Court File and Parties

Court File No.: CV-18-1354 Date: 2019-06-10 Ontario Superior Court of Justice

Between: GolfNorth Properties Inc., Applicant And: Rebel Land Holdings Inc., The Petersburg Golf Limited Partnership, 1471300 Ontario Corporation and Mill-Gate Holdings Inc., Respondents

Counsel: Cynthia Davis, for the Applicant Matthew B. Lerner, for the Respondents Rebel Land Holdings Inc., The Petersburg Golf Limited Partnership and 1471300 Ontario Corporation Jeremy A. Forrest, for the Respondent Mill-Gate Holdings Inc.

Heard: May 2, 2019

D. A. Broad, J.

Reasons for Judgment

Background

(i) Parties

[1] The application concerns a dispute over the purchase or proposed purchase of ownership interests in a golf course Rebel Creek Golf Club (the “Golf Club”) operated on approximately 146 acres of land (the “Property”) in Petersburg Ontario.

[2] The respondent Rebel Land Holdings Inc. (“Rebel Land”) owns the Property.

[3] The respondent Petersburg Golf Limited Partnership (the “Partnership”) is a limited partnership registered under the Limited Partnerships Act, R.S.O. 1990, c. L.16. The Partnership leased the Golf Club from Rebel Land pursuant to a head lease agreement dated June 21, 2001.

[4] The respondent 1471300 Ontario Corporation (the General Partner”) is the general partner of the Partnership.

[5] GolfNorth Management Corp. (“GolfNorth Management”) (or related companies) owns or operates approximately 30 different golf courses across Ontario and Nova Scotia.

[6] The Partnership leased the Golf Course to GolfNorth Management to operate and manage the Golf Course pursuant to a lease agreement dated February 1, 2014 (the “Lease”) for a term of 5 years commencing February 1, 2014 and terminating on January 31, 2019. The Lease included an option to renew for a further 5 year term conditional upon the Partnership and GolfNorth Management agreeing on the rent for the renewal term.

[7] The shareholding interests in Rebel Lands mirror the Limited Partnership Units (the “LPUs”) in the Partnership such that each shareholder in Rebel Lands holds a corresponding number of LPUs in the Partnership. There are 25 LPUs currently held by 17 individual LPU holders.

[8] The applicant GolfNorth Properties Inc. (“GolfNorth Properties”) is a corporate entity which is related to GolfNorth Management. It was the offeror in respect of an offer to purchase a maximum of twelve (12) shares in Rebel Land and twelve (12) LPUs in the Partnership pursuant to an offer dated June 14, 2018 (the “June 14 Offer”). The June 14 Offer is at the centre of the dispute between the applicant and the respondents on this Application.

[9] The respondent Mill-Gate Holdings Inc. (“Mill-Gate”) at all material times was controlled by Mike Milloy who was an indirect shareholder in Rebel Land and LPU holder in the Partnership. Mill-Gate exercised or purported to exercise a right of first refusal, triggered by the June 14 Offer from GolfNorth Properties, to purchase 10 shares in Rebel Land and 10 LPUs in the Partnership on July 26, 2018, as set forth below.

(ii) Lease Renewal and Lease Application

[10] Although not directly at issue on the application, it is helpful for context to briefly review the issues surrounding the Lease that prevailed at the time of the June 14 Offer.

[11] Negotiations between representatives of GolfNorth Management and the Partnership for the renewal of the Lease commenced in January, 2018. On June 18, 2018 GolfNorth Management gave written notice to the Partnership that it intended to renew the Lease (“Intention to Renew Notice”).

[12] On August 10, 2018 counsel for the Partnership wrote to GolfNorth Management advising (a) that the landlord’s negotiations with it had concluded on or about July 26, 2018, (b) that the Landlord had accepted an offer to lease commencing February 1, 2019 from Mill-Gate and (c) that the Lease with GolfNorth Management would terminate on January 31, 2019.

[13] The Lease renewal negotiations and the termination of the Lease were the subject of an application commenced by GolfNorth Management in August, 2018 bearing Court file number CV-18-1040 (the “Lease Application”). Ultimately in early October 2018 the Lease Application was settled (but for costs) whereby the Landlord and GolfNorth Management agreed that the Lease be renewed for a further term of five years at an agreed rent.

(iii) GolfNorth Properties’ June 2018 Offer to Purchase Shares/LPU’s

[14] GolfNorth Management considered the Golf Club to be one of the premium courses in its portfolio of golf courses. As a result it was interested in purchasing an ownership interest in it.

[15] Four (4) days prior to delivery by GolfNorth Management of its Intention to Renew Notice in respect of the Lease, GolfNorth Properties submitted to Rebel Land and the General Partner its June 14 Offer directed to all unit holders by which it offered to purchase a maximum of 12 shares of Rebel Land and 12 LPUs in the Partnership for $255,000 (less debt) for each share/LPU. Shares in Rebel Land and LPUs in the Partnership are hereinafter collectively referred to as “units”.

[16] The dispute on this Application centres around whether GolfNorth Properties’ June 14 Offer constituted a “Permitted Offer” as defined in the Limited Partnership Agreement among the limited partners and the General Partner of the Partnership dated July 5, 2001 (the “LPA”) and the Shareholders Agreement among the shareholders of Rebel Land (the “Shareholders’ Agreement”). The LPA and Shareholders’ Agreement are hereinafter collectively referred to as the “Agreements.”

[17] The definition of “Permitted Offer” is functionally identical in the two Agreements.

[18] Pursuant to the Agreements, an offer to purchase units that is a Permitted Offer, and which is an offer that the selling unit holder wishes to accept, triggers a right of first refusal process in favour of firstly Rebel Land and the Partnership and thereafter the non-selling unit holders. The right of first refusal provisions stipulate that firstly Rebel Land and the Partnership and then the non-selling unit holders will have the prior right to purchase the units offered by the selling unit holders in response to submission of a Permitted Offer, by delivering an irrevocable purchase notice which must remain open for acceptance by the selling unit holders for a specified period. If no purchase notices are delivered within the stipulated time, the selling unit holders may, within three (3) months, accept the original offeror’s offer to purchase.

[19] The Agreements provided that an offer to purchase which is not a Permitted Offer (i.e. a “Non-Permitted Offer”) need not be acknowledged by Rebel Land or the General Partner and may not be accepted by any unit holder without the prior written consent of all unit holders.

[20] In summary, if a person (whether that be an existing unit holder or an outside party) offers to purchase one or more units from any unit holder by submitting a Permitted Offer, the right of first refusal process is triggered, whereby the non-selling unit holders have the right to purchase the units of the selling unit holders on the same terms as the Permitted Offer.

[21] If a person makes a Non-Permitted Offer to purchase units, the right of first refusal process is not triggered and the Non-Permitted Offer is only capable of being accepted by a unit holder with the prior written consent of all unit holders.

[22] In order to satisfy the definition of a Permitted Offer in the Agreements, an offer to purchase units must have certain attributes including the following:

(a) it must specify the proposed date of the purchase which shall be not less than 45 nor more than 90 days after the date the offer is delivered; (b) it must contain the full name, address, telephone and fax particulars of the offeror and the individual who controls the offeror; (c) it must be open for acceptance for a period of not less than 45 days; (d) it must not be subject to any conditions or qualifications except for conditions relating to regulatory approval which may be required by applicable law, conditions relating to the ownership of the offered units free and clear of encumbrances, conditions relating to the corporate authority of the unit holder, and the requirement and condition that any purchaser be, or agree to become, a party to the Agreements on closing.

[23] The specific provisions of the definition of Permitted Offer in the Agreements which are in controversy between the applicant and the respondents in this application are as follows (as set out at Section 1 (64) of the Partnership Agreement):

“ “Permitted Offer” means an offer from the Offeror to purchase one or more, but not a fractional interest in any, LPU’s of The Petersburg Golf LP from any LPU Holder which offer shall:

(1) set out the number of LPUs that the Offeror proposes to purchase (the “Offered LPUs”) from the LPU Holder ; (2) state the cash price in Canadian Dollars which the Offeror is prepared to pay the LPU Holder per share for the Offered LPUs. The price offered to be paid for each of the Offered LPUs must be the same;”

(underlining added).

The corresponding provisions of the Shareholders’ Agreement are to the same effect.

[24] The June 14 Offer was on the letterhead of “GolfNorth” and was signed by Shawn Evans as President and CEO of GolfNorth Properties. It was addressed to “Rebel Land Holdings Inc. Attention: Shareholders Rebel Land Holdings Inc. and The Petersburg Golf Limited Partnership Attention: Unit Holders of The Petersburg Limited Partnership.” Below the signature of Shawn Evans were twelve spaces stating “The above offer is hereby accepted by the undersigned and holder of ____ Unit(s),” with spaces provided for a date to be inserted together with the name and signature of the individual accepting the offer.

[25] The June 14 Offer stated:

“This Offer will set out the terms under which a corporation (the “Offeror”) to be controlled or directed by GolfNorth Properties Inc. (“GolfNorth”) is prepared to purchase up to twelve (12) shares (the “Shares”) of Rebel Land Holdings Inc. (the “Corporation”) and up to twelve (12) units (LPU’s) of The Petersburg Golf Limited Partnership (the “Partnership”).”

[26] The June 14 Offer set out the purchase price and the adjustments to which the purchase price would be subject and specified in particular as follows:

“This Offer is being made to ALL Unit holders and, subject to the provisions of the Corporation’s Shareholders Agreement and the Partnership’s Limited Partnership Agreement, the Offeror will proceed toward Closing with the holders representing the first 12 Units that accept this Offer.”

[27] The closing date was specified to be November 30, 2018 “provided that this date complies with the provisions of both the Limited Partnership Agreement of the Partnership, and the provisions of the Corporation’s Shareholders’ Agreement. The Closing may be adjusted earlier or later to ensure compliance with both of these agreements.”

[28] The June 14 Offer specified that it was conditional upon the units to be acquired being free of all liens, claims and encumbrances and on five matters which mirrored the requirements of the Agreements, namely approval by the Boards of Directors of the Corporation and the General Partner and the Management Committee of the Partnership, any regulatory approval which is required by applicable law, and the offeror becoming a party to the Agreements.

[29] The offer stated that it was open for acceptance until 5 PM on Tuesday, July 31, 2018 (47 days from the date of the offer).

[30] Coincidently with delivery of the June 14 Offer, Mr. Evans sent an email to Ted Schlotzhauer, the holder of 30% of the units and a member of the Management Committee of the Partnership, stating, in part, as follows:

“I wanted to summarize below the rationale for the way in which our offer is worded.

The term “Permitted Offer” is defined in both the Shareholders’ Agreement and the Limited Partnership Agreement. Both agreements state that in order to be a “permitted offer” the offer must be open for acceptance for a period of not less than 45 days. However, hopefully the fact that it’s an offer to all partners/shareholders for up to 12 of their units will illicit (sic) some sense of urgency for those that want to sell.”

[31] On or about June 18, 2018 David Fedy, corporate counsel to the Partnership, a director and officer of the General Partner, and a member of the Partnership’s Management Committee, contacted John Murray, legal counsel for GolfNorth and requested the full name, address, telephone number and fax particulars of the Offeror and the individual who controls the Offeror, being information required to be included in a Permitted Offer and which was missing from the June 14 Offer.

[32] Mr. Fedy deposed in his Affidavit that he explained to Mr. Murray that, without this information, the June 14 offer technically may not qualify as a Permitted Offer.

[33] Mr. Murray responded to Mr. Fedy’s inquiry by an email dated June 18, 2018 as follows:

“As per our discussion please note that the Offer is from GolfNorth Properties Inc. for a corp to be controlled by GolfNorth. GolfNorth will be behind any purchaser and Jim Balsillie will be behind GolfNorth Properties Inc.”

(iv) Exercise of Right of First Refusal by Mill-Gate Holdings Inc.

[34] On June 18, 2018 the Management Committee of the Partnership met and concluded that the June 14 Offer was a Permitted Offer pursuant to the Agreements and directed that the process for Permitted Offers required by the Agreements be implemented.

[35] On June 20, 2018, Mr. Fedy, as Secretary-Treasurer of Rebel Land, executed a “Secretary’s Notice/General Partner’s Notice” (the “Secretary’s Notice”) addressed to all unit holders, reciting that Rebel Land and the Partnership had received a Permitted Offer to purchase up to 12 shares and 12 LPUs, giving notice of the offer and advising that the recipients each have 10 days to advise if they wish to acquire any or all of the offered shares and LPUs. A copy of the June 14 Offer was appended to the Secretary’s Notice. It is noted, that although not raised in submissions, the Secretary’s Notice was awkwardly worded by advising that the recipients of the notice have 10 days to advise if they wished to “acquire any or all of the offered shares and LPUs” whereas it should have specified that the recipients have 10 days to advise if they wish to tender or offer some or all of their units in response to the June 14 Offer. This discrepancy appears to have been addressed in the accompanying email from Mike Milloy referred to as follows.

[36] The Secretary’s Notice was circulated, along with the June 14 Offer, to unit holders with an email from Mr. Milloy, President, asking all unit holders to review the documents and, if they are interested in tendering their units, to complete the attached form and return it to Mr. Fedy.

[37] By July 9, 2018 Rebel Land and the Partnership had received written notice that holders of 10 units had elected to tender their units in response to the June 14 Offer. These included Mr. Schotzhauer, through his holding corporation Matbridge Investments Ltd. (“Matbridge”) representing 7 units, and Art Van Camp, David Hanna and Steve Resnick (through his holding corporation ChudRez), representing one unit each (the “Selling Unit Holders”).

[38] As Secretary-Treasurer of each of Rebel Land and the General Partner, Mr. Fedy executed a “Secretary’s Notice/General Partner’s Notice (the “Selling Notice”) on July 11, 2018 directed to “All Other LPU Holders” of the Partnership and “All Other Shareholders” of Rebel Land.

[39] The Selling Notice recited, inter alia, that Rebel Land and the Partnership had received a Permitted Offer to purchase up to 12 shares and 12 LP units, that certain selling shareholders and selling LPU holders have agreed to sell a total of 10 units, that the Selling Notice shall constitute an irrevocable offer by the selling unit holders to sell the offered units to the other shareholders, and that Rebel Land and the Partnership wish to provide the Selling Notice to the other unit holders pursuant to the Agreements, entitling them to match the GolfNorth offer with respect to any or all of the offered units.

[40] The Selling Notice gave notice that the recipients of the Selling Notice shall have 15 days to reply by stating how many of the offered units it desires to purchase.

[41] The Selling Notice was delivered to each of the non-selling unit holders by Mr. Milloy on July 11, 2018.

[42] On July 26, 2018 Mill-Gate delivered to Mr. Fedy a “Purchase Notice” addressed to the secretary of each of the General Partner and Rebel Land stating:

“Pursuant to the Shareholders Agreement and Partnership Agreement (each as defined in the Selling Notice dated , (sic) Mill-Gate Holdings Inc. shall purchase all of the Offered Shares and Offered LPUs of the above-noted entities, being 10 Offered Shares and 10 offered LPUs, on the same terms and conditions as included in the Golf North (sic) Offer dated June 14, 2018.”

The Purchase Notice was executed by Mr. Milloy as President and Director of Mill-Gate.

[43] As set out below, on October 15, 2018 the General Partner and the secretary of Rebel Land formally determined that Mill-Gate had agreed to purchase the 10 units of the Selling Unit Holders in accordance with the Agreements. Pursuant to the Agreements, completion of that purchase was to take place no later than the 30th day following October 15, 2018, namely November 14, 2018.

(v) GolfNorth’s October Offers to Purchase

[44] Prior to the foregoing determination by the General Partner and the secretary of Rebel Land, between October 4 and 6, 2018 GolfNorth Properties delivered a fresh offer to purchase to each of the Selling Unit Holders (Matbridge, Art Van Camp, David Hanna and Steve Reznick) (the “October GolfNorth Offers”) by which GolfNorth Properties, stated to be a corporation controlled by Jim Balsillie, offered to purchase the units held by each of them (ten (10) in the aggregate) for an aggregate purchase price of $158,000 per unit, which would not be subject to any adjustments, with a closing date of November 29, 2018, subject to the provisions of the Agreements. The only conditions to which the October GolfNorth Offers were stated to be subject were that the units be free of all encumbrances and upon any regulatory approval required by applicable law.

[45] The October GolfNorth Offers were open for acceptance by the Selling Unit Holders until November 23, 2018.

[46] The October GolfNorth Offers were accompanied by an email to each of the Selling Unit Holders from Mr. Evans which stated, in part, as follows:

“Upon a detailed review of the shareholders’ agreement and limited partnership agreement with our lawyers, we have determined that our June offer to purchase your shares/units did not constitute a “permitted offer” within the meaning of those agreements. We are of the view that Rebel Creek’s process that followed our ‘non-permitted’ offer was inconsistent with the provisions of the above agreements and accordingly, any purported agreement that exists with Mr. Milloy’s company to acquire your shares is unenforceable.

We believe that you will find the attached offer much more attractive than our June 2018 offer.”

[47] On October 10, 2018 the Management Committee retained Michael Woollcombe as a special independent counsel to the Management Committee in respect of governance matters, the two GolfNorth offers and related matters.

[48] On October 11, 2018 Mr. Fedy delivered a notice of a meeting of the Management Committee for October 15, 2018 for the purposes of considering and acting upon a number of matters, including receipt of Mr.Woollcombe’s report regarding the June 14 Offer and regarding the October GolfNorth Offers.

[49] On October 11, 2018 Mr. Schotzhauer sent to Mr. Fedy a copy of his acceptance, on behalf of Matbridge, of the October GolfNorth Offer that he had received. The other Selling Unit Holders Messrs Van Camp, Hanna and Resnick also accepted the October GolfNorth Offer that each of them had received.

[50] At meetings on October 15, 2018 the Board of Directors of Rebel Land and the Board of Directors of the General Partner each approved and ratified the retainer of Mr. Woollcombe as special independent counsel to the Rebel Land Board, the Management Committee and the Board of the General Partner.

[51] The minutes of the said Board meetings also recited that the secretary of Rebel Land confirmed his formal determination, pursuant to the Agreements, that Mill-Gate had agreed to purchase all of the relevant offered shares of Rebel Land and the offered LPUs of the Partnership.

[52] At its meeting on October 15, 2018 the Management Committee of the Partnership ratified and confirmed the retainer of Mr. Wollcombe to act as special independent counsel to the Management Committee, the Board of the General Partner and the Board of Rebel Land.

[53] The minutes of the October 15, 2018 meeting of the Management Committee (redacted to exclude privileged legal advice) state, inter alia, that the committee received Mr. Woollcombe’s advice respecting the Purchase Notice of Mill-Gate delivered July 26, 2018 exercising its right of first refusal to purchase 10 units from the Selling Unit Holders and related matters, including what action should be taken by the Partnership, the General Partner and Rebel Land in connection therewith. Mr. Milloy absented himself from this portion of the meeting.

[54] The Management Committee authorized and directed Mr. Woollcombe, on behalf of the Partnership, to write to the relevant parties advising them of the Committee’s determinations.

[55] By letters dated October 18, 2018 Mr. Woollcombe wrote to each of the Selling Unit Holders, advising them, inter alia, of the following:

(a) at their meetings on October 15, 2018 the Board of Directors of each of the General Partner and Rebel Land formally determined, as contemplated in the Agreements, that Mill-Gate had agreed to purchase all of the 10 offered units and, as a result, pursuant to the Agreements, completion of the purchase and sale of their units is to take place no later than the 30th day following October 15, 2018; (b) Rebel Land and the Partnership have concluded that the actions of the Selling Unit Holders in purporting to accept the October GolfNorth Offer was contrary to and in breach of the Agreements.

[56] Mr. Woollcombe’s letter also put each of the Selling Unit Holders on notice that Rebel Land and the Partneship will hold them personally accountable for all losses, costs or damages incurred or suffered by them by reason of their breach or attempted breach of the agreements in connection with the October GolfNorth Offer or otherwise.

(vi) Original Application

[57] GolfNorth Properties issued a Notice of Application on October 25, 2018 seeking the following relief:

(a) an Order and Declaration that its June 14 Offer was not a permitted offer in accordance with the Agreements and is therefore improper, unenforceable and of no force and effect; (b) an Order and Declaration that any offer to purchase the shares and units of Rebel Creek Golf Club submitted by Mill-Gate pursuant to the exercise of any right of first refusal over the June 14 Offer is improper, unenforceable and of no force and effect; and (c) an Order and Declaration requiring Rebel Land, the Partnership and the General Partner to deliver notice to the shareholders and limited partnership unit holders of the October GolfNorth Offer submitted by GolfNorth to the Selling Unit Holders between October 4 and 6, 2018 as required by the Agreements.

[58] The stated grounds for the application, as set forth in the original Notice of Application, include the following:

(a) the June 14 Offer did not meet the strict requirements of a Permitted Offer; (b) pursuant to the Agreements, an offer which is not a Permitted Offer need not be acknowledged or considered by the board or any shareholder or LPU holder and may not be accepted by any shareholder or LPU holder without the prior written consent of all the shareholders or LPU holders; (c) Rebel Land and the Partnership did not secure the written consent of all of the unit holders in support of the June 14 Offer; (d) as the June 14 Offer was not made in accordance with the provisions of the Agreements with respect to the definition of a Permitted Offer and Rebel Land and the Partnership failed to secure the consent of all of the unit holders with respect to the June 14 Offer, that offer could not be accepted by the Selling Unit Holders; (e) as the June 14 Offer could not be accepted by the Selling Unit Holders, Mill-Gate was not able to exercise any right of first refusal over GolfNorth’s June 14 Offer and Mill-Gate’s Purchase Notice was improper and unenforceable; (f) Rebel Land and the Partnership have not given notice to the unit holders of the October GolfNorth Offers; (g) GolfNorth and the Selling Unit Holders require an Order and a Declaration that both GolfNorth’s June 14 Offer and Mill-Gate’s Purchase Notice are improper, unenforceable and null and void as well as an Order and Declaration that Rebel Land and the Partnership give notice to the unit holders of acceptance of the October GolfNorth Offers by the Selling Unit Holders for the purpose of permitting the unit holders the opportunity to exercise any right of first refusal.

(vii) Purported Closing of the Purchase by GolfNorth of Shares/LPUs from the Selling Unit Holders

[59] The Application was served on the respondents and was adjourned on consent on the following dates:

November 15, 2018 November 22, 2018 November 29, 2018 January 3, 2019 January 10, 2019

[60] Rebel Land, the Partnership and the General Partner delivered their Responding Application Record on February 1, 2019, as did Mill-Gate. Mill-Gate delivered an Amended Application Record on February 14, 2019.

[61] GolfNorth Properties delivered its Reply Application Record on February 22, 2019 containing the Reply Affidavit of Mr. Evans dated the same date.

[62] In his Reply Affidavit Mr. Evans revealed for the first time that between November 20 and 23, 2018, while the Application was pending, GolfNorth Properties purported to close the purchase transactions with the Selling Unit Holders pursuant to the October GolfNorth Offers by the delivery by each of them of an “Instrument of Transfer” of the units held by them. Mr. Evans asserted in his Reply Affidavit that the GolfNorth Properties “is now the owner of 10 shares and 10 LPUs.”

[63] The purported “closings” of the purchase transactions with the Selling Unit Holders took place in late November, 2018 being three months prior to Mr. Evans’ Reply Affidavit. The closings were effected notwithstanding that GolfNorth Properties at the time was seeking an Order and Declaration from the Court requiring Rebel Land, the Partnership and the General Partner to deliver notice to the unit holders of its October GolfNorth Offer, on the stated ground that such an Order and Declaration was necessary for the purpose of permitting the unit holders the opportunity to exercise any right of first refusal.

[64] On cross-examination Mr. Evans, on behalf of GolfNorth Properties, acknowledged that GolfNorth Properties, together with GolfNorth Management Corp., entered into a written Indemnity Agreement with each of the Selling Unit Holders indemnifying and saving them harmless from any losses, damages or liabilities arising from Mill-Gate’s “offer to purchase” units and their failure to complete the sale transactions with Mill-Gate.

[65] The Indemnity Agreements were dated October 28, 2018, but were offered to the Selling Unit Holders by GolfNorth Properties on October 23, two days before Mr. Evans swore or affirmed his affidavit in support of the Original Application. His affidavit did not mention the fact that the GolfNorth companies had offered to indemnify the selling unit holders. Mr. Evans acknowledged on cross-examination this “may have been” intentional. He also acknowledged that the Indemnity Agreements, along with the higher purchase price in the October GolfNorth Offers as compared to the June 14 Offer, were intended by GolfNorth Properties to act as incentives to the Selling Unit Holders not to complete the sales to Mill-Gate.

(viii) Amended Notice of Application

[66] On March 22, 2019 GolfNorth Properties filed an Amended Notice of Application by which its claim for an Order and Declaration requiring Rebel Land, the Partnership and General Partner to deliver notice to the shareholders/LPU holders of its October GolfNorth Offer was removed and the following prayers for relief were added:

1(f) - An Order and Declaration that the October GolfNorth Offer to the Selling Unit Holders are Permitted Offers pursuant to the Agreements, were accepted by the Selling Unit Holders, and are binding and enforceable; 1(g) – An Order and Declaration that GolfNorth Properties is the rightful owner of 10 shares in Rebel Land and 10 LPUs in the Partnership; and 1(h) – An Order requiring Rebel Land and the Partnership to register the transfer of the shares and LPUs to GolfNorth Properties, recognize the voting rights attaching to the related shares and LPUs and GolfNorth Properties’ exercise of those rights.

[67] The Notice of Application, as amended, states that the Application is being brought pursuant to Rule 14.05 of the Rules of Civil Procedure. The particular paragraph under sub-rule 14.05(3) is not specified. It would appear that the only paragraphs which may have possible application would be where the relief claimed is:

(d) the determination of rights that depend upon the interpretation of a contract; (g) a declaration when ancillary to relief claimed in a proceeding properly commenced by a notice of application; or (h) in respect of any matter where it is unlikely that there will be any material facts in dispute.

[68] In response to an inquiry from the Court at the commencement of argument, each of the parties confirmed that they were not taking the position that the whole application or any issue should proceed to trial pursuant to Rule 38.10(1)(b). It was the position of all parties that the application should be decided on the basis of a written record consisting of the affidavit material filed by the parties and the transcripts of cross examinations on the affidavits.

Positions of the parties

(i) Position of the Applicant

[69] In summary, the applicant GolfNorth Properties position is as follows:

(a) its June 14 Offer was not a Permitted Offer as defined in the Agreements as it was not directed to “the LPU Holder” or “the Shareholder” but rather was a global offer made to all shareholders for the purchase of up to 12 shares; (b) the Agreements required that “the Shareholder” or the “LPU Holder” be named shareholder(s) or LPU Holder(s) to qualify as a Permitted Offer; (c) there is no evidence that anything in the factual matrix that existed when the Agreements were first created would be of assistance to the Court in interpreting the definition of a Permitted Offer; (d) the intention of the respondents to treat the June 14 Offer as a Permitted Offer after it was made is not relevant to the determination of whether it was in fact a Permitted Offer; (e) GolfNorth Properties was aware that the June 14 offer did not meet the requirements of a Permitted Offer and it intended to draft the offer as close to the definition of a Permitted Offer as possible in the circumstances; (f) evidence of the parties’ subsequent conduct is admissible to assist in contract interpretation only if the court concludes, after considering the contract’s written text in its factual matrix, that the contract is ambiguous. It says that the definition of a Permitted Offer in the Agreements is not ambiguous; (g) when admitted, evidence of subsequent conduct must be used cautiously and its weight will vary from case to case; (h) the actions of the respondents following receipt of the June 14 Offer will not assist the court in determining the appropriate interpretation of a Permitted Offer; (i) since the June 14 Offer was not a Permitted Offer, Mill-Gate did not have the right to exercise a right of first refusal; (j) the October GolfNorth Offers meet the definition of a Permitted Offer in both Agreements; (k) GolfNorth Properties’ ownership of the 10 units ought to be recognized by Rebel Land, the Partnership and the General Partner upon compliance with the provisions of sections 9.3(1), (2) and (3) of the Limited Partnership Agreement and 6.3(1), (2) and (3) of the Shareholders Agreement; (l) GolfNorth Properties has standing to seek to relief which it requests because it is party to the two offers that are the subject matter of the application. Due to the nature of the offers, they are subject to the terms of the Agreements. Although the interpretation of the Agreements is necessary for determination of whether the June 14 Offer is void, it does not remove GolfNorth’s standing to seek the relief which it is seeking; (m) GolfNorth seeks to have an accepted offer to transfer shares, to which it is a party, acknowledged by the respondents Rebel Land, the Partnership and the General Partner in accordance with the terms of the Agreements, given that those respondents have refused to do so; (n) the Selling Unit Holders also have an interest in a determination as to which of the two GolfNorth Properties offers are binding upon them for the transfer of their shares.

[70] GolfNorth Properties did not pursue in submissions the position advanced in its Factum that, given Mr. Milloy’s alleged “ongoing and improper involvement” in the decision of Rebel Land, the Partnership and the General Partner in respect of the June 14 Offer, Mill-Gate ought to be estopped from being able to exercise a right of first refusal in the event that the October GolfNorth Offers are deemed valid. Ms. Davis acknowledged that, should that occur, whether the non-selling unit holders should be granted a right of first refusal pursuant to the Agreements, is within the discretion of the court.

(ii) Position of the respondents Rebel Land, the Partnership and the General Partner

[71] In summary the position of the respondents Rebel Land, the Partnership and the General Partner is as follows:

(a) GolfNorth Properties is not a party to the Agreements and, as such, has no standing to ask the Court to accept its interpretation of provisions in them. The contract cannot confer rights or impose obligations upon a person who is not a party to the contract; (b) the relief sought by GolfNorth Properties is entirely based on a contractual remedy emanating only from the Agreements; (c) none of the Selling Unit Holders have provided any evidence in connection with the application, nor have any of them made any complaints regarding the determinations made Rebel Land, the Partnership and the General Partner that their purported acceptances of the October GolfNorth Offers were contrary to and a breach of the agreements and would not be recognized or implemented. No party to the Agreements is before the court asserting a complaint or remedy; (d) GolfNorth Properties’ proposed interpretation of the definition of Permitted Offer in the agreements fails to properly confront an admitted ambiguity. The Agreements do not specifically preclude nor permit making an offer to the unit-holding group at large, as GolfNorth Properties did. It is unclear from the express words whether an offer can be made to any limited partner or shareholder or if it must be made to “the” specific limited partner or shareholder.” In order to resolve this ambiguity, the court must turn to the applicable principles of contractual interpretation; (e) GolfNorth Properties’ proposed interpretation would lead to an inequitable and commercially absurd result by denying selling shareholders their ability to sell under an otherwise compliant Permitted Offer simply because the offer was delivered on a “first come first serve” basis rather than having been directed to specific unit holders; (f) since there remains a textual ambiguity in the provisions, the subsequent conduct of the parties ought to be considered to determine the parties’ intentions and understanding of the Agreements. Rebel Land, the Partnership and the General Partner, on the one hand, and GolfNorth Properties on the other, by their subsequent conduct, acted on the mutual and correct conclusion that the June 14 Offer was a Permitted Offer; (g) GolfNorth Porperties is estopped from arguing that the June 14 Offer was not a Permitted Offer based upon the doctrine of estoppel by convention. Estoppel by convention requires: (i) that the parties’ dealings must have an been based on a shared assumption of fact or law; (ii) the party must have conducted itself in reliance on such shared assumption resulting in a change of its legal position; and (iii) it must be unjust or unfair to allow one of the parties to resile or depart from the common assumption. Accordingly, the party seeking to establish estoppel is to prove the detriment will be suffered if the other party’s allowed to resile from the assumption. (h) the requirements for the application of the doctrine of estoppel by convention have been met. There was a shared assumption between the parties that the June 14 Offer was a Permitted Offer. Rebel Land, the Partnership and the General Partner relied on the shared assumption by presenting the June 14 Offer to the unit holders as a Permitted Offer, followed the right of first refusal process applicable to Permitted Offers, and acted on the shared assumption to its detriment. In addition to acting on the June 14 Offer as a Permitted Offer, they treated the October GolfNorth Offers as void, with the result that the right of first refusal provisions were not followed in relation to it. GolfNorth Properties claims in its Amended Notice of Application that the time for any exercise of the right of first refusal has elapsed, thereby establishing detriment to Rebel Land, the Partnership and the General Partner, (i) the purported closings under the October GolfNorth Offers are void. By reason of the exercise of the right of first refusal by Mill-Gate under the June 14 Offer, the Selling Unit Holders are precluded from transferring their units to GolfNorth Properties by virtue of the principle of nemo dat quod non habet; (j) the purported closings of the purchase of the Selling Unit Holders’ units did not comply with the Agreements, including in particular, the requirement that the right of first refusal provisions be followed, that the necessary approvals of the Management Committee and Board of Directors of the General Partner be secured, and that the required Assumption Agreement be delivered; (k) GolfNorth Properties comes to court with unclean hands and therefore should not be entitled to equitable relief, in the form of declarations and mandatory orders, that it seeks.

(iii) Position of the Respondent Mill-Gate

[72] In summary the position of Mill-Gate is as follows:

(a) following receipt of the June 14 Offer, Rebel Land and the Partnership determined that it was a Permitted Offer; (b) Mill-Gate properly exercised its right of first refusal as provided in the Agreements. As of July 9, 2018 the Selling Unit Holders had provided notice of their intention to sell in response to the June 14 Offer. On July 9, 2018 Rebel Land and the Partnership decided that they would not exercise their rights of first refusal. On July 11, 2018 Rebel Land and the Partnership notified the non-selling unit holders that they were now in a position to exercise their own rights of first refusal. On July 26, 2018 Mill-Gate gave written notice to Rebel Land and the Partnership of its intention to exercise its right of first refusal; (c) pursuant to the Agreements, upon Rebel Land and the Partnership electing not to exercise their rights of first refusal, the Selling Unit Holders offers to sell their units became irrevocable offers to the Non-Selling Unit Holders. Mill-Gate has accepted the Selling Unit Holders’ offers, obligating them to sell their units to Mill-Gate on the terms of the June 14 Offer; (d) the October GolfNorth Offers are invalid as they are offers to purchase units from parties who are no longer able to sell them to GolfNorth Properties; (e) GolfNorth Properties’ allegations against Mr. Milloy of wrongful conduct are baseless.

Privity and the Standing of GolfNorth Properties to Rely upon the Agreements

[73] It is clear that the remedies that GolfNorth Properties seeks against the respondents in the amended Notice of Application, namely declarations and mandatory orders, are founded on alleged breaches of the Agreements by one or more of the respondents, or alternatively, on rights which GolfNorth Properties alleges are conferred on it, and corresponding obligations which are imposed on the respondents, by the Agreements. There is no suggestion that GolfNorth Properties’ claims for relief are advanced on any basis other than the Agreements.

[74] GolfNorth Properties is not a party to either Agreement.

[75] It is a well-accepted general principle of contract law that no one but the parties to a contract can be bound by it, or entitled under it. This principle is known as that of privity of contract (see Greenwood Shopping Plaza Ltd. v. Neil J. Buchanan Ltd., [1980] 2 S.C.R. 228, at para. 9).

[76] Accordingly, unless an exception to the principle of privity is found to apply, GolfNorth Properties has no standing to seek a remedy in reliance on the terms of the Agreements, to which it is a stranger.

[77] GolfNorth Properties did not cite any specific authority for the proposition that the doctrine of privity should not apply to the circumstances of its application, but submits two bases upon which the Court should find that to be the case:

(1) GolfNorth is a party to the two offers that are the subject matter of the application. The offers are subject to the terms of the Agreements as, to be effective, they must comply with the Agreements; (2) the “general law of privity”;

[78] The Supreme Court of Canada in Greenwood at para. 13 identified two recognized exceptions to the privity principle – agency and trust. There are also various statutory exceptions to the law of privity.

[79] In Waddams, The Law of Contracts (7th ed.) the author noted, at para. 291, that the courts have, on occasion, avoided the rule of privity by constructing a collateral contract. Examples given include:

(a) if a number of competitors enter a race, each agreeing with the organizers to obey the rules, it has been held that each competitor similarly agrees with every other (*The Satanita*, [1895] P.248 (C.A.) affd. [1897] A.C. 59); (b) where motor dealers each agreed with a manufacturer to certain restrictions, a contract was formed between each dealer and every other (*McCannell v. Mabee-McLaren Motors Ltd.*, [1926] 1 D.L.R. 282 (B.C.C.A.)); and (c) tenants of a shopping centre, covenanting individually with the landlord to restrict activities to certain kinds of businesses, can enforce covenants against each other (*Re Spike and Rocca Group Ltd.* (1979), 107 D.L.R. (3d) 62 (P.E.I.S.C.)).

[80] In my view the exception respecting collateral contracts has no application to the case at bar. The success of GolfNorth Properties’ application depends upon a finding that the June 14 Offer was not a Permitted Offer and therefore was not capable of triggering the exercise of a right of first refusal among the non-selling unit holders. GolfNorth Properties’ June 14 Offer was never accepted by any Selling Unit Holder and GolfNorth Properties therefore never became a party to any contract pursuant to that offer.

[81] It is not correct, as GolfNorth Properties argues in its Reply Factum, that “to be effective” its offers must “comply” with the Agreements. The parties to the Agreements, being all of the unit holders, agreed that there are only two circumstances in which a transfer of units may be effected – (1) following submission of a “Permitted Offer” (as defined) which triggers a right of first refusal process, or (2) by acceptance of a Non-Permitted Offer, provided all unit holders consent. Either type of offer may be “effective” according to the rules established by the parties in the Agreements. The fact that a non-party may make an offer to purchase units, the treatment of which will depend upon application of the rules established among the parties to the Agreements, does not confer rights pursuant to the Agreements on the non-party offeror on the basis of collateral contract.

[82] It is apparent that the “collateral contract” exception has been applied where a number or group of parties contract with a single common contracting party, such as a landlord or manufacturer, on identical terms which benefit each of them. The “collateral contract” exception operates to allow enforcement of the covenants of the common contracting party by the other parties against one another. The rationale supporting the exception to the privity rule based upon “collateral contract,” as exemplified by the cases referred to above, has no application to the case at bar.

[83] GolfNorth Properties’ reference to the “general law” of privity must be presumed to be a reference to the “principled exception” to the privity principle derived from the cases of *London Drugs Ltd. v. Kuehne & Nagel International Ltd.* [1992] 2 S.C.R. 299 and *Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd.*, [1999] 3 S.C.R. 108.

[84] Fraser River involved an action brought by the owner of dredging equipment against a charterer to whom it had chartered the equipment. A barge forming part of the equipment sunk while it was in the possession of the charterer due to its negligence. The owner recovered on its claim for the loss from its insurer and agreed with the insurer to pursue legal action against the charterer. The issue was whether the charterer, as a non-party, was entitled to rely upon the “waiver of subrogation” clause in the contract of insurance between the owner and its insurer in defence of the action.

[85] The Supreme Court of Canada found that a “principled exception” to the common law doctrine of privity of contract has been introduced by the caselaw.

[86] At para. 32 the Court observed that application of the principled exception first and foremost must be dependent upon the intention of the contracting parties. Accordingly, the determination in general terms is made on the basis of two critical and cumulative factors:

(1) did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision, and (2) are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?

[87] In the case of *Coast-to-Coast Industrial Development Co. v. 1657483 Ontario Inc.*, 2010 ONSC 2011 Strathy, J. (as he then was) observed at para. 35 that both London Drugs and Fraser River recognized that “the third party beneficiary rule can stand in the way of sound commercial practice where business people agree to extend the benefit of the contract to third parties” and that the Supreme Court, in those cases, had “crafted what was intended to be a limited exception to the law of privity of contract, where the parties to a contract agree, expressly or impliedly, to extend the benefit of their contract to a third party.”

[88] Strathy, J. also found at para. 44 that, while the principled exception to privity of contract is not restricted to defensive provisions, it would take very clear language to find that a contracting party has assumed a liability to a third party, particularly where that liability is potentially unlimited.

[89] In the later case of *Brown v. Belleville (City)*, 2013 ONCA 148 the Court of Appeal made the following observations in obiter concerning the law of privity generally:

It is important to note at the outset that the doctrine of privity of contract is of considerably diminished force in Canada as a continuing principle of contract law. It has been subject to a wealth of repeated academic and judicial criticism, leading to frequent calls for law reform in Canada and elsewhere. See for example, London Drugs at pp. 418-26; Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd. , [1993] 3 S.C.R. 108 (S.C.C.), at para. 26 ; McCamus , at pp. 296-301. Indeed, several Commonwealth jurisdictions have abrogated the privity doctrine entirely, or in specific contexts, by statute. In other instances, the reach of the doctrine has been "significantly undermined by a growing list of exceptions to the rule": McCamus , at p. 299. See also Angela Swan and Jakub Adamski, Canadian Contract Law , 3rd ed. (Markham: LexisNexus Canada Inc., 2012) at p. 229. Several of the leading cases cited by the parties on this appeal afford abundant evidence of the relaxation of the ambit of the doctrine in particular cases. Thus, while the doctrine survives in Canada, it persists only in weakened form.

[90] I do not read the Court’s obiter comments in Brown as abrogating or dispensing with the law of privity, or altering the test laid down by the Supreme Court of Canada in Fraser River for application of the “principled exception” to the privity rule. Indeed, the Court in Brown went on to apply the principled exception test to the facts of that case at paras. 95-111.

[91] In my view, the first branch of the “principled exception” test is not satisfied in the case at bar. There is no evidence that the parties to the Agreements intended to extend the benefit in question under the Agreements to a non-party seeking to rely on the contractual provision. The benefit is question is the right of a non-party offeror to seek a remedy based upon a complaint that its offer to purchase units was treated as a Permitted Offer, thereby triggering the right of first refusal process mandated by the Agreements.

[92] The question of whether the parties to the Agreements intended to extend to a stranger the benefit of seeking a remedy arising from the characterization of an offer to purchase units submitted by that stranger must be determined from a consideration of the Agreements in their entirety.

[93] GolfNorth Properties has pointed to no such expressed intention in the Agreements, nor has it pointed to any basis to imply such an intention to the parties to the Agreements.

[94] Moreover, the recitals to the Agreements are instructive in discerning the purpose and intent of the Agreements.

[95] The recitals to the Shareholders ‘Agreement state as follows:

(A) The Shareholders are the owners of all of the issued shares in the capital of Landco (Rebel Land); (B) Landco intends to or has purchased a parcel of land suitable for use as a golf course; (C) Each of the Shareholders wishes to enter into this Agreement to provide for the conduct of the business affairs of Landco, to provide for restrictions on the transfer and ownership of shares in the capital of Landco and to govern their relationship as shareholders of Landco with the intent that it shall constitute a unanimous shareholders agreement.

[96] The recitals to the Limited Partnership Agreement are to similar effect and provide as follows:

(A) The General Partner and the Limited Partner (each person who subscribes for a LPU and is accepted as a Limited Partner in the Partnership) have agreed to form a limited partnership… pursuant to the Limited Partnerships Act in order to manage the construction and operation of an 18-hole golf course and other facilities comprising the Project (as defined) in accordance with the provisions of this Agreement; (B) The parties are desirous of determining their rights and responsibilities as between themselves, and have deemed it expedient and advisable to enter into this Agreement for the purposes of establishing and recording the relationship between them and their respective rights and obligations with relation to the matters hereinafter set forth.

[97] The Shareholders’ Agreement and the Limited Partnership Agreement both contain, at section 1.11, a provision stating that the recitals are incorporated into and form a part of each agreement.

[98] It is evident that the shareholders of Rebel Creek and the General Partner and Limited Partners of the Partnership entered into the Agreements in order to govern the relationships among them exclusively and to set forth their rights and obligations as shareholders and partners. As specified in the recitals, the Agreements were intended govern the internal affairs of Rebel Land and the Partnership. There is no indication that the parties to the Agreements intended to extend any benefits or rights under the Agreements to any non-party or parties.

[99] Section 1.1 (56) of the Limited Partnership Agreement provides that the term “Offeror” for the purposes of the agreement (including for the purpose of the definition of “Permitted Offer” in section 1.1 (64)) has the meaning ascribed in Section 9.5. That section provides that an Offeror may be any “Person.” “Person” has the broadest possible definition in section 1.1. (65), including “any legal entity, however designated or constituted.” The Shareholders’ Agreement is to the same effect.

[100] It is therefore clearly contemplated that an offer may be made by a party to the Agreements or by a non-party. Notwithstanding this, neither agreement expressly extends or confers any rights or benefits to a non-party offeror.

[101] To infer an intention to the parties to extend the benefit of being entitled to seek a remedy based upon the characterization of an offer to purchase units submitted by a stranger to that stranger would create the potential for conflicting obligations being owed by Rebel Land, the Partnership and the General Partner to one or more parties to the Agreements on the one hand and to the stranger on the other. I do not accept that the parties, in entering into the Agreements, intended to create the potential for such conflicting obligations.

[102] In my view, the parties to the Agreements intended that any right to seek a remedy based on an alleged mischaracterization of an offer as a Permitted Offer would be reserved to a party or parties to the Agreements and would not extend to a stranger to the Agreements.

[103] In this case no party to the Agreements has made any complaint or sought any remedy resulting from the characterization by Rebel Land, the Partnership or the General Partner of the June 14 Offer as a Permitted Offer.

[104] Moreover, I agree with the observation of Strathy, J. in Coast-to-Coast that it would take very clear language to find that a contracting party (in this case Rebel Land, the Partnership or the General Partner) has assumed a liability to a third party. I find no such clear language, or indeed any language, in the Agreements to support the assumption of liability in favour of GolfNorth Properties, a stranger to the Agreements.

[105] I therefore find that the first factor of the test for application of the principled exception to the privity rule has not been satisfied. Consideration of the second factor of the test in Fraser River is dependent upon the first factor being satisfied. In light of my finding that it has not been satisfied, it is not necessary to consider the second factor.

[106] GolfNorth Properties, as a non-party to the Agreements, therefore had no standing to bring and maintain the application and it must therefore be dismissed.

Meaning of “Permitted Offer” in the Agreements

[107] In the event that I am wrong with respect to the privity and standing issue, it would be useful for a determination to be made with respect to the proper interpretation of the term “Permitted Offer” in the Agreements.

[108] By way of background, it useful to review the context of the interpretation exercise.

[109] As indicated above, an Offer to purchase units which is not a Permitted Offer may only be accepted by a unit holder seeking to sell his or her units if all of the unit holders consent.

[110] It must be inferred that GolfNorth Properties intended its June 14 Offer to be acted upon by Rebel Land, the Partnership, the General Partner and the unit holders as a Permitted Offer pursuant to the Agreements. The evidence indicated that management of GolfNorth Properties had familiarized themselves with the relevant provisions of the Agreements and must therefore have been fixed with knowledge that a Non-Permitted Offer would be incapable of acceptance without the consent of all of the unit holders. There is no evidence that GolfNorth Properties sought or obtained the consent of all of the unit holders to the June 14 Offer either before or after its submission.

[111] Although in its affidavit material and in the grounds stated in the Amended Notice of Application GolfNorth Properties suggested that Rebel Land, the Partnership and/or the General Partner had an obligation to seek the consent of all of the unit holders upon receipt of the June 14 Offer, no contractual or other basis for such an obligation was indicated and the argument was not pursued in submissions. I find that there is no provision in the Agreements obligating Rebel Land, the Partnership and/or the General Partner to solicit or obtain the consent of the unit holders to an offer to purchase units submitted by any offeror. Moreover there is no evidence that GolfNorth Properties ever requested Rebel Land, the Partnership and/or the General Partner to solicit the consent of the unit holders to the June 14 Offer.

[112] It is clear that GolfNorth Properties submitted the June 14 Offer in an effort to achieve its objective to acquire an ownership interest in the Golf Club. It knew that the June 14 Offer would only be effective to potentially achieve that objective if it were treated by Rebel Land, the Partnership and/or the General Partner as a Permitted Offer. The fact that GolfNorth Properties’ position was that the June 14 Offer should be treated as a Permitted Offer was made clear by Mr. Evans’ email to Mr. Schlotzhauer which accompanied the offer, advising that the June 14 Offer was structured in a way which “will illicit (sic) some sense of urgency for those that want to sell.” Only a Permitted Offer would be capable of eliciting a response from unit holders interested in selling in the absence of consent of all the unit holders.

[113] GolfNorth Properties never communicated to Rebel Land, the Partnership and/or the General Partner that it did not wish to have its June 14 Offer treated as a Permitted Offer, thereby triggering the right of first refusal process. I am unable to accept that GolfNorth Properties intended its June 14 Offer to have no legal effect.

[114] It was only approximately 40 days after Mill-Gate delivered its Purchase Notice to exercise its right of first refusal, thereby blocking GolfNorth Properties’ attempt to acquire an ownership interest in the Golf Course, that GolfNorth Properties reversed its earlier position that the June 14 Offer should be treated as a Permitted Offer and took the position, in submitting its October GolfNorth Offer to the Selling Unit Holders, that its June 14 Offer was not a Permitted Offer and was therefore void. The basis for this position was not set forth in its covering email to the Selling Unit Holders. Neither was it set forth in its Original Notice of Application or in its Amended Notice of Application.

[115] The basis for GolfNorth Properties’ position in this respect appears to have been first communicated in its Factum delivered April 5, 2019 which stated at para. 62 that the June 14 offer “was not a Permitted Offer as it was not directed to “the LPU Holder” or “the Shareholder but rather, was a global offer made to all shareholders for the purchase of up to 12 shares, contrary to the definition of a Permitted Offer.”

[116] The issue is therefore whether the definition of Permitted Offer in the Agreements, by the use if the phrases “any LPU Holder (or Shareholder)” and “the LPU Holder (or Shareholder)” in reference to the offeree, is such that, to be a Permitted Offer, an offer must be made to one named unit holder, or whether an offer may be made to two or more (or all) unit holders.

[117] GolfNorth Properties takes the position that there is no ambiguity in the definition of Permitted Offer in the Agreements and that the former interpretation of the provision is the only available one.

[118] As indicated above, Rebel Land, the Partnership and the General Partner take the position that the definition is ambiguous on the basis that an offer to purchase made to the unit holders at large is not precluded by the definition of a Permitted Offer and it is unclear from its express words whether an offer can be made to any unit holders or if it must be made to “the” specific unit holder.

[119] The principles governing the interpretation of a buy-sell provision of a shareholders’ agreement very usefully summarized by L.A. Pattillo, J. in the case of *Sandiford v. 21045887 Ontario Inc.*, 2012 ONSC 5825, at paras. 44-47 as follows:

(a) the meaning of a shareholders agreement is determined in accordance with the general rules governing contractual interpretation (See: Canadian Business Corporation Law, Kevin McGuinness, 2nd ed. (LexisNexis: 2007) at p. 1215); (b) a contract is to be interpreted in accordance with the intention of the parties at the time they entered into the agreement, having regard to the words the parties used in the provisions of the contract as a whole (see *Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co.*, [1980] 1 S.C.R. 888, at pp. 899-901; *Eli Lilly & Co. v. Novopharm Ltd.*, [1998] 2 S.C.R. 129); (c) where the words under consideration are clear and unambiguous on their face, it is unnecessary to consider any extrinsic evidence in the interpretation exercise. However, in the event there is ambiguity, it is permissible to consider the circumstances in which the agreement was signed in interpreting the words. This is called the “factual matrix”; (d) commercial contracts must be interpreted in accordance with sound commercial principles and good business sense. An interpretation that would result in a commercial absurdity must be avoided (See Consolidated-Bathurst at pp. 901 – 902).

[120] I do not accept GolfNorth Properties’ assertion that the term “shareholder” or “LPU Holder” (singular) when is used in a buy-sell provision of a shareholders’ or partnership agreement is necessarily free of ambiguity and must be read in the singular only.

[121] The issue in Sandiford concerned the interpretation of a “shotgun” buy-sell provision in a shareholders’ agreement which provided, inter alia, that “any Shareholder, may initiate a sale of the shares to the other Shareholders by giving written notice of sale to all of the other Shareholders…” (underlining added). The respondent in that case submitted that the wording of the shareholders’ agreement required, by its wording, that only a single shareholder could initiate a sale of shares under the shotgun provision. Since the shotgun was initiated by two shareholders together holding 50% of the shares it did not strictly comply with the provisions of the agreement and was therefore void.

[122] At para. 49 Pattillo, J. held that, when the words of the provision are considered not only within the provision itself, but also in light of the shareholders agreement as a whole and in the context in which the shareholders agreement was made, it was not clear whether the word “shareholder” is meant to be read in the singular or plural, and that the term “shareholder” is clearly capable of being read in either the singular or the plural.

[123] GolfNorth Properties argues in the present case that the Agreements do not address the process should there be an over-subscription of tendered units in response to an offer like the June 14 Offer made by it. For example, the Agreements did not provide guidance had Mr. Milloy, who owned 3.5 units, tendered his units, resulting in an over-subscription of 1.5 units. In contrast, the Agreements expressly provides for a process should there be an over-subscription with respect to the exercise of the right of first refusal. GolfNorth Properties argues that a conclusion that an offer that is not directed to a specified seller is a Permitted Offer could result in uncertainty which was not intended by the express requirements of the Agreements.

[124] I am unable to accept this submission. The June 14 Offer was structured in such a way as to eliminate any problem associated with an over-subscription by providing that, although the offer was being made to all unit holders, “the Offeror will proceed towards closing with the holders representing the first 12 units that accept this Offer.”

[125] I am unable to find that the interpretation sought by Rebel Land, the Partnership and the General Partner would result in a commercial absurdity or would be inconsistent with sound commercial principles.

[126] The commercial purpose behind the Permitted Offer provisions is to allow unit holders to enjoy liquidity by allowing them to sell their units in response to a bona fide offer that has certain required attributes designed to ensure fairness to all non-selling unit holders, provided that all non-selling unit holders first have the opportunity to exercise the right of first refusal to purchase the units that the selling unit holders wish to sell. The right of first refusal process in this way affords the non-selling unit holders a measure of protection against having to accept the introduction of a new unit holder against their will. The provision respecting Non-Permitted Offers simply allows a sale of units on an expedited basis, by-passing the right of first refusal process, where all unit holders consent.

[127] In my view, permitting an offeror to submit a global offer to all unit holders on a “first-come first serve” basis, as was done by GolfNorth Properties with its June 14 Offer, rather than requiring it to go through a piecemeal process of making individual offers to individual unit holders, is not inconsistent with the commercial purpose behind the Permitted Offer provisions.

[128] I find that there is an ambiguity in the definition of a Permitted Offer in the Agreements on the issue of whether an offer must be made to a single offeree to qualify as a Permitted Offer or whether it may be made to multiple offerees on a first come, first serve basis. It is therefore permissible to consider extrinsic evidence to aid in the interpretive exercise.

[129] The parties are agreed that the record in this proceeding is devoid of any evidence from the original parties to the Agreements respecting the factual matrix that existed at the time that the Agreements were entered into that would assist in resolving the ambiguity.

[130] In the case of *Shewchuk v. Blackmont Capital Inc.*, 2016 ONCA 912 it was held that evidence of subsequent conduct of the parties to a contract is admissible to assist on the interpretative exercise, but only if the contract remains ambiguous after considering the text and its factual matrix (see para. 46). This is because there are dangers associated with reliance on evidence of subsequent conduct. These dangers include the fact that parties’ behaviour in performing their contract may change over time which would permit the interpretation of the contract to fluctuate, that evidence of subsequent conduct may itself be ambiguous, and that over-reliance on subsequent conduct may reward self-serving conduct whereby a party deliberately conducts itself in a way that would lend support to its preferred interpretation of the contract (see paras. 43-45).

[131] I do not find any of these dangers to be present in the case at bar.

[132] In Hall, Canadian Contractual Interpretation Law (Markham: LexisNexis, 2006) at p. 70 it is stated:

The contextual approach to contractual interpretation followed by Canadian courts gives priority to the words chosen by the parties and will not allow context (including subsequent conduct) to overwhelm the words. However, when the parties have not expressed themselves clearly in words such that the best evidence of their mutual intention (the words they chose to govern their relationship) is inconclusive, resort can be had to the next-best available evidence, which is their own post-contractual conduct.

[133] This suggests that the subsequent conduct to be considered as an interpretive aid of the contracting parties’ intention is that of the contracting parties themselves and not that of a stranger to the contract.

[134] In that context it is noted that the management committee of the Partnership made the determination that the June 14 Offer was a Permitted Offer as defined in the Agreements and directed that the right of first refusal process be followed and that no unit holder made any complaint with that determination. This, in my view assists in the resolution of the ambiguity in favour of an interpretation that an offer may be made to two or more unit holders on a first come first serve basis.

[135] If the post-contractual conduct of GolfNorth Properties, a non-party to the Agreements, is to be considered, it is noted that it sought to have the June 14 Offer treated by Rebel Land, the Partnership and the General Partner as a Permitted Offer.

[136] I therefore find, based upon application of the principles governing the interpretation of commercial contracts, that the June 14 Offer was a Permitted Offer which triggered the right of first refusal process, resulting in a binding agreement between Mill-Gate for the purchase of the 10 units of the Selling Unit Holders.

[137] Thus, even if I am wrong that GolfNorth Properties lacks standing to bring the application by operation of the law of privity of contract, the application must nevertheless be dismissed.

Generally

[138] In light of these findings it is not necessary for me to consider whether GolfNorth Properties is estopped from claiming the relief which it seeks based upon the doctrine of estoppel by convention, or should be found to be disentitled to the relief sought on the basis of an allegation that it comes to the court with unclean hands.

Costs

[139] The parties have each filed Bills of Costs on the completion of submissions as requested by the Court.

[140] The parties are strongly urged to agree upon costs. If they are unable to do so, the respondents may make written submissions as to costs within 14 days of the release of these Reasons for Judgment. The applicant has 10 days after receipt of respondents’ submissions to respond and the respondents have a further 5 days to reply. Each party’s initial written submissions shall not exceed five double-spaced pages, exclusive of Offers to Settle, and authorities, while the respondents reply submissions, if any, shall not exceed 3 double-spaced pages. All submissions shall be forwarded to me at my chambers at 85 Frederick Street, 7th Floor, Kitchener, Ontario N2H 0A7. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

D. A. Broad, J. Released: June 10, 2019