Aronowicz v. Emtwo Prop. Inc.,

JurisdictionOntario
JudgeGillese, Blair and MacFarland, JJ.A.
Neutral Citation2010 ONCA 96
Date04 February 2010
CourtCourt of Appeal (Ontario)

Aronowicz v. Emtwo Prop. Inc. (2010), 258 O.A.C. 222 (CA)

MLB headnote and full text

Temp. Cite: [2010] O.A.C. TBEd. FE.037

Abraham Aronowicz and E.F.C. Enterprises Ltd. (plaintiffs/appellants) v. Emtwo Properties Inc., Harry Aronowicz, John W. McClure, trustee of AL Trust, 1112825 Alberta Ltd., Internvest Holdings Ltd., Menashe Grinshpan, 2060227 Ontario Inc., 1640156 Ontario Inc. and Terrma GP I Inc. (defendants/respondents)

(C50577; 2010 ONCA 96)

Indexed As: Aronowicz et al. v. Emtwo Properties Inc. et al.

Ontario Court of Appeal

Gillese, Blair and MacFarland, JJ.A.

February 4, 2010.

Summary:

From 1982 to 2006, two brothers (A and H) owned 50% of the shares of Emtwo Properties, a company which owned and operated five commercial properties. In 1988, the brothers and their father executed a unanimous shareholder's agreement that contained a buy/sell shotgun provision. In 2004, brother H triggered the shotgun provision, offering brother A $26 million for his interest in Emtwo Properties. Eventually, brother H acquired brother A's interest. Brother A learned that brother H agreed to repay a substantial portion of the loan financing the buyout by transferring three of the five properties to the lender. Brother A, who had acquired and managed the properties for over 20 years, sued brother H and the lender. Brother A alleged that brother H had an obligation to disclose the loan agreement, as he would have responded differently in the shotgun process had he known the properties were being transferred. Brother A claimed breach of fiduciary duty, breach of the duty of good faith, theft of corporate opportunity, disclosure of confidential information, oppression, deceit or misrepresentation, conspiracy, inducing breach of contract, unjust enrichment and waiver of tort. Brother H and the other defendants applied for summary judgment dismissing the action.

The Ontario Superior Court of Justice, in a judgment reported [2009] O.T.C. Uned. B32, granted summary judgment dismissing the action in its entirety. Brother A appealed, submitting, inter alia, that the court applied the wrong test for summary judgment, reversed the onus of proof, decided novel issues of law and misconstrued the loan agreement.

The Ontario Court of Appeal dismissed the appeal.

Company Law - Topic 2427

Shareholders - Agreements - Shotgun clause or order - Two brothers equally owned a company that owned and managed five commercial properties - Brother H triggered the shotgun provisions of the unanimous shareholder's agreement, offering to buy out brother A's interest for $26 million - Brother H financed the buyout with a loan that required him to transfer three of the five properties to the lender as repayment of a substantial portion of the loan - The loan agreement was not disclosed to brother A - When brother A later learned that the three properties, which he had acquired and managed for more than 20 years, were transferred to the lender as part of the financing package, brother A sued brother H and the lender - Brother A alleged that brother H had an obligation to disclose the loan agreement, as he would have responded differently in the shotgun process had he known the properties were being transferred - The Ontario Court of Appeal, in affirming summary judgment dismissing brother A's claims, held that assuming that brother H owed brother A a duty of honesty and good faith, brother H had no obligation to disclose the loan agreement in the context of the operation of the shotgun provision - See paragraph 44.

Equity - Topic 3720

Fiduciary or confidential relationships - Commercial relationships - Shareholder exercising shotgun provision - Two brothers equally owned a company that owned and managed five commercial properties - Brother H triggered the shotgun provisions of the unanimous shareholder's agreement, offering to buy out brother A's interest for $26 million - Brother H financed the buyout with a loan that required him to transfer three of the five properties to the lender as repayment of a substantial portion of the loan - The loan agreement was not disclosed to brother A - When brother A later learned that the three properties, which he had acquired and managed for more than 20 years, were transferred to the lender as part of the financing package, brother A sued brother H and the lender alleging, inter alia, breach of fiduciary duty - The Ontario Court of Appeal affirmed summary judgment dismissing the claim - The court stated that "a shotgun buy/sell provision is the quintessential corporate mechanism for the exercise of shareholder self-interest" - Brother H's triggering of the shotgun provision did not give rise to a fiduciary duty to brother A - The relationship between parties to a shotgun provision was the very antithesis of the attributes of a fiduciary relationship - See paragraphs 50 to 56.

Practice - Topic 5702

Judgments and orders - Summary judgments - Jurisdiction or when available or when appropriate - Plaintiffs argued that the trial judge erred in granting summary judgment dismissing their claims on the ground that the judge impermissibly "granted summary judgment on the basis of significant legal conclusions on novel or unsettled questions of law without the benefit of a full trial record" - The Ontario Court of Appeal rejected the submission, stating that "generally, courts are reluctant to determine unsettled matters of law at a pre-trial stage - including on motions for summary judgment - on the theory that new or important questions of law should not be determined on an incomplete factual record ... However, a court may determine a question of law on a motion for summary judgment if it has the necessary undisputed factual record before it, is in just as good a position as the trial judge would be to do so, and is satisfied the only genuine issue is a question of law" - See paragraphs 69 to 71.

Practice - Topic 5710

Judgments and orders - Summary judgments - Evidence - The Ontario Court of Appeal stated that on a motion for summary judgment to dismiss an action a judge was not precluded "in all cases from assuming the existence of certain facts for purposes of disposing of a motion for summary judgment. ... a motion judge may not assume the existence of critical disputed facts for purposes of a summary judgment motion where there continue to be issues to be tried in which those same facts may be in dispute, and where doing so would (a) undermine the ability of a party to present its case in relation to other issues still to be determined in the proceedings or, (b) create the risk of inconsistent findings or conflicting decisions in those proceedings." - See paragraphs 36 to 37.

Practice - Topic 5715

Judgments and orders - Summary judgments - Burden on applicant - Two brothers equally owned a company that owned and managed five commercial properties - Brother H triggered the shotgun provisions of the unanimous shareholder's agreement, offering to buy out brother A's interest for $26 million - Brother H financed the buyout with a loan that required him to transfer three of the five properties to the lender as repayment of a substantial portion of the loan - The loan agreement was not disclosed to brother A - When brother A later learned that the three properties, which he had acquired and managed for more than 20 years, were transferred to the lender as part of the financing package, brother A sued brother H and the lender - Brother A alleged that brother H had an obligation to disclose the loan agreement, as he would have responded differently in the shotgun process had he known the properties were being transferred - Brother A claimed breach of fiduciary duty, breach of the duty of good faith, theft of corporate opportunity, disclosure of confidential information, oppression, deceit or misrepresentation, conspiracy, inducing breach of contract, unjust enrichment and waiver of tort - Brother H and the other defendants applied for summary judgment dismissing the action - The Ontario Court of Appeal affirmed the trial judge's granting of summary judgment dismissing the action in its entirety - The judge applied the proper test for summary judgment (i.e., no genuine issue of material fact requiring trial) - The court held that the judge's reference to "no chance of success" was simply another way of "expressing the view that where there are no genuine issues of fact that require a trial for determination and the claim cannot be proved on the basis of the undisputed facts, the action should not be permitted to go to trial" - The court also rejected submissions that the judge reversed the onus of proof, based his decision on assumed facts and improperly weighed the evidence and drew inferences - See paragraphs 15 to 49.

Practice - Topic 5719

Judgments and orders - Summary judgments - To dismiss action - [See Practice - Topic 5715 ].

Restitution - Topic 128

Unjust enrichment - Remedies - Waiver of tort - The Ontario Court of Appeal stated that "waiver of tort is a restitutionary remedy. There is considerable controversy over whether it exists as an independent cause of action at all or whether it is 'parasitic' in the sense that it requires proof of an underlying tort and - since a tort requires damage - proof of harm to the plaintiff. By invoking waiver of tort, a plaintiff gives up the right to sue in tort but seeks to recover on the basis of restitution, claiming the benefits the wrongdoer has derived from the wrongful conduct regardless of whether the plaintiff has suffered damages or not" - See paragraph 80.

Torts - Topic 5203

Interference with economic relations - Contracts - Loss of opportunity - Two brothers equally owned a company that owned and managed five commercial properties - Brother H triggered the shotgun provisions of the unanimous shareholder's agreement, offering to buy out brother A's interest for $26 million - Brother H financed the buyout with a loan that required him to transfer three of the five properties to the lender as repayment of a substantial portion of the loan - The loan agreement was not disclosed to brother A - When brother A later learned that the three properties, which he had acquired and managed for more than 20 years, were transferred to the lender as part of the financing package, brother A sued brother H and the lender alleging, inter alia, the loss of a corporate opportunity - The Ontario Court of Appeal, in affirming summary judgment dismissing the claim, stated that the exercise of the shotgun provision did not constitute an "appropriation of a corporate opportunity" by brother H - See paragraphs 57 to 60.

Cases Noticed:

Ungerman (Irving) Ltd. et al. v. Galanis and Haut (1991), 50 O.A.C. 176; 4 O.R.(3d) 545 (C.A.), refd to. [para. 15].

Aguonie v. Galion Solid Waste Material Inc. et al. (1998), 107 O.A.C. 114; 38 O.R.(3d) 161 (C.A.), refd to. [para. 15].

Dawson et al. v. Rexcraft Storage and Warehouse Inc. et al. (1998), 111 O.A.C. 201; 164 D.L.R.(4th) 257 (C.A.), refd to. [para. 15].

Papachase Indian Band No. 136 v. Canada (Attorney General) - see Lameman et al. v. Canada (Attorney General) et al.

Lameman et al. v. Canada (Attorney General) et al., [2008] 1 S.C.R. 372; 372 N.R. 239; 429 A.R. 26; 421 W.A.C. 26 , refd to. [para. 17, footnote 1].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 17].

Starcevic v. Brinac - see Starcevic v. Pavicic et al.

Starcevic v. Pavicic et al., [2009] O.A.C. Uned. 141; 2009 ONCA 224, refd to. [para. 21].

Royal Bank of Canada v. Société Générale (Canada) et al. (2006), 219 O.A.C. 83; 31 B.L.R.(4th) 63 (C.A.), leave to appeal refused (2007), 377 N.R. 400; 246 O.A.C. 400 (S.C.C.), dist. [para. 24].

Law Society of Upper Canada et al. v. Ernst & Young et al. (2003), 174 O.A.C. 49; 65 O.R.(3d) 577 (C.A.), dist. [para. 24].

Chitel v. Bank of Montreal et al. (1999), 126 O.A.C. 159 (C.A.), dist. [para. 25].

Hodgkinson v. Simms et al., [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1, refd to. [para. 47].

Transamerica Life Canada Inc. et al. v. ING Canada Inc., [2003] O.A.C. Uned. 565; 68 O.R.(3d) 457 (C.A.), refd to. [para. 50, footnote 3].

GATX Corp. et al. v. Hawker Siddeley Canada Inc. et al. (1996), 1 O.T.C. 322; 27 B.L.R.(2d) 251 (Gen. Div.), refd to. [para. 50, footnote 3].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 54].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 55].

K.L.B. et al. v. British Columbia et al., [2003] 2 S.C.R. 403; 309 N.R. 306; 187 B.C.A.C. 42; 307 W.A.C. 42, refd to. [para. 55].

Romano v. D'Onofrio et al., [2005] O.A.C. Uned. 526; 77 O.R.(3d) 583 (C.A.), refd to. [para. 71].

Bendix Foreign Exchange Corp. v. Integrated Payment Systems Canada Inc., [2005] O.A.C. Uned. 253; 18 C.P.C.(6th) 15 (C.A.), refd to. [para. 71].

Donoghue v. Stevenson, [1932] All E.R. Rep. 1 (H.L.), refd to. [para. 71, footnote 4].

M. v. H., [1999] 2 S.C.R. 3; 238 N.R. 179; 121 O.A.C. 1, refd to. [para. 71, footnote 4].

Robertson v. Thompson Corp. et al., [2006] 2 S.C.R. 363; 353 N.R. 104; 217 O.A.C. 332, refd to. [para. 71, footnote 4].

Bader v. Rennie (2007), 229 O.A.C. 320 (Div. Ct.), refd to. [para. 71].

Robinson et al. v. Ottawa (City) et al., [2009] O.T.C. Uned. 178; 55 M.P.L.R.(4th) 283 (Sup. Ct.), refd to. [para. 71].

Alexis v. Toronto Police Services Board - see Alexis v. Darnley et al.

Alexis v. Darnley et al. (2009), 259 O.A.C. 148; 2009 ONCA 847, refd to. [para. 71].

Serhan et al. v. Johnson & Johnson et al. (2006), 213 O.A.C. 298; 85 O.R.(3d) 665 (Div. Ct.), leave to appeal refused (2006), 369 N.R. 397; 234 O.A.C. 398 (S.C.C.), refd to. [para. 80].

Heward et al. v. Eli Lilly & Co. et al. (2008), 239 O.A.C. 273; 91 O.R.(3d) 691 (Div. Ct.), refd to. [para. 82].

Authors and Works Noticed:

Maddaugh, Peter D., and McCamus, John D., The Law of Restitution (2009 Looseleaf), p. 24-1 [para. 81, footnote 5].

Counsel:

Jeffrey S. Leon, Gideon C. Forrest and Rebecca Huang, for the appellants;

Joel Richler and Marcy McKee, for the respondents, Emtwo Properties Inc., Harry Aronowicz and Internvest Holdings Ltd.;

Clifford Lax, Q.C., and Amy Salyzyn, for the respondents, John W. McClure, trustee of AL Trust, 1112825 Alberta Ltd., Menashe Grinshpan, 2060227 Ontario Inc., 1640156 Ontario Inc. and Terrma GP I Inc.

This appeal was heard on November 19, 2009, before Gillese, Blair and MacFarland, JJ.A., of the Ontario Court of Appeal.

The judgment of the Court was delivered by Blair, J.A., and released on February 4, 2010.

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