Catalyst Fund General Partner I Inc. v. Hollinger Inc. et al. White v. Hollinger Inc. [Indexed as: Catalyst Fund General Partner I Inc. v. Hollinger Inc.]
79 O.R. (3d) 288
[2006] O.J. No. 944
Court of Appeal for Ontario,
Moldaver, Cronk and LaForme JJ.A.
March 14, 2006
Corporations -- Directors -- Indemnity -- Director not entitled to indemnification from corporation for his costs of resisting successful application by corporation for his removal where it was clearly not in corporation's best interests that he remain on board of directors.
Corporations -- Oppression -- Remedies -- Application judge making finding of oppression against director but ordering that he continue as director and officer of corporation at pleasure of corporation's independent directors -- Application judge granting independent directors leave to reapply for further directions if they saw need for change in director's status -- Application judge subsequently ordering director's removal -- Application judge having power under s. 241 of CBCA to make both orders -- Fresh oppression not required before director could be removed permanently -- First order not having effect of improperly altering director's duties and not improperly delegating to independent directors court's authority to make oppression findings and determine oppression remedies -- Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 241.
H Inc. was a public holding company incorporated under the Canada Business Corporations Act ("CBCA"). R Ltd., a private company controlled by B, was H Inc.'s majority shareholder. W was a director and officer of both H Inc. and R Ltd. As co- chief operating officer of H Inc., W arranged a $1.1 loan by H Inc. to a wholly-owned H Inc. subsidiary, which in turn loaned the funds to R Ltd. At that time, H Inc.'s board was comprised of five directors, including B and W, who were associated with R Ltd., and five "independent" directors. W did not seek or obtain the prior approval of the independent directors before arranging the loan or advancing the funds. In part because of that loan, C Inc., a non-voting shareholder of H Inc., brought an oppression remedy application under s. 241 of the CBCA seeking, among other relief, an order removing certain directors from H Inc.'s board of directors, including W. B announced his resignation from H Inc.'s board prior to the hearing of the Oppression Application. W did not. In November 2004, the application judge ordered the removal from the H Inc. board of the remaining directors associated with R Ltd., except W. He directed that W's service as a director continue "at the pleasure" of H Inc.'s five independent directors. He also granted the independent directors leave to reapply to the court for further directions if they believed that there was a need for further change in W's status as a director and officer of H Inc. After the November Order, H Inc. commenced a civil lawsuit against R Ltd., B and several other former directors or officers of H Inc. alleging improprieties in the defendants' dealings with H Inc. R Ltd. obtained creditor protection under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA") and a receiver was appointed to manage its affairs. H Inc. then brought a motion for W's permanent removal as a director and officer of H Inc. (the "Removal Motion"), arguing that since H Inc. had commenced litigation against R Ltd., of which W was still an officer and director, it was no longer in the best interests of H Inc. that W remain as a director and officer; that R Ltd.'s [page289] receiver had requested H Inc.'s independent directors to appoint a nominee of the receiver as a director of H Inc., and that W took numerous positions in the R Ltd. CCAA proceeding that were adverse to the interests of H Inc. In June 2005, that motion was granted and W was removed as a director and officer of H Inc. W brought an application for a declaration that he was entitled to indemnification from H Inc. for his costs incurred in resisting the Removal Motion. That application was dismissed. W appealed the November 2004 and June 2005 orders and the dismissal of his indemnity application.
Held, the appeal should be dismissed.
The application judge had the authority under s. 241 of the CBCA to make both the November 2004 order and the June 2005 order. Although s. 241(3) does not expressly mention an order to remove a director and an officer of a public corporation, that authority is implicit in s. 241(3)(e). Moreover, the specific orders identified under s. 241(3) are non-exclusive. They do not diminish the wide rectification jurisdiction otherwise conferred upon the court under s. 241(2). Despite permitting W to continue to serve as a director and officer of H Inc. in the November 2004 order, the application judge had made clear findings of oppression against W in the Oppression Application. W's immediate removal was not ordered because W's continued service as a director and officer, at least on a transitional basis, was in the best interests of H Inc. given his familiarity and background with H Inc. and the fact that only some of H Inc.'s independent directors had any significant length of service with H Inc.'s board at the time of the November Order. The decision to permit W to continue in office on the term imposed by the application judge did not displace the finding of oppression against him. Nor did it require that "fresh" oppression be proven thereafter to warrant W's permanent removal from H Inc.'s board of directors. Properly read, the November Order had the effect of suspending W's permanent removal as a director and officer of H Inc. on a temporary basis in order to advance the best interests of H Inc. It was well within the discretion of the application judge under s. 241 of the CBCA to make that order. The November Order did not have the effect of improperly altering W's duties and obligations as a director and did not make him "beholden" to the independent directors. Both before and after the November Order, W had one clear and constant responsibility in relation to H Inc.: he was obliged to discharge the duties and obligations of his office as a H Inc. director and an officer in accordance with s. 122(1) of the CBCA and his fiduciary duties at common law. This required him to act in the best interests of H Inc., not the independent directors. The fact that the November Order contemplated that if the independent directors formed the belief that there was a need for a further change in W's status, they could seek further directions from the court, reflected the court's continued jurisdiction (founded on the earlier findings of oppression and the nature of the November Order) to determine whether and when W's removal should be made permanent by requiring the independent directors to satisfy the court of the need to do so. The November Order was not an improper delegation to H Inc.'s independent directors of the court's authority to make oppression findings and to determine appropriate remedies under s. 241 of the CBCA. The November Order contemplated that W's permanent removal as a director and officer of H Inc. could not be accomplished by unilateral or arbitrary action of the independent directors.
Assuming that W could avail himself of an Indemnity Agreement between himself and H Inc. or s. 124 of the CBCA or both, W was only entitled to indemnification if, in resisting the Removal Motion, he was acting honestly and in good faith with a view to the best interests of the corporation. In the circumstances, given the situation that existed in June 2005, W had no business in resisting the [page290] Removal Motion. That he may have done so in the subjective belief that he was acting in the best interests of H Inc. did not assist him. Objectively, that was not the case and he could not make out a claim for indemnification by relying on an unreasonable subjective belief. The application judge correctly refused W's claim for indemnification.
APPEAL from the orders in oppression remedy proceedings of C. Campbell J. (2004), 2004 40665 (ON SC), 1 B.L.R. (4th) 186 (S.C.J.) and from the dismissal of C. Campbell J. of a motion for declaration of entitlement to indemnification, 2005 20810 (ON SC), [2005] O.J. No. 2408, 8 B.L.R. (4th) 117 (S.C.J.).
Cases referred to 820099 Ontario Inc. v. Harold E. Ballard Ltd., [1991] O.J. No. 1082, 3 B.L.R. (2d) 113 (Div. Ct.), affg [1991] O.J. No. 266, 3 B.L.R. (2d) 123 (Gen. Div.); Budd v. Gentra, 1998 5811 (ON CA), [1998] O.J. No. 3109, 111 O.A.C. 288, 43 B.L.R. (2d) 27 (C.A.); Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board (2006), 2006 15 (ON CA), 79 O.R. (3d) 81, [2006] O.J. No. 27, 12 B.L.R. (4th) 189, 144 A.C.W.S. (3d) 859; Naneff v. Con-Crete Holdings Ltd. (1995), 1995 959 (ON CA), 23 O.R. (3d) 481, [1995] O.J. No. 1377, 23 B.L.R. (2d) 286 (C.A.); Stelco Inc. (Re) (2005), 2005 8671 (ON CA), 75 O.R. (3d) 5, [2005] O.J. No. 1171, 196 O.A.C. 142, 253 D.L.R. (4th) 109, 9 C.B.R. (5th) 135, 2 B.L.R.(4th) 238 (C.A.) Statutes referred to Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 105 [as am.], 106 [as am.], 108 [as am.], 109 [as am.], 111 [as am.], 122 [as am.], 124 [as am.], 229 [as am.], 241 [as am.] Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 Authorities referred to Beck, S.M., "Minority Shareholders' Rights in the 1980s" in Special Lectures of the Law Society of Upper Canada: Corporate Law in the 80s (Don Mills: Richard De Boo Publishers, 1982)
David R. Wingfield and Paul D. Guy, for appellant (respondent by cross-appeal), Peter White. David C. Moore, for respondent (appellant by cross-appeal), Catalyst Fund General Partner I Inc. Matthew Gottlieb and Elyse Korman, for respondent, Hollinger Inc.
The judgment of the court was delivered by
CRONK J.A.:--
I. Introduction
1These proceedings arise in the context of continuing litigation in Ontario and elsewhere involving the Hollinger group of companies. They require us to consider two issues: first, the power [page291] of the court under the oppression remedy provisions of s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the "CBCA") to order the removal of a director and an officer from the board of directors of a public corporation; and second, the entitlement of a director to receive indemnification from the corporation upon whose board he or she previously served for the costs, charges and expenses incurred by the director in unsuccessfully resisting his or her removal from the board.
2Hollinger Inc. is a public holding company incorporated under the CBCA. Approximately 12 per cent of its voting common shares are owned by members of the public. The Ravelston Corporation Limited, a private company controlled through various means by Lord Conrad Black, is Hollinger's majority shareholder. It either owns or controls all of Hollinger's non-publicly held voting shares. There are also outstanding preferred non-voting retractable shares, which are either redeemable by Hollinger or convertible into shares of Hollinger International Inc., a public company incorporated under the laws of Delaware that owns and operates an international newspaper and media publishing enterprise. At the times material to these proceedings, Hollinger's principal asset was a 30.3 per cent equity interest in International.
3At the relevant times, Black was the Chairman and a director and the appellant, Peter White, was a director and an officer of Hollinger. White was also a shareholder, director and officer of Ravelston.
4In June 2004, Catalyst Fund General Partner I Inc., a non-voting Hollinger shareholder, initiated an application under s. 229 of the CBCA for the appointment of an inspector to review Hollinger's finances and certain related-party transactions involving Hollinger (the "Inspection Application"). For some time prior to the Inspection Application, Hollinger and several of its directors and officers, including Black, were embroiled in litigation commenced by International, in which wrongdoing by the defendants was alleged.
5The Inspection Application was heard by C.L. Campbell J. of the Superior Court of Justice. On September 3, 2004, he allowed the Inspection Application and appointed an inspector of Hollinger.
6Approximately three weeks later, Catalyst commenced an oppression remedy application under s. 241 of the CBCA in which it sought, among other relief, an order removing eight of ten directors from Hollinger's board of directors, including White, on the ground that they had oppressed Hollinger's minority shareholders (the "Oppression Application"). [page292]
7Hollinger's board was then comprised of five directors, including Black and White, who were associated with Ravelston, and five "independent" directors who were neither Ravelston nominees nor otherwise associated with it. Black announced his resignation from Hollinger's board prior to the hearing of the Oppression Application.
8The Oppression Application was also heard by C.L. Campbell J. By order dated November 18, 2004, he ordered the removal of the remaining Ravelston-associated directors, except White, from Hollinger's Board (the "November Order"). As a term of the November Order, he directed that White's service as a director and an officer of Hollinger continue "at the pleasure" of Hollinger's five independent directors. He also granted the independent directors leave to reapply to the court for further directions if they believed that there was a need for further change in White's status as a director and an officer of Hollinger.
9White appeals from the term of the November Order affecting his tenure as a director and an officer of Hollinger. Catalyst, in turn, cross-appeals from the same term of the November Order, arguing that the application judge erred by permitting White to continue to serve on Hollinger's board.
10White also appeals from the subsequent order of the application judge dated June 8, 2005 (the "June Order"), whereby a motion by Hollinger for White's permanent removal as a director and an officer of Hollinger was granted ("Hollinger's Removal Motion") [See Note 1 at the end of the document].
11In addition, in a companion appeal to this court, White appeals from a third order by the application judge, also dated June 8, 2005, whereby the application judge dismissed White's application for a declaration that he was entitled to indemnification from Hollinger for his costs, charges and expenses reasonably incurred in resisting Hollinger's Removal Motion (the "Indemnity Appeal").
12The Removal Appeals, Catalyst's cross-appeal and the Indemnity Appeal were heard together by this court. For the reasons that follow, I would dismiss the Removal Appeals. In view of that disposition, Catalyst's cross-appeal is moot. I would also dismiss the Indemnity Appeal. [page293]
II. Facts
13It is unnecessary for the disposition of these proceedings to recount the complex history of the litigation involving the Hollinger companies. However, it is appropriate to detail certain of the background facts relevant to the Oppression Application and Hollinger's Removal Motion. These facts, which are undisputed before this court, may be summarized as follows.
(1) Ravelston loan
14Catalyst's Oppression Application was based in part on White's arrangement on June 30, 2004 of a demand loan of $1.1 million by Hollinger to Domgroup Ltd., a wholly-owned Hollinger subsidiary corporation. Domgroup, in turn, loaned the funds in question to Ravelston (the "Ravelston Loan"). The Ravelston Loan was made to enable Ravelston to pay the estate of a Ravelston shareholder which had exercised a right of retraction over its Ravelston shares. It was secured by a demand promissory note from Ravelston to Domgroup for $1.1 million, bearing interest at 8 per cent above the prevailing Canadian Imperial Bank of Commerce prime rate of interest. The promissory note was expressed to be secured by a general security agreement in favour of Domgroup.
15White arranged the Ravelston Loan in his then capacity as co-chief operating officer of Hollinger. He signed the loan documentation on behalf of Ravelston.
16White did not seek or obtain the prior approval of Hollinger's independent directors before arranging the Ravelston Loan or advancing the funds loaned.
17Jack Boultbee, another Hollinger director, sent an e- mail to White on Wednesday, June 30, 2004, in which he indicated that the Ravelston Loan required the approval of Hollinger's independent directors as a "corporate governance requirement". According to White, he did not see Boultbee's e- mail until the following Monday, July 5, 2004, after the loan proceeds had been advanced.
18Notwithstanding his receipt of this e-mail, White did not inform Hollinger's independent directors of the Ravelston Loan until late August 2004, almost two months after the transaction.
19At the time of the Ravelston Loan, Hollinger had no formal related-party transaction protocol in place, although Hollinger had publicly announced, by at least November 2003, its intention to introduce such a protocol.
20White swore an affidavit on July 27, 2004 (within weeks of the Ravelston Loan) in support of Hollinger's opposition to the [page294] Inspection Application. When he was cross- examined on this affidavit on August 10, 2004, he testified that, after November 2003, Hollinger had adopted a policy of "being extremely scrupulous in requesting counsel for advice on any matter that comes before the board as to whether it might be considered to be a related-party transaction". He also stated:
[T]here is no chance whatsoever that there has been a related-party transaction since [November 2003] that hasn't had the most scrupulous examination by counsel and by the board and been treated in the best possible way under corporate governance practices.
(Emphasis added)
21The fact of the Ravelston Loan did not become public, and it was not disclosed to the court, until after the release in mid-September 2004 of the application judge's reasons in support of his decision to appoint an inspector of Hollinger. Hollinger's independent directors first discussed the Ravelston Loan on August 26, 2004, one day prior to argument of the Inspection Application. At that time, a related-party transaction protocol was still not in place at Hollinger.
22On September 2, the day before the appointment of the Hollinger inspector, the independent directors passed a resolution confirming their view that the Ravelston Loan was a related-party transaction that had required their review and approval. They demanded immediate repayment of the Ravelston Loan. This demand was resisted by Black. Ultimately, however, Hollinger was reimbursed for the loan proceeds.
23It appears that Catalyst did not learn of the Ravelston Loan until late September 2004. Its Oppression Application followed immediately.
(2) Other relevant background events
24By the time of the Oppression Application, several important events had occurred. First, Black had been ordered to pay US $15 million pursuant to a summary judgment granted in civil proceedings in the United States involving various Hollinger companies. Black arranged for this judgment to be paid and thereafter took the position with Hollinger's board of directors that he was entitled to set-off the Ravelston Loan against the amount of the summary judgment that had been satisfied.
25Second, during the year before the argument of the Oppression Application, Black's resignation as Chairman and a director of Hollinger had been sought by various persons, including by the former members of Hollinger's audit committee and Hollinger's former auditors, a special committee of International [page295] directors struck to investigate alleged related-party transactions involving Hollinger and International, the Securities & Exchange Commission in the United States (the "SEC") and, eventually, Hollinger's independent directors. Their efforts to secure his resignation met with strong resistance from Black.
26Third, about one year prior to the November Order, Hollinger's audit committee, which was comprised of independent directors, recommended the resignation of several senior Hollinger officers and directors. On the record before us, it is unclear whether this recommendation included White. The Ravelston-associated directors of Hollinger, who formed the majority of Hollinger's board, voted to defeat the recommendation without declaring a conflict of interest on the issue. This led to the resignation en masse of Hollinger's independent directors. The vacancies on Hollinger's board thus created were not filled immediately or completely. Consequently, by the time of the Ravelston Loan, only two independent directors sat on Hollinger's board.
27Fourth, in the summer and throughout the fall of 2004, Hollinger was experiencing liquidity problems.
(3) Positions of the parties on the oppression application
28White maintained during the Oppression Application proceeding that the arrangement of the Ravelston Loan was within his authority as co-chief operating officer of Hollinger and that its approval by Hollinger's independent directors was not required. He also denied that he had participated in any conduct oppressive of Hollinger's minority shareholders.
29Catalyst, on the other hand, took the position that the Ravelston Loan was a misappropriation of corporate funds that violated the corporate governance measures that Hollinger claimed to have implemented to protect its interests and those of its minority shareholders. These measures included the requirement for independent director review and approval of related-party transactions.
30Catalyst argued that the removal of a majority of Hollinger's directors, including White, was warranted because of the fact of the Ravelston Loan in the circumstances then enveloping Hollinger, its concealment from Hollinger's independent directors and the failure of Hollinger's Ravelston-associated directors to make timely disclosure of the facts surrounding the Ravelston Loan.
(4) Application judge's decision
31The application judge concluded that 2004 40665 (ON SC), [2004] O.J. No. 4722, [2004] O.T.C. 1025 (S.C.J.), at para. [54]], "[T]he circumstances of [page296] the $1.1 million in [the] context of the operation of [Hollinger] are such that a remedy under s. 241 of the [CBCA] is warranted." He reasoned: [at para. 65] "[I]t is not just the loan itself but the constellation of circumstances that in my view warrant an oppression remedy." In the result, he ordered the immediate removal of the remaining Ravelston-associated directors from Hollinger's board, with the exception of White.
32In connection with White, the application judge accepted the assertion that his arrangement of the Ravelston Loan without the prior approval of Hollinger's independent directors was "a genuine mistake" [at para. 60]. The application judge also indicated: that the independent directors of Hollinger, some of whom had only recently assumed office, did not wish to lose White's co-operation and management experience in running Hollinger's day-to-day business, and that they wished White to continue as a director and an officer; that White did not appear to be a named defendant in the United States litigation involving Hollinger; that White's continued position on the Hollinger board would allow Ravelston's interests as Hollinger's majority shareholder to be represented on the board; and that Hollinger would be "less affected by his remaining than by his removal" [at para. 108].
33Accordingly, as I have said, the application judge directed in the November Order that White's continued service as a director and an officer of Hollinger be "at the pleasure" [at para. 107] of Hollinger's five independent directors. He also granted leave to the independent directors to seek further directions from the court should they believe that "there is a need for further change" [at para. 108] in White's status with Hollinger.
(5) Subsequent events
34Five significant events transpired after the November Order.
35First, shortly after the release on November 18, 2004 of the application judge's reasons concerning the November Order, counsel for various involved parties sought to clarify the application judge's statement, set out in his reasons, that the independent directors of Hollinger did not support White's immediate removal from Hollinger's board. After further submissions from the parties, the application judge acknowledged in an endorsement dated December 2, 2004 that the challenged statement was in error. However, he went on to say: "[Having] reviewed the record filed, the conclusion that Mr. White should remain as a director for at least the time being is confirmed." He also stated, [page297] "[I]n light of my decision, the Independent Directors do not at the present time seek removal of Mr. White as either a director or an officer. They reserve their right ... to take a different position should circumstances warrant."
36Second, on March 29, 2005, Hollinger and its subsidiary, Domgroup, commenced a civil lawsuit against Ravelston, Black and several other former directors or officers of Hollinger in which they sought, among other relief, damages in excess of $564 million on account of numerous matters, including alleged improprieties in the defendants' dealings with Hollinger and Domgroup. White was not a named defendant in this action.
37Third, by order of Farley J. of the Superior Court of Justice dated April 20, 2005, Ravelston and one of its subsidiaries, Ravelston Management Inc., obtained creditor protection under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"), and a receiver was appointed to manage their affairs. In his reasons, Farley J. stated, "[T]he objective of this CCAA and Receivership proceeding ... is to put the applicants under the firm control and direction of a court appointed officer." He emphasized [at para. 1]:
[T]he draft orders are to be adjusted to make it absolutely clear that the old guard (Black and Radler -- and any other officer and director including Messrs. White and Boultbee) are "out" -- out in the sense of not being able to, directly or indirectly, pull any of the strings and that [the receiver] ... is "in" -- in in the sense of being able to pull all the strings and thereby direct the fortunes, business and affairs of [the Ravelston companies]. If Messrs. White and Boultbee are involved at all, then it will be solely at the pleasure and direction of [the receiver].
38Fourth, eight days later, on April 28, 2005, Hollinger's Removal Motion was initiated. The grounds advanced by Hollinger in support of this motion included the following: that Hollinger had commenced litigation against Ravelston (of which White was still an officer, director and shareholder); that it was "no longer in the best interests of Hollinger Inc. that Mr. White remain as a director or an officer"; that Ravelston's receiver had requested Hollinger's independent directors to appoint a nominee of the receiver as a director of Hollinger; and that White "took numerous positions" in the Ravelston CCAA proceeding that were "adverse to the interests of Hollinger". The June Order removing White as a director and an officer of Hollinger followed.
39In granting the June Order, the application judge observed [at para. 2] that, under the November Order, it was a "condition precedent" to White's continued service on the Hollinger board that he "[enjoy] the confidence of his fellow directors" [at para. 2]; [page298] that White's position on the board was "conditional"; and that the November Order was based on a finding of oppression against all Ravelston- associated directors, including White. In addition, the application judge stated [at paras. 11 and 15]:
The fact that [White's] actions (perhaps generously) were characterized as a mistake did not render them any the less in the result oppressive as against the public shareholders of [Hollinger]. ...
Mr. White's conduct prior to the November decision was part of the oppression by the officers and directors of Ravelston adversely affecting the public shareholders of [Hollinger].
40Finally, it appears that the ongoing litigation among the parties may take yet another turn. By agreement of counsel, this court was informed that the independent directors of Hollinger who were involved in the Oppression Application and Hollinger's Removal Motion no longer sit on Hollinger's board of directors. Moreover, it appears that Hollinger's reconstituted board of directors has threatened to commence civil proceedings on behalf of Hollinger against the former independent directors for alleged improprieties; that if that civil lawsuit proceeds, Hollinger will rely on affidavit evidence from White detailing the alleged improprieties; and that Hollinger makes no allegation of wrongdoing by White himself in that threatened proceeding.
III. Issues
41There are two issues:
(1) Did the application judge err by holding that White's continued service as a director and an officer of Hollinger be "at the pleasure" of Hollinger's independent directors and, subsequently, by ordering White's permanent removal as a director and an officer of Hollinger?
(2) Did the application judge err by dismissing White's application for a declaration that he was entitled to indemnification from Hollinger for his costs, charges and expenses incurred in resisting Hollinger's Removal Motion?
IV. Analysis
A. Removal appeals
42White makes four main submissions in support of the Removal Appeals. First, he submits that the application judge had no jurisdiction under s. 241 of the CBCA to order that his [page299] continued service as a director and an officer of Hollinger be "at the pleasure" of Hollinger's independent directors.
43Second, he contends that the application judge erred by removing him as a director and an officer of Hollinger in the absence of any evidence or finding that White's removal was necessary to remedy oppressive conduct.
44Third, he asserts that the November Order is unsustainable in law because it had the effect of altering his duties and the term of his office as a director and an officer of Hollinger in a manner inconsistent with his legal duties and the provisions of the CBCA.
45Finally, White maintains that the November Order constituted an improper delegation to Hollinger's independent directors of the authority of the court to make oppression findings and to determine appropriate remedies under s. 241 of the CBCA.
46I would not give effect to these submissions for the following reasons.
(1) Jurisdictional challenge
47White's contention that the application judge had no jurisdiction under s. 241 of the CBCA to order his conditional service and eventual removal as a director and an officer of Hollinger is not tenable.
48Section 241(1) and (2) of the CBCA permit the court, on application by a complainant, to make an order to rectify the matters complained of where 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,
(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
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, dir-ector or officer . . .
49As Ontario courts have repeatedly said, the court enjoys wide discretion under s. 241 to fashion such remedy as it thinks fit, on an interim or final basis, to achieve rectification of oppressive or unfairly prejudicial conduct in connection with a corporation or any of its affiliates: see for example, 820099 Ontario Inc. v. Harold E. Ballard Ltd., [1991] O.J. No. 266, 3 B.L.R. (2d) 123 (Gen. Div.), at para. 120, affd, [1991] O.J. No. 1082, 3 B.L.R. (2d) 113 (Div. Ct.), [page300] quoting S.M. Beck, "Minority Shareholders' Rights in the 1980s", in Special Lectures of the Law Society of Upper Canada: Corporate Law in the 80s (Don Mills: Richard De Boo Publishers, 1982) 311 at 312. Indeed, the court's statutory discretion under s. 241 is among the broadest and most flexible of the powers vested in the courts in the corporate law domain: see Budd v. Gentra Inc., 1998 5811 (ON CA), [1998] O.J. No. 3109, 43 B.L.R. (2d) 27 (C.A.), at para. 34; and Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board (2006), 2006 15 (ON CA), 79 O.R. (3d) 81, [2006] O.J. No. 27, 12 B.L.R. (4th) 189 (C.A.), at paras. 91-94 and 106.
50The legislature's intention to confer comprehensive remedial discretion upon the court to respond to oppression is manifest in s. 241(3) of the CBCA. This section, which enumerates the types of orders that may be made to achieve relief from established oppression, includes the power to impose orders, in a proper case, that directly interfere with the corporate governance of a corporation and the rights and obligations of directors, officers and shareholders. Under this section, among other dispositions, the court may make an order:
(a) . . . restraining the conduct complained of;
(b) . . . appointing a receiver or receiver-manager;
(c) . . . to regulate a corporation's affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;
(d) . . . directing an issue or exchange of securities;
(e) . . . appointing directors in place of or in addition to all or any of the directors then in office;
(f) . . . directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;
(g) . . . directing a corporation, subject to subsection (6), or any other person, to pay a security holder any part of the monies that the security holder paid for securities; [or]
(h) . . . varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;
51Although s. 241(3) does not expressly mention an order to remove a director and an officer of a public corporation, this authority is implicit in s. 241(3)(e). In addition, the specific orders identified under s. 241(3) are non-exclusive. They do not diminish the wide rectification jurisdiction otherwise conferred upon the court under s. 241(2).
52Recently, in Stelco Inc. (Re) (2005), 2005 8671 (ON CA), 75 O.R. (3d) 5, [2005] O.J. No. 1171 (C.A.), this court commented on the statutory [page301] scheme under the CBCA for the election, appointment and removal of directors. Justice Robert Blair stated at para. 47:
In Canada, the CBCA and its provincial equivalents govern the election, appointment and removal of directors, as well as providing for their duties and responsibilities. Shareholders elect directors, but the directors may fill vacancies that occur on the board of directors pending a further shareholders meeting: CBCA, ss. 106(3) and 111. The specific power to remove directors is vested in the shareholders by s. 109(1) of the CBCA. However, s. 241 empowers the court -- where it finds that oppression as therein defined exists -- to "make any interim or final order it thinks fit", including (s. 241(3)(e)) "an order appointing directors in place of or in addition to all or any of the directors then in office".
(Italicized emphasis in original; underlined emphasis added)
53Citing the November 18, 2004 decision of the application judge in this case, Blair J.A. continued, at para. 47: "This power has been utilized to remove directors, but in very rare cases, and only in circumstances where there has been actual conduct rising to the level of misconduct required to trigger oppression remedy relief." See also Naneff v. Con-Crete Holdings Ltd. (1995), 1995 959 (ON CA), 23 O.R. (3d) 481, [1995] O.J. No. 1377 (C.A.), at pp. 489-91 O.R.
54Moreover, the statutory discretion under s. 241 of the CBCA, like any other statutory discretion, must be exercised judicially and in a manner consistent with the intention of the legislature and the scheme and object of the statute under which the discretion is conferred. The court's discretion under s. 241 must also be exercised in conformity with the legal principles that govern corporate law issues: see Stelco Inc. (Re) at para. 44.
55This court has also endorsed the principle that, in fashioning a remedy under statutory oppression remedies, judicial interference with the affairs of the affected corpo- ration should be undertaken only to the extent necessary to rectify the oppression in question: see Naneff at p. 491 O.R., quoting from Ballard, supra, at para. 140.
56There is no suggestion that the application judge in this case failed to recognize these important principles. Rather, as I understand White's argument, he essentially asserts that the application judge erred in his application of these governing principles to the facts of this case, because there was no evidence or finding to support the conclusion that White's removal was necessary to rectify conduct oppressive of Hollinger and its minority shareholders. I turn next to this issue.
(2) Oppressive conduct by White
57White maintains that the application judge made no finding of oppression against him in the Oppression Application [page302] proceeding. He submits that the challenged term of the November Order indicates that the application judge concluded that removing him as a director and an officer of Hollinger was not necessary to alleviate oppression against Hollinger and its shareholders. I disagree.
58The application judge made numerous findings of fact to support his holding of oppression. Several of these findings were specific to White's conduct, while others concerned the conduct of all the Ravelston-associated directors, including White. These critical findings included the following [at paras. 37, 39, 61, 62, 63 and 65]:
Surely the public shareholders of [Hollinger], in view of previous public statements on behalf of the company and the surrounding controversy, had a right to expect that there would be in place a formal protocol to avoid any question of any related-party transaction of any magnitude. The facts surrounding this transaction satisfy me at the material time surrounding the [Ravelston Loan] there was not such a protocol. ...
[In my view, a reasonable shareholder of [Hollinger] would expect that this specific a transaction would only be made with approval beforehand of the entire [Hollinger] Board but particularly with the full knowledge and approval of the Independent Directors. This was all the more important at a time when Independent Directors were very much in the minority on the Board. ...
The continued existence from November 2003 until October 28, 2004 of a dominant majority of Ravelston directors on the Board of [Hollinger] raised more than the potential for conflict in respect of the interests of the public shareholders of [Hollinger].
In my view, the absence of significant Independent Directors when related-party transactions were approved in the circumstances represented actual conflict. There was no protocol in place until October 28, 2004 that could give any reasonable assurance to a public shareholder of [Hollinger] that the various dealings that did take place between [Hollinger] and Ravelston and between [Hollinger] and the Ravelston directors personally were in the interests of the company and in the interests as [sic] shareholders.
The fact that Mr. White could be mistaken [in arranging the Ravelston Loan], as I find he was, is part of the problem. It should have been beyond question that a transaction of that magnitude would have been put before Independent Directors. ...
Each of the Ravelston directors defended the Application on the basis that their actions throughout were correct and proper and there was no proof of wrongdoing. The error of this position is that it overlooks the reasonable expectations of public shareholders that their interests would be properly accounted for by directors who would always "do the right thing". None of [page303] them acknowledged the error of not having formally in place for almost one year a related-party protocol. Even the repayment from Ravelston was initially resisted in favour of set-off against amounts that Lord Black claimed were paid for the benefit of [Hollinger], which are part of the larger related-party issues.
(Emphasis added)
59The application judge also noted that, while his decision on the Oppression Application was under reserve, the SEC formalized its allegations against Black and two other Ravelston-associated directors of Hollinger, Messrs. Radler and Boultbee, by commencing action in the United States for various relief. The application judge then continued [at paras. 81, 82, 83, 87 and 88]:
The more compelling problem is that the actions [in the United States] involve [Hollinger] as a defendant and relief sought directly against the company.
In my view it should have been obvious to the Ravelston directors against whom allegations are made that their continued presence is much more than an appearance of conflict. I accept that their continued involvement as directors of [Hollinger] at this time would significantly impede and perhaps jeopardize the interests of the public shareholders of [Hollinger] in extricating the Company from the U.S. litigation.
The fact that this has not been recognized by the Ravelston directors supports the argument that they are motivated by putting their interests first, not those of the company. ...
[T]he actions of the directors in respect of the $1.1 million loan in the context of their running of the company did not meet the standard of what a reasonable public shareholder could expect in respect of the Ravelston directors of [Hollinger].
The very same delay and denial, together with the circumstances of the $1.1 million loan that supported the appointment of the Inspector continue to erode any expectation that the public shareholders of [Hollinger] may have had that their interests and expectations and those of [Hollinger] were being fairly dealt with by the Ravelston directors.
(Emphasis added)
60The application judge unambiguously stated that "the constellation of circumstances", including the Ravelston Loan, warranted an oppression remedy against the "Ravelston directors". As used by the application judge, the term "Ravelston directors" included White. The "constellation of circumstances" referenced by the application judge included the following:
(a) the Ravelston Loan;
(b) White's failure to recognize that the prior approval of the Ravelston Loan by Hollinger's independent directors was required; [page304]
(c) the failure of the board of Hollinger (which was controlled by the Ravelston-associated directors) to introduce a formal related-party transaction protocol, notwithstanding its earlier indication to Hollinger's public shareholders that it intended to do so;
(d) the failure of the Ravelston-associated directors (including White) to be attentive to the reasonable expectations of Hollinger's public shareholders;
(e) the involvement of Ravelston-associated directors in lit- igation in the United States against Hollinger; and
(f) the failure of the Ravelston-associated directors to recog- nize and act upon their conflicted positions as directors and officers of Hollinger.
61There is no suggestion before this court that the application judge's factual findings in support of his finding of oppression are tainted by palpable and overriding error. As I have said, White's case in these proceedings was put on the basis that there was no finding of oppression as against him and no evidential foundation for such a finding.
62In my view, the reasons of the application judge overwhelmingly evidence a finding by him that White engaged in oppressive conduct. The application judge's findings of oppressive conduct by the "Ravelston directors" and, hence, by White, were amply supported by the record. They provided a strong foundation for his conclusion that an oppression remedy against the Ravelston-associated directors, including White, was justified.
63If there was any doubt after the November Order whether the application judge had found White's conduct to be oppressive, it was laid to rest by the application judge's June 8, 2005 reasons in support of the June Order.
64In response to Hollinger's Removal Motion, White argued (as he contends before this court) that no finding of oppression was made against him in the 2004 Oppression Application proceeding. The application judge's response was unequivocal [at paras. 11 and 15]:
I find the above statement to be in error. The motion by Catalyst was for the removal of all directors, including Mr. White, based on oppression. Oppression was found against all Ravelston directors, including Mr. White. The fact that his actions (perhaps generously) were characterized as a mistake did not render them any less in the result oppressive as against the public shareholders of [Hollinger]. ... [page305]
Mr. White's conduct prior to the November decision was part of the oppression by the officers and directors of Ravelston adversely affecting the public shareholders of [Hollinger].
(Emphasis added)
65As well, earlier in the same reasons, the application judge commented [at paras. 8 and 9]:
It is neither necessary nor appropriate for this decision to revisit all the factual bases for the remedy of removal of all of the Ravelston directors and the conditional position of Mr. White.
Suffice to say there were several, which included the following conduct: (i) related party transactions that adversely and in conflict affected the interests of minority public shareholders; (ii) failure to approve in November 2003 the recommendations of the then Independent Directors who formed the Audit Committee; (iii) failure by as late as October 2004 to have a protocol in place dealing with related party transactions; and (iv) a particular transaction of $1.1 million, being a loan to Ravelston by [Hollinger] initiated by Mr. White mistakenly without Board approval.
(Emphasis added)
66The "factual bases for the remedy of removal" of the Ravelston-associated directors, as identified by the application judge in the above-quoted passage from his reasons, included conduct by or involving White. Accordingly, there is no sustainable basis upon which it can be argued that no finding of oppressive conduct was made against White.
67White also argued on Hollinger's Removal Motion (as he again asserts before this court) that there was no foundation for his removal as a director and an officer of Hollinger absent a showing that he engaged in oppressive conduct between the dates of the November and the June Orders. I disagree.
68The application judge's reasons for the November and the June Orders must be read together. As I have described, the application judge held in the Oppression Application proceeding that White engaged in oppressive conduct. His immediate removal from Hollinger's board of directors was not ordered because White's continued service as a director and an officer, at least on a transitional basis, was in the best interests of Hollinger given his familiarity and background with Hollinger and the fact that only some of Hollinger's independent directors had any significant length of service with Hollinger's board at the time of the November Order.
69The decision to permit White to continue in office on the term imposed by the application judge did not displace the finding of oppression against him. Nor, in my view, did it require that "fresh" oppression be proven thereafter to warrant White's permanent removal from Hollinger's board of directors. [page306]
70The November Order was based on a finding of actual oppressive conduct by White. It was predicated on his continued service on Hollinger's board of directors on a conditional and an interim basis. The application judge stated in his June 2005 reasons [at para. 16]:
[White] was not removed simply because I felt that he might be of help to an entirely new Board for an interim period, at least until the new directors felt comfortable in their role.
(Emphasis added)
71As well, in his December 2004 endorsement, which confirmed that part of the November Order relating to White, the application judge held, "[Having] reviewed the record filed, the conclusion that Mr. White should remain as a director for at least the time being is confirmed" (emphasis added).
72In these circumstances, White's claim that evidence of "fresh" oppression was required to ground his permanent removal from Hollinger's board fundamentally misconstrues the import of the November Order.
73I would characterize the effect of the November Order, properly read, as suspending the permanent removal of White as a director and an officer of Hollinger on a temporary basis in order to advance the best interests of Hollinger and to facilitate the acclimatization of the independent directors to the task of assuming control of the board of directors of Hollinger and the company's affairs from the Ravelston group. To accomplish this objective, the application judge fashioned a remedy that permitted White to continue as a director and an officer of Hollinger, so long as it was useful that he do so and for no longer. On the facts here, it was well within the discretion of the application judge under s. 241 of the CBCA to so order.
(3) Suggested alteration of White's duties and term of office as a director
74The statutory duties and obligations of directors of federally incorporated companies are set out in s. 122(1) of the CBCA. That section provides:
122(1) Every director and officer of a corporation in exercising their powers and discharging their duties shall
(a) act honestly and in good faith with a view to the best interests of the corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
75The CBCA also sets out a scheme for the election and, in some circumstances, the appointment of directors and stipulates [page307] their term of office. Directors are elected by shareholders, but vacancies on a board of directors may be filled by the existing directors pending a future shareholders meeting (ss. 106(3) and 111). Under s. 108(1) of the CBCA, a director of a corporation ceases to hold office when the director dies or resigns, is removed by the shareholders of the corporation in accordance with s. 109 of the CBCA, or becomes disqualified under s. 105(1) of the CBCA.
76White submits that by rendering his continued service as a director and an officer of Hollinger "at the pleasure" of Hollinger's independent directors, the November Order improperly altered his duties and his term of office as a director of Hollinger. He claims that the November Order changed the person to whom he owed his duties and obligations from Hollinger to its independent directors. According to White, this made him "beholden" to the independent directors and transformed the nature of his duties and obligations from the requirement that he act in the best interests of Hollinger to the necessity that he act in the best interests of the independent directors. He also argues that the November Order denuded his tenure as a director, such that it could be terminated outside the statutory scheme at the will of the independent directors. I would reject these submissions.
77The November Order did not effect a change to White's legal duties and obligations as a director. Both before and after the November Order, White had one clear and constant responsibility in relation to Hollinger: he was obliged to discharge the duties and obligations of his office as a Hollinger director and an officer in accordance with s. 122(1) of the CBCA and his fiduciary duties at common law. This required him to act in the best interests of Hollinger, not the independent directors.
78Indeed, the reasons in support of the November Order reveal that White was permitted to continue as a director and an officer of Hollinger on a conditional basis precisely because it was then in the interests of Hollinger that he so do. The application judge held [at para. 108] that, by White's continued participation as a director in Hollinger's affairs, "The company will be less affected by his remaining than by his removal." Nothing in the November Order purported to relieve White from, or otherwise modify, his legal obligations as a director and an officer of Hollinger.
79Moreover, White's permanent removal as a Hollinger director and an officer was directed under the June Order because the application judge was satisfied, on the record then before him (which established Hollinger's circumstances in the spring of 2005), that White's continuation on Hollinger's board [page308] was no longer useful or in the best interests of the corporation. The application judge held, at para. 23 of his June 2005 reasons, "The Independent Directors have concluded and I have accepted their judgment that at the present time ... it would not be in the best interests of [Hollinger] to have Mr. White continue" (emphasis added).
80White had two choices after the November Order. He could remain as a director and an officer of Hollinger, to serve it in accordance with his statutory and common law duties as best he might in all the circumstances, or he could resign. He chose the former option and did not challenge the November Order until some seven months later, after he was permanently removed by operation of the June Order. Having made this election, White cannot now be seen to complain that his ability to perform his duties and obligations to Hollinger were compromised from the outset, or otherwise fundamentally redefined, by the very court order that positioned him to remain in the service of the company.
81Nor do I accept that, as a result of the November Order, White was "beholden" to Hollinger's independent directors for his continued tenure on Hollinger's board. The November Order contemplated that if the independent directors formed the belief that there was a need for a "further change" in White's status as a director and an officer of Hollinger, they could seek further directions from the court.
82This language did two things. First, it confirmed that White's status as a director and an officer of Hollinger was changed under the November Order. I have already concluded that the nature of that change was to make White's continued role an interim one and to suspend, at least for a time, his permanent removal from office.
83Second, it reflected the court's continued jurisdiction (founded on the earlier findings of oppression and the nature of the November Order) to determine whether and when White's removal should be made permanent by requiring the independent directors to satisfy the court of the need to so do. It is conceivable that, but for Hollinger's changed circumstances as outlined in the application judge's June 2005 reasons, White could have continued indefinitely as a director and an officer of Hollinger unless he otherwise ceased to hold office in accordance with s. 108(1) of the CBCA.
(4) Improper delegation claim
84For many of the reasons already given, I also disagree with White's assertion that the November Order was an [page309] improper delegation to Hollinger's independent directors of the court's authority to make oppression findings and to determine appropriate remedies under s. 241 of the CBCA. This argument mischaracterizes the effect of the November Order. It also misstates the basis for the June Order.
85As I have indicated, the application judge had jurisdiction under s. 241 of the CBCA to order the removal of White as a director and an officer of Hollinger. It was open to the application judge on the evidence before him to conclude that sufficient grounds existed in November 2004 to then order White's immediate removal. I agree with the respondent's submission that, in these circumstances, it cannot logically be argued that the application judge lacked jurisdiction to grant a lesser remedy concerning White's position with Hollinger, namely, his interim continuation on the board, subject to future permanent removal upon proof of changed circumstances warranting the discontinuance of his services to Hollinger.
86In addition, and importantly, the November Order contemplated that White's permanent removal as a director and an officer of Hollinger could not be accomplished by unilateral or arbitrary action of the independent directors. To effect White's permanent removal from the Hollinger board, the independent directors were obliged to seek court approval and to make the case, on proper evidence, that the termination of White's conditional status as a director and an officer of Hollinger was warranted. Thus, the November Order did not displace or delegate to others the court's authority to determine appropriate remedies under s. 241 of the CBCA based on established oppression. To the contrary, it preserved it.
87Nor did the November Order improperly delegate to the independent directors the court's authority to make findings of oppression. An unequivocal finding of oppression was made by the application judge in November 2004 against both White and other Ravelston-associated directors of Hollinger. With respect to White, the only remaining issue was whether his removal should be made permanent and, if so, when. Under the November Order, these decisions were reserved to the court.
88Moreover, the application judge's reasons for the June Order establish that he did not merely 'rubber-stamp' a decision by Hollinger's independent directors to permanently remove White from Hollinger's board. The reasons indicate that the application judge turned his mind to and assessed the merits of Hollinger's Removal Motion. They also reveal that the application judge's decision to end White's interim status as a director and an officer of Hollinger, and to make his removal permanent, [page310] was based on three factors: (i) the application judge's earlier finding, in November 2004, of oppressive conduct by White; (ii) the reasons that grounded that finding; and (iii) the changes in Hollinger's circumstances after the November Order.
89With respect to the last of these factors, the application judge described Hollinger's changed circumstances in these terms (at para. 13):
On March 29, 2005, [Hollinger] and its wholly-owned subsidiary Domgroup Ltd., instituted action against, among others, Ravelston and Messrs. Black, Radler and Boultbee. While not specifically named, Mr. White remains a director and officer of Ravelston and is now therefore on the "other side" from [Hollinger] in that lawsuit.
The order of Justice Farley appointing a Receiver over Ravelston and related companies changes the nature of the relationship between Ravelston and [Hollinger], which therefore neither needs nor benefits from Mr. White.
In the Receivership proceedings, Mr. White took a position opposing the Receivership and therefore was adverse to the interests of [Hollinger].
90On the basis of all these factors, the application judge agreed with the view of the independent directors that White's assistance to Hollinger had "run its course". This conclusion was open to the application judge on the evidential record.
91Finally, it is important to underscore that the November and June Orders were discretionary decisions by the application judge pursuant to his wide authority under s. 241 of the CBCA to rectify oppression. White has failed to demonstrate any basis for appellate interference with these discretionary decisions.
92I conclude with these observations. The application judge's discretionary decision in November 2004 to permit White's continued service as a director and an officer of Hollinger "at the pleasure" of Hollinger's independent directors was an unusual one. Although, as I have mentioned, the November Order did not reduce or modify White's legal responsibilities to Hollinger, I recognize that it may have intensified the practical difficulties associated with his discharge of those responsibilities.
93Prior to the November Order, Hollinger's board was split into factions. On the findings of the application judge, its control by the Ravelston-associated director group, of which White was a long-term member, created an environment in which divided loyalties deepened and directors lost sight of their predominate obligations to Hollinger. Allowing White to continue on the board in the face of both his proven oppressive conduct and his lengthy historical and ongoing loyalties to Ravelston, while understandable in the circumstances, was an invitation to [page311] future difficulties. In my view, it made further contested litigation among the parties virtually inevitable. Accordingly, in my opinion, this case demonstrates that an order in the nature of the challenged term of the November Order should be made only in exceptional circumstances and with great caution.
94The June Order permanently removing White from Hollinger's board was an extraordinary remedy under s. 241 of the CBCA. In accordance with the established jurisprudence of this court, this removal power should be exercised rarely and only where compelling justification to invoke the remedy is established. As stated by Blair J.A. in Stelco Inc. (Re) at para. 55, the bar for such an order is indeed high. It was met, and surpassed, in this case.
B. Catalyst's cross-appeal
95Counsel for Catalyst candidly acknowledged during oral argument before this court that if the Removal Appeals were unsuccessful, Catalyst's cross-appeal was moot. I agree. Given my proposed disposition of the Removal Appeals, it is unnecessary, therefore, to address the issues raised on the cross-appeal.
C. Indemnity appeal
96In the context of Hollinger's Removal Motion, White brought his own application seeking various forms of declaratory relief, including a declaration that all costs, charges and expenses reasonably incurred by him in resisting Hollinger's Removal Motion were "covered by the Indemnity Agreement between [him] and Hollinger ... dated 23 July 2003" (the "Indemnity Agreement").
97By order dated June 8, 2005, the application judge dismissed White's application, declaring that, "the Indemnity Agreement [did] not apply to [Hollinger's] Removal Motion". His reasons, which are contained in his June 8, 2005 decision permanently removing White from Hollinger's board, provide as follows on this issue [at paras. 21-26]:
I am satisfied based on the material before me that the Board of [Hollinger] acted reasonably in seeking the removal of Mr. Peter White as a director and I so order.
As a result of this conclusion, there is no need to deal at length with the remaining motions. I have reviewed the Indemnity Agreement relied on by Mr. White in seeking to be reimbursed for the costs of the motion for removal. The entitlement to indemnity arises first under s. 124 of the CBCA and as well under the Indemnity Agreement. Section 124(3) provides that a director may only be indemnified if the director has "acted honestly and in good faith with a view to the best interests of the corporation". [page312]
The Independent Directors have concluded and I have accepted their judgment that at the present time, given the Receivership of Ravelston and the action against it by [Hollinger], it would not be in the best interests of [Hollinger] to have Mr. White continue.
This conclusion is reached with the background of conduct found to be oppressive and therefore his interests do not coincide with the best interests of the Corporation.
In my view, the language of the Indemnity does not extend to defending an application for removal from the very organization to which he was appointed, which has now concluded is not best served with his continuation as a director and officer.
The application for indemnity for fees associated with defending the motion for removal is therefore dismissed.
98White appeals from that decision. He submits that the application judge misconstrued the Indemnity Agreement and gave it too narrow an interpretation. He further argues that if the application judge had properly construed the Indemnity Agreement, he would have found that it applied in the circumstances and that it entitled him to indemnification for his legal and other costs incurred in defending Hollinger's Removal Motion.
99Given my conclusion that White was properly removed as a director and an officer of Hollinger, the parties agree that if the Indemnity Agreement applies at all in these circumstances, to avail himself of it, White must bring himself within clause 3, which reads as follows:
In respect of an action by or on behalf of the Corporation or Other Entity to procure judgment in its favour to which the Director is made a party by reason of being or having been a director or officer of the Corporation or a director or officer of the Other Entity, the Corporation will make application for approval of the court having jurisdiction to indemnify the Director and his heirs and legal personal representatives, against all costs, charges and expenses reasonably incurred by him in connection with such action if the Director's conduct complied with the Standards of Conduct.
(Emphasis added)
100The term "Standards of Conduct" is a defined term in clause 1 of the Indemnity Agreement. It includes a requirement that, in order to be indemnified, a director must have acted honestly and in good faith with a view to the best interests of Hollinger.
101Alternatively, White claims entitlement to indemnification under para. 6.1 of Hollinger's By-law No. A26 and s. 124(1) and (3)(a) of the CBCA. Those provisions are reproduced below:
By-law No. A26:
Indemnification of Directors and Officers [page313]
The Corporation shall indemnify a director or officer, a former director or officer or a person who acts or acted at the Corporation's request as a director or officer, or in a similar capacity of another entity, and the heirs and legal representatives of such a person to the extent permitted by the [CBCA].
Section 124(1) and (3)(a) of the CBCA:
124(1) A corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or another individual who acts or acted at the corporation's request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the corporation or other entity. . . .
(3) A corporation may not indemnify an individual under subsection (1) unless the individual
(a) acted honestly and in good faith with a view to the best interests of the corporation, or, as the case may be, to the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at the corporation's request;
102Hollinger raises two issues in opposition to White's claim for indemnity. First, it submits that the above-quoted provisions of the CBCA and the Indemnity Agreement have no application in the circumstances. Those provisions, it says, are meant to apply to derivative actions, not proceedings such as this where the removal of a director is sought for conduct found to be oppressive.
103I find it unnecessary to decide that issue to resolve the Indemnity Appeal. For the purpose of that appeal, I am prepared to assume that White can avail himself of the Indemnity Agreement or the CBCA or both.
104The second issue is one that finds common ground among the parties. Everyone agrees that White is only entitled to indemnification if, in resisting Hollinger's Removal Motion, he was acting honestly and in good faith with a view to the best interests of the corporation.
105It is here, I believe, that White's case for indemnity breaks down. What is put against him is not so much his failure to grasp the legal significance of the November Order, but his failure to acknowledge and accept that in the six months following the November Order, the 'world changed' and it was no longer in Hollinger's best interests that he remain on its board of directors. I have identified Hollinger's changed circumstances earlier in these reasons and I need not repeat them. Suffice to say that, in my view, their significance would have been apparent to even the most untrained observer, let alone someone with White's sophisticated [page314] business acumen and knowledge of corporate affairs.
106In the final analysis, given the situation that existed in June 2005, White had no business resisting Hollinger's Removal Motion. That he may have done so in the subjective belief that he was acting in the best interests of Hollinger does not assist him on the Indemnity Appeal. Objectively, that was not the case and he cannot make out a claim for indemnification by relying on an unreasonable subjective belief.
107In the result, I am satisfied that the application judge correctly refused White's request for indemnification. As that was the only ground of appeal pursued by him, I would dismiss the Indemnity Appeal.
V. Disposition
108Accordingly, for the reasons given, I would dismiss the Removal Appeals, the cross-appeal and the Indemnity Appeal. Hollinger is entitled to its costs of these proceedings. Catalyst is also entitled to its costs of the Removal Appeals but, in the circumstances, it is not entitled to any costs of its cross-appeal. If the parties are unable to agree on costs, the respondents shall submit their brief written submissions on costs to the Registrar of this court within 15 days from the date of this decision. White shall submit his brief written responding submissions on costs to the Registrar within 15 days thereafter. The costs submissions of each party shall not exceed five pages in length.
Appeal dismissed.
Notes
Note 1: In these reasons, I refer to White's appeals from the November and June Orders, collectively, as the "Removal Appeals".
