Court File and Parties

Court: COURT OF APPEAL FOR ONTARIO Date: 2023-12-04 Docket: COA-23-CV-0490

Judges: Hourigan, Zarnett and George JJ.A.

Between:

John Arthur Frye Plaintiff (Appellant)

And:

Cheryl Vanessa Sylvestre Defendant (Respondent)

Counsel: George Avraam and Michael Nowina, for the appellant William V. Sasso and Myron W. Shulgan, K.C., for the respondent

Heard: November 17, 2023

On appeal from the order of Justice William S. Chalmers of the Superior Court of Justice, dated April 6, 2023.

Reasons for Decision

[1] The appellant brought an action to enforce an agreement to acquire the respondent’s shares in a family corporation, and for a declaration that the respondent had consented to the sale of shares owned by one of her brothers, over which she was a co-trustee. On a motion for summary judgment, the motion judge declared that the respondent “did not make a binding agreement to sell her shares … to [the appellant]” and did not agree or consent to a sale of her brother’s shares.

[2] The agreement alleged by the appellant was contained in an exchange of emails dated October 19, 2020.

[3] On October 19, a lawyer for the respondent wrote to a lawyer for the appellant stating:

I have received instructions from Cheryl to agree to sell her shares to Jack for payment of $10,000,000, net of taxes, and $400,000 for outstanding dividends and to approve the sale of Donald’s shares to Jack on payment of $5,000,000, net of taxes, and $200,000 for outstanding dividends. Please confirm this agreement. We can then work towards preparing the documents necessary to give effect to these sale transactions.

[4] The lawyer for the appellant replied later on October 19:

Thank you for the note.

I can confirm the agreement. It is consistent with my note of yesterday but quantifies the amount that would represent the dividend payment as a condition of the agreement.

Should we ask Rick [Elliot of the accounting firm BDO Canada LLP (“BDO”)] to either confirm or update his 2019 analysis as to the amounts and structure to determine the net of taxes amount? Additionally Jack has asked to receive a note signed by Cheryl that also evidences the agreement below, as he believes it will provide credence to her desire to follow through with the agreement.

Can we schedule a call tomorrow or Wednesday to agree upon next steps?

[5] After reviewing the language of the emails and what occurred before and after them, the motion judge found there was no concluded agreement, for two reasons.

[6] First, in the motion judge’s view, the manner in which the transaction would be structured, including the method of payment for the shares, was an essential term of the proposed purchase. It directly affected the amount of tax generated by the sale, and therefore the amount the respondent would have to receive to clear $10 million, net of taxes, for her shares, and that the trust for her brother would have to receive to clear $5 million, net of taxes, for its shares. Although BDO had suggested a structure in 2019 that would be a combination of capital dividend and cash, the emails did not record an agreement to that structure or method of payment and the respondent never agreed to it.

[7] Second, the motion judge found there was no concluded agreement as to the payment of dividends, which he also viewed as an essential term of the proposed purchase. There had been a history of quarterly dividends; the amounts specified in the October 19 emails represented the unpaid dividends to that date, but it was not clear that they were capped amounts regardless of how long the respondent and the trust remained shareholders.

[8] The appellant argues that the motion judge made palpable and overriding errors in coming to these conclusions. He submits that on an objective reading of the language of the October 19 emails, it was his responsibility to pay whatever was necessary so that the sellers of the shares received the “net of taxes” amounts, regardless of the structure chosen. Therefore, the structure of the transaction was not an essential term but a matter of implementation. Similarly, the amounts of the dividend payments were precise and fixed. The appellant submits that the motion judge placed undue reliance on surrounding circumstances, and especially on conduct after the October 19 emails, to detract from the clear meaning of their text.

[9] We do not accept these arguments. The October 19 email exchange contemplated that the parties would “work towards preparing the documents necessary to give effect to these sale transactions” and also contemplated further inquiries of BDO as to structure and method of payment. In Bawitko Investments Ltd. v. Kernels Popcorn Ltd. , [1991] 79 D.L.R. (4th) 97 (Ont. C.A.), at pp. 103-4, Robins J.A. explained that an exchange of correspondence agreeing on terms to be incorporated into a more formal document will not amount to an enforceable contract in certain circumstances, including where “essential provisions intended to govern the contractual relationship have not been settled or agreed upon”.

[10] The appellant concedes that the amount that would have to be paid to the respondent so that she would net $10 million after taxes for her shares would vary according to the structure and method of payment chosen. The appellant’s request to the motion judge was that he declare that there was a binding agreement and “order that the shares of the [respondent] … be transferred to the [appellant] upon payment by the [appellant] of $ 11,585,581 to the [respondent] along with the issuance of $400,000 in dividends by the Company to the [respondent]”. In this court, the appellant also requests that relief.

[11] The amount of $11,585,581 is what would be paid to the respondent to acquire her shares if the structure and method of payment suggested by BDO in 2019, updated by them in December 2020, determined the purchase price. According to that suggested structure and method, $11,585,581 in the hands of the respondent would leave her with $10 million after taxes. It is difficult to see how the structure and method was not an essential term, when the appellant seeks to enforce a calculation of the price based on a specific structure and method. But, as the motion judge found, there was never an agreement on that structure or method.

[12] It is also difficult to see how the structure and method was not an essential term when the appellant refused to agree to a request, made subsequent to October 19, 2020, that he undertake responsibility for any taxes if the Canada Revenue Agency (“CRA”) reassessed what was payable by the respondent as a result of the sale. Although the appellant argues that the motion judge was wrong to look at this refusal, we see no merit in that submission.

[13] The appellant concedes that subsequent conduct of the parties can be relevant to ascertain whether, objectively, a binding and enforceable contract has been made. The appellant put the very exchange that included the refusal to give this undertaking into evidence. In his statement of clam, he described his reason for not agreeing to this request − it was a “new” and unacceptable term. BDO did not guarantee that the structure and method they proposed would be acceptable to CRA. If the appellant did not have the responsibility for the taxes on the sale whatever they turned out to be, the structure and method of payment, which were highly relevant to what the taxes would be, was of critical importance.

[14] It was open to the motion judge to find that the structure and method of payment was an essential term. The structure and method had been a topic of discussion before the October 19 emails and the appellant’s lawyer’s email of October 19 spoke of reverting to BDO to update their suggestions on this topic. The motion judge’s finding that the structure and method were never agreed to was open to him on the record.

[15] We also see no error in the motion judge’s finding that there was no concluded agreement on the terms concerning dividends. The email exchange did not include a closing date, raising the question of whether the amounts specified as outstanding dividends were to be all that was ever payable even if completion of the sale was materially delayed.

[16] For these reasons, the appeal is dismissed.

[17] In accordance with the agreement of the parties, the appellant shall pay the respondent costs of the appeal fixed in the amount of $20,000, inclusive of disbursements and applicable taxes.

“C.W. Hourigan J.A.”

“B. Zarnett J.A.”

“J. George J.A.”