Burton v. Burton, 2012 ABQB 91

Court of Queen ’ s Bench of Alberta Citation: Burton v. Burton, 2012 ABQB 91 Date: 20120207 Docket: 1106 00106 Registry: Lethbridge Between: Jay Franklin Burton Plaintiff - and - Richard G. Burton, the Estate of Catherine Jean Burton and Burke Creek Ranch Ltd. Defendants _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice R.A. Jerke _______________________________________________________ Introduction [ 1 ] Burke Creek Ranch Ltd. (BCR) is a large ranching corporation which has been in the Burton family for three generations.

In June of 2009, Catherine Jean Burton (CJB) and her sons Jay Franklin Burton (JFB) and Richard G. Burton (RGB) were the Directors and holders of all BCR voting shares. Following CJB’s death on June 14, 2009, disputes arose regarding the corporate governance of BCR. This application concerns the

interpretation of a paragraph in the Unanimous Shareholders Agreement (USA) which was signed by the shareholders in 1995.

[ 2 ] Prior to CJB’s death, the voting shares of BCR were held by CJB, JFB and RGB as follows: CJB 60 Class A Common Shares JFB 20 Class A Common Shares RGB 20 Class A Common Shares [ 3 ] In her Will, CJB left all of her shares to RGB. [ 4 ] On January 18, 2010, at a meeting of shareholders, a motion was made to appoint RGB, his wife Susan Burton (SB) and JFB as Directors. JFB objected to the appointment of SB, but the motion was passed.

RGB, SB and JFB, as Directors, approved the transfer of CJB’s shares to RGB, but JFB objected to the appointment of RGB and SB as the signing authorities for BCR’s bank accounts. [ 5 ] JFB has now brought an action against RGB, the Estate of CJB and BCR. The questions for determination in this application are: a. Does the USA restrict the number of Directors to two or three, and how are those Directors to be appointed? b. Is JFB entitled to have signing authority for any and all bank accounts belonging to BCR?

Issue 1 Does the USA restrict the number of Directors to two or three, and how are those Directors to be appointed? [ 6 ] The determination of this question requires an

interpretation of Paragraph 12 of the USA. The paramount test of the meaning of words in a contract is the intention of the parties: Fridman, GHL, The Law of Contract in Canada 5 th ed (Toronto, Ont: Thomson Canada, 2006) [Fridman], at 441. That intention is to be determined from the contract as a whole and from its plain language, as explained in Graham Construction and Engineering

(1985) Ltd. v. LaCaille Development Inc. , 2006 ABQB 898 at para 96 : The intent of the parties to a written contract is to be gleaned from the language of the contract as a whole. If the language of a written contract is unambiguous, the contract must be given its plain and ordinary meaning, which is what the parties are presumed to have intended. [ 7 ] Ambiguity means that a contractual term is capable of being understood in more senses than one. See Fridman at 446 and cases cited there. [ 8 ] Paragraph 12 of the USA (with the portion which requires

interpretation emphasized) provides as follows: 12. The parties hereto agree that they shall use their best efforts to cause the By-Laws of the Company to provide as follows: (

a) that its affairs shall be managed by a Board of three

(3) Directors.

(

b) that each of CJB, JFB and RGB shall during the currency hereof, be entitled to appoint one

(1) Director for so long as he is a shareholder in the Company and each holds the same percentage of issued shares of the Company as he owns at the date hereof. In the event of a vacancy on the board arising out of the resignation, death or otherwise of JFB or RGB, such vacancy shall be filled within seven (7) days by the party or the estate thereof so entitled to nominate, and in the event that such party fails to make a nomination within the said period then all of the other Shareholders acting together may make the nomination on his behalf and such nominee shall forthwith be elected to the said Board.

In the event of a vacancy on the board arising out of the resignation, death or otherwise of CJB, then the affairs shall be managed by a board of two

(2) Directors with each of JFB and RGB entitled to appoint one

(1) Director for so long as he is a shareholder in the Company and each holds the same percentage of issued shares in the Company as he owns at the date hereof. (

c) that question arising at any meeting of the Directors, shall be decided by a majority of votes, except where otherwise provided herein. [ 9 ] JFB contends that Paragraph 12(

b) is clear and unambiguous that there shall be only two Directors appointed after the death of CJB, but that it is ambiguous as it relates to the mechanism of appointing the two Directors. JFB submits that he retains the right to appoint one of the two Directors, and RGB should be provided the right to appoint one because it would be inequitable if he were not. [ 10 ] The Respondents submit that the term in Paragraph 12(

b) that BCR is to be managed by two Directors does not apply because RGB now holds 80% of the voting shares of BCR, and as such RGB and JFB no longer hold the same percentage of issued shares as they did when the USA was executed in 1995. The Respondents submit that BCR is to be managed by three Directors in accordance with Paragraph 12(

a) of the USA. [ 11 ] “Each” is defined in The Canadian Oxford Dictionary , 1998, as, “every one of two or more persons or things, regarded separately” (adjective), and “each person or thing” (pronoun). [ 12 ] “Each” is used in a number of places in the USA. It is used four times in Paragraph 12(b), and twice as a pronoun in the sentence in question. [ 13 ] JFB submits that only he has the right to appoint one of the two Directors since the number and percentage of his voting shares has remained the same through the relevant period of time. That would be the case if the clause read as follows: ... with each of JFB and RGB entitled to appoint one

(1) Director for so long as he is a shareholder in the company and each continues to hold the same percentage of issued shares in the company as he owns at the date hereof. [ 14 ] The parties chose to include “each” in the phrase “each continues to holds the same percentage of issued shares”. Its inclusion cannot be ignored. RGB now holds 80% of the voting shares of BCR whereas he held 20% on the date the USA was executed.

The result is that each of JFB and RGB no longer hold the same percentage of issued shares in BCR as he owned at the date of execution of the USA. [ 15 ] The term “the affairs shall be managed by a Board of two Directors” is linked with the mechanism for appointment by use of the preposition “with”. The most relevant

definitions for “with” found in The Canadian Oxford Dictionary , 1998, are: Circumstances; accompanying conditions ( sleep with the window open; a holiday with all expenses paid ) Responsibility or care for ( the decision rests with you; leave the child with me ) An accepted circumstance or consideration ( with all your faults, we like you )

[ 16 ] I read the term concerning the entitlement of JFB and RGB to appoint one Director to articulate their responsibilities and to set out the circumstances of the appointment. In other words, the entitlement to appoint (with the qualifiers on that entitlement) is an accompanying condition to the management of BCR by a board of two Directors. In my view the proper

interpretation of Paragraph 12(

b) is that the Board of Directors is to consist of two Directors only if each one of JFB and RGB continue to own 20% of the shares of BCR. As that is no longer the case Paragraph 12(

a) provides that the number of Directors is three. [ 17 ] Absent a provision in the By-Laws or the USA, membership on the Board of Directors is determined by a majority vote by the holders of voting shares. There is nothing absurd about an

interpretation of the USA which results in a three person Board of Directors as determined by the voting shareholders. [ 18 ] In my view, this

interpretation of the term is consistent with the whole of the USA. No provisions of it are inconsistent with this

interpretation. There is no need to consider the effect of changes in non-voting shareholdings. [ 19 ] As I have found that the term of the USA is clear and unambiguous, there is no need to resort to extraneous evidence. It is however, useful to consider my

interpretation in light of the background circumstances. [ 20 ] CJB’s husband, the father of JFB and RGB, died in 1990, and his assets were transferred to CJB. At the time the USA was signed, the brothers JFB and RGB had an equal number of voting shares and both worked on the ranch owned by BCR. The other voting shareholder was their mother CJB, who had a controlling interest. She executed a Will in 1988 which divided her voting shares equally between JFB and RGB. [ 21 ] CJB was active in planning her estate with an aim to keep the ranch intact and in the Burton family.

The USA (paragraph 9) permitted testamentary dispositions in any manner, without consent. [ 22 ] In these circumstances, a provision which puts restrictions on directorship while RGB and JFB each continue to hold 20% of the voting shares is not an absurdity, but a reasonable effort to accomplish the aim of keeping the ranch intact and in the family. [ 23 ] Viewed against this factual matrix it is no surprise that the parties would agree that in the event CJB was no longer a Director, whether by resignation, death or otherwise, then the affairs of BCR were to be managed by JFB and RGB as long as they were shareholders in BCR and held the same percentage of voting shares as at the date of the USA. [ 24 ] As I have found no ambiguity in Paragraph 12(

b) of the USA, it is not necessary to refer to the Harker letter dated July 15, 2011. [ 25 ] In the result, I find that Paragraph 12(

b) of the USA does not apply to the circumstances here. The number of Directors is accordingly fixed at three by Paragraph 12(

a) of the USA. [ 26 ] As there is nothing in the USA or By-Laws of the company to provide otherwise, the three Directors are elected by the holders of voting shares. Issue 2 Is JFB entitled to have signing authority for any and all bank accounts belonging to BCR? [ 27 ] JFB seeks a declaration that he is entitled to be involved in the banking operations of BCR. He contends that this is necessary to provide the checks and balances to ensure the assets of BCR are handled in accordance with good corporate governance principles. [ 28 ] JFB does not relate any examples of bad corporate governance practices beyond his removal as one of the signing officers.

[ 29 ] There is no doubt directors of a corporation owe a fiduciary obligation to it. The specific duties of a director are articulated in the by-laws of a corporation, the provisions of a USA, or as resolved by the directors.

No authority was provided to support the proposition that the right to be a signing authority for corporate bank accounts is inherent in the duties of a director. [ 30 ] The By-Laws of BCR provide the President with authority for the: general active management of the business and affairs of the Corporation. [ 31 ] The By-Laws provide that the Treasurer: shall be responsible for the deposit of money, the safekeeping of securities, and the disbursement of the funds of the Corporation. [ 32 ] Nowhere in the By-Laws is a Director given responsibility for corporate bank accounts or signing authority. [ 33 ] JFB was appointed as Vice President of BCR.

The By-Laws provide that the Vice President: shall have such other powers and duties as the Board or the President may prescribe. [ 34 ] I find that JFB is not entitled as of right and by virtue of his office as Director of BCR to have signing authority for the Corporate accounts. Conclusion [ 35 ] Given the current composition of BCR’s shareholders and the wording of Paragraph 12 of the USA, I find there are to be three Directors of BCR, appointed by shareholder vote. There will not be a declaration that JFB is entitled to be involved in BCR’s banking operations.

If the parties are unable to agree, costs may be spoken to. Heard on the 21 st day of December, 2011. Dated at Lethbridge, Alberta this 6 th day of February, 2012. R.A. Jerke J.C.Q.B.A. Appearances: Peterson & Purvis LLP

K. Gregory Senda for the Plaintiff Peacock Linder & Halt LLP J.P. Peacock, Q.C. Johanna C. Price for the Defendants