ONTARIO
SUPERIOR COURT OF JUSTICE
( COMMERCIAL LIST )
COURT FILE NO.: CV-15-11155-00CL
DATE: 20151214
BETWEEN:
TALUS CAPITAL (EASTERN AVE) LIMITED
Applicant
– and –
CHESHAM GROUP INC., JANLIE HOLDINGS INC., 1161387 ONTARIO LTD., JULIE RAO, FRANK AIELLO, PATRICIA TAIT, JAMES WHELER AND MICHAEL WOOLLCOMBE
Respondents
Daniel Murdoch and Mel Hogg, Counsel for the Applicant.
Peter Osborne, Counsel for the Respondent Janlie Holdings Inc.
Frederick Matthews, Counsel for the Respondent 1161387 Ontario Ltd.
Megan Keenberg, Counsel for the remaining Respondents.
HEARD: December 10, 2015
R. D. GORDON, R. S. J.
Overview
[1] The central issue in this proceeding is the bona fides of an offer made by Jankat Property Corp. (“Jankat”) to purchase units owned by 116387 Ontario Ltd. (“FindlayCo”) in the limited partnership known as Talus Toronto Eastern Avenue LP (the “Partnership”).
Background Facts
[2] The Applicant in this matter is the general partner of the Partnership. The Respondents are all of the limited partners. The capital of the Partnership is divided into Class A units and Class B units. All are bound by a partnership agreement dated November 7, 2007 (the “Partnership Agreement”).
[3] FindlayCo owns 5% of the units in the Partnership.
[4] On July 14, 2015, James Findlay, on behalf of FindlayCo, sent an email to the remaining limited partners advising that he had received and wished to accept a binding letter of intent (the “offer”) made by Jankat for the purchase of all of its units. This notice was sent in accordance with the provisions of the Partnership Agreement that prior to accepting a bona fide offer, the selling partner must promptly give the other Limited Partners written notice of the offer and give them a period of thirty days to indicate their desire to purchase the units on the same terms. If one or more Limited Partners indicates a desire to purchase on the same terms, the selling partner must sell its units to those limited partners who then receive the units in accordance with their proportionate unit holdings.
[5] All of the limited partners indicated their desire to acquire the units of FindlayCo. In the usual course, this would have meant that the offer of Jankat would not proceed and the remaining limited partners would receive the units of FindlayCo in proportion to their holdings. The practical effect would be that Janlie’s percentage ownership of units would increase beyond 25%.
[6] The 25% threshold is important because although the Partnership Agreement gives the General Partner broad authority to manage the business and affairs of the Partnership, certain actions require authorization by way of an extraordinary resolution of the limited partners, and an extraordinary resolution requires the support of at least 75% of the partnership units. A limited partner who holds more than 25% of the partnership units has the ability to prevent the passage of a proposed extraordinary resolution.
[7] Jankat is an Ontario corporation incorporated on July 9, 2015. It is owned entirely by Janlie and Donald Bannister is its sole director. Mr. Bannister is also a director of Janlie, which is owned entirely by his wife.
[8] The Respondent Chesham Group Inc., is the largest unit holder in the Partnership. It is owned and controlled by the Respondent James Wheler, who is also the president of the Applicant.
[9] Janlie has not always agreed with the actions taken by the general partner in its administration of the limited partnership. Indeed, there has been some discord between the Janlie camp and the Chesham camp over the last few years. Not long before the offer in question was made, the General Partner had proposed an extraordinary resolution with which Janlie did not agree. Janlie felt it important to defeat this resolution and determined that it would approach Mr. Findlay to see if it might acquire his company’s units. Within a matter of days a price had been agreed upon and Jankat had been incorporated for the purpose of making the offer. The offer was indeed made, and notice given to the remaining limited partners with the result noted above. By virtue of a standstill clause contained in the offer, FindlayCo was rendered unable to support the extraordinary resolution that had been proposed.
[10] The concern of the Applicant is that the offer made by Jankat was a mere sham, designed only to activate the right of first refusal provisions by which Janlie could obtain sufficient units to acquire the veto right.
The Applicable Law
[11] The determination of bona fides in the context of shareholder or limited partnership agreements and rights of first refusal contained therein has received some judicial attention. Our Court of Appeal has endorsed such terms as “made in good faith”, “genuine”, and “not a sham” to describe a bona fide offer. [See Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205].
[12] Where, as in this case, the onus is on the party challenging the offer to establish the lack of bona fides, it is perhaps easier to consider if the offer by Jankat was not made in good faith, was not genuine, or was a sham.
[13] As is often the case, although the law is not particularly difficult, its application to a given set of facts is much more so.
Analysis
[14] The main argument of the Applicant is that an offer to enter into an agreement which the offering party has no intention of completing must be found to be an offer made without bona fides.
[15] In support of its position that Jankat had no intention of completing the transaction contemplated by the offer the Applicant points to several things:
- Jankat was a shell corporation with no assets.
- The offer could be revoked by Jankat at any time.
- The offer called for no deposit until such time as the Right of First Refusal process had been completed.
- Janlie exercised its first right of refusal before knowing whether any of the other limited partners had exercised theirs.
[16] That Jankat was a shell corporation is of little consequence. In fact, it strikes me that if the offer was made with no intention of being completed there would have been no reason to go to the cost of incorporating a holding company to make the offer in the first place.
[17] With respect to the ability to revoke the offer, I note that the Binding Letter of Intent provides specifically that it shall remain open for a period of time sufficient to allow the vendor to comply with the notice provision in the Partnership Agreement. It also states that unless otherwise revoked it shall remain open for acceptance until the first business day following expiry of the 30 day period within which the limited partners must provide notice of their election, after which it lapses if not accepted. Given that the partnership agreement requires the vendor to give notice of a bona fide offer which it wishes to accept it seems appropriate that the letter of intent was drafted in the manner in which it was, and the intent seems clear that the offer would remain open for acceptance until it was determined if anyone exercised their first right of refusal.
[18] The offer provided for the payment of a deposit once accepted by the Vendor. Given the length of time between the offer and the potential date for acceptance, this does not strike me as unreasonable or peculiar.
[19] It is the last argument that causes me the most concern. Donald Bannister can fairly be said to be the controlling mind of both Janlie and Jankat. He knew that the offer by Jankat would trigger the right of first refusal process and that this would result in Janlie being given an opportunity to elect to exercise its right in that regard. When Janlie exercised its right on August 13 it did not know whether or not any other limited partners had submitted their notices of election. The inescapable inference, argued the Applicant, is that Janlie intended to exercise its right regardless of whether anyone else did and that by necessary implication Mr. Bannister cannot have intended to complete the purchase through Jankat.
[20] Although there is some compelling logic to this position, I am not satisfied that it carries the day. I come to this conclusion for the following reasons: First, it is not clear to me that there was no intention to complete the offer when the offer was made. Had the situation evolved differently following presentation of the offer and Mr. Bannister had been advised that no other limited partner had exercised its right of first refusal there would be no good reason to believe that the Jankat offer would not have been completed in accordance with its terms. Second, although the election by Janlie to exercise its right of first refusal had the effect of nullifying Jankat’s offer, it was consistent with Bannister’s overall intent to acquire control of the FindlayCo units (if it turned out that no others had filed their elections). Third, the intention of Mr. Bannister’s election on behalf of Janlie in circumstances where he was unaware of whether or not others had filed their elections was just as consistent with ensuring that Janlie was able to participate in the pro rata sale of units among limited partners, as it was with usurping the offer of Jankat.
[21] In my view, the Jankat offer was entirely bona fide and above board. It was an offer made by a third party and at a reasonable price. The triggering of the limited partner rights of first refusal was specifically contemplated and provided for. Given that Mr. Bannister signed the offer, it would have been crystal clear to all involved that the offer was intended to afford him control of the units in question. There certainly was no effort to conceal his identity. Mr. Findlay accepted the offer as bona fide, relied on it as such, and had no reason to believe it was anything other. In short, the offer was precisely what it seemed to be, with its true nature and all of its terms apparent for all to see.
Conclusion
[22] The Applicant has not satisfied me that the offer lacked bona fides and the application for a declaration to that effect is dismissed.
[23] If the parties are unable to agree on costs they are to make written submissions, not to exceed four pages plus attachments each, within 45 days.
R. D. GORDON, R. S. J.
Released: December 14, 2015
ONSC 7808
COURT FILE NO.: CV-15-11155-00CL
DATE: 20151214
ONTARIO
SUPERIOR COURT OF JUSTICE
( COMMERCIAL LIST )
BETWEEN:
TALUS CAPITAL (EASTERN AVE) LIMITED
Applicant
– and –
CHESHAM GROUP INC., JANLIE HOLDINGS INC., 1161387 ONTARIO LTD., JULIE RAO, FRANK AIELLO, PATRICIA TAIT, JAMES WHELER AND MICHAEL WOOLLCOMBE
Respondents
REASONS FOR JUDGMENT
R. D. GORDON, R. S. J.
Released: December 14, 2015