COURT FILE NO.: CV-20-00650137-0000
DATE: 20220517
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Romexim Canada Inc., Dan Iliescu and Frank Victor Giraldi
Plaintiffs
– and –
James Morrison, Jeffrey Frances, and Kim Milson
Defendants
Jonathan Rosenstein, for the Plaintiff Dan Iliescu
Sender Herschorn for James Morrison
Arnold Zweig for Jeffrey Frances and Kim Milson
AND BETWEEN:
Jeffrey Francis and Kim Milson
Plaintiffs by Counterclaim
- and -
Dan Iliescu and Frank Victor Giraldi
Defendants to the Counterclaim
HEARD: April 19, 2022
C. Gilmore, J.
introduction
[1] This one-day trial was set to determine whether an agreement dated April 12, 2019, between Jeff Frances (“Mr. Frances”) and James Morrison (“Mr. Morrison”), is a valid and legally binding agreement (the “Agreement”). There are other issues in the claims and counterclaims brought by the parties which did not form part of the trial. All parties agreed that this issue should be determined before the balance of the claims could proceed.
[2] Mr. Morrison’s position is that the Agreement was nothing more than an agreement to agree or a memorandum of understanding to enter into a contract. In the alternative, he states that he did not understand the nature and effect of the Agreement and should therefore not be bound by it.
[3] The position of the Plaintiff, Dan Iliescu (“Mr. Iliescu”), aligns with that of Mr. Morrison. However, Mr. Iliescu’s further position is that the change of shareholders effected by the Agreement required the consent of all shareholders, the Agreement lacks essential terms such as the price of the shares, the Agreement cannot bind Romexim Canada Inc. (“Romexim”) as Mr. Frances had no shareholding interest in Romexim at the time the Agreement was signed, and his authority to pay Mr. Morrison through Romexim is in question.
[4] The Defendants, Mr. Frances and Ms. Milson (collectively the “Defendants”), take the position that the Agreement is a valid and legally binding agreement. Mr. Morrison wanted to sell his shares in Romexim due to his dissatisfaction with Mr. Iliescu’s management of Romexim. Drafts of the Agreement were exchanged and then signed. Mr. Frances has paid all amounts owing under the Agreement to date although such funds have been held in trust pending the outcome of this trial.
[5] For the reasons set out below, I find that Mr. Morrison intended to enter into the Agreement because he simply no longer wished to be part of Romexim. While the terms of the Agreement are missing some elements, none of missing elements are fatal to finding that a contract existed. Further, there was no prohibition on the transfer of shares that would void the Agreement and the technical issues raised by Mr. Iliescu do not prevent my finding that the Agreement was valid.
FACTUAL BACKGROUND
[6] Romexim was started in the 1990s by Mr. Iliescu as an import/export business between Canada and Cuba for vehicles and vehicle parts. It was incorporated in 2007 with the following shareholders: Norm Frances (37.5 shares), Andrew Faucet (5 shares), Jim Morrison (37.5 shares), Frank Giraldi (5 shares), and Mr. Iliescu (15 shares). In 2015, Mr. Faucet redeemed his shares. Mr. Giraldi settled with Romexim in October 2021 and is no longer a party to the action. He subsequently passed away in February 2022. At some point, Norm Frances’ shares were transferred to his son Mr. Frances.
[7] The Articles of Incorporation of Romexim, dated January 12, 2007, do not contain any restriction on the issue, transfer or ownership of shares. There is no written Shareholders’ Agreement.
[8] Mr. Frances and his sister, Ms. Milson, began as employees of Romexim. It was agreed by all the shareholders that Mr. Frances would be Romexim’s manager and paid a salary. Ms. Milson has never been a shareholder of Romexim. She is a qualified Chartered Professional Accountant and provided accounting services to Romexim.
[9] Originally, Mr. Iliescu was the sole director and President of Romexim. At times, the shareholders and members of their family lent money to Romexim to fund operations.
[10] In August 2017, Mr. Morrison’s accountant, Michael Hansen (“Mr. Hansen”), took over Ms. Milson’s duties and became the Chief Financial Officer of Romexim. In September 2017, the shareholders of Romexim (other than Mr. Frances) met and created a Memorandum of Understanding (the “Memorandum”). The Memorandum set out that Mr. Frances’ and Ms. Milson’s services were no longer required, and that Mr. Frances’ shareholding interest would be bought out. On September 12, 2017, Mr. Frances and Ms. Milson received an email from Mr. Hansen informing them they had been terminated from Romexim.
[11] In October 2017, Ms. Milson and Mr. Frances commenced an action against Romexim for damages for wrongful dismissal and for repayment of funds they had loaned the company. The action settled in August 2018 (the “Settlement Agreement”). The terms of the Settlement Agreement were as follows:
a) Mr. Frances would quit any claims of being a shareholder of the company;
b) Mr. Frances, presumably on behalf of his father Norm, would return 37.5 shares to the company;
c) the company would pay Ms. Milson $205,500 over a period of 4 years;
d) the company would pay Mr. Frances $196,500 over a period of 6 years in full satisfaction of all amounts owing.
e) the company would release any claims to the land that was acquired in Ms. Milson's company's name and lease its own warehouse space from Ms. Milson's company
f) Mr. Frances would continue to act as the company's representative in Cuba and be paid as a consultant.
g) Interest on all amounts owed is at 8%. A certain percentage of funds received from aged receivables could be applied to the outstanding amounts owed.
[12] Mr. Frances redeemed his 37.5 shares of Romexim as per the Settlement Agreement. After the Settlement Agreement was signed, the shareholding interests were: Mr. Morrison (37.5 shares) Mr. Iliescu(15 shares), and Mr. Giraldi (5 shares).
[13] Nothing really changed for Mr. Frances after he was terminated. He continued to manage the company’s operations in Cuba and worked for Romexim as per the Settlement Agreement.
[14] In early April 2019, Mr. Frances and Ms. Milson brought a contempt motion against Romexim and its shareholders claiming that $90,000 from aged receivables paid to Romexim should have been paid to them in accordance with the Settlement Agreement but instead had been paid to Mr. Iliescu. During this period, Mr. Morrison reached out to Mr. Frances and expressed dissatisfaction with Mr. Iliescu’s involvement and management of Romexim. The sequence of events leading up to the Agreement is set out below.
[15] On March 20, 2019, at 11:06 a.m., Mr. Frances emailed Mr. Morrison and Mr. Hansen about a number of company-related matters and stated that “we are both in agreement that something must be done to save Romexim which in turn will save the money we have invested in the company.” He made a summary of the issues discussed. One of the issues was that “Jim and Jeff come to an agreement on Jim’s shares of the company to be transferred/purchased by Jeff.”
[16] On March 20, 2019, at 11:15 a.m., Mr. Hansen emailed Mr. Frances confirming certain conversations between himself, Mr. Frances and Mr. Morrison as follows:
Hi Jeff,
I can confirm that Jim, myself and you have been in discussions recently. Jim has indicated to me that he is concerned with the current management of Romexim Canada Inc. being that Dan has not made any significant progress with ensuring the payment of accounts receivable and the repayments of shareholders' loans, private loans, and future stability of the company. To that end, Jim has asked me to assist with a new direction for the company. I can confirm that your list below is accurate with respect to our conversations at the direction of Jim Morrison.
Michael Hansen
[17] On April 1, 2019, at 3:39 p.m., Mr. Frances emailed Mr. Hansen and sent him a copy of an email sent to all shareholders with a Notice of Motion returnable April 15, 2019. This was the contempt motion in relation to other shareholders (Mr. Iliescu) receiving money for receivables that Mr. Frances and Ms. Milson claimed were owed to them as per the Settlement Agreement. Mr. Frances commented that “[a]s I told you Jim is included now, but will be removed in the future, we don’t want any red flags to go up.”
[18] On April 9, 2019, Mr. Morrison emailed Mr. Hansen (his long-standing accountant) and set out terms of a proposed agreement to sell his shares to Mr. Frances including the amount of the deposit, tax advice and a selling price. Mr. Morrison indicated there was some urgency as he wanted out of the litigation and in particular the contempt motion.
[19] On April 10, 2019, Mr. Hansen sent Mr. Frances a draft agreement (copying Mr. Morrison) signed by Mr. Morrison.
[20] On April 11, 2019, Mr. Morrison sent the following email to Mr. Frances (as per original):
Jeff, as discussed. Because of my age and my health concerns I have decided to work with you and sell my ownership of Romexim shares to you. I am prepared to massages The time frame for your initial deposit. We should discuss how my beneficiaries will Be taken care of in the event of my passing. I will use Michael as my advisor in terms tax implications and wording. I will be at meetings this afternoon but will contact you this pm.
Jim Morrison.
[21] On April 11, 2019, the action against Mr. Iliescu, Mr. Morrison, Mr. Giraldi and Romexim brought by Mr. Frances and Ms. Milson was discontinued.
[22] On April 12, 2019, Mr. Morrison sent the following email to Mr. Frances (as per original):
Mr. Jeff Frances,
Due to my declining health and my lack of confidence in Romexim Canada Inc And the current management I,am interested in transferring all my holdings in Romexim to you. Please advise of your interest.
Yours sincerely
Jim Morrison
[23] Following that email, Mr. Morrison sent an email to Mr. Frances indicating he would call him at 11:00 a.m. that morning (April 12, 2019).
[24] At 11:39 a.m. that morning, Mr. Frances emailed Mr. Morrison back with a copy of a draft which he said he had edited “as per the lawyer advice.” He also confirmed that his lawyer had the $5000 deposit in his trust account. Mr. Frances had lowered the deposit amount to $5,000 from the April 10th draft and added in a provision that if Romexim became bankrupt or insolvent, the repayment provisions would become void.
[25] On April 12, 2019, the Agreement was signed between Mr. Morrison and Mr. Frances. Mr. Frances became the majority shareholder in Romexim as a result of the Agreement.
[26] The terms of the Agreement (signed by both Mr. Frances and Mr. Morrison) are set out below:
April 12, 2019
I, James Morrison Hereby transfer my 37.50 common shares of Romexim Canada Inc. (the "company") to Jeffrey Frances with the condition that Romexim Canada Inc. repays my shareholder loan of 196,232.25 CAD on a quarterly basis. As well as an additional 200,000.00 CAD paid on a quarterly basis.
It is understood that the payments will be made quarterly starting in 6 months from the signed agreement giving Jeff Frances time to verify the cash flow of Romexim and the financial situation of Romexim Caneta Inc. In the first six months, if Jeffrey Frances feels Romexim Canada Inc. is unable to make the payments the shares will be return to Jim Morrison. If at anytime in the next 6.5 years the company becomes bankrupt or insolvent the repayment provisions become void.
The payment Terms
Initial non-refundable down payment of $5000.00 CAD upon acceptance of agreement and successful transfer of shares.
Quarterly payment (every three month) of $15000.00 or (monthly) $5000.00 commencing 6 months after agreement is signed.
Lump sum payments are available to reduce the term on the debt.
[27] On April 13, 2019 (the day after the Agreement had been signed), Mr. Morrison emailed Mr. Frances at 11:16 p.m. as follows (as per original):
Jeff,to bring you up to speed. I called Dan and informed him that I was entirely Fed up with experiences with Romexim. And I wanted out. He was shocked And asked me to explain what I meant. I told him that I had gone into this in good faith But that everyone else that was associated with Romexim had benefited. I told him I I intended to make a final decision by tomorrow ..
He called me later in the evening to ask me to make a decision after benifiting from my Trip. I agreed.
I fully intend to complete what we started but I need an agreement that I can live with.
I will allow Michael to act on my behalf. I will email you tomorrow.
Jim M
[28] On April 30, 2019, Mr. Frances called a shareholders’ meeting. Mr. Morrison was out of the country at the time. Mr. Giraldi and Mr. Iliescu were given notice of the meeting but did not attend. Mr. Frances named himself as the President and sole director of Romexim at the meeting. Mr. Frances then presented the shareholders’ resolution to the Bank and took over all operations of Romexim.
[29] In October 2020, Romexim, Mr. Iliescu and Mr. Giraldi commenced a claim against Mr. Frances, Mr. Morrison and Ms. Milson. They make the following claims:
a. A declaration that the shareholder meeting requisition sent by Mr. Frances in April 2019, was invalid;
b. A declaration that the April 30, 2019 shareholders meeting was invalid;
c. Reinstating Mr. Iliescu as director of the corporation;
d. Declaring that Mr. Frances was never a duly elected director of the corporation;
e. That Mr. Iliescu be paid a management salary in an undetermined amount;
f. An Order restricting Mr. Frances from any access to corporate funds;
g. Damages against Mr. Frances and Ms. Milson in amounts that are yet to be determined; and
h. A declaration that the agreement entered into with Jim Morrison as of April 12, 2019 is null and void.
[30] In November 2020, Mr. Morrison brought his Crossclaim against Mr. Frances and Ms. Milson claiming the Agreement was invalid and should be set aside. In November 2020, Mr. Frances and Ms. Milson brought a Counterclaim to ratify all steps taken by Mr. Frances since April 2019 and for a winding up of the corporation and appointment of a Receiver-Manager.
[31] In October 2021, Mr. Giraldi and Mr. Frances came to an agreement. Mr. Frances agreed to repay Mr. Giraldi’s shareholder loan with interest being a total of $150,000 with $10,000 paid to Mr. Giraldi by the end of November 2021 and $2,000 per month “whenever possible.” Other amounts are to be paid to Mr. Giraldi from different sources to reduce the loan amount. In exchange, Mr. Giraldi discontinued his action against the Defendants. Mr. Giraldi’s estate now owns his 5 shares.
The Agreement
The Evidence and Positions of the Parties
Mr. Iliescu
[32] Mr. Iliescu’s position is that the Agreement cannot be valid for the following reasons:
a. The transfer of shares to Mr. Frances was not approved by the other shareholders.
b. The terms of the Agreement are unclear and lack essential elements such as the price of the shares.
c. Mr. Frances cannot bind Romexim and require it to pay for Mr. Morrison’s shares.
d. The transfer of shares was never actually completed.
[33] Mr. Iliescu raises concerns about Mr. Frances’ management of Romexim including his failure to advise the remaining shareholders of the company’s operations, financial status, and creditors’ claims. He is aware that Romexim has done well in 2019 and 2020 but Mr. Frances has not provided sufficient information to answer his concerns.
[34] Mr. Frances terminated Mr. Iliescu’s employment with Romexim without a severance package. He also terminated Mr. Iliescu’s health benefits. He alleges that Mr. Frances is using corporate funds rather than personal funds to pay Mr. Morrison what is owed under the alleged Agreement.
[35] Mr. Frances has repaid corporate debt to his friends, such as Mike Horton, but has failed to repay Mr. Iliescu or his son for amounts loaned to Romexim.
[36] Mr. Frances has used corporate funds to pay for his personal legal counsel in this matter, the contempt motion and the wrongful dismissal action.
[37] Mr. Frances made it clear from the point of signing the Agreement that he wanted to run Romexim on his own without input from other shareholders.
[38] Mr. Frances has failed to provide adequate financial disclosure concerning Romexim. Ms. Milson has kept its financial information from the other shareholders. Since only Mr. Frances and Ms. Milson now have access to this information, the remaining shareholders have been deliberately left in the dark.
[39] Mr. Frances’ motion to wind up the corporation is brought out of spite and an unwillingness to work productively with the other shareholders. There is a $4-5M receivable owed to Romexim by the Cuban government. A winding up Order would likely result in the Cuban government refusing to pay. Romexim owns a valuable licence which permits it to operate in Cuba. Winding up Romexim would result in that licence being forfeited.
Mr. Morrison
[40] Mr. Morrison is 86 years old. He was employed as a metallurgist until he retired more than 20 years ago. His cognitive abilities are intact other than some forgetfulness.
[41] Mr. Morrison agreed that the emails referred to in his evidence were all sent by him and that he personally prepared the April 10th version of the Agreement without legal advice. His evidence was that in March/April 2019, he had “just about given up” on Romexim and spoke to Mr. Frances about his concern for the future of the company. His intention was to get something in writing that would lead to a more complete legal document.
[42] At the time he signed the Agreement, he did not really think about who would be paying him what he was owed. Mr. Frances never mentioned that Romexim would be paying him. So far, he has received the $5,000 deposit but nothing more.
[43] As for the April 13, 2019 email, he confirmed that his intention was to tell Mr. Iliescu his final decision when he returned to Canada after his vacation and after he had sought legal advice. In cross-examination, Mr. Morrison said that his final decision was that he did not want to sell his shares to Mr. Frances and wanted to regain control of the company. He does not trust Mr. Frances. He conceded he has not told anyone this except Mr. Hansen since he signed the Agreement. He testified that he still hasn’t made a final decision. He will need to consult his lawyer and Mr. Hansen first although he has not yet pursued that.
[44] He signed the Agreement and intended to sell his shares to Mr. Frances because he wanted protection for his family and to ensure that Romexim continued as a viable business. He agreed during cross-examination that he has approached Mr. Iliescu to see if he could get a better deal for his shares.
[45] Mr. Morrison testified that he did not know that over $150,000 worth of payments pursuant to the Agreement are being held in his lawyer’s trust account or that the payments were up to date. During his cross-examination on August 9, 2021, he confirmed he knew that the payments were being made and were up to date. He does not want to be paid by Romexim because he would effectively be repaid with money that he invested in the company. He wants Mr. Frances to pay him not Romexim.
[46] Mr. Morrison’s position is that the Agreement is of no force or effect. At its highest, it is nothing more than an agreement to agree. In the alternative, Mr. Morrison states that he did not understand the nature and effect of the Agreement, never finalized it and should therefore not be bound by it.
[47] Mr. Morrison further submits that the Agreement on its own does not make sense and the Court would have to add terms to it for it to be legally binding. For example, the Agreement does not state whether Mr. Frances or Romexim is to pay for Mr. Morrison’s shares and shareholder loan and in what order they are to be paid.
[48] The amounts owed to Mr. Morrison should be paid by Mr. Frances personally with the proper guarantees in place. Otherwise, Mr. Morrison has no recourse against either Mr. Frances or Romexim. Mr. Frances’ claim, that since Romexim owes him money he can use those funds to pay Mr. Morrison, should be rejected. In any event, the Settlement Agreement terms mean that Mr. Frances is owed $45,000 by Romexim to date, yet he has paid (into trust) more than $150,000 pursuant to the Agreement.
[49] If the Agreement is binding, Mr. Morrison’s shares should not be assigned to Mr. Frances until payment in full of the $200,000 is made.
[50] The Agreement cannot be binding as it was not approved by the remaining Romexim shareholders. This is particularly important because of the amounts owed by Romexim to the other shareholders and their family members.
Mr. Frances
[51] Mr. Frances’ view is that Mr. Iliescu will not speak to him and so it does not make sense to continue running the company with his input. In any event, the company has no inherent value as it owns no assets. It is simply a “flow through” company.
[52] In April 2019, Mr. Morrison reached out to Mr. Frances and told him he wished to end his involvement with Romexim. He no longer had faith in Mr. Iliescu, and he wanted to arrange a buy-out of his shares. Mr. Frances and Mr. Morrison spoke on the phone and worked out the terms of the Agreement. It was agreed that Mr. Frances would buy out Mr. Morrison’s shares for a payment of $200,000 plus the repayment of his shareholder loan.
[53] Mr. Frances denied that the timing of the service of the contempt motion in the afternoon of April 1, 2019 was intended to put pressure on Mr. Morrison to sign the Agreement. His evidence was that the motion was brought against Mr. Iliescu, not Mr. Morrison or Mr. Giraldi. In any event, he was not aware that the motion had been served that day. He denied that the discontinuance of his action against Mr. Morrison on April 11, 2019 had anything to do with the Agreement.
[54] Mr. Frances submits that since there was no Shareholders’ Agreement and no restriction on the transfer of shares, the share transfer is valid. There was no requirement that the Agreement be approved by Mr. Iliescu or Mr. Giraldi.
[55] The initial draft of the Agreement was sent to him on April 10, 2019, signed by Mr. Morrison. This was after multiple phone discussions and emails leading up to April 10th. Mr. Frances did not want to sign the April 10th draft. He thought the proposed $15,000 deposit was too much and he did not want any personal liability for the amounts owed to Mr. Morrison in the event Romexim was unable to pay him what he was owed pursuant to the Settlement Agreement. He thought the loan repayment and share price were high but fair. Mr. Hansen and Mr. Morrison were the ones who came up with loan and share amounts. He felt he could manage the payments over the 6.5 years proposed.
[56] He sent back a draft on April 12, 2019 with some additional changes. Both he and Mr. Morrison signed the Agreement. Since then, Mr. Morrison has never communicated to Mr. Frances his dissatisfaction with the Agreement other than through this litigation. He has complied with the terms of the Agreement. Mr. Frances has never received Mr. Morrison’s share certificate. He is not even certain of its location.
[57] Mr. Frances could not recall receiving the April 13, 2019 email from Mr. Morrison and never received any other proposed changes or suggested additional terms for the Agreement. He could not explain why Mr. Morrison references “an agreement I can live with” when the April 12, 2019 Agreement had been signed the day before.
[58] Mr. Frances denies paying amounts owed to Mr. Morrison pursuant to the Agreement from corporate funds. Romexim owes Mr. Frances money for salary, receivables, interest and advances as per the Settlement Agreement. Mr. Frances is simply using those funds to pay Mr. Morrison. He agrees that he is personally obligated to pay Mr. Morrison but that money is to come from amounts owed to him from Romexim.
[59] It was suggested to Mr. Frances that Romexim only owes him $15,000 per year yet he is paying Mr. Morrison $60,000 per year pursuant to the Agreement. Mr. Frances denied this. The $15,000 per year is the minimum interest payments owed to him under the Settlement Agreement. He is also entitled to a percentage of the receivables each month.
[60] Once Mr. Frances became the majority shareholder as a result of the Agreement, he requested that Mr. Iliescu, as the President, call a shareholders’ meeting. When he did not do so, Mr. Frances called a shareholders’ meeting as per his rights as a majority shareholder. The meeting was set for April 30, 2019. Mr. Morrison advised he would not be attending. Mr. Iliescu’s lawyer advised he would not be attending either.
[61] Mr. Frances attended the shareholders’ meeting himself, took the Minutes and voted himself as President and sole director. He then filed the proper form with the Ministry and took over control of the operations of Romexim. Mr. Frances asked Mr. Iliescu and Mr. Giraldi for the Romexim Minute Book. They refused to provide it claiming that they failed to recognize Mr. Frances as a director of the corporation.
ANALYSIS AND THE LAW
The Issues
1) Standing
[62] Counsel for Mr. Frances argues that Mr. Iliescu’s position should not be taken into account by the Court as he has no standing to challenge the Agreement because he was not a party to it. He may have had standing if there had been a shareholders’ agreement which provided for such rights, but no shareholders’ agreement exists.
[63] While it is true that Mr. Iliescu was not a party to the Agreement, he is a shareholder in the company and is affected by whether or not the Court finds the Agreement enforceable. There is animosity between Mr. Iliescu and Mr. Frances. Mr. Iliescu would clearly benefit from circumstances in which Mr. Morrison’s shares are returned to him, and he and Mr. Iliescu would have the combined majority shareholding interest in the company.
[64] As such, and considering that Mr. Morrison supported Mr. Iliescu’s submissions, I have considered Mr. Iliescu’s position on all issues.
2) Is the Agreement Enforceable?
[65] Counsel for Mr. Morrison and Mr. Iliescu submit the Agreement lacks terms such as which amount the payments are directed towards. Are the payments to be made for the shareholder’s loan first and then the shares? What happens if Mr. Frances ceases the payments? What happens if Romexim becomes insolvent? These issues are not clear in the Agreement and since they are essential terms, the Agreement should be set aside.
[66] I do not see this as a ground to set aside the Agreement. Ideally, the Agreement would have addressed the priority of payments. However, the fact that it does not, does not affect its validity. If Mr. Frances ceases payments, the Agreement is signed by him personally and Mr. Morrison has his remedies. I agree with Mr. Zweig that the issue simply relates to the manner in which the Agreement is carried out, not its validity.
[67] It may have been different if the Agreement stated that the price of the shares was to be “negotiated” or based on a form of valuation to be provided at a future date. No such term was present. The amounts payable to Mr. Morrison and for what purpose could not be clearer.
[68] Mr. Iliescu raises the issue of whether pressure was put on Mr. Morrison because of the timing of the service of the contempt motion and the signing of the Agreement. I find that the parties’ intentions were crystallized well before the motion was brought. Indeed, Mr. Morrison’s evidence was that he knew nothing about the motion.
[69] Mr. Morrison initiated emails to Mr. Frances, and Mr. Frances sent emails to Mr. Morrison about the terms of the Agreement. The tenor of some of the emails was that it was Mr. Morrison who wanted out quickly due to his dissatisfaction with Mr. Iliescu’s management of certain issues related to payments and receivables.
[70] In his emails, Mr. Morrison did not give the impression of being pressured by Mr. Frances in any way. Indeed, he wrote the first draft of the Agreement himself. Nor, despite his age, did he appear to lack understanding of the substance of the Agreement. He specifically mentioned the deposit amount, timing, beneficiaries and tax advice. It is difficult to find that a party to an agreement does not understand it when they initiated it and wrote it.
[71] In summary, I find that the necessary elements of a contract were present: Mr. Morrison’s initial offer on April 10th, and the acceptance was by way of the final agreed upon and signed version on April 12, 2019. The consideration in the Agreement is clear.
3) What Were the Intentions of the Parties?
[72] In Ruparell v. J.H. Cochrane Investments Inc. et al., 2020 ONSC 7466, the Court examined whether the parties intended to contract where terms were exchanged via telephone and texts, and a Share Purchase Agreement was never signed.
[73] The Court reviewed the issue of intention to contract and said as follows, at para. 23:
[23] The intention of the parties at the time of the agreement, must be determined by examining the words, the nature of the purported agreement, and the course of conduct of the parties. It is an objective test, as seen through the eyes of a “hypothetical onlooker” rather than based on the subjective impressions of the parties after the fact: Cook v. Joyce, 2017 ONCA 49 at para. 65 ; Andrews v. Lundrigan, 2009 ONCA 160; Bawitko; Case name 2005 36270 (ON SC) G.H.L. Fridman, The Law of Contract in Canada, 5th ed. (Toronto: Thomson Carswell, 2006), at p. 6. Betser-Zilevitch v. Nexen Inc., 2019 FCA 230, at para. 4.
[74] I find that a hypothetical objective onlooker would view both parties as intending to contract to buy/sell Mr. Morrison’s shares. Indeed, the intention arose some weeks before in conversations which were confirmed in Mr. Hansen’s March 20, 2019 email.
[75] It is important to look at the context in which the Agreement was made. As per Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 54:
[54] A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11.
[76] Looking at the context in which the Agreement was made, I make the following findings:
a. The Agreement was initiated by Mr. Morrison. He fully participated in the negotiation of subsequent drafts.
b. The parties to the Agreement are clear; Mr. Morrison and Mr. Frances;
c. The amount to be paid to Mr. Morrison and the payment terms are clear;
d. The subject matter of the Agreement is certain: repayment of Mr. Morrison’s shareholder loan plus an additional payment of $200,000 which was clearly intended to pay for Mr. Morrison’s 37.5 shares.
e. The Agreement is signed by both parties and dated.
f. It is clear from the emails exchanged that the parties discussed the terms of the Agreement before a draft was provided. Mr. Morrison had the benefit of input from his accountant.
g. The parties were ad idem on the issue of the amounts in the Agreement. The evidence was that Mr. Morrison had Mr. Hansen provide those numbers which Mr. Frances thought were “high but fair.”
h. Mr. Morrison wanted out of Romexim for several stated reasons: his personal health issues and his dissatisfaction with Mr. Iliescu’s management of certain corporate issues. There is nothing to indicate that Mr. Morrison felt pressured nor was he aggressively pursued by Mr. Frances. Mr. Frances wanted Mr. Morrison’s shares. Mr. Morrison wanted to sell them.
i. Mr. Frances was a businessman who had worked in the import/export business for many years. Mr. Morrison was a metallurgist when he was employed. Both were experienced in business.
j. The fact that Mr. Morrison chose not to pursue legal advice before signing the Agreement, and that he did not ensure that payments came from Mr. Frances personally, are not matters in which the Court can interfere. Mr. Morrison wanted an Agreement and received one. The fact that some of the terms may not favour him is unfortunate, but the Court will not undo an improvident bargain in these circumstances.
[77] The Court must also consider the April 13, 2019 email and Mr. Morrison’s evidence that the email indicated his intention to consult a lawyer and Mr. Hansen before entering into a final legal agreement. Mr. Frances testified he does not recall seeing this email. Frankly, Mr. Frances recalled very little during his testimony. However, the fact that he did not recall receiving the email is of little import. What is important is whether this email somehow corroborates an intention on Mr. Morrison’s part to enter into a further agreement, meaning the Agreement is reduced to the status of a form of memorandum.
[78] I reject this contention entirely. If Mr. Morrison had truly intended to obtain professional advice on his decision, he would have done so by now. He has never communicated this intention to anyone prior to this hearing. Apparently, he has yet to make a decision. That evidence is simply not tenable or believable.
[79] Mr. Morrison’s evidence was inconsistent, confusing and contradictory. He told the Court he had no idea that the funds paid by Mr. Frances under the Agreement were being held in trust by his lawyer. His answer on cross-examination was different as was his further evidence at trial in which he said he was aware that the payments were up to date. I find that Mr. Morrison’s evidence on key points in this matter was simply unreliable.
[80] In summary, all of the facts surrounding the signing of the Agreement are consistent with a contract having been formed. While the contract may be one which Mr. Morrison now regrets, the Court cannot assist with such remorse.
4) Did Mr. Frances have Authority to Make the Payments under the Agreement?
[81] Mr. Iliescu and Mr. Morrison raise the issue of Mr. Frances’ authority as a director. The allegation is that Mr. Frances had the Agreement planned from the beginning. He would negotiate directly with Mr. Morrison without telling Mr. Iliescu or Mr. Giraldi (whom he knew would object) and then take over the company. He would use the money which Romexim owed to him to pay Mr. Morrison. This is evidenced by Mr. Frances demanding a shareholders’ meeting within three days of the Agreement being signed. When that did not happen, he held one himself.
[82] There are several technical issues raised by Mr. Rosenstein as follows:
a. Section 53 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”), stipulates that shares must be acquired pursuant to the Securities Transfer Act, 2006, S.O. 2006, c. 8. Section 68(1)(a) of the Securities Transfer Act, requires delivery of a share before any transfer can occur. Mr. Frances was clear that he did not have the share certificate, nor did he know where it was.
b. Section 101 of the OBCA sets out that the quorum for shareholders’ meetings can be set out in the by-laws. Section 52 of the by-laws of Romexim require that two people are required for a quorum. There was therefore no quorum at the shareholder meeting which only Mr. Frances attended.
c. It is clear that the Agreement was signed by both parties; however, Mr. Morrison sent a signed copy of the Agreement to Mr. Frances who signed it and gave it to his lawyer. There is no evidence that the signed Agreement was ever provided to Mr. Morrison, and, as such, there was no proper communication of the acceptance of the Agreement.
[83] Mr. Rosenstein argues that Mr. Frances has not acquired the authority to run the company as he is not a shareholder, director or officer. As such, he has had no authority to make payments from Romexim for the last three years and is in breach of the Agreement. Even if the Agreement is valid, Mr. Frances must obtain a court order to have him confirmed as a shareholder. A proper shareholders’ meeting would then be held.
[84] Mr. Zweig responds that the technical arguments should be disallowed as they were raised at trial for the first time. If such arguments are accepted, Mr. Zweig points out that the quorum argument should be rejected as the by-laws are not dated or signed by the President or Secretary. The by-laws were only signed by Mr. Morrison and not the four other shareholders who existed at that time. As such, s. 53 of the OBCA does not apply.
[85] While I appreciate the technical issues raised by Mr. Rosenstein, they do not change my view with respect to the validity of the Agreement. With respect to Mr. Frances’ authority to run the company and make payments as a director and officer of the company, I find that the point is somewhat moot. Given my finding that the Agreement is valid, even if all of the other shareholders attended the April 30, 2019 meeting, they only held 20 shares between them. As a majority shareholder, Mr. Frances could have defeated their vote in any event and the result would be the same. I note that there was no dispute that the other shareholders were given notice of the April 30, 2019 meeting. They chose not to attend. I find that the shareholders’ meeting called by Mr. Frances was therefore valid. While I do not make an order in this regard, I simply observe that a further shareholders’ meeting can be held to ratify the acts of Romexim over the last three years in order to formalize what has been a rather nebulous situation.
[86] As for the missing share certificate, a share certificate is evidence of a shareholding interest. The lack of a certificate does not mean the shareholding interest does not exist. In any event, a new share certificate can be issued by the corporation to replace the one which is apparently lost or being withheld.
[87] As per Mennillo v. Intramodal Inc., 2016 SCC 51, [2016] 2 S.C.R. 438, a failure to observe formalities to complete a share transfer as a result of oversight or error did not nullify the transfer nor could it amount to oppression: at para. 4. The Mennillo case confirms that it is substance over form that is important. It must be kept in mind as well that Mr. Frances has repeatedly requested that the Minute Book be delivered to him. That request has been refused. If the Minute Book can be located and given to Mr. Frances, the formalities of the share transfer can then be implemented.
Orders and Costs
[88] Given all of the above, I order as follows:
a. The April 12, 2019 Agreement between Mr. Frances and Mr. Morrison is valid and binding.
b. The funds held in trust by Mr. Hershorn shall immediately be released to Mr. Morrison.
c. Mr. Frances must continue to make the payments under the Agreement.
d. The parties are to request a Case Conference before me to determine next steps with respect to the balance of outstanding claims in the main action.
e. If the parties cannot agree on costs, they may provide written submissions of no more than three pages in length (exclusive of any Bill of Costs or Offer to Settle) on a seven-day turnaround starting with Mr. Zweig, seven days after the release of this decision. Costs are to be delivered electronically to my assistant. If no costs submissions are received within 35 days, the issue of costs shall be deemed to be settled.
C. Gilmore, J.
Released: May 17, 2022
COURT FILE NO.: CV-20-00650137-0000
DATE: 20220517
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Romexim Canada Inc., Dan Iliescu and Frank Victor Giraldi
Plaintiffs
– and –
James Morrison, Jeffrey Frances, and Kim Milson
Defendants
AND BETWEEN:
Jeffrey Francis and Kim Milson
Plaintiffs by Counterclaim
- and -
Dan Iliescu and Frank Victor Giraldi
Defendants to the Counterclaim
REASONS FOR JUDGMENT
C. Gilmore, J.
Released: May 17, 2022