Court File and Parties
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Claude Bitton
AND:
Alain Checroune, A. Checroune Realty Corporation and 500 Sheppard Avenue West Ltd.
BEFORE: Madam Justice J.T. Akbarali
COUNSEL: Stephen Schwartz, for the Applicant Christopher Stanek and Natasha Carew, for the Respondents Alain Checroune and A. Checroune Realty Corporation
HEARD: In writing
ENDORSEMENT
1On April 21, 2017 I released reasons in connection with the hearing of the action and oppression application in this matter: 2017 ONSC 2434. In those reasons, I considered the nature of the agreement between Alain Checroune and Claude Bitton as it related to a property Mr. Bitton owned through the predecessor to the corporate respondent, 500 Sheppard Avenue West Ltd., and which he wanted to develop. As a result of the agreement that I found existed, Mr. Bitton and A. Checroune Realty Corporation (a company owned by Mr. Checroune) became shareholders of 500 Sheppard Avenue West Ltd., with Mr. Bitton holding 49% of the common shares and 50% of the preference shares, and A. Checroune Realty holding 51% of the common shares and 50% of the preference shares.
2I found that Mr. Checroune, through A. Checroune Realty, had unfairly prejudiced Mr. Bitton and unfairly disregarded his interests in connection with the corporate respondent, 500 Sheppard Avenue West Ltd. The oppressive conduct consisted of A. Checroune Realty’s failure to discharge an existing mortgage over the property that it had assumed (the “CMLS mortgage”), its improper registration of a second mortgage to charge new parcels in addition to the land originally held by 500 Sheppard Avenue West Ltd., and its failure to fund half of the ongoing costs of 500 Sheppard Avenue West Ltd.
3In my reasons, I identified certain orders that were appropriate, including an order requiring A. Checroune Realty to discharge the CMLS mortgage from title, requiring Mr. Bitton to partially discharge a mortgage he had placed on the property, and an order requiring A. Checroune Realty to sell its shares in 500 Sheppard Avenue West Ltd. to Mr. Bitton, and to discharge its second mortgage thereafter.
4The main issue that remains is how to value A. Checroune Realty’s common shares to determine the sale price. In my earlier reasons, I gave some direction on how the sale price for the shares should be calculated but required further submissions on the issue of remedy. I have now received those submissions. These reasons provide further guidance on the sale of A. Checroune Realty’s common shares in 500 Sheppard Avenue West Ltd. to Mr. Bitton.
5I have borne in mind that the oppression remedy is exercised to rectify the oppression. The court should not interfere with the affairs of a corporation lightly: Naneff v. Con-Crete Holdings Ltd., 1995 ONCA 959, 1995 CarswellOnt 1207 at para. 32 (C.A.), (1995) 23 O.R. (3d) 481.
6Oppression is an equitable remedy. It gives the court broad, equitable jurisdiction to enforce not just what is legal, but what is fair. In considering claims for oppression, courts should look at business realities, not merely narrow legalities: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560 at para. 58.
7In this case, the parties have asked that the remedy include a separation of their interests. Practically, this is a necessary remedy in order to move the parties forward and bring closure to this dispute. A remedy that does not provide for the separation of Mr. Bitton and A. Checroune Realty will, in all probability, lead to more litigation. However, in addressing the issues around the remedy, I am mindful to interfere as little as possible with the affairs of 500 Sheppard Avenue West Ltd.
What is the appropriate process to value the common shares?
8Mr. Bitton argues that each shareholder should retain their own chartered business valuator to value the common shares on a fair value basis taking into account liquidity and other discounts or premiums and adjustments as the valuator deems appropriate. He argues that each shareholder should also retain their own AACI designated licensed real estate appraiser to conduct a valuation of the property on a fair value basis. On Mr. Bitton’s approach, the court would then hear the evidence of the valuators and reach a conclusion about the value of the common shares.
9Mr. Bitton argues that it is not practicable to retain a joint chartered business valuator because it would be difficult for a chartered business valuator to accept mutual instructions of the shareholders, the shareholders’ instructions would likely conflict and it would be impractical for the chartered business valuator to make a decision on how to proceed in the face of differing instructions. He states there may be disputed facts or instructions which may cause the chartered business valuator make a series of assumptions or hypotheticals that would not be helpful. Moreover, Mr. Bitton argues that in the absence of expert reports, the decision on the appropriate valuation methodology is premature.
10A. Checroune Realty argues that the shareholders should jointly retain a chartered business valuator to value the common shares. If the shareholders cannot agree on a chartered business valuator, A. Checroune Realty argues that each should retain their own, and together the two chartered business valuators should retain a third, conflict-free, chartered business valuator. The chartered business valuator should conduct a comprehensive asset-based going concern valuation on an adjusted net book value approach. A. Checroune Realty argues that the chartered business valuator should retain a conflict-free real estate appraiser to value the property.
11In the alternative, A. Checroune Realty argues that if the parties are unable to agree upon a chartered business valuator within 30 days of this decision, the court should make a reference to a master at Toronto for the purposes of determining fair market valuation, and direct the master to take all necessary steps and make all necessary inquiries relevant thereto: Tilley v. Hails, 1992 ONSC 7693, [1992] O.J. No. 937 (Div. Court) at para. 22, aff’d [1992] O.J. No. 4080 (C.A.).
12Having reviewed the parties’ submissions, I agree with Mr. Bitton that it is premature to determine which valuation methodology is appropriate to determine the share price. It may require evidence from chartered business valuators to determine the correct methodology. It is unlikely that the parties will agree on the valuation methodology; their submissions demonstrate that they do not currently agree. In these circumstances, a joint chartered business valuator is not practical.
13In my view, the preferable approach is to immediately direct a reference to a master at Toronto for the purpose of determining the price for the sale of A. Checroune Realty’s shares to Mr. Bitton: r. 54.02(1), Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The master shall take all necessary steps and make all necessary inquiries relevant thereto.
14In the remainder of my reasons I will provide some guidance to assist the master and any valuator(s) retained with respect to the share valuation.
The Approach to the Valuation
15The parties have addressed several issues impacting the approach the chartered business valuator(s) should adopt.
The Date of the Valuation
16Mr. Bitton argues that the common shares should be valued as of March 31, 20101, when Mr. Checroune first became involved in the development project. Mr. Bitton argues that after A. Checroune Realty assumed the CMLS mortgage on 500 Sheppard Avenue West, and took shares in 500 Sheppard Avenue West Ltd, neither Mr. Checroune nor A. Checroune Realty were involved further in the project. Mr. Bitton argues that a different valuation date will result in a windfall to A. Checroune Realty because the property has increased in value, and the corresponding increase in the sale price for the common shares may prevent Mr. Bitton from developing the project, thus causing unintended and further damage.
17Mr. Bitton also notes that in 2014, Master Abrams found that Mr. Checroune was delaying the action2, a factor he argues justifies an earlier valuation date. Alternatively, Mr. Bitton argues that the common shares should be valued in December 2016, a month before the trial began, but he does not articulate why that date is appropriate.
18A. Checroune Realty argues that the common shares should be valued as of April 21, 2017, the date of my reasons. It states that March 31, 2010 is not an appropriate date to value the common shares because no oppression had occurred at that time. It argues that aside from this litigation, nothing has happened with the company since that time, thus the most appropriate date is the date the application was determined.
19The shareholders agree that in determining the valuation date, where the oppressive conduct has not affected the value of the corporation, the valuation date will be set on the basis of the fairest date on the particular facts: Chiaramonte v. Worldwide Importing Ltd. 1996 CarswellOnt 1347 at para. 30 (Gen. Div.), 20 O.R. (3d) 641.
20Here, there is no evidence that the oppressive conduct has affected the value of 500 Sheppard Avenue West Ltd. In my view, the fairest date to value the common shares is the April 21, 2017, the date of my reasons on the oppression application:
a. Although in 2014, Master Abrams found that Mr. Checroune had delayed the action, her reasons do not indicate the length of the delay. I have no evidence on which to conclude that whatever delay she found Mr. Checroune caused had a material impact on the value of the common shares.
b. In any event, I found that the oppressive conduct was not the cause of the delays in the project. Neither does the finding that Mr. Checroune delayed the action lead to a conclusion that he delayed the project. I found it was Mr. Bitton who delayed the project by allowing the site plan approval to lapse and by making no efforts to advance the project. Instead, he sat on his hands and attempted to charge Mr. Checroune and A. Checroune Realty with the losses.
c. I cannot find that Mr. Checroune or A. Checroune Realty contributed nothing to the project after A. Checroune Realty assumed the CMLS mortgage. Rather, Mr. Checroune, through A. Checroune Realty, contributed over $4.3 million in equity to the project. As a result of that contribution, 500 Sheppard Avenue West Ltd. was not left with the obligation to service a mortgage on the property. Before A. Checroune Realty assumed the CMLS mortgage, Mr. Bitton was paying significant interest to CMLS on its $4.3 million mortgage, and with no other assets of the corporation apart from the land, he had to find the resources to pay the interest himself. A. Checroune Realty’s equity has allowed 500 Sheppard Avenue West Ltd. to hold the property for years without paying interest. In effect, this means that Mr. Bitton has avoided the debt obligation, at least half of which would have been his.
d. There is no evidence before me as to the value of the property over time. At trial, Mr. Bitton argued that the loss of site plan approval meant that the property had lost significant value. In his submissions on remedy, he argues that the property has increased in value over time. While it is possible for both of these statements to be true3, there is no evidence in the record to allow me to conclude either of them are.
e. The oppression remedy is not meant to punish the party who has engaged in oppressive conduct, but to rectify the oppression: Naneff at paras. 32-34. There is no reason A. Checroune Realty should take less than what its common shares are worth because their value has grown such that it may be more difficult for Mr. Bitton to develop the land if he has to pay fairly for the common shares.
f. Moreover, Mr. Bitton has advanced no rationale in support of December 2016 as the appropriate valuation date. I see no reason why this arbitrary date should be chosen at which to value the common shares.
21In the result, the date of my reasons on the application is the most appropriate time to value the common shares. It reflects Mr. Checroune’s ongoing investment into the corporation and does not punish him for Mr. Bitton’s failure to advance the project.
Specific Adjustments
22In my reasons dated April 21, 2017, I found that no adjustment to the share value is to be made for any damages Mr. Bitton claimed against Mr. Checroune or A. Checroune Realty. I also made some comments about the costs that each of Mr. Bitton and Mr. Checroune (personally or through A. Checroune Realty) have paid in respect of the project. They have each made further submissions on those, as well as other potential specific adjustments to the share value. I deal with these below.
Costs incurred by Mr. Bitton and Mr. Checroune in Respect of the Project
23Mr. Bitton had a reasonable expectation that, as a co-owner of 500 Sheppard Avenue West Ltd. through A. Checroune Realty, Mr. Checroune would fund half of its costs. Accordingly, the costs each incurred in respect of the project should be equalized, with the exception of any costs related to the sales centre, which I found Mr. Bitton unreasonably maintained despite it being closed.
24Mr. Checroune claims only for the amount he paid personally in architect’s fees. This amount should be borne half by him through A. Checroune Realty and half by Mr. Bitton.
25Mr. Bitton’s costs related to the project (from April 2010), such as realty taxes, are properly equalized between the shareholders. Mr. Bitton has produced a list of those costs. A. Checroune Realty argues that Mr. Bitton has not proved payment of the costs, or that they are not related to the sales centre. Determining which of Mr. Bitton’s claimed costs are to be equalized requires findings of fact and shall be determined in the reference.
26Interest shall accrue on the costs paid when calculating their equalization.
Should the property be valued as if it has site plan approval? Should the value take into consideration the costs of obtaining site plan approval for the property?
27A. Checroune Realty and Mr. Bitton agree that site plan approval can likely still be obtained for the property. A. Checroune Realty argues that the property should be valued as if it had site plan approval, because I found that Mr. Bitton allowed the site plan approval to lapse, and because the value of the common shares in the company should reflect a fair assessment of the future prospects of the company.
28Mr. Bitton argues that the costs of obtaining site plan approval, which are expected to be significant, should be considered in valuing the common shares.
29In my view, the property should be valued as it was on April 21, 2017 – a property without site plan approval, for which site plan approval may be obtained on the expenditure of significant funds. I see no reason to burden A. Checroune Realty with a deduction for the cost of obtaining site plan approval when Mr. Bitton allowed it to lapse. Nor do I see any reason for inflating the value of the property to treat it as one that has site plan approval when A. Checroune Realty abandoned the project years ago and took no interest in it.
The Mortgages and the Shareholder Loan
30A. Checroune Realty argues that once its second $4.3 million mortgage is discharged (the one which I ordered to be discharged once Mr. Bitton purchased A. Checroune Realty’s shares), the mortgage will have matured and it should be entitled to the interest thereon.
31Mr. Bitton argues that A. Checroune Realty’s mortgage should be treated in the same manner as Mr. Bitton’s mortgage. He notes that I found that Mr. Checroune, through A. Checroune Realty, was more than a lender. Thus, no payment should be made inconsistent with that relationship.
32I agree with Mr. Bitton that the price of A. Checroune Realty’s shares must reflect its role as co-owner of 500 Sheppard Avenue West Ltd., not lender. I also agree that Mr. Bitton’s and A. Checroune Realty’s mortgages must be treated in the same manner. The mortgages were meant to secure each investor’s equity stake in the property.
33The matter is complicated by Mr. Bitton’s shareholder loan, which Mr. Bitton and Mr. Checroune agreed in 2010 would form part of the mortgage. The shareholder loan may have increased since that time, but some of that increase could relate to expenses of 500 Sheppard Avenue West that are otherwise going to be equalized between the parties, or to expenses that I have found should not be equalized.
34While the parties provided some submissions on the treatment of the mortgage and shareholder loan, I am concerned that the evidentiary foundation for a proper determination of those issues is currently lacking. Accordingly, the proper treatment of mortgages, including the interest thereon, and the proper treatment of the shareholder loan when valuing A. Checroune Realty’s common shares is a matter that should be left to the master on the reference.
Costs of the Valuation
35The responsibility for the costs of the valuation shall be determined in the reference.
Costs of this Proceeding
36As for the costs of the proceedings to date, if the parties cannot agree, they may deliver written submissions not to exceed three pages within twenty days of the release of this decision, and may deliver responding submissions not to exceed two pages within five business days thereafter.
Akbarali J.
Date: September 25, 2017
Footnotes
- He also argues that if this date is chosen, the valuation will necessarily be of the property as it was then, i.e., with site plan approval. He states that as a result, the costs of obtaining a new site plan approval must also be considered in the valuation. Later in these reasons, I address whether costs of obtaining new site plan approval should be considered in valuing the common shares.
- Mr. Checroune is the only defendant in the action. A. Checroune Realty is a respondent, along with Mr. Checroune and 500 Sheppard Avenue West, in the application. It appears Master Abrams’ order was made in the action.
- This might be the case if, for example, if the increase in value of the land without site plan approval is greater than the decrease in value associated with the site plan approval being lost. In that case, presumably had the land retained site plan approval it would be worth even more.