COURT OF APPEAL FOR ONTARIO
CITATION: NexJ Systems Inc. (Re), 2023 ONCA 451
DATE: 20230626
DOCKET: COA-22-CV-0449
Roberts, Trotter and Sossin JJ.A.
In the Matter of an Application Under Section 192 of the Canada Business Corporations Act, R.S.C. 1985, C. C-44, as amended
And In the Matter of Rules 14.05(2) and 14.05(3) of the Rules of Civil Procedure
And In the Matter of a Proposed Plan of Arrangement Involving NexJ Systems Inc. and N. Harris Computer Corporation
Rahool Agarwal and Maya Bretgoltz, for the appellants, 36 individual shareholders of NexJ Systems Inc.
Lara Jackson and Beth Burnstein, for N. Harris Computer Corporation
Heard: June 15, 2023
On appeal from the final order of Justice Michael A. Penny of the Superior Court of Justice, dated November 7, 2022.
REASONS FOR DECISION
[1] The appellants are 36 former employees and shareholders of NexJ Systems Inc., as well as shareholders of NexJ Health Holdings Inc. (“NexJ Health”), a related company to NexJ Systems Inc. (“NexJ Systems”). They own 3.2% of the common shares of NexJ Systems. They became shareholders of NexJ Systems in 2011 subject to loan and pledge agreements (“the 2011 agreements”) with NexJ Systems and subsequently received their NexJ Health shares when the holding company was spun off from NexJ Systems.
[2] They appeal the application judge’s order approving the plan of arrangement put forward by NexJ Systems Inc. under s. 192(4) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“the CBCA”).
[3] In accordance with the approved plan, the appellants were compelled to sell their shares in NexJ Systems and NexJ Health to a third party, N. Harris Computer Corporation. They received compensation of 55 cents per NexJ Systems share and 25 cents per NexJ Health share, as well as the forgiveness of the balance of the interest-free employee loans that NexJ Systems gave them to purchase their NexJ System shares in 2011. The plan also provides for a broad release of all claims that the appellants may have in relation to any matter with respect to their shares and loans and the plan of arrangement.
[4] The appellants submit that the application judge erred in approving the plan. They say the plan was not fair or reasonable because it breached the 2011 agreements and foreclosed their claims against NexJ Systems relating to the 2011 agreements, including for the alleged significant tax liabilities caused by the implementation of the plan. In particular, they raise the following grounds of appeal:
1. The application judge erred in law by deciding the merits of the appellants’ claims and releasing them without a trial, thereby denying procedural fairness to the appellants.
2. The application judge exceeded his jurisdiction under s. 192 of the CBCA by approving the forced sale of the appellants’ shares in NexJ Health, a separate corporation from NexJ Systems.
3. The application judge misapplied the fair and reasonable test by relying on unsupported evidence while dismissing or ignoring relevant factors supported by the record.
[5] We are not persuaded by these submissions.
[6] While it will not be appropriate or possible in every s. 192 application to summarily determine all issues, that decision is firmly within the discretion of the application judge. It will be up to the application judge to determine if the fair adjudication of the issues requires a trial in accordance with the required cultural shift in the civil process promulgated by the Supreme Court in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 2, 27-28; Re: Mid-Bowline Group Corp., 2016 ONSC 669, at paras. 47-49. Here, there was no procedural unfairness. The appellants participated fully in the application, filing several affidavits. They filed factums and made lengthy submissions.
[7] In any event, the application judge made no error in determining the application on the record before him. The application judge determined that in keeping with the expedient nature and purpose of an application for approval of a plan of arrangement, “[t]he time for resolution of objections is now, not 2 to 3 years from now after lengthy contestation of an ‘arguable’ claim.” He concluded that the appellants had not raised an arguable case. As we explain, he made no error in his determination. Fairness did not require him to defer the determination of any issue to a trial.
[8] In considering whether to approve the proposed plan of arrangement, the application judge correctly adverted to the governing criterion in issue as argued by the appellants and as articulated by the Supreme Court in BCE Inc. v. 1976 Debentureholders, 2008 SCC 79, [2008] 3 S.C.R. 69, at paras. 137-138, namely, whether the plan of arrangement was fair and reasonable, including whether it had a valid business purpose. He concluded that this criterion had been met. His conclusions are grounded in his interpretation of the 2011 agreements and the evidence from NexJ Systems that the application judge was entitled to accept.
[9] The application judge rejected the appellants’ argument, renewed here, that the 2011 agreements did not permit the forced sale of their shares and that their loans only became payable upon a voluntary sale of their shares, and then only if the share price exceeded $6.00, as provided for in section 1.3 of the 2011 agreements. The application judge’s interpretation of the 2011 agreements was “grounded in the text and read in light of the entire contract”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57. He concluded that the 2011 agreements contemplated and permitted the forced share sale and call of the loans under, among other events, a plan of arrangement, as referenced in section 1.7 of the agreement. He was not persuaded that the obligation to repay the loans was only triggered upon the voluntary sale of the shares or the termination of the appellants’ employment. Rather, he noted that the following underlined provision in section 1.1 - “the sale of the Shares by or on behalf of the Employee” - permitted the triggering of the loan repayment under a forced sale under a plan of arrangement, as the section does not distinguish between voluntary and involuntary sales.
[10] We do not agree that the application judge erred in disregarding the appellants’ evidence concerning the purpose and effect of the 2011 agreements. His characterization of this evidence as “of subjective intention which is not admissible in commercial contract interpretation” was correct. In particular, the evidence of Mr. Greg Dee, the former vice president and general counsel of NexJ Systems could not serve as objective evidence of the parties’ intention but represented his own subjective interpretation of the 2011 agreements. As this court instructed in Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65, the factual matrix “cannot include evidence about the subjective intention of the parties” and that a judge interpreting a contract should “determine the intention of the parties in accordance with the language they have used in the written document, based upon the ‘cardinal presumption’ that they have intended what they have said.” The application judge found no ambiguity in the 2011 agreements and determined that “on a plain reading” of its terms, the repayment of the loans could be triggered under either section 1.1 or 1.3. We see no reviewable error here.
[11] The application judge concluded that that the proposed release of all shareholder claims was fair and reasonable. As he noted, the appellants had acknowledged in the 2011 agreements that there were tax implications in entering into the 2011 agreements. As he further noted, they had the opportunity to obtain independent tax and legal advice before signing the 2011 agreements, which resulted in changes being sought and made to the 2011 agreements. Some of the appellants’ affiants also deposed that they had obtained advice before signing the agreement.
[12] We do not agree that the application judge exceeded his jurisdiction by approving, as part of the plan of arrangement, the sale of the appellants’ NexJ Health’s shares. As earlier noted, NexJ Health is related to NexJ Systems. As such, it is no stranger to these proceedings. Its inclusion was a necessary part of the financing arrangements of the plan of arrangement which benefitted the appellants because it provided a further paydown of their loans.
[13] In concluding that the proposed plan of arrangement had a valid business purpose, the application judge reviewed the evidence about NexJ System’s financial circumstances and its attempts to “identify viable strategic alternatives that it might pursue to address various financial, operating and market challenges.” He accepted NexJ’s evidence that “there is no alternative transaction waiting in the wings” and that “NexJ’s inability to consummate the Plan is likely to lead to a spiral of further uncertainty causing customers and employees to depart and leading to severe commercial and financial distress.” He observed that the appellants did not proffer any evidence that “any transaction is possible which would solve their personal tax planning problems to their satisfaction.” The application judge’s findings on this issue were, again, grounded in the record and were not speculative as the appellants submit.
[14] As a result, we see no basis to interfere with the application judge’s decision. The appeal is dismissed.
[15] The parties have agreed that there will be no costs of the appeal.
“L.B. Roberts J.A.”
“Gary Trotter J.A.”
“L. Sossin J.A.”