ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
CUSINATO, GREER and JENNINGS JJ.
B E T W E E N:
RONALD DZIVER
Appellant
(Applicant)
- and -
MAROSTICA-WING DEVELOPMENTS LTD., MAROSTICA GROUP INC., THUNDER BAY USED CAR SUPERSTORE LIMITED, RONALD MAROSTICA and RONALD MAROSTICA in his capacity as sole Trustee of the R. T. MAROSTICA FAMILY TRUST
Respondents on Appeal
(Respondents)
J. Douglas Shanks
for Appellant
(Applicant)
Morris J. Holervich
for the Respondents on Appeal
(Respondents)
HEARD at Thunder Bay: JUNE 5, 2007
REASONS
1Ronald Dziver (“Dziver”) appeals from the decision of Madam Justice Pierce dated December 1, 2006, in which she dismissed his application claiming a shareholder’s oppression remedy pursuant to s.248 of the Ontario Business Corporations Act, R.S.O. 1990, c.B.16 (“the Act”). Dziver’s principal claim for relief was for an order setting aside the conveyance by Marostica-Wing Developments Limited (“the Corporation”) to the R. T. Marostica Family Trust (“the Trust”) and for an order that the Corporation offer the property for sale in the open market.
2Pierce J. found that Dziver’s expectations of the Corporation were unreasonable and that no acts of oppression had occurred.
3For the reasons which follow, we would dismiss the appeal.
jurisdiction and standard of review
4Pursuant to s.255 of the Act there is a right of appeal to this court from the decision of the application’s judge.
5The standard of review on appeals from an order of a judge has been established in Housen v. Nikolaisen (2002), (211) D.L.R. (4th) 577 (S.C.C.). On a question of law the standard is that of correctness. Findings of fact are not to be reversed unless it is established that the judge made a “palpable and overriding error”. Where the issue on appeal involved the judge’s interpretation of the evidence of a whole, the decision should not be overturned absent palpable and overriding error.
6In order to bring into play the provisions of s.248 of the Act, a judge must answer 3 questions affirmatively:
Is the applicant a “complainant”?
Were the complainant’s expectations of the Corporation reasonable?
Was the conduct of the Corporation oppressive or unfairly prejudicial, or did it unfairly disregard the interests of the complainant?
7No issue arises with respect to question 1.
8With respect to the second and third questions, both of which arise on this application, what is or is not a reasonable expectation, and what is or is not conduct that was oppressive or unfairly prejudicial toward the complainant’s reasonable expectations or which unfairly disregarded the complainant’s interests are questions of fact. (Casurina Limited Partnership v. Rio Algom (2004), 2004 30309 (ON CA), 181 O.A.C. 19) at para. 24 (C.A.).
facts
9We agree with the statement of Pierce J. that the oppression remedy is fact driven and that what constitutes oppression in one instance may not be found to be oppressive in another. Because of that, her findings of fact are of particular importance.
10In summary form, she found that:
(i) The shares of the Corporation are owned as to 85% by the Trust and as to 15% by Dziver;
(ii) The sole asset of the Corporation was a property and building located at 788 Central Avenue in Thunder Bay. The Corporation purchased the property in 1992 financed by a $2,500,000 first mortgage from the primary lender, the Royal Bank of Canada and a $500,000 second mortgage from the respondent Marostica Group Inc. (“Group”) a company owned by Ronald Marostica (“R.M.”).
(iii) R.M. is the sole trustee of the Trust and the controlling director of the Corporation.
(iv) The Corporation’s sole tenant in 1992 was Ford of Canada which had a 10 year lease on the building. The revenues from the lease were sufficient to service the debt and meet the operating costs of the building. When the lease expired in 2002 Ford chose not to renew, which plunged the Corporation into a financial crisis. R.M. made cash infusions to the Corporation and obtained other loans to replace the rental income.
(v) The respondents paid for renovations to the building to accommodate new tenants. R.M. located 3 tenants, one in July 2003, another in February 2004 and the last in September 2004. That notwithstanding, the Corporation incurred substantial losses in rental income and in 2004 because of its low rental income the Corporation was refused an institutional loan.
(vi) The third tenant obtained a lease more favourable to it than the lease to the other tenants. The third tenant was controlled by R.M.
(vii) In February 2004 R.M. asked Dziver for a further investment of $120,000 in the Corporation. Dziver asked for financial information in March and April, 2004, which was not provided by R.M. with the exception of the year-end financial statements for 2003. Dziver made no further investment and in June 2004 his wife was advised by R.M. that R.M. was no longer interested in Dziver’s involvement in the Corporation.
(viii) By July 31, 2004, the expenses of the Corporation vastly exceeded its revenues. In August 2004 R.M. offered Dziver $10,000 for his shares in the Corporation. The offer was not accepted.
(ix) In April 2005 R.M. offered to purchase Dziver’s shares for about $6,000. That offer was not accepted.
(x) In 2005 the Corporation’s property was valued by Team 100 Realty Inc., T.D. Canada Trust, and Municipal Property Assessment Corporation at $1,973,479, $2,178,030 and $2,030,000.
(xi) On May 10, 2005, at a special shareholder’s meeting of the Corporation R.M. signed a corporate resolution authorizing a sale of the property to the Trust for $2,340,000. Dziver objected to the sale and incorporated a company which submitted an offer to purchase the property for $2,500,000, subject to a number of conditions including, apparently, financing. R.M. caused the Trust to increase its offer for the property to $2.5 million with no conditions and at a special shareholder’s meeting on June 14, 2005, R.M. caused the Corporation to accept the Trust’s offer.
(xii) By August 2005 there were balances outstanding on the 2 mortgages of $2,031,000, property tax arrears of $148,000 (rounded) and further current liabilities of the Corporation of $843,000 for total indebtedness in excess of $3 million.
(xiii) In August 2005 Dziver moved for an interim injunction to prevent the sale of the property to the Trust. The injunction was refused, the Court finding that the real issue was not the value of the property but rather the control of it.
(xiv) The sale to the Trust closed in March 2006. Prior to that time Dziver was given copies of the leases and particulars of all income relating to the property. He obtained an appraisal of the property but it was not filed with the Court and the contents of it were never revealed.
11There was ample evidence to support these factual findings made by Pierce J.
analysis
12Pierce J. dealt with the complaints by Dziver of oppressive conduct as follows:
(i) Dziver complained that Marostica offered to buy his shares first at $10,000 then at $6,000. The trial judge included that as there was no evidence as to the value of the shares at the time of the offers she could not find that the offers represented oppressive conduct. In our opinion that conclusion is unassailable.
(ii) Dziver submitted that there must be oppressive conduct when the property was sold to the majority shareholder rather than being sold in the open market at arm’s length. Pierce J. found that in effect Dziver was seeking to have the Courts speculate that the property was sold under value simply because it was sold to the majority shareholder. She correctly pointed out that there was no evidence to support that claim. She accepted the evidence of the 3 arm’s length valuations obtained in 2005 prior to the sale. Because Dziver did not reveal the results of his appraisal Pierce J. concluded that Dziver did not dispute the value of the property. She held that the best evidence of value was Dziver’s offer to purchase the property at $2,500,000 and that it was open to Dziver to meet the Trust’s offer by waiving the conditions or otherwise improving his offer. When he did not do so, she held that R.M. could not be faulted for causing the Corporation to accept the best offer.
(iii) With respect to Dziver’s complaint that R.M. did not make full and timely disclosure of the Corporation’s affairs, Pierce J. found that although the disclosure could have been made sooner it was sufficient to permit Dziver to bid on the property. She noted that negotiations between the shareholders continued after financial disclosure and the failure of the claim for injunction, and prior to closing.
(iv) Dziver complained of bad faith demonstrated by R.M. because of the terms of the lease granted to his company, the third tenant. It is not clear to us whether Pierce J. was aware of R.M.’s interest in the third tenant. She held there was no evidence Dziver had located a better tenant. Indeed it appears that there was no evidence that other tenants were available and when the tenant executed the lease in September 2004, the premises had been vacant for 2 years.
13On the fundamental issue of Dziver’s expectations in relation to the investment in the Corporation, that he expected to hold his shares for the long term and when the mortgage against the property was paid off there would be substantial value in the property, Pierce J. found as follows, in paragraphs 45 and 46 of her reasons.
45This expectation is not reasonable in that it fails to take into consideration that the revenues are currently insufficient to cover expenses, and the property now requires substantially more mortgage financing. Absent a change in revenues, it will be many years until the property is unencumbered.
46The Court ought not to act as the guarantor for a shareholder who has not made the hoped for return on his investment. It is unreasonable in my view to force the majority shareholder to carry the property for the benefit of the minority shareholder with a view to profit at some unknown future date.
14The question before us is not whether we would have come to a different determination from the application’s judge, but rather whether the application’s judge made palpable and overriding errors in her factual findings.
15The Court of Appeal has recently given guidance on what constitutes palpable and overriding error in Waxman v. Waxman, 2004 39040 (ON CA), [2004] O.J. 1765 at paras. 296-97 in the following language:
The “palpable and overriding” standard addresses both the nature of the factual error and its impact on the result. A “palpable” error is one that is obvious, plain to see or clear. Housen at 246. Examples of “palpable” factual errors include findings made in the complete absence of evidence, findings made in conflict with accepted evidence, findings based on a misapprehension of evidence and findings of fact drawn from primary facts that are the result of speculation rather than inference.
An “overriding” error is an error which is sufficiently significant to vitiate the challenged finding of fact. Where the challenged finding of fact is based on a constellation of findings, the conclusion that one or more of those findings is founded on a “palpable error” does not automatically that the error is also “overriding”. The appellant must demonstrate that the error goes to the root of the challenge finding of fact such that the fact cannot safely stand in the face of that error: Schwartz v. Canada, 1996 217 (SCC), [1996] 1 S.C.R. 254 at 281.
16In our opinion, it has not been demonstrated that Pierce J. made any palpable or overriding error in her appreciation of the evidence or her findings of fact.
17Pierce J. referred to the lack of timeliness in the financial disclosure made to Dziver. She also alluded to what may have been a failure by Dziver to reveal a conflict of interest with respect to the third tenancy. Accepting without finding that by those acts, R.M. breached provisions of the Act, the question is whether there was oppressive conduct. We refer to and adopt the following authorities:
a) In Westfair Foods Ltd. v. Watt, 1990 5514 (AB KB), [1990] 4 W.W.R. 685 (Alta. Q.B.) Chief Justice Moore held that in viewing conduct “… the threshold test in each case is one of fairness. Is the impugned conduct or action unfair in regard to the interests of the complainant?”
b) Further, in Sexsmith v. Intek Inc., [1993] O.J. 711 (Ont. Ct.) (Gen. Div.) (applied and approved in Quaglieri v. 374400 Ontario Limited (Ont. Ct.) (Gen. Div.) per Feldman J.) Ground J. said at paras. 34 and 37:
34…Even to establish conduct which unfairly disregards the interests of minority shareholders, presumably the least rigorous of the three grounds for a remedy under s.248 of the OBCA, one has to establish that there has been some detriment to the minority shareholders in the sense of affecting their financial or security position within the Corporation or their interests as shareholders unfairly.
37Mere irregularities and lack of formalities, in the absence of unfair prejudice or unfair disregard are not sufficient to establish a claim under s.248 in these circumstances. Where the oppressive or unfairly prejudicial conduct consists of failing to adhere to the statutory requirements of the OBCA by virtue of the fact that the Corporation has been run in a casual manner, the appropriate and adequate remedy is not relief pursuant to s.248, but rather an order compelling the directors to observe and carry out the provisions of the corporate statute concerning disclosure, souring shareholder consent and the dissemination of financial information to shareholders. There is no unfair prejudice where the failure to provide shareholders with financial statements, or the failure to formally disclose a conflict of interest can be corrected by court order. The Court should not be called upon to exercise its jurisdiction under the oppression remedy every time a small corporation, which has traditionally been run in a casual manner, is not in strict compliance with the statutory requirements of the OBCA, provided there is no detriment or harmful effect that cannot be remedied by a court order.
18Accepting for the sake of argument the submission made to us by the appellant’s counsel that had this property been placed on the open market for sale, there would have been no need for the court to consider an oppression remedy, that does not address the question as to whether on the facts before Pierce J. the sale to the Trust was unfairly prejudicial to and disregarded the interests of the minority shareholders so as to constitute oppressive conduct. In our opinion, the evidence before Pierce J. utterly failed to show that R.M.’s conduct in connection with the transactions “… was financially detrimental to the [applicant] or that it in any other way unfairly affected [his] interests as [a shareholder].” Quaglieri, op. cit.
19We accept the factual finding made by Pierce J. that the sale to the family Trust was under the circumstances before her advantageous to the Corporation. The sale price was well in excess of the appraised value. There was no evidence to contradict the appraisals. There was no real estate agent’s commissions incurred.
20On the evidence, to set aside the sale would be of no benefit to the Corporation or its shareholders.
21The purpose of the oppression remedy is corrective, not punitive. Maneff v. Concrete Holdings Ltd. (1996), 1996 7987 (ON SC), 28 O.R. (3d) 641 (Ont. Ct. (Gen. Div.)).
conclusion
22For the foregoing reasons the appeal must be dismissed.
costs
23If the parties cannot agree on costs, written submissions not to exceed 3 pages in length may be made within 30 days of the release of these reasons.
RELEASED: October 24, 2007
CUSINATO J.
JENNINGS J.
Greer J.: (dissenting):
24I have read the Reasons of my colleagues in this matter, and with respect, I disagree with their conclusion that the Appeal of Dziver should be dismissed. I find that Dziver, as the minority shareholder, of Marostica-Wing Developments Ltd. (“the Corporation”), was oppressed within the meaning of s.248 of the Ontario Business Corporations Act, R.S.O. 1990, c.B.16, as amended (“OBCA”). I would therefore set aside the decision of Madam Justice Pierce dated December 1, 2006, for the reasons, which follow.
25Dziver asks for the following relief, as set out in his Notice of Appeal:
The Application be allowed and the Dziver be authorized to list the property for sale, at a price exceeding $2,500,000 since it is now owned by the Trust, as hereinafter set out.
That Dziver be allowed to accept any offer he considers prudent, which is in excess of $2,500,000.
All of the Respondents be restricted from interfering with any such sale.
The Respondents shall not be entitled to, directly or indirectly, offer to purchase the property.
The net proceeds from such sale be paid to Marostica-Wing Developments Ltd., after the payment of all mortgages and property taxes.
The lease of part of the property to Thunder Bay Used Car Superstore Limited (“Used Car Superstore”) be terminated by the purchaser of the property on 6-months notice.
The Corporation shall produce financial statements as required to keep under the OBCA.
26The Judge found that Ronald Marostica (“Marostica”) the majority shareholder of the Corporation had not acted oppressively against Dziver in selling the Corporation’s only asset to a family Trust, of which he was the sole Trustee, set up for the benefit of his wife and children and grandchildren.
Some background facts
27Since my colleagues and I see the facts somewhat differently, I set them out as follows:
(i) The Corporation was incorporated on April 4, 1992. Its sole asset is the land and buildings at 788 Central Avenue in the City of Thunder Bay. The Appellant is a minority shareholder of the Corporation, owning 15% of the issued 200 common shares. The R.T. Marostica Family Trust (the “Trust”), owns the remaining 85% of the shares.
(ii) Marostica is the sole Trustee of the Trust. Marostica is also the sole director of the Corporation.
(iii) The Corporation entered into a 10-year lease with Ford Motor Company. When that lease came up for renewal in 2002, Ford did not renew and the Corporation was left to find new tenants for its premises. While the leasing took some time to accomplish, the new tenants are as follows:
(a) Fountain Tire Ltd. - lease dated March 28, 2003
(b) Weber Supply Company Inc. - lease dated December 18, 2003
(c) Used Car Superstore - lease dated September 1, 2004
The leases are all net, net leases to the landlord.
(iv) While the new leases were being negotiated and entered into, the Corporation needed an infusion of cash. Marostica, personally, through another of his companies, lent the Corporation money. Further, he is also the sole director, office and shareholder of the tenant, Used Car Superstore. In his role as director of the Corporation, Marostica gave himself, as owner of Used Car Superstore, a much more accommodating lease than the other two tenants received. That lease was a one-year lease, allowing Marostica’s company to automatically renew it year by year, for a period of nine years, at the same maximum rent each year. The same accommodation was not given to the other two tenants, who were dealing at arm’s length with the Corporation. The base rent from all 3 tenants is presently $241,203 per year. It is Dziver’s position that the Used Car Superstore is also receiving an additional benefit, for which it does not pay rent, in that it uses a large portion of the parking lot on the premises, for its re-sale of used vehicles.
(v) Dziver takes the position that the Judge did not have information before her about Marostica’s position with Used Car Superstore. If Marostica had provided copies of the leases to Dziver in timely fashion, as requested by Dziver, the Judge would have had them before her at the time of the Application.
(vi) Dziver made his investment in the Corporation, with a long-term view, hoping that the property would appreciate over the years, and that it would be a good investment once the Corporation paid off its mortgage debt. In 2002, Dziver had suggested selling the property to a Nissan dealership for $3,200,000 but Marostica refused to do this.
(vii) When Dziver was asked by Marostica in early 2004, to lend $120,000 to the Corporation, Dziver asked for more information. The two shareholders met with Dziver’s accountant. Marostica was asked in February 2004 to provide the financial information about the Corporation, which the Accountant needed in order to advise Dziver what to do. Marostica kept delaying providing the information. The financial information, promised by Marostica was never sent to Dziver or the Accountant until after the sale of the property by Marostica to the Trust.
(viii) In late August 2004, Dziver was told that Marostica was prepared to offer Dziver $10,000 for his shares of the Corporation. Dziver, further was told, that if the offer was not accepted, Marostica, as sole director, would simply transfer the property in question to a new corporation for $2,300,000 and leave the debts in the Corporation, which would now have no assets.
(ix) Dziver did not want to be bought out and was agreeable to putting his proportionate share of monies needed into the Corporation. In September 2004, Marostica told Dziver’s lawyer that he did not want Dziver as a shareholder.
(x) Nothing happened until April 2005 when the Corporation’s lawyer told Dziver that the second mortgage on the property was in default and that the Corporation’s options were complicated. The Corporation offered to pay out a $6,000 shareholder’s loan owed to Dziver by the Corporation, in order to have him get out of the Corporation. This scenario was not acceptable to Dziver.
(xi) On May 10, 2005, Marostica, as sole director of the Corporation, passed a resolution authorizing it to enter into an agreement of purchase and sale dated May 10, 2005, selling the property to himself, as Trustee of the Trust, for $2,340,000. He then sent a Notice of Shareholders’ Meeting to be held on May 30, 2005, to approve the sale. The meeting was adjourned over to June 14, 2005.
(xii) In the meantime, Dziver incorporated a company, which, on June 13, 2005, put in an Offer to purchase the property for $2,500,000, on that condition that copies of all three leases be made available. Again, no copies were given to Dziver. Marostica, instead, went ahead with the Meeting, increased his own offer and sold the property to the Trust for $2,500,000.
(xiii) Dziver says that in July or early August 2005, Marostica met with Dziver and told him he was selling the property to the Trust and did not want him as a minority shareholder. Dziver says there was no mention of pressing creditors nor any other valid purpose for the proposed sale.
(xiv) Dziver unsuccessfully tried to obtain an Injunction to prevent the sale. He then brought his Application under s.248 of the OBCA.
(xv) At the cross-examination of Marostica on August 23, 2006, he again refused to provide copies of the Corporation’s 2004 and 2005 Financial Statements, refused to provide copies of the Marostica Group’s financial data to prove the status of its mortgage on the property.
(xvi) Dziver swore in his Affidavit in support of his Application that there are two other persons who have expressed an interest in the property but who do want to simply bid against Marostica, who can then just outbid them and sell it to an entity he controls.
(xvii) Dziver tried to find other tenants for the property, but Marostica, he says, refused to have discussions with that person.
All of these facts were before the Judge.
The issues on Appeal
28Dziver says that the Judge erred both in law and fact, in reaching the conclusion she did in dismissing his Application under s.248 of the OBCA. He says, as a minority shareholder, he was oppressed by the steps Marostica took in his various roles. Dziver says the Judge erred in law, which I summarize as follows:
(a) she failed to consider the breach of fiduciary duties and statutory obligation of Marostica in his various roles;
(b) she failed to consider Marostica’s breach under s.134(1) of the OBCA in his failure to act honestly and in good faith with a view to the best interests of the Corporation;
(c) she failed to consider that a constructive trust can be imposed by the Courts even where there is no loss or deprivation suffered by a principal (the Corporation);
(d) she erred in accepting Marostica’s failure to promote an arm’s length sale of the property;
(e) she erred in determining that the Appellant would have been more persuasive if he could have shown that the property was sold under value;
(f) she failed to find that the property was sold for an invalid purpose.
Dziver also says that the Judge made palpable and overriding errors in misapprehending certain facts, in making findings not reasonably based on the evidence, that she disregarded evidence that supported Dziver’s position or failed to appreciate other relevant evidence in reaching the Decision she did in dismissing Dziver’s Application.
Standard of Review
29There is a right of appeal to the Divisional Court from the Judge’s Decision under s.255 of the OBCA, and I agree with my colleagues that the standard of review is as set out by the Supreme Court of Canada in Housen v. Nikolaisen (2002), 2002 SCC 33, 211 D.L.R. (4th) 577 (S.C.C.), [2002] S.C.J. No 31 (cited Q.L.).
30On an error of law, the standard of review is one of correctness.
Analysis
31The oppression remedy is set out under s.248 of the OBCA. It allows a complainant, under subsection 248(1) to apply to the Court for an Order under this section. Subsection 248(2) states that where the Court is satisfied, upon an application to it, that in respect of a corporation:
(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 interest of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.
32I agree with my colleagues that under the provisions of s.248 of the OBCA, that the Applicant must be a “complainant” within the provision of s.248, that his expectations of the Corporation must be reasonable, and that the conduct of the Corporation must be oppressive or unfairly prejudicial, or that it unfairly disregarded the interests of the complainant. In my view, Dziver meets those conditions for the reasons that follow.
33In her findings of fact on pages 2 and 3 of her decision, the Judge either did not know or ignored that the lease granted to Marostica’s own company, Used Car Superstore, was given more generous terms than the other two tenants received. Those terms included not having to pay rent for the parking lot space it used for its cars and having a one-year renewable lease. In my view, Marostica, as sole director of the Corporation, therefore gave a benefit to himself personally under these arrangements. I find this personal benefit to be in breach of s.248(c) of the OBCA.
34The Judge is incorrect in her finding in paragraph 19 of her Decision that Dziver “was given copies of the leases and particulars of all income relating to the property.” He did not receive copies of the leases until after Marostica had sold the property to the Trust in June 2005, which was too late, given the sale (emphasis added). Dziver also had not received financial statements from the Corporation each year, to which he was entitled at law. This is also a breach of s.248 of the OBCA.
35Dziver’s accountant requested such documentation and it was promised but Marostica never produced the documents. Since Marostica refused to provide the 2004 and 2005 financial statements as late as his cross-examination held August 23, 2006, and refused to provide copies of documentation from his other company, Marostica Group Inc., which held secondary financing against the property. I find that the Judge made a palpable and overriding error in not finding these facts as evidence supporting the oppression claimed by Dziver against him by Marostica.
36The Judge gave considerable weight to the financing evidence before her, which showed that by March 2006, (after the sale) after a third mortgage was registered against the property, the indebtedness exceeded $2,500,000. She also relied on two 2005 appraisals, which showed that the property was likely valued at less than its liabilities when it was sold. In my view, even the dire financial status of the Corporation does not excuse an oppressive act and I disagree with my colleagues in this regard.
37There is no mention, however, in the Judge’s Decision, of the offer put forward by Dziver’s company to buy the property at $2,500,000 or the Trust’s move to amend its offer to meet that figure, in order to drive Dziver out of the company. These are facts, which contribute to the overall oppression Marostica effected to ensure that Dziver never would receive a cent for his 15% interest in the Corporation.
38I find that the Judge made a palpable and overriding error in failing to appreciate relevant evidence, as noted above, in reaching the conclusion she did that there was no oppression. See: Equity Waste Management of Canada Corp. v. Halton Hills (Town) (1997), 1997 2742 (ON CA), 35 O.R. (3rd) 321 (O.C.A.), where an appellate court may interfere with a finding of fact if the application judge disregarded, misapprehended or failed to appreciate relevant evidence.
39The Judge notes in paragraphs 20, 24 and 25 of her decision that Dziver did not exercise his right to dissent pursuant to s.185 of the OBCA to ask that his shares be bought out by the Corporation as a shareholder. Dziver did not have to do so. It was open to Diver to take the steps he did, given he wanted to remain a shareholder of the Corporation for a long-term gain. Further, under the OBCA, the shareholder may choose what route he or she wishes to take. A shareholder is not obliged to ask for a buy-out. Section 185 of the OBCA uses the words, “…in addition to any other right the shareholder may have.”
40Dziver’s offer to purchase the property was greater than the Trust’s offer, which was controlled by Marostica. Before selling it to the Trust, Marostica, as sole director, should have obtained an independent legal opinion for the Corporation on whether what he planned to do was proper in the circumstances. In my view, this failure shows bias on the part of Marostica. He favoured himself without recognizing that there was a fiduciary duty owed to Dziver to obtain an arm’s length sale, unless Dziver consented to the sale of the asset to the Trust.
41The Judge correctly noted that the oppression remedy is fact-driven, and that what constitutes oppression in one instance may not qualify in another. In paragraph 31, she said, “there has been no oppressive conduct in relation to the applicant in this case.” I disagree with her conclusion.
42The Judge followed Arthur v. Signum Communications Ltd., [1991] O.J. No. 86 Action No. 1767/85 (O.C.J. (Gen. Div.)), where Mr. Justice Austin at pp. 29 and 30, sets out indicia which run afoul of s.248 (then s.247) of the OBCA. What the Judge failed to find, however, was that Marostica, by acquiring the property of the Corporation, for himself as Trustee, was leaving the debts in the Corporation and selling its only asset. As in Signum, supra, Marostica failed to provide adequate and appropriate disclosure of material information to the minority shareholder, Dziver. Further, Marostica had a plan to eliminate the minority shareholder and had expressed that purpose to others. The Judge failed to take all this cumulative evidence into account, in dismissing the Application.
43Marostica ignored or treated Dziver’s shareholding of no importance. The case law shows that there does not have to be a material loss to the minority shareholder before the steps taken by a majority shareholder can be considered to be oppressive. See: Krynen v. Bugg (2003), 2003 20428 (ON SC), 64 O.R. (3d) 393; [2003] O.J. No. 1209 Court File No. 31224/01 and Sohata v. Basra, [1999] O.J. No. 186 at para. 30.
44The Judge erred in not finding that Marostica had failed to act honestly and in good faith, with a view to the best interests of the corporation under s.132(1), (3), (5), (8) and (9) of the OBCA, when he exercised his powers as sole director. I find that there was sufficient evidence before the Judge to show that Marostica was self-dealing and failed to take reasonable steps to try to obtain an arm’s length purchaser.
45Dziver’s reasonable expectation as a minority shareholder was to participate in the legal process of determining whether the property should be sold by the Corporation, after he had full access to all financial statements of the Corporation and had received and reviewed copies of the three leases. Marostica breached his duty as a director in failing to provide any such documentation until after the sale. The Judge erred at law and made a palpable and overriding error in not taking these facts into account in assessing whether Dziver was an oppressed minority shareholder.
46In McGuiness’ The Law and Practice of Canadian Business Corporations (1999), Butterworths, Toronto and Vancouver; the author points out on p.982, that the oppression remedy “…is not intended to require the courts to review every decision made within a corporation, relying on what it says is the classic statement in Re Five Minute Car Wash Service, [1966] 1 All E.R. 242, that the mere fact that a shareholder has lost confidence in the manner in which the company’s affairs are conducted does not lead to the conclusion that he or she is oppressed, nor can mere dissatisfaction with or disapproval of the conduct of the company’s affairs be considered oppression. On the other hand, it is noted on p.983 that:
The jurisdiction of the court to grant relief is one that must be carefully exercised. It requires a balancing of the rights of those who are in control and those who are in a minority position within the Corporation.
47In my view, Marostica’s behaviour was callous and unfair when he disregarded Dziver’s offer to purchase the asset for $2,500,000, subject to seeing the leases and financial statements, which Marostica had withheld from him. Dziver’s offer was a fair and reasonable offer. It was $150,000 greater than Marostica had intended to sell the property to the Trust. It showed good faith on Dziver’s part to put such an offer in which Marostica chose to ignore Dziver’s offer by increasing his own offer in and accepting it in his role as sole director. In my view, this conflict of interest, which Marostica chose to ignore, together with the other acts I have outline, is oppressive conduct to be censured under s.248 of the OCBA. See also: Canadian Aero Service Ltd. v. O’Malley, 1973 23 (SCC), [1974] S.C.R. 592, 40 D.L.R. (3d) 371, 11 C.P.R. (2D) 206, 1973 CarswellOnt 236, where the Court examined the fiduciary duties of directors and senior officers and the avoidance of a conflict of duty and self-interest.
48I have reviewed the principles as set out in Sexsmith v. Intele Inc., and Quaglieri v. 374400 Ontario Limited, as cited by my colleagues on pp.10 and 11 of their decision. In my view, the conduct Dziver complains about, as exhibited by Marostica, was far greater than “mere irregularities and lack of formalities” in his operation of the Corporation as its sole director and majority shareholder. Nor was Marostica’s conduct in running the Corporation “in a casual manner” enough to constitute oppression. Taking such conduct into account and adding to it Marostica’s complete lack of financial disclosure and his conflict of duty and acts of self-interest added together is oppression within the meaning of s.248 of the OBCA.
Conclusion
49I would therefore allow the Appeal and set aside the decision of the Judge. With respect to the relief asked for by Dziver, I have modified the relief he asked for. I make the following Orders:
Unless the parties can agree otherwise in writing, order to go that the sale transaction of the Corporation’s property to the Trust be set aside, pursuant to s.248 (3)(h) of the OBCA. and Order to go that the property Register for the City of Thunder Bay be amended accordingly, pursuant to s.248(3)(k) of the OBCA.
Order to go that the Corporation list the property for sale through an agent for a price to be agreed upon by the two shareholders in writing, within 30 days of this Order. The price shall not less that $2,500,000 and the listing agreement shall run for not less than 90 days.
Neither shareholder nor its director shall in any way interfere with an arm’s length sale. If they cannot agree on the terms of any such sale, they will have to seek the directions of the Court or agree to attend mediation to assist them in resolving their differences.
Any arm’s length purchaser of the property shall be entitled to terminate the Used Car Superstore lease within 6 months of the sale of the property.
Order to go that Marostica provide to Dziver, within 30 days of this Order copies of all financial statements for the Corporation which Dziver has not received for the past 6 years up to and including 2007.
50If the parties cannot otherwise agree on Costs, the Court will receive brief written submissions on such Costs within 30 days of these Orders.
Greer J.
Date Released: October 24, 2007
COURT FILE NO.: D07/002
DATE: October 24, 2007
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
RONALD DZIVER
- AND -
MAROSTICA-WING DEVELOPMENTS LTD., MAROSTICA GROUP INC., THUNDER BAY USED CAR SUPERSTORE LIMITED, RONALD MAROSTICA and RONALD MAROSTICA in his capacity as sole Trustee of the R.T. MAROSTICA FAMILY TRUST
REASONS
Cusinato, Greer and Jennings JJ.
Date Released: October 24, 2007