Overview

[1] This is an appeal from the order of Mesbur J., dated February 15, 2013 (the “Order”): see Can-Am Lubricants Inc. v. 1658586 Ontario Inc., 2013 ONSC 1058.

[2] The Respondent, Can-Am Lubricants Inc., is a minority shareholder of the corporate Appellant, 1658586 Ontario Inc. (“Landlord Corp”). The individual Appellants, Yuan Sheng Ou Yang (“Ou Yang”) and Ming Zhu Zhuang (“Zhuang”), control and operate Landlord Corp. They also control and operate 2083278 Ontario Inc. (“Tenant Corp”), which has been a tenant of the investment property owned by Landlord Corp since November 2005. This property consists of a five-acre parcel of land on which a 53,000 square foot supermarket and 293 parking spaces are situated.

[3] The Respondent brought an oppression application seeking certain relief against the Appellants. Pursuant to a consent order, the hearing of the application was bifurcated and the judge hearing the first part of the application was directed to determine the following issues:

(a) In all of the circumstances of this case, is it oppressive to the interests of the [Respondent] as a 10% shareholder in [Landlord Corp], or otherwise a breach of their statutory duties, for the two directors to cause Landlord Corp to rent the premises owned by Landlord Corp to a corporation that is directly or indirectly controlled by them (Tenant Corp) for an amount that is less than fair market value and/or on terms that are less than fair market terms (the “FMV Threshold Issue”);

(b) If the answer to (a) is yes, then what remedy, if any, is available to the [Respondent] (the “FMV Compensation”);

(c) Are there any accounting irregularities on the part of the [Appellants] as alleged in paragraph (u) of the Grounds for the Application or otherwise;

(d) If the answer to (c) is yes, then what remedy, if any, should be imposed by the Court.

[4] The consent order also provided that, “[n]either party shall be obliged to tender further evidence on the fair market rental value of the property as at November 2010 or thereafter, pending the determination of the FMV Threshold Issue referenced above.”

[5] The written lease between Landlord Corp and Tenant Corp provided for an initial term of five years (from November 15, 2005 to November 14, 2010) at a specified rate, with a right of renewal on six months’ written notice for a further term of five years at “the then prevailing market rate of rent payable for comparable premises in the vicinity to be mutually agreed upon or to be determined by arbitration.” The lease also provided that if Tenant Corp was an over holding tenant, it would pay triple rent to Landlord Corp.

[6] Mesbur J. heard the first part of the application and determined that it was oppressive to the interests of the Respondent for Landlord Corp to rent the premises to Tenant Corp at less than market rent from and after November 15, 2010. She then decided that the appropriate remedy was to put the Respondent in the same position it would have been in if the lease between Landlord Corp and Tenant Corp had been followed, which would involve “a determination of what reasonable market rent could the premises have been rented at from November 15, 2010 onward, or alternatively, requiring [Tenant Corp] to pay triple rent from November 15, 2010”: see the Order, at para. 2. She further determined that this was a question for the second part of the application.

[7] Mesbur J. also found there were accounting irregularities on the part of the Appellants and that all of these accounting irregularities had to be corrected. She directed how the irregularities would be corrected, which involved making orders against Tenant Corp, who was not a party to the application.

[8] With the consent of the parties, Mesbur J. ordered the individual Appellants to purchase the Respondent’s shares in Landlord Corp at fair value. The parties had agreed that if the application judge made a finding of oppression, then no minority discount would be applied to the value of the Respondent’s shares in Landlord Corp. Since Mesbur J. made a finding of oppression, she ordered that no minority discount would apply to the value of the Respondent’s shares.

[9] On this appeal, the Appellants submit that the application judge made a number of errors, including making a finding about the “reasonable expectation of the parties” (the first part of the test for oppression) that was not supported by the evidence, failing to consider the second part of the test for oppression (prejudice), making orders against a non-party to the litigation (Tenant Corp), and making a finding of oppression in the period from November 2010 onwards without determining an essential pre-condition to that finding, namely, whether the rent paid for the period post-November 2010 was less than the prevailing market rent for a comparable premises. The Respondent cross-appealed, particularly with reference to the application judge’s findings concerning certain cash payments and the application judge’s order against Tenant Corp as opposed to the individual Appellants.

[10] For the reasons that follow, we would dismiss the appeal and the cross-appeal, except as they relate to triple rent and the remedies ordered to rectify the accounting irregularities.

Factual Background

[11] The Appellants, Ou Yang and Zhuang, are husband and wife and are the officers and directors of Landlord Corp. Through their company, 2075513 Ontario Inc., Ou Yang and Zhuang hold 90% of the shares of Landlord Corp.

[12] The principals and sole shareholders of the Respondent are Barry Wan and his wife, Rita Ho. As already mentioned, the Respondent holds 10% of the shares of Landlord Corp.

[13] Ou Yang is an elementary-school-educated farmer from China. He came to Canada in 1990 at the age of 40. He speaks little English and does not read or write the English language. Shortly after his arrival in Canada, he worked in the grocery business and accumulated enough money to start his own business.

[14] Wan and his wife are university-educated immigrants from Hong Kong. After coming to Canada in the late 1980s, Wan became a real estate agent and his wife worked as a leasing manager for a shopping mall until 2010.

[15] Wan and Ou Yang became friends when Wan acted as the agent in the sale to a corporate entity controlled by Ou Yang of a grocery business located in Mississauga. In early 2005, Wan approached Ou Yang about purchasing the supermarket that was located on the property at issue in this litigation. At the time, that property was leased to a grocery store chain known as Big Land Farms. A term of the purchase was that Big Land Farms would continue to lease the property as the tenant at a net rental figure of $10.00 per square foot for 20 years.

[16] Ou Yang and his wife agreed with Wan and his wife that they would form a corporation, Landlord Corp, to buy the property. In exchange for contributing 10% of the purchase price, Wan and his wife, through the Respondent, would own 10% of the shares in Landlord Corp; Ou Yang and his wife, through their corporation, would own the other 90%.

[17] The purchase of the property was completed on or around June 30, 2005. On closing, a lease agreement between Landlord Corp and Big Land Farms was also completed. Almost immediately after the property was purchased, Big Land Farms failed to comply with its obligations under the lease. Litigation ensued that culminated in an application by Big Land Farms for relief from forfeiture, which was dismissed.

[18] After Big Land Farms’ default, Wan listed the property for lease at a rental rate of $15.00 per square foot. Two offers in writing were received for the property.

[19] Ultimately, the parties agreed that Ou Yang, through Tenant Corp, would operate a supermarket on the premises instead of leasing the property to an arms’-length tenant. The individual Appellants are the directors of Tenant Corp. They also own 60% of its shares. Their sons own the rest of the shares.

[20] In October 2005, a lease was entered into between Landlord Corp and Tenant Corp that provided for net rental payment of $12.00 per square foot for the first five years ($53,000.00 per month from November 15, 2005 to November 14, 2010) and a right of renewal for the next five years at fair market rent.

[21] In fact, over the first five-year term, Tenant Corp paid Landlord Corp rent at the rate of $30,000 per month. Wan was also paid in cash a sum equivalent to 10% of the difference between the rental payment stipulated under the lease ($53,000) and the rental payment that was actually paid ($30,000). This resulted in a monthly cash payment to Wan of $2,300.00.

[22] As the lease was due to expire in 2010, Wan and Ou Yang had discussions about the appropriate terms upon which the lease should be renewed. The parties disagree about whether those discussions resulted in an agreement. In the result, Tenant Corp continued to pay Landlord Corp the same amount it had been paying for the past five years and, until late 2011, Wan continued to receive his cash payment of $2,300.00 per month.

[23] In 2011, Ou Yang and Wan had discussions about Ou Yang purchasing the Respondent’s 10% interest in Landlord Corp. No agreement was reached about price. From Fall 2011 to July 2012, the Respondent started to complain about what it perceived to be the oppressive actions of Ou Yang and his wife. It retained counsel and conducted a complete review of Landlord Corp’s financial records. As a result, it took the position that Tenant Corp had not paid the rent it was supposed to pay and that there were a number of other accounting irregularities whereby Landlord Corp had paid for expenses that were properly the obligation of Tenant Corp. Ultimately, the Respondent commenced its oppression application in February 2012.

The Application Judge’s Findings

[24] The application judge found that she could make findings on the basis of the affidavits filed by the parties and the cross-examinations conducted on those affidavits. As a result, she did not hear any oral evidence.

[25] The first issue was whether, in the circumstances of the case, it was oppressive to the interests of the Respondent for the majority shareholders of Landlord Corp to rent the premises to Tenant Corp at less than fair market value. The application judge found that the payment of rent at less than fair market value was oppressive for the period from and after November 15, 2010. She made no finding of oppression for the period before November 2010.

[26] In terms of remedy, the application judge found that the appropriate remedy was to put the Respondent in the position it would have been in if the lease between Landlord Corp and Tenant Corp had been followed. This involved determining what reasonable market rent the premises could have been rented for or, alternatively, requiring that Tenant Corp pay triple rent as an over holding tenant. These issues were to be determined at a subsequent hearing.

[27] Given her finding of oppression, the application judge ordered that the individual Appellants were to purchase the Respondent’s 10% interest in Landlord Corp without a minority discount.

[28] On the second issue, the application judge found there had been accounting irregularities on the part of the Appellants. In particular, she found that Ou Yang and his wife had failed to take steps to compel Tenant Corp to pay the rent due under the lease; Landlord Corp had paid expenses that Tenant Corp should have paid under the lease; and Landlord Corp had paid some of Tenant Corp’s expenses quite apart from the lease.

[29] In terms of remedy, the application judge ordered that these accounting irregularities had to be corrected by having Landlord Corp and Tenant Corp comply with their obligations under the lease; Tenant Corp was to pay retroactively the appropriate rent under the lease; Wan was to repay Landlord Corp all the cash payments he had received (which the application judge found were on account of rent); and amended financial statements were to be prepared for both corporations for the years 2006 to 2012 reflecting the revised figures.

[30] On this appeal, the Appellants do not quarrel with the application judge’s Order regarding reimbursing the Respondent for any accounting irregularities. However, they take the position that they have already reimbursed the Respondent for any prejudice it suffered as a result of most of the accounting irregularities and any further reimbursement should occur by way of a payment to the Respondent of 10% of the amount found to be owing by Tenant Corp to Landlord Corp. They object to the order requiring Tenant Corp and Landlord Corp to prepare and file new financial statements.

[31] The Respondent objects to the order requiring Wan to repay Landlord Corp for the cash payments he received. It also seeks an order making the individual Appellants personally liable for the obligations of Tenant Corp under the Order.

Issues Raised on this Application

[32] The following issues are raised on this application.

Were the findings of reasonable expectations made by the application judge supported by the evidence?
Was the finding as to the purpose of the cash payments made by the application judge supported by the evidence?
Did the application judge err by finding oppression in the absence of a finding about the fair market value rent for the premises?
Did the application judge err in failing to consider the second part of the oppression test when it came to her considerations relating to the rent for the period from November 2005 to November 2010?
Did the application judge err in making a remedial order directed at a non-party? Should an order be made against the individual Appellants?

Analysis

Were the findings of reasonable expectations supported by the evidence?

[33] Both parties acknowledge that the oppression remedy protects reasonable and legitimate shareholder expectations. The application judge found that when it came to shareholder expectations, and, particularly, the Respondent’s shareholder expectations, “the written documents are the best evidence of what the parties could reasonably expect in relation to the rental of the premises”: see Application Judge’s Reasons, at para. 46.

[34] In this regard, she found that at the time that the Respondent acquired its minority interest in Landlord Corp, it would have expected that the rent to be paid was the amount that Big Land Farms had agreed to pay. Those expectations changed, however, once Big Land Farms defaulted and Landlord Corp entered into a lease with Tenant Corp. At that point, the application judge found that the Respondent could reasonably expect that Tenant Corp would meet its obligations under the lease. This included a reasonable expectation that Tenant Corp would pay rent according to the lease for the period from November 2005 to November 2010; that Tenant Corp would give six months’ notice of its intention to renew the lease; that if the lease was renewed for a further five years that the rental rate for that term would be at the [then] prevailing market rent; and that if Tenant Corp was an over holding tenant, it would pay triple rent until it vacated the premises.

[35] The Appellants argue that these findings as to the reasonable expectations of the Respondent were not supported by the evidence because nowhere in its material filed on the application did the Respondent specifically mention the lease agreement as being the basis for its expectations. Further, according to the Appellants, the application judge failed to address the question of whether any “reasonable expectation” that may have flowed from the provisions of the lease had been supplanted, modified or extinguished by the subsequent arrangements between the parties, including the cash payments to Wan.

[36] We disagree, except in relation to the findings respecting triple rent. In the face of competing testimony about the reasonable expectations of the shareholders, it was entirely reasonable and appropriate for the application judge to look to the written documents that the parties signed prior to any dispute regarding what they expected and to conclude that substantive provisions in the lease could constitute the best evidence as to the parties’ reasonable expectations. Further, the application judge did make a finding as to whether the reasonable expectations of the Respondent were altered or modified by any subsequent agreements. She found that any subsequent arrangements were imposed on the Respondent, not agreed to by the Respondent: see Application Judge’s Reasons, at paras. 33-35.

[37] However, the terms of the lease are only a starting point. Perfect compliance with every technical provision is not necessarily a reasonable expectation.

[38] The finding that the minority shareholder of Landlord Corp reasonably expected fair market rent after November 2010 is supported by the evidence that in the Fall of 2010, Wan and Ou Yang discussed the issue of fair market rent on multiple occasions and at Wan’s initiative. The application judge’s conclusion respecting Wan’s reasonable expectation for fair market rent was supported by the evidence and was one that she was entitled to make.

[39] In paragraph 54 of her reasons, Mesbur J. goes further, finding that the minority shareholders of Landlord Corp “could reasonably expect Yang Ming Supermarket to give written notice of any intention to renew the lease no later than May 14, 2010 if it wished to continue to occupy the premises after the term expired in November 2010”. At paragraph 56, she found that if such written notice of an intention to renew was not given, “then the shareholders of Landlord Corp could reasonably expect Yang Ming Supermarket to pay triple rent until it vacated the premises”.

[40] These findings are not only unsupported by any evidence, but contrary to all the other circumstantial evidence.

[41] Commercial lease provisions for triple rent from over holding tenants are premised upon an arm’s-length relationship, if not an adversarial relationship. It is artificial and contrary to common sense in the circumstances of this case to infer that Ou Yang, a man functionally illiterate in English, would have appreciated the need to, in essence, give formal written notice to himself of an intention to renew the lease – or that he would not have done so in the circumstances if he did appreciate the need for it. More to the point, Mr. Wan could not reasonably have expected Ou Yang to give such a notice to himself knowing all the surrounding circumstances, as he did. When Ou Yang and Wan had discussions about extending the lease beyond November 2010, there were discussions about the appropriate amount of rent because Wan knew the supermarket would continue to occupy the premises. Knowing the terms of the lease, he never mentioned triple rent or over holding provisions in those discussions.

[42] We agree that the appropriate remedy is to put the minority shareholder in the position it would have been in if Tenant Corp had paid fair market rent after November 15, 2010. We do not agree Can-Am should be able to reap a windfall by now asserting an expectation of triple rent when that expectation was never asserted before. The remedy of notionally requiring Landlord Corp to collect triple rent from Tenant Corp, retroactively to November 2010, ignores the reality that Tenant Corp could not, and would not, have ever paid $159,000 a month for rent. Mr. Wan must have known that.

[43] Can-Am does not mention the provision in the lease referring to triple rent from an over holding tenant in its oppression application, either in the notice of application or in the supporting affidavit evidence. The grounds in the application cite Ou Yang’s refusal to lease the property at fair market rental, but make no mention of his failure to give formal written notice of an intention to renew the lease, or the consequence of triple rent.

[44] Can-Am did not adduce any evidence that it ever considered the supermarket an over holding tenant, obliged to pay triple rent. The provision in the lease referring to triple rent from an over holding tenant was not even mentioned in its factum in the court below and may not even have been raised in the oral submissions.

[45] The findings at paragraphs 54 and 56 of the reasons cannot stand. Consequently, paragraph 2 of the Order must be modified to delete the words “or alternatively, requiring Yuan Ming Supermarket to pay triple rent from November 15, 2010. In either case, this is a question for the judge who must determine the FMV Compensation.”

Was the finding as to the purpose of the cash payments supported by the evidence?

[46] On this issue, the application judge found in favour of the Appellants. She found that the purpose of the cash payments was to compensate the Respondent for the differential in rent between $53,000 per month and $30,000 per month.

[47] The Respondent submits that the application judge erred in not accepting Wan’s evidence as to the purpose of the payments, which was to compensate him for 10% of the value of the chattels and fixtures that were on the premises when Tenant Corp took over the lease from Big Land Farms. Tenant Corp had never paid Landlord Corp for these chattels and fixtures.

[48] The application judge found that the Appellants’ explanation for the payments was more credible than the Respondent’s explanation. She did so because the amounts paid were equal to 10% of the difference between rent paid at $53,000 per month and $30,000 per month and bore no relationship to the amount that the Respondent asserted it was owed for its share of the chattels and fixtures. In particular, according to the Respondent (although there was no supporting evidence on this point), those chattels and fixtures were worth $1,000,000 to Landlord Corp. Thus, as a 10% shareholder, the Respondent would have been entitled to a maximum of $100,000. Yet, Mr. Wan received $156,400 in cash payments and offered “no explanation of why he was entitled to receive more than 50% more than what he calculated his entitlement to be”: see Application Judge’s Reasons, at para. 34.

[49] On this appeal, the Respondent does not challenge the evidence that the application judge relied upon to make her finding on this issue. Given this evidence, it cannot be said that the application judge made a palpable and overriding error of fact in coming to the conclusion she did as to the purpose of the cash payments.

Did the application judge err by finding oppression in the absence of a finding about the fair market value rent for the premises?

[50] The Appellants submit that, in the absence of finding the fair market value rent for the premises for the period from November 2010 onwards, the application judge could not make a finding as to whether the rent being paid by Tenant Corp was below the fair market value rent and, therefore, was oppressive.

[51] In making this submission, the Appellants acknowledge that the application judge did what she was asked to do under the terms of the consent order that they entered into. As already noted, that order specifically provided that “[n]either party shall be obliged to tender further evidence on the fair market rental value of the property as at November 2010 or thereafter, pending the determination of the FMV Threshold Issue referenced above”: see the consent order of Justice Campbell, dated April 23, 2012, at para. 4(a).

[52] The FMV Threshold Issue is set out at para. 1(a) of Justice Campbell’s order. As indicated at the beginning of these reasons, it reads as follows:

In all of the circumstances of this case, is it oppressive to the interests of the [Respondent] as a 10% shareholder in [Landlord Corp], or otherwise a breach of their statutory duties, for the two directors to cause the Landlord Corp to rent the premises owned by Landlord Corp to a corporation that is directly or indirectly controlled by them [Tenant Corp] for an amount that is less than fair market value and/or on terms that are less than fair market value?

[53] According to the Appellants, they now realize that the consent order was badly-drafted. As a result, the application judge was asked to make a determination in the absence of the necessary evidence that gave her the jurisdiction to make this determination, namely, what the fair market value rent for the premises was. Without this evidence, she could not determine whether the behaviour of the Appellants met the threshold for oppression and, therefore, the application judge had no jurisdiction to grant a remedy.

[54] The Respondent, on the other hand, submits that the consent order reflects the fact that there was no dispute that the rent being paid by Tenant Corp after November 2010 was less than fair market value rent. The issue before the application judge was whether it was the provisions of the lease or some other arrangement agreed to by the parties that governed their reasonable expectations.

[55] We accept that a consent order cannot confer jurisdiction where none exists. However, consent orders should not be set aside unless the interests of justice demand it: see Stoughton Trailers Canada Corp. v. James Expedite Transport Inc., 2008 ONCA 817. It would be contrary to the interests of justice if the Appellants could consent to an order that implicitly acknowledges that they were not paying rent in accordance with the lease, which demanded that rent be at fair market rent after November 2010, and then, when the case goes against them, be permitted to turn around and say that the application judge had no jurisdiction to make the order that she did, even though she was only acting in accordance with the terms of the consent order.

[56] We agree with the Respondent’s position that the consent order was worded the way it was because the parties had agreed that the rent being paid was less than fair market value rent. It is clear from the application judge’s reasons that the Appellants’ position before her was that the parties never chose to govern their relationship by the terms of the lease and that “since Mr. Wan admits he did not even see the lease until sometime in 2006, the lease could not have formed the foundation of his reasonable expectations”: see Application Judge’s Reasons, at para. 52. Further, the Affidavit filed by Ou Yang on the application deposes that Wan accepted his position as to the rent that should be paid, even once the initial term of the lease was up. Finally, as acknowledged in the Appellants’ factum, prior to the consent order, Landlord Corp had retained an appraiser to perform an appraisal of the property. That appraiser opined that, as of July 13, 2011, “the fair market rental for the Property was $14.00 per square foot”: see Appellants’ factum, at para. 42(b). All of these facts support the Respondent’s position.

[57] In view of this, we do not accept that the application judge lacked jurisdiction to determine whether the behaviour of the individual Appellants was oppressive. Contrary to the assertion of the individual Appellants, the application judge found, as she was entitled to, that the Respondent, as a minority shareholder, had a reasonable expectation that rent would be paid in accordance with the written lease between Landlord Corp and Tenant Corp. This required that from November 2010 onwards, rent be paid at fair market value, which the Appellants, as evidenced by the consent order, implicitly agreed was not occurring.

Did the application judge err in failing to consider the second part of the oppression test when it came to her considerations relating to the rent for the period from November 2005 to November 2010?

[58] While the application judge did not explicitly find oppression regarding the failure to pay $12.00 per square foot in rent for the first five years of the lease, she did order Tenant Corp to retroactively repay the appropriate rent under the lease and that Wan pay to Landlord Corp all the cash payments he had received. She also ordered that amended financial statements be prepared for Landlord Corp and Tenant Corp to reflect the appropriate amounts that should have been included in them.

[59] Between them, the parties raise a number of concerns regarding these orders. First, there is a concern about making an order against Tenant Corp, a non-party (discussed below). Second, there is a concern that the cash payments Wan received did not come from Landlord Corp and if Tenant Corp pays Landlord Corp rent under the lease and Wan pays Landlord Corp the cash payments he received, Landlord Corp will be over-compensated for rent for the period in question. Third, the order will require both Tenant Corp and Wan to come up with substantial sums of money and it will require Tenant Corp and Landlord Corp to incur significant expenditures in re-filing their financial statements and tax returns for the years in question. While this may be appropriate from the point of view of Revenue Canada, both parties agree that the focus of the oppression remedy should not be to remedy taxation concerns.

[60] As put by the Ontario Court of Appeal in Naneff v. Con-Crete Holdings Ltd. (1995), 1995 959 (ON CA), 23 O.R. (3d) 481 (C.A.), at p. 488, “the result of the exercise of the discretion contained in s. 248(3) must be the rectification of the oppressive conduct. If it has some other result the remedy must be one which is not authorized by law.” The Court of Appeal, at p. 491, also adopted with approval the comments of Farley J., in 820099 Ontario Inc. v. Harold E. Ballard Ltd. (1991), 3 B.L.R. (2d) 113 (Ont. Gen. Div.), at p. 123, aff’d (1991), 3 B.L.R. (2d) 113 (Ont. Div. Ct.), where he states, at p. 197, “I think that where relief is justified to correct an oppressive type of situation, the surgery should be done with a scalpel, and not a battle axe.”

[61] In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 68, the Supreme Court made it clear that a claim for oppression involves the following two related inquiries:

(1) Does the evidence support the reasonable expectation asserted by the claimant? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?”

[62] In this case, the application judge made the first inquiry and determined that the Respondent had a reasonable expectation that Tenant Corp would pay rent in accordance with the lease. She also found that the cash payments were for rent. What she did not go on to consider was the second question, which was whether the Respondent’s reasonable expectation that rent would be paid in accordance with the lease was unfairly prejudiced or disregarded. In considering this question, the cash payments made to the Respondent had to be taken into account.

[63] The application judge accepted that the cash payments were equal to 10% of the difference between the monthly rent that should have been paid under the lease and the monthly rent that was actually paid. Given this, and given the fact that the Respondent was a 10% shareholder in Landlord Corp, any unfairness that the Respondent suffered by virtue of the fact that Tenant Corp did not pay the full rent owing under the lease was alleviated by the payments.

[64] Therefore, in our view, there was no need for the application judge to order the remedial relief she did in respect of the rental payments owing for the first five years of the lease. Further, in terms of the other accounting irregularities that have still not been corrected, any unfairness to the Respondent by virtue of these irregularities can similarly be corrected by ensuring that the Respondent is paid 10% of the amounts found to be owing by Tenant Corp to Landlord Corp (the amounts that Landlord Corp paid on behalf of Tenant Corp that it should not have paid). The Appellants have already compensated the Respondent in this fashion for a large portion of the irregularities and take no issue with the need to pay any further compensation on this basis for any other irregularities of this kind.

Did the application judge err in making a remedial order directed at a non-party? Should an order be made against the individual Appellants?

[65] Paragraph 4(b) of the Order provided as follows:

THIS COURT ORDERS that all accounting irregularities must be corrected, which involves:

(b) [Tenant Corp] shall retroactively pay the appropriate rent under the Lease.

[66] This portion of the Order only deals with the rental period prior to November 2010. The period after November 2010 is dealt with in paragraph 2 of the Order, which leaves the determination of fair market rent to the judge hearing the second part of the application.

[67] As already noted, the application judge did not find oppression in relation to the first rental period from November 2005 to November 2010. Further, to the extent that she did, she failed to consider the second aspect of the oppression test. Finally, Tenant Corp was not a party to the application and 40% of Tenant Corp is owned by two other non-parties, the individual Appellants’ sons. We agree with the Appellants that, on this basis alone, paragraph 4(b) of the application judge’s Order must be set aside.

[68] Similarly, Mr. Wan was not a party to the application and should not be ordered to repay the monthly payments of $2,300.00. However, it is implicit in the reasons that those monthly payments were paid to him as agent for, or by operation of law in trust for the Respondent. It flows from this that in determining the FMV compensation to be paid to the Respondent, credit is to be given for the cash payments made from November 15, 2010 onwards.

[69] In view of our finding that there is no need for a rental payment order against Tenant Corp for the period prior to November 2010, there is also no need that such an order be directed at the individual Appellants. However, we do agree that to the extent that there are monies that should be paid to the Respondent, it is the obligation of the directors of Landlord Corp., namely, the individual Appellants, to ensure that they are paid.

Conclusion

[70] For the reasons outlined above, paragraph 2 of the Order shall be amended by adding the following (where the underlining indicates the amendments to the paragraph):

THIS COURT ORDERS that the remedy (i.e. the FMV Compensation), is to put the Applicant in the position it would have been in had the lease between Landlord Corp and 2083278 Ontario Inc. operating as Yuan Ming Supermarket (the “Lease”) been followed from and after November 15, 2010 and had the Applicant’s share of the profit in Landlord Corp arising from the lease been paid to it. This involves a determination of what reasonable market rent could the premises have been rented at from November 15, 2010 onward. In calculating the FMV Compensation, the judge should deduct from the FMV Compensation otherwise payable, the amount of the cash payments paid to Barry Wan from November 15, 2010 onwards. Any FMV Compensation found to be owing shall be paid to the Applicant by the directors of Landlord Corp, namely, Yuan Sheng Ou Yang and Ming Zhu Zhuang.

[71] Paragraph 3(a) of the Order shall be amended by adding the following to the end of the paragraph: “but any prejudice to the Respondent as a result of this irregularity during the period from November 2005 to November 2010 has been alleviated by the cash payments to Barry Wan”.

[72] Paragraph 4 of the Order shall be set aside and the following substituted in its place:

THIS COURT ORDERS that all accounting irregularities must be corrected. In the event that Yuan Ming Supermarket has not paid the accounting irregularities to Landlord Corp by August 15, 2014, then Yuan Sheng Ou Yang and Ming Zhu Zhuang shall forthwith pay to the Applicant 10% of any accounting irregularities that have not been paid to Landlord Corp.

[73] Paragraphs 6(a) and (b) of the Order shall be set aside and the following substituted in its place:

(a) The parties should agree on an accountant to determine the total amount of any accounting irregularities. If they cannot agree on an accountant, each party will retain an accountant to do so. The parties will have the accounting work completed by July 31, 2014.

(b) If the parties have not agreed upon the amount of the unpaid accounting irregularities by August 15, 2014, then the issue of which amount will prevail is an issue to be addressed at the case conference referred to in paragraph 6(d) below.

[74] Paragraph 6(d) of the Order shall be amended to substitute the date of August 31, 2014 in place of August 31, 2013.

[75] Paragraph 7 of the Order is set aside and the following substituted in its place:

THIS COURT ORDERS that at the second return date of the Application, the following issues will be determined, if the parties have not reached agreement with respect to such issues:

a. The total accounting irregularities referred to in paragraph 3;

b. The amount of the total accounting irregularities less any payments made by the Directors pursuant to paragraph 4; and

c. The amount and the terms of a buyout of the Applicant’s 10% interest in Landlord Corp.

[76] In all other respects, the appeal and cross-appeal are dismissed. Apart from the variations above, the Order is confirmed. If they cannot agree, the parties may make brief written submissions as to costs; the Appellants shall make their submissions within 10 days of the release of these reasons; the Respondent shall have 10 days from receipt of the Appellants’ submissions to respond and the Appellants shall have five days to file any reply submissions.

Aston J.

Sachs J.

D. Edwards J.

Released: 20140505

CITATION: 1658586 Ontario Inc. v. Can-Am Lubricants Inc., 2014 ONSC 2673

DIVISIONAL COURT FILE NO.: 56/14

DATE: 20140505

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Aston, Sachs and D. Edwards JJ.

BETWEEN:

1658586 Ontario Inc., Yuan Sheng Ou Yang and Ming Zhu Zhuang

Appellants

– and –

Can-Am Lubricants Inc.

Respondent

REASONS FOR JUDGMENT

BY THE COURT

Released: 20140505

1658586 Ontario Inc. v. Can-Am Lubricants Inc., 2014 ONSC 2673

Case Summary

Overview

Factual Background

The Application Judge’s Findings

Issues Raised on this Application

Analysis

Were the findings of reasonable expectations supported by the evidence?

Was the finding as to the purpose of the cash payments supported by the evidence?

Did the application judge err by finding oppression in the absence of a finding about the fair market value rent for the premises?

Did the application judge err in failing to consider the second part of the oppression test when it came to her considerations relating to the rent for the period from November 2005 to November 2010?

Did the application judge err in making a remedial order directed at a non-party? Should an order be made against the individual Appellants?

Conclusion

Judges

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Statutory Provisions 1

Legal Tests 1