


COURT OF APPEAL FOR ONTARIO

CITATION:

Bank of
    Montreal v. Barber Glass Industries Inc.,
2012 ONCA 630

DATE: 20120925

DOCKET: C55056

Winkler C.J.O., LaForme J.A. and Cunningham
    A.C.J.S.C.J. (
ad hoc
)

BETWEEN

Bank of Montreal

Applicant

and

Barber Glass Industries Inc.

Respondent

Jack B. Berkow and Scott A. Crocco, for the appellant, Danbury
    Industrial et al.

Harvey Chaiton and Maya Poliak, for the respondent, Grant
    Thornton Limited

Steven L. Graff, for the respondent, Bank of Montreal

Sam P. Rappos, for the respondent, Roynat Inc.

Heard: September 10, 2012

On appeal from the order of Justice James M. Spence of
    the Superior Court of Justice, dated February 6, 2012.

ENDORSEMENT

Introduction

[1]

The respondent, Grant Thornton Limited (the court appointed Receiver)
    brought a motion for directions on the question of whether the appellant,
    Danbury Industrial et al. (the Auctioneer) was entitled to a Buyers
    Premium in connection with the sale of assets of the debtor, Barber Glass
    Industries Inc. (the Debtor) pursuant to a court-approved Auction Service
    Agreement (the ASA).  The motion judge ordered that the Auctioneer was: (i)
    entitled to a 12% buyers premium on the sale of certain assets to ToughGlaze
    (UK) Ltd.; but (ii) not entitled to a buyers premium on the sale of assets to
    1762423 Ontario Inc. (the Purchaser).  This second decision is the subject of
    this appeal.

Brief background

[2]

Prior to a public auction, the Auctioneer
entered
    into an Offer to Purchase (the Offer) with the Purchaser, wherein the Purchaser
    agreed to a private purchase of substantially all of the Debtors assets for
    $8.5 million.  The Offer did not refer to a Buyers Premium.  However, a Bill
    of Sale was also executed, and was later amended to include a handwritten
    amendment stating that the purchase price was inclusive of the Buyers
    Premium.

[3]

After the Offer had closed, the Auctioneer provided the Receiver with a
    proposed distribution of the purchase price and claimed a Buyers Premium.  The
    Receiver refused to pay any premium and the Auctioneer commenced legal
    proceedings.

[4]

Under clause 2.5(1)(f) of the ASA, the Auctioneer was entitled to
    receive a share of the buyers premium of the sale of the assets (the Buyers
    Premium).   Clause 1.1(12) defined the Buyers Premium as:

the fee charged to purchasers by the [Auctioneer] upon sale of
    the [a]ssets  which in no event shall be less than twelve (12%) per cent of
    the purchase price.

Reasons of the motion judge

[5]

The motion judge acknowledged that the ASA entitles the Auctioneer to a
    Buyers Premium from the proceeds of the sale of the assets and that the terms
    of the auction stated a 12% Buyers Premium would apply.  However, he concluded
    that the Auctioneer was not entitled to a Buyers Premium in connection with
    the Purchaser transaction for several reasons.

[6]

First, the motion judge found that the Offer did not contain a provision
    for the Auctioneer to charge a Buyers Premium for the purchases.  He noted
    that the Offer has an entire agreement clause that states that the Offer
    supersedes all prior agreements and understandings and that there are no such
    agreements or understandings.  He noted also that the Offer requires all
    amendments and modifications be in writing and signed by the parties. 
    Accordingly, he held that the Offer represents the entire agreement of the
    parties, which contains no provision for a Buyers Premium and, therefore, the
    Auctioneer is not entitled to one.

[7]

Second, the motion judge observed that the Bill of Sale also did not
    refer to a Buyers Premium.  Although it was revised later, he concluded that
    this was not evidence that a Buyers Premium was in fact charged upon the sale
    of the assets for the purposes of the ASA.  He held that, for the ASA to apply,
    the Buyers Premium would have had to be charged at the time of the transaction.

[8]

Third, the motion judge held that the purchase was completed in
    accordance with the terms of the Offer, not the auction.

[9]

Finally, the motion judge held that there was conflicting evidence as to
    whether the Auctioneer told the Purchaser that the Buyers Premium would be
    included in the purchase price at the time the Offer was entered into and
    closed.  He went on to hold that in view of the entire agreement clause in the
    Offer, it is not necessary to address the matter.

Analysis

[10]

The Auctioneer on appeal agrees that the motion
    judge correctly identified the issue for determination as being whether a
    Buyer's Premium is payable to the Auctioneer under the ASA
.
However, it submits that he was in
error in
    his analysis and conclusions.  We agree.

[11]

In our view, the motion judge erred in his conclusion that the
    12% Buyers Premium did not apply in this case.  The Buyers Premium was an
    unqualified entitlement pursuant to the ASA between the Auctioneer and the
    Receiver.  In other words, the Buyers Premium, pursuant to clause 2.5 of the
    ASA was mandatory.  All references to the Buyers Premium in the ASA leave
    little doubt that it was in any way negotiable.

[12]

The
    motion judge placed too much emphasis on the provisions of the Offer between
    the Auctioneer and the Purchaser, such that it completely obscured the
    mandatory obligations between the Auctioneer and the Receiver under the ASA. 
    More consideration ought to have been given to the true intent of the
    respective parties and their obligations under each of these agreements.

[13]

Here,
    the Receiver clearly was aware of the Buyers Premium from the ASA.  The
    auction catalogue set out the 12% buyers premium was annexed as a schedule to
    the Offer making the Purchaser aware of it.  Thus, the Auctioneers entitlement
    to a Buyers Premium was a matter that was known to all the parties.  Indeed,
    the Receiver in oral argument in this court, fairly and appropriately admitted
    that if it had been written into the Offer, it would have been obliged to pay
    it.

[14]

Furthermore,
    the revised Bill of Sale between the Auctioneer and the Purchaser is a
    component of the Offer, and it documents the parties agreement that the
    purchase price included the Buyers Premium.  The motion judge unduly expanded
    the scope of the entire agreement clause in the Offer, thereby preventing any
    further amendments from having any meaning.

[15]

Notably,
    the motion judge permitted a Buyers Premium in the private sale to ToughGlaze
    for $650,000 even though the purchase agreement did not expressly reference
    one.  Like here, it was revised later in the Bill of Sale to reflect that the
    purchase price included the premium.  The difference, according to the motion
    judge, was that in this case there was the entire agreement clause.  As we have
    explained, this difference incorrectly ignores the mandatory commitment under
    the ASA.

[16]

Negotiated commercial documents
    are to be interpreted 
so as to accord with sound commercial principles
    and good business sense and avoid commercial absurdity
:
Salah v. Timothy's Coffees of the World Inc
., 2010 ONCA 673, para. 16
.
In this case, it would be commercially absurd for the Receiver to pay a Buyers
    Premium on a successful $6.5 million bid at auction, but not on a private sale
    which involved $8.5 million.  But for the mistake of not including a Buyers
    Premium entitlement in the Offer, the Auctioneer expected to receive one and
    the Receiver was obliged to pay one.

[17]

We
    take note of the fact that if the Purchaser had paid the amount the assets sold
    for at auction; it would have been obligated to pay approximately $6.5
    million.  Pursuant to the Offer, however, the Purchaser paid $8.5 million less
    a credit for the excluded assets.  This resulted in a net price well above what
    it would have paid based on the prices bid at auction plus a 12% Buyers
    Premium.

[18]

The
    Auctioneers award of a Buyers Premium does not produce an unfair result,
    whereas denying one does.  That is, denying one ignores the impressive results
    achieved by the Auctioneer, the clear intention of the parties under clause 2.5
    of the ASA and its compulsory application, and results in a $700,000 windfall
    to the Receiver.

[19]

For these reasons, the appeal is allowed.  The Auctioneer is
    entitled to a 12% Buyers Premium in the sum of $700,890 payable forthwith. 
    Costs are awarded to the Auctioneer in the amount of $10,000, inclusive of
    disbursements and applicable taxes.

Warren
    Winkler C.J.O.

H.S.
    LaForme J.A.

J.D. Cunningham A.C.J.
S.C.J.


