COURT FILE NO.: CV-13-486487 CV-13-480270

DATE: 20131001

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

BETWEEN:

ROBERT MAURICE Applicant

– and –

LORRAINE ALLES, DIANE POMORSKI, CAROL MACDONALD, DONALD MAURICE, GEORGE ALLES and KIRBY-MAURICE COMPANY LIMITED Respondents

AND BETWEEN:

LORRAINE ALLES, DIANE POMORSKI, CAROL MACDONALD and DONALD MAURICE Applicants

-and-

ROBERT MAURICE Respondent

BEFORE: Newbould J.

COUNSEL: Nadia Campion and Vanessa Park-Thompson, for Robert Maurice Richard J. Worsfold, for Lorraine Alles, Diane Pomorski, Carol MacDonald and Donald Maurice

HEARD: September 25, 2013

ENDORSEMENT

[1] The parties bring cross-motions arising out of cross-applications. Robert Maurice (“Robert”) seeks to have an arbitrator appointed to resolve issues between the parties regarding Kirby-Maurice Company Limited (“Kirby-Maurice”) or in the alternative to have the issues in both applications heard in this Court. Lorraine Alles, Diane Pomorski, Carole MacDonald and Donald Maurice (the “Alles parties” or the “other shareholders”) seek the appointment of a valuator to value the interest of Robert Maurice in Kirby-Maurice.

The dispute background

[2] Robert Maurice and the Alles parties are siblings. They each own 20% of the shares of Kirby-Maurice, which has a unanimous shareholders’ agreement (“USA).

[3] This litigation has its origins in a dispute between two families, the Maurice family and the Sayer family, who at one time each owned interests in Television Antenna & Services Co. (“Tasco”), a well-known and profitable appliance store in Toronto. The families, through their respective holding companies, also owned interests in Marlba Investments Limited (“Marlba”), which, in turn, owned the land upon which Tasco operated.

[4] In the late 1970s, Mr. Maurice, the father of the five Maurice siblings, decided to retire. Mr. Sayer had predeceased him. Mr. Maurice wound up most of his businesses, with the exception of Tasco, which he restructured by gifting equal interests to the children of both families. However, Mr. Maurice preserved voting control for his family by causing the issuance of 54% of Tasco’s voting preferred shares to Kirby-Maurice. At the time of Mr. Maurice’s death, Kirby-Maurice’s assets consisted of a few investments, the preferred shares in Tasco and Class A shares in Marlba.

[5] In 1991, the respondent Lorraine Alles commenced an oppression action against members of the two families, namely James Sayer and Lawrence Maurice, alleging, among other things, that they stole money from Tasco, drew unauthorized bonuses and paid themselves (and their immediate family members) excessive compensation from Tasco and Marlba.

[6] The action was resolved pursuant to a court-approved settlement agreement, dated July 22, 1992 (the “Settlement Agreement”). Robert and the Alles parties are parties to the Settlement Agreement. George Allies, the husband of Lorraine Alles, is not a party to the Settlement Agreement.

[7] At the time of the Settlement Agreement, the ownership structure of Tasco and Marlba was divided between the two families as follows:

(a) The Maurice family owned 54% of Tasco’s voting preferred shares through Kirby-Maurice;

(b) The Sayer family owned 46% of Tasco’s voting preferred shares through a company called Easy Purchase Plan Limited;

(c) Kirby-Maurice and Easy also each held 100 non-voting Class A shares of Marlba; and

(d) The common shares of Tasco and Marlba were divided equally between the Sayer family and the Maurice family in that each child owned 25 common shares in each of Tasco and Marlba. Both families had an even number of children, namely six, with the result that each family held a combined 50% interest in each company.

[8] Approximately six months after the Settlement Agreement was entered into, five of the six Maurice children entered into the Kirby-Maurice USA in respect of their shareholdings in Kirby-Maurice. The sixth child, Lawrence Maurice, was bought out pursuant to the terms of the Settlement Agreement with the result that he was no longer a participant in the family business at any times relevant to the present proceedings.

The current dispute

[9] The Settlement Agreement and the Kirby-Maurice USA contain buy-out provisions central to the dispute between the parties.

[10] Section 7 (r) of the Settlement Agreement provided that all shareholders of Tasco and Marlba were entitled to require Tasco and Marlba to purchase their common shares for cancellation at fair value, without a minority discount. Shareholders who were family members of the shareholder invoking the provision had a right of first refusal with respect to the shares. Payment was to be made over two years.

[11] The Kirby-Maurice USA provides that where a selling shareholder sells his or her shares of Tasco and Marlba, the selling shareholder also has to sell his shares of Kirby-Maurice. Whether the buyer will be the other shareholders of Kirby-Maurice or Kirby-Maurice itself, is a decision to be made by the other shareholders. Specifically, article 9.6 of the Kirby-Maurice USA states:

9.6 A Shareholder who is a Selling Shareholder pursuant to paragraph 9.1 of this Agreement may, in the notice required under paragraph 9.1, offer to sell all his shares in Kirby-Maurice at a price stated in the notice, and otherwise on the same terms applicable to the shares of Tasco and Marlba. A Selling Shareholder who does not so offer to sell his shares in Kirby-Maurice and who sells his shares in Tasco and Marlba pursuant to an offer made under paragraph 9.1 or pursuant to paragraph 7(r) of the July Settlement Agreement shall sell to Kirby-Maurice or to the other Shareholders his shares in Kirby-Maurice at the price determined in accordance with Part XI of this Agreement. In either case, if the Other Shareholders so agree at the meeting held in accordance with paragraph 9.2 of this Agreement, the Other Shareholders may purchase the shares in Kirby-Maurice pro rata in proportion to their shareholding in Kirby-Maurice in accordance with the procedures in paragraph 9.3 of this Agreement. If the Selling Shareholder does not offer to sell his shares in Kirby-Maurice and sells his shares in Tasco and Marlba, and if the Other Shareholders do not agree to purchase all of the Selling Shareholder’s shares in Kirby-Maurice at the meeting held in accordance with paragraph 9.2 of this Agreement, Kirby-Maurice shall purchase the shares. Payment for the shares of Kirby-Maurice purchased pursuant to this paragraph 9.6 shall be made in the manner specified in paragraph 9.5. When the initial payment is made for such shares, the Purchaser shall acquire title to all of the shares of Kirby-Maurice purchased by him from the Selling shareholder. (underlining added)

[12] Paragraph 11.2 of the USA provided for the method and date of valuation. The relevant part is :

11.2 Notwithstanding the provisions of paragraph 11.1 of this Agreement, if:

(b) the Selling Shareholder and the remaining Shareholders (by a vote of the remaining Shareholders) are unable to agree on the fair value of all of the issued and outstanding shares of Kirby-Maurice, Marlba or Tasco within ten (10) days of the occurrence of the event giving rise to the transaction of purchase and sale in question,

then an independent business valuator to be agreed upon by the Shareholders shall determine the fair value of all of the issued and outstanding shares of any or all of Kirby-Maurice, Tasco or Marlba, as the case may be, as of the last day of the month preceding the month in which the event giving rise to the transaction of purchase and sale in question occurs (the “Valuation Date”). (underlining added)

[13] On July 2, 1996, Robert elected to exercise his section 7(r) rights under the Settlement Agreement and have Tasco and Marlba purchase his shares for cancellation. It took more than 10 years for this to happen. The parties eventually appointed PriceWaterhouseCooper to value Robert’s common shares in Tasco and Marlba. PWC delivered its valuation report in or around February 2007. The report concluded that, as at July 31, 2005, the fair market value of Robert’s common shares in Tasco was $1,966,700 and the fair market value of his common shares in Marlba was $308,300. Robert’s shares were sold to Tasco for the value determined by PWC by agreement dated March 23, 2007. The initial payment was made on closing, at which time pursuant to article 9.6 of the USA, title to the shares passed to Tasco.

[14] The sale of Robert’s common shares in Tasco and Marlba triggered article 9.6 of the Kirby-Maurice USA, which requires the other shareholders or Kirby-Maurice to purchase Robert’s common shares in Kirby-Maurice.

[15] Article 9.2 of the USA required the other shareholders of Kirby-Maurice to hold a meeting to consider the offer no later than 35 days after it was received at which time they were to decide whether Kirby-Maurice would accept the offer. Article 9.3 provided that if Kirby-Maurice decided not to accept the offer, the other shareholders were entitled to purchase the shares on a pro rata basis, and were required to indicate in writing at the meeting the number of shares each wished to purchase.

[16] Notice of the exercise of his section 7(r) rights to sell his shares of Tasco and Marlba was given by Robert on July 2, 1996. According to articles 9.2 and 9.6 of the USA, a meeting of the other shareholders of Kirby-Maurice was to be held within 35 days, in this case no later than August 16, 1996. No such meeting was held. On March 11, 2009, a meeting of shareholders and directors of Kirby-Maurice was held, attended by Robert and three of his siblings. Donald Maurice, the other shareholder, was not there. At the meeting, it was resolved that the solicitor for the other shareholders contact Robert’s solicitor “with the purpose of going forward with the purchase of Robert’s shares of Kirby-Maurice Limited”.

[17] From this, it is clear that no meeting of the other shareholders of Kirby-Maurice has been held as required by article 9.2 of the USA and that no decision has been taken as to whether Kirby-Maurice or any of the other shareholders will be the buyer of Robert’s common shares of Kirby-Maurice. Robert continues to be a shareholder and a director of Kirby-Maurice.

[18] In mid-2008, the other shareholders decided to sell their respective common shares in Tasco and Marlba and to cause Kirby-Maurice to redeem its preferred shares in Tasco and Class A shares in Marlba. At a shareholders’ meeting to deal with this, Robert requested the particulars of the proposed sale transaction and the redemption of Kirby-Maurice’s preferred shares in Tasco, including the terms of the transaction and the sale price. He was told that their common shares in Tasco and Marlba were being sold to a third-party numbered company, 2171394 Ontario Inc., the owner of which was unknown. He was told that the Tasco preferred shares held by Kirby-Maurice would be sold for redemption at face value. He was refused any further information, including the price being paid for the other shareholders’ shares of Tasco and Marlba. Robert objected to the sale, but it went through. It is conceded that Robert has never been told the price paid to the other shareholders for their shares of Tasco and Marlba.

[19] Robert believes that the preferred shares of Tasco sold by Kirby-Maurice for redemption at their face value were sold at less than fair market value and that in selling the preferred shares for less than fair market value, the other shareholders were either able to extract a higher price for their common shares in Tasco and Marlba, or alternatively negotiate a generous retirement package for George Alles, Robert’s brother-in-law, with the Sayer family. In return, the Sayer family acquired complete control of Tasco by reason of their holding of the only other preferred shares of Tasco. Robert believes that the value of Kirby-Maurice’s preferred shares, which exceeded its nominal redemption price, was sacrificed for the personal benefit of the other shareholders and/or members of their family.

[20] Robert also takes the position is that the sale of these preferred shares of Tasco required a valuation under article 11 of the USA and his consent, and that there were other breaches of the USA in the sale of the common shares of Tasco and Marlba. By passing on the benefits of the sale of the preferred shares to themselves and/or to members of their family in breach of the Kirby-Maurice USA, the other shareholders engaged in conduct that disregards the interests of Robert as a shareholder and director of Kirby-Maurice.

[21] Robert has requested without success the basis upon which the preferred shares of Tasco held by Kirby-Maurice were valued and sold. He takes the position that the information is required in order to value his shares in Kirby-Maurice. The other shareholders basic position is that Robert’s shares in Kirby-Maurice are to be valued under the Kirby-Maurice USA as of February 28, 2007, one month before he sold his shares of Tasco and Marlba, and that what happened in 2008 regarding the sale by the other shareholders of their shares of Tasco and Marlba and the sale of the preferred shares of Tasco held by Kirby-Maurice is irrelevant but if necessary, can be considered by a valuator appointed under the USA.

Analysis

[22] The date of valuation is disputed. Article 11.2 of the Kirby-Maurice USA provides in part:

an independent business valuator… shall determine the fair value of all of the issued and outstanding shares of … Kirby-Maurice… as of the last day of the month preceding the month in which the event giving rise to the transaction of purchase and sale in question occurs (the “Valuation Date”). (underlining added)

[23] The other shareholders say that “the event giving rise” to the required sale by Robert of his shares in Kirby-Maurice was his triggering of that requirement in article 9.2 of the USA by his sale of his shares of Tasco and Marlba on March 23, 2007, and thus the valuation date is to be February 28, 2007, well before the events of 2008.

[24] Robert takes the position that the issue of the appropriate valuation date, given his oppression claims, and the relevance of the 2008 sale transactions, are matters in controversy that are not susceptible to resolution by a valuator, and that the appropriate methodology for determining the fair value of Robert’s common shares is far from clear. He takes the position that his reasonable expectations as a continuing shareholder of Kirby-Maurice have been thwarted by the sale in 2008 and that the valuation date should be settled by arbitration or by the court.

[25] During argument, Ms. Campion conceded that in so far as the interpretation of article 11.2 is concerned and the words “the event giving rise to the transaction”, the “event” was the sale of Robert’s common shares of Tasco and Marlba. She contended however that one interpretation of the agreement was that the sale took place only when the last payment was received for the shares, in this case in March, 2009, well after the events of 2008. I cannot accept that argument. It is clear from paragraph 7(r) of the Settlement Agreement, under which Robert sold his shares in Tasco and Marlba to those corporations for cancellation, that when the initial payment was made for the shares, all shares were cancelled and Robert became a creditor of the corporations with respect to the remaining amounts to be paid over the next two years. The sale was completed on the day the initial payment was made on March 23, 2007.

[26] My interpretation of the Kirby-Maurice USA is that the event giving rise to the transaction of purchase and sale in question took place on March 23, 2007 when Robert sold his shares of Tasco and Marlba for cancellation and the obligation to sell Robert’s common shares of Kirby-Maurice was triggered by article 9.6 of the USA. The date of valuation under the USA is therefore February 28, 2007.

[27] Robert contends however, that because of the oppressive acts of the other shareholders in 2008 the date for valuation may be changed by a court exercising its equitable powers under section 248 of the OBCA and that technical interpretations of shareholder agreements are not appropriate in circumstances where their conduct otherwise thwarts the reasonable expectations of a shareholder.

[28] Shareholder agreements may be viewed as reflecting the reasonable expectations of the parties. See Re BCE, 2008 SCC 69, [2008] 3 S.C.R. 560 at para. 79. It is contended by the other shareholders that the reasonable expectations of Robert under the Settlement Agreement and the Kirby-Maurice USA was that his shares of Kirby-Maurice would be acquired at the fair value as determined by a valuator as of February 28, 2007. That may be, but presumably under the agreements the expectation of Robert would be that his shares were to be acquired and paid for long before now.

[29] The preferred shares of Tasco that were held by Kirby-Maurice need to be valued in order to determine the fair value of Robert’s shares in Kirby-Maurice. Would Robert have had a reasonable expectation at the time of the USA that the fair value of his shares in Kirby-Maurice as of February 28, 2007 would be affected by the sale in 2008 of the preferred shares of Tasco held by Kirby-Maurice? One would think not. It is trite law that a valuator is not to base an opinion of value on sales or other market data occurring after the date of valuation, i.e. on hindsight. The use of such data is severely limited and generally may be used only as a means of judging the reasonableness of assumptions made by the valuator. See New Quebec Raglan Mines Limited, v. Anderson (1991), 4 B.L.R. (2d) 71 per Farley J. and Levy-Russell Ltd. v. Tecmotiv Inc. (1994), 13 B.L.R. (2d) 1 per D. Lane J. at paras 683 to 787. See also Muscillo v. Bulk Transfer Systems Inc. et al, [2010] O.J. No. 297.

[30] Reasonable expectations can of course change over time. They are not static. See 820099 Ontario Inc. v. Harold E. Ballard Ltd.(1991), 3 B.L.R. 113 at para. 135 per Farley J. and Re BCE at para. 77. Representations can also play a part. See Re BCE at para. 79 and 80.

[31] Whether Robert has a good claim for oppression arising from the sale of the common shares in Tasco and Marlba by the other shareholders and the sale for cancellation of the preferred shares in Tasco held by Kirby-Maurice is contested. The claim was commenced by application on August 8, 2013 and has not progressed beyond the competing motions before me. Robert’s claim includes claims (i) that the other shareholders breached the USA by failing to purchase Robert’s shares in Kirby-Maurice pursuant to the USA, (ii) an order that his shares be valued in accordance with the valuation process provided for in the USA and (iii) an order directing any valuation to take into account (a) the benefits and/or consideration received by the other shareholders when they sold their common shares in Tasco and Marlba in return for their agreement to cause the sale of Kirby-Maurice’s preferred shares in Tasco for nominal consideration and (b) any other benefits or consideration received by the other shareholders or members of their families by virtue of Kirby-Maurice’s sale of its preferred shares in Tasco and its Class A shares in Marlba. This claim requires a finding that the valuation date be other than as provided for in the USA.

[32] There is no motion by the other shareholders before me for summary judgment dismissing the oppression claim. I am in no position to determine its validity, nor am I in a position to determine what the appropriate order would be if there was oppressive conduct or breach of the Kirby-Maurice USA. What is before me is who should decide these issues.

[33] What is before me is (i) a motion by Robert to stay the competing applications of him and the other shareholders in favour of arbitration or in the alternative to have the competing applications heard together under continued court direction, and (ii) a motion by the other shareholders for a declaration that the issues raised by the parties should be determined by way of valuation as required by the USA and to appoint Mr. Errol Soriano as the valuator.

[34] The other shareholders contend that the issues between the parties can be dealt with by the valuator as the only dispute is as to the value as of February 28, 2007. However, as conceded by Mr. Worsfold in argument, there is a dispute as to the valuation date. How valid the position of Robert is on this question depends on the validity of his oppression and other claims made in his application.

[35] I do not think that a valuator is qualified to deal with oppression or breach of contract claims. Such claims are in the nature of a judicial inquiry requiring evidence and hearing the respective cases of the parties which is not the purview of a valuator. See Pfeil v. Simcoe & Erie General Insurance Co. [1986] 2.W.W.R. 710 at para. 10. See also Sport Maska Inc. v. Zittrer, 1988 68 (SCC), [1988] 1 S.C.R. 564 at para. 61.

[36] The arbitration clause in the USA provides that a dispute or controversy between the parties relating to the implementation of any provision of the agreement shall be resolved by arbitration. The dispute between the parties raised by Robert in his application is such a dispute. However, George Alles is a responding party to Robert’s application, and thus the dispute involves a person who is not a party to the USA. Therefore the dispute as now constituted cannot be dealt with by arbitration.

[37] The choice therefore is between a valuator and this Court. Ultimately, the valuation should be determined by a valuator. But until the oppression and breach of contract claims are dealt with, there is little point to the valuator now doing any work.

[38] In the circumstances, the appropriate order is that the oppression and breach of contract claims in Robert’s application be dealt with before any valuator is appointed. These claims should be dealt with quickly. The parties should work towards having a quick mini-trial process undertaken towards that end. Directions from the Court can be given if requested.

[39] Costs of the motions are reserved to the judge hearing the claims in Robert’s application.

Newbould J.

Date: October 1, 2013