Be Specific-Inferring Common Intention Rules the Day when Joint Venture Agreements remain Silent: The Ontario Court of Appeal’s Decision in Zachary Timoon Dentistry Professional Corp. v. Tonino Ciocca Dentistry Professional Corp., 2015 ONCA 812
Through their professional corporations, two dentists entered into a joint venture agreement (hereinafter “JVA”) to continue their business relationship in general practice dentistry. The JVA included a provision which related to the necessary notice to effect termination, but did not include the consequences of termination, such as whether a dissolution or a buy-out would take place with respect to the parties’ interests in the general dentistry practice.
Dr. Tonino Ciocca on behalf of Tonino Ciocca Dentistry Professional Corp. (hereinafter the “appellant”) began additional training with the view to establish an independent practice from the business relationship governed by the aforementioned JVA with Dr. Zachary Timoon on behalf of Zachary Timoon Dentistry Professional Corp (hereinafter the “respondent”). In 2013 the appellant successfully opened two (2) new clinics specializing in prosthodontics.
Although the appellant continued to work at the general practice dentistry clinic during his training, it was the understanding of the parties the joint venture would terminate, without winding-up the practice. However, the appellant was reluctant to sell his interest to the respondent until his new specialized practice was amply profitable.
The dispute arose when the respondent gave the necessary notice of termination under the JVA to the appellant and began to seek to exclude him from the general practice. Although the parties came to an agreement which included the appellant remaining at the practice once a week, there was still a disagreement as to how the appellant would ultimately leave the practice, including whether the appellant would withdraw over time and the parties buy-out rights.
The respondent applied to court for termination of the joint venture and a declaration which would exclude the appellant from the general dentistry practice and name the respondent as the sole owner. The appellant disputed the respondent’s right to be declared sole owner of the practice, but did not dispute the right to termination or the effective termination date.
The application judge declared the respondent as the sole owner, to the exclusion of the appellant, of the general dentistry practice. The applicant judge also directed that the financial ramifications of the order and declaration, such as the buy-out value and method of payment, are to be dealt with by further application or civil procedure and not during these proceedings.
The appellants submitted that:
- the application judge erred by exceeding his jurisdiction by ordering and making a declaration that the appellant must transfer ownership to the respondent; and
- the application judge erred in ordering that other proceedings are required to determine the parties’ financial issues rather than making a determination within the application.
The Ontario Court of Appeal’s Decision
The Court dismissed the appeal for the foregoing reasons.
First, the Court found that the application judge had the requisite jurisdiction to make the order and declaration the appellant was required to transfer full ownership to the respondent. The Court reasoned that if the appellant were to maintain an ongoing ownership interest it would in effect “nullify the termination provision in the JVA, or at least make the termination meaningless.” (para 16).
Meaning, that the application judge’s decision was just ad reasonable given the facts. Once the JVA was terminated, there was a common intention that the appellant would be bought out by the respondent, otherwise the termination of the JVA would have been ineffective.
Secondly, the Court rejected the argument that the application judge erred in not directing the outstanding financial dispute to proceed to trial of the issues. Rather, the Court agreed that the application judge, leaving the choice of dispute resolution proceedings open to the parties granted better flexibility and that a trial would not grant any material advantage as argued by the appellant.
The above matter highlights the importance of contract drafting. Although the joint venture agreement included a termination provision, the lack of specificity with respect to the consequences of termination left the parties to litigate. It is advisable to include details beyond how to effect termination in a joint venture agreement rather than leave it to a court to infer the common intention of the parties.
The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.