CITATION: Flintoff v. Crown William, 2015 ONSC 2027

COURT FILE NO.: CV-14-0003-00

DATE: 2015 Apr 15

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

KEVIN FLINTOFF, KEN PARISH, MARIE PARISH, STAN PARISH, LOIS PARISH, CONNIE PARKINSON, BRIAN PARKINSON, INES PRIMC, TARI RINDER, CRAIG ROBINSON, FRANK WORKMAN and GILBERT DI LUCIA

Plaintiffs/Moving Parties

– and –

CROWN WILLIAM MINING CORPORATION, SABLO MANAGEMENT INC. and SHAMROCK GROUP S.A.

Defendants/Respondents

David Milosevic, for the Plaintiffs/Moving Parties

Douglas Langley, for the Defendants/Respondents

HEARD: February 3, 2015 at Belleville

TAUSENDFREUND, J.

SUMMARY JUDGMENT MOTION - REASONS

OVERVIEW

[1] This action is based on the failure by the defendants, Sablo Management Inc. (“Sablo”) and Shamrock Group S.A. (“Shamrock”) to purchase the plaintiffs’ common shares of the defendant, Crown William Mining Corporation (“Crown William”) pursuant to a “Put-Right” option contained in an Asset Purchase Agreement between these parties (the “APS” or the “Agreement”). It is common ground that the date of this Agreement is April 15, 2011.

[2] Although Crown William is named as a defendant, the plaintiffs seek no relief against Crown William. All agree that this action should be dismissed as against Crown William. Oder to go in that regard.

[3] The plaintiffs seek summary judgment against Sablo and Shamrock. These defendants, for their part, also seek summary judgment to have this motion dismissed as against them. They state that the plaintiffs did not properly exercise their share “Put-Right” option as contemplated by the Agreement. Accordingly, they state that this action was commenced prematurely and that this motion should therefore be dismissed.

FACTS

[4] In 2006 and 2010, these plaintiffs had obtained judgments against a certain Emilia von Anhalt. As of 2011, these judgments remained unpaid. For reasons that are not clear, Crown William agreed to facilitate the plaintiffs’ collection of these judgments. That is the basis of the APS. It provides that Crown William purchase these two judgments from the plaintiffs for the face amount of $982,841.50. This purchase by Crown William was to be satisfied by way of two promissory notes by Crown William to the plaintiffs and the issue and allotment to the plaintiffs of 200,000 common shares of Crown William. The number of these common shares that each plaintiff was issued from the total of the 200,000 shares was detailed in Schedule “A” of the APS.

[5] The two promissory notes were for the amount of $260,000.00 and $322,841.50, respectively, for a total of $582,841.50. Accordingly, as based on the purchase price of $982,841.50, the 200,000 common shares were issued to the plaintiffs in consideration of $400,000.00 of the purchase price. At the time of the issuance of these common shares, they had an attributed value of $2.00 per share.

[6] On June 11, 2011, the plaintiffs received payment of the aggregate amount of $260,000.00. That was in satisfaction of the $260,000 promissory note by Crown William.

[7] On August 15, 2012, Crown William consented to judgment in favour of the plaintiffs in the amount of $302,841.50 with interest at 12% per annum, calculated from April 15, 2011. On that same date, Crown William made an additional payment to the plaintiffs of $20,000.00. Per the terms of the APS, that left a balance owing to the plaintiffs in the amount of $600,000.00 (the “balance”) in the event the plaintiffs exercised their share “Put-Right”.

[8] As to the plaintiffs’ “Put-Right” option, the APS provides that following a two year holding period, as defined in the APS, the plaintiffs could require Shamrock and Sablo, as the controlling shareholders of Crown William, to purchase the Plaintiffs’ issued shares at $3.00 per share.

[9] The parties agree that following the two year holding period the “Put-Right” option could be exercised by the plaintiffs during the 12 month period commencing January 22, 2013.

[10] On February 25, 2013, counsel for the plaintiffs sent a letter addressed to the defendants Shamrock and Sablo and also addressed to Amnon I. Schweitzer (“Schweitzer”) as CEO of Crown William. It was Schweitzer who had signed the APS on behalf of Crown William, Sablo and Shamrock in his represented capacity of Director of each of these three companies. The plaintiffs’ letter read, in part:

As you are aware, we represent the Vendors in an Asset Purchase Agreement (“APS”) dated April 15, 2011 pursuant to which Crown William Mining Corporation (“Purchaser”) purchased from the Vendors final Judgments … against Emilia von Anhault for $982,841.50. …

In accordance with Article 5 of the APS, the Vendors are hereby providing you with written notice informing the Purchaser that the Vendors wish to exercise the Share Put Right. Based on our calculations, the Effective Date in accordance with the APS would be January 22, 2011. As such, the twelve month period during which the Vendors have a right to exercise the Share Put Right would be January 22, 2013 to January 21, 2014 inclusive.

Further to Article 5 of the APS, closing shall be ten business days after notice of exercise of the Put Right. Please pay the purchase price of $600,000.00, for 200,000 shares at $3.00 per share, … no later than March 18, 2013. …

[11] Schweitzer responded by letter of February 27, 2013 indicating a return address for Shamrock and Sablo as c/o Wilson Vukelich, LLP, 60 Columbia Way, Suite #710, Markham, ON, L3R 0C9. Schweitzer confirmed that he had received the letter of February 25, 2013 and that, in his view, the plaintiffs’ actions were premature as the share “Put-Right” date had not yet arrived.

[12] On December 9, 2013, counsel for the plaintiffs sent a further letter to Sablo and Shamrock c/o Larona Trust (company in Lichtenstein), Pflugstrasse 22, Vaduz, Principality of Lichtenstein, FL-9490. This letter was a further notice of the plaintiffs’ intent to exercise their share “Put-Right” under the APS. It listed the plaintiffs and the number of shares each held in Crown William. The letter further provided:

Based on our calculations, the Effective Date in accordance with the APS would be January 22, 2011. As such, the twelve month period during which the Vendors have a right to exercise the Share Put Right would be January 22, 2013 to January 21, 2014 inclusive.

Further to Article 5 of the APS, closing shall be ten business days after notice of exercise of the Put Right. Please pay the purchase price of $600,000.00, for 200,000 shares at $3.00 per share, in full … no later than January 2, 2014. Once we are in receipt of same, we shall deliver the certificates representing the shares, duly endorsed for transfer as provided for in Article 5 of the APS. In addition, a certificate under section 116 of the Income Tax Act will be provided for the Vendor, Gilbert Di Lucia, as he is a non-resident of Canada.

[13] Neither Sablo nor Shamrock purchased the shares in question.

[14] This action followed as issued on January 8, 2014.

[15] One of the plaintiffs, Tari Rinder, negotiated for herself additional compensation and benefits from the defendants (the “Rinder Agreement”). The date of that agreement is April 19, 2011. This includes a provision for a full and final release by Tari Rinder from all possible claims she may have had against the defendants as of the date of her agreement of April 19, 2011. Although the Rinder Agreement postdates the APS by four days, this cause of action the plaintiffs here assert accrued only following the failure of Sablo and Shamrock to purchase the shares during the one year period ended January 21, 2014.

ANALYSIS

Summary Judgment

[16] Rule 20.04(2) of the Rules of Civil Procedure provides that the court shall grant summary judgment if satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.

[17] Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R 87 addresses the following propositions regarding the issue of whether relief for a summary judgment should be granted:

5 …summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims.

49. There will be no genuine issue requiring a trial when a judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process,

1. allows the judge to make the necessary findings of fact,

2. allows the judge to apply the law to the facts, and

3. is a proportionate, more expeditious and less expensive means to achieve a just result.

ISSUES

[18] The defendants have raised these issues:

a. Did the plaintiffs properly deliver notices indicating their respective intentions to exercise the Put Right options?

b. Did the notices comply with section 9.1(d) and 9.2 under the APS regarding the plaintiffs’ rights after defendants’ default?

c. Does Tari Rinder have a claim?

d. Were the notices sufficient with respect to the non-resident provision under section 116 of the Income Tax Act and under 5.4 of the APS?

[19] On the issue of whether the plaintiffs properly exercised their “Put-Right” Options, the defendants state that the plaintiffs must establish that they fully and strictly exercised the conditions precedent provided in the agreement. They state that the “Put-Right” Options are collectively a unilateral contract and that the conditions precedent to the exercise these options be strictly performed to give rise to liability on the part of Sablo and Shamrock: Sail Labrador Ltd. v. The Challenge One, 1999 CanLII 708 (SCC), [1999] 1 S.C.R. 265 at para. 37. Although courts have generally categorized options as unilateral contracts, not all options are in substance unilateral contracts: Sail Labrador Ltd., ibid, at paras. 34 and 40, and further, at para. 41:

41 Whether a contract which contains an option clause establishes a single, bilateral contract or two separate contracts, one bilateral and the other unilateral, is a matter of construction. Courts must examine the text of the contract and the context surrounding it in order to determine the intention of the parties, keeping in mind that this Court has previously approved of the tendency by courts to treat offers as calling for bilateral rather than unilateral performance whenever a contract can fairly be so construed: Dawson v. Helicopter Exploration Co., 1955 CanLII 45 (SCC), [1955] S.C.R. 868, at p. 874, per Rand J.

a. Did the plaintiffs properly deliver the notices to exercise their Put-Right Option?

[20] The address of the defendants, Sablo and Shamrock, is neither defined, stated nor referenced in the APS. The defendants state that the address for delivery to them should be their current principal place of business. They rely on s. 263(1) of the Business Corporations Act, R.S.O. 1990, c. B.16. In his affidavit of July 22, 2014 Schweitzer stated that the plaintiffs’ second notice letter of December 9, 2013 was properly addressed to Larona Trust as the registered trustee of both Sablo and Shamrock. However, he also stated that the place of address in Lichtenstein noted in that letter of December 9, 2013 had not been occupied by Larona Trust since 2006 and that it did not receive the plaintiffs’ letter.

[21] As already stated, the APS contains no reference as to the address of the defendants Sablo and Shamrock nor that service on them should be at their principal place of business. The plaintiffs also sent a copy of this notice letter of December 9, 2013 to Schweitzer’s counsel at the address Schweitzer had noted in his reply of February 27, 2013.

[22] I am satisfied that Sablo and Shamrock had actual notice of the plaintiffs’ December 9, 2013 letter within 10 days of the date of that letter. Schweitzer, who had signed the APS on behalf of all three defendants, and who had responded within two days of the plaintiffs’ first “Put-Right” option notice, clearly had notice of the plaintiffs’ position on this matter. Even if the plaintiffs’ notice of their intent to exercise their “Put-Right” option may not have achieved perfection, I interpret the APS as a bilateral contract. The shares which these plaintiffs held were clearly intended as security for the sum of $400,000.00. It is part of the balance of the purchase price which the agreement contemplated as due and payable to the plaintiffs during the 12 months following the two-year holding period. I find that there was substantial performance in terms of notice and an absence of prejudice to the defendants with respect to the manner in which notice was given.

b. Did the plaintiffs comply with section 9.1(d) and 9.2 of the APS?

[23] It should have been clear to all parties that Sablo and Shamrock did not purchase the plaintiffs’ shares of Crown William, as contemplated by section 5 of the APS. These defendants were thus in default on their obligation to purchase the plaintiffs’ shares. The notice of December 9, 2013 requested payment for the shares by January 2, 2014, a time period far longer than the five business days contemplated by section 9.2 of the APS.

[24] I find that the plaintiffs have substantially complied with the notice requirement as contemplated by section 9 of the APS.

c. Tari Rinder

[25] The wording of the “Rinder Agreement” is confined to any then existing claims or causes of action. That pre-dates the cause of action she and the other plaintiffs assert in this action.

[26] I find that the release in the “Rinder Agreement” is not a bar to her claim she advances in this action.

d. Section 116 of the Income Tax Act and under 5.4 of the APS?

[27] Section 5.4 of the APS provides:

Upon exercise of the Share Put Right…, Sablo and Shamrock shall purchase, and the Vendor shall sell, the Shares… . Closing shall be ten business days after the Vendor gives notice of exercise of the relevant Put Right. On closing, Sablo and Shamrock (or either of them) shall pay the purchase price in full by certified cheque, bank draft, wire transfer or otherwise as each Vendor shall direct,… . If a Vendor is a non-resident of Canada, it will provide Sablo or Shamrock a certificate under section 116 of the Income Tax Act (or evidence as to why such a certificate is not required), failing which Sablo or Shamrock may be required to withhold and remit a portion of the purchase price as Canadian tax which the Vendor may recover by filing a Canadian tax return reporting the gain on the same of the Shares.

[28] The plaintiffs state that the provision in section 5.4 for a section 116 Certificate under the Income Tax Act is not a condition precedent to the exercise of the Put Right Option. I agree.

[29] In any event, both notice letters of February 25, 2013 and December 9, 2013 indicate that a Certificate under section 116 of the Income Tax Act would be provided at the appropriate time.

[30] An Order will go for summary judgment as follows:

a. Each plaintiff shall have judgment against Shamrock and Sablo for a pro rata share of the sum of $600,000.00 commensurate with the number of common shares of Crown William each such plaintiff holds for a total of 200,000 of such common shares held by the plaintiffs collectively and as detailed in Schedule A of the APS;

b. Pre-judgment and post-judgment interest on the amount due to each plaintiff;

c. Upon payment of the amount due to each plaintiff, the number of shares held by such plaintiff shall be transferred to Sablo and Shamrock, or as they may direct and those plaintiffs who are non-residents of Canada shall contemporaneously provide a Certificate under section 116 of the Income Tax Act.

[31] If required, I may be spoken to as to costs within 30 days.

Honourable Mr. Justice W. Tausendfreund

Released: April 15, 2015

CITATION: Flintoff v. Crown William, 2015 ONSC 2027

COURT FILE NO.: CV-14-0003-00

DATE: 2015 Apr 15

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

KEVIN FLINTOFF, KEN PARISH, MARIE PARISH, STAN PARISH, LOIS PARISH, CONNIE PARKINSON, BRIAN PARKINSON, INES PRIMC, TARI RINDER, CRAIG ROBINSON, FRANK WORKMAN and GILBERT DI LUCIA

Plaintiffs/Moving Parties

– and –

CROWN WILLIAM MINING CORPORATION, SABLO MANAGEMENT INC. and SHAMROCK GROUP S.A.

Defendants/Respondents

SUMMARY JUDGMENT MOTION – REASONS

Tausendfreund, J.

Released: April 15, 2015