Court File and Parties

Court File No.: CV-19-627665 Date: 2022-03-23 Superior Court of Justice – Ontario Commercial List

Re: Don Bernier, Applicant And: Deborah Kinzinger, Vel Miculinic, 1057247 Ontario Inc., Skilcor Food Products Inc., 1612363 Ontario Inc., and 5013361 Ontario Inc., Respondents

Before: L. A. Pattillo J.

Counsel: R. Bevan Brooksbank, for the Applicant Jason Squire, for the Respondents

Heard by Videoconference: December 10, 2021

Endorsement

Introduction

[1] This is an oppression application by Don Bernier (“Bernier”) pursuant to s.248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “Act”).

[2] In the application, Bernier asserts he was a beneficial and equitable shareholder of the respondent Skilcor Food Products Inc. (“Skilcor”), and La Riberie Inc. (“La Riberie”) at the time of the sales of the food assets of Skilcor and the shares of La Riberie in 2017 and has been denied his entitlement as a shareholder. The respondents deny that he was a shareholder of either company at the time of the sales, beneficial or otherwise.

[3] By previous direction of the court and agreement of the parties, liability and remedy have been bifurcated.

[4] Hence, on this application, Bernier seeks an order:

a) Declaring he is a complainant for the purposes of s. 248 of the Act; b) Declaring that he held, at all material times, a beneficial and equitable shareholding of 9% in Skilcor, La Riberie and Northbud Distribution Ltd. (“Northbud”); c) Declaring that, by improperly depriving him of his shareholdings, the respondents acted in a manner that was oppressive, unfairly prejudicial to and that unfairly disregarded his interest as an equity owner; d) Ordering an accounting and production of those records identified at paragraph 1(f), (g), (h), (i) of the Notice of Application; and e) Directing and scheduling a hearing to determine the appropriate remedies.

[5] The only question to be determined in this application is whether there is an agreement between Bernier and the respondent, Deborah Kinzinger (“Kinzinger”) granting Bernier shares in each of Skilcor and La Riberie.

[6] For the reasons that follow, I find that Bernier was not a shareholder, beneficial or otherwise, in either Skilcor or La Riberie at the time of the sales.

Background

[7] Based on the material filed, I make the following findings of facts, most of which are not in dispute.

[8] Skilcor’s core business was manufacturing meat products (chicken and later ribs) sold in grocery stores across the country. It was founded in the late 1960s by Kinzinger’s father. Kinzinger started in the business in 1987 and by the early 1990s, she had become the sole shareholder of Skilcor through her holding company, the respondent, 1057247 Ontario Inc. (“105 Ontario”).

[9] In 2005, contemporaneous with a plan to build a manufacturing facility in Ontario and consolidate food operations, Bernier was hired by Kinzinger as Executive Vice-President of Skilcor. Bernier had been employed as V-P Sales at Quality Meat Group and was a long-standing business acquaintance of Kinzinger. On May 20, 2005, Skilcor and Bernier entered into an employment agreement which renewed annually until its termination on May 31, 2013.

[10] Also in 2005, Kinzinger and her husband, the respondent Vel Miculinic (“Vel”), the CFO of Skilcor, incorporated La Riberie to set up the manufacturing facilities. Kinzinger and Vel each owned 50% of La Riberie.

[11] Finally, in early 2006, 105 Ontario acquired control of a food product business, Northbud Distributors Ltd. (“Northbud”). The acquisition involved bringing on an existing minority shareholder of Northbud, Peter Clarke (“Clarke”), who owned 30% of the company. At the time of the acquisition, Kinzinger agreed to grant Bernier 10% of Northbud’s shares, initially at no cost. As a result, the shares of Northbud were owned 60% by 105 Ontario, 30% by Clarke and 10% by Bernier. Bernier’s shares were subsequently held by his holding company, Excellier Inc. (“Excellier”).

[12] From the outset, the food businesses of the three corporations operated collectively as a consolidated group from both an organizational and operational perspective. The officers of Skilcor were officers for La Riberie and Northbud; annual financial statements were prepared for the three companies on a consolidated basis; bonuses were based on the performance of the three companies; and bank covenants extended to the three companies. Kinzinger, Vel (the CFO of the companies), Bernier and Clarke were the management team and worked closely and collaboratively together to grow the companies’ businesses. Kinzinger agrees that Bernier was a very integral part of the management team.

[13] While initially Bernier received his shares in Northbud at no cost, subsequent concerns from Clarke that Bernier had no “skin in the game” resulted in he and Kinzinger subsequently agreeing that he would pay $200,000 for his shares and Silcor would increase his salary by $3,333.00 a month (plus a gross-up for taxes) for 5 years to cover the cost of the shares. As a result, Bernier’s 10% interest remained a gift.

[14] Beginning in late 2007, Bernier, Clarke, Kinzinger and Vel together with professional advisors, began considering and exploring a potential merger of the food businesses of Skilcor, La Riberie and Northbud. The discussions were complicated as Skilcor had assets not related to its food business. Another issue was what the equity participation of Bernier and Clarke would be in the consolidated entity given their respective share holdings in Northbud.

[15] During the discussions, Silcor’s accountant determined that Clarke’s 30% interest in Northbud would result in a 9% interest in the anticipated new entity which comprised the food-related assets of Skilcor together with La Riberie and Northbud. Similarly, Bernier’s 10% interest in Northbud resulted in a 3% interest in the consolidated entity.

[16] In Kinzinger’s mind, the disparity between 9% for Clarke and 3% for Bernier presented a problem for management as Bernier was intended to be the CEO of the new entity and Clarke would be reporting to him. As a result, Kinzinger and Bernier agreed that Bernier’s interest in the new entity would be increased from 3% to 9% to match Clarke and that Bernier would pay $400,000 plus interest for the increase in equity participation at the time of the sale of the company.

[17] On September 1, 2010, while the three-way merger was still contemplated, Kinzinger wrote an email to Bernier dealing with a number of issues that had been in discussion between them for some time. The following is the full text of the email:

Don

I wanted to diarize what I believe our understanding is between us as our memories maybe getting a bit weak after all this time.

According to my notes:

1. The decision was made to increase your salary by $3333.00 plus $666.66 (tax) = $4,000.00 per month x 12 months = $48,000 per year for five years (June 1, 2008 to May 31, 2013). This was done to reimburse you for the $200,000 you paid for the Northbud shares which in effect gave you a 10% interest in Northbud.
2. In turn, whether we completed the merger or not, we agreed these shares would role [sic] over to 3% of the total company (Consolidated group) at Dec 31, 2008 and I further agreed to increase your total company position from 3% to 9% effective December 31, 2008. You agreed to pay for this increase at the time the company was sold at a value of $400,000 plus interest.
3. If you left the company before the company was sold, you agreed to return your shares in Northbud (10%) for the original value of $200,000, less any portion already reimbursed to you through the $4000.00 monthly payroll.
4. Further, given the added responsibility and to reduce my time in the company further, we agreed to increase your pay by $100,000 per year effective June 1, 2008. No bonus was to be paid in 2008. Effective March 31, 2009, a bonus was to be paid based on 5% of the consolidated pre-tax earnings of the group. Don, I don’t believe this was done.
5. Furthermore, a dividend if declared could be declared up to 9% of the consolidated group which would be Don’s share.

Don, as we discussed with Peter and yourself, depending on the results of the year ending March 31, 2010, relative to the bank covenants, we will make a decision on the dividend. However, regardless, there will be a bonus paid to you of 5% of the Consolidated profit.

Please review and let me know if anything is not agreeable. Thanks

[18] Kinzinger followed up with Bernier for a response on October 14, 2010, to which he responded, “Deb everything is fine”.

[19] By late 2010, Kinzinger, having become frustrated with the lack of progress with the merger discussions, decided to not proceed. In December 2010 and January 2011, she discussed her decision with Bernier who agreed. Further, they agreed to market and sell Northbud on its own.

[20] On August 19, 2013, Northbud’s assets were sold to a third party for approximately $13.6 million. In advance of the sale, in addition to Bernier’s 10% interest in Northbud, he purchased an additional .01% of the shares from 105 Ontario in order to minimize the tax consequences on Northbud’s payment of the sale proceeds.

[21] Following the sale, Northbud was wound up and its assets distributed to the shareholders. In the end, Bernier received approximately $1.4 million from the sale which netted him approximately $700,000.

[22] With the sale of Northbud’s assets, Clarke was no longer involved in the food businesses of Skilcor or La Riberie.

[23] Subsequently, between September 2013 and September 2017, Bernier utilized the proceeds from the sale of his shares in Northbud to cause Excellier to make a number of loans to Skilcor and 105 Ontario to maintain the financial health of the business. The loans totaled $925,000 in principle, provided for interest at between 6 and 10% per annum and were secured by promissory notes.

[24] On December 2, 2014, Kinzinger sent Bernier an email setting out the points they discussed at a luncheon concerning the funds he lent Skilcor. Point three of the email reads:

3. Once we get a final update valuation of La Riberie’s current business operations, including equipment (which is not included in a sale of the building) and product (Cobblestone) brand value, based on a normalized income statement, we will then meet to have a further discussion about your intention to buy up to 10% of the shares of LAR. I have agreed that the cost of the shares for up to 10% of the business will not exceed the value Veracap placed on the operation of LAR (excluding the building) approximately 3 years ago. See previous valuation memorandum from Chris Nobes dated Dec. 12, 2012. [Underlining in original]

[25] In reply, Bernier typed his responses to each of Kinzinger’s points in red on her email and sent it back to her. His response to point 3 was as follows:

I am full agreement. I would also like to understand how our original discussion, of me owning 9% of the Combined Company compares to our new discusses [sic] of me owning 10% of LAR (see attached email from September 1, 2010). As I hope you can appreciate, with the sale of Northbud and the proposed amalgamation of Skilcor and La Riberie, combined with the fact that I do not have access to Skilcor’s financials, I am unclear how to evaluate how the purchase of shares will ultimately impact me.

[26] Kinzinger responded saying there were too many points to discuss by email but there is no evidence of any follow-up discussion concerning Bernier’s purchase of La Riberie shares.

[27] By late 2014, Kinzinger and Vel, with Bernier’s agreement, decided to market and sell the food assets of both Skilcor and La Riberie. The companies engaged a broker and entered into a lengthy sales process that attracted more than one potential buyer.

[28] On January 8, 2017, in response to an email from Kinzinger requesting that he provide her with his “understanding of our arrangement” with respect to his purchase of shares in La Riberie/Skilcor, Bernier responded by sending the September 1, 2010 email which he said, “outlines your proposal for my purchase of La Riberie shares” and a spreadsheet detailing the monies owed to him from Skilcor.

[29] On August 27, 2017, Kinzinger and Bernier together with their accountants, met to discuss, among other things, how the distribution of the proceeds of the anticipated pending sale of the food assets of Skilcor and La Riberie would be dealt with. In his affidavit Bernier said it was agreed that the funds would be paid to him personally, rather than to Excellier, but otherwise the payment structure would mirror the Northbud sale and as such be inclusive of retained earnings. On cross-examination all he could recall was that the proceeds would be handled similar to Northbud, and his accountant indicated the monies should be paid to him personally. The respondents deny there was ever any agreement reached at that meeting concerning the structure of any payment to Bernier or mention of retained earnings.

[30] On October 27, 2017, the food assets of Skilcor and the shares of La Riberie were sold to an entity called Premium Brands for a total purchase price of $15 million, of which $9 million pertained to the Skilcor assets. A term of the agreement was that Bernier would assume a senior executive position at Premium Brands. Following the closing, Bernier was paid all salary, bonuses and repaid all amounts loaned to Skilcor and 105 Ontario, including interest.

[31] On January 11, 2019, Kinzinger sent Bernier an email with an attached detailed accounting of the proposed distribution of the proceeds from the Premium Brands sale together with an accounting report from the companies’ lawyer providing details of the monies received on closing. The proposed distribution to Bernier was a gross amount of $424,351 representing 9% of the net sale proceeds subject to further adjustments including Bernier’s cost of the investment and interest owing to Kinzinger/105 Ontario in relation to their shareholder loan. Kinzinger welcomed questions and suggested that they meet to discuss.

[32] On February 5, 2019, Bernier responded by email seeking clarification on certain points before they met to discuss. In particular, he sought clarification on the costs of his investment and referred to the September 1, 2010 email which provided for $400,000 plus an undefined interest rate. He also noted that there was no mention of retained earnings and referred to the fact they were included in calculating his share of the proceeds in the Northbud sale.

[33] On February 5, 2019, Kinzinger responded to Bernier’s questions. In response to Bernier’s question concerning the cost of his investment, she wrote:

Your portion of the sale proceeds after normalization adjustments are $424,315.44. The adjustment Pat [the accountant] made for the $400,000 investment plus interest is not applicable as you were never bought the shares. Your 9% calculation is related to your share of the proceeds, net of adjustments, we received from the sale of the business.

[34] In respect of Bernier’s position that retained earnings should be included as in the Northbud distribution, Kinzinger responded:

You were not a shareholder of LAR or SKF. The value of the business is the amount PB paid us. You are being paid 9% of the adjusted proceeds as I agreed to do. La Riberie was a share sale so Retained Earnings went to PB. Skilcor was structured as an asset sale for our personal tax reasons only. No additional Retained earnings come into play. Northbud you were a shareholder. …… You were a shareholder of Northbud which was being wound down after the sale, therefore you were legally entitled to your owned percentage of the retained earnings.

[35] On March 19, 2019, Bernier met with Kinzinger and Vel to review the proposed distribution in Kinzinger’s January 11, 2019 email. Nothing was resolved. They met again on April 4, 2019, but were unable to reach agreement on the amount to be paid to Bernier.

[36] In his affidavit, Bernier states that at the April 4, 2019 meeting, Kinzinger resiled from the position that he did not have to pay anything for the investment and that he had to pay the $400,000 plus interest as set out in the September 1, 2010, email which would leave him with nothing. His notes of the meeting, which are quite detailed, do not mention such a position being taken by Kinzinger.

Position of the Parties

[37] Bernier submits that the September 1, 2010 email amounts to an agreement between the parties that he was a 9% beneficial shareholder in Skilcor and La Riberie at the time of the sale in 2017. He agrees that the value of his 9% interest is reduced by $400,000 owed for his increased position (3% to 9%) plus accrued interest.

[38] The respondents submit that Bernier was never a shareholder of Skilcor or La Riberie. They further submit the September 2010 email does not amount to agreement. In their view, the evidence does not support an objective intention to enter into binding legal relations. Nor have all essential terms of the agreement been reached.

[39] The respondents further submit that the parties subsequent conduct, and particularly the sale of Northbud’s assets in 2013 and its subsequent winding-up, overwhelmingly demonstrates that the September 2010 email was not intended to be legally binding.

[40] The respondents agree that Bernier is entitled to 9% of the adjusted proceeds of the sale, net of the costs of any investment plus accrued interest.

Discussion

a) Contract

[41] In UBS Securities Canada, Inc. v. Sands Brothers Canada Ltd., (2009), 2009 ONCA 328, 95 O.R. (3d) 93 (CA) at para. 47, Gillese J.A., on behalf of the panel, summarized the principals of contract formation:

….. For a contract to exist, there must be a meeting of the minds, commonly referred to as consensus ad idem. The test as to whether there has been a meeting of the minds is an objective one – would an objective, reasonable bystander conclude that, in all circumstances, the parties intended to contract? As intention alone is insufficient to create an enforceable agreement, it is necessary that the essential terms of the agreement are sufficiently certain. However, an agreement is not complete simply because it calls for the execution of further documents.

[42] Based on the September 1, 2010 email, I am satisfied that sometime prior to that date, Kinzinger and Bernier entered into an oral agreement whereby Bernier would receive a 9% interest in the “Consolidated group” which at the time was clearly understood by the parties to comprise the food assets of Skilcor, together with La Riberie and Northbud. The essential terms of the agreement were that Bernier would roll-over his 10% interest in Northbud for which he would receive a 3% interest in the Consolidated group as of December 31, 2008. Further, Bernier’s 3% interest would be increased by Kinzinger a further 6% (i.e. from 3% to 9%), again as of December 31, 2008. For the additional 6% of equity, Bernier would pay $400,000, plus interest, due at the time the “company” was sold (the “Agreement”).

[43] I do not accept Bernier’s submission that the September 1, 2010 represented the Agreement. It was merely confirmation of the Agreement.

[44] Nor do I accept Kinzinger’s submission that Bernier’s belated response to the September 1, 2010 email related to his bonus and did not amount to an acceptance of the Agreement. Also, Bernier was not required to accept the Agreement. Rather, the September 1, 2010 email specifically stated that the only response required of Bernier was if he didn’t agree with any of the matters set out, which included the outline of the Agreement. Bernier never responded that he did not agree with Kinzinger’s summary of their Agreement as set out in her September 2010 email.

[45] Nor do I accept Kinzinger’s submission that not all of the essential terms of the Agreement had been reached. Issues such as who would be the buyer and seller, how the rollover of the Northbud shares would occur, and how Bernier’s interest in only the food assets of Skilcor would be accounted for are all operational issues that could be resolved by the lawyers in due course.

[46] The fact that the parties reached the Agreement concerning Bernier receiving 9% of the Consolidate group as defined, sometime prior to 2010 does not, however, resolve the issue of whether, at the time of the sale of Skilcor’s food assets and La Riberie in 2017, Bernier was a shareholder of those companies.

[47] Bernier seeks a 9% interest in Skilcor. However, the Agreement provides for a 9% interest in the food assets of Skilcor, not a 9% interest in Skilcor. It is clear from the record and I find that Bernier was at all times aware that the non-food assets of Skilcor were not part of the Agreement. Indeed, Bernier’s claim in respect of Skilcor is restricted to the food assets only. As such, I find it was never a term of the Agreement that he would receive a 9% beneficial shareholding in Skilcor.

b) Mutual Recission

[48] Parties to a contract may, by mutual agreement, express or implied, as determined by their words or conduct, rescind or vary their contract.

[49] Hugh Beale, Chitty on Contracts, 4th ed. (London: Sweet & Maxwell, 2021) sets out the principle at para. 25-027:

Where a contract is executory on both sides, that is to say, where neither party has performed the whole of its obligations under it, it may be rescinded by mutual agreement, express of implied [Footnote omitted]

[50] Chitty on Contracts further states at para. 25-030:

A recission of the contract will also be implied where the parties have effected such an alteration of its terms as to substitute a new contract in its place. The question whether a recission has been effected is frequently one of considerable difficulty, for it is necessary to distinguish a rescission of the contract from a variation which merely qualifies the existing rights and obligations. If a rescission is effected the contract is extinguished; if only a variation, it continues to exist in an altered form. The decision on this point will depend on the intention of the parties to be gathered from an examination of the terms of the subsequent agreement and from all the surrounding circumstances. Recission will be presumed when the parties enter into a new agreement which is entirely inconsistent with the old, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it. [Footnotes omitted]

[51] In Industrial Construction Ltd. v. Lakeview Development Co. (1976), 16 N.B. R. (2d) 287 (NBQB), at para. 6, Stratton, J. (as he then was), stated:

6. It is well settled law that the parties to a contract may be [sic] express agreement or by their conduct rescind or vary their contract: see Halsbury’s Laws of England, Fourth Edition, volume 9, paragraphs 561 and 570. Whether the parties intended to rescind or to vary must be determined in the light of all of the circumstances of the case; but the parties will be presumed to have intended to rescind the old contract and to have substituted a new one whenever the new agreement is inconsistent with the original contract to an extent which goes to the very root of it: see Morris v. Baron and Company, [1918] A.C. 1; British and Beningtons Limited v. North Western Cachar Tea Company, Limited, et al., [1923] A.C. 48.

[52] The above passage was quoted with approval in Ridge Rock Construction Ltd. v. Beckmyer Builder Ltd., 2006 ABQB 850, 58 C.L.R. (3d) 143 at para. 22. See too: French v. French, 2013 BCSC 837 at paras. 74-76; Katz v. Grand Brook Homes, [2008] O.J. No. 3046 (S.C.) at paras 90-92.

[53] On the facts of this case, I am satisfied and find the parties subsequent agreement to sell the assets of Northbud and distribute the proceeds to the shareholders, including Bernier, rescinded the Agreement. The sale of Northbud is entirely inconsistent with the Agreement and goes to its very root. It prevents the Agreement’s essential terms from ever being carried out.

[54] The respondents submit that the Northbud sale supports their submission that the Agreement was never intended to be legally binding. I disagree. The Northbud sale took place many years after the Agreement and only came to fruition after intervening facts arose. It is therefore not a reflection of the intent of the parties at the time of the Agreement. Nevertheless, the Northbud sale prevented the parties’ Agreement from ever being implemented.

[55] Following the September 1, 2010 email, there is no evidence either party took any steps to implement the Agreement. Further, in August 2013, almost three years after the September 2010 email and some 4 to 5 years following the Agreement, the parties agreed to sell the assets of Northbud, subsequently distribute the proceeds by dividend and wind-up the company. Not only did Bernier agree to the sale, he also purchased an additional .01% of shares from 105 Ontario to enable him to obtain a favorable tax result in respect of the proceeds which were significant.

[56] The Agreement and Bernier’s share entitlement thereunder was based on the consolidation of the food businesses of the three entities, the food assets of Skilcor together with La Riberie and Northbud. The loss of Northbud changed the Consolidated group. In so doing, it changed Bernier’s agreed share participation in the remaining group. The Agreement provided he would receive 3% of the Consolidated group based on the contribution of his 10% interest in Northbud. But with the sale and subsequent wind-up of Northbud, Bernier no longer had his 10% interest in Northbud to contribute and therefore was not entitled to 3% of the remaining group. In fact, the Northbud sale deprived Bernier of any equity contribution to the new “group” and therefore no entitlement to an interest.

[57] Further, Bernier’s receipt of a further 6% in the Consolidated group as agreed (to bring him to 9% overall) was based on his initial 3% interest and a desire by Kinzinger to enable Bernier to have at least the same percentage interest as Clarke. But with Clarke gone with Northbud and Bernier no longer in a position to contribute his 10% in Northbud, what Bernier’s equity contribution in the remaining proposed entity was not as was originally agreed.

[58] The fact that the Agreement was no longer operative following the sale of Northbud was confirmed by the parties themselves. After the sale, all that remained of the Consolidated group was the food assets in Skilcor and La Riberie. Rather than implementing the agreement to give Bernier 9% of La Riberie and the food assets of Skilcor, the parties discussed Bernier buying a 10% interest in La Riberie. While the email exchange on December 2, 2014 (paragraphs 24 and 25 above) indicates Bernier was agreeable to the idea, he wanted to understand how their original “discussions” of him owning 9% of the Consolidated group, compared to the new discussions of him purchasing 10% of La Riberie. Importantly, in my view, Bernier was not saying he owned 9% of La Riberie which is the position he is now taking on this application. His concern was the proposed cost of the 10% interest.

[59] Bernier relies on certain events, subsequent to the Northbud sale, to evidence he was a shareholder of La Riberie and the food assets of Skilcor including what he describes as “shareholder loans” made to Skilcor and 105 Ontario. But as I have found, he was never a shareholder of Skilcor. Nor is there any evidence he was a shareholder of 105 Ontario. In my view, these loans do not support a shareholding interest in either Skilcor or La Riberie. Rather they were loans earning good interest, secured by promissory notes.

[60] Bernier further relies on the statement in the “Confidential Descriptive Memorandum” prepared in 2016 by the company retained to carry out the sale process. Among other things, the Memorandum had a statement that Skilcor was owned 100% by Kinzinger and that La Riberie was “owned equally between the couple [Kinzinger and Vel] who hold a 10% interest in trust for the President.”

[61] The Memorandum is simply not reliable. It contains several mistakes including that the statement that a 10% interest in La Riberie was being held in trust for Bernier. It is contradicted in the Memorandum and based on the evidence in the record, is not accurate. It does not support Bernier’s position.

Conclusion

[62] For the above reasons, I find that as of the date of the sale of Skilcor’s food assets and the shares in La Riberie in 2017, Bernier was not a shareholder, beneficial or otherwise, of Skilcor or La Riberie.

[63] As Bernier was not a beneficial shareholder of Skilcor or La Riberie, he is not a claimant as defined in s. 245 of the Act and therefore has no status to bring an oppression claim pursuant to s. 248 of the Act.

[64] Bernier’s application is dismissed.

[65] The respondents are entitled to their costs of the application. If costs cannot be agreed to, the parties should arrange a Case Conference with the Commercial List to resolve the issue.

L.A. Pattillo J. Released: March 23, 2022