Brockville Pharmasave 2020 ONSC 1926

Court File and Parties

Court File No.: CV17-0033 Date: March 27, 2020

Ontario Superior Court of Justice

Between: ROCK COULOMBE, Plaintiff – and – JOHN ALAN TAYLOR AND TAYLOR H.C.S. INC., CARRYING ON BUSINESS AS BROCKVILLE PHARMASAVE, Defendants

Counsel: Brett Hodgins/Christopher McLeod, for the Plaintiff Thomas G. Conway/Julie Mouris, for the Defendants

Ruling on Motion ABRAMS, J

Introduction

[1] This motion brought by the defendants seeks an order for judgement in terms of the binding settlement agreement reached between the parties on May 17, 2019. In the alternative, the defendants ask that the action and counterclaim be placed back on the trial list.

[2] The plaintiff does not contest the fact that the parties entered into a binding settlement agreement on May 17, 2019, to resolve the within claims. Rather, the plaintiff contends that after the parties entered into the agreement, the defendants attempted to unilaterally modify a specific term of the agreement: that the share purchase structure would be subject to the defendants’ sole discretion. Thus, the plaintiff asks in its cross-motion for judgement in accordance with the agreed-upon terms of the settlement agreement, absent the alleged unilateral modification attributed to the defendants.

Brief Background

[3] On May 17, 2019, four days before the commencement of trial, the parties reached a binding settlement agreement to resolve the within action and counterclaim. The action mainly involved an oppression remedy claim and a wrongful dismissal claim.

[4] In the Statement of Claim, the plaintiff, Rock Coulombe, sought a mandatory injunction requiring the defendant, John Taylor, to purchase Mr. Coulombe’s shares at a price to be fixed by the court. In substance and in effect, the relief that Mr. Coulombe sought from the outset of the litigation was an order requiring the sale of his shares at a price representing fair market value.

[5] The key part of the settlement agreement was that the Corporation would pay to Mr. Coulombe $900,000 for his shares in the Corporation, in a series of installments. After the share acquisition, Mr. Coulombe would cease being a director and shareholder of the Corporation.

[6] As part of the settlement agreement, the parties agreed that the Corporation would redeem Mr. Coulombe’s shares, unless the parties agreed to an alternative share acquisition structure proposed by Mr. Coulombe (the “Share Acquisition Structure”), provided that this alternative was mutually beneficial, or at least neutral, to the parties, from a tax perspective.

[7] Mr. Coulombe raised the Share Acquisition Structure for the first time during the settlement discussions. During those discussions, Mr. Taylor obtained preliminary advice that the Share Acquisition Structure was not tax advantageous or tax neutral to the defendants. Mr. Taylor thereafter instructed his counsel to settle on the basis that he would be prepared to further consider the Share Acquisition Structure.

[8] These terms were reflected in the letter of settlement in principle sent by Mr. Taylor’s counsel to Mr. Coulombe’s counsel on May 17, 2019.

[9] Mr. Taylor gave further consideration to the Share Acquisition Structure. He obtained advice from his accountant stating that the Share Acquisition Structure was not tax advantageous or tax neutral to the defendants. Accordingly, he advised Mr. Coulombe that he would opt for the default method: the redemption of shares.

[10] When Mr. Taylor opted for a redemption, Mr. Coulombe refused to sign the draft minutes of settlement and schedules prepared by the defendants’ counsel, on the basis that he preferred the Share Acquisition Structure to the share redemption based on his own accountant’s advice.

Facts

[11] Substantially speaking, the facts giving rise to the matter are not in dispute.

[12] The Corporation was formed in 2002. Messrs. Taylor, Coulombe and Wilson were all shareholders, directors and officers of the Company. Mr. Taylor was issued 60 shares, Mr. Coulombe was issued 30 shares, and Mr. Wilson was issued 10 shares. Mr. Taylor and Mr. Coulombe worked in the Brockville Pharmasave (the “Pharmacy”) as pharmacists, and Mr. Wilson was the store manager. [1]

[13] Mr. Coulombe did not pay for his 30 shares. [2]

[14] In or about June 2015, the Corporation redeemed Mr. Wilson’s shares for $22,000 per share and Mr. Wilson ceased his employment with the Corporation. The total number of issued and outstanding shares was reduced from 100 to 90. As before, Mr. Taylor held 60 shares, and Mr. Coulombe held 30 shares. [3]

[15] In January 2017, Mr. Coulombe commenced a claim against the defendants for, inter alia, oppression and wrongful dismissal. In his Statement of Claim, he sought in particular a mandatory injunction requiring Mr. Taylor to purchase Mr. Coulombe’s shares at a price to be fixed by this court. [4] Mr. Coulombe did not ask for the Share Acquisition Structure in his Statement of Claim.

[16] From the outset of the litigation, the defendants took the position that Mr. Coulombe’s shares in the Corporation should be redeemed by the Corporation. [5] The issue, from the beginning to the end of the litigation, was the fair market value of Mr. Coulombe’s shares. [6]

[17] The trial of this action and counterclaim was set to commence on May 21, 2019. On May 17, 2019, the parties reached a binding settlement agreement to resolve the action and counterclaim. The key terms of the settlement agreement, as set out in a letter from Thomas Conway, counsel for Mr. Taylor, to counsel for Mr. Coulombe, were as follows: [7]

(a) Mr. Coulombe will accept an all-inclusive payment of $900,000 in full and final settlement of all claims made, or which could have been made, in the action.

(b) The Corporation will redeem Mr. Coulombe’s shares on the date set for the closing of the share redemption transaction.

(c) The Corporation will redeem Mr. Coulombe’s shares unless the parties agree to the Share Acquisition Structure. To this end, Mr. Taylor will consider the Share Acquisition Structure as an alternative method for acquiring the shares, and if he is persuaded that the Share Acquisition Structure will be tax advantageous or at least tax neutral to the defendants, he will agree to that method.

(d) Mr. Taylor will personally guarantee the Corporation’s obligations to make the payments.

(e) Various other terms from the defendants’ offer to settle dated March 8, 2019 were incorporated into the settlement agreement. [8]

[18] In response to Mr. Conway’s letter of May 17, 2019, counsel for the plaintiff, Mr. Christopher McLeod, sent an email to Mr. Conway stating, inter alia:

Further to our discussions just before 2:00 pm, this will confirm that we have reached a settlement of this matter on the terms provided in your client’s offer to settle of this morning, with the additional commitment by your client to structure the share transaction in manner (sic) that is most favourable to our client from a tax perspective provided that it does not adversely impact Mr. Taylor from a tax perspective. We understand that Mr. Taylor’s accountant is still competing due diligence in that respect but that we should hear from you on the structure currently proposed at some point next week, which is a structure that would see Mr. Taylor incorporate a new corporation that would purchase the shares from Mr. Coulombe to take advantage of his capital gains exemptions. As further agreed, Mr. Coulombe would of course be willing to arrange for the incorporation of the new corporation on Mr. Taylor’s behalf.

[19] There is no quarrel that during settlement discussions Mr. Coulombe had, for the first time, proposed the Share Acquisition Structure as an alternative to a share redemption. Mr. Taylor sought and obtained advice from his accountant, Kenneth J. Durand, on this issue. Mr. Durand advised Mr. Taylor that the Share Acquisition Structure would not be advantageous to Mr. Taylor and the Corporation and recommended against accepting such a term of settlement. [9]

[20] The parties settled on this basis, as is reflected in the letter from Mr. Conway to counsel for Mr. Coulombe, dated May 17, 2019, and Mr. McLeod’s responding email message. A few days after the settlement agreement was reached, Mr. Durand and Mr. Coulombe’s accountant, Peter J. Bangs, had a telephone conversation to discuss the Share Acquisition Structure. Mr. Durand remained unconvinced that the Share Acquisition Structure would be tax advantageous or tax neutral to the defendants. [10]

[21] Mr. Taylor’s counsel drafted minutes of settlement reflecting that there were two possibilities for the share acquisition method: the share redemption and the Share Acquisition Structure, as the option had yet to be finalized. On May 23, 2019, Julie Mouris, counsel for Mr. Taylor, sent these draft minutes of settlement to counsel for Mr. Coulombe for review and comment. [11] Ms. Mouris also sent the draft schedules to the minutes of settlement to counsel for Mr. Coulombe on May 27, 2019. [12] Mr. Coulombe’s counsel did not respond to either of these emails.

[22] In the interim, Mr. Taylor approached Mr. Durand and asked him whether, further to his conversation with Mr. Bangs, he would recommend opting for the Share Acquisition Structure. Mr. Durand reiterated his advice to Mr. Taylor not to accept this term. [13]

[23] On June 13, 2019, Ms. Mouris sent revised draft minutes of settlement, as well as various draft schedules, to Mr. Coulombe’s counsel. In Ms. Mouris’ email, she stated that Mr. Taylor had received advice that the Share Acquisition Structure was not tax neutral to the defendants, and thus that they had opted for the share redemption. [14]

[24] Mr. McLeod wrote back the same day requesting a copy of the advice received by Mr. Taylor, or to arrange a time for Mr. Durand to speak to Mr. Bangs, so that Mr. Coulombe could understand Mr. Taylor’s position. [15]

[25] On June 19, 2019, Ms. Mouris responded by email to explain Mr. Taylor’s position:

In summary, John Taylor as the sole shareholder would not be able to avoid future tax liability on the withdrawal of retained earnings from the company by way of a dividend. In addition, please note that the shares of Taylor H.C.S. Inc. do not qualify as small business shares if purchased through a new holding corporation and as such, Rock Coulombe could not use the capital gains exemption for qualified small business shares. To qualify, the shares sold must be shares in a Canadian-controlled small business, which at the time of disposition, uses 90% or more of its assets in an active business carried out in Canada. This is not the case here. [16]

[26] In the same email, she requested that counsel for Mr. Coulombe provide comments on the draft minutes of settlement and schedules so that the settlement could be finalized.

[27] On June 25, 2019, Ms. Mouris followed up on her previous email. [17] Brett Hodgins, counsel for Mr. Coulombe, responded the following day, with a series of rebuttals provided by Mr. Bangs to the points raised in Ms. Mouris’ email of June 19, 2019 setting out the reasons that Mr. Taylor opted for the share redemption. [18]

[28] On July 5, 2019, Ms. Mouris sent a letter to counsel for Mr. Coulombe advising the following:

Please note that our clients’ decision not to accept the Share Acquisition Structure on the basis that it is not tax neutral to them is final and is not open to further discussion. This decision was made in accordance with the terms of the settlement agreement between the parties, which provided that after considering the Share Acquisition Structure in good faith, our clients retained the sole discretion not to accept it if they received advice that it was not tax neutral to them.

We have provided you with draft Minutes of Settlement and draft Schedules thereto, and we look forward to receiving your comments on those without delay, so that we can finalize the settlement of this action. [19]

[29] Counsel for Mr. Coulombe did not respond to this letter. [20]

[30] On July 15, 2019, Ms. Mouris wrote to counsel for Mr. Coulombe, again requesting their comments on the draft minutes of settlement and schedules. She indicated that if counsel for Mr. Coulombe did not respond by July 22, 2019, the defendants would commence the within motion to enforce the settlement agreement. [21]

[31] Counsel for Mr. Coulombe did not respond to this email. [22] The defendants commenced the within motion on July 29, 2019.

[32] On July 31, 2019, Ms. Mouris sent a letter to counsel for Mr. Coulombe indicating Mr. Taylor’s disappointment in having to bring this motion and expressing a desire to resolve the motion as soon as possible. [23]

[33] Counsel for Mr. Coulombe did not respond to this letter. [24]

[34] On October 1, 2019, Mr. Hodgins served the affidavit and expert report of Mr. Bangs, in which Mr. Bangs opines that the Share Acquisition Structure is tax neutral to the defendants. [25] Mr. Hodgins stated that the plaintiff’s motion record would be served “shortly”. Ms. Mouris requested that Mr. Hodgins specify the relief being sought by the plaintiff but received no answer. Counsel for Mr. Coulombe had still not served their responding motion record on the defendants when Mr. Taylor swore his affidavit on October 9, 2019, despite Ms. Mouris’ request for same to be served by October 4, 2019. [26]

Issues

[35] Where a motion is brought under Rule 49.09 of the Rules of Civil Procedure, the court must consider two questions:

(1) Was a legally binding agreement created; and

(2) If an agreement has been reached, should it be enforced?

Positions of the Parties

[36] The defendants contend that when Mr. Taylor opted for redemption of the shares, Mr. Coulombe refused to uphold the settlement agreement. Further, Mr. Coulombe refused to sign the draft minutes of settlement and schedules prepared by the defendants’ counsel, on the basis that he preferred the Share Acquisition Structure to the share redemption based on his own accountant’s advice. The defendants point out; however, that Mr. Coulombe’s preference for the method of the share acquisition was not a term of the settlement agreement. Thus, the defendants argue that Mr. Coulombe is in breach of the binding settlement agreement, which the defendants now move to enforce.

[37] The plaintiff asserts that, based on the clear wording of the agreement, as set out in Mr. Conway’s letter and Mr. McLeod’s reply email, the defendants agreed to structure the share transaction in the most favourable manner to the plaintiff from a tax perspective “provided that it does not adversely impact Mr. Taylor from a tax perspective.” The plaintiff contends that he believed the parties would make such a determination cooperatively and in good faith. Thus, the plaintiff argues that Mr. Taylor had a positive duty to consider the Share Acquisition Structure in good faith, which he has failed to do by not showing how the alternative to share redemption adversely impacts him from a tax perspective.

Analysis and Conclusions

[38] There is no dispute that the plaintiff accepted the defendants’ offer to settle as set out in Mr. Conway’s letter dated May 17, 2019.

[39] What appears to be in dispute, in my view, are the following excerpts taken from Mr. Conway’s letter and Mr. McLeod’s reply:

(a) The Corporation will redeem Mr. Coulombe’s shares unless the parties agree to the Share Acquisition Structure. To this end, Mr. Taylor will consider the Share Acquisition Structure as an alternative method for acquiring the shares, and if he is persuaded that the Share Acquisition Structure will be tax advantageous or at least tax neutral to the defendants, he will agree to that method.

(b) Further to our discussions just before 2:00 pm, this will confirm that we have reached a settlement of this matter on the terms provided in your client’s offer to settle of this morning, with the additional commitment by your client to structure the share transaction in manner (sic) that is most favourable to our client from a tax perspective provided that it does not adversely impact Mr. Taylor from a tax perspective.

[40] The plaintiff contends that the additional commitment articulated in Mr. McLeod’s reply created a positive duty on Mr. Taylor to show in good faith how the Share Acquisition Structure would not adversely impact him [and the Corporation] from a tax perspective. Further, the plaintiff argues that Mr. Taylor has not discharged this obligation, and thus he has not acted in good faith. I do not see it that way.

[41] In my view, the specific term of the offer to settle made it clear and unequivocal that it was Mr. Taylor’s prerogative to consider the Share Acquisition Structure and to be persuaded that the alternative to the historical method of share redemption used to purchase Mr. Wilson’s shares would be tax advantageous or at least tax neutral to the defendants. Mr. McLeod’s reply created no additional legal obligation on Mr. Taylor to do anything more, because, in the end, it remained Mr. Taylor’s decision as to whether the Share Acquisition Structure adversely impacted him [and the Corporation] from a tax perspective. Put another way, what the plaintiff is asking the court to do is to amplify or read in wording to Mr. McLeod’s reply that could have been easily penned at the material time, for example: …with the additional commitment by your client to structure the share transaction in manner (sic) that is most favourable to our client from a tax perspective provided that it does not adversely impact Mr. Taylor from a tax perspective, which Mr. Taylor has a positive duty to show in good faith, or words to that effect.

[42] The plaintiff asserts that Mr. Taylor did not act in good faith in giving due consideration to the Share Acquisition Structure. I do not agree. On the record before me, Mr. Taylor consulted with his accounting professional on several occasions before taking the position that the shares would be redeemed in the usual manner. And on every occasion, he was advised that the Share Acquisition Structure was not tax advantageous, or at least tax neutral to him and the Corporation. In my view, nothing more was required of Mr. Taylor under the terms of the settlement agreement, because, in the end, it was Mr. Taylor’s decision to make. Parenthetically, I wish to make it clear that this court was not asked to decide between competing accounting evidence. Rather, the dispute, reduced to its simplest form, was about who, as between the plaintiff and the defendants, had the final say as to how the plaintiff’s shares would be redeemed.

[43] Accordingly, I find that a legally binding agreement was created. Thus, the next question to consider is whether the agreement should be enforced? As noted by Madam Justice Himel in Sentry Metrics Inc. v. Ernewein, 2013 ONSC 959 at paras. 16-17, there are certain circumstances where the court must exercise its discretion not to enforce a settlement, which include:

(16) …. a settlement that it considers to be unreasonable, that would result in an injustice or where there is good reason not to enforce it: see Capital Gains Income Streams Corp. et al v. Merrill Lynch Canada Inc. (2007), 87 O.R. (3d) 464 (DIV. CT.) at para 14. When deciding to exercise its discretion to enforce an accepted offer, the court is required to take a broad approach and consider all of the evidence. In Olivieri v. Sherman (2007), 2007 ONCA 491, 86 O.R. (3d) 778 (C.A.) at para 45, the court held that the failure to consider manifestly important factors such as one party’s repudiation of the claim and the prejudice it would suffer if the enforcement were ordered, was held to be an error.

(17) Another example of circumstances where the court exercised its discretion to not enforce a binding agreement was discussed in Milios v. Zagas (1998), 38 O.R. (3d) 218 (C.A) at paras 20-21 where the court found that the plaintiff’s counsel had received instructions to settle based on a mistake. The court considered certain factors in exercising its discretion not to enforce a settlement including that: no order had been taken out, the prejudice to the plaintiff outweighed the prejudice to the defendant and no third parties would be affected. [27]

[44] Thus, although a legally binding agreement was created, the court still has the discretion to enforce the agreement or to refuse to enforce the agreement. Circumstances where the court might exercise its discretion not to enforce a settlement include:

(a) where it considers the settlement to be unreasonable;

(b) where the settlement would result in an injustice; or

(c) where there is another good reason not to enforce the settlement.

[45] In considering whether to exercise its discretion to enforce a settlement, the court is required to take a broad approach and consider all of the evidence, including factors such as the prejudice to either party of enforcing the settlement or not enforcing the settlement.

[46] Having taken a broad approach and considering all the evidence, in conjunction with the submissions of counsel, I conclude that the settlement is not unreasonable. Indeed, the manner of the share redemption is supported by the historical method by which Mr. Wilson’s shares were redeemed, as well as by the plaintiff’s pleadings. For the same reasons, the settlement would not result in an injustice. Finally, on the record before me, there is no other good reason not to enforce the settlement.

[47] In the result, the defendants’ motion is granted, and the plaintiff’s cross-motion is dismissed.

[48] If the parties are unable to agree on costs, written submission of no greater length than 10 pages, double spaced, one side of the page, no less than 12-point font, together with Bills of Costs and any Offers to Settle, may be forwarded to my attention, within 30 days.

The Honourable Mr. Justice B. W. Abrams Released: March 27, 2020

References

[1] Affidavit of John Taylor, sworn October 9, 2019 at para 2 [Taylor Affidavit], Supplementary Motion Record of the Moving Parties/Defendants [Supp Taylor Record], Tab 1.

[2] Taylor Affidavit at para 3, Supp Taylor Record, Tab 1.

[3] Taylor Affidavit at para 4, Supp Taylor Record, Tab 1.

[4] Amended Statement of Claim at para 1(A)(f), Exhibit A to Taylor Affidavit, Supp Taylor Record, Tab 1.

[5] Statement of Defence and Counterclaim at para 42(b), Exhibit B to Taylor Affidavit, Supp Taylor Record, Tab 1.

[6] Taylor Affidavit at para 6, Supp Taylor Record, Tab 1.

[7] See Letter from T Conway, May 17, 2019, Exhibit A to Affidavit of Michelle Thibert, sworn July 29, 2019 [Thibert Affidavit], Motion Record of the Moving Parties/Defendants [Taylor Record], Tab 2, pp 13-15; see also Email from C McLeod, May 17, 2019, Exhibit B to Thibert Affidavit, Taylor Record, Tab 2, p 17, in which Mr. Coulombe’s counsel indicated agreement to the terms in Mr. Conway’s letter of May 17.

[8] See Offer to settle dated March 8, 2019, Exhibit C to Taylor Affidavit, Supp Taylor Record, Tab 1.

[9] Affidavit of Kenneth J Durand at para 3, sworn October 9, 2019 [Durand Affidavit], Supp Taylor Record, Tab 2.

[10] Durand Affidavit at para 5, Supp Taylor Record, Tab 2.

[11] Email from J Mouris encl draft minutes of settlement, May 23, 2019, Exhibit D to Thibert Affidavit, Taylor Record, Tab 2.

[12] Email from J Mouris encl draft schedules, May 27, 2019, Exhibit E to Thibert Affidavit, Taylor Record, Tab 2.

[13] Durand Affidavit at para 6, Supp Taylor Record, Tab 2.

[14] Email from J Mouris encl revised draft minutes of settlement, June 13, 2019, Exhibit F to Thibert Affidavit, Taylor Record, Tab 2.

[15] Email from C McLeod, June 13, 2019, Exhibit G to Thibert Affidavit, Taylor Record, Tab 2, p 64.

[16] Email from J Mouris, June 19, 2019 (emphasis added), Exhibit H to Thibert Affidavit, Taylor Record, Tab 2, p 68; see also Durand Affidavit at para 6, Supp Taylor Record, Tab 2, which explains the advice that Mr. Durand gave to Mr. Taylor.

[17] Email from J Mouris, June 25, 2019, Exhibit I to Thibert Affidavit, Taylor Record, Tab 2, p 73.

[18] Email from B Hodgins, June 26, 2019, Exhibit J to Thibert Affidavit, Taylor Record, Tab 2, p 78.

[19] Letter from J Mouris, July 5, 2019 (emphasis added), Exhibit K to Thibert Affidavit, Taylor Record, Tab 2, pp 93-94.

[20] Taylor Affidavit at para 17, Supp Taylor Record, Tab 1.

[21] Email from J Mouris, July 15, 2019, Exhibit L to Thibert Affidavit, Taylor Record, Tab 2, p 96.

[22] Taylor Affidavit at para 18, Supp Taylor Record, Tab 1.

[23] Letter from J Mouris, July 31, 2019, Exhibit D to Taylor Affidavit, Supp Taylor Record, Tab 1, p 45.

[24] Taylor Affidavit at para 19, Supp Taylor Record, Tab 1.

[25] Email from B Hodgins encl affidavit, October 1, 2019 (affidavit omitted), Exhibit E to Taylor Affidavit, Supp Taylor Record, Tab 1, p 47; see also Expert report of Peter J Bangs, dated September 13, 2019 [Bangs Expert Report], Exhibit A to Durand Affidavit, Supp Taylor Record, Tab 2, p 65.

[26] Taylor Affidavit at para 21, Supp Taylor Record, Tab 1; Emails from J Mouris re relief sought, October 2 and 3, 2019, Exhibit F to Taylor Affidavit, Supp Taylor Record, Tab 1, p 51. As noted in Ms. Mouris’ email of October 3, 2019, the Bangs Expert Report was dated September 13, 2019, nearly three weeks before it was served on the defendants.

[27] Sentry Metrics Inc. v. Ernewein, (2013) ONSC 959 at paras. 16-17 citing Capital Gains Income Streams Corp. et al v. Merrill Lynch Canada Inc. (2007), 87 O.R. (3d) 464 (DIV. CT.) at para 14, Olivieri v. Sherman (2007), 2007 ONCA 491, 86 O.R. (3d) 778 (C.A.) at para 45 and Milios v. Zagas (1998), 38 O.R. (3d) 218 (C.A) at paras 20-21.