3233954 Nova Scotia Ltd. v. Systemcare Cleaning & Restoration Ltd. et al., 2011 NSSC 22

• Judge: Warner, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: January 25, 2011
• Jurisdiction: Nova Scotia
• Citations: 2011 NSSC 22;(2011), 298 N.S.R.(2d) 275 (SC)

3233954 N.S. v. Systemcare Cleaning (2011), 298 N.S.R.(2d) 275 (SC);

    945 A.P.R. 275

MLB headnote and full text

Temp. Cite: [2011] N.S.R.(2d) TBEd. JA.061

3233954 Nova Scotia Limited (applicant) v. Systemcare Cleaning & Restoration Limited and Systemcare Environmental Limited (defendants)

(Hfx. 323940; 2011 NSSC 22)

Indexed As: 3233954 Nova Scotia Ltd. v. Systemcare Cleaning & Restoration Ltd. et al.

Nova Scotia Supreme Court

Warner, J.

January 25, 2011.

Summary:

The applicant company ("Siepco") purchased 50% of the issued shares of the two defendant companies from corporations controlled by Murray. Dunlap, the owner of the other 50%, refused to recognize the share transfer. Dunlap claimed that the share sale violated the right of first refusal provisions of the shareholders' agreement between he and Murray. Siepco applied for an order to recognize and effect the transfer of shares on the share registry, to issue new share certificates and to exercise its shareholder rights. It argued that Murray received a bona fide offer and gave the notice required pursuant to the shareholders' agreement; that Dunlap waived his right of first refusal; that Murray closed in compliance with the shareholders' agreement; and that Dunlap was estopped from challenging the bona fides of the offer. The defendants submitted that the notice from Murray to Dunlap did not trigger the right of first refusal under the shareholders' agreement because the offer was not a bona fide offer, and the sale differed from the offer.

The Nova Scotia Supreme Court allowed the application. Siepco was entitled to the remedy sought.

Company Law - Topic 3375

Share transfer - Transfer - General - Good faith purchaser - [See first Company Law - Topic 7165 ].

Company Law - Topic 5705

Sale of shares - General - Right of first refusal - The applicant company ("Siepco") purchased 50% of the issued shares of the respondent companies (SCR and SE) from corporations controlled by Murray - Dunlap, the owner of the other 50%, claimed that the share sale violated the right of first refusal provisions of the shareholders' agreement between Murray and Dunlap - The Nova Scotia Supreme Court stated that "While this is an application by Siepco to require the respondents to recognize and register Siepco's purchase of Murray's shares in SCR and SE on the company books and records, and it is not an application by Dunlap or Murray for an oppression remedy under the Nova Scotia's Companies Act, the express importation of Section 5.00 [of the shareholders' agreement] of a 'duty of utmost good faith' in respect of all dealings between the parties incorporates a similar analysis to that found in corporate oppression cases" - See paragraph 57.

Company Law - Topic 5705

Sale of shares - General - Right of first refusal - The applicant company ("Siepco") purchased 50% of the issued shares of the two defendant companies from corporations controlled by Murray - Dunlap, the owner of the other 50%, refused to recognize the share transfer - At issue was whether the sale of Murray's shares to Siepco was made in contravention of Dunlap's right of first refusal under the shareholders' agreement between Murray and Dunlap - The Nova Scotia Supreme Court analysed the good faith obligations of Murray and Dunlap in the general law of contracts and expressly set out in the shareholders' agreement - The case law pertaining to rights of first refusal reflected the good faith duty of parties to contracts in general - As Murray and Dunlap expressly agreed to act in utmost good faith in all their relations as shareholders, directors and officers, "the distinction some courts and writers have made between conduct during negotiations and conduct after a contract is entered is irrelevant" - The duty applied to the extended negotiations when Murray sought to sell his shares to Dunlap or purchase Dunlap's shares; to Murray's offer to sell to Dunlap and to Dunlap's responses; and to the subsequent closing between Murray and Siepco - See paragraphs 62 to 64.

Company Law - Topic 5705

Sale of shares - General - Right of first refusal - The Nova Scotia Supreme Court, in its analysis of the law respecting first refusal agreements, stated that "While RFR [right of first refusal] provisions may generally be viewed as having a common purpose, the rights of shareholders respecting an RFR provision depend upon the wording of the provision itself. The wording of RFR provisions is not common to all contractual relationships. There are many methods, and varying degrees, to which parties who own assets or shares may wish to agree to bind or restrict themselves in respect of their assets or shares" - Because parties were presumed to intend what they expressly stated in their agreement, analysis of the critical terms constituted the "first and paramount consideration" - See paragraphs 69 and 70.

Company Law - Topic 7165

Fundamental changes and shareholders' rights - Buy-sell agreements - Circumstances when right of first refusal arises - The applicant ("Siepco", owned by Zwagg) purchased 50% of the issued shares of the defendant companies from corporations controlled by Murray - Dunlap, the owner of the other 50%, refused to recognize the share transfer - The defendants submitted that the notice from Murray to Dunlap did not trigger the right of first refusal under the shareholders' agreement because the offer to Murray, conveyed to Dunlap, was not a bona fide offer - The Nova Scotia Supreme Court held that Siepco was entitled to the remedy sought - Its offer to Murray was a bona fide offer in three senses: it was a genuine or real offer; it was a sincere offer as opposed to a sham or subterfuge; and the offer was made in good faith - The fact that Zwagg did not have the means on his own to complete the deal he offered did not make it a sham; he had a plan as to how he intended to complete it, and the offer provided that the purchasers might be assignees of Zwagg - The deal closed at the same price and on very similar terms to those contained in the offer - Dunlap's offers were not bona fide offers - They were made when Dunlap thought Murray had no other option but to sell to him; they were made when Murray was ill and frustrated; they were on-and-off again offers; and they were made when Dunlap believed that Siepco did not have the ability to complete a purchase - See paragraphs 110 to 122.

Company Law - Topic 7165

Fundamental changes and shareholders' rights - Buy-sell agreements - Circumstances when right of first refusal arises - The applicant ("Siepco", owned by Zwagg) purchased 50% of the issued shares of the two defendant companies from corporations owned by Murray - Dunlap, the owner of the other 50%, claimed that the share sale violated the right of first refusal provisions of the shareholders' agreement between he and Murray - The Nova Scotia Supreme Court held that Siepco was entitled to the remedy sought - If it was wrong in its analysis, it would find that Dunlap was estopped by reason of the wording of his waiver of the right of first refusal - From Dunlap's letter rejecting Murray's offer, it was clear that Dunlap considered Zwagg's offer to be "dubious" - Dunlap assumed that Zwagg would not be able to close the deal, and knowingly took the chance that Murray would take his lower offer - It would be unfair and unjust "to permit Dunlap, after the fact, to seek to undo something he consented to with his eyes wide open" - See paragraphs 124 to 127.

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - [See first Company Law - Topic 5705 ].

Contracts - Topic 1106

Formation of contract - General principles - Duty to negotiate in good faith - [See second Company Law - Topic 5705 ].

Contracts - Topic 2103

Terms - Express terms - Options and rights of first refusal - [See third Company Law - Topic 5705 ].

Contracts - Topic 7415.1

Interpretation - General principles - Good faith - [See second Company Law - Topic 5705 ].

Waiver - Topic 8

General principles - Waiver v. estoppel - [See second Company Law - Topic 7165 ].

Cases Noticed:

Landymore v. Hardy (1991), 110 N.S.R.(2d) 2; 299 A.P.R. 2; 1991 CarswellNS 102 (S.C.), consd. [paras. 42, 58, 71, 102].

GATX Corp. et al. v. Hawker Siddeley Canada Inc. et al. (1996), 1 O.T.C. 322; 1996 CarswellOnt. 1434 (Gen. Div.), consd. [paras. 42, 59, 73, 104].

Bracken v. Gilbart, [1996] B.C.T.C. Uned. F24; 1996 CarswellBC 2110 (S.C.), consd. [paras. 42, 75].

Ventas Inc. et al. v. Sunrise Senior Living Real Estate Investment Trust et al. (2007), 222 O.A.C. 102; 2007 CarswellOnt 170 (C.A.), consd. [paras. 42, 107].

Wilson v. Sears Canada Inc. (1990), 96 N.S.R.(2d) 361; 253 A.P.R. 361; 1990 CarswellNS 452, refd to. [para. 43].

Brookside Farms, [1988] B.C.J. No. 2554 (S.C.), refd to. [para. 46].

Kopec v. Pyret and Borys (1987), 55 Sask.R. 172 (C.A.), refd to. [para. 46].

Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 89 O.A.C. 373; 14 O.R.(3d) 528 (C.A.), refd to. [para. 59].

CanBev Sales & Marketing Inc. v. Natco Trading Corp. et al. (1996), 11 O.T.C. 94; 30 O.R.(3d) 778 (Gen. Div.); affd. (1998), 115 O.A.C. 322 (C.A.), consd. [paras. 60, 108].

Kings County (Municipality) v. Berwick (Town) et al. (2010), 290 N.S.R.(2d) 171; 920 A.P.R. 171; 2010 NSSC 128, consd. [paras. 65, 125].

B.C. Rail Partnership v. Standard Car Truck Co. et al. (2009), 282 N.S.R.(2d) 112; 895 A.P.R. 112; 2009 NSSC 240, refd to. [para. 65].

Rosenberg v. Waterloo Terrace, 1990 CarswellOnt 592, consd. [para. 106].

Authors and Works Noticed:

Fridman, G.H.L., The Law of Contract in Canada (5th Ed. 2006), pp. 79-80, 539-541 [para. 62].

Swan, John, Canadian Contract Law (1st Ed. 2006), pp. 243-259, 467-470, 698-707 [para. 63].

Counsel:

Jason T. Cooke, for the applicant 3233954 Nova Scotia Limited;

James D. MacNeil, for the respondents Systemcare Cleaning & Restoration Limited and Systemcare Environmental Limited.

This application was heard on November 8 and 9, 2010, at Halifax, Nova Scotia, before Warner, J., of the Nova Scotia Supreme Court, who delivered the following decision on January 25, 2011.