CITATION: Stuart Investment Management Ltd. v. Kiernan 2017 ONSC 3170
COURT FILE NOS.: CV-14-517311; CV-17-570498
DATE: 20170529
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Court File No. CV-14-517311
STUART INVESTMENT MANAGEMENT LTD. and SUNNYSIDE INVESTMENTS INC.
Applicants
– and –
JAMES KIERNAN and CORNERSTONE CAPITAL PARTNERS L.P.
Respondents
AND BETWEEN:
Court File No. CV-17-570498
JAMES KIERNAN and CORNERSTONE CAPITAL PARTNERS L.P.
Applicants
– and –
STUART INVESTMENT MANAGEMENT LTD. and SUNNYSIDE INVESTMENTS INC.
Respondents
COUNSEL:
Michael Byers, for the Applicants
Peter V. Matukas, for the Respondents
Peter V. Mutukas, for the Applicants
Michael Byers, for the Respondents
HEARD: May 19, 2017
REASONS FOR DECISION
DIAMOND J.:
Overview
[1] In or around mid-2013, the corporate parties entered into a commercial transaction whereby the respondent Cornerstone Capital Partners L.P. (“Cornerstone”) sold all of its shares in the applicant Stuart Investment Management Ltd. (“Stuart”) to the co-applicant Sunnyside Investments Inc. (“Sunnyside”).
[2] The transaction closed on or about October 1, 2013. The applicants argue that after the closing date, they incurred liabilities as a result of the respondents’ breaches of various representations and warranties under a Share Purchase Agreement (to be defined hereinafter). As a result, the applicants seek compensation from the respondents for those liabilities pursuant to indemnity clauses under the Share Purchase Agreement.
[3] The respondents dispute the applicants’ position, and have advanced their own application seeking payment of outstanding rent allegedly due under a sublease agreement.
[4] At the conclusion of the hearing of both applications, I took my decision under reserve. These are my Reasons.
Background
[5] Stuart is an Ontario corporation headquartered in Montreal, Quebec, and at all material times carried on business as an investment dealer and immigration advisor. Stuart is registered with and regulated by the Investment Industry Regulatory Organization of Canada (“IIROC”).
[6] Cornerstone is an Ontario limited partnership controlled and operated by its President and CEO, the co-respondent James Kiernan (“Kiernan”). In or around 2008, Cornerstone purchased all of the issued and outstanding shares in Stuart.
[7] In late 2012, Sunnyside was looking to acquire a corporation with appropriate IIROC registrations in order for Sunnyside to provide financial services to immigrants in Quebec. Sunnyside wanted a company which was already established, believing that such an approach would be cheaper than having to start up a new company. Based upon the transcripts from the cross-examination of the affiants, it appears that the parties all agree that Sunnyside was looking for a “clean” company with an IIROC broker/dealer license.
[8] To assist Sunnyside with its search and acquisition, Sunnyside engaged the professional services of:
(a) Gilles Seguin (“Seguin”), a Montreal lawyer;
(b) The firm of Cassels, Brock & Blackwell LLP (“CB”), retained to prepare the necessary agreements and assist with due diligence for the acquisition of an IIROC registered company, and
(c) Sutton Boyce Gilkes Regulatory Consulting Group Inc. (“Sutton Boyce”), retained to assist with the review of an IIROC registered company for, inter alia, compliance purposes.
The Transaction
[9] On or about April 3, 2013, the parties entered into a Letter of Intent (“LOI”) which contemplated a share purchase transaction that would be conditional on Kiernan accepting a six month employment agreement under which he would act as Stuart’s Ultimate Designated Person (for IIROC purposes), Chief Compliance Officer and Sales Representative.
[10] On or about April 12, 2013, Stuart entered into a further agreement with Portfolio Strategies Securities Inc. (“PSSI”) to assist Sunnyside with the acquisition of Stuart. That agreement allowed PSSI to acquire all of Stuart’s client accounts and securities together with four “critical employees”, and it closed on or about June 30, 2013.
[11] On June 1, 2013, Kiernan, Cornerstone, Sunnyside and Stuart all executed a Share Purchase Agreement (“SPA”) whereby Cornerstone agreed to sell all of the issued and outstanding shares in Stuart to Sunnyside for the sum of $150,000.00. Sunnyside would also employ and pay Kiernan a salary of $140,000.00 over his six month employment period, and inject an additional $675,000.00 in regulatory capital into Stuart.
[12] The SPA further provided that Rocchina Oppedisano (“Oppedisano”, a long-standing Stuart employee), would continue her employment with Stuart pursuant to a “to be drafted” six month employment agreement (i.e. the same length as Kiernan’s employment). The applicants maintain that Oppedisano’s post-closing employment was a term requested by Kiernan during the SPA negotiations, and was not a term found in the original LOI.
Key SPA Provisions
[13] For the purposes of the two applications. I am reproducing below the various clauses which the parties relied upon in their respective submissions at the hearing:
Article 3.1 - Representations and Warranties of the Vendor
The Vendor represents and warrants to the Purchaser (and acknowledges that the Purchaser is relying on such representations and warranties in completing the transaction contemplated herein) that:
(h) Financial Statements - The Financial Statements present fairly the financial position of Stuart as at the respective dates thereof in all material respects and have been prepared in accordance with IFRS, consistently applied with prior fiscal years of Stuart. The balance sheets forming part of the Financial Statements of Stuart present fairly and in all material respects true and complete statements of the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of Stuart as at the respective dates thereof, and the statements of income (loss) and retained earnings (deficit) and statement of changes in financial position forming a part of the Financial Statements accurately set forth the results of the operations of Stuart and the source and application of the funds thereof throughout the respective periods covered thereby;
(i) Absence of Liabilities - Except as set out in Schedule 3.1(i), or pursuant to Contracts set out in Schedule 3.1(k) or Schedule 3.1(o), Stuart does not have any outstanding indebtedness or any liabilities or obligations (whether accrued, absolute, contingent or otherwise), or any material outstanding commitments or obligations of any kind whether or not such obligations or commitments are presently considered liabilities of Stuart under IFRS ("Liabilities");
(n) Litigation - Except as disclosed in Schedule 3.1(n) there is no suit, action, dispute, civil or criminal litigation, claim, arbitration or legal, administrative or other proceeding or investigation of or before any Authority, including appeals and applications for review (collectively, "Corporation Claims"), threatened or, to the best of the Vendor's knowledge, pending against or relating to Stuart, or any of its present or former employees, officers, directors or agents (in respect of their employment or engagement with Stuart). There are no facts or circumstances known to the Vendor which are likely to give rise to any such Corporation Claims. Except as disclosed in Schedule 3.1(n), neither Stuart, nor any of its present or former employees, officers, directors or agents (in respect of their employment or engagement with Stuart), is subject to any judgment, execution, decree, injunction, rule or order of any Authority;
(o) Contracts - Except for the Contracts referred to in Schedule 3.1(k) and Schedule 3.1(o) or in any other Schedule hereto, Stuart is not a party to or bound by any contract or commitment either now or in the future, whether oral or written. The contracts referred to in Schedule 3.1(k) and Schedule 3.1(o} are all in full force and effect unamended and, except as disclosed in Schedule 3.1(k) and Schedule 3.1(o), no default exists in respect thereof on the part of Stuart or, to the knowledge of the Vendor, any of the other parties thereto;
(p) Employment Matters –
(i) Full details of the current salaries, benefits and other remuneration, and date of last salary increases applicable to the Retained Employee, have been provided to the Purhaser.
(ii) Stuart has no other employees, and is not a party to or bound by any agreements with past employees, agents or independent contractors.
(x) Business and Corporate Records –
(ii) The books, records and accounts of Stuart, including any predecessor corporations: (1) have been maintained in accordance with good business practices on a basis consistent with prior years; (2) are stated in reasonable detail and accurately and fairly reflect the transactions and dispositions of the assets of Stuart; and (3) accurately and fairly reflect the basis for the Financial Statements. Stuart has devised and maintained a system of internal accounting control sufficient to provide reasonable assurances that transactions are recorded as necessary: (A) to permit preparation of the Financial Statements in conformity with IFRS or any other criteria applicable to such statements (including any requirements under applicable Securities Legislation); and (B) to maintain accountability for assets.
Article 3.3 - Non-Waiver.
No investigations made by or on behalf of any party at any time shall have the effect of waiving, diminishing the scope of or otherwise affecting any representation or warranty made by the other Parties herein or pursuant hereto;
Article 4.1 - The Purchaser's Conditions.
The obligation of the Purchaser to complete the purchase of the Purchased Shares hereunder shall be subject to the satisfaction of, or compliance with, at or before the Time of Closing, each of the following conditions (each of which is hereby acknowledged to be inserted for the exclusive benefit of the Purchaser):
(b) Representations, Warranties and Covenants - The representations and warranties of the Vendor made in or pursuant to this Agreement shall be true and accurate at the Time of Closing with the same force and effect as though such representations and warranties had been made as of the Time of Closing. The Vendor shall have complied with all covenants and agreements in this Agreement to be performed or caused to be performed by it at or prior to the Time of Closing.
(f) Employment Agreements
(i) James Kiernan shall have entered into an employment agreement (the "Executive Employment Agreement") at the Time of Closing with Stuart pursuant to which he will act as Ultimate Designated Person, Chief Compliance Officer and a sales representative for a total salary of $140,000 for a six-month period, payable on a semi-monthly basis (i.e. two times per month, on the 1st and 15th day of each month).
(ii) The Retained Employee shall have entered into an employment agreement at the Time of Closing with Stuart pursuant to which she will act as registered representative/investment advisor for a total salary of $30,000 for a six month period, payable on a semi-monthly basis;
(g) Sublease - The Vendor shall have entered into a sublease with Stuart for the premises leased under the Lease on the terms described in Schedule 4.1 (g) and otherwise in a form satisfactory to the Purchaser;
(i) Termination of Employee Plans - All Employee Plans shall have been terminated or assumed by another Person, such that Stuart shall not have any Liability in respect thereof following the Closing.
Article 6.1 – Indemnification by the Vendor
The Vendor covenants and agrees with the Purchaser and Stuart to indemnify and save harmless the Purchaser and Stuart, and their respective directors, officers, employees and agents, from and against any complaint, claim, demand, action, cause of action, damage, loss {including lost profits), cost, liability or expense (including reasonable professional fees and disbursements) which are made, or brought against the Purchaser and Stuart or their respective directors, officers, employees or agents, or any one or more of them, or which they or any one or more of them suffers or incurs in respect of, as a result of, or arising out of:
(a) any nonfulfillment of any covenant or agreement on the part of the Vendor, contained in this Agreement or any document or certificate given pursuant to this Agreement;
(b) any inaccuracy in or breach of any representation or warranty of the Vendor, contained in this Agreement or any document or certificate given pursuant to this Agreement; and
(c) any Liabilities relating to the conduct of the Business prior to the Closing Date, including any liability described in Schedule 3.1(i) or other liability in respect of any employees of Stuart or Employee Plans except pursuant to the employment agreements described in Section 4.1(f).
The Employment Agreements
[14] As contemplated in the SPA, both Kiernan and Oppedisano signed employment agreements which mandated both of them to provide their respective services to Stuart for “a period of six months”. Oppedisano was to be paid a gross income of $30,000.00 during the six month period. This income was exactly 50 percent of her annual $60,000.00 salary at the time leading up to the SPA.
[15] While Oppedisano’s employment agreement contained an “Entire Agreement” clause, it is not disputed that Oppedisano was a longstanding Stuart employee. It is the respondents’ position that Oppedisano’s employment agreement did not explicitly provide that her employment with Stuart would “come to an end after the six month period”.
The Wellington Property Lease and Sublease
[16] In accordance with IIROC’s requirement, Stuart needed to maintain a physical office space. On or about June 24, 2013, a lease of the premises known as 95 Wellington Street West, Suite 910, Toronto (“the Wellington property”) was entered into between 95 Wellington West Leaseholds Limited (as landlord) and Cornerstone Opportunities Canada Inc., (“Cornerstone’s Opportunities”, the parent company of Cornerstone) as tenant. The Wellington property lease ran from August 1, 2013 to July 31, 2015, and had an early termination clause (with a $15,000.00 early termination fee) permitting the lease to be terminated upon six months’ notice.
[17] Clause 4.1(g) of the SPA required Cornerstone to enter into a sublease with Stuart for the Wellington Property. Cornerstone Opportunities ultimately entered into a sublease agreement dated September 26, 2013 with Stuart. The term of that sublease ended on April 1, 2014, and required Stuart to pay Cornerstone Opportunities monthly rent in the amount of $2,898.16.
[18] It is the respondents’ position that the sublease was varied by Stuart when it advised Cornerstone to continue on with the lease and not exercise the early termination clause. The applicants dispute this position.
The Alleged Liabilities
[19] Once the parties received IIROC approval, the transaction closed on or about September 30, 2013. The applicants maintain that they incurred two sets of liabilities which ran contrary to the respondents’ representations and warranties set out in the SPA:
a) McCarthy Tetrault Invoices
[20] Within days of the parties executing the SPA, Kiernan met with Sean Sadler (“Sadler”, a securities law partner at McCarthy Tetrault LLP). The purpose of the meeting was to discuss an investigation commenced by IIROC in November 2012 into a former business unit of Stuart. According to Kiernan, Stuart had advised Sutton Boyce of the IIROC investigation. The respondents submit that in response, the applicants made no additional inquiries into the IIROC investigation.
[21] The applicants submit that Kiernan did tell them that there was “a compliance issue” under review by IIROC, but that he assured them that there was “nothing to worry about”.
[22] McCarthy was retained by Stuart and in the ensuing months reviewed documentation, met with Kiernan and other former Stuart employees, attended IIROC interviews and delivered written submissions to IIROC on behalf of Stuart.
[23] McCarthy sent Stuart monthly invoices for its services. The invoices were rendered on August 30, 2013, October 30, 2013, December 6, 2013 and February 21, 2014. The total amount of the four invoices was $54,874.20.
[24] It is the applicants’ position that after taking over Stuart, it was not until early April 2014 that they discovered McCarthy’s outstanding invoices, as they knew nothing of the existence of such invoices (or invoices to be rendered) prior to or at the closing of the SPA.
[25] McCarthy ultimately commenced its own legal proceeding against Stuart seeking payment of the outstanding invoices. Sadler swore an affidavit in support of the application. A review of various exhibits attached to Sadler’s affidavit discloses:
● On April 8, 2014, Sadler delivered an email to Kiernan which stated, inter alia:
“I gather from your note that you have agreed with SIM (Stuart) to be responsible for our invoices. I can arrange to have the invoices transferred into the name of Cornerstone Asset Management L.P., but only if it first pay the invoice…
You and I have had several discussions about the invoices and you have, on more than two occasions, said that you would arrange payment but no such payment has been made. I don’t think I need to ask again. If you are willing to pay the invoices please arrange for it now. Otherwise I will assume that you have decided to not pay the invoices and I will take the matter up with SIM (Stuart).”
● Kiernan had requested Sadler to re-issue and mail the outstanding invoices to Cornerstone. Kiernan also requested that Sadler “issue and mail cancellations for the invoices to Stuart”.
● Kiernan subsequently left a voice mail message with Sadler stating as follows:
“Sean its Jamie Kiernan at 11:00 am on Holy Thursday. I want to just go over this bill with you. It’s going to be my responsibility, obviously. I am trying to figure out how to get a cheque to you and start this down and get a few more details so give me a call (416) 597-1234.”
● On May 27, 2014, Kiernan left another voice mail message with Sadler stating as follows:
“Hey Sean its Jamie Kiernan and I am calling on Tuesday morning at 10:00 am. I just want to go over detail with your bill and how we can propose to pay this back to you. I am still working thorough with Stuart about this. Obviously we have acknowledged our liability on it but clearly since its billed to Stuart where it should be we have to get this done, so please give me a call and I look forward to chatting with you.”
[26] Ultimately, the respondents did not make any payment towards the McCarthy invoices. The applicants entered into a settlement of McCarthy’s legal application for the all-inclusive amount of $45,000.00. The applicants paid McCarthy $45,000.00 to settle the four outstanding invoices, and now look to the respondents (including Kiernan personally) to reimburse them pursuant to the SPA’s indemnity provisions.
b) The Oppedisano Claim
[27] On or about May 1, 2014 (after her six month employment period ended), the applicants received a demand letter from a lawyer representing Oppedisano seeking damages for wrongful dismissal. Oppedisano subsequently commenced a legal action against Stuart seeking damages in lieu of notice of termination, including her loss of pension and benefits pursuant to Stuart’s pension and benefit plan.
[28] Approximately one year later, at the conclusion of a mediation of Oppedisano’s action, Stuart settled Oppedisano’s claim for the all-inclusive sum of $67,581.70, which was paid in full by August 25, 2015.
[29] The respondents are not challenging the reasonableness of the settlement amount given the traditional wrongful dismissal factors, but rather they take the position that the responsibility to fund this settlement does not lay at their feet. In support of their position, the respondents submit that Oppedisano’s employment did not conclude at the end of the six month term under her employment agreement, and as such it was the applicants’ decision to terminate Oppedisano at the conclusion of the six month period which was the cause of the applicants’ obligation to remit payment of (and ultimately settle) Oppedisano’s wrongful dismissal claims.
Issues to be Decided
[30] These two applications raise the following four issues:
(a) are the respondents required to indemnify the applicants for payment of the settlement of the McCarthy invoices?
(b) are the respondents required to indemnify the applicants for payment of the settlement of the Oppedisano claim?
(c) If the respondents must indemnify the applicants for either or both of the above payments, is Kiernan personally liable to pay such amounts?
(d) are the applicants required to pay the respondents outstanding rent in the amount of $45,000.00 under the sublease?
Disposition of Applications Generally
[31] I am being asked to determine matters advanced by way of applications. The disposition of an application is governed by Rule 38.10 of the Rules of Civil Procedure which empowers the presiding judge to:
(a) grant the relief sought, or dismiss or adjourn the application, in whole or in part and with or without terms; or
(b) order that the whole application or any issue proceed to trial and give such directions as are just.
[32] As recently held by the Court of Appeal for Ontario in Maurice v. Alles 2016 ONCA 287 (C.A.), an application is a summary process restricted to situations permitted under the Rules of Civil Procedure or in cases where certain enumerated relief is claimed. The presence of conflicting evidence that requires credibility determinations on central issues will result in the application being converted to an action.
[33] As found in Moyle v. Palmerston Police Services Board 1995 CanLII 10659 (S.C.J.), when faced with a dispute in the record about a fact(s) material to an issue that is essential to the resolution of the subject matter of an application, the Court must either direct a trial of an issue in respect of the fact(s) in dispute, or convert the application into an action.
[34] In Pereira v. Quatsch, [2013] O.J. No. 95 (S.C.J.), the Court found that a judge presiding on an application is entitled to finally decide the rights of the parties on the merits so long as the principles which inform and define the parameters of a properly constituted application have otherwise been met.
[35] In determining whether it is possible to finally decide the rights of parties to an application on the merits, the Court must consider the following factors:
a) whether there are material facts in dispute;
b) whether there are complex issues requiring expert evidence or a weighing of that evidence;
c) whether there is a need for the exchange of pleadings and for discoveries; and,
d) the importance and impact of the application and the relief sought.
Issue #1 Are the respondents required to indemnify the applicants for payment of the settlement of the McCarthy invoices?
[36] On their face, the McCarthy invoices relate to Stuart’s “business” prior to the closing date, as Kiernan retained McCarthy in early June 2013 in respect of an investigation commenced by IIROC in 2012. I find that both McCarthy’s ongoing retainer and the McCarthy invoices were liabilities, obligations and/or commitments that ought to have been disclosed to the applicants under the terms of the SPA.
[37] As previously stated, all parties understood that the applicants were looking to acquire a “clean” company free from any liabilities or obligations. At the hearing of the applications, it became apparent that the respondents’ position was not that the McCarthy invoices did not need to be disclosed, but that they were in fact disclosed, and more importantly the applicants took no step to inquire further after they learned of their existence. As such, I am being asked to make some findings of fact, and cannot do so unless I am satisfied that the issues before me are not so complex that a weighing of the evidence requires a trial of this issue.
[38] The respondents submit that the applicants knew of the ongoing IIROC investigation, had an obligation to make further inquiries in that regard, and failed to discharge that obligation. In addition, the respondents submit that the existence of the McCarthy invoices was known to the applicants through the production and delivery of Staurt’s financial statements prior to and on closing.
[39] While there is evidence in the record before me that Sutton Boyce (as the applicants’ agent) may have been aware of the ongoing IIROC investigation, I do not have any reliable evidence before me to support the respondents’ contention that they did in fact disclosed Stuart’s retainer of McCarthy, and the existence of the McCarthy invoices which were rendered, and would likely be rendered.
[40] I do not find the presence of any legal obligation upon the applicants to have made further inquiries of the respondents with respect to the IIROC investigation, and in particular whether any law firms had been retained for that purpose. The financial statements delivered prior to and on closing disclose that in the relevant ledgers, itemized invoices were posted for debts owing to third parties, including (ironically) other law firms. Even though at least some of the McCarthy invoices were issued and covered services rendered prior to the closing of the transaction, there is no specific reference to the McCarthy invoices anywhere in the financial statements.
[41] The applicants were entitled to rely upon the provisions of the SPA, which was a commercial agreement negotiated between sophisticated parties. Clauses 3.1, 3.3, 4.1 and 6.1 were inserted in the SPA to protect the applicants’ interests and ensure that there would be no “unforeseen surprises” after closing. A party can only make reasonable inquiries into matters of which they were aware, and I find that the respondents did not make adequate disclosure in the circumstances.
[42] Further, Kiernan’s post-closing comments and behaviour indicate an acknowledgment that the McCarthy invoices were never supposed to be, or remain, the responsibility of the applicants. In email exchanges between himself and Sadler, Kiernan unilaterally stated that the McCarthy invoices were to be re-issued to Cornerstone who was the party always obligated to remit payment. McCarthy was willing to accept payment of its invoices from Cornerstone and then re-issue them in the name of Cornerstone. This is understandable, as Cornerstone was never McCarthy’s client, and McCarthy could only look to its client for payment if necessary.
[43] Accordingly, the answer to Issue #1 is “Yes”.
Issue # 2 Are the respondents required to indemnify the applicants for payment of the settlement of the Oppedisano claim?
[44] In order to succeed on this issue, the applicants must prove that there was an existing real or potential liability to Oppedisano arising from her employment with Stuart prior to closing. The balance of section 6.1(c) does not apply to Oppedisano, as her employment agreement was explicitly carved out of that indemnity provision.
[45] Oppedisano’s employment with Stuart was long-standing and in full force and effect during the entire negotiations leading up to the closing date. In addition to Kiernan, she was the one employee who would continue with Stuart post-closing. The applicants were not “successor employers” as that term is defined under the Employment Standards Act 2000 S.O. 2000 C.41 and the relevant jurisprudence. This was a share purchase transaction, and in my view Oppedisano’s employment with Stuart never ended until the applicants took the position that her employment was terminated at the end the six month term in her employment agreement - a document which was drafted solely by the applicants.
[46] Full details of Oppedisano’s pre-closing salary, benefits and other remuneration were provided to the applicants by the respondents. As a long-standing employee, Oppedisano could not be terminated without being provided with adequate reasonable notice, and the applicants were obviously well aware of same. As Oppedisano’s employment was to continue with Stuart post-closing, in my view there was simply no liability to Oppedisano prior to or at closing. The only liability to Oppedisano was to provide reasonable notice in the event her employment was ever terminated.
[47] The terms of Oppedisano’s employment agreement were anything but clear in relation to what would occur at the end of the six month employment term. While the employment agreement did contain an entire agreement clause, it did not explicitly specify whether Oppedisano gave up her right to claim common-law reasonable notice, something which ought to have been addressed especially in light of the fact that the employment agreement was a fixed term contract.
[48] I agree with the respondents that the liability to Oppedisano was created post-closing by the applicants. While the applicants could have (and arguably should have) attempted to address this known liability to Oppedisano in the employment agreement, they chose not to do so and thus bore the risk of knowingly exposing themselves to a claim for wrongful dismissal.
[49] Accordingly, the answer to Issue #2 is “No”.
Issue #3 If the respondents must indemnify the applicants for either or both of the above payments, is Kiernan personally liable to pay such amounts?
[50] Under the terms of the SPA, Cornerstone is the vendor of its shares in Stuart, and Sunnyside is the purchaser. While Kiernan is a signatory, he is not a guarantor of Cornerstone’s obligations save and except for Clause 6.5 wherein Kiernan irrevocably and unconditionally guaranteed Cornerstone’s obligation to repay a $75,000.00 regulatory capital loan together with all reasonable out of pocket costs and expenses. That loan was fully repaid.
[51] The applicants argue that the SPA further provides that Kiernan’s knowledge is deemed to be the knowledge of Cornerstone, and thus all of the representations and warranties given by Cornerstone should apply to Kiernan as well. I do not agree with this submission. Kiernan did not provide any representations or warranties in his personal capacity to the applicants. While it is true that I have found that Kiernan failed to disclose the existence of the McCarthy invoices to the applicants, this finding in and of itself does not result in personal liability. As previously stated, the terms of the SPA were negotiated between sophisticated commercial parties, and apart from Clause 6.5 Kiernan has no contractual obligations under the SPA.
[52] Accordingly, the answer to Issue #3 is “No”.
Issue #4 Are the applicants required to pay the respondents outstanding rent in the amount of $45,000.00 under the sublease?
[53] In my view, Cornerstone has no standing to seek damages for unpaid rent as Cornerstone is not a party to either the lease or the sublease. While there may be a relationship between Cornerstone and Cornerstone Opportunities, they are separate, corporate legal entities.
[54] Cornerstone Opportunities could have commenced its own application, or perhaps assigned its cause of action to one of the respondents. No such steps were taken, and as such the law of privity of contract governs. Cornerstone never suffered any losses under the lease, and as such cannot claim the damages allegedly suffered by Cornerstone Opportunities.
[55] Accordingly, the answer to Issue #4 is “No”.
Summary
[56] I therefore grant judgment in favour of the applicants against Cornerstone in the amount of $45,000.00 plus $7,617.63 for the legal fees and disbursements incurred by the applicants in respect of the McCarthy legal proceeding.
[57] The balance of the application and counter-application is dismissed.
Costs
[58] In my view, success was divided on these applications. If the parties take a different view, I would first urge them to try and resolve the issue of costs of both applications. Absent an agreement, they may serve and file written submissions to me in accordance with the following schedule:
(a) the applicants may serve and file its costs submissions within 10 business days of the release of these Reasons. Those submissions shall be no more than five pages including a Bill of Costs.
(b) the respondents shall thereafter have an additional 10 business days from the receipt of the applicants’ costs submissions to deliver their responding costs submissions which shall also be no more than five pages including a Bill of Costs.
Diamond J.
Released: May 29, 2017
CITATION: Stuart Investment Management Ltd. v. Kiernan 2017 ONSC 3170
COURT FILE NOS.: CV-14-517311; CV-17-570498
DATE: 20170529
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Court File No. CV-14-517311
STUART INVESTMENT MANAGEMENT LTD. and SUNNYSIDE INVESTMENTS INC.
Applicants
– and –
JAMES KIERNAN and CORNERSTONE CAPITAL PARTNERS L.P.
Respondents
AND BETWEEN:
Court File No. CV-17-570498
JAMES KIERNAN and CORNERSTON CAPITAL PARTNERS L.P.
Applicants
– and –
STUART INVESTMENT MANAGEMENT LTD. and SUNNYSIDE INVESTMENTS INC.
Respondents
REASONS FOR DECISION
Diamond J.
Released: May 29, 2017