



COURT OF APPEAL FOR ONTARIO

CITATION: Packall Packaging Inc. v. Ciszewski, 2016 ONCA 6

DATE: 20160106

DOCKET: C60652

Doherty, Brown and Miller JJ.A.

BETWEEN

Packall Packaging Inc., Packall Consultants
    (1981) Limited, 967915 Ontario Limited and Henry Ciszewski, personally and in
    his capacity as Trustee of the Ciszewski Family Trust

Plaintiffs (Respondents)

and

Anita Ciszewski, personally and in her capacity
    as Trustee of the Ciszewski Family Trust and 2300078 Ontario Limited

Defendants (Appellants)

AND BETWEEN

Anita Ciszewski, personally and in her capacity
    as Trustee of the Ciszewski Family Trust and 2300078 Ontario Limited

Plaintiffs by Counterclaim

(Appellants)

and

Packall Packaging Inc., Packall Consultants
    (1981) Limited, 967915 Ontario Limited, Henry Ciszewski, personally and in his
    capacity as Trustee of the Ciszewski Family Trust, 835474 Ontario Limited,
    James F. Billett, in his personal capacity and in his capacity as Trustee of the
    Ciszewski Family Trust, Stephan Ciszewski and Frank Del Duca

Defendants to Counterclaim

(Respondents)

Peter W.G. Carey, for the appellants

Geoffrey D.E. Adair, Q.C., for the respondents

Heard: December 17, 2015

On appeal from the judgment of Justice Laurence A.
    Pattillo of the Superior Court of Justice, dated June 9, 2015, with reasons
    reported at 2015 ONSC 2837.

Brown J.A.:

OVERVIEW

[1]

The appellants, Anita Ciszewski and her personal holding company,
    2300078 Ontario Limited (Anita Co.), appeal from the judgment of Pattillo J.
    dated June 9, 2015. The appellants submit that the motion judge erred in
    granting a permanent injunction restraining Anita from selling or marketing her
    shares in Anita Co. without the consent of her husband, Henry Ciszewski, and in
    dismissing their motion for certain corporate governance relief in respect of
    the respondents, Packall Consultants (1981) Limited, 967915 Ontario Limited and
    835474 Ontario Limited (which, together with Packall Packaging Inc. (PPI),
    are referred to as the Packall Group of Companies).

[2]

Henry founded and operates PPI, a manufacturer of flexible food
    packaging. Ownership of PPI is split between Henry and Anita through a complex
    structure of holding companies and a family trust. In Anitas case, she holds
    her interests in PPI through two chains of ownership. Under one ownership
    chain, Anita Co. holds shares in 967915 which, through Packall Consultants,
    holds shares in PPI. Under the other ownership chain, The Ciszewski Family Trust
    (the Family Trust)  of which Anita is one of three trustees and the
    residuary beneficiary  owns shares in PPI directly and indirectly through
    835474 and Packall Consultants. Henry has effective voting control of PPI.

[3]

Henry and Anita were divorced in June 2010, and entered into a written
    separation agreement on September 22, 2011 (the Separation Agreement). Both
    parties were represented by counsel during the negotiation of the Separation
    Agreement.

[4]

The Separation Agreement provides for the financial support of Anita in
    several ways. First, shortly after the execution of the Separation Agreement,
    Anita received two lump-sum payments, one paid by Henry in cash and one funded
    by a dividend declared by PPI. Thereafter, during the joint lives of Henry and
    Anita, Anita is to receive a dividend of $575,000 in each fiscal year of PPI
    upon that company declaring a dividend on its common shares (s. 4.3). The
    Separation Agreement specifies how the dividend income is to flow from PPI to
    Anita through the intermediary holding companies and trust. If PPI does not
    declare a dividend or does not declare a divided sufficient to make the annual
    payment, Henry must make the payment to Anita or top-up the dividend to reach
    the required amount of annual support (ss. 4.6 and 4.7).

[5]

In the event Henry predeceases Anita, s. 4.12 of the Separation
    Agreement provides that financial provision for Anita shall be made for her by
    PPI in lieu of any such provision being made by Henrys estate in accordance
    with an agreement entered into concurrently by PPI and Anita. The latter
    agreement was attached as Schedule C to the Separation Agreement.

[6]

Shortly before the execution of the Separation Agreement, Anitas
    counsel requested the inclusion of what became s. 4.14 for tax and estates
    reasons. The motion judge summarized the substance of that article at para. 15
    of his reasons:

Article 4.14 of the Separation Agreement provides that either
    Henry or Anita may reorganize the way in which they hold the shares by
    transferring all or part of them to a holding company controlled by each of
    them respectively, provided (a) completion of the transaction does not cause
    adverse tax consequences to the opposite party and (b) the holding company and
    not the individual will be the recipient of the dividend payments and will be
    deemed to be party to the Schedule C Agreement.

[7]

Almost a year after the parties signed the Separation Agreement, Anita
    sought to open discussions with Henry about creating a succession plan covering
    potential tax liabilities in the event of the sale or deemed disposition of
    their shares in 967915. No agreement was reached. Anita then threatened to sell
    her shares in 967915 and, in early 2014, began to solicit interest from third
    parties  including competitors of PPI  to acquire the shares of her personal
    holding company, Anita Co., which held her interest in 967915.

[8]

Henry thereupon moved to restrain Anita from selling or offering for
    sale her shares of 967915 or her holding company, Anita Co., without his consent.
    Anita brought a cross-motion seeking summary judgment dismissing Henrys claim
    and partial summary judgment seeking a variety of relief regarding the
    corporate governance of the Packall Group of Companies, an accounting by Henry
    of all monies received by him from the Packall Group of Companies since June 1,
    2005, and a declaration that she was free to sell her shares in Anita Co.

[9]

The motion judge granted the order sought by Henry restraining Anita
    from selling her shares in Anita Co. in the absence of Henrys consent, and he
    granted some of the corporate governance relief sought by Anita. However, the
    motion judge did not grant the orders sought by Anita that the Packall Group of
    Companies deliver audited financial statements (except for PPI, which already
    produced audited financial statements) or that Henry provide a complete
    accounting of all monies received by him from the Packall Group of Companies
    since June 1, 2005. Anita appeals the grant of the restraining order and the
    dismissal of her claim for audited financial statements and an accounting.

Motion for fresh evidence

[10]

The
    appellants moved for leave to file fresh evidence consisting of the financial
    statements of the Packall Group of Companies delivered by the respondents
    pursuant to the judgment several weeks before the hearing of the appeal. The
    appellants submit that the fresh evidence satisfies the test for admission set
    out in
Palmer v. The Queen
, [1980] 1 S.C.R. 759 and
Sengmueller v.
    Sengmueller
(1994), 17 O.R. (3d) 208 (C.A.), because it is relevant to
    whether the motion judge erred in failing to order the production of audited
    financial statements under s. 148 of the
Business Corporations Act
,
    R.S.O. 1990, c. B.16 (the 
OBCA
). In my view, the recently-produced
    financial statements do not assist in determining the issue on this appeal
    which is whether, as a matter of law, the motion judge possessed any discretion
    to exempt the Packall Group of Companies from their financial statement
    obligations under the
OBCA
. Accordingly, I would dismiss the motion
    for leave to file fresh evidence.

First Ground of Appeal: Did the motion judge err in implying a
    term in the Separation Agreement?

[11]

Anita
    Co. holds Anitas shares in 967915, which holds an indirect interest in the
    operating company, PPI. There is no dispute that the articles of incorporation
    of 967915 restrain a shareholder from transferring his or her shares in that
    company without the approval of the Board of Directors or the consent of the
    shareholders holding 75% of the voting shares. There is also no dispute that
    the motion judge correctly held that s. 4.14 of the Separation Agreement 
    which permitted Anita to place her shares in 967915 into her personal holding
    company  does not restrict the ability of Anita to dispose of her shares in
    Anita Co.

[12]

The
    appellants submit, however, that the motion judge erred in concluding that
    there was an implied term in the Separation Agreement which prevented either
    Henry or Anita from disposing of their shares in their respective holding
    companies without the consent of the other.

[13]

The
    appellants acknowledge that the motion judge, at para. 36 of his reasons,
    accurately stated the law concerning the circumstances in which a court may
    imply a term in a contract. One such circumstance is based on the presumed intention
    of the parties where the implied term must be necessary to give business
    efficacy to a contract or as otherwise meeting the officious bystander test
    as a term which the parties would say, if questioned, that they had obviously
    assumed:
Rankin Construction Inc. v. Ontario
, 2014 ONCA 636, 376
    D.L.R. (4th) 697, at para. 29. The appellants submit that the motion judge
    erred in applying that principle of law in two ways. First, he erred in finding
    that the implication of a term was necessary to give business efficacy to the
    Separation Agreement. Second, he erred in failing to find that the express
    terms of the Separation Agreement prevented the finding of an implied term.

[14]

I
    am not persuaded by either submission.

Business efficacy

[15]

The
    key findings made by the motion judge about the presumed intentions of the
    parties regarding the Separation Agreement are found in paras. 39, 40, 43 and
    45 of his reasons where he stated:

[
39
]    The Separation Agreement by its terms
    settles all issues between Henry and Anita arising from their marriage and
    divorce (Article 1.5). In particular, it provides for Anitas annual financial
    support through the payment of dividends from the Packall Group of Companies,
    primarily through 967915. As a result, it is clear in my view that in agreeing
    to such a provision, Anitas intention at the time she entered into the
    Separation Agreement was that she would not sell her shares in 967915 whether
    she owned those shares directly or through a holding company without Henrys
    consent as a director and shareholder of 967915 given that Henry would be
    personally liable to her in the event she did not receive the dividends.

[
40
]    Similarly, in order to ensure that
    Henry and the Packall Group of Companies met their obligations under the
    Separation Agreement, Henry would have to retain control of the Packall Group
    of Companies. Accordingly, it is clear that Henry too intended that he would
    not sell his shares in 967915 except to a holding company as agreed without
    Anitas consent.



[43]    In the absence of such an implied term, Anita would be
    free to sell her shares in Anita Co., which would result in her no longer being
    able to receive dividends from 967915, which are the primary means of her
    ongoing support. Such action clearly defeats the main purpose of the Separation
    Agreement which is to provide for the ongoing annual financial support for
    Anita. Further, if Anita Co.s shares in 967915 were sold, Anita would cease
    receiving the dividends. Anita could then argue that Henry was liable for such
    payments pursuant to the Separation Agreement. That is not what the Separation
    Agreement intended.



[
45
]    I am also satisfied that the
    officious bystander test is satisfied in respect of the implied term being
    sought. I am satisfied, given the circumstances and the provisions of the
    Separation Agreement, that if asked at the time the Separation Agreement was
    entered into, both Anita and Henry would have said at that any disposal of
    their shares in 967915, either directly or through a holding company, can only
    be done with the consent of the other party.

[16]

Not
    only were those conclusions open to the motion judge to make on the record
    before him, but I agree with them. The Separation Agreement clearly expressed
    the parties intentions that Henrys support obligations to Anita would be
    funded by dividends originating with the operating company, PPI. Only in the
    event that PPI was unable to declare such dividends would Henry bear personal
    responsibility for the support obligations. To give effect to that intention of
    the parties, Anita needs to remain a shareholder of her holding company to
    which PPI dividends flow through 967915.

[17]

The
    motion judge also found that an implied term preventing Henry or Anita from
    disposing of the shares of any holding company having their shares in 967915 in
    the absence of the others consent was necessary to give business efficacy to
    the Schedule C Agreement to the Separation Agreement. The Schedule C
    Agreement concerns the 14 common shares of PPI held by the Family Trust (the
    Trust PPI Shares) which, upon Henrys death, are to be conveyed to Anita. The
    Schedule C Agreement requires PPI to purchase a percentage of the Trust PPI
    Shares conveyed to Anita for cancellation each year based on a stipulated
    formula. At para. 44 of his reasons, the motion judge stated:

As noted, the Schedule C Agreement provides for financial
    provision for Anita in the event that Henry predeceases her through the
    mechanism of Packall Packaging repurchasing Anitas shares. The purpose of the
    Schedule C Agreement, as noted in Article 4.12 of the Separation Agreement,
    is to both provide financial provision for Anita and remove any obligation in
    that regard from Henrys estate.
By selling her shares in Anita Co., who is
    deemed by Article 4.14(b) of the Separation Agreement to be a party to the
    Schedule C Agreement, Anita defeats the purpose of the Schedule C Agreement
    as she will no longer be entitled to any financial provision from Packall
    Packaging
. [Emphasis added.]

[18]

The
    appellants submit the motion judge fundamentally misunderstood the meaning of
    the Schedule C Agreement in reaching that conclusion because it could be
    implemented whether or not Anita Co. sold its shares in 967915.

[19]

I
    accept that the motion judge was mistaken in concluding that a sale by Anita of
    her shares in Anita Co. would defeat the purpose of the Schedule C Agreement.
    Anita Co. has an indirect interest in 84 common shares of PPI through 967915. It
    is difficult to see how Anitas sale of her shares in Anita Co. could affect
    the operation of the Schedule C Agreement because Anita Co. has no interest
    in the Trust PPI Shares which pass to Anita on Henrys death. However, in my
    view that mistake by the motion judge has no effect on his conclusion that an
    implied term preventing Anita from selling her shares in Anita Co. without
    Henrys consent was necessary to give business efficacy to the Separation
    Agreement. Anitas continued ownership of Anita Co., while Henry lives, gives
    effect to the parties bargain that support payments to Anita will be funded by
    dividends declared by PPI. That bargain necessitates implying the term that
    prevents Anita from selling her shares in Anita Co. without Henrys consent, as
    the motion judge found.

Whether the terms of the Separation Agreement preclude an
    implied term

[20]

The
    appellants submit that three terms of the Separation Agreement prevented the
    motion judge from implying a term restricting Anita from selling her shares in
    Anita Co. without Henrys consent. Section 1.6 states: This Agreement replaces
    all oral or written agreements made between the parties. Section 5.2 states:

Anita and Henry do not want any court to order a change which
    deviates from or overrides the terms of this agreement, and more particularly
    this release. Anita and Henry want the court to uphold this agreement in its
    entirety inasmuch as they are basing their future lives upon this release.

Finally, s. 9.1 states: There are no representations,
    collateral agreements, warranties or conditions affecting this Agreement.

[21]

The
    motion judge referred only to s. 9.1, holding that it does not deal with
    implied terms: at para. 46.

[22]

I
    do not accept the appellants submission on this issue. I agree with the motion
    judge that the language of s. 9.1 does not preclude the implication of a term. Nor
    does the language of ss. 1.6 and 5.2. In any event, as this court stated in
CivicLife.com
    Inc. v. Canada (Attorney General)
(2006), 215 O.A.C. 43, at para. 52, the
    presence of an entire agreement clause will not preclude the implication of a
    term of the contract because the term is already part of the existing
    agreement: finding an implied term does not add a term to the agreement that
    was not part of the parties bargain, but enforces the parties reasonable
    expectations.

[23]

Accordingly,
    I would give no effect to this ground of appeal.

Second Ground of Appeal: Did the motion judge err in refusing
    to require the delivery of audited financial statements?

[24]

Of
    all the companies in the Packall Group of Companies, only PPI, the operating
    company, prepares annual audited financial statements. The appellants sought an
    order requiring all of the companies in the Packall Group of Companies to
    deliver, on an on-going basis, audited annual financial statements. The motion
    judge dismissed their request, holding, at para. 58:

The evidence of Mr. Billet, a chartered accountant who has done
    work for the Packall Group of Companies since their inception is that audited
    financial statements for the Packall Group of Companies other than Packall
    Packaging would not provide any additional useful information to the unaudited
    statements and would cost more money to prepare. Anita has provided no basis
    for her request for audited financial statements for all of the Packall Group
    of Companies. I consider the request to be a nuisance request rather than
    required. In the circumstances, therefore, it makes no sense in my view to
    require the financial statements of Packall Consultants, 967915 and 835474
    Ontario Limited to be audited.

[25]

The
    appellants submit that the motion judge erred in so holding because
OBCA
s. 148 makes it mandatory to provide audited financial statements unless all
    shareholders consent to an exemption from that requirement.

[26]

I
    agree, but only in respect of 967915, of which Anita Co. is a shareholder.

[27]

Each
    of the corporations in the Packall Group of Companies was incorporated under
    the
OBCA
. Part XII of the
OBCA
imposes certain audit and
    financial statement requirements on corporations, including the appointment of
    an auditor (s. 149), the placement by the directors before an annual meeting of
    shareholders of annual financial statements (s. 154(1)(a)), and the examination
    by an auditor of the financial statements placed before the shareholders (s.
    153(1)).

[28]

It
    is a core obligation of a corporation to its shareholders to provide them with
    an annual report card of the corporation's financial position in the form of
    audited financial statements:
Pandora Select Partners, LP v. Strategy Real
    Estate Investments Ltd.
(2007), 27 B.L.R. (4th) 299 (Ont. S.C.), at para.
    12. A shareholder's right to information or material, including audited
    financial statements, as granted to her under the
OBCA
is a clear,
    mandatory right, and it is not necessary for a shareholder to give any reason
    in exercising her directly held rights under the
OBCA
:
Labatt
    Brewing Co. v. Trilon Holdings Inc.
(1998), 41 O.R. (3d) 384 (Gen. Div.),
    at p. 387.

[29]

Section
    148 of the
OBCA
provides a limited exemption from these obligations in
    the following terms:

148.
In
    respect of a financial year of a corporation, the corporation is exempt from
    the requirements of this Part regarding the appointment and duties of an
    auditor if,

(a) the corporation is not an
    offering corporation; and

(b) all of the shareholders consent
    in writing to the exemption in respect of that year.

[30]

As
    can be seen from s. 148, the decision whether to exempt a non-offering
    corporation from the requirements of Part XII regarding the appointment and
    duties of an auditor in respect of a particular financial year rests solely
    with the corporation's shareholders:
Pandora Select Partners
, para.
    12. Section 148 of the
OBCA
does not authorize a court to exempt a
    corporation from complying with the mandatory requirement to provide shareholders
    with annual audited statements. Conceivably, a court could grant an exemption
    by way of relief in an oppression application pursuant to
OBCA
s.
    248(3). However, the motion judge, at para. 52, specifically rejected the
    respondents request to exempt the corporations from such financial disclosure on
    that basis because they had not pleaded oppression in their statement of claim.
    As a result, it was not open to the motion judge to exempt the Packall Group of
    Companies from the requirements of
OBCA
s. 148.

[31]

Since
    Anita Co. is a shareholder of 967915, it is entitled to current and on-going
    audited financial statements of that company.

[32]

Neither
    Anita nor Anita Co. is a shareholder of Packall Consultants; 967915 and 835474
    own the shares of that company.  Accordingly, the appellants are not entitled
    to audited financial statements of Packall Consultants under
OBCA
s. 148.

[33]

Finally,
    as to 835474, its shares are owned by the Family Trust.  In her factum, Anita
    submits that as one of the three co-trustees of the Family Trust, she is a
    direct shareholder of 835474 and therefore entitled to its audited financial
    statements.  I disagree.  The record before us did not disclose whether the
    share register of 835474 recorded its shareholder as the Family Trust or the
    three individual co-trustees.  Regardless, section 4.1 of the Trust Agreement
    provides that all questions requiring action by the trustees shall be
    determined by the approval or consent of a majority of the Trustees for the
    time being in office.  Neither of the other two trustees  Henry and James
    Billet  support Anitas position that 835474 should provide audited financial
    statements to the Family Trust. Consequently, Anita, in her capacity as a
    trustee of the Family Trust, is not entitled to audited financial statements of
    835474 under
OBCA
s. 148.

[34]

Accordingly,
    I would grant the appeal to the extent of varying paragraph 7 of the judgment
    to require 967915 to provide Anita Co. with current and on-going audited
    financial statements within 30 days following their completion.

Third Ground of Appeal: Did the motion judge err in not
    requiring Henry to disclose all monies taken from the Packall Group of
    Companies since 2010?

[35]

In
    their factum the appellants raised a third issue, although they did not press
    it at the hearing. The appellants sought an order compelling Henry to provide a
    complete accounting of all monies received by him, directly or indirectly,
    legally or beneficially, from any of the Packall Group of Companies since June
    1, 2005. The motion judge required 967915 to disclose the monies Henry had
    received from it after 2010, but dismissed the balance of Anitas request,
    holding, at para. 62:

Anita is a director of 967915. In that capacity, she is
    entitled to information from that company as to the monies Henry has taken from
    967915. Otherwise she is at best a shareholder or shareholder of a shareholder
    and, in the absence of some evidence of wrongdoing or suspicion of wrongdoing
    on Henrys part, is not entitled as a shareholder to the information requested.
    In that regard, she has had the financial statements up to 2012 and has raised
    no concern in respect of remuneration as indicated on those statements.

[36]

The
    appellants submit that this result is profoundly unfair and constitutes
    oppressive conduct on the part of Henry. However, the appellants have not
    demonstrated that in reaching his decision on this issue the motion judge erred
    in principle or law, failed to consider a relevant factor, took into account an
    irrelevant factor, or made a palpable and overriding error in respect of any
    finding of fact. As a result, I see no basis for appellate interference with
    his conclusion.

DISPOSITION

[37]

For
    the reasons set out above, I would allow the appeal to the extent of varying
    paragraph 7 of judgment to require 967915 Ontario Limited to provide Anita Co.
    with current and on-going audited financial statements within 30 days following
    their completion. I would otherwise dismiss the appeal.

[38]

If
    the parties are unable to agree on the costs of the appeal, they shall exchange
    and file written cost submissions no later than Friday, January 15, 2016. Those
    submissions, excluding any bill of costs, shall not exceed three pages in
    length.

Released: January 6, 2016 (DD)

David
    Brown J.A.

I
    agree Doherty J.A.

I
    agree B.W. Miller J.A.


