SUPREME COURT OF NOVA SCOTIA Citation: North Point Holdings Ltd. v. Palmeter, 2016 NSSC 39

Transcription

1 SUPREME COURT OF NOVA SCOTIA Citation: North Point Holdings Ltd. v. Palmeter, 2016 NSSC 39 Date: Docket: Hfx No Registry: Halifax Between: North Point Holdings Limited and John Bashynski Plaintiffs v. Aubrey Palmeter, Bruce Tuck, Hugh Reid, and Eastpoint Engineering Limited Defendants DECISION Judge: Heard: Counsel: The Honourable Justice Denise M. Boudreau December 9, 2015, in Halifax, Nova Scotia Brian Hebert, for the Plaintiffs Michael Ryan, Q.C., for the Defendants

2 Page 2 By the Court: [1] The court has before it a Notice of Motion filed by the plaintiffs. The original motion documents, filed by the plaintiff Bachynski, sought an order for summary judgment pursuant to Rule 13, and an assessment of damages. On the date of the hearing of the motion, counsel for the plaintiffs sought to amend the motion to add a request for a Declaration as to the terms of a Settlement Agreement, pursuant to Rule of the Rules of Civil Procedure, in relation to an Agreement reached by all parties in June Counsel for the respondents had no objection to that amendment. [2] Both counsel also wished to proceed with the hearing of both motions on that date. Because of that consent, and in the interest of efficient use of court resources, I allowed the matter to proceed. Both motions proceeded on December 9, [3] In support of the motion, the court has before it an affidavit of John Bashynski, sworn on August 31, I also have an affidavit from the respondent Aubrey Palmeter sworn November 26, Both deponents were cross-examined on the date of the hearing. I also have before me a second affidavit of John Bashynski, sworn on December 7, 2015, and filed the same day. This affidavit was

3 Page 3 filed outside the appropriate timelines, and was the subject of an objection by counsel for the defendants. The second affidavit merely attached a report prepared by Brian Keough in April 2011, which both parties have had for quite some time. I permitted this affidavit to be entered. I also have one last exhibit, being a report of William Vienneau dated October 19, [4] I wish to further comment with respect to a number of the exhibits that were provided to the court by the plaintiffs, both as exhibits to the affidavits of John Bashynski, or as stand-alone exhibits. I am referring specifically to the following: the Keough report in the December 7 th Bashynski affidavit (Court Exhibit #2); Exhibits D, E, and F of the August 31 st Bashynski affidavit (Court Exhibit #1); and Court Exhibit #4 (the Vienneau report). [5] All of these documents are expert (opinion) reports prepared by various persons. They were the subject of a prehearing objection by counsel for the defendants, as the reports did not meet the requirements of Rule 55, none of the experts had been called to testify or be cross-examined, and none had been properly qualified. Counsel for the plaintiffs responded that these reports were not being presented for their truth, nor to propose any reliability to the opinions contained therein. The reports were merely being presented as evidence of the fact

4 Page 4 that they had been prepared, which was a relevant fact to the question(s) before the court. [6] I agreed to allow these documents to be entered for that very limited purpose. To confirm: None of these reports are exhibited in support of the truth of their contents, or of their opinions, or of their conclusions. They are entered before this court for the limited purpose of showing that they were created. [7] This entire matter commenced when the plaintiffs filed an originating Notice of Action, on October 5, It was a claim pursuant to the Third Schedule of the Companies Act, an oppressive shareholder proceeding. The claim alleged questionable dealings and breaches of obligations made by the defendants, in particular Mr. Palmeter, including the removal of the plaintiff Bachynski as president of the defendant company Eastpoint. The claim concluded with a number of alternative requests for relief, including an order for dissolution of Eastpoint; an order removing the individual defendants as directors of Eastpoint; an order directing Eastpoint to purchase the plaintiff shares; and others. [8] A Notice of Defence was filed on behalf of all defendants on November 4, 2009, denying many of the facts, denying the oppression claim, and seeking that the court deny the relief sought.

5 Page 5 [9] In June 2010, the parties reached a full settlement in the matter. The settlement agreement (the Agreement ) contained a number of provisions, dealing with each item in dispute between the parties. I am advised that, as matters stand, practically all of the provisions of this agreement have been complied with, and I am further advised that those provisions have been the subject of signed releases. [10] One part of the document which remains outstanding, and which is the part that interests us in this motion, is found at paras of the Agreement. This section is entitled Epco and North Point Agreement regarding 2009 sale of Epco shares by EastPoint: 22. A Valuation of Epco shall be completed for those shares held by North Point as of March 1, 2009 (the 2009 Epco Valuation ) and shall include all accrued and unpaid dividends. Such valuation shall be adjusted to account for the financial year end statements of both Epco services and Murray Controls. 23. The 2009 Epco Valuation will be completed by the CBV and will be paid for by Bashynski. 24. In the event the 2009 Epco Valuation is greater than Five Hundred and Fifty- Five Thousand Dollars ($555,000.00) (the Sold Amount ), Palmeter shall pay or arrange for payment of 1/12 of the difference from the Sold Amount and the 2009 Epco Valuation to Bashynski, or his nominee. 25. In the event the 2009 Epco Valuation is less than the Sold Amount, Bashynski shall pay, or arrange for payment of 1/12 of the difference from the Sold Amount and the 2009 Epco Valuation to Palmeter or his nominee. [11] The expression CBV, (referred to in para. 23 above), is defined in the Definitions section on p. 1 of the Agreement:

6 Page 6 c) CBV CBV means Brian Keough, a Chartered Business Valuator, or such other qualified CBV as the parties agree to in writing; [12] Mr. Keough had a number of assignments to perform as a result of the Agreement, only one of which was the 2009 Epco valuation mentioned at pp [13] Mr. Bachynski stated in his evidence that he agreed to pay for the work described in paras , because Mr. Keough was already doing other valuations, and some of the information would be the same. Mr. Bachynski believed that would make the 2009 Epco valuation less expensive than it would otherwise be. [14] Mr. Keough produced his first report in April This was a 2010 valuation of Epco. Mr. Bachynski was not pleased with this valuation. He then started another, separate, Application in Court (Hfx No ), seeking to set aside the Agreement. In that proceeding, Mr. Bachynski alleged that Mr. Keough had relied upon certain information in reaching his conclusions, which Mr. Bachynski did not know. Mr. Bachynski pleaded that he would not have entered into the Agreement had he known of this information. He further pleaded that Mr. Palmeter had attempted to interfere with Mr. Keough. He sought for the Agreement to be set aside.

7 Page 7 [15] The parties then entered into a second round of discussions, and a second settlement agreement, in June That agreement provided that Northpoint (i.e. the plaintiff s company) would engage and pay for another 2010 Epco valuation, to be done by another CBV of a minimum of 15 years experience, from either KPMG, Price Waterhouse or Deloitte. Evaluations would then be exchanged and reviewed for commentary. If the CBVs could not agree on the value, the two would be averaged, and the average binding on the parties as the 2010 Epco valuation. [16] In relation to the 2009 Epco valuation, the provisions of paras in the first agreement were essentially repeated, with the exception that a valuation would now be done by Northpoint s CBV. It also provided that this valuation would be done within 105 days, and made further provision for payments. The new agreement was silent as to the possibility of a disagreement between CBVs as to the 2009 Epco valuation. [17] Pursuant to the new agreement, the plaintiff retained as his CBV Ms. Mary Jane Andrews of KPMG, who met the qualifications required. She was able to produce her draft reports within the 105 day time period.

8 Page 8 [18] By October 2012, Mr. Keough had still not completed the 2009 Epco valuation, nor a third report with which he had been mandated (an Eastpoint valuation). Mr. Bachynski decided to proceed with his Application in Court, challenging the original Agreement. [19] Further time went by. In February 2013, according to Mr. Bachynski, it was confirmed to him that the Keough valuations would soon be completed. The parties then agreed that Mr. Bachynski would withdraw his Application in Court to set aside the first Agreement. The parties also agreed to discard the second agreement, as being null and void. Once again, the original Agreement from June 2010 was the document that bound the parties. [20] In point of fact, another year goes by before Mr. Keough completes another valuation, the Eastpoint valuation. It is received in March Mr. Keough had still not completed the 2009 Epco valuation. [21] Mr. Bachynski was, once again, displeased. He was firstly displeased with the delay. In addition, he also noted that Mr. Keough s conclusion (on Eastpoint) was a value which was approximately half the value arrived at by his CVP, Ms. Andrews. The plaintiff notes in his affidavit, at para. 19: 19. By that point I was shocked and upset at Keough s lack of professionalism throughout the entire retainer. On September 3, 2014 I submitted a letter of

9 Page 9 complaint to Keough s governing body, the Canadian Institute of Chartered Business Valuators [22] The plaintiff attached the letter he speaks of. Therein he stated the following: I believe that Mr. Keough has acted unprofessionally as follows: 1. Excessive delays in completing the valuations of EPCO and Eastpoint; 2. Failure to complete all of the assigned tasks and in particular a valuation of EPCO for 2010 and the further response as promised in March 2014; 3. Failure to respond in a timely way or at all to communications from the parties; 4. Failure to review and consider relevant information provided to him by Northpoint. Documents provided by Northpoint were consistently ignored in the completion of the valuation. Separate valuation was completed by KPMG which resulted in a value 60% higher than Mr. Keough s; 5. It is Northpoint s position that Mr. Keough became biased and vindictive against Northpoint due to Northpoint hiring of KPMG to complete an assignment he would not; 6. In 2010 Mr. Keogh was instructed to complete the Eastpoint valuation first as all data resided in Halifax. Mr. Keough on his own volition completed the more complex EPCO valuation which involve companies in South Carolina. His travels correspond with renovations to his vacation home in Florida; and 7. Consulting with an unnamed business valuator with more experience with engineering companies. [23] In January 2015, Mr. Keough wrote an to Mr. Bachynski, copied to the defendants, stating that because of the complaint made by Mr. Bachynski, he would not be completing the last report, being the 2009 Epco valuation. [24] The parties are now at a standstill in terms of the 2009 Epco valuation. The only agreement in existence is the June 2010 Agreement, which provides that this valuation is to be done by Mr. Keough or such other qualified CBV as the parties agree to in writing. As the matter stands, the parties cannot agree.

10 Page 10 Declaration confirming Settlement Agreement [25] The plaintiff seeks a declaration, confirming the terms of the 2010 Agreement, pursuant to Rule 10. I shall deal with that issue first. [26] Rule provides as follows: (1) A party who alleges that, after a proceeding was started, the parties reached agreement for settlement of the proceeding or of a claim in the proceeding may make a motion for an order giving effect to the agreement. (2) The judge who hears the motion may do any of the following: a. declare that an agreement was, or was not, made and is, or is not, enforceable; b. declare the terms of an agreement; c. grant an order enforcing an agreement according to its terms; d. order a trial under Rule 4 Action or a hearing under Rule 5 Application and give directions about the issues to be determined. [27] There is no evidence before me as to the precise way in which this Agreement came to exist. It is signed by all parties personally. Mr. Palmeter in his affidavit notes at para. 4: The Agreement was fully negotiated by the parties and their respective counsel. All parties agree, in respect of Rule 10(2)(a), that a binding and enforceable agreement was made in June [28] The Agreement provided that Mr. Keough would prepare the necessary report, but this term is no longer possible. The only alternative provided for in the Agreement is for the work to be done by such other qualified CBV as the parties

11 agree to in writing. There is no such person as matters currently stand. The Agreement is silent as to what happens if the parties cannot agree on a CPV. Page 11 [29] The plaintiffs seek for the court to read an implied term into this Agreement, providing an answer to that question. The plaintiffs ask: if the parties, at the time of the return to this Agreement in February 2013, had noticed this omission, what would their intention have been? In other words, had the parties known then that Mr. Keough would not be able or willing to complete his work, and that no other CBV could be agreed upon, what would the parties have agreed to? [30] It is the plaintiffs position that the court should order the acceptance of the valuation already now done by Ms. Andrews. It is acknowledged that she was not agreed upon, in writing, in advance, and therefore does not meet the strict terms of the 2010 Agreement. However, the fact is that she has already done this valuation, and the plaintiff(s) has (have) already paid for it. [31] The plaintiffs submit that in February 2013 (at the time they agreed to return to the 2010 Agreement), if the parties had predicted this impasse, they would have agreed to use the already existing Andrews report. The plaintiffs base this on the fact of the defendants agreement with Ms. Andrews in another context, i.e., the

12 Page 12 second Agreement. The plaintiffs ask: Why would the defendants object to her in this context, when they agreed to her in the context of the second agreement? [32] The defendants do not agree with Ms. Andrews report being accepted, nor do they agree with her being named as the CBV for the purposes of the Agreement. Mr. Palmeter testified that he has seen Ms. Andrews draft report, and noted that it was prepared without his input, to which he objects. While Ms. Andrews appears to have properly done her work (according to the second settlement agreement), Mr. Palmeter did not agree in advance to her retainer as the CBV, as the original Agreement required. Mr. Palmeter also feels that Ms. Andrews was unduly influenced by Mr. Bachynski. [33] Counsel for the defendants also points out that this impasse was, in fact, caused by Mr. Bachynski s complaint. Mr. Keough s reaction in withdrawing was entirely predictable. In other words, they say, Mr. Bachynski is in a situation of his own making. Mr. Bachynski, during his cross-examination before me, denied that he considered the possibility that Mr. Keough would withdraw due to the complaint. [34] The defendants position is that the parties need to reach agreement on a new CBV pursuant to the Agreement; and not Ms. Andrews. Mr. Palmeter noted that a

13 Page 13 number of names have been put forward by the defendants to Mr. Bachynski. The defendants further submit that should the parties not be able to agree upon a CBV, then, as with any contractual dispute, the matter could become the subject of a court action or application. [35] The plaintiffs respond that the defendants are being unreasonable. Counsel points out that the Andrews report is already done, by a duly qualified person, from a very reputable firm. The plaintiffs submit that the defendants have no reason to disqualify her, other than the fact that they do not like her conclusions. The plaintiffs claim that that shows bad faith on the part of the defendants, in breach of the contractual duty of good faith as described by the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71. Mr. Bachynski further points out that if a completely new CBV is required, he will be obliged to pay another significant cost. He attributes to the defendants the motive of forcing him to pay more money, in the pursuit of a debt he is owed. [36] A settlement agreement is a contract. As such, it is subject to the law of contract as to implied terms: The law has long recognized that it is not always possible to confine the terms of a contract, whether written, oral, or partly written and partly oral, to those which have been expressly stipulated between the parties. There are circumstances in which a court is entitled to conclude that everything agreed by the parties is not contained in the written document or documents, or the oral statements of the

14 parties, that appear to make up the contract. Some additional term or terms must be implied. The acceptance of what Duff J. once called an unexpressed incident requires more than that a court might think it reasonable to make such an implication. It is firmly based on the idea that courts are seeking to discover what the parties intended, not what a court thinks reasonable. As Ayles, J.A. said in Mr. Convenience Ltd. v N.B. Ltd. (1993) 137 NBR (2d) 305 at 315, the implication of a term is a matter of law, arising where parties would have intended the stipulation in question. Such an implication can be made only if the parties intended to imply the term in question, e.g., for the purposes of business efficacy. A term cannot be implied simply on the ground of fairness. While, as already seen, the courts are not anxious to go beyond the letter of the written word, where the contract is expressed in writing, unless there is some strong justification, such as patent, internal ambiguity in the language employed by the parties, nonetheless, there are circumstances in which it is clear law that, at the invitation of one of the parties in the course of litigation, a court is entitled to conclude that everything that was agreed between the parties is not contained in the written document or documents that make up the contract, and that it is possible, and justifiable to import or imply into the contract some additional term or terms, in order to establish the nature and scope of the contractual obligations binding the respective parties. Naturally, this is not something which the courts will do easily or cavalierly. There has to be strong evidence to support the conclusion that the implication of a term is permissible in the circumstances. It would seem that there are three main instances where this may be done: (i) when it is reasonably necessary, having regard to the surrounding circumstances, and in particular the previous course of dealing between the parties, if any; (ii) when there is an operative trade or business usage or custom that may be sent to govern the relationship of the parties; and (iii) when some statute of its own motion implies a term into the kind of contract that is in question. (Fridman, The Law of Contract in Canada, Carswell, 6 th ed, 2011, at pp ) (emphasis is mine) Page 14 [37] It is possible, pursuant to Rule 10.04, for a court to determine and include an implied term in a settlement agreement (Langthorne v. Humphreys [2011] N.S.J. No. 60). [38] The proposal before me, put by counsel for the plaintiffs, is to include a term within the definition of CBV, whereby if the parties cannot agree on an alternate CBV, they agree to use the 2009 Epco valuation done by Mary Jane Andrews. The

15 Page 15 plaintiffs submit that this addition reflects what the parties would have intended in February 2013, had they known what would take place, and given all of the circumstances, including the cost of a completely new report. [39] I cannot agree with this conclusion. In February 2013, the parties agreed to rescind the 2012 Agreement, and to return to, and be bound by, the 2010 Agreement. In February 2013, Ms. Andrews report already existed. [40] This begs the obvious question: Why didn t the parties simply use Ms. Andrews report then? Why return to the original Agreement at all? Why have Mr. Keough continue to work on something that Ms. Andrews had completed? I draw the inference that the use of Ms. Andrews as CBV, and her report, was specifically not agreed to by all parties in February As noted, my role is not to determine what I think is reasonable, but rather what the parties intended. I cannot see that term as one that was intended by the parties, certainly not the defendants. [41] No other possible terms were proposed to me. I decline to find any implied term here. All parties agree that the June 2010 Agreement was made, and I have heard nothing which would lead me to conclude that it was/is not enforceable. [42] There remains the possibility of the parties reaching agreement on another CBV, as contemplated in the Agreement. I see no reason why this cannot yet

16 Page 16 happen. If the parties truly cannot agree, they should bringing that dispute before the court by way of appropriate action or application. Summary Judgment [43] The rule relating to summary judgment on evidence is Rule 13.04: (1) A judge who is satisfied that evidence, or the lack of evidence, shows that a statement of claim or defense fails to raise a genuine issue for trial must grant summary judgment. (2) The judge may grant judgment for the plaintiff, dismiss the preceding, allow a claim, dismiss a claim, or dismiss a defense. (3) On a motion for summary judgment on evidence, the pleadings serve only to indicate the laws and facts in issue, and the question of a genuine issue for trial depends on the evidence presented. (4) A party who wishes to contest the motion must provide evidence in favor of the party s claim or defense by affidavit filed by the contesting party, affidavit filed by another party, cross examination, or other means permitted by a judge. (5) A judge hearing a motion for summary judgment on evidence may determine a question of law, if the only genuine issue for trial is a question of law. (6) The motion may be made after pleadings close. [44] I refer to the following checklist or template provided by the Nova Scotia Court of Appeal in Coady v. Burton Canada, 2013 NSCA 95, in relation to motions for summary judgment: 1. Summary judgment engages a two-stage analysis. 2. The first stage is only concerned with the facts. The judge decides whether the moving party has satisfied its evidentiary burden of proving that there are no material

17 Page 17 facts in dispute. If there are, the moving party fails, the motion for summary judgment is dismissed. 3. If the moving party satisfies the first stage of the inquiry, that the responding party has the evidentiary burden of proving that its claim (or defence) has a real chance of success. The second stage of the inquiry engages a somewhat limited assessment of the merits of each party s respective positions. 4. The judges assessment is based on all of the evidence whatever the source. There is no proprietary interest or ownership in evidence. 5. If the responding party satisfies its burden by proving that its claim (or defence) has a real chance of success, the motion for summary judgment is dismissed. If, however, the responding party fails to meet its evidentiary burden cannot manage to prove that its claim (or defense) has a real chance of success, the judge must grant summary judgment. 6. Proof at either stage one or stage two of the inquiry requires evidence. The parties cannot rely on your allegations or the pleadings. Each side must put its best foot forward by offering evidence with respect to the existence or the non-existence of material facts in dispute, or whether the claim (or defence) has a real chance of success. 7. If the responding party reasonably requires disclosure, production or discovery, or the opportunity to present expert or other evidence in order to put his best foot forward, that the motions judge should adjourn the motion for summary judgment, either without day, or to a fixed day, or with conditions or schedule of events to be completed, as the judge considers appropriate, to achieve that and. 8. In the context of motions for summary judgment the words genuine, material, and real chance of success take on their plain, ordinary meanings. A material fact is a fact that is essential to the claim or defence. A genuine issue is an issue that arises from or is relevant to the allegations associated with the cause of action, or the defences pleaded. A real chance of success is a prospect that is reasonable in the sense that it is arguable and realistic position that finds support in the record, and not something that is based on hunch, hope or speculation. 9. In Nova Scotia, CPR 13.04, as presently worded, does not create or retain any kind of residual inherent jurisdiction which might enable a judge to refuse to grant summary judgment on the basis that the motion is premature or that some other juridical reason ought to defeat its being granted. The Justices of the Nova Scotia Supreme Court have seen fit to relinquish such an inherent jurisdiction by adopting the Rule as written. If those Justices were to conclude that they ought to re-acquire such a broad discretion, their Rule should be rewritten to provide for it explicitly. 10. Summary judgment applications are not the appropriate forum to resolve disputed questions of fact, or mixed law and fact, or the appropriate inferences to be drawn from disputed facts. 11. Neither is a summary judgment application the appropriate forum to weigh the evidence or evaluate credibility.

18 Page Where, however, there are no material facts in dispute, and the only question to be decided is a matter of law, then neither complexity, novelty, nor disagreement surrounding the interpretation and application of the law will exclude a case summary judgment. [45] The first question I ask myself is whether the plaintiffs have met the first burden, i.e., have they shown that there are no material facts in dispute. [46] The original statement of claim sought relief from oppressive shareholder action pursuant to the Third Schedule of the Companies Act. The defence to that action purported that a number of facts were in dispute, and objected to the relief sought. Since that time, however, the parties have entered into a settlement agreement, an enforceable contract, which significantly changed the circumstances. [47] The parties Agreement provides that the valuation at issue here must be done by either Mr. Keough or another CBV as the parties might agree on. This valuation needs to be done because, in accordance with the Agreement, it is the basis upon which a calculation will be effected, and a payment made by one party to another. Until the valuation is done, it is impossible to know which party owes the other. [48] There is a valuation done by Ms. Andrews. The plaintiffs submit that her valuation should be used, which, according to the Agreement, would result in a

19 Page 19 payment from the defendants to the plaintiff of a certain amount. The defendants object to the use of this valuation. [49] As described in the above noted quote from Coady v. Burton (supra), summary judgment applications are not the appropriate forum to resolve disputed questions of fact. The plaintiffs suggest that, on the evidence, they are owed money. That fact is disputed by the defendants. [50] Therefore, I find that there are material facts in dispute. The parties are in dispute as to the 2009 Epco valuation amount and, as a result, they are in a dispute about who owes money to whom. That dispute cannot be resolved at a summary judgment motion. Where material facts in dispute are found to exist, the first part of the test for summary judgment is not met, and I need not continue the analysis. I decline to grant summary judgment in this particular case. [51] I am conscious of the direction given by our Court of Appeal in Fougere v. Blunden Construction Ltd., 2014 NSCA 52, reminding trial judges of Rule 13.07: (1) A judge who dismisses a motion for summary judgment on evidence brought in an action must, as soon as is practical after the dismissal, arrange to give directions, unless all parties waive this requirement. [52] Given that I have declined the motion, I will be asking the parties to return before me for directions at their earliest convenience, pursuant to Rule They

20 Page 20 should contact my judicial assistant to arrange for an appropriate date to do so. In preparation for this appearance, I would suggest that the parties continue discussing the possibilities for agreement on a CBV; in the alternative, the options for bringing the question of the appropriate CBV to the court for decision. Boudreau, J.