COURT FILE NO.: CV-117/19
DATE: 20210414
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Aloysius (Al) Struthmann, Applicant
AND:
Lois A. Struthmann and Tansy Elizabeth Serediak, Respondents
BEFORE: Justice R. Raikes
COUNSEL: Richard Macklin - Counsel, for the Applicant
Benjamin G. Blay - Counsel, for the Respondents
HEARD: March 18, 2021
ENDORSEMENT
[1] The applicant brings a motion pursuant to r. 59.06(2) to vary the order of Leach J. dated February 4, 2020 (2020 ONSC 759); specifically, the obligation to continue paying the respondents’ remuneration pending completion of the purchase of their shares.
[2] He asks that those payments terminate immediately. Alternatively, he asks that the order be varied so that all payments made be applied as a set-off and/or credit against any payments the respondents may receive for their shares. Finally, if the amounts paid are not terminated, he seeks an order to vary the amount payable to reduce the ongoing financial pressure on the Tetra-Chem Group caused by the pandemic.
[3] The motion is opposed by the respondents who did not file any responding evidence.
Background
[4] The applicant and respondent, Lois Struthmann, are spouses although they have been separated for some time and both have re-partnered. Tansy Serediak is one of their children. She has aligned with her mother in the disputes underlying this litigation.
[5] Both sides brought applications under ss. 207 and 248 of the OBCA with respect to privately held companies located in Ingersoll informally known as “the Tetra Group”.
[6] The corporate history and structure are succinctly summarized in Justice Leach’s endorsement.
[7] The shareholdings of the companies were equally divided between Mr. and Mrs. Struthmann until 2015-17 when an estate freeze reorganization was done. The estate freeze locked in the then value of the companies and attributed future growth in the value of the company to their four children including Ms. Serediak. The estate freeze was effected using a family trust of which Mr. and Mrs. Struthmann are the trustees. (See Leach J. endorsement, at paras. 4-7)
[8] Based on my review of Justice Leach’s comprehensive endorsement (and no one has suggested that he erred in his summary of the company structures), Ms. Serediak is not a shareholder of any of the companies. She has a beneficial interest in any increase in value of the companies through the family trust. I gather that the purchase of shares contemplates buying out her beneficial interest under the family trust.
[9] All three parties were employed by the Tetra Group. Mr. Struthmann is a chemist. He founded Tetra-Chem Industries Ltd.. Regardless of corporate title, he essentially headed and directed the operations of the companies. Mrs. Struthmann and Ms. Serediak performed internal accounting and office managerial roles.
[10] In their applications, both sides levelled serious allegations of misfeasance against the other. It was clear that the parties were deadlocked and neither side had control because the shareholdings were equally divided between Mr. and Mrs. Struthmann. A well-established family run business was trapped in the throes of conflict.
[11] Justice Leach determined that:
It was not necessary to determine the individual allegations of oppressive and unfair misconduct since relief could be granted under the relevant provisions of the OBCA without doing so: para. 34;
The full range of remedies available under s. 248 OBCA (oppression provision) were available under s. 207 OBCA (winding up provision): para. 34(c)(iii); and
The court was not limited to ordering a winding up in these circumstances.
[12] Both sides sought in their respective applications an order to value and buy out the shares of the other. The primary issue was who was to be the buyer and who was to be the seller. At paras. 17 and 18, Justice Leach wrote:
[17] In the course of oral submissions before me, it was also made clear:
a. that the relief sought by Mrs. Struthmann and Ms. Serediak should be qualified, by provisions in the requested court-ordered relief, permitting Mr. Struthmann to continue receiving his usual income and benefits from the Tetra companies until the court ordered share purchase had been accomplished; and
b. that the relief sought by Mr. Struthmann should be similarly qualified, by provisions in the requested court-ordered relief, permitting Mrs. Struthmann and Ms. Serediak to continue receiving their usual income and benefits from the Tetra companies until the court ordered share purchase had been accomplished.
[18] In that regard, both sides otherwise were confident that the court need not make any further orders dealing with more specific transitional arrangements; e.g. to ensure that any unsuccessful party to this litigation would be permitted to withdraw from his or her current office in working arrangements, within the Tetra group of companies, in an orderly in civilized manner. In particular, through counsel, the parties expressed their confidence that the court-appointed monitor currently supervising ongoing business operations within the Tetra group of companies (Mr Gary Honcoop) would be able to “keep the peace” and work out such details in co-operation with the parties.
[13] Justice Leach dismissed the application brought by Mrs. Struthmann and Ms. Serediak. He found that Mr. Struthmann was “demonstrably the best person to manage the Tetra group of companies”: para. 51b. He concluded that the sensible resolution of the parties’ dispute was for Mr. Struthmann to buy out the interests of Mrs. Struthmann and Ms. Serediak, and for him to retain control of the Tetra Group’s business in their absence: para. 52.
[14] He ordered at para. 54:
[54] For the reasons outlined above, another order shall go, in relation to the counter-application brought by Aloysius Struthmann senior, as follows:
a. Lois Struthmann and Tansy Serediak are ordered to sell, and Aloysius Struthmann is ordered to buy, (at a time and fair market value negotiated and agreed upon by the parties, or as determined by this court upon further application to the court by any party), their shares in the Tetra-Chem Industries Ltd., Tetra-Chem International Inc., and Tetra-Chem Retail Outlet Ltd.;
b. Lois Struthmann and Tansy Serediak are removed from their director, officer and employee positions in relation to each of the aforesaid companies, and shall co-operate in the execution of any documentation required to effect changes in banking or other signing authority in that regard
c. Pending completion of the share sale and purchases ordered herein, (including full payment of all agreed or court-determined compensation in that regard), Lois and Tansy Serediak shall continue to receive their current remuneration and benefits from each of the three companies, (including but not limited to salary, bonus payments, dividends and benefits), at the same rate and frequency; and
d. Pending further court order, Lois Struthmann and Tansy Serediak shall provide, through the court-appointed monitor of the corporations, any business, accounting and bank records of the aforesaid corporations that Aloysius Struthmann senior may identify and request in writing, and/or execute and provide any requested authorization and releases that may be required in that regard.
Motion to Vary
[15] No one has appealed Justice Leach’s decision. By the same token, no one has taken out the order. No adequate explanation is provided for the failure to do so.
[16] The parties have not been able to agree on the value of the shares. That issue is before the court.
[17] In the meantime, the applicant asks that the order of Justice Leach be varied on grounds of hardship. The companies have paid Mrs. Struthmann and Ms. Serediak $10,000/month each since Justice Leach’s endorsement. That is $20,000 per month for roughly 14 months. Mr. Struthmann deposes that he has had to hire two people to replace them at a cost of $8,000/month. He points out that neither respondent has sought or obtained new employment. They are being paid to do nothing.
[18] Mr. Struthmann deposes that the Tetra-Chem Group has been successful in maintaining reasonable sales levels despite the pandemic. However, 2020 net income before taxes was significantly reduced from that in 2018 and 2019. He has attached the internal income and expense statements for 2020 which show 2020 net earnings before taxes at $161,602.
[19] Mr. Struthmann indicates that to finance the impending buy-out, the Tetra Group will incur significant debt. The prospect of the impending debt and uncertain business climate mean the Tetra Group cannot “likely continue with the status quo (including ongoing salary payments to Lois and Tansy)”. He may have to lay off two employees.
[20] Mr. Struthmann’s affidavit and the factum on his behalf refer to the pandemic and its effect on the courts. There is a suggestion that this has somehow elongated the time to get a hearing date - that Mrs. Struthmann and Ms. Serediak are being paid for a longer period than would be the case but for the pandemic.
[21] The respondents oppose the motion on the following basis:
The term in question is a “consent” order and, as such, the applicant must demonstrate either that the term does not express the real intention of the parties or that there was fraud. He has not done so;
Even if the term of the order is not a “consent order”, the applicant has not shown that he has taken reasonable steps to mitigate any hardship from the order by, for example, applying for government COVID 19 assistance;
The reliability of the Tetra Group financial statements are disputed. No finding of hardship should be made based on them;
Treating the payments made as a set off against monies payable for the shares is contrary to the order made. The order clearly says it is for continued remuneration for salary and benefits; and
COVID is not a “magic word” that entitles the applicant to be relieved of the obligation he agreed to. It will give the applicant a strategic advantage in any negotiations to resolve the price to purchase the shares.
Analysis
[22] Rule 59.06(2) states:
Setting Aside or Varying
(2) A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;
(b) suspend the operation of an order;
(c) carry an order into operation; or
(d) obtain other relief than that originally awarded,
may make a motion in the proceeding for the relief claimed.
[23] The court’s discretion to set aside or vary an order may be exercised where it is necessary to achieve justice in the case: Beetown Honey Products Inc. (Re) (2003), 2003 CanLII 32918 (ON SC), 67 O.R. (3d) 511 (C.A.); Stoughton Trailers Canada Corp. v. James Expedite Transport Inc., 2008 ONCA 817, at para. 1.
[24] The discretion may be exercised to prevent a miscarriage of justice, where the integrity of the process is at risk or a principle of justice is at stake that requires reconsideration of the matter: Huron-Perth Children’s Aid Society v. RCK et al, 2015 ONSC 5023, at para. 56.
[25] An order may also be varied where there is new evidence that, if presented at trial, would probably have changed the result, and that new evidence could not have been obtained by the exercise of reasonable diligence at the time of the trial: Restoule v. Canada (AG), 2019 ONSC 5329, at paras. 19-24.
Consent Order
[26] I start with the respondents’ submission that the term of the order that the applicant seeks to vary is a consent order and, as such, it can only be varied if it does not express the real intent of the parties or there is fraud.
[27] I disagree that the term in question is a consent order. I do not read Justice Leach’s endorsement to say that the parties had “agreed” between themselves that whoever was the seller of shares would continue to receive his/her/their remuneration until the shares were purchased. Rather, he deduced from the oral submissions made that each side was prepared to see the other remunerated if successful. He wrote at paras. 46 and 47:
[46] Again, both sides agree that the breakdown in their relationship is irreparable, and it accordingly seems clear that the conflicts and disagreements between the parties will continue to fester and escalate until one side or the other is effectively removed from further involvement in the affairs of the Tetra group of companies.
[47] In the circumstances, I therefore think it fit and appropriate, for the benefit of the companies and the parties themselves, to make an order requiring one side to buy out the other, with ancillary orders terminating the further involvement of the “bought out” side - subject to qualifications ensuring that the “bought out” side continues to receive remuneration and benefits from the Tetra group at the usual rate and frequency until the court ordered share sale purchase has been completed.
[28] This is not a case where counsel have told the presiding judge that they have worked out certain terms and he need only decide who is the share buyer and who is the share seller. Their submissions on continued remuneration may have mirrored one another, but that is not a consent order.
[29] I view the term requiring continued payment of remuneration to be a finding by Justice Leach of what was best for the companies and parties utilizing the remedies available under s. 248. His decision removed one side from the ongoing operation of the business. It allowed Mr. Struthmann to continue running the business without the respondents’ involvement and without the internal rancor that surely adversely affected operations. It provided ongoing remuneration for those who were forced from their employment.
Prevention of a Miscarriage of Justice
[30] Next, I turn to whether it is necessary to vary the order to prevent a miscarriage of justice.
[31] There is no evidence of any fraud upon the court. The integrity of the court process is not compromised by the order made nor is any principle of justice at stake such that failing to vary the order will cause a miscarriage of justice. That is a high bar which is not met on the evidence filed.
New Facts
[32] The applicant points to the pandemic as a new, unexpected fact that, if known when the matter was argued before Leach J., would have resulted in a different order. The parties could not have anticipated the pandemic and its effects on the economy or the courts.
[33] This motion was brought in February 2021, a year after the decision was released. The affidavits filed by the applicant do not provide any detail as to what steps have been taken to value the shares. The fact that there is an application to fix the value of the shares signals that they cannot agree on same. There is, however, no evidence that the respondents have been dragging their feet thereby delaying the resolution of the share purchase. Likewise, there is no evidence that the parties have been delayed by unavailability of court resources.
[34] Counsel agree that the hearing will take two days if viva voce evidence is required and one if not. Mr. Blay indicates that oral evidence likely will be necessary. Neither counsel had spoken with the Trial Coordinator to canvass possible trial dates. I did so and advised counsel that dates were available in the May 10, 2021 sittings. I endorsed that the matter be placed on the May trial sittings with the parties to confirm same at the April 9, 2021 Assignment Court.
[35] The internal financial statements provided by Mr. Struthmann show that net earnings before taxes are down in 2020 but still in positive territory. No doubt the $20,000 per month paid to two former employees who are no longer working there is a drain on profitability of the companies. Having to hire two replacement employees to do their work adds to that strain. If the respondents still worked for the Tetra Group, the companies could save $8,000 per month. Company profits would be higher. Certainly, the applicant does not suggest that they return to work for the Tetra Group.
[36] The monthly cost of paying Mrs. Struthmann and Ms. Serediak pending the completion of the purchase of their shares was known to Mr. Struthmann when submissions were made to Justice Leach. The need to find others to do their work was either known at the time or should reasonably have been anticipated. This expense to the Tetra Group was entirely foreseeable.
[37] The order made by Justice Leach to remove Mrs. Struthmann and Ms. Serediak from their positions and employment and to continue their remuneration pending the purchase of their shares is what Mr. Struthmann requested. He could have asked that it be time limited but did not. He could have asked that it be reviewed in six months but did not. He got what he asked for.
[38] I note further that Mr. Struthmann indicates in his affidavit sworn February 25, 2021 at para. 7 that the Tetra Group has been “successful in maintaining reasonable sales levels despite the considerable economic slowdown caused by COVID 19”. I take from that statement that revenues have not dipped significantly because of the pandemic. Some businesses have been hard hit by the pandemic, some not affected, and others have actually seen their profits rise. In this case, the decline in profitability appears to be largely tied to paying monthly remuneration to Mrs. Struthmann and Ms. Serediak – something that was objectively foreseeable when Mr. Struthmann asked the court to include that term.
[39] Mr. Struthmann also indicates in his affidavit of February 25, 2021 at para. 9 that the Tetra Group will incur considerable debt to “finance the impending buy-out”. Justice Leach’s order does not require the Tetra Group to buy the respondents’ shares; rather that obligation rests on Mr. Struthmann. He is a trustee of the family trust and, as such, owes fiduciary obligations to those beneficiaries remaining in the trust once the share transaction is completed. His assumption that the Tetra Group will be funding or backstopping the purchase may be misplaced. Regardless, the impending cost and financing of the purchase are facts that were known or reasonably anticipated when Justice Leach’s order was made.
[40] I agree that the pandemic is an unexpected event. I do not agree that if it had been known at the time the applications were argued before Justice Leach, the result would have been different. The respondents were being terminated from their employment. They were long-time employees. They held positions of responsibility. Continued remuneration was a term that would likely have been imposed in any event.
[41] Accordingly, I reject the request to vary the order to terminate or reduce the ongoing payment of the respondents’ remuneration pursuant to the order of Justice Leach.
Payments Made as Set-Off
[42] I turn next to the request that I vary the order to stipulate that payments made to date and going forward be treated as payments on account of whatever amount is payable for the shares. I am not prepared to do so for the following reasons:
As indicated, the obligation to purchase the respondents’ shares lies with Mr. Struthmann, not the Tetra Group who have been paying their remuneration;
It is arguable that the remuneration paid constitutes monies due for termination of employment. Whether the Tetra Group has overpaid for severance is best addressed elsewhere; and
The evidence filed does not satisfy the test to vary in the manner requested.
[43] It is open to the applicant to take the amounts paid into consideration when negotiating or to ask the judge hearing the share price valuation to do so. I do not foreclose that argument being made and offer no comment on its merit if made.
Conclusion
[44] Therefore, I find that an order varying Justice Leach’s February 4, 2020 in the manner requested by the applicant is not necessary to achieve justice in this matter. The motion is dismissed.
[45] If the parties cannot agree on costs, they may make written submissions not exceeding three pages within 15 days hereof.
Justice R. Raikes
Date: April 14, 2021