CITATION: Brekelmans v. Brekelmans, 2020 ONSC 150
DIVISIONAL COURT FILE NO.: 12/19
DATE: 20200109
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
PIERCE, DUCHARME, TAUSENDFREUND, JJ.
BETWEEN:
John Brekelmans
Applicant (Respondent in Appeal)
– and –
Gerald Brekelmans, Sandra Brekelmans, GJBK Holdings Limited, Brekelmans Holdings Limited and Gerald Brekelmans, Estate Trustee of the Estate of Gerardus Josephus Brekelmans
Respondents (Appellants in Appeal)
C. Patterson for the Applicant
M. Butkus for the Respondents
HEARD in London: November 26, 2019
Tausendfreund, J.
REASONS FOR JUDGMENT
Overview
[1] The Appellants appeal the decision of Justice Hockin of February 21, 2019. He found that the Appellants had acted in a manner unfairly prejudicial to the Respondent in this appeal (“John”), contrary to s. 248 of the Ontario Business Corporations Act (“OBCA”). The crux of the dispute is that the Appellants, in particular Gerald and Sandra Brekelmans (“Gerald/Sandra”) appeared to have favoured their children over John in the operation of a gravel pit in which both sides in this appeal had a monetary interest.
[2] The Appellants request that the order of Justice Hockin be set aside and that this application be remitted for re-hearing. John requests that the appeal be dismissed.
Standard of Review
[3] S.255 of the OBCA provides that an appeal from an order under this act is to this court.
[4] Both sides agree that the reasonable expectations of a complainant are questions of fact and thus subject to the palpable and overriding error test, as set out in Housen v. Nikolaisen, 2002 SCC 33.
Factual Background
[5] Gerald and John are brothers. In 2001, they and their brother, Robert, had purchased their father’s road construction company, Bre-Ex Ltd. After their father’s death, they also acquired from his estate a gravel pit, owned and operated by Brekelmans Holdings Limited (“BHL”). Robert has since released his interest in both corporations.
[6] In 2013, Bre-Ex Ltd. sold its assets to Gerald’s and Sandra’s three sons who incorporated C-Cubed Holdings Ltd (“C-Cubed”) which continued to carry on the road construction business as Bre-Ex Construction. At the time of this sale, John wanted his children also to be involved in the affairs of this new company. For unclear reasons, C-Cubed declined.
[7] After their father’s death and on the basis of tax advice, Gerald, as executor of the estate, incorporated a holding company, GJBL for the purpose of having the shares of BHL take advantage of the available “rollover” provision of the Income Tax Act. In furtherance of that arrangement, BHL shares were transferred to GJBL whose only shareholder, officer and director was Gerald, as executor of their father’s estate.
[8] GJBL then managed the gravel pit. John remained a half owner of BHL and as such he became a 50% beneficial owner of GJBL.
[9] Justice Hockin made these findings:
a. Between 2013 and 2017, C-Cubed removed from the BHL gravel pit 237,000 metric tonnes of aggregate at the “very favourable” charge of $0.45 per tonne.
b. In 2013, John had agreed to this charge for 1 year, yet this price arrangement continued.
c. The Appellants agreed that in 2013 the rate per metric tonne for aggregate ranged between $3.62 and $5.00.
d. C-Cubed paid the property taxes and other expenses for the gravel pit. However, once the received tax rebate for those years was factored in, the rate paid by C-Cubed for aggregate worked out to $0.38 per tonne.
e. The decision not to charge C-Cubed a reasonable rate was an act of “omission” by BHL which unfairly disregarded John’s interest to a reasonable return on his 50% interest in BHL. That amounted to actional oppression.
f. The offer by C-Cubed to purchase the gravel pit from BHL was accepted by GJBL without John’s knowledge. It was unreasonable not to consult John on price and terms and to proceed with the sale without a then current appraisal.
Test for Oppression
[10] There are two related requirements in a claim for oppression:
Does the evidence support the reasonable expectation asserted by the claimant? and
Does the evidence establish that the reasonable expectation was violated by corporate conduct that was oppressive or unfairly prejudicial to or unfairly disregarded the interest of the complainant?
See: BCE Inc., Re, 2008 SCC 66 at para 68.
[11] The Supreme Court of Canada in BCE Inc. at para 67 further explains these terms, as they apply to an oppression remedy.
“Unfair prejudice” may admit of a less culpable state of mind, that nevertheless has unfair consequences. “Unfair disregard” of interests extends the remedy to ignoring an interest as being of no importance, [but] contrary to the stakeholder’s reasonable expectations.
[12] The Appellants state that Justice Hockin erred in finding that John had an expectation of a reasonable return for the gravel sold to C-Cubed and that the decision not to charge C-Cubed a reasonable rate on BHL’s only asset was an act of “omission” by BHL, which unfairly disregarded John’s interest. The Appellants further state that in the absence of a reasonable expectation, the finding of oppression is a palpable and overriding error.
[13] In his affidavit, Gerald explained the historical business model of BHL:
The gravel pit was operated by Bre-Ex for many years and from the time John and I purchased Bre-Ex from my father. The gravel pit was being used for the benefit of Bre-Ex and not being operated at any profit, but a substantial loss, in part because the sales were low and the pit was only being used for Bre-Ex at a favourable market price, as Bre-Ex was owned in part by BHL.
The pit was never operated as a general pit selling to the public. It was a matter of convenience for Bre-Ex to provide a supply of gravel and a repository used by my father to dump fill; since the assets of Bre-Ex were sold to C-Cubed in 2013, it continues to be run in the same manner and has been maintained for the benefit of the excavation business.
[14] Although historically the business of BHL was to support and benefit Bre-Ex, once the shareholders of BHL and Bre-Ex were no longer the same, the business interests and expectations of the brothers ceased to be aligned. Their business interests diverged. The failure of the business model to change came at the expense of John.
[15] Accordingly, it was reasonable of Justice Hockin to find that John had the understandable expectation of a reasonable rate of return for his interest in BHL. The Appellants’ failure to consider that interest amounted to actional oppression.
[16] Justice Hockin found that John had an interest in a reasonable rate of return from the sale of the aggregate, as the only asset of BHL. The Appellants state that there was no evidence by which Justice Hockin could have determined John’s reasonable expectations. They state further that there was no direct evidence of what John would have considered to be a reasonable rate of return from the sale of aggregate. Addressing a similar criticism advanced in Ford Motor Company, Ltd v. Ontario Municipal Employees Retirement Board, 79 O.R. 3d 81 (“Ford”), Justice Rosenberg stated at para 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.
[17] The Appellants challenge the finding of Justice Hockin that the Appellants decided not to charge C-Cubed a reasonable rate for the aggregate and that they thereby disregarded John’s interest for a reasonable rate of return. They state that in making this finding, Justice Hockin evaluated a 2013 deal on the basis of a substantial tax rebate BHL obtained in 2017. They further state that this rebate had the effect of changing the financial landscape for BHL in applying financial circumstances for BHL in 2017 that did not exist at the time the price was negotiated in 2013. They urge that Justice Hockin used the benefit of hindsight to determine that the rate per tonne of aggregate paid by C-Cubed was unreasonable. The Appellants state that based on the “business judgment rule”, their decisions should be shielded with appropriate deference from court intervention: see BCE supra at pages 32-33.
[18] The risk of hindsight bias is at the heart of the deference accorded to business decisions, as based on the “business judgment rule” which recognizes that it is unfair to evaluate past decisions with the perfect vision hindsight affords. In Ford, the Court of Appeal approved this statement of the trial judge at para 55:
“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.”
[19] The Court of Appeal in Ford, held that the “business judgment rule” would not protect the decisions made by the Ford Directors because they had not given particular consideration to the reasonableness of the transfer pricing at issue or its fairness to the minority shareholders; see Ford at paras 56-59.
[20] The findings of Justice Hockin lead to the logical inference that as of 2013 the interests of Gerald and John were no longer aligned. As of that date, Gerald ordered the affairs of BHL for the benefit of C-Cubed and at the expense of John. Gerald’s actions in that regard were oppressive as against John’s expectations for a reasonable return on the sale of BHL’s only and depleting asset. For those reasons, the “business judgment rule” has no application to these facts.
Conclusion
[21] For the foregoing reasons, the appeal is dismissed.
[22] The Respondent is entitled to costs from the Appellants in the amount of $17,000 all inclusive.
Tausendfreund, J.
Pierce J.
“I Agree”
Ducharme J.
Released: “I Agree”
CITATION: Brekelmans v. Brekelmans, 2020 ONSC 150
DIVISIONAL COURT FILE NO.: 12/19
DATE: 20200109
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
John Brekelmans
Applicant (Respondent in Appeal)
– and –
Gerald Brekelmans, Sandra Brekelmans, GJBK Holdings Limited, Brekelmans Holdings Limited and Gerald Brekelmans, Estate Trustee of the Estate of Gerardus Josephus Brekelmans
Respondents
(Appellants in Appeal)
REASONS for judgment
Tausendfreund J., Pierce J., Ducharme J.,
Released: January 9, 2020