2016 QCCQ 1923, 2016 QCCQ 1923

Prince c. Elm Ridge Country Club Inc. 2016 QCCQ 1923 COURT OF QUEBEC Small Claims Division CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-32-143095-141 DATE: March 14, 2016 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ LENNY PRINCE […] Lantier (Québec) […] Plaintiff v.

ELM RIDGE COUNTRY CLUB INC. 851, rue Cherrier L’Île-Bizard (Québec) H9E 1C3 Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiff, Mr Lenny Prince, sues Elm Ridge Country Club Inc. (“Elm Ridge”) for the reimbursement of an amount of $ 5,000 he paid when he became a member of Elm Ridge in 2009. [ 2 ] Elm Ridge contests the claim asserting that the $ 5,000 paid by Mr Prince is not reimbursable and that the shares he obtained when he joined Elm Ridge have a value of $ 1 per share. [ 3 ] Mr Prince asserts that the shares are worth $ 5,000, the amount he paid when he acquired them. [ 4 ] In April 2009, Mr Prince decided to join Elm Ridge on a trial basis. [ 5 ] He signed a document entitled “Application for membership” on April 21, 2009, providing personal information and mentioning his sponsors and references. [ 6 ] He signed a Preview Membership Agreement dated April 23, 2009. [ 7 ] The agreement provided for a membership for a minimum preview term, and providing for the option of joining Elm Ridge on a permanent basis pursuant to certain modalities, including the payment of the applicable entrance fee (D-1). [ 8 ] On September 18, 2009, Mr Prince signed a form letter addressed to the president, confirming that he would like to commit to membership and to benefit from the “reduced initiation fee for standard member, 40 to 49”, enclosing the applicable payment of $ 5,000 plus taxes.

Elm Ridge’s register (D-6) shows Mr Prince’s acquisition of five shares evidenced by certificate number NOW09-14.

The register also shows an entrance fee of $ 5,000 and the share type as being “Common” and the share price as being $ 1.00 [ 9 ] Mr Prince remained an active member until 2011 at which point he, in March, wished to take a year off. [ 10 ] He had already received messages in January and February 2011 from the club’s controller requesting the dues for the 2011 season that had already become payable. [ 11 ] The messages mentioned an overdue balance of $ 8,439.29 in January 2011, and a total balance of $ 10,504 owing in February 2011.

[ 12 ] When he asked to take a year off, he was informed by the comptroller on March 3 rd that this is only possible if there is a medical condition preventing a member from playing in a particular year, for a charge of approximately half the normal charge of a standard senior member.

The comptroller advised Mr Prince that the deadline for members to resign without paying the upcoming membership fees is September 30 th of the prior year. [ 13 ] Having not met this deadline, he was therefore considered a member in the 2011 season and the charges were already due. [ 14 ] The matter became litigious and Elm Ridge sued Mr Prince in the Court of Quebec, Civil Division. Elm Ridge’s affidavit for judgment mentions a claim of $ 15,230.57. [ 15 ] Mr Prince defended the case, but it was eventually settled as can be seen from an agreement dated March 23, 2012.

The settlement agreement (D-12) provides for payment of $ 7,000 in instalments. [ 16 ] Elm Ridge took his failure to pay as an intention to resign and points as well to paragraph 2 of Mr Prince’s Defence in the Court of Quebec case, where he alleges that he had advised Elm Ridge prior to April 20 th of his decision “not to renew”.

On November 19, 2013, the president of Elm Ridge sent a letter to Mr Prince advising him of the Board of directors’ acceptance of his resignation. [ 17 ] The letter states: It is with due regret that the Board of Directors from Elm Ridge Country Club Inc. has accepted your resignation. […] In accordance of the Club’s articles, upon a member resigning, each Common share in the Club held by that member is converted into a Class A Preferred share and that Class A Preferred share is redeemed at its redemption price of $ 1.00.

You will, therefore, find enclosed a cheque in the amount of $ 5.00 representing payment in full of that redemption price for your shares in the Club. […] [ 18 ] Mr Prince contests this. Although he admits he was never informed of this rule, he presumed that since he had paid $ 5,000 for his shares, they should have a value of $ 5,000 and he should therefore be able to be reimbursed $ 5,000 upon withdrawing from Elm Ridge. [ 19 ] Elm Ridge was represented at the hearing by its manager Mr Randy Moncrieff. Maître Howard Dermer was called as a witness.

Maître Dermer is a lawyer familiar with the shares structure of Elm Ridge and more particularly proceedings that were brought in Superior Court in August 2009 by way of a Motion to sanction an arrangement proposed under Sections 49 and 123.107 of the Companies Act, (Québec) R.S.Q.C.-38.

Prior to that motion, Elm Ridge had by-laws providing that, at the general meeting, the value of common shares would be fixed each year in case redemption became necessary in the subsequent year. [ 20 ] In the motion, Elm Ridge sought the Superior Court’s approval for an arrangement by the shareholders that had been presented in the form of a special by-law requiring the approval of 75 % of the votes cast by holders of the common shares attending at a shareholders meeting.

This meeting was duly convened in July 2009 and held in August 2009. [ 21 ] The shareholder approval having been obtained at that meeting, the Superior Court, Honourable Justice Richard Wagner, J.S.C., as he then was, presiding, issued an ordered sanctioning the proposed arrangement. [ 22 ] The change to the share structure provided by this proposal meant that the existing shares were converted to a new class of shares, the “New Common Shares”.

Upon a person ceasing to be a continuing member, each of his New Common Shares would be converted into a Class A Preferred share. [ 23 ] These Class A Preferred shares would then be redeemed for their value of $ 1.00 per share within 10 days of their issuance and the price of $ 1.00 per share payable within 30 days of the redemption. [ 24 ] When Mr Prince paid his membership fee and became a member and shareholder on September 18, 2009, the change to the share capital was underway with a meeting having already been held and the order of the Superior Court issued on August 18, 2009. [ 25 ] When Mr Prince made the decision to join Elm Ridge provisionally under the preview membership agreement dated April 23, 2009, the notices had not yet been sent out to shareholders, and he in fact only became a shareholder after the change had occurred. [ 26 ] Mr Prince was not aware of the changes to the structure and he simply assumed that if he was paying $ 5,000 for the shares, he could be reimbursed that amount if he withdrew from Elm Ridge. [ 27 ] Mr Prince told the Court that he believes he was never issued any shares but that, in fact, his payment of $ 5,000 entitled him to shares that he could redeem for $ 5,000 if he withdrew from Elm Ridge.

ANALYSIS [ 28 ] The best evidence of the status that Mr Prince had as a shareholder is Elm Ridge’s shareholders’ record, authenticated by the witness who introduced it into evidence. [ 29 ] According to this register, Mr Prince was indeed a shareholder, whether or not he received physical possession of a certificate. [ 30 ] It is clear from the Preview Membership Agreement that what Mr Prince would have understood that he was paying, was an initiation fee or an entrance fee.

[ 31 ] This is also obvious from the letter committing to membership that he signed September 18, 2009, referred to as “reduced initiation fee for standard member 40 to 49”, and his “total cash commitment for entrance fees”, [ 32 ] It is true that he also became a shareholder, but the documents do not make a direct connection between the value of the entrance fee, which is substantial, and the price of the share, which is nominal. [ 33 ] Mr Prince has the impression that the $ 5,000 he paid represented the share price, and therefore, the share value.

In the law of corporations, whatever consideration may be given for the acquisition of a share, the rights attaching to that share depend upon the description of the share capital in the companies’ corporate constitution.

Shares do not necessarily have rights of redemption, nor any particular redemption price, nor are they necessarily subject to the right of the company to retract them: it is all a question of how the rights attaching to the shares are defined in the constituting documents. [ 34 ] The expression that was used for these shares, “Common shares”, usually means that a shareholder has the right to share in any surplus of the company when it is wound up, as well as the right to vote, but it would not normally carry with it a right of redemption by the shareholder or retraction at the company’s option. [ 35 ] In this case, the corporate structure as defined at the time when Mr Prince became a shareholder provided that upon resignation from Elm Ridge, his shares would be converted to a particular class of shares that would then trigger a redemption for their nominal value. [ 36 ] In terms of the documents that Mr Prince signed when he became a member, the contractual relationship associated with membership simply provided that he paid an entrance fee.

This fee was not associated with a share value. [ 37 ] With respect to his rights as shareholder, they were defined in the corporate documents that had changed, that was binding on all concerned, because these changes had received the appropriate shareholder approval and because a Court had sanctioned this change.

Mr Prince does not assert that he asked for information and advice about the nature of the share structure of Elm Ridge and the rights that would accrue to him as a shareholder, he simply presumed that there was an equation between the amount he was paying and the right to redeem the shares for this value at a future time at his option. [ 38 ] There was no basis for him to believe this was the case, nor was there any reason for Elm Ridge to presume that he had understood the situation this way. [ 39 ] Therefore, there is no reason for the Court to apply any other rules than those that are provided for in the share description.

Elm Ridge pointed out that, as a shareholder in September 2009, Mr Prince was entitled to attend the annual meeting in November, at which time the shareholders were presented with the documentation concerning the new share structure, as it had been approved by the Superior Court judgment. [ 40 ] It may be that, if Mr Prince had attended the meeting, he would have understood and would not have taken the position that he took after deciding to leave Elm Ridge, but in the Court’s view, this is not an essential element.

In joining Elm Ridge, Mr Prince had the rights that the documents he signed provided and those provided to him under the corporate structure and nothing further.

There is no suggestion that the persons whom he dealt with at Elm Ridge deliberately or in any negligent way misled him or were otherwise responsible for the misconception he may have had about the extent of his rights. [ 41 ] When he left Elm Ridge, after having incurred the obligation to pay the fees applicable to that year, he was able to settle in a way it was favourable to him, both in terms of the amount, comprising a discount of more than 50% on the claim he was facing and the possibility of paying the claim over time.

The fact that Elm Ridge agreed to this settlement dispels any impression that those responsible had a tendency to act in way that was oppressive or unfair toward him. [ 42 ] At that time, Mr Prince was not entitled to any special treatment even if he was facing certain financial challenges. The settlement procured him a real benefit, which is in fact greater than the amount he presently claims for the redemption of the shares. [ 43 ] This is nevertheless a case where the Court feels that no costs should be imposed upon Mr Prince who brought his action on the sincere belief that his claim was well founded.

BY THESE REASONS, THE COURT: DISMISSES the Plaintiff’s Application; THE WHOLE without costs. __________________________________ DAVID L. CAMERON, J.C.Q. Date of hearing: December 7, 2015