Court File and Parties

Court File No.: C-8247-19 Date: 2020-01-20 Ontario Superior Court of Justice

Between: Tracks & Wheels Equipment Brokers Inc., Plaintiff – and – KKP Investments Inc., Defendant

Counsel: Orlando Rosa, for the Plaintiff Joseph Groia and Martin Mendelzon, for the Defendant

Heard: January 7, 2020

Decision on Motions

R.D. Gordon, J.

Overview

[1] The plaintiff has brought a motion for summary judgment seeking specific performance of certain options to purchase (the “Options”) entered into with the defendant along with a declaration that it is the legal and equitable owner of the real property referred to in the Options.

[2] The defendant has brought a cross-motion for an order dismissing or staying the plaintiff’s action as an abuse of process and for payment of rent.

Background Facts

[3] On December 5, 2013, Michael Gougeon provided a non-binding letter of intent to Conrad Houle in respect of the contemplated acquisition of the assets of a company controlled by Mr. Houle and known as Tracks & Wheels Equipment Brokers Inc. (“Tracks & Wheels”). The letter identified in a general way the assets to be acquired as all rental equipment assets, all inventory and work in progress, capital assets such as trucks, computer equipment, furniture and fixtures, and goodwill. No mention was made of real estate. The anticipated price was expected to be in the order of $18 million.

[4] Following several months of negotiation, a share purchase agreement was prepared bearing the date of March 30, 2014 (“SPA#1”). It was signed by Worker Auto Services Ltd. (“WAS”) as purchaser. WAS is a corporation controlled by Mr. Gougeon. It was signed by Conrad Houle, Sheila Houle and CS Houle Holdings Inc., being all of the shareholders of Tracks & Wheels, as vendors. It was also signed by Tracks & Wheels through its president Mr. Houle. Although SPA#1 made reference to various appended schedules including “the real property leases referred to in Schedule “G””, no such schedules were appended. SPA#1 made no reference to any option to purchase the various properties occupied by Tracks & Wheels. The purchase price was $13 million, subject to adjustments.

[5] In the course of preparing for the closing of the share purchase transaction, a second share purchase agreement was prepared and signed (“SPA#2”). SPA#2, although signed on or about July 6, 2014, is stated as having been made on April 4, 2014. Article 4 of this agreement made the purchase of the shares conditional upon Tracks & Wheels having entered into leases with KKP Investments Inc. (“KKP”), the defendant in this action. KKP is also controlled by Mr. Houle and owns the various properties occupied by Tracks & Wheels. The leases were to be for locations in which Tracks & Wheels operated in Sudbury, Timmins and North Bay, Ontario. Although the agreement refers to those leases as Schedule “G” to the agreement, no such Schedule G was appended. SPA#2 makes no mention of an option to purchase any of the leased properties. The purchase price remained at $13 million subject to adjustments.

[6] At the same time SPA#2 was signed, Tracks & Wheels entered into three commercial leases with KKP dated April 1, 2014 - one for each property. Each lease was for a five-year term and each contained an option to purchase the land and buildings to which the lease applied exercisable at the earlier of the expiry of the five-year term and the death of the later of Conrad Houle and Sheila Houle. Each lease contained a reference to an option agreement as Schedule “G”. Although no Schedule “G” was appended to each lease, separate option agreements were signed for each property at that same time. The option price for the Sudbury property was $1,790,000; the option price for the Timmins property was $550,000; the option price for the North Bay property is of no consequence, as Tracks & Wheels no longer occupies that property and has not exercised its option to purchase that property.

[7] The executed leases and Options were delivered on the closing of the share purchase transaction which occurred on July 22, 2014. At that point, in return for the payment of the adjusted purchase price of $11,567,977.74, WAS became the sole shareholder of Tracks & Wheels.

[8] Subsequent to closing, the Houles reviewed the closing documents from the share purchase transaction and were of the view they had not agreed to several of the terms upon which it had been carried out, including the grant of the Options. On January 8, 2015, they brought an action (the “Main Action”) against the lawyer and accountant who had advised them on the transaction and in that same action included Tracks & Wheels, WAS and Michael Gougeon, as defendants. The Houles claimed, among other things, damages, rescission of the share purchase agreement and rescission of the leases, Options and other agreements signed pursuant thereto, or in the alternative, rectification of the leases by deleting the Options to purchase contained therein.

[9] By letter of October 1, 2015, WAS proposed to the Houles a settlement whereby the shares would be retransferred to them and the purchase price would be returned, with SPA#2 being the template for the transaction. The Houles did not accept this proposal. Rather, they subsequently amended their statement of claim to withdraw their claim for rescission of the share purchase agreement. They continued to pursue the rescission or rectification of the leases and Options.

[10] By way of motion returnable June 8, 2018, Tracks & Wheels, Michael Gougeon and WAS brought a motion for summary judgment in the Main Action seeking dismissal of the action as against them, along with any cross-claims. The grounds for the motion were: (1) That Michael Gougeon at no time acted in his personal capacity and therefore could not be liable to the Houles; and (2) The withdrawal of the claim for rescission of the share purchase agreement was, in law, a withdrawal of the claim for rescission of the lease and Options. Eventually, this motion for summary judgment was thought to be settled. Counsel for the Houles clearly communicated to the defendants and to the court that the action of the Houles against Tracks & Wheels, Michael Gougeon and WAS would be dismissed with costs reserved to the trial judge. The parties went so far as to prepare and submit a consent and consent order on these terms.

[11] When the order was presented to me for signature, I returned it, noting that because Mr. Houle was a party under disability, I would need the documentation prescribed by Rule 7.08(4) before signing the order. There were assurances given by counsel for the Houles that the documentation would be signed. In the end they were not. The litigation guardian for Mr. Houle resigned. Counsel who had been acting for the Houles was dismissed. The new litigation guardian will not sign the required documents and takes the position that the settlement of the summary judgment in the Main Action was not in Mr. Houle’s best interests.

[12] Prior to the expiry of the five-year term of the leases, Tracks & Wheels gave notice of its intention to exercise its Options of the Sudbury and Timmins properties. Eventually, the purchase price and required closing documents were tendered by Tracks & Wheels. KKP refused to close. This action ensued in which Tracks & Wheels seeks specific performance of the Options to purchase, damages for breach of contract, and punitive damages. The plaintiff’s motion before me is for summary judgment for specific performance of the Options.

Analysis

The plaintiff’s motion for summary judgment

[13] In my view, the motion for summary judgment must be dismissed.

[14] In Butera v. Chown, Cairns LLP, 2017 ONCA 783, the Court of Appeal held that a motion for partial summary judgment should be considered a rare procedure, reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost-effective manner. It confirmed that a request for partial summary judgment must be analyzed from the perspective of whether: (i) there is a risk of duplicative or inconsistent findings at trial; and (ii) granting partial summary judgment is advisable in the context of the litigation as a whole.

Risk of duplicative or inconsistent findings

[15] The litigation between these parties will continue both in this action and in the Main Action.

[16] In the Main Action Mr. Houle has alleged, inter alia, that his accountant and lawyer were negligent in their representation of him because they failed to draw to his attention and explain the leases and Options. The trial judge will have to decide what Mr. Houle knew and when he knew it. The trial judge will have to determine whether or not Mr. Houle knew, when he signed, that he was signing documents providing for options to purchase the lands. The trial judge will have to determine whether or not Mr. Houle understood he was simply signing documents providing for leases as contemplated in SPA#1. The trial judge in the main action will be required to determine whether or not Mr. Houle had been steadfastly unwilling to grant any Option relative to the properties and, if so, whether Mr. Gougeon was aware this unwillingness. These are many of the same findings that would ground Mr. Houle’s claim for rectification of the contracts to delete the Options and are therefore the same findings I would have to make today in order to grant specific performance to WAS.

[17] The Plaintiff argued that the “entire agreement” clauses in SPA#2, the leases and the Options effectively preclude the Defendant from arguing rectification of those contracts. I do not agree. As confirmed in Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, rectification is an equitable remedy designed to correct errors in the recording of terms in written legal instruments. It is to restore the parties to their original bargain. Surely an “entire agreement” clause cannot, in the face of cogent evidence of a bargain reached by two parties but erroneously recorded, operate to prohibit implementation of the original bargain. An “entire agreement” clause presupposes that the agreement in question is the one reached by the parties. If it is not, then such a clause should not prevent rectification of the agreement to reflect that original bargain.

[18] Accordingly, there is in my view a risk of duplicative or inconsistent findings should specific performance be granted now by way of partial summary judgment.

The litigation as a whole

[19] In the context of the litigation between these parties considered as a whole, partial summary judgment is not appropriate.

[20] The trial of the Main Action is scheduled for six weeks beginning in May of this year. It was always contemplated that this action and the Main Action be tried together so there will no significant delay in getting the plaintiff’s claim for specific performance of the options tried within a reasonable time.

[21] As noted in Butera, there is always the possibility of an appeal of a partial summary judgment decision that could cause delay in having the remaining litigation finally determined. Counsel for the defendant represented to the court that he has instructions to appeal if I were to decide to grant summary judgment. The practical effect of such an appeal would likely be an adjournment of the currently scheduled trial, thereby delaying access to justice for all parties.

[22] The facts surrounding the plaintiff’s claim for specific performance are intertwined both with the remaining damages claim in this proceeding, and the claims against the accountant, the lawyer and the Gougeon defendants in the main action. Including the claim for specific performance at trial is unlikely to lengthen the trial significantly and will negate the risk of duplicative or inconsistent findings.

Conclusion

[23] The plaintiff’s motion for partial summary judgment is dismissed.

The defendant’s motion to dismiss or stay

[24] The defendant contends that this action is an abuse of process because it duplicates many of the issues in the main action.

[25] It is significant that the main action was started in January of 2015, a full four years before the plaintiff was eligible to exercise the Options. It is also significant that the plaintiff, with very good reason, believed the issue of validity of the Options to have been fully resolved by agreement with opposing counsel that the claims for relief against the Gougeon defendants in the Main Action, including the claims for rescission and rectification, would be dismissed.

[26] With the Options not yet exercisable, and without a claim for rescission or rectification of them, there was no reason for the plaintiff to include a claim for specific performance of the Options in its counterclaim in the Main Action. That it eventually elected to do so by way of a new claim instead of amending its counterclaim in the Main Action is a matter of form over substance.

[27] Indeed, it seems somewhat disingenuous for the defendant, having refused or failed to cooperate in seeking court approval for the settlement that was reached, to now object to the manner in which the plaintiff seeks to assert the very remedy that the settlement would have provided.

[28] KKP’s motion to dismiss the action as an abuse of process is dismissed.

[29] KKP’s motion included a request for the payment of rent by the plaintiff pending trial. Given that this action and the defendant’s counterclaim are to be tried at the same time as the Main Action and that the trial will take place within a few months, I understood counsel for the defendant to withdraw this aspect of the motion, reserving the right to bring it back on should the trial not take place as scheduled.

Summary

[30] In summary, the plaintiff’s motion for partial summary judgment is dismissed. The defendant’s motion to dismiss or stay the action is dismissed. The defendant’s motion for interim payment of rent is withdrawn without prejudice to its right to bring the motion back on should the trial not proceed as scheduled.

[31] This action and counterclaim shall be tried at the same time as the Main Action. The requirement for a pre-trial specific to this action is dispensed with. The plaintiff shall file a trial record for this action within 30 days. If there are other procedural matters the parties feel must be addressed in order to have these matters tried together, they may seek a case management conference before me.

[32] If the parties are unable to agree on costs, they may make written submissions to me, not to exceed three pages plus attachments each, within 45 days.

The Honourable Mr. Justice R.D. Gordon Released: January 20, 2020