SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Western Larch Limited and Donald A. MacIver, Plaintiffs

AND:

Di Poce Management Limited, John Di Poce, Eastern Hemlock Limited, George Frankfort, Large Tooth Aspen Limited, Carmine Guglietti, Red Alder Limited, The Estate of Giovanni Guglietti, deceased, Fincourt Inc., Fincourt Partnership, Alpa Lumber Inc. and Alpa Partnership, Defendants

BEFORE: D. M. Brown J.

COUNSEL: T. O’Sullivan and S. Laubman, for the Plaintiffs/Responding Parties

P. Griffin and M. Lerner, for the Moving Party Defendants, Di Poce Management Limited, John Di Poce, Eastern Hemlock Limited, George Frankfort, Large Tooth Aspen Limited, Carmine Guglietti, Fincourt Inc., Fincourt Partnership, Alpa Lumber Inc. and Alpa Partnership

S. Kugler and D. Templer, for the Moving Party Defendants, Red Alder Limited and the Estate of Giovanni Guglietti, deceased

HEARD: May 3 and 4, 2012.

REASONS FOR DECISION

I. Motions for summary judgment in a shot-gun buy-out dispute

[1] The Alpa Partnership is engaged, through various corporations and partnerships, in the business of manufacturing and distributing wood products for the low-rise residential building industry in Ontario. A 1997 Amended and Restated Partnership Agreement, as amended (the “Agreement”), governed the affairs of the Partnership at the time this dispute arose.

[2] On December 15, 2009, three of the partners, the defendants Di Poce Management Limited, Eastern Hemlock Limited and Large Tooth Aspen Limited (collectively, the “Offeror Defendants”), relying on the Buy-Sell provision contained in Article 6 of the Agreement, delivered a Buy-Sell Offer (the “Offer”) to the other partner, the plaintiff, Western Larch Limited. Western Larch initially tried to find financing so that it could reverse the Offer and buy-out the interests of the Offeror Defendants. It was not successful in those efforts. By early February, 2010 Western Larch began to dispute the validity of the Offer. An attempt by Western Larch in May, 2010 to obtain an interlocutory injunction to restrain the closing of the Offer failed. The purchase transaction contained in the Offer closed in June, 2010 over the objection of Western Larch.

[3] In this action Western Larch seeks a declaration that the Offer was invalid and of no force and effect, damages of not less than $79 million for breach of fiduciary duty, breach of contract, breach of duty of good faith and oppression or, alternatively, an order requiring the Offeror Defendants to purchase the plaintiffs’ entire interest in Alpa “based on a valuation to be performed”. The plaintiffs’ claim is one for damages; the plaintiffs recognize that it would be impossible for them to return as a partner of Alpa Partnership.[^1]

[4] The defendants collectively have brought two summary judgment motions seeking the dismissal of the plaintiffs’ action.

[5] For the reasons set out below, I grant in full the Red Alder Defendants’ motion for summary judgment, and I grant in part the summary judgment motion of the other defendants and direct the trial of three breach of contract issues before me this coming Spring.

II. The Alpa Partnership

[6] Alpa Partnership and Alpa Lumber Inc. (“ALI”) were formed in 1978 through a leveraged buyout of the Reed Paper Ltd. subsidiary, Reed Lumber Co. At that time the plaintiff, Donald MacIver, was the President and CEO of Reed Paper.

[7] The business of the Partnership is carried on principally through the holding company, ALI, which, according to the Agreement, serves as agent for the Alpa Partnership and trustee for the partners. Including the Alpa Partnership and ALI, there were approximately 89 partnerships, sub-partnerships, limited partnerships and corporations owned, managed and controlled by the partners in the Alpa Partnership.

[8] Following its creation in 1978 the number of partners in the Partnership reached as high as thirteen. In 1986 the Partnership underwent a re-organization, in which MacIver played an active role, which reduced the number of partners to five. That restructuring initiative was completed, and the amended partnership agreement was in place, as of 1988. Over the years further amendments were made to the Agreement. It is the Agreement which describes the terms of the relationship between the partners and the operation of the partnership.

[9] Until September, 2009 the Alpa Partnership consisted of five partners: the plaintiff, Western Larch Limited, and the defendants, Di Poce Management Limited, Eastern Hemlock Limited, Large Tooth Aspen Limited and Red Alder Limited. The defendant, Fincourt Partnership, was a special non-voting partner that shared in the Partnership’s income.

[10] Each of those corporate partners was affiliated with individual shareholders who are also parties to these proceedings. Under the Agreement the “Partner Shareholder” for each “Partner” was as follows:

(i) Western Larch Limited - the plaintiff, Donald MacIver;

(ii) Di Poce Management Limited - the defendant, John Di Poce;

(iii) Eastern Hemlock Limited - the defendant, George Frankfort;

(iv) Large Tooth Aspen Limited - the defendant, Carmine Guglietti; and,

(v) Red Alder Limited - the late Giovanni Guglietti.

[11] As I will describe shortly, the death of Giovanni Guglietti in September, 2009 triggered certain obligations under the Agreement to buy-out the partnership interest of his company, Red Alder. Prior to Giovanni Guglietti’s death, the respective interests held by the partners in Alpa Partnership were as follows:

(i) Di Poce Management Limited: 31%;

(ii) Eastern Hemlock Limited: 19%;

(iii) Large Tooth Aspen Limited: 19%;

(iv) Red Alder Limited, 19%: and,

(v) Western Larch Limited: 12%.

[12] Turning to the operational responsibilities of the various partners, John Di Poce (“Di Poce”) served at all times as the President and CEO of Alpa Partnership and its affiliate entities and was the person responsible for all operational matters. George Frankfort (Eastern Hemlock) acted as a Vice-President, with day-to-day responsibility for the Home Lumber division and, Carmine Guglietti (Large Tooth Aspen) served as a Vice-President, with day-to-day responsibility for the Argo Lumber division.

[13] MacIver, who is a chartered accountant by profession, served as a senior officer of Alpa Partnership responsible for financial matters, including corporate affairs, tax planning and the periodic restructuring of the corporate organization. MacIver had an intimate knowledge of the financial dealings of the Partnership business, including its financial statements, profitability, corporate structure and partnership matters. There is no dispute that MacIver played little or no role in the day-to-day operational management of the Partnership.[^2]

[14] Prior to his death the late Giovanni Guglietti (Red Alder) was also a Vice-President of Alpa Partnership, running the Tamarack Lumber division. Since his death, his son, Riccardo Guglietti, has managed the Tamarack Lumber division.

III. A quick overview of the dispute

[15] Extensive evidence was filed on this summary judgment motion. Let me provide a thumbnail overview of the key events and the plaintiffs’ allegations, before reviewing the evidence in detail.

[16] Giovanni Guglietti died on September 4, 2009. His death triggered requirements found in Article 8 of the Agreement that his company, Red Alder, leave the Partnership in return for the payment of stipulated sums by the remaining partners. As the mechanics of that process unfolded, two things happened. First, Di Poce Management, Eastern Hemlock and Large Tooth Aspen concluded that efforts should be made to keep the Red Alder business within the partnership; Western Larch did not agree with that approach. Second, Di Poce Management, Eastern Hemlock and Large Tooth Aspen decided to invoke the buy-sell offer mechanism in Article 6 of the Agreement and make a shot-gun buy-sell offer to Western Larch.

[17] On December 11, 2010, Di Poce Management, Eastern Hemlock and Large Tooth Aspen concluded an agreement with Red Alder to bring it back into the Partnership, conditional upon a successful buy-out of Western Larch. A few days later, on December 15, 2010, Di Poce Management, Eastern Hemlock and Large Tooth Aspen delivered their shot-gun buy-sell Offer to Western Larch. In preparing the documents for the Red Alder agreement and the Offer, the Offeror Defendants received professional assistance from the Partnership’s corporate counsel, Minden Gross, as well as from the Partnership’s CFO, Orest Matkowsky.

[18] When Western Larch received the Offer, MacIver’s first reaction was to look for financing which would enable him to reverse the Offer and buy-out the interests of Di Poce Management, Eastern Hemlock and Large Tooth Aspen. To that end he placed advertisements in national newspapers and prepared solicitation packages which he sent out to some potential investors.

[19] His efforts were not successful. On February 12, 2010, a few days before the deadline for responding to the Offer, Western Larch commenced this action. When Western Larch did not respond to the Offer by the deadline, the Offeror Defendants took the position that it was deemed to have accepted the transaction contained in the Offer under which they would acquire Western Larch’s interests in the Partnership. In May Western Larch attempted to secure an injunction restraining the scheduled June closing of the purchase transaction. This Court dismissed the motion.

[20] The closing then took place on June 14, 2010. Although Western Larch did not participate in the closing and repeated its protest that the Offer was invalid, the Offeror Defendants closed the transaction relying on powers of attorney contained in the Agreement.

[21] Later in these Reasons I will describe in detail the claims advanced by the plaintiffs. At this point, in order to understand the review of the evidence which follows, let me draw on an overview description of the claims contained in an affidavit of MacIver:[^3]

Briefly, the causes of action that form the basis for this action can be summarized as follows:

(a) Breach of Contract – in failing to strictly comply with the terms of the Partnership Agreement, the Buy-Sell Offer was invalid. The Defendants have breached the Partnership Agreement by removing Western Larch and myself from the Alpa Group pursuant to an invalid Buy-Sell Offer. In addition, the manner in which the Defendants conducted themselves in respect of the Buy-Sell Offer and the Closing materially breached the Partnership Agreement;

(b) Breach of Fiduciary Duty and the Duty of Good Faith – in addition to removing Western Larch and me from the Alpa Partnership pursuant to an invalid Buy-Sell Offer and for less than the fair value of our interest, the Defendants breached their fiduciary duty and duty of good faith by (i) secretly negotiating the Buy-Sell Offer, the terms of an agreement with Red Alder and a new partnership agreement with third parties and without my knowledge or consent, (ii) suspending the Partnership Agreement without my knowledge or consent, as described herein, (iii) using the Partnership’s CFO and corporate counsel to assist with the secret planning, and (iv) withholding information and deliberately misleading me about the secret planning and arrangements until well after this litigation had commenced; and,

(c) Oppression – contrary to our expectations, Western Larch and I have been expelled as a shareholder, director and officer of the Alpa Group corporations, after more than 30 years’ involvement and in a manner that was not consistent with the agreement between myself and the Defendants. In order to expel Western Larch and me, the Offeror Defendants abused their roles as directors, officers and shareholders of ALI, Fincourt and the Alpa Group corporate entities, including by knowingly encouraging and relying on the assistance of employees and trusted counsel to carry out their plan.

IV. The evidence

[22] Let me now review the evidence of the parties material to the issues in dispute in this action.

A. The September, 2009 death of Giovanni Guglietti and Article 8 of the Agreement

[23] Giovanni Guglietti, the sole officer and director of Red Alder and its Partner Shareholder for purposes of the Agreement, died on September 4, 2009. His four sons, Silvio Guglietti, Riccardo Guglietti, Marco Guglietti and John Guglietti, served as executors of his estate. Riccardo Guglietti now is the sole director of Red Alder.

[24] Under the terms of the Agreement, a partner corporation could not remain as a partner after the death of its individual Partner Shareholder. Giovanni Guglietti’s death triggered the succession provisions in Article 8 of the Agreement. In simplified terms, Article 8 of the Agreement, as modified by a 2000 Insurance Amendment, mandated that, upon the death of any one of the individual partner shareholders, the entire interest of the partner’s corporation in Alpa would be redeemed and terminated in accordance with the following steps:

(i) The Partner would become a “Transitional Partner”, and its profit-sharing interest would be reduced to 0.05%, with an accompanying reduction in its voting rights;

(ii) Proceeds from a life insurance policy maintained by one of the Alpa corporate entities on the life of the Partner Shareholder would be paid to the related Transitional Partner. The payments would be notionally grossed up to an amount equivalent to 130% of the proceeds of the associated life insurance;

(iii) A “Termination Date” was to be established for the Transitional Partner’s interests tied, in part, to when the Transitional Partner made an election under Article 8.3 requiring the Partnership to pay it an Adjusted Preferential Allocation on Death. Such an election could not be made until 150 days after the death of the Partner Shareholder; and,

(iv) The Agreement, as amended by a 2000 Insurance Amendment, stipulated the amount of the insurance the Partnership would take out on the life of a Partner Shareholder and the amount of the Preferential Allocation on Death which would apply in the event of a specific Partner Shareholder. In the event the grossed up life insurance proceeds received were less than the Preferential Allocation on Death, then the Transitional Partner could give notice “to elect to require the Partnership to allocate for tax purposes and pay the Transitional Partner the Adjusted Preferential Allocation on Death”. The “Adjusted” Preferential Allocation on Death represented the difference between the Agreement-stipulated Preferential Allocation on Death and the amount of the life insurance proceeds received upon the death of a particular Partner Shareholder. That Adjusted amount would be paid out over 120 months, and the remaining partners would bear, in equal shares, financial responsibility for those payments;

(v) Finally, “immediately after the Termination Date” the Transitional Partner’s interest was to be redeemed by the Partnership for the price specified in section 8.2, which was $100 for the Partnership Interest and an aggregate price of $100 for the shares or other interests in Designated Entities.

[25] Turning to the specific events of this proceeding, when Giovanni Guglietti died in early September, 2010, Article 8 required the distribution of Red Alder’s 19% profit-sharing interest in Alpa Partnership in four equal shares of 4.75% to each of the remaining partners. Western Larch’s interest in the Partnership thereby increased from 12% to 16.75%.

[26] In exchange for the reduction of its partnership interest, under the Agreement Red Alder would receive the life insurance proceeds, together with the ten-year stream of payments under the Adjusted Preferential Allocation on Death. Section 8.3, as amended by the February 2000 Insurance Amendment to the Agreement, described how the Preferential Allocation on Death would work:

8.3 Preferential Allocation on Death

In the event that the proceeds of the Partnership Insurance on the life of the deceased Partner Shareholder received and paid over to the Transitional Partner within 150 days of the death of the Partner Shareholder multiplied by 1.3 is less than the Preferential Allocation on Death applicable to the Transitional Partner at the date of death of the deceased Partner Shareholder, then the Transitional Partner shall have the right at any time subsequent to such 150 day period by notice in writing to the Partnership (the “Notice”) to elect to require the Partnership to allocate for tax purposes and pay to the Transitional Partner the Adjusted Preferential Allocation on Death. If the Notice is given to the Partnership, the Partnership shall allocate for tax purposes and pay to the Transitional Partner the Adjusted Preferential Allocation on Death, all as hereinafter provided. In that regard, the parties acknowledge that given the quantum of the Partnership Insurance relative to the Preferential Allocations on Death and that the Partnership Agreement provides that the policies constituting the Partnership Insurance will not be renewed or replaced at the end of the term currently in effect, in the event of the death of a Partner Shareholder, it is likely that proceeds of the Partnership Insurance multiplied by 1.3 will be substantially less than the Preferential Allocation on Death then applicable... (emphasis added)

[27] The February 2000 Insurance Amendment to the Agreement fixed the amount of Partnership Insurance on the life of Giovanni Guglietti at U.S. $16.8 million. The 2000 Insurance Amendments altered section 1.13(n) of the Agreement to stipulate that the Preferential Allocation on Death in the case of the death of Giovanni Guglietti was the sum of $47.5 million. That amount was subject to change because section 13.1 of the Agreement required the Partners to meet every two years to agree on the amount of the Preferential Allocation, failing which the section set out the formula by which to calculate the Preferential Allocation. (The formula defined the value of all Partnership Interests and then applied the partner’s profit-sharing interest to that value to derive the amount of the Preferential Allocation.)

[28] The amendment to section 1.13(n) of the Agreement also went on to define the Adjusted Preferential Allocation on Death referred to in section 8.3 as meaning:

The Preferential Allocation on Death applicable to any particular Partner at the time of death of such Partner’s Related Partner Shareholder less an amount equal to 1.3 multiplied by the amount of the Partner Share of the Insurance received and paid to such Partner within 150 days of the death of such Partner Shareholder.

[29] As to the timing of the payment of the Preferential Allocation on Death, section 8.3 of the Agreement stated:

Upon receipt of the [150 day] Notice... the Partnership shall allocate and pay the Preferential Allocation on Death to the Transitional Partner in 120 equal, consecutive, monthly installments commencing 30 days following the date of receipt by the Partnership of the Notice...

The reductions in allocations of income to the remaining Partners resulting from the foregoing allocations to the Transitional Partner shall be borne by the remaining partners in equal shares. Each remaining Partner … shall severally guarantee an equal share of the foregoing payments.

B. The events of the fall of 2009 leading up to the buy-out Offer

[30] A few years before the death of Giovanni Guglietti the Partners had made efforts to put a succession plan in place. MacIver initially deposed that in 2006 the partners had reached agreement on such a plan. Frankfort disagreed, deposing that while the parties were close to reaching an agreement, consensus had not been reached on several matters and no amendment to the Agreement was ever signed.[^4] In his Second Affidavit MacIver stated that “the succession plan is not relevant to the Alpa Valuation and the legality of the Buy-Sell Offer”,[^5] and on cross-examination he agreed that no amended partnership agreement resulted from the 2006 discussions nor had he complained to Di Poce in writing that the latter had reneged on any 2006 agreement.[^6]

[31] George Frankfort, the controlling shareholder of Eastern Hemlock, deposed that prior to Giovanni’s death the partners had attempted to agree on a succession plan, but without success. According to Frankfort the relationship between MacIver and the other partners had been deteriorating, and Giovanni’s death on September 4, 2009 reinforced the need to address those issues, as well as reorganizing the partnership to meet an increasingly challenging business environment.

B.1 Frankfort and MacIver meet: September 25, 2009

[32] Following the death of Giovanni, at the request of Frankfort, a meeting was held on September 25, 2009 between MacIver and himself to discuss whether a solution could be reached to the impasse over succession planning. According to Frankfort, MacIver proposed a plan under which the interests of all partners would be equalized based on a $200 million valuation of Alpa. Frankfort told MacIver he thought it was unlikely Di Poce would agree to the proposal but, if Di Poce did, then Eastern Hemlock would participate. Mr. MacIver deposed that he did not suggest that $200 million was a fair valuation for Alpa, only that “strictly for tax purposes the valuation of the Alpa Group could not go below $200 million.”

[33] According to Frankfort, during that meeting MacIver asked why the other remaining partners had not yet delivered a buy-sell offer to Western Larch. MacIver denied that he had made such a statement. MacIver, however, acknowledged on cross-examination that he had been privy to previous discussions which suggested that he might be the recipient of a shot-gun buy/sell offer:

Q. …Did you ever have any discussion with John Di Poce in 2008 in which he indicated to you that he was intending to deliver, or the partners were intending to deliver a buy/sell offer to Western Larch?

A. I don’t recall about 2008; however, to help you I think I could state that Mr. Di Poce has suggested that the partners might deliver a buy/sell to me on a number of occasions over the last 10 years.

Q. All right.

A. Initially commencing in the aftermath of 1992.[^7]

B.2 Di Poce and MacIver meet: September, 2009

[34] Di Poce testified that following Giovanni Guglietti’s death he met with MacIver, telling MacIver that he wanted to keep the Guglietti boys in the Partnership because of the profitability of Red Alder’s Tamarack Lumber division. Di Poce stated that MacIver’s objection to that course of action prompted him to then talk with the other partners about arranging to buy-out Western Larch’s interest. Di Poce thought those discussions commenced about two weeks after Guglietti’s death.[^8]

[35] Regarding that meeting MacIver deposed:

Following Giovanni’s death, Di Poce told me that he wanted to make Giovanni’s children full partners and have them assume Red Alder’s 19% profit-sharing interest. I adamantly opposed this. I advised Di Poce of my view that Giovanni’s children should only be included in Alpa Partnership on the basis of the succession plan that had been agreed-to by the partners in 2006 with respect to all of the partners’ children but that Di Poce had subsequently reneged upon.

Di Poce became enraged when I told him of my opposition and told me “I will deal with you later.” He also told me he would rather be partnered with Giovanni’s children than with me. He now has taken steps towards that goal.[^9]

[36] Di Poce admitted that during the meeting he “definitely” told MacIver that “I will deal with you later”.[^10] MacIver admitted that as a result of the discussion at the meeting, he understood that Di Poce would pursue discussions with Giovanni’s children about playing a continuing role in the Partnership.[^11]

B.3 Work on the Buy-Out and the continuation of Red Alder in the Partnership

[37] Orest Matkowsky was the Partnership’s CFO. He testified that on September 16, 2009 he met with Frankfort, at the latter’s request, to discuss some possible financial scenarios for the Partnership, including the buy-out of the Western Larch partnership interest.[^12] The documentary evidence disclosed that as early as September 17, 2009, Matkowsky was working on a possible buy-out of Western Larch because on that day he emailed Frankfort a spread-sheet describing the numbers for a buy-out scenario.[^13]

[38] Notwithstanding that document, on cross-examination Frankfort maintained that he did not begin discussing a possible buy-out of Western Larch with his other partners until after his September 25 conversation with MacIver.[^14] The plaintiffs argued that Frankfort’s evidence on this point was not plausible. Pointing to a July 23, 2009 email from Stephen Witten - a lawyer at Minden Gross, the Partnership’s external counsel[^15] - to Frankfort which contained a summary of proposed terms for a buy-sell offer by Di Poce Management, Eastern Hemlock, Large Tooth Aspen and Red Alder for Western Larch’s interest in the Partnership, the plaintiffs contended that plans to trigger a shot-gun buy-sell offer against MacIver were afoot before Giovanni’s death. I find that Frankfort’s evidence on that point was inaccurate; in fact discussions about a possible buy-out of Western Larch had preceded Giovanni’s death. However, as will become apparent from the analysis which follows, that inaccuracy in Frankfort’s evidence was not material for the purposes of determining whether a genuine issue requiring a trial existed in respect of the claims alleged by the plaintiffs.

[39] Over the ensuing weeks Matkowsky sent Frankfort further spread-sheets: some described buy-out scenarios under which Red Alder did not re-join the Partnership; others had Red Alder buying back into the Partnership.

[40] On October 7, 2009 the remaining partners, including Western Larch, agreed on a preliminary Adjusted Preferential Allocation for Red Alder under Article 8 using estimated figures.

[41] By October discussions had commenced between Di Poce Management, Eastern Hemlock and Large Tooth Aspen, on the one hand, and the estate of Giovanni Guglietti, on the other, about a deal which would see Red Alder come back into the Partnership.[^16] Riccardo Guglietti (Red Alder) testified that Di Poce had approached him asking if Red Alder would be interested in becoming a partner in Alpa; Red Alder was interested in re-entering the Partnership if the circumstances were right.[^17]

[42] As described by Frankfort, the reason for this overture to Red Alder lay in the close business relationship between the family of Giovanni Guglietti and the customers of Tamarack Lumber, the Alpa division which he ran: “It makes good business sense for us to keep the late Mr. Guglietti’s family in Alpa Partnership. In order for this to occur, the family of the late Mr. Guglietti will be required to buy back into Alpa Partnership.”[^18]

[43] Matkowsky became involved in crunching the numbers for various scenarios for that possible deal. The discussions with Red Alder had progressed sufficiently that on November 30, 2009, Stephen Witten, of the Minden Gross firm, sent Robert Finlayson at Gowlings, who represented the Gugliettis, drafts of the proposed deal, including a Master Agreement and a restated Partnership Agreement. That a buy-sell offer would be made to Western Larch also was well known within the group, for Witten wrote:

I understand that the working timetable is to finalize these agreements in sufficient time to facilitate the delivery of a buy-sell offer on or about December 15, 2009.

Frankfort acknowledged that the documentation for the proposed deal with Red Alder was prepared by Witten, with input from the lawyers for Di Poce, Guglietti and himself.[^19]

[44] In the days that followed Witten sent further drafts of both the buy-sell offer and the proposed agreement with Red Alder to the Offering Defendants, Red Alder and their individual counsel.[^20]

B.4 The December 8 partnership meeting

[45] On December 8, 2009, the four remaining partners, including MacIver for Western Larch, met to confirm a value of all partnership interests in accordance with Article 13 for the purpose of determining the amount of the Preferential Allocation on Death payable to Red Alder. The partners confirmed a value for Alpa Partnership in the amount of $323,760,000, a value previously agreed to by the partners in February, 2008.

[46] Life insurance proceeds totaling $17,417,400 were paid to Red Alder by cheque dated December 8, 2009, following the partners’ meeting. Those proceeds did not fully satisfy Red Alder’s entitlement under the Agreement given the 2000 Insurance Amendment. MacIver deposed that at a meeting two days later:

I was told by Orest Matkowsky (“Matkowsky”), Alpa Group’s CFO, that he and Di Poce had met with Riccardo Guglietti (one of Giovanni’s sons) to deliver the cheque representing the full amount of the insurance proceeds. Matkowsky also told me that, at that meeting, Di Poce had agreed to delay the closing of the transfer of the Red Alder 19% interest to the four remaining partners of Alpa Partnership beyond the 15 days provided in the Partnership Agreement. Supposedly, the reason for the delay was that the holiday season was looming and everyone was busy.[^21]

[47] On a copy of the cheque MacIver wrote:

On December 10/09 AM Orest Matkowsky told DAM that he and JK had met with Ricardo Guglitetti, delivered this cheque and had agreed with him to delay the closing beyond the 15 days provided in the Partnership Agreement – i.e. to after Christmas because of the holidays & everybody was “busy”.

Matkowsky confirmed he had conveyed that information to MacIver. When asked on cross-examination why he had done so when he knew that the Offer would be delivered five days later, this exchange with Matkowsky ensued:

Q. And who suggested to you, if anyone, that you say that to Don?

A. I decided to say that.

Q. And you knew at the time it wasn't true?

A. We would have closed if Don had won.

Q. But there was no...

A. But at this point in time we were not ready to close.

Q. There was no plan to close. And in fact, the offer hadn't even been delivered yet, had it?

A. No, it had not.

Q. Given that you were CFO of a partnership which Mr. MacIver was still a partner in, did you have any qualms or any concerns about making that statement to Mr. MacIver at that time?

A. I had come to the conclusion that the succession planning was the most important thing for the partnership. I had also come to the conclusion that Mr. MacIver's continuance on equalizing, there would be no agreement between the partners, and that the buy/sell was the best thing for the partnership.

Q. So is the answer that you didn't have any qualms or concerns?

A. I did not. I was looking after the partnership.

Q. Of which he was a partner?

A. M'hmm.[^22]

B.5 The December 11 “Minden Gross Memo”/December 14 agreement

[48] Witten prepared a December 11 memorandum addressed to Di Poce Management, Eastern Hemlock, Large Tooth Aspen and Red Alder (the “Minden Gross Memo”), describing the proposed re-admittance of Red Alder into the Partnership and the planned Offer:

We have been asked to set out in memorandum form a proposal whereby RAL would continue as a “19%” partner of Alpa, EHL, LTAL and RAL would acquire the interest of Western Larch Limited and its Partner Group in Alpa and the Designated Entities through the exercise of the buy-sell provisions of the Alpa Partnership Agreement and thereafter the profit participation in Alpa would be equalized among the John Di Poce family, the George Frankfort family, the Giovanni Guglietti family and the Carmine Guglietti family (the “Proposal”). The Proposal would be conditional upon EHL, LTAL and RAL being successful in acquiring such interests from WLL and its Partner Group. (emphasis added)

The Memo was signed by the parties on December 14, 2009.

[49] The memo described in detail the buy-sell offer which three partners would make to Western Larch and the terms of Red Alder’s continuation in the Partnership in the event the others acquired Western Larch’s interest. Under the proposal, once Western Larch had accepted, or was deemed to have accepted, the offer to buy out its interest, Red Alder would become obligated to pay certain amounts to Di Poce Management, including reimbursing the deposit it had paid to Western Larch on the buy-out, and a further amount “which shall be used by DPML to complete its portion of the Buy-Sell Closing”. It is clear on the evidence that the Offeror Partners intended to continue Red Alder’s participation in the Partnership in the event that they acquired Western Larch’s interest under the Offer.

[50] Section 7 of the Minden Gross Memo was entitled “Suspension of Partnership Agreement”. It contained the following opening language:

In order to facilitate the continuation of RAL as a partner of the partnership as contemplated in paragraph 3 hereof, the undersigned hereby agree to suspend implementation of the provisions of the Partnership Agreement resulting from the death of Giovanni Guglietti except as may be reasonably required to facilitate the implementation of any of the transactions contemplated herein, until:

(a) if WLL accepts the Sale Offer, completion of the Sale Offer Closing;

(b) if WLL accepts or is deemed to have accepted the Purchase Offer or delivers a Conversion to Disability Election, Closing.

[51] Western Larch pleaded that the defendants wrongfully suspended the Agreement to its detriment. The following exchange took place during the cross-examination of Frankfort:

Q. And you agreed to in effect suspend the operation of certain portions of the Partnership Agreement, did you not?

A. Not that I know of.

Q. I'll take you to page 15 of the memorandum agreement.

A. Um-hmm.

Q. Paragraph 7, do you see that, "Suspension of Partnership Agreement" title?

A. Um-hmm.

Q. It reads: (paragraph read)…

So stopping there, you'll agree with me that Mr. MacIver's three partners, you, Mr. Di Poce and Carmine Guglietti, agreed to suspend the implementation of the partnership agreement as it related to Mr. Giovanni Guglietti's death?

A. Absolutely not. I don't agree with you. It'-s not what it says. This says only after June the 14th. This has nothing to do with the existing -- the existing Partnership Agreement is in force until the closing on June the 14^th whether we are the buyers or we are the sellers. This does not take place until after that, so the partnership Agreement stands.[^23]

Witten testified that the purpose of that section was to defer the formal closing of the redemption of the interest of Red Alder.[^24]

[52] On December 11 Witten also circulated an email describing the logistics of finalizing and delivering the Offer to Western Larch. On December 14 a draft 2010 Amended and Restated Alpa Partnership Agreement was prepared which reflected the potential buy-out of Western Larch and the re-admission of Red Alder.

B.6 The December 15, 2009 buy-out Offer

[53] On December 15, 2009, the Offeror Defendants - Di Poce Management, Eastern Hemlock and Large Tooth Aspen - delivered to Western Larch a Buy-Sell Offer pursuant to Article 6 of the Partnership Agreement. The Offer was signed by Messrs. Di Poce, Frankfort and Carmine Guglietti on behalf of their respective partner companies. Neither Red Alder nor the estate of Giovanni Guglietti were parties to the Offer. Western Larch was the only “Offeree”, and the Offer provided that, in the absence of any election, Western Larch would be deemed to accept the Purchase Offer pursuant to which it would be required to sell its interest in the Alpa Partnership to the Offeror Defendants.

[54] I will defer reviewing the terms of the Offer and the provisions of the Agreement enabling the making of a buy-sell offer until later in these Reasons.

[55] There is no dispute on the evidence that prior to the delivery of the Offer on December 15, 2009 the Offeror Defendants did not tell MacIver about the existence of the agreement with Red Alder to come back into the Partnership in the event Western Larch was bought out. There is also no dispute that Alpa’s corporate counsel, Witten, had a hand in drafting the Offer.[^25]

B.8 MacIver’s complaints about the role of Witten and Matkowsky

[56] The plaintiffs contended that Witten, by providing that kind of legal assistance to the Offeror Defendants and Red Alder, breached fiduciary duties which he owed to Western Larch and himself. MacIver had another complaint about Witten’s conduct during that period of time: MacIver believed that it was his responsibility to instruct Witten regarding the preparation of the transactional documents which would accompany the Adjusted Preferential Allocation on Death payments to Red Alder. At the time he felt that Witten was taking an inordinate amount of time to draft the necessary documents for his review. Following delivery of the Offer MacIver thought that Witten’s delay in producing those documents was part of a “charade” that the redemption of Red Alder’s interest would proceed while, in fact, the others “plotted” to remove Western Larch from the Partnership.

[57] Frankfort testified that the Partnership did not pay the accounts of Minden Gross for its work on the Offer; Eastern Hemlock, Di Poce Management and Large Tooth Aspen paid them.[^26]

C. Western Larch’s response to the Buy-Sell Offer

C.1 Western Larch attempts to find financing to buy-out the Offerors

[58] At the time he received the Offer MacIver knew that the timing provisions in Article 6 of the Agreement would operate to require a closing of the resulting transaction by mid-June, 2010.[^27] MacIver described his response to the Offer:

Forced to react to the Buy-Sell Offer, I attempted to solicit financing. My efforts included placing ads in Canada’s national newspapers. My partners complained about the content of these advertisements, however, I accurately described the circumstances created by the Buy-Sell Offer and did not disclose any confidential information regarding the Alpa Group. Furthermore, when Di Poce demanded that I ensure any third parties receiving information regarding Alpa Group enter into confidentiality agreements, I agreed to that request…

Despite my efforts, I was unable to solicit any interest in providing financial support that would enable me to even consider the purchase options set forth in the Buy-Sell Offer. As I have described above, my partners were well aware that I would be unable to locate financing even at their discounted valuation for the Partnership and Alpa Group.[^28]

[59] In his Second Affidavit MacIver deposed:

I felt compelled to set about exploring my options without delay. I did not immediately sit down with the Partnership Agreement to assess whether the Buy-Sell Offer was valid or retain legal advice for that purpose.[^29]

At the time the Offer was made, Western Larch had its own independent counsel from whom MacIver immediately sought advice.[^30]

[60] On December 22, 2009, David MacIver, the plaintiff’s son, and the plant manager of one of the Alpa companies, gave notice that he was taking a leave of absence: “I have been advised by Donald A. MacIver that my services will be required to assist in the completion of your project.”

[61] Starting on December 23, 2009, MacIver made written requests to the Partnership for financial and operating information.

[62] The half-page ads placed by MacIver in the Globe and Mail and National Post starting December 29, 2009 announcing a “rare opportunity” described the “circumstances” of his solicitation in the following terms:

Resulting from a buy-sell offer served on the partner responsible for financial matters by the 3 surviving operating partners aged 75, 72 and 67 (in 2010), subsequent to repetitive management/ownership succession disputes…

The ads disclosed the enterprise value of the Partnership, its EBITDA as a percentage of sales, fair market value and capital expenditures. The ad ran periodically until January 12, 2010 – five times in the Globe and Mail and about three times in the National Post.[^31]

[63] On December 23, prior to the first ad appearing, Di Poce had written to MacIver reminding him of his obligation to keep confidential Alpa business information and to protect such confidentiality in any discussions with third parties. On December 30, after the appearance of the first ad, Di Poce wrote to MacIver complaining that the advertisement had disclosed confidential business information.

[64] Before publishing the ads MacIver had sent courtesy copies to Alpa’s lenders. He spoke to one of the lenders advising that he intended to do his best to accept the sale offer:[^32] “I intend to accept the Sale Offer and am making all necessary efforts to be in a position to do so on Feb 12/2010.”[^33]

[65] On January 4, 2010, MacIver made further written requests to Alpa for financial information. As he wrote in one of those letters:

I refer to the Buy-Sell offer delivered to the undersigned on December 15, 2009, by my partners, and wish to make timely arrangements for my potential “replacement partners” or “potential buyers” to accomplish their due diligence requirements”.

On January 8 MacIver’s counsel, Walter Traub, followed-up with a letter to Matkowsky stating, in part:

We understand that our client has provided to you by courier and facsimile a letter dated January 4, 2009 setting out its requirements with respect to Due Diligence Arrangements necessary to allow it to exercise its rights with respect to the pending Buy-Sell Notice in a timely and prudent manner…

Please be advised that our client requires this information and due diligence arrangements in order to respond to the Buy-sell notice in an informed and business prudent manner…

Any further delay by you in provision of the requested information and due diligence requirements will materially adversely impact our client’s ability to respond to the Buy-Sell Notice in an informed and timely manner…

Any further delay or interference with our client’s rights to obtain the requested information shall severely impede our clients ability to deal with the Buy-Sell Notice and shall be considered a deliberate attempt to abrogate our client’s rights as they exist pursuant to the Partnership Agreement and in law.

[66] A detailed response was delivered by Alpa to MacIver on January 7, 2010.

[67] On January 14, 2010, Traub wrote to defendants’ counsel acknowledging the spirit of co-operation which had characterized the delivery of requested materials to the plaintiffs. Mr. Traub also wrote, in part:

Our client points out that should it choose either the sale or the purchase option in the buy sell notice, it also serves its best interest to protect such confidentiality…

Our client sincerely hopes that the spirit of cooperation will continue to be maintained so as to allow our respective clients to resolve their financial arrangements in a satisfactory fashion.

[68] Notwithstanding that these letters from his then counsel did not dispute the validity of the Offer and, indeed, called for conduct by the defendants enabling its performance, MacIver, in his Second Affidavit, deposed:

I first reviewed the Partnership Agreement in the context of the Buy-Sell Offer’s validity in early to mid-January 2010. This was the same time that I first received legal advice regarding the legality of the Buy-Sell Offer.

I find it impossible to reconcile that evidence with the statements contained in the letters from MacIver’s counsel of January 8 and 14, 2010. I do not accept MacIver’s evidence on that point.

[69] In the written material developed to attract potential financiers and buyers for the business, and in discussions with Alpa Partnership’s bankers, the plaintiffs confirmed their intention to reverse the Offer and accept the sale offer, thereby taking out the Offeror Defendants.[^34] For example, on December 28, 2009 MacIver sent a letter to OMERS Private Equity stating:

Alpa Lumber Group is a “Designer Cash Cow” producing taxable income and commensurate cash flow, which exits to owners via an exceptionally flexible, tax efficient structure, which would be attractive to entities with tax losses or other tax shelter for income. This may have relevance to your interests or as an investment.

That same day MacIver also wrote to ONEX/ONCAP stating, in part:

I intend to do my best to accept the buy/sell offer and close the entire transaction to ensure that the business and employees have a viable future free of ownership succession issues.

On his cross-examination MacIver described in some detail the information packages he had sent to interested investors.

[70] In dealing with prospective investors or Alpa’s lenders MacIver did not communicate to them any reservations about the validity of the Offer.[^35]

C.2 Western Larch attempts to enlist Eastern Hemlock in reversing the Offer

[71] On December 17, 2009 (2 days after delivery of the Buy-Sell Offer) Frankfort was contacted by MacIver’s son, David MacIver, requesting a meeting. David MacIver sought to enlist Frankfort and Eastern Hemlock Limited in joining with Western Larch in reversing the Buy-Sell Offer. According to Frankfort at no point during this meeting was it suggested by David MacIver, on behalf of the plaintiffs, that the Offer was invalid. David MacIver did not provide evidence on these motions.

C.3 Western Larch’s request for information from Alpa

[72] Let me set out, in a bit more detail, the evidence concerning MacIver’s requests for information following the receipt of the Offer. On January 4, 2010, MacIver wrote to Alpa about due diligence arrangements. Di Poce responded on January 7 indicating that Alpa intended “to take all reasonable steps to co-operate in facilitating appropriate due diligence access on a timely basis”, but required appropriate confidentiality arrangements for any third party access to information. Di Poce complained that advertisements placed by MacIver had misled readers into believing that Alpa was for sale, when it was not, and had disclosed confidential information. MacIver replied, denying that he had published any misleading information and confirmed that no confidential information would be disclosed without executed confidentiality agreements.

[73] On January 15, 2010, MacIver wrote to Matkowsky, Alpa’s CFO, asking for information about the expected date of closing for the Red Alder transaction. In addition, MacIver sought several things in respect of the debt referred to in Alternative 2 of the Offer: (i) copies of all the debt documents; (ii) an opinion to all partners from Minden Gross, Alpa’s counsel, as to whether the debt was properly included in the Alpa Valuation; (iii) a similar opinion from Matkowsky in his capacity as a CMA; and, (iv) “the official position of Alpa Partnership approved by the three Partners” on the issue. He added:

You will no doubt appreciate that it will be difficult, if not impossible to make a decision in respect of the Buy-Sell Offer in the absence of the information requested above.

[74] DiPoce replied on January 19, 2010, stating that MacIver was familiar with the debt arrangements because “you were the architect, both from a corporation point of view and an accounting point of view”:

For you to suggest that “it will be difficult, if not impossible to make a decision in respect of the Buy-Sell Offer in the absence of the information requested” is not credible.

Di Poce advised MacIver that it was not the role of Alpa or its CFO “to provide opinions to you in the circumstances” and he should “address any legal questions to your legal counsel, as I expect you have done.”

[75] Witten testified that in his view MacIver was entitled to see the Alpa debt instruments which he had requested.[^36]

[76] On January 19 Matkowsky replied to MacIver providing some information on the debt owing by Termpark.

[77] MacIver contended that that position taken by Di Poce on January 19 constituted a breach of fiduciary duties owed to him and a misuse by the Offering Partners of corporate assets for their own purposes:

Through his actions, Di Poce obstructed and delayed me from relying upon the very same personnel of the Partnership that he, Carmine and Frankfort relied upon for their own personal purposes in pursuing the Buy-Sell Offer. Indeed, it is my belief that Matkowsky assisted them in providing the financial data used for the Buy-Sell Offer as evidenced by his January 19, 2010 letter to me… In addition, it is my belief that Mr. Witten acted for Di Poce, Carmine and Frankfort in pursuing the Buy-Sell Offer notwithstanding the fact that he was the lawyer for the Partnership of which I was still a partner.[^37]

C.4 The plaintiffs’ treatment of the deposit cheques

[78] The Offeror Defendants delivered with the Offer the certified payment deposit cheques totaling $5,046,462 required by Article 6. The plaintiffs did not proceed to cash the cheques; instead, MacIver sealed them in an envelope which he placed in his safe.[^38] In an affidavit in support of the injunction he stated he was prepared to place the cheques in court or take such action as directed by the Court. In the result, the cheques were cashed as part of the June closing.

C.5 The Plaintiffs commence this action and fail to obtain an interlocutory injunction

[79] Under the terms of the Offer and Article 6.4 of the Agreement, Western Larch was required to advise the Offeror Defendants on or before February 13, 2010, by notice in writing, either that it had elected to purchase the Offeror Defendants’ interests in Alpa Partnership or, alternatively, had agreed to sell its interests in Alpa Partnership to the Offeror Defendants. Western Larch did not deliver any such notice.

[80] Western Larch had its counsel, Mr. O’Sullivan, contact Mr. Griffin, the lawyer for the Offeror Defendants, prior to February 12, 2010, to advise that the plaintiffs took the position that the Offer was invalid and they planned to commence an action. The plaintiffs issued their Statement of Claim in this action on February 12, 2010, the day before the notice delivery deadline.

[81] An exchange of correspondence then ensued between counsel. On February 16 Mr. Griffin advised that his clients deemed Western Larch to have accepted the Purchase Offer on February 13 and they intended to proceed with closing the transaction on June 14, 2010. Mr. O’Sullivan responded on February 17 stating that the Offeror Defendants’ expressed intent to proceed to close the Offer notwithstanding the commencement of the action was “remarkable” and the plaintiffs would seek injunctive relief. Mr. Griffin wrote on February 19 to advise that his clients intended to proceed with the closing.

[82] The plaintiffs thereupon moved for an injunction to restrain the closing. Cumming J. dismissed the motion by reasons dated May 27, 2010. He held that there was no serious issue to be tried with respect to the plaintiffs’ claim:

The Plaintiffs have a low threshold to meet in establishing that there is a serious issue to be tried. However, having considered all the evidence, on my preliminary assessment of the merits, there is not a serious issue to be tried with respect to the Plaintiffs’ claim. The evidentiary record sets forth a complex factual history, the Plaintiffs’ claim sets forth a veritable potpourri of allegations and asserted causes of action, and the Plaintiffs’ assertions were well articulated and argued in the extensive submissions by their counsel. Nevertheless, I do not see any serious issue for trial based on upon my preliminary assessment of the merits on this motion for an injunction.

The plaintiffs did not appeal from that decision.

D. The post-Offer events regarding Red Alder’s interest

[83] As noted, on December 15, 2010, the Offer was delivered. On February 2, 2010, Red Alder provided notice to the Partnership that it elected to require the Partnership to allocate for tax purposes and to pay to Red Alder the Adjusted Preferential Allocation on Death over 120 months.

[84] The remaining partners (except for Western Larch) decided not to complete the process of terminating Red Alder’s interest in the Partnership until they knew what would happen with the Offer. Frankfort explained their reasoning in the following portion of his cross-examination prior to the injunction hearing:

Q. You told me earlier that the partnership provisions that relate to the termination of the Red Alder interests had not been carried out, correct?

A . It hasn't closed.

Q. It hasn't closed. And why hasn't it closed?

A. I'm sorry, sir, I answered that as well for you. The partners felt that it was too complicated to close the transaction without knowing what's going to happen on the buy/sell, it was postponed until the buy/sell provision was whether we are owning the company or Mr. MacIver owns the company.[^39]

[85] As noted, MacIver wrote to Matkowsky and Di Poce on January 15, 2010, requesting information relating to “debt documents related to the amount due to Red Alder”. Di Poce responded by letter dated January 19, 2010, stating that the Red Alder closing had still not taken place:

Regarding the “debt documents related to the amount due to Red Alder”, closing has not occurred. As you know, payments are to commence 30 days after notice is received by Alpa from Red Alder requiring the Partnership to allocate for tax purposes and pay the “Adjusted Preferential Allocation on Death”. The notice can be given at any time subsequent to the 150 day period following Mr. Giovanni Guglietti’s death. I have not as yet received the notice. Once it is received, I would expect that preparation of documents would move forward at that time.

[86] In an affidavit he swore for use on the injunction MacIver deposed:

I believe that, at the time of the December 8, 2009 partners’ meeting, the Offeror Defendants were well aware, and failed to inform me, of:

their plan to deliver the Buy-Sell Offer to me and to discount the “Alpa Valuation” therein based on the amount the partners agreed would be due to Red Alder in the event the criteria set forth in section 8.3 was met;

their plan to keep Red Alder or Giovanni’s children as full participating partners in Alpa Partnership in the event they succeeded in forcibly removing me as a partner via the Buy-Sell Offer. Because of this plan, I do not believe the Offeror Defendants have any intention of paying $38,871,780 to Red Alder. I believe they will either cease any payments or recover any payments made when Red Alder or Giovanni’s children are made full partners.

I believe the Offeror Defendants’ have acted unfairly and unreasonably towards me, as their partner, by withholding this information and by seeking to mislead me into agreeing to pay $38,871,780 as a preferential allocation on death amount to Red Alder. Had I known the Offeror Defendants’ true intentions and had I been made aware of the information described above, I would not have agreed to pay any amount on account of a preferential allocation on death at the December 8, 2009 meeting.[^40]

[87] Monthly instalments of the Adjusted Preferential Allocation on Death were paid to Red Alder up until the closing of the Offer.[^41] Di Poce acknowledged on cross-examination that Red Alder’s partnership interest was never terminated[^42] and it was not intended that there would be a closing of the termination of its interest.[^43]

E. Closing of the Buy/Sell transaction

[88] On June 4, 2010, ten days prior to the scheduled closing of the buy-out transaction, the Offeror Defendants sent Western Larch the closing agenda and draft closing documents prepared by Minden Gross, including a statement of adjustments and a draft of the required promissory note. Witten concluded his letter, which was forwarded to Western Larch, by writing: “Counsel should also feel free to call with any questions or comments in the interim.”

[89] In a response of the same date plaintiffs’ counsel objected to the closing and advised that his clients would not participate. Counsel wrote that “certified cheques that will be delivered will be accepted for the sole purpose of mitigating the damages suffered by the plaintiffs as a result of the defendants’ conduct”.

[90] Counsel for the Offeror Defendants subsequently forwarded additional closing documents to plaintiffs’ counsel on June 9 and 11, 2010. The latter communication contained a June 11 letter from Witten advising that in light of the position of Western Larch that it would not participate in the closing, the Offeror Defendants “intend to utilize the power of attorney contained in the partnership agreement to execute the various closing documents on behalf of Western Larch…for purposes of completing the closing.”

[91] Until the day of closing the plaintiffs made no comments on the various packages of draft closing documents sent to them by the Offeror Defendants. On his cross-examination MacIver was asked why he did not comment on the draft closing documents. Here are the resulting exchanges:

Q. All right. And that would have come to your attention round about June the 4th or so of 2010?

A. Your letter did. I don't recall, particularly, reading the Minden Gross letter at that time simply because I regarded the entire closing process as invalid and unacceptable. So, it did not really matter what they had to say in their letter. The only letter that had any import was your own.

Q. Well, I am flattered. May I have this from you, then? Did you provide this material or instruct Mr. Laubman's firm to provide this material to Mr. Traub or any other corporate counsel who might play a role for Western Larch and yourself?

A. No.

Q. All right. Am I to understand that that is the case from the date that this letter came along, and with respect to the subsequent iterations that are in this brief, that the answer is the same? You didn't involve Mr. Traub?

A. That is correct.

Q. Or any other corporate counsel?

A. That is correct.[^44]

THE DEPONENT: Basically I was not all that interested from a practical point of view, in that whatever Alpa was going to do they were going to do. And I have no control over that. I might be able to complain via my counsel, but that is about it. Insofar as it being invalid and just totally improper as far as I was concerned, I did not need any advice from the Goldman firm, nor from the Lax O'Sullivan firm in that respect, and I basically said, "I have no interest in having any participation in this whatsoever and I am not interested particularly in what they are doing because it is all invalid."[^45]

Q. All right. You made no attempt to participate in the closing?

A. That is correct.

Q. All right. And that was a decision you made on behalf of yourself and Western Larch?

A. Yes.

Q. Secondly, you did ask the Goldman firm to play a role with respect to this documentation; is that correct? Directly or indirectly, either you or the Lax O'Sullivan firm on behalf of the plaintiffs? Yes or no?

MR. LAUBMAN: They were sent the documentation.

MR. GRIFFIN: What were they asked to do?

MR. LAUBMAN: They weren't asked to do anything, necessarily. They did review it, but they weren't asked to do anything with it specifically.[^46]

Q. All right. Did you receive any comments from the Goldman firm with respect to the closing documents at any time before the closing? In other words, whether directly or indirectly?

A. I don't believe so. I did raise with Lax O'Sullivan the terms of the notes that I was going to receive, which I looked at in a cursory way as a matter of curiosity. And objected to them as not being in compliance with the provisions of the partnership agreement. But other than that, I had no interest in anything that they were doing via misuse of my Power of Attorney.[^47]

Q. All right. Back to the cursory look department, just if I might for a moment, how about a cursory look in the June 4 materials at tab 1 at the pledge of interest? Did you look at that?

A. No.

Q. How about a cursory look at the sale indenture?

A. I reiterate, I did not look at these documents because they are invalid and improper.

Q. All right. So that would be the case for the entire package other than what you told me?

A. Exactly.[^48]

Q. All right. So, let's pop over to tab 3, then, which is an e-mail sent by me to your litigation counsel on June the 9th of 2010. And you will see there is a letter behind the e-mail that I have sent attaching a further letter from Minden Gross of June the 8th with further draft documents, and then dealing with the closing of the transaction. Obviously you received this on or about the date that it was sent?

A. I recall your letter. At this point in time the only letters I am paying any attention to are yours.

Q. Well, I am still flattered, but I have to get the evidence, sir. I take it, then, if you got the rest of it, it didn't matter a hoot to you?

A. Absolutely not.

Q. You agree with me?

A. Yes.

Q. And so, no cursory looks even at the stuff that is attached to the letter of June the 9^th that I sent to Mr. O'Sullivan and Mr. Laubman?

A. No interest in it.[^49]

[92] A little over an hour before the scheduled closing on June 14, 2010, plaintiffs’ counsel wrote that, without prejudice to Western Larch’s position that the Offer and closing were invalid, Western Larch objected to the form of the promissory note prepared for the closing:

[T]he promissory note your clients intend to deliver pursuant to the closing contains a restriction on negotiability and assignment that is not authorized by the Partnership Agreement. This term, as well as the reference to subsection 6.5(b)(iv) of the Partnership Agreement, are improper and would be unacceptable to our clients in any event.

On cross-examination MacIver was asked why his counsel communicated that position at the last minute:

Q. Do you have any explanation as to why it was that the letter that was sent dealing with the promissory notes which is at tab 5 of this brief, was sent an hour and ten minutes before the closing?

MR. LAUBMAN: That is when it was sent.

BY MR. GRIFFIN: Do you have any explanation as to why that was, Mr. MacIver?

A. No, I don't.[^50]

The Offeror Defendants took the position that the note complied with the Agreement.[^51]

[93] The buy-out transaction closed on June 14, 2010. Closing documents were executed on behalf of Western Larch pursuant to a power of attorney contained in section 6.11(e) of the Agreement. The Offeror Defendants informed MacIver they would make available copies of any of the closing documents he wished to receive.

[94] The Partnership provided some loans to enable the Offeror Partners to buy-out the Western Larch interest.[^52] MacIver acknowledged that Western Larch had received the payments under the promissory note as scheduled.[^53]

[95] As a result of the closing of the buy-out and the new partnership agreement made amongst Red Alder, Di Poce Management, Eastern Hemlock and Large Tooth, the respective interests in Alpa Partnership were as follows: Di Poce Management Limited, 31%; Eastern Hemlock Limited, 23%; Large Tooth Aspen Limited, 23%; and, Red Alder Limited, 23%.

V. Positions of the parties on these summary judgment motions

[96] Drawing on their factums and filed evidence, let me summarize the positions taken by the parties on these summary judgment motions.

A. Di Poce Management Defendants

[97] The Di Poce moving parties submitted that the real claims of the plaintiffs boiled down to three causes of action arising from the Offer and the defendants’ conduct in planning for the plaintiffs’ removal from Alpa Partnership:

(i) the Offer breached the terms of Article 6 to the Partnership Agreement for various reasons;

(ii) the defendants’ breach of fiduciary duty and duties of good faith owed to the plaintiffs by secretly planning for the plaintiffs’ removal from the partnership in part through enlisting the assistance of the partnership’s corporate counsel and Chief Financial Officer; and,

(iii) oppression, by thwarting the plaintiffs’ reasonable expectation of a continuing interest in the partnership, including the plaintiffs’ complaint that they reasonably expected their interest would not be redeemed pursuant to Article 6 of the Agreement unless it was used solely in circumstances of Mr. MacIver’s “mental instability” and that the plaintiffs would be paid “fair value” for their interests.

[98] The Di Poce defendants argued that no genuine issue requiring a trial existed in respect of any of these allegations:

(i) the Offer and the transaction mandated by it complied with the terms of the Agreement; in the days following the delivery of the Offer, the plaintiffs affirmed its validity; and the specified value for Alpa Partnership contained in the Buy-Sell Offer was self-regulating and did not require “fair value”. The mechanism for a shotgun offer within the Agreement permitted the offeror to craft an offer at a purchase price at which it is willing to be bought out; and,

(ii) no fiduciary duties are owed in the context of the delivery of a buy-sell offer and, in any event, any such duties or the reasonable expectations of the plaintiffs, must be measured against the contractual framework in which the parties placed themselves, namely the Agreement.

B. The Red Alder Defendants

[99] On their part the Red Alder defendants contended that claim raised no genuine issue requiring a trial against them for several reasons:

(i) the majority of allegations asserted and complaints made by the plaintiffs related to the validity of the Offer, to which neither Red Alder nor Guglietti was a party;

(ii) although plaintiffs complained that all of the defendants failed to provide them with information prior to the close of the Offer, the plaintiffs did not request any information from Red Alder or Guglietti;

(iii) there was no evidentiary or legal basis for the plaintiffs’ claim of breach of fiduciary duty, breach of the duty of good faith and oppression claims as against Red Alder and Guglietti in respect of the December 14, 2009 Agreement because Red Alder and the corporate co-defendants had every right to enter into the December 14, 2009 Agreement and had no obligation to disclose it to the plaintiffs; and,

(iv) there was no evidentiary or legal basis for the plaintiffs’ allegations with respect to the alleged misappropriation of lumber and other materials by Red Alder and Guglietti.

C. The Western Larch Plaintiffs

[100] The plaintiffs submitted that this case was not appropriate to be decided by way of summary judgment motions because it involved complex and disputed facts, a voluminous record, multiple material witnesses, numerous issues which turn on findings of credibility, various theories of liability, and examinations for discovery had yet to occur. It was the plaintiffs’ position that a full appreciation of the evidence could only come through viva voce evidence and the full narrative of a trial. In sum, the plaintiffs’ claims, arising from the defendants’ breaches of the duty of good faith, breached fiduciary duties and oppressive conduct, could only be properly resolved through the exercise of the discretion which resides in a trial judge.

VI. Principles governing summary judgment motions

[101] In Combined Air Mechanical Services Inc. v. Flesch,[^54] the Court of Appeal provided extensive guidance about the purpose of summary judgment motions and the circumstances in which summary judgment motions are appropriate. The Court of Appeal observed that while the amendments to Rule 20 were meant to introduce significant changes in the manner in which summary judgment motions are to be decided,[^55] the purpose of the new rule was to eliminate unnecessary trials, not to eliminate all trials.[^56] In each case the guiding consideration must be whether the summary judgment process, in the circumstances of a given case, will provide an appropriate means for effecting a fair and just resolution of the dispute before the court.[^57] The appropriateness of a summary judgment motion for the final determination of a claim on its merits, instead of proceeding to trial, depends on the nature of the issues posed and the evidence led by the parties.[^58]

[102] As the Court of Appeal noted, generally speaking there are three types of cases that are amenable to summary judgment: (i) cases where the parties agree that it is appropriate to determine an action by way of a motion for summary judgment; (ii) cases where the claims or defences are shown to be without merit in the sense that they have no chance of success; and, (iii) cases where the trial process is not required in the “interest of justice”.[^59]In deciding if the powers under Rule 20.04(2.1) should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?[^60]

[103] The full appreciation test requires a motion judge to do more than simply assess if he is capable of reading and interpreting all of the evidence that has been put before him; a motion judge is required to assess whether the attributes of the trial process are necessary to enable him to fully appreciate the evidence and the issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examines the record in chambers.[^61] Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record – as may be supplemented by the presentation of oral evidence under Rule 20.04(2.2) – the judge cannot be “satisfied” that the issues are appropriately resolved on a motion for summary judgment.[^62]

[104] Finally, the Court of Appeal provided guidance – although they stressed it was not exhaustive guidance – on the types of cases which would and would not be appropriate for a summary judgment motion. Summary judgment usually is not appropriate in cases calling for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record. By contrast, summary judgment might be appropriate in (i) document-driven cases with limited testimonial evidence, (ii) cases with limited contentious factual issues, and (iii) cases where the record can be supplemented to the requisite degree at the motion judge’s direction by hearing oral evidence on discrete issues.[^63]

[105] As will become apparent from the analysis I conduct in the balance of these Reasons, I have concluded that, in light of the issues in dispute in this action and the nature of the evidence filed on these motions, the attributes of the trial process are not necessary to enable me to fully appreciate the evidence and the issues posed by this case. In short, I conclude that most of the issues in this case are capable of fair adjudication by way of summary judgment motions. That said, I take strong exception to the moving parties resiling from the representations they made to Cumming J. to proceed to an expedited trial. However, I will deal with that matter after addressing the issues on their merits.

VII. Analysis: Validity of the Offer and breach of contract claims

A. The Plaintiffs’ claims

[106] In their Amended Statement of Claim the plaintiffs advanced several reasons why the Offer failed to comply with the provisions of the Agreement and therefore was of no force and effect:

(i) The Offer failed to contain an “Alpa Valuation” based on a fair valuation of Alpa’s value and failed to comply with the “specified formula” for the Alpa Valuation under section 6.2;

(ii) The Offer failed to distinguish properly between the “Purchase Offer” and the “Sale Offer”, “thereby creating uncertainty”;

(iii) The inclusion of two alternatives in the Offer offended the Agreement in several ways:

a. The Agreement did not permit the making of alternative offers;

b. One alternative under the Offer included all indebtedness owed to the vendor, thereby breaching section 6.11 of the Agreement which required the payment of any such indebtedness on closing;

c. The element of Alternative 2 stating that the purchase price was subject to dollar-for-dollar adjustments to reflect the actual indebtedness of Alpa relative to the estimate amount was not permitted by the Agreement;

d. The Alpa Valuation under the two alternatives is different after adjustments are applied; and,

(iv) The Offer did not comply with the net earnings allocation requirements of section 6.9.

[107] In their factum the plaintiffs summarized their breach of contract claims against the defendants as follows:

In the Buy-Sell Offer, the Offeror Defendants have committed the following breaches of contract:

(a) the Buy-Sell Offer failed to strictly comply with the terms of the Partnership Agreement;

(b) the Buy-Sell Offer failed to account for the Plaintiffs’ Retained Interest, and, instead, the Plaintiffs’ entire interest in the Alpa Partnership was eliminated upon closing;

(c) the operation of the Partnership Agreement was unilaterally suspended in relation to RAL; and

(d) the manner of closing failed to comply with the Partnership Agreement.[^64]

[108] Before considering each of these allegations, let me first turn to the law governing the interpretation of provisions in commercial contracts, including shotgun buy-sell provisions.

B. Governing legal principles

B.1 General principles of contract interpretation

[109] In a series of cases decided over the past few years the Court of Appeal has summarized the main principles which apply to the interpretation of commercial contracts.[^65] Specifically:

(i) a commercial contract is to be interpreted as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(ii) a court must determine the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they intended what they said;

(iii) a contract should be interpreted in a fashion which accords with sound commercial principles and good business sense, and that avoids a commercial absurdity;

(iv) where the language of a written contract is unambiguous, extrinsic evidence is not admissible to alter, vary, interpret, or contradict the words used in the contract;

(v) where a group of agreements essentially form components of one larger transaction, in the sense that each agreement is entered into on the faith of the others being executed and where it is intended that each agreement form part of a larger composite whole, assistance in the interpretation of any particular agreement may be drawn from the related agreements; and,

(vi) a court should interpret a commercial contract with regard to objective evidence of the circumstances underlying the negotiation of the contract, but without reference to the subjective intention of the parties.

[110] On this last point, a consideration of the context in which the written agreement was made is an integral part of the interpretative process, irrespective of whether any ambiguity exists in the text of the document. Courts must always have regard to the context, or what commonly is called the “factual matrix”, and to the objective evidence of the surrounding circumstances underlying the negotiations. That is because while the dictionary, grammatical or plain meaning of the words used by the parties will be important, and often decisive, in determining the meaning of the document, often the meaning of a document is derived not just from the words used, but also from the context or the circumstances in which the words were used. Understanding the meaning of words usually requires knowing the context in which the words were used. As a result, a court needs to read the text of a written agreement in the context of the circumstances as they existed when the agreement was created, including the facts which were known to or reasonably capable of being known by the parties when they entered into the written agreement, the genesis of the agreement, its purpose, and the commercial context in which the agreement was made.

[111] To sort out which facts fall within the rubric of the objective, factual matrix, and which stray over the line into the forbidden realm of the parties’ subjective intention, Doherty J.A., in Dumbrell v. The Regional Group of Companies Inc., adopted the following description provided by an English court:

In sharp contrast with civil legal systems the common law adopts a largely objective theory to the interpretation of contracts. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text, which they adopted. The aim is to determine the meaning of the contract against its objective contextual scene. By and large the objective approach to the question of construction serves the needs of commerce.[^66]

B.2 Specific interpretative principles applicable to shot-gun provisions

[112] Recently, the Court of Appeal considered the interpretation of a buy-sell shotgun provision in a commercial contract. After re-iterating the general principles of contractual interpretation, the Court of Appeal stated:

In this case, the court is confronted with the interpretation of a buy-sell provision in a commercial contract. I agree with the observation of the Alberta Court of Appeal in 942925 Alberta Ltd. v. Thompson, (2008), 2008 ABCA 81, 47 B.L.R. (4^th) 1, at para. 21 that “a shareholder must strictly comply with the terms of a shotgun clause [buy-sell] in order to obtain its benefit”.[^67]

Or, as put by a judge in another case: “A shotgun buy-sell is strong medicine. One takes it strictly in accordance with the prescription or not at all.”[^68]

[113] Of course, as with all general common law principles, their meaning only becomes clear when the particular facts which gave rise to them are known. Accordingly, in order to gain a practical understanding of what “strict compliance” means in the context of shot-gun provisions, I think it necessary to canvass the specific facts of the cases counsel placed before me.

Lachuk v. Poon[^69]

[114] In the case of Lachuk v. Poon a disagreement had arisen amongst the partners in a dental practice. The partnership agreement contained a shot-gun buy-sell provision. Following a meeting, most of the partners wrote to the applicant offering to buy his partnership interest on specified terms. The applicant treated this offer as one made under the contractual shotgun provision, and he attempted to reverse the offer and buy-out the respondents. When the respondents resisted, the applicant sought a declaration that a binding agreement existed between the parties. The Alberta Court of Queen’s Bench found that no such agreement existed because the respondents’ written offer had not engaged the shotgun provisions. The court found that by only including some of the mandatory provisions contained in the shotgun provision the respondents’ written offer did not engage the shot-gun buy-sell clause:

The extent to which the terms differ from those contemplated in the buy sell vary from insignificant to material.

Nor I am satisfied, did the Respondents have any intention of engaging the buy sell provision thereby risking the imposition of a five mile radius/five year non competition provision prescribed by that provision since it would have put at risk a number of other dental operations in which some of the Respondents hold an interest and which operate within those geographical constraints.

The October 27, 1992 letter purports to incorporate by reference certain of the provisions of the buy sell.

If the Respondents intended their offer to be an offer as contemplated by s. 30 then all the terms mandated by that provision would without more be part of the binding agreement.[^70]

Trimac Ltd. v. C-I-L Inc.[^71]

[115] Clause 16, a shot-gun provision in a shareholders’ agreement between Trimac Ltd. and C-I-L Inc., obliged the offeree “to either (i) unconditionally accept the offer, or (ii) purchase all the shareholdings of the Offeror at the price contained in the offer without conditions except as herein set out.” Trimac made an offer pursuant to the shot-gun provision to buy C-I-L’s shares in Tricil for $91 million. In response, C-I-L purported to reverse the offer by electing to purchase Trimac’s shares for “$91 million…or such other sum as, by that time, has been determined by the Supreme Court of Ontario to be the amount payable for such shares”. The Alberta Court of Queen’s Bench held that C-I-L’s reply did not constitute an offer to purchase Trimac’s shares that complied with the terms of the shotgun clause:

I am satisfied that C-I-L did not within the time limited by clause 16, purchase the shareholdings of Trimac at the price contained in the offer without conditions, and that Trimac is entitled to the shares upon payment of the purchase price in accordance with the terms of the buy-sell agreement.

In its letter of 25 March 1987, C-I-L did not say C-I-L elects to purchase at $91,000,000.00, the price contained in the offer. It said, in effect, C-I-L will purchase at $91,000,000.00 or such other sum as may be determined by the court.

In my view C-I-L equivocated. It tried to take the benefit of clause 16 but still preserve its hope to obtain Trimac's shares for a much lesser price than that specified in the offer. That, in my opinion, is not the type of response that entitles it to take the benefit of the operation of clause 16.[^72]

Hargreaves v. Charbonneau[^73]

[116] In this case the shareholders’ agreement contained a shot-gun buy-sell clause which mandated that the offered price per share “shall not be less than the fair market value determined by a member of the Canadian Institute of Chartered Business Valuators, a copy of which valuation shall accompany the offer”. The offerors had secured an opinion from a certified valuator which expressed the per share fair market value in terms of an upper range, a lower range and a mid-point valuation. Their offer used the mid-point valuation. The Court held that the offer did not comply with the pricing terms of the shotgun buy-sell provision because it did not use the upper range valuation:

It follows therefore that since the actual fair market value of the shares could be as high as $59,000 more than what was actually offered…the offer does not comply with Section 12 of the original Shareholders agreement.[^74]

942925 Alberta Ltd. v. Thompson[^75]

[117] The shotgun clause in a shareholders’ agreement provided that “a shareholder” might give notice of an offer to purchase/offer to sell all “Issued Shares”. Two shareholders delivered a joint notice to the other shareholder offering to purchase/sell all their Class A shares and, as well, offering to sell the Class E shares owned by one of the two offerors. The Alberta Court of Appeal held that the notice was invalid for two reasons: (i) the shotgun clause only authorized the giving of notice by one shareholder; joint offers were not permitted; and, (ii) the shotgun clause only applied to Class A shares; Class E shares did not fall within the provision.

Buttonwood Holdings Inc. v. Zeubear Investments Ltd.[^76]

[118] In this case the issue concerned not the compliance of the offer with the shotgun provision, but the compliance of the purported acceptance of the offer. The shotgun clause in the shareholders’ agreement required the notice of offer to contain “the terms and conditions, including the price to be paid for each Share, which shall apply to both the Sell Option and the Purchase Option…” The clause continued by providing:

Section 4.12(2) Minimum Terms.

Notwithstanding any other provision hereof ... the Terms shall be deemed to provide, inter alia, that:

(c) payment of the Purchase Price for all of the Shares to be purchased pursuant to this section shall be made by delivering on completion:

(i) at least 50.0% of the Purchase Price in cash or by certified cheque or bank draft; and

(ii) a promissory note for the balance of the Purchase Price, which promissory note shall…

[119] The Offerors’ notice required that the price payable for the shares “be paid in full on closing”. The Offeree, relying on the Minimum Terms provisions, accepted the offer, but stipulated that “the purchase price would be payable in full on [closing] by delivering (in accordance with the USA Section 4.12(2)(c)) at least 50% of the purchase price in cash and the balance by way of promissory note.” The Offerors took the position that the acceptance was not in accordance with the offers and therefore not valid.

[120] The Ontario Court of Appeal disagreed, interpreting the “Minimum Terms” section, s. 4.12(2), as a term of the offer. Although the offer did not include the minimum terms, the Court of Appeal held that by virtue of the language of section 4.12(2), those terms were deemed to be included in the offer. It was therefore open to the Offeree to accept the offer on the basis of those deemed terms.[^77]

Summary

[121] To summarize the cases placed before me, courts have held that shotgun buy-sell offers have not complied with the contractual provisions where they did not include all the terms the contracts mandated be included in an offer, did not use the price mechanism stipulated by the contract or were made by a group of offerors when the contract only permitted an offer by a single shareholder. As well, courts have held acceptances valid which complied with the express terms of the contractual provision, even though the offer had varied those minimum terms.

C. Consideration of the plaintiffs’ claims

C.1 The structure of Article 6

[122] Before considering each of the specific claims advanced by the plaintiffs concerning the failure by the Offeror Defendants to comply with Article 6, let me first describe, in general terms, the structure of Article 6. As I interpret the article, its sections can be grouped into the following categories:

Category 1

When a buy-sell offer could be made: Sections 6.1, “Right to Give a Buy-Sell Offer”, and 6.8, “Disability or Death”

Category 2

The terms of a buy-sell offer: Sections 6.2, “Terms of Buy-Sell Offer”, and 6.3, “Equal Purchases”

Category 3

The mandatory terms of payment for an accepted offer: Section 6.5, “Acceptance of Purchase Offer”

Category 4

Available offeree responses: Acceptance or conversion to disability election: Sections 6.4, “Response”, and 6.10, “Conversion to Disability Buy-Out”

Category 5

How to deal with acceptances in special circumstances: Sections 6.6, “Acceptance of Sale Offer”, and 6.7, “Contrary Acceptances”

Category 6

How net earnings were to be treated following delivery of an offer: Section 6.9, “Profit Allocations”

Category 7

Closing arrangements: Section 6.11, “Closing Arrangements”

Category 8

Buy-sell offers as a permitted means to expel a partner: Section 6.12, “No Expulsion Right”

[123] As can be seen, only some of the categories of contractual provisions deal with the issue of the formation of a binding agreement of purchase or sale – Categories 1, 2 and 3 address the making of an offer and its terms, while Category 4 concerns the acceptance of an offer. Categories 5, 6 and 7 deal not with the making of a binding agreement, but its performance – Categories 5 and 7 set out various closing arrangements, and Category 6 addresses the on-going allocation and draw upon net earnings between the delivery of an offer and its closing.

[124] As will become clear from my analysis below, it is important to keep in mind the function of each category of contractual term when considering the plaintiffs’ allegations. The plaintiffs contend, in effect, that the breach of any Article 6 term invalidates an offer. I do not agree. The breach of those categories of contractual terms dealing with the making of an offer would invalidate an offer, but the breach of terms falling in the performance categories would give rise to a claim for breach of a binding agreement of purchase or sale, not a claim that the binding agreement was invalid. With that overview, I turn now to the specific allegations advanced by the plaintiffs.

C.2 The availability of Article 6 in the circumstances

[125] The plaintiffs took the position that it was not open to the Offeror Defendants in the circumstances to make an Article 6 buy-sell offer and that Article 6 was only available where a partner became mentally unstable and erratic.

[126] Article 6 of the Agreement contained the “Buy-Sell Provisions” agreed to by the partners through a May, 1987 amendment to the Agreement.[^78] Section 6.1 specified when a Buy-Sell Offer could be made:

6.1 Right to Give a Buy-Sell Offer

Partners holding 60% or more of the profit-sharing interests in the Partnership (and after the rules set forth in subsection 2.4 (b) are to apply, the number of Partners provided for in clause (ii) of Section 2.4(b) irrespective of their profit-sharing interests in the Partnership) (in either case, the (Offerors"), may at any time deliver to all the remaining Partners (the “Offeree”) a notice in writing (the “Buy-Sell Offer”) including both (a) an offer to the Offerees (made by the Offerors in equal shares as provided in Section 6.3) to purchase all of the respective Interests (as hereinafter defined) of the Offerees and (b) an offer to sell to the Offerees (who shall purchase in equal shares as provided in Section 6.3) all of the Offerors’ respective Interests. Upon delivery of the Buy-Sell Offer, no further Buy-Sell Offers may be given pursuant to this Section 6.1 until the purchase(s) or sale(s) to be made as a result thereof is/are completed as hereinafter provided.

For purposes of this Article 6, "Interests" as used in relation to any Person (including any Offeror or Offeree) shall mean all of the interests of such Person in the Partnership and the Designated Entities whether directly or indirectly held and whether held through intermediary corporations or entities and whether held by other members of the Partner Group of such Person or otherwise. (emphasis added)

[127] Section 6.12 of the Agreement addressed the circumstances in which a partner could be expelled:

There will be no right to expel the Partners referred to in Section 2.1 nor to change their profit-sharing interests in the Partnership or in Designated Entities except as provided in Articles 6, 8, 9, 10 and 12.

Accordingly, by its terms the Agreement permitted the expulsion of a Partner in the circumstances of the making of a proper buy-sell offer.

[128] MacIver gave evidence that notwithstanding the clear language of Section 6.1 that a 60% majority of the partners could deliver a buy-sell offer “at any time”, resort to Article 6 was much more limited. MacIver deposed that at the inception of the Partnership, as well as during the restructuring that took place from 1986 to 1988, there existed a “shared understanding…that we would be together as partners until death.” He also deposed:

It was always the understanding as reflected in both the spirit and the culture of Alpa Partnership that all decision-making would be unanimous and that decisions would always be taken in the best interests of the partnership. Throughout my involvement with Alpa Partnership, I endeavoured to conduct myself in accordance with these principles.[^79]

He further deposed:

While the Buy-Sell Offer purports to have been delivered pursuant to Article 6 of the Partnership Agreement, Article 6 was included in the Partnership Agreement in 1988, at my specific request, only to address the scenario where a partner became mentally unstable and erratic, thereby threatening the Partnership’s ability to operate. By the clear understanding amongst the partners in 1988, the provision was never intended to be used as a means to expel a partner under any other circumstance nor has it been.

Article 9 of the Partnership Agreement, which addresses the disability of a partner, addresses only medical or physical infirmity that is either diagnosed by a physician or surgeon or that prevents the disabled partner from devoting his full time and attention to Alpa Partnership over an extended period of time. Article 6 was intended by the partners to address situations that fell short of the Article 9 criteria.[^80]

[129] MacIvor was cross-examined on this evidence:

Q. And you would agree with me that nowhere in either the 1987 document or the 1988 document does there appear any language about mentally erratic or unstable in respect of the buy/sell offer?

A. That is correct.

Q. Right. And help me with this, sir. Who was going to define what mentally erratic or unstable meant? Was it you?

A. I believe it would have been each of the partners other than the partner under discussion as being or thought to be or who might have been unstable and erratic.

Q. Well, what is mentally erratic? You tell me.

A. In respect of Alpa, I would suggest that a division manager who acts and takes actions which will lose money would be considered erratic behaviour, it might also be considered unstable behaviour. Anything that any partner or other person, for that matter, might do to – which resulted in or might result in damage to the business or was not otherwise considered to be in the best interests of the partnership.

Q. I see. You'd agree with me that in 1987 you already had a disability provision in Amendment No. 17, right? Do you want to look at it?

A. I would, yeah.

Q. Look at tab 3 of Exhibit 1 which is the other book, sir. Page 6, you'd agree with me there was a disability buy-out provision in there? Page 6 of the document, sir.

A. Yes, disability and retirement is in there.[^81]

As well:

Q. Fair enough. So the more recent events in 1997, which is a mere 13 years ago as opposed to 23 years ago, there was no conversation about the mentally erratic or unstable partner point when you entered into and signed the 1997 Partnership Agreement, correct?

A. That was because there was no change from agreement to agreement in the terms.

Q. Now answer my question, sir. There was no conversation of the type you attribute in paragraph 34 in 1997, correct?

A. Not at that time. Not at that time.

Q. Right. And would you also agree with me that the first time this is raised at any time between December 15 and the present is when it showed up in your very first affidavit in your first motion record, correct? Where you attempt to raise that argument?

A. I would have raised it, yes, at the start.

Q. At the start of this litigation?

A. Yes, that's correct.[^82]

[130] Frankfort deposed that MacIver’s understanding that all would remain partners until death was at odds with that of the individual shareholders and also contradicted the express terms of the Agreement. Further, while often decisions were made on a unanimous basis, specific terms in the Agreement contemplated that such a consensus would not be required. Frankfort denied that any agreement existed under which expulsion from the Partnership was available only if a partner became mentally unstable and erratic:

Before reading the Statement of Claim in this action, I had never heard such a proposition suggested by [MacIver] or anyone else associated with the partners of Alpa Partnership.[^83]

In Frankfort’s view Article 6.12 of the Agreement reflected the partners’ agreement and permitted expulsion via the buy-sell offer mechanism.

[131] I do not accept the plaintiffs’ assertion that a Partner could only resort to the buy-sell mechanism contained in Article 6 in the event another Partner became mentally unstable and erratic. First, the plaintiffs’ assertion contradicts the plain and unambiguous language of Article 6 – section 6.1 permitted the delivery of notice “at any time” - and section 6.12 clearly spelled out that the expulsion of a partner could occur under Article 6.

[132] Second, the Agreement contained a provision which specifically addressed the possibility of a Partner becoming disabled. Article 9 dealt with “Disability”, and section 9.1 stated: “A Partner Shareholder shall be considered disabled if he is unable to devote his full time and attention to the Partnership’s business for more than 6 consecutive months or more than 9 months in any 12-month period.” Why would Article 6 only be available in the event of disability, as contended by MacIver, if Article 9 already made provision for such an eventuality? MacIver’s evidence on this point made no sense.

[133] Third, that Article 9, and not Article 6, was the disability provision was clearly agreed to by all Partners because section 6.10 of the Agreement allowed an offeree, instead of responding to a buy-sell offer, to elect to be deemed disabled:

In lieu of responding to a Buy-Sell Offer as provided in Section 6.4, an Offeree may elect, by notice in writing to the Offerors, delivered within 60 days of its receipt of the Buy-Sell Offer, to have its Partner Shareholder deemed disabled as of the last day of the month in which such election is made. In such event the Offeree shall not be deemed to have accepted the Purchase Offer and the provisions of Article 9 shall apply mutatis mutandis.

[134] Finally, even if during the 1986 to 1988 period MacIver thought, for whatever reason, that some limitation existed on the right of a partner to invoke the buy-sell provision, he agreed to supersede that understanding with the express terms of Article 6 by signing the Agreement on May 27, 1997.

[135] I have no hesitation in weighing and rejecting MacIver’s evidence on this point without the benefit of a trial narrative. His bald assertion flies in the face of the clear terms of a detailed Agreement which he signed. There is no doubt that MacIver was, and remains, an experienced, sophisticated businessman. The evidence leaves no doubt that he knew what he was signing back in 1997 when he signed the Agreement. He is bound by its terms. Accordingly, I find that it was open to the Offeror Defendants under Article 6 to make their Offer.

C.3 The Offer and its terms

[136] Article 6 of the Agreement contained three provisions which specified the terms of any buy-sell offer: section 6.2, dealing with “Terms of Buy-Sell Offer”, section 6.3, “Equal Purchases”, and section 6.5, “Acceptance of Purchase Offer”, which identified “Designated Terms”. The material portions of Sections 6.2 and 6.5 read as follows:

6.2 Terms of Buy-Sell Offer

The Buy-sell Offer deliver to each of the Offerees shall be signed by the Offerors and shall contain or be accompanied by the following:

(a) specification of a value for the Partnership and the Designated Entities (hereinafter the “Alpa Valuation”);

(b) an offer by the Offerors (the “Purchase Offer”) to purchase in equal shares the Interests of each Offeree for purchase prices to be paid to that Offeree which are in equal amounts and which in the aggregate total an amount equal to the Alpa Valuation multiplied by a percentage equal to the profit-sharing interest in the Partnership of that Offeree;

(c) an offer by the Offerors (the “Sale Offer”) to sell to each of the Offerees in equal shares the interests of each Offeror for a sale price which in the case of each Offeree shall be an equal amount and which in the aggregate shall total an amount equal to the Alpa Valuation multiplied by a percentage equal to the profit-sharing interest in the Partnership of that Offeror; and,

(d) certified cheques payable to each respective Offeree in an amount equal to 15% of the respective purchase prices offered to it in the Purchase Offer, as deposits on account of such purchase prices.

6.5 Acceptance of Purchase Offer

In the event that all Offerees accept the Purchase Offer, the transactions of purchase and sale shall be completed in accordance with the provisions of Section 6.11 one hundred and twenty days following the date the Buy-Sell Offer was accepted and the purchase prices shall be satisfied as follows:

(a) a further 35% of each purchase price shall be paid by each purchaser to each vendor on closing by certified cheque…

(b) the remaining 50% balance of each respective purchase price shall be satisfied by the purchaser delivering its promissory note payable to the order of such vendor in a principal amount equal to that balance, which promissory note shall have the following attributes:

(All of the foregoing terms of payment and the terms of the promissory notes as referred to in this Section 6.5 are hereinafter collectively referred to as the "Designated Terms").

[137] The Offer made by Di Poce Management, Eastern Hemlock and Large Tooth Aspen to Western Larch contained the following key financial terms:

Pursuant to Article 6 of the Partnership Agreement and subject to the terms and conditions set forth below, the undersigned hereby offer as follows:

The Offer

Alternative 1:

For purposes of this Alternative 1 of this Buy-Sell Offer, the Alpa Valuation is $258,871,780, adjusted in relation to each Offeror and Offeree by that portion of the RAL Preferential Allocation on Death by which such Offeror’s or Offeree's allocations of income would otherwise be reduced if such Offeror or Offeree continued as a partner of Alpa throughout the period that such Preferential Allocation is to be allocated and paid pursuant to the Partnership Agreement, such that:

a/ the undersigned hereby offer to purchase from you (the “Purchase Offer”) in equal shares your Interests for a purchase price of $33,643,078 in the aggregate and $11,214,360 in relation to each of the undersigned, calculated as follows:

and

b/ the undersigned hereby offer to sell to you (the “Sale Offer”) the Interests of each of the undersigned for a sale price of $186,356,922 in the aggregate, which in relation to the Di Poce Management Limited (“DPML”) is $82,828,716, in relation to Eastern Hemlock Limited (“EHL”) is $51,764,103 and in relation to Large Tooth Aspen Limited (“LTAL”) is $51,764,103, all calculated as follows:

in either case, adjusted on closing for the vendor(s) portion of any payments made to RAL prior to closing on account of the RAL Preferential Allocation on Death (i.e. 25% per vendor of each such payment made to RAL), which adjustment will be added dollar for dollar to the portion of the purchase price otherwise payable on closing and which purchase price for the Interests is inclusive of all indebtedness owing to the vendor(s) by the Partnership or any Designated Entity including by Termcourt Inc., Termpark Inc., Roycourt Inc. and Sugar Maple Holdings (RHRW) Inc., so that no consideration over and above the purchase price set in this Alternative 1 Buy-Sell Offer shall be payable in respect of the assignment and transfer of such indebtedness.

And:

Alternative 2:

For purposes of this Alternative 2 of this Buy-Sell Offer, the Alpa Valuation is $258,871,780, adjusted in relation to each Offeror and Offeree by subtracting that portion of the RAL Preferential Allocation on Death by which such Offeror’s or Offeree’s allocations of income would otherwise be reduced if such Offeror or Offeree continued as a partner of Alpa throughout the period that such Preferential Allocation is to be allocated and paid pursuant to the Partnership Agreement and further adjusted in relation to each Offeror and Offeree by subtracting any indebtedness owing to the vendor(s) by the Partnership or any Designated Entity other than by Termcourt Inc., but for greater certainty, including indebtedness owing by Termpark Inc., Roycourt Inc. and Sugar Maple Holdings (RHRW) Inc. (which indebtedness owing to all of the Partners excluding the Termcourt Debt is assumed to be $31,693,927 in the aggregate on closing for purposes of the calculations set out below and the vendor(s)’ share of the actual amount owing to be paid in full on closing in accordance with subsection 6.11(a) of the Partnership Agreement), such that:

a/ the undersigned hereby offer to purchase from you (the “Purchase Offer”) in equal shares the Interests for a purchase price of $28,334,346 in the aggregate and $9,444,782 in relation to each of the undersigned, calculated as follows:

b/ the undersigned hereby offer to sell to you (the “Sale Offer”) the Interests of each of the undersigned for a sale price of $159,971,727 in the aggregate, which in relation to DPML is $71,498,137 and in relation to EHL and LTAL is $44,236,795, all calculated as follows:

in either case, adjusted on closing for the vendor(s) portion of any payments made to RAL prior to closing on account of the RAL Preferential Allocation on Death (i.e. 25% per vendor of each such payment made to RAL), which adjustment will be added dollar for dollar to the portion of the purchase price otherwise payable on closing and further adjusted on closing for the difference, if any, between the actual indebtedness owing to the vendor(s) on closing and the amounts set in the calculations above (such actual amount owing to be paid to the vendor(s) in full on closing in accordance with subsection 6.11(a) of the Partnership Agreement), which adjustment if such indebtedness is higher than the amount set out in the calculations above, will reduce the purchase price dollar for dollar and which adjustment if such indebtedness is lower than the amount set out in the calculations above, will increase the purchase price dollar for dollar and which purchase price for the Interests is inclusive of any Termcourt Debt owing to the the vendor(s) so that no consideration over and above the purchase price set out in this Buy-Sell Offer shall be payable in respect of the assignment and transfer such Termcourt Debt.

You shall have the option of electing to proceed under either Alternative 1 or Alternative 2 above, provided such election is so indicated in writing in the notice to be delivered by you pursuant to section 6.4 of the Partnership Agreement. If no such election is indicated as aforesaid then you shall be deemed conclusively to have elected to proceed under Alternative 1 and if you fail to accept either the Purchase Offer or the Sale Offer, then subject to section 6.10 of the Partnership Agreement, you shall be deemed conclusively to have elected to proceed under Alternative 1 of the Purchase Offer. (emphasis added)

C.4 Lack of fair value

[138] The plaintiffs alleged that the Offer failed to comply with the Agreement because the Alpa Valuation used by the Offerors - $258,871,780 – was not the fair market value of the Partnership. As put by MacIver in his Amended Affidavit:

Section 6.2 of the Partnership Agreement requires the Buy-Sell Offer to provide “a value for the Partnership and the Designated Entities (hereinafter the ‘Alpa Valuation’)”. Accordingly, the Alpa Valuation in a buy-sell offer must represent a fair valuation of Alpa’s value by the offering partners. Nevertheless, as I discuss in further detail below, the “Alpa Valuation” in the Buy-Sell Offer is not based on an independent or fair valuation of Alpa and is significantly less than the fair value for the Partnership as recently confirmed by the partners.[^84]

[139] MacIver further deposed that the Alpa Valuation of $258,871,780 (i) was approximately $65 million less than the value for the Alpa Partnership confirmed by the partners at the December 8, 2009 meeting for the purpose of calculating Red Alder’s Preferential Allocation, (ii) was not supported by any calculation or back-up, and (iii) represented a “steep discount” of Western Larch’s partnership interest. MacIver estimated the fair market value of Alpa Partnership, including fixed assets, at in excess of $350 million. He deposed that during the previous five years Western Larch had received approximately $6.5 million a year in pre-tax earnings from Alpa Partnership, based on its 12% interest. Because on the death of Giovanni Guglietti Western Larch’s interest increased to 16.75%, MacIver deposed that an offer of approximately $28 million could not represent fair value for Western Larch’s entire partnership interest. On cross-examination MacIver testified:

Q. And I'm suggesting to you that what you're really saying is that you've got to view it as a fair valuation before you would act on it. Isn't that what you're saying?

A. Yes.[^85]

[140] MacIver also stated that in 2005 the partners had agreed to offer to sell Alpa Partnership to an interested third party for $700 million. Although that transaction did not proceed, MacIver thought it “inconceivable” that the value of the partnership was more than 2.5 times greater a mere four to five years ago.[^86] Frankfort confirmed that some discussions took place in 2005 regarding an offer to sell Alpa, but he deposed that the matter never had proceeded beyond very preliminary discussions, nor did the interested third party ever agree to pay $700 million.[^87] Employing the formula used in Article 13 of the Agreement, in April, 2010 Frankfort ventured that the value of the partnership interests likely was about $158 million,[^88] a value well below the Alpa Valuation used for the Offer. MacIver disputed that estimate.[^89]

[141] Frankfort explained how the Offeror Partners arrived at the Alpa Valuation number:

Q. Mr. Frankfort, I'd like to take you to the buy/sell offer which is found at tab M of the motion record, and in that you have Alpa valuation of, if I take you to page 2, $258,871,780, correct?

A. Yes.

Q. Can you tell me how you and Mr. Matkowsky arrived at this number?

A. It wasn't Mr. Matkowsky.

Q. Who was it?

A. It was I. It was me.

Q. How did you arrive at the number?

A. It wasn't a sophisticated calculation that you might think. It's a number that --

Q. I might not think.

A. It's the number that I felt was the right number, it's the number that I felt that I would be happy with if it was returned, reversed, that's it.

Q. And how did you come to -- it's a very -- it's not exactly a round number.

A. Yes, it is.

Q. $258,871,780?

A. Sorry, the $220 million is an absolute round number, and then when you work it backwards with the 38 million, that's how I come to 258.[^90]

[142] While maintaining that the Offer price represented a steep discount from fair value, at the same time MacIver deposed that when the other partners made the Offer they were well aware “that I had no realistic possibility of securing financing to enable me to seriously pursue the offer to purchase their interests given the size of the contemplated transaction, the limited time available and the lack of cooperation in facilitating due diligence. Alpa Partnership has grown to such an extent over the past two decades that it is no longer feasible for a single minority partner to buy-out the collective interests of the remaining partners, even for a discounted price.”[^91]

[143] The plaintiffs filed an “opinion of value” prepared by KPMG LLP which opined that, as at December 15, 2009, the en bloc value of Alpa was “in the order of $371.068 million, of which $348.868 million accrued to the Partners”, and that the fair value of Western Larch’s 16.75% interest in Alpa was “in the order of $58.435 million.” The author of the opinion, Susan Glass, was cross-examined.[^92] Matkowsky filed an affidavit contending that the Glass opinion contained several material factual errors.

[144] In his reasons dismissing the plaintiffs’ motion for an interlocutory injunction Cumming J. stated:

Article 6.2 does not set forth a fixed, objective formula for the valuation of Alpa Partnership as a prerequisite for the determination of the price to be offered. Rather, it only requires the “specification of a value” given by the Offeror Defendants of the Alpa Partnership and this is purposeful given the offer will necessarily be described in terms of fractional percentages reflecting the differing profit sharing interests of the partners. There is no reference to “fair” value in Article 6. Fair value is what the market will pay and the price is determined simply by the market created by the operation of the Buy-Sell Offer.[^93]

I agree. Article 6 was a carefully drafted shotgun buy-sell clause which detailed the mechanism by which a majority of the partners could attempt to expel all the remaining partners. Section 6.2 simply required the specification of “a value” for “the Partnership and the Designated Entities” – not fair value, but “a” value.[^94] The Offer did so. That the value offered in fact would be reasonable in the circumstances, Article 6 left to the internal discipline of the shotgun buy-sell mechanism – the value selected by the offeror could be turned back on the offeror by the offeree, so the offeror would act to ensure the value made some financial sense to both parties in the circumstances. Frankfort confirmed this point when he described how he arrived at the Alpa Valuation in the Offer:

It's the number that I felt was the right number, it's the number that I felt that I would be happy with if it was returned, reversed, that's it.

Such is the essence of the internal discipline of a shotgun buy-sell provision.

[145] Accordingly, I find that the Agreement did not require an offer under Article 6 to contain an Alpa Valuation which reflected fair market value. I further find that the Offer complied with the specification of value requirements contained in section 6.2(a) of the Agreement.

C.5 Failure to comply with pricing requirements

[146] In his Amended Affidavit MacIver contended that the Offer failed to comply “with the specified formula” in Section 6.2 of the Agreement for calculating the Purchase Offer and the Sale Offer based on the Alpa Valuation.[^95] I see no basis for that assertion.

[147] Section 6.2(b) of the Agreement required the “purchase prices” to be paid to total “an amount equal to the Alpa Valuation multiplied by a percentage equal to the profit-sharing interest in the Partnership of that Offeree”. The Offer did so, attributing to Western Larch a 16.75% profit-sharing interest in the Partnership, which reflected the increase in Western Larch’s partnership interest resulting from the death of Giovanni Guglietti.

[148] Section 6.2(c) of the Agreement required the “sale price” to total “an amount equal to the Alpa Valuation multiplied by a percentage equal to the profit-sharing interest in the Partnership of that Offeror”. Again, the Offer did so, using 83.25% as the Offerors’ interest in the Partnership.

C.6 The inclusion of Alternatives 1 and 2 in the Offer

[149] In his Amended Affidavit MacIver stated that Article 6 did not permit an offeror to make alternative offers, as the Offeror Defendants had done in their Offer, and therefore the Offer was invalid. He deposed:

Section 6.2 also provides that a buy-sell offer shall provide a single Purchase Offer and a single Sale Offer. The Buy-Sell Offer defines “Purchase Offer” and “Sale Offer” differently twice but, in several material instances, fails to distinguish between the two;

The Partnership Agreement does not permit alternative offers. The Buy-Sell Offer delivered presents two alternative offers.[^96]

[150] The plaintiffs’ position was that the term “an offer” found in Sections 6.2(b) and (c) of the Agreement - the Purchase Offer and Sale Offer provisions - possessed only a singular sense and therefore permitted only a single offer. That position stands at odds with the internal interpretative guidelines agreed to by the parties in section 1.14 of the Agreement, the “Interpretation” section, which provided, in part, as follows:

In construing this Agreement, words in the singular shall include the plural and vice-versa…

Accordingly, the term “an offer” used in Sections 6.2(b) and (c) included the plural, “offers”. That is sufficient to deal with this objection by the plaintiffs.

[151] I would observe, however, that the Offerors had left it open to Western Larch to select the alternative it preferred. The Offer stated:

You shall have the option of electing to proceed under either Alternative 1 or Alternative 2 above, provided such election is so indicated in writing in the notice to be delivered by you pursuant to Section 6.4 of the Partnership Agreement.

Under the terms of the Offer Western Larch was free to choose the alternative which best suited its own financial and tax considerations. There was no unfairness in the alternatives presented by the Offerors.

C.7 The inclusion of Red Alder Preferential Allocation amount

[152] In its Amended Statement of Claim the plaintiffs pleaded that the Agreement did not permit the Offeror Defendants, when calculating the purchase or sale prices, to subtract from the Alpa Valuation an amount on account of the Preferential Allocation on Death due to Red Alder:

Both alternative offers subtract an amount of $38,871,780 from the Alpa Valuation on account of the alleged liability owed by Alpa to the late Giovanni and Red Alder. These subtractions are not provided for under the terms of the Partnership Agreement nor did the Defendants have any intention of paying the alleged Payment on Death, as secretly agreed by them on December 14, 2009.[^97]

The Offer had provided that “the Alpa Valuation is $258,871,780, adjusted in relation to each Offeror and Offeree by that portion of the RAL Preferential Allocation on Death by which such Offeror’s or Offeree’s allocations of income would otherwise be reduced if such Offeror or Offeree continued as a partner of Alpa throughout the period that such Preferential Allocation is to be allocated and paid pursuant to the Partnership Agreement…” In the ensuing calculations of the purchase and sale prices, the relevant proportionate share (25% for a purchase or 75% for a sale) of the RAL $38,871,780 Preferential Allocation on Death was deducted.

[153] Over the course of this proceeding MacIver’s evidence about the appropriateness of including the Preferential Allocation in the purchase or sale sell offer prices evolved. MacIver swore an initial affidavit on March 30, 2010 in which he characterized the RAL Preferential Allocation on Death as a “fabricated” debt:

I believe Di Poce and the other partners have deliberately misled me with respect to amounts to be paid on account of Giovanni’s death as described in greater detail below. Specifically, I believe they have fabricated a “debt” owed by the Partnership to Red Alder in an effort to pass 25% of that “debt” to Western Larch for the purpose of reducing the amount offered under the buy-sell offer as described below.[^98]

[154] In his Amended Affidavit sworn April 9, 2010, MacIver changed his initial evidence in the following respect:

I believe Di Poce and the other partners have deliberately misled me with respect to amounts to be paid on account of Giovanni’s death as described in greater detail below. Specifically, I believe they have improperly sought to reduce the amount offered under the buy-sell offer, as described below, on account of a “debt” now owed by the Partnership to Red Alder.

In his April 26, 2010 affidavit MacIver explained why he had made that change to paragraph 42 of his initial affidavit:

At several points in his affidavit, Mr. Frankfort refers to my “original” affidavit in which I challenged the contractual basis for paying any preferential allocation on death to Red Alder since it had already been paid the full amount of the proceeds from a life insurance policy taken out on the life of Giovanni Guglietti. My affidavit was based on my understanding and interpretation of section 8.3 of the Partnership Agreement as found at Exhibit “A” of my Amended Affidavit at the time I swore the affidavit.

However, after swearing my affidavit, my son, David, brought to my attention the 2000 amendments to the Partnership Agreement in which section 8.3 of the Partnership Agreement was amended. I recalled that certain amendments had been made to facilitate the transfer of insurance policies to the partners but not the substance of those amendments. Upon reviewing the 2000 amendments, however, I realized that my understanding at the time I swore my affidavit was incorrect. I immediately informed my lawyers of the 2000 amendments and swore my Amended Affidavit which set forth my corrected understanding of the contractual basis for Red Alder’s preferential allocation on death.

The 2000 amendments, however, have no impact on the fact that there is no basis under Article 6 of the Partnership Agreement for the Offering Defendants’ attempt to deduct the Red Alder preferential allocation on death from the Alpa Valuation in the Buy-Sell Offer. (emphasis added)[^99]

As noted earlier in these Reasons, the 2000 amendment had altered section 8.3 of the Agreement, and a subsequent 2001 amendment stated that a U.S. $16.5 million insurance policy had been arranged on the life of Giovanni Guglietti and that “any proceeds of such Substituted Policy shall be treated as the Partner Share of the Insurance in relation to Giovanni Guglietti”.

[155] I think a fair reading of MacIver’s affidavit evidence is that when he swore his initial affidavit he had not been aware of the 2000 amendments but, when his son drew them to his attention, he realized his error and corrected his affidavit. That explanation proffered in his affidavit is difficult to reconcile with MacIver’s admission on cross-examination that he had known about the 2000 amendments when he swore his initial affidavit.[^100] He was pressed on this point on cross-examination:

Q. And section 8.3 of the Partnership Agreement was the provision that was amended by the 2000 insurance amendment, correct?

A. That's correct.

Q. And then you go on to say: ''However, after swearing my affidavit, my son David," who is right here with us, "brought to my attention the 2000 amendments to the Partnership Agreement in which section 8.3 of the Partnership Agreement was amended." That's what you said, right?

A. Correct.

Q. And the implication of that you wanted the reader to take was oops, I didn't swear my first affidavit based on the 2000 amendments. Isn't that the fair reading of that sentence?

A. That's a conclusion. That's not a reading.

Q. I see. Well, I'm suggesting to you, sir, that a fair reading of this paragraph 18 is to convey to the reader of the affidavit that what you're saying is I forgot about the 2000 amendments, they were brought to my attention after I swore my first affidavit, and therefore I swore an amended affidavit. That's the message in paragraph 18, isn't it?

A. Could you state that again, please?

Q. Yes. The message in paragraph 18 is I swore my first affidavit without having the benefit of the 2000 insurance amendment, once David brought it to my attention I amended and swore a new affidavit. Isn't that what I'm to take from that?

A. Correct.

Q. Right. Well, you told me 10 minutes ago, sir, that you were aware of the 2000 amendments when you swore your first affidavit?

A. That's correct.

Q. So I suggest to you that paragraph 18, sir, is untrue?

A. That's incorrect and unwarranted.

Q. Well, somebody else is going to make that decision, sir.

A. Thank you.

Q. But am I to take it from what you're saying that you don't really withdraw the allegation in your affidavit in paragraph 42, that is the first affidavit at Exhibit 2, that your partners fabricated a debt?

A. I believe that to be the case today.

Q. Right. So --

A. It makes no difference.

Q. Right. So as far as you're concerned, they misled you?

A. Correct.

Q. You don't trust them?

A. That is not correct. In most respects in all respects I have great respect for each of my partners.[^101]

[156] Given the clear obligations imposed by Article 8 of the Agreement upon remaining partners, MacIver’s characterization of the RAL Preferential Allocation as a fabricated debt is quite difficult to understand, greatly weakens MacIver’s overall credibility, and his explanation about how his error came about is not credible. MacIver’s credibility was also weakened by his testimony in his April 9, 2010 affidavit that had he known about the prospect of a buy-sell offer and an effort to re-admit RAL into the Partnership “I would not have agreed to pay any amount on account of a preferential allocation on death at the December 8, 2009 meeting.”[^102] Article 13 provided a formula for calculating the Preferential Allocation on Death in the event the Partners were unable to agree on a value, but MacIver’s disclosure that he would not have agreed simply indicates that he thought Western Larch was above the workings of the Article 6 buy-sell provision. In that he was wrong.

[157] Frankfort, in his cross-examination evidence, explained why the Offeror Defendants deducted the RAL Preferential Allocation from the Alpa Valuation in calculating the prices:

Q. Could I just have a moment. Article 6 of the buy/sell provision, Mr. Frankfort, deals with the terms of the buy/sell agreement or offer. Can you tell me what paragraph you rely on in article 6 to say that it's proper to include Mr. MacIver's alleged obligation to Red Alder as a deduction?

A. The buy/sell, as far as I understand it, works both ways. I made the – I made the offer; It clearly states that it's based on a certain calculation. For clarity it spells out how it was done, how we arrived at those numbers so there should be no misunderstanding. If Mr. MacIver wanted to reverse and own the company, he would have had the exact same right as what we offered him and we have the exact same rights. Therefore, I would have paid for it or he would have paid for it but it's identical based on the buy/sell offer. The number is 220 million, accounting for what's owed to Red Alder is 258, and it's for both parties identical. That's how I relied on it. Why is that any different?

Q. That's helpful, thank you. Just so I understand your answer, the valuation is 258 and then the obligation of the partners, if I can put it that way, under the preferential allocation to Red Alder is used to reduce that number to 220; is that correct?

A. Correct.[^103]

[158] I see no merit in the plaintiffs’ proffered interpretation of Section 6.2 of the Agreement that it precluded any deduction for the RAL Preferential Allocation on Death. By operation of Article 8, upon the death of Giovanni Guglietti Western Larch’s partnership interest increased to 16.75%. Article 8 required Western Larch to pay for that increased share; it was not a gift. The Offer was made before the obligations of the remaining partners to Red Alder under Article 8 had been satisfied. The Offer calculated purchase and sale prices based on Western Larch enjoying a 16.75% interest in the Partnership. Since its incremental portion of the partnership was not a gift, Western Larch had to pay for it. Therefore, it was entirely reasonable for the Offeror Defendants to deduct what Western Larch had to pay to RAL for its increased partnership interest resulting from Mr. Guglietti’s death.

[159] True, Article 6 did not expressly deal with what would happen when a buy-sell offer was made immediately following the death of a Partner Shareholder. Article 6 did not create a mechanism by which to reconcile the treatment of liabilities imposed on a vendor-partner by Article 8 and the payments due to the vendor-partner under Article 6. But, Article 6 did permit the making of an offer “at any time”, and that would include immediately following the death of a Partner Shareholder. In the circumstances, the approach taken by the Offeror Defendants – calculating a purchase price which took into account outstanding obligations owed by the vendor in respect of a Preferential Allocation on Death – was a reasonable way to deal with a coincidence of events not specifically addressed in the Agreement and was consistent with the overall obligations of the Partners under the Agreement.

[160] In his Amended Affidavit MacIver pointed to a timing difference concerning payments due under Article 8 and Article 6:

Moreover, while the Offeror Defendants have attempted to charge Western Larch, and by extension me, immediately for the full amount they claim represents Western Larch’s portion of the preferential allocation on death for Red Alder ($9,717,945 according to the Buy-Sell Offer), notwithstanding the fact the amount is payable over a period of 10 years, there is no consideration in the Buy-Sell Offer for the amounts Red Alder has to repay the Partnership. This debt, which is in excess of $3,500,000 (and is described more fully in the partners’ agreement attached as Exhibit “N” to my affidavit) was to be repaid immediately upon closing of the redemption of Red Alder’s interest. As I have described, that closing has been delayed by Di Poce.[^104]

[161] As I said, Article 6 did not create a specific mechanism to deal with events as they in fact unfolded in the circumstances of this case – a Partner Shareholder died and a buy-sell offer was made shortly thereafter. Although timing differences did exist between the stream of payments under Articles 6 and 8, the deduction of the entire obligation of the vendor in calculating the purchase price was commercially reasonable given that the purchase price offered to the vendor was based on its enhanced partnership interest. To accede to the plaintiffs’ interpretation that no such deduction could be made would result either in treating their increased partnership interest as a gift or in interpreting Article 6 as precluding the making of a buy-sell offer immediately following the death of a Partner Shareholder. Neither interpretation would be a commercially reasonable one, and the latter interpretation would stand in opposition to the express language of Section 6.1.

C.8 Promissory note: non-assignability clause

[162] In their Amended Statement of Claim the plaintiffs pleaded that the Offeror Defendants “delivered promissory notes to Western Larch for the purchase price that did not comply with the Partnership Agreement”.[^105] Section 6.5(b) of the Agreement identified the “attributes” which the promissory note was to have, including the following:

6.5(b)(vii) the note shall otherwise be in such form as the solicitors for the vendor may reasonably require…

[163] In his letter delivered about one hour before the closing on June 14, 2010, vendor’s counsel wrote:

[T]he promissory note your clients intend to deliver pursuant to the closing contains a restriction on negotiability and assignment that is not authorized by the Partnership Agreement. This term, as well as the reference to subsection 6.5(b)(iv) of the Partnership Agreement, are improper and would be unacceptable to our clients in any event.

[164] The draft note delivered by counsel for the Offeror Defendants on June 4, 2010 contained the following language:

This Promissory Note is further subject to the terms contained in subsection 6.5(b)(iv) of the [Agreement]…

There was nothing wrong with the inclusion of that language. In fact, Section 6.5(b) required its inclusion.

[165] The draft note also provided: “This Promissory Note shall not be negotiable or assignable by the holder without the prior written consent of the undersigned.” I do not regard the inclusion of this language as vitiating the Offer for several reasons.

[166] First, Section 6.5(b) of the Agreement did not preclude the inclusion of additional terms. Section 6.5(b)(vii) contemplated the inclusion of additional terms, albeit at the request of vendor’s counsel.

[167] Second, following the release of a decision of this Court on May 27, 2010 holding that the plaintiffs’ claim did not disclose a serious issue to be tried, on June 4, 2010 counsel for the Offeror delivered a draft closing agenda and closing documents, including the promissory note, to vendor’s counsel. Subsequent drafts were delivered. The response of the vendor was to ignore the whole process until one hour before the June 14 closing. In paragraph 91 above I reproduced MacIver’s evidence on that point. For Western Larch to turn its back on the normal pre-closing document comment and negotiation process in the face of the conclusions reached by Cumming J. on its injunction motion was a high risk strategy. The Partnership was a complex legal organization. The closing of the transaction involved significant complexity. In the ordinary course the parties to such a closing must work together to identify any closing document issues at an early stage and then work reasonably to negotiate the final closing documentation. For the vendor to sit back, to rebuff invitations to comment on the draft closing documentation, and then to spring comments on the purchasers an hour before closing was unreasonable commercial conduct and provided Western Larch with no legitimate basis upon which to complain about the contents of the proffered promissory note.

C.9 Inclusion of the payment of debt due to Western Larch in one option – the “deemed acceptance” issue

[168] In his Amended Affidavit MacIver alleged that the inclusion of the payment of debt due to Western Larch in Alternative 1 rendered the Offer invalid. He deposed:

Section 6.4 of the Partnership Agreement prescribes the contents of the offeree’s response to a buy-sell offer; specifically, the offeree is to advise whether it accepts the Purchase Offer or it accepts the Sale Offer. The Buy-Sell Offer received imposes an additional requirement on the offeree (i.e., me), not found in the Partnership Agreement, in that it requires the offeree to indicate an election between Alternative 1 and Alternative 2.[^106]

[169] While both Alternatives 1 and 2 used the same Alpa Valuation to calculate the purchase price, the Alternatives differed in their treatment of when indebtedness owing by the Partnership to the vendor would be paid. Under Alternative 1, such indebtedness was included in the purchase/sale price, which meant that part of it would be paid out over the 48 months following the closing in accordance with the terms of the promissory note given to the vendor on closing. Under Alternative 2, the indebtedness was treated separately from the purchase/sale price and would be paid “in full on closing”. Frankfort explained the difference between the two Alternatives during the course of his cross-examination:

Q. Paragraph 99 of your affidavit, you state that the economic effect of the two alternatives is virtually identical. Let me see if I can tease that apart a little bit and understand it better.

A. Sure.

Q. Under the first alternative, the payments would be made over how many years?

A . Fifty percent upfront, fifty percent over four years.

Q. All right. And number two?

A. In number two, the total dollar value is identical, it's approximately $2.6 million additional cash upfront and $2.6 million less over four years.[^107]

Frankfort further testified:

Q. Based on your own experience as a business person and in A1pa, are you aware of the tax treatment, any tax treatment being different for a loan than the payment on account of a sale of business? The loan is a return of capital, isn't it?

A. I can't comment on that. I am not a tax lawyer. But it would have been - well, it would have been identical for either one of us.

Q. Well, I understand that. But why those differentials if it wasn't driven by the tax treatment? Why were they done differently then?

A. We ran across this when we had the calculations for the Gugliettis and I didn't want to have the same problem with the buy/sell, therefore we gave the two alternatives to make sure that there is no misunderstanding on how it's to be applied and Mr. MacIver could choose either one he preferred. If he liked the first one, he could choose that, if he liked the second one, he can

choose that. If he chose nothing --

Q. If he I'm sorry, go ahead, I didn't mean to cut you off.

A. That's all.[^108]

[170] The treatment of the Partnership’s indebtedness to the vendor was dealt with as a closing issue under Section 6.11 of the Agreement. More specifically, Section 6.11(a) provided, in part, as follows:

6.11 Closing Arrangements

The following provisions shall apply to a purchase and sale made pursuant to the Buy-Sell provisions or any other purchase and sale made pursuant to the provisions of this Agreement:

(a) Partnership Indebted to Vendor

If at the time of closing, the Partnership or a Designated Entity is indebted to the vendor(s) the indebtedness (other than Termcourt Debt) shall be paid in full on closing…

[171] Under Section 6.4 of the Agreement the failure of an offeree to respond would mean “it shall be deemed conclusively to have accepted the Purchase Offer on the last day of such 60-day period”. The language of the Offer went further, stating that a failure by Western Larch to respond would mean “you shall be deemed conclusively to have elected to proceed under Alternative 1 of the Purchase Offer”. So, whereas a buy-sell offer accepted by a vendor in accordance with the Agreement would see the vendor receive “in full on closing” any indebtedness owed to it by the Partnership pursuant to Section 6.11(a) of the Agreement, the “deemed acceptance of Alternative 1 of the Purchase Offer” language contained in the Offer would see Western Larch paid such indebtedness over the 48 months following closing.

[172] Now, the Offerors had left it open to Western Larch to select the alternative it preferred. The Offer stated:

You shall have the option of electing to proceed under either Alternative 1 or Alternative 2 above, provided such election is so indicated in writing in the notice to be delivered by you pursuant to Section 6.4 of the Partnership Agreement.

Under the terms of the Offer Western Larch was free to choose the alternative which best suited its own financial and tax considerations. However, in the result Western Larch ignored the Offer, thereby triggering the “deemed acceptance” provisions of the Agreement and the Offer. Although under Alternative 1 some (or perhaps all) of the indebtedness of the Partnership to the vendor would be paid out over 48 months, whereas it would be paid in full on closing under Alternative 2, Section 6.5(b)(iii) of the Agreement did require that the promissory note delivered to the vendor on closing for the “remaining 50% balance” of the purchase price bear interest at the Royal Bank Prime plus 1/2% per annum, payable monthly in arrears and compounded monthly. So, although Alternative 1 would see indebtedness to the vendor paid out over a longer period of time, interest was payable on the amounts outstanding and due. As a result, was there a real economic difference between the two Alternatives in terms of the benefit or cost of the timing of the re-payment of the indebtedness from the Partnership to the vendor?

[173] I could not find any evidence from the plaintiffs which squarely addressed this question. MacIver, in his April 26, 2010 affidavit, deposed:

Despite [section 6.11(a)], the Alternative 1 “Purchase Offer” in the Buy-Sell Offer rolled Alpa Partnership’s indebtedness to Western Larch into the purchase price. As a result, that indebtedness would be repaid over the course of 48 months not in full upon closing.

I disagree with Mr. Frankfort’s statements that this result does not prejudice the vendor…[^109]

Unfortunately, MacIver did not proceed to describe what prejudice the vendor would suffer given that the outstanding 50% balance attracted interest until paid in full.

[174] Upon my review of the record, I am left with no evidence which describes the financial impact on Western Larch, if any, of the Offeror Defendants closing on the basis of a deemed acceptance of the Purchase Offer under Alternative 1. No doubt if Western Larch was paid in full on closing the indebtedness owed to it by the Partnership, it could have put that money to use. Whether the return it would have received from closing through to today would have been more or less than the interest it has been receiving as part of the payments under the promissory note is not addressed in the evidence. Based on their submissions at the hearing, I expect the plaintiffs would say that in any even such an approach would miss the real point – they were entitled to full payment of the indebtedness on closing, and they want the balance of the outstanding indebtedness paid in full now, not later.

[175] Even if Western Larch suffered no financial prejudice as a result of the Offeror Defendants proceeding to close on the basis of a “deemed acceptance” of the Alternative 1 Purchase Offer, does that matter to the plaintiffs’ allegation that the Offer did not comply with the Agreement and therefore was invalid? In other words, in the absence of any evidence of damages suffered, can Western Larch still try to obtain an order declaring the Offer invalid? To my mind the answer lies in the structure of Article 6. Sections 6.2 and 6.5 dealt with the terms of an offer. Section 6.2 specified the “Terms of Buy-Sell Offer”; it was silent on the issue of indebtedness to a vendor. Section 6.5 identified “Designated Terms” dealing with terms of payment and the promissory note; it was silent on the issue of indebtedness. The treatment of indebtedness only arose under Section 6.11 which concerned “Closing Arrangements”. What is the significance of dealing with the indebtedness as a matter of the closing arrangements? Well, one does not get to the closing of a transaction unless there exists a binding contract to be closed. A binding contract arises as a result of the acceptance of an offer. If a binding contract exists, one party may default on closing obligations, but that does not mean there never was a binding contract. Such a default would give rise to a claim for damages for breach of some closing obligation.

[176] When Article 6 is interpreted as a whole, I conclude that for an offer to comply with the Article it had to contain the terms mandated by Sections 6.2 and 6.5. The Offer did. It was a valid Offer. Western Larch did not respond to the Offer, and by operation of Section 6.4 it was deemed to have accepted the Purchase Offer. A binding contract for the sale and purchase of Western Larch’s Interests therefore arose. Section 6.11 specified the “Closing Arrangements”, which included the payment in full on closing of indebtedness owed by the Partnership to the vendor. It was not open to the Offeror Defendants to close the transaction on a different basis, as they purported to do by deeming Western Larch to have accepted Alternative 1. By so doing the Offeror Defendants departed from the terms of closing set out in the Agreement. That departure, however, did not affect the validity of their Offer. I therefore give no effect to that part of the plaintiffs’ allegations.[^110]

[177] As noted, the plaintiffs did not adduce evidence regarding the specific damage they suffered as a result of the timing difference caused by the postponement in receiving full payment of the indebtedness until the completion of the payments of the purchase price over 48 months. However, they did submit that they were entitled to full payment of the outstanding balance now. The plaintiffs pleaded a claim for damages caused by breach of contract and developed this point in their Factum which treated this issue as a breach of contract claim.[^111] Under those circumstances, I am not prepared to conclude that the moving parties have demonstrated that no genuine issue requiring trial exists on the damages for breach of contract aspect of the claim. I therefore will direct a trial on that issue.

C.10 The inclusion of incorrect debt adjustment figures

[178] The next allegation of the plaintiffs regarding the invalidity of the Offer was described by MacIver in the following way in his Amended Affidavit:

The Partnership Agreement does not allow for adjustments to the purchase price upon closing. Nevertheless, under Alternative 2, the Buy-Sell Offer states that the purchase price is subject to dollar for dollar adjustments to reflect the actual indebtedness of Alpa relative to the estimated amount. Therefore, the true amount of the purchase price under Alternative 2 was to remain uncertain until the date of closing.[^112]

[179] As set out in paragraph 137 above, Alternative 2 of the Offer, in calculating the offered purchase price, subtracted “any indebtedness owing to the vendor(s) by the Partnership or any Designated Entity other than by Termcourt Inc.” Alternative 2 estimated the debt owing to Partners and provided that on closing there would be an adjustment “for the difference, if any, between the actual indebtedness owing to the vendor(s) on closing and the amount set out in the calculations above (such actual amount owing to be paid to the vendor(s) in full on closing in accordance with subsection 6.11(a) of the Partnership Agreement)…”

[180] MacIver testified that the estimated amount of indebtedness specified in the December Offer was incorrect. In mid-January, 2010 Matkowsky sent MacIver a letter correcting the estimated indebtedness:

I did have a look again at the debt numbers I provided to you and found one error in the calculations with respect to the indebtedness owing by Termpark. Specifically, $3,489,745.05 is owed to Talpx Inc. and not to the partner companies and therefore the indebtedness shown as owing to the partners was not accurate. I attach an updated spreadsheet showing the Alpa partner loans payable. The dollar amounts of the indebtedness referred to in Alternative 2 of the Buy-Sell Offer were assumed for calculation purposes but under the offer are to be adjusted on closing to the actual indebtedness owing. This results in a corresponding adjustment to the purchase price, so there would be no change in the aggregate payments to the seller, only the timing of payments. (emphasis added)

[181] As explained by MacIver on his cross-examination, he did not regard Matkowsky’s correction of the estimating error as having any legal significance:

Q. And when did you figure out that the debt adjustment was incorrect?

A. Upon receipt from Mr. Matkowsky of a correction to his formerly communicated spreadsheet that I had requested.

Q. So that was in what, the mid-part of January of this year?

A. That's correct. Mid-part of January.

Q. And before this action was commenced, did you write to the offering partners or to Alpa Partnership and say listen, we need to correct that number in the buy/sell offer?

A. No.

Q. Did you just put that away for later use?

R/F MR. LAUBMAN: Don't answer that.

MR. GRIFFIN: What's wrong with that question?

Q. Answer the question, please.

A. Since I have no interest in either offer, nor accept the fact that I need to make a choice, it isn't particularly relevant.

Q. So you did nothing?

A. I just noted the fact that it was incorrect.

Q. And the difference as you describe it then would be in the difference identified in the one correction that Mr. Matkowsky brought to your attention; is that correct?

A. Insofar as I am aware, yes.[^113]

MacIver further testified:

Q. And you see what he said in the balance of that paragraph, that after giving you an updated spreadsheet, he said the dollar amounts of the indebtedness referred to in alternative two were assumed for calculation purposes but under the offer are to be adjusted on closing to the actual indebtedness owing. You understood that that was intended by the offering partners?

A. No adjustments are permitted in the buy/sell.

Q. So even though they were prepared to adjust to recognize that difference, that wasn't good enough for you?

A. No.[^114]

[182] Nevertheless, during his cross-examination MacIver acknowledged that nothing in the Agreement prohibited the making of adjustments on the closing of a buy-sell offer.[^115]

[183] As already discussed, the payment to the vendor of any Partnership indebtedness was a matter of the closing arrangements. Section 6.11(a) required “the indebtedness” to be paid in full on closing. That term obviously meant the actual indebtedness at the time of closing. Alternative 2 simply gave Western Larch notice of the Offerors’ estimate of the indebtedness which would be payable on closing and went on to state that the estimate would be adjusted on closing to reflect the amount to which the vendor was contractually entitled – i.e. the actual indebtedness. Consequently, there is no air of commercial reality to this objection by Western Larch.

C.11 Allocation of earnings

[184] Section 6.9 of the Agreement stated:

6.9 Profit Allocations

Net earnings shall be allocated and drawn upon in the normal fashion until the one hundred and twentieth day next following the date of delivery of the Buy-Sell Offer; thereafter no net earnings shall be allocated to or drawn upon by the vendors. (emphasis added)

[185] The Offer contained a section entitled, “Other Terms”, which provided, in part, as follows:

In addition to the provisions of the Partnership Agreement applicable herein, this Buy-Sell Offer is subject to the following further terms and conditions:

2. The net earnings of the Partnership for the fiscal year of the Partnership ending June 30, 2010 and the net earnings of the Special Partner for the fiscal year of the Special Partner ending June 26, 2010 shall be separately calculated, in each case:

(i) For the period commencing July 1, 2009 and ending on the last day of the calendar month immediately preceding the 120th day following the date of delivery of this Buy-Sell Offer and allocated among the Offerors and the Offeree (and RAL, where applicable)(the “Buy-Sell Stub Period”) in a manner consistent with normal practices of the Partnership and of the Special Partner…(emphasis added)

[186] Section 6.9 of the Agreement required net earnings to be allocated and drawn until April 14, 2010; Section 2 of the Offer provided that “in addition to the terms of the Partnership Agreement”, net earnings were to be calculated until March 31, 2010. This difference in treatment of net earnings led MacIver to make the following allegation in his Amended Affidavit:

Section 6.9 provides that net earnings shall be allocated and drawn upon in the normal fashion until the 120th day next following the date of delivery of a buy-sell offer. Nevertheless, the Buy-Sell Offer states that net earnings shall be calculated in the normal fashion only until the last day of the calendar month immediately preceding the 120th day following the date of delivery of the Buy-Sell Offer.[^116]

The Amended Statement of Claim alleged that this difference constituted a failure to comply with the terms of Article 6 which rendered the Offer invalid.

[187] Initially, MacIver alleged that the Offeror Defendants had failed to pay Western Larch draws calculated at a 16.75% partnership interest level:

Finally, on the Closing, the Defendants failed to account for draw amounts that were not paid to MacIver and Western Larch in 2009 and 2010. Specifically, MacIver’s salary and expense draws remained at the 12% level and not 16.75% as they should have been from September 2009 until March 2010 when they were unilaterally cut off by the Defendants. Western Larch’s October 2009 tax draw was also calculated at 12% instead of 16.75%.[^117]

However, in a May 17, 2010 answer to an undertaking, MacIver stated that based on the information then available, there was no dispute that Western Larch’s October, 2009 tax draw was based on a 16.75% partnership share. The defendants, in a May 14, 2010 undertaking response, advised that Western Larch had received regular draws on January 5 and April 5, 2010 at a 16.75% interest, as well as fixed monthly draws on the 18^th of each month up to and including March, 2010.

[188] In response to MacIver’s allegation that Section 2 of the Offer did not respect the requirements of Section 6.9 of the Agreement, Frankfort deposed:

The methodology included in the Buy-Sell Offer to allocate earnings until the last day of the calendar month immediately preceding the 120^th day following December 15, 2009, is sensible, provides commercial certainty as to the effect of the Buy-Sell Offer and was applicable whether Western Larch Limited was the seller or whether the Offering Partners became sellers. It is the methodology that Mr. Orest Matkowsky tells me Mr. MacIver himself advocated for the purpose of calculating what earnings would be allocated to Red Alder Limited up to the date of the late Mr. Guglietti’s death. He cannot now complain that this method is improper.[^118]

On cross-examination Frankfort testified:

Allocation of profit stopped at the end of March. The April 14th date, we had this discussion with the Guglietti family and Mr. MacIver on his own said that good practice would have to end on the previous month, at the month end, and that's the exact same way that we have done it as he suggested that we should do it with the Guglietti family. It stopped as of March 31st instead of April the 14th, exactly the same way as it did with the Guglietti family.[^119]

[189] Frankfort confirmed on cross-examination that after December 15, 2009, profit was allocated to Western Larch on the basis that it enjoyed a 16.75% interest in the Partnership.[^120]

[190] In light of that evidence, the remaining dispute then appears to be a simple one: Western Larch contends that it was entitled to an allocation and draw of net earnings for the period April 1 to April 14, 2010, yet it only received an allocation and drawing of net earnings until March 31, 2010. The Offeror Defendants do not dispute Western Larch’s allegation, but argued that because MacIver had been amenable to such an approach upon the death of Giovanni Guglietti, he should be taken to have agreed to such an approach when they exercised their buy-sell rights under Article 6.

[191] I do not accept the submission of the Offeror Defendants. Whatever MacIver may have agreed to for the purposes of proceeding under Article 8 when Giovanni Guglietti died, he did not agree to depart from the requirements of Section 6.9 when he was delivered the Offer. Section 6.9 governed, and Western Larch was entitled to its benefit.

[192] Did the departure by the Offeror Defendants from the requirements of Section 6.9 vitiate their Offer? In my view it did not. As I set out above, as I interpret Article 6, Section 6.9 did not operate to mandate the content of an offer; instead it addressed a Partnership performance issue – i.e. how net earnings would be allocated and drawn during the period following the delivery an of an offer until its closing. Non-compliance with that performance requirement would not invalidate an offer, but non-compliance could give rise to a claim for any shortfall in net earnings for the period between the delivery of an offer and closing.

[193] Although in their Amended Statement of Claim the plaintiffs characterized a breach of Section 6.9 as one invalidating the Offer, and I have found that it did not, the plaintiffs did claim damages for breach of contract “in addition to sums already owing”. Consequently, I am not persuaded that the Offeror Defendants have demonstrated that no genuine issue requiring trial exists in respect of the plaintiffs’ claim for additional net earnings, and I direct a trial of that issue.

C.12 Elimination of the residual partnership interest

[194] In their Amended Statement of Claim the plaintiffs alleged that pursuant to the closing of the purchase transaction, the Offeror Defendants “removed the Plaintiffs from Alpa ignoring altogether the obligation that Western Larch continue to maintain a retained interest of 0.001% in Alpa’s earnings regardless of whether or not the Buy-Sell Offer was valid, which it was not”.[^121] As can be seen from this pleading, this allegation does not concern the validity of the Offer, but the alleged breach of another obligation.

[195] The basis for this allegation lies not in the Agreement, but in a separate Acknowledgement letter signed by the partners contemporaneously with the execution of the Agreement. In the letter, after acknowledging the making of reductions in capital for Di Poce Management ($1 million) and Western Larch ($2 million), the partners then acknowledged and agreed as follows:

(i) if either Di Poce Management Limited or Western Larch Limited dispose of their interest in the Partnership for any reason, it will be allowed to retain a .001% interest in the earnings of the Partnership (to a maximum of $1,000 per annum) for the next 30 years. During such 30-year period, the disposing Partner and its respective Partner Shareholder shall not by virtue of such retained interest have any voice or voting rights with respect to the Partnership or its business or affairs, shall as regards such retained interest be disregarded for the purpose of constituting a quorum and for all other purposes and by virtue of such retained interest shall simply be entitled to receive its said share of the Partnership earnings. Further, such Partner and its respective Partner Shareholder as regards such retained interest (but for no other purpose) hereby irrevocably appoints the President from time to time of the Partnership (or if there is no President then in office any two Partner Shareholders) its attorney in fact and in law for the purpose of executing all documents, matters and things that may be necessary or desirable in connection with the Partnership or the Designated Entities for their business or affairs, and such power of attorney, being coupled with an interest, shall survive the death or incapacity of the disposing partner and its respective Partner Shareholder; and,

(ii) notwithstanding the provisions of Subsection 2.6(a) of the Partnership Agreement or any other provisions of the Partnership Agreement or of this letter, the foregoing provisions of this letter may not be changed without the consent of Di Poce Management Limited and Western Larch Limited or their successors or assigns. (emphasis added)

[196] In one of his affidavits MacIver explained the plaintiffs’ allegation on this issue:

Furthermore, by altogether eliminating Western Larch’s interest in Alpa Partnership, the Defendants appear to have entirely ignored the agreement reached in 1988 whereby the partners all agreed that Western Larch would retain a 0.001% interest in the Partnership regardless of whether its remaining partnership interest was disposed of for any reason, including a valid buy-sell offer delivered pursuant to Article 6…The Acknowledgement was entered into as part of the arrangement…that saw Di Poce and me agree to reduce our respective profit-sharing interests in the Partnership to the benefit and credit of Frankfort, Carmine and Guglietti. In my case, Western Larch’s relinquished 4.66% of its profit-sharing interest.

Following the Closing, Western Larch and I will suffer detrimental tax treatment as a result of the Defendants disposing of 100% of our interest in Alpa Partnership. The Acknowledgement was intended to avoid such an occurrence and to manage the tax consequences to a partner removed from the Partnership for any reason. Due to the manner in which Western Larch and I have been expelled by my former partners, Western Larch will be subject to negative tax treatment for amounts that are above and beyond the purchase price paid pursuant to the Buy-Sell Offer. For example, as a result of the Closing, the $2 million one-time differential draw will now be taxable to Western Larch. In addition, Western Larch will have to pay taxes on income allocated to it over the years by the Partnership for which there were no tax draws or where the expected tax draws were not received.[^122]

[197] On his cross-examination Di Poce acknowledged that on the closing of the purchase transaction the 0.001% interest of Western Larch in the Partnership was eliminated.[^123]

[198] In their factum the plaintiffs submitted that as a result of the Offeror Defendants ignoring on closing the entitlement of Western Larch under the Acknowledgement to a 0.001% interest in earnings, Western Larch suffered negative tax consequences associated with the loss of the deferred income benefits of the Partnership: “This resulted in a significant tax liability and lost value for the Plaintiffs for which the Defendants are liable, which KPMG LLP has valued at $5.109 million as of December 15, 2009.”[^124] When one examines the KPMG Report, it does not contain a specific analysis of the damages caused by ignoring the retained interest on closing. KPMG did offer two opinions on the en bloc value of the Partnership as at December 15, 2009, one which did not take into account any tax deferral benefits and the other which considered “a 28-month income tax deferral formerly enjoyed by WLL and currently enjoyed by the existing Alpa Partners.”[^125] Its analysis involved discounting the DCF analysis it had performed to determine enterprise value to take into account the tax deferral benefits. The difference between the en bloc enterprise values was the $5.109 million the plaintiffs mentioned in their factum.

[199] The Acknowledgement did not purport to amend the Agreement; by its terms it was a separate, very narrowly-focused agreement amongst the partners. Although the Acknowledgement did not amend the Agreement, it must be given effect to in conjunction with the Agreement. As a result, although the Offer to purchase all of the “Interests” of Western Larch in the Partnership complied with the requirements of Section 6.1 dealing with shotgun buy-sell offers, if it was accepted, or deemed to be accepted, the resulting purchase transaction would have to give effect to the additional agreement amongst the partners embodied in the Acknowledgement.

[200] That did not happen on the closing of the purchase transaction. From the draft closing documentation sent from the Offeror Defendants to Western Larch it was apparent that the narrowly defined earnings interest agreed upon in the Acknowledgement would not be recognized. Western Larch did not bring that omission to the attention of the Offeror Defendants. Nonetheless, by the same token Western Larch did not waive its entitlement to that narrowly defined interest. Although the KPMG Report did not perform an analysis specifically addressing this issue, its Report suggested a tax benefit deferral might have some value, albeit it approached the issue from the perspective of the impact on overall enterprise value, not the damages suffered by Western Larch. Also, on cross-examination Ms. Glass acknowledged that while amendments made to the Income Tax Act effective March, 2011 would not necessarily remove the tax deferral benefit, they “would certainly lessen” it.[^126] Nonetheless, I find that the Offeror Defendants have not demonstrated that no genuine issue requiring trial exists in respect of the plaintiffs’ claim that on closing Western Larch should have received the narrowly defined earnings interest described in the Acknowledgement and whether any damages resulted from that omission. I direct a trial of that issue.

C.13 Summary

[201] By way of summary, for the reasons set out above I conclude that no genuine issue requiring a trial with respect to the plaintiffs’ claims concerning the validity of the Offer. Consequently, I grant summary judgment in favour of the defendants dismissing the claims asserted in the following portions of the Amended Statement of Claim: paragraphs 1(a), (t), (u) and (v).

[202] However, with respect to the plaintiffs’ claim for damages caused by breach of contract against the defendants, other than Red Alder and the Guglietti Estate, as pleaded in paragraph 1(n) of the Amended Statement of Claim, I conclude that the moving party defendants have not demonstrated that no genuine issue requiring a trial exists with respect to the following three specific claims, for which I direct a trial:

a/ the claim that Western Larch suffered damage as a result of the closing taking place on the basis that Western Larch was not paid in full on closing the indebtedness owed to it by the Partnership;

b/ the claim by Western Larch for additional net earnings pursuant to section 6.9 of the Agreement; and,

c/ the claim by Western Larch that on closing it should have received the narrowly defined earnings interest described in the Acknowledgement and whether any damages resulted from that omission.

Later in these Reasons I will give specific directions regarding the trial pursuant to Rule 20.05(2).

[203] By directing the trial of certain issues I am not concluding that conduct by the Offeror Defendants caused damage to the plaintiffs. I have identified where the conduct of the Offeror Defendants departed from the requirements of Article 6 or the Acknowledgement. In respect of these issues I am simply concluding that the Offeror Defendants have failed to demonstrate that no genuine issue requiring trial exists, and I have directed a trial of those issues.

C.14 The defendants’ estoppel and affirmation arguments

[204] Although as is clear from the evidence set out above in paragraphs 58 to 71 that upon receiving the Offer the plaintiffs initially worked hard to reverse it and took no objection to its validity, in light of my finding that that no genuine issue requiring a trial exists regarding the validity of the Offer, it is not necessary to deal formally with the defendants’ arguments that by trying to reverse the Offer the plaintiffs had affirmed its validity and were estopped from challenging its validity.

VIII. Analysis: Breach of fiduciary duty claims

A. The Plaintiffs’ allegations and the positions of the Defendants

A.1 The Plaintiffs’ allegations

[205] The plaintiffs have pleaded extensive allegations of breach of fiduciary duty, relying heavily of section 14.3 of the Agreement which provided:

Each partner shall be faithful to the others in all Partnership transactions and shall at all times furnish to the others correct statements and accounts of all such transactions without any concealment or suppression.

Based on this provision of the Agreement, and a pleaded relationship of trust amongst the partners, the plaintiffs asserted that the defendant partners owed them a fiduciary duty to subordinate their own interests to those of the partnership and not to act in their own self-interest to the detriment of their partners and, as well, to make full and fair disclosure of all things affecting the partnership.

[206] From this general pleading the plaintiffs then alleged the following specific instances of the defendants’ breaches of their fiduciary duty:

First Group of Allegations: The existence of a voting bloc

(i) In 2008 Di Poce established a “voting bloc to marginalize MacIver’s and Western Larch’s interest and ability to exercise their voting rights in Alpa”;

(ii) To establish the voting bloc Di Poce had convinced MacIver in 1988 to dilute Western Larch’s partnership interest to increase those of the other partners, thereby causing the plaintiffs the loss of “significant earnings in the tens of millions due to the dilution of their profit-sharing interest in Alpa”;

Second Group of Allegations: Breach of a succession plan agreement

(iii) Di Poce reneged on a 2006 agreement to implement a MacIver-designed succession plan which would reduce gradually the partners’ interests in Alpa and enable their children to assume continuing interests in the Partnership;

Third Group of Allegations: Misleading the plaintiffs about the future role of Red Alder in the Partnership

(iv) At a December 8, 2009 meeting, before making the Offer, the defendants misled the plaintiffs into believing that the mandatory termination of Red Alder’s partnership interest would occur when they already had agreed that it would not;

(v) The defendants intended to enable Red Alder to continue as a Partner following the death of Giovanni Guglietti notwithstanding the clear requirements of the Agreement to remove Red Alder;

(vi) The defendants secretly agreed to suspend the Agreement to enable them to carry out their plan to permit Red Alder to continue in the Partnership;

(vii) The defendants misled the plaintiffs about the purported Payment on Death to Red Alder by reducing the Alpa Valuation in the Offer by the amount of the Payment when, in fact, no such amount had been paid to Red Alder, and they deliberately delayed completely the formal transactions associated with the termination of Red Alder’s interest in Alpa;

Fourth Group of Allegations: Improper use of the Buy/Sell Offer mechanism

(viii) The defendants resorted to the buy/sell mechanism in Article 6 of the Agreement in a circumstance where a Partner had not become mentally unstable or erratic, contrary to an agreement reached amongst the Partners in 1988;

(ix) The defendants conspired to expel Western Larch from the Partnership by making the Offer;

(x) The defendants kept their plans to make an Offer hidden from the plaintiffs;

(xi) The defendants made the Offer knowing that the plaintiff, as a minority partner, could not finance any purchase under the Offer, thereby taking advantage of the plaintiffs’ minority status, and they had taken steps to make it impossible for the plaintiffs to secure financing to pursue the offer to sell;

(xii) The defendants failed to provide in a timely manner information requested by MacIver to evaluate and respond to the Offer;

(xiii) The defendants wrongfully employed the services of Witten to draft the Offer;

(xiv) The defendants wrongfully and secretly employed the services of Matkowsky to develop the terms of the Offer;

(xv) The Alpa Valuation contained in the Offer was unfair because it was not based on a true valuation of Alpa;

(xvi) Notwithstanding the plaintiffs’ objections, the defendants unilaterally closed the Offer by improperly using their power of attorney;

Fifth Group of Allegations: Other alleged breaches

(i) “Several” partners breached an agreement that partners and their children would receive a benefit of building one home each using materials and supplies taken from Alpa at no cost by building more than one home in such a way;

(ii) Throughout late 2009 and early 2010 the defendants excluded MacIver from the negotiations for a new credit agreement with the Royal Bank of Canada.

A.2 Defence of the Di Poce Defendants

[207] As to the allegations relating to the 1988 adjustment in the respective partnership interests, the Di Poce Defendants pleaded that the plaintiffs had agreed to the reduction, received $2 million as compensation for the reduction, approved all subsequent annual financial statements of the Partnership and were statute-barred from asserting their claim. They also denied the existence of any voting conspiracy and pleaded that the plaintiffs had agreed with the defendants on every partnership decision upon which a vote had been required.

[208] The Di Poce Defendants denied that Giovanni Guglietti had misappropriated any amounts from the Partnership, and stated that the plaintiffs had agreed to the final resolution of that “misunderstanding”. The Di Poce Defendants also denied any misappropriation of benefits related to the construction of homes for partners and their children. With respect to the alleged succession plan, the defendants pleaded that no agreement was ever reached on the issue.

[209] In terms of the plaintiffs’ allegations of breach of fiduciary duty relating to the Offer, the Di Poce Defendants pleaded that “no fiduciary duties are owed to the plaintiffs in the context of a contractual buy-sell offer which is the expression of all parties’ reasonable expectations”. They stated that Article 6.12 of the Agreement expressly contemplated the expulsion of a partner pursuant to Article 6, and the terms of Article 6 stipulated that any offer had to emanate from a majority of the partners to a minority of the partners. Repeating their position that the Offer had complied with the requirements of Article 6, the Di Poce Defendants pleaded that they were free to enter into an agreement with Red Alder to continue in the partnership contingent upon the purchase of Western Larch’s interest and were under no obligation to inform the plaintiffs of their intention to form a new partnership agreement in such an event.

[210] The Di Poce Defendants stated that any delay in providing information requested by the plaintiffs while the Offer was outstanding resulted from their reasonable request that the plaintiffs secure appropriate confidentiality assurances from any third party to whom it might disclose the information as part of their efforts to secure financing. Finally, they stated it was proper to require the plaintiffs to obtain opinions on Offer-related matters from their own counsel, rather than from Witten or Matkowsky.

A.3 Defence of the Red Alder Defendants

[211] The Red Alder Defendants denied that (i) they had been party to any voting bloc, (ii) had misappropriated any Partnership money in 2008, (iii) had breached any obligations in regards to the building of homes, or (iv) had instructed Witten or Matkowsky regarding representations made to MacIver. They stated that they were free to enter into the December 14, 2009 agreement with the Di Poce Defendants to continue in the Partnership in the event Western Larch sold its interest under the Offer and that part of the consideration they gave to re-enter the Partnership was the relinquishment of future entitlements to the Adjusted Preferential Allocation on Death, an asset which they were free to deal with as they saw fit. The Red Alder Defendants pleaded that they were under no obligation to inform the plaintiffs about the December 14, 2009 agreement.

B. Governing legal principles

B.1 The general principles of the law of fiduciary duty[^127]

[212] The fiduciary duty doctrine requires that one party, the fiduciary, act with absolute loyalty toward another party, the beneficiary, in managing the latter's affairs.[^128] A fiduciary duty is one of a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others.[^129] While the concept of vulnerability is not the hallmark of fiduciary relationship, it is an important indicium of its existence.[^130] Its place in any legal analysis concerning the existence of a fiduciary duty was clarified recently by the Supreme Court in Alberta v. Elder Advocates of Alberta Society:

It is now clear that vulnerability alone is insufficient to support a fiduciary claim. As Cromwell J. explained in Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R 247, at para. 67:

An important focus of fiduciary law is the protection of one party against abuse of power by another in certain types of relationships or in particular circumstances. However, to assert that the protection of the vulnerable is the role of fiduciary law puts the matter too broadly. The law seeks to protect the vulnerable in many contexts and through many different doctrines.

Cromwell J. concluded, at para. 68, that:

... while vulnerability in the broad sense resulting from factors external to the relationship is a relevant consideration, a more important one is the extent to which vulnerability arises from the relationship: Hodgkinson, at p. 406. [Emphasis added.][^131]

A critical aspect of a fiduciary relationship is an undertaking of loyalty.[^132]

[213] Canadian law distinguishes between per se fiduciary relationships and ad hoc ones. Per se fiduciary relationships arise in certain categories of relationships, such as partnerships, because of the inherent purpose or presumed factual or legal incidents of those relationships,.[^133] It is important to remember, however, that not every legal claim arising out of a per se fiduciary relationship will give rise to a claim for a breach of fiduciary duty:

A claim for breach of fiduciary duty may only be founded on breaches of the specific obligations imposed because the relationship is one characterized as fiduciary: Lac Minerals, at p. 647. This point is important here because not all lawyers' duties towards their clients are fiduciary in nature…The point was also put nicely by Rupert M. Jackson and John L. Powell, Jackson & Powell on Professional Liability (6th ed. 2007), at para. 2-130, when they said that any breach of any duty by a fiduciary is not necessarily a breach of fiduciary duty.[^134]

[214] By contrast, ad hoc fiduciary obligations may arise as a matter of fact out of the specific circumstances of a particular relationship.[^135] In its recent decision in Alberta v. Elder Advocates of Alberta Society the Supreme Court summarized the current approach to identifying ad hoc fiduciary relationships in the following way:

First, the evidence must show that the alleged fiduciary gave an undertaking of responsibility to act in the best interests of a beneficiary: Galambos, at paras. 66, 71 and 77-78; and Hodgkinson, per La Forest J., at pp. 409-10. As Cromwell J. wrote in Galambos, at para. 75: "what is required in all cases is an undertaking by the fiduciary, express or implied, to act in accordance with the duty of loyalty reposed on him or her."

The undertaking may be found in the relationship between the parties, in an imposition of responsibility by statute, or under an express agreement to act as trustee of the beneficiary's interests. As stated in Galambos, at para. 77:

The fiduciary's undertaking may be the result of the exercise of statutory powers, the express or implied terms of an agreement or, perhaps, simply an undertaking to act in this way. In cases of per se fiduciary relationships, this undertaking will be found in the nature of the category of relationship in issue. The critical point is that in both per se and ad hoc fiduciary relationships, there will be some undertaking on the part of the fiduciary to act with loyalty. [Emphasis added.]

Second, the duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciary has a discretionary power over them…

Finally, to establish a fiduciary duty, the claimant must show that the alleged fiduciary's power may affect the legal or substantial practical interests of the beneficiary…[^136]

[215] The existence of the fiduciary obligation is thus primarily a question of fact to be determined by examining the specific facts and circumstances.[^137] Whether an ad hoc fiduciary relationship exists therefore “demands a meticulous examination of the facts surrounding the legal and practical incidents of any particular relationship”.[^138]

[216] Commentators have described the requirement that a fiduciary give an undertaking of responsibility to act in the best interests of a beneficiary in various fashions: a person had “bound himself in some way to protect and/or to advance the interest of another”; or a person had relinquished self-interest; or a person had undertaken “to act in the interest of another person.”[^139] As Cromwell J. noted in Galambos:

This does not mean, however, that an express undertaking is required. Rather, the fiduciary's undertaking may be implied in the particular circumstances of the parties' relationship. Relevant to the enquiry of whether there is such an implied undertaking are considerations such as professional norms, industry or other common practices and whether the alleged fiduciary induced the other party into relying on the fiduciary's loyalty.[^140]

[217] As a general, but not invariable, rule courts are reluctant to recognize a fiduciary relationship as arising from a commercial contract or between arm’s length independent parties in commercial transactions because such transactions usually derive their utility from the pursuit of self-interest.[^141] Sopinka J. in his judgment in Lac Minerals Ltd. v. International Corona Resources Ltd., adopted the following passage from an academic article explaining why fiduciary duties rarely arise in arm’s length commercial transactions:

It would seem that part of the reluctance to find a fiduciary duty within an arm's length commercial transaction is due to the fact that the parties in that situation have an adequate opportunity to prescribe their own mutual obligations, and that the contractual remedies available to them to obtain compensation for any breach of those obligations should be sufficient. Although the relief granted in the case of a breach of a fiduciary duty will be moulded by the equity of the particular transaction, an offending fiduciary will still be exposed to a variety of available remedies, many of which go beyond mere compensation for the loss suffered by the person to whom the duty was owed, equity, unlike the ordinary law of contract, having [sic] regard to the gain obtained by the wrongdoer, and not simply to the need to compensate the injured party.[^142]

[218] Against those observations must be balanced the comment of the Court of Appeal in the Waxman v. Waxman case concerning the existence of a fiduciary duty in a contractual relationship between shareholders:

The appellants' second argument is that the fiduciary duty does not arise on the sale of shares by one shareholder to another, particularly where there has been no express undertaking by the selling shareholder to act in the other's interest.

Again, we do not agree. There is no reason to preclude the existence of a fiduciary duty when one shareholder sells his or her interest to another. It all depends on the relationship between them: see, for example, Tongue v. Vencap Equities Alberta Ltd. (1994), 1994 8918 (AB KB), 148 A.R. 321 (Q.B.), aff'd (1996), 1996 ABCA 208, 184 A.R. 368 (C.A.); Dusik v. Newton (1985), 1985 406 (BC CA), 62 B.C.L.R. 1 (C.A.). Although a fiduciary relationship between parties may not always extend to a share sale between them, the evidence that it does so in this case is again overwhelming. We repeat the trial judge's findings that make this clear:

They had a special and close personal relationship as brothers. They had a special and close business relationship as 50/50 partners, who had built IWS together. In the financial and legal sphere, Morris was dependent on Chester both in relation to IWS and personally. By his conduct, Chester represented to Morris that their personal and business interests were common, identical and without conflict. Morris relied absolutely and completely on Chester in legal and financial matters. Chester was fully aware of the trust and confidence that Morris reposed in him and of Morris' vulnerability (para. 1262).

Nor is it necessary that there be an express undertaking concerning the specific transaction. The focus must be on the relationship and the mutual understanding of trust and loyalty that goes with it. As the trial judge found, the lifelong relationship between the brothers led Morris to the reasonable expectation that he could completely trust Chester to look after his interest in IWS. In effect, Chester represented this to Morris by the course of his conduct throughout their relationship. He did not need to make any express representation to Morris about this transaction in order for a fiduciary duty to be found in connection with it.[^143]

[219] More recently the Supreme Court of Canada, in Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., upheld the trial judge’s finding of the existence of fiduciary duties where a commercial contract was in place between the parties. The Court went on to observe that the “fiduciary relationship in this case must therefore be circumscribed by the contractual bargain”.[^144]

B.2 Fiduciary duties and shotgun buy-sell agreements

[220] Turning more specifically to the question of fiduciary duties in the context of shotgun clauses, in Aronowicz v. Emtwo Properties Inc.,[^145] the Court of Appeal considered the availability of an allegation of breach of fiduciary duty in the context of the exercise of a buy/sell shotgun provision in a unanimous shareholders’ agreement. In that case, one brother, Harry, had triggered the provision. The other, Abraham, alleged that by failing to disclose that the financing he had arranged involved the transfer of certain properties owned by the corporation, Harry had breached fiduciary and other duties he owed to Abraham. The motions judge granted summary judgment dismissing Abraham’s claim, a result affirmed by the Court of Appeal.[^146]

[221] In the course of his decision Blair J.A. explained why the self-interested nature of a carefully drafted shotgun provision usually prompts courts to refrain from imposing fiduciary duties on the person who triggered the provision:

It is hard to conceive of a corporate/commercial mechanism less likely to attract the operation of fiduciary obligations than a shotgun buy/sell provision in a unanimous shareholder agreement. The same may be said for the operation of obligations to act reasonably, honestly and in good faith – other than the good faith obligation not to act in a fashion that eviscerates the very purpose of the agreement. A shotgun buy/sell provision is the quintessential corporate mechanism for the exercise of shareholder self-interest. Carefully drafted, it provides a delicate balance for the preservation of the parties’ individual rights by ensuring that the pulling of the trigger generates the best and highest price in exchange for the involuntary termination of the shareholders’ relationship.

There is nothing in the relationship between Harry and Abraham in the context of the Shotgun Provision that carries any indicia of such a relationship. No duty of loyalty or good faith. No discretionary power or trust. No undertaking by one party to submerge its own interests and to act for the benefit of the other. No dependency or vulnerability. As noted above, the relationship between parties to a shotgun buy/sell agreement is the very antithesis of these attributes. See Hodgkinson v. Simms; Frame v. Smith, , 1987 74 (SCC), [1987] 2 S.C.R. 99, at para. 136, Wilson J., dissenting; Lac Minerals Ltd. v. International Corona Resources Ltd., , 1989 34 (SCC), [1989] 2 S.C.R. 574, at p. 599, Sopinka J., dissenting in part, and pp. 646-647, La Forest J.; K.L.B. v. British Columbia, , 2003 SCC 51, [2003] 2 S.C.R. 403, at paras. 40-41.

Finally, courts are appropriately reluctant to impose fiduciary duties where the parties’ relationship is governed by commercial contract. As La Forest J. noted in Hodgkinson, at p. 414:

Commercial interactions between parties at arm’s length normally derive their social utility from the pursuit of self-interest, and the courts are rightly circumspect when asked to enforce a duty (i.e., the fiduciary duty) that vindicates the very antithesis of self-interest.[^147]

[222] As re-iterated by the Court of Appeal in Springer v. Aird & Berlis LLP, [^148] it is well established that:

not every statement or act made or done in the context of a fiduciary relationship gives rise to a fiduciary duty. Further, not every legal claim arising out of a fiduciary relationship will give rise to a claim for breach of fiduciary duty.

[223] An illustration of how that principle operates in the arena of offers to buy or sell partnership interests can be found in Simkeslak Investments Ltd. v. Kotler Yonge LP Ltd.,[^149] a limited partnership which owned a downtown Toronto property. Two equal groups of limited partners made up the partnership. The affairs of the partnership were governed by a limited partnership agreement. The Class A partners offered to sell their interest in the partnership to the Class B partners. Following receipt of this offer the Class B partners lined up a purchaser for 100% of the partnership at a price which would result in a profit to them. The Class B partners then accepted and closed the purchase of the partnership interests of the Class A partners. Later, when the Class A partners learned of the profit earned by the Class B partners on the “flip”, they alleged a breach of fiduciary duties.

[224] In granting summary judgment dismissing the claim of the Class A partners, Hainey J. observed that even though the case did not involve the exercise of a shotgun buy/sell provision or the making of a put which would result in a forced sale, the offer by the Class A partners was made at a time when both sets of partners “were acting entirely in their own interests to maximize the value of their interest in the partnership and to obtain the greatest value for it”,[^150] so at that time no fiduciary relationship existed between the parties with respect to that transaction. As Hainey J. noted:

The fact that fiduciary duties exist in a particular category of relationship, such as a partnership, does not mean that the fiduciary duties inherent in that relationship will necessarily continue unaffected throughout the course of the parties’ relationship. It will be “the facts surrounding the relationship” and the expectation of the parties that will determine the existence and nature of any fiduciary duties.[^151]

C. Consideration of the plaintiffs’ claims

[225] Let me deal briefly with each group of the plaintiffs’ allegations, as set out above, that the defendants breached fiduciary duties owed to them the plaintiffs.

C.1 First Group of Allegations: The existence of a voting bloc

[226] The plaintiffs’ allegation that in 1988 Di Poce had convinced MacIver to dilute Western Larch’s partnership interest to increase those of the other partners in order to establish some “voting bloc” against MacIver simply finds no support in the evidence. Quite apart from the claim being statute-barred, the evidence suggested that most decisions made by the Partners were done on a consensus basis and there was no evidence of a history of the other partners “ganging up” on MacIver.

C.2 Second Group of Allegations: Breach of a succession plan agreement

[227] In his evidence MacIver acknowledged that in 2006 the partners did not reach agreement on a succession plan and no amendment was made to the Agreement to reflect any such plan. Simply put, the evidence showed that there was no agreed-upon succession plan for the defendants to breach. There is no doubt, however, that the partners’ inability to agree upon a succession plan was one factor which led the Offeror Defendants to consider triggering the shotgun buy-sell mechanism against Western Larch.

C.3 Third Group of Allegations: Misleading the plaintiffs about the future role of Red Alder in the Partnership

[228] Cumming J., in his endorsement dismissing the plaintiffs’ request for an interlocutory injunction to restrain the closing, offered the following view on the plaintiffs’ allegations that the Offeror Defendants improperly struck a secret deal with Red Alder following the death of Giovanni Guglietti to let Red Alder back into the Partnership:

Mr. MacIver complains that his partners were going behind his back to keep Red Alder in the Partnership, with the son of the deceased as the new principal of Red Alder. He alleges that a deal had been made between Red Alder and the three Offeror Defendants that, if the Buy-Sell Offer was successful in removing the Plaintiffs from the Partnership, then Red Alder and the three Offeror Defendants would form a new partnership. Under that arrangement, Red Alder would receive back its original 19% interest in the Alpa Partnership.

In my view, Red Alder and the three Offeror Defendants had the freedom of action to enter into this arrangement and were under no obligation to tell the Plaintiffs of their intent should they be successful in removing the Plaintiffs as partners via the Buy-Sell Offer. [^152]

I see nothing in the more fulsome record placed before me that would change that assessment of the events.

[229] The record revealed that before Giovanni Guglietti died the Offeror Defendants were considering a buy-out of Western Larch. Efforts to negotiate a succession plan had failed. Some partners decided they wanted to remove Western Larch. Section 6.12 expressly permitted a majority of the partners to expel another party. The agreement amongst all of the partners embodied in Article 6 meant that a majority group of partners would not breach the fiduciary duty of loyalty they owed to a minority partner in the event they invoked the contractual buy-sell provisions set out in that article.

[230] Before steps were taken to trigger Article 6, Giovanni Guglietti died. The remaining partners, including Western Larch, began to implement the requirements of Article 8 governing the consequences of the death of a Partner Shareholder. When Di Poce broached with MacIver the prospect of bringing Red Alder back into the partnership, MacIver objected. The Offeror Defendants then made a business decision – they preferred to work to re-admit the partner with a valuable operating business, Red Alder, than to continuing to work with a partner which did not have an operating business, Western Larch. They were free to make and act upon that decision provided that they did so in accordance with the terms of the Agreement. I have found that their Offer was valid and complied with the Agreement, although on closing they failed to comply with certain closing arrangements and the side-letter Acknowledgement. While those failures may give rise to a claim for contractual damages, they do not support a claim for breach of fiduciary duty.

[231] The plaintiffs made much of a section in the December 11 Minden Gross Memo entitled, “Suspension of Partnership Agreement”. Indeed, they went so far as to argue that the re-admission deal between the Offeror Defendants and Red Alder amounted to a repudiation of the Agreement. With respect, the plaintiffs’ argument ignored the fact that the agreement between the Offeror Defendants and Red Alder to re-admit the latter was conditional on a successful buy-out of Western Larch. Until that happened, Western Larch continued to receive that to which it was entitled under the Agreement, save for the two weeks of net earnings under Section 6.9 which are in dispute. Put another way, whatever other significance the “suspension” language may have had, vis-à-vis Western Larch the Agreement continued to be performed in the normal fashion, with regard having to be taken of the December 15 Offer.

[232] As to the plaintiffs’ allegations regarding the Red Alder Preferential Allocation on Death, I have already observed that the Offer was made on the basis of Western Larch’s increased partnership interest, so Western Larch was required to pay for that increased interest in order to obtain the benefit of it under the Offer.

C.4 Fourth Group of Allegations: Improper use of the Buy/Sell Offer mechanism

[233] This group of the plaintiffs’ allegations regarding breach of fiduciary duty really is a variant of their arguments regarding the invalidity of the Offer. Let me repeat my two main findings: (i) Article 6 of the Agreement entitled the Offeror Defendants to make the Offer; and, (ii) the Offer complied with the requirements of that article. As was observed by Blair J.A. in the extract set out above from the Aronowicz decision, there is no room for allegations of breach of fiduciary duty in the exercise of a well-drafted buy-sell provision. Article 6 was a well-drafted buy-sell provision; I find that there is no basis on the evidence to support an allegation of breach of fiduciary duty by the Offeror Defendants in their exercise of their contractual right to deliver the Offer.

[234] Before moving on, let me deal with three specific points raised by the plaintiffs. First, MacIver deposed that he believed the defendants had acted in bad faith by delivering the Offer:

I also believe the Buy-Sell Offer was delivered as part of Di Poce’s stated threat to “deal with me” when I made known my opposition to Giovanni’s children’s participation in the Partnership as partners rather than on the basis of the previously agreed-to, and reneged upon, succession plan that involved all of the partners’ children. The Buy-Sell Offer has nothing to do with acting in the best interests of Alpa Partnership. Instead, it represents an attempt by Di Poce to seize absolute control over the Partnership and to rid it of what he considers to be an independent voice (my own), who has always acted to protect the Partnership.

It is clear to me that my and Western Larch’s interests have been disregarded entirely in the formulation and the delivery of Buy-Sell Offer.[^153]

Di Poce did not deny telling MacIver that he would “deal with” him. And Di Poce did. But the means which he, and the other Offeror Defendants, used to “deal with” MacIver were those which had been agreed upon by all the partners – the buy-sell mechanism contained in Article 6. One partner cannot complain, at law, that he had been “dealt with” by other partners if that dealing complied with the terms of the agreement amongst the partners.

[235] Second, I see no merit in the plaintiffs’ allegation that the Offeror Defendants failed to provide requested information in a timely manner. The initial delay by the Offeror Defendants resulted from their legitimate business desire to ensure that Western Larch had put in place some mechanism to preserve the confidentiality of sensitive financial information disclosed to third parties during any due diligence process. Those details were ironed out, documents began to flow, and by January 14, 2010 Traub, the plaintiffs’ counsel, was writing to defendant’s counsel acknowledging the spirit of co-operation which characterized the delivery of requested materials to the plaintiffs. Further, MacIver presented himself in his evidence as the “financial-side guy” in the partnership. It therefore is difficult to accept his suggestion that somehow he was operating at an information-disadvantage about the financial affairs of the Partnership. Finally, MacIver adduced no evidence that his inability to reverse the Offer was related in any way to some inability to provide interested third parties with necessary information. The evidence was to the contrary – the Offeror Defendants agreed to a mechanism for the conduct of due diligence, including site inspections.

[236] Third, the plaintiffs alleged that the use by the Offeror Defendants of the services of Matkowsky and Witten constituted a breach of their fiduciary duty to Western Larch and MacIver. I have already found that the Offer was a valid one; I do not see how the use of certain advisors could invalidate an otherwise valid Offer. If the focus of this allegation is somewhat different and, in effect, a plea that by virtue of their access to the CFO and the Partnership’s counsel the Offeror Defendants gained some unfair informational advantage over Western Larch which prejudiced its ability to respond to the Offer, the evidence does not support the allegation.[^154] I saw no merit in the plaintiffs’ allegation that the Offeror Defendants had failed to provide the plaintiffs with requested information in a timely manner. MacIver was the Partnership’s financial expert. The evidence disclosed no informational imbalance between the parties. As to MacIver’s January 15 demand for opinions from Minden Gross and Matkowsky on the inclusion of indebtedness in Alternative 2, I regard that as posturing during a negotiation process, and the Offeror Defendants were reasonable in responding by stating that MacIver should obtain such opinions from his own counsel or financial advisor.

C.5 Fifth Group of Allegations: Other alleged breaches

Misuse of house building benefit

[237] The plaintiffs alleged that several partners breached an agreement - partners and their children would receive a benefit of building one home each using materials and supplies taken from Alpa at no cost - by building more than one home in such a way. Frankfort gave the following evidence in response to that allegation:

[T]he plaintiffs accuse the defendants of misappropriation of benefits from Alpa Partnership and in particular the use of materials and supplies owned by Alpa Partnership for their personal use.

The usual routine followed by the individuals affiliated with the Corporate Partners in the event that they used building materials for personal use was either to pay for the materials directly or to inform Mr. MacIver who would keep track of the costs, which costs would be accounted for between the partners in the annual allocations of income to the partners approved by the partners.

This was the routine I followed and, to my knowledge, was the routine followed by the other individuals.

The only specific allegation made by the plaintiffs is an allegation that the late Mr. Giovanni Guglietti “confirmed that he had misappropriated $82,000 worth of lumber and other materials”. The amount of $82,878 was adjusted for in relation to Red Alder Limited in the annual allocations of income among the partners for the year ending June 30, 2008, in accordance with the routine described above. The plaintiffs’ allegation of misappropriation of benefits is wrong, the amount was adjusted for in the usual way by Mr. MacIver.[^155]

[238] MacIver did not pursue the matter in his subsequent, third affidavit and the plaintiffs did not deal with the issue in their factum. I regard Frankfort’s evidence, as well as that given by Riccardo Guglietti in his affidavit,[^156] as complete answers to the allegation.

Exclusion from negotiations for new credit agreement

[239] The plaintiffs alleged that throughout late 2009 and early 2010 the defendants excluded MacIver from the negotiations for a new credit agreement with the Royal Bank of Canada in breach of their fiduciary duties to him as a partner.

[240] On March 15, 2010, after Western Larch had been deemed to accept the Offer but before the Offer transaction had closed, Witten sent plaintiffs’ counsel a letter enclosing materials for the April, 2010 partnership meeting. Those materials included a current draft of an amended and restated credit agreement with Royal Bank. Witten wrote:

By way of background, the amended and restated credit agreement is not intended to change in any material way the terms of Alpa’s current credit facilities with RBC.

[241] MacIver wrote to Di Poce on March 17, 2010 stating that he was not prepared to consent or give his approval to the restated credit agreement. By way of explanation MacIver wrote:

The Notice of a Combined Meeting represented the first notice I was given that an amended and restated credit agreement was being contemplated. In addition to being surprised that I was not previously made aware that such an agreement was under consideration, I am concerned about the veracity of the Representations and Warranties being made and the ability to comply with the Covenants being agreed to in the proposed agreement. I am also concerned about the underlying purpose for the new signing authority being proposed for Mr. Matkowsky as well his description in the proposed credit agreement as a “Partner Representative”. I do not agree to this description.

MacIver suggested that “any consideration of the proposed draft agreement is pre-mature and that such consideration be deferred until the outstanding litigation involving the partnership is resolved”.

[242] In their factum the plaintiffs described the allegation they were making in respect of this matter as follows:

In addition, the evidence shows that the partners and Mr. Matkowsky were withholding material information regarding Alpa’s financial affairs from Mr. MacIver while he was still a partner. Specifically, Mr. MacIver was given notice in March 2010, after the purported expiration date for the Buy-Sell Offer, that Alpa had negotiated an amended and restated credit agreement with its primary lender, the Royal Bank of Canada (“RBC”). This amended agreement related to the main operating lines of credit maintained by the various Alpa entities, including a $65 million credit facility for ALI.

Despite the fact that Mr. Matkowsky, with Mr. Di Poce’s involvement, had negotiated the amended credit agreement with RBC through 2009, Mr. MacIver was never informed of the negotiations or the amended agreement until just prior to the March 2010 partners’ meeting to approve it. Previously, Mr. MacIver had always been involved or kept informed of any discussions with lenders regarding Alpa’s credit facilities. This evidence seriously undermines Mr. Di Poce’s contention that Mr. MacIver “should have known” the details of Alpa’s financial affairs so as to be able to respond to the Buy-Sell Offer.[^157]

[243] I do not accept the plaintiffs’ assertions on this matter. First, MacIver did not depose that any information regarding the amended and restated agreement would have assisted him in responding to the Offer. Indeed, Witten had advised that the amendment and restatement was not intended to change the material terms of the credit agreement.

[244] Second, as can be seen from the following evidence given by Matkowsky on his cross-examination, the timing of the disclosure of the amended and restated agreement was the result of senior management – Matkowsky – waiting until an administrative work product had been brought sufficiently along in the process before reporting to the partnership as a whole on the matter:

Q. In March of 2010, the partnership approved a new credit facilities agreement with Royal Bank?

A. Yes, we did.

Q. And when did the negotiations for that renewed facility begin?

A. Sandra Lockoff came on the account and she had Brad Clarkson, when she contacted me, much, much earlier in the year, and said, "This credit agreement is a disaster. There are too many volumes. We just don't know where we are. We just can't get our fingers on things. Nobody wants to be on the account." She says we need to consolidate it. I told her at that time, business was tough and I could not spend that kind of money at this time. So I would say she originally approached me April, May of the prior year.

Q. Of 2009?

A. 2009, yes.

Q. And when did those discussions pick up again?

A. I think in the fall.

Q. Of 2009?

A. 2009, yes.

Q. And did you acquaint Mr. MacIver with the fact that those discussions were being renewed?

A. No.

Q. And was there a reason for that?

A. I was handling the relationships with the banks, and the financing, and I felt very comfortable. It was not a whole new agreement. It was a consolidation of "x" number of books all into one with appendixes.

Q. And I assume that as CFO you would report from time to time, at least to the other partners, on the state of the progress of those negotiations?

A. I had kept John informed.

Q. And George Frankfort?

A. No.

Q. Had Mr. MacIver, in the past, been involved in discussions, or at least kept informed of discussions with lending institutions regarding credit agreements?

A. Previously.[^158]

[245] Given the administrative nature of the work Matkowsky performed in respect of the amended and restated credit agreement and the absence of any evidence from MacIver that Western Larch was prejudiced by that administrative work, I see no merit whatsoever in this allegation of breach of fiduciary duty.

C.6 Summary

[246] For these reasons, I conclude that the defendants have demonstrated that no genuine issue requiring a trial exists in respect of the plaintiffs’ breach of fiduciary duty claims, and I dismiss the claims asserted in the following portions of the Amended Statement of Claim: paragraph 1(m) and paragraph 1(n) to the extent it seeks damages for breach of fiduciary duty.

IX. Analysis: Oppression claims

A. The Plaintiffs’ claims and the positions of the Defendants

A.1 Plaintiffs’ allegations

[247] The plaintiffs pleaded that Di Poce, Carmine and Giovanni Guglietti formed a voting conspiracy to control Alpa and to marginalize MacIver and Western Larch and, ultimately, sought to remove MacIver and Western Larch from Alpa against their will and for less than fair value thereby acting in an oppressive manner against the plaintiffs who were security holders, creditors and directors and officers of ALI and other Alpa corporate entities. The plaintiffs also asserted that Di Poce, Carmine and Frankfort, as officers and directors of ALI, engaged in oppressive conduct against the plaintiffs:

(i) by using the services of Witten and Matkowsky to assist in preparing their Offer; and,

(ii) making the Offer for an unfair price and on unreasonable terms

[248] Next, the plaintiffs contended that debts owed by Termpark Inc., Roycourt Inc. and Sugar Maple Holdings (RHRW) Inc. to Western Larch were included improperly in the Offer’s purchase price, thereby resulting in payment of the indebtedness to Western Larch over a four-year period instead of “being repaid immediately as required pursuant to the parties’ reasonable expectations”.

[249] All this conduct, the plaintiffs alleged, contravened their reasonable expectations “to have an ongoing role and participation” in the Partnership or, “at the very least”, to have their interest bought out “for fair value”. The plaintiffs also pleaded a reasonable expectation that the defendant partners would not act against the plaintiffs’ best interests.

A.2 Defence of the Di Poce Defendants

[250] The Di Poce Defendants denied that the plaintiffs were “complainants” within the meaning of section 245 of the Ontario Business Corporations Act. Further, they stated that the reasonable expectations of the plaintiffs were framed by the Agreement. The Di Poce Defendants contended that the Agreement permitted them to make the Offer as they did and that delivery of the Offer in accordance with the terms of the Agreement could not constitute oppressive conduct. In addition, they pleaded that the Agreement did not preclude their agreement to re-admit Red Alder after the purchase of the Western Larch interests.

A.3 Defence of the Red Alder Defendants

[251] The Red Alder Defendants denied that the plaintiffs enjoyed standing to assert an oppression complaint and, in any event, denied engaging in any oppressive conduct against the plaintiffs.

B. Governing legal principles: oppression claims

[252] The oppression remedy contained in section 248 of the OBCA is an equitable remedy which seeks to ensure fairness and which gives courts a broad, equitable jurisdiction to enforce not just what is legal, but what is fair. In considering oppression claims courts must look at business realities, not merely narrow legalities. At the same time the remedy is very fact-specific – what is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play.[^159]

[253] In BCE Inc. v. 1976 Debentureholders the Supreme Court identified the two inquiries which a court must make in considering an oppression claim: (i) Does the evidence support the reasonable expectation asserted by the claimant? and (ii) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest?[^160] The reasonable expectations of specified stakeholders is the cornerstone of the oppression remedy.[^161] Fair treatment - the central theme running through the oppression jurisprudence - is most fundamentally what stakeholders are entitled to "reasonably expect".[^162]

[254] The concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive - the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.[^163]

[255] The onus lies on the claimant to identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held.[^164] Factors which a court may consider in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders.[^165]

[256] As the Supreme Court pointed out in BCE, not every unmet expectation gives rise to an oppression claim. Something more is required: “The section requires that the conduct complained of amount to "oppression", "unfair prejudice" or "unfair disregard" of relevant interests…[I]t is worth stating that as in any action in equity, wrongful conduct, causation and compensable injury must be established in a claim for oppression.”[^166]

C. Consideration of the plaintiffs’ claims

[257] The plaintiffs’ oppression allegations can be dealt with in brief fashion since they simply re-cast allegations made under other causes of action. For reasons already given, the plaintiffs’ asserted expectation “to have an ongoing role and participation” in the Partnership or, “at the very least”, to have their interest bought out “for fair value”, were not reasonable on any objective basis. Article 6 permitted the expulsion of a partner through the buy-sell offer mechanism. The Offeror Defendants were entitled to trigger that mechanism, and I have found that their Offer was valid. By the same token there was no reasonable basis for an expectation by the plaintiffs that they would be bought out only at “fair value”. They had agreed to a shotgun buy-sell mechanism which permitted the making of an offer to them at “a value”, and entitled them to reverse the offer at that value. Those contractual provisions bench-marked the reasonable expectations of all partners with respect to the value which they reasonably could expect when delivered a buy-sell offer.[^167] The defendants did not engage in oppressive conduct as alleged by the plaintiffs.

[258] I therefore conclude that no genuine issue requiring a trial exists in respect of the plaintiffs’ oppression claim, and I dismiss the claims asserted in the following portions of the Amended Statement of Claim: paragraphs 1(o), (p), (q), (r) and (s).

X11. Summary, directions regarding trial and costs

[259] By way of summary, I conclude that the moving party defendants have demonstrated that no genuine issue requiring a trial exists in respect of the plaintiffs’ claims regarding the validity of the Offer, breach of fiduciary duty and oppression. Consequently, I grant summary judgment dismissing the claims alleged in the following paragraphs of the Amended Statement of Claim: paragraphs 1(a), (m), (n) to the extent it seeks damages for breach of fiduciary duty, (o), (p), (q), (r), (s), (t), (u) and (v).

[260] As to the plaintiffs’ claim for damages against as the defendants, other than Red Alder and the Guglietti Estate, caused by breach of contract as pleaded in paragraph 1(n) of the Amended Statement of Claim, I conclude that the moving party Offeror Defendants have not demonstrated that no genuine issue requiring a trial exists with respect to the following three specific claims, for which I direct a trial:

a/ the claim that Western Larch suffered damage as a result of the closing occurring on the basis that Western Larch was not paid in full on closing the indebtedness owed to it by the Partnership;

b/ the claim by Western Larch for additional net earnings pursuant to section 6.9 of the Agreement; and,

c/ the claim by Western Larch that on closing it should have received the narrowly defined earnings interest described in the Acknowledgement and whether any damages resulted from that omission.

It follows that the action against Red Alder Limited and The Estate of Giovanni Guglietti, deceased, is dismissed in its entirety.

[261] In Harris v. Leikin Group I expressed the view where a judge refuses to grant a motion for summary judgment in a complex case, the motions judge should act as the trial judge so that the parties do not lose the benefit of the work product developed on the motion for summary judgment.[^168] I intend to follow that course in this case and will act as the trial judge.

[262] I understand that an April, 2013 trial date has been scheduled. Counsel are to consult on what further steps remain to ready this action for trial and then schedule a 9:30 appointment before me for further directions. If possible, I would ask that the 9:30 be booked for a date before Christmas. If that is not possible, the appointment must be as early as possible in January, 2013.

[263] I reserve the costs of these motions to the conclusion of the trial which I have directed.

X. Some final comments on the scheduling of this and other summary judgment motions

[264] I wish to conclude with some comments about the procedural history of this summary judgment motion, as well as the phenomenon of large summary judgment motions.

A. The importance of keeping commitments to go trial

[265] First, dealing with the procedural history of this case, Cumming J., in his May 27, 2010 reasons dismissing the injunction motion, stated:

Both parties have asked for an expedited trial and that should be arranged under the supervising direction of the Court.[^169]

That no doubt stemmed, in part, from the statements made by Frankfort in his responding affidavit in which he deposed:

If necessary, Di Poce, Carmine Guglietti and I and our partner corporations are prepared for this Honourable Court to order a trial with respect to the claim of the plaintiffs that they are entitled to fair market value as a purchase price in the Buy-Sell Offer after the Buy-Sell Offer is closed. They can pursue the balance of the relief that they claim in the Statement of Claim at that time.

[266] Notwithstanding that the moving party defendants had joined with the plaintiffs in asking Cumming J. for an expedited trial, they subsequently changed their minds and initiated these summary judgment motions. The plaintiffs moved to stay the motions. A judge of this Court, in reasons released January 20, 2011, dismissed the stay motion and allowed these summary judgment motions to proceed. Over one year then elapsed – January 20, 2011 until May 3, 2012 – before this “summary” judgment motion was argued before me. The matter could have been tried within that time. A further half year has elapsed while I had these motions under reserve, having secured a formal extension from my Regional Senior Justice since motions are regarded as “short” “simple” matters for which we are required to release our decisions within three months.

[267] So, stepping back, in January, 2010 Cumming J. directed an expedited trial and now, in December, 2012, almost three years later, I am releasing my reasons on summary judgment motions and directing a trial of several issues next year. I do not see much which is “summary” in that process.

[268] But for the order of this Court made on January 20, 2011 dismissing the plaintiffs’ stay motion, I would not have heard these summary judgment motions. If parties agree to an expedited trial, they must honour their agreement, not resile from it. The fact that our litigation system is adversarial in nature does not justify the breach of promises or representations made to the court.

B. Behind the judicial door – the life of a reserve

[269] These motions were argued on May 3 and 4, 2012. Counsel were most efficient; the argument took only 1.5 days. Over seven months have elapsed from the time of oral argument to the release of these Reasons. Section 124(5) of the Courts of Justice Act requires a judge to render a decision on a motion within three months of the date of the hearing, or otherwise secure an extension from the Regional Senior Justice, which is what I did.

[270] As I have written elsewhere, I do not think that litigants appreciate the time it takes to prepare reasons on these complex summary judgment motions. As a practical matter a motion judge must undertake the same level of factual review on a summary judgment motion as the judge would if deciding a trial solely on a written record. Much of that factual review occurs after the motion hearing, not contemporaneously with the adducing of the evidence as occurs at a trial. That takes time.

[271] For the first time since my appointment to the Bench I kept a docket of the time which I spent on writing a judgment. I spent 75 hours writing these Reasons. To put that number in context, the 1.5 day hearing (7.5 hours of sitting time) in this case resulted in the expenditure of 75 hours of judicial decision-making time. Under current Superior Court of Justice internal scheduling protocols each judge must sit 35 weeks a year, or a total of 175 sitting days, or 875 hours (1 sitting day = 5 sitting hours). The hearing of these motions therefore consumed 0.86% of my annual hearing time.

[272] Each year a judge is allocated 9 weeks of non-sit or judgment writing time. Using an eight-hour writing day, that results in 360 hours of allocated judgment writing time. These Reasons took 75 hours to write, or 21% of my annual judgment writing time. (Of course most judges use part of their vacation to write reserve judgments, but I will put that issue to one side.)

[273] In short, a complex summary judgment motion which took less than 1% of my annual sitting time to hear consumed 21% of my allocated annual judgment writing time.

[274] Our Court now sees an increasing number of complex summary judgment motions. Yet, at the same time that judges are asked to hear complex summary judgment motions, they also are called upon to hear and decide quickly numerous intervening urgent motions and applications. Inevitably each judge subjects his or her reserve inventory to a form of triage, often resulting in delays to the adjudication of less urgent complex matters, such as summary judgment motions of the kind now before me.

[275] Is over seven months an acceptable turn-around time for a 1.5 day summary judgment motion? I do not think that it is, but in the present case it was not possible to do otherwise; other demands on my judicial time prevented starting these Reasons until early October, 2012. If such a delay is not acceptable, then what questions do we, as judges, need to ask about our internal procedures in order to ensure that the public receives more timely decisions? The issue has several facets, one of which is our internal scheduling protocol which is predicated on three principles: (i) generally meeting the statutory requirement to release decisions on motions within three months of the hearing; (ii) annually assigning each judge the same number of judgment writing weeks regardless of the complexity of the matters under reserve; and, (iii) assuming that as a general rule the volume of work asked of our Court routinely can be met within normal business hours. On the last point a 2010 amendment to our internal scheduling protocol expressed the following principle:

While additional hours daily, over and above “sitting hours”, are an inherent and reasonable aspect of duties in a judicial day, judicial scheduling should endeavour to avoid situations where workload results in routine or systemic night and weekend work.

The present-day reality of our court is that unless most judges routinely worked nights, many weekends and part of their vacations, our court system would collapse. Even then, it remains very difficult to release complex motion decisions within the time prescribed by the Courts of Justice Act.

[276] So, if in the current civil litigation era complex summary judgment motions are to remain available to parties to bring (assuming the motions otherwise meet the Consolidated Air principles), how can those motions be accommodated within existing judicial resources without requiring the parties to wait a long time for a judgment? What role does the current uniform allocation of judgment writing weeks in this Court play in such delays? Must existing scheduling principles be re-thought? Is it time to re-jig the allocation of judgment writing so that a more direct relationship exists between the complexity of a matter heard and the time allocated to a judge to write the resulting decision in a timely manner?

[277] If we are to restore the health of Ontario's ailing civil litigation system, as judges we must not only call on those who appear before us to change their litigation culture, we also must look at our own internal scheduling culture and change it to meet the realities of our times. No sacred cows, judicial or otherwise, should stand immune from scrutiny behind some firewall. Everything must be on the table for examination and reform. Restoring the health of our province’s civil litigation system requires no less.

(original signed by)________

D. M. Brown J.

Date: December 11, 2012

[^1]: MacIver Affidavit sworn March 17, 2011 (“Third MacIver Affidavit”), para. 5. [^2]: MacIver April 26, 2010 Affidavit (“MacIver Second Affidavit”), para. 4. [^3]: MacIver Third Affidavit, para. 6. [^4]: Frankfort’s evidence is supported by the terms of the 2006 plan found at Ex. C to MacIver’s Second Affidavit. [^5]: MacIver Second Affidavit, para. 30(d). [^6]: MacIver First Cross-Examination Transcript, Q. 192 and 197. [^7]: MacIver First Transcript, QQ. 235-6. [^8]: Di Poce Cross-Examination Transcript, QQ. 69-79. [^9]: MacIver Amended Affidavit, April 9, 2010, paras. 35 and 36. [^10]: Di Poce, Transcript, Q. 220. [^11]: MacIver First Transcript, QQ. 226-7, 229. [^12]: Matkowsky Cross-Examination Transcript, QQ.105-109. [^13]: Matkowsky Transcript, QQ. 92-93. [^14]: See Frankfort Cross-examination Transcript, QQ. 477-479; 609-622. [^15]: MacIver deposed that until 2006 Minden Gross also had acted as counsel to Western Larch, but with the failure of the proposed 2006 succession plan, he then retained separate counsel for Western Larch. [^16]: Transcript of Frankfort cross-examination, Q. 144; Matkowsky testified that the discussions took place in the latter part of October: Matkowsky Transcript, QQ. 207-210.. [^17]: Riccardo Guglietti transcript, QQ. 80-92. [^18]: Frankfort, April 19, 2010 affidavit, paras. 67 and 68 [^19]: Frankfort transcript, Q. 109. [^20]: Davies Phillips Vineberg acted for the Di Poces; Oslers, for the Frankforts; and, Gowlings, for the Guglietti families. [^21]: MacIver Amended Affidavit, para. 38. [^22]: Matkowsky transcript, QQ. 254-260. [^23]: Frankfort Transcript, QQ.169-172. [^24]: Transcript of examination of Stephen Witten conducted October 3, 2011, Q. 124. [^25]: Witten Transcript, Q. 76. [^26]: Frankfort transcript, QQ. 272 and 606. See also Carmine Guglietti cross-examination, QQ. 80 – 83. [^27]: Transcript of the cross-examination of MacIver conducted on October 5, 2011 (“MacIver Second Transcript”), Q. 74. [^28]: MacIver Amended Affidavit, paras. 69-70. [^29]: MacIver Second Affidavit, para. 42. [^30]: MacIver First Transcript, QQ. 244, 246-248. [^31]: MacIver First Transcript, Q. 288. [^32]: MacIver First Transcript, Q. 508, 512. [^33]: MacIver December 28, 2009 email to M. Moore, RBC, contained in MacIver’s answers to undertakings. [^34]: MacIver First Transcript, QQ. 290-320; 347. [^35]: MacIver First Transcript, Q. 522. [^36]: Witten Transcript, Q. 177. [^37]: MacIver Amended Affidavit, para. 76. [^38]: MacIver First Transcript, QQ. 671-2. [^39]: Frankfort transcript, QQ. 198-199. [^40]: MacIver Amended Affidavit, paras. 61 and 62. [^41]: Riccardo Guglietti Affidavit, para. 9; Matkowsky Transcript, QQ. 307-310. [^42]: Di Poce transcript, Q. 160. See also the transcript of the cross-examination of Riccardo Guglietti, Q. 76. [^43]: Di Poce transcript, Q. 183. [^44]: MacIver Second Transcript, QQ. 78-81. [^45]: MacIver Second Transcript, Q. 84. [^46]: MacIver Second Transcript, QQ. 89-92. [^47]: MacIver Second Transcript, Q. 99. [^48]: MacIver Second Transcript, QQ. 107-109. [^49]: MacIver Second Transcript, QQ. 112-114. [^50]: MacIver Second Transcript, QQ. 105-6. [^51]: Frankfort, Transcript, QQ. 588-9. [^52]: Matkowsky Transcript, QQ. 127-130. [^53]: MacIver Second Transcript, Q. 129. [^54]: 2011 ONCA 764, paras. 1 and 2. [^55]: Ibid., para. 36. [^56]: Ibid., para. 38 [^57]: Ibid., para. 38 [^58]: Ibid., para. 39. [^59]: Ibid., paras. 40 to 45. [^60]: Ibid., para. 50. [^61]: Ibid., paras. 53-54. [^62]: Ibid., para. 55. [^63]: Ibid., paras. 51 and 52. [^64]: Responding Parties’ Factum, para. 110. [^65]: See the cases considered by the Court of Appeal in 3869130 Canada Inc. (c.o.b. I.C.B. Distribution 2001) v. I.C.B. Distribution Inc., 2008 ONCA 396, paras. 31 to 33. [^66]: (2007), 2007 ONCA 59, 85 O.R. (3d) 616 (C.A.), para. 56. [^67]: Buttonwood Holdings Inc. v. Magi Seal Corporation, 2010 ONCA 825, para. 24. [^68]: Trimac Ltd. v. C-I-L Inc., 1987 3376 (AB KB), [1987] 4 W.W.R. 719 (Alta. Q.B.), para. 29; affirmed 1987 ABCA 144, [1987] 6 W.W.R. 66 (Alta. C.A.). [^69]: [1993 7005 (AB KB)](https://www.canlii.org/en/ab/abqb/doc/1993/1993canlii7005/