CITATION: Strauss et al. v. Wright, 2017 ONSC 5789
DIVISIONAL COURT FILE NO.: DC-16-536-00
DATE: 20171103
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
LEDERMAN, KITELEY and AKBARALI JJ.
BETWEEN:
Jacqueline Strauss and Anne Urbanek on their own behalf and as Trustees of the Wright Family Trust
Applicants (Respondents)
– and –
John (Jack) Wright
Respondent (Appellant)
David Chernos and Andrew Finkelstein, for the Applicants (Respondents)
Gregory M. Sidlofsky and Brendan Donovan for the Respondent (Appellant)
HEARD at Toronto: September 13, 2017.
Akbarali J.
[1] This is an appeal from the decision of Conway J., dated October 7, 2016, in which she found that the appellant’s conduct in connection with a family business was oppressive, and that the appropriate remedy was to remove him as director and officer of the family business and as trustee of the family trust. For the reasons that follow, the appeal is dismissed.
Background
[2] In the 1970’s, the appellant, John (Jack) Wright, founded Anjay Limited, a mortgage lending company.
[3] In 2007, as part of an estate freeze, a new share structure was implemented for Anjay. Under the new structure, the Wright Family Trust was created to hold all of the common shares, and therefore the equity, of Anjay. In addition, Class A special shares were created, of which the appellant holds 6,000, his wife Anne held 3,000, and their daughters, Jacqueline Strauss and Anne Urbanek, each hold 500. On Mrs. Wright’s death, the appellant received a life interest in her Class A special shares.
[4] The Class A special shares and the common shares carry one vote per share. Thus, after the estate freeze, the appellant retained voting control of Anjay. Also around the time of the estate freeze Ms. Strauss and Ms. Urbanek became very involved in the day-to-day operations of Anjay. The appellant and Ms. Strauss are directors of Anjay. The appellant, Ms. Strauss and Ms. Urbanek are officers of Anjay.
[5] The trustees of the Wright Family Trust are Ms. Strauss, Ms. Urbanek and the appellant. Its beneficiaries are Ms. Strauss, Ms. Urbanek, their children and their family trusts. The appellant is not a beneficiary of the Wright Family Trust.
[6] Over the last several years, a family dispute has developed between the appellant and his daughters. The dispute eventually led Ms. Strauss and Ms. Urbanek to commence an oppression application seeking the removal of the appellant as officer and director of Anjay, and as trustee of the Wright Family Trust.
[7] The appellant delivered a Notice of Cross-Application. It was not issued, but it was put before the application judge. Among other things, the appellant sought an order that his shareholder loan to Anjay be paid and sought a declaration that he holds 6,000 special shares of Anjay.
[8] The application judge found that the appellant’s conduct had been oppressive and imperilled Anjay’s business based on the following four facts:
a. the appellant’s actions in emptying Anjay’s bank account;
b. the appellant’s attempt to prevent Ms. Strauss and Ms. Urbanek from accessing Anjay’s bank account for company purposes;
c. the appellant’s expensive advance birthday gift from Anjay’s funds to his former caregiver who, at the time of the gift, was his girlfriend, and is now his wife; and
d. the appellant’s use of corporate funds for personal purposes.
[9] The application judge concluded that pursuant to s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B-16, the most fit order was to remove the appellant as a director and officer of Anjay and as a trustee of the Wright Family Trust. She found that any other solution would be divisive. She ordered that the preference shares in Anjay held by the appellant and the estate of Anne Wright be redeemed by the company and that the appellant’s shareholder loan be repaid. To that end, she directed the parties to engage an independent accounting professional to provide evidence with respect to the redemption and shareholder loan issues, and provided that if issues arose, she could be spoken to. Finally, the application judge ordered a trial of an issue to proceed before her with respect to a claim about the validity of a gift of a mortgage to the Wright Family Trust.
[10] Although the appellant’s Notice of Cross-Application sought relief that was premised on the validity of the estate freeze, four days after the release of the application judge’s reasons the appellant commenced a new action alleging that the estate freeze was not valid. He seeks, among other things, a declaration that the deed of trust establishing the Wright Family Trust is void or voidable, and that the assets transferred into the trust are held for his benefit on a resulting or constructive trust basis. He also seeks a declaration that the share purchase agreements that were executed to effect Anjay’s new share structure are void or voidable, and as a result he and Mrs. Wright’s estate are the only common shareholders of Anjay.
Issues
[11] On this appeal, the appellant argues that the application judge made reversible error (i) in finding that his conduct was oppressive without considering his reasonable expectations, his explanations for his conduct and without ordering a trial; and (ii) by selecting a remedy that removed him as director and officer of Anjay and as trustee of the Wright Family Trust, inconsistent with the parties’ reasonable expectations.
Standard of Review
[12] The application judge’s decision is entitled to deference and will only be interfered with if she made an error of law, exercised her discretion on wrong principles or misapprehended the evidence such that she made a palpable and overriding error of fact: Housen v. Nikolaisen, 2002 SCC 33, [2002] S.C.R. 235, at paras. 10 and 36.
[13] With respect to remedy, s. 248(3) of the OBCA gives broad discretion to the court to make any order it thinks fit. An appellate court’s power of review of this broad discretion is limited to circumstances in which it finds an error in principle or where the decision is otherwise unjust: Mason and Intercity Properties Ltd. (1987), 1987 173 (ON CA), 59 O.R. (2d) 631 (C.A.), at p. 636.
Did the application judge err in finding that Mr. Wright’s conduct was oppressive?
[14] As noted above, the application judge relied on four facts in concluding that the appellant’s conduct was oppressive.
[15] The appellant does not argue that the application judge erred in accepting these four facts. He agrees that he engaged in the conduct she described. Instead, he argues that the application judge should have considered his explanation for his actions.
[16] He also argues that the application judge erred by considering only the reasonable expectations of Ms. Strauss and Ms. Urbanek, without considering his reasonable expectations. He states that had she considered his reasonable expectations and his explanations, she would not have found his conduct to be oppressive.
[17] Finally, he argues that the application judge should have ordered a trial of the oppression issue, which he states should be heard together with the trial of his action attacking the validity of the estate freeze. The appellant did not argue that a trial was necessary at the hearing of the application; rather he delivered his own Notice of Cross-Application. The proceeding attacking the estate freeze was not yet extant at the time the application was heard.
[18] In my view, the application judge made no reversible error in finding that the appellant’s conduct was oppressive. Of particular note, the appellant admits withdrawing nearly all the funds from Anjay’s corporate account. This left Anjay unable to meet its expenses until he returned the money a week later. The appellant also admits attempting to exclude Ms. Strauss and Ms. Urbanek from Anjay’s corporate bank account when they were responsible for Anjay’s day-to- day banking. There was thus evidence available to the application judge on which to conclude that the appellant’s actions imperilled the business of Anjay. By his conduct, the appellant breached his fiduciary duties as a director and officer of Anjay.
[19] In this context it was not necessary for the application judge to specifically consider the appellant’s reasonable expectations or to order a trial of the oppression issue. The appellant could not reasonably expect to breach his fiduciary duties to the corporation in the manner that he did, no matter what explanation for the breach he may offer.
Did the application judge err by selecting a remedy that removes Mr. Wright as director and officer of Anjay and as trustee of the Wright Family Trust?
[20] The appellant argues that, even if the finding of oppression is justified, the remedy goes too far. He states that all that would have been necessary would have been to order that the appellant return the money he had taken (something he had already done), declare that any Anjay funds the appellant had spent on personal expenditures be credited against his shareholder loan, and direct that the appellant’s signature plus the signature of either Ms. Strauss or Ms. Urbanek be required on all corporate cheques.
[21] A remedy for oppression should rectify the oppression and interfere as little as possible with the affairs of the corporation. The parties’ reasonable expectations are important when determining the just remedy: Naneff v. Con-Crete Holdings Ltd. (1995), 1995 959 (ON CA), 23 O.R. (3d) 481 (C.A.), at pp. 490-91.
[22] The appellant argues that the application judge erred in principle by failing to consider his reasonable expectations when ordering the remedy.
[23] The appellant relies on the decision of the Court of Appeal for Ontario in Naneff to argue that removing him from the company he built, in favour of his daughters whose stake in Anjay comes only from his bounty, is inconsistent with the reasonable expectations of the parties. Ms. Strauss and Ms. Urbanek could not have expected to take control of Anjay during his lifetime when the estate freeze preserved the appellant’s controlling interest. The appellant reasonably expected to continue to control Anjay during his lifetime.
[24] In my view, Naneff is distinguishable. In Naneff, family differences caused a father, mother and brother to engage in conduct that was oppressive to their son and brother. The trial judge ordered a public sale of the company, which could be bought by the father, either brother, or any combination thereof, to remedy the oppression. The Court of Appeal found that this remedy was punitive toward the father, who had expected control of the company until he retired or died. The court also noted that the remedy gave the oppressed brother something he could not reasonably have expected during his father’s lifetime – the opportunity to control the family business. However, in Naneff, unlike this case, there is no suggestion that the father – the party who stood to lose control of the company – had breached his fiduciary duties to the company.
[25] In my view, no one who breaches his fiduciary duties to a corporation in circumstances such as these can reasonably expect to remain as an officer and director of that corporation. The other shareholders – Ms. Strauss, Ms. Urbanek and the Wright Family Trust – would reasonably have expected that if the appellant breached his fiduciary duties to Anjay, he could be removed as officer and director by court order notwithstanding his controlling interest. The removal of the appellant from Anjay is thus consistent with the reasonable expectations of the parties.
[26] The record also establishes that the family relationship has become difficult, such that requiring Ms. Strauss and Ms. Urbanek to work together with the appellant would be divisive, a factor of which the application judge was entitled to take note.
[27] The remedy protects the appellant’s financial interest in Anjay by directing that his preference shares be redeemed. The loss of opportunity to receive dividends from the shares is offset by the appellant’s ability to invest the proceeds of the share redemption.
[28] Evidence from Anjay’s accountant indicates that the appellant had been redeeming some of his preference shares on a rolling basis to make the redemption of those shares tax-effective. The appellant disputes that he has redeemed any shares. This is an issue that remains to be determined with assistance from an independent accounting professional as directed by the application judge, and with the application judge’s assistance if necessary. When asked whether the tax implications of the redemption of the shares as ordered by the application judge might prejudice the appellant, the respondents’ counsel confirmed that the timing of the redemption of the shares (and the related tax consequences) is an issue that can be addressed with the accounting professional, and before the application judge if necessary, in the context of the outstanding shareholder loan and redemption issues.
[29] I thus conclude that in the exercise of her broad discretion, the application judge did not err in principle or make an unjust decision when removing Mr. Wright as director and officer of Anjay.
[30] Moreover, the application judge did not err or make any palpable or overriding error in removing the appellant as trustee of the Wright Family Trust. He is not a beneficiary and, as I have noted, the application judge had a basis upon which to exercise her broad discretion, namely that allowing him to remain would be divisive. In any event, since the appellant is now attacking the validity of the trust in a new proceeding, it is difficult to see how he can meet his fiduciary duties to the trust as he would be required to do as trustee.
[31] Accordingly, for the reasons set out above, the appeal is dismissed.
Costs
[32] Based on the parties’ agreement as to amount, the appellant shall pay costs of this appeal of $13,000 inclusive of H.S.T. and disbursements to the respondents within thirty days.
Akbarali, J.
I agree _______________________________
Lederman, J.
I agree _______________________________
Kiteley, J.
Released: November 3, 2017
CITATION: Strauss et al v. Wright, 2017 ONSC 5789
DIVISIONAL COURT FILE NO.: DC-16-536-00
DATE: 20171103
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
LEDERMAN, KITELEY and AKBARALI JJ.
BETWEEN:
Jacqueline Strauss and Anne Urbanek on their own behalf and as Trustees of the Wright Family Trust
Applicants (Respondents)
– and –
John (Jack) Wright
Respondent (Appellant)
REASONS FOR JUDGMENT
Released: November 3, 2017