Murray et al. v. Star et al.
[Indexed as: Murray v. Star]
Ontario Reports Ontario Superior Court of Justice Penny J. April 8, 2020 150 O.R. (3d) 419 | 2020 ONSC 2153
Case Summary
Corporations — Oppression — Remedies — Defendants ordered to purchase plaintiff's shares as an oppression remedy — Plaintiff holding her shares through a holding company — Plaintiff seeking to minimize tax liability by having defendants purchase shares of plaintiff's holding company — Plaintiff's proposal not in accord with her reasonable expectations — Judge ordering company to repurchase its shares from plaintiff's holding company for cancellation.
The individual defendant S was found to have caused the individual plaintiff, M, a 9.1 per cent shareholder in the defendant Pier 21, to be oppressed. The defendants were ordered to purchase M's Pier 21 shares for $39.3 million. M held her Pier 21 shares in a holding company. The parties agreed to three basic structures for the required share purchase. Under Option One, either S or his holding company would purchase the shares of M's holding company. Under Option Two, Pier 21 would repurchase its shares from M's holding company for cancellation. Under Option Three, either S or his holding company would purchase M's Pier 21 shares from M's holding company. M argued for Option One, while S argued for Option Two.
Held, the purchase was to proceed under Option Two.
The fact that Option One was the most tax efficient transaction structure for M did not on its own determine whether that structure fell within the scope of her reasonable expectations. The best evidence of her reasonable expectations was the manner in which she sold a significant portion of her Pier 21 shares in 2012. She took the benefit of a holding company structure. To the extent that the structure had to be unwound to effect the ordered repurchase, at fair value, of the remainder of her shares, it was not unreasonable that she also bear the concomitant burden. With M being bought out at full value leaving S the sole shareholder of all Pier 21 shares, there was no evidence that the repurchase would have any impact on third parties. In addition, the financial and tax history of M's holding company represented potential unknown liabilities that S or his holding company would inherit if either were required to acquire it. The ownership of M's holding company was also complicated by the interposition of a family trust and another holding company into the ownership structure of M's Pier 21 shares. Further, there was evidence that under Option One S would have to incur significant advisory costs to finance and restructure an acquisition of M's holding company. Apart from M's concern about minimizing tax, there was no evidence that Option Two would result in an inequitable distribution of the tax burden between the parties. [page420]
Cases Referred To
BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 301 D.L.R. (4th) 80, 383 N.R. 119, J.E. 2009-43, 52 B.L.R. (4th) 1, 71 C.P.R. (4th) 303, 172 A.C.W.S. (3d) 915, EYB 2008-151755, 2008 SOACQ para. 10,147, 2008 CCAN para. 10,065, 2009 CCSG para. 51,112, 2009 BCLG para. 78,675, 2009 OCLG para. 51,488, 2009 CCLR para. 200,832, 2009 CSLR para. 900-288, 2009 ACLG para. 79,251; Murray v. Pier 21 Asset Management Inc., 2019 ONSC 316; Murray v. Pier 21 Asset Management Inc., [2019] O.J. No. 4060, 2019 ONSC 4501 (S.C.J.); Murray v. Pier 21 Asset Management Inc., [2019] O.J. No. 6608, 2019 ONSC 7230 (S.C.J.); Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481, [1995] O.J. No. 1377, 85 O.A.C. 29, 23 B.L.R. (2d) 286, 55 A.C.W.S. (3d) 86 (C.A.)
Statutes Referred To
Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 241(3)
ADDENDUM to a judgment regarding the transaction structure of share purchase.
Edward Babin, Cynthia Spry and Michael Bookman, for plaintiffs.
Igor Ellyn and Kathryn Manning, for defendants.
Endorsement
[1] PENNY J.: — In a decision of April 12, 2019 (2019 ONSC 316), I found that Mr. Star had caused Ms. Murray, a 9.1 per cent minority shareholder in Pier 21, to be oppressed. As the principal remedial measure, I ordered that the defendants purchase Ms. Murray's Pier 21 shares based on a fair value of Pier 21, which I found, following a motion to vary, to be $39.3 million ([2019] O.J. No. 4060, 2019 ONSC 4501 (S.C.J.)).
[2] In another subsequent ruling, [2019] O.J. No. 6608, 2019 ONSC 7230 (S.C.J.), I held that I had jurisdiction to consider how Ms. Murray's Pier 21 shares, which are held in her wholly owned holding company, 2327342 Ontario Inc. ("232"), should be purchased; in other words, how the transaction should be structured. It turns out that the transaction structure affects tax liabilities, among other things.
[3] A process for filing brief additional evidence, the conduct of cross-examinations and the filing of written submissions was established. That process was completed on April 1, 2020.
[4] These are my reasons on the transaction structure issue. They should be read in conjunction with 2019 ONSC 316, 2019 ONSC 4501 and 2019 ONSC 7230.
[5] The parties generally agree that there are three basic structures available for the required share purchase:
Option 1: Mr. Star or his holding company, 8165246 Canada Inc. ("816"), purchases the shares of Ms. Murray's holding company, 232;
Option 2: Pier 21 repurchases its shares from 232 for cancellation; or [page421]
Option 3: Mr. Star or 816 purchases Ms. Murray's Pier 21 shares from 232.
[6] Ms. Murray asks the court to order Mr. Star or 816 to purchase the shares of 232 under Option One because this will, based on her calculations, result in the least tax liability for her. Ms. Murray calculates her tax liability under Option One as likely to be $768,468. Mr. Star asks the court to order Pier 21 to repurchase its shares from 232 for cancellation under Option Two. Ms. Murray calculates the tax consequences of Option Two as likely to be $849,419. Neither party asks the court to order the purchase to take place under Option Three. Ms. Murray calculates the tax consequences of Option Three as likely to be $1,099,703.
[7] Although s. 241(3) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 grants a very broad remedial discretion to the court, it can only be exercised for a specific purpose -- to rectify oppression. Further, the remedy can protect only the applicant's interest as a shareholder; in other words, her reasonable expectations (Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481, [1995] O.J. No. 1377 (C.A.), at para. 128; BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, at para. 63).
[8] Ms. Murray argues that Option One is the most tax beneficial option to her and is tax neutral to the respondents. She argues that 232 was incorporated for the purpose of holding her Pier 21 shares. This was done, she says, at Mr. Star's recommendation. A purchase of 232's shares from her under Option One, she says, "would preserve the integrity of the original tax planning" for her.
[9] The fact that Option One is the most tax efficient transaction structure for Ms. Murray does not, however, standing alone, determine whether that particular transaction structure falls within the scope of her reasonable expectations. Employing the use of a holding company since 2012 to own Ms. Murray's shares of Pier 21 was a strategy which benefited her, not Mr. Star. The fact that Mr. Star suggested doing it this way is irrelevant. Ms. Murray had independent legal counsel advising her at the time.
[10] Ms. Murray's holding company structure was established in the context of a transaction in 2012 by which Pier 21 repurchased 6.9 per cent of Ms. Murray's Pier 21 shares. Those shares were repurchased from 232 by Pier 21 for cancellation. In the trial of this action, Ms. Murray sought to set aside that 2012 repurchase on the basis that it was oppressive. I found that Ms. Murray had not proved the transaction was oppressive and dismissed that claim. [page422]
[11] The best evidence of Ms. Murray's reasonable expectations concerning the purchase of her existing shares in Pier 21 is the manner in which she previously sold a significant portion of her Pier 21 shares in 2012. Ms. Murray took the benefit of a holding company structure. To the extent the structure must now be unwound to effect the ordered repurchase, at fair value, of the remainder of her shares, it is not unreasonable that she should also bear the concomitant burden. There is no evidence to support the conclusion of a reasonable expectation that Ms. Murray would be entitled to "preserve the integrity of the original tax planning" involved in setting up 232, were she ever to sell her remaining Pier 21 shares. Similarly, there is no evidence to support a reasonable expectation that Ms. Murray would have the right to demand a transaction structure that would minimize her liability for tax on the transaction to the exclusion of any other considerations.
[12] In many circumstances, it might not be appropriate to visit upon the co-owned company, the burden of a remedy resulting from oppressive conduct brought about by a majority shareholder. This is not one of those circumstances, however. This is because, once Ms. Murray is bought out at fair value, Mr. Star will be the sole shareholder of all Pier 21 shares. There is no evidence that this repurchase will have any impact on third parties.
[13] In addition, 232 held other assets and, for example, conducted other securities transactions between 2012 and 2020. The financial and tax history of 232, therefore, represents potential unknown liabilities which Mr. Star/816 would inherit were they required to acquire 232. Ms. Murray has offered indemnities. However, Ms. Murray has ceased to be a Canadian resident and has moved to the U.K. Questions about what those indemnities might be worth and how they might be enforced create risks and uncertainties for the respondents under Option One which do not exist under Option Two.
[14] The ownership of 232 is also complicated by the interposition of the Murray Family Trust and another holding company, 2333366 Ontario Inc., into the ownership structure of Ms. Murray's Pier 21 shares. This results in additional uncertainty around an acquisition of 232.
[15] Further, there is evidence apart from potential negative tax consequences that Option One will require Mr. Star/816 to incur significant advisory costs (such as accounting, tax and legal) in order to finance and restructure an acquisition of 232. These are costs that would not need to be incurred under Option Two. Indeed, the defendants' expert evidence is that Option Two represents the least risk and cost to the defendants because [page423] (a) Pier 21 has the cash available to effect the purchase of 232's Pier 21 shares (816 does not); and (b) no additional legal or tax steps are required.
[16] There is no evidence, apart from the fact that Ms. Murray seeks to achieve the smallest tax burden possible, that Option Two will result in an inequitable distribution of the tax burden as between the parties in this case.
[17] For all these reasons, I find that the share purchase at fair value ordered in my April 12, 2019 judgment shall be by way of a repurchase by Pier 21 of its shares from 232 for cancellation under Option Two.
Repurchase of shares for cancellation ordered.
