”), a wealth management business, in 2005. That same year, he and Ms. Murray began an affair.

[4] Ms. Murray agreed to join Mr. Star in launching Pier 21. She joined him in June 2006, initially as a consultant and then as a Senior VP. It was agreed that she would not be paid any salary for the first two years. In lieu of salary, she received 200,000 Class A shares of Pier 21. In addition, in exchange for her decision to leave her secure job to help found the company, she received an additional 100,000 Class A shares. Her 300,000 shares represented 16% of the company’s Class A shares.

[5] Another investor, Frank Santangeli, invested $150,000 in Pier 21 and received 150,000 Class B non-voting shares.

[6] In June 2006, Ms. Murray entered into an employment agreement. It provided that cash bonuses or dividend distributions could be issued in addition to her annual salary based on earnings and profitability as well as her contributions with the final amount being at the discretion of Mr. Star in his capacity as President and CEO. Ms. Murray entered a second employment agreement consistent with that of other senior employees in November 2013.

[7] The individual parties’ affair ended in 2009.

[8] In 2011, the company and Mr. Star bought out Mr. Santangeli’s Class B shares. In addition, in the spring of 2012, Ms. Murray entered into an agreement (the “Share Purchase Agreement”) whereby Pier 21 redeemed 142,250 Class A shares owned by Ms. Murray at $3.42 per share for a total of $486,495. As a result, Mr. Star owned 90.9% of the Class A shares and Ms. Murray 9.1%.

[9] Meanwhile, the company’s assets under management grew from zero when Ms. Murray joined to $3.2 billion when she left at the end of 2014 and increased to $3.65 billion by February 27, 2015, the valuation date. Revenues amounted to almost $15 million at the end of 2014.

[10] In 2014, Ms. Murray and Mr. Star began discussing her exit from the company. When Ms. Murray left in December 2014, Mr. Star refused to buy out her interest in the company. Ms. Murray commenced oppression proceedings seeking, among other things, the reversal of the 2012 Share Purchase Agreement which had reduced her interest from 16% to 9.1%, an order requiring Mr. Star to purchase her remaining interest, and equitable damages.

B. Trial Judge’s Reasons

[11] The trial judge declined to set aside the 2012 Share Purchase Agreement. He was unable to conclude on a balance of probabilities that the Share Purchase Agreement defeated Ms. Murray’s reasonable expectations and that the Agreement was the product of conduct that was oppressive, unfairly prejudicial or unfairly disregarded her interests. He also concluded that the two-year limitation period expired well before February 2015 when she commenced her action. He found that the issue of the Agreement did not arise out of acts of ongoing oppression but was a discrete one-time event.

[12] He held that Ms. Murray was entitled to the return of her capital in Pier 21. He noted that Mr. Star at the opening of trial had made a with prejudice offer to purchase her shares based on a $20.8 million valuation of the company which the trial judge treated as an admission that she was entitled to the return of her capital at fair value. Even if not, Mr. Star’s refusal to repurchase her shares upon her termination was oppressive.

[13] In valuing the company, he considered the opinions of the experts, Susan Glass, the expert called by the Defendants, valuing the company at $20.8 million and John Temple, the expert called by the Plaintiffs, proposing a value of $52.8 million. The trial judge held that both experts were qualified to give opinion evidence on the fair value of Pier 21 on the valuation date. The Defendants did not object to Mr. Temple being so qualified but attacked his qualifications, attitudes and conclusions as going to weight.

[14] The trial judge found that both experts had excellent though different qualifications and he was not prepared to say that the opinions of one were overall to be preferred over the other. He therefore addressed their opinions on an issue by issue basis. He concluded that the company should be valued at $39.1 million, a figure which was later amended to $39.3 million due to a calculation error. The share purchase price for Ms. Murray’s shares would accordingly be $3,576,300, rather than the $1.8 million as proposed by the Defendants based on the valuation by Ms. Glass.

[15] He also awarded Ms. Murray equitable damages in the amount of $605,579 (equal to two years’ salary and dividends for that period) and, in an addendum dated April 8, 2020, he determined that the transaction giving effect to the judgment should be structured as a repurchase by Pier 21.

C. Discussion

(1) Fresh Evidence

[16] The Defendants seek leave to admit fresh evidence.

[17] The fresh evidence consists primarily of time dockets of the Plaintiffs’ expert, John Temple. At trial, Mr. Temple testified that he spoke with Peter Tolnai, Ms. Murray’s husband. He testified that Mr. Tolnai was present in meetings with Ms. Murray. Ms. Murray also testified that Mr. Tolnai was involved in the discussions and that it was he who had sourced Mr. Temple.

[18] Mr. Temple testified that Mr. Tolnai did not provide any input “to my evaluation” and that he was not used as a source of information “for my valuation because I didn’t consider him to be knowledgeable with this industry.”

[19] Mr. Temple’s report, served by the Plaintiffs, was dated June 2017. The Defendants served Ms. Glass’ report, dated September 2017, in reply, and the Plaintiffs delivered a rebuttal report dated December 2017.

[20] The dockets of Mr. Temple that are in issue were produced by the Plaintiffs in support of their request for costs. This panel determined that any privilege attaching to the dockets had been waived.

[21] The dockets speak of “[f]irst review of Peter’s draft” on October 31, 2017 and “[m]arkup of Peter’s draft of Rebuttal Letter” on November 1-3 which the Defendants infer relates to the Plaintiffs’ reply to their expert’s report.

[22] The Defendants urge us to conclude that this evidence passes the test for admission of fresh evidence because it was unavailable until after trial and was key in that it undermined the independence and credibility of Mr. Temple. In essence, they say he was an advocate for the Plaintiffs, and that his valuation opinion should be disregarded and replaced with that of Ms. Glass.

[23] The Plaintiffs respond, among other things, that Mr. Temple was thoroughly cross-examined at trial and no request was made for his file. In any event, they say the test for admission has not been met. They also seek leave to admit fresh evidence in response to the Defendants’ fresh evidence.

[24] The test for admission of fresh evidence as described in Palmer v. The Queen, [1980] 1 S.C.R. 759, at para. 775 and Sengmueller v. Sengmueller (1994), 111 D.L.R. (4th) 19 (Ont. C.A.), at p. 23, has not been met by the Defendants. Most notably, this fresh evidence would not likely be conclusive of any issue on appeal. We fail to see how the dockets are at odds with the evidence given by Mr. Temple at trial or that his certification to provide impartial advice to the court was materially compromised. His valuation of the company was produced in June 2017 and predated that of Ms. Glass and the impugned dockets. The mere fact that Mr. Tolnai may have provided some comments to the expert following receipt of Ms. Glass’ report does not mean that the expert became an advocate or lacked independence. We do not accept that he did as alleged by the Defendants. As Cromwell J. stated in White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 S.C.R. 182, at para. 32, one should apply the jurisprudential concepts to the realities of adversary litigation.

[25] We dismiss the request to admit the fresh evidence. It follows that the Plaintiffs’ motion for leave to admit fresh evidence in response is also dismissed.

(2) Rule 59 and Reconsideration Motions

[26] The Defendants also appeal from the order of Penny J., with reasons dated July 10, 2020, in which he refused to entertain the Defendants’ r. 59.06(2)(a) motion to re-open the trial on the ground that facts arose after his order was made that, if known at the time, would potentially have changed the result at trial. The Defendants also appeal from the order of Penny J., with reasons dated July 27, 2020, refusing to reconsider his July 10, 2020 decision. On these motions, the Defendants relied on the same evidence that is the subject matter of their fresh evidence motion. Before this court, they argue that the judgment had not been signed and entered, the trial judge was not functus and he ought not to have simply referred the matter to this court to be addressed as a fresh evidence application.

[27] This was a contentious and acrimonious proceeding. The trial judge gave his reasons for decision on April 12, 2019. As he could not find any reference in the oral submissions or a written response from the Defendants to the Plaintiffs’ request for elevated interest reflecting the time value of payment for her shares, he deferred a finding on that issue. Both parties then brought motions to amend under r. 59.06. On July 29, 2019, among other things, the trial judge increased Ms. Murray’s equitable damages from $278,706 to $605,579 based on a calculation error and dismissed her request for elevated interest.

[28] There also arose an issue as to how the share purchase transaction was to be structured. The trial judge determined that he had jurisdiction to decide that issue on December 13, 2019, and he set out a process for the filing of additional evidence, the conduct of cross-examinations and the filing of written submissions, all of which was completed on April 1, 2020. He released his reasons on the transaction structure on April 8, 2020. In June 2020, following a review of background material in support of the costs request of the Plaintiffs, the Defendants prepared another r. 59.06 motion. On July 10, 2020, the trial judge issued an endorsement declining to hear the motion. In doing so, although not attributing the delay to either of the parties, he observed that the trial had already dragged on for far too long. The Defendants then brought another motion asking him to reconsider his endorsement which he also declined to entertain on July 27, 2020. On September 25, 2020, he released his reasons for costs.

[29] Placed in context, it was understandable that the trial judge was reluctant to embark on a further proceeding between the parties.

[30] The Defendants concede that the trial judge had the power to control the process of the case. Litigation cannot be never ending. In this case, the trial judge could have proceeded with the r. 59.06 motion, thereby continuing these already protracted proceedings, declined to hear the motion or dismissed it. He clearly was concerned about the passage of time, reasons for judgment having been released more than one year earlier. It was facially evident from a review of the fresh evidence that it would not meet the threshold for admission.

[31] The r. 59.06 motion was properly returnable before the Superior Court of Justice. Although it would have been preferable for the trial judge to have given reasons and dismissed the motion, in the end result, it is of no moment. It follows that the appeal relating to the trial judge’s refusal to reconsider that decision must also fail.

[32] For these reasons, we dismiss the Defendants’ grounds of appeal based on the trial judge’s failure to consider the r. 59.06 motion and to reconsider it.

(3) Equitable Damages

[33] On the issue of equitable damages, the Defendants submit that the award gave Ms. Murray an unwarranted windfall. They argue that once the trial judge directed the Defendants to repurchase her shares at fair value, the oppression was remedied. They state that in her negotiations with Mr. Star in September 2014 and in her trial testimony, she stated she would resign if she received a fair price for her shares and she did not expect anything more. The damages awarded were for wrongful dismissal but were improperly disguised as equitable damages.

[34] As stated by the Supreme Court in Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 S.C.R. 1037, at para. 59, the Canada Business Corporations Act, R.S.C. 1985, c. C-44 vests the trial judge with broad discretion when dealing with the oppression remedy and an appellate court should adopt a deferential stance in the absence of reviewable error or a manifestly unjust result. Under the oppression provisions, the court may make any order it thinks fit. The appellate court’s power of review is limited: Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481 (C.A.), at pp. 486-87. The remedy is to rectify oppression or certain unfair conduct. As mentioned in that decision, the oppression remedy operates as corrective justice.

[35] Here the trial judge found that the refusal to redeem Ms. Murray’s shares on termination was oppressive and her termination was “closely connected” to her status as shareholder. “They were inextricably intertwined” and her reasonable expectations were thwarted. She had a reasonable expectation that she would not be terminated in the manner she was. Based on the record before him, it was open to the trial judge to make that determination. We see no reason to interfere.

[36] We also reject the Defendants’ alternative submissions that Ms. Murray’s equitable damages should be reduced by 25% to reflect the remuneration she received from June 2014 when she first broached the question of her departure from Pier 21, or by the amount of the discretionary dividend that may not have been awarded. We see no error in the trial judge’s assessment of the equitable damages that he found were caused by the Defendants’ oppressive behaviour in forcing Ms. Murray’s departure from Pier 21 contrary to her reasonable expectations.

(4) Expert Valuation Evidence

[37] As for the Defendants’ submissions relating to the experts’ evidence, in essence, the Defendants seek to reargue the trial judge’s factual findings. They say he erred in equating the experience of Ms. Glass with Mr. Temple. The Defendants did not object to Mr. Temple being qualified as an expert and the trial judge properly received and considered his evidence. He carefully reviewed their respective positions on each issue and reached a reasonable conclusion on the valuation of Pier 21. We see no palpable and overriding error in his treatment of the valuation of the company. Nor are we persuaded that the decision is manifestly unjust or clearly wrong.

[38] We will address the issue of costs raised by the Defendants at the same time as we address the Plaintiffs’ request for leave to appeal costs.

(5) Plaintiffs’ Grounds of Appeal

[39] Turning to the grounds of appeal advanced by the Plaintiffs, they raise six issues.

[40] First, the Plaintiffs submit that the trial judge erred in refusing to find a fiduciary relationship between Mr. Star and Ms. Murray. We disagree. The parties were not in a partnership or trust relationship but were shareholders of the same corporation who did not owe each other fiduciary duties. Mr. Star did not undertake to act in Ms. Murray’s best interests nor did Ms. Murray repose any trust in him. Here Mr. Star owed fiduciary duties to the corporation, not to Ms. Murray: see BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 37, 66. In any event, even if the trial judge had found a fiduciary relationship and a breach of a fiduciary duty, we fail to see that additional compensation beyond what the trial judge already had ordered would be merited.

[41] Second, Ms. Murray submits that the trial judge erred in holding that there was insufficient evidence of her opposition to the 2012 Share Purchase Agreement because there was no contemporaneous documentary evidence.

[42] We reject this argument. First, that is not what the judge said. He said at para. 28, that he found it difficult to believe that, if she felt as strongly then about the Share Purchase Agreement as she maintains now, there was no email, note or minute of any kind recording her concerns to Mr. Star and no attempt to seek legal advice. He recognized at para. 22 that she had a lawyer helping her negotiate the draft shareholders’ agreement the previous year, but she made no effort to seek legal advice about the repurchase of her shares until much later. He also referenced the evidence that she raised concerns with two friends at the time about the buyout of her shares. The trial judge was not imposing a requirement for contemporaneous documentary evidence. It was open to the trial judge to weigh the conflicting evidence from the parties and conclude that the Plaintiffs had not met the burden of proof.

[43] We also agree with the trial judge’s analysis of the limitation issue. We would accordingly dismiss this second ground of appeal.

[44] Third, the Plaintiffs submit that the trial judge erred in the quantum of equitable damages because they failed to recognize that the Defendants have had the use of Ms. Murray’s capital since 2015. They submit that these additional damages could take the form of an increased interest rate or an increased award.

[45] The trial judge considered the Plaintiffs’ request in the context of the Defendants’ request for a credit for the amount Ms. Murray earned on the investment of the proceeds of the sale of the 6.9% of Class A shares. The Plaintiffs claimed their loss should be calculated on the same basis. They claimed the compound return Ms. Murray actually earned on the capital arising from the 2012 repurchase of shares, which was 10.38%. They sought this return on a compounded basis on all amounts awarded from February 27, 2015.

[46] The trial judge rejected the Plaintiffs’ arguments. He concluded that the pleadings did not support the request. The Plaintiffs had pleaded ss. 128 and 129 and not s. 130 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and they did not seek to amend or provide an explanation for their failure to do so: at paras. 33-35. Moreover, he reasoned that these issues were raised after the conclusion of the evidence at trial and to permit the claims at this stage would be seriously prejudicial to the Defendants.

[47] The reasons given by the trial judge support his rejection of the Plaintiffs’ claim for a compounded interest rate of 10.38% since 2015. While the trial judge could have exercised his discretion to award compound interest as part of the oppression remedy he otherwise granted, he was not obligated to do so: see Ford Motor Co. of Canada, Ltd. v. Ontario Municipal Employees Retirement Board (2006), 263 D.L.R. (4th) 450 (Ont. C.A.), at para. 181, leave to appeal refused, [2006] S.C.C.A. No. 77. There was no palpable and overriding or legal error in his reasoning. We dismiss this ground of appeal.

[48] Fourth, the Plaintiffs ask this court to interfere with the trial judge’s dismissal of Ms. Murray’s claim for punitive damages. We see no error that allows for appellate intervention. It is not for this court to substitute its discretion for that of the trial judge.

[49] Fifth, the Plaintiffs submit that the trial judge erred in the selection of the transaction structure when he required Pier 21 to repurchase Ms. Murray’s shares for cancellation rather than requiring the Defendants to purchase the shares of Ms. Murray’s holding company, 2327342 Ontario Inc., which would be more tax efficient for her.

[50] Again, the trial judge’s reasons for decision on the transaction structure are detailed and sound. There was no evidence to support a reasonable expectation that she would be entitled to a structure that would minimize her tax liability to the exclusion of other considerations, one of which is that the Defendants would inherit potential unknown liabilities in 2327342 Ontario Inc.

(6) Costs Awards

[51] Lastly, both parties also take issue with the trial judge’s costs award.

[52] The Defendants state that the trial judge made errors in his costs decision because he required them to pay one third of the disbursements paid to Mr. Wintrip who delivered no report and did not testify; he rejected most of Mr. Temple’s opinions but still required the Defendants to pay his fees; and the Defendants had to defend against valuation claims that the court rejected.

[53] The Plaintiffs state that he erred in holding that oppressive conduct does not necessarily entail elevated costs awards and by granting a distributive costs award contrary to Oakville Storage & Forwarders Ltd. v. C.N.R. Co. (1991), 84 D.L.R. (4th) 326 (Ont. C.A.).

[54] Absent an error in principle or an award that is plainly wrong, a trial judge’s exercise of discretion in the award of costs is entitled to deference: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27. The trial judge found that by any measure, Ms. Murray was the effective “winner” in the litigation and was prima facie entitled to her partial indemnity costs.

[55] The trial judge instructed himself not to make a distributive costs award but followed this court’s guidance in Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA 366, and considered that some analysis of relative success may be appropriate in determining quantum of entitlement. He found that the post-trial motion on the transaction structure was free-standing and that the costs incurred were substantively and temporally distinct from all the other costs of the trial. He accordingly awarded costs to the Defendants who were successful on this motion. This was not an error in principle nor plainly wrong. The same is true with the trial judge’s treatment of the claim for elevated costs, the Defendants’ arguments about the Wintrip invoice, which was discussed in detail at paras. 63-66 of the trial judge’s decision, and his treatment of the costs as they relate to the valuation claims. We see no reason to interfere.

D. Disposition

[56] For all of these reasons, we dismiss the appeal, dismiss the cross-appeal, and refuse both parties leave to appeal costs. In addition, we dismiss the motion and cross-motion for admission of fresh evidence.

[57] The parties are to make brief (not to exceed five pages in length) submissions on costs of the appeal, the Plaintiffs to file theirs by June 18, 2021, and the Defendants by June 25, 2021.

“S.E. Pepall J.A.”

“L.B. Roberts J.A.”

“J.A. Thorburn J.A.”

[1] Reasons were released on April 12, July 29, and December 13, 2019, April 8, July 10, July 27, and September 25, 2020 but were reflected in one judgment bearing two dates: April 12, 2019 and September 25, 2020.