Court File and Parties
COURT FILE NO.: C-773-16
DATE: 2019-10-07
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Michelle Lee Hynes, in her capacity as Estate Trustee of the Estate of Robert Thomas Steele, deceased, Plaintiff/Responding Party
AND:
C. Richard Woolfrey and Smith Valeriote Law Firm LLP, Defendants/Moving parties
BEFORE: G. E. Taylor
COUNSEL: Jarvis Postnikoff, Counsel for the Plaintiff/Responding Party Christopher Clemmer, Counsel for the Defendants/Moving Parties
HEARD: October 1, 2019
ENDORSEMENT
[1] This is a motion by the defendants for an order that the action be dismissed as being frivolous or vexatious or otherwise an abuse of the process of the court. If successful, the defendants seek an order that the estate trustee be personally liable for the costs of the action and the motion.
Background
[2] Michelle Lee Hynes, the estate trustee, was the former spouse of the deceased. Prior to his death, the deceased was the sole shareholder of 1549857 Ontario Inc., referred to in the motion material as “857”. 857 was a 50% shareholder in Steele Foods Ltd. Steele Foods owned three Tim Horton’s franchise locations in Guelph, Ontario. The other shareholder in Steele Foods was 1549858 Ontario Inc., referred to in the motion material as “858”. Ronald Thomas Steele, the deceased’s father, was the sole shareholder of 858 until his death.
[3] The deceased died on March 21, 2013. Hynes retained Richard Woolfrey, a senior associate at Smith Valeriote Law Firm LLP to negotiate a sale to 858 of the shares in Steele Foods owned by 857. During the course of the negotiations, it came to light that in the franchise agreement, Tim Horton’s had the right to determine the price at which the shares owned by 857 would be sold to 858. Tim Horton’s determined that amount to be $487,500.
[4] In his affidavit in support of this motion, Woolfrey states that at the price for the sale of the shares owned by 857 as determined by Tim Hortons, after the deduction of the outstanding corporate debt, the shares were valueless.
[5] According to Woolfrey, he discussed the issue of the value of the shares owned by 857 with Hynes. He says there was discussion about a potential legal action and the cost that would be incurred including retaining a Certified Business Valuator. A decision was made to make an offer to 858.
[6] Woolfrey says he was instructed by Hynes to make an offer to the solicitor for 858 to sell the shares in Steele Foods owned by 857 for a total price of $10,000. Hynes denies giving such instructions. On August 1, 2014, Woolfrey made an offer to the solicitor for 858 to sell the shares of Steele Foods owned by 857 for $10,000. That offer was accepted on August 5, 2014.
[7] After the offer was accepted, Hynes refused to complete the transaction. Accordingly, 858 commenced an application for an order essentially requiring 857 to complete the sale of its shares in Steele Foods to 858 for the price of $10,000.
[8] The application was heard by LeMay J. on March 9, 2015. LeMay J. granted the application and ordered that 857 transfer its shares of Steele Foods to 858 for the sum of $10,000. At paragraph 28 of the reasons for judgment, LeMay J. stated:
TDL [Tim Horton’s] has valued the business at just less than $500,000.00. The business owes 858 just over $600,000.00 through a combination of preferred shares and a shareholder loan. In other words, on the material before me the common shares of Steele Foods have no discernible value other than the fact that they presumably give the holder votes in governing the affairs of the company.
[9] In granting the application, LeMay J. concluded that Woolfrey had the apparent authority to make the offer for the sale of the shares owned by 857 to 858. He concluded that it was not necessary to decide the issue as to whether Woolfrey had actual authority to make the offer.
[10] Hynes appealed the decision of LeMay J. but then subsequently abandoned the appeal.
[11] The statement of claim in this action was issued on July 18, 2016. The statement of claim directly raises the issue of Woolfrey’s actual authority to offer to sell 857’s shares in Steele Foods to 858 for the price of $10,000. Specifically, Hynes alleges that Woolfrey had no authority or instructions to make an offer to sell the shares of Steele Foods owned by 857 for $10,000. The statement of claim also alleges at paragraphs 18 and 19:
Hynes states that the value of the shares was substantially more than $10,000.00.
Hynes states that she has sustained damages as a result of the sale of the shares for an unreasonably low amount.
[12] The evidence on this motion includes an Estimate Business Valuation Report of Steele Foods Limited as at August 14, 2014, completed by Bruce R. Horsley, a Chartered Business Valuator, which is dated October 18, 2017. He calculated the value of Steele Foods to be between $800,861 and $838,561. In his affidavit on this motion, Woolfrey deposes that in or around June 2013 he was in possession of a business valuation for Steele Foods valuing the business at between $689,000 and $795,000 as of June 30, 2011.
Discussion
[13] The defendants seek a dismissal of the action. However, during the course of oral argument, counsel for the defendants acknowledged the possibility of differing results with respect to the claim based on the alleged sale of the shares of Steele Foods owned by 857 for less than fair market value and for other claims for damages such as legal fees and the cost incurred in connection with the application before LeMay J.
[14] I am of the view that the issue of Woolfrey’s actual authority to make the offer, which he did for the sale of the shares owned by 857, is a triable issue. If a finding is made that he acted without authority, it is possible that the plaintiff will be entitled to damages which could include legal fees paid to the defendants, costs paid to 858 in the application heard by LeMay J. and the legal fees and disbursements incurred in responding to that application.
[15] I come to a different conclusion with respect to the claim for damages allegedly arising out of the sale of the shares for less than fair market value.
[16] In my view, it is significant that there has been no challenge to the position taken by Tim Horton’s that it had the authority, pursuant to the franchise agreement, to set the price at which the sale between 857 and 858 would take place. That was also the position of Hynes before LeMay J. (paragraph 27).
[17] It is not asserted in the material on this motion, that based on the share value as determined by Tim Horton’s, the shares of Steele Foods nevertheless had significant value. Rather, the evidence is that, after deduction of debts the shares owned by 857 were worthless. That is the conclusion reached by LeMay J. and it has not been challenged.
[18] In the proceeding before LeMay J., Hynes argued that the agreement between the lawyers for the sale transaction between 857 and 858 should not be enforced because it would result in a significant injustice to her. This argument was based on the assertion that the shares in Steele Foods owned by 857 were worth considerably in excess of $10,000. This argument was dealt with at paragraph 67 of the reasons for judgment on the application as follows:
In the circumstances, $10,000.00 is a commercially reasonable amount to have paid for the shares. On the materials filed before me, Michelle [Hynes] and Barry’s [Hynes’ husband] belief that 857’s shares in Steele Foods were worth between 100,000 and $250,000 has no basis in fact or law
[19] This is exactly the position being asserted by Hynes in the present action. The estate claims to have suffered damages because it was required to transfer the shares of Steele Foods owned by 857 at less than fair market value.
[20] In Toronto (City) v Canadian Union of Public Employees (CUPE), Local 79, 2003 SCC 63, [2003] 3 SCR 77, it was held that judges have an inherent and residual discretion to prevent an abuse of the Court’s process (paragraph 35). One form of abuse of process is when there is an attempt to relitigate an issue that has already been determined (paragraph 37).
[21] In Toronto v. CUPE the Court directed that the focus of the doctrine of abuse of process is on the integrity of the adjudicative process. Three concerns were identified:
(a) there can be no assumption that relitigation will yield a more accurate result than the original proceeding;
(b) if the same result is reached in the subsequent proceeding, the relitigation will prove to have been a waste of judicial resources, an unnecessary expense for the parties and possibly a hardship for witnesses; and,
(c) if the result in the subsequent proceeding is different from the conclusion reached in the first proceeding, the credibility of the entire judicial process will be undermined (paragraph 51).
[22] The Court in Toronto v. CUPE did allow for relitigation of issues in certain circumstances such as:
(a) where the first proceeding is tainted by fraud or dishonesty;
(b) when new evidence which was previously unavailable, conclusively impeaches the original result; or,
(c) when fairness dictates that the original result should not be binding in the new contest (paragraph 52).
[23] There is no suggestion that the result of the application decided by LeMay J. was tainted by fraud or dishonesty. There is no new evidence which was previously unavailable which would impeach the conclusion reached by LeMay J. Rather, the evidence which Hynes argues is new is simply a formal valuation of the shares of Steele Foods which suggests that the shares were worth more than the valuation placed on the shares by Tim Horton’s. Although the actual valuation amount may be different, the evidence is not new. There was evidence before LeMay J. about a valuation which placed the value of the Steele Foods shares owned by 857 to be between $689,000 and $795,000. As I have previously stated, the result in the previous application was dictated by the terms of the franchise agreement permitting Tim Horton’s to determine the value at which it would permit the shares to be transferred. I am not convinced that it would be unfair to Hynes to find that the conclusion by LeMay J. that the shares had no value should be binding.
[24] In Catalyst Capital Group Inc. v. VimpelCom Ltd., 2019 ONCA 354, [2019] O.J. No. 2286, the Court of Appeal observed the following at paragraph 65:
Both of the concerns underlying the abuse of process doctrine are present here. Catalyst's claim is abusive both because: (a) it directly overlaps with the issues that were before the court in the Moyse Action; and (b) it can only be successful if the court rejects the findings made by Newbould J. For the reasons already outlined under issue estoppel and cause of action estoppel, Catalyst is trying to re-litigate Newbould J.'s factual finding that Catalyst's own actions caused its failure to acquire Wind. This is an abuse of process.
[25] The same can be said about the present action. With respect to the value of 857’s shares in Steele Foods, there is direct overlap between this litigation and the application before LeMay J. Furthermore, Hynes can only be successful in this action if a finding is made that directly contradicts the finding made by LeMay J.
[26] I therefore conclude that the pleadings at paragraphs 18, 19, 25(f), 25(g), 25(h), 29, 30 and 31 of the statement of claim are an abuse of process and they are ordered struck from the statement of claim.
Liability for Costs
[27] As this issue was fully argued on the return of the motion, I will address the issue of entitlement to costs. I will then direct written submissions with respect to the scale and quantum of costs.
[28] The defendants submit that Hynes should be ordered to pay the costs personally because the estate has no assets. The thrust of the defendants’ argument is that Hynes should not be entitled to litigate with impunity.
[29] There is evidence suggesting that the estate is impecunious. At paragraph 9 of his affidavit in support of this motion, Woolfrey asserts that the deceased died with very few net assets after his debts were satisfied. At paragraph 24 of the same affidavit, Woolfrey states that the estate had no assets to fund litigation to challenge the position being asserted by Tim Horton’s. Hynes does not address the issue of solvency of the estate in her affidavit on this motion.
[30] In my view, there is evidence to support a finding that the estate has limited assets, and perhaps, no assets, but the evidence does not justify the conclusion that they will be unable to satisfy even a portion of the costs of this motion in the event that costs are awarded to the defendants.
[31] The defendants were successful in having the claims relating to the share valuation struck. Hynes was successful in opposing the request to have the action dismissed. In my view, however, by far the most significant claim is with respect to the valuation of the shares. In my view, the damages, if any, sustained by Hynes, if she is successful in proving that Woolfrey acted without instructions, will be exceedingly modest.
[32] I therefore find that the defendants are entitled to their costs of the motion.
[33] Having found that the claim relating to the valuation of the shares was an abuse of the process of the court, in my view it is appropriate that liability for payment of the costs of the motion be against the estate and Hynes personally, jointly and severally.
[34] If the parties are unable to agree on the amount of costs to which the defendants are entitled, they may make brief written submissions. Submissions should address both scale and quantum. The defendants’ written submissions are to be submitted within 14 days of the release of this endorsement with Hynes’ written submissions to be submitted within 28 days of the release of this endorsement. The written submissions are not to exceed three pages in length exclusive of a bill of costs and costs outline. Copies of the written submissions are to be submitted to my attention at Kitchener.Superior.Court@ontario.ca .
G.E. Taylor J.
Date: October 7, 2019