[40] Unanimous shareholder agreements, partnership agreements, and joint venture agreements often contain what is commonly known as a "shotgun buy-sell provision". This is a mechanism for involuntarily expelling one or more of the parties from a business venture, which will continue without the exiting party's participation. Expulsion is a remedy available where, for example, the participants no longer get along, as in this case.
[41] Shotgun buy-sell provisions generally share the following features. The offeror party triggers the provision by putting a shotgun buy-sell offer to the offeree party. The offeror offers to buy the offeree's interest in the business venture, or to sell its own interest to the offeree. The offer specifies a value. The offeree must decide whether to buy out the offeror, or to sell its interest to the offeror, at the determined price. Depending on the size of the respective interests, the amounts paid to buy, on the one hand, and to sell, on the other hand, may be quite different, although they are to be based on the specified value. The offeree must make the choice by a certain date. If the offeree does not respond by choosing, then the offeror may force the purchase on the offeree, and require closing on the terms set out in the offer. Not all of these features are always present and close attention must be paid to the specific contractual language of the shotgun buy-sell provision in order to ensure that an offer is compliant.
[42] Because the operation of such a provision involuntarily expels a party from what is usually a viable business venture, it is seen to be a draconian remedy: Laschuk v. Poon, [1993] 7 Alta. L.R. (3d) 422 (Q.B.). This has led courts to require a shotgun buy-sell offer to comply "strictly" with the shotgun buy-sell provision in the authorizing agreement, to be enforceable. In Zeubear, O'Connor A.C.J.O., stated, at para. 24:
In this case, the court is confronted with the interpretation of a buy-sell provision in a commercial contract. I agree with the observation of the Alberta Court of Appeal in 942925 Alberta Ltd. v. Thompson (2008), 47 B.L.R. (4th) 1, at para. 21 that "a shareholder must strictly comply with the terms of a shotgun clause in order to obtain its benefit".
[43] In Trimac Ltd. v. C-I-L Inc. (1987), 52 Alta. L.R. (2d) 263; 1987 CarswellAlta 113 (Q.B.), in response to a shotgun buy-sell offer, C-I-L purported to elect to purchase the interest of Trimac. In its purported acceptance letter C-I-L stated: "On closing C-I-L will therefore pay to Trimac $91 million, in return for the Trimac shares in Tricil, or such other sum as, by that time, has been determined by the Supreme Court of Ontario to be the amount payable for such shares" The court found, at para. 35, that C-I-L "overplayed its hand" because, in seeking to buy for less, as noted at para. 30, its offer "equivocated". As a result, C-I-L's acceptance did not meet the standard required by the buy-sell provision in the agreement. Trimac therefore successfully bought out C-I-L based on its clean offer. Virtue J. stated, at para. 29: "A shotgun buy-sell is strong medicine. One takes it strictly in accordance with the prescription or not at all" (emphasis added). The decision was upheld at (1987), 53 Alta. L.R. (2d) 97; 1987 CarswellAlta 142 (C.A.).
[44] The members of this partnership are sophisticated and experienced business people who operated a successful and complex business for many years under a comprehensive PA. It appears that they have been assisted throughout by legal and other advisors. The PA contemplates the event of a falling out among the partners, since it contains a shotgun buy-sell provision, which was described, by the two experienced Commercial List judges who heard the injunction motion and the summary judgment motion, as well-drafted and carefully designed.
[45] Two design features in this shotgun buy-sell provision are notable, in my view. First, the partners could have included, but did not, a provision requiring the valuation specified in a buy-sell offer to be at the partnership's fair market value, as in Hargreaves v. Charbonneau, [2003] O.J. No. 4268 (S.C.). Second, the partners could have included a provision, but did not, prohibiting partners from combining to oust another partner, as the shareholders did in 942925 Alberta Ltd. v. Thompson, 2008 ABCA 81.
[46] It seems to me that the court should be reluctant to rescue a party who later regrets contractual arrangements that were carefully designed and accepted. The court's task is to consider whether compliance with the shotgun buy-sell provision is sufficiently strict, given the vagaries and complexities of commercial arrangements and commercial life, which the parties have plainly accounted for in their contractual arrangements. Strict compliance is not perfect compliance.
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