Manitoba – willingness to arbitrate must be reciprocated and not just “most efficient” – #216

In considering interim measures sought in shareholder oppression litigation, Madam Justice Candace Grammond in Gershkovich et al. v. Sapozhnik et al., 2019 MBQB 115 declined to order the parties to undertake arbitration.  Despite Respondents’ willingness to have the shareholder dispute decided in, what Respondents believed was, “the most efficient manner”, Grammond J. noted that Respondents did not allege the court lacked jurisdiction or the parties were bound by a pre-existing agreement to arbitrate.  Grammond J. did confirm that she would hear the oppression remedy unless the parties consented to arbitration and Respondents applied to compel arbitration.

The litigation involved two (2) sets of shareholders disputing various payments and operational decisions regarding a corporation which operated a hotel, bar, beer vendor and commercial tenancies.  Applicants owned one-third of the shares and Respondents owned two-thirds.  As their dispute advanced, the parties agreed that Respondents would buy Applicants’ shares but disagreed over the valuation.  Applicants’ expert valued the corporation at $14 million while Respondents’ expert valued it at $6.475 million.

Grammond J. was tasked with deciding whether to issue, in whole or in part, certain interim measures sought by Applicants.  In certain cases, she determined that Respondents did not dispute their obligations and had not threatened to cease performing them.  In those cases, Grammond J. determined that a court order was not necessary.  In other cases, she determined that Applicants failed to establish their entitlement to obtain the measures at that time based on conflicting evidence.

In addition to several other cases providing guidance on interim measures, Watkin v. Open Window Bakery Ltd., 1996 CanLII 8284 (ON SC) played a key role in Grammond J.’s determination of what to do when (a) something had to be done, (b) but what was sought could not be granted, at least not yet, and (c) and the solution for the interim lay in common ground shared by the parties.

Watkin v. Open Window Bakery Ltd. did stress the equities of the situation and what was “fair” between the parties.  Unwilling to order monthly payments as sought by Applicants, Grammond J. did not allow the matter to rest there.

[45] In my view, however, that does not end the matter.  I have considered carefully the reasoning and decision in Watkin, which in my view should be applied here.  It is clear that the relationship between the parties is broken irreparably, and it is in the best interests of both sides to conclude a share transfer as soon as possible.  All parties seem to recognize this reality, but as I have noted already, this matter has been ongoing for well over two years with no resolution.  As was the case in Watkin, the Corporation is well positioned financially, whereas the applicants will “feel the financial pain” more significantly, which in this case is magnified by their age, medical issues and inability to work for pay. 

[46] Pursuant to the evidence of the respondents’ expert, the minimum value of the applicants’ shares is $2.158 million (1/3 of $6.475 million).  I see no reason why the applicants should not be entitled to an interim payment for their shares at this stage, to mitigate any further delay in receiving full value for their investment.  Although this relief was not sought by the applicants, in my view, they are aggrieved by virtue of the fact that their shares, an asset of significant value, are trapped within the Corporation, which is being controlled by the respondents.

The solution did appear unusual at first glance because Applicants had not expressly sought the remedy.  That said, the solution applied by Grammond J. lay within the bounds of the facts admitted by the parties, including (a) Applicants’ shares will be sold and (b) common ground between experts on both sides as to a minimum value. 

Grammond J. did, however, refrain from issuing an order for that exact amount.  Conscious that setoffs could affect the exact amount, she granted the parties 30 days within which to either agree on that amount or be prepared to give her brief written or oral submissions so that she could then determine the amount.

Her reasons do close with a willingness to also grant the parties the opportunity to consider and agree to arbitration sought by Respondents.  Her refusal to order that solution underlined that arbitration must be consensual and not just a “most efficient manner”.

[50] I note that the parties have had discussions regarding pursuit of an arbitration proceeding to determine the value of the applicants’ shares.  If all parties consent to proceed in that manner, they should do so.  I will make no order, however, to that effect.  The respondents have not alleged either that the Court lacks jurisdiction to deal with this matter or that the applicants are bound by a past agreement to proceed to arbitration.  Rather, the respondents hold the view that an arbitration would be the most efficient manner in which to proceed.  Accordingly, if the applicants do not consent to proceed to arbitration, and in the absence of a motion from the respondents to compel an arbitration proceeding, the oppression application will be heard in this Court.  For reasons of judicial efficiency, I will seize myself of that and any other future hearings in this matter.  If necessary, I will assist the parties with setting filing deadlines for further materials.

urbitral note – Despite the mention of “equities” or the absence of an express application, the solution applied by Grammond J. merely anticipated the eventual result towards which the parties were heading.  There is little to suggest that, in similar circumstances, an arbitral tribunal could not issue a similar interim measure granting in advance part of the claim which both parties agreed to and sought and would be granted eventually.