ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 52917/11 (St. Catharines)
DATE: 2013-04-24
BETWEEN:
Bruno Moos and Élyane Grenier
Applicants
– and –
Vendage Corp. and Morrie Neiss
Respondents
Geoff R. Hall, for the Applicants
Peter A. Mahoney, for the Respondents
The Honourable mr. justice P. B. Hambly
REASONS FOR JUDGMENT
[1] This matter came before me on February 20, 2013 on a motion for directions for the distribution of the net proceeds of the sale of a business.
[2] The facts are set out in my previous rulings. I will only refer to the facts as necessary to support this judgment. I gave an oral ruling and reserved my right to provide written reasons. These are my written reasons.
[3] Alvento has been sold. According to the figures presented to me there are net proceeds available for distribution of $1,343,427.16. There are outstanding wages owing to Moos and Grenier. Counsel for Moos and Grenier suggested a figure of $75,000. Neiss does not agree with this figure. He does not provide an alternative figure but says that it should be determined by Durward Jones and Barkwell, who are the accountants of Alvento. I agree with Neiss on this point. There will be further fees for the accountants to do this that must be paid from the net proceeds. There may also be further expenses. What the parties seek from me is a ruling on the method to be used to distribute the net proceeds between them. I will use the figures that they provided, although the final figures will likely be different.
[4] The parties entered into a shareholders agreement dated February 12, 2001 (first agreement) and another agreement dated December 1, 2004 (second agreement). The second agreement contained the following clauses:
- Section 5.01 of the Shareholder Agreement provides as follows,
“As at December 31st, 2002, Vendage has advanced to the CORPORATION the sum of EIGHT HUNDRED AND NINETY-THREE THOUSAND FIVE HUNDRED AND SIXTY-FIVE DOLLARS ($893,565.00)(the “Vendage Advances”) while Moos has advanced to the CORPORATION the sum of FOUR HUNDRED AND SEVENTY-SIX THOUSAND FOUR HUNDRED AND EIGHTY-FIVE DOLLARS AND SEVENTY-TWO CENTS ($476,485.72) (the “Moos Advances”).”
- Section 5.02 of the Shareholder Agreement provides as follows:
“If either Vendage or Moos has loaned funds to the CORPORATION in an amount greater than their respective Vendage Advances or Moos Advances (the “Excess Loan”), then any such excess shall be repaid, subject to the provisions of subsection 10.03, prior to:
a) the repayment of any loans to the other SHAREHOLDER;
b) the redemption or purchase by the CORPORATION of any of its shares; or
c) the payment of any dividends.”
[5] The parties cannot agree as to how these clauses are to be interpreted. Section 10.03 of the second agreement deals with the payment of bonuses and provides that the parties will not call on Alvento to repay the loans owing to them for seven years. These agreements were not entered into in contemplation that Alvento would fail.
[6] These agreements do not answer the question of how the proceeds from the sale of the business are to be divided, in the event that there is not enough to pay the loans that the parties made to Alvento. In my view this must be determined on the basis of the understanding by the parties of their business relationship. Alvento was a joint venture. Moos and Grenier would do the farm work and provide some of the initial start up capital. Neiss was to provide more of the start up capital and money to operate the business before it was self-supporting.
[7] In my judgment dated October 17, 2011, I made an order that Moos and Grenier collectively owned the same amount of shares in Alvento as Neiss. I stated the following:
[21] I do find however that when the 2001 agreement was replaced with the 2004 agreement there was an expectation that Bruno and Élyane would have equal shareholdings with Vendage by December 31, 2007. I find it is oppressive for Neiss, as the majority shareholder, to take the position on behalf of 144 that because Bruno and Élyane did not give written notice for the issuance of shares by 144 to them in 2005 and 2006 that their respective shareholdings in 144 are 1,045 for Bruno and Élyane and 1,435 for Vendage, which is what they were at the end of 2005.
[8] The initial advances made by the parties to Alvento were as follows:
Moos and Grenier $149,760
Neiss $474,240
Total $624,000
[9] A mortgage, as contemplated by the first agreement, in the amount of $623,000 was placed on the land owned by Alvento to provide security for these loans. Clearly this was an error in the amount of $1.
[10] The parties made advances to Alvento after the advances referred to in para. 5.01 of the second agreement as follows:
Moos and Grenier $ 19,459
Neiss $1,360,525
Total $1,379,984
[11] On the figures provided to me, based on estimated outstanding wages owed to Moos and Grenier of $75,000, the net proceeds available for distribution are $1,268,427.60. Neiss takes the position that the mortgage should be ignored and the amount of $1,360,525 should be paid to him first.
[12] The principles for the interpretation of a contract were set out by the Court of Appeal in the judgment of Justice Blair in Ventas v. Sunrise 2007 ONCA 205, [2007] O.J. No. 1083 as follows:
24 Counsel accept that the application judge correctly outlined the principles of contractual interpretation applicable in the circumstances of this case. I agree. Broadly stated - without reproducing in full the relevant passages from her reasons (paras. 29-34) in full - she held that a commercial contract is to be interpreted,
(a) 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;1
(b) by determining 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 have intended what they have said;2
(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties;3 and (to the extent there is any ambiguity in the contract),
(d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.4
[13] The Court of Appeal could not have meant that these principles should apply to create an injustice. The “factual matrix underlying the negotiations of the contract” was that the parties were to be on a basis of equality with Moos and Grenier supplying labour, expertise in the growing of grapes and their life savings and Neiss providing initial financing.
[14] I agree essentially with the proposal of counsel for Moos and Grenier for the distribution of the net proceeds of the sale. In my view, the intention of the parties is best achieved by first paying from the net proceeds the wages owing to Moos and Grenier. The mortgage in the amounts that it was meant to secure should be paid. The balance ought to be divided by applying to each of the loans the proportion of the net proceeds remaining to the total of the excess loans.
[15] The figures using the ones provided to me are as follows:
Net proceeds of sale: $1,343,427.16
Less
Unpaid salary owing to Moos and Grenier: $ 75,000.00
Advances secured by mortgage:
Moos and Grenier: $149,760.00
Neiss: $474,240.00
$624,000.00 $624,000.00
$699,000.00 $ 699,000.00
$ 644,427.16
Remaining Proceeds
Excess loans:
Niess: $1,360,525.00
Moos & Grenier $ 19,459.00
$1,379,984.00
Proportion of Remaining Proceeds of Excess Loans
$ 644,427.16
$1,379,984.00 = .46698162
Payable to Moos and Grenier: $19,459.00 x .46698162 = $ 9,087.00
Payable to Niess: $1,360,525.00 x .46698162 = $635,340.16
$644,427.16
[16] On the issue of costs speaking, with the benefit of hindsight, in my view this enterprise was doomed to fail from the outset. I said in my Ruling on Costs dated February 29, 2012 the following:
Running through the material are themes that Neiss is an experienced businessman, albeit in the pharmacy industry and that he is wealthy. Lacking are any particulars of how experienced he is and how wealthy he is. All of the life savings of Moos and Grenier are in Alvento. One wonders at the wisdom of Moos and Grenier, whose experience in the wine industry was gained in Italy and Neiss, whose business experience was gained in the pharmacy industry, staking so much on the development of a winery from scratch in southern Ontario.
Success has been divided. There will be no order as to costs.
[17] There will be an order as follows:
The amount of the wages owed by Alvento to Moos and Grenier shall be determined by Durward Jones Barkwell and Company LLP. and their fees paid from the net proceeds of the sale.
The net proceeds after payment of the wages and the mortgage shall be divided by applying to each of the excess loans the proportion of the net proceeds to the total amount of the excess loans.
There will be no order as to costs.
P.B. Hambly J.
Released: April 24, 2013
COURT FILE NO.: 52917/11 (St. Catharines)
DATE: 2013-04-24
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Bruno Moos and Élyane Grenier
- and –
Vendage Corp. and Morrie Neiss
REASONS FOR JUDGMENT
P.B. Hambly J.
Released: April 24, 2013