In a recent motion seeking an interlocutory injunction to
restrain the sale of a business, Justice Wilton-Siegel considered
the content of an implied duty of good faith. In SCM Insurance Services Inc. v. Medisys
Corporate Health LP, 2014 ONSC 2632, Justice
Wilton-Siegel found that, in the circumstances, a party was given
the right of first negotiation and was therefore owed a duty to
negotiate in good faith. The Court held that this duty related only
to the right of first negotiation and did not impose a new,
unbargained-for right to match other potential purchasers.
In 2011, Medisys sold its independent medical examinations (IME)
business to SCM and agreed to be bound by a restrictive
(non-competition) covenant. In 2012, Medisys sought to acquire a
business that included a small IME division. Medisys and SCM
entered into an agreement (the "Agreement") that
contemplated that Medisys would attempt to acquire the integrated
business and then give SCM an opportunity to acquire the IME
portion. Justice Wilton-Siegel found that Medisys gave SCM a right
of first negotiation.
That is in fact what happened. Medisys and SCM negotiated, but
were unable to agree on the terms of a sale of the IME business.
SCM terminated the negotiations and insisted that Medisys dispose
of the IME business, in order to comply with the restrictive
covenant. Medisys ultimately agreed to sell the IME business to a
third party. On learning that the purchaser was a competitor, SCM
then moved for an interlocutory injunction restraining the sale.
Osler, Hoskin & Harcourt LLP represented Medisys on the
SCM argued that: (i) the Agreement included an implied duty of
good faith; and (ii) that this duty of good faith gave SCM the
right to match the third party's offer.
Justice Wilton-Siegel found that Medisys owed SCM an obligation
to negotiate in good faith. In this context, this meant a duty to
act reasonably in negotiating a possible sale. However, Justice
Wilton-Siegel found that Medisys did not breach this obligation and
that the purchase price offered by Medisys was not unreasonable.
Moreover, Justice Wilton-Siegel found that this obligation related
only to the right of first negotiation. It could not impose a new,
unbargained-for right – e.g., to match sale terms or to
impede a sale to a competitor.
Justice Wilton-Siegel held that there was no serious issue to be
tried and denied the injunction.
This case is a good reminder that, in certain circumstances,
courts may be prepared to imply duties of good faith into
commercial arrangements, even where the parties are at arm's
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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