Case Name:
VallČe v. Pickard
Between
Paul VallČe and 4205553 Canada Inc., Applicants in
05-CV-032402, and
Steven Pickard and 4205537 Canada Inc., Respondents
in 05-CV-032986
[2007] O.J. No. 110
28 B.L.R. (4th) 149
154 A.C.W.S. (3d) 591
2007 CarswellOnt 159
Court File Nos. 05-CV-032986 and 05-CV-032402
Ontario Superior Court of Justice
R.J. Smith J.
Heard: December 12, 2006.
Judgment: January 16, 2007.
(55 paras.)
[Editor's note: Supplementary reasons for judgment were released February 14, 2007. See [2007] O.J. No. 513.]
Corporations and associations law -- Corporations -- Actions -- Against corporation and directors -- Oppressive conduct -- Grounds -- Oppressive and prejudicial conduct -- Shareholders -- Rights -- Sale of shares -- Applications by Vallee and Pickard for oppression relief -- Both applicants were equal shareholders and directors of Pythian Group -- Applicants were deadlocked and there was complete loss of confidence and trust between them -- Applications dismissed -- No oppressive or unfairly prejudicial conduct by either party established -- In order to dissolve deadlock, parties ordered to provide sealed bids for shares of other party -- Highest bidder entitled to purchase shares of other party.
Applications by Vallee and Pickard for oppression relief -- Both applicants were equal shareholders and directors of Pythian Group -- Applicants were deadlocked and there was complete loss of confidence and trust between them -- Both applicants sought declarations that actions of other party had been oppressive or prejudicial to them and that other party had breached fiduciary duty owed to other shareholder -- Parties had verbally agreed to divide their responsibilities in company into specific areas -- Pickard responsible for financial administration and customer sales -- Vall⁄e responsible for company's service delivery -- Vall⁄e attempted to change verbal agreement between parties and become more involved in sales -- This conduct was precipitating event which caused relationship between parties to break down -- Pickard's response was to withdraw from his responsibilities within company for one week and then instruct two employees who reported to him to now report to Vall⁄e -- HELD: Applications dismissed -- Parties' conduct, although inappropriate, did not amount to oppression and was not unfairly prejudicial to other party -- There was no scope for exercise of unilateral discretion by either shareholder and no special vulnerability or reliance by either party -- Pickard did thus not owe a fiduciary duty to Vall⁄e -- No breach of fiduciary duty by Pickard -- Remedies available under s. 241(3) of Canada Business Corporations Act should be considered rather than ordering a liquidation and dissolution of the corporation -- Both applicants should be treated equally with no preference given to either shareholder -- Both applicants qualified and were capable of continuing to operate business successfully -- No agreement that either party would get preferential right to purchase company -- Both applicants to submit sealed bids for shares of the other -- Highest bidder shall be entitled to purchase shares of the other shareholder.
Statutes, Regulations and Rules Cited:
Canada Business Corporations Act, s. 122, s. 122(1), s. 122(1) (a), s. 122(1)(b), s. 241(1), s. 241(1)(b)(ii), s. 241(2), s. 241(2)(a), s. 241(2)(b), s. 241(2)(c), s. 241(3)
Counsel:
J. Bruce Carr-Harris and Mandy E. Moore, for the Applicants
Raymond G. Colautti and Owen D. Thomas, for the Respondents
REASONS FOR DECISION
R.J. SMITH J.:--
Overview
1 Paul VallČe and his corporation, 4205553 Canada Inc. ("VallČe"), and Steven Pickard and his corporation, 4205537 Canada Inc. ("Pickard"), are equal shareholders and directors of a company called Pythian Group Inc. ("Pythian"). Pythian is a remote database administration company located in the City of Ottawa. The shareholders and directors are deadlocked and there has been a complete loss of confidence and trust between them.
2 Both VallČe and Pickard have brought applications pursuant to section 241 of the Canada Business Corporations Act (the "CBCA"), seeking a declaration that the actions of the other party have been or are being exercised in a manner that is oppressive and/or unfairly prejudicial to them or have unfairly disregarded their interests.
3 Both VallČe and Pickard seek a declaration that the other party has breached his fiduciary duty owed to the other shareholder and seek an order removing each other as a director.
4 While both Pickard and VallČe denied that their conduct was oppressive to the other or was unfairly prejudicial to the interests of the other, they both agreed that there had been a complete loss of trust and confidence between the two equal shareholders and directors and both agree that the parties cannot continue to operate the company together.
5 Both parties have acknowledged that there is an irreconcilable deadlock between them and seek the Court's assistance to disengage them. Neither party seeks an order that Pythian be sold as a going concern or be wound up or be liquidated.
6 The Court must therefore decide the following issues:
(a) Has there been oppressive conduct or conduct that unfairly disregards the interests of either VallČe or Pickard by the corporation or directors of the corporation as set out in s. 241(2) of the CBCA?
(b) Did Pickard's actions amount to a breach of fiduciary duty, owed by him as a director to the Applicant VallČe?
(c)(i) Is it just and equitable that the corporation be liquidated and dissolved or that the deadlocked shareholders be disengaged from each other by some other means pursuant to section 214 of the CBCA?
(c)(ii) Were Pickard's actions such that the Court should give VallČe preferential treatment and allow VallČe the first option to purchase Pickard's shares in Pythian?
(c)(iii) What method should the Court use to disengage the two equal shareholders? And what terms should apply to any Purchase Agreement?
Analysis
7 Section 241(2) of the CBCA reads as follows:
(2) If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates
(a) any act or omission of the corporation or any of its affiliates effects a result,
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
(c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of.
Section 241(3) of the CBCA gives the Court the power to make any interim or final order it thinks fit, including the options listed from (a) to (n) in the section.
8 Oppressive conduct has been defined as follows in a number of reported decisions listed below:
Oppressive conduct is burdensome, harsh or wrongful. Unfairly prejudicial conduct and conduct unfairly disregarding the interests of the complainant is conduct that is unjust and inequitable. The threshold test for these latter two grounds is less severe than oppressive conduct.
Re Mason and Intercity Properties Ltd. 59 O.R. (2d) 631 (Ont. C.A.)
Brown v. Foster, [1990] O.J. No. 781
Diligenti v. R.W.M.D. Operations Kelowna Ltd. (1976), 1 B.C.L.R. 36 at p. 45
9 In the case of Krynen v. Bugg (2003), 64 O.R. (3d) 393 Killeen J. cited the following passage from Farley J. in 820099 Ontario Inc. v. Harold Ballard Ltd., [1991] O.J. No. 266, 3 B.L.R. (2d) 123 (Ont. Gen. Div.): "In determining whether there has been oppression of a shareholder the Court must determine what the reasonable expectations of that person were according to the arrangements which existed between the principals." The above statement by Farley J. was approved by the Ontario Court of Appeal in the case of Naneff v. Con-Crete Holdings Ltd (1995), 23 O.R. (3d) 481 (C.A.) at p. 490.
10 There is no requirement that bad faith must be shown in order to rectify a complaint in an oppression case: Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 40 O.R. (3d) 563 (C.A.) at p. 567.
Factual Background
11 In this case VallČe complains about Pickard's conduct in the following circumstances:
(a) Pickard is alleged to have abandoned his professional responsibilities to the company on several occasions when there was a disagreement between him and VallČe concerning a managerial or operational decision which VallČe alleges was to be jointly made;
(b) Pickard is alleged to have changed the Partnership Agreement and limited Mr. VallČe's involvement in sales;
(c) Pickard interfered in Mr. VallČe's area of responsibility when he designated himself as Manager on Call for the weekend of September 29, 2005, when VallČe had planned to be absent;
(d) Pickard withheld his approval for cheques for approximately two weeks in early September of 2005 as a pressure tactic to restart negotiations with VallČe; and
(e) When Pickard returned to Pythian's head office in October of 2005 he directed several individuals to only take instructions from him.
12 Pickard complaint about VallČe's conduct was that VallČe continually attempted to get involved in the sales area, which was Pickard's area of responsibility and alleges that VallČe's actions led to all of the conflicts between the two parties.
13 The parties had previously verbally agreed to divide their responsibilities in the company into specific areas. Mr. Pickard was responsible for the financial administration of the company and for all customer sales. Mr. VallČe was responsible for the service delivery aspect of the business. Mr. VallČe supervised the work of five to six teams of Data Base Administrators ("D.B.A's") who were employed by Pythian.
14 Pickard denies abandoning his responsibilities but agrees he left the company for a cooling-off period of one week on a previous occasion. Mr. Pickard also left from July 22, 2005 until August 2, 2005 as a result of the conflict with VallČe over the C.B.S. account.
15 On August 2, 2005 VallČe sent an e-mail to Pickard saying he would no longer "play this power game'" but also stated he would continue working for the company full-time.
16 On August 5, 2005 Pickard sent an e-mail to the two employees who reported to him to "Please see Paul (VallČe) for any work-related items from now on." Thereafter Mr. VallČe took over running of all aspects of the company following this e-mail. Pickard sent an e-mail on August 8, 2005 stating that he was standing at the ready awaiting whatever responsibilities VallČe wanted him to take on.
17 Pickard attempted to return to the company on October 4, 2005 and attempted to assume his responsibilities. Pickard instructed the sales person to resume reporting to him and not to communicate with VallČe and instructed the office manager to report to him and not to VallČe. At the same time as he returned to Pythian's office, Pickard also advised the accountant Andrews to report to him before performing new work. Andrews advised that he would be unable to continue to act as the accountant unless VallČe agreed with Pickard's instructions or Pickard withdrew his instructions.
18 On October 8, 2005 VallČe brought an urgent motion before Justice Ferrier and on consent the parties agreed to an order that VallČe would continue to operate the business until these applications were heard and Pickard would continue to receive his regular salary, but would not be involved with the day-to-day operation of the business.
Issue #1 - Has there been oppressive conduct or conduct that unfairly disregards the interests of either VallČe or Pickard by the corporation or directors as set out in s. 241(2) of the CBCA?
Triggering Dispute with C.B.S.
19 The dispute between Pickard and VallČe which triggered the final breakdown in their relationship occurred in July of 2005, when Mr. VallČe received an e-mail from a representative at C.B.S. advising him that a senior in-house D.B.A. was leaving C.B.S. As a result there was a possibility for Pythian to increase the number of contract hours it delivered to C.B.S. VallČe sent Pickard an e-mail to coordinate how to handle the sales opportunity. Mr. VallČe believed this was a situation requiring consensus between him and Pickard. Pickard viewed the request by VallČe that he be consulted and involved in how the potential sale of additional contract hours to C.B.S. would be contracted, as interference in his area of responsibility. Mr. Pickard sent an e-mail to VallČe advising him that he had "no role here" and indicated that he did not want to negotiate with VallČe every time a sales opportunity occurred.
20 Mr. VallČe did not agree with Pickard and proceeded to contact the C.B.S. client himself, which precipitated Mr. Pickard's e-mails in August that the sales person should report to VallČe.
21 A similar incident had occurred in March of 2005 when VallČe met the client Red Path with the sales representative participating by telephone, to successfully sell additional contract hours, without consulting Pickard.
22 Pickard's understanding of his verbal agreement with VallČe that both VallČe and Pickard had agreed to and operated under since the company was founded, was that Pickard had sole responsibility in the area of sales and his understanding of the agreement they reached after the Red Path incident was that if there was a "gray area" involving sales then VallČe and Pickard should discuss it. VallČe states that he understood that following the dispute over Red Path, any involvement by him in the future sales required a joint agreement and that sales was no longer Pickard's exclusive responsibility.
23 I find that based on the evidence contained in the e-mails between Pickard and VallČe contained in the application records, that VallČe sought to become more involved in the sales area as he stated in one e-mail he wanted to be involved in sales "and have some fun" as well. I also find that, while involving VallČe in sales, where he had established a relationship with the client by delivering service to an existing customer, may have made good business sense, it was not the agreement under which Pickard and VallČe had divided their responsibilities within the corporation. As a result I find that VallČe was seeking to change the agreed areas of responsibilities to expand his role into sales activities. I find that VallČe's actions in this regard lead to the ultimate breakdown in the relationship between the parties but I do not find that VallČe's conduct was oppressive or unfairly prejudicial.
Pickard's Failure to Sign Cheques for Two Weeks in September of 2005
24 After August 5, 2005 Pickard sent e-mails to VallČe to attempt to negotiate the terms of the relationship between the parties and this never occurred. Pickard refused to approve cheques for the business for a period of approximately two weeks in early September of 2005, seeking to force a negotiation between the parties. Pickard ultimately approved the cheques. No damage was caused to the company by the two-week delay, however Pickard's actions were not appropriate and not in the company's best interest, but caused no serious consequences to the company or either shareholder. As a result I find that Pickard's conduct was not oppressive or unfairly prejudicial.
Pickard's Appointment of Himself as Manager on Call
25 On September 30, 2005, after the relationship had broken down and VallČe had assumed day-to-day management of the company, Mr. Pickard sent an e-mail advising the office that he would be the designated Manager on Call instead of Mr. Leboeuf, who had been appointed by VallČe as Manager on Call for the weekend from September 30 to October 3, 2005.
26 Mr. Pickard acknowledges that the appointment of a Manager on Call for the weekend was in VallČe's area of responsibility, as VallČe was in charge of the D.B.A.'s and the delivery of services to clients. However, Mr. Pickard was still the President of the corporation and was qualified to perform the function of Manager on Call, as he had created and developed most of the computer software products which Pythian used to deliver its remote database management services to its clients. Pickard appears to have been attempting to get back involved with the corporation. No damage was caused to the corporation nor was there a risk of any damage, however Pickard did attempt to become involved in Mr. VallČe's area of responsibility contrary to their verbal agreement on a division of responsibilities.
27 I find that Pickard's conduct in appointing himself as Manager on Call does not amount to oppressive or unfairly prejudicial conduct.
Pickard's Return to Company Offices on October 4, 2005
28 I find that the attempt by Pickard to reestablish his authority within the corporation when he returned to the corporation's office on October 4, 2005 was not inappropriate in the circumstances, however unilateral action without notice is rarely the best approach. However, Mr. Pickard was still the President of the corporation and sought to reestablish his role within the corporation and there was no order or resolution of the Board preventing his return to the corporation.
29 As a result an urgent application was brought before Ferrier J. on October 6, 2005 and a consent order was signed, which included the following terms:
(a) Pickard was not to attend at the premises until the motion was finally disposed of;
(a) Pickard was to have no ability to instruct employees or contractors or to communicate to any prospective client or to incur responsibilities or liabilities on behalf of the company;
(b) VallČe had sole authority to issue cheques subject to some exceptions.
30 I find that Pickard's conduct in attempting to reestablish his authority within the company does not constitute oppressive or unfairly prejudicial conduct.
Pickard's Action of Taking Time off When a Dispute Arose
31 I find that the two incidents where Pickard left the company after disputes arose with VallČe, once for one to two weeks in October of 2001 and April of 2005, are of minimal weight as Pickard describes the time as a cooling off period and states that some of the time was taken as holidays and the time away from work was approximately one week per occasion. But in any event the parties subsequently agreed on a course of action and continued to operate the business together.
32 Pickard's response to VallČe's insistence on a role in sales with C.B.S. was to leave on July 22, 2005 and he advised VallČe that he was going to take a week off as a cooling off period. He returned to work on August 2, 2005. On August 2, 2005, in response to Pickard's e-mail about whether VallČe agrees that he has sufficient authority to operate day-to-day sales, VallČe stated:
Yawn ... Been there, done that, got the t-shirt, not going back (sic). It has been good having a week to think about this. So thanks. I've decided I am done playing this game. I played by your rules last time, caved to the ultimatum, went to the shrink, censored myself daily for no reason other than to feed your illusion that there is no difference between communication and decision, tried the negotiation thing, all to no avail ...
33 VallČe had previously acknowledged the division of responsibilities in an e-mail dated May 15, 2005 where he said:
... in the event we cannot come to an agreement (this is a trivial example but serious ones may come up) how do we resolve them? The obvious answer (the one I incorrectly assumed) was that you would hold the final word on finance, sales and consulting and I would hold the final word on the delivery of out-sourced services ...
34 It is clear that the relationship had broken down after VallČe wrote the e-mail on August 2, 2005. Pickard's explanation was that allowing the two employees to report to VallČe avoided causing any conflict and damage to the company. Pickard states that he continued with his other roles in the company and VallČe acted to direct the India office to have no further contact with Pickard and excluded Pickard and seized control of the company. Pickard disputes that he abandoned his responsibilities as indicated in his e-mail of August 5, 2005 and states that he sought to negotiate their respective authority and responsibilities as set out in his e-mail of August 24, 2005. The e-mails from Pickard indicated that he wished to negotiate in good faith with VallČe and when VallČe agreed to negotiate he signed off on the cheques in early September of 2005. Unfortunately the parties never proceeded to further negotiations.
35 There are some areas of factual dispute between the parties but the main question is did Pickard's e-mail directing two employees of the approximately 30 employees in the company to report to VallČe, after VallČe had indicated that he wasn't going to negotiate anymore, amount to oppressive conduct or conduct that was unfairly prejudicial or unfairly disregarded the interests of VallČe. I find that Pickard had a reasonable expectation that he would retain responsibility for sales in the corporation based on the parties' oral agreement. I find that Pickard's withdrawal, albeit for a short period of time, may have been ill-advised, but VallČe subsequently thanked him for having taken a week off and, given the dispute and the actions of VallČe by seeking to change their agreement and become involved in sales, does not amount to oppressive conduct within the meaning of s. 241 of the CBCA by the corporation or by is directors towards VallČe.
36 The conduct of the parties is not really in dispute except for the length of some of the absences by Pickard, who claimed some of the time was taken as holidays. My findings would not change even if the period of Pickard's absence was as alleged by VallČe. I am unable to find that the conduct of the corporation was oppressive or was unfairly prejudicial or unfairly disregarded the interests of VallČe. In fact Mr. VallČe is currently in control of the day-to-day management and the business continues to perform well.
37 I also find that Pickard does not have control of the corporation and none of his actions or omissions as a director have been unfairly prejudicial or unfairly disregarded the interest of VallČe or amounted to oppression within the meaning of s. 241 of the CBCA. The reality is that Mr. Pickard is not in control and Mr. VallČe has assumed control of the corporation since early August of 2005.
Breach of Fiduciary Duty
Issue #2 - Did Pickard's actions amount to a breach of fiduciary duty?
38 The duties of directors are set out in section 122 of the CBCA, which states as follows:
122(1) Every director and officer of a corporation in exercising their powers and discharging their duties shall
(a) act honestly and in good faith with a view to the best interests of the corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
The obligation of directors under section 122(1)(a) is to act honestly and in good faith in the interests of the corporation. The directors' duty to the company was described by Justice Laskin in Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592 (S.C.C.) to be as follows: "that directors owe a duty of loyalty, good faith, and avoidance of a conflict of duty and self-interest."
39 The Courts have also held that where a breach of fiduciary duty has occurred, the test for oppression has been met: Classic Organ Co. v. Artisan Organ Ltd., [1997] O.J. No. 2161, Calmont Leasing Ltd. v. Kredl, [1993] 7 W.W.R. 428 (Alta. Q.B.) aff'd [1995] 8 W.W.R. 179 (Alta. C.A.)
40 However, no general fiduciary duty is owed by a director to any other shareholder in the company, as directors in small corporations are often shareholders as well. The courts have not imposed a fiduciary duty on a director or to another shareholder, without the classic criteria of scope for the exercise of discretion or power, which could be exercised unilaterally by the fiduciary, and a special relationship of vulnerability and reliance on the fiduciary holding the discretion or power. I find that without the special circumstances to demonstrate that a fiduciary duty exists a director would not owe a fiduciary duty to other shareholders in the corporation. Therefore, as there was no scope for the exercise of unilateral discretion by either shareholder and no special vulnerability or reliance by VallČe or Pickard, that Pickard does not owe a fiduciary duty to VallČe and as a result there has been no breach of fiduciary duty by Pickard.
Issue #3 - Is it just and equitable that Pythian be liquidated or dissolved pursuant to section 214(1) of the CBCA?
41 Both parties argued that the provisions of section 214(1)(b)(ii) apply as the parties both agree that it is just and equitable that the corporation be liquidated or dissolved, due to the deadlock and complete breakdown of trust and confidence between VallČe and Pickard. However, both parties submit that rather than ordering that the corporation be liquidated or dissolved that I proceed under the remedies available under section 214(2), to make such order as I think fit in the circumstance in order to fairly disengage the parties. The provisions of section 214(2) allow the Court to make any order it deems fit under section 241 of the CBCA. Section 241(3) of the CBCA gives the Court great flexibility in the type of order which may be made.
42 I find that it is just and equitable that the corporation be wound up or dissolved under section 214 and I further find that the remedies available under section 241(3) of the CBCA should be considered rather than ordering a liquidation and dissolution of the corporation.
Issue #3(b) - Were Pickard's actions such that the Court should give VallČe preferential treatment and allow VallČe the first option of purchasing Pickard's shares?
Position of Parties
43 VallČe argues that Pickard should be ordered to sell his shares to VallČe at a price determined by a business valuator due to Pickard's conduct as discussed above. In the alternative VallČe argues that the Court should impose a "shotgun" buy-sell provision, where Pickard is required to make the first offer to purchase VallČe's shares and VallČe would then have the choice of either accepting Pickard's offer and selling his shares to Pickard or purchasing Pickard's shares for the same price.
44 Pickard submits that the Court should order that an auction of the shares take place, limited to two bidders, namely VallČe and Pickard. Pickard argues that his conduct was not such that VallČe should be permitted to purchase his shares or be given the first option to purchase his shares and argues that while his actions might have been ill-advised they are balanced by the fact that VallČe was the person who sought to change their verbal agreement by getting involved in sales, which was his area of responsibility.
45 In my Reasons I have previously found that VallČe attempted to change the verbal agreement between the parties and become more involved in sales and that this conduct was the precipitating event which caused the relationship between the parties to break down. Pickard's response by withdrawing from his responsibilities within the company for one week and then instructing the two employees who reported to him to now report to VallČe were also not appropriate.
46 I agree with the reasoning in the case of Gold v. Rose, [2001] O.J. No. 12, where the Court held that it should apply the "just and equitable" principle under s. 214 of the CBCA when there was a "deadlock" or where the relationship has broken down because of incompatibility or quarrelling. The parties have agreed that their relationship is completely broken down and that they are deadlocked. In exercising their discretion not to order the dissolution and liquidation the Courts have emphasized the importance of respect for the parties' reasonable expectations as well as the use of the least intrusive remedy.
47 In this case there was no separate founder of the company, both parties are equally able to operate the company, the parties are equal shareholders and I find they would each reasonably expect to be treated equally by any Court order affecting their rights as shareholders. In addition there was no written or oral agreement between the parties where one shareholder was to be given preference with regards to the purchase of the other's shares in the event of a deadlock.
48 The only factor in favour of granting VallČe a preference over Pickard is Pickard's conduct of withdrawing from at least some of his responsibilities to the corporation, however I find that this is counterbalanced by VallČe's own conduct of seeking to change the parties' verbal agreement with respect to their respective areas of responsibility, by the fact that Pickard was the President of the corporation, that Pickard developed a larger part of the business software, and that both shareholders were equal shareholders and would reasonably expect to be treated equally, and both are equally capable of operating the business.
49 I find that the factors in favour of devising a method of disengaging the two deadlocked shareholders without giving either one preferential treatment are the following:
a) Both shareholders owned 50% of the shares;
b) Both were actively involved in developing a successful company from the date of incorporation;
c) While Pickard's conduct in withdrawing his services for a short period was not appropriate, VallČe's conduct by involving himself in sales contrary to the parties' verbal agreement counterbalances Pickard's actions;
d) Pickard was also the President of the corporation and under the corporation's bylaws, he had overall responsibility for oversight over the business and affairs of the corporation;
e) Pickard developed most of Pythian's products, which are used by the corporation, including Support Track Software, Avail Software, Hourly Billing Model and Apollo systems;
f) Both Pickard and VallČe are qualified and capable of continuing to operate the business successfully;
g) No Shareholders Agreement was signed by either party; and
h) There was never any agreement that either would be given a preferential right to purchase the company.
50 As a result, I find that both Pickard and VallČe should be treated equally with no preference being given to either shareholder for the above reasons.
Issue #3(c) - What method should the Court use to disengage the parties?
51 VallČe has suggested a shotgun buy-sell provision be ordered with Pickard making the first offer as their alternative position. Pickard seeks an auction between the two shareholders. The auction proposal has been applied in a number of cases, including 152581 Canada Inc. c. Matol World Corp., [1996] Q.J. No. 4017 and in Polano v. Brissette, [1992] O.J. No. 4027.
52 No evidence was presented of the parties' respective financial strengths and in the Matol case, supra, Gomery J. stated that "there is nothing particularly repugnant in recognizing that those who are richer are generally better able to protect themselves". VallČe argues that an auction would drive the price of the shares above their true value due to the parties' animosity to each other.
53 VallČe suggested a one-time offer where VallČe retained the final decision of whether he would purchase Pickard's shares or sell his shares to Pickard at the price offered. This proposal would not treat the shareholders equally and as a result I choose not to order this option.
54 In Sahota v. Basra, [1999] O.J. No. 186, where the parties were equal shareholders and the highest bidder was permitted to purchase the shares of the other shareholder, each party was ordered to provide a sealed bid to the Court within 30 days. Having regard to the parties' submissions and given my intention to treat both shareholders fairly and equally and to resolve the matter quickly and given the discretion set out in section 241(3) of the CBCA with regards to the choice of remedy, I order as follows:
a) Both Pickard and VallČe shall submit sealed bids to the Court by February 23, 2007 at 4:30 p.m. to purchase the shares of each other and the highest bidder shall be entitled to purchase the shares of the other shareholder;
b) The closing shall take place on March 30, 2007;
c) Both parties shall have access to all financial and business records effective immediately and may contact any employee with regards to the purchase without unduly interfering with ongoing operations;
d) The business shall continue to be operated until closing in the same manner as ordered by Ferrier J.;
e) The parties shall have until February 2, 2007 to agree on any additional terms of the sale, including but not limited to the following:
i) Whether payment is to be made in cash or by certified cheque on closing or paid over a period of time;
ii) Whether any non-competition agreement or any non-solicitation agreement concerning existing clients should apply;
iii) Confirmation that Pythian is the owner of all of the intellectual property used by Pythian in its business operation.
If the parties are unable to agree on the terms which should apply, other than the price, then written submissions may be made to me by both parties by February 9, 2007, and I will decide on any additional terms. If further submissions on the terms of the purchase are required the date for submitting the sealed bids shall be extended to March 9, 2007 and the closing date extended to April 13, 2007.
Costs
55 If the parties are unable to agree on costs Mr. VallČe shall have ten days from January 16, 2007 to make submissions and Pickard shall have ten days to respond.
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