COURT FILE NO.: CV-13-10050-00CL

DATE: 20130807

SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

Application Under the Business Corporations Act (Ontario), R.S.C. 1990, c. B.16, as amended, Section 253

RE: 1712302 ONTARIO INC., 1714970 ONTARIO INC., AND DION, DURRELL + ASSOCIATES INC., Applicants

AND:

SYLVAIN DION, JOSH ZIRIN, JASON BRAUN, DONALD CALLFAS, DORIS MCDOUGALL, TATIANA BALTSEVITCH DAVID BRAY, JEREMY JOHNSON, AND CRISTI LOMBARDI, Respondents

BEFORE: MORAWETZ J.

COUNSEL:
B. H. Bresner and E. Sinha, for the Applicants (Respondents on Motion)

R. B. Swan, for Sylvain Dion, Respondent (Moving Party on Motion)

W. E. Pepall, for Respondents except Sylvain Dion

HEARD: JUNE 3 AND 7, 2013

ENDORSEMENT

[1] The respondent, Sylvain Dion (“Dion”) brought this motion for an order that this application (the “Clawback Application”) be stayed pending the determination of the related consolidated proceedings consisting of:

(a) an action commenced by Dion claiming damages for wrongful dismissal, CV-12-448772 (the “Wrongful Dismissal Action”);

(b) an application commenced by 1712302 Ontario Inc., CV-11-9427-00CL (the “Winding-Up Application”);

(c) an application commenced by Dion claiming relief for oppression, CV-11-943200CL (the “Dion Oppression Claim”); and

(d) an application commenced by Dion and Josh Zirin (“Zirin”) claiming relief for oppression, CV-12-982-00CL (the “Zirin Oppression Claim”) (collectively, the “Other Proceedings”).

[2] Alternatively, Dion requests an order that the Clawback Application be consolidated with the Other Proceedings, or heard or determined together with the Other Proceedings, with necessary procedural directions.

[3] The remaining respondents supported the position of Dion.

[4] Dion, Durrell + Associates Inc. (“DD+A”), 1712302 Ontario Inc. (“Sr. Holdco”) and 1714970 Ontario Inc. (“Jr. Holdco”) (collectively, “DDA”) oppose the motion, on grounds which can be summarized as follows:

(a) The Clawback Application seeks a determination that the “Clawback” provision in the DDA Unanimous Shareholders’ Agreement, made as of October 31, 2006, (the “USA”), in enforceable against the respondents. DDA takes the position that a determination of the Clawback Application does not depend on any disputed material facts;

(b) Other than the Wrongful Dismissal Action, the Other Proceedings are effectively moot, save for the issue of costs. DDA takes the position that Dion has done nothing to advance the Wrongful Dismissal Action since DDA served its Statement of Defence and Counterclaim over one year ago and has not responded to DDA’s efforts to move the Other Proceedings forward nor has he complied with the order of Wilton-Siegel J. that the Other Proceedings be dealt with expeditiously;

(c) The only arguments advanced by any of the respondents in the Other Proceedings in opposition to the enforcement of the Clawback were (i) an argument by Dion that, strictly as a matter of contract interpretation, the Clawback should not apply to a wrongfully dismissed shareholder and (ii) an argument by Dion and Zirin, now moot, that the Second Proposed Transaction was structured in a manner which would have seen the Clawback applied in a discriminatory fashion against those shareholders who did not join the prospective purchaser;

(d) The respondents, Donald Callfas and Doris McDougall, are not parties to the Other Proceedings. Tatiana Baltsevitch, David Bray, Jeremy Johnson and Christi Lombardi are only parties to the Winding-Up Application, which does not involve any issue regarding the Clawback;

(e) Although Zirin is a party to the Zirin Oppression Application, the primary substantive relief sought in that application was an order enjoining the Second Proposed Transaction. That issue was disposed of by the consent order of Wilton-Siegel J. The objection to the enforcement of the Clawback in the Zirin Oppression Application was based on an allegation that its enforcement would be oppressive because, upon closing of the Second Proposed Transaction, those DDA employees who joined the purchaser would not be subject to it and would thereby be favoured over those employees who joined Dion Strategic Consulting Group. Given that the Second Proposed Transaction did not close, Dion and Zirin have done nothing since then to pursue the Zirin Oppression Application;

(f) A delay in the determination of the issue framed by the Clawback Application is seriously prejudicial to DDA and all of its shareholders other than the respondents. A stay or consolidation of the Clawback Application with the Prior Proceedings would inevitably result in a substantial delay.

[5] DDA is a professional services firm specializing in risk management and actuarial services. It was founded in October 1995 by Mr. Ian Durrell (“Durrell”) and Dion.

[6] DDA is employee owned. The common shareholders of Senior Holdco are employees and former employees of DDA. Senior Holdco owns all of the common shares of Junior Holdco. Dion and Durrell own preference shares of Junior Holdco and Junior Holdco holds all of the common shares of DD+A, the operating company.

[7] In October 2006, DDA underwent a corporate reorganization and, as part of the process, the corporations and their shareholders entered into the USA.

[8] The Clawback requires former shareholders-employees of DDA who take client business from DDA to compensate Senior Holdco and its shareholders for the business taken from DDA. From the standpoint of DDA, the respondents are all former shareholder-employees of DDA who are employed by Dion’s company, Dion Strategic Consultant Group. DDA takes the position that the business of Dion Strategic Consultant Group is in direct competition with DDA and has taken significant business away from DDA, yet the respondents refuse to comply with their obligations under the Clawback, while concurrently seeking the benefits of the USA.

[9] In October 2010, certain directors and members of DDA management engaged in discussions regarding a potential sale of DDA through a hybrid asset and share sale (the “First Proposed Transaction”).

[10] Durrell was in favour of the First Proposed Transaction. Dion was not.

[11] A board resolution passed, approving the letter of intent in connection with the First Proposed Transaction. However, as the First Proposed Transaction was a change of control event under the USA, approval by a special resolution of the common shareholders of Senior Holdco was required. Without the support of Dion and certain other shareholders who supported Dion, the special resolution could not be passed.

[12] Two weeks after failing to achieve the requisite shareholder support for the First Proposed Transaction, Sr. Holdco commenced the Winding-Up Application, in which Sr. Holdco sought an order to convert Dion’s common shares, and the common shares of those shareholders who voted against the First Proposed Transaction, into non-voting special shares.

[13] Dion then initiated the Dion Oppression Claim against DDA and certain DDA directors.

[14] The parties then participated in judicial mediation with C. Campbell J. in November and December 2011. The mediation was not successful.

[15] On December 21, 2011, DDA terminated Dion’s employment. Dion responded with the Wrongful Dismissal Action against DDA, seeking, among other things, a declaration that his employment was wrongfully terminated and damages for breach of contract in the amount of $6 million. This action remains outstanding.

[16] On September 12, 2012, Zirin and Dion issued the Zirin Oppression Claim. From the standpoint of Zirin and Dion, an element of the oppressive behaviour giving rise to the Zirin Oppression Claim was the unfairly prejudicial and oppressive application of the Clawback provisions by Article 6.2 of the USA.

[17] The relief sought by Zirin and Dion included a declaration that the Clawback provision of the USA, as against Zirin and Dion effected a result that is oppressive and unfairly prejudicial. Alternatively, a declaration that the selective application by DDA of the Clawback provision, effected a result that is oppressive and unfairly prejudicial to certain DDA shareholders as well as an order enjoining DDA from applying or enforcing the provisions of the Clawback provision against any shareholder or former shareholder of DDA.

[18] It is apparent from the foregoing factual review, that at some point in time, Dion and Durrell operated a very successful business. Their relationship soured and litigation, on several fronts, erupted.

[19] Dion contends that the Applicants are withholding redemption proceeds and distribution amounts totalling, at a minimum, approximately $5 million from the respondents and the former employees. Further, Dion takes the position that, even on DDA’s best-case scenario (which would presume full enforceability of the claw back, maximum amounts receivable under the Clawback and minimum amounts payable for the share redemption and distributions), the amounts owing thereunder (which are payable over three years) are approximately equivalent to the share redemption and distribution amounts.

[20] It seems to me that the dispute in the Other Proceedings revolves around the following:

(i) The amount of compensation due to Dion and the other former employees of DDA.

(ii) Quantifying the amount of the Clawback payment from Dion and the former shareholder employees of DDA to DDA.

[21] By consent order dated November 1, 2012 (the “November 2012 Order”), the court ordered that the Other Proceedings be heard and determined together, and be case managed by a judge of the Commercial List.

[22] It is also noted that the November 12, 2012 Order provides that the applicability and enforceability of the clawback be heard and determined in the consolidated proceedings, which includes Dion’s wrongful dismissal action and the current Applicants’ counterclaims in that action.

[23] On this motion, the issue to be determined is whether the Clawback Application should be stayed pending a resolution of the Other Proceedings or consolidated or be heard with them.

[24] Section 106 of the Courts of Justice Act (“CJA”) provides generally that the court may stay a proceeding and section 138 of the CJA provides that: “As far as possible, multiplicity of legal proceedings shall be avoided”.

[25] Rule 6.01 of the Rules of Civil Procedure provides that the court may consolidate or stay proceedings where it appears to the court that:

(a) they have a question of law or fact in common,

(b) the relief claimed in them arises out of the same transaction or occurrence or series of transactions or occurrences, or

(c) for any reason an order ought to be made.

[26] Rule 1.04 provides for the rules to be “liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”.

[27] It seems to me that, on this motion, the referenced provisions of the CJA and the Rules all favour the position of Dion.

[28] In my view, it is not possible to separate the Clawback Application from the Other Proceedings. Although the Other Proceedings may not have been advanced with dispatch, they remain outstanding. They cannot be said to be moot. Further, although there has been a lack of meaningful progress in the Other Proceedings after the November 2012 Order, it remains in effect. The November 2012 Order recognized that the application and enforceability of the Clawback were issues to be tried in the Other Proceedings.

[29] Furthermore, it appears highly unlikely that a determination of the Clawback Application will put an end to the Other Proceedings. It is also highly unlikely that the Other Proceedings could be fully adjudicated without reference to the Clawback Provision.

[30] In my view, it is unrealistic to expect that a determination of the Clawback provision could be made without taking into account the following: whether DDA engaged in acts that were oppressive or unfairly prejudicial or unfairly disregard the interests of the initial respondents; whether parties are in breach of the USA; the effect of the change in employment status of Dion and other respondents; the enforceability of the Clawback Provision as against Dion and whether the Clawback can be enforced as against the remaining respondents.

[31] In my view, the issues raised in the Clawback Application are inextricably intertwined with the issues that have been raised in the Other Proceedings. The Clawback Application does not, in my view, raise discrete legal issues. The issues to be considered arise out of the same series of events and transactions as those involved in the Other Proceedings.

[32] There are a number of factors that, when considered together, support an order requiring the Clawback Application to be heard at the same time as the Other Proceedings including:

(a) the extent to which the issues are interwoven;

(b) there is a likelihood of a duplication of evidence;

(c) there are overlapping parties;

(d) there is a risk of inconsistent findings;

(e) a disposition of the Clawback Application will, in all likelihood, not put an end to the Other Proceedings or narrow the issues in the Other Proceedings; and

(f) separating the Clawback Application from the Other Proceedings will not result in any substantial saving of judicial resources. Rather, it could very likely increase the amount of time spent by the parties in court.

[33] For the foregoing reasons, I have determined that it is appropriate to have this application heard at the same time as the Other Proceedings.

[34] The November 2012 Order provides that the Other Proceedings be heard together on an expedited basis. The time has now come to pay heed to the November 2012 Order and also to take into account how the Clawback Application can be heard at the same time. A judge of the Commercial List will be assigned to this application and to the Other Proceedings and will convene a case conference at which time all parties should be prepared to address, in a constructive and comprehensive manner, how best to proceed on a truly expedited basis.

[35] The motion of Dion is granted, with costs. If the parties are unable to agree on quantum of costs, written submissions, to a maximum of three pages, may be submitted within 30 days.

MORAWETZ J.

Date: August 7, 2013