BARRIE COURT FILE NO.: CV-11-0245 DATE: 20160429 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MONTEITH MINERALIZED SOLUTIONS INC. Plaintiff (Respondent) – and – NU-GRO LTD., AGRIUM ADVANCED TECHNOLOGIES INC. and AGRIUM INC. Defendants (Moving Parties)

Counsel: James R. Milne, for the Plaintiff (Respondent) Brendan F. Morrison, for the Defendants (Moving Parties)

HEARD: April 21, 2016

REASONS FOR DECISION DiTOMASO J.

The Motion

[1] The defendants bring a motion to stay this proceeding on the basis that the plaintiff corporation has no authority to proceed with this action (“the Barrie action”).

[2] There is ongoing litigation over the ownership and direction of the company (“the Newmarket application”) where the applicant is Brian Sherman and the respondent is Robert Monteith. There are two court orders in the Newmarket proceeding, each of which restrains any settlement of the Barrie action.

Overview

[3] The plaintiff Monteith Mineralized Solutions Inc. is a federal corporation. The defendants are related corporations engaged in the business of selling, among other things, fertilizer and other agricultural products. In the Barrie action, the plaintiff claims damages for breach of contract. The contract at issue is a Distributorship Agreement concerning a “green” bed bug spray called BBK. The Barrie action has not yet proceeded to examinations for discovery.

[4] The Newmarket application involves a dispute between Mr. Sherman and Mr. Monteith regarding the management of the plaintiff company and Mr. Sherman’s entitlement to a portion of shares and proceeds of that company.

[5] The defendants in the Barrie action bring this motion to stay after two orders were granted in the Newmarket application restraining the “owners” of the plaintiff corporation from settling the litigation in the Barrie action.

[6] The order of Justice Mullins dated July 9, 2013 at para. 1 provides:

Until further Order of this Court and without prejudice to the rights of the parties to contest the issues raised by this Motion as they see fit on the return of this Application, the parties to this Application are hereby restrained, pending the return date of this Application, from effecting a settlement of Ontario Superior Court of Justice action #11-0245 (at Barrie) through their corporation Monteith Mineralized Solutions Inc.

[7] Further, at para. 2, Justice Mullins ordered that the contents of the application file be sealed and treated as confidential, not forming part of the public record.

[8] Justice Vallee by order dated July 25, 2013 ordered at para. 1:

In the interim, until the final hearing of this Application or the trial of the issues of this Application or in the event that one of the parties proposes the making of or the acceptance of a settlement offer and without prejudice to the rights of the parties to contest the issues raised by this Motion as they see fit on the return of the Application, the parties to this application are hereby restrained, pending the return date of this Application, from effecting a settlement of Ontario Superior Court of Justice action #11-0245 (at Barrie) through their corporation Monteith Mineralized Solutions Inc.

[9] Both orders restricted settlement pending the return date of the application.

[10] In the Barrie action, Mr. Monteith delivered his affidavit sworn February 5, 2014. He was cross-examined on that affidavit in this motion to stay on March 5, 2014 and February 11, 2016.

[11] Mr. Monteith delivered his supplementary affidavit on this motion to stay dated April 14, 2016. The motion to stay was heard by this court on April 21, 2016.

[12] The defendants seek an order to stay pending the resolution of issues in the Newmarket application. The plaintiff company opposes the motion to stay and seeks to proceed with the Barrie action to examinations for discovery.

Positions of the Parties

Position of the Defendants (Moving Party)

[13] The defendants seek to stay this proceeding on the basis that the plaintiff corporation has no authority to proceed with this action. The ongoing litigation (Newmarket application) over the ownership and direction of the company has produced two court orders each of which restrains any settlement of the Barrie action pending the return date of the Newmarket application. Incidentally, there is no indication of any return date in respect of the Newmarket application.

[14] It is submitted that the two court orders restraining the “owners” of the plaintiff company from settling the Barrie action are tantamount to an order for a stay of proceedings. It is submitted on this ground alone that the order to stay be granted, which in effect, reflects the reality of the current status of the Barrie action.

[15] Further, the defendants submit that given all of the uncertainty surrounding the ownership and control of the plaintiff company, and particularly in light of the orders restraining any resolution of this action, the Barrie action must be stayed.

Position of the Plaintiff Company (Responding Party)

[16] The plaintiff company submits that in the Newmarket application involving Mr. Monteith and Mr. Sherman, Mr. Sherman seeks a shareholder’s oppression remedy. In the Newmarket application, he seeks an order that the court direct the appointment of a manager/receiver for the company, the transfer of the 20 per cent share interest to him and the assignment of a portion proceeds of the Barrie action to him.

[17] The plaintiff company submits that the question of whether the Barrie action should proceed is not an issue in the Newmarket application. It is submitted Mr. Sherman’s materials indicate that he seeks an order that any final settlement in the Barrie action be approved by the court, the transfer of shares, and that any proceeds of the Barrie action be paid into court to secure his beneficial interest in the proceeds pursuant to the Shareholders’ Agreement and to the damages requested in the Newmarket application.

[18] It is submitted on behalf of the plaintiff company that the two court orders in the Newmarket application do not restrain settlement discussion from occurring or restrain the progress of litigation in the Barrie action. Given this interpretation of the two orders in the Newmarket action, there is no basis for an order to stay the Barrie proceedings.

[19] Further, it is submitted on behalf of the plaintiff corporation that Mr. Monteith takes the position that he is sole shareholder and director of the company which Mr. Sherman disputes. The Shareholders’ Agreement provided that Mr. Monteith hold 80 per cent the company shares and Mr. Sherman hold 20 per cent of the company shares.

[20] It is submitted on behalf of the plaintiff company, contrary to the position taken by the defendants, Mr. Monteith has the exclusive power to direct the day-to-day operations of the company and to direct and control the actions of the company including decisions to retain counsel and to provide instructions in respect of the Barrie litigation. On behalf of the plaintiff company it is submitted that the defendants’ motion to stay ought to be dismissed.

Analysis

The Newmarket Application Orders

[21] Redacted copies of these two orders have been provided to the defendants. Counsel in the Newmarket application are not the same counsel that appear in the Barrie action. Unfortunately, we do not have any better insight into the genesis of the two Newmarket orders which restrain the parties in the Barrie action from effecting settlement in that action through the plaintiff company.

[22] Both orders permit the parties in the Newmarket application to return to the court to seek further court order.

[23] In my view, I find that orders of Justice Mullins and Justice Vallee do not restrain the parties in the Barrie action from proceeding with their litigation. Said orders only restrain the parties in the Barrie litigation from effecting settlement through the plaintiff company, pending the return date of the Newmarket application or pending further order of the court.

[24] I find that the Newmarket application orders, even though restraining settlement through the plaintiff company in the Barrie action, do not stay the Barrie proceedings. In this regard, I reject the position taken by the defendants on this point. The Newmarket application orders are not to be read as an effective stay of the Barrie action. I find the argument of the defendants on this ground fails.

[25] In fact, the plaintiff company intends to pursue the Barrie action and proceed to examinations for discovery. There is no basis or authority for the proposition that the Barrie action should be stayed as a result of the Newmarket application orders restraining settlement pending the approval of the court.

Who has the Proper Authority to Commence or Continue the Barrie Action?

[26] The defendants submit that there is ongoing dispute over the ownership and control of the plaintiff company, an essential element of which is the conduct of this action against the defendants. It is submitted that there is a shroud of uncertainty surrounding all of the issues, each of which is fundamental to the proper authority of the corporation to commence or continue an action:

(a) Who has the proper authority to direct the plaintiff corporation; (b) Who has the proper authority to retain counsel for the plaintiff corporation; (c) Who has the proper authority to instruct counsel for the plaintiff corporation and direct the within action; and (d) Who is entitled to confidential and/or privileged information, documentation and correspondence from the within action.

[27] The defendants take the position that the Barrie action cannot be settled to their prejudice. Unless the action is stayed, the defendants are forced to continue to incur the time and expense of litigation, without any alternative whatsoever.

[28] With respect, I disagree.

[29] Section 106 of the Courts of Justice Act, R.S.O. 1990, c. 43, provides that the court has inherent jurisdiction to stay a proceeding where there is lack of authority for it to have been commenced or continued. [1]

[30] Rule 15.02 of the Rules of Civil Procedure (the “Rules”) codifies the court’s inherent jurisdiction to stay a proceeding where there is uncertainty as to the lawyer of record’s authority to commence an action. [2]

[31] Section 106 of the Courts of Justice Act (the power to stay a proceeding on the Court’s own initiative or on motion by any person) and Rule 21.01(3)(d) of the Rules of Civil Procedure (the power to stay a proceeding that is frivolous or vexatious) reflect the court’s broader stay power, which includes the power to stay a proceeding where there is a question as to the authority for it to be commenced or continued. [3]

[32] I am satisfied it has been demonstrated by the plaintiff that Mr. Monteith has the proper authority to direct the plaintiff corporation to retain and instruct counsel regarding the Barrie action and to receive confidential and/or privileged information, documentation and correspondence from the Barrie action.

[33] Notwithstanding the dispute between Mr. Monteith and Mr. Sherman in the Newmarket application, the Shareholder’s Agreement between them dated June 4, 2010 reflects the proportionate shareholdings 80 per cent to Mr. Monteith and 20 per cent to Mr. Sherman.

[34] The evidence discloses that Mr. Sherman drafted the pleadings in the Barrie action at the instruction of Mr. Monteith. Mr. Monteith had approached a number of lawyers at different times to represent the company in the Barrie action on behalf of the company. Mr. Monteith retained the services of Mr. Milne with the expressed purpose of representing the company in this action. There exist resolutions of the Board of Directors at different times in the name of Mr. Monteith as sole director of the company approving and authorizing the engagement of various lawyers as the company’s lawyer of record to proceed on behalf of the company in the Barrie action.

[35] The most recent resolution is dated April 14, 2016 which approves the retainer of Mr. Milne on behalf of the plaintiff company effective February 1, 2016 and to act on behalf of the plaintiff company in respect of the Barrie action. By said resolution dated October 14, 2016, the corporation is further authorized to continue the Barrie action, effective March 15, 2011. The resolution states the corporation acknowledges that the Barrie action has always proceeded with the approval and direction of the Board of Directors.

[36] The supplementary affidavit of Robert Monteith sworn April 14, 2016 at Exhibit A contains an up-to-date copy of the Federal Corporation Information Form disclosing that Mr. Monteith is the sole director of the company. Counsel for the defendants objects to the admission and use by the court of Mr. Monteith’s supplementary affidavit dated April 14, 2016, only received by counsel four days ago. On behalf of the defendants, it is submitted the delivery of such a supplementary affidavit after Mr. Monteith was recently cross-examined is a blatant attempt to cooper up, repair and explain away some of Mr. Monteith’s previous evidence. It is submitted that this information should have been made available at the time of the cross-examination and not afterwards. It is submitted that Mr. Monteith’s supplementary affidavit offends rule 39.02(2) and no leave should be granted by the court for use on this motion to stay.

[37] In this regard, the defendants rely upon Green v. Mirtech International Security Inc., 2012 ONSC 7500 (Master Hawkins) and Shah v. LG Chem, Ltd., 2015 ONSC 776 (Perell, J.).

[38] The plaintiff company relies on the decision of McKelvey, J. in Good Vibrations Disc Jockey Services v. Royalton Hospitality, 2013 ONSC 6237 where leave was granted to deliver further affidavit material for cross-examination.

[39] There is good authority to suggest that leave under rule 39.02 to deliver further affidavit material after cross-examination on the other party’s affidavit should be granted sparingly.

[40] The defendants oppose the court referring to Mr. Monteith’s supplementary affidavit. It is alleged that the supplementary affidavit is late, its contents could have been disclosed prior to cross-examination and the alleged credibility issues surrounding Mr. Monteith’s evidence makes his affidavit unreliable.

[41] While I accept that rule 39.02 is an important procedural rule that governs the conduct of motions and applications and while I accept Justice Perell’s analysis of the jurisprudence regarding rule 39.02(2) in Shah, I have referred to Mr. Monteith’s supplementary affidavit. I find that it adds nothing new in respect of the factual matrix relating to either the Newmarket application or the Barrie action. I do not find Mr. Monteith’s position as being inconsistent regarding his control of the company as the sole director and majority shareholder. This is something he has always maintained. I do not accept the defendants’ position that, there exists “a shroud of uncertainty” regarding the proper authority of the plaintiff corporation to commence or continue the Barrie action. The defendants simply do not want the Barrie action to proceed and rely upon an untenable argument, in addition to their rejected interpretation of the Newmarket application orders, to stay the proceedings. I am satisfied for these reasons that Mr. Monteith possessed the requisite authority to retain and instruct counsel in respect of the Barrie action. Accordingly, the second argument advanced by the defendants must also fail.

Disposition

[42] For these reasons, the defendants’ motion to stay is hereby dismissed. Counsel have agreed to determine costs by way of written submissions. Counsel shall exchange, serve and file all written costs submissions within the next 14 days with my judicial assistant at Barrie. Those written submissions shall consist of a succinct and concise statement regarding costs no longer than one page, a draft Bills of Costs, Costs Outline, any Reply together with any applicable authorities.

DiTOMASO J. Released: April 29, 2016

[1] Courts of Justice Act, R.S.O. 1990 c. 43, s. 106; Rule 21.01(3)(d), Rules of Civil Procedure, R.R.O. 1990 Reg. 194; Phi Kappa Pi Buildings, Ltd. v. Chan, 2011 ONSC 1490 at para. 2-3; Matsushita Electric of Canada Ltd. v. Wacky Webster (London) Ltd. et al., 42 O.R. (2d) 795 at 3-5 (H.C.J.) (Q.L)

[2] Rule 15.02, Rules of Civil Procedure, R.R.O 1990 Reg. 194; Matsushita Electric of Canada Ltd. v. Wacky Webster (London) Ltd. et al., 42 O.R. (2d) 795 at 3-5 (H.C.J.)

[3] Courts of Justice Act, R.S.O. 1990 c. 43, s. 106; Rule 21.01(3)(d), Rules of Civil Procedure, R.R.O. 1990 Reg. 194, Phi Kappa Pi Buildings, Ltd. v. Chan, 2011 ONSC 1490 at para. 2-3 and 44-49 (S.C.J.) ; Matsushita Electric of Canada Ltd. v. Wacky Webster (London) Ltd. et al., 42 O.R. (2d) 795 at 5 (H.C.J.) (QL)