Court File and Parties
CITATION: Pavanel v Pavanel, 2017 ONSC 7487
COURT FILE NO.: CV-17-11786
DATE: 20171215
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
B E T W E E N:
JANE PAVANEL
Plaintiff
-and-
JOHN PAVANEL and MARY ELLEN PAVANEL (also known as MARY ELLEN SCHWANTZ), executors of the Estate of John Charles Pavanel, deceased, JOHN PAVANEL in his personal capacity, JOANNE PAVANEL, 1238579 ONTARIO INC., PAVACO PRODUCTS INC., PAVACO PLASTICS INC., JAYMAR VENTURES INC. and 2325373 ONTARIO INC.
Defendants
BEFORE: F.L. Myers J.
COUNSEL: Mark Wainberg, counsel for the plaintiff
Andrew Finkelstein, counsel for the defendants
HEARD: December 12, 2017
ENDORSEMENT
[1] The plaintiff moves under Rule 21.01 (b) to strike the counterclaim of John Pavanel and Jaymar Ventures Inc. advanced in the defendants’ Further Amended Statement of Defence and Counterclaim dated October 19, 2017.
[2] The defendants’ counsel did not make much of an effort to submit that Jaymar actually has any causes of action against the plaintiff except as a flow-through vehicle for John Pavanel to advance his oppression case. As to John Pavanel personally, in my view, with the limited exception referred to below, I find that the pleading sets out the requisite elements of the causes of action pleaded and therefore is sustained. I do not make any finding on the strength or likely success of the causes of action; but they are pleaded.
[3] I note as well, that not a thing turns on this outcome. Mr. Wainberg agrees that the counterclaim principally advances claims based on the facts and circumstances pleaded in the statement of claim and the statement of defence. The counterclaim does not result in any different documentary or oral discovery or evidence at trial. The counterclaim is patently an effort by John Pavanel to make the plaintiff feel some jeopardy in advancing her claims and this motion is an effort to undermine that bargaining strategy. None of this advances the process toward a fair and just resolution of the matters between the parties in an efficient, affordable, and proportionate manner.
[4] In 1597203 Ontario Limited v. Ontario, 2007 21966 (ON SC), Conway J. set out the applicable rules for assessing the propriety of a pleading under Rule 21 as follows:
There are well settled principles which apply to Rule 21 motions to strike pleadings. The leading case is Hunt v. Carey Canada Inc. 1990 90 (SCC), [1990] 2 S.C.R. 959. The governing principles to be applied on Rule 21 motions are:
(a) The facts in the pleading are to be taken as proven and true unless they are patently ridiculous or incapable of proof.
(b) It must be “plain and obvious” that the pleading is unfounded or contains no reasonable cause of action in order for the motion to succeed.
(c) The threshold for sustaining a pleading is not high – a “germ” or “scintilla” of a cause of action will be sufficient.
(d) The pleading will only be struck if the allegations do not give rise to a recognized cause of action or if the claim fails to plead the necessary elements of an otherwise recognized cause of action.
(e) No evidence is to be admitted on the motion.
(f) The pleading is to be read generously.
(g) The novelty of the claim does not prevent a plaintiff from proceeding with its case.
(h) The court’s role at the motion stage is not to determine the strength of the case or the likelihood of success.
[5] The Supreme Court of Canada has noted that the purpose of Rule 21 is to promote efficiency by uncluttering the proceedings by weeding out hopeless claims that cannot possibly succeed. It allows the parties to focus on the real issues. R. v. Imperial Tobacco Canada Ltd., [2011] SCC 42, at paras. 19 to 25. The rule is not designed to create an early assessment of the merits of the claims pleaded or to derail claims that are not pleaded perfectly or which perhaps engage some unique or novel characteristic not previously considered in law.
[6] In addition, the Court of Appeal has been clear in the past year or two that in all but the rarest case where a pleading is struck under Rule 21, the court is to provide leave to amend so that the pleading party may try again. In all but hopeless, virtually frivolous cases, Rule 21 is not to be used as a summary process to end a lawsuit. That is the function of summary judgment under Rule 20. The difference is that under Rule 20, the parties have their day in court on the merits.
[7] The essence of the facts pleaded in this case is that after the death of their father, Jane Pavanel says that she wanted to be bought out of the family companies at fair market value. She says that her brother John, the majority shareholder, has oppressed her and breached his duties as a director of the companies, by failing to pay fair market value for her shares and operating the companies in his own personal interest despite her continuing role as a minority shareholder.
[8] In the defence and counterclaim, John Pavanel claims that Jane agreed to sell him her shares at fair market value. While two other siblings did so, Jane has not agreed to the value offered. John says he has operated the business as his own, including making investments into the companies that Jane has not been willing to make, in reliance on her agreement to sell. In the counterclaim he asks for an order that Jane be required to sell her shares to him at the price paid to their siblings. He relies on pleas of breach of contract, oppression, negligent misrepresentation, and unjust enrichment as the legal bases for the remedy that he seeks.
[9] The key paragraphs of the Further Amended Statement of Defence and Counterclaim provide as follows:
In the years following Charlie’s death, the business was facing extreme pressures in the marketplace. Smaller firms were struggling to compete and the Pavaco Group of Companies was in a position where it had to expand to survive. John was required to take a number of steps to expand the business, including obtaining additional financing. As John was to become the majority shareholder of Plastics and Products (among other companies) on the wind-up of the Trust and closing of the Estate, and as his sisters had indicated that they wanted to be bought out of the business, John, alone, provided significant personal guarantees in connection with the debt financing required to operate the business. None of Ellen, Joanne or Jane provided any personal guarantees and were not prepared to take on the risks involved in the expansion necessary to preserve the business or to provide personal guarantees themselves. As a result, John took the steps detailed below in order to expand the business on his own, and with the understanding that he would be buying-out the interests of his sisters when funds were available from the Pavaco Group of Companies to allow him to do so.
By 2012, it was agreed among the siblings that Ellen, Joanne and Jane would have their minority interests in the business bought out and all of the siblings agreed to pursue such a buyout at fair market value when feasible.
On December 5, 2014, as the business prospects going forward had started to improve, John, Ellen, Joanne and Jane attended a meeting to discuss, among other things, the structure of a buy-out of Ellen, Joanne and Jane’s interests and a number of the restructuring steps addressed below… At the time, Jane made it clear, including through correspondence from her counsel that she still wanted to have her interest in the business bought out. While John, Ellen and Joanne reached agreement on the terms of a buyout, Jane was not prepared to accept the price and terms agreed to by her sisters. John ultimately completed the buy-out of Ellen and Joanne’s interests in Plastics in October 2016.
In refusing to allow the buy-out of her minority interest in Plastics while seeking to obtain a windfall in future by taking advantage of any growth secured by John’s efforts and personal guarantees, without having taken on her share of these associated risks, John pleads that Jane is being unjustly enriched. The value of any additional growth accruing to Jane on a future buy-out constitutes an enrichment for Jane and a detriment for John. There is no juristic reason for the enrichment.
Breach of Contract
[10] Jane argues that the contract pleaded in para. 17 of the pleading, that “all of the siblings agreed to pursue such a buyout at fair market value when feasible” is not a contract at law. There was no price agreed upon. The identity of the purchaser is unclear and matters for tax purposes. There was no agreed upon closing date. There was no mechanism to determine the price agreed upon. It is hopelessly vague and cannot lead to a judgment against Jane.
[11] I agree that there is no pleading that Jaymar was party to any contract. It was a holding company owned and used briefly by John to hold his shares. It has no claim for breach of contract.
[12] With respect to John however, the claim, as pleaded specifically pleads an agreement for consideration. The price was to be “fair market value.” Whether that term provides sufficient certainty to have meaning to the parties is an issue for trial in my view. For both FMV and the lack of a closing date, John points to his buy-out of his sisters’ shares that closed in October, 2016. Whether that reflects a new agreement or a culmination of the 2012 agreement that the parties kept on foot and closed when it became “feasible” as pleaded is also an issue for trial.
[13] As noted above, it is not part of my task to rule on the strength of the case pleaded at this time. The pleadings are capable of being read generously to allow for the possibility in law for a judgment in favour of John based on breach of contract.
Oppression
[14] Jane argues that John cannot have an oppression remedy because he is not personally a shareholder of the family companies. Jaymar held his shares briefly and a different company, Hematite, holds his shares now. John is the ultimate owner of the majority shares. Jane is not misled or taken by surprise. Leave is granted for John to amend to add Hematite and to limit the role of Jaymar to seeking oppression relief on his behalf if so advised.
[15] Jane also argues that John’s complaint is that she has failed to sell her shares to him. A claim by one shareholder against another as a bidder for their personal shares, she argues, cannot be oppression. Bidders for corporate shares have no rights to engage in the business and affairs of the corporation. Farley J. made that point expressly, in Rogers Communications Inc. v Maclean Hunter Ltd., [1994] OJ No. 408 (ON SC) at para. 9.
[16] Once again, it seems to me, that the plaintiff is inviting me to assess the merits rather than just considering the sufficiency of the pleadings. There is no question but that shareholders can have access to the oppression remedy under the rubric “affairs of the corporation” as utilized in s. 248 of the OBCA. BCE Inc. v. 1976 Debentureholders, [2008] SCJ No. 37, 2008 SCC 69 at para. 75.
[17] The pleading, especially para. 16, deals with more than John functioning as bidder. He pleads that he has borne the entire burden of the shareholders’ investments in the corporation due to his sister’s refusal to keep her word. While the trial judge may find that he was actually acting as a bidder, the pleading is broad enough to engage the possibility of John obtaining a judgment on the basis that Jane has oppressed him by failing to fulfil her role as shareholder in the management and affairs of the company. Whether this wins on the evidence is for trial and not for a pleadings motion.
Negligent Misrepresentation
[18] John pleads, in the alternative, that if there was no binding contract requiring Jane to sell, then Jane’s statements that she wanted to sell induced John to invest money, time, and effort, to his detriment for which Jane should be liable. He pleads that since Jane has sued for monetary damages rather than for a buyout of her shares at FMV, this shows that her statements that she wanted to sell to him were misrepresentations.
[19] I agree with Mr. Wainberg that this pleading cannot stand as written. Negligent misrepresentation is a tort with a well understood factual matrix. The five requisites are set out in Queen v Cognos Inc. 1993 146 (SCC), [1993] 1 SCR 87. The tort applies when someone makes a statement of existing fact that is relied upon, which turns out to have been untrue, and was made negligently. Here, the pleading that Jane agreed to sell her shares to John at FMV when feasible is not a statement of existing fact. It is a promise of future performance. Promises are enforced under other causes of action – like breach of contract or promissory estoppel. Some case law has held that a promise of future performance may contain in it an implicit statement of fact which is that when the promise was made, the promisor truly intended to fulfill the promise. If someone makes a promise while secretly intending to break it, then it can be said that the implicit representation that the promisor held a present intention to keep the promise was an untrue representation of existing fact. Datile Financial Corp. v. Royal Trust Corp. of Canada, 1991 7310 (ON SC), appeal dismissed, 1992 7661 (ON CA).
[20] On this pleading, the fact that Jane started this lawsuit for damages rather than for a buy-out does not mean that she (a) did not agree to sell; (b) does not still want to sell; or (c) did not intend to sell when she promised to do so.
[21] Again, Jaymar is not identified as having any role in this aspect of the transactions and therefore it has no claim pleaded for negligent misrepresentation either.
[22] The claim for negligent misrepresentation is therefore stuck out with leave to amend.
Unjust Enrichment
[23] Jane argues that the deprivation alleged by John has not occurred as yet. It is only in the case that there is no sale of her shares in future that John will be able to say she has benefited and he has lost. Moreover, she argues that the benefit/detriment alleged, that is, the increase in value of Jane’s shares since 2012 has a juristic reason. Share value is a function of share ownership. That is, if her shares have increased in value, that is because she never sold them. Her position as shareholder then entitled her to the value of the shares as a matter of law.
[24] These arguments fail to fairly encapsulate the claim. John claims that as a result of Jane’s unwillingness to complete the agreed upon sale at the same price and time as their sisters, he was misled to make investments for himself, in which Jane is now entitled to share. This is an alternative plea that assumes that there is no contract requiring Jane to sell her shares. Therefore, the fact that she still has a claim in the enhanced equity of the corporation has already provided her with a benefit to John’s detriment – or so he pleads.
[25] Again, without commenting on the strength or likelihood of success of that plea, if the facts pleaded are adjudged to be true (as they are assumed to be for this motion) then John could win a judgment for unjust enrichment. That is all that he needs to show to survive this review of his pleadings.
[26] Jaymar, by contrast, has no pleading of any facts showing that it suffered a detriment in relation to Jane. It cannot sustain this cause of action as pleaded.
Outcome
[27] The claims by Jaymar of breach of contract, negligent misrepresentation, and unjust enrichment are struck out. The claim of John Pavanel for negligent misrepresentation are struck out. Jaymar and John Pavanel are granted leave to amend the counterclaim by January 31, 2018 including to add Hematite as a party if so advised.
[28] I would not exercise my discretion to award costs to either side. Both the counterclaim and this motion had little, if anything, to do with securing a fair and just outcome for the parties in an efficient, affordable, and proportionate manner.
F.L. Myers J.
Date: December 15, 2017