Court File and Parties
COURT FILE NO.: CV 16-17610-00 DATE: 20160418 SUPERIOR COURT OF JUSTICE – ONTARIO
RE: CARL GORMAN Applicant
AND:
WADE KOSOWAN, 8108706 CANADA LTD., 7880413 CANADA INC., 929045 CANADA LTD., 9123555 CANADA INC., 1646850 ONTARIO INC. AND 1551164 ONTARIO INC. Respondents
BEFORE: Ricchetti, J.
COUNSEL: D. Palmer, for the Applicant H. Epstein and E. Moghadamian for the Respondent Wade Kosowan
HEARD: April 15, 2016
Endorsement
[1] This is an application for relief under the Canada Business Corporations Act and the Ontario Business Corporations Act, as more fully set out in the Notice of Application.
[2] The Application materials were served on the Respondents on April 12, 2016 at approximately 1:44 p.m. Except for a Notice of Motion, filed without supporting materials, no other responding materials have as been filed by Mr. Kosowan.
[3] Mr. Kosowan's motion seeks a stay of this Application.
The Position of the Parties
[4] Mr. Kosowan seeks an adjournment to argue this court has no jurisdiction to grant the relief sought in the Application.
[5] Mr. Kosowan also submits that, if this court grants the adjournment, this court has no jurisdiction to grant terms of the adjournment.
[6] Mr. Gorman accepts that an adjournment is appropriate in these circumstances.
[7] However, Mr. Gorman’s counsel submits that, as a term of the adjournment, Mr. Gorman be reinstated to the Respondent Corporations pending the hearing of the Application.
[8] Mr. Gorman’s counsel also submits that Mr. Kosowan's motion to stay should be heard first on the return date and, if dismissed, the Application should proceed on the same date.
[9] An adjournment is granted to May 25, 2016 at 8:30 a.m.
[10] The remaining issues to be decided today are:
a) What, if any, terms should be imposed pending the return date of the Application, May 25, 2016; and b) Should Mr. Koswan's motion to stay AND the Application, if necessary, be heard on May 25, 2016?
The Background
[11] Mr. Gorman and Mr. Kosowan each carried on business in the transportation and warehousing business. They decided to merge their various business interests and experience in 2012 to form one business venture.
[12] Mr. Gorman and Mr. Kosowan are now joint owners of a business venture in the transportation and warehousing industry through their equal registered shareholdings in 8108706 Canada Ltd. (“810 Canada”). The business is operated primarily through 7880413, a wholly owned subsidiary of 810 Canada (“788 Canada”) but other corporations are also form part of the business venture.
[13] Mr. Kosowan, Mr. Gorman, 810 Canada and 788 Canada entered into a Memorandum of Agreement dated April 8, 2012. (“Memorandum of Agreement”) The Memorandum of Agreement provided:
a) for the establishment of their business venture through the Corporation which is defined as including any subsidiary corporations involved in the business venture ("Corporation"); b) that all shareholder resolutions of the Corporation be unanimous; c) that the powers and duties of the shareholders are to be carried out with the approval of all shareholders. This specifically includes the dismissal of a “manager”; d) that the “managing directors” were identified as Mr. Kosowan and Mr. Gorman; e) that Mr. Kosowan and Mr. Gorman “shall each be employed by Low Risk”; and f) that any disputes between the parties were to be resolved by a settlement meeting with the Corporate counsel, failing which the dispute was to be decided by binding arbitration;
[14] Mr. Kosowan and Mr. Gorman also entered into an Entitlement Agreement dated April 8, 2012. This Entitlement Agreement provided that Mr. Gorman was not yet the beneficial owner of the 50% of the shares in the Corporation but he could or would acquire the beneficial interest to those shares in time through "sweat equity" in the business venture.
[15] From the materials before me, it appears that Mr. Gorman was the managing director responsible for the day-to-day operations of the Corporation.
[16] The parties had a dispute in 2014. This dispute continued for a period of time until the end of February 2016.
[17] By letter dated February 25, 2016, Mr. Kosowan terminated Mr. Gorman’s “employment” from the Corporation for “falsified records”, “breach of good faith and fidelity”, fraud, taking monies, corruption, and mismanagement.
[18] By letter dated February 25, 2016, Mr. Kosowan unilaterally provided a Notice of Default to Mr. Gorman alleging a variety of very significant breaches but, surprisingly, still permitted Mr. Gorman, if he wished, he could pay Mr. Kosowan $4,000,000 for the beneficial interest in the 50% of the shares in the Corporation.
[19] On March 1, 2016 Mr. Kosowan issued a Notice that, if Mr. Gorman entered the property of the Corporation, such actions would constitute trespassing.
[20] Attempts to resolve the dispute in March 2016 were unsuccessful. As a result, Mr. Gorman brought this Application.
The Analysis
Interim Relief
[21] It would appear that Mr. Kosowan proceeded to terminate Mr. Gorman from the Corporation without regard to or employing the arbitration provision. Whether any settlement discussions occurred with Corporate counsel is unknown.
[22] Despite submissions to the contrary by Mr. Kosowan's counsel, when Mr. Kosowan decided to terminate Mr. Gorman and ban him from the premises – there was no question there existed a dispute amongst the shareholders and Mr. Gorman's termination without utilizing the arbitration process appears to be contrary to the express arbitration provisions in the Memorandum of Agreement. This is not to be taken as commenting on whether Mr. Kosowan had or did not have a legitimate basis for his concerns regarding the dispute. That will be decided at a later date. The only fact I take from this, and it is not disputed, that Mr. Kosowan did not trigger the arbitration provision in the Memorandum of Agreement. Instead, he chose to take unilateral steps to end the dispute by the termination of Mr. Gorman and the exclusion of Mr. Gorman from the Corporation and the business venture.
[23] Mr. Kosowan cannot now hide behind the arbitration provision in the Memorandum of Agreement, submit that the matter must go to arbitration and that only the arbitrator has jurisdiction to make an interlocutory orders. This submission, if accepted, would be to reward Mr. Kosowan's unilateral actions of disregarding the arbitration provisions with the continued exclusion of Mr. Gorman from the Corporation without any interlocutory remedy available until the parties agree on an arbitrator (or one is appointed by the court) and the arbitrator hears the interlocutory motion. It must be remembered that it was Mr. Kosowan who chose self-help rather than submit to the arbitration process under the Memorandum of Agreement.
[24] Mr. Kosowan's position would also disregard the position of Mr. Gorman that this court has jurisdiction over the dispute given the circumstances and the fact this is an application for relief from oppression. See Deluce Holdings Inc. v. Air Canada, [1992] 12 O.R. (3d) 121 (Ont. Gen. Div.) and Kassem v. Secure Distribution Services Inc., 2004 24388 (SCJ). This issue will be determined on May 25, 2016. I express no views on this issue.
[25] Mr. Kosowan submits that given the nature of the dispute, the return of Mr. Gorman to the Corporation would be intolerable and create unnecessary conflict. On the other hand, Mr. Gorman has expressed concerns that the business of the Corporation will be operated to his detriment.
[26] While I agree it will be difficult for the two parties to jointly operate the Corporation for the period of time until the Application is decided, preservation of the status quo becomes paramount in this case.
[27] I reject Mr. Kosowan’s concerns about the potential for conflict if Mr. Gorman is re-instated pending the determination of the Application. The parties have continued to operate the business for many months while the dispute has been ongoing. Mr. Kosowan's allegations appear to be very serious but not serious enough for Mr. Kosowan to provide in the Notice of Default that Mr. Gorman could buy the beneficial interest in the 50% shares in the Corporation for $4,000,000.
[28] This suggests that the parties can continue to operate the business until the Application is heard. I am satisfied that continuing to jointly operate the business for several more weeks will not be that difficult.
[29] Lastly, s. 6 of the Arbitrations Act provides:
No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:
To prevent unequal or unfair treatment of parties to arbitration agreements.
[30] As a result, this court does have jurisdiction to make interlocutory orders to prevent “unequal or unfair treatment” of the parties.
[31] In my view, Mr. Gorman's complete and utter exclusion from the business without Mr. Kosowan submitting the dispute to arbitration in accordance with the Memorandum of Agreement would result in unequal and unfair treatment to Mr. Gorman.
[32] I am satisfied it is appropriate to exercise this court's jurisdiction in these circumstances.
Hearing the Application on the Return date
[33] It is clear that the issue needs to be resolved, whether it be by the courts or by arbitration.
[34] It would be more expensive, time consuming for the parties and utilize greater judicial resources if Mr. Kosowan's stay motion was heard and then, if the stay motion is dismissed, adjourn the Application to be heard at some later date – perhaps many months away.
[35] If that motion for a stay is unsuccessful, the Application needs to be heard quickly. Given the length of time between today's date and the return date, there will ample time to prepare for both the stay and the Application proper if necessary.
Conclusion
[36] The schedule for the steps for the motion and Application are as set out in my handwritten endorsement.
[37] To be clear, on an interlocutory and without prejudice basis to the issues to be decided on May 25, 2016 at 8:30 a.m., Mr. Gorman is reinstated, effective immediately to the same position and duties with the Respondent corporations until further order or written agreement of the parties. Should either party require an urgent attendance before me, they may request (with notice to the other side) a date for a conference call by telephone to schedule an urgent attendance.
[38] Costs are reserved to the Application judge.
Ricchetti, J. Date: April 18, 2016
COURT FILE NO.: CV 16-17610-00 DATE: 20160418 ONTARIO SUPERIOR COURT OF JUSTICE RE : CARL GORMAN v. WADE KOSOWAN, 8108706 CANADA LTD., 7880413 CANADA INC., 929045 CANADA LTD., 9123555 CANADA INC., 1646850 ONTARIO INC. AND 1551164 ONTARIO INC BEFORE : RICCHETTI J. ENDORSEMENT Ricchetti J. Released: April 18, 2016