COURT FILE NO.: 40/2020
DATE: 2021/02/03
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Donald Conrad Manicom, Conrad Refrigerated Trucking Inc., and Manicom Holdings Inc.
Applicants
– and –
Michele Ann Manicom
Respondent
Michael Polvere, for the Applicants
Douglas Skinner, for the Respondent
HEARD: December 14, 2020
reasons for decision
GEORGE J.
[1] The parties are separated spouses in the middle of a bitter matrimonial dispute. This case involves only their jointly held companies, Conrad Refrigerated Trucking (“CRT”) and Manicom Holdings Inc. (“MHI”). CRT specializes in the transportation of perishable commodities throughout Canada and the United States. MHI is a holding company which owns various investments. Both the Applicant and Respondent worked at CRT and each has intimate knowledge of the business and industry in which it operates.
[2] The Applicant deposes that the parties had negotiated an agreement, through their respective counsel, whereby the Respondent would sell her shares to him for $5,238,525.00. They jointly retained an independent third-party business valuator to determine the fair market value of CRT, MHI and the Respondent’s shares. The Applicant has secured the necessary financing in order to complete the transaction.
[3] When the Respondent was presented with the transaction documents, she refused to execute the Non-Solicitation and Non-Competition Agreement (“NCA”). She says that she had not agreed to that term and had not even discussed it with anyone, including her counsel and the Applicant.
[4] The Applicant says it was agreed to. He takes the position that the transaction consideration was for CRT’s goodwill and that were it not, the share value would be significantly reduced. That is, the Respondent’s shares would not be worth over 5 million dollars if their purchase did not include the NCA. He argues that the NCA was commercially reasonable and necessary. He contends that a NCA is par for the course in a business transaction like this, especially here given the price, the Respondent’s knowledge of confidential information (i.e. customer contacts), her familiarity with the business and industry, her ability to materially affect CRT’s business and economic prospects, the heightened tensions between them, and fact this is not an arms-length transaction.
[5] The Applicant seeks an order for specific performance. He wants me to compel the Respondent to execute the transaction documents, including the NCA, and seeks an order directing her to return all property and documents of CRT and MHI.
[6] The issue is straightforward. Did these parties reach an agreement?
[7] In support of his position the Applicant relies upon the following:
-He and the Respondent were not merely joint owners but were both intimately involved in the operations of CRT. Therefore, it would have made no sense to conclude this deal without the Respondent agreeing, for at least a period of time (in this case 5 years), to not compete against CRT.
-The Respondent surely knows this because, first, as already indicated, she understands this business and industry and understands that no deal like this would ever close without a NCA. And second, the two experienced a similar situation when the Respondent’s sister, who worked at CRT, opened a competing transportation brokerage business after being fired. As such, the Respondent knew all along that a NCA had to be a part of the deal, but has now taken this posture because, despite what she says, she must want to either join her sister or otherwise compete against CRT.
-The lawyers who negotiated this on their behalf, Mr. Chahbar for the Applicant and Mr. Shields for the Respondent, specifically discussed the NCA, fine-tuned its wording, and Mr. Shields presented it to the Respondent on the closing date.
[8] He points to the Respondent’s testimony that she will not compete against CRT and will not join her sister’s company, which still begs the question, why won’t she sign the NCA? Her testimony also demonstrates her knowledge of the NCA’s import. This is the exchange from the Respondent’s cross-examination:
Q. It was very clear to you, pardon, what?
A. It was very clear to [the Applicant] and I. We knew [my sister] signed a non-compete, but she forgot at the time.
Q. And so what did you have to do? Did you have to actually hire a lawyer to try, to try and stop her?
A. Yes. We hired Don Ferguson who is our business lawyer.
Q. Okay.
A. And, yeah, to put in an injunction to stop her. And she had reached out to some of our customers. It was not a good situation at all, she did to us.
Q. No, because she knew all, she knew all the, she knew all the runnings of CRT, right?
A. Well, she knew the dispatch side. I mean she didn’t know administrative side or anything, but, you know, she was able to have no skills, come into our company, and then open up her own company. So, yeah, it was not pleasant what she did to us. I mean I forgive my sister, but I’ll never forget it.
[9] Apart from its reasonableness and necessity, the fundamental question is, was the NCA agreed to? On this question, the Applicant argues that:
-Setting aside for a moment the NCA, there can be no question that he and the Respondent negotiated, over the course of several months, an agreement which would have him purchase all the Respondent’s CRT and MHI shares. They even agreed on a closing date (December 20, 2019).
-Each retained separate legal and tax advisors to achieve this result.
-He agreed to rely upon and use the plan prepared by the Respondent’s tax advisor as the transaction’s framework.
-They jointly retained an independent third-party to conduct a business valuation and determine the fair market value of the Respondent’s shares. In addition, they agreed on a valuation date (October 31, 2019).
-Transaction documents, including the NCA, were delivered to the Respondent’s counsel, Mr. Shields, approximately a month before the scheduled closing date, after which Mr. Shields expressed no difficulty or concerns with same.
-In anticipation of the closing, Mr. Shields sent to the Applicant’s lawyer, Mr. Chahbar, executed Share Certificates and Shareholder Resolutions, writing this:
I enclose herewith the Share Certificates that I had my client execute the front page. Please hold the Certificates in escrow pending the completion of the transaction on the 20th of December 2019.
[10] The Respondent deposes that Mr. Shields, “did not notice or review the NCA within this voluminous package [of documents]”.
[11] The Applicant suggests that my task is simple: The parties reached an agreement and all I have to do is “enforce the deal” by ordering the Respondent to sign the NCA that was negotiated between counsel, which would then complete the transaction.
[12] I agree with much of what was said by Applicant counsel. There is no question that a NCA is a standard term in a transaction like this; that the Applicant would indeed be foolish to agree to purchase these shares without one; and that it is hard to imagine that the Respondent did not and does now know this.
[13] Respondent counsel argues that a NCA is something the Applicant must ‘pay for’, implying that the agreed upon share purchase price does not sufficiently do that. He also makes the practical argument that this issue would be better dealt with in the outstanding Family Court litigation where all other marital issues are being addressed, including support and equalization.
[14] While a NCA has value, the suggestion that the agreed upon purchase price does not sufficiently compensate the Respondent for it does not make a lot of sense to me; at least not in the circumstances of this case. That is, if a NCA is standard and universally understood to be necessary, one would think it is part and parcel to the purchase of this type of business. Surely their counsel at the time understood this.
[15] However, while it is a bit odd that Mr. Shields did not raise any concerns about the NCA after receipt of the transaction documents and before the closing date, and notwithstanding the fact he perhaps engaged in some discussion about the provision’s language (at a late stage), the fact is this was not a topic of discussion during the negotiation period and was not raised until the closing date neared. Moreover, the best evidence before me is that the Respondent (apart from what she maybe should have known as an operator in this industry) did not discuss this with her counsel before the closing date.
[16] While there is no question that a legal representative can bind their client, here we have no Minutes of Settlement, Consent, or other written document that demonstrates the Respondent’s agreement with the NCA. Apart from engaging in some discussion and merely receiving the document, there is no evidence that Mr. Shields expressly agreed to it on the Respondent’s behalf.
[17] Again, I don’t quarrel with the basic premise of the Applicant’s argument. In the circumstances, I too would have been blindsided by the Respondent’s refusal to sign the NCA. It is the case that what was contemplated here was the disposition of the Respondent’s shares (and not vice versa), and that this would have - in most instances - included a NCA.
[18] Having said that, and at the risk of repeating myself, there is no written agreement, no evidence of a verbal agreement, and, at least in my view, the lawyers’ later exchanges about the NCA do not give rise to a valid and enforceable contract.
[19] The bottom line is, this is an evidentiary question which, on the record before me, simply cannot be resolved in the Applicant’s favour. I say this reluctantly, as it would undoubtedly be understood by most, if not all, corporate solicitors who do this type of work, that a NCA is both reasonable and necessary. It might very well be that the parties respective counsel understood this, took it for granted, and just neglected to be more direct and comprehensive in their discussions about it, but this is not a deficiency I can now fix.
[20] For what it’s worth, I agree with Applicant counsel that this issue did not necessarily have to be a part of the family law case. If the facts supported the Applicant’s position, I would have granted him the relief he seeks. In fact, were I able to resolve this issue today the parties would probably be better positioned to move forward and resolve their issues in that forum. The problem is, as a threshold question, there is no evidence the Respondent agreed to the NCA, which is distinct from any suggestion (as reasonable as it might be) that she and her counsel should have understood and appreciated that a NCA was a necessary component.
[21] Furthermore, Mr. Shield’s communications with Mr. Chahbar (and his receipt of the transaction documents without complaint and presentation to the Respondent) does not amount to an agreement.
[22] While the interpretative principle of commercial efficacy, and requirement that a contract be read in its entire context, both apply, in the unique circumstances of this case neither leads to a finding that an agreement was in fact reached. This point is actually highlighted by the authorities relied upon by the Applicant.
[23] Consider the Supreme Court’s comments in JG Collins Insurance Agencies Ltd. V. Elsley, 1978 CanLII 7 (SCC), [1978] 2 SCR 916, where at paras. 15 and 16 the majority writes this:
The distinction made in the cases between a restrictive covenant contained in an agreement for the sale of a business and one contained in a contract of employment is well-conceived and responsive to practical considerations. A person seeking to sell his business might find himself with an unsaleable commodity if denied the right to assure the purchaser that he, the vendor, would not later enter into competition. Difficulty lies in definition of the time during which, and the area within which, the non-competitive covenant is to operate, but if these are reasonable, the courts will normally give effect to the covenant.
[24] This is, of course, an accurate statement of the law. But that is not the question before me. If I were able to find that the parties did indeed reach an agreement on the NCA, I would obviously conclude that it is an enforceable covenant and that the Respondent was bound by it. And, as already indicated, such a term is commercially reasonable and in almost every case necessary. Having said that, it is not something that can be inferred nor is it a ‘natural conclusion’ to negotiations. Again, the question is, was there an agreement, which was not the issue in Elsley.
[25] Similarly, in Payette v. Guay Inc., 2013 SCC 45, the court considered whether the Applicant had to comply with the restrictive covenants in an asset purchase agreement. In our case, the issue is not the efficacy of such a clause, but rather whether it was ever agreed to.
[26] To my mind, none of what I have said to this point detracts from the established view that contracts should be interpreted in its commercial context and that non-competition clauses are reasonable. The question before me is not the reasonableness of the NCA the Applicant seeks to have secured and enforced; it is whether it was ever agreed to in the first place. As indicated, based on the evidence before me I cannot find that it was.
[27] In summary, these are my findings:
-In the circumstances of this case and given the nature of the transaction in question, a NCA is reasonable and likely necessary. This is no comment on the appropriateness of the agreed upon purchase price (and what precisely that included), but rather a practical observation of what will be required to ultimately reach an agreement on the purchase of the Respondent’s shares. In addition, I offer no opinion on whether the NCA, as proposed, is unreasonably restrictive and excessive, and whether one in a different form might work for these folks. I would encourage the parties to explore this further so that, hopefully, there can be a timely resolution to their family law dispute, which would then allow them to move on with their lives.
-There is no evidence that the Respondent ever agreed to execute the NCA. In the event this understates the evidence, at the very least there exists a dispute on that material fact, which cannot be resolved on this record.
[28] In the result, the Application is dismissed.
[29] If the parties cannot agree on the issue of costs, which I urge, I will accept written submissions. The Respondent is to serve and file hers within 30 days of receipt of these reasons; the Applicant to respond within 15 days thereafter. There is a 3-page limit (excluding a costs outline) and no right of reply.
Justice J. C. George
Released: February 3, 2021
COURT FILE NO.: 40/2020
DATE: 2021/02/03
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Donald Conrad Manicom, Conrad Refrigerated Trucking Inc., and Manicom Holdings Inc.
Applicants
– and –
Michelle Ann Manicom
Respondent
REASONS FOR DECISION
George J
Released: February 3, 2021