Court File and Parties

COURT FILE NO.: C-348-15 DATE: 2018-09-06 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HENRY KLASSEN, Plaintiff AND: ROBERT BEAUSOLEIL and 1117726 ONTARIO INC., Defendants

BEFORE: D.A. Broad

COUNSEL: Rohit R. Kumar, for the Plaintiff J. Sebastian Winny, for the Defendants

HEARD: July 09, 2018

Endorsement

Nature of Claim, Motion and Procedural Background

[1] The defendant, 1117726 Ontario Inc. (the “corporation”), carries on business under the name Robert’s Boxed Meats. The defendant, Robert Beausoleil (“Beausoleil’), is a shareholder of the corporation.

[2] By Statement of Claim issued April, 2015 the plaintiff (“Klassen”) brought an action against Beausoleil and the corporation for the following relief:

(a) a declaration that he has a 50% ownership interest in the corporation;

(b) an order requiring the defendants or one of them to purchase his 50% ownership interest in the corporation;

(c) in the alternative, general damages in the amount of $2,000,000 for breach of contract and/or breach of trust;

(d) in the further alternative, damages for unjust enrichment in the amount of $2,000,000;

(e) repayment of loans in the amount of $15,024.13 plus interest, $3,500 plus interest and $16,000 plus interest;

(f) payment of back wages in the sum of $25,857.51 plus interest;

(g) orders permitting full disclosure, an accounting, and valuation of the corporation;

(h) an order requiring the corporation to pay him dividends, plus interest;

(i) a declaration under the oppression remedy of the Ontario Business Corporations Act R.S.O. 1990 c. B.16 (the “OBCA”) on the basis that his interests as a shareholder have been unfairly disregarded, together with associated remedial relief.

[3] Klassen’s claim to a 50% ownership interest in the corporation is stated in the Statement of Claim to be based on an oral “Business Agreement” he says he entered into in 1997 with both defendants under which it was agreed that he would become a “working partner” in exchange for a 50% interest in the corporation.

[4] The defendants brought a motion for summary judgment, which was argued in August 2017, seeking dismissal of the action in whole or in part. By order dated August 29, 2017 Sloan, J. ordered that the following claims in the Statement of Claim be dismissed:

(a) the claim for compound interest and interest at “business prime plus,” with the exception of the claim for compound interest with respect to back wages;

(b) the claim on a promissory note dated June 1, 1995 in the outstanding amount of $15,024.13 as at March 21, 1996, as moot;

(c) the claims for repayment of loans in the amounts of $3,500 and $16,000.

[5] Sloan, J. ordered that the following claims in the Statement of Claim proceed to trial:

(a) the claim to a 50% ownership interest in the corporation; and

(b) the claim for back wages in the principal amount of $25,857.51, as at March 21, 1996, and his claim for interest applicable thereto.

[6] On December 20, 2017, Klassen brought a motion pursuant to rule 26.01 for leave to amend the Statement of Claim to claim:

(a) in the alternative to his claim for a declaration that he has a 50% ownership interest in the corporation, a claim that he has a 33.3% ownership interest in the corporation. The alternative claim for a 33.3% ownership interest is stated to be based on a Share Purchase Agreement dated August 18, 1997, by which Beausoleil purchased 100% of the outstanding common shares of the corporation from Lisa Beausoleil and Glen Hobson (150 common shares each) and assumed an Escrow Agreement dated March 21, 1996 entered into between Klassen, Lisa Beausoleil and Glen Hobson, pursuant to an Amended Escrow Agreement dated August 18, 1997. Under the 1996 Escrow Agreement, Klassen’s 100 common shares (1/3 of the issued common shares) were to be held in escrow following their sale to Lisa Beausoleil and Glen Hobson (50 shares each) pending satisfaction of the stated conditions for their release, being payment of back wages of $25,857.51 and repayment of a loan by Klassen to the corporation having a balance outstanding of $15,024.13;

(b) adding “and/or creditor” to the basis by which Klassen’s interests were alleged to have been unfairly disregarded, giving rise to the oppression claim pursuant to the OBCA;

(c) specifying that the oral “business agreement” was made “around August 1997”; and

(d) adding a provision reciting that the defendants tendered payment to the plaintiff of the loan of $15,024.13, but not the back wages, and that in October 2017 Klassen demanded the return of the escrow shares, whereupon the escrow agent advised that the shares would continue to be held in escrow pending receipt of a signed agreement by all parties authorizing their release.

[7] It is noted that the original Statement of Claim recited, under the heading “Background,” facts were set out relating to the 1996 Share Purchase Agreement and Escrow Agreement between Klassen as vendor and Lisa Beausoleil and Glen Hobson as purchasers, as well as the 1997 Share Purchase Agreement between Lisa Beausoleil and Glen Hobson as vendors and Beausoleil as purchaser.

Limitation Issue re Alternative Claim for 33.3% Ownership interest in the Corporation and Oppression Claim as Creditor

[8] Rule 26.01 provides:

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[9] The passing of a limitation period automatically gives rise to a presumption of prejudice for the purposes of rule 26.01 (Frohlick v. Pinkerton Canada Ltd. 2008 ONCA 3, at paras. 17-18 and Joseph v. Paramount Canada’s Wonderland, 2008 ONCA 469).

[10] The plaintiff argues that the proposed amendments to claim (1) a 33.3% ownership interest in the corporation based upon the 1997 Share Purchase Agreement and Amended Escrow Agreement and (2) an oppression remedy as a creditor of the corporation, do not add new causes of action, but rather plead different legal conclusions drawn from the same set of facts in each case. Accordingly, the plaintiff argues that the proposed amendments are not barred by passage of any applicable limitation period, whether under the former Limitations Act, R.S.O. 1990, c. L.15 or the current Limitations Act, 2002, S.O. 2002, c. 24.

Analysis

(a) Guiding Principles re Amendments and Limitation Periods

[11] The most recent statement of the test for determining whether a proposed amendment does not assert a new cause of action and is therefore not barred by the applicable limitation period, was made by Poupore, J. in the case of Savard v. Lachance 2018 ONSC 2633 (S.C.J.) at para. 11, relying upon Bank of Montreal v. Morris, 2013 ONSC 2884 (S.C.J.), as follows:

There is no new cause of action if the amendment:

a. pleads an alternative claim for relief arising out of the same facts previously pleaded and no new facts are relied upon;

b. amounts to different legal conclusions from the same set of facts;

c. provides particulars of an allegation already pleaded;

d. provides additional facts upon which the original right of action is based;

e. does not alter the nature of the claim; or,

f. arises from the core factual nexus as the facts and circumstances become clearer and mature.

[12] Healey, J., in the case of Beauchamp (Litigation Guardian of) v. Gervais 2015 ONSC 5848 (S.C.J.), after reviewing the authorities, provided a similar formulation of the test, at para. 23, as follows:

The preceding authorities establish that in order to qualify as something other than a new cause of action the proposed amendments must, in substance, be: (i) an alternative claim for relief, or a statement of different legal conclusions based on no new facts or not going beyond the factual matrix from which the original claim arose; (ii) better particulars of the claims already made; (iii) a correction of errors in the original pleading; or (iv) the assertion of a new head of damage arising from the same facts. If the amendments cannot be characterized in one of these ways, the amendments should not be permitted, in order to not deny a defendant the right to rely upon a limitations statute.

[13] In the case of 1309489 Ontario Inc. v. BMO Bank of Montreal 2011 ONSC 5505 (S.C.J.) Lauwers, J. (as he then was) observed, at para. 21, that the trend of cases favours a broader, factually-oriented approach to the meaning of “cause of action” in interpreting and applying rule 26.01 and, at para. 23, cautioned against the adoption of an overly technical approach to the definition of the term “cause of action.”

[14] At para. 28, Lauwers, J. adopted the view of Master Short in Brand Name Marketing Inc. v. Rogers Communications Inc. 2010 ONSC 2892, [2010] O.J. No. 5430 (Ont. Master) at para. 84 as follows:

I believe that equity dictates that if a defendant knows that the "finger of litigation" is pointing in its direction, and an action is commenced on a timely basis based on specific actions, this court ought to take appropriate steps to ensure that the true lis between the parties is addressed, rather than permitting one party to perhaps escape its possible liability by relying upon a technical Limitations Act defence.

[15] Within the context of the foregoing principles, the question for determination is whether the amendments sought consist of alternative claims for relief, or statements of different legal conclusions based on no new facts or not going beyond the factual matrix from which the original claims arose. If not, the amendments should not be permitted, as to do so would deny the defendants the right to rely upon a limitations statute.

(b) Proposed Amendment to Claim 33.3% Interest in Corporation

[16] The plaintiff’s claim to a 50% interest in the corporation, as presently constituted in the Statement of Claim, rests squarely on an alleged oral “Business Agreement.” At paragraph 17 it is alleged that the defendants, or one of them, made various representations to the plaintiff set forth at subparagraphs (a), (b) and (c), and subparagraph (d) states that “in exchange of (a), (b) and (c), the plaintiff will have a fifty per cent (50%) interest in 1117726.”

[17] The Statement of Claim goes on to allege that “the Plaintiff accepted the proposed Business Agreement but since the financial capacity of the Defendants and the Plaintiff was limited at the time, the Defendants and the Plaintiff did not translate the terms of the Business Agreement in writing and agreed to do so once funds were available.”

[18] At para. 21, the Statement of Claim alleges that, in reliance on the Business Agreement, the plaintiff “as an equal partner” performed certain duties and took certain actions described at subparas. (a) through (m). At para. 23 the plaintiff alleged that “at all material times, it was an express or implied term of the Business Agreement that the plaintiff’s contributions, monetary or otherwise, and his involvement as fifty per cent (50%) owner in the business were intrinsically linked.”

[19] It is clear that the plaintiff’s existing claim to an ownership interest in the corporation in the Statement of Claim is for a 50% interest based upon an oral “Business Agreement”, as described and not on the written Share Purchase Agreement dated August 18, 1997. The factual matrix upon which the claim to an ownership interest in the corporation is based consists of the representations alleged to have been made by the defendants, or one of them, in subparas. 17 (a), (b) and (c) and the actions alleged to have been taken by the plaintiff in reliance thereon. This is confirmed by the allegations in para. 29 of the Statement of Claim respecting alleged breaches of “the 1996 Share Purchase Agreement, 1997 Share Purchase Agreement and the Business Agreement”. The only allegation of a breach based upon a failure to give to the plaintiff his ownership interest, or to recognize it, is at subpara. (h) which refers to a failure, neglect or refusal by the defendants to give the plaintiff his 50% interest in the corporation “contrary to the Business Agreement.”

[20] In my view the “finger of litigation” relating to the assertion of an ownership interest in the corporation is the claim based on the oral “Business Agreement.” The reference to the “finger of litigation” in the case law cannot mean simply the commencement of the action, as that would necessarily open up the right to make any amendment, negating the need for an analysis of whether the proposed amendment represents the advancement of a new cause of action after expiry of the limitation period. Master Short in Brand Name Marketing observed that the action must be commenced “on a timely basis based on specific actions” (emphasis added). The “specific action” of the defendants relied upon by the plaintiff in the Statement of Claim was their alleged failure to recognize and implement his right to a 50% ownership interest in the corporation under the oral “Business Agreement.”

[21] In my view a claim to a 33.3% interest in the corporation based upon an entirely different agreement or agreements does not consist of an alternative claim for relief, or a statement of a different legal conclusion based on no new facts and does go beyond the factual matrix from which the original claim to an ownership interest arose. As such, the amendment should not be allowed as it would deprive the defendants of a defence based upon the limitations statute. The plaintiff acknowledges that the applicable limitation period has long passed. His request for leave to amend, based on the 1997 Share Purchase Agreement, rests solely on the submission that it does not constitute a new cause of action but rather is an alternative claim for relief based on no new facts.

[22] Moreover, the fact that the 1997 Share Purchase Agreement was referred to in the Statement of Claim as background prior to the pleading relating to the oral “Business Agreement” does not assist the plaintiff. The description of the 1996 Share Purchase Agreement, the Escrow Agreement and the 1997 Share Purchase Agreement are offered as background facts preceding the alleged formation of the Business Agreement upon which the claim to an ownership interest in the corporation is based, but those agreements do not provide any necessary support for the claim.

[23] Leave to amend the Statement of Claim to assert an alternative claim to a 33.3% ownership interest in the corporation is therefore denied.

(c) Proposed Amendment to Claim under the Oppression Remedy as a Creditor of the Corporation

[24] The Statement of Claim, as presently constituted, claims various declarations pursuant to section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “oppression remedy”) based on alleged conduct of the defendants that is oppressive, or is unfairly prejudicial or that unfairly disregards the interests of the plaintiff “as a shareholder.”

[25] S. 248(1) provides that a “complainant” may apply to the court for an order under the oppression remedy.

[26] In s. 245 “complainant” is defined to mean:

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

[27] It is not disputed that under the jurisprudence a creditor of the corporation may be found by the court to fall within para. (c).

[28] The oppression remedy is available with equal force to any person who falls within the definition of a complainant and is grounded solely in the statute. The plaintiff has alleged that he is the beneficial owner of a security of the corporation and has also pleaded that he is a creditor of the corporation. In either case he is alleged to be a “complainant” within the meaning of s. 245. In my view it was not necessary for the plaintiff, having pleaded that he held a beneficial ownership interest in, and is a creditor of, the corporation, to specify that he claims an oppression remedy “as a shareholder” or “as a creditor.” It would have been sufficient to plead that he is a complainant. To expand the pleading to claim an oppression remedy “as a creditor” in addition to, or as an alternative to his position “as a shareholder” therefore does consist of an alternative claim for relief, or a statement of a different legal conclusion based on no new facts and does not go beyond the factual matrix from which the original claim to an oppression remedy arose.

[29] Leave to amend the Statement of Claim to add “and/or creditor” to the claims under the oppression remedy is therefore granted.

(d) Additional Amendments

[30] The defendants do not take serious issue with the request of the plaintiff for leave to make the balance of the amendments sought. As indicated above, under rule 26.01 the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. I am not satisfied that the defendants have established any prejudice which would result from leave being granted to the plaintiff to amend in accordance with paras. 17 and 18 of the proposed Amended Statement of Claim. Leave is therefore granted to the plaintiff to make the balance of the amendments to the Statement of Claim sought.

Disposition

[31] On the basis of the foregoing, leave is granted to the plaintiff to amend the Statement of Claim in accordance with the draft Amended Statement of Claim appended at Tab B of the Motion Record, with the exception of the proposed amendments in the following paragraphs for which leave is not granted:

(1) subpara. 1(a);

(2) subpara. 1(b);

(3) subpara. 31(y);

(4) the words “alternatively 33.3%” at para. 42

Costs

[32] The parties are strongly urged to agree on costs. If they are unable to do so they may file written submissions of no more than three pages, double-spaced, in addition to any pertinent offers and draft bills of costs, within 30 days. Such written submissions are to be forwarded to me at my chambers at Judges’ Chambers, 7th floor, 85 Frederick Street. Kitchener, Ontario N2H 0A7. Each party may deliver brief submissions in reply to the submissions of the opposite party, not to exceed two pages, double-spaced, within 7 days thereafter. If no submissions are received within these timelines, the parties will be deemed to have settled the issue of costs as between themselves.

D.A. Broad Date: September 6, 2018