COURT OF APPEAL FOR ONTARIO
RE: CLAUDE JONCAS and ROBERT C. STACKHOUSE (Plaintiffs/Appellants) v. SPRUCE FALLS POWER AND PAPER COMPANY LIMITED, SPRUCE FALLS INC., SPRUCE FALLS ACQUISITION CORPORATION, KIMBERLY-CLARK CORPORATION AND NEW YORK TIMES COMPANY (Defendants/Respondents)
BEFORE: LABROSSE, DOHERTY and FELDMAN JJ.A.
COUNSEL: Kirk M. Baert and G. Pop-Lasic, for the appellants William Scott and Peter Neumann, for the respondents
HEARD: April 23 and 24, 2001
On appeal from the judgment of Justice Peter A. Cumming dated May 15, 2000
E N D O R S E M E N T
1The appellants (the named plaintiffs in a class proceeding) appeal the dismissal of their application as complainants under the oppression provisions of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA). In their application, the appellants were seeking a declaration that the respondents Kimberly-Clark Corporation and New York Times Company (“KC”) unfairly disregarded the interests of the class members by excluding them from those entitled to receive certain corporate shares.
2In 1990 and 1991, KC decided either to divest itself of ownership of Spruce Falls Power and Paper Company Limited (“Spruce Falls” or “the company”) in Kapuskasing, Ontario or to restructure and downsize the company with a significant loss of jobs.
3At that time, discussions arose concerning the idea of an employee buyout of the company. A complex deal was being considered. It involved representatives of Spruce Falls, unionized and non-unionized employee groups of the company, the proposed “strategic partner” Tembec Inc. (“Tembec”), Ontario Hydro with respect to the sale of a generating station, an asset of Spruce Falls and the Ontario Government. The proposed deal called for employees of Spruce Falls and community members of Kapuskasing to own approximately 60% of the shares of a new company that would own Spruce Falls with substantial monies to be raised from the employees and members of the community through the sale of Class 1 and Class 2 shares of the new company. As part of the restructuring plan, a third class of shares, Class 3 shares, was to be subscribed for by KC for a nominal sum per share, then “gifted” to employees of Spruce Falls.
4Class 1 and Class 2 shares were offered to employees and members of the Kapuskasing community in order to raise part of the required financing subscription. The issue in this appeal is with respect to the Class 3 shares (called “gift shares”).
5The proposed deal made no reference to the basis for the distribution of the “gift shares” in the new company to the employees. Cumming J. (“the motions judge”) found that the Ontario government left the question as to which employees would receive the Class 3 shares to the parties negotiating the reorganization of Spruce Falls, namely KC, the Employee Ownership Group and Tembec.
6There was evidence that in order to improve the chance of success of Spruce Falls, KC’s strategy was to place the “gift shares” in the hands of employees who were then actively employed with Spruce Falls or who were likely to return to active employment. The motions judge found that, in the end, the other parties allowed KC’s views to prevail. Accordingly, the criteria established for the receipt of “gift shares” excluded employees on worker’s compensation or long-term disability for more than one year from a certain date, namely the appellants, temporary and part-time employees.
7Section 248 of the Ontario Business Corporations Act provides:
- (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.
(2) 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.
8The appellants were not shareholders or beneficial owners of a security, nor were they directors or officers of Spruce Falls. The appellants’ oppression remedy claim was based on their view that they were entitled to receive Class 3 shares because as “employees” of Spruce Falls, they had a reasonable expectation and thus a right to be treated the same as eligible employees in the eligibility criteria.
9In his detailed and well considered reasons, the motions judge dealt with that claim in paragraph 36:
However, reasonable expectations must derive from corporate conduct affecting a protected category of persons: namely, a creditor, director, officer or security holder. To be considered a security holder, a putative complainant must either be a registered owner or at the least a beneficial owner. I agree that “beneficial owner” should be interpreted broadly. Nevertheless, a putative complainant must have a legal right to become a shareholder before it can be asserted that the person is a “beneficial owner”. Reasonable expectations must be tied to legal or equitable rights as a security holder, whether as a registered owner or as a beneficial owner. It is not enough to simply have reasonable expectations to become a shareholder based upon a general sense of fairness.
We agree with the motions judge’s main basis for dismissing the application.
10We also agree that there is no proper basis for the contention that the appellants were beneficial security holders or third party beneficiaries (which issues were not pleaded but only arose during the hearing). There was never any enforceable agreement on which the appellants can rely. They did not have any legal right to the Class 3 shares. Their expectations arose solely out of their relationship as employees and not through any legal entitlement to receive the shares.
11In the result, we conclude that there is no merit to the appellants’ oppression remedy claim.
12The appeal is dismissed with costs.
(signed) “J. M. Labrosse J.A.”
(signed) “Doherty J.A.”
(signed) “K. Feldman J.A.”
