Citation: Lash v. Lash Point Association Corp., 2016 ONSC 7358

COURT FILE NO.: CV-15-10956-00CL DATE: 2016-11-24

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

John Edward Antony Lash Applicant

– and –

Lash Point Association Corp. Respondent

E. Patrick Shea and Christopher Stanek, for the Applicant Not Present

AND BETWEEN:

Timothy John Francis Lash Applicant

– and –

Lash Point Association Corp., Lash Avalon Holdings Limited, Penelope Lash Lorimer, Elizabeth Gaye Harden, Donalda Secor, Timothy Charles Stevenson Lorimer, John Roger Miller Lash, Wendy Tanis Lash, Jennifer Lash, Catherine Penelope Lash, Anthony Baldwin Lash, Peter Charles Baldwin Lash, John Edward Antony Lash, David Marshall Casey Lash, Nancy Tanis Lash Robinson, Tanis Elizabeth Robinson, Seanna Mackenzie Robinson and Airlie Lash Robinson Respondents

COURT FILE NO.: CV-14-10727-00CL

John D. Campbell, for the Applicant Danielle Joel for Penelope Lash Lorimer and Timothy Charles Stevenson Lorimer Gillian Fournie and Justin De Vries for Elizabeth Gaye Harden, Donalda Secor, and Nancy Tanis Lash Robinson, Tanis Elizabeth Robinson, Seanna MacKenzie Robinson and Airlie Lash Robinson E. Patrick Shea and Christopher Stanek for Peter Charles Baldwin Lash and John Edward Antony Lash

HEARD: September 21, 2016

ADDENDUM TO REASONS OF OCTOBER 31, 2016

[1] In my reasons for judgment of October 31, 2017, I ordered a buyout of certain members of the Lash Point Association Corp. by LPAC and the remaining members.

[2] Draft terms for a proposed buyout order were attached as a schedule to the Gowlings factum submitted on behalf of John Lash (the Buyout Terms).

[3] I generally endorsed the structure and steps proposed in the Buyout Terms and appointed Grant Thornton Limited as Receiver.

[4] I set out a number of principles that would govern the structure and procedures of the buyout and also ordered specific amendments to the Buyout Terms.

[5] I also ordered that because of the manner in which the buyout proposal and its specific terms arose in these proceedings, counsel for the leave camp, Messrs. Campbell and DeVries, should have 10 days to put forward any other proposed amendments to the Buyout Terms, consistent with the findings and conclusions in my reasons. I afforded counsel for the remain camp, Mr. Shea and Ms. Joel, the opportunity to respond to any proposed amendments within a further seven days. I indicated that I would release further directions, as necessary, following receipt of those submissions.

[6] On November 10, 2016, I received submissions and black-lined proposed amendments to the Buyout Terms from counsel for the leave camp. Counsel for the remain camp provided responding submissions and a further black-lined version on November 22, 2016.

[7] The leave camp raised essentially five concerns about the Buyout Terms. These were:

(1) including a portion of the Property called “Lower High Rock” in the valuation/redemption exercise;

(2) allowing both camps to comment on the boundaries of the Severed and Retained Parcels in advance of the marketing and sale of the Severed Parcels. This was proposed in an effort to “maximize” the value of the whole Property;

(3) confirming that a member’s interest in LPAC will pass to their estate in the event of death;

(4) specifying a distribution formula rather than leaving it to “a number of amorphous factors.” This included how various costs of the valuation and sale process should be allocated. The leave camp took the position that “all” of the costs of the sale and realization process should be shared by all Founding Members; and

(5) providing for interim distributions.

[8] The remain camp responded to these five concerns as follows:

(1) the remain camp agreed that Lower High Rock should be included in the valuation;

(2) the remain camp saw no value and only increased cost in allowing both sides to comment on the boundaries of the Severed and Retained Parcels;

(3) the remain camp agreed that a member’s interest in LPAC will pass to their estate on death;

(4) the remain camp agreed that the distribution formula should be specified in advance but disagreed with the general proposition that all costs associated with the sale process should be shared equally by all Founding Members. The remain camp argued that certain of the costs that will be incurred specifically benefit Departing Members only and, therefore, only Departing Members should pay those costs;

(5) the remain camp takes the position that interim distributions are not practicable as they would inevitably expose the Receiver to personal liability.

[9] In the following section of this Addendum, I will address those issues in respect of which there continues to be disagreement.

Analysis

Maximize Value/Input on Boundaries of Parcels

[10] The leave camp believes that the boundaries of the Severed and Retained Parcels will affect the overall valuation exercise. Therefore, they want the ability to comment on these boundaries at large. This concern, it seems to me, is a holdover from the leave camp’s concern over the original buyout proposal in which Departing Founding Members would only receive the value, in exchange for their interest in LPAC, of the Severed Parcels. Under the proposal endorsed by the Court, however, the total market value of LPAC’s holdings will be the basis for the payment of the Departing Founding Members’ entitlements. The only difference is that actual realizations on sales will be used to value the Severed Parcels while appraisal evidence (in combination with realizations on the Severed Parcels) will be used to value the Retained Parcel.

[11] I agree with Mr. Shea that disputes over these boundaries is a zero sum game. Whatever increases the value of the Severed Parcels will decrease the value of the Retained Parcel and vice versa. It is total value of the Property that will determine the amounts to be paid to Departing Members. Arguments over the boundaries will have almost no practical consequence. There is, therefore, no need to provide for more input on the Retained Parcel boundaries.

Payment Formula

[12] I agree, in principle, with the objective of specifying as much as possible in advance the basis upon which payments to Departing Founding Members will be determined. How costs and expenses of the buyout should be allocated, however, should depend on who principally benefits from that cost or expense. I agree, for example, with the proposition that the legal fees ordered in my Judgment should be shared by all Founding Members. I also agree that costs relating to the expense of the Receiver should also be shared by all Founding Members.

[13] I am unable to agree, however, with the leave camp’s general assertion that “all costs associated with the process should be shared equally by all Founding Members.” This proposition is overbroad and inconsistent with the principle of trying to correlate allocation of costs with those who principally benefit from the incursion of that cost.

[14] I agree with the remain camp that commissions and closing costs on the actual sale of the Severed Parcels must be allocated to the Departing Founding Members. I say this because the objective of the exercise is to pay to the Departing Founding Members the same amount they would be paid if there was a full winding up of LPAC. In a full winding up, commissions and closing costs would be paid on the entire Property. In the buyout scenario, however, commissions and closing costs will only be incurred with respect to the Severed Parcels, which are being sold to generate sufficient cash to buy out (i.e., make a distribution to) the Departing Founding Members. Future liabilities for commissions and closing costs on the sale of the Retained Parcel will stay with and be the responsibility of remaining members.

[15] I also agree with the remain camp that the payment of capital gains tax triggered by the sale of the Severed Parcels must be borne by the Departing Founding Members. The same reasoning applied above to commissions and closing costs applies here. If the entire Property was being sold (as in a winding up) and every Founding Member was getting a distribution, everyone would be allocated their pro rata share of the capital gain. However, that is not what is happening; only the Departing Founding Members are realizing on their interest in LPAC. When the Retained Parcel is ultimately sold, LPAC members at that time will be responsible for taxes on capital gains, not members who have departed.

Ordinary Course LPAC Costs and Liabilities

[16] Ordinary course liabilities and expenses of LPAC should be shared by all members until the date upon which Departing Members are deemed to have ceased to be members. Thereafter, only remaining members should be liable for such liabilities and expenses.

Interim Distributions

[17] While I sympathize with the leave camp’s desire for the earliest possible closure (and distributions to Departing Founding Members), particularly given the length of time this matter has dragged on since issue was first joined, it does not seem to me practical to make provision for interim distributions given various uncertainties, including very real concerns about tax liabilities. I therefore make no provision for interim distributions. The leave camp’s concerns may be addressed with the court if they are unhappy with the pace at which the valuation and sales process is unfolding.

Conclusion

[18] I believe Mr. Shea’s draft of the Buyout Terms attached to his reply submission most closely aligns with my disposition of the issues in this Addendum. To the extent it does not, I expect the parties to work out appropriate language to make it so. If it becomes absolutely necessary, I may be spoken to concerning further directions.

[19] In addition to the major points discussed above, there appear to have been a number of minor drafting points raised in the exchanges between the parties. Again, I accept the disposition of those points as reflected in Mr. Shea’s most recent draft.

Penny J.

Released: November 24, 2016