COURT FILE NOs.: CV-17-11861-00CL and CV-17-588725-00CL
DATE: 20210630
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MARK LIBFELD, 1331081 ONTARIO INC., 2091170 ONTARIO INC. and VITANNA CONSTRUCTION LTD.
Applicants
– and –
SHELDON LIBFELD, COREY LIBFELD, JAY LIBFELD, SHELFRAN INVESTMENTS LTD. and VIEWMARK HOMES LTD., and their respective affiliates and subsidiaries as set out on Schedule “A” to the Notice of Application
Respondents
AND BETWEEN:
Peter Griffin, Eli Lederman, Nilou Nezhat, and Mitch Brown, for the Applicants
Gary Luftspring, and Andrea Sanche, for the Respondent Jay Libfeld
David Chernos, Patrick Flaherty, Bryan McLeese, and Alexandra Allison, for the Respondent Sheldon Libfeld
Ian Hull, and Rebecca Rauws, for the Respondent Corey Libfeld
SHELDON LIBFELD, 1331088 ONTARIO INC., COREY LIBFELD, 1331078 ONTARIO INC., JAY LIBFELD and 1331091 ONTARIO INC.
Applicants
– and –
MARK LIBFELD, 13318081 ONTARIO INC., EDITH LORRAINE LIBFELD AND THE CONSERVATORY GROUP COMPANIES (AS LISTED IN SCHEDULE A)
Respondents
David Chernos, Patrick Flaherty, Bryan McLeese, and Alexandra Allison, for the Applicants Sheldon Libfeld and 1331088 Ontario Inc.
Ian Hull, and Rebecca Rauws, for the Applicants Corey Libfeld and 1331078 Ontario Inc.
Gary Luftspring, and Andrea Sanche, for the Applicants Jay Libfeld and 1331091 Ontario Inc.
Peter Griffin, Eli Lederman, Nilou Nezhat, and Mitch Brown, for the Respondents Mark Libfeld and 13318081 Ontario Inc.
Glenn Solomon, for the Respondent Edith Lorraine Libfeld
HEARD: November 9-26, 2020, December 17-18, 2020, January 6-8, 2021 and February 22-24, 2021
REASONS FOR JUDGMENT
mCeWEN j.
INTRODUCTION
[1] These Applications involve the complete breakdown in the business relationship of the four Libfeld brothers—Sheldon (age 61), Mark (59), Jay (56) and Corey (50)—who are equal owners of the family business, The Conservatory Group (the “Group”).[^1]
[2] The Group is a builder and developer, primarily operating in the Greater Toronto Area.
[3] It is a significant and complex organization which, generally speaking, is in the business of acquiring raw land to develop and sell low-rise residential homes and high-rise condominiums. The Group also owns income producing properties, both residential and commercial, and has a significant mortgage portfolio regarding the financing of the sale of its residential homes and condominiums. The Group also operates an after-sale service and home décor centre, which provides services and products to buyers of homes constructed by the Group.
[4] The Libfeld brothers do not dispute that the overall business relationship between them has completely broken down and the damage done is irreparable. Notwithstanding that each of the Libfeld brothers is an equal partner in the Group, they cannot agree upon how to separate themselves.
[5] Initially, Mark and his related companies commenced an Application in 2017 against his three brothers, their related companies and other Group corporations. In his original Application, Mark primarily sought a declaration winding up the Group under the supervision of a monitor, with the funds to be equally distributed between the Libfeld brothers. Mark later amended his Notice of Application on a number of occasions to seek further relief.
[6] Thereafter, Sheldon, Jay and Corey, along with their related companies, initiated their own Application in December 2017 against Mark, his related companies, their mother Edith and other Group corporations. Subsequently, Corey had a falling out with Sheldon and Jay in 2018 and formally switched sides in the litigation to support Mark in January 2019.
[7] The 21-day trial pitted Mark and Corey against Sheldon and Jay.
[8] Sheldon and Jay wish to remain as partners and they support each other in these Applications. Mark wishes to carry on working alone in the industry. Corey, now, also wishes to work alone in the industry and supports the relief that Mark seeks in these Applications.
[9] Sheldon and Jay propose a Buy-Sell transaction where they will either be the buyers or the sellers of the Group with Mark and/or Corey having the first opportunity to be purchasers (the “Buy-Sell”). Alternatively, Sheldon and Jay seek a structured buyout of Mark and Corey’s interests in the Group which would result in Sheldon and Jay owning 100% of the Group (the “SBO”). Either remedy empowers the purchasers to divest classes of assets as part of the transaction.
[10] Mark, supported by Corey, proposes a Modified Restructuring Protocol (the “MRP”). This would divide the Group into four portions, with each brother being allocated one portion. Alternatively, Mark, again supported by Corey, seeks a total liquidation, wind-up and sale of the Group on the condition that none of the Libfeld brothers be permitted to purchase any of the assets of the Group (the “Restricted Wind-Up and Sale”). The Group’s assets would be sold to arm’s-length purchasers. Either remedy involves the appointment of a court officer.
[11] As will be discussed in these Reasons, in the latest amendment to his Notice of Application, Mark also seeks a declaration that certain lands in Caledon, Ontario, owned by Shanontown Developments Inc. (“Shanontown”) (which in turn is owned by Sheldon, Jay and Corey) constitute partnership property of the Group. Mark, therefore, claims he is entitled to be a 25% partner in Shanontown.
[12] The two sides also make various claims of oppression against each other.
[13] For the reasons below, I make no findings of oppression or breach of fiduciary duty. Nor do I find that Mark is entitled to a declaration that he is a 25% partner in Shanontown.
[14] Further, I have concluded that the Group ought to be wound up and sold, under the supervision of a court-appointed Sales Officer, with the Libfeld brothers being permitted to participate in the sales process as potential purchasers (the “Court supervised Wind-Up and Sale” or the “Wind-Up and Sale”).
[15] This is the only reasonable option given the extreme dysfunction that exists, both personally and professionally, between the Libfeld brothers. As will be seen, this extreme dysfunction has evolved significantly over time and includes allegations of dishonesty, in addition to verbal and physical abuse. As noted, the Libfeld brothers concede that their differences are irreconcilable. There is a complete lack of trust and mutual respect between the two warring factions. The Wind-Up and Sale is the only workable solution.
[16] I pause to note that it is not possible or sensible to deal with every quarrel and allegation between the Libfeld brothers in these Reasons. They agree upon virtually nothing of any importance to these Applications, except that their relationship is irretrievably and significantly damaged. I have, therefore, focused on the disputes that the Libfeld brothers saw as the most significant and that are most germane to the relief they seek.
[17] Last, I note that in advance of these Reasons, I released an Endorsement appointing Ernst & Young Inc. (“EY”) as a court officer with Mr. Brian Denega (“Denega”) as the lead partner (which I now refer to as the “Sales Officer”) to create a data room. I am now authorizing EY and Mr. Denega to carry on with the Wind-Up and Sale.
THE HISTORY OF THE LIBFELD FAMLY AND THE GROUP
[18] The Group finds its origins in the Libfeld brothers’ parents, Theodore and Edith Libfeld. Their story is a remarkable one. After surviving internment in a concentration camp during the Holocaust, Theodore immigrated to Canada from Poland in 1951. Afterwards, he and Edith began their family. Theodore and certain business partners entered the real estate business, first as merchant builders, purchasing raw land and constructing homes that were thereafter sold to homeowners. Subsequently, Theodore expanded the business, sometimes with partners, to purchase larger tracts of land and construct more significant developments.
[19] Ultimately, the Libfeld brothers, Theodore and Edith’s only children, joined the Group.
[20] Mark was the first to join the business in 1979 after completing high school. He was assigned the task of overseeing the low-rise residential home construction. Sheldon joined in 1981 after completing a university business degree. Sheldon worked with Theodore in identifying and evaluating potential development opportunities. Sheldon’s duties also included finance, accounting and banking relationships.
[21] Shortly after Sheldon joined the business, Theodore split from his existing partners, in 1982, to go into business with Mark and Sheldon. This ultimately led to the founding of the Group. As part of the Group, in 1983, Theodore incorporated Shelfran Investments Ltd. (“Shelfran”), with 10% of the common shares being held by Edith and the remainder of the shares being held by the Theodore and Edith Libfeld Family Trust.
[22] In 1985, Theodore suffered a heart attack and temporarily stepped away from the business.
[23] In 1986, Jay joined the business after leaving university. He was given responsibility for the high-rise condominium division and managing the Group’s portfolio of rental properties.
[24] Last, at age 17, Corey joined the business in 1987. He became responsible for managing the Group’s TARION warranty obligations, the Group’s after-sale service and running the home décor centre, which provides residential purchasers with appliances, furnishings and other design assistance.
[25] In 1997, the 90% of the common shares of Shelfran held by the Theodore and Edith Libfeld Family Trust were distributed equally to the Libfeld brothers as beneficiaries of the Trust. Edith remains as a 10% owner of the common shares.
[26] Theodore passed away in 2000. Prior to his passing, Theodore was the primary decision maker for the Group. Thereafter, the Libfeld brothers carried on operating the Group. The Libfeld brothers generally operated within their spheres of expertise. They would engage in discussions concerning larger, overarching issues involving the Group and generally reached consensus—that is, before their relationship broke down.
[27] In the 21 years since Theodore passed away, the Libfeld brothers never reduced their business relationship into any form of written agreement. In fact, no written agreements exist with respect to any important aspect of their ownership or operation of the Group, whether it be related to finances, insurance, cash distributions, or succession planning. This is rather remarkable given the fact that the Group has grown into a complex myriad of business relationships and corporations. It is likely valued in the range of $2.5 to $4 billion.
THE STRUCTURE AND OWNERSHIP OF THE GROUP
[28] Generally speaking, subject to Edith’s ownership interest, the Group is owned equally by the Libfeld brothers.
[29] In addition to her 10% ownership of the common shares in Shelfran, Edith also owns certain preference shares and holds callable loans, which according to Sheldon and Jay are worth approximately $64 million. The value of the entirety of Edith’s interests is approximately $86 million, as set out in a chart presented by her counsel and accepted by Sheldon and Jay (but not Mark and Corey).
[30] The Group’s business structure, essentially, consists of over 350 single-purpose entities and joint venture interests. Ownership flows to the Libfeld brothers directly, via their individually owned holding companies or by way of the two primary operating companies, Shelfran and Viewmark Homes Ltd. (“Viewmark”).
[31] The overall structure of the Group is not maintained on a consolidated basis but rather on a “project” or “asset” basis. Thus, the Group does not maintain consolidated or combined financial statements, nor does it maintain consolidated or combined budgets, business plans, cash statements or general analyses. Generally speaking, this structure has been overseen by Sheldon, who has followed Theodore’s project-based model. One of the primary objectives of the Group has been to defer tax payments as far into the future as possible. This ultimately resulted in the Group failing to pay significant amounts of corporate and other taxes. The Group and the Libfeld brothers were assessed by the Canada Revenue Agency (“CRA”) in the early 2010s, and paid “hundreds of millions of dollars”[^2] in outstanding taxes.
[32] Although not particularly important to these Reasons, it bears noting that there are small fractional ownership interests held by the spouses of the Libfeld brothers, as well as the Group’s controller, Ms. Lucy DeBlasis (“DeBlasis”).
THE BREAKDOWN IN THE RELATIONSHIP BETWEEN THE LIBFELD BROTHERS
[33] Commencing in approximately 2005 and continuing thereafter, the Libfeld brothers engaged the assistance of a number of professional advisors to attempt to bring some semblance of order to their business relationship with respect to various issues, including cash distributions, estate planning, life insurance and the payment of tax. Despite the ongoing assistance of capable advisors, they could not come to an agreement on any of the issues. No written agreements were entered into between them.
[34] Ultimately, their relationship devolved from disagreement to acrimony. Mark wanted to continue pursuing the creation of a partnership agreement. He became disillusioned over what he considered to be governance issues, primarily concerning the cash distributions to the Libfeld brothers. The Group holds a large amount of cash, approximately in the $250-$500 million range.[^3] Mark was also concerned that the Libfeld brothers had insufficient life insurance, which was particularly important to him given his underlying health conditions.
[35] The disagreements morphed into significant dysfunction and confrontations between the Libfeld brothers. By 2015, the relationship had disintegrated to the point where there was open conflict between them, which has dragged their mother, Group staff and business partners into the fray. This has resulted in a toxic environment within the Group. Before I turn to the most notable altercations and incidents raised by the Libfeld brothers at trial, I wish to generally provide some comments concerning the Libfeld brothers’ credibility and reliability.
THE LIBFELD BROTHERS ARE NOT CREDIBLE OR RELIABLE WITNESSES
Credibility and reliability
[36] The credibility and reliability of a witness’s testimony is of paramount importance during a trial.
[37] Credibility relates to the witness’s honesty or truthfulness. Reliability relates to the accuracy of the witness’s observation, recollection and ability to describe.
[38] In considering credibility, whether a witness is honest and truthful, a court may have reference to the following:
• Whether a witness demonstrated untruthfulness during testimony.
• Whether a witness demonstrated evasiveness, or reluctance to answer questions.
• Whether a witness volunteered information not sought.
• Whether a witness was contradicted by other, reliable evidence.
• Whether a witness had contradicted their previous statements.
• Whether a witness’s evidence was internally inconsistent or confusing.
• Whether a witness demonstrated favouritism or bias.
• Whether a witness had reconstructed memory.
[39] If the witness is believed and the evidence is considered to be credible, the trier of fact must go on to consider reliability.
[40] Evidence, while credible, may not be reliable for a number of reasons including the following:
• The witness’s ability to make accurate observations is questionable.
• The witness’s ability to accurately recall the events is questionable.
• The witness’s ability to describe is questionable.[^4]
[41] As I will discuss below, the Libfeld brothers have significant problems concerning credibility and reliability.
[42] It is unfortunate that I have to canvass issues of credibility and reliability. Generally speaking, in matters before the Commercial Court, the parties present their differences in a business-like, dispassionate fashion to assist the Court in determining the appropriate remedy. Instead, credibility and reliability became issues, particularly concerning the incidents and altercations which were raised at trial.
[43] The Libfeld brothers are in error if they thought that their evidence surrounding these events aided their individual legal positions. Much of this evidence simply underscored the fact that they cannot meaningfully cooperate with themselves or others, treat each other with mutual respect, or work together to implement a remedy that involves their ongoing cooperation. This is the primary reason why I have chosen the Court supervised Wind-Up and Sale as the only viable remedy. The cataclysmic decline in their relationship has paralyzed the Group and prevented it from initiating any new purchases for over 4 years.
[44] I will deal with the credibility and reliability of each of the Libfeld brothers in the order that they gave evidence at trial.
Mark
[45] While able to generally provide straightforward answers to questions put to him in examination-in-chief, Mark frequently failed to provide meaningful answers to questions put to him in cross-examination. He displayed a general reluctance to answer easy-to-understand questions and was too often evasive in his answers. Mark also too frequently used the opportunity to launch into long-winded, nonresponsive answers. I had to direct Mark, on a number of occasions, to respond to questions. I could have intervened more often than I did. I limited my interjections (with respect to all the Libfeld brothers) only to important questions that absolutely required answers to assist me in my truth-finding task. Overall, during his cross-examination, Mark was too often argumentative and positionally motivated.
[46] By way of a few examples, Mark initially testified in his examination-in-chief that he was unaware of his mother’s ownership interest in Shelfran. After being pressed on the issue in cross-examination, he later conceded that he was aware of her interest. Another example involved Mark’s position at trial that Sheldon was not prepared to consider his request for cash distributions from the Group. When cross-examined on this point, Mark was forced to concede that his own financial advisor, Mr. Chris Potter (“Potter”), had been involved in a discussion concerning distributions with Sheldon and had commented favourably on the progress that had been made.
[47] While these two examples do not constitute a glaring lack of credibility, they are but two examples of the positional type of evidence that Mark gave during cross-examination. It was this type of insidious refusal to answer straightforward questions that has made my truth-seeking function all the more difficult and has led me to conclude that Mark was not a credible or reliable witness. As will be seen, this criticism can also be made of Corey (to a greater extent), as well as Sheldon, and Jay (to some extent).
Corey
[48] Corey was the least credible witness. He was the most evasive. His evidence in cross-examination was argumentative, positional and accusatory. He, more than any of his brothers, had to be directed by me to answer questions in cross-examination.
[49] By way of an example, during examination-in-chief, when answering questions about the Group’s COVID-19 related office reopening, Corey provided a completely nonresponsive answer. He used the opportunity to recount a conversation that he had with Mark several years ago. In this discussion, Mark apparently told Corey that the two of them, “are in a concentration camp…Shelley is Hitler and I feel like I can’t get out, that I am in this concentration camp.”
[50] Corey went on to testify, generally, that based on what his father had told him about what it was like to be in a concentration camp, he knew exactly how his father felt, since Corey now feels that he is in a concentration camp under Sheldon and Jay’s watch. It is astonishing that Corey would compare his privileged life (in which large credit goes to his parents) to his father’s horrifying experience during the Holocaust.[^5]
[51] Corey’s problems as a witness, however, are not restricted to the evidence he gave at trial. His credibility problems begin with his affidavit evidence prior to the trial.
[52] As noted, Corey initially sided with Sheldon and Jay when they commenced their Application in 2017, but he switched sides in early 2019 to support Mark. Given the mercurial relationship between the Libfeld brothers, shifting allegiances, in and of itself, is not surprising or deserving of disapproval. What is concerning, however, is the fashion in which Corey sought to inappropriately change his evidence in this lawsuit.
[53] When Corey was initially supportive of Sheldon and Jay and prepared his November 2017 affidavit, he deposed, amongst other things, that he did not blindly comply with suggestions made by Sheldon and acted independently; that all of the Libfeld brothers had the same access to the Group’s records; and that he, Sheldon and Jay were committed to honour the terms of an agreement between the brothers (known as the Interim Arrangement), which will be described further below.
[54] After he switched sides in the litigation to support Mark, Corey swore other affidavits in 2019. In these affidavits, he made a number of significant changes to his evidence. Corey now alleges that he was coerced by Sheldon, Jay and their lawyers into preparing the November 2017 affidavit, even though he was represented by counsel at the time.
[55] As will be reviewed below, Sheldon and Jay take the position that Corey changed sides in the litigation due to a dispute between them over Corey’s lawsuits with Mr. Sal Vitiello (“Vitiello”), a principal of the Group’s architectural firm. Corey disputes this and claims that he began supporting Mark once he learned of the Group’s true state of affairs and as a result of his ongoing frustrations with Sheldon’s control over the Group.
[56] Generally, in his subsequent affidavits, Corey changed significant parts of his evidence. He deposed that Sheldon and Jay breached the terms of the Interim Arrangement. He also made several other allegations that Sheldon had denied him access to information.
[57] Corey’s evidence in the subsequent affidavit and at trial on many significant points is simply irreconcilable with the evidence in his earlier affidavit. In a number of instances, including the Interim Arrangement and the resulting Shanontown Transaction, only one of the accounts can be truthful. At trial, Corey went so far as to testify that Sheldon committed fraud against the vendor, Ben Ted Construction Limited (“Ben Ted”).
[58] This allegation of fraud against Sheldon concerning the Shanontown Transaction was specifically debunked. One of the few fact witnesses that was called at trial, Mr. Benjamin Piorczynski (“Piorczynski”), testified on behalf of Ben Ted that any misunderstandings concerning the Shanontown Transaction arose as a result of a mistake on Ben Ted’s part, and not any wrongdoing on the part of Sheldon.
[59] I accept that Corey did not change allegiances in the litigation solely as a result of the incident with Mr. Vitiello. Although this appears to be a critical factor, it is clear that he also began to chafe at the amount of control Sheldon exercised over him and the Group.
[60] I do not accept, however, Corey’s allegations that, as a sophisticated businessperson, he was manipulated by Sheldon, Jay and their lawyers. Rather, I accept that after his falling out with Sheldon and Jay, he found himself in a difficult position concerning the evidence that he had given and decided to attempt to change his evidence on a number of important issues so that he could align himself with Mark. Specifically, I reject any notion that the lawyers for Sheldon and Jay were involved in this alleged manipulation, which occurred, ironically, when Corey was also represented by counsel who was working cooperatively with Sheldon’s and Jay’s lawyers. All of the above made it difficult to determine when Corey was being truthful and when he was not.
[61] Based on the foregoing, I find that Corey’s evidence generally lacked credibility and reliability and should be heavily discounted when contradicted by evidence provided by others or in the filed documentation.
Sheldon
[62] I accept that Sheldon (notwithstanding his protestations to the contrary) was the de facto leader of the Libfeld brothers before the problems arose, given his education and role within the Group. Sheldon was too shrewd to engage in personal attacks against Mark and Corey, as they did against him. Sheldon’s evidence, however, has to be considered carefully.
[63] Similar to Mark and Corey, but to a lesser extent, Sheldon was evasive during cross-examination on a number of occasions. He was unwilling to answer a number of straightforward questions relating to issues within his knowledge and had to be directed to answer questions on too many occasions.
[64] The most obvious example was his insistence, during cross-examination, that he did not know the approximate value of the Group. This simply cannot be true. Sheldon’s role in the Group uniquely placed him, above his brothers, in a situation where he had the relevant information and knowledge to meaningfully make an honest, approximate valuation of the Group.
[65] Additionally, since 2017, Sheldon was supportive of the SBO and later, the Buy-Sell remedy. During this time, he must have considered the value of the Group as he was actively interested in purchasing the interests of Mark and Corey or, alternatively, selling the Group to them.
[66] Later, Sheldon and Jay retained experts and provided information to those experts so that they could, amongst other things, determine the approximate value of the Group. Sheldon had an opportunity to review those reports before trial and was well aware of the values that had been placed on the Group by his experts and the experts retained by Mark.
[67] Sheldon must have had at least an approximate valuation of the Group’s worth and could have provided a meaningful answer at trial. In my view, he chose not to for strategic reasons so that Mark and Corey would not have the benefit of his understanding of the Group’s value. To do so would not have been to Sheldon’s advantage with respect to any of the proposed remedies.
[68] In closing argument, I put this to Sheldon’s counsel who submitted that Sheldon had been taken “by surprise” by the question and, therefore, was not able to answer. I do not accept this explanation. Sheldon does not strike me as the type of individual who is easily surprised, particularly when it comes to matters involving the Group and its value. This is particularly so where his primary role in the business involves managing acquisitions, financing, structuring, tax and accounting, as well as partnership relations including banking.
[69] I also do not, generally, accept Sheldon’s testimony that Mark never articulated a specific need for cash distributions and that, had he done so, Sheldon would have made such distribution. Cash distributions have been one of the central issues in this litigation. As will be discussed, Sheldon wishes to maintain a very conservative distribution policy. Furthermore, Sheldon’s refusal to allow for greater cash distributions is further evidence of the fact that he was the de facto leader. Ultimately, on an interim basis, the issue of cash distributions had to be settled by Justice Hainey, the case management judge, during one of the many appearances before him.
Jay
[70] Of the Libfeld brothers, Jay was the best witness in providing straightforward testimony. Generally, his answers were forthright, although he too, on a few occasions, had to be directed to answer questions in a responsive manner.
[71] Like Sheldon, Jay refused to enter into the type of mudslinging favoured by Mark and particularly by Corey.
[72] Jay’s evidence, however, has to be viewed through the lens of his complete support of Sheldon. As noted above, and will be seen further in these reasons, I am critical of some of Sheldon’s evidence and behavior. While this does not lessen Jay’s credibility as a witness, it does generally lessen the reliability of his evidence given his partisan support of Sheldon’s position and the Buy-Sell and SBO remedies, which remedies I have found to be inappropriate.
[73] It also bears noting that Jay’s evidence with respect to the cash distribution policy and partnership exit strategies (that mirrored Sheldon’s evidence), was somewhat contradicted by historical emails passing between Mr. Potter and Mr. Stephen Brunswick (“Brunswick”), a lawyer who acted for the Group on a number of matters. These emails specifically referenced Jay’s concerns about the distribution policy and partnership exit strategies.
DISPUTES AND ALTERCATIONS
[74] I will now turn to the primary disputes and altercations raised by the Libfeld brothers at trial. As I noted at the outset of these Reasons, while there are other disputes and altercations, it is not possible or sensible to list them all. I have selected the following examples since they took up the most time at trial, seemed to be the most significant in the eyes of the Libfeld brothers and speak to the overall dysfunction that has developed.
[75] As will be seen, many of the disputes and altercations were petty in nature and involved inappropriate behaviour. The amount of time spent at trial on these disputes only solidified my findings that the Libfeld brothers cannot carry on working together and cannot be trusted to interact honestly with each other, and my conclusion that a Court supervised Wind-Up and Sale is the only workable remedy.
[76] While it is not surprising that brothers working closely together over several years will become embroiled in some disputes, what is surprising is the extent to which the Libfeld brothers have allowed their disagreements to fester and grow. The disputes and altercations have expanded to involve unwilling staff and business partners, as well as their mother. The disputes have also taken a terrible toll on their personal relationships with each other.
[77] Significantly, as noted, the Libfeld brothers have been unable to collectively commence any new projects since 2017. Their partnership is paralyzed in this regard, or as Mark’s counsel puts it, “the partnership is terminal.”
[78] Last, before I commence my review of certain disputes and altercations, I reiterate that I am not prepared to do a deep dive into the factual matrix surrounding these occurrences. It is impossible to make such findings with respect to these incidents where no independent witnesses were called to testify, where there are multiple versions of events and where each of the Libfeld brothers lack credibility and/or reliability.
[79] Further, a deep dive into the evidence is unnecessary. None of the brothers have behaved well and cannot be trusted to treat each other honestly and with respect. That is why a Court supervised Wind-Up and Sale is warranted.
The September 24, 2015 altercation regarding the Orleans Investment
[80] In 2012, Sheldon brought to the Group a potential new investment opportunity involving a partnership with a house builder in the United States, Mr. Jeff Orleans (“Orleans”) (the “Orleans Investment”).
[81] Thereafter, the Orleans Investment began to struggle and the Libfeld brothers had a meeting between themselves at the Group’s office on September 24, 2015. Sheldon asked his brothers to allow the Group to provide additional equity and loan into the Orleans Investment. Mark and Jay were reluctant.
[82] Sheldon lost his temper and either raised his voice or started shouting. He wanted Jay to make a decision. He was also frustrated with Mark and accused Mark of having consulted a lawyer. Sheldon then stated that he would fund the investment himself if he could not get agreement within the Group. In addition to yelling, Mark also accuses Sheldon of using foul language.
[83] The meeting ended acrimoniously. Mark testified that Sheldon became very angry, stood up and rushed at him, but that Jay intervened to stop this from happening. Jay testified that he was sitting between Mark and Sheldon at the boardroom table. When Sheldon stood up, Jay raised his hand to calm things down. Jay further recalls that Sheldon did not charge at Mark but remained three feet behind Jay and Mark exited the room. Corey’s evidence at trial supported Mark. Sheldon, on the other hand, denied having charged at Mark and testified that Mark simply left the room. Sheldon also denied having asked Corey to downplay his account of this meeting in Corey’s first affidavit.
[84] In closing argument, Counsel referred to the testimony of the Libfeld brothers, as well as their previous affidavit evidence, to persuade me to accept one version of events or the other. For the above noted reasons, I decline to do so.
The August 15, 2016 altercation concerning potential investment opportunities
[85] The Libfeld brothers met on this date with Mr. Brunswick to discuss the Interim Arrangement and potential new deals concerning Shoppers Drug Mart and Urbancorp.
[86] Mark testified that he told his brothers at this meeting that he was not prepared to enter into these deals until the Group made changes with respect to his concerns. Mark advised them that once they resolved their own issues, he would consider these deals. Mark further testified that Sheldon started yelling and screaming at him and demanded an answer. Sheldon then left the room and returned, again yelling and screaming.
[87] Mark apparently wanted to consult with Mr. Potter and testified that Sheldon continued to yell at him, accused him of being unable to make a decision and sarcastically suggested that Mr. Potter, instead of Mark, should be his partner.
[88] Sheldon denies yelling at Mark at this meeting but acknowledged he may have been speaking with a loud voice.
The May 3, 2018 altercation concerning Corey’s dispute with Mr. Vitiello
[89] This altercation demonstrates the deep dysfunction that developed between the Libfeld brothers.
[90] Mr. Vitiello is a principal in the architectural firm of E.I. Richmond Architects Inc. (“Richmond Architects”). Richmond Architects has provided significant architectural services to the Group for several years.
[91] Mr. Vitiello was not called to give evidence at trial. The dispute concerning Corey and him played out through the evidence of the Libfeld brothers.
[92] In August 2017, Mr. Vitiello agreed to assist Corey with the construction of his home in Forest Hill. He was the fourth person hired by Corey to provide architectural-type services. The previous relationships had ended poorly with one resulting in litigation or the threat of litigation.
[93] Disputes arose between Corey and Mr. Vitiello with respect to the services Mr. Vitiello was performing. Corey withheld payment for certain services performed by Mr. Vitiello. Sheldon and Jay grew concerned. They considered Richmond Architects, and Mr. Vitiello himself, to be an important partner of the Group. Without Corey’s knowledge, Sheldon paid Mr. Vitiello the amount he was owed through a third party, with the caveat that Mr. Vitiello would repay Sheldon once Corey provided payment to him.
[94] In addition to the above dispute, another problem arose concerning Corey and Mr. Vitiello. Corey issued a $56,000 invoice to Mr. Vitiello for work that the Group had done on Mr. Vitiello’s house. Sheldon and Jay took the position that the work was done as a favour to Mr. Vitiello and that the Group never intended to seek reimbursement.
[95] As a result of these disputes, Corey advised his brothers that he no longer wanted Richmond Architects to work for the Group and this led to the unfortunate May 3, 2018 meeting.
[96] Without going into all of the details, which were reviewed at length at trial, Corey, Jay and Mr. Vitiello were at the Group’s office when a heated discussion broke out with respect to Mr. Vitiello’s work on Corey’s home. According to Jay, Corey began yelling at Mr. Vitiello and insulting him. Jay telephoned Sheldon to return to the office to try to deescalate the situation.
[97] Upon Sheldon’s return to the office, a physical altercation ensued between Sheldon and Corey, with each blaming the other for its inception. Corey alleges that Sheldon charged him with considerable force and ripped his jacket and shirt in the ensuing melee. Corey alleges that he suffered injury, specifically “bone loss” to his leg (though no medical evidence was adduced at trial).
[98] The altercation continued in the parking lot with heated exchanges between the brothers, sometimes involving Mr. Vitiello, who was clearly distressed by the entire situation. Thereafter, Sheldon returned to the office and had Ms. DeBlasis make out a credit note in the amount of $56,000 to Mr. Vitiello with respect to the amount Sheldon believed Corey had incorrectly invoiced. This led to another altercation within the office and Sheldon alleges that Corey, at that time, told him that he would take Mark’s side in the litigation if the cheque was provided to Mr. Vitiello. Corey denies this.
[99] The dispute did not end there. Corey ultimately brought two small claims court actions against Mr. Vitiello with respect to the $56,000 invoice and Mr. Vitiello’s work on his house. This resulted in a multi-day trial in which Corey did receive a small amount of the money he was seeking. Corey also sued Mr. Vitiello and Mr. Vitiello’s lawyer for defamation, which was ultimately resolved.
[100] It is clear that what occurred on May 3, 2018 and thereafter drove the Libfeld brothers further apart and deepened their divide. Following these events, Corey swung his allegiance to Mark.
Altercations and incidents in 2019 concerning the Pearl and Water’s Edge projects
[101] The Pearl and Water’s Edge condominiums are two of the Group’s larger, current high-rise projects. While Mark and Corey are no longer alleging oppression, the altercations and incidents relating to these projects are excellent examples of the dysfunction that exists between the brothers. They also illustrate why the remedies proposed by the Libfeld brothers are unworkable given their distrust of each other and their complete inability to work together, even when there is a common goal.
[102] The debate between the brothers involves financing the two condominium projects.
[103] In early 2019, Sheldon began working with its banker, the TD Bank (“TD”), to secure financing. These are significant projects, each of which requires approximately $200 million to complete. TD was apparently not prepared to provide full funding but was willing, initially, to lend $120 million per project, which it later reduced to $100 million per project. If further funding was required by the Group, TD advised that the Group should consider a club or syndicated loan or, alternatively, that the Group bond the purchaser deposits on the project to allow it to use those deposits to finance the construction.
[104] Sheldon and Jay preferred the bonding option. In the spring of 2019, the brothers met to sort out the issue of funding but were unable to do so.
[105] In September 2019, the brothers met to discuss the TD term sheets which contained the reduced funding of $100 million per project. Once again, the meeting was heated with Mark and Corey alleging that Sheldon and Jay were yelling and screaming at them. Notwithstanding the fact that each of the brothers were raising reasonable concerns from their own perspectives, they were unable to communicate appropriately with each other.
[106] After the September 2019 meeting, Mark and Corey met with TD without advising their brothers, which Mark admitted was a “secret meeting” conducted on Rosh Hashanah, when Sheldon and Jay would be out of the office. Mark and Corey were apparently concerned that Sheldon was not being honest with them about the amount of financing that TD was prepared to offer.
[107] Subsequently, on October 10, 2019, all of the brothers met with TD once again, along with a few of their personal representatives. The meeting did not go well. Mark had a heated discussion with one of TD’s representatives as to whether TD was having private discussions with Sheldon about the term sheets. The TD representatives did not appreciate the disparaging innuendo.
[108] Thereafter, the brothers’ debates concerning the type of funding for the projects continued. At one point, Mark and Corey tied the issue of receiving cash distributions to their agreement to funding the projects, which was later withdrawn.
[109] To this day, construction on the Water’s Edge and Pearl condominiums has continued and is funded out of the Group’s cash reserves. No agreement has been reached and the Group’s cash reserves have been depleted.
[110] This stalemate between the brothers is a perfect example of their inability to arrive at mutually agreeable and sensible business solutions to benefit the Group. It also goes so far as to impede the Group’s relationship with important financial partners, such as TD. This is yet another example of dysfunction that militates in favour of a swift remedy, being the Court supervised Wind-Up and Sale, with minimal ongoing involvement of and interaction between the brothers in determining and carrying out a process. Otherwise it would undoubtedly become mired in expensive and protracted litigation.
Incidents in 2019 and 2020 involving employees
[111] The fallings out between the Libfeld brothers inevitably began to affect staff. Sheldon and Jay generally submit that Corey treated staff inappropriately, while Corey argues that Sheldon turned key staff against him.
[112] Again, without trying to determine the truthfulness of each party’s position (which is impossible to do given the fact that the staff was not called at trial), I will outline in a very general way the most significant disputes referred to at trial. These disputes provide additional evidence to support my finding that the Libfeld brothers are unable to work together in a cooperative, trustful fashion.
[113] In early 2019, Corey instructed Mr. Wemmick Tse (“Tse”), the head of IT at the Group, to create a computer module that would only allow the Group to print cheques if a code, known only to Corey, was first inputted into the system.
[114] Corey’s request stemmed from his belief that he was not being provided with sufficient input as to whether payables should be authorized and did not have authority to sign cheques on behalf of the Group, which right was enjoyed by his brothers. Notwithstanding discussions between the Libfeld brothers, Sheldon, supported by Jay, refused Corey’s request to have cheque signing authority. Corey began demanding the right to review cheques before they went out which seemingly did not correspond with past practices at the Group, where each brother would approve cheques in their area of influence and have another brother provide a second signature. No brother had exercised the right to review and approve all cheques.
[115] The module, if implemented, would have allowed Corey to stop the printing of cheques. Corey did not vet his plan to create a computer module with his brothers before instructing Mr. Tse, who was understandably reluctant to create the code. He asked Corey to resolve this issue with his brothers before making such a request. Corey did not do so and Mr. Tse did not proceed with Corey’s instructions.
[116] Ultimately, the cheque signing dispute between the brothers was brought before Justice Hainey and required Court intervention. An agreement was reached whereby, generally, Corey was given cheque signing authority, unilateral changes to the accounting system were forbidden and Corey could not stop payments to Richmond Architects.
[117] Later, in May 2019, Jay instructed Ms. Jackie Hayward (“Hayward”), a member of the Group’s Accounting Department, to issue a cheque to a third party. Corey advised Ms. Hayward that he wanted to review the cheque to determine whether it should be released. Nonetheless, Ms. Hayward released the cheque on Jay’s instruction. Corey advised Ms. Hayward that he was putting her on notice and began “writing [her] up” as he was a 25% stakeholder in the Group.
[118] The dispute escalated with Corey following Ms. Hayward to the women’s washroom. She entered and remained there until he left. Later that day, Ms. Hayward, with Corey following her, attended Sheldon’s office. Outside the closed door, Corey listened to, and unsuccessfully attempted to record, the conversation between Ms. Hayward and Sheldon. Thereafter, another employee intervened and escorted Ms. Hayward from the Group’s office.
[119] Corey testified that he heard Sheldon tell Ms. Hayward, amongst other things, that they had to “get Corey and Mark out of here” and that she should help him.
[120] Later, Ms. Hayward drafted an email to Sheldon complaining that Corey had harassed, bullied and threatened her for following Jay’s instructions concerning the cheque preparation, and this was not the first time. She complained that Corey created a toxic environment.
[121] Sheldon had instructed Ms. Hayward to put her complaints in writing. Corey alleges that this was another example of Sheldon turning staff against him.
[122] In October 2020, Corey further became engaged in a dispute concerning Mr. David Eichler (“Eichler”), a contract manager for the Group who, amongst other things, regularly prepares complicated architectural drawings for the Group.
[123] During the COVID-19 pandemic, Mr. Eichler took his computer home. Corey described this as being “very suspicious and very serious.” He required an explanation from Sheldon and Jay.
[124] This led to another rather dysfunctional episode where Corey demanded a copy of an email that Mr. Eichler had previously prepared, sent and deleted in which he was critical of Corey. Corey enlisted Mr. Tse’s help to recover the email, which was unsuccessful. Ultimately, he compelled Mr. Eichler to obtain a copy of the email from the person to whom Mr. Eichler had sent it. The email stated, “[Sheldon] is much easier to deal with than Corey.” It is this email that forms part of the basis of Corey’s accusation that Sheldon was turning employees against him and defaming him in the industry.
[125] It was Mr. Eichler’s position that he had simply taken his computer home since it was easier to download large architectural drawings.
[126] There are other similar episodes concerning employees referred to at trial but, for the reasons above, I will not recount them.
The July 27, 2020 office reopening incident
[127] The most recent example of the dysfunction that exists between the Libfeld brothers involves their response to the COVID-19 pandemic and the discussion concerning the reopening of the Group’s office. The Group’s office was closed in March 2020 in response to the pandemic. As with most businesses and where possible, employees generally began working from home with only minimal staff attending at the Group’s office.
[128] In July 2020, Mark and Corey wanted to pursue the idea of reopening the office. They consulted with Mr. Chris Mazza (“Mazza”), a health and safety consultant, and asked him to prepare a report. The report was circulated on July 10, 2020. Corey and Mr. Mazza wanted to conduct an in-person meeting which was scheduled for July 27, 2020.
[129] The Libfeld brothers attended, as did Mr. Mazza, Ms. DeBlasis and Ms. Hayward (Ms. DeBlasis and Ms. Hayward were the Group’s health and safety representatives). The meeting did not begin well.
[130] Apparently, Mark was wearing his protective mask upside down and it was broken. Sheldon raised this in front of the Group. Mark claims that Sheldon “teased him” in front of everyone in a mocking manner. Sheldon denies this.
[131] In any event, a debate about office safety ensued. Sheldon and Jay had concerns about the adequacy of Mr. Mazza’s return to work plan, while Mark and Corey supported Mr. Mazza. Their discussion deteriorated into confrontation. Corey and Mark allege that Sheldon became very angry, confronted Corey and egged on Corey to strike him. Sheldon and Jay disagree. Corey began name-calling. He called Sheldon, and perhaps Jay (the evidence is unclear on this point), “Hitler” as well as accusing Jay of being “a liar and a snake.” Ms. Hayward was dragged into the verbal fray as well.
[132] After the incident, Mr. Mazza prepared an email supporting Corey. Ms. Hayward prepared an email expressing her disgust and reluctance to return to the office the following day as she feared for her safety.
[133] The office reopening issue was not resolved at this meeting. Subsequently, Jay retained Pinchin Environmental Engineering which proposed further upgrades to the Group’s office with respect to the installation of additional plexiglass, signage and an upgrade to the ventilation system. Eventually, the upgrades were implemented and the Group deemed the office safe.
THE ISSUE OF LEGACY
[134] I will say a brief word on the issue of the Group’s legacy since it was raised a number of times at trial. Each Libfeld brother testified as to their interpretation of their parents’ legacy. Edith’s lawyer presented her position during opening statements.
[135] Essentially, Edith, through her lawyer, expressed the view that the Group represented the legacy of her late husband, and it was a legacy of which he was proud. Edith is opposed to a remedy that would put the company into “receivership.” This would not recognize her husband’s legacy in which, having immigrated to Canada with nothing, he built (with the assistance of his family) a very successful and generally well regarded business.
[136] The Libfeld brothers, however, cannot agree upon how the legacy should be defined. Sheldon and Jay, on the one hand, testified that it would have been their father’s wish to see the Group continue as whole, even if it not all of the brothers remained involved. This is evidenced by their proposal of the Buy-Sell and SBO remedies.
[137] Mark and Corey, on the other hand, testified that their father would rather see all of the brothers remain in the business in some form, even if the Group cannot continue on as a whole. This view is evidenced by their proposal of the MRP and the Restricted Wind-Up and Sale remedies.
[138] I am of the view that the issue of legacy should not be given any significant weight in determining a remedy. The Libfeld brothers can no longer get along in a civilized fashion. Some of the brothers barely speak to each other. Some family relationships have been shattered. The acrimony has spilled over and now affects employees and business partners.
[139] Additionally, legitimate tax deferral morphed into tax avoidance. The CRA audit, which began in the early 2010s, lasted approximately 4 years and covered several aspects of the Group’s payment or non-payment of taxes, including tax deferral structures, inter-company loans and the treatment of personal credit cards. The Group had to pay several hundreds of millions of dollars in unpaid tax and interest.
[140] Notwithstanding the Libfeld brother’s significant remuneration and resulting wealth, they have also been unable to agree upon the money owed to Edith as a result of her 10% ownership in Shelfran and other related loans.
[141] Given the fact that the Libfeld brothers themselves cannot agree upon how the legacy should be interpreted, their extreme professional and personal dysfunction, the ongoing disputes (which now include Edith) and the historical inability of the Group to conform with their income tax obligations, I have come to the conclusion that the primary goal of the Group—a family working together in harmony to acquire land and legitimately defer taxes for the benefit of pursuing profits—no longer exists. There is no longer a legacy to preserve.
[142] I will now turn to the allegations of oppression that have been made in these Applications.
CLAIMS OF OPPRESSION
[143] Mark and Corey make claims of oppression against Sheldon and Jay. Sheldon and Jay, conversely, make claims of oppression against Mark and Corey. The disagreements between the Libfeld brothers and the allegations of oppression are somewhat difficult to articulate given the fact that Mark first made his allegations of oppression against all three of his brothers. Corey then switched sides in the litigation and began supporting Mark in 2019. Thereafter, both Mark and Corey have maintained the allegations of oppression against Sheldon and Jay, although Corey does not specifically have any pleading in this regard. Later, Sheldon and Jay amended their Application to make allegations of oppression.
[144] I do not propose to deal with every allegation of oppression. I specifically do not plan to analyze allegations of oppression made by Mark and Corey arising out of the Libfeld brothers’ aforementioned altercations and the incidents with staff. Specifically, for example, Corey invites this Court to make findings of oppression with respect to allegations he makes that Sheldon physically attacked and provoked other partners, surreptitiously gave instructions to employees and acted secretively in the dispute with Mr. Vitiello.
[145] I also do not plan to analyze Mark’s allegations that Sheldon acted oppressively in neglecting Mark’s attempts to formalize a partnership agreement or that he generally operated the partnership as though it was his sole enterprise.
[146] Similarly, I do not plan to analyze Sheldon and Jay’s allegations that Mark’s demands for cash distributions and other related changes constituted oppression or that Corey’s feud with Mr. Vitiello constituted oppression.
[147] In my view, with respect to the above, nothing is gained by indulging in this exercise. First, the parties did not advance claims of oppression in their closing arguments, choosing to instead focus on the remedies they favoured. Second, from an evidentiary point of view, none of the employees or relevant contractors, referenced in some of the oppression allegations, were called to testify. Third, the Libfeld brothers’ own evidence concerning altercations between them and others, without supporting evidence, is insufficient given their problems with credibility and/or reliability. Fourth, the aforementioned disputes concerning the operation of the Group involved differences of opinion as to how some aspects of the Group should be run. Last, it is not sensible or reliable to ask this Court to make findings with respect to every petty quarrel between the brothers.
[148] Similarly, I do not propose to analyze whether the Libfeld brothers breached their fiduciary duties to each other concerning the above, for the same reasons.
[149] Instead, I propose to deal with the more significant issues that were raised at trial and specifically addressed in closing argument. As will be seen, I have concluded that the alleged acts of oppression or breaches of fiduciary duty generally relate to the dysfunction between the brothers and that no brother has committed an act of oppression or breached his fiduciary duty against another. Ultimately, it is because of the extreme dysfunction that exists between the Libfeld brothers that I order the Court supervised Wind-Up and Sale of the Group.
The Law
[150] Section 207 of the Ontario Business Corporations Act, R.S.O. 1990, c. B. 16 (the “OBCA”), allows this Court to wind-up a corporation for a number of reasons including, “when it is just and equitable for some reason” to do so. A finding of oppression is not necessary.
[151] Section 248 of the OBCA provides this Court with the broad jurisdiction to make various interim or final orders where findings of oppression have been made. These include orders to restrain the oppressive conduct, regulate the corporation’s affairs, provide for compensation or to wind-up the corporation pursuant to s. 207.
[152] In BCE Inc. v. 1976 Debentureholders, [2008] 3 SCR 560, 2008 SCC 69, at para. 68, the Supreme Court of Canada held that, for the oppression remedy to be engaged, there must be a breach of the claimant’s reasonable expectation and the breach must be of a sufficiently serious nature. The Court held that a two-part inquiry must be addressed:
(i) Does the evidence support the reasonable expectation asserted by the claimant? and
(ii) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
[153] The Court in BCE, at para. 67, went on to define various terms as follows:
• “Oppression” carries the sense of conduct that is coercive and abusive, and suggests bad faith.
• “Unfair prejudice” may admit of a less culpable state of mind, that nevertheless has unfair consequences.
• “Unfair disregard” of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders’ reasonable expectations.
[154] I will now turn to the allegations of oppression raised by Mark and/or Corey that merit review. I will not review any of the allegations of oppression raised by Sheldon or Jay. They were not pursued in closing argument and, like many of Mark and Corey’s allegations, do not merit review.
The Group’s cash distribution practice has not been oppressive
[155] Perhaps this issue, more than any of the others, divides the Libfeld brothers.
[156] There is no written policy with respect to how much cash the Group should hold or how it should be distributed.
[157] One of Mark’s earliest complaints after Theodore’s passing concerned increasing cash distributions in light of the Group’s significant reserves, which in recent years have been maintained in the approximate amount of $250-$500 million.
[158] When Theodore was alive, he would make the decisions as to what cash should be distributed to the brothers and the amount that should be maintained within the Group. After Theodore’s passing, the Group generally carried on with these policies. Typically, most of the profits were reinvested back into the business. The benefit of this cash retention policy is that it permitted the Group to construct projects at an early stage without having to meet pre-sale thresholds, often required by lenders. It further gave the Group the ability to hold inventory, rather than be forced to sell it, if they did not consider the market to be attractive. It also allowed the Group to leverage favourable lending terms with banks, without the need to be subject to procedural oversight by lenders, or to provide personal guarantees.
[159] The reinvestment model has been successful for the Group, which has seen its value grow significantly over the years. This is not disputed by Mark, although he would like to see larger distributions.
[160] There is no doubt that the Group has been in a cash-rich position for several years. At trial, the parties debated, in detail, the most sensible distribution policy in conjunction with the amount of cash on hand necessary for the Group to meet its obligations and plans.
[161] Sheldon and Jay are adamant that Theodore’s system should be maintained as it has been enormously successful for the Group. Conversely, Mark and Corey submit that enhanced distributions are sensible, given their ages, the amount of cash maintained within the Group and the stalemate that has developed between the brothers.
[162] In conducting my analysis, it bears noting that none of the Libfeld brothers have suffered financially. In preparation for trial, Ms. DeBlasis, at the request of Sheldon, prepared a chart showing financial benefits that accrued to each of the Libfeld brothers between 2004-2020. The chart includes cash payments, use of credit cards paid by the Group, RRSP contributions, tax payments and money paid to the Libfeld brothers’ holding companies, amongst other benefits.
[163] Over this timeframe, the Libfeld brothers have been treated almost exactly the same. They have taken almost identical amounts of cash and other financial benefits from the Group, each in the amount of approximately $125 million over this period. Not all of the amounts can properly be described as cash distributions. The chart amply demonstrates, however, that the distributions contained therein represent actual financial value and benefit to the Libfeld brothers—including approximately $46.7 million in cash, approximately $38 million in income tax being paid by the Group on behalf of each of the Libfeld brothers, and the receipt by each brother of a luxury condominium in their Milan Development, valued in excess of $4 million.
[164] The Group’s profitability and the aforementioned distributions allow the Libfeld brothers the opportunity to live opulent lifestyles.
[165] On the one hand, I understand Mark and Corey’s frustrations. They have reached a stage in life where they want larger distributions. On the other, Sheldon and Jay wish to maintain the status quo, consistent with Theodore’s vision, which they believe should be respected since he was the founder of the Group and it has proven to be enormously successful.
[166] In these circumstances I do not find that Sheldon and Jay are acting oppressively. The brothers are treated equally and the business is operating essentially as it always has. The increase in distributions as initially proposed by Mark, and now supported by Corey, represents a change to the Group’s business practice. While Mark and Corey would like to do things differently, I am of the view that the differences of opinion essentially stem from the Libfeld brothers’ own business judgment and risk tolerance. Sheldon’s and Jay’s views, in this regard, cannot be considered to be oppressive or unfair. Nor do I find that carrying on with this existing strategy can be considered to fall outside the reasonable expectations of Mark and Corey.
The Group’s life insurance arrangements are not oppressive
[167] The Libfeld brothers are unable to agree upon the purchase of additional life insurance.
[168] Mark, particularly after he suffered a heart attack in 2013, was of the view that the Group’s life insurance arrangements were insufficient to fund his family’s tax liabilities on his death. He was also concerned that Viewmark is the named beneficiary of the life insurance policies of all of the Libfeld brothers and that there is no assurance that funds paid to Viewmark would be made available to his family.
[169] Corey, after he took Mark’s side in the litigation, began to complain that he was also oppressed because his brothers would not agree to pay him an equalization amount to account for his lower premiums relative to his brothers.
[170] Conversely, Sheldon and Jay did not view additional life insurance as a good business investment. They were of the view that there was a clear understanding between the Libfeld brothers regarding the satisfaction of tax obligations upon death. First, the life insurance proceeds paid to Viewmark would be paid to the estate of the deceased. Second, any shortfall or further liquidity needs would be addressed by way of a loan, with a reasonable interest rate, from the Group to the deceased’s family.
[171] Experts were engaged. The experts, amongst other things, recommended that a written agreement be drawn up with respect to the amount of life insurance that each brother should have and how the proceeds of that life insurance would be distributed upon death. The experts prepared, and the brothers exchanged drafts of a formal agreement but the Libfeld brothers were unable to come to any form of agreement, as late as 2020, prior to the commencement of the trial.
[172] The failure to reach an agreement with respect to their differences concerning enhanced life insurance does not constitute oppression on the part of Sheldon and Jay. The life insurance in place is in keeping with the historical practices within the Group. I do not believe that there was a reasonable expectation asserted by Mark or Corey that things would now be different. Furthermore, I do not accept that the failure to reach a new agreement to Mark’s or Corey’s satisfaction leads to the conclusion that Sheldon and Jay acted oppressively or unfairly as set out in BCE. As with just about everything of import concerning the Group, the Libfeld brothers simply could not agree.
[173] Specifically, in light of the Libfeld brothers’ inability to reach an agreement, Mark was free to purchase more life insurance on his own.
[174] Mark testified at trial that he had not done so for a number of reasons. These included the fact that his advisors recommended the coordination of any additional insurance with other tax planning, which remained unresolved between the Libfeld brothers, that the price of insurance continued to rise dramatically and that he wished to bring the matter before the Court. From Mark’s perspective, this may well have been entirely reasonable, but it does not lead to a finding of oppression and is a decision that was left up to his good judgment. Mark has the financial wherewithal and expert advice to purchase additional life insurance, even if it does not entirely mesh with his overall financial strategy.
[175] I understand Mark’s concerns about his health complications but, ultimately, the brothers were essentially treated the same with respect to life insurance and Sheldon and Jay did not want to change what is in place. They were of the view that life insurance is unduly expensive and there were other ways, as referenced above, to ensure that a brother’s family would be well taken care of after his death.
[176] Insofar as Corey’s complaint of oppression is concerned, it is without merit. He complains that Sheldon and Jay have refused to agree to his recent demand, made in 2020, to be paid an equalization payment on account of the fact that his premium amounts are lower than those of his brothers. Sheldon and Jay did not agree since it would represent a departure from the long-standing practice in which the Group has dealt with the funding of life insurance premiums. The Group has paid for the premiums when due but has not equalized payments for any disparity in premium cost between the Libfeld brothers. Further, and in any event, Corey’s position does not take into account the fact that the lower premium cost for his insurance will result in the after-tax proceeds payable on his death exceeding those paid to his brothers, given the higher premium cost that they pay.
Mark and Corey have not been oppressed by a lack of access to the Group’s information
[177] Mark and Corey complain that their access to the information of the Group is not equal to that of Sheldon and Jay.
[178] Mark, in particular, maintains that he has never been afforded real transparency into the business. Corey, generally, submits that he has been denied transparency regarding certain aspects of the Group’s business, particularly payables to third parties. He adds that Sheldon has created and controlled the business planning and structure without sharing the information with him.
[179] I accept that Sheldon has greater insight into the operations of the Group and greater knowledge and control of information. I am not, however, of the view that this has been dealt with in an oppressive fashion. Rather, it stems from his role within the Group, while the other brothers have focused on their areas of expertise that generally do not involve overall financial and banking relationship issues.
[180] In this regard, Sheldon was of the view that the Group consolidated records, including financial statements, cash flows, budgets and the like, are not necessary because the Group operates in, what he describes to be, a “closed system” where information is kept at the individual project level. This is consistent with how Theodore operated the Group.
[181] While all of this may not be ideal from Mark and Corey’s perspective, all Libfeld brothers do have access to the Group’s records. There are no restrictions. All business records are maintained in the Group’s office and the brothers have access to the Group’s banking statements.
[182] Corey originally deposed that Mark’s complaints were unfounded, but he has now changed his evidence. It is difficult to understand how he could have initially thought that he had fair access to information but now believes he does not.
[183] While Mark argues that an individual should not require the help of a professional advisor or forensic accountant to understand the financial position of that partner’s business, it is not surprising that the Group’s large and complicated scheme of ownership would require such assistance. Mark, for several years, has been aided by well-known professionals in the area.
[184] I do not propose to review each and every complaint of Mark in this regard. They are voluminous and range from a lack of visibility or understanding as to why the Group has approximately 350 separate entities, to the value of Edith’s interest in the Group. It is sufficient to state that the information is available to Mark and Corey and their advisors. In fact, there were several meetings between the Libfeld brothers and their advisors and there were no restrictions placed upon anyone to speak to the Group’s external legal and accounting advisors.
[185] I also understand that Mark would like to have greater insight into the Group. I further accept that is difficult to do so given the rather byzantine corporate arrangements. I do not, however, find that his or Corey’s interests with respect to access to information have been unduly hampered or disregarded so as to constitute oppression. Rather, this debate generally follows the dysfunctional relationships between the Libfeld brothers. For example, Sheldon ultimately agreed with Mark’s proposal to have KPMG perform an audit of the entire Group, which Mark later decided against and then stated that he wanted the Group’s financial statements prepared on an unaudited basis. This led to another round of disagreements between the Libfeld brothers and ultimately nothing was accomplished.
[186] In conclusion, the fact remains that Mark and Corey have complete access to all of the Group’s records and information, as well as access to the employees who manage this information. While there may have been difficulties in obtaining and synthesizing information, there are no specific examples of Mark and Corey being denied access to information. Examples were raised at trial about information that they claim they should have had but did not since it remained solely within the knowledge of Sheldon. While this may be true on occasion, this is reflective of Sheldon’s role within the Group. Any deficiencies in the provision of information have to be borne equally by the Libfeld brothers given their general unwillingness to cooperate with each other.
There was no oppression with respect to the Orleans Investment
[187] As previously noted, in 2012, Sheldon brought to the Group a potential new investment with a home builder in the United States, the Orleans Investment.
[188] Ultimately, the investment struggled and Sheldon requested that his brothers authorize further payments from the Group into the investment. There was no consensus within the Group to advance further funds; subsequently, Sheldon made his own mezzanine loan into the Orleans Investment.
[189] Later, Mark and Mr. Potter travelled to Philadelphia in 2017 to meet with Mr. Orleans, review documents and tour the development.
[190] Thereafter, Mark made a number of allegations against Sheldon, primarily to the effect that he changed the Orleans Investment business model without telling the other brothers, and that he preferred his own interests over the Group’s by extending his mezzanine loan into the Orleans Investment and by refusing to allow Mr. Orleans to replace the mezzanine loan with less expensive financing.
[191] Once again, I do not find that Sheldon’s behaviour constituted oppression as defined in BCE.
[192] Sheldon could not get his brothers to agree to provide the mezzanine financing on behalf of the Group and, as a result, he provided it himself. This was no secret. In my view, this is more indicative of the continuing erosion of the brothers’ relationship, although it is noteworthy that in the decision not to advance further funds, Jay sided with Mark and Corey.
[193] Insofar as the mezzanine loan itself is concerned, while there may have been some tension between Sheldon’s personal mezzanine loan and the funding provided by the Group, there is neither evidence that the Group suffered, nor evidence that Sheldon was somehow acting in bad faith or contrary to the interest of the Group since they all had a vested interest in making the Orleans Investment profitable.
[194] Ultimately, the Orleans Investment did not pan out and Mr. Orleans bought out Sheldon and the Group’s interest in December 2018. Sheldon testified that he would have liked to have supported the investment further but, given his brothers’ reticence, he believed that it was sensible to exit the Orleans Investment.
[195] Much time was also spent at trial attempting to determine whether the Group exited the Orleans Investment at a profit or a loss. It appears that there was a loss of approximately USD $2.8 million on the Group’s investment but, after conversion into Canadian funds, there may have been a modest gain. However, there is a complication with the presentation of the results as Sheldon inserted another Group investment in Philadelphia, Samson Walnut. This may or may not have been appropriate in the circumstances since it did not involve the Orleans Investment. Sheldon submitted that that there would be a modest gain in Canadian dollars, even without the inclusion of Samson Walnut.
[196] In any event, the profit or loss was negligible and a disproportionate amount of time was spent at trial debating this issue.
[197] Upon a review of all of the evidence, and particularly the fact that all brothers were given an opportunity to participate in the mezzanine financing and declined, there is no evidence that Sheldon earned any money at the expense of the Group. This finding, along with the fact that all of the brothers agreed to wind-up their interests in 2018, leads to the conclusion that Sheldon did not engage in oppressive conduct.
[198] I also do not accept that Sheldon changed the business model of the Orleans Investment. Mark alleges that Sheldon changed the model of the Orleans Investment concerning how it acquired building lots. However, the agreements, which were signed in 2012 by all of the brothers, provide for a broad definition as to how the construction model should operate and this broad latitude allowed the changes proposed by Sheldon to be made.
Neither the Interim Arrangement nor the Shanontown Transaction were oppressive to Mark and Corey
[199] I will start with the Interim Arrangement and then deal with the Shanontown Transaction, which was carried out pursuant to the Interim Arrangement.
The Interim Arrangement
[200] The Interim Arrangement arose as a result of Mark’s frustrations concerning the Group’s cash distribution policy and his inability to obtain cash distributions that he thought were sensible, along with other aforementioned issues such as life insurance, succession plans and partnership exit strategies. Mark advised his brothers that, given the lack of agreement on these issues, he was unwilling to cast his vote in favour of new transactions until cash distributions had been made. Sheldon, Jay and Corey (at the time) wished the Group to continue bidding on new deals and pursuing opportunities.
[201] As a result of the stalemate, a meeting of the four brothers and Mr. Brunswick, one of the Group’s lawyers, took place on August 15, 2016. At the meeting, Sheldon proposed the Interim Arrangement as a solution to the impasse. The Interim Arrangement effectively provided a mechanism for a non-participating brother to receive cash distributions. When a transaction came into the Group, any brother had the option of not participating in that transaction in exchange for a cash distribution equal to the money that the other brothers would require from the Group to invest in the project.
[202] Mark initially objected to the Interim Arrangement. Thereafter, he met with Mr. Potter, and he later had a discussion with Mr. Brunswick. Mark testified that, as a result of these conversations, he believed that no more cash distributions would be forthcoming and that the only way he could receive cash distributions was to agree to the Interim Arrangement. Mr. Brunswick was not called as a witness at trial. Given the credibility problems I have identified with Mark (and the others) I am not prepared to give this statement much weight in the absence of corroborating evidence. While he may have believed this, I do not accept that this would have necessarily been the result.
[203] There is a dispute between the Libfeld brothers as to whether the Interim Arrangement existed and to what extent. Mark and Corey raise both issues. I am satisfied that the brothers entered into an Interim Arrangement. The Interim Arrangement is further evidence of the deep dysfunction that existed between the Libfeld brothers concerning the Group’s business affairs. It demonstrates the fact that the Libfeld brothers’ relationship was broken and they could not move forward as a unit.
[204] I have come to the conclusion that the Interim Arrangement was knowingly entered into between the Libfeld brothers, primarily for the following reasons:
• Sheldon, Jay and Corey (at the time) all believed an Interim Arrangement had been reached.[^6]
• The Interim Arrangement dealt with the impasse that has arisen between Mark and his brothers concerning cash distributions and provided an imperfect way forward.
• Mark authored four emails that he sent to his brothers on August 16, 23, 29 and September 8, 2016, wherein he confirmed that he would receive cash distributions if the other three brothers took money out of the Group to fund investment opportunities. He specifically confirmed that, if any of the brothers went through with a deal, “and fund the contributions from the cash at the Conservancy Group, [it would] be distributing my equivalent 25% of the overall investment….”
• Mark did note in his September 8, 2016 email that there were four specific issues that needed to be resolved concerning the Interim Arrangement. When one reviews the balance of the email exchanges between the Libfeld brothers, however, and specifically Mark’s concerns about further steps that need to be taken pursuant to the Interim Arrangement, it is clear that Mark recognized and accepted the option of proceeding under the Interim Arrangement even though it was not reduced to writing.
• In addition to the above, Mark confirmed that until the Libfeld brothers sorted out an exit structure, he would have to determine whether he would agree to participate in any further deals going forward or whether the other three brothers could pursue them on their own.
• The Interim Arrangement is evidenced by the fact that the brothers entered into the Shanontown Transaction utilizing the formula set out in the emails.
[205] In addition to a dispute as to whether the Interim Arrangement existed, Mark also submits that the Interim Arrangement was a “one-off” restricted to the Shanontown Transaction.
[206] Sheldon and Jay took the position that, generally, the Interim Arrangement would continue until the brothers were able to resolve their differences.
[207] I agree with the position taken by Sheldon and Jay. Given Mark’s own emails, there was no temporal restriction noted. Mark also testified at trial that four other transactions were discussed in the context of the Interim Arrangement prior to the Shanontown Transaction.
[208] The totality of the evidence supports the conclusion that the Libfeld brothers thought that the Interim Arrangement was a sensible strategy pending an agreement concerning their outstanding issues or the trial of this action, which was originally scheduled to commence in January 2020. I am, therefore, satisfied that, based on the foregoing, the Libfeld brothers did enter into a valid agreement concerning the Interim Arrangement, which was to deal with transactions where one or more of the brothers would decline to participate and receive a cash distribution. I am further satisfied that none of the brothers acted oppressively in reaching this compromise.
[209] I have not overlooked the fact that the Interim Arrangement was never reduced to a formal agreement and that there is some ambiguity as to how long it would remain in place. I am satisfied that based on the aforementioned correspondence and the initiation of the Shanontown Transaction, the Libfeld brothers had agreed to the Interim Arrangement and its implementation. Like any form of agreement concerning the Libfeld brothers, it was not perfect but, nonetheless, it meets the criteria of a valid agreement.
[210] The Libfeld brothers also have a further disagreement. Mark submits that the Interim Arrangement should be considered to have been undertaken by the brothers in their personal capacities as opposed to on behalf of the Group itself. Sheldon and Jay oppose this interpretation.
[211] I accept Mark’s position that the Interim Arrangement allowed certain Libfeld brothers to pursue transactions in their personal capacities, while others could obtain a cash distribution. Once again, there is no firm agreement in writing in this regard, but the correspondence surrounding the implementation of the Interim Arrangement supports this conclusion, primarily for the following two reasons:
(i) This conclusion is consistent with the stipulation agreed to between the brothers that the Group’s resources could be used in pursuing these transactions but must be accounted back to the Group out of fairness to the non-participating partner(s).
(ii) Emails exchanged between the parties and counsel support this position, particularly the letters between counsel dated August 21, 2018 and March 12, 2019. In the August 21, 2018 correspondence, counsel for Sheldon stipulated that “the use of resources will, as contemplated by the interim arrangement, be tracked for purposes of ensuring that the Group is properly compensated.” In the March 12, 2019 correspondence, counsel for Sheldon states that “Sheldon and Jay Libfeld continue to abide by their obligations under the Interim Arrangement and seek to hold Mark and Corey Libfeld to theirs, which would include not pursuing transactions outside of the Conservancy Group without first offering them to the Group.”
[212] The final disagreement between the brothers concerning the Interim Arrangement involved how distributions were to be calculated and I will deal with this issue below in the context of the only transaction carried out pursuant to the Interim Arrangement: the Shanontown Transaction.
The Shanontown Transaction
[213] In September 2016, Sheldon commenced discussions with his brothers with respect to the Group acquiring land in Caledon, Ontario for development. Mark refused to participate, given the inability of the Libfeld brothers to resolve the list of issues that he had raised.
[214] Mark’s evidence at trial was clear that he declined to participate in the Shanontown Transaction both initially and up until the time of closing, not on the basis of the merits of the deal itself, but as a result of the falling out with his brothers over the other unresolved issues. As he put it at trial, “it…has nothing to do with the deal, it has to do with the partners and the partnership.”
[215] Sheldon, Jay and Corey, thereafter, created Shanontown, a single purpose entity with no assets. In October 2016, Shanontown submitted an offer to the vendor, Ben Ted, to acquire the property.
[216] Negotiations commenced and offers were exchanged between Shanontown and Ben Ted. There were a number of different proposals made by Shanontown with respect to financing the purchase. These included, at various times, an all-cash offer; cash plus a vendor take-back mortgage (a “VTB Mortgage”) by Ben Ted; and cash, a VTB Mortgage and financing from TD. It was the latter proposal that was ultimately used to finance the $92.5 million transaction.
[217] Mark’s major complaint was that, as of October 2016, he understood that he was going to receive $15 million as a cash distribution since his three brothers would have to contribute $45 million in cash towards the purchase price. No promises, however, were made to him by Sheldon, Jay or Corey, nor was there any written agreement in this regard.
[218] Given the fact that there was a blending of cash, a VTB Mortgage and TD financing, the amount of cash required of Sheldon, Jay and Corey to fund the transaction was ultimately reduced from $45 million to approximately $17 million. This meant that each brother only required $5.7 million in cash to fund the deal and that Mark’s distribution would not be the initial $15 million discussed, but rather $5.7 million.
[219] Mark was not pleased with this turn of events. Notwithstanding his displeasure Mark, as noted above, continued to refuse opportunities to participate in the Shanontown Transaction—it was not the deal, it was the partners.
[220] Mark and now Corey also accuse Sheldon of “sneaking” a clause into the Agreement of Purchase and Sale between Shanontown and Ben Ted that took away the first mortgage status of Ben Ted’s VTB Mortgage so that Shanontown could use TD financing on top of the VTB Mortgage, thus reducing the cash required for the investment.
[221] Corey went so far as to testify that he was told by Mr. Sid Lew (“Lew”), a senior employee of the Group who primarily negotiated the deal with Ben Ted, that Sheldon had instructed him to “sneak the clause” into the agreement. I reject Corey’s testimony. First, it is hearsay and Mr. Lew was not called by Mark or Corey to testify at trial. Second, it is expressly contradicted by the evidence of Mr. Piorczynski, a principal at Ben Ted who had negotiated the agreement on behalf of Ben Ted. He testified that neither Sheldon nor Shanontown did anything wrong during the negotiations and that Ben Ted made an error in agreeing to a VTB Mortgage that ranked behind TD’s financing. Mr. Piorczynski confirmed that it was “100% our fault, we missed it.”
[222] It also bears noting that Corey initially provided sworn evidence in his November 29, 2017 affidavit that Sheldon and Jay honoured the terms of the Interim Arrangement and made no allegations concerning the Shanontown Transaction.
[223] In any event, Mark accepted the payment, notwithstanding this significant reduction in his expected cash distribution.
[224] Mark also provided testimony at trial with respect to Sheldon’s communications within the Group concerning the Shanontown Transaction. He testified that Sheldon told him that he was not going to get the money intended since he did not want Mark and his son Perry to compete with the Group. Sheldon denies this conversation ever took place. Given the parties’ credibility issues, I do not find that Mark has established on a balance of probabilities, without corroborating evidence, that this conversation took place.
[225] Sheldon testified that in a meeting on December 12, 2016, which was also attended by Jay, Mark, Mr. Potter, Mr. Brunswick and Ms. DeBlasis, Sheldon told Mark that he would only receive $5 million and that Mark did not question this. Mark disagrees that this took place. Once again, given the parties’ credibility problems, I find that Sheldon has not established on the balance of probabilities, without corroborating evidence, that this took place. My view is bolstered by the fact that Jay never testified in chief that Mark was told of this. Further, on December 20, 2016, Mark’s representative, Mr. Potter, sent emails confirming a $15 million distribution, which undermines any suggestion that Sheldon told Mark of the reduced amount, in Mr. Potter’s presence, on December 12, 2016.
[226] There were other conversations and correspondence concerning this issue but, in my view, I have dealt with the most salient ones.
[227] Ultimately, the Shanontown Transaction was delayed because Ben Ted refused to close, raising objections concerning the form of the VTB Mortgage.
[228] When the Shanontown Transaction closed in March 2017, as noted, the three participating brothers’ holding companies funded $5.7 million of the purchase price with the remainder provided by the VTB Mortgage and TD. Mark received his distribution of $5.7 million and did not ask to re-enter the Shanontown Transaction.
[229] Following the closing, Shanontown asked Ben Ted to extend the VTB Mortgage, which it refused to do, and litigation ensued. During this time, Sheldon and Jay (subject to Corey’s approval), provided Mark with another opportunity to participate in the Shanontown Transaction. In the spring of 2020, they provided an offer which they referred to as the “Mulligan.” The Mulligan was presented to Mark on the basis that he would not be provided with any information about the deal and, given the previous acrimony between Mark and his brothers, he would be required to be a silent partner without input. Nevertheless, Mark sought certain information which was not provided and he declined the offer.
[230] Sheldon and Jay did not disclose this information to Mark, since it was their view that he should enter the deal on the same footing as his brothers. That being said, they were asking Mark for a contribution of $5.7 million. Further, unbeknownst to Mark, his brothers had already written down the partners’ equity in Shanontown to approximately negative $15.4 million.
[231] The litigation between Shanontown and Ben Ted was eventually settled and each of the participating brothers were required to pay an additional $16 million to complete the acquisition of the lands in the Shanontown Transaction. As a result, in September 2020, Mark received an additional distribution of $16 million, bringing his total to $21.7 million—far in excess of his original expectation.
[232] As a result of the foregoing, Mark complains that he was oppressed and he seeks an order that the Shanontown properties constitute Group property and that he and his holding company are deemed to have participated in the purchase of those lands as of the acquisition date, as an equal partner with his three brothers. Mark is prepared to return his $21.7 million payment.
[233] Mark raises a number of allegations in this regard, primarily as follows:
(i) Sheldon did not want Mark to go into business with his son, Perry.
(ii) Sheldon improperly and in an unaccounted manner used Group employees and resources for the Shanontown Transaction.
(iii) Sheldon changed the financing structure to reduce Mark’s distribution.
(iv) Sheldon withheld information relating to the transaction.
(v) Sheldon and Jay’s Mulligan offer was proffered in bad faith.
[234] I will quickly deal with the allegations above concerning (i) and (ii). In my view, there is insufficient evidence to support these allegations, which were not pursued in closing argument. The only evidence concerning Sheldon’s statement regarding Mark’s son Perry was Mark’s own recitation of the conversation which, as noted above, I have rejected.
[235] Insofar as Group employees and resources are concerned, there was no evidence that staff was inappropriately used (other than Mark’s own belief), and there was no prohibition from using TD to fund part of the Shanontown Transaction. Tellingly, Mark never demanded limitations concerning TD at the time the Shanontown Transaction was being financed. Furthermore, the Group never guaranteed any of Shanontown’s obligations and Mark largely abandoned this claim in cross-examination.
[236] Mark’s more significant claims deal with the initial reduction in his distribution, the fact that he did not receive contemporaneous information, and that the Mulligan offer was made in bad faith.
[237] Having considered the relationship of the Libfeld brothers leading up to, during and following the Interim Arrangement/Shanontown Transaction, I do not find that Mark was oppressed by Sheldon, Jay (or Corey) during the relevant time.
[238] There is no question that maintaining high cash reserves are at the heart of the Group’s business model and that there was great controversy between Mark and his brothers concerning the receipt of cash distributions.
[239] Against this backdrop, Mark refused to participate in any further transactions until the issues he had raised were resolved; the Interim Arrangement was born. As I have noted above, I do not find any of the Libfeld brothers’ positions concerning the above to be oppressive, but rather the result of a dysfunctional relationship between equal partners with each taking unreasonable positions. It was no more oppressive for the brothers to pursue the Shanontown Transaction than it was for Mark to refuse to participate in new deals until his issues were resolved.
[240] I accept that, on the one hand, Mark had an expectation that he would receive a $15 million distribution but, on the other hand, the remaining brothers had an expectation that they would have flexibility in the manner in which they facilitated the Shanontown Transaction. There were no restrictions in the means of financing the Shanontown Transaction or the terms of the purchase itself.
[241] In any event, Mark learned of the amount he would be receiving in late December 2016 or early January 2017 and accepted his $5.7 million distribution. I agree with Mark that there was a lack of communication on Sheldon’s part and that Sheldon should have kept Mark better apprised of developments throughout the Shanontown Transaction.
[242] At the same time, however, Mark’s relationship with his brothers was so irretrievably broken that the failure to communicate has to be shared between Mark and Sheldon. The overall lack of communication and cooperation before and during the Shanontown Transaction reflects the overall dysfunctional relationship of the Libfeld brothers.
[243] Of import is the fact that Mark conceded on cross-examination that, once he discovered exactly how much money he was going to receive (i.e. $5.7 million), he never sought to get back into the deal. He responded that, to the contrary, it led to his belief that he should take the money since he was uncertain as to whether he would be able to do so again.
[244] Similarly, given the existing dysfunction between the Libfeld brothers, I do not believe that the offer of the Mulligan constitutes oppression. Sheldon and Jay were not obligated to make any offer. The fact they did so on terms that were unacceptable to Mark and in a situation where they had written down their equity does not constitute bad faith. From their perspective, if he was to be allowed back into the deal, he should have been placed in the same position as his participating brothers (i.e. under the conditions of the Mulligan). This falls short of oppression. By this time, the brothers were engaged in contentious negotiations with each other and it was not oppressive, given the history of dispute between the brothers, to offer Mark a silent partner position on the same financial terms as the rest.
[245] Even if I am wrong with respect to my analysis above, it cannot be said that Mark was wronged; he received a distribution of approximately $6.7 million greater than he expected (i.e. $21.7 million versus the $15 million that he was initially advised). Even if this was done for nefarious reasons (which I do not accept was made out on the evidence), as a result of the dispute that Shanontown was engaged in with Ben Ted, Mark was compensated far in excess of what he expected, albeit over a longer period of time. In my view, this does not constitute “a betrayal” as Mark testified at trial. Alternatively, even if Mark was oppressed, I would not undo the transaction and allow him to participate given the $21.7 million cash distribution and the fact that he bore no risk.
[246] Last, it bears noting that Corey, at trial and in closing argument, made allegations of oppression concerning the Shanontown Transaction. Given the contents of his aforementioned November 2017 affidavit, wherein he expressly noted approval for the Shanontown Transaction, I do not find that his evidence is credible concerning his later complaints.
[247] Corey made certain complaints about the structure and tax efficiency of the VTB Mortgage repayment in September 2020, specifically that it should have been accompanied by an unrelated additional distribution. I accept that it was reasonable for Sheldon and Jay to proceed in a fashion that Corey objected to, in which they refused to allow an unrelated distribution of money from the Group’s available capital dividend account, which they thought had to remain in place and be available to shelter, in part, distributions of insurance proceeds paid to the estate of a brother should he pass away.
[248] Similarly, I reject Corey’s complaints about his inability to access information. There is no evidence that the documentation and information was not available to him, particularly when he was supporting the initial transaction before he switched sides in the litigation. In any event, there is no evidence to suggest that Corey would not have participated in the Shanontown Transaction had he been provided additional information. I also accept that the result of the Shanontown Transaction has been beneficial for the three brothers, thus this complaint has no merit.
JURISDICTION WITH RESPECT TO THE REMEDIES PURSUED BY THE LIBFELD BROTHERS
[249] The parties initially agreed that both the Partnerships Act, R.S.O., 1990 c.P.5, and the OBCA, provide this Court with broad jurisdiction to intervene in the breakdown of partnerships and corporations where it is just and equitable to do so. In their written closing arguments, none of the Libfeld brothers disputed that both Acts could apply to the factual matrix of this case, presumably due to the fact that the brothers were equal partners with respect to the Group’s various corporations and equal shareholders with respect to Shelfran and Viewmark.
[250] Section 35(1)(f) of the Partnerships Act provides as follows:
35 (1) On application by a partner, the court may order a dissolution of the partnership, …
(f) when in any case circumstances have arisen that in the opinion of the court render it just and equitable that the partnership be dissolved.
[251] Similarly, s. 207(1)(b)(iv) of the OBCA provides that a corporation may be wound up by order of the Court, where the Court is satisfied that it is just and equitable for some reason, other than the bankruptcy or insolvency of the corporation.
[252] Further, s. 248 of the OBCA also provides this Court with broad jurisdiction to make interim or final orders where, amongst other things, directors have acted in a way that is oppressive, unfairly prejudicial or unfairly disregards the interests of other directors or stakeholders. Subsection 248(3)(l) specifically allows for the Court to order a winding up of the corporation under the aforementioned s. 207 of the OBCA.
[253] In the context of the Partnerships Act, the just and equitable standard is to be given “wide significance and…a broad interpretation”: Ellerforth Investments Ltd. v. Typhon Group Ltd. (2009), 2009 CanLII 46640 (ON SC), 97 O.R. (3d) 734 (S.C.), at para. 35, aff’d 2010 ONCA 275; Rogers v. Agincourt Holdings Ltd. (1976), 1976 CanLII 736 (ON CA), 14 O.R. (2d) 489 (C.A.), at p. 493. Further, as noted by Ground J. in Landford Greens Ltd. v. 746370 Ontario Inc., 1993 CarswellOnt 163 (Gen. Div.), at para. 22, under either corporate or partnership legislation, the just and equitable grounds to wind-up an entity require the irreparable breakdown in trust and confidence between the partners:
[F]or a court to order the dissolution of a partnership on the just and equitable grounds, it must be established that there is, if not deadlock, at least substantial disagreement on questions of the day to day management of the operation and such a lack of confidence or trust between the parties as to render it virtually impossible for the venture to continue.
[254] In the context of s. 207 of the OBCA, determining just and equitable is synonymous with the oft-quoted speech of Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd. (1973), [1973] AC 360 (H.L.), at p. 379:
…The foundation of it all lies in the words “just and equitable” and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The “just and equitable” provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.
[255] In Animal House Investments Inc. v. Lisgar Development Ltd. (2007), 2007 CanLII 82794 (ON SC), 87 O.R. (3d) 529 (S.C.) (“Animal House”), at para. 50, aff’d 2008 CanLII 27471 (ON SCDC), 237 O.A.C. 261 (Div. Ct.), Wilton-Siegel J. distills from this passage the conditions to satisfy the Court’s jurisdiction: (i) rights, expectations, or obligations between the parties not captured in their formal agreements, (ii) which failure to satisfy or discharge (iii) results in unfairness or prejudice to one or more of the shareholders, and (iv) the seriousness of such unfairness or prejudice “can only be rectified by a winding-up or other relief contemplated by subsection 248(3) of the Act.”
[256] Notwithstanding the fact that the parties agreed in their written submissions that either of the Partnerships Act or the OBCA could apply and that the parties have cited both Acts in their Notices of Application, a debate arose in closing argument between Mark and Sheldon as to whether each Act did apply in the circumstances of this case.
[257] Sheldon withdrew his earlier concession that either Act could apply, arguing that the brothers did not operate a true partnership. He submitted that since the assets were held in a number of corporations—primarily Shelfran, Viewmark and the brothers’ holding companies—instead of a partnership, the Partnerships Act was inapplicable. Nonetheless, Sheldon’s counsel conceded that the Libfeld brothers did owe obligations to each other as partners.
[258] Mark took exception with Sheldon’s revised characterization of the Group’s legal structure. Mark submits that there is no basis upon which Sheldon can distinguish between dissolving the Libfeld brothers’ partnership and their business.
[259] Mark further submits that there is no legal support for this notion. To the contrary, given that there is no central corporation governing the Libfeld brothers, this Court must fashion a remedy through the Partnerships Act. Section 207 of the OBCA, therefore, only serves to aid the execution of the remedy with respect to certain corporate elements of the Group.
[260] Finally, Mark submits that Sheldon’s apparent change of submission was motivated by his desire to avoid the presumptive remedy under the Partnerships Act: a dissolution and winding up. Mark was of the view that Sheldon’s artificial distinction between the Libfeld brothers’ “business” and their “partnership” was to support Sheldon and Jay’s argument that the business should be preserved.
[261] I generally agree with Mark’s submissions.
[262] Section 2 of the Partnerships Act describes a partnership as two or more persons, carrying on a business in common, with a view to profit:
Nature of Partnership
Partnership
2 Partnership is the relation that subsists between persons carrying on a business in common with a view to profit, but the relation between the members of a company or association that is incorporated by or under the authority of any special or general Act in force in Ontario or elsewhere, or registered as a corporation under any such Act, is not a partnership within the meaning of this Act. R.S.O 1990, c.P.5, s.2.
[263] Given the above, I agree that the Libfeld brothers operated a partnership. I further accept that the partnership carried on a number of businesses including Viewmark and Shelfran. This is consistent with the principles set out in Roderick I’Anson Banks, Lindley & Banks on Partnership, 20th ed. (London, U.K.: Sweet & Maxwell, 2017), s. 2-07, wherein it is accepted that a partnership does not require a singular means or vehicle for doing business. As has occurred in the within case, it can be comprised of a number of different and unrelated activities and carried out in a number of separate divisions.
[264] Through their partnership, each Libfeld brother controls 25% of a complex scheme of corporations and other business structures, which they operate together for their common benefit. It bears noting that the Libfeld brothers referred to themselves as partners throughout the evidence in this trial, and a review of the historical documentation confirms that the relationship was generally described as a partnership by themselves and their advisors.
[265] Ultimately, given my determination that the Court supervised Wind-Up and Sale is the most appropriate remedy, I believe this is an immaterial issue. Ground J. in Landford Greens recognized that the requirement under either legislation is similar. Nevertheless, I agree with Mark that the Partnerships Act can dictate the overall remedy. It is further my view that I can also rely upon the OBCA to order a Wind-Up and Sale.
[266] Last, in the dissolution of a partnership, the case law is clear that the Court has broad discretion to determine the methodology of the dissolution of the partnership and that it is common to appoint an independent receiver when this occurs: 2057552 Ontario Inc. v. Dick, 2016 ONSC 329, at para. 18; Vantreight v. Vantreight, 2005 BCSC 1165, at para. 19.
THE RELIEF SOUGHT BY THE PARTIES
Introduction
[267] As noted, and as will be discussed below, the parties each seek primary and secondary relief.
[268] On the one hand, Sheldon and Jay primarily submit that I should order the Buy-Sell remedy in which, amongst other things, Mark and Corey would have 10 days to elect to be either an offeror or an offeree. Thereafter, within certain time frames, the offeror must make an offer. The offeree has the option to either accept the offer or purchase the offeror’s interest in the Group at the offered price.
[269] Alternatively, Sheldon and Jay propose that I should order the SBO of Mark and Corey’s interest in the Group. This was the initial remedy pursued by Sheldon, Jay and Corey, before Corey switched sides in the litigation. Now, this would have Sheldon and Jay purchase all of Mark and Corey’s interests in the Group, transitioning them out of the business.
[270] On the other hand, Mark and Corey submit that I should order the MRP which would have a court-appointed officer divide the Group’s businesses, as best as possible, into four portions, one for each of the Libfeld brothers. While doing so, the court officer would essentially operate the business.
[271] Alternatively, Mark and Corey propose that I should order the Restricted Wind-Up and Sale of the Group. Once again, a court officer would ensure the proper operation of the remedy. Mark and Corey submit that no brother should be permitted to bid during the process and that the company be sold to outsiders.
[272] As I have noted from the outset, I do not favour any of the remedies proposed by the Libfeld brothers.
[273] Instead, while I have generally favoured Mark and Corey’s alternative proposal, I am ordering a Court supervised Wind-Up and Sale of the Group—with the Libfeld brothers being permitted to bid in the sales process.
[274] Before I turn to review the proposed remedies, I want to deal with a dispute between the parties concerning expert evidence.
The experts
[275] Mark, Sheldon and Jay all retained experts to provide evidence concerning their proposed remedies.
[276] All of the witnesses were well qualified in their respective areas of expertise and completed the necessary Acknowledgment of Expert’s Duty Form 53. There were no challenges with respect to qualifications.
[277] Mark called the following expert evidence:
• Domenic Marino (“Marino”). Mr. Marino is a CPA, CA, Chartered Business Evaluator and the National Leader, Forensic & Disputes at PricewaterhouseCoopers (“PwC”) LLP.
• John McKenna (“McKenna”). Mr. McKenna is a CPA, Chartered Insolvency and Restructuring Practitioner and a Senior Partner in the Corporate Advisory and Restructuring group at PwC Canada.
• Eric Castonguay (“Castonguay”). Mr. Castonguay is a CPA, CFA and Chartered Business Valuator and the National Leader of PwC Corporate Finance Inc.
• John Lorito (“Lorito”). Mr. Lorito is a partner and the Head of the Tax Department of Stikeman Elliott LLP’s Toronto office.
• Charles Winograd (“Winograd”). Mr. Winograd has an MBA and is a CFA. He operates his own business, Winograd Capital, and holds other positions. He is the previous President, CEO and Chairman of Richardson Securities, and a former President, COO, CEO and Chairman of RBC Capital Markers, amongst other titles.
[278] Sheldon and Jay called the following expert evidence:
• Farley Cohen (“Cohen”). Mr. Cohen holds an MBA as well as a host of other professional designations, including a FCBV and FCA. He is a Principal of Cohen Hamilton Steger & Co. Inc.
• Paul Gibney (“Gibney”). Mr. Gibney is the senior partner in the Toronto office of Thorsteinssons LLP, a law firm that practices exclusively in the area of tax.
• Mark Caiger (“Caiger”). Mr. Caiger is a CPA and CFA and a managing director in the Investment and Corporate Banking Division of BMO Nesbitt Burns Inc.
[279] At trial, Messrs. Winograd and Castonguay gave evidence on behalf of Mark, while Mr. Caiger gave evidence on behalf of Sheldon and Jay. The remaining experts provided reports that were entered into evidence pursuant to a protocol agreed upon by the parties: the evidence would be admitted and the witness would not be called based on the understanding that, had a full cross-examination been conducted, the expert witnesses would have “stood their ground.”
Challenge to the impartiality of the PwC witnesses
[280] Despite the unanimously agreed upon protocol, a dispute arose with respect to the impartiality of the PwC witnesses: Messrs. Marino, McKenna and Castonguay. Sheldon took issue with the impartiality of the PwC evidence given the fact that Mr. Potter, a tax advisor at PwC, has historically provided advice to Mark.
[281] Sheldon submits that the problem exists primarily due to the fact that Mr. Marino assisted Mark in preparing an exhibit that was attached to one of Mark’s affidavits in this proceeding and there had been some communications between Mr. Marino and Mr. Potter. Mr. Marino, thereafter, briefed Mr. Castonguay about the matter.
[282] Mark responds by submitting that Mr. Castonguay testified at trial that he had no discussions with Mr. Potter and that an ethical wall had been placed between Mr. Potter’s tax group and Mr. Castonguay’s corporate finance group. Mr. Castonguay further testified that at the time of his retainer, he had no familiarity with Mark or the Group, or with PwC’s ongoing relationship with them. He confirmed that he had spoken with Mr. Marino but had only received some background information and, in forming his opinion, he only relied upon the Application materials provided by counsel.
[283] Mr. Castonguay strongly rejected the suggestion that there were inadequate ethical walls put in place.
[284] The law in this area is set out in the well-known case of White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 S.C.R. 182, at paras. 48-49 (“White Burgess”). Admissibility of expert evidence is a two-stage analysis, where impartiality and independence are considered at both stages: White Burgess, at paras. 34, 45. If the evidence is determined to be admissible, these factors can still affect the weight given to the admitted evidence: White Burgess, at paras. 34, 45. As a result of the agreed upon protocol, the balance of my analysis will focus solely on the issue of impartiality.
[285] At the first stage of the analysis, once the expert attests to their understanding of and commitment to their duty of independence and impartiality to the Court, the burden falls on the objecting party to prove a realistic concern that the expert is unable and/or unwilling to comply with their duty. The threshold requirement at this stage “is not particularly onerous and it will likely be quite rare that a proposed expert’s evidence would be ruled inadmissible…”: White Burgess, at para. 49.
[286] Once the threshold requirement is met, the trial judge retains the gatekeeping function to exclude evidence where the prejudicial effects of admission outweigh the probative value: White Burgess, at para. 24. At this second step of admissibility, impartiality is once again considered, along with the relevance, necessity and reliability of the evidence, against “the counterweights of consumption of time, prejudice and confusion”: White Burgess, paras. 24, 54.
[287] As noted above, I am of the view that the evidence is admissible and its weight should not be discounted. Ideally, I agree that it is preferable to retain experts from organizations that do not have ongoing relationships with the parties. PwC is, however, a large, reputable firm that is sophisticated in its handling of confidential information and the creation of ethical walls and restrictions.
[288] The evidence of the PwC witnesses has been proffered in accordance with the unanimous protocol and, with the exception of Mr. Castonguay who testified viva voce, deemed to “stood their ground.” I find that the evidence was relevant, reliable, necessary and impartial, and outweighed the prejudicial effects, if any.
[289] Further, I agree with Mark that Sheldon, at best, is proffering the mere possibility of a connection by way of common employment in a large organization. In White Burgess, the Supreme Court of Canada rejected the suggestion that members of the same auditing firm performing certain accounting tasks cannot be independent experts. I do not accept that the minimal contact that Mr. Marino had with Mr. Potter should disqualify or cause me to disregard the entirety of the PwC evidence. At its highest, it would cause some concern with Mr. Marino’s own evidence, which I do not share on the basis of his limited involvement.
[290] I should note that Sheldon, in support of his allegation, relies upon Mark’s testimony. Sheldon points to Mark’s objection to retaining KPMG to perform an independent audit of the Group’s financial statements because they were “too close” to Sheldon. Sheldon, therefore, submits that the converse is also true and that Mark cannot assert that PwC could provide independent expert advice when they had acted for him in the past.
[291] I do not accept this argument. First, Mark is not qualified to provide any worthwhile evidence concerning professional conflicts. Second, and in any event, I reject any suggestion that KPMG could not have provided independent auditing services to the Group. Last, I do not find that Mark’s objection to retaining KPMG had anything to do with the genuine belief that they were legitimately somehow under the influence of Sheldon. Rather, the conflict in this regard is in keeping with the general dysfunction between these two brothers, in which their relationship deteriorated to a point where reason gave way to emotion.
[292] Based on the above, I am of the view that all of the expert evidence ought to be admitted without discount.
[293] I will now turn to the remedies proposed by the parties, beginning with those proposed by Sheldon and Jay, followed by those proposed by Mark and Corey, before concluding with the Court supervised Wind-Up and Sale.
THE BUY-SELL
[294] Under the Buy-Sell remedy, as described in paragraph 3(s) of the Fresh as Amended Notice of Application, Sheldon and Jay seek the following relief:
(i) Corey and Mark shall, within 10 days of the Court’s order, elect whether they will together be the “Offeror” or the “Offeree” in the Buy/Sell Remedy;
(ii) If Mark and Corey elect to be the Offeror, Sheldon and Jay shall collectively be the Offeree, and vice versa;
(iii) Within 180 days of the Court ordering the Buy/Sell Remedy, or such other time as ordered by the Court, the Offeror shall make an offer (the “Offer”) to the Offeree to purchase its entire interest in The Conservatory Group at a special, all-in price (the “Offer Price”);
(iv) The Offeror (for the purpose of crafting the Offer) and the Offeree (for the purpose of evaluating the Offer) may engage any experts they see fit to assist them and/or consult The Conservatory Group’s existing advisors for such purposes, and the costs of such experts shall be borne by The Conservatory Group;
(v) The Offeree shall have the option to either accept the Offer, and sell its interest in The Conservatory Group to the Offeror at the Offer Price or to purchase the Offeror’s interest in The Conservatory Group at the Offer Price. The Offeree must inform the Offeror of its election within 90 days of receiving the Offer, or such other time as ordered;
(vi) The party (i.e. Offeror or Offeree) that becomes the purchaser under the Buy/Sell Remedy (the “Purchaser”) shall assume responsibility for all existing obligations of The Conservatory Group, including its liabilities (which shall include tax liabilities) and staff; and
(vii) The Purchaser shall acquire the interests of Lorraine Edith Libfeld in The Conservatory Group at a price to be agreed between her and the Purchaser or, failing such agreement, to be determined by the Court.
Sheldon and Jay’s position
[295] Sheldon and Jay submit that the Buy-Sell is the most just and equitable remedy in the circumstances. They submit that it best aligns with the legal principles and best suits the Libfeld brothers’ dysfunctional situation as it will be expeditious and minimally intrusive.
[296] In this regard, they submit that once a court determines that it is just and equitable to intervene, it must consider the availability of less intrusive alternatives to dissolution: see Marot v. Marot, 2019 ONSC 866, at paras. 49-50.
[297] They also submit that the Buy-Sell achieves this goal and is the quickest of the remedies being proffered by the parties, bringing resolution within 9 months. Further, it separates the brothers completely without requiring them to co-manage the business. Insofar as fairness is concerned, Sheldon and Jay submit that the Buy-Sell is fair since: (i) each of the brothers has an opportunity to be purchasers of the business, and (ii) the offeror must be scrupulously honest when crafting an offer in terms of price, structure and other terms because they must also be willing to accept the offer.
[298] Unlike the remedies proposed by Mark and Corey, no court officer would be involved, and the process itself ensures an accurate valuation of the Group since it forces the offeror to provide a fair bid, otherwise the offeree will choose to buy.
[299] Since all of the Libfeld brothers are well acquainted with the business, Sheldon and Jay submit that they are on an equal footing. Therefore, the Buy-Sell remedy treats them in a manner consistent with their reasonable expectations of preserving the business as a going concern and recognizing the legacy interest of Theodore and Edith.
[300] Sheldon and Jay also submit that courts have routinely ordered a Buy-Sell as a primary form of remedy to end deadlocks in family-owned businesses. They rely upon the decision of Epstein J. (as she then was) in Classic Organ Co. v. Artisan Organ Ltd. (1997), 43 O.T.C. 38 (Gen. Div.), at paras. 33-37, wherein it was held that, amongst other things, a Buy-Sell is the most cost effective and accurate way of valuing a business and there is no better way for a person to put a fair value on what they own than to agree upon a price for which they would be prepared to either buy or sell.
[301] Sheldon and Jay also rely upon other case law that generally supports their view that a Buy-Sell incentivizes the offeror to land on a fair price, which consequently should reflect the expected growth in the value of the business and its assets: Sangha v. Reliance Investment Group Ltd., 2012 BCSC 355, at para. 49; and Belman v. Belman (1995), 1995 CanLII 7220 (ON SC), 26 O.R. (3rd) 56 (Gen. Div.), at para. 93.
[302] Further, Sheldon and Jay rely upon the evidence of Mr. Caiger in submitting that a proposed Buy-Sell transaction is entirely financeable. Mr. Caiger specializes in complex balance sheet transactions and financings. He has been involved in the real estate industry for several years, specifically in the GTA.
[303] Mr. Caiger, who testified at trial, was of the view that there were various forms of financing and funding available that would allow either side to purchase the Group. These sources would include cash from the business, investments by outside equity partners, sales of some of the Group’s assets, the inclusion of assets as consideration to the vendor, vendor take-back loans and the brothers’ own personal resources.
[304] Relying upon the assumptions proposed by Mark’s expert, Mr. Winograd, Mr. Caiger assessed the potential value of the Group at between $2.5 and $4 billion.
[305] Mr. Caiger was of the view that financeability would be asset-based and secured by the real estate assets of the Group, in a “bottom up” approach. He concluded that funding would have to be in the range of approximately $939 million to $1.689 billion for one side to purchase the Group from the other.
[306] Mr. Caiger did not confine his analysis to financing provided by a bank. He was of the view that potential lenders would likely engage in “bottom up” financing, and that the potential purchaser would also consider alternative sources of financing, as stated above. He was generally of the view that “top down” financing—with lenders, primarily banks, lending money to the offeror—was not necessarily feasible.
[307] Based on his analysis, Mr. Caiger was of the view that it was reasonable to expect that a financing plan could be successfully developed to fully fund an acquisition under the Buy-Sell.
[308] Sheldon and Jay, therefore, submit that the Buy-Sell best accords with the existing jurisprudence, provides the most practical solution to separate the brothers and is entirely financeable.
Mark and Corey’s position
[309] Mark and Corey argue that the Buy-Sell is unfair, one sided, unworkable and specifically designed to benefit Sheldon and Jay.
[310] They submit that the Buy-Sell, otherwise known as a shotgun clause, is an extreme and draconian method of ending a partnership and should not be imposed where it is not contemplated by the parties. Mark and Corey add that the case law suggests that if a Buy-Sell is contained in a partnership agreement, it ought to be strictly construed: see Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722, 117 O.R. (3d) 561, at paras. 40-44.
[311] Mark and Corey submit that it is of particular import that they cannot act as offerors. It would be unfair and unreasonable to impose the Buy-Sell as Mark and Corey have no desire to work with each other and want to pursue their own separate paths. Mark made this abundantly clear when he commenced his Application against his three brothers. He has not resiled from that position during the litigation.
[312] They further submit that Sheldon and Jay are well aware of their views and have proposed a remedy that guarantees Sheldon and Jay an opportunity to purchase the business.
[313] Mark and Corey also submit that the Buy-Sell remedy is particularly unfair as a result of the information asymmetry that exists within the Group, given Sheldon’s significant advantage in his role as the manager of the Group’s acquisitions, financing, structuring, tax and accounting, as well as his responsibility of managing the Group’s partnership relations which includes all banking relationships.
[314] They further believe that the Buy-Sell is unfair as it would allow Sheldon and Jay to “cherry pick” the best asset classes and later liquidate those that they do not wish to keep. They submit that Sheldon and Jay have specifically reserved the right to liquidate assets, which undermines Sheldon and Jay’s submissions that they want to preserve the entire business to honour their parents’ legacy.
[315] Mark and Corey are also of the view that the timeline, which they say is very tight in the circumstances, does not allow them an opportunity to raise the necessary financing and rewards the oppressive conduct of Sheldon, supported by Jay.
[316] Mark and Corey further rely upon the evidence of their experts. I will first discuss the evidence of Mr. Castonguay, who testified on the information asymmetry within the Group, the consequent difficulty for Mark and Corey to obtain financing and the structural uncertainty of the proposed Buy-Sell. I will then discuss the evidence of Mr. Winograd, who testified on the financing feasibility of the proposed Buy-Sell.
[317] Mr. Castonguay testified that the proposed Buy-Sell was not feasible in the circumstances given Mark and Corey’s lack of access to financial and operational information necessary to make informed decisions within the timelines, the difficulty in securing financing and the structural uncertainty with the mechanics of the Buy-Sell, particularly as it relates to potential tax implications.
[318] In this regard, Mr. Castonguay was of the view that the parties would need detailed, consolidated audited financial statements, current appraisals of assets, cash flow projections and other information, none of which had been historically prepared by the Group. He did not believe that this could be done in the necessary timeframe, especially considering the Group’s lean management team.
[319] Mr. Castonguay believed that financing within the proposed timeframe would pose a significant hurdle to the Buy-Sell, which likely requires both the offeror and offeree to secure financing. By way of example, using a valuation of $4 billion for the Group, he believed that multiple lenders would be necessary to finance a purchase. The timing of the Buy-Sell, in addition to the need for both sides to seek financing, makes this proposal very difficult. He also commented that there would be an added layer of difficulty if Mark and Corey were not prepared to act in concert. Either of them would have to provide all of the funding, requiring the arrangement of $3 billion in financing to be able to separate from the other brothers.
[320] Although not a tax expert, Mr. Castonguay testified that there was significant tax planning that would be required before executing the transaction and that the seller could experience significant tax inefficiencies.
[321] Mr. Castonguay also noted that each partner’s managerial role and competencies within the Group would have a significant impact on a lender’s ability and willingness to provide financing to any one of the Libfeld brothers.
[322] I will now address the evidence of Mr. Winograd on the feasibility of the Buy-Sell. Speaking candidly, he described the Group’s situation as a “mess that this family has created for itself.” Mr. Winograd also conceded that he was asked to prepare his opinion with scant information stating, “[n]ever in an assignment have I had to work with less…”. I am of the view, however, that he was able to prepare a suitable report.
[323] Mr. Winograd adopted a “top down” model of financing that would involve typical bank lending. He was not of the view that Mr. Caiger’s approach could be done at a commercially reasonable capital cost.
[324] Mr. Winograd believed that there were significant execution risks in the Buy-Sell given the size of the Group, its lack of consolidated leadership and the fact that both sides would be seeking financing. He also noted that, even with generous lending rates, it would be very difficult to secure enough debt financing to complete the transaction given the amount that would have to be obtained. In his view, this was a result of the volatile lending capacity of land, as well as the Group’s historical practice of dealing with one banker, TD.
[325] Mr. Winograd also identified significant risks given the nature and history of the Group’s management structure (which would only be exacerbated by the Libfeld brothers’ extreme distrust and dysfunction). He further added that equity financing would pose significant cultural risks as additional partners would look for strong governance practices, including stringent controls and decision-making transparency.
[326] Mr. Winograd further saw the Buy-Sell remedy as being unfair in the circumstances where one side does not want to buy the business, which would not only force Mark and Corey into the role of offerees, but could also fail to create price tension; therefore, resulting in Mark and Corey not getting full value as offerees.
[327] Primarily as a result of the above observations, Mr. Winograd was of the view that the Buy-Sell remedy is more likely to fail than succeed.
Analysis
[328] The Buy-Sell is not an appropriate remedy.
[329] For the below reasons, I agree with Mark and Corey that the Buy-Sell remedy proposed by Sheldon and Jay is unfair, difficult to implement and subject to execution risk.
The Buy-Sell was not within the reasonable expectations of the parties
[330] There has never been an agreement between the Libfeld brothers that a Buy-Sell type arrangement would be entertained should they be unable to continue the partnership together. As noted above and described in Western Larch, it is seen as a draconian remedy which ought to be strictly enforced.
[331] I do not accept Sheldon and Jay’s submission that the reasonableness of the Buy-Sell remedy should implied. Sheldon and Jay note that since the Group typically includes Buy-Sell provisions in its joint venture agreements with other entities, it should be implied that it is reasonable to implement a Buy-Sell within the Group. Unlike their relationships with third parties, however, the Libfeld brothers never came to the conclusion that it was reasonable within the Group. It is, therefore, not fair and reasonable to assume that this would be an appropriate way to settle their dispute. To the contrary, it is easier to infer that such a remedy would be unreasonable.
[332] Additionally, I disagree with Sheldon and Jay’s submission that the Buy-Sell would preserve and honour their parents’ legacy by enabling the offeror to keep the Group as a whole.
[333] As I have noted above, any legacy has been tarnished and there is little left to preserve. Furthermore, Sheldon and Jay reserve the right to later sell Group assets that they deem undesirable. They have not resiled from the fact that they may pursue this option; thus, there is no certainty that the legacy they describe would be preserved.
The Buy-Sell is essentially a “buy” with Mark and Corey as the sellers
[334] Mark and Corey, particularly Mark, have made it clear that they do not wish to work together. Mark has taken this position from the outset of the litigation when he commenced his Application against his three brothers. Their testimony in this regard went largely unchallenged.
[335] I accept Mark’s position that, given what has transpired, he wants to detach himself from his brothers and does not wish to work with any of them.
[336] This being the case, the Buy-Sell forces Mark and Corey to act alone in being offerors or offerees. I reject Sheldon and Jay’s submission that the Buy-Sell does not unfairly require Mark and Corey to act together. Sheldon and Jay submit that Mark and Corey have acted in unison since Corey switched sides in the dispute. While that may be true insofar as their proposed remedies are concerned (which are fashioned to separate all of the brothers), it does not change the fact that Mark has not wanted to work with Corey since he commenced his Application in 2017. Corey also does not want to work with Mark.
[337] It would be unfair to expect them to cooperate in the purchase of a multibillion-dollar company in these circumstances. The Buy-Sell unfairly favours Sheldon and Jay, who have acted in concert throughout the years leading up to and including the litigation.
[338] Therefore, the proposal is not a true Buy-Sell but rather, essentially, a “buy” with Sheldon and Jay being the buyers. This would be unfair to Mark and Corey since it would lessen the price tension, which is one of the hallmarks of a fair Buy-Sell agreement.
The Buy-Sell will be difficult to implement and will not necessarily be cost efficient
[339] The Buy-Sell has very tight timelines that will unfairly prejudice Mark and Corey by hindering their ability to adequately prepare. They will only have 10 days to obtain sufficient information to decide whether to act as offeror or offeree. If they elect to be the offeror, they have 180 days to make an offer.
[340] The 10-day limit to make a decision is wholly inadequate and the 6-month timeline to obtain funding is very tight.
[341] Sheldon and Jay submit that I could alter the timelines if need be. I decline to do so. First, I do not believe that the Buy-Sell overall is fair. Second, while it may be appropriate for the Court in certain circumstances to tinker with the provisions of a Buy-Sell advanced by a party, given the complexities involved with the Group, with respect to its size, scope and value, it would be very difficult for me to wade in and make adjustments. Last, Sheldon and Jay ought to have put their best foot forward in this regard.
[342] Moreover, I do not accept Sheldon and Jay’s submission that the Buy-Sell should be implemented because it is the most cost-efficient remedy. First, cost is only one of many factors to be considered. Second, the Group is a complicated and extremely valuable entity. Unlike smaller businesses, it is reasonable to order a remedy that will include the reasonable fees of a Sales Officer if it is done in a way that will ensure that the remedy obtains the maximum value and tax efficiencies for the Group and the Libfeld brothers. In fact, the lack of oversight by the Court or a court officer could lead to the exact opposite result.
The information divide and the structure of the Buy-Sell will lead to protracted litigation
[343] The informational divide that exists within the Group prejudices Mark and Corey in a Buy-Sell arrangement and will lead to ongoing litigation. I accept that Sheldon enjoys a disproportional knowledge advantage over his other brothers given his historical role within the business, including banking relationships, which would play to his distinct advantage in a Buy-Sell remedy, particularly with the tight timelines set out by Sheldon and Jay.
[344] I do not cast aspersions in Sheldon’s direction with respect to this information advantage but given the various brothers’ roles in the evidence at trial, it exists. Simply put, given his overarching role in finance and accounting, and his professional relationships, such as banking, he has a much better understanding of the Group’s overall finances.
[345] Sheldon and Jay’s information advantage is particularly important given the brothers’ dysfunction and lack of trust. I accept that Sheldon and Jay cannot be relied upon to provide their brothers with proper access to information without the benefit of a data room and court officer, neither of which is provided for in a Buy-Sell.
[346] Further, as I have noted earlier in these Reasons, Sheldon has a history of not being forthright with his brothers. This was evidenced by his statement that he could not provide an estimate of the value of the Group, which evidence I rejected. I have found that he has refused to provide an estimate because he believes it would be advantageous in this litigation.
[347] In stating the above, I also note that, if the shoe was on the other foot, I would not expect Mark and Corey to be forthright with any relevant information, given the deep distrust between the brothers and their inability to cooperate on any point that could be material in carrying out a remedy.
[348] While I accept that Mark and Corey could have pursued a better understanding of the Group’s finances over the years (particularly given the experts they have retained), I accept that access to information was not made easily available to them by Sheldon, which supports my view that information would now not be forthcoming in a situation where they would be fighting for ownership of the company by way of a Buy-Sell. The aforementioned dysfunction, disputes and altercations clearly bear this out.
[349] I am, therefore, of the view that a Buy-Sell would result in the parties repeatedly coming back to court to air their disputes. Based on their history, there is certainly no expectation that the Libfeld brothers would only bring sensible and legitimate disputes to the Court. In particular, I suspect that there would be ongoing significant disputes as to whether Mark and Corey were being provided with sufficient information to decide whether they should be an offeror or an offeree. This has been one of the considerable sore points between the Libfeld brothers over the years where Mark, and belatedly Corey, believe that Sheldon purposely does not provide them with sufficient information.
[350] Such a problem would be difficult to address in the best of cases, but here we have one of the worst of cases. Based on all of the above, there is absolutely no reason to believe that the Libfeld brothers can act in a coherent, business-like fashion in the exchange and analysis of information. There will always be allegations that Sheldon is not providing enough information and resulting allegations that Mark and Corey have enough information but refuse to accept or properly review it. I can see nothing but protracted and difficult litigation ahead if this remedy is granted.
The Buy-Sell is vulnerable to execution risk
[351] Last, while the experts may disagree upon the type of financing that ought to be provided and the associated risks, their evidence discloses obvious execution risks in implementing the Buy-Sell, with severe consequences if the offeror fails to obtain financing. Execution risks further increase the likelihood of allegations of unfair treatment between the brothers.
[352] I do not propose to conduct an in-depth analysis as to whether “bottom up” or “top down” financing is preferable, which lenders would likely be available, or whether vendor take-back financing is superior.
[353] While the parties have taken issue with the other’s experts with respect to their strengths and weaknesses—i.e. Sheldon and Jay submit that Mr. Caiger is a superior witness given his dealings in the real estate industry and complex financing, while Mark submits that Mr. Winograd is a superior witness given his experience with complex family matters (and there are many more examples in this regard)—both sides have retained knowledgeable, capable experts who I accept have offered their honest, expert opinions on this issue.
[354] In theory, much of Mr. Caiger’s testimony concerning the available financing is sensible and reflects a reasonable analysis that a financer would employ. Unfortunately, Mr. Caiger did not have the benefit of watching the Libfeld brothers’ testimony at trial, which undermines any suggestion that they could act reasonably in effecting the proposed Buy-Sell remedy that requires significant cooperation concerning information sharing necessary to address several significant issues, for example valuations, tax planning and the like. Further, execution risk exists concerning the large amount of financing that the offeror would require and the potential that the offeror would require new partners.
[355] Overall, given my observations, the Buy-Sell remedy is unfair to Mark and Corey. It puts them in the untenable position to have to act together, provides for a tight timeline, has baked-in information imbalance, does not allow for any court oversight and poses execution risks. This is all in circumstances where the Libfeld brothers never contemplated such a partnership exit strategy when they built the business with their father, or at any time before their falling out.
THE STRUCTURED BUY-OUT (“SBO”)
[356] The alternative submission of Sheldon and Jay is that the SBO should be ordered as it is also just and equitable in the circumstances.
[357] Generally, the critical elements of the SBO require Mark and Corey to step down as directors and officers, and to transition their day-to-day responsibilities to new personnel in the Group. Their interest in the Group will be paid out when each of the projects is completed and the transactions are closed. In the meantime, Mark and Corey would continue to receive regular reporting of the progress of the existing advanced development projects.
[358] Mark and Corey’s interests in other assets, not in the advanced development stage, would be valued on a fair market basis and Sheldon and Jay would have the opportunity to purchase Mark and Corey’s interests at determined values. If Sheldon and Jay elect not to buy these interests, Mark and Corey would be given the opportunity to buy the assets. If none of the brothers wanted to purchase these assets, they would be liquidated.
[359] The process would involve, generally, the appointment of an expert to appraise the assets, KPMG would conduct a consolidated audit and both sides would retain experts to determine fair market value. If the Libfeld brothers could not agree upon a valuation, the Court would decide.
Sheldon and Jay’s Position
[360] Not surprisingly, the SBO, which was the original remedy proposed in 2017, contains similar features to the Buy-Sell.
[361] Sheldon and Jay submit that where Buy-Sell remedies have been rejected due to the dynamics between the parties, such as the those in this case, the buyout of one side’s interests in the business has been found to be appropriate: see Wittlin v. Bergman (1995), 1995 CanLII 790 (ON CA), 25 O.R. (3d) 761 (C.A.), at para. 11; Muscillo v. Bulk Transfer Systems Inc. (2009), 2009 CanLII 38508 (ON SC), 61 B.L.R. (4th) 92 (Ont. S.C.), at paras. 87-90.
[362] Sheldon and Jay further submit that the SBO is an attractive remedy since it will end the dispute by separating the brothers’ business interests in a matter of months, with full payout taking as much as three to four years. The brothers would, therefore, have minimal ongoing involvement with each other and there would be minimal need for the Court to supervise the process. The Group would be preserved as a going concern, which would maintain current long-time employees, trades, joint ventures and other stakeholders. Moreover, it would recognize the legacy interests of Theodore and Edith and would obviate the necessity of a court officer.
[363] They also submit that the SBO is within the reasonable expectations of the parties given that Mark and Corey’s proposed remedies contemplate the sale of their interest in the Group, while Sheldon and Jay’s remedies contemplate the purchase of Mark and Corey’s shares.
[364] Moreover, Sheldon and Jay submit that the SBO ensures that they are all treated fairly given the nature of the business, the family interests and the origins of the brothers’ interests in the Group. They further submit that neither Mark nor Corey would be rewarded for their alleged inappropriate conduct, and the remedy does not depend on cooperation between the Libfeld brothers.
[365] Further, Sheldon and Jay rely upon their experts. I will first discuss the evidence of Mr. Cohen, who provided evidence on the methodologies to determine the valuation of a 25% minority interest in the Group and the expected proceeds between the SBO and MRP. I will then discuss the evidence of Mr. Gibney, who provided evidence on the tax implications of the SBO, Buy-Sell and MRP.
[366] The first of Mr. Cohen’s three reports addressed the methodology for calculating a 25% interest in the Group. The scope of that report was contemplated at a time when Corey was aligned with Sheldon and Jay. Mr. Cohen recommended the following methodology: a going concern approach, given the profitability of the Group; an asset-based technique to determine the en bloc fair market value of the Group, given the real estate dominant portfolio; and a minority and liquidity discount applied in determining the value of a 25% interest in the Group. In his further reports, following Corey’s change of position, Mr. Cohen was still of the view that a minority discount was appropriate.
[367] In response to Mark’s concerns about the inadequacies of a point-in-time valuation, necessary for the SBO, Mr. Cohen noted that the en bloc valuation would reflect the value of goodwill associated with the Group, as well as the difference between the historic cost of vacant land and present developed market value.
[368] In his second report, Mr. Cohen was primarily asked to respond to the Marino report, and to compare the MRP to the SBO. Mr. Cohen’s assessment of the MRP will be discussed in the following section.
[369] Mr. Cohen believed that the SBO is superior to the MRP because it has fewer uncertainties, complications and operational disruptions. Further, Mr. Cohen was of the view that the SBO was favorable to the departing partners as it would allow them to monetize their interests in the Group in a more expeditious manner.
[370] With respect to the valuation of the Group en bloc, and consequent interest of Mark and Corey, Mr. Cohen disagreed that the point-in-time valuation in the SBO would be unfair. The concern with a point-in-time valuation is that the price would be heavily dependent on the strength of the real estate market at the time of the transaction, and that the price would not reflect the scarcity of land. Mr. Cohen believed that the appropriate valuation methodology would consider more than just comparable prices; moreover, the notional value of the brothers’ interest in the Group may be adjusted to reflect the scarcity of developable land.
[371] Mr. Gibney’s evidence supported the SBO by challenging the tax advantages attributed to the MRP by Mark’s experts. Mr. Gibney believed that Mr. Marino’s report lacked sufficient analysis and detail, including with respect to how certain transfers and distributions could be implemented on a tax-deferred or tax-free basis. On certain classes of assets, Mr. Gibney further concluded that there was no tax advantage to the MRP over the SBO. Consequently, he disagreed that the MRP was significantly more tax efficient than the SBO.
[372] Similarly, Mr. Gibney responded to the evidence of Mr. Lorito by disagreeing that there are tax advantages of the MRP over the SBO. Mr. Gibney further noted that Mr. Lorito either did not have access to the same level of information or underestimated the complexity of the ownership structure of the Group’s assets.
Mark and Corey’s Position
[373] As with the Buy-Sell, Mark and Corey described the SBO as unfair and inappropriate.
[374] They submit that it forces them out of the Group in a punitive and unfair fashion in circumstances where the SBO was never contemplated by the brothers when they went into business together. The SBO also applies a minority discount and exposes Mark and Corey to double taxation. At the same time, all intrinsic value and accumulated tax deferral structures would remain in the Group for the benefit of Sheldon and Jay.
[375] Similar to their criticism of the Buy-Sell, Mark and Corey submit that the SBO allows Sheldon and Jay to “cherry pick” assets by liquidating undesired classes of assets, which is contrary to their stated goal of keeping the Group whole. Moreover, it effectively provides Sheldon and Jay a right of first refusal on entire classes of assets. Once a valuation has been set, Sheldon and Jay would have a choice to purchase the class of assets which, if they refuse, would then be passed on to Mark and Corey and, ultimately, sold if none of the brothers agree to purchase them.
[376] Mark and Corey further submit that the SBO prevents their involvement in all decision making concerning workout assets and operating cash, thereby limiting their ability to re-establish themselves in the business. The SBO restricts their control on assets required to start fresh in the market, while leaving them vulnerable to the immediate tax consequences flowing from their attempt to re-establish themselves. Moreover, they submit that Sheldon and Jay have neither addressed the SBO’s tax consequences on Mark and Corey, nor set out the certainty in cash flow to fund the ensuing immediate tax consequence.
[377] Once again, Mark and Corey submit that this remedy rewards Sheldon’s inappropriate conduct, supported by Jay, and neither provides transparency nor proper independent business valuations.
[378] In this regard, Mark and Corey rely upon the decision of the Court of Appeal in Naneff v. Con-Crete Holdings Ltd. (1995), 1995 CanLII 959 (ON CA), 23 OR (3d) 481 (C.A.), at paras. 31-33, in which it was held that a fair and appropriate remedy in the oppression context cannot run counter to the parties’ reasonable expectations or give them something that could never have formed part of those expectations. Given the fact that the Libfeld brothers all had an equal interest in the Group with the intention and expectation that they would continue on in the business, none of them would reasonably expect that they would be deprived of that opportunity by the SBO.
[379] Mark and Corey also rely upon the decision of this court in Hicks v. Pacific Canada Resources Inc., 2011 ONSC 3720, at para. 44, where the Court refused to order a buyout in similar circumstances, where the unanimous shareholder agreement did not contemplate a buyout, there was no reliable evidence concerning the value of the shares and there was a risk of adverse tax ramifications for some stakeholders.
[380] Mark and Corey further submit that the SBO lacks specificity related to the execution of the SBO and to exactly what interests are being bought.
[381] Mark and Corey’s position is supported by the evidence of Mark’s experts.
[382] Mr. Marino analyzed the SBO and MRP proposals from a business valuation perspective and determined that the SBO was unfair to Mark and Corey. He is of the opinion that the SBO adversely impacts Mark and Corey by imposing a “point-in-time” valuation of the assets in the Group, while also erasing the future value of those assets. He was further of the opinion that the SBO would impose a significant double taxation upon Mark and Corey, as well as the loss of deferred tax built up in their land interests. Finally, Mr. Marino believed that the double minority discount (partnership and project levels), contemplated by the SBO, would be inappropriate given the nature and governance of the Group and its relationship with third parties.
[383] Mr. Lorito, the tax expert, provided evidence as to the tax efficiency of the MRP relative to the SBO. He essentially opined that the SBO is “inherently tax inefficient” since it does not allow for tax to be paid on a deferred basis.
Analysis
[384] I do not accept that the SBO is a fair and reasonable remedy.
[385] Generally, I agree with Mark and Corey that the SBO is an arbitrary mechanism favouring Sheldon and Jay. It allows two partners to buy out the others’ interests in the Group in a process that employs a minority discount and likely results in unfriendly tax consequences for Mark and Corey, while keeping the intrinsic value of the business and existing, accumulated tax deferral structures for the benefit of Sheldon and Jay.
The SBO will exclude Mark and Corey from the Group and was not within the reasonable expectations of the Libfeld brothers
[386] My primary objection is to the ability of two partners to buy out the other two from the family business, which they all entered as equal partners. This strikes me as being unfair.
[387] All four brothers have contributed to the Group over the years and it would be unfair, as a result of the breakdown in trust and confidence for which all of the brothers share responsibility, that Sheldon and Jay would be permitted to stay and Mark and Corey would be forced out.
[388] Furthermore, it will allow Sheldon and Jay to keep whatever assets they ultimately desire and dispose of others. Again, this flies in the face of their stated goal to keep the business whole and their argument that keeping the business whole was a reasonable expectation of the brothers and in keeping with the family legacy.
[389] I agree with Mark and Corey that the SBO runs counter to all of the Libfeld brothers’ reasonable expectations when they entered the business. They would not have contemplated that some brothers would obtain the business and maintain it or liquidate it at their discretion, while the others would receive none of the business and its inherent advantages.
The SBO structure results in unfair tax consequences and minority discounts
[390] I do not propose a deep dive into the different experts’ reports relating to the SBO since I am of the opinion that the concept in and of itself is manifestly unfair. As with the previous experts, I accept that the experts have carefully reviewed the matter and provided their honest opinion. The differences in opinion concerning issues such as financing and other similar issues pale in comparison to the Libfeld brothers’ inability to treat each other fairly, thus rendering the SBO remedy unfair and unworkable.
[391] That being said, I accept Mark’s expert evidence that the minority discount Sheldon and Jay seek to employ, along with the tax consequences upon the buyout, result in some unfairness in circumstances where Sheldon and Jay continue to enjoy the intrinsic value of the Group and the built in tax deferrals.
[392] I now turn to the remedies proffered by Mark and Corey.
THE MODIFIED RESTRUCTURING PROTOCOL (“MRP”)
[393] Mark and Corey’s primary submission is that the most appropriate remedy would involve the implementation of the MRP.
[394] The MRP is contained in a detailed, six-page document that allows for a court supervised restructuring of the Group under the oversight of a court-appointed Restructuring Monitor.
[395] Generally, the Restructuring Monitor would have significant authority and power within the Group. Not only could the Restructuring Monitor recommend how the business should be operated, for example, the decision to engage supervisors and oversee distribution, but the Restructuring Monitor could also, in the state of disagreement amongst the Libfeld brothers, exercise the rights held by the Libfeld brothers. This would include carrying out business affairs such as selling or preserving assets, dealing with debts, liabilities and collections, and authorizing cash distributions to the Libfeld brothers.
[396] Ultimately, the MRP would result in the Group being divided into four equal interests, which would be distributed to each Libfeld brother’s holding company. The interest would be comprised of cash, mortgages, development and land inventory, stocks, and income producing properties. The Restructuring Monitor would determine the process in which the four equal interest would be distributed.
Mark and Corey’s Position
[397] Mark, supported by Corey, submits that the MRP allows the Libfeld brothers to disengage on a tax efficient basis, in a manner that equally provides them with the Group’s assets and associated benefits, such as tax deferrals and ongoing intrinsic value.
[398] Mark also submits that this type of remedy echoes the Group’s historical method of separating assets amongst partners, in tax deferred transactions. According to Mark, Theodore deployed a similar method with another entity in which he was involved with family members.
[399] Mark further submits that the other major benefit of the MRP is the appointment of the Restructuring Monitor, which will allow fairness and transparency. That the Restructuring Monitor will only minimally impact the business in an “advisory” capacity during the wind-up and ultimate distributions. Mark submits that this is paramount given the distrust between the brothers.
[400] Additionally, Mark submits that the amended Notice of Application, which he has delivered, further creates a capacity for packages of full development assets to be distributed to the Libfeld brothers, thereby avoiding lengthy delays and addressing Sheldon and Jay’s complaints with respect to situations that would potentially have the Libfeld brothers collectively holding lots in the same low-rise developments.
[401] Mark adds that if Sheldon and Jay do not want to participate in the same projects as Mark, or Corey for that matter, they can sell whatever assets they have received.
[402] Last, Mark submits that the MRP is fair to the Group’s employees since they can work for whichever brother they wish, and poses no risk to trades, suppliers, existing customers or their TARION obligations.
[403] Mark and Corey rely upon the evidence of three of Mark’s experts. I will first address the evidence of Mr. Marino, who provided evidence that the MRP would preserve the future value of the Group’s assets and would be more tax efficient for each Libfeld brother. I will then address the evidence of Mr. Lorito, who provided evidence that the MRP is a tax-friendly vehicle and more tax efficient than the SBO. Finally, I will address the evidence of Mr. McKenna, who provided evidence on the nature of the MRP.
[404] Mr. Marino opined that the appointment of a Restructuring Monitor would not create an impression that the Group is in insolvency and would not amount to a liquidation, given the Group’s superior financial position and the fact that each Libfeld brother would receive assets in kind.
[405] Mr. Marino is also of the view that the MRP would ensure transparency and allow each brother to enjoy a similar, timely and tax deferred division of assets.
[406] Mr. Lorito, amongst other things, also concluded the MRP is a tax-friendly vehicle. Mr. Lorito was of the view that the MRP allows for a tax deferred division of the Group that is more tax efficient than the SBO.
[407] Mr. Lorito disagreed with the opinion of Mr. Gibney and emphasized that Mr. Gibney did not conclude that the MRP remedy would be impossible to implement. Overall, Mr. Lorito concluded the MRP should be achievable as the most tax efficient method of distributing the assets of the Group.
[408] Mr. McKenna also supports the MRP. He opined that the MRP would not take decades to achieve, as alleged by Sheldon, but rather it should be achieved in “the medium term” and that the incremental costs of a Restructuring Monitor are not unreasonable.
[409] Moreover, Mr. McKenna believed that a Restructuring Monitor would be necessary given the level of distrust between the Libfeld brothers.
[410] Similar to Mr. Marino, Mr. McKenna was of the view that the MRP does not constitute an insolvency akin to a CCAA proceeding. He basis this opinion on the fact that the Group is operating profitably with little debt and that the execution risk to third parties—including employers, suppliers, trades, TARION and customers—is no greater than would exist in any restructuring.
[411] Finally, Mr. McKenna also concluded that there would be tax benefits that would flow from the MRP but conceded that he was not providing a tax opinion, which would be outside his area of expertise.
Sheldon and Jay’s Position
[412] Sheldon and Jay begin by objecting to the jurisdiction of this court to impose a court officer (a Restructuring Monitor), absent ongoing fraud or oppression. As I have noted above, I disagree and have concluded that I have the jurisdiction to do so. Given the extreme and irreparable dysfunction between the brothers, there are sufficient findings of inappropriate conduct leveled against all the Libfeld brothers that justify the appointment of a court officer, if I deem it to be the most appropriate remedy.
[413] Additionally, Sheldon and Jay have submitted approximately 24 densely-typed pages of written objections as to why the MRP should be rejected. Essentially, in broad strokes, they are concerned that the MRP indefinitely binds the brothers together, ultimately “cleaves” the assets of the Group for distribution, runs contrary to the legacy of their parents, inappropriately constitutes liquidation, adversely affects the business and its relationships, and unfairly favours Mark and Corey. In short, that it will perpetuate the brothers’ disputes, not end them.
[414] Sheldon and Jay also have a host of specific complaints essentially targeting what they claim to be the unclear nature and lack of structure of the proposed MRP remedy and the potential broad powers of the Restructuring Monitor to operate the company and have ultimate decision-making powers. They are concerned that there is no certainty as to what a court would be ordering if it were to embrace the MRP remedy.
[415] Most significantly, Sheldon and Jay complain that the MRP does not achieve a clean break in a timely manner. Rather, the MRP contemplates the Libfeld brothers having to work together with respect to the continued development of projects and land inventory, that other projects would proceed in the normal course and arms-length parties would have to be involved. Overall, they submit that this will inevitably tie the brothers together for a decade or more. Of note, they submit, that the MPR does not have any timelines.
[416] Sheldon and Jay also submit that the MRP contemplates regular attendances before the Court by the Restructuring Monitor to approve steps and deal with disputes between the brothers. Thus, it is not really a solution but rather another process to hopefully resolve the brothers’ differences.
[417] Sheldon and Jay express concerns that the MRP is extremely intrusive, as noted above, and effectively gives the Restructuring Monitor enormous powers akin to a receivership. This would have numerous damaging effects on the assets of the Group. They submit that key employees are likely to quit, relationships with suppliers and tradespeople will be damaged and the Group’s joint venture partners may see the appointment of a Restructuring Monitor as an opportunity to compel the Group to sell assets by triggering Buy-Sell provisions in their agreements with the Group. Sheldon and Jay also fear that they will be jeopardizing the Group’s relationship with TARION, affect their banking relationships and the relationships with purchasers and pre-construction homebuyers who want to rely upon a 7-year new home warranty. They are also concerned about the potential for their lending covenants to be triggered by the appointment of a Restructuring Monitor.
[418] Sheldon and Jay also submit that inequities will occur as brothers pursue their own interests but remain bound together in projects involving the Group.
[419] Sheldon and Jay are of the view that the MRP favours Mark and Corey because their expertise is applied at the later stages of development as compared to the expertise of Sheldon and Jay. They are concerned that the in-kind distributions allow Mark and Corey to benefit from the expertise of Sheldon and Jay, which apply at the earlier stages and throughout the life of the project, respectively—sourcing inventory, negotiating acquisitions and seeking development approvals, as well as building condominiums. Once the lots are transferred, however, Sheldon and Jay would not be able to benefit from the expertise of Mark and Corey—building low-rise developments and after-sales work.
[420] Sheldon and Jay are further concerned that they will disproportionately bear the burden of the work required to divide land and condominiums. Raw land cannot be divided until there is a draft plan of subdivision, while condominiums cannot be divided and must be marketed as one unit.
[421] Sheldon and Jay also rely upon their experts to support their position concerning the MRP.
[422] Mr. Gibney concluded that many of the MRP’s tax benefits, assumed by Mr. Marino, are simply overstated, uncertain and subject to considerable expense and delay resulting from having to obtain advanced tax rulings from the relevant government authorities.
[423] Similarly, Mr. Gibney opined that Mr. Lorito failed to do the necessary analysis to support his conclusions. Sheldon and Jay submit that Mr. Gibney performed a much more extensive review than Mr. Lorito and, as such, his opinion should be preferred.
[424] Mr. Cohen also provided evidence against the implementation of the MRP. Mr. Cohen disagreed that the MRP and the involvement of a Restructuring Monitor would provide a higher return to the Libfeld brothers. Mr. Cohen further opined that administering the MRP will be more expensive than the SBO, citing additional costs of professional fees, the Restructuring Monitor, and possible termination of employees. Consequently, Mr. Cohen was of the view that the MRP would not derive higher returns to the brothers and may in fact negatively impact the Group’s ability to complete and sell future inventory.
Analysis
[425] Although the MRP is arguably fairer in nature than the Buy-Sell or SBO, I believe that it is doomed to fail. I accept that, insofar as the distribution of the Group’s assets is concerned, each brother would receive, theoretically, an equal distribution. However, given the level of dysfunction and distrust between the Libfeld brothers, the implementation of the MRP would see the Libfeld brothers embroiled in the same type of internecine conflict that has led them to bring these Applications and has resulted in years of personal and business chaos.
The MRP will require the Libfeld brothers to work together
[426] I agree with Sheldon and Jay that the MRP would require the Libfeld brothers to work together on the development and ultimate sale of various projects. They cannot do this. This is crystal clear.
[427] The ongoing projects include high-rise and low-rise developments; however, plans of subdivision cannot be divided so that the brothers could receive lots in the same project. Consequently, the implementation of the MRP would require the brothers to cooperate, which they cannot do. The Restructuring Monitor would, therefore, be tasked with the burden of trying to determine how to equally apportion assets, involving approximately 350 entities, to keep the Libfeld brothers separated from each other. I cannot see how this can meaningfully occur where the situation has deteriorated to the point that the two sides barely speak to each other.
[428] Further, the MRP does not provide clarity as to who will do the buildouts. This will also require cooperation between the Libfeld brothers, which has proven to be impossible to achieve. For example, will Jay be compelled to build out the condominium developments to the benefit of the others? How would he be remunerated? At the same time, if the brothers cannot cooperate, who would be retained to replace them with respect to the developments? All of these questions could reasonably be answered if the Libfeld brothers themselves could cooperate—but they cannot.
The Libfeld brothers must be separated expeditiously
[429] The brothers can no longer agree on anything of any consequence. Their interests must be separated quickly and cleanly with minimal input from them. This will be explored below where I review the remedy that I have chosen: the Court supervised Wind-Up and Sale.
[430] Notwithstanding the opinions of Mark’s experts, it is my view that they underestimate the deep divide and dislike between the Libfeld brothers.
[431] The experts have not had the benefit of listening to days of evidence where Mark and Corey have unleashed a litany of complaints—real and imagined—against Sheldon and Jay. These include confrontations, abuse, Sheldon’s manipulative management of the Group’s finances (aided by Jay) and the various Libfeld brothers’ fallings out with staff, contractors, bankers and the like. Sheldon and Jay submit that the Libfeld brothers cannot and should not be forced to work together to complete developments as contemplated by the MRP. I agree.
[432] By way of an example, when the brothers decided that they should each obtain a luxury condominium at their Milan development, they became embroiled in disputes over parking lots and floor finishings. If they cannot sort out straightforward issues over luxury condominiums that they have awarded themselves, how can they be expected to agree upon significant decisions that the MRP would require? The short answer is they cannot. Realistically, the Restructuring Monitor will need to repeatedly step in, which will only ensure that the Libfeld brothers will repeatedly return to court to fight over every grievance, real or perceived. In my view, this will lead to protracted, expensive and open-ended litigation. The current dysfunction will simply carry on.
[433] I do not, however, accept the criticisms of the MRP with respect to the damaging effects it may have on the assets of the Group or on their relationships with other stakeholders. Many of the same criticisms can be made against the Buy-Sell, if the offerors were to later liquidate assets. Moreover, there is no objective evidence to support the allegations that their relationships with contractors, buyers and governmental organizations cannot be managed. The myriad of criticisms concerning of potential jeopardy to these relationships was essentially a self-serving attempt to create further obstacles to the MRP.
[434] In conclusion, the almost certain failure of the MRP stems from the above noted irrational conflicts that have been developed between and perpetuated by the Libfeld brothers. Given the fact that the Libfeld brothers would have ongoing relationships for several years, and perhaps up to a decade, if the MRP is implemented, there is no reasonable prospect that the ongoing history of name-calling, physical altercations, secretive dealings, petty complaints and complete distrust will dissipate. Furthermore, prolonged dysfunction will only erode whatever economic efficiencies the MRP might create.
[435] It is primarily for this reason that the MRP is not an acceptable remedy.
THE WIND-UP AND SALE
[436] Mark’s alternative submission is that the Restricted Wind-Up and Sale of the Group be ordered under the supervision of a neutral referee, with no brother being permitted to bid on the Group’s assets.
Mark and Corey’s position
[437] Mark, supported by Corey, proposes this alternative remedy if I find the MRP unacceptable. They submit that the Restricted Wind-Up and Sale is the only other remedy that ensures a truly fair and equal division of the Libfeld brothers. In this regard, they submit that the Restricted Wind-Up and Sale does not prejudice any of the brothers, unlike the Buy-Sell or the SBO. They further emphasize that it involves equal treatment vis-à-vis taxation.
[438] Mark and Corey also submit that all four partners have an interest in staying in the real estate business and this remedy would be equitable in providing the funds necessary to re-establish in the industry.
[439] They submit, however, that given the information asymmetry and the self-dealing on the part of Sheldon, the Libfeld brothers should be forbidden from participating in the sale. They submit that this is evidenced, particularly, by the events leading up to the “Borin Auction,” which will be discussed below.
Sheldon and Jay’s position
[440] Sheldon and Jay primarily submit that winding up the Group would amount to a liquidation and, effectively, constitutes the implementation of the MRP under another name.[^7] They also submit that this remedy runs contrary to Mark and Corey’s position in the lawsuit: if Mark and Corey are opposed to having their interests in the Group bought out, it is irrational to propose that none of the Libfeld brothers be allowed to participate in the sales process, which would guarantee that no brother can maintain an interest in the Group.
[441] Sheldon and Jay further submit that if there is to be a sale, it should be made on an “en bloc” basis, which would maintain the Group as an entity and honour their parents’ legacy.
[442] Last, Sheldon and Jay generally submit that winding up the Group would destroy a thriving business at the expense of its many stakeholders, including employees, and would require a lengthy Court process during which time the Group would operate under the control of a court-appointed Sales Officer.
Analysis
[443] As noted at the outset of these Reasons, I am ordering the Court supervised Wind-Up and Sale of the Group with EY acting as Sales Officer and Mr. Denega acting as lead partner.
[444] As noted, I conclude that both the Partnerships Act and the OBCA provide this Court with the necessary jurisdiction to intervene in the breakdown of partnerships and corporations where it is just and equitable to do so.
[445] As noted above, s. 35(f) of the Partnerships Act allows for the dissolution of a partnership and s. 207 of the OBCA provides this Court with the jurisdiction to wind-up a company in various circumstances, including circumstances where it is just and equitable to do so “for some reason, other than bankruptcy or insolvency….”
[446] There has been much judicial commentary concerning the broader discretion of the Courts to intervene on equitable grounds.
[447] In Animal House, at para. 57, Wilton-Seigel J. set out a useful analysis as to when the Court should exercise its discretion under the OBCA:
All of the cases cited to the Court reflect the underlying and unifying principle that a Court will only exercise its discretion to order a “just and equitable” winding-up if the disharmony has resulted in a sufficiently serious failure of the reasonable expectations of the parties to warrant such equitable relief. In order to satisfy this test of a serious failure of expectations, an applicant must demonstrate that the parties regarded, or would have regarded if they had turned their minds to it at the time of formation of the business association, the particular circumstances resulting from the disharmony to constitute the termination or repudiation of the business relationship among them.
[448] This analysis was approvingly cited by D.M. Brown J. (as he was then), in the case of Falus v. Martap Development 87 Limited, 2012 ONSC 2301, 2 B.L.R. (5th) 292. After commenting favourably on Wilton-Seigel J.’s above analysis, D.M. Brown J. added, at para. 43:
Often the “just and equitable” principle has been used to wind up a company in circumstances where a dominating or more powerful shareholder attempts to exclude another or to force another out of the relationship. But the concept goes further, applying where the relationship between the parties has reached a deadlock or where the relationship has broken down because of incompatibility or quarrelling: “continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly co-operation is sufficient to justify the order.” Consequently, the case law indicates that where in essence a corporation resembles a partnership, if the relationship of trust and confidence between the partners in corporate guise has broken down and the continuation of the business between them operating as equal partners is not possible, judicial intervention under OBCA s. 207 is appropriate [Footnotes omitted.]
[449] D.M. Brown J. further noted a number of authorities in which the courts had intervened and cited, at para. 47(iv), the case of Muscillo:
[T]he two brother shareholders had a falling out, as a result of which they would not speak to each other. The business relationship between the second generation of family members was tense and strained, with screaming matches periodically punctuating the office place. As well, an acquisition had been made by the company without the knowledge of one of the brothers. As stated by Newbould J.: “When two brothers who have worked together for 40 years have both reached the point of making personal attacks on each other and have both agreed that a judge should decide what should happen to the company, it can only be said that their relationship has deteriorated to the point that an order is required under s. 207 of the OBCA…. [Emphasis in original.]
[450] Further, insofar as a partnership is concerned, the broad jurisdiction to intervene on equitable grounds is set out in the oft-quoted decision of the House of Lords in Ebrahimi, at pp. 383-384, in which Lord Cross commented that:
People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended — unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen.
[451] In keeping with the above, I acknowledge that when considering whether to wind-up a company or partnership, the Court should interfere as little as possible with the affairs of the business. In this regard, the parties’ reasonable expectations are important when determining the just remedy: see Naneff, at paras. 28, 31-33.
[452] This case, however, goes far beyond what has been described in the aforementioned case law as being necessary to wind-up a business. None of the factual patterns in the case law provided by the parties came close to matching the dysfunction that exists here. The unfortunate reality is that the Libfeld brothers’ relationships with each other have been totally and likely irretrievably destroyed.
[453] The acrimony has grown to the point where, to summarize, the last 6 years have seen the following:
• The Libfeld brothers have been unable to enter into written agreements which would allow them to collectively operate the Group. There is no reasonable prospect that they be able to do so given this historical failure and the current situation.
• There has been a significant, ongoing and likely permanent breakdown in communication between Sheldon and Jay on the one hand and Mark and Corey on the other.
• There have been physical altercations, accusations and cruel insults.
• The Libfeld brothers have engaged in secretive dealings.
• The Group failed to pay hundreds of millions of dollars in tax, while the Libfeld brothers have received significant financial benefits over the last 16 years alone.
• Employees have been, at times, unfairly dragged into the middle of the dispute.
• Relationships with their business partners have been adversely affected.
• Family relationships have been significantly, perhaps irreparably damaged.
• The Libfeld brothers have dragged their mother into this litigation and are unable to agree upon the amount of money she is owed. This has damaged her relationship with some of her sons.
• There is no succession plan.
• The Group has not been able to enter into any new transactions since 2017, which best demonstrates the devastating effect of the aforementioned dysfunction.
[454] All of this has occurred notwithstanding the fact that the Libfeld brothers are owners of the Group which has been an enormous financial success.
[455] It bears repeating that the Libfeld brothers have had, for several years, the benefit of the most talented professionals in various disciplines to assist them in resolving their differences. They have also participated in extensive private mediation and have been granted extensive judicial mediation without success. After the conclusion of trial, I exhorted the Libfeld brothers on two occasions, on the record, to resolve their differences. Once again, they have failed to take the opportunity to do so.
[456] If the Court supervised Wind-Up and Sale is not ordered in favour of one of the other remedies, I am convinced that the Libfeld brothers would use that remedy to perpetuate their internecine feuds and dysfunction, which would continue to occupy the Group’s focus and this Court’s time for years to come. There is absolutely no reasonable prospect that they can be trusted to act sensibly and cooperatively to enact one of the other remedies, which would involve honesty and integrity.
[457] I also reject Sheldon and Jay’s submission that an order winding up the Group would amount to the implementation of the MRP using another name. It is premature for any of the Libfeld brothers to predict how the Wind-Up and Sale will take place. Mr. Denega will use his expertise to study the situation carefully and make a recommendation to this Court. It remains to be determined what his recommendation will be and what this Court will approve.
[458] In this regard, Sheldon and Jay submit that if the Group is to be wound up, it should be sold en bloc. Such a submission is premature until Mr. Denega reports back to the Court and a process is approved. The parties will have an opportunity to make submissions if and when appropriate.
[459] Given my comments above regarding legacy, I do not accept Sheldon and Jay’s submissions that winding up and selling the Group’s assets would fail to honour the legacy of their parents, which in the circumstances of this case, is no longer a factor that should meaningfully influence any remedy.
[460] I also reject Sheldon and Jay’s submission that a wind-up and sale of the Group would prejudice its stakeholders. The remedies proposed by all of the Libfeld brothers could also prejudice the Group’s employees since the Group could, and in some cases probably would, be split up into different entities or other partners would be sought out by the Libfeld brothers. Further, given the dysfunction that exists within the Group, it is perhaps better for employees to be able to pursue employment with the brother of their choice after the business has been sold. All of the brothers want to remain in the real estate business and they will certainly have the funds to do so. Alternatively, the employees and other stakeholders might find it preferable to deal with new owners.
[461] I do not agree, however, with Mark and Corey that no Libfeld brother should be able to bid in the sale process. First, it is unfair to place the blame for lack of trust between the Libfeld brothers on Sheldon’s shoulders. There is plenty of blame to go around. Second, I do not believe that the information asymmetry should preclude the Libfeld brothers from bidding. As acknowledged, Sheldon’s role in the Group provide him with more relevant knowledge than his brothers, but the Wind-Up and Sale will be conducted under the supervision of this Court, its court-appointed Sales Officer and court-appointed counsel. As noted, a data room is being established and the Libfeld brothers will all have complete access to the data room information and ongoing access to their own professional advice. The Court will ensure that an equal playing field is set. In these circumstances, there is no basis to disqualify Sheldon or Jay from being involved in the sale.
[462] I echo the comments set out in the decision of Vantreight, at para. 27, wherein it was held that there was no good reason why the parties could not participate in a market bidding process if they wanted to. A public sale with the interested parties having a right to bid would have the advantage of exposing the property to the marketplace. The parties could, therefore, take into account whatever premium value a particular property might have to them. There is also always the possibility that the third-party bidders would consider a particular property to have a value in excess of that which the Libfeld brothers attribute to it. Such a process allows for a fair means of protecting one’s investment and ensuring a fair return.
[463] Mark and Corey’s primary submission as to why Sheldon and Jay should be precluded from bidding stems from Sheldon’s alleged tampering in the Borin Auction.
[464] In the Borin Auction, lands became available for sale following the breakup of Theodore’s previous real estate development business. The lands were put up for auction and the Libfelds planned to participate as bidders. This occurred approximately 40 years ago.
[465] In advance of the Borin Auction, Mark testified that Sheldon told him that he had called prospective bidders and told them not to bid in the auction. Sheldon did not want any interference from outside bidders.
[466] Corey testified that he was in Sheldon’s office when Sheldon called prospective bidders to tell them not to participate in the auction.
[467] Sheldon denies that any of this ever happened.
[468] Of particular interest, with respect to this dispute, is the fact that Corey testified, amongst other things, that Sheldon spoke with a gentleman by the name of Mr. Eddie Weisz (“Weisz”) and told him not to bid on the property. Mr. Weisz, however, was not called as a witness at trial and Sheldon testified that Mr. Weisz actually did attend at the Borin Auction and did bid. His evidence was not challenged in cross-examination.
[469] Based on the foregoing, I do not accept that Mark and Corey have established their allegations relating to the Borin Auction. As noted, they suffer from credibility issues. There is no corroborative evidence and Mark and Corey bear the burden of proof.
[470] Alternatively, even if I was to accept this historical allegation, I do not believe that it should foreclose Sheldon or Jay’s right to bid on the Group’s assets absent further extenuating circumstances. At best, it is one example of an unjustified act that occurred long ago. The Libfeld brothers collectively have been involved in a number of similar acts within the Group since then.
[471] Since the Wind-Up and Sale will be conducted under Court supervision, sanctions can be imposed if any of the Libfeld brothers act inappropriately. Those sanctions include the removal of an offending brother from the bidding process.
[472] In my view, the Libfeld brothers are much better served if there is a bidding process that includes them and third parties. Such a robust process ensures that the Group’s assets are broadly exposed to the market, which is in their collective best interests.
[473] One certainty in the Wind-Up and Sale is equal treatment of the Libfeld brothers. They will be treated equally in the Court supervised sales process, will have the ability to bid on Group assets and will be treated equally from a tax perspective. In the circumstances of this case, they cannot ask for more.
DISPOSITION
[474] The following orders shall go:
(i) An order pursuant to the provisions of s. 207(1)(b)(iv) of the OBCA and s. 35(1)(f) of the Partnerships Act winding-up and selling the Group; and
(ii) An order that the Libfeld brothers be permitted to participate in the Wind-Up and Sale.
[475] The aforementioned Wind-Up and Sale shall be carried out under the supervision of this Court, with EY acting as the Sales Officer and Mr. Denega as the lead partner, along with the assistance of the previously court-appointed lawyer, Mr. Harvey Chaiton.
[476] The parties shall reattend before me in due course to discuss further steps.
[477] If the parties cannot agree upon the issue of costs, I can be spoken to.
McEwen J.
Released: June 30, 2021
COURT FILE NOs.: CV-17-11861-00CL and CV-17-588725-00CL
DATE: 20210630
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MARK LIBFELD, 1331081 ONTARIO INC., 2091170 ONTARIO INC. and VITANNA CONSTRUCTION LTD.
Applicants
– and –
SHELDON LIBFELD, COREY LIBFELD, JAY LIBFELD, SHELFRAN INVESTMENTS LTD. and VIEWMARK HOMES LTD., and their respective affiliates and subsidiaries as set out on Schedule “A” to the Notice of Application
Respondents
AND BETWEEN:
SHELDON LIBFELD, 1331088 ONTARIO INC., COREY LIBFELD, 1331078 ONTARIO INC., JAY LIBFELD and 1331091 ONTARIO INC.
Applicants
– and –
MARK LIBFELD, 13318081 ONTARIO INC., EDITH LORRAINE LIBFELD, AND THE CONSERVATORY GROUP COMPANIES (AS LISTED IN SCHEDULE A)
Respondents
REASONS FOR JUDGMENT
McEwen J.
Released: June 30, 2021
[^1]: For ease of reference and clarity, I will refer to Libfeld family members by their first names. [^2]: This was Sheldon’s best estimate at trial. [^3]: At trial, there was a debate between Mark and Sheldon in this regard, but I am comfortable that, at any one time, the broad range falls within these parameters. [^4]: I have drawn the above concepts, generally, from the decision in Fitzpatrick v. Orwin, 2012 ONSC 3492. [^5]: I accept Sheldon’s submission in closing argument that this testimony was solely intended to cause him deep pain as the son of Holocaust survivor. [^6]: Corey agreed in his November 29, 2017 affidavit that the Interim Arrangement has been entered into. In February 2019, he changed his position and stated that the Interim Arrangement should not be continued pending the hearing of the Applications. [^7]: Sheldon and Jay’s submissions apply equally to the Restricted Wind-Up and Sale and the Court supervised Wind-Up and Sale.