



COURT OF APPEAL
    FOR ONTARIO

CITATION: Western Larch Limited v. Di Poce
    Management Limited, 2013 ONCA 722

DATE: 20131129

DOCKET: C56453

Gillese, Tulloch and Lauwers JJ.A.

BETWEEN

Western Larch Limited and Donald A. MacIver

Plaintiffs (Appellants)

and

Di
    Poce Management Limited, John Di Poce, Eastern Hemlock Limited,

George
    Frankfort, Large Tooth Aspen Limited, Carmine Guglietti
, Red

Alder
    Limited, The Estate of Giovanni Guglietti,
Fincourt Inc., Fincourt
    Partnership, Alpa Lumber Inc., and Alpa Partnership

Defendants (
Respondents
)

Terrence OSullivan and Shaun Laubman, for the
    appellants

Peter H. Griffin and Matthew B. Lerner, for the
    respondents

Heard: April 24, 2013

On appeal from the judgment of Justice D. M. Brown of the
    Superior Court of Justice, dated December 11, 2012, with reasons reported at
    2012 ONSC 7014.

Lauwers
    J.A.:

[1]

The motion judge,
    sitting as a judge on the Commercial List, granted partial summary judgment in a
    commercial dispute about the exercise of a shotgun buy-sell provision in a
    partnership agreement.  He ruled that although the respondents buy-sell offer did
    not comply perfectly with the shotgun buy-sell provision, it was nonetheless
    valid and enforceable. He directed a trial on the appellants claims for
    damages for three breaches of contract.

[2]

For the reasons
    set out below, I would dismiss the appeal.

Overview

[3]

The respondent Alpa
    Partnership operated through the respondent Alpa Lumber Inc. and some 89
    corporations and partnerships. It was in the business of manufacturing and
    distributing wood products for the low-rise residential building industry in
    Ontario.

[4]

According to the
    Statement of Claim, Alpa Partnership was established in 1978 as the result of a
    leveraged buyout of Reed Lumber Co. Donald MacIver was the president and CEO of
    the parent company, Reed Paper Ltd. He joined the partnership, and was
    responsible for the creation of Alpas corporate and tax structure as well as
    its partnership documentation. After overseeing the restructuring of the
    partnership from 1986 to 1988, he continued to have primary responsibility for
    its financial and corporate affairs and, until June 14, 2010, was its Chairman
    and Secretary-Treasurer. Relations between the partner shareholders and Mr.
    MacIver deteriorated over time.

[5]

The core business
    arrangement was the 1997 Amended Restated Partnership Agreement (the PA). The
    partner corporations, and their associated partner shareholders were,
    respectively: Di Poce Management Limited (John Di Poce); Western Larch Limited
    (Mr. MacIver); Large Tooth Aspen Limited (Carmine Guglietti); Red Alder Limited
    (the late Giovanni Guglietti); and Eastern Hemlock Limited (George Frankfort).

[6]

In these reasons,
    the term respondents refers to the named respondents other than Red

Alder Limited, and the Guglietti Estate, since
    the motion judge dismissed the action against Red

Alder Limited and the Guglietti Estate, and
    that dismissal was not appealed,.

[7]

For the purpose
    of this appeal, there were two relevant avenues by which a partner could be
    required to exit from the partnership under the PA: by the death of a
    shareholder partner, largely governed by Article 8; and, through the operation
    of the shotgun buy-sell provision, largely governed by Article 6.

[8]

Giovanni
    Gugliettis death on September 4, 2009 triggered the partners obligation under
    Article 8 to buy out Red Alders interest. The partner shareholders, other than
    Mr. MacIver, wanted Red Alder to continue as a partner.

[9]

As a result of
    Mr. MacIvers opposition, the other partner shareholders adopted a two-pronged
    strategy. The first prong was that on December 11, 2009, Di Poce Management,
    Eastern Hemlock and Large Tooth Aspen agreed with Red Alder to bring it back
    into a restructured partnership, conditional upon the successful execution of
    the second prong, which was the buy-out of Western Larch by the other partners.
    On December 15, 2009, Di Poce Management, Eastern Hemlock and Large Tooth Aspen
    delivered their shotgun buy-sell offer to Western Larch.

[10]

The buy-sell
    offer contained two alternatives, either one of which could have been accepted
    by the appellants. The alternatives differed in their treatment of debt. Under
    s. 6.11(a) of the PA, the partnership is obliged to repay its debt to the
    exiting partner in full on closing. Alternative 2 would have repaid the
    partnerships debt to Western Larch on closing as required by the PA.
    Alternative 1 provided instead for the repayment of half of the debt on closing,
    with the balance to be paid over four years together with interest. The buy-sell
    offer also provided that if the appellants did not choose between the
    alternatives, and did not elect to reverse the buy-sell offer, they would be
    deemed to have chosen Alternative 1.

[11]

Mr. MacIver did
    not complain about the valuation of the partnership used in calculating the
    purchase and sale prices, or about the form of the buy-sell offer, when he was
    presented with it.  Instead, he and Western Larch, tried to secure financing so
    that they could reverse the offer, and buy out the interests of the respondents. 
    Their efforts were not successful.

[12]

Mr. MacIver and
    Western Larch then attacked the validity of the buy-sell offer by issuing the
    Statement of Claim dated February 12, 2010. In early May 2010, they moved
    unsuccessfully for an interim and interlocutory injunction to restrain the respondents
    from implementing or attempting to implement the buy-sell offer: see 2010 ONSC
    3046, Cumming J.

[13]

The forced
    acquisition of the appellants interest in the partnership was carried out in
    accordance with Alternative 1 in the buy-sell offer, and closed on June 14,
    2010. The appellants were paid about $33 million, including an amount on
    account of the partnerships debt to Western Larch to be paid over four years
    together with interest.

[14]

The respondents
    moved for summary judgment to dismiss the action. Partial summary judgment was
    granted, by D.M. Brown J. (the motion judge), for the reasons reported at 2012
    ONSC 7014.  This appeal is from his judgment.

The Standard of Review

[15]

The standard of
    review on this appeal is correctness, since it involves the interpretation of a
    contract, with due deference to be paid to the motion judge on those
    determinations in which the facts dominate:
The Plan Group v. Bell Canada
,
    2009 ONCA 548, 96 O.R. (3d) 81, at paras. 19-20, 27;
Zeubear Investments Ltd
.
v. Magi Seal Corporation
, 2010 ONCA 825, 103 O.R. (3d) 578, at para. 22.
    This court has, on numerous occasions, paid deference to experienced Commercial
    List judges in contractual interpretation. For example, in
Ventas,
    Inc. v.  Sunrise Senior Living Real Estate Investment Trust
, 2007
    ONCA 205, 85 O.R. (3d) 254, at para. 47, Blair J.A. said:

Matters involving the factual matrix underlying a contract are
    matters of fact, or at least matters of mixed fact and law. A judge is owed
    considerable deference in her assessment of such matters. Here, the experienced
    Commercial List judge was exercising a function common to that role - the
    interpretation of a commercial contract

[16]

See also
Treat
    America Limited v. Nestlé Canada Inc.
, 2011 ONCA 560, at
    para. 15, Blair J.A.;
BTR Global Opportunity Trading Limited v. RBC Dexia Investor
    Services Trust
, 2011
    ONCA 518 at para. 3, among others. These decisions recognize, as Farley J.
    observed, in
771225
    Ontario Inc. v. Bramco Holdings Co
., [1992] O.J. No. 1772, that judges available to sit in the
    List are some of those who have experience, expertise and an interest by
    aptitude and inclination in "corporate/commercial matters", of a
    complex or intricate nature. The Commercial List is a specialized court for
    the purpose of situating the decision on the spectrum of deference required by
Housen
    v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235.

The Decision under Appeal

[17]

The appellants
    argued that the law required the buy-sell offer to comply strictly with Article
    6 of the PA, the shotgun buy-sell provision. The motion judge accepted this as
    a correct statement of the law.

[18]

The appellants
    took the position that the buy-sell offer did not comply strictly with the
    shotgun buy-sell provision in the PA and was therefore invalid; they alleged
    that there were numerous deficiencies, so that it was not open to the
    respondents to enforce it. A non-compliant shotgun buy-sell offer is an
    ordinary, and therefore, prima facie, legally valid, offer to buy or to sell, but
    it lacks enforceability for shotgun purposes. Thus, one party is not able to
    force another party to close on the terms of the offer. I observe that the
    motion judge and the parties use the language of validity in this limited
    sense of shotgun enforceability, and I will use it the same way.

[19]

The motion judge adopted
    the approach of categorizing the different elements of the shotgun buy-sell
    provision. He referred to some terms, at para. 123, as categories of
    contractual provisions [that] deal with the issue of the formation of a binding
    agreement of purchase or sale, while he characterized other terms as dealing
    not with the making of a binding agreement, but its performance. He explained
    his approach, at para. 124:

The plaintiffs contend, in effect, that the breach of any
    Article 6 term invalidates an offer. I do not agree. The breach of those
    categories of contractual terms dealing with the making of an offer would
    invalidate an offer, but the breach of terms falling in the performance
    categories would give rise to a claim for breach of a binding agreement of
    purchase or sale, not a claim that the binding agreement was invalid.

[20]

Consistent with
    that approach, the motion judge found, at para. 201, that the buy-sell offer as
    a whole was valid, and that there was no genuine issue requiring a trial with
    respect to the plaintiffs' claims concerning the validity of the offer.

[21]

The appellants chief
    complaint was that the valuation used by the offerors was not based on the fair
    market value of the partnership.  Their case, at bottom, is about the amount
    that the respondents must pay in order to buy out their interest in the
    partnership. The appellants strict compliance attack on the buy-sell offer
    is their chosen weapon in seeking the courts assistance to reopen the issue of
    the partnerships value, which is essential in establishing damages. The
    appellants quantify the prize in this fight at not less than $79 million, largely
    being the asserted difference in the value of their interest in the partnership,
    measured as between the specified value in the buy-sell offer, and the
    appellants own estimate of fair market value.

[22]

The motion judge
    found, at para. 145, that there was no requirement in the PA for the valuation
    in the buy-sell offer to be at fair market value, and that the Offer complied
    with the specification of value requirements contained in s. 6.2(a) of the
    Agreement.

[23]

The appellants
    made five additional complaints. The first was that the buy-sell offer built in
    the partnerships obligation to buy out Red Alder. As a result, the specified
    formula in s. 6.2 of the PA for calculating the respective shares was not met. 
    The motion judge rejected this complaint on the basis that the partnership was
    obliged, under Article 8 of the PA, to buy out Red Alder on Mr. Gugliettis
    death. The effect was to increase Western Larchs partnership share to 16.75
    per cent, but, as the motion judge pointed out, at para. 158, Article 8
    required Western Larch to pay for that increased share; it was not a gift.

[24]

The motion judge
    concluded that, since the PA permitted a buy-sell offer to be made at any time,
    it was only reasonable that this would include a period after a partner
    shareholders death and before the Partnerships obligations in respect of that
    death were worked out. Although there was a timing difference concerning
    payments due under Article 8 and Article 6, the motion judge decided, at para.
    161, that the deduction of the entire Red Alder obligation in calculating the
    purchase price was commercially reasonable.

[25]

The appellants
    second additional complaint, referred to at para. 165 of the reasons, concerned
    the form of the promissory note delivered on closing, in particular, the
    inclusion of language providing that [t]his Promissory Note shall not be
    negotiable or assignable by the holder without the prior written consent of the
    undersigned. The motion judge dismissed this complaint, at para. 166, on the
    basis that s. 6.5(2) of the PA did not preclude the inclusion of additional
    terms, but, in fact, it contemplated that possibility.  He noted that the
    objection to the included language was only brought forward by the appellants
    one hour before the closing, although they had had the closing material for ten
    days. The motion judge called this a high risk strategy. He held, at para.
    167, that:

For the vendor to sit back, to rebuff invitations to comment on
    the draft closing documentation, and then to spring comments on the purchasers
    an hour before closing was unreasonable commercial conduct and provided Western
    Larch with no legitimate basis upon which to complain about the contents of the
    proffered promissory note.

[26]

The appellants
    third additional complaint was about the inclusion of an incorrect debt
    adjustment figure in the buy-sell offer. In mid-January 2010, the offerors sent
    a letter to the appellants providing the correct figure for closing.  The
    motion judge found that it was proper for an estimated debt figure to have been
    used when the offer was made since the actual indebtedness had to be finalized
    as part of the closing arrangements. He found, at para. 182, that nothing in
    the Agreement prohibited the making of adjustments on the closing of a buy-sell
    offer. The motion judge concluded, at para. 183, that the appellants would
    have received the amount to which they were contractually entitled on closing,
    so that there was no air of commercial reality to this objection by Western
    Larch.

[27]

The appellants
    fourth additional complaint concerned the termination date of Western Larchs
    allocation of net earnings. The PA required that entitlement to end on April
    14, 2010. The offer provided, however, that the net earnings were to be
    calculated at the end of the prior month, on March 31, 2010. The appellants
    argued that this two week difference was yet another fatal failure to comply
    that rendered the buy-sell offer invalid. The motion judge found that this
    provision in the offer was inconsistent with the PA, but held that it did not
    render the offer unenforceable.  He stated, at para. 192: Non-compliance with
    that performance requirement would not invalidate an offer, but non-compliance
    could give rise to a claim for any shortfall in net earnings for the period
    between the delivery of an offer and closing. The motion judge found that the
    appellants could be entitled to damages for the two-week difference and
    directed a trial of that issue.

[28]

The appellants
    fifth additional complaint was that the buy-sell offer completely eliminated
    Western Larchs interest in the partnership, contrary to the terms of a
    separate Acknowledgment letter that was signed by the partners
    contemporaneously with the execution of the PA. The Acknowledgment provided:

[I]f either Di Poce Management Limited or Western Larch Limited
    dispose of their interest in the Partnership for any reason, it will be allowed
    to retain a .001% interest in the earnings of the Partnership (to a maximum of
    $1000 per annum) for the next 30 years.

[29]

The appellants
    argued that they would suffer detrimental tax treatment as a result of the
    buy-sell offers failure to provide a continuing nominal interest in the
    partnership. The motion judge found that the offer was deficient in failing to
    give effect to the Acknowledgment.  He also found, at para. 200, that the
    appellants had failed to bring this omission to the attention of the
    respondents. Although the tax advantage may have been somewhat attenuated by
    recent
Income Tax Act
amendments, the motion judge was not in a position
    to quantify the damage and directed a trial of that issue. He noted that this
    complaint could not affect the validity of the buy-sell offer since it was not
    an element of the shotgun buy-sell provision in the PA.

[30]

Having identified
    three breaches by the respondents arising out of their imposition of
    Alternative 1 on the appellants, the motion judge, at para. 202, set three
    issues for trial:

a/ the claim that Western Larch suffered damage as a result of
    the closing taking place on the basis that Western Larch was not paid in full
    on closing the indebtedness owed to it by the Partnership;

b/ the claim by Western Larch for additional net earnings
    pursuant to section 6.9 of the Agreement; and,

c/ the claim by Western Larch that on closing it should have
    received the narrowly defined earnings interest described in the
    Acknowledgement and whether any damages resulted from that omission.

[31]

The motion judge
    granted summary judgment in favour of the respondents on the rest of the issues
    and dismissed the claims asserted in related paragraphs of the Amended
    Statement of Claim.

[32]

For completeness,
    I note that the appellants do not appeal the dismissal of the following claims:
    that the shotgun buy-sell provision could not be triggered unless a partner
    became mentally unstable and erratic, at paras. 125-135; for various breaches
    of fiduciary duty, at paras. 205-246; and for oppression under s. 248 of the
Ontario
    Business Corporations Act,
R.S.O. 1990, c. B-16,

at paras. 247-256.

The Positions of the Parties on this Appeal

[33]

The appellants
    press their argument that strict compliance means strict compliance, and
    that the motion judge erred in letting the respondents off the strict
    compliance hook. They assert that this courts approval of the motion judges
    approach would undermine the certainty required in this important area of
    commercial law. The appellants argue that any one of the deficiencies they
    identified in the buy-sell offer should have been sufficient to render the buy-sell
    agreement unenforceable. They also argue that the respondents should not have
    been permitted to force Alternative 1 on them at the closing, since it was not
    compliant with the PA.

[34]

Mr. MacIver
    accepts that there is no prospect of re-assembling the partnership.  As the motion
    judge noted, at para. 3: [T]he plaintiffs recognize that it would impossible
    for them to return as a partner of ALPA Partnership. The appellants seek
    damages.

[35]

The motion judge
    set the measure of damages on the basis that only Alternative 2 in the buy-sell
    agreement was enforceable. The appellants, however, seek damages on a different
    basis. They assert in the Amended Statement of Claim that they are entitled to
    $79 million more than the amounts already paid to them by the respondents, largely
    on the basis that the partnership valuation should have been at fair market
    value.

[36]

The appellants
    ask this court to reinstate the following paragraphs of the Amended Statement
    of Claim, which express well the scope of their ambition on this appeal: para.
    1(a)  for a declaration that the buy-sell offer was invalid and of no force
    and effect; para. (t)  for a declaration that the valuation of Alpa must be
    based on an independent valuation of Alpa; para. (u)  for an order requiring
    the defendants to buy the plaintiffs interest in Alpa at that value; and the
    portion of para. 1(n) that seeks damages for breach of contract in connection
    with the removal of the Plaintiffs from the Alpa Partnership and related
    entities.

[37]

The respondents rely
    on the motion judges the reasons and ask that the appeal be dismissed.

The Issues

[38]

I address the
    following issues in turn:

1. Did the inclusion of Alternative 1 render the buy-sell
    offer unenforceable?

2.  Did the respondents purported imposition of Alternative
    1 on the appellants render the buy-sell offer unenforceable?

3. Did the motion judge err in setting the measure of damages
    for breaches of the shotgun buy-sell provision?

Analysis

[39]

Before
    considering the specific issues raised in this appeal, I make some general
    observations about shotgun buy-sell provisions and the courts approach to
    their interpretation and enforcement.

[40]

Unanimous
    shareholder agreements, partnership agreements, and joint venture agreements
    often contain what is commonly known as a shotgun buy-sell provision. This is
    a mechanism for involuntarily expelling one or more of the parties from a
    business venture, which will continue without the exiting partys participation.
    Expulsion is a remedy available where, for example, the participants no longer
    get along, as in this case.

[41]

Shotgun buy-sell provisions
    generally share the following features. The offeror party triggers the
    provision by putting a shotgun buy-sell offer to the offeree party. The offeror
    offers to buy the offerees interest in the business venture, or to sell its
    own interest to the offeree. The offer specifies a value. The offeree must
    decide whether to buy out the offeror, or to sell its interest to the offeror, at
    the determined price. Depending on the size of the respective interests, the
    amounts paid to buy, on the one hand, and to sell, on the other hand, may be
    quite different, although they are to be based on the specified value. The
    offeree must make the choice by a certain date. If the offeree does not respond
    by choosing, then the offeror may force the purchase on the offeree, and
    require closing on the terms set out in the offer.  Not all of these features
    are always present and close attention must be paid to the specific contractual
    language of the shotgun buy-sell provision in order to ensure that an offer is
    compliant.

[42]

Because the
    operation of such a provision involuntarily expels a party from what is usually
    a viable business venture, it is seen to be a draconian remedy:

Laschuk v. Poon
,

[1993] 7 Alta. L.R. (3d) 422 (Q.B.).
    This has led courts to require a shotgun buy-sell offer to comply strictly
    with the shotgun buy-sell provision in the authorizing agreement, to be
    enforceable.  In
Zeubear
, OConnor A.C.J.O., stated, at para. 24:

In this case, the court is confronted with the interpretation
    of a buy-sell provision in a commercial contract. I agree with the observation
    of the Alberta Court of Appeal in
942925 Alberta Ltd. v. Thompson
(2008),
    47 B.L.R. (4th) 1, at para. 21 that "a shareholder must strictly comply
    with the terms of a shotgun clause in order to obtain its benefit".

[43]

In
Trimac
    Ltd. v. C-I-L Inc.
(1987), 52 Alta. L.R. (2d) 263
; 1987
    CarswellAlta 113
(Q.B.), in
    response to a shotgun buy-sell offer, C-I-L purported to elect to purchase the
    interest of Trimac.  In its purported acceptance letter C-I-L stated: On
    closing C-I-L will therefore pay to Trimac $91 million, in return for the
    Trimac shares in Tricil,
or such other sum as, by that time, has been determined by the Supreme
    Court of Ontario to be the amount payable for such shares
  The
    court found, at para. 35, that C-I-L overplayed its hand because, in seeking
    to buy for less, as noted at para. 30, its offer equivocated. As a result,
    C-I-Ls acceptance did not meet the standard required by the buy-sell provision
    in the agreement. Trimac therefore successfully bought out C-I-L based on its
    clean offer. Virtue J. stated, at para. 29: 
A shotgun buy-sell is strong
    medicine.  One takes it strictly in accordance with the prescription or not at
    all
 (emphasis added).  The decision was upheld at (1987), 53 Alta. L.R.
    (2d) 97
; 1987 CarswellAlta 142
(C.A.).

[44]

The members of this
    partnership are sophisticated and experienced business people who operated a
    successful and complex business for many years under a comprehensive PA. It
    appears that they have been assisted throughout by legal and other advisors.
    The PA contemplates the event of a falling out among the partners, since it contains
    a shotgun buy-sell provision, which was described, by the two experienced
    Commercial List judges who heard the injunction motion and the summary judgment
    motion, as well-drafted and carefully designed.

[45]

Two design
    features in this shotgun buy-sell provision are notable, in my view. First, the
    partners could have included, but did not, a provision requiring the valuation
    specified in a buy-sell offer to be at the partnerships fair market value, as
    in
Hargreaves v. Charbonneau
,
    [2003] O.J. No. 4268
(S.C.). Second, the partners could have
    included a provision, but did not, prohibiting partners from combining to oust
    another partner, as the shareholders did in
942925 Alberta Ltd. v. Thompson
,
    2008 ABCA 81
.

[46]

It seems to me
    that the court should be reluctant to rescue a party who later regrets
    contractual arrangements that were carefully designed and accepted. The courts
    task is to consider whether compliance with the shotgun buy-sell provision is
    sufficiently strict, given the vagaries and complexities of commercial
    arrangements and commercial life, which the parties have plainly accounted for
    in their contractual arrangements. Strict compliance is not perfect compliance.

[47]

I agree with the
    motion judges exposition, at paras. 109-111, of the relevant principles of
    contract law, and I will not repeat them here. In my view, in deciding whether
    the respondents shotgun buy-sell offer met the strict compliance test, the commercially
    reasonable expectations of these sophisticated parties in this factual context
    must be considered.

1.       Did the inclusion of Alternative 1 render the
    buy-sell offer    unenforceable?

[48]

The motion judge
    found that Alternative 2 in the buy-sell offer complies with the shotgun
    buy-sell provision in the PA. The appellants concede that it is compliant, if
    none of their other challenges succeed.

[49]

It was open to
    the offerors to include an alternative in the buy-sell offer even if an
    alternative offer was not contemplated by the PA, for the appellants
    consideration. There was no unfairness in doing so. Had the appellants accepted
    Alternative 1, then there would effectively have been an agreement to amend the
    PA along the lines of the accepted offer. In my opinion, the buy-sell offer was
    valid and enforceable, since it contained the compliant Alternative 2, which the
    appellants were free to accept or to reverse. The mere inclusion of Alternative
    1 did not invalidate the buy-sell agreement or render it unenforceable.

[50]

The appellants
    made the five additional complaints referred to above. In my view, none of them
    was capable of rendering unenforceable the buy-sell offer, nor do they have
    that effect cumulatively. Considered in context, these additional complaints
    were minor, and, in my view, the motion judges disposition of them, by
    ordering a trial to determine liability and damages, if any, was correct.

2.       Did the respondents purported imposition of
    Alternative 1 on the           appellants render the buy-sell offer
    unenforceable?

[51]

I observe that,
    by granting partial summary judgment and ordering the trial of the three issues
    as to damages, the motion judge effectively compelled the respondents to
    perform in conformance with Alternative 2, and not with Alternative 1.

[52]

The court will
    not enforce a shotgun buy-sell offer, such as Alternative 1, that is not
    strictly compliant with a shotgun buy-sell provision. It will enforce a
    compliant shotgun buy-sell offer, such as Alternative 2. This accords with the
    commercially reasonable expectations of the parties.

[53]

Consistent with
    its purpose in the PA, the shotgun buy-sell provision, as reflected in the
    buy-sell offer, put the obligation squarely on the appellants to make a
    decision  either accept and complete the offer to sell their interest in the
    partnership to the offerors, or reverse the offer and buy the interests of the
    offerors. They could have done so on the basis of compliant Alternative 2. The
    appellants did neither. The consequence of not making the decision was clearly
    spelled out in the offer; they would be deemed to have selected Alternative 1.
    The closing proceeded on the basis of Alternative 1 using powers of attorney.

[54]

The motion judge
    found that the inclusion of the provision forcing the closing based on the
    non-compliant Alternative 1 did not invalidate the buy-sell offer and render it
    unenforceable. (It will be recalled that Alternative 1 was not compliant with
    the shotgun buy-sell provision in the PA because it did not require repayment
    of the partnerships debt to Western Larch in full on closing.)  The motion
    judges logic, laid out at paras. 175-176, was that the debt repayment
    obligation arose under section 6.11(a) of the PA as part of the Closing
    Arrangements. Obligations on closing, he noted, do not arise unless there is first
    a binding contract. He concluded at para. 175:

If a binding contract exists, one party may default on closing
    obligations, but that does not mean there never was a binding contract. Such a
    default would give rise to a claim for damages for breach of some closing
    obligation.

[55]

The motion judge
    analogized to
Zeubear
, in footnote 110 and the associated text, and
    found that it was open to Western Larch to insist that the closing take place
    in accordance with section 6.11(a) of the PA, despite the terms of Alternative
    1 in the buy-sell offer.

[56]

The motion judge
    was unable to determine whether there was any appreciable financial difference
    between Alternative 1 and Alternative 2, given that Alternative 1 provided for
    the payment of interest on the balance of unpaid debt. He found that
    Alternative 1s non-compliance gave rise to a claim for damages.

[57]

In
Zeubear
,
    this court required the offeror to comply with the mandatory terms of the
    shotgun buy-sell provision even though the buy-sell offer purported to offer different
    terms. At issue in
Zeubear
was whether a buy-sell offer could require
    the amount payable for the shares to be paid in full on closing, even though
    the shotgun buy-sell provision in the unanimous shareholders agreement imposed
    a term that the buyer would pay at least 50 per cent of the purchase price in
    cash on closing with the balance in a promissory note. This court found, at
    para. 39, that the mandatory terms of the shareholders agreement overrode the
    contrary terms of the buy-sell offer, and noted, at para. 38, that requiring
    the parties to perform in accordance with the mandatory terms of the shotgun
    buy-sell provision was the commercially reasonable result. The court required
    the parties to stick with the deal they made.

[58]

In my view, since
    Alternative 1 was non-compliant, the respondent offerors could not compel that
    alternative to be chosen by the appellants. The respondents could only have required
    the appellants to sell in accordance with Alternative 2.

[59]

The appellants rely
    on cases where courts have found that the buy-sell offer is not enforceable
    because the offerors tried to add conditions to the offer that were not
    contemplated by the shotgun buy-sell provision, such as: a noncompetition
    clause:
Hargreaves
, at paras. 21-22; a release from g
uarantees:
Oakley v. McDougall
,
1986 CarswellBC 1500 (S.C.), at paras.
    17-19, varied, 14 B.C.L.R. (2d) 128; a release addressed to the offerors:
360246
    B.C. Ltd. v.

Evmo Holdings Ltd
., [1993] B.C.J. No. 2068 (S.C.),
    at paras. 16-18; and, a discount of the purchase price reflecting the payment
    of loans and indebtedness to be addressed separately on closing:
Gazo v.
    Gazo
, [2008] O.J. No. 449
(S.C.), at paras. 17-20. Nor is an equivocal acceptance enforceable:
Trimac
    Ltd. v. C-I-L Inc
., at p
aras. 30-34
, in which the offeree proposed that the ventures value be
    set by the court. Plainly, the fact that a buy-sell offers provisions are
    reciprocal is not sufficient to make it valid.

[60]

In my opinion,
    however, none of these cases are applicable to the present case, since the
    respondents did not make the buy-sell offer conditional on a matter that was
    not provided for in the shotgun buy-sell provision in the PA, nor was the buy-sell
    offer equivocal.

[61]

The appellants
    argue that by purporting to force the closing in line with Alternative 1, the
    respondents did secure an advantage that was not contemplated by the shotgun
    buy-sell provision in the PA - the effective expulsion of the appellants in a
    non-compliant manner. I disagree. The expulsion was accomplished by the
    operation of the shotgun buy-sell provision and the enforcement of Alternative
    2. As the motion judge found, in view of the minor deficiencies, compliance is
    best effected, and the breaches of the shotgun buy-sell provision are best
    addressed, through damages. I agree.

[62]

Nothing in these
    reasons should be taken as affirming the motion judges approach of
    categorizing the elements of the shotgun buy-sell into formation terms that
    affect validity, and performance terms that lead only to damages. It is not
    clear to me that this approach will always produce the right outcome, although
    it did on the facts of this case. Sometimes actual performance will be of
    overriding importance and the availability of a damages claim for a performance
    breach would be very cold comfort. An exiting party has no control over the
    business after departure, and recent times provide examples of even very large
    businesses disappearing quickly, along with their ability to pay damages. That
    is not an issue in this case, however, since the appellants seek damages.

[63]

The motion judge fully
    and carefully considered the evidentiary record, and boiled down the evidence. At
    the end of that exhaustive exercise the motion judge found only three damage
    claims that warranted a trial. I agree with the motion judge that the elements
    of non-compliance were, in this particular factual context, commercially
    insignificant, and can be fully and fairly remedied by damages.

[64]

In my opinion,
    the buy-sell offer is sufficiently compliant with the shotgun buy-sell
    provision in the PA to meet the strict compliance standard. As I have said,
    strict compliance is not perfect compliance. Neither the law, nor the
    requirements of commercial certainty in this area, requires perfect compliance.

[65]

In summary,

·

To be enforceable, a shotgun buy-sell offer must comply strictly
    with the shotgun buy-sell provision in the authorizing agreement (above, at para.
    42).

·

Strict compliance is not perfect compliance (above, at para. 46).

·

In deciding whether a shotgun
    buy-sell offer meets the strict compliance test, the commercially reasonable
    expectations of the parties in the factual context must be considered. Much
    will depend on the language of the authorizing agreement and the shotgun
    buy-sell provision (above, at para. 47)
.

·

The inclusion of an alternative in a shotgun buy-sell offer that
    does not comply strictly with the shotgun buy-sell provision in the authorizing
    agreement does not affect the enforceability of the buy-sell offer, provided
    that a compliant alternative is also included (above, at para. 49).

·

The court will not enforce the alternative that is not strictly
    compliant with a shotgun buy-sell provision. It will enforce the compliant
    alternative shotgun buy-sell offer (above, at paras. 52, 58).

·

The court will find compliance to be sufficiently strict, and
    will enforce a shotgun buy-sell offer containing elements of non-compliance
    that are, in the particular factual context, commercially insignificant, and
    which can be fully and fairly remedied by damages (above, at paras. 63-64).

3.       Did the motion judge err in setting the measure of
    damages for     breaches of the shotgun buy-sell provision?

[66]

As noted, the
    valuation used by the respondents on which the buy-sell offer was based, was
    $258,871,780.00. The appellants most significant financial complaint is that the
    value selected by the respondents was not the fair market value of the
    Partnership, and they argue that it should have been.

[67]

Did the motion
    judge err in setting the measure of damages on the basis that the parties are
    bound by Alternative 2? Or, as the appellants contend, should it be on another
    basis altogether?

[68]

The motion judge made
    an apposite comment in dismissing the appellants oppression claim, at para.
    257, that, in my opinion, applies to the measure of damages:

[T]here was no reasonable basis for an expectation by the
    plaintiffs that they would be bought out only at "fair value". They
    had agreed to a shotgun buy-sell mechanism which permitted the making of an
    offer to them at "a value", and entitled them to reverse the offer at
    that value. Those contractual provisions bench-marked the reasonable
    expectations of all partners with respect to the value which they reasonably
    could expect when delivered a buy-sell offer.

[69]

The motion judge found,
    at para. 145, that there was no requirement in the PA for the valuation in the
    buy-sell offer to be at fair market value, and that the Offer complied with
    the specification of value requirements contained in section 6.2(a) of the
    Agreement. He did so on the basis that self-interest is the essence of the
    internal discipline of a shotgun buy-sell provision.

[70]

As Cumming J. explained,
    at para. 30 of his decision refusing the appellants injunction motion:

In my view of the Partnership Agreement, the Buy-Sell
    provisions serve to function in the manner of a classic so-called
    "shotgun" provision. Fairness is assured by the reciprocal Sell Offer
    mirroring the Buy Offer. The self-interest of the Offering Defendants tends to
    guarantee a price that reflects a market value. The Offeror Defendants know
    that they may be bought out at the same price they offer for the Offeree
    Plaintiffs' shares. The price offered by the Offeror Defendants is thus
    self-regulated. The specified valuation for the Alpa Partnership of
    $258,871,780 set forth in the Buy-Sell Offer has no grounding in terms of a
    so-called "fair market value" somehow determined by an objective
    formula.

[71]

Blair J.A made
    the pithy observation in
Aronowicz v. Emtwo Properties
Inc., 2010 ONCA 96,
    98 O.R. (3d) 641, at para. 50, that:

A shotgun buy/sell provision is the quintessential corporate
    mechanism for the exercise of shareholder self-interest. Carefully drafted, it
    provides a delicate balance for the preservation of the parties' individual rights
    by ensuring that the pulling of the trigger generates the best and highest
    price in exchange for the involuntary termination of the shareholders'
    relationship.

[72]

Mr. MacIver would
    have been happy to buy out the rest of the partnership at the specified value
    in the buy-sell offer, but he was not so happy to sell at that price.  His
    conduct in first seeking to complete the agreement does not form the basis of
    any estoppel, but it does show how a shotgun buy-sell provision operates in the
    real world.

[73]

It is trite law that
    for breach of contract, the normal measure of damages [is] based on the
    value of the promised performance: S.M. Waddams,
The Law of Contracts
,
    6th ed. (Aurora: Canada Law Book Inc., 2010) at p. 548. See also
Gottlieb
    v. Adam
(1994), 21 O.R. (3d) 248 (Gen. Div.); [1994] O.J. No. 2636, at
    para. 33, Spence J.

[74]

The context for
    the application of this principle in this case was captured by the motion judges
    trenchant observation, at para. 257, that the shotgun buy-sell provision in the
    PA bench-marked the reasonable expectations of all partners with respect to
    the value which they reasonably could expect when delivered a buy-sell offer.

[75]

If the appellants
    had succeeded in their injunction application, then it is fair to assume that
    the respondents would immediately have issued a new, fully compliant offer.
    That offer might well have been at a lower value than the first offer because
    the respondents would have learned of the appellants vulnerability from their
    inability to raise the funds to reverse the first offer.

[76]

The appellants
    appear to take the view that a declaration that the buy-sell offer was invalid
    would leave the court free to adopt a measure of damages based on the partnerships
    fair market value. It is difficult to see how that result could be reached,
    when it was never contemplated by the PA.

[77]

The commercially
    reasonable outcome of such a declaration would ordinarily be to permit the
    parties to begin again, consistent with their agreement, with the distinct
    possibility that someone might be worse off.

[78]

In my opinion,
    the motion judge did not err in fixing the applicable measure of damages as the
    appellants full compliance with Alternative 2. This measure reflects the
    commercially reasonable expectations of these parties in the context of a
    triggered shotgun buy-sell offer under their PA.

Disposition

[79]

For these
    reasons, I would dismiss the appeal with costs to the respondents in the agreed
    amount of $20,000, all-inclusive.

Released: 
    November 29, 2013 EEG

P.
    Lauwers J.A.

I
    agree E.E. Gillese J.A.

I
    agree M. Tulloch J.A.


