SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Thomas Falus, Applicant

AND:

Martap Developments 87 Limited, Vince Benedetto, Antoinette Benedetto, Andrew Benedetto, Paul Benedetto and Julia McGeown, Respondents

BEFORE: D. M. Brown J.

COUNSEL: M.J.W. Round, for the Applicant

R.B. Moldaver, Q.C., for the Respondents, Vince Benedetto, Antoinette Benedetto, Andrew Benedetto, Paul Benedetto and Julia McGeown

HEARD: January 30, 2012

REASONS FOR DECISION

I. Overview

[1] Martap Developments 87 Limited (“Martap”), an Ontario corporation, is a single-purpose corporate vehicle – it built and owns a six-story building on Danforth Avenue (the “Danforth Building”) which contains an underground parking garage, retail space at grade level and a not-for-profit community housing development on the above grade floors. Martap was initially owned in equal shares by the applicant, Thomas Falus, and the respondent, Vince Benedetto. Both gentlemen had conducted business together for many years. In 2004 Martap’s share structure was changed, resulting in each of Vince’s children becoming holders of common shares, while Vince received part of a class of preferred shares. The altered share structure, however, still left Tom holding 50% of the company’s voting shares.

[2] Tom now applies under sections 207 and 248 of the Ontario Business Corporations Act for orders either requiring one side or the other to buy the other out or, alternatively, for an order winding up Martap. The respondents oppose the request.

[3] For the reasons set out below, I dismiss the application.

II. The history of Martap

A. Martap’s original governance structure

[4] Tom is about 76 years old, and Vince approximately 80. Both have engaged in property development in Toronto for about 40 years.

[5] Vince has four children. Antoinette is a director and officer of Martap. She and her siblings, Andrew, Paul and Julia, became shareholders of Martap as a result of an estate freeze which I will describe below.

[6] In the 1980s Tom and Vince became interested in developing some lands owned by the TTC on the Danforth. In August, 1987, they incorporated Martap. Tom viewed the corporation as a partnership between Vince and himself. Both held equal amounts of common shares in Martap, and both became directors. Tom was appointed President, and Vince, Secretary.

[7] Tom also became Chair of Martap’s Board. Section 3.10 of Martap’s By-Law No. 1 states:

In the case of an equality of votes on any question at a meeting of the board, the Chairman of the meeting shall be entitled to a second or casting vote.

[8] Although Tom possesses a casting vote for Board meetings, Vince deposed that Tom’s casting vote would not be sufficient to dispose of all of Martap’s assets. It appears that the corporate affairs of Martap were run informally, with some suggestions in the evidence that few shareholder meetings were held. The company’s minute book was not placed into evidence.

[9] The Articles of Incorporation of Martap require the approval of the directors for the transfer of any shares of the corporation. Dissolution of the corporation requires the approval of 51% of the shareholders entitled to vote.

[10] No shareholders agreement was entered into by the parties.

[11] Tom regards Vince as his partner, and Vince views Tom as his.[^1]

B. The Danforth Building

[12] Around 1991 Martap constructed the Danforth Building, to which an additional floor was added in 1994. Martap holds a 99-year lease with the TTC for the land on which the Danforth Building sits. The lease expires in January, 2090. Martap has prepaid all rent due under the lease.

[13] Martap has sub-leased the apartments in the Danforth Building to Tobias House of Toronto, a not-for-profit housing provider for a term of 40 years. That sublease expires in January, 2031, and the base rent due under the lease has been prepaid.

[14] Martap receives the rent from the retail units located on the grade level of the Danforth Building. At present annual rent totals approximately $120,000 to $140,000.

[15] Martap retained a property management firm, Taft Property Management, to assist with managing the retail tenants. However, Tom deposed that he and his staff “still have to play an ongoing active role in the operation of the retail space, including finding new tenants, negotiating leases with those tenants, negotiating renewals of existing leases and dealing with cancellations and other significant issues that may be raised by the tenants.”

[16] As part of its arrangement with the TTC for the Danforth Building lands Martap enjoys a first right of opportunity to purchase approximately 5 acres of land from the TTC at market prices.

[17] The evidence disclosed that both Tom and Vince contributed their differing skills and experience to construct and operate the Danforth Building project.

[18] In 2006 the TTC sued Martap seeking damages of $1 million for water leaking into the underground garage. Vince deposed that the company retained litigation counsel whom both he and Tom instructed. Vince stated that Tom left the details of the TTC lawsuit, including a 2009 mediation process, to Antoinette and himself. Tom had a different view, agreeing he entrusted the 2009 mediation session to Antoinette and Vince, but stating that he had declined to agree with the tentative settlement negotiated at that session. The evidence filed by the parties, which was a bit dated, suggested that the TTC litigation had not come to an end, but in their factum the respondents indicated that the litigation had settled.

C. Changes in Martap’s share ownership structure

[19] Tom deposed that until recently he had not paid much attention to the corporate details of Martap “as I always viewed my arrangement with Vince as a 50-50 partnership”. Tom did acknowledge that the following changes had been made to Martap’s share ownership and governance structures:

(i) In 2001 he agreed to Vince’s request to appoint Antoinette in his stead as a director and the secretary of Martap.[^2] Tom understood the change was for estate planning purposes;

(ii) Tom acknowledged that his signature appeared on a 2002 resolution increasing the number of directors from 2 to 3 and appointing Antoinette and Andrew as directors, but he deposed that “I have no specific recollection of having agreed to these changes”. Vince deposed that the addition of Andrew as a director was done with the full knowledge and approval of Tom;

(iii) Antoinette was given joint signing authority over Martap’s bank account. Vince deposed that this change was made due to a decrease in his physical mobility;

(iv) In the summer of 2003 Tom agreed to Vince’s request to create two classes of preference shares in addition to the issued common shares. The original 2,000 common shares were converted into 200,000 Class A Preference Shares; Vince and Tom subscribed for 500,000 Class B Preference Shares; and, Tom subscribed for 1,000 common shares while each of Vince’s four children subscribed for 250 common shares. Tom understood that Vince requested these changes for estate planning purposes. The January 30, 2004 Articles of Amendment effecting these changes to the share structure were signed by Tom.

[20] Vince stated that although through the changes made in 2001, 2002 and 2004 he had passed on some responsibility for Martap’s business to his children, he remained totally informed about decisions concerning Martap.

[21] Vince deposed that he was surprised by Tom’s more recent attempts to wind-up Martap because Tom had expressed no such inclination when Antoinette was appointed director in 2001 or when Vince had dispersed his shareholdings amongst his children.

[22] According to Antoinette, several years ago Tom raised the prospect of his son, Robert, being added as a Martap director. The Benedettos had no objection. Antoinette deposed: “Obviously, Tom may have two directors.”

D. The Lansdowne project

[23] In the mid-1990s Tom and Vince developed a real estate project at Lansdowne and Davenport using a series of corporations to hold their respective 50% interests. At some point Antoinette became active in managing the project. In his affidavit Tom deposed that he became dissatisfied with Antoinette’s involvement, asked Vince that they dissolve their “partnership”, and a dissolution occurred, although a few trailing matters remained incomplete.

[24] Antoinette’s evidence painted quite a different picture of what had happened at the Lansdowne project. She observed that the Lansdowne project was held through several corporations, some of which saw Tom as a joint shareholder with Antoinette and other Benedetto children. Antoinette deposed:

Tom had no problem being in so-called partnerships with Vince’s children nor did Vince have any problem being so-called partners with Tom’s children.

Tom described the fact that some of Vince’s children were shareholders with him in some of the corporations as “irrelevant”.

[25] Antoinette deposed that for a period of time she managed the Lansdowne project. Antoinette stated that differences in opinion between the two families about approaches to maintenance levels and the standard of project care led Tom and Vince to reorganize the project so that each family could manage its own units. Notwithstanding this reorganization, in 2008 Tom and Vince renewed a 10-year mortgage for the project with reciprocal commitments by each.

[26] In his affidavit Tom complained about how Antoinette dealt with the signing of cheques for the Lansdowne project at one point of time back in 2004. Antoinette addressed the issue in her responding affidavit. Given the lapse of time since the alleged incidents occurred, the lack of prior protest by Tom and the lack of connection of the matter with the affairs of Martap, I place little weight on those events for the purpose of deciding this application. In any event, in his Second Affidavit Tom deposed that:

My desire to end our partnership has nothing to do with whether I trust Antoinette or not. I simply do not want to be forced into a partnership with people that I did not choose to be in business with.

E. The current state of affairs at Martap

[27] Vince described the Danforth Building as a very passive investment, with both the lease and sub-lease prepaid and the retail portion under professional management: “All Martap does is collect rent on the retail space and perform, with the assist of professional management, the usual duties of a Landlord with retail space”. Vince deposed that Martap is well able to pay its bills and profitably carry on business.

[28] Tom disagreed that Martap was a passive investment:

While certain aspects of the Project have, in the past, not required a great deal of active involvement, other aspects, such as the lawsuit with the TTC, are far from passive. More importantly, at any time, the TTC could trigger Martap’s opportunity to acquire the TTC’s surplus lands...The same can be said for the day upon which the lease with Tobias comes to an end and decisions must be made about the fate of the building on the site. As I have said, I have no desire to be involved in either of those complex matters in partnership with Vince’s children.[^3]

III. Applicant’s reasons for seeking the winding up of Martap

[29] Tom objects to Antoinette’s increasing role in the management of Martap, contending that Vince, in effect, “is attempting to force me to accept Antoinette, and to a lesser extent his other children, as my new ‘partners’”.

[30] Tom contends that the Danforth Building is not a passive investment, but requires (i) the management of the retail units, (ii) dealing with the TTC litigation, and (iii) the need to consider Martap’s right to purchase the 5 acres of land from the TTC, although Tom recognizes that “there is no fixed timetable for that to occur and it might not happen for many years”. Tom also deposed:

Quite apart from these immediate issues, the TTC Project that Vince and I acquired as partners some twenty years ago is one that has the potential to require significant ongoing efforts on the part of its owners, for many years after both Vince and I will long since have retired.

By the time that the sublease ends and the apartments in the Building revert to Martap, I will be 95 years old and Vince will be a similar age. There will still be 59 years remaining on the TTC ground lease. There will be retail spaces to manage and the apartment units and the long term care facility to deal with. Neither of us is likely to have much interest in developing the project at that time.

[I]f the opportunity to purchase the [5 acres of land from the TTC] does arise, then massive new development project will result. I have no interest in carrying out such a project with the ‘partners’ that Vince is attempting to force upon me, particularly when:

(a) I am not satisfied that those partners have the necessary skills and experience to make a real contribution to either the Project as it now exists, or to the much larger development that could result should the opportunity to purchase the land arise; and,

(b) I do not have the same long term relationship of trust and confidence with them, which I had with Vince.[^4]

[31] Tom deposed that the “assets of Martap are not easily divisible on a 50-50 basis”, so he had proposed to Vince that one of them buy out the other’s interest in the company. Vince and his children conducted some due diligence on that offer, but after some back and forth Vince informed Tom that he did not want to sell his interest in Martap. That refusal led Tom to take the position on this application that:

It is apparent that my interests as a 50% partner in this venture are completely at odds with those of my partner Vince. I am of the view that we can no longer carry on this venture together. We have fundamentally different views as to how to proceed. I think that the partnership must come to an end as Vince is no longer willing to continue to act as my partner himself, and he will not in the future, be capable of acting as my partner…

Martap is effectively deadlocked. Its two 50% shareholders are incapable of agreeing on the manner in which the Project should be dealt with in the years to come.

As we are in fact unable to carry on our previously co-operative partnership, the assets of the partnership should be disposed of in a way that provides both of us with an opportunity to elect to buy one another out at a fair price.[^5]

The point is that when I decided to work together in a business with Vince, I did so because I wanted work with Vince. I never contemplated that one day Vince might try to suggest that instead of working with him, I had to agree to work with someone else. The fact that the “someone else” in this case is one or more of his children really doesn’t matter…Whether I should be in partnership with someone that Vince selects is a decision that I should get to make. I should not be forced into a partnership based upon how ‘qualified” Vince, or anyone else, might think that person is to play a role.[^6]

[32] In his oral submissions Tom’s counsel took the position that since it was likely problems in Martap would arise in the future, it would be best to dissolve the company now.

[33] Vince sees no dispute existing between Tom and himself: “Other than perhaps the tactic to employ with the TTC in the litigation, we have no material differences with respect to Martap”:[^7]

There is no deadlock either under Martap’s Articles – especially in light of Tom’s casting vote – and there is no material disagreement which does, has or will cause the operation of Martap to be dysfunctional.

When we incorporated Martap it was expected that the assets would outlive us both and there was never any contemplation that Martap would be wound up or there would be a buy sell when we aged or when either of us wanted to retire. It was always contemplated that the shares would pass to our heirs. In particular, when the shareholdings on our side were changed years ago, there was only approval and consent from Tom.[^8]

Tom disagreed with Vince’s contention that when Martap was created they both contemplated that the Danforth Building project would be continued by their children.[^9] Tom deposed that neither he nor Vince gave any thought to what might happen to the project some 20 or 30 years down the road.

[34] In his affidavit Vince stated that he was not at all interested in a wind-up of Martap or a buy-sell of its shares, although he modified that latter position on cross-examination. As to his view of the future Vince deposed:

The next likely active step for Martap will be when the Tobias sub-lease ends unless the right of first refusal arises and Martap exercises it. At the time of the Tobias sub-lease expiry, God willing that we are both still alive, it is very, very likely that we will be well retired even if still capable. I know that my children (and Tom’s) will be more than capable of the redevelopment opportunity that will present at that time for the balance of the term of the 99 year lease. Similarly, if it is decided to exercise the right of first refusal to the lands adjoining Martap, then our children will be more than up to the task of developing that, remembering that we are unaware that this opportunity will present any time soon or at all while we are alive and able; and, that Tom has the casting vote in this regard.[^10]

[35] Vince sees the continued joint ownership of Martap as consistent with the original vision which Tom and he had for the company:

When we got together in the ‘80s, particularly in Martap, we were both middle aged and the Martap main asset was clearly one designed to outlive both of us both literally and functionally and it was always understood that it would, in the normal course, go on being held indirectly by our heirs.

[36] Vince regarded the lengthy and broad experience which his daughter, Antoinette, had accumulated in the real estate development and property management business as making her a valuable shareholder in Martap.

[37] Vince deposed that the shares of Martap “are practically virtually unsalable to the market and the assets are difficult to value”. Antoinette deposed:

From a third party perspective, it is difficult to put a value on the Martap assets, including the right of first refusal and the present contingent liability in respect of the TTC lawsuit. It is unlikely that a bank would significantly finance such a deal and very unlikely that a third person would buy out Tom or Vince.[^11]

[38] Antoinette expressed her view as a shareholder on Tom’s request to wind-up Martap as follows:

Despite differences from time to time, some expected and others not, there have been very few with respect to Martap and none are material. The Benedetto children recognize Tom as an accomplished businessman and view him [as] a valued partner and will continue with his heirs when Tom decides to retire.[^12]

IV. The relief sought by the applicant

[39] Tom seeks remedies under sections 207 and 248 of the OBCA. He argues that circumstances make it just and equitable to wind-up Martap, and he contends that the respondents have acted in an oppressive manner against him as a shareholder of Martap. The primary remedy Tom seeks is a court-imposed shotgun buy-sell process for the shares of Martap; as an alternative remedy, he seeks the winding up of Martap.

V. Governing legal principles

A. Winding-up a corporation: OBCA s. 207

[40] Pursuant to section 207(1)(b)(iv) of the OBCA a court may order the winding-up of a corporation where “it is just and equitable for some reason, other than the bankruptcy or insolvency of the corporation, that it should be wound up”. If a court concludes that the winding-up of a corporation would be just and equitable, it “may make such order under this section or section 248 as it thinks fit”.[^13] Although the "just and equitable" ground does not require a finding of "oppression", the remedial powers of the court under OBCA s. 207(2) enable it to grant the wide range of discretionary remedies available to it in an oppression remedy case, even though facts justifying a determination on the ground of oppression do not exist.[^14]

[41] The words “just and equitable” are regarded as words “of the widest significance”, to be given a broad interpretation.[^15] They act as a kind of bridge between the statutory grounds for winding-up and “the principles of equity developed in relation to partnerships.”[^16] Lord Wilbeforce, in Ebrahimi v. Westbourne Galleries Ltd.,[^17] articulated the core meaning of the concept of "just and equitable" in the context of the winding up of a corporation. In the Ebrahimi case he noted that the words “just and equitable” recognized “the fact that a limited company is more than a mere judicial entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure…” Therefore the policy objective underlying the “just and equitable” ground for winding-up a company seeks to prevent one party from disregarding the obligation it assumed by entering a company and to:

enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.

In terms of the application of the “just and equitable” concept to particular circumstances, Lord Wilberforce stated:

The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement or understanding, that all, or some (for there may be 'sleeping' members), of the shareholders shall participate in the conduct of the business; (iii) restriction on the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.

[42] In his decision in Animal House Investments Inc. v. Lisgar Development Ltd.[^18] Wilton-Siegel J. offered the following summary of the principles which he saw flowing from the Ebrahimi jurisprudence:

Ebrahimi therefore establishes that the following conditions must be satisfied to invoke the Court's discretion. The applicant must demonstrate (1) there must be "rights, expectations and obligations inter se" that are not "submerged" in the corporate structure, (2) such rights, expectations and obligations must not have been satisfied or discharged, whether as a result of a breach by one party, a dispute among the parties, or otherwise (3) the resulting circumstances must result in an unfairness or prejudice to one or more of the shareholders, and (4) such unfairness or prejudice must be sufficiently serious that it can only be rectified by a winding-up or other relief contemplated by subsection 248(3) of the Act.[^19]

[43] Often the “just and equitable” principle has been used to wind up a company in circumstances where a dominating or more powerful shareholder attempts to exclude another or to force another out of the relationship. But the concept goes further, applying where the relationship between the parties has reached a deadlock or where the relationship has broken down because of incompatibility or quarrelling:[^20] “continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly co-operation is sufficient to justify the order.”[^21] Consequently, the case law indicates that where in essence a corporation resembles a partnership, if the relationship of trust and confidence between the partners in corporate guise has broken down and the continuation of the business between them operating as equal partners is not possible, judicial intervention under OBCA s. 207 is appropriate.[^22]

[44] But the breakdown in mutual confidence must be such that the partner-shareholders cannot work together in the way originally contemplated.[^23] The need to establish a link between the breakdown in mutual confidence and the financial fate of the corporate enterprise was identified by the Court of Appeal in Wittlin v. Bergman:[^24]

The usual situation for a finding that liquidation or dissolution is appropriate is where a corporation is deadlocked with each of two shareholders or groups of shareholders holding fifty percent of the shares. In such a situation, if the shareholders cannot work together, the company is likely doomed to failure within a foreseeable time. To avoid the inevitable deterioration in value of the company, liquidation or dissolution could be the appropriate solution.

[45] I read Justice Wilton-Siegel’s decision in the Animal House case as re-iterating that point, although using the slightly different language of “reasonable expectations”. In that case he had declined to deal specifically with the contention made by one party that courts would not intervene under s. 207 in the affairs of a corporation if the dispute was limited to the domestic policy of the corporation and it was otherwise able to carry on. He did offer, however, the following comments on the point:

I think the proper interpretation of the authorities upon which the respondents rely is that the Court will not order a winding-up to address a dispute over business policy unless it is demonstrated that the reasonable expectations of the parties contemplated a winding-up in such circumstances.[^25]

[46] Wilton-Siegel J. returned to the point later in his reasons when he rejected the argument that in a family business context it was sufficient to demonstrate irreconcilable differences between the parties without demonstrating a failure of reasonable expectations of the parties arising out of the nature of the relationship between the parties.[^26] Instead, he concluded:

All of the cases cited to the Court reflect the underlying and unifying principle that a Court will only exercise its discretion to order a "just and equitable" winding-up if the disharmony has resulted in a sufficiently serious failure of the reasonable expectations of the parties to warrant such equitable relief. In order to satisfy this test of a serious failure of expectations, an applicant must demonstrate that the parties regarded, or would have regarded if they had turned their minds to it at the time of formation of the business association, the particular circumstances resulting from the disharmony to constitute the termination or repudiation of the business relationship among them. Accordingly, incompatibility is significant only insofar as it has resulted in a state of affairs in which the reasonable expectations of the parties are unattainable and from which the Court can reasonably infer that the business arrangement between the parties has been repudiated or terminated.[^27]

In dismissing an appeal from this decision, the Divisional Court adopted the analysis employed by Wilton-Siegel J.:

Although there are case where the equitable remedy of winding up has been granted where irreconcilable differences exist, in no case cited to us was the remedy granted in the absence of a finding that the reasonable expectations of the applicant had been breached. Whether a reasonable expectation existed is a question of fact.[^28]

[47] The authorities placed before me by counsel contained examples of where courts had intervened in the affairs of “partnerships in the guise of corporations”:

(i) In Clarfield v. Manley the court found that the conduct of one shareholder had been oppressive, with continuous and escalating quarrelling and the refusal to respect the legal rights of the other shareholder until facing court action seeking compliance;

(ii) In Re Rogers and Agincourt Holdings Ltd., following the 30% minority shareholder’s success in obtaining judgment granting him a 30% interest in the corporation which held the land on which the two shareholders operated a motel as a joint venture, the 70% majority shareholder excluded the minority shareholder from the boards of the two companies. The court concluded that the incompatibility and quarrelling between the partners, coupled with the exclusion from management of one by the other, justified the winding up of the corporation;

(iii) In Wittlin v. Bergman all parties agreed that they could not work together;

(iv) In Muscillo v. Bulk Transfer Systems Inc. the two brother shareholders had a falling out, as a result of which they would not speak to each other. The business relationship between the second generation of family members was tense and strained, with screaming matches periodically punctuating the office place. As well, an acquisition had been made by the company without the knowledge of one of the brothers. As stated by Newbould J.: “When two brothers who have worked together for 40 years have both reached the point of making personal attacks on each other and have both agreed that a judge should decide what should happen to the company, it can only be said that their relationship has deteriorated to the point that an order is required under s. 207 of the OBCA;[^29]

(v) Finally, in Gold v. Rose[^30] and Re Belman and Belman[^31] the court ordered windings-up, but I agree with the observation made by Wilton-Siegal J. in Animal House that “in each case, the Court found that the breakdown in the relationship among the parties had resulted in circumstances supporting a reasonable inference that the parties did not intend their business association to continue”.[^32]

[48] By contrast, in the Animal House case the court declined to grant an order under s. 207, notwithstanding the “existence of apparently irreconcilable differences that have arisen between the parties”.[^33]

B. Oppression

[49] The oppression remedy contained in section 248 of the OBCA is an equitable remedy which seeks to ensure fairness and which gives courts a broad, equitable jurisdiction to enforce not just what is legal, but what is fair. In considering oppression claims courts must look at business realities, not merely narrow legalities. At the same time the remedy is very fact-specific – what is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play.

[50] In BCE Inc. v. 1976 Debentureholders[^34] the Supreme Court identified the two inquiries which a court must make in considering an oppression claim: (i) Does the evidence support the reasonable expectation asserted by the claimant? and (ii) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest? The concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive - the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations. The onus lies on the claimant to identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held.

VI. Analysis

[51] The evidence is clear that both Tom and Vince regarded each other as business partners, and the circumstances surrounding their creation and operation of Martap support the conclusion that the business enterprise carried by it was in the nature of a partnership in the guise of a corporation. That said, it is important to recognize what the evidence reveals this case is not about.

[52] First, this is not a case where the disagreement between Tom and Vince has impaired or threatens to impair the operations of Martap. While Tom rejected the term “passive investment” to describe Martap’s activities, the evidence shows that on a scale of low maintenance to high maintenance, the actual operations of Martap are situated towards the low maintenance end of the scale. The residential portion of the Danforth Building is leased for another 19 years. The retail leases are managed by a professional property manager, with the involvement of the shareholders limited to “bigger picture” items concerning the retail leases. Tom has not demonstrated, on the evidence, that his disagreement with Vince has impaired the rental operations of the Danforth Building in any material respect.

[53] The dispute between Tom and Vince did not impact the corporation’s ability to defend the TTC litigation. Martap retained outside litigation counsel whom both Tom and Vince instructed. Although the 2009 mediation did not resolve the litigation, it is significant that it was Tom who refused to accept the tentative deal brokered at the mediation. Obviously his right to participate in the management of Martap received full recognition in that case because he was able to turn down the proposed deal. In any event, the respondents stated in their factum that the TTC litigation had settled.

[54] Tom points to the possibility of Martap’s right of first refusal with the TTC “going live” as an example of where his dispute with Vince might impair Martap’s operations. However, there is no evidence to suggest that the TTC plans to present the purchase opportunity to Martap in the near future, if at all. Tom’s arguments on this point involved pure speculation.

[55] Second, this case does not involve a governance dispute in the sense that one partner has acted, or attempted to act, to limit the legal governance rights enjoyed by the other. Tom does not complain about any attempt to exclude him from the direction or management of Martap. Although Tom takes issue with the appointment of Andrew as a director of Martap, he did sign the 2002 resolution making that appointment. While Andrew’s appointment as director undercuts the casting vote enjoyed by Tom under section 3.10 of Martap’s By-Law No. 1, Vince testified on cross-examination that he was quite prepared to have Andrew step down as a director so that only Tom and Antoinette were directors.[^35]

[56] While the governance affairs of Martap have been run with some degree of informality, Tom does not point to any inability on his part in the past to exercise his legal rights as a shareholder or director of Martap.

[57] In sum, unlike the numerous cases referred to me by counsel, this case presents the singular fact situation that the disagreement between the two protagonists has not impaired the operations of Martap and has not impaired the ability of either shareholder to exercise his legal rights in the governance of the corporation. This is not an “expulsion” or “exclusion from management” case.

[58] What this case boils down to is the simple assertion by Tom that he possesses a reasonable expectation that during his involvement in the company he would only have to deal with Vince, and no one else, in respect of the management and affairs of Martap. Flowing from that reasonable expectation, according to Tom, is a further reasonable expectation that in the event Vince sought to withdraw from the affairs of Martap and involve his children in the management of the corporation, then Tom was entitled to terminate his partnership with Vince, either by requiring Vince to purchase his Martap shares, or by Vince selling Tom his shares. Those two expectations, Tom contends, have been broken by Vince’s insistence that Martap can continue with his children assuming some role in the management and ownership of the company. In other words, Tom argues that his relationship with Vince was based on an understanding that when one of them wanted to retire, a buy-out of shares would occur.

[59] Does the evidence support that reasonable expectation asserted by Tom? I conclude it does not, for several reasons.

[60] First, both Tom and Vince agreed that when Martap was incorporated in 1987 neither turned their minds to what would happen in the event the other retired or wanted to withdraw from the business. Nor did they discuss what, if any, roles their next generations would play in the operations and governance of Martap. They did not enter into a shareholders agreement or adopt standard buy-out terms seen in arrangements for closely-held companies. They did not purchase life insurance policies to cover any potential buy-out costs in the event one of them died. They simply did not discuss the future governance and ownership affairs of Martap. They did nothing other than to insure Martap’s articles contained the standard restriction on share transfers without board approval. In the absence of any such discussions, I have difficulty seeing how a court could find, on the evidence, that Tom possessed the reasonable expectation he asserts in this proceeding.

[61] To address the lack of any such evidence the applicant attempted to imply such an expectation. The applicant submitted that for the purposes of the “just and equitable” analysis under s. 207 of the OBCA one can look to the Partnerships Act[^36] to inform the reasonable expectations of the partner-shareholders. More specifically, the applicant submitted that section 26 of the Partnerships Act should guide the consideration of reasonable expectations. That section provides:

26. (1) Where no fixed term is agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of his or her intention to do so to all the other partners.

Drawing on that section the applicant submitted that a partner-shareholder in a partnership in the guise of a corporation can require the termination of the corporation in the absence of any agreed fixed term for the life of the corporation.

[62] With respect, I do not think the jurisprudence supports such a contention. Although the Court of Appeal in Rogers and Agincourt Holdings Ltd. stated, in the context of the “just and equitable” principle, that “some general guidance can be obtained from an analogy to partnership law”,[^37] the Court was referring to guidance which principles developed in the context of the “just and equitable” dissolution of partnerships could provide to the issue of the just and equitable winding up of a corporation. I do not read the Court of Appeal’s decision as importing into corporate law all the principles of partnership law found in the Partnerships Act, which would be the consequence of accepting the applicant’s argument.

[63] Tom and Vince chose a corporate vehicle for their development of the Danforth Building. They could have chosen the form of a partnership for their venture, but did not. That choice had legal consequences – the rights and remedies available to a shareholder are not identical to those of a partner. The “just and equitable” doctrine recognizes that for a partnership in the guise of a corporation the conduct of one party which could trigger the winding-up of the corporation should be informed by the equitable principles governing the dissolution of a partnership. But I do not see the just and equitable principle as going so far as to altering the fundamental existential legal differences between a corporation and a partnership.

[64] A second reason supports my conclusion that Tom does not enjoy the reasonable expectation which he asserts. Although Martap initially built some homes, those were quickly sold and its main asset became the Danforth Building. The terms of the leases for that project clearly signaled to both Tom and Vince that the project undertaken by their corporate vehicle most likely would outlast both of them – the ground lease with the TTC ran for 99 years and the building lease with Tobias House would not expire until 2031, by which time Tom, the youngest of the two incorporators, would be well into his 90s. Looked at objectively, at a minimum those lease terms should have signaled to both Tom and Vince that they both would be retired well before the business of Martap had run its course and therefore some consideration should have been given to issues of succession in governance and ownership. For whatever reason, that did not occur.

[65] Finally, a third reason exists not to accept the reasonable expectation advanced by Tom. In 2001 Tom agreed to Antoinette’s appointment as a director to replace Vince. In 2002 he agreed to the appointment of Vince’s son, Andrew, as a director. And, in early 2004 Tom signed Articles of Amendment which amended Martap’s share structure resulting in a division of the common shares equally between Tom, on the one hand, and four of Vince’s children, on the other. Voting rights attached to those common shares, as they did to the class of preferred shares split between Tom and Vince. Each of those corporate events injected Vince’s second generation into the affairs of Martap. Tom consented to each step. Although in his evidence he tried to downplay the significance or meaning of those steps, I do not accept his efforts in that regard. Tom is a very experienced and sophisticated businessman. I have no doubt he knew the governance consequences of agreeing to the appointment of Vince’s children as directors and the issuance of shares to them. If Tom truly had a reasonable expectation that as a shareholder of Martap he would only have Vince as his co-shareholder and co-director, then one would have expected him to rebuff Vince’s efforts starting in 2001 to bring his children into the affairs of Martap. Instead of rebuffing those efforts, Tom agreed to them.

[66] Tom pointed to an August 16, 2004 letter he wrote to Vince as evidence supporting his reasonable expectation that their business partnership would end in the event one tried to introduce his children into Martap. There are several problems with Tom’s use of this letter. First, on its face it concerned the Lansdowne Project, not Martap. Second, Vince testified that he did not agree with the position Tom asserted in that letter.[^38] Third, Tom’s August, 2004 letter indicated that he wanted to take a different course with the Lansdowne Project than he had with Martap because earlier that year he had signed the articles of amendment for Martap which resulted in the issuance of common shares to Vince’s children.

[67] I conclude that the evidence does not support Tom’s assertion that in respect of Martap he possessed a reasonable expectation that his business relationship with Vince would terminate when one of them was no longer willing to or capable of carrying out their roles in the partnership in the guise of a corporation. It follows that I do not accept Tom’s contention that Vince has breached any reasonable expectation held by Tom. The evidence does not show that Vince has attempted “to force” new partners on Tom. On the contrary, as noted, Tom consented to the governance and ownership changes made in Martap in 2001, 2002 and 2004.

[68] I recognize that Tom is frustrated by the current state of Martap’s affairs. A few years ago he attempted to stimulate buy-out discussions with Vince, but Vince was not receptive, at least on the terms presented by Tom. Vince has not closed the door to such discussions. As he testified on his cross-examination: “If [Tom] felt so strongly about it, he should entice me to buy out my shares or I should buy out his…It’s a question of looking at the value that’s there and how each one sees the value.”[^39] In all the circumstances of this case, the fact that the first round of discussions between Tom and Vince about a possible share buy-out did not result in an agreement, is not a sufficient ground to grant relief under the “just and equitable” doctrine of s. 207 of the OBCA, and certainly the evidence does not support any finding of oppressive or unfair conduct by Vince or the other respondents under s. 248 of the OBCA.

VII. Conclusion

[69] For those reasons I dismiss this application.

[70] I would encourage the parties to try to settle the costs of this application. If they cannot, the respondents may serve and file with my office written cost submissions, together with a Bill of Costs, by April 30, 2012. The applicant may serve and file with my office responding written cost submissions by May 14, 2012. The costs submissions shall not exceed three pages in length, excluding the Bill of Costs.

D. M. Brown J.

Date: April 17, 2012

[^1]: Transcript of the cross-examination of Vince Benedetto conducted September 2, 2011, QQ. 51, 261. [^2]: Antoinette was appointed as a director of Martap on April 16, 2001. [^3]: Affidavit of Thomas Falus sworn February 10, 2011 (“Falus Second Affidavit”), para. 10. [^4]: Affidavit of Thomas Falus sworn October 22, 2010 (“Falus Initial Affidavit”), paras. 60, 61 and 63. [^5]: Falus Initial Affidavit, pars. 72, 74 and 75. [^6]: Falus Second Affidavit, para. 23. [^7]: Affidavit of Vince Benedetto, November 17, 2010 (“Vince Affidavit”), para. 6. [^8]: Vince Affidavit, paras. 31 and 32. [^9]: Falus Second Affidavit, para. 4. [^10]: Vince Affidavit, para. 7. [^11]: Affidavit of Antoinette Benedetto sworn November 19, 2010, para. 48 [^12]: Antoinette Affidavit, para. 48. [^13]: OBCA, s. 207(2). [^14]: Clarfield v. Manley, [1993] O.J. No. 878 (Gen. Div.), para. 29. [^15]: Rogers and Agincourt Holdings (1977), 1976 CanLII 736 (ON CA), 14 O.R. (2d) 489 (C.A.), p. 493. [^16]: Ibid. [^17]: [1972] 2 All E.R. 492, pp. 499-500. [^18]: (2007), 2007 CanLII 82794 (ON SC), 87 O.R. (3d) 529 (S.C.J.) [^19]: Ibid., para. 50. [^20]: Clarfield v. Manley, supra., para. 34. [^21]: Re Bondi Better Bananas Limited, 1951 CanLII 138 (ON CA), [1951] O.R. 845 (C.A.), at 855. [^22]: Muscillo v. Bulk Transfer Systems Inc., 2009 CanLII 38508 (ON SC), [2009] O.J. No. 3061 (S.C.J.), para. 23. [^23]: PWA Corp. v. Gemini Group Automated Distribution Systems Inc. (1993), 1993 CanLII 8475 (ON CA), 15 O.R. (3d) 730 (C.A.), at 744. [^24]: (1995), 1995 CanLII 790 (ON CA), 25 O.R. (3d) 761 (C.A.), para. 8 (emphasis added). [^25]: Animal House, supra., para. 47. [^26]: Ibid., para. 54. [^27]: Ibid., para. 57 (emphasis added). [^28]: 2008 CanLII 27471 (ON SCDC), [2008] O.J. No. 2240 (Div. Ct.), para. 7. [^29]: Muscillo, supra., para. 41 (emphasis added). [^30]: [2001] O.J. No. 12 (S.C.J.) [^31]: 1995 CanLII 7220 (ON SC), [1995] O.J. No. 3155 (Gen. Div.) [^32]: Animal House, supra., para. 62. [^33]: Ibid., para. 105. [^34]: 2008 SCC 69, [2008] 3 S.C.R. 560. [^35]: Vince cross-examination, Q. 183. [^36]: R.S.O. 1990, c. P.5. [^37]: Rogers, supra., 493. [^38]: Vince cross-examination, QQ. 83-85. [^39]: Vince cross-examination, QQ. 149 – 150.