CITATION: 2235512 Ontario Inc. v. 2235541 Ontario Inc., 2016 ONSC 7812

COURT FILE NO.: CV-16-125248

DATE: 20161214

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2235512 ONTARIO INC. and SANTA MARINELLA INC.

Applicants

– and –

2235541 ONTARIO INC., JOE D’ERCOLE, TONY DE MARCO, UNIVERSALCARE CANADA INC., UNIVERSALCARE HOME HEALTH INC., UNIVERSALCARE HEALTH SERVICES INC., UNIQUE CARE PRODUCTS INC., 2247960 ONTRARIO INC., POTUS LIVING INC., POTUS, DUFFERIN NORTH INC., POTUS PROPERTIES INC. and MAJOR MACKENZIE GROUP

Respondents

Shara N. Roy and Ahmad Mozaffari, for the Applicants

Robert W. Staley and Jason M. Berall, for the Respondents

HEARD: November 9, 2016

reasons for decision

Charney J.:

Introduction

[1] This application seeks an order pursuant to s. 248 of the Ontario Business Corporations Act, R.S.O 1990, c. B.16 (OBCA) requiring the sale of shares in the capital of UniversalCare Canada Inc. (UniversalCare) to the applicant 2235512 Ontario Inc. (512) and the winding up and asset sale of the related corporations. The application involves a dispute between two groups of shareholders who collectively own a number of the respondent corporate entities on a 50/50 basis.

[2] The applicants’ request is grounded in what it alleges is an “irreconcilable relationship breakdown” between the shareholders of UniversalCare and the “oppressive and prejudicial” behaviour of the respondents. This relationship breakdown, it is alleged, prevents the shareholders from working cooperatively and has resulted in a loss of trust, a shareholder deadlock and an inability to operate the corporation effectively. Without a court ordered dissolution, the applicants claim, UniversalCare is at risk of failing financially.

[3] The respondents oppose the application, alleging that the jointly owned entities are successful enterprises that represent “ripening opportunities” for their shareholders. They allege that Joseph Gulizia (Gulizia), the directing mind of the applicants, is seeking to appropriate the business and exclude the other 50% shareholders in order to take the benefits of the successful business for himself.

[4] The respondents argue that Gulizia is seeking to rely on his own misconduct to support his claim of deadlock in order to circumvent the agreement of the parties that precludes a corporate buy-out until March 1, 2022.

Facts

[5] UniversalCare is a corporation carrying on business as a provider of long term care and assisted living management services for senior citizens and individuals with severe medical conditions.

[6] UniversalCare was established in 2010. Gulizia had experience in the nursing/retirement home business, and was looking to launch a start-up in that sector and was seeking investors. Joe D’Ercole (D’Ercole) was a Chartered Accountant who had prior dealings with Gulizia. D’Ercole, together with Tony De Marco (De Marco) agreed to take a 50% interest in what became known as UniversalCare.

[7] Gulizia is the sole officer and director of UniversalCare and manages the day-to-day operations of the corporation. He maintains all UniversalCare’s relevant licences required by the Ministry of Health and Long-Term Care pursuant to the relevant regulatory requirements. Gulizia is designated the approved ‘operator/manager’ under the relevant licences.

[8] UniversalCare is owned by two shareholders, the applicant 512 and the respondent 2235541 Inc. (541), each holding 50% of all outstanding common shares. The profits of UniversalCare are split 50/50 between 512 and 541.

[9] 512 is partly owned and exclusively controlled by Gulizia. The other owner is Gulizia’s spouse, who owns non-voting shares.

[10] 541 is owned 50/50 by the respondents D’Ercole and De Marco. D’Ercole is largely responsible for the operation of 541, and De Marco is a passive investor with little contact with Gulizia.

[11] The remaining defendants are related corporations that provide services for clients of UniversalCare or own properties in Ontario that are leased to not-for-profit corporations which operate group homes and training centres for individuals with special needs. The ownership structure of the related corporations largely conform to that of UniversalCare. Profits of the related corporations not retained in the business are divided equally among the shareholders.

Shareholders’ Agreement

[12] The ownership relationship of UniversalCare is governed by a Shareholders’ Agreement dated March 1, 2010 (the original agreement). The agreement runs some 25 pages. Several of the terms of the agreement are relevant to this dispute, and are summarized below.

[13] Under Article 3 of the original agreement, Gulizia is tasked with the day-to-day management of UniversalCare and the related corporations. The agreement provides that Gulizia will receive an annual salary of $150,000 and benefits for his role in managing UniversalCare. The benefits included a monthly automobile allowance and health, dental and disability benefits.

[14] Article 4.4 of the original agreement appoints D’Ercole as the Accountant of UniversalCare. The original agreement provides that D’Ercole may be replaced by “such other firm of chartered accountants as the Shareholders may from time to time unanimously agree upon”.

[15] Article 5 of the original agreement included a restriction on the transfer of shares. The shareholders agreed that they would not transfer or assign their shares without the prior written consent of the other shareholders.

[16] Article 15 of the original agreement included a non-competition clause that prohibits the parties from competing with UniversalCare during the currency of the agreement and for a period of three years after the date on which the principal ceases to be a shareholder of UniversalCare.

[17] Finally, Article 7 is a “Shotgun Buy-Sell” provision which gave either shareholder (the offeror) the right to make an offer to the other shareholder (the offeree) to purchase all of the offeree’s shares, provided that the offeree had the prior option to purchase all of the offeror’s shares at the price stipulated in the offer. This shotgun provision had a five year moratorium; it did not come into force until March 1, 2015, five years after the original agreement was signed.

The Amendment to the Shotgun Moratorium

[18] In mid-2011 Gulizia sought to amend the original agreement by transferring his spouse’s non-voting shares to his brother-in-law (his deceased sister’s spouse). Pursuant to Article 5 of the original agreement this transfer required the consent of all shareholders. D’Ercole sought to amend the original agreement as a condition to agreeing to the share transfer. In particular, D’Ercole requested an extension of the shotgun buy-sell moratorium to March 1, 2022. Neither Gulizia’s reasons for wanting to transfer the shares to his brother-in-law, nor D’Ercole’s reasons for seeking to extend the shotgun buy-sell moratorium, are pertinent to my reasons. The amending agreement containing the share transfer and the extension of the moratorium was executed by Gulizia, D’Ercole and De Marco on or around July 4, 2011.

[19] Gulizia’s counsel confirms that he is not challenging the validity of the extension of the shotgun moratorium found in the amending agreement. He does, however, argue that the respondents took advantage of him at a vulnerable time. He claims not to have read the red line changes to the agreement sent to him by corporate counsel for UniversalCare even though he replied that he was “okay” with the red line draft and stated “I read this and I am okay with it” and it was “Good to go”. D’Ercole disputes this allegation and states that he and Gulizia had a conversation about the extension of the moratorium.

[20] Gulizia takes the position that this dispute concerning the moratorium extension is relevant because it is exemplifies how the relationship between the parties has broken down and led to irreconcilable differences. The parties are no longer able to trust each other and this supports the remedy sought by the Gulizia.

Allegations of Relationship Breakdown

[21] Gulizia argues that he expected his business relationship with D’Ercole and De Marco to operate as a “quasi-partnership” in operating UniversalCare. The ownership structure required collaboration, trust, confidence and open communication among the shareholding parties. While Gulizia handled the day-to-day operations in accordance with the original agreement, he relied on D’Ercole to maintain the accounts and to pay him his salary and benefits in a timely manner. D’Ercole, as the corporation’s accountant, was responsible for disbursing profits to the shareholders.

[22] Gulizia argues that management of UniversalCare included weekly Tuesday meetings between himself and D’Ercole to discuss the operation of the corporation. Those weekly meetings have not taken place since early 2016.

[23] Gulizia alleges that the shareholders began to disagree on questions of corporate direction and investments as part of a growth and expansion strategy in different lines of business.

[24] Gulizia began to question the annual fees ($50,000) D’Ercole charged for his accounting services and took the position that they were excessive. Gulizia alleges that D’Ercole began withholding UniversalCare’s excess cash that was normally disbursed to Gulizia and stopped reporting deposits involving one of the related corporations.

[25] Gulizia was of the opinion that the breakdown in the relationship among the shareholders resulted in an effective deadlock where they could no longer make business decisions regarding the jointly owned corporation and compromised his ability to operate UniversalCare on a day-to-day basis.

[26] Hoping to break the deadlock, on December 2, 2015 Gulizia, who claims to have been unaware that the shotgun moratorium had been extended to March 2022 in the amending agreement, made a shotgun offer to purchase all of 541’s shares in UniversalCare.

[27] By letter dated December 9, 2015 through counsel the offer was rejected by 541 on the grounds that the amending agreement prohibited invoking the shotgun buy/sell provision until March 1, 2022. Gulizia claims that it was only then that he realized that he had signed the amending agreement without understanding its terms.

[28] D’Ercole’s rejection of the December 2, 2015 offer resulted in the parties’ initial dispute, which related to the validity of the shotgun moratorium extension and whether that dispute had to go arbitration or could be determined by a court. While that issue appears to have been resolved, the parties have not communicated directly since that time. Gulizia argues that the shareholders are no longer able to communicate effectively, trust one another or participate cooperatively with one another in the operation of UniversalCare and the related corporate entities.

[29] The respondents take the position that there is no deadlock, and the lack of cooperation is the result of the unilateral conduct of Gulizia who is trying to use s. 248 of the OBCA to back out of his deal with D’Ercole and De Marco. They take the position that UniversalCare continues to operate as a profitable company and they want to continue to benefit from their investment.

[30] The respondents argue that as the sole director and officer of UniversalCare, Gulizia is the only individual that can and does operate UniversalCare. Neither D’Ercole nor De Marco have anything to do with the day-to-day operations of UniversalCare and neither can bind UniversalCare without Gulizia’s authorization.

[31] While De Marco did propose the implementation of a home care strategy to Gulizia, Gulizia declined to implement the strategy and the matter was dropped. D’Ercole and De Marco are happy to rely on Gulizia’s business judgment in this regard. Accordingly, there is no “deadlock” with respect to the operation of UniversalCare, which continues to operate successfully under Gulizia’s control. The revenue for 2016 has increased slightly over previous years.

[32] D’Ercole takes the position that his $50,000 annual fee for accounting services was agreed to by Gulizia in 2012. Prior to 2012 D’Ercole was providing these services without remuneration. In 2012 Gulizia wanted to increase his own compensation from UniversalCare, and the parties agreed that Gulizia’s compensation would be increased by $27,600 annually and that D’Ercole would receive a matching amount to compensate for his accounting services. This was a form of profit sharing. The arrangement was implemented in 2012. In addition, Gulizia and D’Ercole each received bonuses of between $10,000 and $25,000 for the years 2012 to 2015. These amounts were all known to Gulizia who agreed to the arrangement and who had to sign the cheques.

[33] D’Ercole agrees that he and Gulizia met every Tuesday to deal with UniversalCare’s business. At two of those meetings (November 24, 2015 and December 1, 2015) Gulizia told D’Ercole that he wanted to purchase 541’s interest in UniversalCare. D’Ercole told him that he was not interested in selling his share of the company.

[34] On December 2, 2015, D’Ercole received the purported shotgun offer referred to above. D’Ercole takes the position that this litigation is an attempt by Gulizia to circumvent the shotgun moratorium on the pretext that UniversalCare is deadlocked. To this end Gulizia is trying to manufacture a deadlock so that he can assume full ownership of UniversalCare.

[35] On January 8, 2015, following D’Ercole’s rejection of the purported shotgun offer, Gulizia sent an email to D’Ercole to cancel all future Tuesday meetings and dismissing D’Ercole as UniversalCare’s accountant. The email states:

[E]ffective February 1, 2016 UniversalCare will perform its own corporate book keeping/accounting payables services as well we will be taking over the corporate payroll. In addition, effective immediately I will no longer be attending our Tuesday meetings.

[36] As a result of his dismissal as UniversalCare’s accountant D’Ercole no longer receives payment for these services. D’Ercole received his last payment for accounting services on January 28, 2016. He has been replaced by another accounting firm that is paid $3,000 per year.

[37] Gulizia continues to receive his salary of $175,000 per year and also received a $25,000 bonus for 2016.

[38] Gulizia stated that the Tuesday meetings took about 5 or 10 minutes to conduct business. Gulizia stated on cross-examination that he refuses to meet with D’Ercole and cancelled the meetings because “I didn’t see a need for us to meet given the fact that I was in a position to no longer trust Mr. D’Ercole.” Gulizia acknowledged that D’Ercole never suggested that he was unwilling to meet on a weekly basis going forward.

[39] There are a number of other outstanding disputes between the parties in relation to matters that, in my view, are relatively insignificant and appear to be manufactured by Gulizia to prove his allegation of relationship breakdown. For example, Article 3.2(a) of the original agreement provided that Gulizia would receive a monthly automobile allowance of $750 per month plus reimbursement for gas. Gulizia claims that this amount was not paid. The record does indicate that Gulizia was paid a kilometre rate of $0.46 rather than the monthly allowance and gas because this was preferable to Gulizia from a tax perspective. This arrangement was in place since 2010, and Gulizia did not claim payment of the $750 monthly allowance in his expense reports until after he commenced this application in 2016. Gulizia now claims that he is owed the $750 per month allowance retroactive to 2010. He relies on this dispute as another example of how the relationship between the shareholders has deteriorated and “made it more difficult for Mr. Gulizia to manage the day-to-day operations of UniversalCare”.

Legal Principles: Oppression Remedy

[40] Section 248 of the OBCA provides a remedy to shareholders unfairly oppressed or prejudiced by the conduct of any security holder, creditor, director or officer of the corporation. Section 248(2) provides:

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

[41] Section 248(3) (f) provides that one of the orders that the court can make in connection with an application is:

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

[42] The applicant seeks an order made pursuant to s. 248 (3) (f) to require the respondents to sell their shares in UniversalCare to the applicant and the winding up and asset sale of the related corporations. To accomplish this, the applicant requests the appointment of a valuator to oversee the sale of the respondents shares to the applicant.

[43] In Western Larch Limited v. Di Poce Management Limited, 2012 ONSC 7014, (affirmed 2013 ONCA 722, leave to appeal to the SCC dismissed 2014 CanLII 17042 (SCC)), D.M. Brown J. (as he then was) set out the governing legal principles for the oppression remedy contained in section 248 of the OBCA. He stated (at paras. 252 – 256, citations omitted):

[252] The oppression remedy contained in section 248 of the OBCA is an equitable remedy which seeks to ensure fairness and which gives courts a broad, equitable jurisdiction to enforce not just what is legal, but what is fair. In considering oppression claims courts must look at business realities, not merely narrow legalities. At the same time the remedy is very fact-specific – what is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play.

[253] In BCE Inc. v. 1976 Debentureholders 2008 SCC 69, [2008] 3 SCR 560, the Supreme Court identified the two inquiries which a court must make in considering an oppression claim: (i) Does the evidence support the reasonable expectation asserted by the claimant? and (ii) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest? The reasonable expectations of specified stakeholders is the cornerstone of the oppression remedy. Fair treatment - the central theme running through the oppression jurisprudence - is most fundamentally what stakeholders are entitled to "reasonably expect".

[254] The concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive - the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.

[255] The onus lies on the claimant to identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held. Factors which a court may consider in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders.

[256] As the Supreme Court pointed out in BCE, not every unmet expectation gives rise to an oppression claim. Something more is required: “The section requires that the conduct complained of amount to "oppression", "unfair prejudice" or "unfair disregard" of relevant interests…[I]t is worth stating that as in any action in equity, wrongful conduct, causation and compensable injury must be established in a claim for oppression.”

[44] Alternatively the applicant relies on s. 207(1) (b)(iv) of the OBCA which provides that:

A corporation may be wound up by order of the court....where the court is satisfied that....it is just and equitable for some reason, other than bankruptcy or insolvency of the corporation, that it should be wound up.

[45] In Animal House Investment Inc. v. Lisgar Development Ltd. (2007) 2007 CanLII 82794 (ON SC), 87 O.R.(3d) 529 (affirmed 2008 CanLII 27471 (ON SCDC), [2008] O.J. No. 2240 (Div. Ct.)) Wilton-Siegel, J. noted that the test to be applied under this provision is that set out in the House of Lords decision, Ebrahimi v. Westbourne Galleries Ltd., [1972] 2 W.L.R. 1289. At para. 50 of Animal House Investments, Wilton-Siegel, J. found that four conditions must be satisfied in order to invoke the court’s discretion. The applicant must demonstrate:

(1) There must be “rights expectations and obligations inter se” that are not “submerged” in the corporate structure;

(2) Such rights, expectations and obligations must not have been satisfied or discharged, whether as a result of a breach by one party, a dispute among the parties, or otherwise;

(3) The resulting circumstances must result in an unfairness or prejudice to one more of the shareholders; and

(4) Such unfairness or prejudice must be sufficiently serious that it can only be rectified by a winding up or other relief contemplated by s. 248(3) of the Act.

Analysis

[46] The applicant argues that he reasonably expected to operate UniversalCare on a cooperative and collaborative basis as a “quasi-partnership” with D’Ercole and De Marco. This argument is based on “the structure” of UniversalCare, which requires “mutual trust, confidence and cooperation in order for the corporation to be successful”. He claims that he is left in an uncertain position as it relates to the finances of the corporation and this unfairly prejudices his ability to manage UniversalCare. If 541 is not compelled to sell its shares in UniversalCare to 512, this deadlock will continue, and UniversalCare will deteriorate in value and may fail entirely.

[47] The respondents argue that since Gulizia is the sole director and officer of UniversalCare with day-to-day management responsibilities he can operate the company as he sees fit and there is no deadlock. Winding-up a healthy corporation is a drastic remedy and a heavy onus rests on the applicant to establish the grounds for making such an order.

[48] I am not satisfied that the applicants have met the requirements of s. 248 of the OBCA. The evidence does not support the reasonable expectation asserted by the claimant, nor does it establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest.

[49] The structure of UniversalCare, as set out in the original shareholders agreement, was not a “quasi-partnership” as argued by the applicant. Gulizia is the sole director and officer of the corporation and is the only person with day-to-day management responsibilities. Pursuant to the original agreement he is paid a salary (presently $175,000 plus bonus) for his management duties. He was the shareholder with experience in the nursing/retirement home business. D’Ercole and De Marco were investors in the corporation, and the evidence does not prove that either were active managers or that decision-making was to be approached on a consensual basis. The expectation was that they would not be paid a salary. D’Ercole’s ten-minute weekly meetings with Gulizia and his involvement as the accountant for UniversalCare and the related corporations does not qualify as a managerial role such that the reasonable expectations of the parties could properly be described as a “quasi-partnership”. D’Ercole’s role as accountant was unilaterally terminated by Gulizia, and D’Ercole’s services in this regard were replaced by another accounting firm for $3,000 per year. Gulizia took the position on cross-examination that $3,000 was the value of D’Ercole’s contribution as UniversalCare’s accountant. Considering both the terms of the shareholder agreement and the past conduct of the parties from an objective perspective the applicant does not have a reasonable expectation that UniversalCare would operate as a “quasi-partnership”.

[50] I also accept the respondents’ evidence that UniversalCare is not “deadlocked” because Gulizia continues to operate the corporation in accordance with the shareholder agreement. While there are disagreements between the shareholders, none of these disagreements prevent the possibility of business decisions being taken on an on-going basis (Animal House Investments, para. 60). I am not persuaded that, in the absence of a winding up remedy under the OBCA, UnviversalCare is doomed to failure.

[51] In Animal House Investments the Court held that irreconcilable differences among shareholders, by themselves, are not sufficient to invoke the courts discretion under either s. 248 or s. 207 of the OBCA. The Court stated (at paras. 56 - 57):

I am not persuaded that the court's equitable discretion under s. 207(1)(b)(iv) of the Act can be invoked merely to address disharmony among the shareholders in a private corporation. Quarrelling and incompatibility, even to the point of a breakdown in the personal relationships between shareholders of a private company, are not, by themselves, sufficient grounds for an equitable winding-up of the corporation.

All of the cases cited to the court reflect the underlying and unifying principle that a court will only exercise its discretion to order a "just and equitable" winding-up if the disharmony has resulted in a sufficiently serious failure of the reasonable expectations of the parties to warrant such equitable relief. In order to satisfy this test of a serious failure of expectations, an applicant must demonstrate that the parties regarded, or would have regarded if they had turned their minds to it at the time of formation of the business association, the particular circumstances resulting from the disharmony to constitute the termination or repudiation of the business relationship among them. Accordingly, incompatibility is significant only insofar as it has resulted in a state of affairs in which the reasonable expectations of the parties are unattainable and from which the court can reasonably infer that the business arrangement between the parties has been repudiated or terminated.

[52] This legal conclusion was affirmed by the Divisional Court at para. 7:

Although there are case where the equitable remedy of winding up has been granted where irreconcilable differences exist, in no case cited to us was the remedy granted in the absence of a finding that the reasonable expectations of the applicant had been breached. Whether a reasonable expectation existed is a question of fact.

[53] Thus, while the applicant references a loss of mutual trust and confidence among the shareholders, this is insufficient, in the context of this shareholders’ agreement, to invoke the Court’s jurisdiction under either s. 207 or S. 248 of the OBCA. The evidence indicates that UniversalCare and the related companies can and do continue to operate despite these differences. None of the conduct complained of by Gulizia qualifies as oppressive conduct in the context of this agreement.

[54] I also accept the respondents’ position that the court should not permit the applicant to rely on his own conduct to support his claim of deadlock. The applicant dismissed D’Ercole as the accountant of the corporation contrary to Article 4.4 of the shareholder agreement. The applicant cancelled the Tuesday meetings with D’Ercole and refuses to meet with him to discuss the on-going business. He should not be permitted to use these events as evidence that the parties have had an “irreconcilable relationship breakdown”. In Muscillo v. Bulk Transfer Systems Inc., 2009 CanLII 38508 (ON SC) Newbould J. stated (at para. 26):

There is authority that if the person seeking relief is the person who caused the lack of confidence between them, relief should not be granted. See Farley J. in Wittlin v. Bergman (1994), 1994 CanLII 7280 (ON SC), 19 O.R. (3d) 145. In Tilley v. Hails (1992), 1992 CanLII 7563 (ON SC), 7 O.R. (3d) 257, Borins J. (as he then was) quoted with approval a statement by Lord Cozens-Hardy quoting from Lindley on Partnership:

All that is necessary is to satisfy the Court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it. (emphasis added)

[55] At its heart this application concerns the shotgun buy-sell provision in the original shareholder agreement and the extension of the moratorium to March 2022. It is clear that the applicant feels that the respondents took advantage of him in a time of vulnerability when the moratorium extension was added to the amending agreement. As indicated above, he claims that he was not even aware of the amendment until after he made his shotgun offer in December 2015. I agree with the respondents that the applicant is attempting to use s. 207 and s. 248 of the OBCA in an effort to circumvent the March 1, 2022 shotgun moratorium and take the benefits of the successful business for himself.

[56] The Ontario Court of Appeal discussed shotgun buy-sell provisions in the case of Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722, noting that a shareholder must strictly comply with the terms of a shotgun clause in order to obtain its benefits. The Court of Appeal explained:

[40] Unanimous shareholder agreements, partnership agreements, and joint venture agreements often contain what is commonly known as a “shotgun buy-sell provision”. This is a mechanism for involuntarily expelling one or more of the parties from a business venture, which will continue without the exiting party’s participation. Expulsion is a remedy available where, for example, the participants no longer get along, as in this case.

[41] Shotgun buy-sell provisions generally share the following features. The offeror party triggers the provision by putting a shotgun buy-sell offer to the offeree party. The offeror offers to buy the offeree’s interest in the business venture, or to sell its own interest to the offeree. The offer specifies a value. The offeree must decide whether to buy out the offeror, or to sell its interest to the offeror, at the determined price… The offeree must make the choice by a certain date. If the offeree does not respond by choosing, then the offeror may force the purchase on the offeree, and require closing on the terms set out in the offer. Not all of these features are always present and close attention must be paid to the specific contractual language of the shotgun buy-sell provision in order to ensure that an offer is compliant.

[42] Because the operation of such a provision involuntarily expels a party from what is usually a viable business venture, it is seen to be a draconian remedy: Laschuk v. Poon, 1993 CanLII 7005 (AB QB), [1993] 7 Alta. L.R. (3d) 422 (Q.B.). This has led courts to require a shotgun buy-sell offer to comply “strictly” with the shotgun buy-sell provision in the authorizing agreement, to be enforceable…

[57] The Court of Appeal’s discussion of shotgun buy-sell provisions in Western Larch Limited is relevant for two reasons. First of all, the applicant takes the position that the extension of the shotgun moratorium for an additional eleven years “is draconian and oppressive” and “illustrative of the oppressive conduct of the Respondents”. Yet the Court of Appeal has described the shotgun buy-sell provision itself as a draconian remedy. I cannot agree that a moratorium on the imposition of a draconian remedy is itself draconian. Accordingly, I reject the applicant’s contention that the amending agreement’s extension of the shotgun moratorium qualifies as oppressive conduct within the meaning of s. 248 of the OBCA.

[58] Second, the Court of Appeal’s discussion lends support to the respondents’ position that the court should not permit the applicant to use s. 248 to effectively expel the respondents from UniversalCare when the strict terms of the shotgun provision do not permit such an expulsion until March 2022.

Conclusion

[59] For the foregoing reasons the application is dismissed.

[60] The respondent is presumptively entitled to costs. If the parties cannot agree on costs the respondent may file costs submissions within 30 days of the release of this decision. Such submissions will be limited to 3 pages not including a costs outline and any offers to settle. The applicant may file reply submissions on the same terms within 10 days thereafter.

Justice R.E. Charney

Released: December 14, 2016