COURT OF APPEAL FOR ONTARIO
DATE: 20000601
DOCKET: C32532
McMURTRY C.J.O., GOUDGE AND SHARPE JJ.A.
B E T W E E N :
GORDON GLAVES HOLDINGS LTD.
Appellant
(Applicant)
and
CARE CORPORATION OF CANADA LIMITED, RALPH RODGERS, EARL CAMPBELL, RALPH GOODHUE, KEN GOODHUE, JOHN McGREGOR and PETER FRANCIS
Respondents
(Appellants in Cross-Appeal))
A N D B E T W E E N:
PETER J. FRANCIS HOLDINGS LTD.
Appellant
(Applicant)
- and -
GORDON GLAVES HOLDINGS LTD. and CARE CORPORATION OF CANADA LIMITED
Respondents
Heard: May 5, 2000
On appeal from the order of the Divisional Court (Southey, McNeely and Brockenshire JJ.) dated March 15, 1999.
[1] On November 13, 1991, Gordon Glaves, a successful Brantford business man, died suddenly and unexpectedly at the age of 51. In the year prior to his death he had acquired a significant shareholder interest in the respondent Care Corporation of Canada Limited (“Care Corp.”). This interest was acquired and held by his wholly owned holding company the appellant Gordon Glaves Holdings Ltd. (“GGHL”). Care Corp. held life insurance policies on the lives of each of its shareholders.
[2] In this litigation, the appellant asserts that the expectation of Mr. Glaves and GGHL was that on his death all shareholder advances would be repaid and the proceeds of insurance would be used to purchase the GGHL interest in Care Corp. to the benefit of the Glaves estate. The appellant says that the failure of Care Corp. to do so constitutes oppression entitling the appellant to relief pursuant to s.248 of the Business Corporations Act, R.S.O. 1990, c.B.16.
[3] The appellant was successful at first instance before Greer J. On appeal the Divisional Court reversed and ordered that because of conflicting evidence the matter should not be resolved by application, but should proceed to trial. Before us the appellant seeks to restore the finding of Greer J. while Care Corp. cross-appeals, seeking a dismissal of the oppression application.
[4] For the reasons that follow I have concluded that on the basis of the present record it can safely be determined that the appellant has failed to establish the oppression alleged and that its application must be dismissed.
THE FACTS
[5] Care Corp. was a fledgling company formed in 1989 to build and manage retirement homes. The five original shareholders were all individuals who had enjoyed long, stable business careers in the Brantford/St. Thomas area. In October 1990 and February 1991 Gordon Glaves and his friend Peter Francis jointly acquired 30% of the issued shares of Care Corp. Each used his personal holding company to do so. The share certificates were issued jointly in the names of GGHL and Peter J. Francis Holdings Ltd. (“PJFHL”). Mr. Glaves and Mr. Francis each paid about $400,000 for these shares, a significant premium over the current value of the shares because of their belief in the significant long term potential of the company and their investment in it.
[6] Mr. Glaves and Mr. Francis had been close friends and business associates for many years. Indeed, in his will executed in November 1990, Mr. Glaves named Mr. Francis as one of his executors and provided that Mr. Francis would be a manager of his major businesses, which the will contemplated would be carried on for up to 15 years beyond the death of his wife.
[7] Consistent with this history, Mr. Francis asserted that he and Mr. Glaves had agreed, although not in writing, that Mr. Glaves would be responsible for their joint investment in the Care Corp., but if he died, Mr. Francis would take over management of the jointly held shares. To this end, Mr. Glaves became a Director of Care Corp. Mr. Francis did not.
[8] Four of the other shareholders gave evidence that their understanding from Mr. Glaves was that if anything happened to himself or Mr. Francis the survivor would look after their joint investment which was to be maintained, despite the death of one of them, until the death of the survivor.
[9] Throughout 1990 and 1991 the shareholders of Care Corp. were developing a shareholders’ agreement to govern their relationship. Mr. Glaves was involved in this process. The draft agreements went through four iterations, the last dated August 21, 1991. However, no agreement had been executed prior to Mr. Glaves’ death.
[10] Every version of the draft agreement provided for life insurance to be obtained “to assist in” funding the purchase of the interest of a deceased shareholder. In pursuit of this concept, in April of 1991 Care Corp. obtained insurance policies on the lives of each of its principals. For Mr. Glaves the amount of the policy was $750,000 as it was for Mr. Francis and two other shareholders. None of the drafts fixed the value of the buy- out on death by reference to the value of the insurance policies. The last three of these drafts all provided that the buy-out value would be an arbitrary amount fixed annually by the shareholders.
[11] All three drafts of the agreement created after Mr. Glaves and Mr. Francis purchased their shares contained a specific provision that only upon the death of the survivor of the two of them would the obligation to purchase their jointly held interest arise.
[12] In July 1991 the company solicitor assisting with the preparation of the shareholders’ agreement wrote to the company president setting out several ways in which the survivor of Mr. Glaves and Mr. Francis could end up with the shares of both. The evidence of Mr. Rogers the president of Care Corp. was that this was not the desired objective and that he advised the solicitor of this with the result that the August 21, 1991 draft continued to reflect the fact that there would be no buy-out on the death of Mr. Glaves or Mr. Francis and that the joint shareholding would continue until the survivor died when Care Corp. would purchase their joint interest.
[13] On December 17, 1991 about one month after Mr. Glaves’ death, the shareholders executed a shareholders’ agreement. Mr. Francis signed on behalf of GGHL and PJFHL. That agreement reflected Mr. Glaves’ death and provided that the obligation to purchase the jointly held Glaves/Francis block arose only on the death of Mr. Francis.
[14] By February 1992 Care Corp. had obtained additional insurance coverage of $750,000 on Mr. Francis and had received the proceeds of the insurance policy on the life of Mr. Glaves. The Directors distributed this $750,000 to the shareholders pro rata except for $75,000 from the share of GGHL. This amount they resolved to retain in a special interest bearing loan account to be used for GGHL’s share of future cash calls that might be made by the company on its shareholders. Mr. Francis agreed to this on behalf of GGHL and indicated that, as with the execution of the shareholders’ agreement, he had the approval of the Mrs. Glaves to do so. However, Mrs. Glaves takes direct issue with this.
[15] Thereafter, over time, a serious rift developed between Mr. Francis and Mrs. Glaves and on December 2, 1994, an order was obtained with his consent removing him as an executor of the estate.
[16] In February 1997 the application for an oppression remedy was launched. It was followed very shortly by an application by PJFHL for a declaration that it had the sole right to vote the jointly held shares in Care Corp. or that ownership in this block should be severed. It also sought an order that GGHL is bound by the shareholders’ agreement executed on December 17, 1991.
[17] The PJFHL application was heard together with the oppression application. It was dismissed by Greer J. On appeal the Divisional Court ordered that this application like the oppression application should proceed to trial. PJFHL appeals from this order.
ANALYSIS
1. GGHL’s Application for Oppression Remedy
[18] I will turn first to the main issue before us, namely the assertion by GGHL that it has suffered oppression as a minority shareholder of Care Corp. Subsection 248(1) of the Business Corporations Act provides that a complainant such as a shareholder may by way of application seek an oppression remedy from the court. Subsection 248(2) then reads as follows:
(2) Idem. – Where, 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 or threatens to effect a result;
(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or
(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.
[19] In Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481 this court spoke about how oppression of a minority shareholder is to be determined. It said this at p. 490:
The law is clear that when determining whether there has been oppression of a minority shareholder, the court must determine what the reasonable expectations of that person were according to the arrangements which existed between the principals. The cases on this issue are collected and analyzed by Farley, J. in 820099 Ontario Inc. v. Harold E. Ballard Ltd. (1991), 3 B.L.R. (2d) 113 at p. 123 (Ont. Gen. Div.), affirmed (1991), 3 B.L.R. (2d) 113 (Ont. Div. Ct.). I agree with his comment at pp.185-86:
Shareholder interests would appear to be intertwined with shareholder expectations. It does not appear to me that the shareholder expectations which are to be considered are those that a shareholder has as his own individual “wish list”. They must be expectations which could be said to have been (or ought to have been considered as) part of the compact of the shareholders.
[20] In the context of this application, GGHL must satisfy the court that Care Corp. acted contrary to the reasonable expectations that could be said to be part of the compact among the shareholders. In more particular terms, the appellant must show that Care Corp. contravened the reasonable expectations of Gordon Glaves concerning the treatment of GGHL’s shareholder interest on his death.
[21] The appellant asserts that in these circumstances Mr. Glaves’ reasonable expectation was that on his death Care Corp. would purchase GGHL’s interest with the proceeds of its insurance policy on his life.
[22] I do not agree. The following factors lead me to that conclusion:
(a) GGHL entered upon this investment jointly with PJFHL. The shares were held jointly by the two holding companies. If Mr. Glaves had expected to be bought out separately from Mr. Francis it is more likely that he would have held his shares separately.
(b) Mr. Glaves regarded this as a long-term investment of great potential. The premium over current value that he paid is more consistent with an expectation that his shares would be held as long as possible in order to realize this value, not bought out at an early date.
(c) Mr. Francis and other shareholders gave evidence that Mr. Glaves had indicated his intention that the jointly owned shares would be bought out only on the death of the survivor of himself and Mr. Francis. The appellant could point to nothing that directly contradicted this evidence. Indeed Mr. Glaves’ decisions to name Mr. Francis as an executor of his will and to appoint him as a manager of his major ongoing businesses tends to support this evidence.
(d) Finally, and most importantly, all of the drafts of the shareholders’ agreement that followed the joint investment explicitly provide that this block of shares would be purchased only on the death of the survivor of Mr. Glaves and Mr. Francis. Mr. Glaves was not only aware of these drafts, he was involved in the process of preparing them. These drafts clearly corroborate the evidence of Mr. Francis and the other shareholders. They show that Mr. Glaves could have had no reasonable expectation that if he died before Mr. Francis his interest would nonetheless be bought out by Care Corp.
[23] The appellant argues that the existence of insurance held by Care Corp. on the life of Mr. Glaves yields the inference that Mr. Glaves could reasonably expect to be bought out on his death even if he predeceased Mr. Francis.
[24] I disagree. Had the draft shareholders’ agreement provided that the insurance proceeds were designated as the funds to be paid over to effect the buy-out, the appellant’s argument would have some merit. However, those drafts make clear that the insurance was only to assist in funding any buy-out whenever it was required. Hence the mere existence of this insurance says little about the timing of the buy-out.
[25] The appellant also relies on the July 1991 memorandum from the corporate solicitor to support the inference of a buy-out of Mr. Glaves’ interest by Care Corp. when he predeceased Mr. Francis. I do not think that the memo permits such an inference. It appears to have been based on a misunderstanding that on the death of either Mr. Glaves or Mr. Francis the survivor would end up owning the entire block. There was never any such intention and the subsequent draft of the shareholders’ agreement reiterated that the buy-out of the joint block would be by the company not the survivor and would only occur on the death of the survivor.
[26] The appellant further seeks to draw comfort from the fact that Mr. Glaves’ will made no reference to the agreement alleged by Mr. Francis, namely, that the survivor would take responsibility for the jointly held shares. However, as the respondents point out, it is only the shares of the holding company GGHL that are of concern to the estate and one would not expect to see a reference in Mr. Glaves’ will to the assets of GGHL which form no part of his estate.
[27] Finally, the appellant says that the evidence of Mr. Francis and the other shareholders should be disregarded because they have a financial stake in seeing that the oppression application is dismissed. I do not agree. There is no direct contradiction of their evidence and more importantly as I have indicated there is significant corroboration of it, particularly from the drafts of the shareholders’ agreement.
[28] I therefore conclude that the appellant cannot satisfy the court that Mr. Glaves had a reasonable expectation that if he predeceased Mr. Francis his interest would be bought out by Care Corp. using the insurance proceeds. Rather, his reasonable expectation was that the joint shareholding would be bought out on the death of the survivor Mr. Francis. Hence, when Care Corp. incorporated that intention into the shareholders’ agreement executed on December 17, 1991 there was no oppression of the minority shareholder GGHL.
[29] Moreover, it is clear to me that a trial is not needed to reach this conclusion.
[30] The statute authorizes this proceeding to be brought by application not action. As with any application the court will require the trial of an issue only if there is good reason to do so and no determination can properly be made on the application record. A common example of such a circumstance is a credibility conflict between witnesses.
[31] In argument all parties asserted that the evidence in the application record supported their position on reasonable expectations and that a trial was not necessary.
[32] I agree that there is nothing in this record that points to the need for a trial of the oppression application. The evidence of Mr. Francis and the other shareholders of Mr. Glaves’ expectations is uncontradicted. The appellant made clear in argument that in seeking to displace this evidence it was prepared to set aside any consideration of demeanour and rely on the inherent improbability of that evidence in the face of the inferences that it sought to draw from other documentary evidence. This is not an exercise that requires a trial, nor would the appellant’s chance of success be improved by a trial. In summary the court is not faced with any direct conflict in credibility nor any need to consider the demeanour of deponents. The application record is therefore an entirely satisfactory basis on which to evaluate the oppression claim.
[33] In the result I would therefore dismiss the appellant’s appeal, but allow the cross-appeal of Care Corp. I would set aside the order of the Divisional Court and the order of Greer J. and order that the appellant’s oppression application be dismissed.
2. PJFHL’s Application Regarding the Jointly Held Shares
[34] I turn now to the appeal from the disposition of the PJFHL application. In my view the primary issue that requires resolution is whether Mr. Francis was cloaked with the ostensible authority to execute the shareholders’ agreement on behalf of GGHL on December 17, 1991 and to represent to Care Corp. on behalf GGHL on February 6, 1992 that $75,000 could be retained by Care Corp. as a special shareholder loan from GGHL to meet future cash calls.
[35] If there was such ostensible authority then GGHL is bound to both arrangements with Care Corp.
[36] Any dispute between Mr. Francis and Mrs. Glaves as to whether she actually agreed that he could made these arrangements is a matter to be settled between them, as Brockenshire J. said in the Divisional Court.
[37] The analysis of Mr. Francis’ ostensible authority can be made without resolving the conflict between Mr. Francis and Mrs. Glaves. The representations made by Mr. Glaves to Mr. Francis and the other shareholders are clear. If either he or Mr. Francis died the survivor was to take over responsibility to manage this joint investment. In addition, the provisions of his will, which were known to Care Corp., and which named Mr. Francis as an executor and as a manager of his major ongoing businesses provide sufficient corroboration to satisfy me that Mr. Francis had the necessary ostensible authority to bind GGHL to the shareholders’ agreement and to the special shareholder loan arrangement.
[38] The second issue presented by the PJFHL appeal concerns the future management of the joint shareholding of PJFHL and GGHL in Care Corp. In my view, it is clear that a deadlock has arisen because of the rift that has developed between Mr. Francis and Mrs. Glaves. The appropriate resolution is that the jointly held block of shares be severed and that each holding company be the sole owner of 50% of the jointly held block.
[39] In summary, therefore, I would allow the PJFHL appeal and order that its application be granted to the extent of declaring (1) that GGHL is bound to the shareholders’ agreement of December 17, 1991 and the special shareholders’ loan made on February 6, 1992, and (2) that the joint ownership of the shares and Care Corp. be severed so that GGHL and PJFHL would each own 50% of those shares.
[40] I see no basis for making any further order in connection with the PJFHL application.
[41] As to costs Care Corp. and PJFHL have been successful on this appeal. I see no reason why they should not have their party and party costs throughout including their costs of the motion for leave to appeal to this court.
Released: June 01, 2000 “RRM”
“S.T. Goudge J.A.”
“I agree R.R. McMurtry C.J.O.”
“I agree Robert J. Sharpe J.A.”
