Alberta Construction Consulting Associates Ltd. v. Hy-Lok Canada Inc., 2011 ABQB 710

Court of Queen ’ s Bench of Alberta Citation: Alberta Construction Consulting Associates Ltd. v. Hy-Lok Canada Inc., 2011 ABQB 710 Date: 20111117 Docket: 1003 15799 Registry: Edmonton Between: Alberta Construction Consulting Associates Ltd. and Robert Kociancic Applicants - and - Hy-Lok Canada Inc., 724908 Alberta Ltd. and Roy Bayliss Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _______________________________________________________

Summary [ 1 ] In these proceedings, Alberta Construction Consulting Associates is suing Bayliss for what it claims is Bayliss ’ failure to purchase from ACCA its shareholding in Hy-Lok; ACCA is also suing Hy-Lok for what it claims is the failure to treat ACCA ’ s shareholder ’ s loan to Hy-Lok as a demand loan for which a demand has been made. On this application, ACCA asks for both a declaration that, as the result of the decision of Burrows J. in related proceedings, the only issue to be determined in this action is the fair market value of the shares of Hy-Lok Canada Inc., and, for an order setting the matter down for trial without the obligation to engage in dispute resolution.

[2] The Applications are denied. Insofar as the plaintiff’s claim for a declaration that a court has previously decided that Baylisshas a contractual obligation to purchase the ACCA shares in Hy-Lok, ACCA has not established the first precondition for the operationof issue estoppel, which in this case is that the existence of a contract to purchase the shares was determined in a prior proceeding:Danyluk.

Insofar as the plaintiff’s request to be exempted from the provisions of R. 4.16 is concerned, exemptions from pre-trial disputeresolution require a solid foundation, which has not been made out here: IBM Canada Ltd. Cases and authority cited [3] By the Applicant: Alberta Construction Consulting Associates Ltd. v Hy-Lok Canada Inc. 2010 ABQB 328, [2010] A.J.No. 1552 [4] By the Court: Danyluk v Ainsworth Technologies Inc. 2001 SCC 44 , 2001 SCC 244, [2001] S.C.J. No. 46; IBMCanada Ltd. v Kossovan 2011 ABQB 621, [2011] A.J. No. 1092; Rana v Nagra 2011 BCCA 392, [2011] B.C.J. No. 1836 1.

Background [5] In June 2009, in proceedings labelled 0903 09360, Alberta Construction Consulting Associates Ltd. and Robert Kociancicfiled an originating notice of motion against Hy-Lok Canada Inc., Roy Bayliss and 724908 Alberta Ltd. asking for an order requiring therespondents to purchase the applicants’ shares of Hy-Lok Canada Inc. at a fair value to be determined by the court, as well as many otherheads of related relief, including the appointment of an interim receiver, the replacement of Roy Bayliss as a director of Hy-Lok, or, inthe alternative, for the liquidation and dissolution of Hy-Lok.

The application was brought pursuant to sections 241 and 242 of theBusiness Corporations Act. [6] That application was heard by this court in March 2010, and a decision, cited above, was issued in May, 2010. In thatdecision, Burrows J. denied the relief requested by Alberta Construction Consulting Associates stating that “conduct of the naturedescribed in s. 242(2) has (not) been proven”, i.e. that there had been no oppression of the applicant shareholder. Burrows J. also said: 5 Mr. Bayliss acknowledges that when Mr. Kociancic advised that he did not want to continue with the company if Mr.

David Baylisswas involved in its management, Mr. Bayliss agreed to buy out his shares. Mr. Bayliss does not dispute Mr. Kociancic's evidenceconcerning Mr. Bayliss suggesting Mr. Kociancic take a few days off, or cutting off his e-mail, or signing authority, or locks. He doesnot mention those points in his affidavit at all. He does observe that Mr. Kociancic's salary continued for six months after February 2009and that he continues to drive a company vehicle to this day. 6 Mr. Kociancic deposes that in March 2009, he and Mr. Bayliss had further discussions regarding the price to be paid for Mr.Kociancic's shares.

He says that there was a verbal agreement that the total price would be $1,175,000.00. He says that when he put thisin writing, however, Mr. Bayliss declined to sign. He appears to acknowledge that no final agreement was reached. Indeed if it was hisposition that a final agreement had been reached, one would expect he would have sued on the agreement, not brought oppressionproceedings. 7 Mr. Bayliss deposes that while he agreed to buy Mr. Kociancic's shares, there was no agreement as to a price.

Rather it was agreedthat the process for determining the price would involve obtaining the 2008 financial statements, the resolution of a then unresolved andsignificant piece of litigation (the AFC litigation) which could affect the value of the company, and obtaining a valuation of thecompany. Mr. Bayliss says that before these things could be done, Mr. Kociancic became impatient and commenced these proceedings. . . . 15 Neither does the evidence show that Mr. Bayliss has failed to propose a fair price for Mr. Kociancic's shares. Clearly, Mr. Baylissand Mr.

Kociancic do not agree on what a fair price would be, but the evidence does not permit me to determine which side, if either,

holds the correct view on that subject. 16 It appears that at least one point of disagreement is whether the outcome of the AFC litigation should be taken into account indetermining the valuation. There are several other specific points of disagreement as well. None of these appear to me to be frivolouspoints. They appear to be points validly requiring determination. 17 Neither does it appear to me that it was unreasonable that a year passed before Mr. Bayliss proposed a price.

Events, including thecommencement and conduct of this litigation, served to prejudice the amicable resolution of the issue. (Emphasis added) [7] In September, 2010, in proceedings labelled 1003 15799, Alberta Construction Consulting Associates Ltd. ACCA,. issued astatement of claim against Hy-Lok Canada Inc., 724908 Alberta Ltd. and Roy Bayliss claiming that Roy Bayliss had agreed to buy outthe interest of ACCA in Hy-Lok but was in breach of that agreement. The statement of claim also claimed that, in further breach of thatsame agreement, Hy-Lok had refused to repay the shareholder’s loan to ACCA.

In the alternative, ACCA claims that the shareholder’sloan it made to Hy-Lok is a demand loan and that ACCA made formal demand for repayment in June 2010, but it has not yet beenrepaid. [8] Subsequently, Robert Kociancic was added to the proceedings as a defendant by counterclaim in the counterclaim filed bythe original defendants. [9] In this application, ACCA states that Burrows J., at para. 5 of the decision cited above, “determined . . . that Mr.

Baylissagreed to buy out the Plaintiff’s shares” and that, as a result of paras. 16 and 17 of the same decision, the only issue left to be determinedin these proceedings is the fair market value of ACCA’s shares of Hy-Lok. 2. The components, or definition, of issue estoppel [10] The applicant’s request for a declaration is grounded in what used to be described as res judicata and is now described aseither cause of action estoppel or issue estoppel.

Cause of action estoppel is not relevant here since the relief requested in this applicationis obviously different from the relief requested in the earlier, related, proceedings.

Therefore, if the plaintiff is to be successful on thisapplication, it must be successful in advancing the principle of issue estoppel. [11] The components of issue estoppel were described by the Supreme Court of Canada in its decision in Danyluk: 23 In this appeal the parties have not argued "cause of action" estoppel, apparently taking the view that the statutory framework of theESA claim sufficiently distinguishes it from the common law framework of the court case. I therefore say no more about it.

They havehowever, joined issue on the application of issue estoppel and the relevance of the rule against collateral attack. 24 Issue estoppel was more particularly defined by Middleton J.A. of the Ontario Court of Appeal in McIntosh v. Parent, (ON CA), [1924] 4 D.L.R. 420, at p. 422: When a question is litigated, the judgment of the Court is a final determination as between the parties and their privies.

Any right,question, or fact distinctly put in issue and directly determined by a Court of competent jurisdiction as a ground of recovery, or as ananswer to a claim set up, cannot be re-tried in a subsequent suit between the same parties or their privies, though for a different cause ofaction. The right, question, or fact, once determined, must, as between them, be taken to be conclusively established so long as thejudgment remains. [Emphasis added.] This statement was adopted by Laskin J. (later C.J.), dissenting in Angle, supra, at pp. 267-68.

This description of the issues subject toestoppel ("[a]ny right, question or fact distinctly put in issue and directly determined") is more stringent than the formulation in some ofthe older cases for cause of action estoppel (e.g., "all matters which were, or might properly have been, brought into litigation", Farwell,

supra, at p. 558). Dickson J. (later C.J.), speaking for the majority in Angle, supra, at p. 255, subscribed to the more stringent definition for the purpose of issue estoppel. "It will not suffice" he said, "if the question arose collaterally or incidentally in the earlier proceedings or is one which must be inferred by argument from the judgment." The question out of which the estoppel is said to arise must have been "fundamental to the decision arrived at" in the earlier proceeding.

In other words, as discussed below, the estoppel extends to the material facts and the conclusions of law or of mixed fact and law ("the questions") that were necessarily (even if not explicitly) determined in the earlier proceedings. 25 The preconditions to the operation of issue estoppel were set out by Dickson J. in Angle, supra, at p. 254: (1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and, (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies. 3.

ACCA has not established the first precondition to the operation of issue estoppel: the terms of the agreement by Bayliss to buy ACCA ’ s shares were not determined by Burrows J. [ 12 ] ACCA has established only that two of the three preconditions to the operation of issue estoppel are established: the parties here are the same as those in the earlier application and it can be said that Burrow J. ’ s decision that there was no oppression was final.

However, ACCA has failed to establish the first of the preconditions for the operation of issue estoppel: that everything about the Bayliss offer to buy ACCA ’ s shares - save for the fair market value of the shares - was determined by Burrows J. [ 13 ] Indeed, from the highlighted portions of paragraph 6 of the decision, repeated above, it appears that Burrows J. concludes that “ no final agreement was reached ” , i.e. that no contract was made. Those comments in para. 6 are not incompatible with the remarks in para. 5 to the effect that “ Bayliss agreed to buy out his shares ” .

In order for a contract to be formed, there must be certainty on all the essential features of the arrangement. One recent appeal level decision which is representative of the weight of the common law on the need for certainty to establish a contractual obligation to purchase is the B.C. Court of Appeal ’ s decision in Rana where it stated: 19 It is a trite principle of law that in order for an agreement to be binding between the parties they must have reached consensus on the essential terms of their contract. Viscount Dunedin expressed the principle in the decision of May and Butcher, Limited v.

The King, [1934] 2 K.B. 17 at 21 (H.L.) as follows: To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. In G.H.L. Fridman, The Law of Contract in Canada, 5th ed. (Toronto: Thomson Carswell, 2006), the author stated the principle and gave an example at 18: What this means is that the parties must have evinced clear agreement on the essential terms of the intended contract.

For example, for an agreement for a lease to be valid, it has to show the parties, a description of the premises to be demised, the commencement and duration of the term, the rent, if any, and all the material terms of the contract not being matters incident to the relation of landlord and tenant ... In the case of an agreement for the sale and purchase of an asset, there can be no doubt that one of the essential terms is the purchase price. 20 In the present case, the parties agreed to a tentative purchase price but provided, in clause 6.3 of the share purchase agreement, that it was subject to adjustments.

The fact that a purchase price is subject to adjustment does not, of itself, make the price uncertain. For example, virtually every contract for the purchase and sale of land in British Columbia contains a clause providing for adjustments to the

purchase price. Those contracts are binding because the adjustment clauses specify how the adjustments are to be determined. In contrast, clause 6.3 of the share purchase agreement does not give any guidance as to the basis upon which adjustments are to be made. As the trial judge pointed out, there was no formula contained in clause 6.3 for the adjustments, and there was no other objective standard for their determination in the event the parties were unable to agree on the adjustments. 21 Many questions abound in the absence of such a formula or other objective standard.

Were the adjustments to be restricted to the parties' investments in the companies? Were the adjustments to be based on the fair market value of the shares? Was interest on the parties' investments in the companies and shareholder loans to be taken into account and, if so, what was the appropriate rate of interest? Were the adjustments to take into account the value of the parties' contributions of labour and expertise to the businesses of the companies and the salaries they received? Were the adjustments to include benefits the parties received from the companies?

How were the adjustments to take contingent liabilities of the companies (such as potential income tax liabilities) into account? How were adjustments in respect of the shares in 567055 B.C. Ltd. to be made in view of the fact that they were transferred to a third party? [ 14 ] In other words, even though Burrows J. may have found that, at one point in time, Mr. Bayliss said that he would buy ACCA ’ s shares in Hy-Lok, that is far from saying that a contract for the purchase of shares existed.

In addition to the crucial issue of the price to be paid for the shares, Burrows J. did not address how long the Bayliss offer was open, whether the vendor of the shares had to comply with any terms, how Mr. Kociancic ’ s salary would be treated, etc. etc. Indeed, Burrows J. specifically states in para. 16 of his decision that “ there are several other specific points of disagreement ” . Until the parties are agreed on the fundamental terms of the contract, there is no contract. [ 15 ] In

summary, in the application for an oppression remedy, Burrows J. was focussing on whether there had been oppression of ACCA and its principal. He found there was none. His comments about the Bayliss offer to buy ACCA ’ s shares were made in the context of determining whether there was oppression.

To the extent that Burrows J. made any comment about the existence of an actual contract to buy shares, he appears to have concluded that there was no such contract. [ 16 ] Therefore, the applicants have failed to establish that Burrows J. decided the issue of the existence of a contract between Bayliss on the one hand and ACCA and Kociancic on the other to buy the latter ’ s shares.

That issue remains to be determined in these proceedings. [ 17 ] Since the issue of the existence of the “ main ” contract for the purchase of the shares has not been established, it almost goes without saying that there was no determination by Burrows J. about the inclusion in that contract of an obligation to repay a shareholder ’ s loan. 4. There is no basis here to exercise the power in R. 4.16 to dispense with pre-trial dispute resolution [ 18 ] Although the court has the power to waive the requirements of R. 4.16(1), as Mahoney J. recently noted, that power will be used with restraint: I.B.M.

Canada Ltd. [ 19 ] Here, the applicants have not established any basis for waiver of the requirement of pre-trial dispute resolution. On the contrary, it would clearly be useful for the parties to obtain some third party ’ s opinion as to the existence of a contract, the content of contractual terms relating to price, and the existence of obligations in relation to the repayment of shareholder loans. As Mahoney J. noted, even where pre-trial dispute resolution does not settle the entire lawsuit, it may prove useful in narrowing the issues and thus provide quicker, cheaper access to justice. 5.

Costs [ 20 ] If the parties are not agreed on costs, I may be spoken to within 30 days of the receipt of this decision.

Heard on the 2 nd day of November, 2011. Dated at the City of Edmonton, Alberta this 17 th day of November, 2011. J.B. Veit J.C.Q.B.A. Appearances: Coralie J. Schultz Mohr, Witten LLP for the Applicants E. Mark Keohane, Esq. for the Respondents