Court File and Parties
CITATION: The Estate of Claude Bitton v. Checroune, 2019 ONSC 4655
DIVISIONAL COURT FILE NO.: DC-18-509
DATE: 20190808
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Swinton, Backhouse and Wilton-Siegel, JJ.
BETWEEN:
THE ESTATE OF CLAUDE BITTON, deceased by his executrix and personal representative, MICHELLE MOYAL Applicant (Appellant)
– and –
ALAIN CHECROUNE, A. CHECROUNE REALTY CORPORATION and 500 SHEPPARD AVENUE WEST LTD. Respondents (Respondents in Appeal)
COUNSEL:
Robert Cohen, for the Applicant (Appellant)
Mervyn D. Abramowitz and Aaron Grossman, for the Respondents (Respondents in Appeal)
HEARD at Toronto: July 24, 2019
REASONS FOR JUDGMENT
Wilton-Siegel J.
[1] The appellant, the Estate of Claude Bitton (“Bitton”), appeals a judgment dated April 21, 2017 of Akbarali J. (the “Judgment”) in two respects. Bitton seeks a declaration that an option in his favour in paragraph (v) of a letter agreement dated March 24, 2010 between Bitton and the respondent Alain Checroune (“Checroune”) (the “Agreement”) is legally enforceable and an order that Bitton is entitled to general damages for breach thereof to be set off against the sale price of Checroune’s shares in 500 Sheppard Avenue West Ltd. (the “Company”). The appellant also appeals a determination in a supplementary decision dated September 25, 2017, (the “Supplementary Decision”) that the valuation date for the sale of Checroune’s shares in the Company shall be the date of the reasons of the trial judge dated April 21, 2017 (the “Reasons”).
Factual Background
[2] This appeal involves a property located at 500 Sheppard Avenue West (the “Property”). Bitton acquired the Property in the Company in 2005 with the intention of developing a condominium project on the Property (the “Project”). By 2010, Bitton needed to refinance a mortgage on the Property in the principal amount of approximately $4.3 million (the “CMLS Mortgage”) and was unable to obtain construction financing from a third-party lender. Negotiations between Bitton and Checroune resulted in the Agreement.
[3] In paragraphs (i) to (iii) of the Agreement, the parties agreed that Checroune would acquire a 50% beneficial interest in the Property, which was valued at $8.6 million, by discharging the CMLS Mortgage. The parties also agreed that each would receive a mortgage on the Property in the principal amount of $4.3 million to secure their respective interests in the Property. Certain terms of these mortgages were set out in paragraph (iv) and included a two-year term which is discussed below.
[4] Paragraph (v) of the Agreement contained the following provision:
(v) Our respective clients shall share the costs (both hard and soft costs) associated with the project (the “Project Costs”) going forward on a 50-50 basis. Provided, however, that our client may elect to have his share of the Project Costs paid by your client, in which case, our client’s share of the Project Costs paid by your client shall bear interest at the rate of 7.0% per annum and shall be repaid by our client to yours as a first charge against the net proceeds of sale of the individual condominium units (following payment of any mortgages and other debts that must be paid to facilitate the sale of the individual units), and prior to the distribution of any profits to our client;
In these reasons, Checroune’s obligation to fund Bitton’s share of the “Project Costs” as set out in paragraph (v) of the Agreement is referred to as the “Bitton Option”.
[5] Lastly, in paragraph (v), the parties agreed to use their best commercial efforts to negotiate in good faith a co-tenancy agreement respecting the Property as soon as possible after execution of the Agreement.
[6] Subsequent to the execution of the Agreement, the parties altered several provisions of the Agreement by the exchange of emails. The principal amendment restructured the transaction to substitute a sale of 50% of the shares of the Company to Checroune for the sale of an undivided 50% beneficial interest in the Property, apparently to avoid land transfer tax. However, the amendments did not alter the substantive business deal between the parties.
[7] During the summer of 2010, the relationship between the parties broke down. As a result, the intended joint venture between them to develop the Project did not proceed.
The Decision
[8] Bitton commenced two legal proceedings against Checroune and certain other parties that were tried together. In the first proceeding (the “Action”), Bitton sought a declaration that Checroune breached his obligations pursuant to the Bitton Option and damages for loss of profits in the amount of $20 million. In the second proceeding (the “Oppression Application”), Bitton sought an order declaring that power of sale proceedings that Checroune had commenced under the CMLS Mortgage were invalid and unenforceable. Checroune had acquired but not discharged the CMLS Mortgage under the revised terms of the arrangements between the parties. In addition, Bitton sought a declaration that Checroune had conducted the affairs of the Company in a manner that constituted oppressive conduct for the purposes of s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16
[9] The trial judge found that the parties intended to develop the Project together and to that end agreed to certain terms in the Agreement. As summarized in paragraph 71 of her Reasons, the terms agreed to comprised Checroune attending to the payout and discharge of the CMLS Mortgage, the transfer of an (almost) equal equity interest in the Company to Checroune through his personal corporation, and the registration by Checroune’s personal corporation and Bitton of mortgages on the Property to reflect their respective equity interests in the Project.
[10] While the trial judge found that the parties intended to develop the Project together, she also found that the parties failed to reach enforceable agreements regarding the development of the Project and regarding the funding of the development costs of the Project.
[11] With respect to the funding of the development of the Property, the trial judge found that paragraph (v) of the Agreement, on which Bitton relies, is missing key terms. She also found that, given the estimated Project cost of $50-$100 million, the provisions of paragraph (v) were not specific enough to constitute an enforceable agreement.
[12] With respect to the development of the Project, as distinct from the funding of the Project, the trial judge also held that, while there was a common intention to partner together to develop the Property, there was no legally enforceable agreement to do so. She held the parties failed to reach an agreement on how the parties would proceed to develop the Property including, by way of example, the different tasks each would take on, and what they would do in the event of a disagreement.
[13] The trial judge proceeded on the basis that each party was obligated to bear 50% of all costs pertaining to the Property other than Project Costs, that is, the costs of maintaining the Property. However, such obligation existed outside paragraph (v), which pertained only to the costs of development of the Project, and was based on their co-ownership of the Property through the Company.
[14] In the Action, the issue before the trial judge was the obligation of Checroune to fund Bitton’s 50% of the costs of development of the Project, including in particular the construction costs. This is the obligation that was the subject of the “Bitton Option” as argued before her.
[15] The trial judge held that Checroune was not obligated to fund Bitton’s 50% of any Project Costs. The trial judge gave two reasons for this determination. First, she expressed this conclusion in terms of the enforceability of paragraph (v), or more precisely of the Bitton Option, based on an absence of the key or material terms on which Checroune’s funding of the Project Costs was to occur. She also stated that “the term regarding the construction funding is not specific enough to be an enforceable agreement.” Second, the trial judge held that the Bitton Option was unenforceable in the absence of a legally enforceable agreement to develop the Property.
[16] In the Oppression Application, the trial judge found Checroune’s power of sale proceedings under the CMLS Mortgage were invalid and ordered that the CMLS Mortgage be discharged. She also found that Checroune conducted the affairs of the Company in a manner that was unfairly prejudicial to and unfairly disregarded the interests of Bitton. The oppressive conduct consisted of the treatment of the Checroune mortgages and the failure to pay 50% of the costs of the Company. However, the oppressive conduct did not extend to the failure to pay the costs of developing the Project. She ordered, among other things, that Checroune sell his shares in the Company to the Estate of Bitton at a price to be valued.
[17] In the Supplementary Decision, the trial judge held that the fairest date to value the common shares in respect of such sale was April 21, 2017, being the date of the Reasons.
[18] I will deal with the two grounds of appeal raised by Bitton separately after first addressing the standard of review.
Standard of Review
[19] The standard of review on an appeal is set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 in paras. 6-10 and 36-37. On a pure question of law, the standard of review is correctness. The standard of review for findings of fact is that such findings are not to be reversed unless it can be established that the trial judge made a palpable and overriding error. Questions of mixed fact and law are subject to the palpable and overriding error standard, unless it is clear that the trial judge made an error of law or principle that can be identified independently in the judge's application of the law to the facts of the case.
[20] This appeal involves, among other issues, a matter of the contractual interpretation of the Agreement. The standard of review in such circumstances is set out in Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53 at paras. 51-55 as confirmed by the Court of Appeal in Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293 at paras. 17-20 and 41. The general rule is that contractual interpretation involves questions of mixed fact and law which attract a deferential standard on appellate review requiring demonstration of a palpable and overriding error on the part of the trial judge. In my view, none of the exceptions to this standard articulated in these cases apply in the present circumstances. In particular, the allegation of a failure to apply a principle of contractual interpretation does not involve an extricable principle of law attracting a correctness standard as the appellant suggests. Accordingly, the issue of the enforceability of the Bitton Option is addressed on a deferential standard.
The Enforceability of Paragraph (v) of the Agreement
[21] As mentioned, the appellant seeks an order that he is entitled to general damages based on his submission that Checroune breached the Agreement by failing to honour his obligations in respect of the Bitton Option. This position requires demonstration that the Bitton Option was an enforceable obligation of Checroune. The appellant argues that the trial judge erred in failing to enforce the Bitton Option which it says is sufficiently described in paragraph (v) of the Agreement so as to be enforceable in accordance with applicable principles of contract interpretation.
[22] The appellant says that it was inconsistent with the trial judge’s determination that the parties had a common intention to develop the Property together to conclude that the Bitton Option was too uncertain to be enforceable. It says that the trial judge erred in law in failing to apply the principles of contractual interpretation that require a court to give meaning to all of the terms of a contract and to avoid an interpretation that would render one or more of its terms ineffective: see Richcraft Homes Ltd. v. Urbandale Corporation, 2016 ONCA 6122 at para. 58. The appellant also suggests that the trial judge erred in failing to apply a further principle of contractual interpretation that requires a court to give certainty to an agreement where important terms are not fully described by proceeding on the basis that each party is bound to agree to a reasonable determination of any undetermined point in order that the main promise may be enforced: see, for example, Canada Square Corp. Ltd. v. VS Services Ltd., [1981] O.J. No. 3125 (C.A.). Alternatively, the appellant says that the matters on which the trial judge relied as reflecting uncertainty were not essential to the agreement respecting the development and funding of the Project on the Property.
[23] For the following two principal reasons which reflect the reasons of the trial judge, I do not find any palpable and overriding error in the determination of the trial judge that the Bitton Option was unenforceable.
[24] First, the appellant relies solely on the specific language of paragraph (v). Even if the meaning of paragraph (v) is examined solely on that basis, I think the conclusion of the trial judge that the Bitton Option is unenforceable due to the failure of the parties to agree on the material terms of the Bitton Option is reasonable. In particular, I think it is patently obvious that any agreement for the funding of the Project, which was a pre-condition to Checroune’s obligations in respect of the Bitton Option, would be extensive and complex. The matters raised by the trial judge as terms not yet addressed by the parties, while not necessarily exhaustive, are material and require a determination before there can be a legally enforceable agreement. In particular, the fact that the parties had failed to agree on the amount and timing of the funding is sufficient to render the Bitton Option unenforceable. More generally, insofar as the appellant suggests that the terms that had yet to be negotiated between the parties were not essential to the agreement for the funding of a Project having an estimated construction cost of up to $100 million, he is significantly understating the extent of any agreement that would be necessary before the development could proceed. It is, for example, inconceivable that Checroune would have agreed to an open-ended commitment, much less to such a commitment in respect of a project that was yet to be finalised. For the same reason, I think that the appellant’s argument that the trial judge should have implied reasonable terms in respect of the development and funding of the Project is unrealistic and unreasonable. The appellant’s approach would have required the trial judge to write an entire and extensive financing and development agreement in order to render the Bitton Option enforceable.
[25] Second, when the operation of paragraph (v) is considered having regard to the entirety of the Agreement as well as the circumstances in which the Agreement was negotiated and executed, it is clear that there were no costs that could be the subject of the Bitton Option even if it were held to be a legally enforceable obligation.
[26] In this regard, paragraph (v) of the Agreement must be read in the context of paragraph (vi) which contemplated the negotiation as soon as possible of a co-tenancy agreement between the parties. It is agreed that the parties never reached agreement on the co-tenancy agreement contemplated by paragraph (vi). Nor did they reach agreement on a shareholder’s agreement after the restructuring of the transaction as a share sale.
[27] Paragraph (v) must also be read together with paragraph (iv). While it is not made explicit, the most likely purpose of that provision, on the facts in the record, was to provide the parties with two years, extendable for a further two-year term, in which to agree on the Project and the arrangements between themselves regarding the development of the Project, including funding arrangements, failing which either party could trigger a sale of the Property and receive back its capital.
[28] With respect to the factual background, the trial judge expressly found that the parties failed to reach agreement on a development agreement, which also would have included provisions respecting funding arrangements. When addressing Bitton’s oppression claim, the trial judge also held that Bitton had no reasonable expectation that Checroune would fund the construction of the Project. She characterized the discussions between the parties regarding funding as “preliminary and non-specific”. In other words, the parties also failed to agree on the terms on which the Project would be financed.
[29] Given the foregoing, it clear that the obligations of the parties in paragraph (v) to bear 50% of all development costs of the Project were subject to execution of a development agreement between the parties that addressed, among other things, the specific Project to be developed, the funding of the Project, and the respective rights and obligations of the parties regarding the development. The trial judge determined that the parties had failed to reach such an agreement, including any agreement on the costs to be borne by them on a 50/50 basis.
[30] In these circumstances, the trial judge’s determination that the Bitton Option was unenforceable was a necessary implication. While the language of the Bitton Option is clear, in the absence of a development agreement, there was no agreement on the costs that were to be funded on a 50/50 basis and, therefore, on the costs for which Checroune was to be liable under the Bitton Option. In other words, there was no content to the Bitton Option in that there was nothing to enforce even if it were an enforceable obligation. Put another way, “Project Costs” in paragraph (v) presupposes an agreement between the parties regarding the “project” in a co-tenancy agreement or otherwise. In the absence of such an agreement, there can be no “Project Costs” for the purposes of paragraph (v). As a practical matter, the absence of any demand by Bitton that Checroune bear any particular funding costs of the Project reflects the absence of any content to the Bitton Option.
[31] Accordingly, Checroune did not breach the Bitton Option nor did his actions give rise to a claim for damages.
[32] Based on the foregoing, I would not give effect to this ground of appeal.
The Valuation Date of the Shares
[33] The appellant submits that the trial judge erred in failing to order that the valuation date of Checroune’s shares in the Company for the purposes of the sale of those shares should be the date of commencement of these proceedings, being December 15, 2010.
[34] The trial judge established the valuation date on the basis of her assessment of the fairest date on the particular facts in the absence of evidence that the oppressive conduct of Checroune affected the value of the Company or the Property. The appellant does not disagree with this principle which has been expressed in, among other cases, Chiaramonte v. World Wide Importing Ltd., [1996] O.J. No. 1389 (Ont. Ct. (Gen. Div.)) at para. 30 per Adams J. The finding of oppressive activity by Checroune does not, on its own, provide any other viable basis for fixing the valuation date. I therefore agree that the trial judge adopted the correct approach in determining this issue.
[35] The trial judge set out six considerations that support her determination in paragraph 20 of the Supplementary Decision. In particular, she noted that Checroune paid one-half of the market value of the Property, as agreed between the parties, to acquire a 50% interest in the Property through shares in the Company. There was no reason in the record for denying him the right to receive the current market value of that interest.
[36] The appellant submits that the trial judge made a palpable and overriding error in finding that it was Bitton rather than Checroune who delayed the Project by allowing the site plan approval for the Project to lapse and by making no efforts to advance the Project.
[37] However, the limited evidence in the record supports her conclusion. The appellant does not dispute that he failed to take action to prevent the site plan approval from lapsing or, more generally, to advance the Project. He says instead that it is patently obvious that it would have been fruitless to take any such action given that Checroune held 51% of the common shares in the Company. This argument is entirely speculative. In any event, there is no evidence that Bitton failed to take such actions for this reason.
[38] I therefore see no palpable and overriding error in the determination of the trial judge that the valuation date of the shares should be April 21, 2017. This ground of appeal is therefore also rejected.
Disposition of the Appeal
[39] Based on the foregoing, the appeal is dismissed. Costs in the agreed amount of $25,000 on an all-inclusive basis are payable by the appellant to the respondent.
Wilton-Siegel J.
I agree _______________________________
Swinton J.
I agree _______________________________
Backhouse J.
Released: August 8, 2019
CITATION: The Estate of Claude Bitton v. Checroune, 2019 ONSC 4655
DIVISIONAL COURT FILE NO.: DC-18-509
DATE: 20190808
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Swinton, Backhouse and Wilton-Siegel, JJ.
BETWEEN:
THE ESTATE OF CLAUDE BITTON, deceased by his executrix and personal representative, MICHELLE MOYAL Applicant (Appellant)
– and –
ALAIN CHECROUNE, A. CHECROUNE REALTY CORPORATION and 500 SHEPPARD AVENUE WEST LTD. Respondents (Respondents in Appeal)
REASONS FOR JUDGMENT
Wilton-Siegel J.
Released: August 8, 2019