ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-83
DATE: 20120528

BETWEEN:

1047358 Ontario Inc. Plaintiff – and – The Haliburton Broadcasting Group Incorporated and Christopher Grossman Defendants

David Morin, for the Plaintiff
Sharon Addison, for the Defendants

HEARD: May 15, 2012

J.S. O’Neill

REASONS ON MOTION

[ 1 ] PART A: Introduction

[ 2 ] On May 15, 2012, I heard argument from the parties as to whether this court had jurisdiction to hear and determine a summary judgment motion brought by the Plaintiff with respect to payments allegedly due pursuant to three promissory notes. Factums and Briefs of Authorities were filed by the parties. At the conclusion of argument, I reserved my decision pending the release of written reasons or an endorsement. For the reasons which follow, I conclude that this court has jurisdiction to hear the motion for summary judgment, and accordingly, an order will issue dismissing the Defendant’s ad hoc motion to stay the within action.

[ 3 ] Part B: Background Facts

[ 4 ] I reproduce below, in part, portions of the facts as summarized in the Plaintiffs’ Factum.

[ 5 ] On August 23, 2007, the Plaintiff and Haliburton entered into a share purchase agreement (“SPA”) for Haliburton’s purchase of Muskoka Parry Sound Broadcasting, (hereinafter “Muskoka Broadcasting”) a radio station owned by the Plaintiff.

Affidavit of Margaret Byers sworn November 11, 2010, Motion Record , Tab 2, para 6

[ 6 ] Pursuant to the terms of the SPA, Haliburton purchased all of the shares of Muskoka Broadcasting for a purchase price of $3 million on closing plus $250,000 by way of a promissory note delivered on closing, payable $75,000 plus interest on December 17, 2008, $75,000 plus interest on December 17, 2009, and $100,000 plus interest on December 17, 2010.

Affidavit of Margaret Byers sworn November 11, 2010, Motion Record, Tab 2, para 5.

[ 7 ] Haliburton did not pay the promissory note as required on December 17, 2008. The Plaintiff issued a Statement of Claim in the within action on October 21, 2009, seeking payment of the promissory note plus interest and costs.

[ 8 ] Haliburton failed to pay the promissory note as required on December 17, 2009, following which the Defendants delivered their Statement of Defence on January 22, 2010.

[ 9 ] The Plaintiff served a Reply to the Statement of Defence on February 8, 2010.

[ 10 ] The parties exchanged Affidavits of Documents and conducted examinations for discoveries. At the examination for discovery of Christopher Grossman on September 22, 2010, the Defendants specifically advised that they did not plan to amend the Statement of Defence except to possibly allege the Plaintiff’s failure to submit a CRTC filing on time. The Statement of Defence has not been amended since that time.

Transcript of Christopher Grossman, page 34, question 145/146.

[ 11 ] The Defendants then failed to pay the third instalment on the promissory note due December 17, 2010.

[ 12 ] By Notice of Motion dated January 28, 2011, the Plaintiff brought the within motion for summary judgment.

Affidavit of Margaret Byers sworn November 11, 2010, Motion Record, Tab 1

[ 13 ] On July 4, 2011, I adjourned the Summary Judgement Motion before it was concluded in order to permit and accommodate the parties to complete the Purchase Price Adjustment Procedure contemplated by article 3.5 of the SPA.

[ 14 ] An article 3.5 Scheduling Protocol or Framework Agreement was provided to me on August 5, 2011 and it contemplated the following steps:

1. Delivery by Haliburton of details of matters in dispute – August 12, 2011

2. Delivery by Plaintiff - a reply to Plaintiff’s response – August 30, 2011

3. Delivery by Haliburton – a reply to Plaintiff’s response – September 15, 2011

4. Parties’ External Accountants to meet to attempt to resolve any disputes – By October 14, 2011

5. If not resolved by October 31, 2011, outstanding issues to be submitted to single arbitrator in accordance with Arbitration Act (Ontario) for a determination by December 31, 2011 – By November 11, 2011

[ 15 ] On May 15, 2012, both counsel acknowledged that steps 1 to 4 of the Scheduling Protocol had been completed. Counsel also acknowledged that the External Accountants had met and that following a telephone call on November 9, 2011, the External Accountants had resolved the dispute. Confirmation of the resolution can be found in the letter from Dawson Gray LLP to Deloitte dated November 14, 2011 (Plaintiff’s Supplementary Motion Record - Tab H). In that letter, Mr. Nichol’s wrote to Mr. Dolman and stated on page 2 as follows: “Net working Capital Shortfall ($39,588)”.

[ 16 ] Part C: Article 3.5

[ 17 ] Article 3.5 of the SPA states:

Resolution of Statements . The buyer, acting reasonably, may dispute any aspect of the draft Statements by notice in writing given to the Seller within 21 days of reasonable detail with respect to the matters in dispute. Unless the dispute is resolved within a further 21 days of receipt by the Seller of such notice, the parties’ accountants and shall meet within 21 days of receipt by the Seller of such notice to attempt to resolve the dispute and finalize the Statements. If such dispute is not resolved within such 21 day period, the dispute shall be submitted to an independent firm of accountants as may be agreed upon by the Seller and the Buyer to arbitrate the dispute. Such accounting firm shall designate a partner to determine the matter in dispute as a single arbitrator in accordance with the Arbitration Act (Ontario). Should the parties fail to agree to the appointment of an independent firm of accountants, the arbitrator shall be a person appointed under the Arbitration Act. In either case the provisions of Article 10 hereof shall apply.

[ 18 ] Part D: Issues

[ 19 ] The issues that arise on the within jurisdiction motion are summarized in paragraph 25 of the Plaintiff’s Factum, which I reproduce in full below:

The court has accordingly requested submissions on these discrete issues:

(1) Is there a valid issue for arbitration pursuant to Article 3.5 of the Share Purchase Agreement?

(2) If not, is there a valid issue for arbitration pursuant to Article 10 of the Share Purchase Agreement?

(3) If there is a valid issue for arbitration, should the court refuse to stay the within action and Summary Judgment motion pursuant to one of the grounds identified at section 7(2) of the Arbitration Act 1991, S.O. 1991, c. 17, as amended?

[ 20 ] Part E: Analysis and Conclusion

[ 21 ] On the jurisdiction motion, counsel for the Defendants made two arguments in support of her position that this court did not have jurisdiction to hear the summary judgment motion with respect to the promissory notes.

[ 22 ] i) Given the contents of Mr. Venutti’s affidavit of April 12, 2012, (following his correspondence of April 3, 2012), the dispute between the parties remains alive and accordingly, the dispute must go to arbitration according to article 3.5.

[ 23 ] Counsel referred to Mr. Venutti’s affidavit as well as the affidavit of Hugh Nichol sworn April 18, 2012. In particular, counsel referenced paragraph 10 of Mr. Nichol’s affidavit whereby he stated:

“...this represents a swing from a receivable to a payable in the order of $204,914.00. This is a material change to the financial position of the Company.”

[ 24 ] At paragraph 11 of his affidavit Mr. Nichol’s stated:

“We [Steven Dolman and I] did not compare the “Financial Statements” to the Effective Date Financial Statements”.

[ 25 ] Accordingly, counsel’s point of argument is that rather than there existing a shortfall in working capital in the sum of $39,588.00, the total deduction in working capital is the amount shown in Mr. Venutti’s letter of August 12, 2011, namely $178,283.30, which would thereby adjust the purchase price and reduce the amount payable on the promissory note to $71,716.70.

[ 26 ] (ii) Counsel also made submissions on a second ground, referencing the Inter Corporate Loan issue. In her submission she referenced paragraph 5 of the Dolman affidavit and paragraph 5 of the Nichol affidavit. She submitted that in accordance with the Nichol affidavit, any remaining dispute must be dealt with through the arbitration procedure.

[ 27 ] I am not able to accept these submissions. Article 3.5, as incorporated into the court process through the protocol document above referred to, contemplates that “unless the dispute is resolved within a further 21 days of receipt by the Seller of such notice, the parties accountants and [sic] shall meet within 21 days of receipt by the Seller of such notice to attempt to resolve the dispute and finalize the statements”. The Article 3.5 process does not have as its underlying purpose the determination of a purchase price, but rather adjustments to the purchase price. It would make little sense for parties’ accountants to meet and resolve the dispute, if following such meeting either of the parties would question resolution, and insist that it proceed to an independent firm of accountants. It makes no sense for a dispute resolved by external accountants representing each of the parties to then proceed to an independent accounting firm.

[ 28 ] If Article 3.5 is intended to provide either of the parties with a veto over the resolution reached by the external accountants, it ought to have said so in clear language. Counsel for the Defendants submitted that to the extent that the language in Article 3.5 was ambiguous, this court ought to interpret the Arbitration Agreement broadly in favour of arbitration. Counsel submitted that where the arbitration clause is capable of two interpretations and one provides for arbitration, the court should favour that interpretation. While I agree that this is a correct statement of the law Greenfield Ethanol Inc v. Sun Court Energy Products Inc (2007) 33118 (ONSC), I cannot conclude on the wording of 3.5 that any ambiguity exists.

[ 29 ] Both external accountants would have had available to them the SPA, as well as Mr. Venutti’s “dispute” letter of August 12, 2011. Both accountants would have had available to them the reply of Mr. Dolman dated August 18, 2011 as well as Mr. Nichol’s letter of September 22, 2011. These materials were available to the external accountants when they met and when they reached a resolution on November 9, 2011.

[ 30 ] In his Notice of Dispute letter dated August 12, 2011, Mr. Venutti also referenced the hypothetical working capital deficit of $43,840.30, an amount that is different than the figure of $39,588 reflected in Mr. Nichol’s letter of November 14, 2011. The purpose of this jurisdiction Motion is not to determine whether external accountants arrived at the correct figure or whether they reviewed or compared the appropriate or complete financial statements.

[ 31 ] The underlying issue that needs to be addressed on this motion is whether steps contemplated in Article 3.5 were properly completed (as steps) and whether it can be said that the external accountants reached a resolution in November 2011. As the parties themselves have indicated, a resolution was reached, even if, some five months later, Mr. Venutti took the position that the resolution is wrong from an accounting point of view.

[ 32 ] Counsel for the Defendants also referenced Article 10 and submitted that additional disputes with respect to misrepresentation remained alive and ought to be made subject to an arbitration process, and not a Superior Court summary judgment process. Article 10.1 of the SPA provides:

Arbitration of Disputes . Except as may otherwise be specifically provided for in this Agreement, any disputes arising out of this Agreement shall be submitted to and determined pursuant to the Arbitration Act and shall be determined by a person agreed to by the parties, and failing agreement, by a person appointed under the Arbitration Act, provided that the arbitrator provided for under Section 3.5 shall be appointed on the basis set out therein (any such person so agreed to or appointed to be referred to hereinafter as the “Arbitrator”).

[ 33 ] I accept submissions of counsel for the Plaintiff, that the statement of claim seeks judgment for only the promissory notes and interest and that in the statement of defence, the Defendants “complain about only one thing: the purchase price adjustment”. It is true in paragraph 15 of the Statement of Defence that the Defendants made three allegations of misrepresentations with respect to the financial statements but I accept Plaintiff’s counsel submissions that the allegations are vague and at least to this point in time completedly unsubstantiated. Further, given that the matters in dispute have now been resolved through the meeting of the external accountants, there can no longer be any dispute about misrepresentations and there can be nothing to submit to Article 10 arbitration.

[ 34 ] Even if I am incorrect in concluding there is no valid issue for arbitration, I would refuse a stay pursuant to s. 7(2) of the Arbitration Act , 1991 on the following basis:

(i) There is substantial evidence of the parties having voluntarily attorned to this court’s jurisdiction as outlined in paragraph 36 of the Plaintiff’s Factum.

(ii) In accordance with s. 7(2)(4) of the Arbitration Act , this court may refuse to stay a proceeding where the motion was brought with undue delay. The Defendants had much earlier opportunities to bring the within motion, either on the return of the summary judgment motion in 2011, or indeed earlier after the litigation had commenced. I view this as a case where the Defendants are estopped by their own conduct from bringing a motion for a stay. This is particularly so given that the external accountants reached an agreement in November of 2011, and that nothing further was heard from the Defendants until April of 2012, shortly before the return of the summary judgment motion to court.

[ 35 ] In these circumstances, I conclude that the Plaintiff’s have met the onus of establishing that one of the exemptions and exceptions under s. 7(2) of the Arbitration Act applies in this case.

[ 36 ] In their Factum, the Defendants argued that they did not have unequivocal or conscious intentions to abandon or waive the right to arbitrate the issues and disputes relating to the SPA. While disputes arising out of the agreement shall be submitted to arbitration in accordance with Article 10, Article 10 itself provides that this right is “except as may otherwise be specifically provided for in this agreement”. As I have already indicated, Article 3 of the SPA contemplates a specific adjustment process with a right to arbitration, following the steps outlined in Article 3.5. As a resolution was reached by the external accountants in step 4, as I have determined, the dispute does not remain alive, and accordingly, it cannot be submitted further to an independent firm of accountants.

[ 37 ] For all of these reasons, I conclude that this court has jurisdiction to hear and determine the summary judgment motion with respect to the promissory notes and accordingly the ad hoc motion requesting a stay of pursuant to s. 106 of the Courts of Justice Act and s. 10 of the Share Purchase Agreement is dismissed.

[ 38 ] On the jurisdiction motion, counsel for the Plaintiffs acknowledged that apart from the promissory note issue, his client was bound by the external accountants’ resolution that the deficit in net working capital was $39,588. However, by implication, given my reasons on this motion, the Defendants will have difficulty persuading the court on the summary judgment motion that the balance on the promissory notes, absent interest, should be reduced by $178,283.30, to $71,716.70.

[ 39 ] The Plaintiff is entitled to the costs of the within jurisdiction motion fixed on the partial indemnity scale. If these costs cannot be agreed to by the parties, then oral submissions with respect to costs shall be made by the parties on a date to be secured through the Trial Coordinator’s office at Parry Sound. Any oral submissions with respect to the costs of this motion shall be accompanied at the time by written costs documentation and calculations.

[ 40 ] Order Accordingly.

JUSTICE J.S. O’Neill

Released: May 16, 2012

ONSC 3115

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 1047358 Ontario Inc. – and – The Haliburton Broadcasting Group Incorporated and Christopher Grossman REASONS on motion JUSTICE J.S. O’NEILL

Released: May 28, 2012