NOVA SCOTIA COURT OF APPEAL
Citation: Wittenberg v. Merks Poultry Farms Ltd., 2009 NSCA 70
Date: 20090619
Docket: CA 300492
Registry: Halifax
Between:
Richard Wittenberg, Ron teStroete, Wittenberg
Poultry Farm Limited, a body corporate, and
3058480 Nova Scotia Limited, a body corporate
Appellants
v.
Merks Poultry Farms Limited, a body corporate,
Andre Merks, Janie Merks, and Valley Transfer
(1990) Limited, a body corporate
Respondents
Judge(s): Roscoe, Oland and Fichaud, JJ.A.
Appeal Heard: March 23, 2009, in Halifax, Nova Scotia
Held: Leave to appeal granted; appeal dismissed with costs to the respondents per reasons for judgment of
Oland, J.A.; Roscoe and Fichaud, JJ.A., concurring.
Counsel: John Rafferty, Q.C., and Brian Stilwell for the appellants
Michelle Awad and Ian Dunbar for the respondents
Reasons for judgment:
[1] The shareholders of Synergy Agri Group Inc. do not agree as to the meaning of certain provisions of their Shareholders’ Agreement. The individual appellants, Richard Wittenberg and Ron teStroete, are principals of the corporate appellants, Wittenberg Poultry Farm Limited and 3058480 Nova Scotia Limited, respectively. The individual respondents, Andre Merks and Janie Merks, are principals of the corporate respondents, Merks Poultry Farm Limited (“MPFL”) and Valley Transfer (1990) Limited. The two corporate appellants and MPFL are three of the six shareholders of Synergy.
[2] Justice Arthur W. Pickup of the Nova Scotia Supreme Court, sitting in Chambers, heard an interlocutory application seeking various declarations. He determined that Synergy has seven directors, that Andre Merks is one of those directors, and that all voting of certain shares is to be based on the percentages represented by the last fiscal year. His decision is reported in 2008 NSSC 277, and his order issued August 26, 2008. The appellants seek leave to appeal and, if granted, appeal his decision and order.
Background
[3] The Chambers judge described the circumstances which led to the application before him as follows:
1 The plaintiff, Merks Poultry Farms Ltd., is a body corporate. The applicants, Andre Merks and Janie Merks, are the principal shareholders. They are primarily chicken farmers.
2 The respondents, Richard Wittenberg, Ron teStroete and their related companies are also chicken farmers. In early 2002 Mr. Merks approached Mr. Wittenberg and Mr. teStroete with a proposal to construct a feed‑mill to supply feed to each of their farms. All three agreed to proceed.
3 A feed‑mill was constructed. A company, Synergy Agri Group Inc. ("Synergy"), was incorporated to carry out these purposes with common shareholdings allocated among the plaintiffs, Wittenberg and teStroete. The initial shareholdings were 60‑20‑20, with the higher percentage being held by the plaintiffs. These percentages were determined initially by the anticipated feed purchase volumes. Capital was invested based on these percentages.
4 Shortly after the incorporation of Synergy, Andre Merks, Janie Merks, Richard Wittenberg and Ron teStroete were appointed as Directors of Synergy. Since neither Richard Wittenberg nor Ron teStroete wanted to be involved in the day‑to‑day operations, Andre Merks and Janie Merks were appointed as officers and were responsible for day‑to‑day operations and remained so until relatively recently. It was initially agreed that Merks Transport, a company owned by the Merkses, would be used for all transportation required for the new feed‑mill and to transport chickens for processing. The Merkses also provided some staff members during the set‑up of the company and while the feed‑mill was being constructed. They also used their office space for company purposes.
5 In 2004 Martin Porskamp Family Trust and Peter John Porskamp were added as shareholders of Synergy. In 2005 Warren Cox was added as a shareholder. A Shareholders' Agreement was entered into by all of the shareholders in the fall of 2006. The agreement included provisions regarding voting rights for classes of shares and appointment of directors of the company. It is these provisions that now appear to be in dispute. The Shareholders' Agreement was signed by the then shareholders Andre Merks, Janie Merks, Richard Wittenberg, Ron teStroete, Martin Porskamp, Peter Porskamp and Warren Cox.
6 In 2007 relations among the directors became strained and Andre Merks resigned as president but continued as a director. From that point it appears that Merks Poultry Farm Ltd. began decreasing its purchases from Synergy. At a shareholders' meeting on January 30, 2008 the shareholders, by majority vote, decided to reduce the number of directors to six. Andre Merks was dropped as a director and Janie Merks became the director on behalf of her own and her husband's interests. A further shareholders' meeting was scheduled for June 26, 2008 which was later postponed.
7 Traditionally, voting was done on percentages set as a result of feed purchases from the prior year. The parties now disagree as to how these percentages should be calculated. ...
[4] Synergy’s fiscal year runs from March 1st to the last day of February the following year. Its share structure includes a category of shares described as tracking common shares. Voting by the shareholders is linked to their ownership of these shares. As of Synergy’s fiscal year ended February 28, 2007, MPFL owned 42.3 percent of the tracking common shares.
[5] When the motion to reduce the number of directors of Synergy from 7 to 6 was voted on in January 2008, MPFL voted against the motion. All other shareholders voted in favour. The motion was carried with 57.7 percent in favour and 42.3 percent opposed. Thus, while a simple majority approved the motion, a two-thirds majority did not.
[6] The shareholders then appointed a new board of directors. According to the Shareholders’ Agreement, each shareholder may nominate one director. MPFL nominated Janie Merks as its director. Andre Merks was not nominated by any of the shareholders and so did not continue as a director.
[7] The respondents applied pursuant to Civil Procedure Rules 37 and 5.14 and the Third Schedule of the Companies Act, R.S.N.S. for various declarations, production and transcription. Their application before the Chambers judge in regard to the number of directors, whether Andrew Merks was a director, and when the percentage of votes of the shareholders was to be calculated, was successful. The appellants seek leave to appeal and, if granted, appeal his decision and order.
Issues
[8] According to the appellants, the Chambers Judge erred in law when he interpreted the provisions of the Shareholders’ Agreement entered into in October 2006 and effective as of December 1, 2005, to say that:
(a) there are properly seven directors of Synergy;
(b) Andre Merks is a director of Synergy; and
(c) all voting at the August 27, 2008 shareholders’ meeting (or on the date of any rescheduling thereof) is to be based on the tracking common share percentages represented by the results of the fiscal year ended February 28, 2007.
Standard of Review
[9] Where the judge’s order does not have a final or terminating effect, the court will not intervene unless wrong principles of law were applied or a patent injustice would result. Where the order under appeal has a final or terminating effect, the standard of review is whether there was an error of law resulting in an injustice. See Cooper v. Atlantic Provinces Special Education Authority, 2008 NSCA 94.
[10] The effect of Justice Pickup’s order has a final effect on those issues. Therefore the standard of review is whether there was an error of law resulting in an injustice.
[11] Errors of law are reviewed on a correctness standard. Contractual interpretation is a matter of law and therefore attracts the correctness standard. Housen v. Nikolaisen, 2002 SCC 33; [2002] 2 S.C.R. 235.
Analysis
The Directors of Synergy
[12] Section 8 of the Shareholders’ Agreement is a critical provision in determining how many directors Synergy has and whether Andre Merks is a director. It reads:
8. DIRECTORS
a. Until the Shareholders determine otherwise, the Board of Directors shall comprise a minimum number of directors equal to the number of Shareholders from time-to-time; there may be a greater number of directors than Shareholders. Each Shareholder may nominate one director. The Shareholders agree to vote their shares to appoint directors according to the Shareholders’ respective nominations both annually and as vacancies occur with one exception. The Shareholders may reject (veto) an appointee director by a two-thirds majority poll vote unless the appointee is the nominating Shareholder’s Principal to whom no veto will apply. If a nominee is vetoed the nominating Shareholder may make other nominations until his, her or its nominee is accepted.
b. Until their successors are appointed the following shall be the directors of the Corporation:
i. Andre Merks,
ii. Janie Merks,
iii. Ron teStroete,
iv. Richard Wittenberg,
v. Martin Porskamp,
vi. Peter Porskamp, and
vii. Warren Cox.
[13] According to s. 8(a) then, Synergy has a minimum number of directors, which is equal to the number of shareholders. However, it does not have a maximum number of directors. Each shareholder may nominate one director. Whether he or it holds 5 percent or 50 percent or any other percentage of the shares does not affect a shareholder’s entitlement to representation on the board.
[14] The Shareholders’ Agreement does not have any provision which specifically deals with increasing or decreasing the number of directors. Section 9 provides that “until their successors are appointed”, the persons listed “shall be” the directors of Synergy. That listing of directors names seven individuals and includes Andre Merks.
[15] More than a simple majority of the shareholders must vote in favour of the appointment of a director. The Shareholders’ Agreement stipulates:
10. SHAREHOLDERS’ RESOLUTIONS
a. The following actions must be approved by a two thirds (2/3) majority of all Shareholders by poll vote:
...
ii. appointments of Directors;
[16] In determining how many directors Synergy has and whether Andre Merks was a director, the Chambers judge was also asked to consider these provisisons of the Shareholders’ Agreement:
25 MISCELLANEOUS AND EXECUTION
...
b. No amendment or variation of this Agreement or any of its terms therein shall be binding upon the Shareholders hereto unless it is in writing and signed by all of the Shareholders.
c. If there is a conflict between the terms of this Agreement and the Articles of Association of the Corporation, the terms of this Agreement shall take priority over the provisions of the Articles of Association subject only to the Companies Act and the general law.
[17] The Chambers judge decided:
[15] I am satisfied that the intent under s. 10(a)(ii) is that any appointments of directors, including a reduction in the number of directors, must be approved by a two-thirds majority of all shareholders. I am satisfied, in this instance, that this procedure was not followed and that the reduction was authorized by less than two-thirds. The effect of this action by the shareholders was to remove Mr. Merks from the board. No successor was appointed.
[16] If I am wrong in my determination that a two-thirds majority was required to reduce the number of directors, in the alternative, I find that under s. 25 of the Shareholders’ Agreement no amendment or variation of the agreement, including the reduction of the number of directors, is binding on the shareholders unless it is in writing and signed by all of the shareholders. There was no such consent.
[17] Clearly, the number of directors was stated to be seven and this was a term of the agreement. Section 25 states that a term of the agreement cannot be changed unless all of the directors agree. Reducing the number of directors was a violation of s. 25.
[18] Mr. Rafferty notes the provisions in the articles as authorizing a reduction in the number of directors by less than a majority vote. I would point out that s. 25(c) stipulates that the Shareholders’ Agreement overrides any term found in the articles of association.
[18] The appellants argue that the Chambers judge erred in law in his interpretation of s. 10(a)(ii). They submit that that provision speaks only of the appointment of directors and does not address an increase or decrease in the number of directors, and that the Chambers judge read in words not used by the parties to the Shareholders’ Agreement. According to the appellants, a motion to reduce the number of directors does not require the approval of two-thirds of the shareholders and Synergy can reduce the size of the board of directors by majority vote, as was done at the January 30, 2008 meeting of the shareholders.
[19] In the appellants’ view, the listing of directors in s. 8(b) simply reflected the initial composition of the Board. Moreover, “until their successors are appointed” refers to the election of an entirely new slate of directors, not successors for each individual director. They point out that Synergy’s Articles of Association call for an annual general meeting, Article 112 requires all directors to retire and to be succeeded by directors elected at an annual meeting, and Article 114 provides for an increase or decrease in the number of directors at any general meeting.
[20] The Shareholders’ Agreement is, of course, a contract. In Eli Lilly & Co. v. Novopharm Ltd., [1998] S.C.J. No. 59, Justice Iacobucci set out the proper approach to the interpretation of a contract:
52 ... In Consolidated‑Bathurst, supra, at p. 901, Estey J., writing for himself and Pigeon, Dickson, and Beetz JJ., offered the following analysis:
Even apart from the doctrine of contra proferentem as it may be applied in the construction of contracts, the normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation ... which promotes a sensible commercial result.
...
54 The trial judge appeared to take Consolidated‑Bathurst to stand for the proposition that the ultimate goal of contractual interpretation should be to ascertain the true intent of the parties at the time of entry into the contract, and that, in undertaking this inquiry, it is open to the trier of fact to admit extrinsic evidence as to the subjective intentions of the parties at that time. In my view, this approach is not quite accurate. The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time. Evidence of one party's subjective intention has no independent place in this determination.
After stating that it is unnecessary to consider any extrinsic evidence when the document is clear and unambiguous on its face, Justice Iacobucci continued:
56 When there is no ambiguity in the wording of the document, the notion in Consolidated‑Bathurst that the interpretation which produces a "fair result" or a "sensible commercial result" should be adopted is not determinative. Admittedly, it would be absurd to adopt an interpretation which is clearly inconsistent with the commercial interests of the parties, if the goal is to ascertain their true contractual intent. However, to interpret a plainly worded document in accordance with the true contractual intent of the parties is not difficult, if it is presumed that the parties intended the legal consequences of their words. This is consistent with the following dictum of this Court, in Joy Oil Co. v. The King, [1951] S.C.R. 624, at p. 641:
. . . in construing a written document, the question is not as to the meaning of the words alone, nor the meaning of the writer alone, but the meaning of the words as used by the writer.
(Emphasis added)
[21] In White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167, this court considered the interpretation of certain contractual terms in an agreement granting a licence to certain patents and patents pending. It concurred with the following statements of principle:
[42] In Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 W.L.R. 896 (H.L.), at page 913, Lord Hoffman summarises the principles of interpretation of a written contract. He says:
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
. . .
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.
[43] In Kentucky Fried Chicken Canada v. Scott’s Food Services Inc., 1998 CarswellOnt 4170 (C.A.) at ¶ 27, the Court states:
Where, as here, the document to be construed is a negotiated commercial document, the court should avoid an interpretation that would result in a commercial absurdity [FN1]. Rather, the document should be construed in accordance with sound commercial principles and good business sense [FN2]. Care must be taken, however, to do this objectively rather than from the perspective of one contracting party or the other, since what might make good business sense to one party would not necessarily do so for the other.
[22] A contract is to be read as a whole in a manner that gives effect to all its terms and that avoids an interpretation that would render one or more of its terms ineffective: see 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396 at para 31.
[23] I turn then to an examination of the Shareholders’ Agreement. It sets out the minimum and maximum number of directors on its board. There is no conflict between s. 8(b) and s. 8(a). The former names seven directors. The latter states that the minimum number of directors is equal to the number of shareholders - there were and are six - but does not set a ceiling on the number of directors. When they entered into the Shareholders’ Agreement, the shareholders chose to appoint more directors than the possible minimum. That they were entitled to do so is unquestioned.
[24] Section 8(a) is a general provision while s. 8(b) is more specific. Where there is an apparent conflict between such terms, they may be reconciled by taking the parties to have intended that the scope of the general was not to extend to the subject-matter of the specific: see BG Checo International Lt. V. British Columbia Hydro & Power Authority, [1993] 1 S.C.R. 12.
[25] Moreover, s. 8(b) stipulates that “until their successors are appointed”, the seven persons named are the directors of Synergy. A plain reading of that provision shows that the shareholders intended to have changes in the directors identified in that subsection effected through an appointment process. The Shareholders’ Agreement provides no other method to change the composition of the Board. According to s. 10(a)(ii), the appointment of directors requires a two-thirds majority vote of the shareholders. The vote at the shareholders’ meeting which purported to reduce the number of directors failed to garner the requisite shareholder support.
[26] A determination that Synergy has seven directors does not mean that a change in the number of directors is forever precluded or that s. 8(a) setting out the minimum number is rendered meaningless. The Shareholders’ Agreement provides a mechanism for amending or varying any of its terms. Section 25 states that this can be done by the written agreement of all the shareholders. According to counsel for the parties, since the Shareholders’ Agreement was signed, the parties have become embroiled in an acrimonious dispute which has given rise to mutual allegations of oppression. That this is the case does not change the fact that the shareholders signed the Shareholders’ Agreement, that it named seven directors and set out how successors to those directors are to be appointed, and that it provided a process to change any of its terms. An interpretation that Synergy has seven directors gives meaning to all of the terms of the Shareholders’ Agreement.
[27] I can find no error of law resulting in an injustice which would permit appellate intervention in the Chambers judge’s determination that Synergy has seven directors, of whom Andre Merks is one until he is replaced by a vote of two-thirds of the shareholders in accordance with s. 10(a)(ii). In the circumstances, I need not consider the appellants’ submission that the Chambers judge erred in law in his alternative holding pertaining to s. 25(b) of the Shareholders’ Agreement.
Voting at Shareholders Meetings
[28] Synergy’s share structure consists of non-voting Class A and Class B preference shares and voting tracking common shares. The Chambers judge ordered that the tracking common shares percentages represented by the results of Synergy’s fiscal year ended February 28, 2007 are to be used until a further determination is made of the end of the next fiscal year. The appellants say he erred on his interpretation of the relevant provisions of the Shareholders’ Agreement. In their view, the voting percentage entitlements are calculated based on the formula set out in the Shareholders’ Agreement not at the end of the last fiscal year which has been determined, but rather when the vote is actually taken.
[29] As indicated earlier, Synergy was incorporated to operate a feed mill to supply its shareholders with poultry feed and related services and products. Each shareholder would purchase feed, etc. from Synergy. It was anticipated that the subclasses of tracking common shares which are attributed to each shareholder would fluctuate. This is reflected in the fifth and sixth recitals of the Shareholders’ Agreement which read:
5. Part of the historical value of the Corporation is represented by Class “A” and Class “B” Preference Shares held by some of the Shareholders. The remainder of the Retained Earnings of the Corporation is, and shall be, represented by several sub-classes of “Tracking common shares”. The Shareholders intend to
a. determine the percentage of Profit to be allocated to each sub-class of Tracking common shares for each Fiscal Year while this Agreement is in effect based on the Shareholders’ relative Farm Purchases in that Fiscal Year; and
b. add the Profit allocated to each sub-class of Tracking common shares in a particular Fiscal Year to the total Retained Earnings allocated to each sub-class of Tracking common shares for prior Fiscal Years
from one Fiscal Year to the next.
6. The proportionate number of votes to be cast by the holder of a sub-class of Tracking common shares in a particular Fiscal Year will be determined by the percentage of Profit allocated to that sub-class of Tracking common shares for that particular Fiscal Year. (Emphasis added)
[30] “Farm Purchases” and “Profit” are defined in s. 1 as follows:
a. In this Agreement, unless the context otherwise requires:
...
ii. “Farm Purchases” means products and services purchased from the Corporation by Shareholders including, but not limited to, broiler chicks, broiler feed and non-broiler feed as determined by the Shareholders from time-to-time.
...
v. “profit” includes losses for the purpose of adjusting Retained Earnings and voting percentages from time-to-time, for example, Retained Earnings attributed to a sub-class of Tracking common shares may be adjusted downward if a loss is incurred in a particular Fiscal Year.
[31] Section 4 of the Shareholders’ Agreement deals extensively with the tracking common shares. It reads in part:
4. TRACKING COMMON SHARES
Allocation of Profit Retained Earnings
...
b. The Shareholders intend to
i. determine the percentage of Profit to be allocated to each sub-class of Tracking common shares for each Fiscal Year while this Agreement is in effect based on the Shareholders’ relative Farm Purchases in that Fiscal Year; and
ii. add the Profit allocated to each sub-class of Tracking common shares in a particular Fiscal Year to the total Retained Earnings allocated to each sub-class of Tracking common shares for prior Fiscal Years.
c. The Shareholders will keep a running total of Retained Earnings for each sub-class of Tracking common shares to which will be added the Profit allocated to each sub-class of Tracking Common Shares and from which will be deducted losses and dividends allocated to, or paid on, each sub-class of Tracking Common Shares. The intent of the Shareholders is to “freeze” or “capture” their “go forward” accumulated Retained Earnings at the end of each fiscal year by adding their allocation of profit or subtracting their allocation of losses for that year, net of dividends paid, to their previously accumulated total Retained Earnings.
(Emphasis added)
[32] Section 4 also contemplated the addition of new shareholders, their entitlement to tracking common shares and the calculation of their percentage of that sub-class. It provided:
e. If a third party becomes a Shareholder, the Shareholders shall cause the Corporation to issue 100 Tracking common shares of a new sub-class of Tracking common shares to the third party for $1.00 per share. The Profit to be allocated to the new sub-class of Tracking common shares for the Fiscal Year in which they are issued shall be determined at the end of that Fiscal Year. (Emphasis added)
[33] As is apparent from these provisions, the calculation of each sub-class of tracking common shares held by each of Synergy’s shareholders is to be done as of the end of each fiscal year, and accumulated retained earnings are to be “frozen” at the end of each fiscal year.
[34] The appellants’ argument that the voting percentage entitlements are not calculated at the end of each fiscal year is entirely based on s. 4(o) of the Shareholders’ Agreement:
Voting
...
o. The issued and outstanding Tracking common shares from time-to-time shall have a total aggregate number of one hundred votes. The number of votes to which a sub-class of Tracking common shares shall be entitled at a particular vote shall be determined by the percentage of Profit or Loss allocated to that sub-class of Tracking common shares when that vote is taken. For example, if a sub-class of Tracking common shares is allocated 12% of the Profit at the time a vote is taken, the holder of that sub-class of Tracking common shares shall be entitled to vote 12 out of the 100 votes permitted for all the sub-classes of Tracking common shares. (Emphasis added)
In the following subsection, the Shareholders’ Agreement also provided for voting by new shareholders:
p. If an unbudgeted new sub-class of Tracking common shares is issued during a Fiscal Year, the Shareholders may estimate the percentage of Profit to which the new sub-class of Tracking common shares will be entitled then adjust the votes allocated to all the sub-classes of Tracking common shares for the balance of that Fiscal Year.
[35] The Chambers judge rejected the appellants’ submissions. He reasoned:
27 Profit would be determined at the end of a fiscal year. To accept the respondents' argument that a determination of profit or loss has to be made "when the vote is taken" would lead to an absurdity because every time a vote was taken, be it twenty or thirty times per year, such a determination would have to be made.
28 The reference to "when the vote is taken" in 4(o) would logically refer to the last year end fiscal year. In this case, the fiscal year ended February 27, 2007.
29 On the whole of the agreement, I am not satisfied that the agreement provides for a calculation to be done each time a vote is taken. The reference in s. 4(o) to "when the vote is taken", can be read to mean the percentage of fiscal year end profit allocated to the respective shareholders at the time the vote is taken.
30 To use the last fiscal year calculation (February 27, 2007) is consistent with the evidence contained in the supplementary evidence of Andre Merks filed June 16, 2008 where he states at para. 34:
Since the Shareholders' Agreement was signed in October, 2006, voting percentages for SAGI shareholders' votes have been based on the previous fiscal year's results once those results have been approved by the shareholders.
31 I am satisfied that the proper percentages to be used to determine a vote are those reflected in the last fiscal statement for the year ending February 27, 2007 that being the last statement that was prepared. To use part of a year would not reflect an overall fiscal year determination. Looking at the agreement as a whole, the allocation of profit is relevant to voting but it is also relevant to determine the shareholders' entitlement to the overall profits and, therefore, it is logical to conclude that only the figures obtained by a final accounting determination at fiscal year end would be appropriate. The only available figures appear to be for the fiscal year ending February 2007. I order that these percentages be used until a further determination is made of the fiscal year and profit for the next period.
[36] The Shareholders’ Agreement was signed in October 2006. When the matters on appeal came before the Chambers judge, there had only been one fiscal year afterwards, namely, that which ended February 28, 2007. The percentages determined as of that date were MPFL 43.3 percent and all other shareholders together 57.7 percent.
[37] The appellants submit that the Chambers judge erred by treating the phrase “when the vote is taken” as ambiguous when its plain and ordinary meaning, as used in s. 4(o) and either read alone or in the entire context of the Shareholders’ Agreement, is all that is necessary to determine the intention of the parties. In their view, the phrase can only mean that the voting percentages entitlement at a particular vote is calculated based on the percentages of profit or loss allocated to the sub-classes of the tracking common shares when that vote is taken. They also submit that there being no ambiguity, the Chambers judge erred by considering evidence that voting percentages had been based on the previous year’s results as approved by the shareholders.
[38] In my view, the wording in s. 4(o) of the Shareholders’ Agreement is ambiguous. It could be interpreted in both the ways that the parties have urged. Having considered the words used in this commercial contract and what, against the background of the particular circumstances in this case, the parties using those words would reasonably have been understood to mean, I agree with the interpretation determined by the Chambers judge.
[39] Sections 4(b) and (c) establish that the percentage of profit to be allocated to each subclass of the tracking common shares is calculated at the end of each fiscal year. That allocation is then used in the calculation of retained earnings, which the shareholders agreed stated would be “frozen” at the end of each fiscal year. The Shareholders’ Agreement emphasizes the concept of an adjustment to the allocation of profit and thereby to retained earnings, each and every fiscal year, at the end of that fiscal year. The use and importance of this fixed date in various provisions strongly suggests that the reference in s. 4(o) to the number of votes being determined by “the percentage of Profit or Loss allocated to that sub-class of Tracking common shares when that vote is taken” is to the allocation at the end of each fiscal year and not to whenever a vote may be taken.
[40] Moreover, s. 4(p) pertaining to new shareholders refers to an estimate of the percentage of profit for the new subclass of tracking common shares and an adjustment of the voting allocation for all subclasses for the balance of a fiscal year. If the parties intended an ongoing calculation, rather than one at the end of each fiscal year, there would be no need to make any estimate for this purpose.
[41] I am not persuaded that the Chambers judge erred in interpreting the words “when the vote is taken” in s. 4(o) of the Shareholders’ Agreement as referring to the tracking common share percentages represented by the results of Synergy’s last fiscal year end.
Disposition
[42] I would grant leave to appeal, but would dismiss the appeal and award the respondents costs of $2,000 inclusive of disbursements.
Oland, J.A.
Concurred in:
Roscoe, J.A.
Fichaud, J.A.