COURT FILE NO.: 07-34937

DATE: 2012/01/23

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LAKEMOUNT SPORTSWORLD INC., ANGELO ANGELOPOULOS and ED D’ANDREA, Plaintiffs

AND:

ERNEST CICCHI, Defendant

AND:

PAUL X. DIXON and KEESMAAT DIXON KRANJC LEWIS & KOVACS BARRISTERS AND SOLICITORS, Third Parties

BEFORE: The Honourable Mr. Justice R.B. Reid

COUNSEL:
L. Frapporti and P. Kennedy, Counsel for the Plaintiffs
J. Scarfone, Counsel for the Defendant

HEARD: November 17, 2011

ENDORSEMENT

[ 1 ] The plaintiffs in this action seek an order enforcing terms of the settlement of this lawsuit based on a verbal deal that was made between the personal plaintiffs and the defendant on June 6, 2011. The defendant requests the same relief, but based on a different understanding of the settlement terms.

[ 2 ] The issues are:

• Does the court have jurisdiction under r. 49.09 of the Rules of Civil Procedure or otherwise to hear the motion?

• Was there a binding settlement reached between the parties on June 6, 2011?

• If there was a binding settlement, can the purchase of shares by the plaintiffs be completed by share redemption on the part of the defendant Lakemount Sportsworld Inc. (“Lakemount”) or alternatively by a share purchase on the part of the personal plaintiffs?

[ 3 ] For the reasons set out below, summary judgment is granted in favour of the defendant.

Background Facts and Positions of the Parties:

[ 4 ] The parties have been involved in at least five separate court actions against one another. The personal plaintiffs are the majority shareholders of Lakemount. The defendant and the estate of his late father are the minority shareholders.

[ 5 ] On June 6, 2011, during the course of a cross examination in advance of a summary judgment motion in this action, and without the knowledge of their respective lawyers, the personal plaintiffs and the defendant met over lunch.

[ 6 ] A settlement was purportedly reached to resolve all outstanding actions between the parties. The fact of the settlement (but not its terms) was put onto the record in the cross-examination by counsel for the plaintiffs as follows:

The parties have advised their counsel that they have an agreement in principal [sic] in respect of the resolution of this case and all related proceedings subject to memorializing that agreement. And so we're agreed for the present purposes to adjourn this cross examination pending the execution of all of the documents that are required to conclude an agreement.

[ 7 ] The terms of the settlement were not described at that time.

[ 8 ] In his affidavit sworn July 29, 2011, Angelo Angelopoulos deposed at paragraph 21 that:

During a break of the cross-examination, Ed, myself and Mr. Cicchi discussed settlement. After considerable give and take, a settlement was reached between the plaintiffs and Mr. Cicchi to settle the Main Action and all other related proceedings, subject to memorializing that agreement on the following terms: (i) the plaintiffs in the main action would purchase the shares of Mr. Cicchi for $625,000; (ii) the plaintiffs would transfer their shares in Cookstown to Mr. Cicchi or as he may direct; and (iii) no costs were to be paid.

[ 9 ] The disagreement which has prevented the settlement from being concluded relates to the plaintiffs’ desire to complete the share purchase as a redemption of shares by Lakemount, rather than as a purchase of shares by Angelopoulos and D’Andrea.

[ 10 ] The defendant states that it was critical to his acceptance of the offer that the purchasers were to be the personal plaintiffs, so that the defendant and the estate of his father could have access to a capital gains exemption, thereby making the transaction effectively tax neutral to them. The result of avoiding of tax liability would be to increase the net value of the transaction to the defendant by between $175,000 and $200,000. If the purchase of the defendant’s shares in Lakemount was though a redemption by Lakemount itself, the funds received by the defendant would be in the form of a deemed dividend, not a capital gain, in which case the capital gains exemption would not apply.

[ 11 ] The capital gains issue was apparently in the mind of the defendant but was not conveyed verbally or in writing to the plaintiffs when the settlement was purportedly made.

[ 12 ] The plaintiffs’ position is that the settlement allowed for a share purchase in whatever form the plaintiffs chose. It was submitted that when Angelopoulos used the term “plaintiffs” in paragraph 21 of his affidavit, he was including the corporate plaintiff as well as the personal plaintiffs. The plaintiffs’ position therefore is that the actual purchaser or purchasers, amongst the plaintiffs, was ultimately to be determined by the plaintiffs themselves.

[ 13 ] Ed D’Andrea deposed in his affidavit of September 15, 2011, at paragraph 6 as follows:

My recollection of the discussion that transpired was that at no time did I precisely state who the share purchasers would be, but only that “we” would purchase the shares held by Mr. Cicchi and by his father's Estate. In the context of the action, “we” was shorthand for “the plaintiffs”. Certainly I had no thought or intention that the corporation, as a co-plaintiff, would be excluded as a potential purchaser, nor did I expressly say that it would be Mr. Angelopoulos and me who would purchase the shares.

[ 14 ] There is no evidence as to when the plaintiffs decided that Lakemount would be the purchaser of the shares, but in any event that part of the deal, that is, which plaintiff or plaintiffs would purchase the shares, was not communicated verbally or in writing when the settlement was purportedly made.

[ 15 ] Pursuant to the oral settlement agreement, counsel for the plaintiffs prepared Minutes of Settlement which were forwarded to the defendant. The Minutes contained the following provision at paragraph 3: “Upon payment of the Settlement Funds, Ernest B. Cicchi and The Estate of Gabriel Cicchi shall transfer all of the issued and outstanding shares in their respective names in Lakemount Sportsworld Inc. and 1059335 Ontario Inc. (the “Shares”) to Angelo Angelopoulos and Ed D’Andrea or as they may direct in writing.”

[ 16 ] The defendant denies that the agreement ever contained a term that the transfer of shares would be to the corporate plaintiff or that the “or as they may direct in writing” phrase which was added to the Minutes when drafted by the plaintiff allowed for such a designation. The defendant stated that he agreed to the inclusion of that language as a common courtesy. Corporate counsel for the defendant deposed that such a clause is normal so as to allow the purchaser to direct the transfer to a new shareholder or to a corporate holding company. However, as noted above, the defendant states that the share redemption by Lakemount was never contemplated by him due to the adverse tax consequences for him and his father's estate.

[ 17 ] The defendant reviewed the draft Minutes with counsel and signed on July 13, 2011.

[ 18 ] Additional draft documents including a share purchase agreement were received by the defendant from the solicitor for the plaintiffs on June 20. They were drafted in a manner consistent with the Minutes in that the share transfer was from the defendant and his father’s estate to the two personal plaintiffs. As well, the draft documents provided for an unequal division of the defendant’s shares [1] as between Angelopoulos and D’Andrea. The covering e-mail with the draft documents did note that they were being forwarded concurrently to the “client” for review and “remain subject to any comment that they may have”. There was no evidence of any similar qualification which accompanied the forwarding of the Minutes.

[ 19 ] All the draft documents including the Minutes were executed by the defendant and delivered in escrow to the plaintiffs’ solicitor on July 13.

[ 20 ] On July 14, the defendant’s solicitor inquired of the plaintiffs’ solicitor as to when the share transfer documents would be completed. He was advised that a revision was being made to provide for the share redemption by Lakemount. The solicitor for the defendant immediately objected and on July 15, requested the return of the documents previously sent in escrow. They were not returned and the plaintiffs signed the Minutes on July 19.

Jurisdiction:

[ 21 ] The plaintiff brought this motion pursuant to r. 49.09 (a) of the Rules of Civil Procedure [2] . I asked for and received submissions about the applicability of that rule in these circumstances, since rule 49 is built around formal offers to settle rather than oral settlement agreements where the offer and acceptance are not clear. Therefore r. 49.09(a) arguably relates specifically to enforcement of an accepted rule 49 offer with which one party fails to comply.

[ 22 ] The plaintiff submitted that rule 49.09 is a proper basis for the motion. I am not satisfied that the case law relied on by the plaintiff supports the plaintiff’s assertion. However, both parties submitted that I have jurisdiction to hear the motion, quite apart from the specific rule initially relied on by the plaintiffs.

[ 23 ] The Courts of Justice Act [3] , in section 97 , gives this court the jurisdiction to make binding declarations of right which could include declaring that a settlement was reached together with an order enforcing its terms. This was confirmed by the Ontario Court of Appeal in Donaghy v. Scotia Capital Inc./Scotia Capitaux Inc., 2009 ONCA 40. Rule 37.02(1) [5] relates to the general jurisdiction of a judge to hear any motion in a proceeding. Finally, both parties agreed that the motion could be treated as a rule 20 motion for summary judgement despite its initial framing as a motion under rule 49.

[ 24 ] The parties disagreed as to my options if I did not find in favour of the plaintiffs’ interpretation of the settlement. The plaintiffs urged that if there is a failure on their part to secure an order to enforce the settlement by the share redemption, the motion should simply be dismissed with the result that the litigation would continue. That position is consistent with the provisions of rule 49.09. The defendant urged that if the plaintiffs’ interpretation was not accepted but I was prepared to find that the agreement accorded with the defendant’s view, I should grant judgment for the defendant.

[ 25 ] The jurisdiction exists under r. 37.13(2)(a) [6] for the court to order in a proper case that a motion be converted into a motion for judgement. It is appropriate for me to do so in this case, given the position of the parties and the fact that on the issue of the settlement, all necessary evidence appears to have been placed before the court. In addition, all parties acknowledge the benefit of finality to the contentious disputes between them and the attendant costs of litigation. Rule 1.04(1) sets out the general principle that the rules should be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. This is a case where, to achieve that objective, I should exercise my jurisdiction to convert this motion into a motion for summary judgment and avoid continuing the litigation by granting judgment unless I am satisfied that there is a genuine issue requiring a trial.

Analysis and Conclusion:

[ 26 ] The parties submit that an agreement was reached on June 6. The parties had the mutual intention of creating a binding contract. An inquiry into the subjective intention or actual state of mind of the parties at the time is not a proper inquiry if the essential terms of the agreement are clear. This proposition is consistent with basic contract law principles and reflects the analysis of the Ontario Court of Appeal in Olivieri v. Sherman, 2007 ONCA 491. Therefore, the defendant’s unexpressed expectation about the tax treatment of the funds is not relevant.

[ 27 ] I find that there is no lack of clarity in the essential terms of the settlement agreement. All parties agree on those terms as set out in par. 21 of Angelopoulos’ affidavit of July 29, 2011. There is nothing in the material filed to suggest that any components were conditional in any respect. All that remained after the completion of the oral agreement on June 6 was for the terms to be memorialized in writing.

[ 28 ] The remaining issue relates to whether or not the settlement contemplated the purchase of shares by only the personal plaintiffs or whether it was open to the plaintiffs to have the purchase occur in the form of a redemption by Lakemount. What did they mean when they agreed that the plaintiffs would purchase the defendant’s shares?

[ 29 ] Since the agreement was an oral one, I am allowed to consider extrinsic evidence that sheds light on the meaning of the agreement, without constraint by the parole evidence rule that relates to written contracts.

[ 30 ] The draft documents prepared by the plaintiffs’ solicitor including the Minutes specifically contemplated a purchase by the personal plaintiffs. Not only were the documents drafted that way but as well the allocation of the defendant’s shares unequally as between Angelopoulos and D’Andrea indicate that the plaintiffs’ attention had been turned to the specifics of the anticipated share purchase by the personal plaintiffs.

[ 31 ] There is no suggestion that the phrase in the Minutes “or as they may direct in writing” was part of the original deal. There is no reference to such qualifying language in Mr. Angelopoulos’ affidavit. The defendant has explained his understanding of those additional words to be consistent with a share purchase by individuals or entities other than Lakemount, at the time he signed the Minutes.

[ 32 ] The signatures by or on behalf of the plaintiffs on the Minutes were applied after the disagreement about the nature of the share transfer had come to light. As result, I do not find the fact that the Minutes (including the phrase “or as they may direct in writing”) were signed by the plaintiffs to be helpful in deciding the terms of the agreement.

[ 33 ] Based on the timing of the change in the draft documents by the solicitor for the plaintiffs, I find that it is more likely than not that the redemption by Lakeview was an afterthought rather than the original intention of the plaintiffs when the deal was made. If it were otherwise, the redemption would have been reflected in the original draft of the Minutes, the draft share purchase agreement and the other related documents. Instead, all those documents were drafted assuming the purchase would be by the personal plaintiffs.

[ 34 ] The plaintiffs have submitted that Angelopoulos’ understanding of the settlement as set out in his affidavit allows for the share redemption by Lakemount. I note that both he and D’Andrea referred in their affidavits to the plural when referring to the plaintiffs as purchaser. Neither of them deposed to an intention at June 6 that Lakemount would be the share purchaser. It is a reasonable inference that the redemption by Lakemount alone was not contemplated by the plaintiffs at the time the settlement was made.

[ 35 ] I conclude from the foregoing that when the settlement was made on June 6 and subsequently until July 14, all parties anticipated a purchase of the defendant’s shares by the personal plaintiffs. There is no evidence to that point in support of an understanding that the purchase would be by Lakemount alone. Although both parties alleged “buyer’s remorse” against the other, it is unnecessary for me to characterize the motive behind what I find to be a change of mind by the plaintiffs as to the required method of completing the settlement.

[ 36 ] It is possible that regardless of the parties’ intentions on and after June 6, the undisputed terms of the settlement are broad enough to allow the plaintiffs to change their minds and direct the purchase as they see fit including by way of a share redemption on the part of Lakemount even though the plaintiffs were not candid in admitting to the change of mind.

[ 37 ] For that broad reading of the terms of settlement to be accepted, I would need to find that the actual agreement to purchase would be “by the plaintiffs or any one or more of them”, or words to that effect. There are no facts submitted by the plaintiffs contained in the affidavits filed that support such an understanding.

[ 38 ] The defendant argues that a “purchase” has a different meaning in a corporate transaction than a “share redemption”. There is no dispute that the two have different tax consequences. For their part, the plaintiffs say that a redemption is simply a form of purchase, which itself is the act of buying or acquiring property.

[ 39 ] I note that sections 30 through 32 of the Business Corporations Act [8] deal with the ability of a corporation to purchase its issued shares, including the potential set out in s. 31(1) (a) to do so in order to settle or compromise a debt or claim asserted by or against the corporation. In s. 32, the corporation is authorized to “purchase or redeem” shares. As a result, I conclude that the word “purchase” in the settlement agreement is broad enough to include the redemption that the plaintiffs’ seek.

[ 40 ] When the disagreement as to the share purchase came to light, counsel for the defendant suggested in writing to counsel for the plaintiffs on July 20 that it would be possible to complete the deal as anticipated by the defendant with no adverse tax consequences to the plaintiffs. He suggested that tax advice be sought by the plaintiffs on that issue. It is not relevant to my consideration to determine whether the defendant’s view was correct or not. However, I note that the response from counsel for the plaintiffs on July 21 was simply to rely on the plaintiffs’ position that “the shares of Lakemount were to be purchased in accordance with our clients’ direction.” Counsel for the defendants responded on July 22, again suggesting that the defendant was “willing to consider every reasonable option to structure the settlement to have a minimal tax impact to all parties”. The response from plaintiffs’ counsel of July 25 did not deal with the potential to resolve the dispute except to say: “our clients are not prepared to deviate from the rights accruing to them pursuant to the settlement agreement to purchase your clients’ shares as they may direct.”

[ 41 ] The potential tax consequence of the transaction for the defendant clearly has been the impediment to concluding the settlement. The plaintiffs, in their responses to the defendant noted above, disclosed no reason for insisting on the share redemption by Lakemount, but have chosen to simply rely on their understanding of the deal that allows them to direct the share transfer amongst them as they see fit. As well, the plaintiffs have not identified any extrinsic facts that support their view of the agreement.

[ 42 ] As a result of the foregoing, and in consideration of the admitted terms of the settlement as well as the surrounding facts, I am satisfied that the use of the plural when applied to the plaintiffs in the settlement terms does not allow for the share purchase by a singular plaintiff. Based on my comments above as to what appears to have been the common understanding by the parties on June 6, I do not agree that the change of mind to have Lakemount be the sole purchaser is consistent with the language of the agreement.

[ 43 ] It is clear that the parties have both “put their best foot forward” in their materials filed as is required in a summary judgment motion. I am satisfied that their having done so allows me to fully appreciate the issue. Likewise, I am satisfied that there remains no genuine issue for trial.

[ 44 ] For the foregoing reasons, I declare that a binding settlement was reached between the parties on June 6, 2011 and I order by way of enforcement of that settlement that the plaintiffs D’Andrea and Angelopoulos or their designates purchase all of the issued and outstanding shares of the defendant and the estate of Gabriel Cicchi in Lakemount for the sum of $625,000 and further that the parties execute whatever further documentation may be necessary to give effect to the share purchase including but not limited to a share purchase agreement, directors’ resolutions, receipts, transfers, assignments and resignations as officers and directors. I order that the Minutes of Settlement signed by the parties on July 13 and July 19, 2011 be given effect as representing the terms of settlement between the parties subject to the payment date set out in paragraph 7 therein being amended to be within 10 days of the date of this decision subject to any further order of this court or agreement of the parties.

Costs:

[ 45 ] If the parties are unable to resolve the issue of costs consensually, I am prepared to receive written submissions according to the following timetable: the defendant is to provide to the plaintiffs a bill of costs together with written submissions within two weeks of this date. The plaintiffs are then to provide to the defendant their submissions within a further two weeks. The submissions of the plaintiff and the defendant are then to be filed with the court together with any reply submissions by the defendants by no later than five weeks from this date.

Reid J.

Date: January 23, 2012

[1] Reference to the “defendant’s shares” includes the shares of his father’s estate.

[2] R.R.O. 1990, Reg. 194

[3] R.S.O. 1990, c. C.43

[4] Donaghy v. Scotia Capital Inc./Scotia Capitaux Inc., 2009 ONCA 40, [2009] O.J. No. 178 (ONCA), par. 11-16

[5] Supra. fn 3

[6] Ibid.

[7] Olivieri v. Sherman, 2007 ONCA 491, [2007] O.J. No. 2598 at par. 41 - 45

[8] R.S.O. 1990 c. B. 16