



COURT OF APPEAL FOR ONTARIO

CITATION: McGinn v. Evanshen, 2017 ONCA 431

DATE: 20170530

DOCKET: C62778

Strathy C.J.O., Cronk and Pepall JJ.A.

BETWEEN

Angelica McGinn

Plaintiff (Appellant)

and

Richard Evanshen, Evanshen Holdings Inc.
and Indwisco Limited

Defendants (Respondents)

Mark Gelowitz and Larry Franschman, for the appellant

Bobby Sachdeva, for the respondents

Heard: May 12, 2017

On appeal from the order of Justice Freya Kristjanson of
    the Superior Court of Justice, dated September 6, 2016.

REASONS FOR DECISION

[1]

This is an appeal to which the principles in
Sattva
apply:
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC
    53, [2014] 2 S.C.R. 633
.
The sole issue is whether the
    appellant has identified an extricable error of law in the motion judges
    interpretation of the shareholders agreement at issue or a palpable and
    overriding error in her assessment of the evidence. In our view, for the reasons
    that follow, no such error has been established. The motion judges
    interpretation of the agreement is entitled to deference.

A.

Background

[2]

Indwisco Limited was founded in 1973 by Peter
    McGinn (Peter) and Alex Garvin (Al). It is a successful manufacturing
    business. The respondent, Richard Evanshen, was hired in 1983 and eventually
    became Vice President and General Manager and a key employee, running the
    business for some 23 years.

[3]

Initially, Peter and Al each owned, either
    directly or through holding companies, 50% of the shares of Indwisco. In 1994,
    Peter, Al and the respondent entered into a shareholders agreement. The
    agreement gave Peter and Al the right to purchase the others shares in the
    event the other wished to sell, became incapable or died. If the other
    shareholder did not wish to purchase the shares, the respondent was given the
    right to do so.

[4]

A new shareholders agreement, the one at issue,
    was executed in 2000 (the Agreement). There was evidence before the motion
    judge concerning the circumstances that gave rise to it.

[5]

The respondent had become increasingly important
    to the success of the business. In recognition of this, at the time the
    Agreement was signed, he acquired 10% of the shares of Indwisco through an employee
    stock option agreement. The Agreement gives him the right to acquire additional
    shares in various specified circumstances.

[6]

As well, Peter had been diagnosed with a
    terminal illness. It was agreed that he could transfer his shares to himself
    and his wife, the appellant Angelica McGinn, jointly, with right of
    survivorship. There was evidence before the motion judge, which she accepted,
    that this was done to avoid taxes or probate fees on Peters death. The
    Agreement contains a provision limiting the appellants rights in relation to
    these shares.

[7]

As events transpired, Peter, whose death was
    anticipated when the Agreement was signed, lived until 2016. But Al, whose
    death had not been anticipated, died in 2012. At that time, the respondent
    exercised his right under the Agreement to acquire a portion of Als shares to
    increase his shareholdings to 50% and Peter and the appellant purchased the
    balance of Als shares. The result was that the respondent, on the one hand,
    and Peter and the appellant, on the other, were 50/50 shareholders. That
    remained the case until Peters death in 2016.

[8]

Prior to Peters death, the respondent advanced
    his interpretation of the Agreement that on Peters death, he is entitled to
    purchase the shares held jointly by Peter and the appellant. Peter and the
    appellant took a contrary position and brought this application, seeking a
    declaration that the respondent has no right to purchase the shares on Peters
    death. Peter died shortly before the hearing of the application.

B.

The Motion Judges Reasons

[9]

The motion judge resolved the issue in the
    respondents favour, after considering the terms of the Agreement in light of
    the factual matrix in which it was executed.

[10]

She rejected the appellants submission that her
    ownership of the jointly-held shares, by right of survivorship, gives her
    independent status as a shareholder and that the respondent is not entitled to
    purchase those shares on Peters death.

[11]

Article 2.7, entitled Application to Jointly
    Hold [
sic
] Shares, provides as follows:

The parties acknowledge and agree that Peter
    and Angelica jointly (with right of survivorship) hold the Shares previously
    owned by Peter. For all purposes of this Agreement, such Shares shall be
    considered as owned by Peter. For example, Peter alone shall vote such Shares.
    Further, in a transaction of purchase and sale of Shares herein where Peter is
    a vendor of Shares, Angelica must sell the same number of Shares. The same
    would apply to a purchase of Shares by Peter.

[12]

The motion judge accepted the evidence that
    Article 2.7 was added on the advice of Peters accountant for tax or estate-planning
    purposes, particularly to avoid probate fees. Neither Al nor the respondent was
    given a similar right to hold their shares jointly with their spouses.

[13]

The motion judge found that the Agreement
    contemplates that the shares held by the appellant and Peter were to be treated
    as being owned by Peter and could be purchased by one or both of the other two
    shareholders on his death.

[14]

The motion judge also rejected the appellants
    submission that the respondent is not entitled to acquire more than 50% of the
    shares without the consent of the other shareholders. Before this court, the
    appellant does not challenge this conclusion.

C.

The appellants submissions

[15]

The appellant makes three submissions. First, she
    submits that the motion judge failed to recognize that the Agreement contained
    protection for the founders (Al and Peter) and that the respondent is not
    entitled to acquire the founders shares held by the appellant.

[16]

Second, she submits that the motion judge erred
    in finding that the respondent is the only surviving shareholder. Instead, the
    motion judge should have recognized that the appellant is a shareholder of the
    jointly-held shares pursuant to her right of survivorship.

[17]

Third, she submits that the motion judge erred
    in her interpretation of the option clause of the Agreement.

D.

Discussion

[18]

We begin with the first submission. There is
    nothing in the factual matrix to suggest that the concepts of founder or
    founders shares played a role in the formation of the Agreement. Nor do
    those terms appear in the Agreement. The appellant did not express the argument
    in this way before the motion judge.

[19]

The Agreement does contain terms to ensure that
    Al and Peter could preserve their relative positions in the ownership of
    Indwisco through the exercise of options in various circumstances (for example,
    as a result of another shareholder dying or wishing to sell his shares).
    However, there is nothing to prevent the respondent from increasing his
    shareholdings if the other two are unwilling or unable to exercise their
    options. Nor is there anything that would enable the estate of a founder to
    refuse to sell the founders shares where another shareholder is entitled to
    exercise an option to purchase them. Indeed, the appellant admits that if Peter
    had died first, his estate would have had no right to retain his shares. We see
    no reasonable way of interpreting the Agreement so as to find that on Peters
    death his estate can refuse to permit the respondent to exercise his option to
    purchase because the shares were founders shares.

[20]

What was addressed in the court below, and what
    informed the motion judges interpretation of the Agreement, was the factual
    matrix in which the Agreement was executed. This included the reason for giving
    the appellant a right of survivorship in relation to the jointly-held shares 
    namely, and solely, the avoidance of probate fees and taxes. This explains why
    the Agreement also provides that those shares would nevertheless be treated as
    Peters [f]or all purposes  there was no intention to affect the other
    provisions of the Agreement.

[21]

This also answers the appellants second submission.
    Although the appellant had title to the shares by virtue of survivorship, they are
    to be treated as Peters shares and are subject to the option to purchase of
    the other shareholder(s) on Peters death.

[22]

In our view, the motion judges interpretation is
    reasonable. One provision in the Agreement, made solely to address Peters tax and
    estate-planning wishes, does not alter the meaning of other provisions of the Agreement,
    which do not contemplate that the estates or spouses of any of the three shareholders
    could refuse to sell the deceaseds shares to a surviving shareholder who
    wished to purchase them. Requiring the appellant to sell the shares on Peters
    death is consistent with treating the shares as being Peters [f]or all
    purposes, within the meaning of Article 2.7.

[23]

We turn to the appellants third submission. At
    the time the Agreement was signed, the parties did not foresee that Al might
    predecease Peter. But the Agreement was not amended after Als death and the
    motion judge was faced with its interpretation where the respondent was the
    only surviving shareholder. While limiting the respondent to 50% of the shares
    without the acquiescence of the other shareholder makes sense when there was at
    least one other shareholder, it makes no sense when the respondent was the only
    survivor.

[24]

The appellant argues that the motion judge erred
    in the interpretation of Article 10.1, which appears in the Agreement under the
    heading Death of a Shareholder. That provision states:

Upon the death of a Shareholder (hereinafter
    called the Deceased Party) the surviving Shareholders (the Survivors) shall
    have thirty (30) days (the Notice Period) within which to notify the other
    parties hereto of the exercise of an option to acquire Shares owned by the
    Deceased Party.

[25]

Article 10.6 provides that if the surviving
    shareholders do not elect to purchase all the shares of the Deceased Party, the
    estate of the Deceased Party can either retain the shares or require that they
    be sold to a third party.

[26]

The motion judge found that Article 10.1 gives
    the respondent the right to exercise an option to acquire Peters shares. Only
    if the other shareholders did not acquire the shares can Peters estate retain
    them.

[27]

The appellant submits that the motion judges
    conclusion that Article 10.1 is a stand-alone option is an extricable error of
    law or a palpable and overriding error that permeates the motion judges
    interpretation of Article 10. She submits that Article 10.1 simply introduces
    the options that follow, but is not itself an option. She submits, in any event,
    that Article 10.1 only applies when there are surviving Shareholder
s
 (plural) and not when there is a sole surviving
    shareholder.

[28]

We disagree. The Agreement contains a standard
    provision (Article 17.6) that the singular includes the plural and vice versa.
    Thus, Article 10.1 can be interpreted to mean that when there is only one
    surviving shareholder, that person has the right to purchase all the shares
    held by the deceased shareholder. The other provisions of Article 10 can
    reasonably be interpreted to put limits on the respondents right to acquire
    more than 50% of the shares when there is a second surviving shareholder, but
    not when the respondent is the sole survivor.

[29]

Article 10.6 reinforces the conclusion that a
    sole surviving shareholder is entitled to purchase the shares held by the
    deceased shareholder (whether a founder or not) and that only if the option
    is not exercised can the estate retain the shares or sell them to a third
    party.

[30]

The motion judges responsibility was to apply
    the principles of contractual interpretation to the language of the Agreement
    in light of the factual matrix in which it was executed. In so doing, the
    motion judge was required to give meaning and, if possible, harmony, to all the
    terms of the contract. In our view, the motion judge fulfilled her
    responsibilities and her interpretation was reasonable  the respondent is
    entitled to compel the estate of the deceased shareholder to sell the shares to
    him, at a price to be determined as provided in the Agreement. The appellant
    has not discharged the heavy burden of establishing either an extricable error
    of law in the interpretation of the Agreement, or a palpable and overriding
    error in the motion judges assessment of the evidence of the factual matrix.

[31]

In the circumstances, it is unnecessary to
    consider the alternative question of the respondents rights on the appellants
    death.

[32]

For these reasons, the appeal is dismissed.
    Costs to the respondent in the amount of $15,000, inclusive of disbursements
    and all applicable taxes.

G.R. Strathy C.J.O.

E.A. Cronk J.A.

S.E. Pepall J.A.


