Closely held family corporations and estates

From Eugene Meehan's Supreme Court of Canada L@wLetter
Issue No. 7 - Thursday, February 5, 2009

My thanks to Mr. Eugene Meehan, Q.C., for his kind permission to post this extract in its entirety.

Cheryl Sylvestre and Jack, Donny, Bing and Cam Frye, are five children of the late George H. Frye who died in 1991, leaving the shares of his company, George H. Frye Holdings Ltd., to his children in equal shares. As Donny was a disabled adult, Bing, Cheryl and Cam were appointed trustees of two trusts held for his benefit. The letters patent under which the company was incorporated in 1968 contained a provision restricting the right to transfer shares of the company without the express resolution of the board of directors.

In 1991, the five siblings entered into a shareholders' agreement that was confirmed by a second agreement signed in 1994 containing a clause restricting the transfer of shares, and requiring any shareholder wishing to sell his or her shares to first offer them to the company, and then to the other shareholders on a pro rata basis. The agreement only permitted a sale to a non-shareholder after these offers were declined. The agreement also acknowledged that the intention was to preserve the Frye Group as a family business, and for all of the children to share equally in it.

The Frye siblings feuded constantly over the years over control of the business. In 1994, Bing sold all of his shares back to the company, increasing the interest held by Cam, Jack, Cheryl, and Donny's trusts to 25 percent each. Cam passed away in April 2002 and, pursuant to his will, Cheryl and a friend were appointed as his estate trustees, and all of his shares in the company were bequeathed to Cheryl. Jack brought an action challenging the validity of the gift to Cheryl, alleging that Cam lacked domicile in Ontario and testamentary capacity at the time he made the will; that Cheryl asserted or should have been presumed to have asserted undue influence over Cam when he made his will; and that the shareholders' agreement prohibited Cam from transferring his shares to Cheryl through his will.

The Ontario Superior Court of Justice gave an order declaring the bequest to Cheryl was null and void. The C.A. allowed the appeal. Issues include whether the C.A. erred by enforcing the provisions of the will and ignoring provisions in the shareholders agreement.

John Arthur Frye v. Cheryl Vanessa Sylvestre et al. (Ont. C.A. September 9, 2008) (32886)

[The Supreme Court of Canada the appeal from the Ontario Court of Appeal.]:
"The application for leave to appeal...is dismissed with costs to the respondent Cheryl Vanessa Sylvestre in her personal capacity, payable by the applicant."

Eugene Meehan, Q.C.
Chair, Supreme Court Practice Group
Lang Michener
300 - 50 O'Connor Street
Ottawa ON K1P 6L2
Phone: (613) 232-7171
Fax: (613) 231-3191

Ontario, Alberta, Yukon, NWT & Nunavut
Licenced to Practise Law in the State of Arizona, U.S.A.

The Ontario Superior Court trial decision of Mr. Terrence L.J. Patterson can be found here.

The Ontario Court of Appeal decision which allowed the appeal from Patterson J.'s decision, can be found here.

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