COURT FILE NO.: 540/07

DATE: 20080602

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

JENNINGS, KITELEY AND LOW JJ.

B E T W E E N:

ANIMAL HOUSE INVESTMENTS INC., and WOLFGANG ZENKER

Applicants (Appellants)

• and -

LISGAR DEVELOPMENT LTD., OAKVILLE GEM CONSTRUCTION, 1106822 ONTARIO LIMITED, 1539144 ONTARIO INC., 1329595 ONTARIO INC., LIZCOM 8 CORP., ELIZABETH GORCHYNSKI and MARTHA ZENKER

Respondents (Respondents)

J. Thomas Curry and Dena Varah, for the Applicants (Appellants)

Markus Koehnen and Geoff Moysa, for the Respondents, Lizcom 8 Corp., Elizabeth Gorchynski and Martha Zenker

HEARD at Toronto: June 2, 2008

jennings J.: (Orally)

1This is an appeal from a decision of Wilton-Siegel J., dated October 10, 2007, in which he dismissed a claim to wind up two companies founded by the mother and her late husband of the applicant, Wolfgang Zenker (Wolfgang).

2Notwithstanding the able and forceful argument made by Mr. Curry, we are all of the opinion that for the reasons which follow, the appeal must be dismissed.

3The appellants agree that the applicable standard of review for this Court is as determined in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; correctness on questions of law, and palpable and overriding error regarding findings of fact. In argument, counsel for the appellant conceded that the motions judge made no palpable and overriding errors in his findings of fact.

4In 1992, Martha Zenker (Martha) owned two-thirds of the shares of the two companies and she had previously gifted to each of her two children the remaining one-third. The companies had their genesis in the mid-1950’s and 1960’s. By means of a classic estate freeze carried out in 1992, Martha gave to her two children sufficient shares so that each then held 50% of the common shares in each company. Martha retained for herself special voting preferred shares, which served to continue her control of the companies. A feature of the freeze gave Martha the right to dispose of control of the companies in her will. The three directors of the companies were and are, Martha, Wolfgang and his sister Elizabeth.

5The motions judge found that:

(i) from 1992 until 2003, Martha permitted Wolfgang and his son Michael to exercise day-to-day de facto control of the companies;

(ii) From 2003 on, Martha sought to exercise increasing hands-on control of the companies;

(iii) Disagreements on corporate policy and operations arose between Wolfgang and Michael on one hand and Martha on the other;

(iv) At board meetings, Elizabeth consistently sided in all corporate decisions with her mother.

6As a consequence, Wolfgang brought these proceedings. The principal submission of the appellants was that where irreconcilable differences arose amongst the shareholders giving rise to a mutual loss of confidence, a plain reading of s.207 of the OBCA requires the court to intervene and grant relief. Counsel submits that the motions judge erred in failing to give effect to the plain language of s.207, and in focusing unduly upon the absence of reasonable expectations of Wolfgang to continue to exercise de facto control of the companies, and in default, to be entitled to a winding up.

7We disagree. Although there are case where the equitable remedy of winding up has been granted where irreconcilable differences exist, in no case cited to us was the remedy granted in the absence of a finding that the reasonable expectations of the applicant had been breached. Whether a reasonable expectation existed is a question of fact. In paragraphs 84 through to and including 100 of his careful and extensive reasons, the motions judge found on the evidence before him that Wolfgang could not have had any reasonable expectations that the business would be wound up, or his shares purchased if:

(a) it proved impossible to conduct its affairs on a consensual basis; or

(b) that Martha did not continue to permit him to exercise de facto control

either when he received the balance of his shares in 1992, or at any time thereafter.

8There was ample evidence upon which those findings could be made.

9We are not invited to set aside those findings. They support the legal conclusion reached by the motions judge that the applicants have failed to satisfy the onus upon them to show that it would be just and reasonable to grant the relief sought under s.207. The appeal must be dismissed.

COSTS

10I endorse the back of the appeal book: “The appeal is dismissed for oral reasons delivered today. In default of agreement as to costs, written submissions not to exceed 3 pages in length may be made within 15 days.”

JENNINGS J.

KITELEY J.

LOW J.

Date of Reasons for Judgment: June 2, 2008

Date of Release: June 4, 2008

COURT FILE NO.: 540/07

DATE: 20080602

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

JENNINGS, KITELEY AND LOW JJ.

B E T W E E N:

ANIMAL HOUSE INVESTMENTS INC., and WOLFGANG ZENKER

Applicants (Appellants)

• and -

LISGAR DEVELOPMENT LTD., OAKVILLE GEM CONSTRUCTION, 1106822 ONTARIO LIMITED, 1539144 ONTARIO INC.,1329595 ONTARIO INC., LIZCOM 8 CORP., ELIZABETH GORCHYNSKI and MARTHA ZENKER

Respondents (Respondents)