COURT FILE NO.: CV-13-491648
DATE: 20180528
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Michael A. Lourenco, Plaintiff/Responding Party
AND:
Bourne Mills of Canada Inc., Richard Turner, Sylvia Turner, Rick Turner and Byron Turner, Defendants/Moving Parties
BEFORE: Carole J. Brown
COUNSEL: H. Syed, for the Plaintiff/Responding Party
R. Birken, for the Defendants/Moving Party
HEARD: April 18 and 30, 2018
AMENDED ENDORSEMENT
[1] The defendants seek partial summary judgment for a declaration that the defendant, Richard Turner, on behalf of the defendant, Bourne Mills of Canada (“Bourne Mills”), validly exercised its option to purchase the beneficial 25% shareholding interest of the plaintiff in the Corporation, and, by way of cross-motion, seeks partial summary judgment for a declaration that the Corporation has not validly exercised such option. The defendants further seek summary judgment for a declaration that they have fully compensated the plaintiff through payment of 25% of the monies paid to the individual defendants to the benefit of the defendant, Turner, in connection with the “payroll and benefits trust issues”.
[2] The defendants have advised that they are not seeking summary judgment but rather a summary trial for the remaining issues in this proceeding. They maintain that these issues have been considered and commented upon in their expert reports (“the Douglas reports”).
The Facts
[3] The within action involves claims of oppressive conduct by the majority defendant shareholders against the interests of the minority shareholder plaintiff, Michael Lourenco, in the closely held corporation, Bourne Mills of Canada Inc.
[4] The personal defendants, Richard Turner and Sylvia Turner, are the majority shareholders of the corporate defendant and are recipients of and/or participants in the misappropriation of Bourne Mills’ assets. Richard holds an MBA and at all material times had been the Corporation’s sole director, controlling the assets of Bourne Mills. He has tightly controlled all aspects of the Corporation.
[5] The personal defendants, Rick Turner and Byron Turner, are Richard and Sylvia’s sons and are recipients of and/or participants in the misappropriation of Bourne Mills assets. Jennifer Turner is the daughter of the majority shareholders and, in the course of this proceeding, has been discovered as being a beneficiary of assets misappropriated from Bourne Mills by the defendants and which they have now admitted to misappropriating.
[6] On August 30, 1993, the defendants, Richard and Sylvia, and the plaintiff purchased Bourne Mills as a going concern. Initially, Richard and Sylvia owned 85% of the outstanding shares of Byrne Mills and Michael owned 15%, representing the relative proportions of the purchase price that they had guaranteed. The plaintiff had guaranteed $69,266.55.
[7] Richard became the principal of Bourne Mills and its director and president and Michael assumed the role of VP. A Shareholders Agreement was entered into on August 31, 1993.
[8] In 2006, Michael acquired an additional 10% of the shares of Bourne Mills pursuant to an option he exercised under the Shareholders Agreement, bringing his ownership of Bourne Mills shares to 25% and reducing the Turner shares to 75%. Consideration for the additional shares was provided pursuant to the Shareholders Agreement in the form of an interest-free loan of $15,000 to the company with no fixed date for repayment.
[9] The plaintiff was terminated by the defendant Richard and required to leave by Richard on March 15, 2013. After the termination, the defendants purchased the shares of the plaintiff. The defendants state that the option to purchase the plaintiff’s shares was pursuant to paragraph 8 of the Shareholders Agreement and that the word “ceases”, used in that paragraph, should be interpreted as advocated by them, namely as no longer working with Bourne Mills. The defendants maintain that the intentions of the parties is not required to be determined in the circumstances of this case and that the ordinary, common sense meaning of the word “ceases” is applicable. The plaintiff disagrees and maintains that the term “ceases” should be interpreted as in its ordinary meaning, implying some action on the plaintiff’s part or outside the control of Richard or the corporate defendant, and would not apply to unilateral termination of Michael’s employment by Richard or Bourne Mills.
[10] In 2013, the plaintiff inadvertently discovered a spreadsheet at Bourne Mills detailing something called the “benefits trust” which appeared to detail a spending account comprised of Bourne Mills assets which were being appropriated for the benefit of the majority shareholder’s family to the detriment of the value of the plaintiff’s shares. The plaintiff confronted the defendant about this discovery and he was, thereafter terminated. It was subsequently discovered that the benefits trust account was set up to divert funds to members of the majority shareholder’s family for alleged personal medical expenses, which issue the defendants seek, in this motion, to be determined. In June of last year, the defendants admitted to the misappropriation and the defendants’ counsel wrote to plaintiff’s counsel providing a cheque for $6,500 based on the majority shareholder’s calculation of the value of the admitted misappropriation. The cover letter with the cheque indicated that deposit of the said cheque did not require him to “either acknowledge the accuracy of the calculation of the payment or provide any form of release in connection therewith”. While it is the position of the defendants that this resolves the issue of the misappropriation as regards the benefits trust, the plaintiff disagrees.
[11] The plaintiff brought this action in 2013 for various relief including oppression pursuant to section 248 of the Ontario Business Corporations Act. The action is scheduled to proceed to a pretrial on September 21, 2018 and to trial on November 19, 2018 for six days. Examinations for discovery were completed in 2014.
Positions of the Parties
Position of the Defendants
[12] It is the position of the defendants that all the evidence necessary to decide the two issues of the payroll and the benefits trust are before this Court. Further, it is the position of the defendants that, in interpreting the Shareholders Agreement, there is no need to consider the intentions of the parties, as the plaintiff had the full benefit of independent legal advice and there was no discussion about paragraph 8. It is the position of the defendants that there is no evidence to indicate that there was any discussion as regards the intentions of the parties and that the wording of the Agreement, on its face, is clear (“if Lourenco ceases employment with the company…”), and that common sense should be applied to its interpretation. The defendants maintain that there is no reference in the subject paragraph to Michael Lourenco’s voluntarily resigning his position with the company versus being fired by the company; nor does the Agreement contain any definition of the words “ceases” or “leaves”, and relies on the administrative decisions in Kerlloy Investments Ltd.v Ontario Regional Assessment, 1991 CarswellOnt 5984 and Norfolk General Hospital and ONA, 2004 Carswell Ont 10641.
[13] It is further the position of the defendants that all documentation produced to date in this action is complete and sets forth all of the values needed to estimate the share value, the net book value pursuant to the exercise of the option, that all deposits and cash received from customers are clearly set forth and the inventory valuations in the financial statements are accurate. This is disputed by the plaintiff.
[14] The defendants maintain that the plaintiff in his responding material has relied upon forensic reports of the defendants’ expert, John Douglas, of November 30, 2017 and February 18, 2018 and that, where Mr. Douglas referred to and relied upon financial records of Bourne Mills, his evidence is reliable, but where he relied on other documentation unrelated to the financial statements and the forensic accounting, his evidence is unreliable and directly contrary to other evidence relied on by the defendants.
[15] The defendants further maintain that the conclusions and opinions of the expert retained on behalf of the defendants that the inventory was understated by $200,000 contradicts the analysis set forth in the financial reporting references contained in the report and the evidence of the defendants regarding when inventory is counted and reflected in the financial statements.
[16] It is the position of the defendants that there are only four remaining issues, to be determined in a summary trial, including the personal portion of the defendants’ expenses for restaurants and golf; travel expenses of Sylvia Turner; partial supplier credit and an issue regarding pool tables. It is the position of the defendants that the amounts attributable to the four issues, by simple calculation, indicate that the plaintiff’s shareholding interest (25%) would be $21,405.50.
[17] It is the position of the moving party defendants that there is no genuine issue requiring a trial and that in the exercise of the powers provided pursuant to Rule 20(2.1) of the Rules of Civil Procedure, the Court should properly grant partial summary judgment with respect to the two issues involved, namely that the exercise of the option by the defendants to purchase the Lourenco shares was properly completed; and that the defendants have properly satisfied the interest of the plaintiff with respect to the “payroll and benefits trust issue”. The defendants further maintain that there is no genuine issue regarding a trial as regards the claims made for partial summary judgment and that the granting of partial summary judgment will not prevent the court at trial from properly adjudicating upon the remaining matters, relying upon Houle v Sostarich, 2017: ONSC 6025; Butera v Chown, Cairns LLP, 2017 ONCA 783; Vandenberg v Wilkin, 2017 ONSC 6665. It is the position of the defendants that the trial court can readily adjudicate upon the matters to be determined without reference to the issues that are the subject matter of this motion.
Position of the Plaintiff
[18] It is the position of the plaintiff that the action concerns claims of oppressive conduct by the majority shareholder defendants against the interests of the plaintiff minority shareholder, Michael Lourenco. The plaintiff maintains that the defendants, Richard Turner, Sylvia Turner, Rick Turner and Byron Turner, seek partial summary judgment for several declarations on the basis that they have admitted to misappropriating assets of Bourne Mills for their personal benefit to the detriment of the plaintiff’s interest as a minority shareholder well into the litigation of this matter and after the matter has already been scheduled for trial.
[19] The plaintiff maintains that the issues to be tried include:
Interpretation of the Shareholders Agreement requiring the intentions of the parties to be determined;
The quantum and effect of any partial satisfaction of acts of oppression by payments made during the litigation on a without prejudice basis to the plaintiff;
Determination of multiple actions of oppression;
The appropriate valuation date of any sale of shares/damages based on share value;
The appropriate quantum of valuation/methodology of any shares/damages based on share value; and
The nature and magnitude of oppressive acts/breaches of fiduciary duty warranting any specific remedy including under an order for compensation under the Ontario Business Corporations Act.
[20] Major issues to be determined are the multiple acts of oppression, sub-issues of which are individual acts of oppression of the defendants. Two of the sub-issues of oppression include the “benefits trust issue” and the “payroll issue” which the defendants seek to have determined in this partial summary judgment motion.
[21] The benefits trust issue involves funneling of funds for health costs of the defendants, while the payroll issue involves funneling costs for paying the defendants’ children, both sub-issues of the oppression action.
[22] While the defendants have submitted significant financial documentation and calculations as regards options payments, valuation of shares, and have indicated that no intention of the parties is required to interpret the Shareholders Agreement, the plaintiff disputes these calculations as well as the defendant’s interpretation of the Shareholders Agreement. The plaintiff disputes the accuracy of the calculations and the reliability and independence of those who compiled the said calculations upon which the defendants base their claim. The plaintiff contests the disclosure made by the defendants as regards relevant documentation. The plaintiff further submits that there are many contradictions in the evidence of the defendants regarding the seminal issues.
[23] While the plaintiff disputes the calculations of the defendants, and there is no agreement of the parties regarding numbers, counsel for the defendants, at the motion, indicated that if that were the case, the Court could use the plaintiff’s calculations.
[24] A careful review of the facta of the plaintiff and defendants indicates clearly the disputes regarding the evidence at issue in this motion.
[25] It is the position of the plaintiff that while the legal issues sought to be determined may be seen to be “discrete” or “distinct”, the other claims brought by the plaintiff arise out of the same factual matrix and, without those other issues before the trial court, particularly given that this is an oppression remedy claim, the court would not have the benefit of the full context or factual matrix. The plaintiff relies on the cases of Canadian Imperial Bank of Commerce v Deloitte & Touche, 2016 ONCA 922; Yusuf (litigation guardian of) v Cooley, 2015 CarswellOnt 7459; International Offtake Corp. v Incryptex 2016 ONSC 4793, 2016 ONSC4793; Mendelson Estate v Norris, 2007 CarswellOnt 1395. The plaintiff takes the position that, should the Court grant partial summary judgment, it would have to ignore that the appropriate remedy the plaintiffs may be entitled to on account of the defendants admitted oppressive conduct may be damages or an order for compensation pursuant to the Ontario Business Corporations Act, section 248, in regard to which the evidence regarding the two issues before this Court should be considered. The plaintiff relies on C. I. Covington Fund Inc. v White, 2000 CanLII 22676 (ON SC), 2000, CarswellOnt 4680, paragraph 46, in which the court stated:
The provision has been used to make compensation orders against individual directors where their conduct has been found oppressive in small, closely held corporations such as Delta, and they have personally benefited – for example, by the removal of assets from the Corporation.
[26] The plaintiff will seek such an order in the trial of this action, and maintains that the court, in considering whether to grant such an order, must consider the acts of oppression including those which the defendants seek to have eliminated by partial summary determination. The compensation which may be granted on such an order would not be limited to the return of monies which the defendants admit to having misappropriated, but may include a broader order for compensation where there are a multiplicity of acts of oppression. As such, the circumstances surrounding the misappropriation of assets regarding the payroll and benefits trust issues and the specifics of those misappropriations will be presented again at trial and will be duplicated on this motion, thus making the partial summary judgment motion inappropriate.
[27] It is further the position of the plaintiff that viva voce evidence is required, as credibility will be an issue, given the circumstances of this case.
[28] As regards the issue of whether the defendant properly exercised the option to purchase the plaintiff’s shares pursuant to the Shareholders Agreement, paragraph 8, it is the position of the plaintiff that the unilateral termination from employment by Bourne Mills of the minority shareholder does not trigger the provision relied upon by the defendants in purchasing the plaintiff’s interest in the company. The plaintiff disputes the interpretation given by the defendants to the subject provision and asserts that, in interpreting the provision, the traditional rules of construction apply, including contra proferentum, given that the majority shareholder had his lawyer draft the Agreement, and eusdem generis. The plaintiff maintains that the reference to “ceases” in paragraph 8 of the Agreement is limited to circumstances set out in the general clause which does not include circumstances where the plaintiff’s absence from the Corporation is due to actions taken by the majority shareholder, such that the only meaning that “ceases” could take is its ordinary meaning as a verb, implying some action on the plaintiff’s part or outside the control of the majority shareholder and would not apply to unilateral termination.
Summary Judgment
The Law
[29] Pursuant to Rule 20, summary judgment shall be granted where there is no genuine issue requiring a trial.
[30] In Hyrniak v Mauldin, 2014 SCC 7, [2014] S.C.J. No. 7, the Supreme Court of Canada determined that there would be no genuine issue requiring a trial where a judge is able to reach a “fair and just determination on the merits” of the case. This will be the case where the process: (1) permits the judge to make the necessary findings of fact on the basis of the evidence adduced, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
[31] Pursuant to Hyrniak, the motion judge should first determine if there is a genuine issue requiring a trial based only on the evidence before the court, without using the new fact-finding powers set forth in Rule 20.04. There will be no genuine issue requiring a trial if the summary judgment process provides the court with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportional procedure. If there appears to be a genuine issue requiring a trial, the motion judge should determine if a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). The judge may, at his or her discretion, use those powers, provided that doing so does not offend the interest of justice, i.e., that it will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[32] In this regard, I am cognizant of and have taken into consideration the findings of Karakatsanis J. addressing the “interest of justice” requirement in Hryniak v Maulden, supra., at paragraphs 48-51, as follows:
The “interest of justice” inquiry goes further and also considers the consequences of the motion in the context of the litigation as a whole. For example, if some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of negative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice. On the other hand, the resolution of an important claim against a party could significantly advance access to justice and be the most proportionate, timely and cost-effective approach.
[33] The moving party bears the onus of establishing that there is no triable issue. However, a responding party must “lead trump or risk losing”: 1061590 Ontario Limited v Ontario Jockey Club, 1995 CanLII 1686 (ON CA), [1995] O.J. No. 132, 21 O.R. (3d) 547 (Ont. C.A.). The responding party may not rest on the allegations or denials in the pleadings, but must present by way of affidavit or other evidence, specific facts and coherent, organized evidence demonstrating a genuine issue. The motions judge is entitled to assume that the record contains all evidence that the parties will present if there is a trial. It is not sufficient for the responding party to say that more and better evidence will be available at trial. The court must take a “hard look” at the evidence to determine whether there is a genuine issue requiring a trial.
[34] The Court of Appeal has recently held that a motion for partial summary judgment is a “rare procedure”:
A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner. Such an approach is consistent with the objectives described by the Supreme Court in Hyrniak, and with the direction that the rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.: Butera v Chown Cairns LLP, 2017 ONCA 783, 2017 CarswellOnt 15856; Espresso Tax Credit Fund III Limited Partnership v Arc Stainless Inc., 2018 ONSC 415, 2018 CarswellOnt 462.
Analysis
[35] In the circumstances of this case, I do not find partial summary judgment to be appropriate.
[36] Based on all of the evidence before this Court, I am not satisfied that the evidence necessary to determine the issues before this Court is before me. The facts and evidence, including the financial documentation are in dispute. The plaintiff disputes the accuracy, reliability and independence of those who prepared the financial calculations on behalf of the defendants. The defendants accept some of their expert report and reject other portions. These issues must be determined with the benefit of a complete record, viva voce evidence and cross-examination.
[37] While the moving party defendants maintain that all of the documentation necessary to make a determination on the two issues is before this Court, I am not satisfied, having carefully reviewed all of the documentation, that I am able to reach the necessary findings of fact on the basis of the evidence adduced on this motion, in all of the circumstances of this case.
[38] There is a significant dispute as regards the interpretation of the seminal clauses in the Shareholders Agreement which should be determined on a full evidentiary record having, inter alia, the benefit of viva voce evidence and cross-examination.
[39] I am satisfied that the evidence of witnesses other than the two principal shareholders will have to be heard and their evidence tested.
[40] I am not satisfied that I am able to reach a fair and just determination of the issues on the merits based on the record, albeit extensive, before me. Nor am I satisfied that a trial could be avoided by my using the powers available under Rules 20.04 (2.1) and (2.2).
[41] All issues in the action arise from the same factual matrix. Indeed, the balance of the oppression remedy trial, involving the issues outlined above, is scheduled for November 19, 2018. As the minority shareholder’s claim is a claim for oppression by the majority shareholders against him, and as he seeks damages under the Ontario Business Corporations Act, section 248, which will involve hearing all evidence as regards all the acts of oppression, this will result, in the end, in a duplication of evidence heard on this motion, which will be heard again at the trial. Thus, this summary judgment motion will not lead to a proportionate, more expeditious or less expensive means to achieve a just result.
[42] The two issues which are before this Court for determination on this motion, should be considered as regards the determination of damages in the action. To eliminate such would render an injustice to the plaintiff and would not be in the interests of justice.
[43] In the circumstances of this case, based on all of the evidence before me, I find that there are genuine issues requiring a trial. I am not satisfied that I am able to make a fair and just determination of the issues on the merits and to make the necessary findings of fact on the basis of the record before the Court, nor using the powers available to the Court pursuant to Rules 20.04(2.1) and (2.2). I am of the view that in the circumstances of this case and based on the evidence before me, a fair and just determination of the issues before the Court can only be made on a full evidentiary record, with viva voce evidence and, potentially, assessments of credibility as necessary, in order to reach a fair and just determination of the issues on the merits. I do not find that partial summary judgment, in the circumstances of this case, is a proportionate, more expeditious and less expensive means to achieve a just result.
[44] Accordingly, I dismiss the motion and the plaintiff’s cross-motion, and order this matter to proceed expeditiously to trial.
Carole J. Brown, J.
Date: May 28, 2018