Fedel v. Tan, 2010 ONCA 473

Fedel v. Tan

Fedel v. Tan et al. [Indexed as: Fedel v. Tan]

101 O.R. (3d) 481

2010 ONCA 473

Court of Appeal for Ontario,

O'Connor A.C.J.O., Cronk and Watt JJ.A.

July 5, 2010

Headnotes

Corporations -- Oppression -- Availability -- Applicant and respondent entering into oral agreement that applicant would have 40 per cent interest in company and defendant would have 60 per cent interest -- Applicant relying on respondent's promise and making significant contributions to business for ten years -- No shares issued to applicant -- Application judge finding that applicant had contractual right to 40 per cent ownership interest and taking that fact into account in concluding that applicant was complainant for purposes of oppression remedy -- Fact that applicant may have had action against respondent in contract not barring his claim under s. 248 of OBCA -- Business Corporations Act, R.S.O. 1990, c. B.16, s. 248.

Corporations -- Oppression -- Complainant -- Security holder -- Applicant and respondent entering into oral agreement that applicant would have 40 per cent interest in company and respondent would have 60 per cent interest -- Applicant relying on respondent's promise and making significant contributions to business for ten years -- No shares issued to applicant -- Application judge finding that applicant had contractual right to 40 per cent ownership interest and taking that fact into account in concluding that applicant was complainant for purposes of oppression remedy -- Application judge not erring in finding that applicant was security holder within meaning of s. 245 of OBCA -- Applicant beneficial owner of 40 per cent of shares of company -- Business Corporations Act, R.S.O. 1990, c. B.16, s. 245.

Corporations -- Oppression -- Remedies -- Applicant and respondent entering into oral agreement that applicant would have 40 per cent interest in company and respondent would have 60 per cent interest -- Applicant relying on respondent's promise and making significant contributions to business for ten years -- No shares issued to applicant -- Application judge finding that applicant had contractual right to 40 per cent ownership interest and taking that fact into account in concluding that plaintiff was complainant for purposes of oppression remedy -- Application judge finding that defendants' actions were oppressive -- Application judge not erring in awarding applicant substantial compensation instead of directing respondent to deliver share certificate for 40 per cent of company -- Company being small and closely held and relationship between parties being beyond repair.

Employment -- Wrongful dismissal -- Cause for dismissal -- Respondent dismissing applicant after applicant commenced application for oppression remedy under s. 248 of Business Corporations Act -- Applicant successful in establishing oppressive behaviour on part of respondent -- Applicant wrongfully dismissed -- Business Corporations Act, R.S.O. 1990, c. B.16, s. 248.

Employment -- Wrongful dismissal -- Notice -- Applicant director of company and making substantial contributions to business for ten years -- Applicant wrongfully dismissed when he commenced application for oppression remedy -- Application judge not erring in awarding damages based on notice period of one year.

The applicant and the respondent entered into an oral agreement that the applicant was to have a 40 per cent ownership interest in a company and the respondent was to have a 60 per cent ownership interest. No shares were ever issued to the applicant, but he relied on the respondent's promise and made significant contributions to the business for ten years. The applicant brought an application for an oppression remedy under s. 248 of the Business Corporations Act alleging that the respondent had improperly deprived him of his rightful interest in the company, had used company money for personal expenses and had caused the company to transfer money or business opportunities to other companies controlled by the respondent. The applicant was dismissed after commencing the application for wrongfully accusing the respondent of improprieties. The application was allowed. The application judge found that the applicant had a contractual right to a 40 per cent interest in the company. He found that the applicant was a security holder within the meaning of s. 245 of the OBCA and that he was entitled to remedies under s. 248 of the OBCA. He awarded the applicant compensation, including damages for wrongful dismissal based on a notice period of one year. The respondent appealed and the applicant cross-appealed.

Held, the appeal should be allowed in part; the cross-appeal should be dismissed.

The fact that the applicant may have had an action against the respondent for breach of contract did not operate as a bar to his claim under s. 248 of the OBCA.

The applicant was a director and vice-president of the company and was involved in management and partner-like decisions. He contributed to the initial and ongoing capitalization and financing of the company. The application judge described the business as an "incorporated partnership". It was implicit in the application judge's findings that the applicant was a beneficial owner of 40 per cent of the shares of the company. The application judge did not err in finding that the applicant was a security holder within the meaning of s. 245 of the OBCA.

The evidence did not support some of the compensation ordered by the application judge. The compensation award was reduced accordingly.

The application judge did not err in finding that the applicant was wrongfully dismissed or in awarding damages based on a notice period of one year.

An application judge's decision with respect to an appropriate award of compensation under s. 248 of the OBCA is entitled to considerable judicial deference. It was open to the application judge to award the applicant compensation instead of directing the respondent to deliver a share certificate for 40 per cent of the company. It was clear that the relationship between the parties in the small, closely held company was beyond repair.

APPEAL AND CROSS-APPEAL from the judgment of Cumming J. (2008), 93 O.R. (3d) 274, [2008] O.J. No. 3585 (S.C.J.) for the applicant in an application for an oppression remedy.

Cases referred to

Anthopoulos v. LaPalme, [2004] O.J. No. 4766, 192 O.A.C. 163, 135 A.C.W.S. (3d) 242 (C.A.), affg [2003] O.J. No. 5452, [2003] O.T.C. 1154, 128 A.C.W.S. (3d) 277 (S.C.J.); J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd., [2008] O.J. No. 958, 2008 ONCA 183, 164 A.C.W.S. (3d) 788, 234 O.A.C. 59, 41 B.L.R. (4th) 51, 67 R.P.R. (4th) 1, consd

Other cases referred to

Csak v. Aumon, [1990] O.J. No. 534, 69 D.L.R. (4th) 567, 20 A.C.W.S. (3d) 372 (H.C.J.); Evans v. Facey, [2000] O.J. No. 2276, [2000] O.T.C. 433 (S.C.J.); Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189 (Ch.); Joncas v. Spruce Falls Power & Paper Co., [2001] O.J. No. 1505, 144 O.A.C. 289, 15 B.L.R. (3d) 1, 104 A.C.W.S. (3d) 865 (C.A.), affg (2000), 48 O.R. (3d) 179, [2000] O.J. No. 1721, [2000] O.T.C. 339, 6 B.L.R. (3d) 109, 97 A.C.W.S. (3d) 72 (S.C.J.); Larmon v. Synergy Hospitality Inc. (c.o.b. Verveine Restaurant), [2004] O.J. No. 3013, 1 B.L.R. (4th) 244, 132 A.C.W.S. (3d) 479 (S.C.J.); Olympia & York Developments Ltd. (Trustee of) v. Olympia & York Realty Corp. (2003), 68 O.R. (3d) 544, [2003] O.J. No. 5242, 180 O.A.C. 158, 42 B.L.R. (3d) 14, 46 C.B.R. (4th) 313, 127 A.C.W.S. (3d) 830 (C.A.)

Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16, ss. 1, (1) [as am.], (4), 245, (c), 248 [as am.], (2), (3)(j)

Alan J. Lenczner, Q.C., and Jordan Goldblatt, for appellants. A.M. Robinson and A. Stephens, for respondent.

The judgment of the court was delivered by

1O'CONNOR A.C.J.O.: -- The dispute underlying this appeal arose from a 14-year business relationship between two friends: the respondent, Joseph Fedel ("Fedel"), and one of the appellants, Kenneth Tan ("Tan"). The primary issue is whether Fedel had a sufficient interest in one of the companies that carried on the business -- the appellant, Gum Products International Inc. ("GPI") -- so as to entitle him to a remedy under s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"). The application judge found that he did. I agree.

Facts

2At trial, the evidence of Fedel and Tan differed in several important respects. The application judge recognized that findings of credibility were critical. He found that both were prepared to mislead in order to advance their own interests. However, on the essential issues, in particular with respect to Fedel's claimed ownership interest in GPI, the application judge found Fedel to be credible. He did not accept Tan's evidence. Where the evidence of the two conflicted, he preferred the evidence of Fedel. The application judge set out his reasons for his credibility findings with care. He then went on to make findings of fact based on those findings of credibility.

3Counsel for the appellant does not challenge the application judge's findings of credibility, nor his findings of fact. Rather, his arguments are directed at the conclusions that the application judge drew based on his factual findings. That being the case, my summary of the facts is based almost entirely on the findings made by the application judge. In addition, I have limited my summary of the facts to only those matters necessary to address the issues raised on appeal.

4Fedel and Tan met as students at the University of Toronto. Later, they worked together for a large investment brokerage business. They became close friends. Tan was the best man at Fedel's wedding.

5In 1992, Tan began working as a commissioned salesman for Shemberg Marketing Corporation ("Shemberg Philippines"), a Philippines company owned by Tan's brother-in-law. Shemberg Philippines was in the business of exporting processed and semi-processed carrageenan, a seaweed derivative used as a thickening, stabilizing or emulsifying agent in many processed food products, particularly in the meat industry. Shemberg Philippines paid Tan a 5 per cent commission on sales he made.

6In the fall of 1992, Tan invited Fedel to join him in the sale of carrageenan for Shemberg Philippines. Tan and Fedel agreed that they would pool their sales together and split the 5 per cent commission on a 55 per cent to Tan, 45 per cent to Fedel basis.

7It was agreed that Tan would hold Fedel's share of commissions in an offshore account and would pay Fedel on request. Fedel admitted that he did not declare the amounts paid to him for income tax purposes.

8In 1993, Tan incorporated a company called Shemberg Marketing Canada ("Shemberg Canada"). Tan was the sole shareholder. He incorporated Shemberg Canada because some customers of Shemberg Philippines preferred dealing with an Ontario company and because the new company would enable Tan and Fedel to provide customers with smaller quantities of carrageenan than Shemberg Philippines was able or willing to deliver. Fedel became a director of Shemberg Canada. Tan and Fedel continued to split profits as before.

9Over time, Fedel's cash balance with Tan would rise and fall as Fedel requested withdrawals. Tan used the moneys owing as he wished, including for the capitalization of Shemberg Canada. In February 1996, Tan held more than $196,000 for Fedel, which he paid out when Fedel requested.

10The application judge described Tan and Fedel's business relationship during this period as an "unincorporated partnership, carrying on a business in common".

11In May 1995, Tan and Fedel were at a conference in Germany. They entered into an oral agreement that they would continue to carry on the carrageenan business together through a new company in which Tan would be a 60 per cent owner and Fedel a 40 per cent owner (the "oral agreement"). In exchange for his 40 per cent interest, Fedel agreed to contribute to the company financially and by providing services. They agreed that Tan would have the larger percentage because he would be responsible for looking after the organization and administration of the business as well as continuing to be involved in carrageenan sales.

12In September 1996, Tan instructed his solicitor to incorporate GPI to carry on the carrageenan business in Canada. It was intended that GPI would import processed and semi- processed carrageenan, have it ground and blended into different products, and then sold and distributed to customers around the world. GPI commenced operations in the spring of 1997.

13On the incorporation of GPI, Tan and Fedel were appointed directors. Tan was issued 100 per cent of the shares. No shares of GPI were ever issued or transferred to Fedel. Tan told Fedel that it would be best that no shares be issued to him but assured Fedel that he had a 40 per cent ownership interest. Fedel trusted Tan and relied on his assurance.

14GPI was capitalized by the transfer of inventory from Shemberg Canada valued at $770,258.78. This inventory had been delivered to Shemberg Canada by Shemberg Philippines in 1995 and 1996.

15In 1995 and 1996, disputes arose between Shemberg Canada and Shemberg Philippines. On Tan's instructions, Shemberg Canada began withholding payments for shipments of carrageenan received from Shemberg Philippines. In response, Shemberg Philippines withheld the payment of commissions to Shemberg Canada. As a result, the amount owing for the inventory that Shemberg Canada transferred to GPI was reduced by at least $200,000. Pursuant to his agreement with Tan, Fedel was entitled to some of the commissions that Shemberg Philippines withheld.

16Shortly after GPI was incorporated, Tan arranged to have another company incorporated in the Cayman Islands. This company, Gum Products International (BVI) Inc. ("BVI"), was incorporated to receive commissions earned from the sale of carrageenan in certain countries. The appellant, Gum Products International Worldwide Inc. ("WW"), is a successor corporation to BVI. It was incorporated in the British Virgin Islands in June 1998. Nothing turns on the fact that WW is a successor corporation. For clarity, I will refer to the two corporations simply as WW. Although no shares of WW were ever issued or transferred to Fedel, Tan acknowledged in this litigation that Fedel was to have a 40 per cent equity interest in WW through a trust.

17In 1998, Shemberg Philippines brought an action against Shemberg Canada, Tan, Fedel, Tan's brother and GPI, claiming amounts owing for product delivered. The action was finally settled in 2004. ¹ Pursuant to this settlement, Tan, GPI and Shemberg Canada agreed to purchase from Shemberg Philippines 1,110,000 kilograms of carrageenan at US$5.25 per kilo over a specified period of time. ² The price of US$5.25 was one dollar over the market price and allowed Shemberg Philippines to recoup the money it was owed. After the settlement, Fedel continued to work for GPI in the sale of carrageenan for 26 months. Paying for the product at the inflated price was financially burdensome to GPI and to Fedel, who took a reduction in income from GPI during this period.

18The application judge concluded that Fedel was implicitly an indirect financial contributor to the capitalization of GPI in two ways: GPI reduced the amount it paid to Shemberg Philippines for the inventory transferred from Shemberg Canada by deducting commissions Shemberg Philippines owed on sales made by Fedel, and Fedel had an ongoing role in implementing the settlement of the litigation.

19When Shemberg Canada transferred the inventory to GPI, Tan arranged for GPI's records to show that GPI paid for the inventory by way of shareholder loan from Tan. Fedel was not given any credit. The application judge found this accounting record to be a fiction.

20During the Shemberg litigation, both Tan and Fedel, who were sued personally, gave evidence in which they attempted to distance themselves from GPI. Both testified they were not owners of GPI. However, in this proceeding, Fedel testified that he always considered that he had a 40 per cent ownership interest in GPI. The application judge accepted this evidence.

21Throughout the period starting in the spring of 1997, when GPI began carrying on business, until this litigation was commenced in 2006, Fedel was employed in a sales capacity by GPI. He was also involved in the management of the company. He was a director and vice-president. He took part in decisions relating to hiring employees, the amounts of their salaries and the commissions to be paid to them. He participated in meetings with the company's bankers and with the Business Development Corporation and played a role in setting prices for the company's products.

22Tan was solely responsible for the accounting and corporate organization of GPI and WW. When Fedel inquired about shares in GPI or WW being issued in his name, Tan told him that his interests would be held in a trust and that it was better that shares not be issued in his name. Fedel trusted Tan and believed throughout that he had a 40 per cent ownership interest in GPI and WW.

23At one point, Fedel established a trust -- the Istrian Trust -- to hold his interest in WW. However, no shares of WW were transferred to the Istrian Trust and, in time, Fedel allowed it to lapse.

24Over time, GPI became profitable. By 2006, it had accumulated gross sales of more than $76 million. In 2005, Fedel became concerned that Tan was improperly depriving him of his rightful interest in GPI and WW. He was concerned that Tan was using company money for personal expenses and was thereby reducing the value of Fedel's interest in the companies. Fedel was also concerned that Tan had caused GPI to transfer money or business opportunities to other companies controlled by Tan, the respondents to the application -- Quality Powderizing Limited ("QPL"), PG Properties Limited ("PGP"), Polenton Pacific Corporation, Sunginvest Holdings Ltd. ("Sunginvest") and Tanvest Ltd. Fedel did not have legal proof of his ownership in GPI or WW and did not have access to the companies' corporate or accounting records.

25On October 4, 2006, Fedel commenced the application that underlies this appeal, seeking a broad range of remedies, including a declaration that Tan held 40 per cent of the shares of GPI for him. He also sought production of the books and records of GPI and WW and several orders requiring Tan or companies that were related to Tan and GPI to account for moneys improperly withdrawn from GPI.

26On October 13, 2006, GPI terminated Fedel's employment because he had commenced the litigation. Fedel amended his application to include a claim for wrongful dismissal, in which he claimed his monthly salary was $30,000.

The Judgment Below

27The application judge accepted Fedel's evidence that Fedel and Tan had made an oral agreement pursuant to which Fedel was to own 40 per cent and Tan 60 per cent of the businesses that were subsequently carried on by GPI and WW.

28The application judge described Fedel's 40 per cent interest in GPI as an "ownership interest" or an "equity interest". ³ He found that GPI and WW were essentially "incorporated partnerships".

29The application judge found that Fedel was a "complainant" within the meaning of s. 245 of the OBCA and, as such, was entitled to bring an application under s. 248. He found that Tan had carried on the business of GPI, WW and the other respondents to the application in a manner that was oppressive, unfairly prejudicial to and that unfairly disregarded Fedel's interests as a security holder of GPI and WW.

30The application judge awarded compensation to Fedel totalling $1,373,444.70. He set out the particulars of the award in para. 221 of his reasons. The amount awarded was comprised of three types of awards: (a) $528,960.70, being financial contributions made by Fedel to GPI; (b) $400,000 for the loss of profit in WW. He found that WW had profits of at least $1 million and that as a 40 per cent owner, Fedel was entitled to 40 per cent of those profits; and (c) a total of $444,484, being 40 per cent of moneys or the value of business opportunities that Tan had caused GPI to improperly transfer to himself or to companies controlled by him.

31The application judge ordered that Tan and GPI were jointly and severally liable to pay the awards of compensation referred to in paras. (a) and (c) above, with the exception of one award of $64,000, for which the application judge did not find GPI liable. In the case of the award in para. (b), the application judge found that Tan, GPI and WW were jointly and severally liable. In the instances where moneys or business opportunities were transferred to or with the involvement of a third-party company controlled by Tan, the application judge ordered that the third-party company be jointly and severally liable for the compensation.

32The application judge also found that GPI had wrongfully dismissed Fedel as an employee and ordered GPI to pay Fedel 12 months' pay in lieu of notice.

33The application judge did not make an order that Fedel be compensated for the value of his 40 per cent interest in GPI other than through the awards of compensation referred to above. The application judge reasoned that an appropriate remedy in this situation must result in a complete severance of the relationship of Fedel and Tan. He decided that an order compensating Fedel was the appropriate remedy.

34Tan appeals several aspects of the compensation awards and the finding that Fedel was wrongfully dismissed. Fedel cross-appeals the application judge's failure to award him the full value of his 40 per cent ownership in GPI and the amount of the damage award for wrongful dismissal.

Issues

(a) The appeal

35Did the application judge err in finding that (a) Fedel had a contractual right to own 40 per cent of GPI; (b) Fedel had a sufficient interest in GPI to entitle him to remedies under s. 248 of the OBCA; (c) Fedel was a proper party to bring the application; (d) Fedel was entitled to the compensation set out in para. 221 of the application judge's reasons (Tan takes issue with only certain aspects of the compensation awards); and (e) GPI wrongfully dismissed Fedel and Fedel was entitled to 12 months' pay in lieu of notice?

36In oral argument, Tan did not pursue an appeal against the trial judge's award of substantial indemnity costs. I see no basis to interfere with that award and will not address the issue further.

(b) The cross-appeal

37Did the application judge err in failing (a) to order Tan to pay Fedel an amount equal to 40 per cent of the full value of GPI; and (b) to award Fedel 18 months' pay in lieu of notice for wrongful dismissal?

Analysis

(a) The basis of the claim and the relief awarded

38Before addressing Tan's grounds of appeal, it is important to make clear the basis on which Fedel brought his application (other than the claim for wrongful dismissal), as well as the basis on which the application judge found liability and ordered remedies. Fedel brought the application pursuant to s. 248 of the OBCA. ⁴ The application judge based his findings of liability and ordered remedies solely under that section. He found that Tan had carried on the affairs of GPI, WW and the other appellant corporations in a manner that was oppressive, unfairly prejudicial to and that unfairly disregarded Fedel's interests as a security holder of GPI and WW.

39As part of the analysis that led him to conclude that Fedel was entitled to a remedy under s. 248, the application judge found that Fedel had a contractual right to become a 40 per cent shareholder of GPI. However, he did not base his finding of liability on a breach of contract, nor did he purport to award a remedy for breach of contract. Rather, the application judge considered Fedel's contractual right as one factor in determining that Fedel was a proper complainant to bring an application under s. 248 and that he had an interest as a "security holder" that was protected by the section.

(b) The agreement

40Tan argues that the application judge err in finding that he and Fedel entered into the oral agreement in 1995, pursuant to which Tan agreed that Fedel would own 40 per cent of the carrageenan business.

41The application judge accepted Fedel's evidence that Tan promised him a 40 per cent ownership interest in a new company that would carry on the carrageenan business. In exchange, Fedel promised to contribute to the business, both financially and by continuing to work for the company in order to help it grow and prosper. The application judge rejected Tan's evidence that there was no such agreement. He found that Tan and Fedel had exchanged promises and that those promises related to the business that was carried on by GPI and WW after they were incorporated.

42The issue whether Tan and Fedel exchanged the promises that constitute the oral agreement was a straight credibility contest between the two. The application judge accepted Fedel's evidence. He was entitled to do so.

43Tan goes on to argue that even if Tan and Fedel entered into the oral agreement, the application judge erred in concluding that Fedel had a contractual right to a 40 per cent ownership interest in GPI. Tan argues that due to a lack of certainty as to the agreement's terms, it was unenforceable. Tan says the agreement was not clear as to which business it applied, how that business was to be continued, where it was to operate, where it would obtain product, who it would employ, what it would be named and how the two principals would provide capital in order to finance it. Tan further argues that it was also not clear at what point Fedel would become a shareholder and at what point the agreement was breached. Moreover, as time passed, there was uncertainty as to the percentage of shares to which Fedel was entitled.

44I do not accept these arguments. While some of the details that Tan says were missing in the oral agreement may not have been discussed at the time the oral agreement was formed, any such failure did not hinder the two from carrying on the carrageenan business in the following ten years pursuant to the oral agreement.

45In 1996, Tan caused GPI and WW to be incorporated. After incorporation, the companies continued and developed the carrageenan business in which Tan and Fedel had previously been involved. Tan held all the shares of both companies, either directly or through a trust. On many occasions, Tan assured Fedel that he was an owner of GPI and WW. While sometimes Tan suggested that the ownership interest was less than 40 per cent, the important point for the present discussion is that Tan recognized throughout that Fedel had an ownership interest. Indeed, in this litigation, he accepts that Fedel owned 40 per cent of WW. His dispute is solely with Fedel's claim to an ownership interest in GPI. I will come back to the amount of Fedel's ownership interest below.

46The application judge found that Fedel relied upon Tan's promises that he had an ownership interest in both companies. Fedel trusted Tan and made significant contributions to the businesses as part of his bargain with Tan. He contributed financially by leaving earned commissions in GPI. He helped with the initial capitalization of the company. He loaned GPI $50,000 in 2003. Fedel continued working for GPI at a reduced income during the period that the Shemberg litigation settlement was being implemented. Fedel also contributed to the business with his "extensive and successful work as the prime salesperson for GPI".

47Shortly before Fedel commenced this litigation in 2006, Tan recognized Fedel's interest in GPI. Fedel wrote Tan, stating, "[y]ou and I started this company [GPI] 60/40 -- lately, it seems every time I exhale you are telling me that I own less of it". Tan responded as follows:

Anyway, yes we both started the company but I started it first, yes? Thus, I always had the higher percentage since Day 1 to reflect this fact. Anyway, I've immensely enjoyed our partnership over the years . . . .

Your comment on the 60/40 split is accurate. We agreed that when we have a profit sharing, whatever is left after we give everyone else their cut, the remainder is split 60/40 between me and you, respectively. That has not changed and that is still true today.

48Tan argues that, over time, the 60-40 division of ownership in GPI changed, or at least that there was a lack of clarity as to what ownership interest Fedel was entitled to. The application judge rejected this argument. While there are references in some documents prepared by or on behalf of Tan that say Fedel owned less than 40 per cent of GPI, the application judge found that Fedel never agreed to anything other than the 60-40 split referred to in the oral agreement. Indeed, Tan's 2006 e-mail referred to in the preceding paragraph supports this conclusion.

49The application judge's conclusion as to a 60-40 split is also supported by the fact that in this litigation Tan accepts that Fedel has a 40 per cent ownership interest in WW. Given the nature of the businesses carried on by GPI and WW and the relationship of the two companies, it seems illogical that Tan would agree that Fedel is entitled to a 40 per cent interest in one and not in the other.

50In my view, it was clearly open to the application judge to find, on the basis of the oral agreement and the actions of the two parties in implementing that agreement, that Fedel had a contractual right to 40 per cent ownership in the shares of GPI. Any lack of clarity about the terms at the time of the formation of the oral agreement did not interfere with the way the parties were able to perform under the agreement over a lengthy period of time.

51Finally, I do not accept that the application judge erred in not determining at what point in time Tan breached his agreement with Fedel. Nor do I accept that the application judge erred in not considering what remedies were available to Fedel based on a breach of contract. As I said above, Fedel's application was not founded on an alleged breach of contract. His claims of wrongful conduct against Tan, GPI and the other respondents extended beyond an allegation of breach of contract. The success or failure of Fedel's application turned on whether he was entitled to a remedy under s. 248 of the OBCA.

(c) Fedel's ownership interest

52Tan argues that the application judge erred in finding that Fedel was entitled to a remedy under s. 248 of the OBCA. He makes two arguments.

53First, Tan argues that if the application judge was correct in finding that Fedel had a contractual right to a 40 per cent ownership interest in GPI, Fedel was limited to suing Tan for breach of contract. He argues that the application judge, in effect, impermissibly granted Fedel equitable relief under s. 248 on the basis of a finding of a breach of contract. He submits that a court must give full effect to a contract without recourse to s. 248 when there is an unambiguous contract on which a party can sue. Several of the application judge's awards for compensation would not have been available in an action for breach of contract.

54In making these arguments, Tan relies on the decision of this court in J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd., 2008 ONCA 183, [2008] O.J. No. 958, 234 O.A.C. 59 (C.A.), which held that an oppression remedy was not intended to be a substitute for an ordinary right of action in contract. Where the sole complaint is that of a breach of contract, the contract action should be pursued.

55The difficulty with Tan's argument is that Fedel's complaints against Tan and the corporate respondents exceeded a simple breach of contract claim. The application judge found [at para. 217] that Tan and Fedel's businesses were essentially "incorporated partnerships". Fedel had a reasonable expectation that Tan was operating the businesses of GPI and WW in a proper manner and that he was protecting Fedel's 40 per cent ownership interest in those companies. The remedies that Fedel sought under s. 248 of the OBCA went well beyond remedies that were available to him for Tan's breach of his agreement to deliver 40 per cent of the shares to him. To succeed, however, Fedel needed to establish that he had a sufficient interest in GPI to entitle him to remedies under s. 248.

56In my view, J.S.M. does not assist Tan. In that case, the court held that a contractual remedy should be sought where the sole complaint is that of a breach of contract. It does not, however, suggest that the mere fact that a claim could be brought for breach of contract precludes the application of the oppression remedy where its application is otherwise appropriate. In J.S.M., at para. 66, the court reasoned that the oppression remedy is not intended to give a creditor after- the-fact protection against the risks assumed when entering into an agreement with a corporation, but is an appropriate remedy in situations where a creditor finds its "interest as a creditor compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself". In my view, that reasoning applies equally to a case such as the present, where the interest asserted by the applicant is an ownership interest rather than that of a creditor and where the applicant establishes that its interest has been harmed by conduct that is protected by s. 248 of the OBCA.

57In the result, I do not consider the fact that Fedel may have had an action against Tan in contract operates as a bar to his claim under s. 248 of the OBCA against Tan and the appellant corporations.

58Tan's second argument is that the application judge erred by finding that Fedel had a sufficient interest in GPI to entitle him to remedies under s. 248 of the OBCA. ⁵

59The OBCA provides that only a person who is a complainant may apply for a remedy under s. 248. Section 245 defines a complainant as follows:

245. In this Part . . . . .

"complainant" means, (a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates, (b) a director or an officer or former director or officer of a corporation or any of its affiliates, (c) any other person, who in the discretion of the court is a proper person to make an application under this Part.

60A person who is a complainant may bring an application under s. 248(2), which reads as follows:

248(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.

61When considering whether Fedel was a complainant under s. 245, the application judge found that he was a "proper person" under s. 245(c). The application judge described Fedel's interest in GPI variously as an "ownership interest" or "equity interest."

62Tan argues that a person who is entitled to acquire shares of a corporation as a result of a contract with a third party does not have a sufficient interest in the company to be a proper complainant under the OBCA. Tan recognizes that there are some Superior Court decisions that have held the contrary: see, e.g., Csak v. Aumon, [1990] O.J. No. 534, 69 D.L.R. (4th) 567 (H.C.J.); Evans v. Facey, [2000] O.J. No. 2276, [2000] O.T.C. 433 (S.C.J.); Joncas v. Spruce Falls Power & Paper Co. (2000), 48 O.R. (3d) 179, [2000] O.J. No. 1721 (S.C.J.), affd [2001] O.J. No. 1505, 144 O.A.C. 289 (C.A.); Larmon v. Synergy Hospitality Inc. (c.o.b. Verveine Restaurant), [2004] O.J. No. 3013, 1 B.L.R. (4th) 244 (S.C.J.). However, he argues that these cases either did not squarely address the issue or were wrongly decided. Tan relies on the decision in Anthopoulos v. LaPalme, [2003] O.J. No. 5452, [2003] O.T.C. 1154 (S.C.J.), affd [2004] O.J. No. 4766, 192 O.A.C. 163 (C.A.) to argue that a mere contractual right to purchase shares is insufficient to bring an applicant within s. 245. He argues that this court, which has not dealt with this issue previously, should adopt that approach.

63I do not read Anthopoulos as standing for the proposition asserted by Tan. That said, I do not think that the facts of this case raise the issue whether a mere contractual right to acquire shares is sufficient to gain access to the OBCA through s. 245.

64In determining that Fedel was a proper complainant under s. 245, the application judge found that Fedel has an "equity" or "ownership" interest in GPI.

65The application judge quite properly examined the entire relationship between Fedel and Tan and GPI. The application judge found that, in effect, Fedel and Tan had been partners before the incorporation of GPI. The oral agreement was a promise by Tan to continue that relationship through a corporation, albeit on the basis of slightly altered percentages.

66Importantly, Fedel and Tan continued their partnership- like relationship for approximately ten years after GPI was incorporated. GPI was a private, closely held company. Tan was the controlling shareholder and directing mind of the company. Fedel relied reasonably on Tan's promise that he was a 40 per cent owner. Fedel trusted Tan. Tan held out to third parties that he and Fedel were partners in GPI. Fedel's services involved more than those of an employee. He was a director and vice-president. The application judge found that Fedel was involved in management and partner-like decisions such as hiring employees and pricing product. In addition to providing services to the business of GPI, Fedel also contributed to the initial and ongoing capitalization and financing of the company. He loaned the company money in what was described in the company's records as a shareholder loan. The application judge described the business as an "incorporated partnership".

67The application judge considered all the circumstances relating to the 14-year business relationship between Tan and Fedel as it applied to the business operated by GPI. In my view, there was ample evidence to support the application judge's conclusion that Fedel had an equity or ownership interest in GPI.

68Section 245(c) provides a court with a broad discretion to determine who is a proper person to bring an application under s. 248. I am satisfied that the nature of Fedel and Tan's relationship, as well as Fedel's relationship with GPI, provided ample basis for the application judge to exercise the broad discretion conferred on him by s. 245(c) to conclude that Fedel was a proper person to bring an application: Olympia & York Developments Ltd. (Trustee of) v. Olympia & York Realty Corp. (2003), 68 O.R. (3d) 544, [2003] O.J. No. 5242 (C.A.), at para. 45; Csak, at p. 572 D.L.R.

69Section 248 protects the interests of a "security holder, creditor, director or officer of the corporation". The application judge found that Fedel was a security holder within the meaning of the section. A "security holder" is not defined in the OBCA. However, it is well established that a security holder includes a beneficial owner of shares: see, e.g., Joncas v. Spruce Falls Power and Paper Co., supra (C.A.), at paras. 9 and 10; Csak, at p. 570 D.L.R.; Evans, at paras. 99-103. Although the application judge did not specifically use the term "beneficial owner" in describing Fedel's interest in GPI, it is implicit in his findings that Fedel was one. "Beneficial ownership", defined in s. 1 of the OBCA, includes "ownership through a trustee, legal representative, agent or other intermediary" -- situations in which a person's interest in a company is held by another.

70As I have said, GPI is a private, closely held corporation controlled by Tan. All the shares were issued in his name or in trust in accordance with his directions. The application judge found that Fedel had a 40 per cent ownership interest in those shares. He described GPI as being akin to an "incorporated partnership". Implicit in this finding is a conclusion that Tan was holding 40 per cent of the shares of GPI for Fedel. In short, Fedel was a beneficial owner of those shares. The appellants properly acknowledge that a finding of beneficial share ownership by Fedel, as in my view was made by the application judge, permits recourse to s. 248 of the OBCA.

71In summary, as to Fedel's interest, I am satisfied that the application judge concluded properly that Fedel had standing as a complainant under s. 245 of the OBCA and that he had a sufficient interest as a security holder under s. 248(2) to confer jurisdiction on the court to make an order under that section.

(c) The proper applicant

72Tan argues that if there is a claim under s. 248 of the OBCA, the Istrian Trust, not Fedel, is the proper complainant. In Tan's submission, Fedel did not have standing to assert the claim. Whatever interest Fedel may have acquired in GPI and WW was not to be held by him personally, but by the Istrian Trust.

73The Istrian Trust was created in 1997, before the Shemberg litigation commenced. One of the purposes for creating the Trust was to enable Fedel to distance himself personally from GPI in the event of any potential litigation. Fedel testified that the Istrian Trust was supposed to own WW, which in turn was to own GPI.

74The difficulty with Tan's argument that the Istrian Trust is the proper applicant, rather than Fedel, is that there is no evidence that Fedel's 40 per cent interests in GPI or WW were ever transferred to the Istrian Trust. While a transfer was contemplated, none was in fact carried out. Fedel allowed the Istrian Trust to lapse. Fedel testified that after the initial settlement of the Shemberg litigation in 2001, it did not seem important to use the Istrian Trust any longer. Tan told Fedel that he could let the Trust lapse and thereby save the annual fees. Fedel did this. Fedel continued to believe that his 40 per cent interest would be held by Tan, who would protect his best interests.

75On the basis of this evidence, the application judge found that Fedel was the proper party to assert the claim to the 40 per cent interest in the companies. I agree. I would not give effect to this ground of appeal.

(d) The compensation awards

76The application judge made seven separate compensation awards. ⁶ They are set out in para. 221 of his reasons and in paras. 3 to 9 of the judgment. Tan challenges four of these awards in whole or in part. In addition, he argues that the application judge improperly held that the companies controlled by Tan, which received benefits from GPI, were jointly and severally liable to Fedel for the relevant awards. I will deal with each of these arguments in turn.

77Pursuant to para. 221(1) of his reasons and para. 3 of the judgment, the application judge ordered that Tan and GPI are jointly and severally liable to Fedel for $528,960.70, being the amount necessary to return to Fedel the financial contributions he had made to GPI. Tan accepts that GPI owed Fedel money, but argues that the amount awarded by the application judge should be reduced in two respects.

78First, he argues that $50,000 loaned by Fedel to GPI had been repaid by the time of the trial. Fedel agrees.

79Thus, I would reduce the award in para. 221(1) of the application judge's reasons and para. 3 of the judgment by $50,000.

80Next, Tan argues that the application judge erred in the calculation of commissions owing to Fedel by crediting Fedel with the amount of US$115,622.14 for sales to a company called Gumindo between 1999 and 2001. Tan says there was no evidence that the commissions were received by GPI and the application judge should have drawn the inference that they were not. The award, Tan argues, should be reduced accordingly.

81The application judge based his award of the amounts owing to Fedel on a document prepared by Tan and produced to Fedel in 2005. The parties refer to that document as Tab 12. Tan's purpose in preparing Tab 12 was to show Fedel how much money GPI owed him. The application judge quite properly attached substantial weight to Tab 12. Although Tan attempted at trial to resile from some of the numbers in Tab 12, including the Gumindo commissions, he failed to produce any backup documentation to support his positions. Fedel testified that he did not know whether the Gumindo commissions had been received or not. Fedel did not have access to GPI's accounting records. As pointed out above, the application judge found Tan to be an incredible witness in many respects. With regard to the Gumindo commissions, the application judge chose to rely on Tab 12, a document prepared by Tan before Fedel commenced this litigation, rather than on Tan's unsupported testimony at trial. In my view, it was open to the application judge to do so. I would not give effect to this argument.

82Next, Tan argues that the application judge erred in awarding Fedel compensation in the amount of $64,000, being 40 per cent of an advance made by GPI to PGP in respect of the purchase of a property at 1255 Journey's End Circle, Newmarket. Tan points out that GPI's records show that PGP repaid the $160,000 advanced by GPI and that there is no evidence suggesting the contrary. I agree. The evidence does not support this award.

83Fedel argues, however, that there were other financial dealings between GPI and PGP that improperly reduced the value of GPI. Whether or not that is the case, the application judge limited his compensation award with respect to PGP to the $160,000 loan.

84Accordingly, I would strike the award of $64,000 referred to in para. 221(5) of the application judge's reasons and in para. 7 of the judgment.

85Finally, with respect to the compensation orders, the appellants Sunginvest and QPL argue that the application judge erred in awarding damages against them.

86In the case of Sunginvest, at para. 221(3), the application judge ordered that Tan, GPI and Sunginvest are jointly and severally liable to Fedel for $148,000 (40 per cent of $370,000) for management fees and renovation charges improperly charged to GPI by Sunginvest. The challenge here is only to the inclusion of Sunginvest as a party liable to pay this amount. Sunginvest argues that Fedel was not a registered shareholder of GPI and cannot obtain relief for wrongs done to the corporation. It also argues that the claim is derivative in nature and as such offends the rule in Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189 (Ch.).

87As to QPL, at para. 221(4), the application judge awarded Fedel $26,484 (40 per cent of $66,210), which was the value of a corporate opportunity improperly appropriated from GPI. QPL was involved in the transactions that resulted in that appropriation. The application judge found Tan, GPI and QPL jointly and severally liable to pay this amount. As with the Sunginvest issue, the only issue here is whether the application judge erred in holding QPL liable.

88The application judge found Sunginvest and QPL liable because they were affiliates of GPI within the meaning of the OBCA. Pursuant to ss. 1(1) and 1(4) of the OBCA, one body corporate is affiliated with another when they are both controlled by the same person. The application judge found that Tan is the de facto controlling mind and shareholder of all the appellant corporations. Sections 248(2) and 248(3)(j) permit a court to "make an order to rectify the matters complained of", including an order compensating an aggrieved person, where it is satisfied that there is an act of oppression "in respect of a corporation or any of its affiliates" by a corporation or any of its affiliates. That being the case, the application judge was entitled to find as he did that Sunginvest and QPL were liable to Fedel under s. 248(2).

89Moreover, I do not accept Tan's argument that Fedel's claims against Sunginvest and QPL are derivative in nature and must fail because they offend the rule in Foss v. Harbottle. Fedel did not seek a return to GPI of 100 per cent of the amounts in issue. Rather, he sought only the return of the diminution of his interest in GPI based on his 40 per cent equity position.

90In the result, I would not interfere with the awards against Sunginvest and QPL.

(e) Wrongful dismissal

91GPI terminated Fedel's employment after he commenced the application underlying this appeal. The application judge ordered that GPI pay Fedel $360,000 as damages for wrongful dismissal -- effectively 12 months' notice at $30,000 a month. GPI appeals liability and the amount of the award.

92GPI's argument as to liability is premised on this court overturning the judgment below and concluding that Fedel wrongfully accused Tan of improprieties. Given my conclusions set out above, I would not interfere with the application judge's finding that GPI wrongfully terminated Fedel.

93As to the damage award, GPI argues that Tan failed to mitigate his damages by seeking replacement work.

94For the first eight months after he was terminated, Fedel was subject to a requirement that he not compete in the carrageenan business. The onus is on GPI to prove that Fedel could have obtained alternative employment. GPI did not satisfy the onus. I would not reduce the damages award for wrongful dismissal.

The Cross-Appeal

95The application judge implicitly found that Fedel was a beneficial owner of 40 per cent of GPI and WW. He fashioned a remedy that was intended to compensate Fedel for moneys GPI owed to him, for 40 per cent of the profits of WW and for 40 per cent of the money or value of opportunities that Tan caused GPI to improperly transfer to his personal benefit.

96Fedel, in his application, asked for an order that Tan or GPI deliver to him a share certificate for 40 per cent of GPI. In addition, he sought a valuation of his interest in the profits of GPI and an order that Tan or GPI acquire his interest in those profits.

97At the beginning of trial, the parties agreed that consideration of Fedel's request for a valuation would await the outcome of the trial on liability.

98In his reasons, the application judge indicated that there should be a complete severance of the interests of Fedel and the respondents to the application. He then fashioned his compensation award. The award was substantial. Including the severance pay, it amounted to more than $1.7 million. However, the application judge did not direct that Tan or GPI deliver a share certificate for 40 per cent of GPI. Nor did he direct a valuation of the profits of GPI. Implicitly, the application judge considered that the compensation award was sufficient to address all Fedel's interests.

99Fedel, in his cross-appeal, argues that the application judge's compensation order leaves Tan with a 100 per cent ownership of GPI, which would include the value of any goodwill and assets after deducting liabilities, including the application judge's compensation awards. In fashioning a remedy, Fedel argues that the application judge failed to account for his reasonable expectation that he owned 40 per cent of the companies.

100I would not allow the cross-appeal. Section 248 is remedial legislation that provides a court with considerable latitude in deciding on a fair and just remedy in the circumstances of a particular case. A trial judge's decision with respect to an appropriate award of compensation under s. 248 of the OBCA is entitled to considerable deference in this court.

101In fashioning a remedy based on the relief sought in Fedel's application, the application judge was required to decide first whether or not he would order Tan and GPI, or both, to deliver to Fedel 40 per cent of the issued shares of GPI. Had he done so, Fedel would have continued as a shareholder. The application judge decided against this approach. In my view, his decision was sensible. It was clear that the relationship between the parties in this small, closely held company was beyond repair. Having reached that conclusion, the application judge was then left with the question of what he should order by way of compensation to Fedel for his interest in GPI.

102In making the compensation order, the application judge recognized that he was not compensating Fedel for the full value of his interest. He said, "the compensation awarded probably understates Fedel's actual losses" (para. 226). The application judge was not satisfied that there was a sufficient evidential basis to support a greater or differently premised award in favour of Fedel. The application judge's appreciation of the whole of the evidence in this regard is subject to considerable appellate deference.

103The application judge also had a discretion with respect to the amount of compensation to be ordered. The application judge heard the evidence, particularly of the two protagonists, and was fully aware of the circumstances that gave rise to their relationship and to their falling out. Clearly, the application judge was critical of Tan, but he also found that Fedel was not an entirely reliable witness and that his conduct of his personal affairs was not always beyond reproach.

104In addition, the application judge found that Fedel's interest in GPI arose in part from the fact that from time to time GPI was able to use money that was owed to Fedel for operating purposes. Making money available to GPI in this manner was part of Fedel's contribution to the capital of the company and was a factor that led the application judge to conclude that Fedel had an ownership interest in GPI.

105In para. 221(1) of his reasons, the application judge directed Tan and GPI to fully reimburse Fedel for all moneys that GPI owed him for his financial contributions. Although the application judge did not frame this award as a return of capital, in the context of the relationship as it had developed, this part of the compensation award could be seen at least in part in this fashion. That being the case, the application judge's compensation order addressed, in some measure, compensation for Fedel's ownership interest. In addition, the application judge's compensation order included a requirement that GPI and Tan compensate Fedel for all moneys improperly removed from the company. Again, this part of the compensation award addressed, to some extent, Fedel's ownership interest.

106In the end, I am not persuaded that the application judge erred in fashioning the compensation award as he did.

107Finally, as to the second ground of the cross-appeal, I see no basis to increase the notice period relating to Fedel's wrongful termination to a period of 18 months.

Disposition

108I would allow the appeal in part and amend the judgment below by reducing by $50,000 the award referred to in para. 3 of the judgment and by striking the award of $64,000 referred to in para. 7 of the judgment. I would dismiss the cross-appeal. If the parties are unable to agree as to costs of the appeal and cross-appeal, I would direct that they make brief written submissions to the court within a period of two weeks from the date this judgment is released.

Appeal allowed in part; cross-appeal dismissed.

APPENDIX "A"

PART XVII REMEDIES, OFFENCES AND PENALTIES

Definitions

245. In this Part,

"action" means an action under this Act; ("action")

"complainant" means, (a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates, (b) a director or an officer or a former director or officer of a corporation or of any of its affiliates, (c) any other person who, in the discretion of the court, is a proper person to make an application under this Part. Business Corporations Act R.S.O. 1990, c. B.16

Oppression remedy

248(1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

Idem

(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.

Court order

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing, (a) an order restraining the conduct complained of; (b) an order appointing a receiver or receiver-manager; (c) an order to regulate a corporation's affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement; (d) an order directing an issue or exchange of securities; (e) an order appointing directors in place of or in addition to all or any of the directors then in office; (f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder; (g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities; (h) an order 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; (i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine; (j) an order compensating an aggrieved person; (k) an order directing rectification of the registers or other records of a corporation under section 250; (l) an order winding up the corporation under section 207; (m) an order directing an investigation under Part XIII be made; and (n) an order requiring the trial of any issue.

Idem

(4) Where an order made under this section directs amendment of the articles or by-laws of a corporation, (a) the directors shall forthwith comply with subsection 186 (4); and (b) no other amendment to the articles or by-laws shall be made without the consent of the court, until the court otherwise orders.

Shareholder may not dissent

(5) A shareholder is not entitled to dissent under section 185 if an amendment to the articles is effected under this section.

Where corporation prohibited from paying shareholder

(6) A corporation shall not make a payment to a shareholder under clause (3)(f) or (g) if there are reasonable grounds for believing that, (a) the corporation is or, after the payment, would be unable to pay its liabilities as they become due; or (b) the realizable value of the corporation's assets would thereby be less than the aggregate of its liabilities.

Footnotes

1. 1There was an initial settlement in 2001. Nothing turns on this fact.
2. 2The settlement agreement provided for an alternative method of payment but it appears that the amount owing was paid by purchasing the product at the increased price.
3. 3As mentioned above, Tan accepted that Fedel had a 40 per cent ownership interest in WW and, accordingly, the application judge was not required to address the issue of Fedel's ownership of WW.
4. 4The relevent sections of the OBCA are set out in an appendix to these reasons.
5. 5Sections 245 and 248 of the OBCA are reproduced in appendices to these reasons. I repeat them here for ease of reference.
6. 6Below, I will discuss an additional award the application judge ordered for damages for wrongful dismissal.