Court File and Parties

Court File No.: 133/06

Released: 20070129

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Re: John Holden v. Infolink Technologies Ltd., Infolink Communications Ltd., Infolink Technologies (USA) Ltd., Cesar Correia, also known as Cesario Burrigo Correia, Wanda Lee, Andrew Marek, Stewart Wright and Berkow Cohen LLP

Before: Lane, Swinton and M.G.J. Quigley JJ.

Counsel: Melvyn L. Solmon and Jonathon M. Kappy for the Plaintiff (Appellant) Ronald B. Moldaver Q.C. for Berkow Cohen LLP, Defendant (Respondent)

Heard at Toronto: January 8, 2007

ENDORSEMENT

[1] This is an appeal from the February 17, 2006 order of Cumming J. striking the Amended Statement of Claim of the appellant John Holden as against the respondent Berkow Cohen LLP (“BC”) without leave to amend in so far as including Berkow Cohen LLP as a defendant. The order was made without prejudice to the appellant’s right to move under s. 246 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 for leave to bring an action in the name of the corporation against BC.

[2] In his submissions on this appeal, counsel for the appellant described the main claim in this proceeding as one that the directors of Infolink committed oppression by clandestinely diverting corporate funds to Cesar Correia, the majority shareholder and then a director and the signing officer for Infolink. BC is the law firm that was retained to represent all the main defendants, including Correia, after an Inspector was appointed in July, 2004 in the appellant’s oppression proceeding. The appellant, a minority shareholder, took the position that Correia, and not Infolink, should pay Correia’s legal fees.

[3] In order to understand the proceeding before Cumming J., it is necessary to consider a decision of Hoy J. dated March 17, 2005, in which she dismissed a motion brought by BC under Rules 20, 21.01(1) and 25.11. In her reasons, she stated that counsel for the appellant had advised during argument that the appellant did not assert claims for breach of fiduciary duty and negligence against BC. He conceded that the only “damages” at issue were legal fees paid by Infolink to BC, and that the appellant could not maintain such claims against BC, because the damages were suffered by Infolink. Counsel stated that the claim against BC was made solely in oppression in conjunction with his oppression claim against the Infolink directors. More precisely, he submitted that BC received legal fees as a result of the oppressive conduct of the directors and was in a position of conflict. Therefore, BC was not an “innocent stranger” to the payments, and relief should be granted pursuant to s. 248(3)(h) of the OBCA in the form of an order to BC to refund all or part of the fees to Infolink. Construing the Statement of Claim in light of counsel’s concessions and submissions, and given Waxman v. Waxman, [2004] O.J. No. 1762 (C.A.), Hoy J. held that it was not plain and obvious that such a claim would fail. She also held that it was not an appropriate case to award summary judgment.

[4] In her endorsement on costs on April 26, 2005, Hoy J. observed that the appellant’s claim had survived “if only by a hair, because of counsel’s oral argument, explaining that his claim in oppression was based solely on the conduct of the directors, and not the Law Firm’s conduct”. She noted that this had not been apparent to her from reading the factum prior to the hearing. She ordered the appellant to amend the Statement of Claim in accordance with her earlier endorsement. However, an Amended Statement of Claim had already been filed on March 24, 2005.

[5] BC then brought a motion before Cumming J. to strike the amended claim. At the time of the hearing, appellant’s counsel had consented to certain changes to the Amended Statement of Claim.

[6] Cumming J. concluded that the Amended Statement of Claim did not disclose a reasonable cause of action against BC. He characterized the claims pleaded against BC as “vague, repetitive and incoherent” (para. 41). He noted that the findings of Hoy J. were “largely ignored”, as the pleading still maintained references to alleged breaches of fiduciary duty and negligence against BC, even though counsel had taken the position before her that the claim against BC was for the return of legal fees only because of the oppression of the directors. Cumming J. also concluded that the references to s. 248(2) of the Act and the pleading that BC “aided and abetted” the oppressive conduct of the directors amounted to a claim that BC had itself engaged in oppressive conduct.

[7] Cumming J. stated that Waxman, supra permits an order to remedy oppression, pursuant to s. 248(3) of the OBCA to reach persons who have not committed oppression but who are in knowing receipt from the benefit of the oppression. However, he concluded that a law firm could not be in “knowing receipt” of a benefit from oppressive conduct simply because it received legal fees for representing the defendant directors who were alleged to have engaged in oppressive conduct.

[8] At para. 48, Cumming J. stated:

Mr. Holden’s counsel states that the action against the Law Firm is founded upon a sustainable oppression action under s. 248 of the OBCA. In my view, and I so find, the alleged misdeeds of the Law Firm as set forth in the Amended Statement of Claim, and as characterized by Mr. Holden’s counsel in the course of submissions (as relating only to the receipt of fees for services provided to its clients who were allegedly guilty of oppression as known to the Law Firm) do not fall within the scope and reach of s. 248(2). As well, this is not a case, as seen in Waxman, with a knowing receipt of a benefit from oppression.

[9] He concluded that the existing Amended Statement of Claim does not disclose any reasonable cause of action against BC. He also concluded that on the basis of the existing record, any conceivable wrongdoing by BC would give rise to a cause of action by Infolink, not the appellant. Therefore, the appellant should seek leave to proceed by a derivative action, and the order was made without prejudice to his ability to seek leave.

[10] The appellant submits that the amendments to the Statement of Claim were in accordance with the order of Hoy J., and BC’s motion before Cumming J. was barred by issue estoppel.

[11] In our view, Cumming J. made no error. The motion before him was not barred by issue estoppel, as he was not deciding the same issues that were before Hoy J. (Angle v. Canada (M.N.R.), 1974 168 (SCC), [1975] 2 S.C.R. 248 at p. 11 (Quicklaw). Rather, he was considering a pleading that was different from the one before her, and he was determining whether the impugned amendments complied with her order and were tenable in law.

[12] Moreover, he correctly concluded that the Amended Statement of Claim, as pleaded, does not disclose any tenable cause of action against BC. In particular, the appellant has not pleaded a cause of action that was or may be derived from what was described in Waxman.

[13] Therefore, the appeal is dismissed. If the parties cannot agree on costs, they may make brief written submissions within 30 days of the release of this decision.

Lane J.

Swinton J.

M.G.J. Quigley J.

Released: January 29, 2007```