IN THE COURT OF APPEAL OF MANITOBA

Transcription

1 Citation: Brar v Brar et al, 2018 MBCA 87 Date: Docket: AI IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Freda M. Steel Mr. Justice Christopher J. Mainella Madam Justice Jennifer A. Pfuetzner BETWEEN: BALWINDER BRAR ) F. J. Trippier and ) A. K. Anjoubault (Applicant) Respondent ) for the Appellants ) - and - ) D. G. Hill ) for the Respondent SATNAM BRAR, MANITOBA ) LTD., MANITOBA INC. and ) Appeal heard: AIKINS MACAULAY & THORVALDSON ) March 13, 2018 LLP ) ) Judgment delivered: (Respondents) Appellants ) September 12, 2018 PFUETZNER JA [1] This appeal raises, for the first time in this Court, the important question of the limits of the oppression remedy (see section 234 of The Corporations Act, CCSM c C225 (the Act)), and offers an opportunity to provide direction on this issue. [2] The specific question is whether a remedy under section 234 of the Act is available to provide redress for what is, in essence, a breach of contract dispute between shareholders in their personal capacities. [3] As will be explained, the application judge erred in granting a remedy under the Act in respect of conduct that did not constitute oppression as defined in the Act.

2 Page: 2 [4] For the reasons that follow, I would allow the appeal. Background [5] The applicant, Balwinder Brar (Billy), and his respondent brother, Satnam Brar (Sid), were each fifty per cent shareholders and directors in two Manitoba corporations, Manitoba Ltd. and Manitoba Inc. (the corporations). The corporations owned and operated two gas stations in Winnipeg. [6] The brothers relationship deteriorated and, in 2014, they began discussing a separation of their business interests. They reached a verbal agreement that Sid would obtain full ownership of a co-venture operated by the brothers under the name Legacy Homes and that, in exchange, Billy would obtain full ownership of the shares in the corporations. [7] The lawyer for the corporations, in consultation with the corporations accountant, prepared the necessary documents. Around August 2015, a share purchase agreement (the SPA) was drafted whereby Billy agreed to purchase Sid s shares. The SPA is between Billy and Sid only; the corporations are not parties, nor do they have any interest in the SPA. The SPA was not signed at that time but, according to Billy, after that point, he operated the companies under the assumption that he was the sole director, officer and shareholder and was completely responsible for all facets of the business. Billy executed the SPA and ancillary documents in late November 2015 at the accountant s office. [8] In or around December 2015, Sid executed the SPA and ancillary documents at the lawyer s office. According to Sid, however, he was unsure whether he wanted to go through with the transaction and told the lawyer to

3 Page: 3 put the deal on hold. The lawyer, who was examined out of court, agreed that she was instructed that the transaction was to be delayed or postponed. [9] The documents were never sent to Billy, nor was he told that the transaction was on hold. According to Billy, he did not find out until he received a letter from the lawyer in May 2016, claiming that Sid still had an interest in the corporations. [10] Billy filed an application under the oppression provisions of section 234 of the Act seeking various forms of relief. Billy s supporting affidavits dealt not only with the negotiation and execution of the SPA, but made allegations that Sid had misappropriated funds from the corporations. [11] The matter proceeded before the application judge on affidavit evidence. The application judge also had the transcripts of Billy s crossexamination and the lawyer s examination. Sid was not cross-examined. [12] While the corporations were named as respondents in the application, significantly, they did not take a position. At the hearing of the application, counsel appeared for the corporations on a watching brief. [13] The application judge s analysis focussed on whether there was a binding agreement between Billy and Sid for the purchase and sale of Sid s shares. The application judge noted that, Billy has framed his action as a claim for relief under the oppression sections of [the Act] (at para 2). Applying Matic et al v Waldner et al, 2016 MBCA 60, in a brief endorsement, he stated that the focus of the court s inquiry should be whether an objective reasonable bystander looking at all the material facts would conclude that an agreement was reached (at para 18).

4 Page: 4 [14] After reviewing the evidence, the application judge concluded (at para 3): I am satisfied that the parties entered into binding agreements to transfer ownership and control of the corporations to Billy and Sid s refusal to implement or give effect to those agreements constitutes a violation of Billy s reasonably held expectations as a shareholder and meets the definition of oppressive conduct that is unfairly prejudicial or unfairly disregards the interests of Billy as a shareholder. [15] The application judge ordered the following relief (at para 25): 1. There will be a declaration that Billy is the sole shareholder, officer and director of the two corporations effective December 23, 2015, as that is the latest possible date for Sid to have signed the SPA and supporting documents; 2. There will be an order directing the Lawyer and/or the [law firm] as it now exists to do all things necessary for the SPA and supporting documents executed by Sid and Billy to be placed on the Minute Books of the corporations and that the Minute Books be released to Billy; 3. There will be an order that Sid issue an accounting to Billy for all cheques or funds taken from the corporate bank accounts after December 23, 2015, and if the parties should then disagree as to whether or not those funds were used to advance the interests of the corporations. [16] The application judge made no ruling in respect of the ownership of Legacy Homes. [17] Although, as previously mentioned, Billy s application and affidavits raised other issues, such as alleged misappropriation of funds by Sid, none of these issues or evidence was dealt with by the application judge. The application proceeded on the sole issue of whether Billy and Sid had entered into a binding agreement that was breached by Sid. Indeed, at the

5 Page: 5 hearing of the appeal, Sid argued that the core of this case was the intention to create binding legal relations, while Billy advised that the core issue that was raised before the application judge was whether there was offer and acceptance. Positions of the Parties [18] Sid argues that the application should have been dismissed, adding that this was not an appropriate case for an oppression remedy to have been granted. He also submits that the matter should have gone to trial because of the significant facts in dispute and credibility issues. He says that the application judge should not have found a binding contract due to unresolved inconsistencies in the evidence. [19] Billy argues that the application judge did not err in granting an oppression remedy because the dispute that occurred was between the parties in their capacity as directors, shareholders and, lastly, as brothers. He maintains that the application judge correctly found that Sid s conduct, in failing to honour the contract, was oppressive. He submits that the law of oppression in Manitoba does not prohibit proceeding under section 234 of the Act when the complainant has legal rights enforceable in contract or tort. Discussion [20] The issue on appeal was not raised before the application judge. The parties had proceeded on the assumption that a claim for breach of a contract between individuals, who also happen to be shareholders in the same corporations, could properly form the basis for an oppression remedy. [21] In general, appeal courts will not consider a new issue that has not

6 Page: 6 been raised in the trial court absent exceptional circumstances, namely: there is a risk of an injustice; the issue can be decided without further evidence; and there is no procedural prejudice to any party (see Samborski Garden Supplies Ltd v MacDonald (Rural Municipality), 2015 MBCA 26 at para 27). [22] I am satisfied that exceptional circumstances exist in this case. The issue goes to the essential validity of the application judge s order and no additional evidence is required to determine if a legal error occurred. When raised at the hearing of the appeal, the issue was addressed by counsel for both parties and an adjournment was not requested or considered necessary by the panel. Accordingly, it is appropriate in the circumstances for this Court to consider and provide direction on this important issue. [23] I will begin by reviewing the nature of the oppression remedy. The Law [24] The oppression sections of the Act read as follows: Application to court re oppression 234(1) A complainant may apply to a court for an order under this section. Grounds 234(2) If, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates (a) any act or omission of the corporation or any of its affiliates effects a result; or (b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner; or (c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner;

7 Page: 7 that is oppressive or unfairly prejudicial or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of. [25] Broad remedial powers are given to the Court under section 234(3) to address the conduct set out in section 234(2). [26] The provisions of section 234 of the Act are virtually identical to the oppression sections of the Canada Business Corporations Act, RSC 1985, c C-44, considered by the Supreme Court of Canada in BCE Inc v 1976 Debentureholders, 2008 SCC 69. The Court commented on the proper approach to the interpretation of the oppression provisions (at paras 56, 58): One should look first to the principles underlying the oppression remedy, and in particular the concept of reasonable expectations. [O]ppression is an equitable remedy. It seeks to ensure fairness what is just and equitable. It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair.... It follows that courts considering claims for oppression should look at business realities, not merely narrow legalities: Scottish Co-operative Wholesale Society, [(1958), [1959] AC 324 (HL (Scot))] at p [27] Importantly, for the purposes of this appeal, the Court in BCE noted the distinction between remedies for breach of rights or obligations as opposed to expectations (at para 61): Rights and obligations connote interests enforceable at law without recourse to special remedies, for example, through a contractual suit or a derivative action under s. 239 of the [Canada Business Corporations Act]. It is left for the oppression remedy to deal with the expectations of affected stakeholders. The reasonable expectations of these stakeholders is the cornerstone of the oppression remedy.

8 Page: 8 [28] BCE illustrates the principle that, if an aggrieved party has a legal remedy available, such as through an action on a contract or in tort, there is no basis for that party to bring a claim for an oppression remedy. The purpose of the enactment of the statutory oppression remedy was to enable those with an interest in a corporation to have their reasonable expectations protected in circumstances where there was no other legal recourse available to them. [29] It follows from this that the oppression remedy is not appropriate for a simple breach of contract case. Although this Court has not previously directly addressed this issue (see, however, Matic at paras ), courts in other Canadian jurisdictions have done so. [30] Recently, Newbury JA, in Ontario Ltd v CSA Building Sciences Western Ltd, 2016 BCCA 258, leave to appeal to SCC refused, (19 January 2017), concluded (at para 53): It is clear the oppression action was intended to permit courts to remedy oppressive or unfairly prejudicial conduct not generally susceptible to correction by other forms of redress. Where the claimant already has a clear remedy in contract, tort, or debt, for example the court is unlikely to grant a remedy under s [31] To similar effect is Ernst & Young Inc v Essar Global Fund Limited, 2017 ONCA 1014, where Pepall JA, considering the oppression provisions of the Canada Business Corporations Act, wrote (at para 144): the oppression remedy is not available as redress for a simple contractual breach (such as the failure to pay a debt). [32] As explained, the oppression remedy was not meant to be a substitute for pursuit of legal rights. It was enacted to address a specific gap in the law. Unhappy corporate stakeholders are not entitled to pursue an

9 Page: 9 oppression claim when they have legal redress that will adequately compensate them. [33] The limits on the oppression remedy become clear when one examines the wording used in the Act. First, the grounds for granting a remedy in section 234(2) of the Act refer to actions of the corporation: any act or omission of the corporation (at section 234(2)(a)); the business or affairs of the corporation... have been carried on (at section 234(2)(b)); or the powers of the directors of the corporation... have been exercised (at section 234(2)(c)). Second, the impugned corporate action must affect the complainant in his or her capacity as a corporate stakeholder, not in his or her personal capacity. The action must be such that it is oppressive or unfairly prejudicial or [it] unfairly disregards the interests of any security holder, creditor, director or officer of the corporation (at section 234(2)) (emphasis added). [34] What these provisions mean is that, for the oppression remedy to be available, the act complained of must be an act of the corporation that affects the complainant s interests in his or her capacity as a corporate stakeholder, officer or director (see Wilson v Alharayeri, 2017 SCC 39 at para 54). [35] These principles were illustrated in Benedetti v North Park Electronics (1980) Ltd, 1997 CarswellOnt 559 (Ct J (Gen Div)), aff d 1997 CarswellOnt 5079 (Ct J (Gen Div) (Div Ct)), a case with facts similar to those on this appeal. The applicant (Benedetti), who was a minority shareholder, wanted to change the way the business was run and this led to the idea of a share transfer. A self-drafted letter of intent was signed with the other shareholders. The relationship broke down and the transfer did not happen. Benedetti commenced an oppression proceeding claiming the affairs of the

10 Page: 10 company had been conducted in an unfair manner, particularly with respect to the failure to complete the agreement as contemplated in the letter of intent. The respondents countered that this was not a proper circumstance in which to apply the oppression remedy and, if the letter of intent was a valid enforceable agreement, then Benedetti s action was for breach of contract. Epstein J (as she then was) wrote (at para 48): While there may have been other acts of the North Park shareholders that could properly have been the subject of an application for oppression, the only one relied upon by Mr. Benedetti was the respondent s failure to complete the May 5 letter of intent. In that regard, Mr. Benedetti is not complaining of any act of a corporation whereby his interests as a shareholder, officer or director have been unfairly regarded. The complaint of Mr. Benedetti is not as shareholder of North Park; his complaint is that the other shareholders refused to complete something that from his perspective is an enforceable share transfer agreement. In the case of Wittlin v. Bergman (1994), 19 O.R. (3d) 146 (Gen. Div.), Justice Farley recognized that a complaint of this nature is, pure and simple, not oppression. The oppression remedy is designed to protect interests qua security holder, creditor, director or officer it is not designed to enforce contracts between people, just because they happen to be shareholders. That is properly the subject of an action. [emphasis added] [36] Another example is Johnston v West Fraser Timber Co, 1982 CarswellBC 160 (CA), leave to appeal to SCC refused, [1982] SCCA No 113. The petitioner had threatened to resign as president of the corporation. To induce him to stay, the majority shareholders had agreed in a general very loose way (at para 22) to reduce their shareholdings to below fifty per cent either by selling their shares to the petitioner, using treasury shares or creating a public market for the shares. When the majority took no steps to complete this agreement, the petitioner sued for oppression. Bull JA, writing for the

11 Page: 11 Court, held that the breach of the agreement was not oppressive, noting as follows (at para 71): [T]he breach complained of could not be oppressive conduct of company affairs. It would be a breach of a private arrangement outside the carrying on of the company affairs. Likewise, neither the giving of the assurances nor any breach was in exercise of directors powers as such. [37] There is also ample support in academic literature for the principle that the oppression remedy is not intended for personal contractual disputes between shareholders. For example, in Kevin Patrick McGuinness, Canadian Business Corporations Law, 3rd ed (Toronto: LexisNexis, 2017) vol 3, the author writes (at paras , ): Private agreements between shareholders that are not embodied in a unanimous shareholder agreement may not be enforced via the oppression remedy. However, such agreements may still be enforced via a normal action for breach of contract. While acts of oppression may entail a breach of contract, or the commission of some tortious or similar wrong, against the complainant, the oppression remedy was not intended to be a substitute for a normal action for breach of contract.... Where the sole complaint is that of a breach of contract, then a contract action should be pursued. [footnotes omitted] See also Dennis H Peterson & Matthew J Cumming, Shareholder Remedies in Canada, 2nd ed (Markham: LexisNexis, 2009) (loose-leaf updated 2013, release 22-11) at para ; and Markus Koehnen, Oppression and Related Remedies (Thomson Carswell, 2004) at

12 Page: 12 Analysis and Decision [38] While, in his original application, Billy made allegations of misappropriation against Sid, these were not pursued before the application judge. The application judge s analysis focussed solely on whether there was a binding contract between Billy and Sid and whether Sid breached that contract. No allegations of oppressive conduct were made against the corporations per se. [39] Corporations act through their directors and officers, and Sid was a director and officer of each corporation. However, the conduct complained of, and for which the application judge granted a remedy, was done by Sid in his personal, and not his representative, capacity. There is no basis to suggest that there was any corporate action involved. The corporations did not take a position at the hearing of the application precisely because there were no claims against them to defend. [40] The lack of any direct role of the corporations is best illustrated by imagining that the subject of the contract was, instead of shares, a parcel of land that was co-owned by the brothers. If the contractual dispute unfolded the same way, there could be no suggestion that it should proceed under section 234 of the Act. Instead, it would have been resolved by way of an action on the contract. The fact that the subject of the contract was shares in the corporations is a red herring. [41] I do not accept Billy s assertion that Manitoba law allows for contractual disputes between shareholders in their personal capacities to be resolved through an oppression application. He relied on several cases to support this position (see Cohen v Jonco et al, 2005 MBCA 48; Cholakis

13 Page: 13 v Cholakis et al, 2006 MBQB 91, aff d 2007 MBCA 156; Danylchuk et al v Wolinsky et al, 2007 MBCA 132; Hatskin v Prober et al, 2011 MBQB 216; Tapper et al v Tapper et al, 2012 MBCA 36; Katz v Babkat Inc et al, 2012 MBCA 68; Rady et al v Silpit Industries Co, 2016 MBCA 11; and Davis v Saltel et al, 2016 MBQB 178). However, in none of these cases was relief granted under section 234 of the Act for conduct that did not actually constitute oppression. Not only is Billy s proposition inconsistent with the comments of the Supreme Court of Canada in BCE, as previously explained, the language used in section 234 of the Act clearly indicates that the Legislature intended the oppression remedy to be used to redress corporate actions that are not otherwise amenable to a legal remedy. [42] As stated by the Court in Shefsky v California Gold Mining Inc, 2016 ABCA 103, it would be an improper conflation of contract law and equitable oppression principles to suggest that the latter can come to the aid of a claim for breach of any contractual promises made to [the applicant] in his personal capacity (at para 74). [43] In this case, as the sole issue dealt with by the application judge was the contractual rights and obligations of Billy and Sid in their personal capacities, he erred in law by granting a remedy under section 234 of the Act. [44] Having identified the legal error made by the application judge, the question becomes whether this Court can make a final determination of the dispute between the parties based on the record. [45] Appellate courts are reluctant to require parties to undergo the cost of returning to the trial court when to do so will not realistically produce a different result or a better evidentiary record. See, for example, Snell

14 Page: 14 v Farrell, [1990] 2 SCR 311 at 336; Confederation Life Insurance Co v Woo Investments Inc, 1994 CarswellSask 470 (CA); Peter Pond Holdings Ltd v Shragge, 2003 ABCA 290; and British Columbia (Workers Compensation Board) v Figliola, 2011 SCC 52 at para 54. [46] The cases referred to above all involved matters that had been dealt with by way of a trial or administrative hearing at first instance. In each case, the choice for the appellate court was either to return the matter for a retrial or rehearing or to decide the issues on the existing record. [47] In this case, there was no trial. Because the claim was commenced as an application pursuant to section 234 of the Act, it proceeded by way of a notice of application on affidavit evidence. The application judge found that he was able to determine the issues without a trial. There is no question that an oppression claim, properly framed, can be commenced by way of a notice of application and resolved on affidavit evidence if considered appropriate by the judge hearing the application. [48] If this case had proceeded as it should have, as an action on a contract, it would have been initiated by a statement of claim, followed by a statement of defence and the usual pre-trial discovery. It most likely would have been resolved by either a judgment after a trial or on a summary judgment motion by either the plaintiff or defendant. [49] In my view, it would not be appropriate for this Court to make a decision on the contractual dispute between the parties. This is not a case where, by simply dismissing the application, we are effectively putting the parties to the expense of a second trial. Nor can I conclude that, after a trial, there would be no better evidence arising on the fundamental issue of whether

15 Page: 15 there was a binding contract. Conclusion [50] The appeal is allowed. Billy s application under section 234 of the Act is dismissed with costs in favour of Sid in this Court and in the Court below. Pfuetzner JA I agree: I agree: Steel JA Mainella JA