Wilfred et al. v. Dare et al.
[Indexed as: Wilfred v. Dare]
Ontario Reports Ontario Superior Court of Justice, Conway J. March 21, 2017 137 O.R. (3d) 512 | 2017 ONSC 1633
Case Summary
Corporations — Oppression — Plaintiff and her two brothers being shareholders of closely held private company — Shareholder agreement containing right of first offer and permitting shareholder to sell shares to third party on equal or better terms if other shareholders declined offer — Defendants rejecting plaintiff's offer to sell her shares to them and plaintiff unable to find third party purchaser — Plaintiff's action for oppression remedy dismissed — Plaintiff not having reasonable expectation of liquidity for her shares.
The plaintiff and the personal defendants, her brothers, were the shareholders of a closely held private company. Their father, who had gifted the shares to them in a 1980 estate freeze, wished to keep the shares in the family in the long term and to provide a disincentive for his children to sell to a third party. The plaintiff and the personal defendants entered into a shareholders' agreement which required any shareholder who wished to sell his or shares to first offer them to [page513] the other two shareholders at fair market value. If the others declined the offer, the shares could be sold to a third party on equal or better terms. In 2014, the plaintiff offered to sell her shares to the defendants. They rejected her offer, and she was unable to find a third party purchaser. The plaintiff brought an action for an oppression remedy under s. 248 of the Ontario Business Corporations Act , R.S.O. 1990, c. B.16, seeking a court-ordered sale of her shares to the defendants.
Held, the action should be dismissed.
The plaintiff did not have a reasonable expectation of liquidity for her shares. The shareholders' agreement did not require the shareholders to purchase shares from one another. It did not contain a shotgun buy-sell clause or a put right. The reality was that the plaintiff was gifted a minority interest in a closely held private family business. Her interest had inherent limited liquidity. The oppression remedy in s. 248 of the Ontario Business Corporations Act is not designed to relieve a minority shareholder from the limited liquidity attached to his or her shares or to provide a means of exiting the corporation, in the absence of any oppressive or unfair conduct.
Cases referred to
BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 52 B.L.R. (4th) 1, EYB 2008-151755, J.E. 2009-43, 301 D.L.R. (4th) 80, 71 C.P.R. (4th) 303, 383 N.R. 119, 172 A.C.W.S. (3d) 915; Miklos v. Thomasfield Holdings Ltd., [2001] O.J. No. 1432, [2001] O.T.C. 272, 82 C.R.R. (2d) 126, 105 A.C.W.S. (3d) 857; Senyi Estate v. Conakry Holdings Ltd., [2007] O.J. No. 2146, 36 B.L.R. (4th) 309
Statutes referred to
Business Corporations Act, R.S.O. 1990, c. B.16, s. 248 [as am.], (2), (3)(f)
ACTION for an oppression remedy.
John P. Ormston and Lindsay M. Moffatt, for plaintiffs. John J. Chapman and Manav Singhla, for defendants.
[1] CONWAY J. : — Dare Foods is a well-known Canadian manufacturer of cookies, crackers, fine breads and candy. Charles H. Doerr founded the business in 1889 when he opened a grocery store in Berlin, Ontario (now Kitchener). The business has expanded and grown significantly over the last 125 years. It now has annual sales of approximately $300 million and 1,200 employees. The business has always been in the control of the Dare family.
[2] Carl Dare, Mr. Doerr's grandson ("Carl"), took over the Dare Foods business in the early 1940s. He was a hands-on manager for over 50 years and the driving force behind the expansion of the business. Carl died in 2014 at the age of 96. His wife Ruth predeceased him in 2003.
[3] Carl and Ruth had three children -- Bryan Dare ("Bryan"), Graham Dare ("Graham") and Carolyn Dare Wilfred ("Carolyn"). They are 71, 69 and 65 years old, respectively. Bryan, Graham [page514] and Carolyn, through their holding companies, own all of the shares of the Dare Foods companies.
[4] Carolyn wishes to sell her interest in Dare Foods. She seeks relief pursuant to the oppression remedy in s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the " OBCA "). Specifically, she seeks a court-ordered sale of her shares to the defendants. She proposes that the court appoint a third party valuator to determine the value of her shares and order the defendants to purchase her interest at the valuation price without a minority discount. 1
[5] For the reasons that follow, Carolyn has failed to establish any basis for the relief she seeks under s. 248 of the OBCA . The action is dismissed.
1980 Estate Freeze
[6] Most of the facts in this case are undisputed and are set out in an extensive partial agreed statement of facts. In addition to the documentary evidence, Carolyn, Bryan, Graham and William Farrell (the executive chairman of Dare Holdings Limited) testified at trial.
[7] By 1964, there were three main operating companies for Dare Foods -- Dare Foods (Biscuit Division) Limited, Mother Dell's Bakeries Limited ("Mother Dell's") and Dare Foods Limited -- all of which were owned by Carl. In 1964, Carl arranged for each of Bryan and Graham to acquire a 24 per cent interest in Mother Dell's, leaving Carl with a 52 per cent interest in that company. The name of Mother Dell's was later changed to Dare Foods (Candy Division) Limited.
[8] In 1980, Carl did an estate freeze in which he transferred his shares of the three operating companies to a newly created holding company, Serad Holdings Limited ("Serad"), in exchange for voting preference shares of Serad. The common shares of Serad (420 in total) were issued to a newly created family trust -- the Dare Family Trust (the "trust"). Bryan, Graham and Carolyn were beneficiaries of the trust.
[9] According to the valuation done at the time of the estate freeze, the Dare Foods group of companies had annual sales of approximately $40 million and consistent profits in the range of [page515] $2 million to $3 million per year. Carl's shares of the three operating companies were valued at $12.5 million.
[10] As part of the estate freeze, a series of shareholder agreements were entered into for Serad. Although the trust, not Bryan, Graham and Carolyn, was the shareholder of Serad, they signed the shareholder agreements as beneficiaries of the trust.
[11] The second shareholders agreement dated November 24, 1980 (the "second shareholders agreement") contained restrictions on the future transfer of the shares of Serad by Bryan, Graham and Carolyn. It contains a "right of first offer" -- namely, that if Bryan, Graham and Carolyn want to sell their shares of Serad, the shares must first be offered to the other two family members at fair market value. If the others decline the offer, the shares can be sold to a third party purchaser but only "at a price not less than" and on "terms not less onerous" than those offered to the family members. The stated purpose of the right of first offer was to ensure that members of the Dare family had an opportunity to retain control of Serad, "if they so desire".
Operation of the Business from 1980 to 2001
[12] In late 1980, Dare Foods Limited amalgamated with Dare Foods (Biscuit Division) Limited and continued as Dare Foods Limited. The sole shareholder of that company was Serad.
[13] The policy of Dare Foods Limited up to 2000 was to dividend most of its profits up to Serad, which in turn loaned a significant portion of those profits back to Dare Foods Limited on a secured basis. As Bryan explained, one of the keys to Dare Foods' profitability has been to reinvest in the company, finance operations internally and not take on external debt. As a result of this loan back arrangement, until 2000 Serad did not declare dividends to the trust and the trust did not make any distributions to its beneficiaries.
[14] Bryan and Graham joined the family business in 1982 and 1976, respectively. Bryan had a business degree and Graham had a law degree. Carl was the president, Bryan became the senior vice-president and Graham became the executive vice-president. Since November 2002, persons outside the family have held the title of president, but Bryan and Graham have continued as senior executives of Dare Foods. Over the period 1987 to 2015, Bryan and Graham have received annual salaries and bonuses from Dare Foods Limited averaging $204,629 and $212,732, respectively.
[15] Carolyn had a diploma in early childhood education and worked for six years in that field. She married, had two children and helped run a farm that she and her then husband owned. [page516] Carolyn had no involvement in the management or financial affairs of the Dare business. She received an annual salary of $30,000 (later increased to $50,000).
[16] Bryan and Graham were both working in the business when Dare Foods expanded into the United States. In 1993, Carl arranged for each of them to acquire a 50 per cent interest in Rosseau Incorporated ("Rosseau"), the operating company for the U.S. business.
[17] During the period 1980 to 2000, the Dare business expanded. Its consolidated sales grew from $40 million in 1980 to $200 million in 2001 and its pre-tax earnings for 1996--2000 were significantly higher than they had been in 1980.
Distribution from the Trust in 2001
[18] In May 2001, just prior to the 21st anniversary of the trust, its assets (the common shares of Serad) were distributed to the beneficiaries. Bryan, Graham and Carolyn each received 140 common shares of Serad.
[19] As part of the distribution process, a valuation report for Serad was prepared by KPMG (the "2001 valuation"). The 2001 valuation estimated that the shares of Serad had a value of approximately $120 million.
[20] When they received their Serad shares from the trust, Bryan, Graham and Carolyn confirmed and re-executed the second shareholders agreement (that contained the right of first offer). They entered into a further shareholders agreement that permitted them to hold their Serad shares through personal holding companies. Carolyn signed these agreements with the benefit of legal advice. It is agreed that these agreements are legally enforceable and intended by the parties to govern their relationship.
Carolyn's Move to New Zealand and Sale of 25 Per Cent of Her Shares in 2001
[21] In 1997, Carolyn met her present husband Harmon Wilfred ("Harmon") and they married in 1998. Harmon was involved in legal proceedings involving his previous marriage and children in Colorado. Carl loaned Carolyn approximately $400,000 over the years to assist with Harmon's legal expenses.
[22] In late 2000, Harmon and Carolyn decided to move from Canada. Carolyn testified that Harmon was a "whistleblower" who had worked for the CIA in the United States and they feared for their lives. They left Canada in the spring of 2001 and eventually settled in New Zealand. Carolyn's family did not know where she was until August 2001. Harmon renounced his [page517] U.S. citizenship in 2005 and is now living in New Zealand as a stateless person.
[23] In July 2001, Carolyn (through her then counsel Richard DeVries) sent a notice of sale pursuant to the second shareholders agreement. She offered to sell her 140 common shares of Serad to Bryan and Graham for $39.6 million. Her offer was based on the 2001 valuation of $120 million. Bryan and Graham rejected the offer.
[24] Carolyn sent Carl a letter at the end of August. She told him of her decision to live in New Zealand. She told him that if Bryan and Graham were not prepared to purchase her shares, she would have no choice but to sell them to a third party. She told Carl that she wanted to resolve the situation and needed at least $10 million to carry out her immediate and long-range plans for life in New Zealand.
[25] Carl responded, saying that he had never thought that her shares would be saleable and he could not think of a buyer who would be interested in investing in a minority stake in a closely held private holding company like Serad. He said that while he would prefer that the shares remain in family hands, in a strictly legal sense she was free to try to sell her shares outside the family as long as it was done in accordance with the shareholder agreements. Carolyn retained an advisor in New Zealand to assist her in selling to a third party. There was some contact with prospective purchasers in the baking and confectionary businesses but nothing came out of those discussions.
[26] Carolyn then offered to sell all of her Serad shares to Carl for $5 million. She testified that she was desperate for money. Rather than accepting her offer for 100 per cent of her shares, Carl proposed that Serad would redeem only 25 per cent of her shares (35 shares) for $5 million, 2 terminate her $50,000 salary and provide her with annual dividends of $335,000 for five years (from which the $400,000 loan to her would be repaid). As part of the arrangement, she would not attempt to sell or redeem any of her remaining shares for five years. Bryan testified that Carl made this offer for 25 per cent of Carolyn's shares because he wanted her to remain in the family and the business.
[27] Carolyn accepted the proposal. She thanked Carl and told him that it would help her fulfill her dreams in New Zealand. On advice from her counsel and outside advisors, she rolled her [page518] Serad shares into a holding company (960777 Alberta Ltd. -- "Carolyn Holdco"). Serad redeemed 35 shares from Carolyn Holdco in December 2001.
[28] Pursuant to the agreement between Carolyn and Carl, Serad declared annual dividends from 2001 to 2005. Carolyn Holdco's share of each dividend was $341,250 (less loan repayments). 3
The Saputo Transaction -- 2001 to 2011
[29] In 2001, Dare Foods entered into a transaction with Saputo Foods Limited ("Saputo") to acquire its "Culinar" cookies, fine breads and dehydrated soups businesses, in return for which Saputo became a 21 per cent shareholder of the three Dare Foods operating companies.
[30] In 2003, the Dare Foods corporate structure was reorganized. A new holding corporation, Dare Holdings Limited ("Dare Holdings"), was incorporated to hold the shares of the operating companies. The shares of Dare Holdings were in turn owned by Serad, Saputo and Bryan and Graham's holding companies -- Anaz Ltd. ("Anaz") and Nazca Investments Ltd. ("Nazca"). Anaz and Nazca received shares of Dare Holdings in exchange for the common shares of Dare Foods (Candy Division) Limited and Rosseau that they had acquired years earlier.
[31] The directors of Dare Holdings included Bryan and Graham, a Saputo representative and other outside directors. Starting in 2008, Dare Holdings instituted a "director-observer program" to introduce the next generation of the Dare family to the business by sitting in on board meetings. Both of Carolyn's daughters served two years terms as "director-observers".
[32] In 2010, Saputo exercised its "put" right to sell its 21 per cent interest in Dare Holdings back to the company. An independent valuation was prepared. Saputo challenged the valuation, which was substantially upheld in court. Saputo's 21 per cent interest in Dare Holdings was ultimately purchased by Serad for a value of $28.5 million.
Present Corporate Structure of Dare Foods Group of Companies
[33] Following the redemption of 25 per cent of Carolyn's shares and the buyout of Saputo, the corporate structure of the Dare Foods group of companies is as follows: [page519]
- all of the shares of the operating companies are owned (directly or indirectly) by Dare Holdings;
- the shares of Dare Holdings are owned by Serad (approximately 80 per cent) and by Anaz and Nazca (approximately 10 per cent each);
- the shares of Serad are owned by Carolyn Holdco (approximately 27 per cent) and by Anaz and Nazca (approximately 36 per cent each).
CRA Re-Assessment of Carolyn
[34] In 2004, the Canada Revenue Agency ("CRA") began investigating Carolyn's tax situation and re-assessed her in June 2005. CRA took the position that Carolyn owed taxes either in connection with the $5 million share redemption in 2001 and/ or in connection with a deemed capital gain when she ceased to be a resident of Canada.
[35] In February 2009, CRA secured a notice of enforcement and issued a requirement to pay in connection with Carolyn Holdco's shares in Serad. The original writ of seizure and sale/requirement to pay were in the amount of $15 million. 4
[36] Carolyn settled her litigation with CRA in August 2015. The settlement provided that Carolyn would be assessed on the basis that she disposed of her 140 Serad shares in 2001 when she left Canada. Under the settlement, Carolyn owes CRA over $8 million, with interest accruing at the rate of over $1,000 per day.
Serad Dividends
[37] Pursuant to Carolyn's arrangement with Carl, Serad declared dividends for five years ending in July 2005. The total annual dividend was approximately $1.2 million and Carolyn's share was approximately $341,250.
[38] After the five-year agreement expired, Serad continued to declare dividends in an equivalent amount for 2006 to 2008, of which Carolyn's share was approximately $341,250. In September 2009, Serad declared another dividend. Given the CRA's requirement to pay, Serad paid Carolyn's share of the dividend to CRA. [page520]
[39] Serad did not declare dividends from 2010 to 2015. The evidence is that Serad did not ask Carolyn if she wanted the dividends to continue and Carolyn did not ask Serad to declare any dividends for those years. 5
[40] In 2016, after Carolyn had settled her litigation with CRA, Carolyn came to an agreement with CRA that allowed her to receive a significant portion of a Serad dividend. At Carolyn's request, Serad declared a dividend of $341,250 in 2016, of which $280,000 went to Carolyn and the balance to CRA.
[41] In total, since 2001 Carolyn has received approximately $2.5 million in dividends from Serad.
[42] Bryan and Graham both testified that assuming the business continues to do well, there is every expectation that Serad will continue to declare dividends at the historic rate if Carolyn wants to receive them.
Carolyn's Present Circumstances
[43] Carolyn and Harmon invested in a variety of businesses in New Zealand from 2001 to 2014. Their original business (IT Telenet) was sold for approximately $1.3 million in 2014, from which they received $480,000. Their other businesses were heavily damaged in the Christchurch earthquake of 2009 and failed. A number of the entities were placed into liquidation in 2013--2015, and there has been litigation in New Zealand relating to those entities. According to Carolyn, she is in desperate need of money.
[44] Carolyn's business visa in New Zealand expired 18 months ago and she was required to return to Canada, where she now lives with her daughter Carla. Harmon remains in New Zealand.
Carolyn's Attempt to Sell the Balance of Her Shares
[45] Between 2004 and 2006, Carolyn had several discussions with her family about dividends and a possible buyout of her shares. At one point, Bryan proposed a purchase of her remaining shares for $15 million. Carolyn proposed a purchase price of $52.1 million. 6 No agreement was reached during that period and the issue remained dormant until 2014. [page521]
[46] In January 2014, Mr. DeVries wrote to Dare Foods' counsel and indicated that Carolyn would be selling her shares. He offered a purchase price of $55 million and threatened litigation if the shares were not purchased at that price. The offer was rejected.
[47] In April 2014, Carl died.
[48] In July 2014, Carolyn sent a notice of sale under the second shareholders agreement, again offering to sell her remaining Serad shares to Bryan and Graham for $55 million. There is no evidence explaining why this purchase price was selected (apart from Carolyn's testimony that the number came from Mr. DeVries), the basis on which it was calculated, or whether it represented fair market value of her shares as contemplated by the second shareholders agreement. I note that the valuation of Dare Foods in 2010, when Saputo sold its 21 per cent interest in Dare Holdings (which is equivalent to Carolyn's indirect interest through Serad), was approximately $28 million.
[49] Bryan and Graham rejected the offer. They testified that they were not interested in buying her shares -- they did not have the money and did not want to burden the business or their children with debt to fund a buyout of Carolyn's shares.
[50] Carolyn engaged a financial advisor, Taurus Group Limited ("Taurus") in New Zealand, to market her shares. Taurus requested information from Serad and Dare Holdings to send to prospective purchasers. Mr. Farrell provided detailed financial information and met with Taurus to explain the information. Mr. Farrell also met with Carolyn and an investment banker to discuss her idea of an IPO for Dare Foods. Mr. Farrell did not think that Dare Foods was a suitable candidate for an IPO due to its limited growth potential, and the idea did not progress any further.
[51] Taurus prepared an overview of the Dare Foods business for prospective purchasers of Carolyn's shares. The material noted that any prospective purchaser would have to become a party to the Serad shareholder agreements. At least four parties (Campbell's Soups, United Biscuits, National Bank of Canada and Biscuits Leclerc -- "Leclerc") executed confidentiality agreements allowing them to access Dare Foods' financial statements. The only party that expressed an interest was Leclerc. Mr. Farrell testified that he met with Denis Leclerc, who was not interested in the transaction if Leclerc had to be bound by the existing shareholder agreements. According to Mr. Farrell, Leclerc was really interested in buying all of Dare Foods (but Bryan and Graham were not interested in selling). [page522]
[52] In November 2014, Mr. DeVries threatened litigation if Bryan and Graham did not purchase Carolyn's shares for $55 million. He alleged that Carolyn had been treated oppressively. Serad asked for particulars of the oppressive conduct. No reply was provided.
[53] This claim was commenced in June 2015.
Positions of the Parties
[54] Carolyn's position is that the defendants' conduct has been unfairly prejudicial to or unfairly disregards her interests as a shareholder of Serad in two respects. The first is the defendants' refusal to purchase her shares of Serad. She submits that this refusal, combined with the lack of a third-party market for her shares and the irreconcilable differences between her and the other Dare family members, has the effect of holding her shares hostage and preventing her from realizing on her valuable asset at a time when she needs money.
[55] The second is the alleged inequity of Serad's dividend policy. Carolyn submits that she has no input into the Serad dividend policy, which is controlled by her brothers. She argues that while the loan back of funds to Dare Holdings may be a good business strategy, it suits her brothers' interests but not hers, given that they have other sources of income from the business (salary and dividends on their 20 per cent shareholding of Dare Holdings). Carolyn's position is that the appropriate remedy is a court-ordered buyout of her shares of Serad.
[56] The defendants' position is that Carolyn's action should be dismissed. They submit that they have done nothing that is unfairly prejudicial to or unfairly disregards her interests as a shareholder of Serad to warrant equitable relief under s. 248 of the OBCA . They submit that Carolyn is seeking to invoke the oppression remedy simply because she does not want to be a shareholder of Serad any longer and seeks forced liquidity for her shares through a court-ordered buyout.
Law on Oppression
[57] The oppression remedy is set out in s. 248(2) of the OBCA that reads:
248(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(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 [page523]
(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 interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.
[58] The remedies available where a complainant meets the requirements of s. 248(2) are very broad and include a court-ordered buyout of shares (s. 248(3)(f)).
[59] The governing legal principles for the oppression remedy are set out in BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69 and can be summarized as follows:
- The court is to make the following two inquiries in deciding an oppression case: (1) Does the evidence support the reasonable expectation asserted by the claimant? (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?
- Oppression is an equitable remedy. It seeks to ensure fairness -- what is "just and equitable". It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair.
- Oppression is fact specific. What is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play. Conduct that may be oppressive in one situation may not be in another.
- The concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive. The question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue and the entire context, including the fact that there may be conflicting claims and expectations.
- In determining whether a reasonable expectation exists, the court may consider factors including general commercial practice; the nature of the corporation; the relationship between the parties; past practice; preventative steps the claimant could have taken; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders. Shareholder agreements may be viewed as reflecting the reasonable expectations of the parties. [page524]
- The concepts of oppression, unfair prejudice and unfairly disregarding relevant interests indicate the type of wrong or conduct that the oppression remedy is aimed at. Oppression is the wrong of the most serious sort and carries the sense of conduct that is coercive and abusive, and suggests bad faith. Unfairness involves less offensive conduct -- it may admit of a less culpable state of mind that nevertheless has unfair consequences. Unfair disregard is the least serious of the three injuries or wrongs and extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders' reasonable expectations.
- The directors of a corporation owe a fiduciary duty to the corporation and only to the corporation. Where the interests of the stakeholders and the corporation conflict, the directors owe their duty to the corporation, not the stakeholders. The reasonable expectation of stakeholders is that the directors act in the best interest of the corporation.
Does Carolyn Have a Reasonable Expectation of Liquidity for Her Serad Shares?
[60] The primary issue in this case is whether Carolyn has proven that she has a reasonable expectation of liquidity for her Serad shares -- namely, that the defendants will purchase her shares of Serad when she wishes to sell them. In my view, she has not.
[61] Carolyn received a gift of her interest in Dare Foods when Carl transferred the future growth of Dare Foods to his three children through the estate freeze in 1980. Carl's intention was to try to keep the shares in the Dare family in the long term and to provide a disincentive for his children to sell to a third party.
[62] Carl did that through the right of first offer in the second shareholders agreement. However, he did not require his children to purchase shares from one another. The agreement does not contain a shotgun buy-sell clause. It does not contain a put right. It does not require any family member's shares to be purchased by the others depending on his or her life circumstances. It creates no obligation on his children. It only provides them with the opportunity to purchase one another's shares at fair market value before those shares are offered to a third party.
[63] That is the basis on which Carolyn received her shares of Serad. It is difficult to see how she could have an expectation that her brothers would purchase her shares when she received [page525] her shares on those terms. She agreed to this provision at the time of the estate freeze in 1980. 7 She agreed to it again when the Serad shares were transferred to her personally in 2001. Indeed, she was aware of the mechanics of the second shareholders agreement when she tried to sell her shares to her brothers in 2001, 2004 and 2014. She knew that if they did not accept her offer (which she admits they were not required to do), her option was to try to market the shares to a third party.
[64] Carolyn did obtain some partial liquidity when Carl arranged to have Serad redeem 25 per cent of her shares in 2001. However, there was no suggestion at that time that Serad would redeem the balance of her shares at a later date nor was there any commitment to that effect.
[65] Carolyn argues that a court-ordered buyout is warranted since her shares are unmarketable and have no value to a third party purchaser. While she described her efforts to market her shares to industry purchasers in 2014 (with Mr. Farrell's co-operation), she has not provided any independent evidence, from Taurus or any expert, to support her claim that her shares are worthless and cannot be sold to any other prospective purchaser at any price.
[66] The reality is that Carolyn was gifted a minority interest in a closely held private family business. Her interest has inherent limited liquidity. Her reasonable expectations must take into account the nature of her position as a minority shareholder.
[67] Justice Wilton-Siegel considered the reasonable expectations of a minority shareholder in Senyi Estate v. Conakry Holdings Ltd., [2007] O.J. No. 2146. He states, at para. 9:
In the present circumstances, the applicant has inherited a minority common share position in a private company for which there is no shareholders' agreement. What are the reasonable expectations of a shareholder in such circumstances? I think they are limited to the following five general expectations : (1) that the directors and officers will conduct the affairs of the corporation in accordance with the statutory and common law duties required of them in such capacities; (2) that the shareholder will be entitled to receive annual financial statements of the corporation and to have access to the books and records of the corporation to the limited extent contemplated by the Act; (3) that the shareholder will be entitled to attend an annual meeting of the corporation for the limited purposes of receiving the annual financial statements and electing the directors and auditor of the corporation, or [page526] will participate in the approval of such matters by way of a shareholder resolution; (4) that a similar approval process will be conducted in respect of fundamental transactions involving the corporation for which such approval is required under the Act; and (5) that the shareholder will receive the shareholder's pro rata entitlement to dividends and other distributions payable in respect of the common shares of the corporation as and when paid to all of the shareholders.
(Emphasis added)
[68] In this case, unlike in Senyi , there is a shareholders' agreement but, as noted above, the agreement does not assist Carolyn as it creates no obligation on the shareholders to purchase the interest of another shareholder.
[69] In Miklos v. Thomasfield Holdings Ltd., [2001] O.J. No. 1432, Justice Spence notes the difficulty faced by a minority shareholder in selling shares of a private corporation. He states, at paras. 110 and 114:
It is to be noted that this situation, when considered without reference to the extraneous circumstances, is virtually a case of the minority shareholder simply making a demand upon the corporation to be bought out at a price determined to be the fair value , in the absence of any statutory, contractual or other right to call for such a purchase. It reflects the problem that any minority shareholder has in a closely-held company [.]
By the same reasoning the refusal to make an offer does not disregard their interests. It disregards their wish to sell at the highest price possible . But that wish is to be distinguished from what is their proper interest. Their proper interest, with respect to their shares, is not to be disabled from selling at the highest price possible. A refusal to offer to buy does not interfere with that interest.
(Emphasis added)
[70] In my view, the oppression remedy in s. 248 is not designed to relieve a minority shareholder from the limited liquidity attached to his or her shares or to provide a means of exiting the corporation, in the absence of any oppressive or unfair conduct. Carolyn has not suggested that there has been any mismanagement of the corporation, improper dealing or any unfair conduct (apart from the dividend issue discussed below). I reject Carolyn's submission that the refusal of the defendants to purchase her shares is itself a basis for relief under s. 248 .
[71] Further, to the extent that Carolyn is seeking to have Serad use its resources to purchase her shares, she is putting her own interests ahead of those of the corporation. The uncontradicted evidence of Bryan and Graham, both directors of Dare Holdings and Serad, is that the business has significant capital needs in order to maintain its competitive position. They testified that Dare Foods has begun a series of investments which [page527] is unprecedented. The business has embarked on a phased investment project for new equipment that for the first time will involve the business going into significant debt. One of its projects -- a new line to make cookies -- will cost $62 million. Their evidence is that Dare Foods' resources are better allocated for these business purposes than to buy Carolyn's shares. As the directors with duties to do what is in the best interests of the corporation, they are entitled to make that determination.
[72] This is not a case where any difficulties in shareholder relations or irreconcilable differences among family members have had any adverse effect on the underlying Dare Foods business. Nor is it the case of an "incorporated partnership", where a shareholder has contributed sweat equity to build a business and has been improperly excluded. Carolyn has never played a role in the Dare Foods business. She simply wants out.
[73] Finally, while I have considered Carolyn's current financial circumstances, I note that they are not in any way attributable to actions taken by any of the defendants.
[74] Considering the factual context, the relationship of the parties and all of the above factors, I have concluded that Carolyn has not met her onus of proving that she had a reasonable expectation that the defendants would purchase her shares of Serad.
Serad Dividend Policy
[75] Carl gifted the future growth of Dare Foods to his children through the estate freeze. For 21 years after the estate freeze, that growth was funded internally. All profits of the business were loaned back by Serad to the operating companies. Serad did not declare any dividends to its sole shareholder (the trust) and the trust did not make any distributions to its beneficiaries (Carolyn, Bryan and Graham).
[76] In 2001, the trust was wound up and the shares of Serad were distributed to Carolyn, Bryan and Graham. At that time, Carl made the deal to purchase 25 per cent of Carolyn's shares. Part of Carl's proposed deal was that Carolyn would receive an annual dividend from Serad of $335,000 for the next five years. There is no evidence that Carolyn asked for the dividend to be part of the deal or that she sought a higher dividend.
[77] Serad declared dividends from 2001 to 2005 and for each of the next three years. The dividends only ceased after 2009 when CRA seized Carolyn's shares. She made no request for dividends from 2010 to 2015. She only requested that Serad declare a dividend in 2016 after she settled her litigation with CRA and came to a deal to keep a portion of the 2016 dividend. [page528]
[78] Looking at the Serad dividend history, I find that until 2001 Carolyn had no reasonable expectation that she would receive any dividends from the business and thereafter only had a reasonable expectation that she would receive dividends in the range of $341,250 per year. Both Bryan and Graham have testified that there is no reason to believe that Serad could not continue to declare dividends in that amount going forward.
[79] Carolyn argues that her interest as a shareholder of Serad has been unfairly disregarded or prejudiced because she receives a $341,250 dividend from Serad while her brothers receive other sources of income from the business.
[80] I reject that submission. With respect to salaries, Bryan and Graham have worked in the business for over 30 years. Carolyn has not suggested that their average annual salary and bonus of $204,629 and $212,732, respectively, have been excessive.
[81] With respect to dividends, Bryan and Graham receive dividends directly from their 20 per cent common shares of Dare Holdings. 8 They acquired these shares on the reorganization in 2003 in exchange for the shares of the operating companies that they purchased in 1960 and 1993. Carolyn never had shares of these operating companies and was never entitled to receive dividends on those shares. Her dividend entitlement has always been restricted to her shares of Serad, which has always been a holding company and the "internal banker" for the operating companies. I see no unfairness to her shareholder interest in these dividend arrangements.
[82] However, even if I had found that her interests were being unfairly disregarded by the dividend arrangements, I would not have ordered a buyout of her shares. That remedy is well beyond what would be required to rectify any unfair treatment. I would have ordered a remedy that specifically addressed the dividends paid by Serad or the loan back arrangements to Dare Holdings. 9 [page529]
Decision
[83] The action is dismissed.
[84] If the parties are unable to agree on costs, I will receive brief submissions (no longer than five pages double spaced, exclusive of bill of costs). The defendants' submissions shall be received within 21 days and the plaintiffs' within 15 days thereafter.
Action dismissed.
Notes
1 In her statement of claim, Carolyn sought a wide range of relief, including a winding-up order for Serad Holdings Limited. She confirmed at trial that she was not seeking any relief except for a buyout pursuant to the oppression remedy in s. 248 of the OBCA .
2 Carl calculated this amount based on the 2001 valuation of $40 million for Carolyn's shares of Serad, reduced by a minority discount (determined by Carl) of 50 per cent.
3 Bryan's evidence was that Carl determined the amount of the Serad dividend taking into account the life insurance premiums that Bryan and Graham were paying in connection with their estate planning at the time.
4 In 2009, CRA inquired whether the Dare family or any third party would be interested in buying Carolyn's shares of Serad. Bryan told Carolyn about the inquiry. She responded that since she was appealing the assessment and there was no requirement for Serad to buy the shares, it would be her choice not to sell the shares for a bargain to anyone. It is agreed that Carl/Serad in fact did nothing to buy the shares from CRA.
5 Carolyn or Harmon attended each of the Serad annual meetings for 2010-2016 by telephone or proxy.
6 Bryan's price was calculated on the same basis that Carl used for the purchase of 25 per cent of Carolyn's shares in 2001 for $5 million. Carolyn's price appears to have been calculated based on the amount recorded by Saputo for its Dare Foods investment on its balance sheet in 2001.
7 While Carolyn argues there was no negotiation of the various shareholders agreements, this was the basis on which she accepted her interest in Serad. As noted above, it is agreed that the agreements are legally enforceable and intended by the parties to govern their relationship.
8 Carolyn said at trial that she did not know about the 20 per cent shareholding of her brothers. However, she has been receiving the financial statements of Dare Holdings from 2006 onwards (in addition to those of Serad). The Dare Holdings statements show the 10 per cent shareholdings of Anaz and Nazca, as well as the annual dividends paid to shareholders.
9 Since I am dismissing the action on the merits, there is no need to address the defendants' limitation period defence.