COURT FILE NO.: CV-15-10906-CL
DATE: 20191213
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
EMILY MURRAY and 2327342 ONTARIO INC.
Plaintiffs
– and –
PIER 21 ASSET MANAGEMENT INC., DAVID STAR and 8165246 CANADA INC.
Defendants
Edward J. Babin, Cynthia L. Spry and Michael Bookman for the Plaintiffs
Igor Ellyn and Kathryn J. Manning for the Defendants
HEARD: November 13 to 16, 19 to 23, and December 10, 11, and 14, 2018
Further Supplementary Reasons
Penny J.
[1] These further supplementary reasons address the question of the structure of the transaction by which the defendants will buy out Ms. Murray’s interest in Pier 21 at fair value. In this case, “structure” is really short form for “tax efficiency.”
[2] In my Reasons of April 12, 2019, I ordered the repurchase of Ms. Murray’s Pier 21 shares using a total enterprise fair value of $39.3 million. At para. 192, I wrote:
Some reference was made during the trial to alternative methods of effecting the purchase and possible controversies about how this acquisition should be structured. If there are controversies of this nature, counsel may range case conference to discuss the matter and to map a process for how any disagreements about this issue will be resolved.
[3] It has turned out that this issue is controversial and so, in a post-trial case management endorsement, I initiated a process for deciding whether and how to address it. As a first step, counsel were directed to make submissions on three questions:
(1) what is the issue the plaintiffs wish to bring before the court?
(2) what is the source of this court’s jurisdiction to deal with or resolve the issue? and
(3) why was this issue not dealt with during the trial of this matter?
[4] The plaintiffs say the issue is the most tax efficient manner of effecting the share repurchase ordered in my Judgment. The plaintiffs say the defendants should be required to purchase the shares of Ms. Murray’s holding company, the plaintiff 2327342 Ontario Inc (“232”). This, they say, will be tax “efficient” for Ms. Murray and tax “neutral” for the defendants.
[5] The plaintiffs rely, for my jurisdiction to make this order, on s. 241(3) of the Canada Business Corporations Act, R.S.C., 1985, c. C-44, under which “the court may make any interim or final order it thinks fit.” This includes, without limitation, orders directing the purchase of securities or directing a corporation or any other person to purchase shares of a security holder.
[6] The plaintiffs also submit that I am not functus officio for two reasons. First, this issue has not yet been decided. Para. 192 of my Reasons specifically reserved this issue to further negotiation and possible submissions by the parties and resolution by the court. Second, even if the issue had been decided, no judgment has yet been taken out, permitting me to reconsider the matter in light of further submissions or even evidence.
[7] Finally, as the plaintiffs point out, the issue of the structure of any repurchase (and its tax implications) has been raised throughout this proceeding, at a trial management conference before trial, in the plaintiff’s opening, in evidence during the trial and in closing arguments.
[8] The plaintiffs submit that the issue was not, however, fully canvassed during the trial because:
(a) addressing it required knowing the outcome;
(b) it required the parties to negotiate as there may have been an obvious consensual resolution; and
(c) trial time was limited.
[9] The defendants submit I have no jurisdiction to deal with this issue because it has not been pleaded and that it would be prejudicial to the defendants to allow it to be raised now. The defendants point to para. 1(j) of the amended statement of claim and the absence of any pleading in the amended statement of claim which addresses Ms. Murray’s reasonable expectations/oppression specifically in connection with how or under what transactional structure her shares of Pier 21 should be repurchased.
[10] The defendants also point to my supplementary reasons of July 29, 2019 in which I held that the plaintiffs could not advance a claim for compound and non-statutory interest because it had not been pleaded.
[11] The defendants also submit that the suggestion that the defendants be required to purchase the shares of 232, not the shares of Pier 21 from 232, is unreasonable. They say they ought not to be compelled to acquire the shares of 232 because of uncertain tax, regulatory and other potential liability issues that might arise.
[12] I am satisfied that I have jurisdiction to deal with the transaction structure under which the share repurchase should take place. The question of the transactional structure is unlike the issue of interest which I previously held could not be raised. The claim for compound, non-statutory interest was raised by the plaintiffs for the first time after trial and was the exact opposite of what the plaintiffs had pleaded in the amended statement of claim.
[13] On the issue of transaction structure, by contrast, the pleading asks that the defendants purchase “all of the shares” held or that were held by the plaintiffs. The “plaintiffs” include both Ms. Murray and 232. Following the partial re-purchase of shares in 2012, Ms. Murray did not hold shares in Pier 21 directly. She did hold shares in 232. The pleading, in my view, thus leaves open the question of whether, and in what circumstances, the defendants might be required to purchase the shares of 232.
[14] Further, the transaction structure was raised as an issue at a pre-trial management conference and in the plaintiffs’ opening at trial. This issue came up during the trial in the evidence of Mr. Hutchison (a corporate lawyer with Miller Thomson) and in the cross-examination of Mr. Star. It was again raised in closing arguments, both written and oral.
[15] The issue essentially boils down to a simple question. Should the defendants be required to purchase 232’s shares in Pier 21 or Ms. Murray’s shares in 232 which owns the Pier 21 shares? This issue was squarely on the table throughout. It is disingenuous for the defendants to be making claims of surprise or prejudice in respect of this issue.
[16] The defendants’ argument that ordering the purchase of Ms. Murray’s shares in 232 would be “unreasonable,” is premature. I am not, at this stage, being asked to make such an order. I am simply being asked to find that I can consider the issue and to establish a process for doing so. The defendants’ concerns about the reasonableness of such an order may be addressed in any further evidence and arguments advanced on the merits of this issue.
[17] The third question relates to my discretion. Why was this issue not fully briefed during the trial, as opposed to merely being alluded to and then deferred? The plaintiffs say it would have been difficult to address the issue without knowing: a) the result of the application to set aside the 2012 share purchase; b) the value of the remaining shares of Pier 21 held by 232; and, whether the court was going to order the buyout of Ms. Murray’s interest in Pier 21. They also say that trial time was tight and further evidence on this issue would have required extending the length and scheduling of the trial.
[18] The transaction structure for the buyout of Ms. Murray’s interest in Pier 21 is an aspect of the remedy for oppression in this case. In the usual course of events, is to be expected that all issues of liability and remedy be dealt with at once. This is obviously to foster efficiency, certainty and finality. Although I am not satisfied that this issue could not have been dealt with at the original trial, I am not prepared to say it is unreasonable or unfair to do so now. It is, I find, in the interests of justice that the transaction structure be dealt with as it is an outstanding, unresolved issue arising out of my April 12, 2019 Judgment.
[19] Accordingly, the issue of the transaction structure for the buyout of Ms. Murray’s interest in Pier 21 shall be dealt with according to the following process:
(a) the plaintiff shall file any further evidence, restricted to this issue, by affidavit;
(b) the defendants shall file any responding evidence, also restricted to this issue, by affidavit;
(c) limited reply evidence, if any, shall also be filed in affidavit form;
(d) counsel shall agree on a timetable for accomplishing these tasks and provide it to me within two weeks. Failing agreement, I will impose a timetable;
(e) following delivery of the affidavit evidence, there shall be a 30-minute case conference to discuss next steps, including:
(i) the need for cross-examination;
(ii) whether examination in chief or cross-examination should proceed viva voce; and
(iii) the scheduling of a hearing to resolve this issue.
[20] The costs of these proceedings are reserved.
Penny J.
Released: December 13, 2019
COURT FILE NO.: CV-15-10906-CL
DATE: 20191213
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
EMILY MURRAY and 2327342 ONTARIO INC.
Plaintiffs
– and –
PIER 21 ASSET MANAGEMENT INC., DAVID STAR and 8165246 CANADA INC.
Defendants
Further Supplementary Reasons
Penny J.
Released: December 13, 2019