Shotgun Clauses And Valuation Of Corporate Assets

Shotgun Clauses And Valuation Of Corporate Assets

Edward Khidirov
October 12, 2023


The death of a major shareholder or business owner is bound to come with complications. Oftentimes, the shareholder's agreement permits or obligates the remaining business partner to buy out the remaining shares upon one's death (See our article on Simpson v Zaste). However, without a shareholder agreement clause stipulating the buyout price calculation, the acquisition of shares by another shareholder would need to be negotiated independently. If this process leads the shareholders to an impasse, they may need to resort to a court's own determination on the best course of action.


This all-too-familiar set of facts was the contextual background for a series of cases before BC courts. George Melcer and Joseph Boxer incorporated and owned equal shares of Radio City Investments Ltd. Joseph Boxer transferred his shares to Boxer Holdings, which his family continued to operate upon his eventual death. Similarly, Mr. Melcer passed away, but left behind his share in Radio City to a testamentary trust. His will clearly instructed that these shares of Radio City be held by his estate for as long as possible. The testator did not want the shares to be quickly transferred to the remaining shareholder. Radio City owned two assets, a Burnaby Apartment building and shares in a different corporation holding another apartment building in Vancouver proper. Over a dozen years after Mr. Melcer's death, Boxer Holdings offered to purchase Melcer Estate's shares in Radio City for approximately $3 million. The beneficiaries of the Estate declined the purchase offer, since they had no fair market valuation on which to assess the offer. 

Melcer at First Instance

In their first appearance in front of the Supreme Court of British Columbia in Melcer Estate, 2018 BCSC 775, The Melcer Estate alleged oppression from Boxer Holdings, being deprived from: being involved in Radio City's operation, receipt of dividends, disclosure on loans and financial situation, and appointing an auditor. Boxer Holding counter-claimed, stating that the Melcer Estate refused to sign or delayed in signing corporate documents and failed to respond to communications essential to running Radio City. The Court declined to use the s. 227 oppression remedy, as well as some other relief sought. 

However, given the major issues between the two parties, the Court had to decide how to break the deadlock between them. The Melcer Estate sought the appointment of a valuator to value Radio City's fair market value, then give Boxer Holdings the opportunity to pay half the market share to purchase Melcer's Estate's portion of the corporation. If no such purchase was made, then Radio City would be liquidated. In contrast, Boxer Holdings sought a shotgun clause, where the offerer of an offer would have to accept a counter-proposal at the same price. Melcer Estate argued that this was not a viable option since they were the decedent's estate and not interested in operating the company on their own. 

The BCSC agreed; the shotgun sale was inappropriate in this case. Boxer Holdings was more familiar with the business than the personal representative of Melcer's estate. They are the only party who were willing to take over the business. This imbalance could risk an unfair result; the Estate's lack of desire to purchase the entirety of Radio City would make the “shotgun” method unjust. Thus the court ordered an independent valuation of Radio City, then Boxer Holdings would be given the option to purchase the petitioner's half. If Boxer Holdings did not exercise this option, Radio City would be wound up and sold. This decision was not appealed. Instead, Boxer Holdings questioned the valuation process. 


Both parties jointly retained Daniel Sturgess as the valuator to allow a fair offer and potential liquidation of Radio City. Sturgess used his own calculation and methodology in the report. However, the initial draft report had an error in the company's fair market value, which understated Radio City's value by$1.8 million. Sturgess informed both parties of his mistake. Boxer wished that the court order the correction of numerous inadequacies and then have Sturgess issue a final report, while Melcer's Estate wished for the valuation to be finalized with only this correction. The trial judge ordered the parties to have Sturgess finalize the report, subject only to the changes he deemed necessary in his discretion as the valuator to fix the 1.8 million dollar mistake. Sturgess fixed this issue and presented a final report valuing the company at $16.8 million. 

Boxer believed the court erred in compelling Sturgess to complete the report without correcting other errors they believed existed. On top of the $1.8 million tax mistake, Boxer believed that the valuator failed to incorporate the relative values of land improvement for one property, and also failed to account for other tax liabilities that would have lowered the value of the business. The lower court disagreed, stating that the valuator had the discretion to use his own methodology to calculate the value of the business, and it was not the court's position to second guess the valuator's judgment. With this order, the valuator delivered the final report with a higher range than Boxer would have liked. With only 30 days to present the $8.4 million offer, Boxer acquiesced but still hoped the court would force the amendment of the final report. 

Court of Appeal

In Melcer Estate v. Boxer, 2022 BCCA 143, the BC Court of Appeal examined whether the judge erroneously directed the finalization of the valuator's report without taking into account Boxer's contestations. The Court of Appeal ruled in favour of Melcer Estate. In its opinion, the court reasoned that the valuator was selected by the parties for an expert opinion on the value of the Estate's share. The judge had a limited role, only in providing instructions to the valuator. When Boxer challenged some of the valuator's assumptions, the judge merely concluded that the valuation was not unreasonable and would be sufficient for the buy-out option or winding down of Radio City. 

Factually, the valuator recognized Boxer's issues, but believed that the tax liability could be deferred indefinitely and thus not impact Boxer. The judge was entitled to accept the presented valuation, even if other professionals disagreed with Sturgess' assessment. The judge's decision was highly discretionary in guiding the valuator, and as the assessor of fact, she was in the best-placed position to make that determination. 


Melcer Estate offers insight into how the valuation of an estate's interest in an asset may become a highly contentious and expensive process. By reinforcing the judge's discretionary equitable powers, this case offers advice to business owners in planning their estate. 

Shotgun Clause

Firstly, courts recognize that shotgun clauses, although typical in many business settings, are not a fair method for resolving a business dispute when an estate is involved. Courts will consider the estate's position as a mere shareholder and not let this party become bullied by the opposing party. In doing so, the court will formulate a process attuned to an estate's inability (or unwillingness) to continue running an enterprise independently. 

Valuation Plan in a Corporate Documents

Secondly, a testator should keep in mind the valuation of their company and attempt to set their affairs in order. Doing so can help their beneficiaries receive their inheritances while keeping their business alive and thriving. While in this example, the court's agreement with the valuation favoured the estate, it may not in other cases. When drawing one's estate plan, those controlling important stakes in private companies should attempt to determine a calculation method within their shareholder agreements or other corporate documents. A testator should sit alongside their business partner(s) to determine an appropriate valuation methodology before either passes away. This extra step may save thousands of dollars and years of litigation by their future executors. 

Trusted Valuator

The importance of a trusted valuator in any business is an important decision that can prevent future litigation. Even if a precise formula was not previously incorporated into the shareholder agreement, a testator can work with his business partners to find a reputable valuator for future appraisals. Understanding a professional valuator's methodology can help ease any conflicts arising from future disagreements. 

In summation, the Melcer Estate saga demonstrates the uncertainty of estate administration and succession when there is a lack of guiding testamentary or corporate documents. The trial judge had the discretion to accept the valuator's discretion in how to value Radio City. This ambiguity leaves both the estate's beneficiaries and the deceased's business partner susceptible to massive disappointment. A prudent testator should work towards clarifying their corporate documents with their business partners to ensure a smooth transition after their death. Relying on equitable principles in settling a business relationship (and an estate) may lead to unwanted outcomes. 

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