Colenbrander v. Savaria Corporation, 2018 ONSC 3829

COURT FILE NO.: CV-11-432182

DATE: 20180629

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ANTHONY COLENBRANDER, COLENBRANDER ENTERPRISES CANADA INC. and KAREN COLENBRANDER

Plaintiffs (Defendants by Counterclaim)

– and –

SAVARIA CORPORATION

Defendant (Plaintiff by Counterclaim)

H. Richard Bennett, for the Plaintiffs (Defendants by Counterclaim)

Ryan A. Morris, for the Defendant (Plaintiff by Counterclaim)

HEARD: June 15, 2018

J. WILSON J.

AMENDED REASONS FOR DECISION ON REMEDY

1In the partial summary judgment decision dated February 2, 2016 I concluded the Defendant, Savaria Corporation (Savaria), had breached its duty of good faith owed to the Plaintiff, Anthony Colenbrander (Colenbrander), by refusing to allow Colenbrander to exercise irrevocable stock options granted by Savaria as part of the purchase price for Colenbrander’s company.

2The Option Agreement confirms that the law of Québec is to apply. The parties had filed lengthy expert reports providing opinions on the Québec law in the first phase of this summary judgment motion. The parties have been unable to agree on what remedy is appropriate to quantify the loss: specific performance, or damages. Each of the parties has retained the same imminent experts, both former judges of the Quebec Court of Appeal to consider the appropriate remedy.

3Both experts confirm that the law of Québec applies to determine the appropriate remedy. The expert for Colenbrander, the Honourable Pierre Dalphond, opines that the appropriate remedy in the facts of this case, applying Québec law is specific performance. The expert for Savaria, the Honourable Jean-Louis Baudouin opines that damages are the appropriate remedy.

4In light of the diametrically opposed views of the parties’ experts, and as this is a question of law, I requested the parties to appoint a Court appointed expert pursuant to Rule 52.03(1) of the Rules of Civil Procedure to assist the Court with the fair determination of the appropriate remedy in this case applying Québec law.

5Rule 52.03(1) so important yet so infrequently used states:

On motion by a party or on his or her own initiative, a judge may, at any time, appoint one or more independent experts to inquire into and report on any question of fact or opinion relevant to an issue in the action.

6I am of the view that this rule can and should be widely used in civil litigation to assist the parties and the Court where the case is complex and dependent on expert evidence. So often the experts’ opinions align with the party who is retaining them.

7The parties consulted with each other and with their experts and chose the Honourable Louis LeBel, C.C. former judge of the Supreme Court of Canada from Québec to be the independent court appointed expert. The parties jointly instructed the Honourable LeBel. I have had no contact with him, apart from arranging for delivery of his final report.

8Attached and marked “A” is the Order appointing the Honourable LeBel. He had access to the entire record that was before me in the motion. The pre-amble confirms that the findings of fact are those outlined in my decision February 2, 2016. The first part of the Order confirms that he is to try to resolve the issue of the appropriate remedy if possible in consultation with the parties’ experts. If resolution is not possible, the next step is for the experts to define the areas of dispute, and the position of the parties, to provide the framework for the Court appointed expert. The final step is the preparation of the Report of the Court appointed expert. Counsel had ten days and the opportunity to seek reasonable clarification of the Report prior to the final Report being provided to me.

9Attached and marked “B” is the Report of the Honourable LeBel dated May 31, 2018 confirming his analysis and opinion that in this case the appropriate remedy, applying the law of Québec, is specific performance.

10Counsel for Savaria argued, for the first time that the law of Ontario should apply to determining the remedy as the question of remedy is procedural and part of the lex fori of the Ontario court. For reasons that I will outline, I do not accept this argument.

11The Report of the Honourable LeBel is clear and concise. He confirms first that a party to a contract is entitled to its execution in good faith. If there is a breach of that duty, in Québec the creditor has the option of choosing the remedy that will ensure the execution of the obligation breached, including requiring specific performance.

12He confirms that at present in Québec, “specific performance is the new normal in the cases which admit of it.” He concluded that none of the situations where specific performance is not appropriate apply.

13Finally, the Honourable LeBel concludes that “specific performance would be considered the appropriate remedy by Québec courts in the circumstances. It would not be barred by the law governing injunctive relief in Québec.” One of the references relied upon in support of the conclusion that specific performance is the appropriate remedy comes from the book co-authored by the defence expert. See: Baudoin et Jobin, Obligations, 7e édition, 2013, Les Éditions Yvon Blais, par P.G. Jobin et N Vézina, Cowansville, p. 858-859.

14Further, the Honourable LeBel confirms that the dividends paid from the date of the breach to date are recoverable and form part of the “bundle of rights” when Colenbrander was granted the options and exercised them. He does not accept the opinion of the expert for Savaria that dividends are indirect damages.

15It is of note that apart from this new argument about lex fori, counsel for Savaria made no comments upon the Report and conclusions of the Honourable LeBel.

Argument that Ontario law applies to determine the remedy

16After receiving the Report, which does not agree with the opinion of Savaria’s expert, a new argument was raised. Counsel for Savaria argues for the first time that the law of Ontario should determine the appropriate remedy. He argues that the choice of remedy is a procedural quantification of damages, and part of the lex fori (Ontario), and not substantive and part of the lex causae (Québec).

17At the heart of this argument is money. He argues that Colenbrander will obtain an unjustified windfall by allowing the remedy of specific performance, as the value of the Savaria shares have increased during the period of this litigation. He argues that Colenbrander would have sold the shares had the Option Agreement been respected by Savaria. Therefore, applying Ontario law of damages would result in a fairer assessment of the consequences of Savaria’s breach.

18Counsel for Colenbrander was taken aback by this new position. He argued that there was an agreement that the law of Québec applied to assess the loss. There was no formal agreement in writing, but it was certainly the understanding of this Court, the parties and their respective experts that the law of Québec applied until this new issue arose. Hence the appointment of the Honourable LeBel to assist in the application of Québec law.

19Agreement or not, I do not accept the submissions of counsel for Savaria for several reasons. I conclude that the law of Québec applies to assess the consequences of the breach of the Option Agreement.

20First, the Québec Civil Code confirms that where an obligation to make reparation from non-performance of a contractual obligation arises, claims based upon non-performance are governed by the law applicable to the contract: in this case Québec.¹

21Second, the Option Agreement confirms that the law of Québec applies to its interpretation: “This Agreement shall be governed by the laws of the Province of Québec.” In my view that includes determining the consequences of the breach and the appropriate remedy in light of article 3127 of the Civil Code.

22Third, both experts confirm their opinion that the law of Québec applies to determine the appropriate remedy. The expert for Savaria states “I agree with my colleague that, on the basis of the Option Agreement alone, the remedies in case of its breach would be governed by the law of Québec.” Both experts agree that the two available remedies available are specific performance and damage.

23Finally, I conclude that the lex fori principles have been misconstrued by counsel for the Defendant and properly applied are of no assistance to him.

24Counsel for Savaria relies on the principle that choice of remedy is procedural as a quantification of damage and hence governed by the lex fori (Ontario).

25However, heads of damages, meaning the type of recoverable loss, and questions of remoteness of damages are matters of substantive law, and for a breach of contract are governed by the proper law of the contract. In this case the lexi causae is Québec.²

26Further, it is clear that not all questions of remedy are merely procedural. When the right and the remedy are inextricably intertwined, as in this case, both should be considered substantive and governed by the lex causae.³

27In this case, the right and the remedy are inextricably intertwined. I refer to the conclusions in the Report on the question of dividends. The expert for Savaria opines that the right to dividends in “indirect damages.” The Honourable LeBel disagrees. He confirms “This does not properly reflect to the legal status of the dividends. They are part of the bundle of rights that Colenbrander acquired when he was granted his options and exercised them. They form part of the rights for which he is entitled to be compensated.”

28In this case, specific performance and damages are two very different remedies. They reflect entirely different characterizations of recoverable loss engaging principles of remoteness. Each remedy is based upon the application of very different legal principles. The choice of remedy results in very different consequences and rights to the creditor. Whether specific performance or the law of damages applies to assess the consequences of the breach in this case is clearly substantive, not merely procedural. Hence, the law of Québec applies.

29In any event, there is another flaw in counsel’s reasoning. Specific performance is an available remedy in Ontario, although not as commonly used perhaps as in Québec. If the law of Ontario applied, (which is not my finding) in the circumstances of this case specific performance may well be the appropriate remedy. Colenbrander has insisted throughout that he has the right to exercise his options. Although the creditor in Ontario does not have the statutory right to choose between damages and specific performance, specific performance may be awarded in appropriate circumstances if damages is not an adequate remedy to compensate for the loss.⁴ This appears to be such a case.

30For these reasons I find that there is no merit to the Defendant’s argument that the law of Ontario applies to assess the loss. The suggestion that the choice of remedy in this case is procedural is without merit, and a last minute distortion of the principles of lex fori and lex causae.

Conclusions

31The law of Québec clearly applies in this case.

32I adopt the thoughtful analysis and the conclusions outlined by the Honourable LeBel. I thank him for his assistance in this case, on my behalf, and on behalf of the parties. Regardless of which expert opinion he supported, I am confident that justice and fairness between the parties has been accomplished on this issue.

33Colenbrander is entitled to specific performance of the Option Agreement. He may forthwith, and within 30 days of the release of these reasons, purchase 200,000 shares in Savaria for a share price of $1.19 per share in accordance with the terms of the Option Agreement.

34He shall also be entitled to the payment of any dividends declared upon the said shares from the date of July 31, 2015 to date. On July 31, 2015 Colenbrander tendered the cheque in the amount of $238,000.00 to purchase 200,000 shares pursuant to the Option Agreement, which was refused by the Defendant.

Costs

35Counsel made brief submissions to me about costs at the conclusion of this matter. Each side has partial indemnity costs including HST and disbursements for legal fees in a similar amount rounded to $30,000.00. There is no reason in this case for full indemnity costs or complete indemnity costs. Both counsel have been professional and cooperative in moving the case forward and facilitating the process of appointment of the Court appointed expert.

36The Plaintiff is therefore entitled to partial indemnity costs in the amount of $30,000.00 inclusive. The professional fees of the expert for Colenbrander should also be paid.

37The fees of Court appointed expert have been shared on a 50:50 basis, subject to apportionment. There was no agreement between the parties that the successful party would be compensated for their share of the costs. The parties chose the expert, and instructed the expert. Both parties have ability to pay. In my view both parties have benefited from the expertise and neutrality of the appointment of the jointly retained Court appointed expert. In these circumstances it is appropriate for each party to pay 50% of the costs for the Court appointed expert in accordance with the initial retainer.

J. Wilson J.

Released:

CORRECTION NOTICE

Corrected decision: the text of the original judgment was corrected on July 17, 2018, and the description of the correction is appended:

In paragraph 1, the first name of the Plaintiff has been corrected as Anthony.

In paragraph 5, the word face has been replaced by fact.

In paragraph 11, the word contact has been replaced by contract.

In paragraph 33, the amount of the share price was replaced by $1.19.

Footnotes

1. 1See Article 3127 of the Civil Code of Québec, 1991, c. 64, a. 3127 which states: Where an obligation to make reparation for injury arises from nonperformance of a contractual obligation, claims based on the nonperformance are governed by the law applicable to the contract.
2. 2Janet Walker, Canadian Conflict of Laws, 6th ed, (Toronto: LexisNexis, 2005).
3. 3Janet Walker, Canadian Conflict of Laws, 6th ed, (Toronto: LexisNexis, 2005) at para 6.3.
4. 4See I.M.P. Group Limited v. Dobbin, 2008 CanLII 46328, at paras. 136-137.