ONTARIO

SUPERIOR COURT OF JUSTICE

COUR SUPÉRIEURE DE JUSTICE

DE L’ONTARIO

COURT FILE NO. / NUMÉRO DE DOSSIER DU GREFFE : 12-53965

DATE: 2012/05/03

BETWEEN / ENTRE :

PAUL DAOUST CONSTRUCTION & ASSOCIATES LTD. Plaintiff demanderesse – and – – et – CAISSE POPULAIRE TRILLIUM INC. Defendant défenderesse

Benoit M. Duchesne, for the Plaintiff/pour la demanderesse

André A. Ducasse, for the Defendant/pour la défenderesse
André Claude, for/pour Pierre Daoust

HEARD : April 25, 2012
ENTENDU LE : 25 avril 2012

REASONS FOR DECISION

MOTIFS DE LA DéCISION

métivier j.
lA JUGE MéTIVIER

[ 1 ] This motion was truly a bilingual one.

[ 2 ] The moving party’s materials are entirely in French and submissions on behalf of that party were made in French.

[ 3 ] The materials from the defendant were in English and those submissions were in both languages.

[ 4 ] The materials by the plaintiff in the action and original motion were in English although most of those submissions were made in French.

[ 5 ] This decision is written in both languages to correspond somewhat with the language of submissions and of materials.

History of the Litigation

[ 6 ] The plaintiff Paul Daoust Construction & Associates Ltd. (hereinafter “PDCAL”) issued a Notice of Action and moved, on March 29, 2012, for an injunction on an urgent basis.

[ 7 ] It sought an interlocutory and interim mandatory injunction to require the Caisse Populaire Trillium (hereinafter the “Caisse”) to comply with a banking resolution made during an annual general meeting of the company in February 2012. The affidavit in support was by Jean Daoust.

[ 8 ] PDCAL is one of a series of interrelated, privately held companies whose majority shareholders are two brothers: Jean and Pierre Daoust. They are equal shareholders in all holdings.

[ 9 ] The company moving for the injunction is one from which Pierre retired as employee as of September 2010, although he did not give up his role as director or officer. He took little part in the day‑to‑day operations of the company after that time.

[ 10 ] Pierre Daoust is seeking to be added to the motion and the action as a party who claims an interest in the proceedings. He contests the validity of the general meeting of February 2012, and therefore, of the banking resolution passed at that meeting. This is the resolution which the injunction motion sought to enforce.

[ 11 ] The original urgent motion, supported by the affidavit of Jean Daoust, came before the court on April 2, 2012. On that date, to the knowledge of counsel for the moving party, counsel for Pierre Daoust was out of the country. However, counsel obtained agents who appeared before the court and secured an adjournment . There were terms to the adjournment.

[ 12 ] Those terms have been met.

[ 13 ] This motion is brought by Pierre Daoust who seeks to be added as a party and for other relief. There is a cross‑motion by PDCAL to strike the affidavit of Pierre Daoust.

[ 14 ] Les questions soulevées par la motion de Pierre Daoust sont les suivantes :

(a) Suivant les conditions prescrites à la Règle 13.01(1) des Règles de procédure civile de l’Ontario, Pierre Daoust devrait-il être joint à titre de partie à l’instance?

(b) Compte tenu des exigences statutaires et règlementaires applicables aux assemblées des actionnaires, plus particulièrement en matière de quorum et de procuration, y avait-il absence de quorum à l’assemblée du 8 février 2012 rendant nulle la possibilité de procéder sur les sujets de l’avis de convocation et, en conséquence, invalidant ou annulant toutes les résolutions qui s’ensuivirent, y compris la résolution bancaire du 8 février?

(c) Y a-t-il lieu d’entretenir davantage la requête en injonction si elle est fondée sur la résolution bancaire adoptée à la suite à l’AGA du 8 février 2012?

(d) Y a-t-il lieu d’entretenir la requête en injonction si la règle de la régie interne (« indoor management rule ») n’est ni applicable ni pertinente à la présente affaire?

(e) Les faits entourant la gouverne actuelle de PDCAL militent-ils en faveur d’ordonnances additionnelles de cette cour, notamment à enjoindre Jean Daoust et PDCAL à produire des renseignements à Pierre Daoust?

Preliminary Matter - Right to Cross-Examine / Motion to Strike

[ 15 ] Service of the affidavit sworn by Pierre Daoust in support of his motion for the above relief was served on April 16 th and triggered an immediate request by the company to cross‑examine him on his affidavit. Counsel for Pierre indicated that he was not able to attend before the return of his motion originally set for April 19 th . However, the plaintiff learned that no bilingual judge would be available on that date and a subsequent date was set for April 25 th . Counsel for Jean then sought to cross‑examine prior to the 25 th .

[ 16 ] Counsel for Pierre advised he would not produce his client but would leave it to the court to decide if cross-examinations were necessary, and if so, « nous laisserons la cour décider si des interrogatoires sont nécessaries à l’audience du 25, et, si oui, dans quelle mesure ils le sont et à quelle fin? »

[ 17 ] The plaintiff claims that the court’s decision on any of the matters in Pierre’s cross‑motion should be put off and an adjournment granted until it has had the opportunity to cross‑examine on the affidavit filed by him and submits this is their right pursuant to Rule 39.02.

39.02 (1) A party to a motion or application who has served every affidavit on which the party intends to rely and has completed all examinations under rule 39.03 may cross-examine the deponent of any affidavit served by a party who is adverse in interest on the motion or application. R.R.O. 1990, Reg. 194, r. 39.02 (1) .

[ 18 ] It is well-known that there is no absolute right to cross‑examination even though the right does exist. The court retains its inherent power to control its own proceedings and to deny cross-examination rights where to do so appears to be in the interests of justice.

[ 19 ] As stated above, the action began with an application to the court on an urgent basis. I have now been advised by the plaintiff company’s counsel, that the urgency which led to the bringing of the motion for an injunction is no more.

[ 20 ] For a variety of reasons I do not consider a cross-examination to serve the interests of justice in the context of the circumstances here present.

[ 21 ] Firstly, most of the facts on which I rely are set out in Jean Daoust’s affidavit which served as the foundation for the motion for an injunction.

[ 22 ] Secondly, the circumstances giving rise to the banking resolution, which the plaintiff sought to have enforced by the Caisse by way of a mandatory injunction, are such that there is good reason to doubt its validity.

[ 23 ] L’historique est important. Avant que Pierre ne laisse son emploi, il avait donné à son frère Jean en 2005, un avis de son intention de quitter en 2010. En effet, au début de l’année 2010, il signale qu’il partira à la fin août et désire avoir réglé le partage de leurs avoirs lors de son départ. Pierre et son frère ont des pourparlers au sujet d’une transaction à cet effet, mais une impasse s’installe.

[ 24 ] Vers la fin du mois d’octobre 2011, Pierre demande des renseignements au sujet de la vérification financière qui se faisait à la suite de l’exercice terminé à la fin août 2011. Le comptable avise qu’il a reçu ordre de Jean de ne pas lui divulguer quoi que ce soit. Perturbé, Pierre dit avoir pris connaissance qu’il devait regarder plus attentivement ce qui se passait dans les affaires de leurs sociétés.

[ 25 ] En novembre 2011, Pierre a exigé, à titre d’administrateur et dirigeant, que Jean lui redonne accès aux documents et renseignements. À la fin décembre 2011, Jean a reconnu le droit de Pierre de signer tous les documents liés à leurs sociétés. Son avocat écrit :

Notre client est disposé à ce que Pierre contresigne tout chèque qui doit être émis par l’une ou l’autre des sociétés ainsi que tout document qui requiert la signature des dirigeants autorisés dans la mesure que Pierre est disposé et autrement disponible pour contresigner les dits documents sans refus déraisonnable.

[ 26 ] Malgré ceci, Jean convoque une assemblée (AGA) pour le 8 février 2012. Pierre conteste que Jean n’a pas l’autorité de ce faire, et indique qu’il ne pourra pas être présent. Son procureur explique précisément pourquoi Pierre nie que Jean a le fondé de pouvoir pour continuer la réunion.

[ 27 ] La réunion a lieu, et un autre individu, Luc Deslauriers, un détenteur minoritaire d’actions dans la compagnie est installé comme dirigeant et administrateur corporatif. Pierre voit son rôle comme dirigeant et administrateur retranché. Jean démissionne ensuite comme administrateur et dirigeant.

[ 28 ] It is clear that Jean and the company lawyer were well aware of Pierre’s contestation of the validity of the AGM even before the meeting was held. Indeed, Jean’s affidavit makes several references to the fact that Pierre did not proceed to court to set the meeting aside or to obtain other relief.

[ 29 ] Jean had stated in his original affidavit, in support of the injunction, that Pierre is not reliable in signing cheques, and the company will suffer irreparable harm if suppliers are not paid in time and this situation continues.

[ 30 ] The omissions in Jean’s affidavit on behalf of PDCAL are telling.

[ 31 ] He does not say that since December, Pierre had signed some 300 cheques, refusing to sign only six, four of these being cheques to Jean’s personal benefit as well as to that of the new officer and director.

[ 32 ] Jean does not mention that as recently as December 2011, he had agreed that both he and his brother Pierre would have signing authority of their business accounts at the Caisse populaire Trillium.

[ 33 ] Nowhere does he mention that he and Pierre are equal shareholders in all their holdings.

[ 34 ] Similarly, nowhere does he state how he could have voted on behalf of the company in the absence of a written proxy from his brother Pierre. In submissions at this motion, counsel for the company advises that before one can conclude that Jean did not have such a proxy or the power to do what he did, one must examine other resolutions of associated companies in order to determine whether these provide for such a power. Accordingly, it is alleged, that this is another reason why Pierre must be cross‑examined.

[ 35 ] If there was such a reason, it was incumbent on the company to state this fact in its original affidavit and certainly in the one sworn on April 23 rd , and filed in support of this motion.

[ 36 ] I decline to adjourn in order to permit cross-examination.

[ 37 ] In these circumstances, I exercise my discretion to dismiss PDCAL’s motion to strike the affidavit or to require attendance at cross‑examination before the substance of this once-urgent matter is adjudicated.

[ 38 ] The interests of justice require that all interests be protected.

Intervention /Leave to be Added as a Party

[ 39 ] Pierre Daoust’s notice of motion asks that he be added as a party pursuant to Rule 13.01.

13.01 (1) A person who is not a party to a proceeding may move for leave to intervene as an added party if the person claims,

(a) an interest in the subject matter of the proceeding;

(b) that the person may be adversely affected by a judgment in the proceeding; or

(c) that there exists between the person and one or more of the parties to the proceeding a question of law or fact in common with one or more of the questions in issue in the proceeding. R.R.O. 1990, Reg. 194, r. 13.01 (1) .

(2) On the motion, the court shall consider whether the intervention will unduly delay or prejudice the determination of the rights of the parties to the proceeding and the court may add the person as a party to the proceeding and may make such order as is just. R.R.O. 1990, Reg. 194, r. 13.01 (2) .

[ 40 ] The plaintiff company resists this request claiming that this action has to do only with the company and its bank, and does not concern Pierre Daoust.

[ 41 ] I disagree.

[ 42 ] The evidence before me, largely from Jean’s affidavit but as well as from Pierre’s affidavit, as well as from the corporate documents provided, is compelling that Pierre does have a real, personal, direct and corporate interest in the action before the court (as set out in rule 13.01(1) (a)).

[ 43 ] Pierre will, on a reasonable balance of probabilities, be adversely affected by a judgment in this proceeding if he is not a party (as per rule 13.01(1) (b)).

[ 44 ] The question in the current proceeding for an injunction, and those raised by Pierre are inextricably intertwined (as per rule 13.01(1) (c)).

[ 45 ] There is no evidence that adding Pierre will delay matters. In any case, the plaintiff company now says there is no urgency.

[ 46 ] L’intérêt que possède un intervenant peut être interprété de façon large. La permission d’intervenir est accordée lorsque dans une instance devant la cour, l’intégrité de l’intervenant occupe une place centrale dans les faits portés devant le tribunal à l’égard desquels il sera nécessaire de se prononcer. ( Beardon v. Lee, 2005 15470 (ON SC) ; 2005 CarswellOnt 1831, aux par. 9 et 14 )

[ 47 ] Pierre Daoust détient une participation égale à celle de Jean Daoust dans l’ensemble des sociétés PDC. Il est administrateur, dirigeant et actionnaire de Groupe PDC, l’actionnaire majoritaire qui contrôle PDCAL. Il est également administrateur et dirigeant de PDCAL.

[ 48 ] Je conclus donc que l’autorisation de joindre Pierre Daoust comme partie à l’instance est raisonnable et dessert les intérêts de la justice. Pierre a un intérêt véritable et direct dans la présente instance en raison de l’interdépendance des sociétés de laquelle Jean et lui sont propriétaires, et en raison du poste qu’il occupe à titre d’administrateur de PDCAL.

[ 49 ] J’accorde une ordonnance autorisant l’intervention de Pierre Daoust dans la présente instance à titre de partie jointe au litige et modifiant l’intitulé de celle-ci en conséquence.

Validité de la résolution bancaire ressortant de l’assemblée du 8 février

[ 50 ] Pierre Daoust réclame que la résolution bancaire approuvé lors de l’AGA soit invalide étant donné certaines lacunes importantes.

[ 51 ] Premièrement, un quorum n’a pas été atteint. À défaut de quorum, la seule action permise est de délibérer sur l’ajournement. Le paragraphe 139(3) de la Loi canadienne des sociétés par actions , L.R.C. (1985), ch. C‑44 se lit comme suit :

(3) En l’absence de quorum à l’ouverture de l’assemblée, les actionnaires présents ne peuvent délibérer que sur son ajournement à une date, une heure et en un lieu précis.

[ 52 ] La Loi canadienne des sociétés par actions (la « LCSA ») précise que, sauf disposition contraire des règlements administratifs, le quorum est atteint lorsque les détenteurs d’actions disposant de plus de cinquante pour cent (50 %) des voix sont présents ou représentés. L’exigence de quorum de PDCAL est identique à celle précisée dans la LCSA .

[ 53 ] PDCAL ne compte que deux actionnaires : Groupe PDC qui détient 89,3 % des actions avec droit de vote et Luc Deslauriers Family Holdings Inc. qui détient 10,7 % des actions avec droit de vote. En l’absence à l’AGA d’un représentant dûment mandaté et nommé par Groupe PDC, le quorum ne pouvait être atteint.

[ 54 ] Donc, Jean n’était pas fondé de pouvoir.

[ 55 ] Dans le procès-verbal de ladite réunion, il semble qu’il n’y a eu aucune référence à l’absence de Pierre Daoust, ni à son objection sur un fond légal.

[ 56 ] The notice of the meeting to be held on February 8, 2012 clearly states that one of the items of business is to elect directors for the ensuing year. Pierre Daoust was not so elected although his name is listed in the notice as one to be so elected. Luc Deslauriers was to be added as a director to the Board constituted of Pierre and Jean and no notice was given of the intention to replace them.

[ 57 ] Jean Daoust subsequently resigned, and the notice could be said to be misleading in that respect as well.

[ 58 ] However, more importantly, the notice of the meeting also said:

Shareholders of the Corporation who are Corporations are to present appropriate documentation evidencing the authority of their representatives to vote on their behalf.

[ 59 ] Je remarque que Jean Daoust, selon le procès verbal, aurait déclaré qu’il n’approuverait pas l’auto nomination de Luc Deslauriers, parce que :

… in the event he (Jean Daoust) may not have the authority to second the nomination as no other shareholder of Le Groupe Paul Daoust construction Inc./Paul Daoust Construction Group Inc. was present.

[ 60 ] La question de manque de fondé de pouvoir était alors une question vive. Mais, il ne ressort de l’AGA du 8 février aucun signe de l’existence d’une procuration à Jean Daoust, provenant du Groupe PDC.

[ 61 ] À mon avis, il n’y a pas de preuves convaincantes de la validité de la réunion du 8 février étant donné, entre autre, le manque de quorum.

[ 62 ] Je déclare que l’assemblée générale de PDCAL du 8 février 2012 est viciée, donc nulle et sans effet, y compris toutes résolutions qui en découlent. Par conséquence, la résolution bancaire est invalide.

[ 63 ] Pierre Daoust reste comme administrateur et dirigeant. Luc Deslauriers n’est ni administrateur ni dirigeant.

Position of the Caisse

[ 64 ] The defendant caisse was required to appear as defendant and while the above resolves their issue, a review of their position will be set out.

[ 65 ] In response to the motion for injunctive relief, the Caisse, in its affidavit, asserts that the Plaintiff company has a business banking account with the Caisse and that historically both Pierre and Jean had signing authority for this account and only one signature was required.

[ 66 ] The affidavit further states that in or about mid-January 2012, the Caisse was asked by Pierre to ensure that on a going forward basis the Account would require the signatures of each of Pierre and Jean. The Caisse complied with this request with the knowledge and acquiescence of Jean.

[ 67 ] In or about mid to late‑February 2012, the Caisse was informed that the applicant Jean had purportedly held an annual general meeting during which the following resolutions were adopted: (1) Pierre and Jean were removed as directors of the applicant company; (2) Luc Deslauriers was appointed as the applicant’s sole director; (3) Luc Deslauriers was appointed as the applicant’s Vice‑President of Operations and Jean was appointed as PDCAL’s President, CEO and Managing Director; and (4) either one of Luc or Jean had banking signing authority on behalf of the applicant in respect of its banking transactions.

[ 68 ] On or about March 19, 2012, after the aforementioned banking resolution was provided to the Caisse by the applicant, counsel for Pierre Daoust, André Claude, wrote to the Caisse informing them of his position that the following constituted irregularities in respect of the resolutions adopted by the applicant on February 8, 2012:

(a) Pierre never agreed to have Luc appointed as the applicant’s only director.

(b) Pierre never participated at the February 8, 2012 meeting which was unilaterally called by Jean. Notice of this meeting was given by Jean to Pierre on February 6, 2012 and on February 7, 2012, Mr. Claude wrote to the applicant’s counsel to confirm that Pierre was objecting to the meeting.

(c) There was no quorum for the February 8, 2012 meeting given that no duly authorized proxy was obtained from PDC Group which would have necessitated the unanimous approval of both Jean and Pierre. As a result, any resolutions adopted at that meeting were invalid.

[ 69 ] Mr. Duchesne, for the company, opined that the banking resolution was indeed valid, while counsel for Pierre advised that there was a serious flaw in the resolution.

[ 70 ] Counsel for CDPAL relies on the indoor management rule ( Royal British Bank v. Turquand (1856), 6 El. and Bl. 327 (Eng. Ech.)) to submit that no third party can look into internal corporate management. However, the rule does not apply where the third party has knowledge of an irregularity or has heard of circumstances likely to raise doubts as to the validity of the transaction. (s. 18 of the Canada Business Corporations Act (R.S.C., 1985, c. C‑44):

18. (1) No corporation and no guarantor of an obligation of a corporation may assert against a person dealing with the corporation or against a person who acquired rights from the corporation that

( a ) the articles, by-laws and any unanimous shareholder agreement have not been complied with;

( b ) the persons named in the most recent notice sent to the Director under section 106 or 113 are not the directors of the corporation;

( c ) the place named in the most recent notice sent to the Director under section 19 is not the registered office of the corporation;

( d ) a person held out by a corporation as a director, officer, agent or mandatary of the corporation has not been duly appointed or has no authority to exercise the powers and perform the duties that are customary in the business of the corporation or usual for a director, officer, agent or mandatary;

( e ) a document issued by any director, officer, agent or mandatary of a corporation with actual or usual authority to issue the document is not valid or genuine; or

( f ) a sale, lease or exchange of property referred to in subsection 189(3) was not authorized.

Exception

(2) Subsection (1) does not apply in respect of a person who has, or ought to have, knowledge of a situation described in that subsection by virtue of their relationship to the corporation.

[ 71 ] The Caisse did not want to get drawn into this shareholder dispute, and advised the parties that, given the uncertainty surrounding the resolutions and given its direct knowledge of the dispute prior to the delivery of the new banking resolution, it had no alternative but to insist that as of March 26, 2012, both Pierre and Jean would be required to sign on behalf of the applicant as had been the case in January 2012.

[ 72 ] Given its direct knowledge of the situation, and its concerns about the validity of the resolution, the Caisse was required to not simply accept the resolution of a meeting whose validity it knew was being seriously questioned, and therefore its stance of requiring both signatures was cautious, prudent and appropriate in the circumstances.

[ 73 ] Naturally enough, the Caisse does not wish to be drawn into this corporate fratricidal litigation.

Autres recours recherchés

[ 74 ] En vertu des articles 238 et 241 de la LCSA , tout administrateur or dirigeant, ancien ou actuel, d’une société ou de personnes morales du même groupe peut demander à la cour de redresser une situation d’abus.

[ 75 ] Il est à noter que tout administrateur ou dirigeant d’une société par actions a l’obligation d’agir avec intégrité, soin et bonne foi dans l’intérêt supérieur de la personne morale. (article 122(1) Loi canadienne des sociétés par actions , L.R.C. (1985), ch. C-44 )

[ 76 ] La preuve en l’espèce démontre que la manœuvre de l’AGA, le manque de transparence qui a suivi celle-ci (pas de divulgation du procès-verbal de la réunion) l’opposition du requérant à reconnaître l’intervention de Pierre dans le présent dossier, démontrent un comportement abusif et de mauvaise foi de la part de Jean a l’égard de Pierre.

[ 77 ] La loi précise à l’article 241(2) de la même loi :

241. (2) Le tribunal saisi … peut, par ordonnance, redresser la situation provoquée par la société ou l’une des personnes morales de son groupe qui, à son avis, abuse des droits des détenteurs de valeurs mobilières, créanciers, administrateurs ou dirigeants, ou, se montre injuste à leur égard en leur portant préjudice ou en ne tenant pas compte de leurs intérêts :

a ) soit en raison de son comportement;

b ) soit par la façon dont elle conduit ses activités commerciales ou ses affaires internes;

c ) soit par la façon dont ses administrateurs exercent ou ont exercé leurs pouvoirs.

[ 78 ] Une fois la demande faite, l’article 241(3) étale les recours permis et ils sont nombreux.

[ 79 ] La cour peut rendre les ordonnances provisoires ou définitives qu’elle estime justes pour empêcher le comportement contesté, enjoindre à la société de lui fournir, ainsi qu’à tout intéressé, dans le délai prescrit, ses états financiers, ou de rendre des comptes, et indemniser les personnes qui ont subi un préjudice.

[ 80 ] Jean refuse de fournir à Pierre des rapports qui permettraient à ce dernier de jauger la situation financière de la société. Puisque Jean et Pierre ont tous les deux l’obligation légale de veiller à la bonne gestion de cette société, le partage de renseignements, la prise de décision conjointe sur les questions d’importance, sont parmi les attentes raisonnables de Pierre. Le refus de Jean de ce faire est injuste et inéquitable.

[ 81 ] Le tribunal, dans de telles circonstances se doit d’octroyer des ordonnances demandées par Pierre et obligeant Jean de donner l’accès à Pierre aux informations auxquelles il a droit.

[ 82 ] In conclusion,

(1) I dismiss the motion to strike the affidavit of Pierre Daoust.

(2) I add Pierre Daoust as a party to this litigation.

(3) I dismiss the motion for an injunction given my finding as to the invalidity of the meeting and the resolution.

(4) I also order that Jean Daoust turn over to Pierre, or direct the accountants for the company, Marcil Lavallée or their designates or successors to provide Pierre, within 15 days;

(i) the interim financial statements of the company from October 2011 to date;

(ii) a report on the work in progress, as well as the costs and income of same;

(iii) reports of the banking deposits for the year and currently; and

(iv) all other reports as were requested in the letter of January 9, 2012 from Pierre to Jean.

[ 83 ] This matter shall be case managed by Master Roger.

[ 84 ] I shall receive written submissions from the parties concerning costs, up to a maximum of three (3) pages. The dates set for these are: from counsel for Pierre Daoust, within ten (10) days from today; from counsel for the Caisse within five (5) days thereafter, and from counsel for the company within seven (7) days after that time.

Justice Monique Métivier
La juge Monique Métivier

Released / publiés le : May 3, 2012 / 3 mai 2012