Ford Motor Company of Canada Limited v. Ontario Municipal Employees Retirement Board et al. Ontario Municipal Employees Retirement Board et al. v. Ford Motor Company of Canada Limited et al. [Indexed as: Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board]
79 O.R. (3d) 81
[2006] O.J. No. 27
Docket: C41312 and C41450
Court of Appeal for Ontario,
Rosenberg, Cronk and Armstrong JJ.A.
January 6, 2006
Corporations -- Oppression -- Business judgment rule -- Trial judge properly finding that Canadian subsidiary of U.S. company had oppressed minority shareholders in that transfer pricing system used by parent and subsidiary had caused subsidiary to lose money over ten-year period -- Trial judge not erring in his application of business judgment rule -- Board of directors of Canadian company bringing little judgment to bear on transfer pricing system and simply accepting system that was put in place by U.S. company.
Corporations -- Oppression -- Elements -- Trial judge properly finding that Canadian subsidiary of U.S. company had oppressed minority shareholders in that transfer pricing system used by parent and subsidiary had caused subsidiary to lose money over ten-year period -- Trial judge erring in dismissing oppression claim against U.S. company -- Finding of oppression could be made against U.S. company without finding that U.S. company had dictated terms of corporate arrangements to Canadian subsidiary and without imposing fiduciary obligation on U.S. company towards Canadian subsidiary.
Corporations -- Oppression -- Practice -- Reference -- Trial judge finding that company had oppressed minority shareholders over ten-year period -- Minority shareholders leading no evidence at trial as to how long they had held their shares -- Trial judge erring in directing reference to Master under Rule 54 of Rules of Civil Procedure to determine shareholders' entitlement to compensation -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 54.
Corporations -- Oppression -- Remedies -- Past oppression -- Minority shareholders seeking personal remedy of compensation under s. 241(3)(j) of CBCA -- Trial judge finding that company had oppressed minority shareholders over ten-year period -- Minority shareholders not entitled to compensation for historical oppression which occurred before they became shareholders -- Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 241(3)(j).
Corporations -- Shareholders -- Remedies -- Appraisal -- Fair value -- Fair value of shares not including component for historical oppression or notional increase in asset base by reason of prior unfair dealing -- Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 190.
On September 12, 1995, Ford U.S. took its subsidiary Ford Canada private. Ford U.S. then owned approximately 94 per cent of the shares of Ford Canada. A majority of the minority shareholders dissented. Ford Canada commenced an [page82 ]action for a declaration fixing the fair value of the common shares of the dissenting shareholders. Some dissenting shareholders, including OMERS (the "OMERS shareholders"), asserted a counterclaim against Ford Canada and Ford U.S. alleging oppression for the period 1985 to 1995. The trial judge found that the fair value of the shares as of September 11, 1995 was $207. He also found that Ford Canada had oppressed the minority shareholders.
That conclusion was based on his finding that the transfer pricing system used by Ford Canada and Ford U.S., which determined the prices that the two entities paid each other for the purchase of parts and vehicles, was unfair and oppressive to the minority shareholders as it was unfairly skewed to assign losses to the Canadian subsidiary, depriving Ford Canada's minority shareholders of their fair share of Ford Canada's profits. The trial judge held that the oppression remedy was only available to shareholders who held shares at the time of the oppression. He held that the one-year limitation period in s. 45(1)(g) of the Limitations Act, R.S.O. 1990, c. L.15 applied to an action for an oppression remedy as such an action is an action on the case, and that the discoverability principle had no application as the historical oppression was discoverable with reasonable diligence. Accordingly, the oppression remedy was only available for the period from January 11, 1994 to September 11, 1995. Those OMERS shareholders who owned shares throughout that period were entitled to an additional $52.36 per share, which was referred to by the trial judge as the historical oppression component. The OMERS shareholders led no evidence at trial as to how long they had held their shares.
The trial judge directed a reference to the Master under Rule 54 of the Rules of Civil Procedure to determine the entitlement of shareholders to compensation. The trial judge also held that the oppression had an impact on fair value. He held that there had to be an adjustment to the fair value of the shares of all the dissenting shareholders on a "go-forward" basis on the theory that an arm's-length buyer of Ford Canada would negotiate adjustments to the transfer pricing system. This adjustment was required to recognize the true earning power of Ford Canada based on a fair transfer pricing system being in place. The trial judge dismissed the oppression claim against Ford U.S. The OMERS shareholders and Ford Canada both appealed.
Held, both appeals should be allowed in part.
The trial judge did not err in concluding that the transfer pricing system was unfair and that Ford Canada, had it been an independent entity, would have been able to negotiate changes to the system. The business judgment rule did not protect Ford Canada, given the evidence accepted by the trial judge that the Ford Canada board brought little judgment to bear on the transfer pricing system, had little understanding of the system and its impact on the profitability of Ford Canada's operations, did not conduct any independent review of the system and simply accepted the system that was put in place by Ford U.S. It was open to the trial judge to find that the board did not act on reasonable grounds and therefore was disentitled to the deference ordinarily accorded by the operation of the business judgment rule.
The trial judge made two findings of fact to support the finding of oppression by Ford Canada. The first concerned the reasonable expectations of the shareholders. The other concerned what was reasonably foreseeable to the board. He found that Ford Canada's minority shareholders had the reasonable expectation that management would act in the best interests of the corporation (meaning all of the shareholders) and take all reasonable steps to enhance profitability by changes to [page83 ]the intercorporate pricing system. He found that it would have been reasonably foreseeable to the management of Ford Canada, from at least 1984 on, that the impact of the transfer pricing system was to understate profits or overstate losses earned from the Canadian market for Ford Canada. He made no palpable and overriding error in those findings.
There was no support for Ford Canada's submission that there must be evidence, in the form of testimony, from the shareholders as to their expectations. The existence of reasonable expectations is a question of fact and like any question of fact can be proved by direct evidence or by drawing reasonable inferences from circumstantial evidence. Where the minority shares in a public company are widely held, it may be difficult to adduce cogent evidence of the reasonable expectations of the shareholders. In such cases, it is open to the trial judge to infer reasonable expectations from the company's public statements and the shared expectations about the way in which a public company should be run.
The trial judge erred in dismissing the oppression claim against Ford U.S. That disposition was inconsistent with his unequivocal finding that Ford U.S. treated Ford Canada as a wholly-owned subsidiary and maintained a transfer pricing system that was unfairly prejudicial to the interests of the minority shareholders of Ford Canada. The trial judge erred in focusing solely on the inaction of Ford Canada, since a finding of oppression could be made against Ford U.S. under s. 241(2) (a) of the Canada Business Corporations Act ("CBCA"), whether or not Ford Canada took steps to independently attempt to right the wrongs caused by the intercorporate arrangements. A finding of oppression could be made against Ford U.S. without a finding that Ford U.S. directed the terms of the intercorporate arrangements to Ford Canada. The trial judge's findings that the policies were made in Ford U.S. and that the effect of those policies was to unfairly disregard the interests of the minority shareholders in Canada was sufficient. Furthermore, a finding of oppression could be made against Ford U.S. without imposing a fiduciary obligation upon Ford U.S. Finally, there did not have to be a direct link between the reasonable expectations of the minority shareholders and Ford U.S., given that the oppression remedy is focused on effects rather than intention.
The trial judge did not err in finding that the minority shareholders were not entitled to a remedy for past oppression. The OMERS shareholders argued that this case was really about wrongs done to Ford Canada during the entire period, and that the remedy sought was derivative in nature and the oppression remedy should encompass the entire ten-year period from 1985 to 1995. While s. 241 of the CBCA contemplates remedies that benefit the corporation or shareholders as a whole, it is nevertheless founded on the principle of a wrong done to a shareholder or identifiable group of shareholders. The OMERS shareholders sought the personal remedy of compensation under s. 241(3)(j) as "an aggrieved person", not an order "compensating the corporation" under s. 241(3)(h), and they were therefore required to show entitlement to compensation. Compensation excludes any notion of a windfall for wrongs done to others in the past. Allowing a shareholder to obtain compensation for past oppression is also inconsistent with reasonable expectations, which is the touchstone to entitlement to compensation for oppression. Reasonable expectations by their nature are forward looking.
The fair value of shares does not include a component for historical oppression or a notional increase in the asset base by reason of prior unfair dealing. The appraisal remedy has its roots in equity and serves as a quid pro quo; minority shareholders may dissent and receive a fair value for their shares in exchange for relinquishing their veto power. To include a component for historical wrongs [page84 ]would represent a departure from this principle since the dissenting shareholders would receive compensation for historical wrongs unrelated to relinquishing their veto.
The trial judge erred in directing a reference to the Master under Rule 54 of the Rules of Civil Procedure to determine the shareholdings of the OMERS shareholders during the historical oppression period. The only part of Rule 54 that could apply was rule 54.02(1), and there was nothing to indicate that determining when persons held shares would require a prolonged examination of documents or an investigation that could not conveniently be made at trial. More importantly, the order had the effect of bifurcating the trial, hiving off elements of liability and damages. The power to direct a reference and bifurcate the trial in the absence of consent of the parties is a narrowly circumscribed power that is to be exercised in the interest of justice, only in the clearest of cases. This was far from the clearest of cases. There was no suggestion that the OMERS shareholders were caught by surprise; the issue was squarely raised at trial as an aspect of the question of whether the oppression remedy or fair value included a historical element and entitlement to that historical component. There was no compelling reason to give the OMERS shareholders the opportunity after the trial had concluded to prove a fundamental element of their case.
It was unnecessary to decide whether the trial judge was right in finding that s. 45(1)(g) of the former Limitations Act applied to the claim for an oppression remedy. The trial judge erred in finding that the material facts on which the oppression cause of action were founded ought to have been discovered by the exercise of reasonable diligence. The material facts upon which the claim was based included knowledge of the intercorporate arrangements, which were not discoverable without access to the separate division results, and at least some understanding of the mechanics of the transfer pricing system. That information was not publicly available and was only disclosed in the course of the appraisal litigation.
APPEALS from the judgment of Cumming J., [2004] O.J. No. 191, 41 B.L.R. (3d) 74 (S.C.J.) in appraisal and oppression actions.
The judgment of the court was delivered by
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Frank J.C. Newbould, Q.C., Christopher D. Bredt and Benjamin T. Glustein, for OMERS Shareholders, appellants (respondents by counterclaim). James A. Hodgson, Peter W. Hogg, Q.C., Hugh M. DesBrisay and Jason M. Squire, for Ford Motor Company of Canada, Limited and Ford Motor Company, respondents (appellants by counterclaim).
TABLE OF CONTENTS
Para. I. OVERVIEW 1 II. THE FACTS 13 (1) Introduction: The Transfer Pricing System and Related Elements 13 (2) The Decline in Ford Canada's Profitability 23 (3) The Alleged Oppression 28 III. ANALYSIS 30 (1) Introduction 30 (2) Oppression 32 (a) Introduction: Oppression provisions 32 (b) The division approach 33 (c) Using hindsight 39 (d) The fairness of the transfer pricing system 41 [page87] (e) The business judgment rule 55 (f) Oppression and shareholders' reasonable expectations 60 (g) Dismissal of the oppression claim against Ford U.S. 78 (h) Right to a remedy for past oppression 102 (3) Calculation of Fair Value: Does It Include an Adjustment for Historical Transfer Pricing Unfairness? 124 (4) Directing a Reference to a Master 151 (5) Limitation Period Issues 160 (a) Discoverability 161 (b) Does an oppression action come within the Limitations Act? 169 (c) Application of the provincial Limitations Act 174 (6) The Fair Value Calculation 175 (a) The OMERS shareholders' complaint 176 (b) Ford Canada's complaints 178 (7) The Interest Rate on the Payment by Ford Canada 183 IV. COSTS 187 V. DISPOSITION 191
ROSENBERG J.A.:--
I. OVERVIEW
[1] In a series of transactions on September 12, 1995, Ford Motor Company ("Ford U.S.") took its subsidiary Ford Motor Company of Canada, Limited ("Ford Canada") private [^1]. On September 12, 1995, Ford U.S. owned approximately 94 per cent of the shares of Ford Canada. The remaining common shares, approximately 6 per cent, were widely held by various persons other than Ford U.S., including the Ontario Municipal Employees Retirement Board ("OMERS"). [page88]
[2] A special shareholders meeting on September 12 approved the various resolutions to take Ford Canada private and make it a wholly-owned subsidiary of Ford U.S. A majority of the minority shareholders dissented. However, because Ford U.S. held over 90 per cent of the common shares of Ford Canada, minority shareholder approval was not required.
[3] In the months leading up to September 12, Ford U.S. and Ford Canada took steps to value the Ford Canada shares and, in July 1995, a special committee of Ford Canada recommended that the minority shareholders accept the offer by Ford U.S. of $185 per share. The special committee relied on a report from CIBC Wood Gundy that concluded that the fair value of the shares was in the range of $170 to $200 per share.
[4] The Canada Business Corporation Act, R.S.C. 1985, c. C-44 (the "CBCA") and Ontario's Business Corporations Act, R.S.O. 1990, c. B.16 (the "OBCA"), which both apply to these series of transactions, give minority shareholders the right to require that their shares be purchased by the corporation for the fair value determined as of the close of business on the day before the resolutions were adopted. In October 1995, Ford Canada commenced an action for a declaration to fix the fair value of the common shares of OMERS and the other dissenting shareholders.
[5] In October 1999, OMERS and some, but not all, of the dissenting shareholders sought leave to amend their statement of defence to assert a counterclaim against Ford Canada and Ford U.S. on grounds of oppression. This motion was granted and the counterclaim was filed on January 11, 2000 alleging oppression for the period 1985 to 1995.
[6] There are thus two sets of dissenting shareholders, identified in the record as the Schedule "A" shareholders, and the OMERS and Schedule "B" shareholders. The OMERS and Schedule "B" shareholders filed the oppression counterclaim. They will be referred to in these reasons as the OMERS shareholders.
[7] Following a lengthy and complex trial, the trial judge found that the fair value of the shares as of September 11, 1995 was $207. He also found that Ford Canada had oppressed the minority shareholders. He held, however, that the oppression remedy was only available to shareholders who held shares at the time of the oppression. Further, because of application of the Limitations Act, R.S.O. 1990, c. L.15, the oppression remedy was only available for the period from January 11, 1994 to September 11, 1995. Those OMERS shareholders who owned shares throughout that period were entitled to an additional $52.36 per share, which was referred to by the trial judge as the historical oppression component. The Schedule "A" shareholders had not [page89] joined in the oppression remedy counterclaim and were therefore not entitled to this additional award.
[8] As indicated, only OMERS shareholders holding shares throughout the period from January 11, 1994 to September 11, 1995 were entitled to the additional $52.36 per share. Shareholders who owned shares for only part of this period were entitled to a percentage of this amount depending on how long they held their shares. The OMERS shareholders led no evidence at trial as to how long they had held their shares. The trial judge directed a reference to a Master under Rule 54 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to determine the entitlement of shareholders to compensation.
[9] The core issue at trial, and the issue that dominated both the question of fair value and oppression, was the fairness of the transfer pricing system used by Ford Canada and Ford U.S. This system determined the prices that the two entities paid each other for the purchase of parts and vehicles. Throughout the period from 1985 to 1995 (and even earlier), Ford Canada consistently recorded losses. At trial, Ford Canada attributed these losses to events over which the company had little control, most importantly the decline in the value of the Canadian dollar and the prolonged recession in Canada for much of this period. The OMERS shareholders attributed the continuing losses to the transfer pricing system. The trial judge found that the system was unfair and oppressive to the minority shareholders. For that reason, the OMERS shareholders were entitled to an award for historical oppression for the January 11, 1994 to September 11, 1995 period.
[10] The trial judge also held that the oppression had an impact on fair value. He held that there had to be an adjustment to the fair value of the shares of all the dissenting shareholders on a "go-forward" basis on the theory that an arm's-length buyer of Ford Canada would negotiate adjustments to the transfer pricing system. This adjustment was required to recognize the true earning power of Ford Canada based on a fair transfer pricing system being in place.
[11] The trial judge dismissed the oppression claim against Ford U.S.
[12] On appeal, Ford Canada and the OMERS shareholders challenge virtually every important finding made by the trial judge. I set out those submissions and my conclusions as follows:
The Ford Canada Appeal
(1) The trial judge erred in finding that the transfer pricing system was oppressive. In particular, the trial judge erred [page90 ]in his treatment of the doctrine of reasonable expectations and failed to properly apply the business judgment rule.
I agree with the trial judge.
(2) The trial judge erred in directing a reference to the Master that would allow the OMERS defendants to lead evidence of their shareholdings.
I agree with Ford Canada that the trial judge erred. As a result, in my view, the OMERS shareholders are only entitled to the historical component of oppression for a single day, September 11, 1995.
(3) The trial judge erred in his calculation of damages/ compensation for oppression.
I agree with the trial judge.
The OMERS Shareholders' Appeal
(4) The trial judge erred in his holding that historical oppression is not an element of fair value.
I agree with the trial judge.
(5) The trial judge erred in holding that a person must be a shareholder at the time of the alleged oppression in order to obtain a remedy for that oppression.
I agree with the trial judge.
(6) The trial judge erred in holding that the historical oppression was discoverable before 1985.
I do not agree with the trial judge. However, in view of my holding concerning the error in directing a reference to the Master, this error does not affect the result.
(7) The trial judge erred in holding that the Limitations Act applied.
I have some concern with the trial judge's conclusion. But in view of my findings concerning the reference to the Master and the discoverability issue, the error, if any, is of no consequence.
(8) The trial judge erred in dismissing the counterclaim against Ford U.S. [page91]
In my view, the trial judge erred in dismissing the claim against Ford U.S. However, my answer to issue no. 2 applies in respect of Ford U.S. and the OMERS shareholders are not entitled to any greater relief against Ford U.S. than against Ford Canada.
(9) The trial judge erred in his valuation of the shares.
I agree with the trial judge.
(10) The trial judge erred in awarding prejudgment interest at 5 per cent.
I agree with the trial judge.
The Costs Appeals
(11) Ford Canada and the OMERS shareholders appeal the costs awards.
I would permit the parties the opportunity to make further brief written submissions taking into account the result of the appeal.
II. THE FACTS
(1) Introduction: The Transfer Pricing System and Related Elements
[13] The following is a brief summary of a very complex case and, in some respects, is a gross oversimplification of these facts. We are indebted to the trial judge for his able treatment of the facts and the many difficult issues, and to the parties for their assistance. The trial judge's comprehensive reasons are now reported at [2004] O.J. No. 191, 41 B.L.R. (3d) 74 (S.C.J.).
[14] As indicated, this case, and therefore this appeal, focus on the transfer pricing system between Ford U.S. and Ford Canada. The system is a product of the Canada-United States Auto Pact and, more recently, the free trade agreements that created a single, integrated market for vehicles made and sold in Canada and the United States. To a large extent, the structure of the system is tax driven. Canadian and U.S. tax regimes require entities that do not deal with each other at arm's length to attribute arm's-length transfer prices to their goods and services to prevent entities from artificially allocating losses in the high-tax regime and profits in the low-cost regime. For Ford U.S. and Ford Canada, the transfer pricing system is the mechanism utilized to comply with the tax laws in the two countries.
[15] However, the transfer pricing system can impact on shareholders, such as the minority shareholders of Ford Canada. If the system is unfairly skewed to assign losses to the [page92] Canadian subsidiary, the subsidiary's minority shareholders will be deprived of their fair share of Ford Canada's profits. The parent, Ford U.S., will not be injured since it will offset the loss from its Canadian holdings through increased profits in its U.S. operations. With minor exceptions, the taxing authorities in the two countries have not faulted the Ford transfer pricing system. However, I agree with the trial judge that there could be unfair treatment of the Canadian shareholders even if the system complied with the tax statutes. While it may be implicit in some of the trial judge's findings that the transfer pricing system did not comply with Canadian tax laws, he did not find it necessary to finally determine that issue.
[16] The evidence before the trial judge indicated that the tax authorities allow corporations considerable flexibility in determining transfer pricing. The evidence at trial focused on two recognized methods. The transaction method attempts to assign an arm's-length value to each intercorporate transaction. In entities as complex as Ford U.S. and Ford Canada, this would involve valuing thousands of transactions.
[17] In 1993, for reasons having to do with a change to United States tax laws, Ford U.S. commissioned a study by Dr. Delores Wright to review the transfer pricing system. Using the transaction method, Dr. Wright concluded that the system complied with U.S. tax law. She recommended one minor change concerning allocation of TELO (discussed below), which Ford adopted. Ford Canada never conducted its own investigation of the fairness of the transfer pricing system. At trial, Dr. Wright became an important witness for Ford.
[18] The other method that was the subject of considerable evidence at trial is the profit split method [^2]. The OMERS shareholders' experts favoured some form of profit-split method. In particular, Dr. Thomas Horst concluded that an asset-based [page93] profit-split method provided the most reliable method for determining an arm's-length transfer price. The approach of Dr. Richard Clark of Deloitte & Touche LLP was similar. He looked at Ford Canada's operations and posited an arm's-length operating margin based on comparison with similar companies. He then incorporated a market adjustment factor to arrive at a fair profit split.
[19] The other important aspect of this case concerns the allocation of profits and losses between the divisions of Ford U.S. and Ford Canada. The companies each have three functional divisions: the manufacturing, assembly and vehicle divisions. The manufacturing divisions sell component parts to the assembly divisions. The assembly divisions sell the completed cars to the vehicle divisions. The design and engineering development function is carried out by the vehicle divisions, the Canadian Vehicle Division ("CVD") and the United States Vehicle Division ("USVD"). The CVD and the USVD are the "residual risk takers" in that the profits and losses are credited to the vehicle divisions.
[20] Most of the design and engineering development is actually done in the United States. Under intercorporate agreements, the CVD is required to pay a proportionate share of the design and development expenses. These expenses, referred to in the evidence as TELO (for tooling, engineering, launch and obsolescence), became an important focus of the trial.
[21] In these reasons, like the trial judge, I will tend to refer to this basket of intercorporate arrangements by that term or the transfer pricing system. However, it should be recognized that the transfer pricing system was not alleged to be the sole cause of the losses to Ford Canada for which the OMERS shareholders and other dissenting shareholders seek compensation. There were a number of principles that were part of, or complemented, the transfer pricing system as set out in the following paragraph. These intercorporate arrangements were the result of various agreements between Ford Canada and Ford U.S. The last formulation of the arrangements stems from a 1979 agreement. Although this agreement could be renegotiated, only minor clarifications and changes were in fact made after 1979.
[22] While the transfer pricing system and the other intercorporate arrangements are intricate, they have the following elements that are important to this case. The first element is price parity: the Canadian and U.S. vehicle divisions pay the same price for a vehicle whether it is manufactured in Canada or the United States. Second, the price is denominated in U.S. dollars. Thus, if the Canadian dollar declines, the cost to Ford Canada [page94 ]of importing vehicles and parts from Ford U.S. becomes increasingly more expensive. Third, the manufacturing and assembly divisions each take a mark-up as the vehicles pass through their operations. In other words, prices are based on fully allocated costs. Fourth, Ford Canada is a price-taker. The CVD is bound to accept the same prices set by Ford U.S. for the USVD. Fifth, the price allocated to a part is calculated, where possible, by reference to prices of outside suppliers for identical products. Where that is not possible, Ford U.S. uses a formula to calculate the appropriate price. Sixth, Ford Canada, in particular the CVD, assumes the standard warranty obligations on vehicles sold in Canada.
(2) The Decline in Ford Canada's Profitability
[23] While Ford Canada grew rapidly after the Auto Pact in 1965, its profits began to decline in 1977. Ford U.S. has always exported more manufactured component parts and assembled vehicles [^3] and intangibles ("TELO") to Canada than has Ford Canada to the United States. As the Canadian dollar began to decline in the late 1970s, the cost of goods manufactured and imported into Canada increased, since the goods were denominated in U.S. funds. This particularly affected the CVD. On the other hand, profits for the Canadian manufacturing and assembly divisions increased because they were able to sell their products in U.S. dollars. However, since the volume of sales favours the United States, the net effect is a loss in Canadian operations. This loss was located in the CVD.
[24] The CVD sells the vehicles it purchases from the United States and Canadian assembly divisions to independent Ford dealerships. However, for reasons related to the nature of the Canadian market, the CVD is unable to fully recover its costs. In other words, during the relevant period it sold most of its vehicles at a loss. The trial judge has set out the reasons for this state of affairs. The causes of the losses include increased competition from Asian manufacturers, the decline in Canadian consumer purchasing power, the prolonged recession in Canada from 1990 to 1995, Canadian consumers' preference for smaller cars, which have a lower profit margin, and increased engineering costs because of legislated vehicle emission and safety [page95 ]requirements. There were also higher warranty costs in Canada and these costs were located in the CVD.
[25] In the result, Ford Canada had a loss from North American operations of $709 million for the period 1985 to 1995. While Ford Canada assembly and manufacturing divisions made profits of $5.245 billion, the CVD lost $5.954 billion. The CVD had been recording losses since 1977.
[26] The event that triggered Ford U.S.'s decision to take Ford Canada private and make it a wholly-owned subsidiary seems to have been a letter from Roy Bennett, a long-time member of the Ford Canada board and a past president and chief executive officer of that company. On February 6, 1995, Mr. Bennett wrote to the president of Ford Canada expressing his concern about Ford Canada's lack of profitability. He noted that Ford U.S., General Motors and GM Canada were all profitable and it was no longer possible to provide a credible explanation for Ford Canada's performance. He placed the blame on the intercorporate arrangements:
The problem of low earnings in the Canadian company cannot be solved by Canadian management, as it results primarily from the corporate structure and inter-Company pricing arrangements. While the problem has existed for many years, it has now reached such major proportions that I believe corrective action is required before there are some serious consequences.
[27] Mr. Bennett suggested that Ford Canada review the situation with Ford U.S. "in the hope that changes can be made whereby Ford Canada has an opportunity of participating in the profitability of the North American automotive operations and making a reasonable return on the assets employed". Alternatively, he suggested Ford U.S. should buy out the minority shareholder interests. In April 1995, Ford U.S. began the process of buying out the minority shareholders. The dissenting shareholders did not obtain Mr. Bennett's letter until July 2000.
(3) The Alleged Oppression
[28] The focus of the dispute between the parties is whether, as claimed by Ford Canada, its losses were unavoidable and unforeseeable or whether, as claimed by the OMERS shareholders, the losses were the product of unfair intercorporate agreements imposed by Ford U.S. or at least accepted by Ford Canada. The trial judge summarized the complaints by the OMERS shareholders in para. 117 of his reasons: "first, that Ford Canada unfairly bore the currency exchange risks in the overall operation of the transfer price system; and second, that the TELO component of transfer pricing was unfairly allocated to Ford Canada". [page96 ]
[29] I will set out in greater detail below the submissions by the parties and the findings by the trial judge when I deal with Ford Canada's appeal from the trial judge's finding of oppression and the OMERS shareholders' appeal from the valuation of that oppression. I now propose to deal with the various issues raised by the parties.
III. ANALYSIS
(1) Introduction
[30] I intend, so far as possible, to group the various arguments, rather than dealing discretely with the Ford Canada and the OMERS shareholders' appeals.
[31] As is now customary, the parties spent some time discussing the standard of review. I see no value in providing a full elaboration of those submissions or the law related to standard of review. That law has been laid down by the Supreme Court of Canada in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, and most recently in L. (H.) v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, [2005] S.C.J. No. 24 and by this court in Waxman v. Waxman, 2004 39040 (ON CA), [2004] O.J. No. 1765, 186 O.A.C. 201 (C.A.), leave to appeal to S.C.C. refused [2004] S.C.C.A. No. 291. I will refer to the applicable standard of review where necessary.
(2) Oppression
(a) Introduction: Oppression provisions
[32] Because of the way the privatization transaction was structured, both the CBCA and the OBCA applied. Both statutes provide similar oppression remedies. At trial, the parties agreed to consider only the CBCA provisions. Section 241(1) and (2) of the CBCA set out the circumstances giving rise to an oppression remedy:
241(1) A complainant may apply to a court for an order under this section.
(2) If, on 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 a result,
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
(c) the powers of the directors of the corporation or any of its affiliates are or have been 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, the court may make an order to rectify the matters complained of. [page97 ]
(b) The division approach
[33] The trial judge found that the OMERS shareholders had made out their claim of oppression. In making that finding, the trial judge accepted the expert evidence from the OMERS shareholders that the various divisions should be considered separately. Ford Canada submits that the trial judge made a fundamental error by approaching the issue in this way. It says that the management and directors of Ford Canada would look at the company's operations as a whole and it was unfair, for example, to isolate the impact of the declining Canadian dollar on CVD operations without noting the positive impact this had on other operations.
[34] Ford Canada says that the trial judge's approach is symptomatic of his misapplication of the business judgment rule. The management and board of directors would look at operations as a whole and were entitled to disregard the large and consistent losses in the CVD because those losses were largely the consequence of the allocation of certain costs. Those costs would have to be allocated somewhere.
[35] I agree with the thrust of Ford Canada's submission in the sense that the arbitrary allocation of certain costs such as TELO to the CVD resulting in losses in that division could not be determinative of whether there was oppression. I do not agree, however, that the trial judge misapplied the business judgment rule in adopting the division approach or, as I discuss below, in any other respect, or misapprehended this issue. He agreed that the divisions must be separately analyzed but he did so for the purpose of "[isolating] the nature of the transfer pricing system and its impacts" (para. 98). I see no error in this approach. The real issue, as the trial judge appreciated, was not where the losses occurred but why they occurred. As he pointed out, even Dr. Wright, Ford's principal expert, agreed that each division had to be looked at separately.
[36] The trial judge's, in my view, correct approach is illustrated by his treatment of TELO costs. An important finding by the trial judge was that the amount of the TELO costs attributed to Ford Canada was unreasonable in relation to the sales that took place in Canada. He agreed [at para. 135] with the OMERS shareholders' expert that:
No reasonable arm's length entrepreneur would make that investment in intangible assets given the negative return and little prospect of any significant change for the future. Taking into account only Ford Canada's contribution to TELO costs, Canadian sales increased Ford U.S.'s profits significantly. [page98 ]
[37] The trial judge made this finding having regard to the whole of the Canadian operations, not just the sizable loss in the CVD by reason of the attribution of the TELO costs to that division. See his reasons at paras. 137 and 138. The evidence reasonably supports this finding. It was open to the trial judge to accept the evidence of the OMERS shareholders' experts that the only way to measure the fairness of the transfer pricing system was to look at the operations of each division. The apparent overall profitability of Ford Canada operations might mask the unfairness of the system and, as the trial judge said, "not expose the alleged inherent flaws in Ford's North American transfer pricing system" (para. 98). The trial judge accepted the evidence of the OMERS shareholders' experts that had the transfer pricing system actually been at arm's length, Ford Canada's overall results would have improved considerably and that during the 1985-95 period Ford Canada's recorded profits were abnormally low (para. 440).
[38] In summary, I do not accept Ford Canada's argument that the trial judge erred in accepting the division approach.
(c) Using hindsight
[39] Ford also submits that the trial judge erred in using hindsight to find oppression. Ford lays much of the blame for the decline in profitability on the drop in the value of the Canadian dollar along with other financial reversals in the Canadian economy that were unexpected, difficult to predict and difficult to protect against.
[40] The trial judge was conscious of the need to avoid hindsight. He explicitly referred to this issue at para. 140 of his reasons after recounting the dramatic impact of the transfer pricing system on the profits that Ford U.S. made on its Canadian sales. He pointed out that, in the 1985-95 period, Ford U.S. accumulated $6.781 billion in profits, including $3.195 billion from manufacturing and assembly sales into the Canadian market including TELO charges payable by Ford Canada in the amount of $3.586 billion. As he said at para. 140:
I emphasize that this is not an exercise simply with the too easy benefit of hindsight. While these amounts would not be known with any precision through foresight, the probability each year of results for the next year which would ultimately lead to overall cumulative results of this magnitude, would be reasonably foreseeable.
I therefore reject Ford Canada's argument that the trial judge erred in using a hindsight approach. [page99 ]
(d) The fairness of the transfer pricing system
[41] The trial judge reviewed the expert evidence given by both parties at great length and concluded that the transfer pricing system was unfair to minority shareholders to the point of oppression. An undercurrent to Ford Canada's argument that the trial judge erred in concluding that the system was unfair is that there was little that Ford Canada's board or management could have done to enhance the company's profitability. In addressing this argument, I note that the trial judge's findings of fact and the inferences drawn from the facts are reviewable on the standard of palpable and overriding error: Waxman, paras. 300-05.
[42] The trial judge reviewed the evidence given by Ford Canada's experts in detail. He did not find any of these witnesses incredible but he found that he could not rely upon their opinions as to the fairness of the transfer pricing system because, for cogent reasons, he rejected some of their critical underlying assumptions. For example, although Dr. Wright had conducted an extensive review of the transfer pricing system for purposes of United States taxation regulation, she did not review the pricing of vehicles into the Canadian market. Further, she accepted the legitimacy of the price parity principle even though it meant that the CVD was paying more for vehicles than it could recover in selling the vehicles to independent dealers.
[43] The trial judge also dealt at length with the evidence of Dr. John P. Brown, a retired principal in the Economic Consulting Services Group of KPMG LLP and one of Ford Canada's experts who responded to the OMERS shareholders' experts. The trial judge concluded that Dr. Brown's assumptions were "too simplistic" and resulted in a system that would have a manufacturer "irrationally buy and re-sell goods at an inevitable loss" (para. 423). He found a key component of Dr. Brown's opinion illogical as it suggested that "it would be a normal arm's length business relationship for Ford Canada as an entrepreneur to continue to buy vehicles from a supplier, Ford U.S, and always sell those vehicles to its independent dealers at a market loss, simply because of the ownership of intangibles for the Canadian market being with Ford Canada" (para. 434).
[44] On the other hand, the trial judge accepted the opinions of the OMERS shareholders' experts that the profit-split approach is required in the circumstances. The trial judge noted at para. 150 that the profit-split approach is more appropriate where it [is] less likely to leave either party (here, Ford Canada and Ford U.S.) with an "improbable profit result". At para. 192, [page100] the trial judge accepted the critique by Dr. Gregory Ballentine of Dr. Wright's evidence. According to Dr. Ballentine, "on Dr. Wright's analysis the average rate of return on investment for CVD would be negative 23.5 [per cent] over 1985 to 1995, while the average rate of return for USVD would be a 26.8 [per cent] return on investment". The trial judge held that [at para. 192], "Neither rate of return on investment over 11 straight years is reasonable by objective standards of the marketplace. Dr. Ballentine concluded as well, correctly in my view, that such a disparity cannot be justified by the statistics concerning the circumstances in the U.S. and Canadian markets."
[45] The trial judge explained why he accepted the opinions of the OMERS shareholders' experts and why he drew the inference that the transfer pricing system was unfair to the minority shareholders to the point of oppression. I need not set out in detail his reasons, a few examples will suffice.
-- According to Dr. Horst, "the operating margins and the rates of returns on net fixed assets of the total Ford manufacturing and assembly divisions exceeded the highest comparable profit rate of any of the 13 core business comparables used by [Dr. Wright]" (para. 394).
-- CVD's substantial operating losses in every year were "indicative of a skewed transfer pricing system that did not achieve an arm's length result" (para. 394).
-- The "profit split method is appropriate not only from the standpoint of better achieving arm's length results but also accords with the substantive reality of the Ford enterprise" (para. 402).
-- The transfer pricing system was not realistic and "would not be seen with two parties who are truly at arm's length" (para. 406).
[46] As noted above, an important theme of Ford Canada's arguments is that in reality there was little that the board or management could have done to enhance Ford Canada's profitability. As I understand it, this is not just an argument based on the impact of unalterable economic forces but rather on the assertion that the suggestions from the OMERS shareholders' experts of how to cure the problem were unrealistic. I do not accept this submission.
[47] The trial judge was alive to the issue of Ford Canada's ability to negotiate a fairer arrangement. As he said at para. 164, [page101] fairness is determined "by considering what structural changes a truly independent entity in the position of Ford Canada would insist upon before carrying on business, and be able to negotiate in an arm's length relationship with Ford U.S." (emphasis added).
[48] The OMERS shareholders' experts proffered different theories as to what a fair relationship would look like. While Ford Canada criticizes these approaches as unrealistic, there were two real-life models on which the experts could rely and which the trial judge could base his findings, namely, the agreements that Ford U.S. made with unrelated third parties (Mazda and KIA) selling vehicles into the North American market under the Ford name and the treatment by the other two large North American automakers, General Motors and Chrysler, of their Canadian subsidiaries.
[49] Under the agreements that Ford U.S. made with Mazda and KIA, the manufacturer (Mazda or KIA as the case may be) and distributor (Ford dealers) each received a reasonable margin and profit and prices would be competitive in each market. Thus, vehicles sold in Canada were priced differently than in the United States. The agreements could also be renegotiated if the guiding principles could not be adhered to (para. 195). It was open to the trial judge to ask why such an agreement could not have been negotiated between Ford U.S. and Ford Canada.
[50] The trial judge also relied upon the operations of General Motors and Chrysler, which treat Canada as a profitable incremental market where vehicles are sold at less than fully allocated costs. Conducting business on this basis recognizes that the costs of developing vehicles for the large United States market are essentially fixed costs to the United States parent company, with little or no incremental costs by selling into Canada. In other words, if this approach is applied in the case of Ford, most of the TELO costs would have had to have been incurred by Ford U.S. whether or not there were any sales in Canada. It was not inevitable that Ford Canada had to consistently sell vehicles to the independent dealers at a loss, and thus incur decades of losses from those sales.
[51] In a slight variation of these arguments, Ford Canada also argues that it was unrealistic to expect it to make changes to the transfer pricing agreement because reasonable forecasts indicated that Ford Canada would be profitable in the 1985-95 period. Ford Canada points out that it had some of its best years immediately before 1985.
[52] The trial judge dealt with Ford Canada's argument regarding its profitability. He did not look only at the 1985-95 period. To the contrary, he considered Ford Canada operations [page102] from the mid-1970s. For example, he described the OMERS shareholders' claim in these terms at para. 212:
[The OMERS shareholders] do not claim that the system was changed at any point in time to their detriment. They claim it was to their detriment from the mid-1970's when the exchange rate went against the Canadian dollar and, in particular, was to their detriment for the eleven-year period from 1985 to 1995. They claim oppression because the system was unchanged and appropriate adjustments were not made to the transfer price system and inter-corporate arrangements. Consequently OMERS is seeking to invoke the oppression remedy.
[53] He then concluded as follows at para. 430:
Ford attempts to rationalize its position by pointing out that Ford Canada was profitable under the transfer pricing system as an entity in every year other than the years of economic recession, being 1979 to 1982 inclusive, and 1990 to 1995. This simplistic approach overlooks the fact that CVD had significant losses in every single year since 1977 which increased the overall losses of Ford Canada as an entity or significantly reduced the profit that it otherwise would have earned. The issues in this case are not answered by observing that Ford Canada sometimes earns an overall profit. Rather, the issue is whether there is oppression and unfairness in the transfer pricing system which results in an understatement of the profits (or conversely an overstatement of the losses) that Ford Canada would earn if it were truly acting at arm's length from Ford U.S. in respect of transfer pricing.
Therefore, the trial judge quite correctly observed that just because Ford Canada was profitable overall does not mean that the transfer system was fair.
[54] In conclusion, I do not accept Ford Canada's argument that the trial judge erred in concluding that the transfer system was unfair and that Ford Canada, as an independent entity, would have been able to negotiate changes to the system.
(e) The business judgment rule
[55] Ford Canada anchors its criticisms of the trial judge's approach to the oppression issue in the business judgment rule. The trial judge summarized the rule at paras. 223-24. As he said, "Absent bad faith, or some other improper motive, business judgment that, in hindsight, has proven to be mistaken, misguided or imperfect, will not give rise to liability through the oppression remedy." The significant impediment to Ford Canada's reliance on the business judgment rule lies in the evidence accepted by the trial judge that the Ford Canada board brought little judgment to bear on the transfer pricing system.
[56] The evidence shows that Ford Canada's board had little understanding of the transfer pricing system and its impact on [page103] the profitability of Ford Canada's operations. There was little discussion of the system at the board level and Ford Canada did not conduct any independent review of the system. The evidence suggests that Ford Canada simply accepted the system that was put in place by Ford U.S., the majority shareholder. There was no evidence that Ford Canada tried to negotiate an agreement that was more consistent with arm's- length principles and failed; the attempt was never made. In fact, when Dr. Wright concluded her study shortly before the 1995 transactions and suggested a slight change to the TELO allocation that favoured Ford Canada, the change was made.
[57] Following are some of the trial judge's findings [at paras. 307, 319, 352, 357 and 432]:
The problems inherent to the transfer pricing system would have been recognized by the senior management of both Ford Canada and Ford U.S by 1984. From 1977 onwards, Ford Canada generally budgeted losses for CVD. There was no apparent sentiment on the part of management to change the regime, at least until Mr. Bennett voiced his concerns in 1995. Even then there was no detailed analysis made by the board of directors to explain and understand clearly the problem from the standpoint of determining fair value for the minority shares. The existing regime was satisfactory to Ford U.S.
The transfer pricing agreements could be terminated on 30 days notice. However, there was no new transfer pricing agreement after 1979. The mark-ups to manufacturing and assembly were negotiated within Ford U.S.'s divisions without input from Ford Canada.
The chairperson of the Special Committee acknowledged that there was little analysis of transfer pricing principles or how TELO costs are calculated. The evidence indicates that the board of directors had a limited knowledge of the inter- company pricing arrangements. There is nothing in the record to suggest that either the board of directors or the Audit Committee ever addressed the fundamental question of fairness to the minority shareholders because of the complex inter-company pricing arrangements. The record suggests the contrary, that is, that the reality was that the inter- corporate pricing system was determined solely by Ford U.S. and accepted uncritically through the years by Ford Canada's management. Mr. Bennett's letter of February, 1995 is the first and only critical comment in the evidentiary record. It was followed by the decision of Ford U.S. within two months to buy out the minority shareholders.
In fact, Mr. Bennett acknowledged that there were no negotiations between Ford Canada and Ford U.S. with respect to prices paid by Ford Canada. Rather, all such prices and mark-ups were determined by Ford U.S. without input from Ford Canada. The annual reports of Ford Canada iterated that prices are negotiated on an arm's length basis but did not give any details of the transfer pricing system. [page104]
The record indicates that the Ford Canada management and Board of Directors did not give any consideration at any time to the reasonableness of the TELO paid, nor did the management and Board of Directors conduct any studies or give any consideration to the fairness to Ford Canada and in particular, to its minority shareholders, of the transfer pricing system in place.
(Emphasis added)
These and other findings of fact are supported by the record. They strongly tell against any argument in favour of business judgment.
[58] Justice Blair summarized the business judgment rule in these terms in CW Shareholdings Inc. v. WIC Western International Communications Ltd. (1998), 1998 14838 (ON SC), 39 O.R. (3d) 755, [1998] O.J. No. 1886, 160 D.L.R. (4th) 131 (Gen. Div.), at p. 774 O.R., p. 150 D.L.R.:
It operates to shield from court intervention business decisions which have been made honestly, prudently, in good faith and on reasonable grounds. In such cases, the board's decisions will not be subject to microscopic examination and the court will be reluctant to interfere and to usurp the board of directors' function in managing the corporation.
(Emphasis added)
[59] On this record, it was open to the trial judge to find that the board did not act on reasonable grounds and therefore was disentitled to the deference ordinarily accorded by the operation of the business judgment rule. As Lax J. said in UPM- Kymmene Corp. v. UPM-Kymmene Miramichi Inc., 2002 49507 (ON SC), [2002] O.J. No. 2412, 214 D.L.R. (4th) 496 (S.C.J.), affd 2004 9479 (ON CA), [2004] O.J. No. 636, 42 B.L.R. (3d) 34 (C.A.), at para. 153, "directors are only protected to the extent that their actions actually evidence their business judgment".
(f) Oppression and shareholders' reasonable expectations
[60] Having found that the trial judge did not err in his application of the business judgment rule, to overturn the trial judge's decision it would be necessary to find a palpable and overriding error in the facts found by the trial judge or the inferences drawn from those facts, that the transfer pricing system and related intercorporate arrangements had the effect of oppressing the minority shareholders. The comments of this court in Waxman, supra, at paras. 292-94 are apposite:
The "palpable and overriding" standard demands strong appellate deference to findings of fact made at trial. . . . Merely because an appellate court might view the evidence differently from the trial judge and make different findings is not, however, any basis for concluding that the appellate court's [page105] findings will be more accurate and its result more consistent with the justice of the particular case than the result achieved at trial.
The wisdom of the policy favouring appellate deference on questions of fact is evident in a case like this one. The evidence at trial occupied over two hundred days. The documents fill thousands of pages.
This case demonstrates that the "palpable and overriding" standard of review is a realistic reflection of the limitations and pitfalls inherent in appellate fact-finding.
[61] I would not give effect to Ford Canada's submission concerning the trial judge's finding of oppression. The trial judge made two findings of fact to support the finding of oppression by Ford Canada. One finding concerned the reasonable expectations of the shareholders. The other concerned what was reasonably foreseeable to the board. The findings of the trial judge, who agreed with the OMERS shareholders' argument that Ford Canada held out to its shareholders that transactions with Ford U.S. were calculated on an arm's-length basis, are found in various parts of his reasons. Below are some expressions of the findings [at paras. 249, 276, 298, 356, 431 and 300, 303, 307, 323, 326-27]:
Reasonable expectations
OMERS submits that a new shareholder would purchase his or her shares under the implicit representation that Ford Canada's transfer pricing system was not oppressing the minority shareholders. I agree.
The financial reports told Ford Canada shareholders that prices for products would be negotiated between Ford Canada and Ford U.S. when apparently there was no such negotiation. The public documents about the transfer pricing system suggested that prices were determined at arm's length. Shareholders have the right to rely upon the public pronouncements of public corporations as promises, with resulting reasonable expectations.
Ford Canada submits that, to succeed in the case at hand, the dissenting shareholders must establish on a balance of probabilities that they had reasonable expectations that the historical structural transfer pricing arrangements between Ford Canada and Ford U.S. would be changed to a profit- sharing arrangement. I disagree.
Ford Canada's minority shareholders had the reasonable expectation that management would act in the best interests of the corporation [page106] (meaning all of the shareholders) and take all reasonable steps to enhance profitability by changes to the inter-corporate pricing system.
Ford Canada seeks refuge in the disclosure to shareholders in its annual reports that the overall impact of a drop in the Canadian dollar was negative upon the profits of Ford Canada and that the ability of Ford Canada to be profitable in the Canadian market was largely dependent upon the performance of the Canadian dollar.
Reasonable foreseeability
The impact of the transfer pricing system is to understate profits or overstate losses earned from the Canadian market for Ford Canada. This realization does not arise from the benefit of hindsight. The results would be reasonably foreseeable to the management of Ford Canada from, at least, 1984 onwards.
Hindsight is easier than foresight. However, it should have been clear by 1984 that there was a serious problem in the transfer pricing system in terms of fairness to Ford Canada and, in particular, to its minority shareholders.
The problems inherent to the transfer pricing system would have been recognized by the senior management of both Ford Canada and Ford U.S. by 1984.
OMERS submits that at arm's length, CVD would not have agreed to purchase a product at a price whereby it would reasonably foresee the probability, indeed, the near- certainty, of a loss. OMERS also submits that a reasonable person manufacturer in the position of Ford U.S., acting in its self-interest, would have agreed to sell its vehicles to CVD at less than fully-allocated costs if it recovered its incremental costs and some contribution toward its fixed costs. I agree.
By 1984 the management and directing minds of both entities would have realized two realities: first, that for the foreseeable, indefinite future CVD would have significant losses. (This realization is evidenced by the annual budgets of Ford Canada in 1984-1995, each of which forecasts a loss to CVD for the next fiscal year.) The risk of loss for the next year from the Canadian market as foreseen in each budget was a reasonable certainty and hence, was forecasted. Such a risk cannot properly be described as an entrepreneurial risk. A self-interested, independent entrepreneur, acting reasonably, would not accept the certainty of endless losses.
Second, the directing minds would realize that the TELO allocation could not be rationally supported upon an entrepreneurial risk-taking premise. A rational entrepreneur would not agree to pay significant money for intangibles that would very probably result in continuing, sizeable losses. [page107]
[62] Then in his conclusion on the finding of oppression, the trial judge combined [at para. 448] the two concepts of reasonable expectations and reasonable foreseeability:
The reasonable expectations of the minority shareholders were that the management of Ford Canada would at all times act in the best interests of all the shareholders to make best efforts to earn a reasonable profit from Ford Canada's business operations. This was not possible over 1985-1995 given the structure of the transfer pricing system and its impact upon Ford Canada. A truly independent entity in the position of Ford Canada would have renegotiated and, moreover, would have been successful in doing so because it would be in Ford U.S.'s self-interest to accede to a changed arrangement. It is not necessary for OMERS to establish bad faith on the part of Ford Canada's directors or management. It is enough to establish, as has been done, that the foreseeable results of the omission of Ford Canada's directors and management to renegotiate the structure of the transfer pricing system would be oppressive and unfairly prejudicial to, and unfairly disregard the interests of, the minority shareholders.
[63] Ford Canada attacks these findings on two bases. First, it submits that the trial judge in fact replaced hindsight for foresight. I have already discussed this above. It is not a tenable argument. In any event, it is not at all clear that it was necessary for the trial judge to find that the effects of the transfer pricing policy on the minority shareholders were reasonably foreseeable by the Ford Canada board in order to find oppression. Section 241(2)(a) of the CBCA focuses on the effects of the corporation's acts or omissions. If the act or omission effects a result that is "oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder", in this case the minority shareholders, the shareholders will be entitled to a remedy.
[64] Second, Ford Canada submits that there was no evidence of reasonable expectations on the part of the minority shareholders. This submission consists of two related concepts. Ford Canada submits that there should have been evidence from the minority shareholders about their reasonable expectations. In addition, it submits that the record simply does not support the trial judge's findings of reasonable expectations as it may be based on the public record.
[65] I can find no support for the proposition that there must be evidence, in the form of testimony, from the shareholders as to their expectations. The existence of reasonable expectations is a question of fact and like any question of fact can be proved by direct evidence or by drawing reasonable inferences from circumstantial evidence. This point is made by the Divisional Court in Arthur v. Signum Communications Ltd., [1993] O.J. No. 1928 (Div. Ct.), at para. 7: [page108]
The state of a man's mind as to the future -- intentions and expectations -- is a question of fact. In determining that fact, there is no error in looking at prior statements and drawing an inference based on the respective weight of all the individual pieces of evidence. It is a pure question of fact what Arthur's intentions and expectations were at the material time and a pure question of fact whether they were reasonable.
[66] Where the minority shares in a public company are widely held it may be difficult to adduce cogent direct evidence of the reasonable expectations of the shareholders. In such cases, it is open to the trial judge to infer reasonable expectations from the company's public statements and the shared expectations about the way in which a public company should be run. As Farley J. said in 820099 Ontario Inc. v. Harold E. Ballard Ltd., [1991] O.J. No. 266, 3 B.L.R. (2d) 113 (Gen. Div.), at para. 129, affd [1991] O.J. No. 1082, 3 B.L.R. (2d) 113 (Div. Ct.), "It does not appear to me that the shareholder expectations which are to be considered are those that a shareholder has as his own individual 'wish list'. They must be expectations which could be said to have been (or ought to have been considered as) part of the compact of the shareholders."
[67] This court has held as much in Themadel Foundation v. Third Canadian General Investment Trust Ltd. (1998), 1998 973 (ON CA), 38 O.R. (3d) 749, [1998] O.J. No. 647 (C.A.), at pp. 753-54 O.R.:
The public pronouncements of corporations, particularly those that are publicly traded, become its commitments to shareholders within the range of reasonable expectations that are objectively aroused. In Naneff v. Con-Crete Holdings Ltd. (1995), 1995 959 (ON CA), 23 O.R. (3d) 481 at p. 490, 23 B.L.R. (2d) 286 (C.A.), Galligan J.A. put it as follows:
The law is clear when determining whether there has been oppression of a minority shareholder, the court must determine what the reasonable expectations of that person were according to the arrangements which existed between principals. The cases on this issue are collected and analyzed by Farley J. in 820099 Ontario Inc. v. Harold E. Ballard Ltd. (1991), 3 B.L.R. (2d) 113 at p. 123 (Ont. Gen. Div.), affirmed (1991), 3 B.L.R. (2d) 113 (Ont. Div. Ct.). I agree with his comment at pp. 185-86:
Shareholder interests would appear to be intertwined with shareholder expectations. It does not appear to me that the shareholder expectations which are to be considered are those that a shareholder has as his own individual "wish list". They must be expectations which could be said to have been (or ought to have been considered as) part of the compact of the shareholders.
[68] In the same case at the trial level, Farley J. said the following at (1995), 1995 7040 (ON SC), 23 O.R. (3d) 7, [1995] O.J. No. 888 (Gen. Div.), at pp. 14-15 O.R.: [page109]
I think it reasonable that shareholders be entitled to rely on written and public pronouncements of what corporations in which they hold shares will do. This is especially so in the case of corporations which offer their shares to the public as it is an offence for such corporations to be other than truthful in public pronouncements . . .
[69] As indicated, Ford Canada submits that there was no evidence to support the trial judge's findings about shareholders' reasonable expectations. The trial judge made three critical factual findings about reasonable expectations based on Ford Canada's public statements:
(1) Prices for products would be negotiated between Ford Canada and Ford U.S.
(2) Intercorporate prices were determined at arm's length.
(3) Management would act in the best interests of the corporation and take all reasonable steps to enhance profitability by changes to the intercorporate pricing system.
[70] Since a finding concerning reasonable expectations is a question of fact, to succeed on this ground Ford Canada must show a palpable and overriding error in the sense discussed earlier in these reasons. Ford Canada puts its case on two bases. First, that there was a complete absence of evidence to support the finding and, second, that the trial judge misapprehended the evidence, especially the evidence of the public disclosure that was made about currency fluctuations. In my view, the trial judge did not make a palpable and overriding error.
[71] The clearest public statements concerning the use of arm's-length pricing are found in the financial statements that precede the period in question (1985-95). For example, the Notes to Ford Canada's 1978 financial statements state:
Under long standing arrangements, the Company and its subsidiaries obtain at cost many types of advice and services from Ford Motor Company [Ford U.S.]. In a large number of transactions with Ford Motor Company and its affiliates, the Company and its subsidiaries in the ordinary course of business buy and sell vehicles and components, and buy tractors and components. The Ford policy is that prices for products be negotiated on an arm's length basis by the affected organizations.
(Emphasis added)
[72] By 1985, the wording of the Notes had changed:
The Company is a subsidiary of Ford Motor Company which owns approximately 92 [per cent] of Ford of Canada's issued shares. In a large number of transactions with Ford Motor Company and its affiliates, the Company and its affiliates in the ordinary course of business buy and sell vehicles and components, and buy tractors and components. The prices for items purchased [page110] or sold are calculated to approximate levels charged by competitive sources for similar goods. In addition, under long standing arrangements, the Company and its affiliates obtain services at cost from Ford Motor Company.
(Emphasis added)
[73] This formula was repeated in virtually identical terms in all the succeeding financial statements. The 1985 financial statements and those that followed also made significant reference to the impact of the declining Canadian dollar on Ford Canada's profitability.
[74] In my view, despite the change in wording, it was open to the trial judge to draw the inferences he did about reasonable expectations. The principle that "in the ordinary course of business" prices were "calculated to approximate levels charged by competitive sources" could be understood by a reasonable reader as using an arm's-length standard that implied negotiation. Moreover, the evidence of Ford's own witness supports this interpretation. Mr. Bennett, who was a director of Ford Canada from 1965 to 1995 and President and Chief Executive Officer of Ford Canada from 1970 to 1981, testified for Ford. In cross-examination, counsel pointed out the change in wording of the Notes. Mr. Bennett testified as follows:
Q. And that language is saying [in] different words, the same thing essentially that we looked at in the prior notes?
A. I would think that's the intent.
Q. Right. It is an arm's-length concept, right?
A. Yes, um-hmm.
[75] In my view, it cannot be said that the trial judge made a palpable and overriding error in his findings concerning reasonable expectations. Further, it was open to the trial judge to find that public disclosure to shareholders concerning the impact of currency fluctuations did not alter those expectations. The trial judge reasoned as follows at para. 431:
Ford Canada seeks refuge in the disclosure to shareholders in its annual reports that the overall impact of a drop in the Canadian dollar was negative upon the profits of Ford Canada and that the ability of Ford Canada to be profitable in the Canadian market was largely dependent upon the performance of the Canadian dollar. This ignores the fact that Ford U.S. was gaining profits (through component manufacturing, U.S. assembly sales to CVD and TELO payments by CVD) at the expense of Ford Canada by the decline in the Canadian dollar and that a truly independent entity acting rationally in its self-interest at arm's length to Ford U.S. would have renegotiated the pricing of vehicles into the Canadian market (and/or TELO) to capture some of these foregone profits.
(Emphasis added) [page111]
[76] This inference is entitled to the same deference as the trial judge's findings of primary facts. I see no palpable overriding error.
[77] In conclusion, then, I find that the trial judge did not err in allowing the OMERS shareholders' claim of oppression against Ford Canada.
(g) Dismissal of the oppression claim against Ford U.S.
[78] The OMERS shareholders submit that the trial judge erred in dismissing the oppression claim against Ford U.S. They submit that the findings of fact made by the trial judge lead to the inevitable conclusion that Ford U.S. oppressed the minority shareholders. The clearest examples of what the OMERS shareholders submit are inconsistent findings are found in the following passages where the trial judge discusses the standing issue (i.e., whether present shareholders could obtain a remedy for past oppression) [paras. 263 and 264]:
It may well be that Ford U.S. expressly or implicitly dictated the transfer pricing regime and all of the historical acts of relevant decision-making by Ford Canada's directors. One need not be naïve as to the probable nature of the vertical relationship of a U.S. parent and Canadian subsidiary where the widely-held minority interest is only some 6 per cent of the total shares in the subsidiary. However, a majority shareholder cannot treat a subsidiary corporation with minority shareholders as its wholly-owned subsidiary. The majority shareholders cannot direct corporate decisions which enure to its benefit to the detriment of minority shareholders. Palmer, supra at 172.
One can have the reasonable impression that in reality Ford U.S. treated Ford Canada as a wholly-owned subsidiary and that the puppet subsidiary would simply carry out the dictates of the parent. However, there was no evidence given at to the role of Ford U.S. in terms of Ford Canada's board of directors' decision-making. That is, the record indicates that Ford Canada's board of directors was passive, simply accepting the actions of Ford U.S. in determining the elements and structure of the transfer pricing system and the inter-corporate arrangements.
(Emphasis added)
[79] And, the trial judge discusses the relationship between Ford U.S. and Ford Canada in the following paragraph [para. 349]:
In my view, Ford U.S. treated Ford Canada as if it were a wholly-owned subsidiary, with the acquiescence of the management and directing mind of Ford Canada, and maintained a transfer pricing system that was unfairly prejudicial to the interests of the minority shareholders. Ford U.S. was the beneficiary of a transfer pricing system which yielded non- arm's length results. Such conduct was detrimental to Ford Canada but more significantly, was prejudicial to the interests of only the minority shareholders. The majority shareholder, Ford U.S. gained 100 per cent of the [page112] benefits at a corresponding cost to it of only 94 per cent of the unfair losses to Ford Canada.
(Emphasis added)
[80] The trial judge concluded, however, that there was no sustainable claim of oppression against Ford U.S. [paras. 373 and 374]:
In my view, given the evidentiary record, as already discussed, there is no basis for a sustainable claim of oppression in law within the ambit of s. 241(2) against Ford U.S. One can certainly infer that Ford U.S. treated Ford Canada as a wholly-owned subsidiary. One can infer that Ford U.S. was quite satisfied with the continuation of the March 28, 1979 inter-corporate agreement. One can guess that Ford U.S. may well have resisted any attempted change by Ford Canada through re-negotiation of the terms of the March 28, 1979 agreement; however, that is speculative given the paucity of the evidentiary record.
In my view, in the absence of any initiative on the part of Ford Canada to renegotiate the terms of the 1979 agreement so as to make adjustments to the transfer pricing system, Ford U.S. cannot be said to be in violation of s. 241(2) of the CBCA. The evidentiary record does not indicate any initiative by the management and directing mind of Ford Canada to analyse the problems and suggest alternatives for redress until Mr. Bennett's entreaty in 1995 [^4].
[81] The OMERS shareholders submit that given the findings of fact by the trial judge, especially the findings set out in para. 349 of his reasons, he erred in failing to find that Ford U.S. oppressed the minority shareholders of Ford Canada. For ease of reference, I repeat the applicable part of s. 241 of the CBCA:
241(2) If . . . the court is satisfied that in respect of a corporation . . .
(a) any act or omission of . . . any of [the corporation's] affiliates effects a result,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder . . . the court may make an order to rectify the matters complained of.
[82] The OMERS shareholders submit that, as found by the trial judge, the acts and omissions of Ford U.S. (an affiliate of Ford Canada) in imposing the intercorporate arrangements on [page113] Ford Canada and failing to take steps to relieve against the effects of those arrangements come within the definition of oppression. They submit that the trial judge erred in focusing solely on the inaction of Ford Canada since a finding of oppression could be made against Ford U.S. whether or not Ford Canada took steps to independently attempt to right the wrongs caused by the intercorporate arrangements.
[83] To the extent that the trial judge's findings on this aspect of the case depend on his findings of fact as to the circumstances of the arrangements between Ford U.S. and Ford Canada, the standard of palpable and overriding error applies. In Waxman at para. 296, the court gave as an example of a palpable error a finding "made in conflict with accepted evidence". This is the core of the argument of the OMERS shareholders: the trial judge's finding that Ford U.S. treated Ford Canada as a wholly-owned subsidiary and imposed an unfair transfer pricing system on it cannot stand with the finding that there was no oppression of Ford Canada's minority shareholders by Ford U.S.
[84] I agree with the OMERS shareholders that the trial judge's findings are inconsistent. In para. 349, as set out above, he makes a finding at odds with his ultimate conclusion concerning the Ford U.S. oppression claim. To repeat the first line of that paragraph:
In my view, Ford U.S. treated Ford Canada as if it were a wholly-owned subsidiary, with the acquiescence of the management and directing mind of Ford Canada, and maintained a transfer pricing system that was unfairly prejudicial to the interests of the minority shareholders.
[85] This finding seems inconsistent with the earlier statement at para. 264:
One can have the reasonable impression that in reality Ford U.S. treated Ford Canada as a wholly-owned subsidiary and that the puppet subsidiary would simply carry out the dictates of the parent. However, there was no evidence given as to the role of Ford U.S. in terms of Ford Canada's board of directors' decision-making.
[86] It also seems inconsistent with his later conclusion at para. 373:
One can certainly infer that Ford U.S. treated Ford Canada as a wholly-owned subsidiary. One can infer that Ford U.S. was quite satisfied with the continuation of the March 28, 1979 inter-corporate agreement. One can guess that Ford U.S. may well have resisted any attempted change by Ford Canada through re-negotiation of the terms of the March 28, 1979 agreement; however, that is speculative given the paucity of the evidentiary record. [page114]
[87] Ford U.S. responds that the statement at para. 349 is taken out of context and that when the trial judge's reasons are read as a whole, it is apparent that, in the end, he found that there was no evidence, only speculation, that Ford U.S. treated Ford Canada as a wholly-owned subsidiary to the prejudice of the minority shareholders. Ford also submits that, given the lack of evidence that Ford U.S. imposed the intercorporate arrangements on Ford Canada's board, a finding of oppression could only be made on the basis that Ford U.S. owed a fiduciary duty to Ford Canada.
[88] I agree with the OMERS shareholders that there is a palpable error in the trial judge's reasons. The finding that it was just speculation that Ford U.S. treated Ford Canada as a wholly-owned subsidiary cannot stand with para. 349. It is difficult to conclude that the unequivocal statement in para. 349 has somehow been taken out of context. That paragraph comes near the end of a lengthy and detailed discussion under the heading "The Evidence as to Oppression". It seems to be a conclusion about the evidentiary record. It is bracketed by findings that support the conclusion, such as the following from paras. 342 and 357:
Ford U.S. has rights to the intangibles that are superior to those of Ford Canada yet allocates the risk of the Canadian market to CVD.
In fact, Mr. Bennett acknowledged that there were no negotiations between Ford Canada and Ford U.S. with respect to prices paid by Ford Canada. Rather all such prices and mark-ups were determined by Ford U.S. without input from Ford Canada.
(Emphasis added)
[89] It is not enough, however, to find a palpable error. The OMERS shareholders must be able to demonstrate an overriding error. In Waxman at para. 297, this court described an overriding error as an error "that is sufficiently significant to vitiate the challenged finding of fact. . . . The appellant must demonstrate that the error goes to the root of the challenged finding of fact such that the fact cannot safely stand in the face of that error."
[90] In the context of this case, the trial judge's conclusion that Ford U.S. did not oppress Ford Canada's minority shareholders can be sustained, despite the palpable error, if the trial judge is correct that oppression depended upon Ford U.S. dictating terms to the Ford Canada board. The trial judge found to the contrary because "there was no evidence given as to the role of Ford U.S. in terms of Ford Canada's board of directors' [page115] decision-making" (para. 264). Alternatively, the conclusion can be sustained if, as argued by Ford U.S., a finding of oppression hinged on the existence of a fiduciary relationship between Ford U.S. and Ford Canada. In my view, a finding of oppression could be made against Ford U.S. without a finding that Ford U.S. dictated the terms of the intercorporate arrangements to Ford Canada and without imposing a fiduciary obligation on Ford U.S.
[91] No case has laid down a comprehensive definition of oppression. I use the term "oppression" to include conduct that is "oppressive or unfairly prejudicial to or that unfairly disregards" the interests of, in this case, the minority shareholders of the affiliate. Despite the pejorative sense of terms such as "oppressive" or "unfair", this court has held in Brant Investments Ltd. v. KeepRite Inc. (1991), 1991 2705 (ON CA), 3 O.R. (3d) 289, [1991] O.J. No. 683, 80 D.L.R. (4th) 161 (C.A.), at p. 305 O.R., p. 176 D.L.R., in considering the comparable provision of the OBCA, that "evidence of bad faith or want of probity in the actions complained of is unnecessary" in an oppression action. On the other hand, at p. 311 O.R., p. 181 D.L.R., McKinlay J.A., speaking for the court in Brant Investments Ltd., also said that "there will be few cases where there has not been some 'want of probity' on the part of the corporate actor where a remedy pursuant to s. 234 will be appropriate". That said, it is sufficient if the effect of the corporate decisions is unfairly prejudicial to the interests of the minority. See Wind Ridge Farms Ltd. v. Quadra Group Investments Ltd., 1999 12310 (SK CA), [1999] S.J. No. 602, 178 D.L.R. (4th) 603 (C.A.).
[92] Courts rather than attempting to find an exhaustive all- purpose definition of oppression have tended to look for badges or indicia of oppressive conduct. A helpful catalogue is found in the reasons of Austin J. in Arthur v. Signum Communications Ltd., [1991] O.J. No. 86 (Gen. Div.), at para. 132 (affd [1993] O.J. No. 1928 (Div. Ct.)) considering the provisions of the OBCA:
Amongst the indicia of conduct which runs afoul of s. 247 are the following:
(i) lack of a valid corporate purpose for the transaction;
(ii) failure on the part of the corporation and its controlling shareholders to take reasonable steps to simulate an arm's length transaction;
(iii) lack of good faith on the part of the directors of the corporation;
(iv) discrimination between shareholders with the effect of benefiting the majority shareholder to the exclusion or to the detriment of the minority shareholder; [page116]
(v) lack of adequate and appropriate disclosure of material information to the minority shareholders; and
(vi) a plan or design to eliminate the minority shareholder.
(Emphasis added)
[93] In Budd v. Gentra Inc., 1998 5811 (ON CA), [1998] O.J. No. 3109, 111 O.A.C. 288 (C.A.), at para. 34, Doherty J.A. referred with approval to an excerpt from D. Peterson, Shareholder Remedies in Canada, looseleaf (Markham: Butterworths, 2004) at p. 18.1:
The potential protection it [the oppression remedy] offers corporate stakeholders is awesome. Nevertheless, the legislative intent of the oppression remedy is to balance the interests of those claiming rights from the corporation against the ability of management to conduct business in an efficient manner. The remedy is appropriate only where as a result of corporate activity, there is some discrimination or unfair dealing amongst corporate stakeholders, a breach of a legal or equitable right, or appropriation of corporate property.
[94] Despite the breadth of the oppression remedy, the broad notion of oppression must somehow be reconciled with the business judgment rule and the reasonable expectations of the minority shareholders.
[95] In a passage approved by the Supreme Court of Canada in Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68, [2004] 3 S.C.R. 461, [2004] S.C.J. No. 644, at para. 65, Weiler J.A. described the business judgment rule in Maple Leaf Foods Inc. v. Schneider Corp. (1998), 1998 5121 (ON CA), 42 O.R. (3d) 177, [1998] O.J. No. 4142 (C.A.), at p. 192 O.R. in these terms:
The law as it has evolved in Ontario and Delaware has the common requirements that the court must be satisfied that the directors have acted reasonably and fairly. The court looks to see that the directors made a reasonable decision not a perfect decision. Provided the decision taken is within a range of reasonableness, the court ought not to substitute its opinion for that of the board even though subsequent events may have cast doubt on the board's determination. As long as the directors have selected one of several reasonable alternatives, deference is accorded to the board's decision ... This formulation of deference to the decision of the Board is known as the "business judgment rule". The fact that alternative transactions were rejected by the directors is irrelevant unless it can be shown that a particular alternative was definitely available and clearly more beneficial to the company than the chosen transaction ...
(Emphasis in original)
[96] In the same case, Weiler J.A. wrote [at p. 191 O.R.], however, that if the directors "have unfairly disregarded the rights of a group of shareholders, the directors will not have acted reasonably in the best interests of the corporation and the court will intervene".
[97] In my view, a finding of oppression against Ford U.S. did not depend on a finding that Ford U.S. dictated the terms of the intercorporate arrangements to Ford Canada. The trial judge's [page117] findings that the policies were made in Ford U.S. and that the effect of those policies was to unfairly disregard the interests of the minority shareholders in Canada was sufficient. The trial judge found that the transfer pricing system and the related intercorporate arrangements did not simulate arm's-length transactions and unfairly benefited the majority shareholder to the disadvantage of the minority shareholders.
[98] Furthermore, in my view, a finding of oppression could be made against Ford U.S. without imposing a fiduciary obligation upon Ford U.S. In Brant Investments Ltd. v. KeepRite Inc., at p. 301 O.R., p. 172 D.L.R., this court doubted that the directors of a corporation owe a fiduciary duty to minority shareholders:
To impose upon directors and officers a fiduciary duty to the corporation as well as to individual groups of shareholders of the corporation could place directors in a position of irreconcilable conflict, particularly in situations where the corporation is faced with adverse economic conditions.
[99] Similarly, it seems to me unwise to attempt to resolve this case by imposing a fiduciary duty on a parent company to the subsidiary or the minority shareholders of the subsidiary. It is sufficient to find oppression, if the acts or omissions of the parent come within the broad language of the statutory provision.
[100] The more difficult question concerns the application of the doctrine of reasonable expectations. I have found that it was open to the trial judge to find that the conduct of Ford Canada in respect of the transfer pricing system defeated the reasonable expectations of the minority shareholders. Those reasonable expectations were founded on the public statements of Ford Canada and the implicit assumptions about the manner in which a public company operates. I do not think that there needs to be a direct link between the affiliate (here, Ford U.S.) and the reasonable expectations, given that the oppression remedy is focused on effects rather than intention. Here the parent was the 94 per cent shareholder of Ford Canada and was in a position to alter the arrangements. It is not simply because Ford U.S. is an affiliate of Ford Canada that it can be found to have oppressed the minority shareholder [^5]. [page118]
[101] In my view, the trial judge erred in dismissing the oppression claim of the OMERS shareholders against Ford U.S. However, the remedy to which the OMERS shareholders and the other dissenting shareholders are entitled is no broader than the remedy available through the oppression and appraisal actions in relation to Ford Canada. In particular, as discussed below, the OMERS shareholders are not entitled to compensation for historical oppression before they became shareholders and they and the other dissenting shareholders are not entitled to a fair value that includes a component for historical oppression. There is no principled reason to distinguish between the position of Ford U.S. and Ford Canada on those issues.
(h) Right to a remedy for past oppression
[102] Section 241(1) of the CBCA gives a "complainant" the right to apply for a remedy for oppression. Section 238 defines "complainant" as follows:
(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 any of its affiliates,
(c) the Director, or
(d) any other person who, in the discretion of a court, is a proper person to make an application under this Part.
(Emphasis added)
[103] A fundamental issue at the trial was whether the dissenting shareholders were entitled to a remedy for past oppression. The OMERS shareholders argued that any persons who held shares on September 11, 1995 were entitled to a remedy for past oppression of the corporation and it was irrelevant when they acquired their shares. The trial judge held that as a matter of law a person had to be a shareholder at the time of the alleged oppression.
[104] Clearly a former shareholder is a "complainant" within the meaning of s. 238 for the purposes of bringing an application for an oppression remedy under s. 241. The trial judge applied a decision of Farley J. in Royal Trust Corp. of Canada v. Hordo, [1993] O.J. No. 1560, 10 B.L.R. (2d) 86 (Gen. Div.), to find that a shareholder can only obtain a remedy for acts of oppression that occur when the person was a shareholder. The trial judge distinguished the decision of this court in [page119] Richardson Greenshields of Canada Ltd. v. Kalmacoff (1995), 1995 1739 (ON CA), 22 O.R. (3d) 577, [1995] O.J. No. 941 (C.A.), leave to appeal to S.C.C. refused [1995] S.C.C.A. No. 260, holding that a shareholder could bring a derivative action for wrongs allegedly done to the corporation before the complainant became a shareholder.
[105] However, the fact that the complainant "bought into the oppression" does not automatically preclude an action under s. 241. See Palmer v. Carling O'Keefe Breweries of Canada Ltd. (1989), 1989 4355 (ON SC), 67 O.R. (2d) 161, [1989] O.J. No. 32 (Div. Ct.), at p. 169 O.R. But, finding that the shareholder is a proper complainant does not determine the scope of the remedy to which the complainant may be entitled.
[106] Section 241(3) of the CBCA sets out the remedies a court may grant a complainant for oppression. As has been repeatedly said, the remedies are broad. They include:
(a) an order restraining the conduct complained of;
(b) an order appointing a receiver or receiver-manager;
(c) an order to regulate a corporation's affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;
(d) an order directing an issue or exchange of securities;
(e) an order appointing directors in place of or in addition to all or any of the directors then in office;
(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;
(g) an order directing a corporation, subject to subsection (6), or any other person, to pay a security holder any part of the monies that the security holder paid for securities;
(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;
(j) an order compensating an aggrieved person;
(l) an order liquidating and dissolving the corporation;
[107] The question of entitlement to a remedy for past oppression is one of first impression in this court. In my view, the question should be answered having regard to the principles underlying the oppression and related remedies, such as the derivative action, and the nature of the remedy sought.
[108] The OMERS shareholders recognize that the oppression remedy in s. 241 provides for remedies that are derivative in nature and personal in nature. They argue that this case really [page120] is about wrongs done to Ford Canada during the entire period. Thus the remedy sought is derivative in nature and the oppression remedy should encompass the entire ten-year period from 1985 to 1995.
[109] It follows that all shareholders, no matter when they acquired their shares, are entitled to share equally in the remedy. This must be so, say the OMERS shareholders, because of the fundamental principle of corporate law that all shareholders must be treated equally. See CBCA, s. 24(3). In effect, notionally they seek a benefit to the corporation as a whole -- the return to Ford Canada of the assets that were improperly diverted to Ford U.S. through the transfer pricing system. But for the "squeeze out" of the Ford Canada minority shareholders, any shareholder could have brought an action for an oppression remedy requiring the return of the improperly diverted funds to Ford Canada.
[110] I disagree with the OMERS shareholders that the distinction between personal causes of actions and derivative actions is a useful one for the purpose of determining the appropriate remedy under s. 241. Section 241 includes both personal remedies and remedies that benefit the corporation as a whole -- for instance, para. (3)(h) gives the court the power to set aside a transaction or contract to which a corporation is a party and to compensate the corporation. However, in my view, the nature of relief that a court can grant must be anchored in the remedy sought, rather than turning on any distinction between personal and derivative causes of action.
[111] It seems to me that it would be a serious mistake to attempt to confine the broad discretion granted courts by the oppression remedy within a formal construct of causes of action. To do so could bring with it all the complexities of the common law as to when a shareholder might, notwithstanding the rule in Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189 maintain a personal action and thrust those complexities into the oppression remedy. Parliament could not have intended such a result. The breadth of the remedy to which these shareholders are entitled must turn on the wording of the statutory provisions.
[112] While s. 241 contemplates remedies that benefit the corporation or shareholders as a whole, it is nevertheless founded on the principle of a wrong done to a shareholder or identifiable group of shareholders. Section 241(2)(a) (the provision relied upon in this case) is drawn in broad terms but it depends upon a finding that the complained of act or omission by the corporation or any of its affiliates "is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer". [page121]
[113] In this case, the OMERS shareholders seek the personal remedy of compensation under s. 241(3)(j) as "an aggrieved person", not an order "compensating the corporation" under s. 241(3)(h), and they must therefore show entitlement to compensation. Compensation excludes any notion of a windfall for wrongs done to others in the past.
[114] As the trial judge said at paras. 252 to 254, the effect of any past oppression would normally be reflected in the market price of the shares at the time the shareholder purchased them. Thus, any purchase was at a market price "that implicitly reflected the publicly reported earnings of Ford Canada under the transfer pricing structure to that point in time".
[115] Justice Farley made the same point in Royal Trust Corp. of Canada v. Hordo, supra, a decision relied upon by the trial judge in this case. At para. 15, Farley J. said:
[A] sale of those shares from a holder who may have been oppressed does not carry with it the right to collect damages for such oppression. If this is the case it is clear that the value of those shares in the market would have decreased to compensate for the amount of the oppression. That benefit should generally remain with the person who is actually oppressed.
I agree. To award a shareholder for past oppression would not be compensation but a windfall.
[116] That is not to say that a shareholder can never seek an oppression remedy for some past wrongs where the remedy sought will benefit the corporation as a whole. In this regard, I refer to UPM-Kymmene Corp. v. UPM-Kymmene Miramichi Inc., supra, a case relied on by the OMERS shareholders. In that case, the court set aside a compensation agreement between a company and its chairman. In the result, all shareholders benefited from the company being relieved of the burden of the compensation agreement. The case serves as an example of an oppression action that has the appearance of a derivative action. But, the remedy sought in that case is different from the remedy sought here.
[117] I also agree with the trial judge that this court's decision in Richardson Greenshields does not determine the issue. Richardson Greenshields concerned an application for leave to commence a derivative action under the Trust and Loan Companies Act, S.C. 1991, c. 45. This court held [at p. 584 O.R.] that Richardson Greenshields fell within the definition of "complainant" in that Act being "a registered holder . . . of a security of [the] company" even though Richardson Greenshields only purchased shares after the allegedly improper act by the board of directors.
[118] Similarly, the OMERS shareholders come within the definition of complainant in s. 238 of the CBCA. But, the remedy [page122] sought in the Richardson Greenshields case was different than the remedy sought in this case. In this case, the shareholders seek compensation. In Richardson Greenshields, the complainant sought to prevent the company's board "from following a course of action that may be ultra vires and in breach of shareholders' rights" (at p. 587 O.R., p. 638 D.L.R.), namely, the hiring of consultants directly contrary to the intent of a vote of the preferred shareholders.
[119] At p. 584 O.R. of Richardson Greenshields, Robins J.A. adopted this summary of the purpose of the derivative action:
First, it ensures that a shareholder has a right to recover property or enforce rights for the corporation if the directors refuse to do so. Second, and more important for our present purposes, it helps to guarantee some degree of accountability and to ensure that control exists over the board of directors by allowing shareholders the right to bring an action against directors if they have breached their duty to the company: M.A. Maloney, "Whither The Statutory Derivative Action?" (1986), 64 Can. Bar Rev. 309.
(Emphasis added)
Here the OMERS shareholders do not seek to recover property or enforce rights for the corporation. They seek to obtain personal compensation.
[120] The trial judge saw two insurmountable barriers to the argument that the action's essential nature was derivative of a wrong done the corporation. First, the OMERS shareholders had not sought leave to commence a derivative action pursuant to s. 239(1) of the CBCA. Second, there was no evidence that Ford Canada would have succeeded in an action against Ford U.S. See reasons of the trial judge paras. 260-66.
[121] I have concluded that the action by the OMERS shareholders against Ford U.S. should not have been dismissed. Therefore, while, in my view, the trial judge was wrong in saying that there was "no evidence" that Ford Canada would have succeeded in an action against Ford U.S., it remains a matter of speculation whether such an action could have succeeded. In any event, for the reasons set out above, the characterization of the action as "derivative" does not accord with the relief sought and does not assist the OMERS shareholders.
[122] Allowing a shareholder to obtain compensation for past oppression is also inconsistent with reasonable expectations, which is the touchstone to entitlement to compensation for oppression. Reasonable expectations by their nature are forward looking. See LSI Logic Corp. of Canada, Inc. v. Logani, 2001 ABQB 710 (Q.B.), [2001] A.J. No. 1083, 204 D.L.R. (4th) 443 (Q.B.), at paras. 126-27. I agree with the trial judge's comments at para. 231 in reference to the LSI case: [page123]
In LSI, supra, Fruman J. emphasized that the date of acquiring shares is particularly relevant to determining whether a shareholder is a proper complainant. This seems appropriate and fair from a policy standpoint. The oppression remedy is protective of reasonable expectations by shareholders while considering the relevant circumstances. A shareholder should not be able to claim oppression in respect of an asserted reasonable expectation if it did not exist at the time of his or her share purchase. Arguably, the reasonable expectations of a new shareholder generally pertain to the future decision-making of management unless there are past and continuing misrepresentations, which create false expectations at the point of purchase of the shares.
(Emphasis added)
[123] This court also made the point about the need to tie reasonable expectations to the remedy in Naneff v. Con-Crete Holdings Ltd. (1995), 1995 959 (ON CA), 23 O.R. (3d) 481, [1995] O.J. No. 1377 (C.A.), at p. 491 O.R.:
A remedy that rectifies cannot be a remedy which gives a shareholder something that even he never could have reasonably expected.
For all these reasons, I would not give effect to this part of the OMERS shareholders' appeal.
(3) Calculation of Fair Value: Does It Include an Adjustment for Historical Transfer Pricing Unfairness?
[124] The OMERS shareholders submit that the trial judge erred in failing to include in the fair value of the dissenting shareholders' shares an historical component based on the value the shares would have had but for the unfair components of the transfer pricing system and related policies. The trial judge only took the alleged defects into account in calculating the "go forward" component of the value of the shares.
[125] The determination of this issue depends upon the meaning of "fair value" in s. 190 of the CBCA. Section 190(3) gives a dissenting shareholder the right "to be paid by the corporation the fair value of the shares . . . determined as of the close of business on the day before the resolution was adopted or the order was made". Section 190(15) provides the mechanism for triggering the determination of fair value in a case such as this by permitting the corporation to apply to a court "to fix a fair value for the shares of any dissenting shareholder" where the shareholder fails to accept an offer made by the corporation.
[126] The trial judge did not expressly deal with this issue. Rather, he dealt with the historical component of the unfairness as a question of oppression. He then circumscribed the recovery of the OMERS shareholders, the only shareholders who brought an action for an oppression remedy, in two ways. [page124] First, shareholders could only recover for the acts of oppression that occurred while they were shareholders. Second, he held that the Limitations Act applied and therefore the OMERS shareholders could recover only for the period from January 11, 1994 to September 11, 1995. I have dealt with the former argument above and deal with the latter argument below (although the issue is academic given my finding, explained below, that the trial judge erred in directing a reference to a Master). These limits on recovery for historical oppression disappear if all the dissenting shareholders were entitled to compensation through the fair value determination for historical unfairness.
[127] The OMERS shareholders advance two related policy arguments favouring a broad interpretation of fair value that would include compensation for past losses suffered by Ford Canada because of the transfer pricing system. First, they submit that many minority shareholders of large public companies do not have the resources to launch individual oppression actions. They rely on the large institutional shareholders to defend their rights in a fair value proceeding. If the trial judge's decision were upheld then each dissenting shareholder would have to bring an action for an oppression remedy. Second, since it is a basic principle of company law that all shareholders holding the same class of shares be treated equally, it is unfair that only those shareholders that brought the oppression remedy, in this case the OMERS shareholders, will obtain their share of the asset base of the corporation that would have existed but for the unfair dealing.
[128] In my view, the fair value of the shares does not include a component for historical oppression or a notional increase in the asset base by reason of prior unfair dealing. I come to this conclusion on the basis of principle and because I am of the view that this result is required by this court's decision in Brant Investments Ltd. v. KeepRite Inc., supra.
[129] I start with the principles. The appraisal remedy in s. 190 of the CBCA is part of the model adopted by Parliament to balance the rights and interests of minority shareholders with those of the majority. The Act abrogates the common law that in the absence of specific statutory authority, a corporate charter could only be amended by unanimous consent of the shareholders. But, in return, dissenting shareholders are given the right to opt out of the corporation and demand fair compensation for their shares. As the Dickerson Committee described: "The result is a resolution of the problem that protects minority shareholders from discrimination and at the same time preserves flexibility within the enterprise": Robert W.V. Dickerson, [page125] John L. Howard and Leon Getz, Proposals for a New Business Corporation Law for Canada (Ottawa: Information Canada, 1971) at 115.
[130] As it was put by the Wisconsin Supreme Court in HMO-W Inc. v. SSM Health Care System, 611 N.W.2d 250, 234 Wis. 2d 707 (Wis. S.C. 2000) at para. 17, which I discuss at length below: "The appraisal remedy has its roots in equity and serves as a quid pro quo: minority shareholders may dissent and receive a fair value for their shares in exchange for relinquishing their veto power." To include a component for historical wrongs would represent a departure from this principle since the dissenting shareholders would receive compensation for historical wrongs unrelated to relinquishing their veto.
[131] Since the provisions are an attempt to balance the different interests of minority and majority shareholders, the courts have tended to give the term "fair value" a broad and flexible meaning. Thus, most courts accept that fair value is not synonymous with fair market value and that the concept embraces some notion of equitable treatment. The need for this flexibility is especially evident where, as here, the act triggering the dissent is a squeeze out or expropriation of the shares of the minority shareholders. In Dennis H. Peterson, Shareholder Remedies in Canada (Markham: Butterworths, 2004) at 4.17, the author describes the notion of fair value as "what is just and equitable in the circumstances" which "confers a broad and flexible jurisdiction on the courts to determine share values".
[132] Although the jurisdiction may be broad and flexible, the section does not confer on the court an unfettered discretion to do whatever the judge feels would be fair. The determination of fair value must be anchored in the principle that gives rise to the jurisdiction. Here, where the triggering event is a squeeze out of minority shareholders, the notion of fair value involves an exercise in appraisal of the present market value of the shares but taking into account that this is a forced sale that deprives the shareholders of the opportunity to share in the fortunes of the corporation. Thus, as was conceded in this case, the fair value should not be reduced for a minority discount. And see Sutherland v. Birks (2003), 2003 39961 (ON CA), 65 O.R. (3d) 812, [2003] O.J. No. 2885 (C.A.), Brant Investments Ltd. v. KeepRite Inc., supra, at p. 329 O.R., p. 199 D.L.R., and Diligenti v. RWMD Operations Kelowna Ltd. (No. 2) (1977), 1977 393 (BC SC), 4 B.C.L.R. 134 (S.C.).
[133] The trial judge recognized the prospective nature of the appraisal remedy in this squeeze out situation by awarding a "go-forward" component in fair value to "recognize the true earning power of Ford Canada for the future (based upon a fair [page126] transfer pricing system being in place)". I agree with the trial judge and with the theory he adopted for including this go-forward component. As he said at para. 489:
Any rational, unrelated purchaser of Ford Canada's shares would make this notional adjustment to the balance sheet in calculating "fair value" to be paid for Ford Canada's shares for the reason that the transfer price adjustments would be achieved through renegotiation (this would probably be done before the share purchase, or the purchase would be conditional on this event). No rational purchaser would buy the business of Ford Canada without being assured of a reasonable return upon the purchaser's investment subject to the normative risks of the marketplace. No rational purchaser of Ford Canada would in effect guarantee Ford U.S. a profit from the Canadian operations while Ford Canada incurs continuing losses. (Ford U.S., as a purchaser of the minority shares in Ford Canada knows full well that Ford Canada generates profits over and above those seen in its financial statements, due to the inherent nature of the transfer price system which places those forgone profits with Ford U.S.)
[134] Including a go-forward component is consistent with Brant Investments Ltd., at p. 328 O.R., p. 198 D.L.R., where this court held that in appropriate cases, such as a squeeze out, the trial judge may include in fair value a component that, in effect, allows the dissenters to participate in the benefits of the transaction.
[135] However, to incorporate an additional amount for past unfair treatment would substantially over-compensate the minority shareholders. These shareholders purchased their shares on the basis of the company's actual value, not a notional value that included an allowance for a notional increase in the asset base by reason of prior unfair dealing.
[136] Generally, the remedy for compensating shareholders for past unfair dealings is to provide compensation through an appropriate oppression remedy for the oppression for the time that the shareholders held the shares. As the trial judge recognized at para. 259, there may be circumstances where a shareholder can receive enhanced share value because of past unfairness "if a corporation recovers funds or receives compensation arising from a successful application for oppression in respect of the corporation relating to a time period prior to that person becoming a shareholder". That was not this case. Further, the OMERS shareholders led no evidence to show that a notional arm's-length buyer of Ford Canada was acquiring some cause of action against Ford U.S. to which a value could be ascribed even assuming that a hypothetical cause of action is properly included in the concept of fair value.
[137] Like the argument for entitlement to compensation for past wrongs through the oppression remedy, the OMERS shareholders' argument with respect to an historical component of [page127] fair value is an attempt to receive compensation as if they had commenced and successfully brought a derivative action against Ford U.S. on behalf of Ford Canada. They did not bring such an action and are not entitled to compensation through "fair value" as if they had.
[138] I am also of the view that Brant Investments Ltd. supports the position that fair value does not include an historical component. In that case at p. 329 O.R., p. 199 D.L.R., McKinlay J.A. agreed with the parties' approach to determining fair value as placing "a notional en bloc value on all shares of the corporation and then award[ing] dissenters their pro rata share of that en bloc value" with no minority discount. McKinlay J.A. also agreed, at p. 329 O.R., p. 199 D.L.R., with the trial judge that fair value in that case constituted market value, which was defined as "the best price that can be obtained in an open market by a willing seller from a willing purchaser", recognizing, however, that the value is notional and hypothetical since there is seldom a real market for shares in these circumstances. She also recognized at p. 200 that "there may be situations where an amount not normally included in 'market value' might be included in 'fair value' under s. 184 [now s. 190]". Here she was referring to her earlier comments that, while dissenting shareholders are not automatically entitled to a forcing-out premium, transaction costs such as costs incurred by the dissenters in assessing alternative investments and commissions paid in purchasing such investments might be included in "fair value".
[139] Justice McKinlay then referred at p. 330 O.R., p. 200 D.L.R. to the "four widely accepted approaches to valuation of corporate shares". I need not review the four approaches. Suffice to say, none of those approaches includes a component for value allegedly stripped out of the corporation for unfair dealing. To the contrary, the method used in Brant Investments Ltd., the earnings approach, which was also the principal method used in this case, excludes any notion of including a component for past unfair dealing, unless perhaps, if it could be fairly said the corporation had the right to a viable cause of action for past wrongs to which some value could be assigned. There was no evidence of any such cause of action.
[140] Finally, McKinlay J.A. dealt with the dissenting shareholders' argument that in determining fair value the courts ought to consider the conduct of the corporation and the majority shareholders, and whether reasonable steps were taken to ensure the fairness of the transaction. At pp. 330-31 O.R., p. 201 D.L.R., she rejected this argument: [page128]
I frankly do not find these arguments persuasive on an application to the court to value shares pursuant to the provisions of s. 184(3). There is no doubt that in an action pursuant to the oppression provision -- s. 234 [now s. 241] -- the behaviour of the corporation through its officers and directors is of vital importance. If it is oppressive or unfairly prejudicial, then an appropriate remedy may be fashioned by the court to fit the circumstances. However, I fail to comprehend why the behaviour of the corporation through its officers and directors has any bearing of the value of the shares.
[141] The OMERS shareholders fairly point out that the facts in Brant Investments Ltd. are different than those in this case. Brant Investments Ltd. was not a squeeze out. Rather, the minority shareholders objected to a transaction in which the company would purchase the assets of a subsidiary. The unfair dealings complained of concerned the manner in which the transaction was carried out, not historical wrongs. Be that as it may, in my view, the reasoning applies. Past unfair dealing may form the basis of an oppression claim but, absent proof of a sustainable cause of action to which a value can be assigned, the historical dealings of the corporation have no bearing on the value of the shares. To allow such a notion to influence the fair value calculation would constitute a substantial departure from the core concept of fair value as the market value of the shares.
[142] We were referred to only one case where a court took past oppression into account in an appraisal action, HMO-W Inc. v. SSM Health Care System, a decision of the Wisconsin Supreme Court. HMO-W Incorporated was similar to Brant Investments Ltd. in that the dissenting shareholders were not being squeezed out but rather objected to a transaction, in that case a merger. There were two issues in the case. First, whether the trial judge erred in applying a minority discount. The Wisconsin court came to the same conclusion as did our court in Brant Investments Ltd. and held that there should be no minority discount.
[143] The second issue was whether the trial judge should have considered the company's alleged unfair dealing in the valuation of the shares. The company initially set the company's net value within the range of $16.5 to $18 million. However, when the dissenting shareholder exercised its appraisal rights the company hired a new appraiser who arrived at a valuation of approximately $7.4 million. The company set the value of the shares accordingly. The dissenting shareholders argued that the court should have been bound by the initial value. The trial judge placed the value of the company at $10.5 million, noting flaws in the approach taken by the appraiser who came up with the initial, much higher, figure. [page129]
[144] The Wisconsin Supreme Court held at para. 52 that, "When assertions of misconduct such as unfair dealing are intertwined with the value of shares subject to appraisal, a shareholder may make these assertions within the context of an appraisal action." The court went on to explain at para. 53 that, "A court determining the fair value of shares subject to appraisal must consider 'all relevant factors.' ... These factors may include evidence of unfair dealing affecting the value of a dissenter's shares."
[145] There are a number of reasons why the Wisconsin case does not assist the OMERS shareholders. First, the oppression or unfairness alleged was in the dealings surrounding the valuation of the shares. The case does not involve any historical oppression and, in any event, the decision of this court in Brant Investments Ltd. is against adjusting fair value to take into account the conduct of the corporation and the majority shareholders.
[146] Second, underlying the Wisconsin court's holding is the principle that the majority shareholders owe a fiduciary duty to the minority shareholders (see paras. 48 and 56 of HMO- W Inc.), a concept expressly disavowed in Brant Investments Ltd., at p. 301 O.R., p. 172 D.L.R., where McKinlay J.A. held that the enactment of the oppression remedy provisions in the CBCA and the OBCA "rendered any argument for a broadening of the categories of fiduciary relationships in the corporate context unnecessary and, in my view, inappropriate".
[147] Third, the Wisconsin court recognized that its rule was out of step with other jurisdictions, most notably Delaware, which "has established that claims for fraud or breach of fiduciary duty must be instituted separately" (para. 50).
[148] Finally, in allowing unfair dealing to be taken into account the court relied upon the Principles of Corporate Governance: Analysis and Recommendations (St. Paul: American Law Institute, 1994) at 326. In that comment, the authors suggest that an "appraisal court be permitted to consider conduct by controlling shareholders that has unjustly enriched them or depleted firm value". However, they would allow for the appraisal remedy to include this component only in "special circumstances" as where there is no other remedy to prevent unjust enrichment. Where there is another remedy, such as a derivative action, "it should be the preferred remedy".
[149] In this case, there were other potential remedies for the historical oppression, the oppression remedy that was brought and a derivative action that might have been brought by a "former" shareholder or other persons within the definition of complainant. [page130]
[150] Accordingly, I would not give effect to the submission by the OMERS shareholders that fair value should have included compensation for historical oppression or unfair dealing in the application of the transfer pricing system.
(4) Directing a Reference to a Master
[151] Ford Canada submits that the trial judge erred in directing a reference to a Master to determine the shareholdings of the OMERS shareholders during the historical oppression period. At para. 256, the trial judge found as follows:
For the reasons given, I find that there is no evidence that the dissenting shareholders were shareholders throughout the material time of the alleged acts, or omissions to act, of oppression, being 1985 to 1995.
(Emphasis added)
[152] Ford Canada argues that the OMERS shareholders made a tactical decision not to call any of the shareholders so that they would not be exposed to cross-examination on their reasonable expectations. The OMERS shareholders submit that they did not call this evidence because, in their view, it was legally irrelevant; their position was that all dissenting shareholders were entitled to have fair value calculated to compensate for the historical undervaluing of the shares due to unfairness in the transfer pricing system or that the OMERS shareholders were entitled to compensation for historical oppression provided that they owned shares on September 11, 1995.
[153] Like the trial judge, I have found against the dissenting shareholders and the OMERS shareholders on both these issues. Whatever theory explains the failure to prove the shareholdings, the fact remains that at the end of the case there was no evidence as to when the OMERS shareholders owned their shares, although there was apparently no dispute that they owned their shares on September 11, 1995. There was, therefore, an evidentiary gap. The trial judge, on his own motion, directed a reference to a Master to determine the entitlement of the OMERS shareholders to compensation. He purported to act under Rule 54 of the Rules of Civil Procedure. In my view, he erred.
[154] The only part of Rule 54 that could apply is rule 54.02(1), which provides as follows:
54.02 (1) Subject to any right to have an issue tried by a jury, a judge may at any time in a proceeding direct a reference of the whole proceeding or a reference to determine an issue where,
(a) all affected parties consent; [page131]
(b) a prolonged examination of documents or an investigation is required that, in the opinion of the judge, cannot conveniently be made at trial; or
(c) a substantial issue in dispute requires the taking of accounts.
[155] The trial judge gave no reasons for directing a reference other than the following at para. 474:
The determination of the entitlement of individual shareholders to compensation, and quantification thereof, for the historical oppression component can be done by way of a reference to a Master of this Court under rr. 54.02(1)(b), 54.03(1) and 54.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[156] Thus, the trial judge apparently relied upon para. (b), "a prolonged examination of documents or an investigation is required that, in the opinion of the judge, cannot conveniently be made at trial". Ford did not consent to a reference and apparently the parties made no submissions at trial about directing a reference.
[157] In my view, para. (b) did not justify a reference. There was nothing to indicate that determining when persons held shares would require a prolonged examination of documents or an investigation that could not conveniently be made at trial. To the contrary, in their factum, the OMERS shareholders deny that the issue would require a prolonged examination or investigation. They state as follows at para. 249:
There is no possible dispute as to the date of ownership of the shares. There will be records available to establish the dates of share purchases. As a practical matter, it is unlikely that it would be necessary to conduct the reference.
[158] There is, however a more fundamental concern with the trial judge's order in this case. The order had the effect of bifurcating the trial, hiving off elements of liability and damages. In Elcano Acceptance Ltd. v. Richmond, Richmond, Stambler & Mills (1986), 1986 2591 (ON CA), 55 O.R. (2d) 56, [1986] O.J. No. 578 (C.A.), this court dealt with issues of reference and bifurcation and held that the power to direct a reference and bifurcate the trial in the absence of consent of the parties is a narrowly circumscribed power that is to be exercised "in the interest of justice, only in the clearest of cases". This is far from the clearest of cases. I can see no compelling reason to give the OMERS shareholders the opportunity after the trial has concluded to prove a fundamental element of their case. There is no suggestion that the OMERS shareholders were caught by surprise. The issue was squarely raised at trial as an aspect of the question of whether the oppression remedy or fair value included an historical element and entitlement to that historical component. [page132]
[159] I would allow Ford Canada's appeal in this respect and set aside the order directing a reference to a Master. As there was no evidence that the OMERS shareholders held shares in Ford Canada prior to September 11, 1995, the oppression remedy must be limited to the pro-rated value of $52.36 for one day of the January 11, 1994 to September 11, 1995 period.
(5) Limitation Period Issues
[160] The trial judge limited recovery for historical oppression to the period of January 11, 1994 to September 11, 1995 on the basis that the six-year limitation in s. 45(1)(g) of the former Limitations Act applied to the claim for an oppression remedy and that the historical oppression was discoverable by reasonable diligence. The OMERS shareholders submit that s. 45(1)(g) does not apply to an action for an oppression remedy, and that, in any event, the provincial Limitations Act does not apply to a cause of action created by federal legislation. The OMERS shareholders also submit that the trial judge made a palpable and overriding error in the finding that the historical oppression was discoverable. In view of my holding concerning the directing of the reference, and since there was no evidence as to when the OMERS shareholders acquired their shares, it is not strictly necessary to deal with these arguments. However, since we received complete argument on the issues, I intend to briefly set out my views. In particular, I am of the view that the trial judge erred with respect to discoverability. Accordingly, I begin with that issue.
(a) Discoverability
[161] The trial judge made the following findings on the discoverability issue at paras. 275-76:
(i) Shareholders of Ford Canada would not know the details of the transfer pricing system.
(ii) Mr. Bennett agreed that neither the components of the transfer pricing system nor its effect on Ford Canada's operations were disclosed in the annual reports.
(iii) Ford Canada's shareholders were not told that Ford U.S. was making profits on vehicles sold in Canada while CVD had annual losses.
(iv) Public documents from Ford Canada told shareholders that prices were determined at arm's length and that [page133] prices for products would be negotiated between Ford Canada and Ford U.S. when apparently there was no such negotiation.
(v) Shareholders have the right to rely upon the public pronouncements of public corporations as promises.
[162] Despite these findings, the trial judge held that the material facts on which the oppression cause of action was founded ought to have been discovered by the exercise of reasonable diligence. The basis for the trial judge's decision on the discoverability issue is found in paras. 277 and 278 of his reasons:
However, in my view, the consequences (if not the esoteric, complex details of the structure) of the transfer pricing system and the impact of the Ford Canada and Ford U.S. inter- corporate relationships upon Ford Canada's profits and losses were discoverable and would reasonably be known to analysts within the financial community for many years and certainly by 1984. The annual reports of Ford Canada referred to the negative impact of depreciation of the Canadian dollar upon Ford Canada. It would be apparent to analysts and attentive investors that Ford Canada was not making up the shortfall due to the unfavourable exchange rate from purchases by Ford Canada in U. S. dollars.
This is not a case of a closely-held corporation with unsophisticated minority shareholders. The minority shareholders included institutional investors such as OMERS which would have had access to professional financial advice. Financial documents and disclosures were made on a regular basis and were subject to careful analysis and close scrutiny. Both the auto industry as a whole and Ford as a major part of it were the subject of sophisticated analysis, speculation and discussion.
(Emphasis added)
[163] Thus, the trial judge held that the cause of action was discoverable at least since 1984, because the consequences of the transfer pricing system were discoverable, namely that "the shortfall due to the unfavourable exchange rate" was not being made up, and minority shareholders would have had access to professional advice about a closely-scrutinized industry and a major corporate player within that industry. The claim, therefore, was limited to the six years prior to the filing of the claim on January 11, 2000. Since the period of historical oppression ended on September 11, 1995, the claim was limited to the 20-month period from January 11, 1994 to September 11, 1995.
[164] In my view, the trial judge made a palpable and overriding error. His finding [at para. 277] concerning knowledge that "Ford Canada was not making up the shortfall due to the unfavourable exchange rate" was inconsistent with his conclusion that the oppression flowed from the intercorporate arrangements, and that Ford Canada's poor performance could [page134] not be explained by the declining Canadian dollar. The fact that the transactions were denominated in U.S. dollars simply exacerbated the real problem, which, on the findings of fact by the trial judge, lay with the transfer pricing system and the related intercorporate policies. As I have said earlier in relation to the oppression claim against Ford U.S., an example of a palpable error is a finding made in conflict with accepted evidence.
[165] The overriding error here is in the trial judge's equating knowledge of the consequences of the oppression with knowledge of the facts giving rise to a claim for oppression. As held in Central Trust Co. v. Rafuse, 1986 29 (SCC), [1986] 2 S.C.R. 147, [1986] S.C.J. No. 52, at p. 224 S.C.R., "a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence". Also see, M. (K.) v. M. (H.), 1992 31 (SCC), [1992] 3 S.C.R. 6, [1992] S.C.J. No. 85, at p. 34 S.C.R. The fact that a company is losing money because of the decline in the value of the Canadian dollar, especially in recessionary times, is not oppressive.
[166] The trial judge's findings set out above, together with many of the other findings of fact, indicate that the material facts were not discoverable. The material facts upon which this claim was based at least included knowledge of the intercorporate arrangements. These, however, were not discoverable without access to the separate division results and at least some understanding of the mechanics of the transfer pricing system. That information was not publicly available and was only disclosed in the course of the appraisal litigation. The most telling information that the facts as disclosed in Ford Canada's public statements were not the cause of the company's lack of profitability is Mr. Bennett's 1995 letter, which was only disclosed in 2000. For ease of reference, I repeat the important paragraph:
The problem of low earnings in the Canadian company cannot be solved by Canadian management, as it results primarily from the corporate structure and inter-Company pricing arrangements. While the problem has existed for many years, it has now reached such major proportions that I believe corrective action is required before there are some serious consequences.
[167] As found by the trial judge, Ford Canada's public statements, which left the impression of arm's-length dealings, masked the true state of affairs. Following are just some of the findings of fact by the trial judge [at paras. 98, 146, 183, 288, 289, 300, 307, 352, 431, 432] that are inconsistent with his conclusion that the material facts on which an oppression action [page135] could be based were discoverable by reasonable diligence by at least 1984:
The Matyka Report [one of Ford's expert's] incorrectly looks simply at the overall profitability of Ford Canada which does not expose the alleged inherent flaws in Ford's North American transfer pricing system.
However, the Ford U.S. review by Dr. Wright [of the transfer pricing system] was solely for the purpose of determining whether the transfer pricing system met the criteria of the U.S. tax regulatory authorities. The mandate of that review did not include any consideration, or even awareness, of the latent issue as to whether the transfer pricing system was fair to the minority shareholders in Ford Canada.
Dr. Wright recognised the continuing losses suffered by CVD. However, she did not question the results for CVD as she accepted the underlying premise that CVD (and USVD for Ford U.S.) was the risk-taker for Ford Canada and therefore received the residual profit or loss.
The annual operating results of Ford do not at first impression readily reveal the inherent problems of the transfer pricing system. For example, both Ford Canada and Ford U.S. from 1980 to 1982 had reported operating losses, being a period of economic recession. Both entities had operating profits from 1983 to 1989. In the period 1991 and 1992, both entities lost money during the economic downturn, with Ford Canada continuing to have operating losses in 1994 and 1995 as the recession continued in Canada.
Sales by Ford Canada Manufacturing and Assembly to Ford U.S. at the substantial mark-ups inherent to the transfer price system tend to ameliorate Ford Canada's overall disadvantaged position.
The impact of the transfer pricing system is to understate profits or overstate losses earned from the Canadian market for Ford Canada. This realization does not arise from the benefit of hindsight. The results would be reasonably foreseeable to the management of Ford Canada from, at least, 1984 onwards.
The problems inherent to the transfer pricing system would have been recognized by the senior management of both Ford Canada and Ford U.S by 1984. From 1977 onwards, Ford Canada generally budgeted losses for CVD. There was no apparent sentiment on the part of management to change the regime, at least until Mr. Bennett voiced his concerns in 1995. Even then there was no detailed analysis made by the board of directors to explain and understand clearly the problem from the standpoint of determining fair value for the minority shares. The existing regime was satisfactory to Ford U.S.
. . . . . [page136]
The chairperson of the Special Committee acknowledged that there was little analysis of transfer pricing principles or how TELO costs are calculated. The evidence indicates that the board of directors had a limited knowledge of the inter- company pricing arrangements. There is nothing in the record to suggest that either the board of directors or the Audit Committee ever addressed the fundamental question of fairness to the minority shareholders because of the complex inter-company pricing arrangements. The record suggests the contrary, that is, that the reality was that the inter- corporate pricing system was determined solely by Ford U.S. and accepted uncritically through the years by Ford Canada's management. Mr. Bennett's letter of February, 1995 is the first and only critical comment in the evidentiary record. It was followed by the decision of Ford U.S. within two months to buy out the minority shareholders.
Ford Canada seeks refuge in the disclosure to shareholders in its annual reports that the overall impact of a drop in the Canadian dollar was negative upon the profits of Ford Canada and that the ability of Ford Canada to be profitable in the Canadian market was largely dependent upon the performance of the Canadian dollar. This ignores the fact that Ford U.S. was gaining profits (through component manufacturing, U.S. assembly sales to CVD and TELO payments by CVD) at the expense of Ford Canada by the decline in the Canadian dollar and that a truly independent entity acting rationally in its self-interest at arm's length to Ford U.S. would have renegotiated the pricing of vehicles into the Canadian market (and/or TELO) to capture some of these foregone profits.
The record indicates that the Ford Canada management and Board of Directors did not give any consideration at any time to the reasonableness of the TELO paid, nor did the management and Board of Directors conduct any studies or give any consideration to the fairness to Ford Canada and in particular, to its minority shareholders, of the transfer pricing system in place.
(Emphasis added)
[168] These findings of fact show that highly competent persons with far greater access to information and knowledge of Ford Canada's lack of profitability failed to appreciate the real causes of the oppression. It may be that the trial judge has extrapolated from what the board of Ford Canada should have known. However, the board had different responsibilities and different sources of information than the public shareholders. There was, as well, no evidence that professionals scrutinizing the auto industry and, in particular, Ford, were aware of the material facts [^6]. The trial judge's conclusion that the material [page137] facts were discoverable by reasonable diligence cannot be sustained in the face of these findings.
(b) Does an oppression action come within the Limitations Act?
[169] The trial judge found that s. 45(1)(g) of the former Limitations Act applied to the oppression remedy under the CBCA. Section 45(1)(g) imposes a six-year limitation period for "an action . . . upon the case other than for slander". The issue for the trial judge was the meaning to be attributed to the somewhat archaic concept of an action upon the case. The trial judge relied upon this court's decision in Perry, Farley & Onyschuk v. Outerbridge Management Ltd. (2001), 2001 5678 (ON CA), 54 O.R. (3d) 131, [2001] O.J. No. 1698 (C.A.). In that case, Sharpe J.A. reviewed at some length the meaning of the phrase. He referred to this court's earlier decision in Simpson (Robert) Co. Ltd. v. Foundation Co. of Canada Ltd. (1982), 1982 1750 (ON CA), 36 O.R. (2d) 97, 134 D.L.R. (3d) 459 (C.A.), at p. 101 O.R., where Cory J.A. suggested that the three fundamental aspects of an action on the case were:
(a) a duty owed by the defendant to the plaintiff;
(b) a breach of that duty by the defendant; and
(c) damage suffered by the plaintiff as a result of the breach of the duty owed to him by the defendant.
[170] Then, at para. 27, Sharpe J.A. summarized the effect of the cases in which actions grounded on a statute have been classified as actions upon the case, noting that "one finds that damages and the breach of a legal duty have been essential elements". The trial judge at para. 283 held in this case that, "Both elements are present in the action for oppression at hand." In his view the oppression claim in this case was "in the nature of a personal action for damages for breach of a statutory and common law duty to act fairly in the best interests of the corporation, i.e. in the best interests of all the shareholders" (emphasis added).
[171] Because of my conclusion on the discoverability and reference issues it is unnecessary to come to a settled view on this issue. I should not, however, be taken as agreeing with the trial judge. I have some reservations about the trial judge's conclusion since an oppression action need not rest on breach of any duty. As has been said repeatedly, the oppression action looks to the effects of conduct. As McKinlay J.A. said in Brant Investments Ltd. at p. 301 O.R.:
It must be recalled that in dealing with s. 234, the impugned acts, the results of the impugned acts, the protected groups, and the powers of the [page138] court to grant remedies are all extremely broad. To import the concept of breach of fiduciary duty into that statutory provision would not only complicate its interpretation and application, but could be inimical to the statutory fiduciary duty imposed upon directors in s. 117(1) (now s. 122(1)) of the CBCA. That provision requires that
117(1) Every director and officer of a corporation in exercising his powers and discharging his duties shall
(a) act honestly and in good faith with a view to the best interests of the corporation . . .
Acting in the best interests of the corporation could, in some circumstances, require that a director or officer act other than in the best interests of one of the groups protected under s. 234. To impose upon directors and officers a fiduciary duty to the corporation as well as to individual groups of shareholders of the corporation could place directors in a position of irreconcilable conflict, particularly in situations where the corporation is faced with adverse economic conditions.
(Emphasis added)
[172] The trial judge's application of s. 45(1)(g) to the oppression claim is, as well, inconsistent with this court's decision in Waxman, which was released after the trial judge's decision in this case, where the court stated [at paras. 534-36]:
Fifth, the appellants contend that the trial judge erred in applying the oppression remedy to events that occurred five or more years before the claim was made.
Again, we disagree. The appellants seek assistance from Jaska v. Jaska (1996), 1996 2926 (MB CA), 141 D.L.R. (4th) 385 (Man. C.A.). In that case the court determined that the counterpart Manitoba legislation could not reach back in time to the extent sought by the respondents. In Jaska, however, the result depended on a general limitation period imposed by the Manitoba Limitations of Actions Act, R.S.M. 1987, c. L150, which has no counterpart in Ontario, and in part on an exercise of the court's discretion in the circumstances of that case.
The trial judge understandably found the Jaska case of little assistance to her, because in this case there is no similar legislative provision and the oppression of Morris continued right up until the commencement of the action. The trial judge exercised her discretion to apply her broad remedial authority to the pattern of oppressive conduct that started in 1979. In doing so she neither abused her discretion nor ran afoul of any legislative limitation period.
(Emphasis added)
[173] I can see little to distinguish this case from Waxman. Finally, I note that in Hughes v. Bob Tallman Investments Inc., 2005 MBCA 16, [2005] M.J. No. 26, 250 D.L.R. (4th) 74 (C.A.), considering somewhat different legislation, the Manitoba Court of Appeal did not follow the trial decision in this case. Also see Seidel v. Kerr, 2003 ABCA 267, [2003] A.J. No. 1163, [2004] 1 W.W.R. 53 (C.A.). [page139]
(c) Application of the provincial Limitations Act
[174] The OMERS shareholders submit that, in any event, a limitation period created by a provincial statute cannot apply to a cause of action created by a federal statute. They concede that they did not make this argument before the trial judge. For that reason, and because of the general policy against pronouncing on constitutional issues where the issue may be resolved by other means, I decline to rule on this issue, despite the very helpful and attractive arguments of both Mr. Bredt and Mr. Hogg.
(6) The Fair Value Calculation
[175] Ford Canada and the OMERS shareholders both attack the trial judge's fair value calculation. I will deal with these submissions in turn.
(a) The OMERS shareholders' complaint
[176] The OMERS shareholders contend that the trial judge erred in taking the average of the mid-points of the values produced by the analyses of Dr. Horst and Dr. Clark in calculating the "go-forward" component of fair value. They submit that the trial judge should have taken the average of the high end of the values. The basis of the argument is that Ford U.S. proceeded by way of a squeeze out that obviated the necessity of approval by a majority of the minority shareholders.
[177] The trial judge explained, at para. 482, why he chose the mid-points. I see no basis for overturning the trial judge's decision on this issue. Although they deny it, the OMERS shareholders' argument seems to me to be based on a theory of an expropriation or forcing-out premium. The law appears to have settled that while there should be no minority discount, there should also be no premium because the minority's shares have been expropriated, except perhaps, for costs incurred in assessing alternative investments and commissions paid in purchasing such investments. That issue has been determined against the OMERS shareholders in Brant Investments Ltd. at pp. 323-26 O.R., pp. 194-96 D.L.R.
(b) Ford Canada's complaints
[178] Ford Canada submits that the trial judge erred in accepting the opinions of Dr. Horst and Dr. Clark. I have dealt with that aspect of the case above when considering the finding of oppression. I would not give effect to Ford Canada's submission.
[179] The trial judge agreed with the opinion of Mr. Ian Campbell who performed calculations to determine the value [page140] per share after taking into account the adjustments proposed by Dr. Horst and Dr. Clark. Mr. Campbell applied a compounded interest rate of 12.5 per cent to determine the historical component of share value. This interest rate was derived from evidence as to Ford's average after-tax unlevered return. The theory behind applying this interest rate was to take into account the foregone profits that Ford Canada could have earned had a proper transfer pricing system been in place. The trial judge did not provide reasons for adopting the 12.5 per cent compound rule.
[180] Ford Canada submits that there was no evidence to support the view that there were any available investments that would have earned those kinds of returns over the 1985 to 1995 period. Further, it submits that there is an inherent flaw in Mr. Campbell's approach because his opinion assumed that all of the moneys that should have gone to Ford Canada under a proper transfer pricing scheme would have been retained in the company and thus available for investment at the 12.5 per cent rate. Thus, for example, Mr. Campbell did not take into account the possibility that some of this money would have been paid out as dividends and that it was unlikely that shareholders would have been able to invest dividends at the 12.5 per cent rate.
[181] The OMERS shareholders support the trial judge's decision to award the 12.5 per cent compound rate. As they point out, the Supreme Court of Canada has held that compound interest is available for equitable claims. See Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, [2002] S.C.J. No. 44, 211 D.L.R. (4th) 385. The oppression remedy is in the nature of an equitable claim. It was not suggested that the trial judge did not have jurisdiction to award compound interest as part of the remedy under s. 241(3). Rather, there was a conflict in the evidence as to the appropriateness of using the 12.5 per cent compounded rate. Mr. Campbell provided a rationale for his calculations. While the Ford expert, Mr. Evershed, suggested a different rate, his evidence was undermined because of the assumptions he made [^7]. Since there was evidence to support the trial judge's decision, I would not interfere.
[182] Ford Canada has other criticisms of the approaches taken by the OMERS shareholders' experts, including an allegation of "double counting" of the labour savings advantage to Ford Canada because, for example, the Canadian government pays a greater share of medical costs. There was conflicting evidence on [page141] these issues. The trial judge dealt with many of these arguments at para. 481. As he said, "There was a good deal of judgment called for in the opinions as to valuation, based upon a great deal of complex and diverse data and extrapolations of value based upon probabilities and best effort opinions in looking at the data." The trial judge concluded that, if anything, Mr. Campbell's determination was conservative. I can see no basis for interfering with the trial judge's conclusion. In my view, Ford has not established any palpable and overriding error.
(7) The Interest Rate on the Payment by Ford Canada
[183] On January 10, 1997, Ford Canada paid the dissenting shareholders $117.91 per share. In view of the trial judge's finding that the fair value of the shares was $207, the dissenting shareholders were entitled to a further payment of $89.09 per share. In addition, the OMERS shareholders were entitled to a maximum of $52.36 (pro-rated by the number of days of ownership for any given shareholder over the 609-day period January 11, 1994 to September 11, 1995) for their oppression claim. The trial judge fixed the interest rate on both unpaid sums at 5 per cent. The dissenting shareholders submit that the rate should be 12.5 per cent, being Ford's historical after-tax internal rate of return, or 6.6 per cent, being the statutory rate when the fair value action was brought.
[184] Section 190(23) of the CBCA provides as follows:
190(23) A court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting shareholder from the date the action approved by the resolution is effective until the date of payment.
[185] In his reasons, the trial judge also referred to s. 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43, and the possible interaction of that section, which deals with pre- judgment interest, and s. 190(23). In the end, the trial judge concluded that he had a discretion to award interest on both sums. He did not give any reasons for choosing 5 per cent and did not distinguish between the fair value component and the oppression component. The OMERS shareholders suggest that 5 per cent represents the statutory rate when the oppression action was commenced in January 2000.
[186] I would not interfere with the trial judge's discretion in using a rate of 5 per cent. Ford Canada points out that the average prejudgment interest rate under the Courts of Justice Act was approximately 4.5 per cent from October 1, 1995 to the date of judgment. The dissenting shareholders have not shown that the trial judge erred in principle. [page142]
IV. COSTS
[187] The parties take issue with the trial judge's award of costs and seek leave to appeal the costs order. The trial judge awarded the OMERS shareholders costs on a substantial indemnity basis to the date of an offer to settle made by Ford. He awarded Ford Canada costs on a partial indemnity basis after the date of the offer to settle. He held that Ford U.S. was not entitled to any costs.
[188] The OMERS shareholders submit that the trial judge should have awarded them substantial indemnity costs for the entire period, even after the offer to settle, although Ford's offer exceeded the judgment.
[189] Ford submits that the trial judge erred in awarding costs to the OMERS shareholders on a substantial indemnity basis up to the date of the offer to settle.
[190] In my view, the parties should have an opportunity to revisit their submissions on the trial judge's costs award in light of the result of the appeal. The parties, if so advised, may therefore provide further brief written submissions on this issue. Ford shall serve and file its further submissions within ten days of the release of the reasons of the court. The OMERS shareholders shall serve and file their further submissions within ten days of receiving Ford's submissions. Ford may serve and file a reply within seven days of receiving the submissions of the OMERS shareholders.
V. DISPOSITION
[191] Accordingly, I would allow the appeal by the OMERS shareholders from the dismissal of the oppression claim against Ford U.S. While I have found that the trial judge made other errors related to the appeal by the OMERS shareholders, such as on the discoverability issue, those errors do not affect the result in favour of the OMERS shareholders. Thus, in all other respects I would dismiss the appeal by the OMERS shareholders, subject to further submissions concerning the issue of the costs of the trial.
[192] I would allow the appeal by Ford Canada, in part, and set aside the order of the trial judge directing a reference to the Master. In all other respects, I would dismiss the appeal by Ford Canada and order that the OMERS shareholders' recovery per share is limited to the pro-rated value of $52.36 for one day.
[193] If the parties are unable to agree on the costs of the appeal, they may make brief written submissions on these costs on the same timetable as set out for receiving further submissions on the trial costs. [page143]
[194] To repeat what we said at the conclusion of the oral argument, the court is grateful for the thorough and helpful written and oral submissions of counsel.
Appeals allowed in part.
Notes
[^1]: When I refer to the entire Ford entity I will refer to "Ford".
[^2]: In Anita I. Anand and Kim Brooks "The Allocation of Profits Between Related Entities and the Oppression Remedy: An Analysis of Ford Motor Co. v. OMERS" (2005) 36(1) Ottawa L. Rev. 129 at 138, the authors describe the profit-split method as follows:
[A]n application of this method, at least as employed by the US courts, begins with the overall profits of the related corporations. Then, that profit is allocated among the related corporations based upon their assumed economic contributions to the economic unit. The assumed economic contribution of each of the related corporations might be based upon the value of the invested capital employed by each corporation, or upon the proportion of the combined profits earned by unrelated corporations whose transactions and activities are similar, or upon some arbitrary allocation of profits such as a 50-50 split.
[^3]: Ford Canada actually sells more assembled vehicles to USVD than does Ford U.S. sell to CVD. However, the Ford Canada assembled vehicles contain more components that are manufactured in the United States than are manufactured in Canada.
[^4]: I am satisfied that this statement is not inconsistent with the other findings by the trial judge that Ford Canada could have negotiated changes to the transfer pricing system. The trial judge here is merely speculating that Ford U.S. might have resisted changes to arrangements that overwhelmingly favoured its position, not that Ford Canada in the end would have been unsuccessful in efforts to renegotiate.
[^5]: I therefore need not decide if the oppression action would be avilable if there was no such impact. As has been pointed out, the wording of the CBCA is not as clear in this respect as is the wording of the OBCA. See Markus Koehnen, Oppression and Related Remedies (Toronto: Thomson Carswell, 2004) at 36-41; and PMSM Investments Ltd. v. Bureau (1995), 1995 7123 (ON SC), 25 O.R. (3d) 586, [1995] O.J. No. 2611 (Gen. Div.), at pp. 591-96 O.R. A remedy is potentially available against Ford U.S., at least to the extent it benefited from the oppression: SCI Systems Inc. v. Gornitzki Thompson & Little Co., 1998 17741 (ON SCDC), [1998] O.J. No. 2299, 110 O.A.C. 160 (Div. Ct.) at para. 5.
[^6]: The entire theory of discoverability based on expert advice may be questioned. See the case comment on the trial judge's decision in this case by John Chapman, "Limitations Act Implications: Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board" (2004) 29 Advocates' Q. 340 at 364.
[^7]: He used the Treasury Bill Rate rather than the return on equity rate.