COURT FILE NO.: 09-8444-00CL

DATE: 20120123

ONTARIO

SUPERIOR COURT OF JUSTICE

COMMERCIAL LIST

BETWEEN:

Dale Burnham Bruce Glass and 979254 Ontario Inc.

Plaintiffs

– and –

618717 Ontario Inc., 618717 Ontario Inc. operating as Pronorth Equipment, Pronorth Equipment, Pronorth, 682439 Ontario Inc., 682439 Ontario Inc. operating as Pronorth Transportation Inc., Pronorth Transportation Inc., Pronorth Special Commodities Inc., 1208760 Ontario Limited, 979253 Ontario Inc., Brian Wayne Glass, Ron MacVicar, Milton Miller, Isaac Fehr, N.R. McLeod Chartered Accountant and McLeod & Yeates LLP Chartered Accountants

Defendants

P. James Zibarras and Kevin D. Toyne, for the Plaintiffs

Chris Dockrill, for the Defendants, 618717 Ontario Inc., 618717 Ontario Inc. operating as Pronorth Equipment, Pronorth Equipment, Pronorth, 682439 Ontario Inc., 682439 Ontario Inc. operating as Pronorth Transportation Inc., Pronorth Transportation Inc., Pronorth Special Commodities Inc., 1208760 Ontario Limited, 979253 Ontario Inc., Brian Wayne Glass

Frank Bowman and Muriel Moscovich, for the Defendants, N.R. McLeod Chartered Accountant and McLeod & Yeates LLP Chartered Accountants

HEARD: May 2, 3, 4, 6, 9, 10, 11, 12, 24, 25, 26, 27, 30, 31, June 1, 2, 3, August 15 and 16, 2011

D. M. Brown J.

I. Overview

[1] Over the years two brothers, the applicant, Dale Glass, and the respondent, Brian Glass, successfully built up a transportation company in Northern Ontario – Pronorth Transportation. For many years the brothers enjoyed a very close relationship, at both work and play. In the mid-2000s the brothers had a falling out, the reason for which was not clear from the evidence. For the last three years they have not talked to each other. Positions hardened, and ultimately this proceeding, a form of corporate divorce, was started. Scheduling problems caused a two-month interruption in the trial between the conclusion of the evidence and the making of final submissions. I urged the brothers to take advantage of the break to settle their complex affairs in a tax-advantageous manner. They did not do so. Accordingly, these Reasons dispose of the issues raised by their claims and counterclaims, including the brothers’ respective shareholdings in ProNorth, the fair value of Dale’s shares which Brian must buy, the fair value of a number of properties jointly owned by the brothers, whether Brian is liable to Dale for damages for oppressive conduct, and whether Norman McLeod, the accountant for Brian, Dale and ProNorth, breached any fiduciary duty he might have owed to Dale.

II. The parties

A. The individuals

[2] Brian and Dale Glass are brothers. Brian is four years older than Dale. Wayne Glass is their father. Both brothers own personal holding companies. Dale Glass is the sole shareholder of 979254 Ontario Inc. (“Daleco”); Brian Glass owns 979253 Ontario Inc. (“Brianco”). Dale and Brian own their respective interests in the larger ProNorth group of companies through Daleco and Brianco.

[3] The defendants, Ron MacVicar, Milton Miller and Isaac Fehr, were employees of the ProNorth group of companies. At the start of trial plaintiffs’ counsel advised that the claims against those three individuals were withdrawn and the action against them could be dismissed, although the issue of costs had not yet been resolved.

[4] The defendants, Norman R. McLeod, a chartered accountant, and McLeod & Yates LLP acted as auditors for two of the ProNorth group of companies, 618717 Ontario Inc. and 682439 Ontario Inc., as well as accountants for the brothers’ two personal holding companies. Norman McLeod has been a Chartered Accountant since the 1960s, with the first part of his career working with private and public companies, and the second part carrying on a private accountancy practice in North Bay. Although now retired, he still provides services to a few clients.[^1]

[5] Daleco and Brianco together own all the issued and outstanding shares of 618717 Ontario Inc., which carries on business as ProNorth Equipment. Throughout the trial 618717 was referred to as “Holdco” because it holds the assets of the ProNorth business, including about 400 trucks and trailers.

[6] Holdco owns all of the shares of 682439 Ontario Inc. which carries on business as ProNorth Transportation Inc. (hereafter “Opco”). All the billings and receivables of the ProNorth transportation business are done through Opco. A related company, 1208760 Ontario Ltd., was included by the business valuators in their expert reports on the value of Holdco’s shares. For the purposes of these Reasons I will refer to Holdco, Opco and 1208760 Ontario Limited as the “ProNorth Group of Companies”, or the ProNorth Group or, simply, ProNorth.

[7] Daleco and Brianco together own, or claim to own together, six pieces of real estate, including several used to carry on the ProNorth business. I will refer to those pieces of real estate as the Jointly Owned Properties.

III. Procedural history to this matter

[8] As will be described below, on September 2, 2009, Holdco held a shareholders’ meeting. Dale contends that Brian wrongfully excluded him from that meeting. Following the meeting both brothers resorted to litigation. On October 16, 2009, Brianco commenced an application in North Bay (CV-09-4750) seeking the partition and sale of a residential property on Vaughan Mills Road in Woodbridge. About three weeks later, on November 5, 2009, the plaintiffs commenced this action. By order made December 9, 2009 Pepall J. folded the issues in the North Bay Application into the Toronto action and began to case manage the two proceedings as one.

[9] In 2010 Pepall J. heard competing motions for summary judgment regarding the partition and sale of the Vaughan Mills and other Jointly Owned Properties. By reasons released January 25, 2011, Pepall J. dismissed both motions writing, in part:

[36] Dealing firstly with Brian and Brianco’s motion for partition and sale of the [Vaughan Mills] Property, in my view, there are genuine issues requiring a trial. It would appear that Brian or Brianco once had some beneficial interest in the VM Property but the record is unclear as to the extent of that interest. There is also the issue of Sherry Lynne Glass’ interest, if any. In my view, there is a genuine issue requiring a trial to determine the extent, if any, of Brian or Brianco’s interest in the VM Property.

[37] …I am also persuaded that there is a genuine issue for trial as to whether my discretion, which is available under the Partition Act, should be exercised. Mr. Dockrill acknowledged that Brian had no power to remove Dale as a director if Brian was a party to the Shareholders Agreement. Pursuant to section 3.01 of the Shareholders Agreement, there was no quorum if Daleco was not present. The preponderance of the evidence before me suggests that Brian and Brianco were bound by the Shareholders Agreement and had no right to remove Dale as a director in his absence. While the Memorandum of Agreement clearly contemplates an exchange of the Rockyshore Road property and the VM Property, the exchange was expressed as a condition of the overall agreement. Brian and Brianco take the position that the financing condition could not be satisfied and therefore the agreement did not close. Dale and Daleco take the position that the Memorandum of Agreement was breached by Brian and Brianco. Given these facts, it would be premature to compel Dale and Daleco to submit to an order of partition and sale based on the Memorandum of Agreement. More significantly, in my view, there is a genuine issue requiring a trial as to whether the pursuit of the partition and sale of the VM Property which is Dale’s primary residence is animated by oppressive conduct, malice or vexatious intent.

[38] I also accept Dale and Daleco’s submission that the VM Property is not a discrete issue and it would be inequitable to deal with it in isolation from the other properties and the claims of the parties… (emphasis added)

[39] As for Dale and Daleco’s cross-motion, as I have dismissed the motion for summary judgment for an order of partition and sale of the VM Property and as I had already given the parties a trial date of May 19, 2011, I need not deal with any remaining issues in the cross-motion of Dale and Daleco…

[10] This trial started on May 2, 2011. The first two days were consumed by a motion brought by the plaintiffs, on very short notice, for an order striking out the defendants’ pleadings by reason of their failure to produce material documents in a timely fashion. The plaintiffs also sought to exclude an expert report the McLeod Defendants intended to adduce during the trial. By reasons delivered and released on May 4, 2011, I dismissed the plaintiffs’ motion.[^2] By reasons delivered and released on May 12, 2011 I dismissed the plaintiffs’ motion to exclude certain expert evidence the defendants intended to call and gave directions to the business valuators to prepare a joint statement in advance of their testimony.[^3]

IV. Issues

[11] As the trial unfolded the parties came to agree that the two brothers could not continue to own the ProNorth Group together and that Brian should buy out Dale’s interest in Holdco. They disagreed, however, about their respective shareholdings in Holdco as well as the value of those shares. Accordingly, I will deal with the issues raised at trial in the following order:

(i) What are the respective shareholdings of Dale Glass and Brian Glass in Holdco?

(ii) Did Brian, Brianco and/or Pronorth act in a manner which was oppressive or unfairly prejudicial to or that unfairly disregarded the interests of Dale as a shareholder, director or officer of Holdco?

(iii) If he did, what damages should Brian, Brianco and/or Pronorth pay to Dale, including any damages for wrongful exclusion from the management of ProNorth? Are Brian, Brianco and/or ProNorth entitled to set off against any such amount any damages which Dale might owe them for the wrongful detention of a Cessena aircraft?

(iv) What amount of money should Brian pay Dale for his shares in Holdco?

(v) Who owns the Vaughan Mills property? If both Daleco and Brianco own that property, should an order for partition and sale issue, or should one party be required to buy out the other’s interest and, if so, at what price?

(vi) With respect to other Jointly Owned Properties, should an order for partition and sale issue, or should one party be required to buy out the other’s interest and, if so, at what price?

(vii) What is the liability, if any, of N.R. McLeod Chartered Accountant and/or McLeod & Yeates LLP Chartered Accountants to the plaintiffs? If any liability has been established, what damages were caused by such conduct?

V. FIRST ISSUE: THE GLASS BROTHERS’ RESPECTIVE SHAREHOLDINGS IN HOLDCO

[12] In his Amended Statement of Claim Dale pleaded, as a particular of his oppression claim against his brother, that the principals of the ProNorth Group could no longer work together in a co-operative, productive fashion and therefore Holdco should be sold with the net sale proceeds paid into court. Brian, in his counterclaim, sought an order requiring Daleco to sell its interest in the ProNorth group of companies. At trial the parties agreed that Brian or Brianco should purchase Daleco’s interest in Holdco. That left two questions for determination: (i) the number of shares Daleco owned in Holdco, and (ii) the fair value of those shares.

[13] Holdco’s Minute Book was filed in evidence.[^4] In the following Parts V.A, V.B and V.C of these Reasons I shall highlight in bold the name of any document which appeared in Holdco’s Minute Book. According to Brian, the documents in Holdco’s Minute Book were prepared by lawyers – Messrs. Tafel or Nixon – or by an accountant, Norm McLeod.

[14] The last two entries in Holdco’s Shareholders’ Register are dated May 1, 1992. They show that Brianco and Daleco each own 100 of the 200 issued common shares of Holdco. The last two entries in the Share Transfer Register record Brian Glass transferring 100 shares of Holdco to Brianco and Dale Glass transferring 100 shares of Holdco to Daleco, resulting in the equal ownership of Holdco by Brianco and Daleco.

[15] Section 139 of the Business Corporations Act provides that the minute book of a corporation is admissible as proof of all facts stated therein “in the absence of evidence to the contrary”:

(1) Where this Act requires a record to be kept by a corporation, it may be kept in a bound or looseleaf book or may be entered or recorded by any system of mechanical or electronic data processing or any other information storage device.

(3) The bound or looseleaf book or, where the record is not kept in a bound or looseleaf book, the information in the form in which it is made available under clause (2) (b) is admissible in evidence as proof, in the absence of evidence to the contrary, of all facts stated therein, before and after dissolution of the corporation.[^5]

[16] Brian contends that Holdco’s Minute Book does not accurately record the real shareholdings of the two brothers in Holdco. It is Brian’s position that his holding company owns 62% of the shares in Holdco, while Daleco owns 38%. Let me first set out the evolution of the shareholdings as recorded in Holdco’s Minute Book. I will then identify the evidence outside of the Minute Book which is consistent with the 50/50 ownership structure recorded in the Minute Book, followed by the “evidence to the contrary” upon which Brian relies in support of his position of a 62:38 ownership split.

B.1 Who started ProNorth?

[17] Dale and Brian agreed that ProNorth operates a road transportation business. They did not agree on much else about the company, including who started it.

[18] According to Dale, he started working for his father, Wayne, who ran a cartage company in North Bay. Sometime after his father’s company went out of business, Dale started working as a truck driver for a cartage company run by his brother called Noront Industries. When Noront experienced business difficulties, Dale stated that he started Holdco.

[19] Brian testified that when his father’s company ran into difficulties he basically rolled his father’s business into a new company, Noront, and kept on going from there. He acknowledged that Dale worked for Noront as a driver. Brian stated that things did not go well with his business partner, Blaine Kennedy, so he talked to Norman McLeod and a new company was set up - Holdco.

[20] The Articles of Incorporation for Holdco show that it was incorporated under the Ontario Business Corporations Act on March 29, 1985. Dale is shown as the incorporator and first director. Holdco’s Shareholders’ Register and Share Transfer Register record a May 22, 1985 treasury issue of one share to Dale and the Minutes of Holdco’s Annual General Meeting held May 22, 1985 and a Resolution of the Shareholder of that same date show Dale as the sole shareholder. A Director’s Resolution of May 22, 1985 listed Dale as the sole director of Holdco and appointed him as President, with his father, Wayne, as Secretary.

[21] Dale testified that he and his father together put about $60,000 into the new company, acquired some trucks, as well as a few of his father’s former clients. Dale did not produce any documents to support the making of that injection of capital. Dale stated that Brian joined the business, focusing on the operations side, while Dale did a lot of the driving.

[22] Brian could not recall why Dale was shown as the initial shareholder of Holdco. In his view he started Holdco, he initially owned 100% of the shares, and when he brought Dale and his father into the business the shareholdings became 54:23:23 amongst himself, Dale and their father. Brian contended that his father’s 23 shares were held “in trust” by Dale because at that time their father was in bankruptcy.

[23] As shown on a Director’s Resolution regarding banking dated May 22, 1985, both Dale, as President, and Brian had signing authority on behalf of Holdco. Company Directors’ Resolutions signed between November, 1985 and May, 1986 showed Dale as the sole director, and the Minutes of a Shareholders’ Meeting held of May 22, 1986 continued to record Dale as the sole shareholder. That same resolution appointed Norman McLeod as Holdco’s accountant. Minutes of Meetings of the Shareholder and Director in 1987 and 1988, including resolutions regarding banking and the granting of security, continued to record Dale as the sole shareholder and director. A number of these directors’ resolutions indicated that the meeting of the sole director took place at the offices of Tafel & Friedrich, lawyers in North Bay. It is clear from these early entries in the Minute Book that the incorporation of Holdco and the early steps in its internal governance were done with the assistance of lawyers.

B.2 Brian’s first shareholding in ProNorth

[24] Following the initial issuance of one share to Dale, the next issues of shares recorded in Holdco’s Shareholders’ Register and Share Transfer Register were on October 2, 1989 when three issues were made out of treasury: 54 shares to Brian, 22 shares to Dale and 23 shares to their father, Wayne. Minutes of a Director’s Meeting held the same day contained confirmation by the directors of the issuance of those shares. Taking into account the initial share issued to Dale, the shareholdings at that point were shown as Brian holding 54 shares (54%), Dale 23 shares (23%), and Wayne 23 shares (23%).

[25] Dale attributed his brother’s greater shareholding to the “big brother thing”, although he thought that he, Dale, was doing more for Holdco than his brother. According to Dale by 1989 he had come in off the road and was running the maintenance side for the company’s 20 trucks. Meanwhile his father and brother tended to the administration and operations side of the company.

[26] Yet, a year before this issue of shares – on December 16, 1988 – Dale had signed Minutes of a Director’s Meeting clarifying that “pursuant to a trust agreement Dale B. Glass holds the shares of this company on the basis of 54% on behalf of Brian and 46% on behalf of Dale.” Dale acknowledged having signed that document. He testified that when further shares were issued in October, 1989 he split his 46% interest with his father – 23 shares each – because he was “the nice guy”. Brian could not recall why those shares were held in trust at that time. The October 2, 1989 issue of shares mirrored the 1988 declaration of trust as between Brian and Dale.

[27] Contemporaneously with the issuance of new shares on October 2, 1989, the Minutes of a Special Shareholders’ Meeting recorded that Holdco’s by-laws were amended to increase the number of directors to two and required a quorum of both directors for any board meeting. The Minutes of the October 2, 1989 AGM recorded that Brian became a director and also the President of Holdco at that time, with Dale acting as Vice-President. The AGM was held at the lawyer’s office.

[28] Brian testified that when more shares were issued in Holdco, he ended up holding 54%, with his brother and father each holding 23%.

B.3 Contentions about various sales of shares within the family: 1989 to 1992

[29] Dale testified that he entered into an agreement with his father dated as of November 9, 1989 under which he agreed to purchase his father’s shares in Holdco for $114,400.00 with payments spread out over time until November 30, 1991. Although the agreement contained a place for Brian to indicate his consent to the sale, Brian did not sign the document. Dale testified that he paid the full amount to his father. On cross-examination he admitted that he did not have any documents showing his payments to his father for those shares.

[30] Brian offered a different version of what happened. He testified that at the time he was not getting along well with his father so he asked Dale to negotiate an arrangement under which Brian could buy out his father’s shares. Brian contended that when Dale returned and presented the November 9, 1989 agreement under which Dale had purchased the shares, Brian “hit the roof”. Brian stated that he was not asked to sign the November 9 agreement and he contended that that deal never closed. Instead, according to Brian, he and his brother split their father’s shares equally and “another agreement” was done, but it had “disappeared”. I should note that under such a scenario, Brian would have held 65.5% of Holdco’s shares, with Dale holding 34.5%, but Brian did not advance such a split as the true reflection of beneficial ownership – he maintained the 62:38 split was the correct one.

[31] In his evidence-in-chief Brian stated that he had seen the November 9, 1989 agreement at the time and he “hit the roof”. However, that evidence at trial stood in clear contradiction to evidence which he gave on his examination for discovery:

Q. 470. Do you recall seeing that document? [i.e. the November 9, 1989 agreement]

A. No.

If you turn to page 3 of that document. Is your signature anywhere on that page?

A. No.

Is it possible that this is the document that you were referring to earlier whereby you say you acquired the shares of your father?

A. No. I don’t know where this document’s from.

Okay. So you’ve never seen this document before?

Mr. Dockrill: That’s what he told you.[^6]

[32] Towards the end of the trial Brian’s counsel indicated that Richard Tafel, Holdco’s original corporate solicitor, had responded finally to a request for documents from his file. I allowed those documents to be placed into evidence. On December 5, 1990 Mr. Tafel wrote to Brian enclosing copies “of the two Agreements you have reached here” and asking for clarification of how he wanted them signed. The first document, dated November 21, 1990 was very similar to the one signed by Dale and Wayne a year earlier dated November 9, 1989. The 1990 one was not signed. The second document, also dated November 21, 1990 and also unsigned, provided that upon Dale’s acquisition of all of Wayne’s shares, then Dale would transfer 11% of the shares in Holdco to Brian and retain the remaining 12% previously held by Wayne (i.e. resulting in a 65:35 split of shares).

[33] The next share transfer recorded in Holdco’s Shareholders’ Register and Share Transfer Register occurred on March 27, 1992 when Brian transferred four of his shares to Dale and Wayne transferred his 23 shares to Dale, leaving Brian and Dale personally holding 50 shares each in Holdco.

[34] Several documents touch upon that March 27, 1992 transfer. Dale signed what purported to be minutes of a director’s meeting held March 27, 1992 confirming those share transfers to Dale (although the signature line bears the date of January, 1993). Partial, unsigned minutes of a shareholders’ meeting of the same date also confirmed those transfers.[^7]

[35] Dale and Brian signed an agreement made as of May 1, 1992 under which Brian agreed to sell four of his shares in Holdco and Opco to Dale for $40,000.00, which would result in each brother owning 50% of the shares of the companies. (Opco became a wholly-owned subsidiary of Holdco sometime after this transaction.) The opening recital to that agreement stated:

WHEREAS it has been the intention that the parties are supposed to be equal owners of businesses related to the trucking industry that the two have been involved in, in the City of North Bay…

Brian confirmed that one of the signatures on the document was his, but he contended that he never sold his own shares to Dale. Yet, only a few moments later in his evidence, Brian testified that this would have been done to make the companies look like they were owned 50/50 in order to save a bunch of tax. He emphasized, however, that the shares were never really held 50/50.

B.4 The brothers incorporate their holdcos

[36] Both Dale and Brian testified that on the advice of Norm McLeod they incorporated personal holding companies through which they would hold their interests in ProNorth. Daleco and Brianco were both incorporated on April 21, 1992.

[37] Brian signed a May 1, 1992 Holdco Director’s Resolution stating that as of that date he and his brother each owned 50 common shares of Holdco. Both Dale and Brian signed a similar Holdco Shareholders’ Resolution also dated May 1, 1992.

[38] Both brothers signed separate May 1, 1992 agreements with Holdco under which they sold their shares in Opco to Holdco in return for the issuance of a further 50 shares in Holdco. The agreements stated that they were intended to fit within the provisions of section 85(1) of the Income Tax Act. Brian, in his capacity as Holdco’s President, signed two Directors’ Resolutions of that date authorizing Holdco to issue the additional 100 shares. Holdco’s Share Transfer Register records the issuance of a further 50 shares on May 1, 1992 to each of Dale and Brian.

[39] Each brother also signed separate May 1, 1992 agreements with their holdcos under which they sold to their holdcos all of their shares in Holdco in return for common shares in their personal holding companies.

[40] Brian signed a Director’s Resolution of that date approving those share transfers. Holdco’s Shareholders’ Register and Share Transfer Register record those two May 1, 1992 transactions. They are the last entries in Holdco’s Shareholders’ Register, leaving Daleco and Brianco each holding 100 shares in Holdco. Minutes of a May 1, 1992 Holdco directors’ meeting signed by Dale referenced those transactions. Minutes of a May 1, 1992 Holdco shareholders’ meeting signed by both Dale and Brian also referenced those transactions.

B.5 The “coin toss” meeting

[41] Brian testified to what was termed the “coin toss” meeting, where the brothers met in Norm McLeod’s office in 1992 or 1993. Brian said the topic was what to do about their father’s shares in Holdco. A coin toss was held. Brian said he could not remember how many shares the coin toss was over, but he lost the toss and as a result they arrived at the 62:38 split of shares. Brian testified that the Minute Book was not changed at that time in order to keep the companies unassociated for tax reasons.

[42] Dale testified before Brian. Dale was not cross-examined about the “coin toss” meeting. Given that omission, I ruled that Dale could testify in reply about the meeting if he so wished. Dale did not testify in reply.

[43] Mr. McLeod stated that the brothers came to his office shortly after they had put their corporate structure together and were arguing about their respective shares.[^8] According to Mr. McLeod, Dale was taking the position that he should have 38% of the shares, while Brian contended Dale should only have 32%. Mr. McLeod said he suggested a split, but the brothers were stubborn, so he flipped a coin, Brian lost, and Dale ended up with 38%, not 32%, of the shares. According to Mr. McLeod, that was the “first time” the brothers had come on to the 62:38 split. Although Mr. McLeod acknowledged that subsequent payments to the brothers might not have been as consistent as they could have been with that ratio, the 62:38 split was the “basic principle” upon which they operated.

[44] At trial Mr. McLeod stated that it was his knowledge of the results of the “coin toss” meeting which permitted to swear, in his April 9, 2009 affidavit, that Brianco owned 62% of the shares in Holdco. When he was asked how he could reconcile that knowledge with the representations he had made over the years to Revenue Canada on behalf of the companies that Brianco and Daleco were equal owners of Holdco, Mr. McLeod responded that as the companies’ auditor, the “bible” of the companies were its minute books, and as an auditor he had to abide by the minute books and write to CRA on that basis.

B.6 The “Dad never owned shares” agreement: January, 1993

[45] The May 1, 1992 entries are the last in Holdco’s Shareholders’ Register. However, on January 26, 1993 Brian, Dale and Wayne signed an “agreement” which, because of its timing, is a curious one. The recitals to the agreement begin:

WHEREAS the books of the two Number Companies, 618717 Ontario Inc. and 682439 Ontario Inc. show within the shareholdings of such Companies that Wayne Glass owns 23 shares in each.

AND WHEREAS such indications were and are in error and Wayne Glass never did “own” such shares;

AND WHEREAS the books need to be corrected…

The agreement then goes on to state that Wayne consented to the transfer back to Dale of his 23 shares in Holdco and Opco and that Brian agreed to the transfer. Brian admitted that it was his signature on the document. Norman McLeod witnessed the signatures of Wayne and the two brothers.

[46] During his cross-examination of Dale counsel for the ProNorth Defendants pointed to this document as evidence that Dale never bought out shares owned by Wayne. Dale denied the suggestion. Brian testified that although he signed the document, “obviously” the transaction never happened and the document was typed out only to get the shares re-arranged so that the corporations were 50/50 for tax reasons.

[47] I do not see this document as assisting Brian’s position. First, it was signed months after the rollover of Brian and Dale’s shares into their respective holding companies, a transaction all admit took place. Second, the effect of this “agreement”, if it was designed to re-write the history of what had happened, was the same as that recorded in the Holdco Shareholders’ Register – at one point Dale ended up with the 23 shares issued to Wayne.

B.7 Post-1992 entries in Holdco’s Minute Books

[48] Holdco’s Minute Book contains a number of directors’ and shareholders’ resolutions passed in the period 1993 until 2005, all signed by Brian and Dale on behalf of their respective personal holding companies. In May, 1993 Dale was appointed a director of Holdco and a new general by-law was enacted. Resolutions of the Shareholders and Directors approving financial statements and confirming all acts taken during the previous year were passed annually from 1993 until 2002. On January 20, 2005 both brothers signed a Directors’ Resolution authorizing the purchase of assets from 959887 Ontario Inc. and 2022004 Ontario Inc.

[49] When asked in chief why Holdco’s Shareholders’ Register differed from his position that he owned 62% of Holdco’s shares, Brian responded that they wanted the ProNorth companies to be non-associated with the brothers’ personal holdcos, thereby making available certain tax advantages related to the small business deduction. If the shareholdings of Brianco and Daleco in Holdco were shown as 50/50, then the companies would not be associated. When it was put to Brian in cross-examination that he then lied from 1985 to the present about the real ownership of Holdco, he replied: “We both did”. He admitted that the “books were false”, but asked rhetorically whether counsel thought they were the first two brothers who had done something stupid like that. While he would not agree that he had committed a fraud by so doing, Brian stated his brother was doing a fraud because Brian was really a 62% owner.

[50] The Canada Revenue Agency conducted a review of Opco’s income tax returns for the period April 1, 1999 to March 31, 2002. In a January 23, 2004 letter CRA informed the Glass brothers that for the purposes of the small business deduction it considered Brianco and Daleco to be associated corporations, and Holdco and Opco to be associated corporations with Daleco and Brianco. Accordingly, by early 2004 Brian knew the brothers had lost any tax advantage which non-associated companies might enjoy.

[51] Yet, Brian acknowledged that he signed a Holdco directors’ resolution over a year later, on June 30, 2005, confirming the 50:50 ownership of Holdco by Brianco and Daleco. When it was suggested to Brian on cross-examination that there would be no tax advantage to showing the shareholdings in those proportions by that time, he replied that the minute books had not yet been straightened around, and although Mr. Nixon knew about the 62:38 split, it would take time “to do all that stuff” with the records.

[52] Brian conceded that he did not have any document or agreement which showed that he owned 62% of Holdco’s shares.

[53] Let me turn now to identify the evidence led at trial which Dale contended was consistent with the 50:50 shareholding recorded in Holdco’s Shareholders’ Register.

C.1 Representations of shareholdings to third parties

[54] John D’Agostino, then a lawyer with Loopstra, Nixon & McLeish, Holdco’s corporate counsel, sent an April 8, 1993 letter to Excise Canada enclosing a ProNorth Transportation corporate chart “which outlines the ownership of the ProNorth Transportation Group”. The chart showed Brianco and Daleco as 50/50 owners of Holdco.

[55] Mr. D’Agostino also drafted a letter dated May 12, 1993 to Excise Canada, on behalf of the ProNorth Group, enclosing a corporate chart outlining the ownership of the companies and confirming that Daleco and Brianco each owned 50 shares in Holdco which, in turn, owned all the shares of Opco. He faxed the draft to Darlene Lecour, the sister of Dale and Brian and, at that time, the controller of ProNorth, for her review and comment. Mr. D’Agostino testified that he would have obtained the information about the shareholdings from either Darlene Lecour or Norm McLeod.

C.2 1996 Shareholders’ Agreement

[56] Dale testified that in 1993 he wanted to put a shareholders’ agreement in place with his brother in order to provide himself with some protection. He stated that John D’Agostino, Norm McLeod, Brian and himself were involved in various negotiations which spanned about three years.

[57] The record contained two drafts of a shareholders’ agreement between Brian and Dale, and their respective holding companies: (i) a Draft #3 dated April 22, 1993; and, (ii) a draft dated August 1, 1993. Both drafts referred to Brianco and Daleco as equal owners of Holdco. John D’Agostino sent both Dale and Brian Glass a letter, dated July 13, 1994, at Pronorth’s office enclosing a revised shareholders’ agreement.

[58] Filed in evidence was a March 7, 1996 Shareholders’ Agreement signed by both Dale and Brian. A recital to the Agreement stated that Brianco and Daleco were each the holder of 100 common shares of Holdco being the only outstanding shares in that company. Section 3.01 of the Agreement provided that the Board of Directors would consist of one nominee of each shareholder, a quorum for a meeting of the Board “shall be all directors”, and a quorum for a meeting of shareholders “shall be all shareholders of the Corporation present or represented by proxy”. All decisions of the board and shareholders required “the unanimous consent of the Board of Directors or shareholders”.

[59] Dale recalled signing the Agreement at Norm McLeod’s office, but he could not recall whether Brian was present at the same time. He recalled obtaining a copy from Norm McLeod in 2008.

[60] Brian recalled signing a page like the signature page on the 1996 Shareholders’ Agreement, but he stated that he could not identify the signature on the page for Brianco as his. A few minutes later in his evidence-in-chief Brian answered that “absolutely” he had signed the signature page – he was there with Dale. However, when asked whether he had signed the Shareholders’ Agreement, he answered “absolutely not”. According to Brian, one day, on his way to catch a plane, he stopped at Norm McLeod’s office and he signed a single page like the signature page on the Shareholders’ Agreement. The single page was not attached to a document; he did not know how the signature page got attached to the rest of the document, and he stated that he never saw the original of the Shareholders’ Agreement.

[61] At trial Mr. McLeod testified that the brothers came to his office in advance of leaving for a course in race car driving. They were worried about succession issues if one of them got killed. Mr. D’Agostino faxed over the shareholders’ agreement for execution. (I would note that the signed copy placed into evidence did not bear any fax header or other signs of fax transmittal.)[^9] According to Mr. McLeod, the brothers signed the document as he was “running through it to make sure all pages were there”, the brothers did not read it, and he thought each left with a signed copy. Mr. McLeod gave this description of events twice during his examination-in-chief, and on cross he acknowledged that at the time he knew that the brothers had been negotiating a shareholders’ agreement and that he had some drafts in his file. Indeed, he had received letters from Mr. D’Agostino dated July 15, 1993 and July 16, 1993 dealing with a draft of the shareholders’ agreement. According to Mr. McLeod, when the brothers returned from their course “the signed copies were destroyed”, and he was told that Mr. D’Agostino was working on a replacement agreement.

[62] In his April 9, 2009 affidavit Mr. McLeod deposed to quite a different version of the events surrounding the signing of the 1996 Shareholders’ Agreement:

On or about March 7, 1996 Brian Glass expressed concern to me about succession issues relating to his holdings.

As a consequence of these concerns, I had Brian Glass sign a signing page (ie: the last page simply setting out his signature). Subsequently, I took it upon myself to attach this signing page to a shareholder’s agreement which I felt might be appropriate in the circumstances. This shareholder’s agreement was standard in nature and had the types of things that other shareholder’s agreements for companies of this size might contain. It was never reviewed by Brian Glass and as I explained to him it was intended that his signature was to deal simply with issues of succession alone.

No steps were ever taken to confirm the validity of this agreement and otherwise ratify it.

By reason of all this background it is and always has been my understanding that no shareholder’s agreement exists between the parties.

As I will discuss in detail below, Mr. McLeod drafted a February 3, 2008 Purchase Memorandum, or buy-out memorandum, between the brothers which, in its last clause, stated that “all clauses in the prior agreement between the parties dated March 7, 1996 will be waived at date of closing.” It is difficult to reconcile how Mr. McLeod, a professional accountant, could draft language in February, 2008 which left the distinct impression that the 1996 Shareholders’ Agreement was in existence, yet over a year later depose, under oath, that “it is and always has been my understanding that no shareholder’s agreement exists between the parties”.

[63] Brian acknowledged that John D’Agostino had met with them to discuss putting a shareholders’ agreement in place, but when he received drafts Brian said that he would “get pissed off and walk away”. Brian was quite vague in his evidence about what he may have talked about with John D’Agostino in connection with a shareholders’ agreement.

[64] John D’Agostino was working at the Loopstra, Nixon firm at the time he prepared the various versions of a shareholders’ agreement. He testified that the discussions about shareholder agreements spanned almost six years, and he recalled preparing 15 or 20 drafts of such agreements. Mr. D’Agostino recalled meeting Dale and Brian at their cottage in Callander in 1994 or 1995, on a Sunday afternoon, at which time he went through a draft of the shareholders’ agreement with them “word by word”. During that meeting Brian stated he would not accept a situation where as majority shareholder he could be ousted from the company. Mr. D’Agostino testified that he was “shocked” by the comment because he had understood the brothers where 50/50 owners. He stated, however, it was clear in Brian’s eyes that there were majority and minority shareholders. Mr. D’Agostino then spoke separately with each brother and he recalled that it was apparent there was another version of ownership than what had been provided to him. He did not recall either brother telling him about the existence of any trust agreement concerning the shares. Mr. D’Agostino stated that following that meeting he was told in “bits and pieces” over the years by other people that the ownership of ProNorth was 62:38 in favour of Brian. He could not provide particulars of time, location or source in his testimony.

[65] Mr. D’Agostino testified that following the cottage meeting the ownership issue always rested awkwardly with him, and he attempted on three or four occasions to convince the brothers to set the record straight, one way or the other, about the shareholdings, whether 50/50 or 62/38. He recalled approaching Brian on one occasion on behalf of Dale to balance the shares to 50/50 by having Dale buy-out over a period of time Brian’s shares which were above the 50% mark. He recalled that probably as a result of his prompting Dale had asked him to have that conversation.

[66] On July 13, 1994 Mr. D’Agostino sent a letter addressed to both Brian and Dale enclosing a revised copy of the draft shareholders’ agreement, asking them to review it carefully and provide him with any comments.

[67] Sandy Nixon, a more senior lawyer at the firm, had a peripheral involvement in the drafting of the shareholders’ agreement, but he had no direct knowledge about the document’s execution. In February, 1995, while Mr. D’Agostino was away from the office, Mr. Nixon had a conversation with Norm McLeod about the evolving shareholders’ agreement. In a February 13, 1995 memo Mr. Nixon wrote to Mr. D’Agostino:

It seems to be Norm McLeod’s position that no general shareholders’ agreement should be done and that separate agreements be done with respect to the buyout or at least upon the death of either Dale Glass or Brian Glass. He went on at some length about how he had taken a lot of steps and gone to great lengths to have the two holding companies not be associated with each other or with the operating companies (all of which I find a bit curious), and it was therefore necessary to continue with this approach as far as these agreements are concerned. Although he indicated that this matter was now of considerable urgency, I do not intend to deal with it until you get back and we can discuss exactly what is going on in this file. From the looks of it, a lot of time and effort has gone into finalizing a comprehensive shareholders’ agreement and I don’t quite understand why that effort seems to be something at odds with the accountant’s approach.

[68] On April 30, 1995 Mr. D’Agostino rendered an interim account to Holdco, to the attention of Dale, for work performed on the shareholders’ agreement. The itemized account included references to meetings and telephone calls with Brian Glass to discuss the shareholders’ agreement, as well as one with Norm McLeod.

[69] John D’Agostino testified that although he was not present at the execution of the 1996 Shareholders’ Agreement, “for the most part” it was from a document which he had prepared and circulated. He stated that the “first generation” of the document had contained a shot-gun provision, which had been replaced in the signed copy with a put and call arrangement. Mr. D’Agostino identified the word-processing footer which appeared on the last page of the Shareholders’ Agreement as one from his office.

[70] A copy of the first draft of a revised SHA dated June, 1997 was put into evidence. Mr. D’Agostino testified that after he left Loopstra Nixon in 1997 and opened his own practice in North Bay, as a result of discussions with Dale, Brian and Norm he started to prepare another draft of a shareholders’ agreement. He was not aware at the time that the 1996 agreement had been signed. Mr. D’Agostino indicated that he first saw an executed copy of the 1996 agreement in 2008 when he received a copy from Mr. Nixon.

[71] A major difficulty with Brian’s position that in 1996 he merely signed a signature page, not an entire shareholders’ agreement, lies in his admission that he signed and intended to perform the February 3, 2008 Purchase Memorandum in which he agreed, in principle, to buy-out his brother’s interest in the ProNorth Group. The last clause in the Purchase Memorandum, which appeared immediately above Brian’s signature, read:

All clauses in the prior agreement between the parties dated March 7, 1996 will be waived at date of closing.

That was a clear reference to the 1996 Shareholders’ Agreement.

C.3 2003 conversation between Marion Cook, BMO, and Norman McLeod

[72] Marion Cook, a commercial account manager at the North Bay branch of BMO, had known the Glass brothers since 1995. She testified that in 2003 she had prepared a “family tree” of the ProNorth companies based on information she had received from Norman McLeod. Her “family tree” showed Brianco and Daleco as equal owners of Holdco. On her “family tree” she had made the following note:

Confirmed with CA Norm MacLeod that each company is owned 50%/50% - However income flows by way of verbal agreement to Brian’s companies 62% and Dale’s companies 38%. Dividends are not paid as they would be required to be paid in proportion to the ownership.

C.4 2003 letter of Norman McLeod to CRA

[73] On June 10, 2003 Norman McLeod wrote a letter to the Canada Customs and Revenue Agency in which he stated that Holdco “is wholly owned by 979253 Ontario Inc. and 979254 Ontario Inc., 50% each by Brian Glass and Dale Glass respectively.” On cross Mr. McLeod stated that his letter was not “technically” true, but he had to go by Holdco’s minute book. However, he agreed that he had never written to anyone advising them that the minute book was inaccurate.

C.5 2004 affidavit for BMO guarantee

[74] A January 12, 2004 affidavit in the name of Brian stated that he had delivered to Holdco’s shareholders a copy of a disclosure statement regarding the guarantee granted by Holdco to the Bank of Montreal. The disclosure statement identified Brianco and Daleco each as the holders of 100 common shares of Holdco. On cross-examination Brian stated that he did not recall signing the affidavit. However, the signature over his name clearly resembled signatures which he has admitted, and I have no hesitation in finding that Brian signed the affidavit.

C.6 2004 Notes of Norman McLeod

[75] On December 1, 2004 Mr. McLeod faxed notes to Loopstra Nixon in which he showed Brianco and Daleco as each owning 100 commons shares of Holdco. Mr. McLeod testified that in preparing this document he operated on the basis of the minute books and that he would not note the “side agreement” unless he was asked. Other handwritten notes prepared by Mr. McLeod at various points of time recorded the same 50:50 shareholding.

C.7 2005 Financial Statements of Brianco and Daleco

[76] Mr. McLeod prepared the financial statements for the brothers’ personal holdings companies. Notes to the 2005 financial statements for Brianco and Daleco record that each company holds 50 common shares in Holdco. While they in fact each owned 100 common shares, it is significant that Mr. McLeod prepared financial statements showing Brianco and Daleco as 50:50 owners of Holdco.

C.8 2005 Holdco Directors’ resolution

[77] On June 30, 2005 both Brian and Dale, in their capacities as directors of Holdco, signed a resolution confirming that the 200 issued and outstanding shares of the company were held 50/50 by Brianco and Daleco. The preamble to that resolution stated:

Whereas it has been brought to the attention of the directors that certain matters pertaining to the Corporation have not been properly recorded in the books and records of the Corporation and accordingly require approval and confirmation by the directors…

C.9 Brian’s separation agreement with his wife

[78] Brian separated from his wife, Sherry, on January 18, 2001. The financial aspects of their separation were finalized by court order made May 30, 2008. On cross it was suggested to Brian that during the negotiations of a separation agreement with his wife in 2006/2007 he took the position that Brianco owned 50% of Holdco. Brian denied that suggestion.

[79] That denial was contradicted by evidence that Brian’s matrimonial counsel retained a valuator who prepared a January 30, 2006 draft opinion report estimating the fair market value of Brian’s interest in the ProNorth Group. The valuator’s report recited that Brianco owned 50% of Holdco. When asked about this approach taken by the valuator retained by his own litigation counsel, Brian responded that the valuator had never asked him what the shareholdings were and the information was taken from the minute books. He agreed that the 50:50 shareholding information obviously was provided to his valuator. Mr. McLeod testified that he had provided the valuator with information.

C.10 McLeod’s 2006 draft buy-out agreement

[80] Mr. McLeod confirmed that in 2006 he had prepared a handwritten draft of possible provisions for a buy-out agreement between the brothers. In that draft he wrote:

The Vendor [Daleco] shall sell, assign and transfer to the Purchaser [Brianco] all shares, interests and properties as follows:

(1) 100 common shares of 618717 Ontario Inc. being 50% of the issued shares of that corporation…

C.11 McLeod’s working documents for the 2008 Purchase Memorandum

[81] As part of his role in assisting the brothers discuss a possible buy-out by Brian of Dale’s interest in the Pronorth companies, Norman McLeod prepared a document entitled, “Proposal for Sale of All Assets Relating to Pro North Transportation by 979254 Ontario Inc.”[^10] In that document he recorded that Daleco and Brianco were equal owners of Holdco.

C.12 February, 2008: Loopstra, Nixon memo to Brian Glass

[82] By email dated March 28, 2008, Lynn Bonham, a corporate clerk at Loopstra, Nixon sent Brian Glass a memo dated February 14, 2008 “setting out the status of the corporate records for the various companies in the ProNorth Group”. The memo showed Daleco and Brianco as each owning 100 common shares of Holdco. The memo also noted: “Share certificates were forwarded to Evelyn Dodd on October 21, 2005 for execution and return. Not received to date.” In her covering email Ms. Bonham reminded Brian Glass that the company had not yet returned the executed share certificates.

C.13 November, 2008: Loopstra, Nixon letter to Brian Glass

[83] According to a November 14, 2008 email from Holdco’s corporate counsel, Loopstra, Nixon, to Brian Glass, earlier that month Brian had received corporate charts for the active ProNorth companies as of September, 2005 and 2007, as well as Holdco’s share transfer register and minutes of share transfers. Mr. Nixon’s assistant, Lynn Bonham, emailed Brian Glass that information on November 14, 2008; it clearly indicated that Daleco and Brianco were equal owners of Holdco. At the conclusion of her email Ms. Bonham wrote:

Our records indicated the share certificates issued to each of the current shareholders (i.e. 979253 Ontario Inc. and 979254 Ontario Inc.) were forwarded to you on October 21, 2005 for signature and return, however, to date we have not received the executed share certificates.

[84] Sandy Nixon testified at trial in response to a summons. He stated that during the course of his firm’s retainer by ProNorth their instructions from the client were to treat the two personal holdcos as equal shareholders of Holdco. Those instructions came from Brian Glass, as well as from Norman McLeod. Mr. Nixon did state that sometime before the latter part of 2006 Brian began to tell him that the 50/50 ownership recorded in Holdco’s minute book might not be accurate in terms of the actual beneficial interests of the brothers.

C.14 March, 2009: Nixon memo to Brian Glass

[85] Sandy Nixon sent Brian a memo dated March 11, 2009 about the history of Holdco’s shareholdings. His memo indicated that he had spoken with Brian on March 10 – i.e. slightly more than a month before Brian initiated the process to call a meeting of Holdco’s shareholders, a meeting ultimately held on September 2, 2009 which saw Dale removed as a director and signing officer. Mr. Nixon’s memo recited the history of the shareholdings reflected in the share register and the various agreements amongst Dale, Brian and Wayne. He noted the May, 1992 transactions which resulted in Brianco and Daleco each holding 100 common shares in Holdco. In respect of the agreements under which each brother sold his personally-held shares to his personal holdco, Mr. Nixon wrote: “We also enclose copies of the reporting letters to each of Brian Glass and Dale Glass with respect to the above noted purchase and sale transactions”. Mr. Nixon concluded his memo to Brian by writing:

As of March 7, 1996, [Brianco], [Daleco], Brian Glass, Dale Glass and 618717 entered into a Shareholders Agreement, a copy of which is enclosed for your reference.

[86] After receiving this email Brian Glass evidently asked Sandy Nixon to send him Holdco’s minute books because Mr. Nixon referenced such a request in an April 1, 2009 email to Brian. Mr. Nixon noted that he had already sent a summary of the minute book to Mr. Ducharme, Brianco’s counsel. At Brian’s direction Mr. Nixon sent the Holdco and Opco minute books to Norm McLeod on April 1, 2009, receipt of which Mr. McLeod acknowledged on April 3, 2009.

[87] Brian Glass pointed to several pieces of evidence which, he contended, demonstrated that the real shareholdings of Holdco were contrary to the facts stated in the share register.

D.1 February 12, 1991 “To Whom It May Concern” document

[88] At points during his examination-in-chief and cross-examination Brian kept referring to some document which he could not find that showed he owned 62% of Holdco’s shares. He contended that the document came into being when he and his brother bought their father’s shares. On the last day of Brian’s cross-examination his counsel raised a matter with the court concerning a document dated February 12, 1991, of which he had just become aware. The circumstances surrounding the coming to light of this document were summarized in part of my May 27, 2011 ruling:

Brian Glass commenced his testimony two days ago. His cross-examination started yesterday, just before the lunch break. Prior to breaking for lunch I gave Mr. Glass the standard caution and direction which I give to all witnesses: do not talk about this case or your evidence with anyone until your testimony is finished. I re-iterated that caution and direction at the end of the day yesterday. Compliance with such a judicial direction is important, especially in a case, such as this, where an order excluding witnesses has been made.

This morning Mr. Dockrill, counsel for the Pronorth Defendants, quite properly brought to my attention a matter which arose after court yesterday evening. Mr. Dockrill described the details of the circumstances earlier this morning, but, in sum, last night he was contacted, by phone and email, by Sherry Tambeau, the ex-wife of Brian Glass. Quite unsolicited Ms. Tambeau sent Mr. Dockrill an email which had an attachment.

The email stated that yesterday afternoon, around 3:30 pm, Brian Glass contacted his ex-wife and “asked me if I could recall the exact shareholdings for Brian and Dale.”

Let me state, quite clearly, that what Brian Glass did was very wrong. I had directed him not to discuss his evidence with anyone until he had completed his evidence. Brian Glass disobeyed my direction. I intend to take into account, in my deliberations concerning what credibility to give to Brian Glass’ evidence, the fact that he disobeyed my clear direction. Breaching a judicial direction is a very serious matter, and by doing so Brian Glass has put before me a factor which I must take into account in determining whether he is a person who tells the truth or who does not tell the truth on the various matters in issue in this lawsuit.

In the result, I permitted Brian’s counsel to re-open his examination-in-chief to admit the February 21, 1999 document and allowed Dale’s counsel to cross-examine on it.

[89] The document[^11] was signed by both Brian and Dale, was headed, “To Whom It May Concern”, and stated:

We do hereby declare and certify that we own all of the outstanding shares in the following companies and in the proportions as set out herein;

682439 Ontario Inc.

618717 Ontario Inc.

771716 Ontario Inc.

Proportions:

Brian W. Glass, 65% of all outstanding shares

Dale B.B. Glass 35% of all outstanding shares

[90] Upon the re-opening of Brian’s examination-in-chief he was asked whether he recalled any of the circumstances surrounding the signing of this document. Apart from confirming his signature and stating that Dale was present when he signed it, Brian recalled nothing else about the document.

[91] On cross-examination Brian took the position that the 65:35 split of shares shown on the February 12, 1991 document[^12] was reduced in Dale’s favour to 62:38 because Brian “lost” the coin toss.

[92] Although this document purported to show Brian and Dale as the owners of the shares in 771716 Ontario Inc., the draft expert valuation report prepared for Brian during his separation proceedings with his wife treated Sherry as the owner of all shares of 771716 Ontario Inc.

D.2 March, 1993 directors’ resolution

[93] On March 31, 1993 Brian and Dale signed a Holdco Annual Directors’ Resolution which resolved that the corporation “declare and accrue management bonuses” in amounts which reflected a 62:38 split in favour of Brian.

D.3 Robert Clark’s corporate chart (1998)

[94] In November, 1998 Robert Clark, a life insurance agent, prepared a proposal for ProNorth involving insurance on the lives of its two principals. A corporate organization chart in his proposal noted that the “actual legal ownership” of Holdco was 62:38 in favour of Brianco, while the “ownership as per shareholder’s agreement” was 50:50. Mr. Clark could not recall who provided him with those numbers. Brian could not recall the document, nor whether he or his brother had given Mr. Clark documents about the ownership of the companies.

[95] In a February 23, 1999 letter to an underwriter Mr. Clark wrote that the brothers’ personal holding companies were 50/50 owners of Holdco. A similar letter he wrote to an underwriter in November, 1994 also identified the brothers as equal owners of Holdco.

[96] Mr. Clark recalled having seen a shareholders’ agreement at one point and having a copy of it. He identified the 1996 Shareholders’ Agreement marked as an exhibit at trial as the one he had seen. However, Mr. Clark’s February 23, 1999 letter made reference to a 1994 shareholders’ agreement which had been put in place, and his November, 1994 letter talked about “a newly structured shareholders’ agreement”.

D.4 Monthly draws

[97] Since the early 1990s both brothers’ holding companies had received monthly “draws” from Holdco, but in different amounts.[^13] Brian received $22,000, while Dale received $15,000. Dale described this as the “62:38 thing”. Dale’s explanation for the different draw levels was that his older brother insisted on getting more money; Brian contended that it reflected their different ownership interests.

[98] A summary of payments by Holdco to the two personal holdings companies was filed at trial.[^14] Mr. Renzo Silveri, an accountant retained by Dale to help him in negotiations with his brother, stated that his review of lists from Mr. McLeod’s files concerning loans from Holdco to the brothers’ two personal holding companies for the period 1993 to 2006 revealed that “management fees” were not always allocated on a 62:38 basis between Brian and Dale, but in some years came closer to 50:50.[^15] When taken through the document during his examination-in-chief Brian could not offer specific reasons for the fluctuating splits in management fees, but he ventured that some of the fluctuations might be due to the acquisition of certain properties bought by the brothers on a 50:50 basis.

[99] In their closing submissions counsel for Brian and Dale both submitted that “draws” were not the same thing as “management fees”. The differences between them were not explored or adequately explained in the evidence at trial.

[100] Brian testified that the payments from ProNorth to Brianco and Daleco were “always” 62:38, which he soon qualified by saying that there were “lots” of payments which were not 62:38 “for specific reasons”. According to Brian the 62:38 payments split started upon their purchase of their father’s shares, around 1993.

[101] Mr. McLeod testified that in some years Brian took out less than his share as a favour to Dale so that Dale could take out more money.

D.5 Brian’s 2008 demand

[102] On March 27, 2008 Sandy Nixon emailed Mr. Silveri writing, in part: “In the circumstances Brian has lost trust in Dale and has instructed me to demand that Dale turn over the shares he holds in trust.” This followed an email from Brian to Dale earlier in the day in which Brian had written: “You will be contacted by council (sic) to deal with the straightening up of our minute books and share structures.” Brian testified that he wanted 62 shares in Holdco “locked in my safety deposit box”.

[103] No trust agreement or document for shares in Holdco was filed at trial.

D.6 April 9, 2009 affidavit of Norman McLeod

[104] A mere six days after receiving Holdco’s minute book from the Loopstra, Nixon firm, Mr. McLeod swore an affidavit on April 9, 2009 “for insertion into the corporate minute book of 618717 Ontario Inc. and in an attempt to ensure that the corporate minute book properly reflects the history of this company and for no improper purpose”. He testified that he prepared the affidavit in response to a request from a lawyer, Mr. Paul Tenker at Wallace Klein, who informed Mr. McLeod about Brian’s attempt to call a shareholders’ meeting. On cross Mr. McLeod said the Wallace Klein firm had drafted the affidavit. Five months after Mr. McLeod swore the affidavit Brian Glass relied on it to justify Dale’s exclusion from the September 2, 2009 shareholders’ meeting.

[105] Paragraphs 7, 8 and 9 of the McLeod affidavit stated:

979253 Ontario Inc. (Brian’s Company) owns 62% of the issued and outstanding shares of 618717 Ontario Inc. Any records suggesting an ownership of 50% are to the best of my knowledge in error.

979254 Ontario Inc. (Dale’s Company) owns 38% of the issued and outstanding shares of 618717 Ontario Inc. Any records suggesting an ownership of 50% are to the best of my knowledge in error.

Consistent with this respective share ownership all dividends and bonuses and other remuneration for the period I have been involved have been allocated in proportion to this respective share ownership (ie: 62/38).

[106] In chief Mr. McLeod allowed that looking now at his affidavit he might “question” some of the wording, but the “basic idea was correct”. He said that in retrospect the language of the affidavit “may not have been exactly correct”. He acknowledged that when he swore the affidavit he knew the minute book recorded a 50:50 shareholding between the brothers.

[107] Mr. Silveri testified that his review of Holdco’s financial statements had not revealed the payment of any dividend. On cross Mr. McLeod confirmed that Holdco had not paid any dividends.

[108] Mr. McLeod’s evidence regarding his knowledge of the brothers’ shareholdings was inconsistent. Early on in his chief he testified that he did not have discussions with the brothers about their relative shareholdings. A few minutes later, however, he described the events of the “coin toss” meeting, explaining that was how the 62:38 split came about. On cross he stated that apart from the “coin toss” meeting, he did not have any other discussions with the brothers about their shareholdings.

E. Analysis and conclusion regarding shareholdings

E.1 Governing legal principles

[109] Corporate records play important roles in the internal and external lives of companies, identifying the owners, directors and officers of the corporation, memorializing significant decisions made by those who own or manage the company, and providing a reliable source of information for outsiders dealing with the corporation, whether financial institutions lending money to the company or government tax agencies seeking to ensure that the corporation remits the taxes it is obliged to pay. The Ontario Business Corporations Act re-inforces the importance of accurate corporate records by requiring companies to prepare and maintain records containing the company’s articles, by-laws, unanimous shareholder agreements, minutes of meetings and resolutions of directors and shareholders, a register of directors, and a securities register showing the names of all shareholders and all transfers of securities.[^16]

[110] The OBCA imposes an obligation on corporations to maintain accurate minute books. To that end it requires a corporation to take adequate precautions, appropriate to the means used, for guarding against the risk of falsifying the information recorded, and it prohibits a person from recording, or assisting in recording, any information in a corporate record knowing it to be untrue.[^17] To ensure that outsiders can rely on the accuracy of corporate records the OBCA requires a corporation to provide means for making the information available in an accurate and intelligible form within a reasonable time to any person lawfully entitled to examine the records, and it prohibits a person from making information purporting to be accurate available in a record knowing it to be untrue.[^18]

[111] Given the statutory obligation for a corporation to prepare and maintain an accurate and up-to-date minute book and the reliance that outsiders often place on a company’s minute book, it is not surprising that the OBCA creates a very strong presumption that the information recorded in a minute book is proof of the facts stated therein:

139(3) The bound or looseleaf book or, where the record is not kept in a bound or looseleaf book, the information in the form in which it is made available under clause (2) (b) is admissible in evidence as proof, in the absence of evidence to the contrary, of all facts stated therein, before and after dissolution of the corporation.

[112] The OBCA recognizes that a minute book may not be accurate, for a variety of reasons, so the presumption that the information in a minute book is proof of the facts stated therein may be displaced by “evidence to the contrary”. In what circumstances has “evidence to the contrary” displaced the information recorded in a minute book? The jurisprudence on this point is not extensive:

(i) In Dunham and Apollo Tours Ltd. (No. 1)[^19] the presumption that shares recorded as issued from the treasury were fully paid at the time of issuance was displaced by evidence from the initial incorporator who admitted that no monies had been received from any subscriber for treasury shares;

(ii) A different result was reached in Hermans v. Three County Recycling & Composting Inc.[^20] where the court found that the shares recorded as issued to two shareholders were fully paid up – although the consideration recorded for such shares in the company’s financial statements was incorrect, there was evidence of other sufficient consideration;

(iii) In Beaudry c. 9050-8151 Quebec Inc.[^21] the Court held that a reconstruction of a corporate minute book contained fabricated documents upon which the Court was not prepared to rely; and,

(iv) In Anor Management Ltd. c. Brooklo Industries Ltd.[^22] the court found that although there was some evidence that it was intended a certain individual would become a shareholder, the evidence did not establish acts by that person consistent only with the status of a shareholder which were sufficient to rebut the absence in the corporate minute book of any information stating that the individual was a shareholder.

E.2 Analysis

[113] On the totality of the evidence, I find that from May 1, 1992 until the present the issued and outstanding common shares of Holdco were owned in equal amounts (100 shares each) by Brianco and Daleco. The last entries in Holdco’s Shareholders’ Register record such shareholdings. Although Brian argued that “evidence to the contrary” rebutted the accuracy of those entries, I do not accept his submissions for several reasons.

[114] First, Holdco’s minute books were prepared and maintained by professionals. At least until October, 1989 the offices of a law firm, Tafel & Eggert, were the location for most director and shareholder meetings. Brian acknowledged that Mr. Tafel did the corporate legal work for Holdco in the early years. Mr. Nixon testified that the Loopstra, Nixon firm had acted as corporate counsel since the early 1990s – he met Brian and Dale in 1991 or 1992. Mr. D’Agostino filed a corporate Form 1 with the Ministry of Consumer and Commercial Relations by letter dated October 26, 1994. Annual directors and shareholders resolutions were passed and kept in the minute book from 1993 through to 2002. This is not a case where a minute book was thrown into a drawer and left unattended for many years; at the material times when shareholdings were altered Holdco obviously received the benefit of legal advice. As well, in 2008 and 2009 Loopstra, Nixon reviewed the minute book and prepared detailed memoranda informing Brian that the shareholdings were 50:50.

[115] Second, neither brother suggested that the lawyers had made mistakes in the documentation included in the minute book. Brian certainly did not point to mistakes in any resolutions or the shareholders’ ledger. His position was that the brothers had a side deal of which the lawyers were unaware.

[116] Third, Brian used the shareholdings recorded in the minute book for his advantage in order to obtain a number of benefits: (i) an enhanced use of the small business deduction on the basis that Brianco and Daleco, and Brianco and Holdco/Opco, were not associated companies; (ii) to make representations to Excise Canada on Holdco tax matters; (iii) to give comfort to the Bank of Montreal in 2004 on Holdco’s guarantee; and, (iv) to better his bargaining position with his wife in the negotiation of their separation agreement in the 2006 – 2008 time period. As I understand the overall thrust of Brian’s evidence on those events, he contended that he was content to represent the shareholdings as 50:50 in those circumstances but, in effect, he had his fingers crossed behind his back when he did so. Ontario corporate law does not recognize a “fingers crossed” exception to the information contained in a minute book.

[117] Fourth, in 1996 and 2008 Brian was prepared to sign key documents affecting his business relationship with his brother which recognized a 50:50 share split. I find that Brian signed the 1996 Shareholders’ Agreement which recited a 50:50 split. I do not accept his evidence, or the assertion by Mr. McLeod in his 2009 affidavit, that Brian merely signed some orphan signature page. The evidence demonstrates that prior to the execution of the Shareholders’ Agreement Brian was aware of, and had participated in, negotiations on previous drafts. It may well be that he and his brother went to Norm McLeod’s office before leaving on a risky vacation and signed the shareholders’ agreement at that time. But Brian knew the nature of the document he was signing and had an opportunity to review it if he wished, yet elected to sign and run. That was his choice, but under Canadian law he is bound by the document which he signed.

[118] Moreover, Brian’s professions that he never intended to be bound by the Shareholders’ Agreement are belied by his admission that he willingly and knowingly signed the 2008 Purchase Memorandum. The last provision of that Memorandum, immediately above his signature, read:

All clauses in the prior agreement between the parties dated March 7, 1996 will be waived at date of closing.

That was an unambiguous reference to the 1996 Shareholders’ Agreement. The working papers which Norm McLeod prepared as part of his drafting of the 2008 Purchase Memorandum indicated that he regarded the shareholdings as 50:50.

[119] Fifth, although not included in the Holdco minute book, a June 30, 2005 resolution signed by both Brian and Dale, in their capacities as directors of Holdco, confirmed that the 200 issued and outstanding shares of the company were held 50/50 by Brianco and Daleco. Brian signed this a year after the CRA had deemed the companies to be associated, so at that point there was no need to continue to represent the shareholdings as 50:50 under Brian’s theory that the minute book was merely a façade. Of course, Brian was negotiating a separation with his wife at that time.

[120] Sixth, I have significant doubts about the reliability of the evidence regarding the “coin toss meeting” and the February 12, 1991 “To Whom It May Concern” document. For a meeting which was so central to his theory of the case, it was strange, indeed, that Brian made no mention of it in his pleading. Nor did his counsel put that meeting to Dale during his cross-examination. It emerged for the first time during Brian’s examination-in-chief. So, too, the February 12, 1991 document first saw the light of day during the course of Brian’s cross-examination and resulted from communications he made to his ex-wife during his cross in direct contravention of my direction not to speak to anyone about the case during his cross. The document was not included in Brian’s productions.

[121] Nor was the probative value of Brian’s testimony about the “coin toss meeting” enhanced by Norman McLeod’s recollection of that event. I give no credence to Mr. McLeod’s evidence on the issue of the shareholdings. How can one give any weight to the evidence of a professional accountant who testifies, wearing his auditor’s hat, that he regards the corporate minute books as the “bible” he must follow, yet testifies in an affidavit sworn April 9, 2009 to a state of shareholdings which he knows stands diametrically opposed to what the minute books show and to what he had written in memos at the time the brothers were negotiating a buy-out? Such a profound inconsistency in his evidence undercuts any ability to believe or rely on Mr. McLeod’s evidence on the issue of the shareholdings.

[122] Now, it is true that having admitted the 1991 document and allowing Brian to testify about the “coin toss meeting”, I permitted Dale to testify in reply, if he wished. He did not do so. I draw little from his decision not take the stand in reply given my concerns about how those pieces of evidence came about in the first place.

[123] I acknowledge that Mr. D’Agostino recalled some conversation at the brothers’ cottage which caused him some concern that the shareholdings might be otherwise than he understood, and Mr. Nixon sent him a memo following a conversation with Norman McLeod saying he found it “curious” the emphasis Mr. McLeod was putting on his efforts to keep the companies unassociated. But this evidence rises to a level no higher than some vague rumblings that the brothers might be talking about something other than 50:50.

[124] The evidence given by Mr. Clark about the different legal and beneficial shareholdings recorded on his 1998 chart are of little weight because Mr. Clark could not recall the source of the information, quite understandable given the passage of time, and also because in letters to underwriters he recited the ownership as a 50:50 split.

[125] Which leaves, finally, the evidence about the brothers’ draws from Holdco or, more precisely, the amounts Holdco paid monthly to their personal holding companies, as well as the ownership division of certain properties. This evidence is ambiguous with respect to the issue of the respective shareholdings for several reasons. First, Mr. McLeod was adamant in his evidence in court that Holdco had never declared dividends. He was backed up on this point by Holdco’s financial statements and the absence in the minute book of any directors’ resolutions declaring dividends.[^23] Since the brothers deliberately avoided using the normal means to extract money from a corporation in a manner reflective of shareholdings – i.e. the declaration of dividends – the monthly payments of “draws” or “management fees” possess weakened probative value as evidence reflecting actual share ownership.[^24]

[126] Second, although Dale and Brian acknowledged that generally they received monthly draws of $15,000 and $22,000 respectively, the evidence indicated that their monthly draws did not necessarily equal the total management fees which they received each year. The statements summarizing intercompany loans for the period 1993 to 2006 showed that in a number of years “management fees” paid to Brianco and Daleco departed from the 62:38 ratio.[^25] Moreover, those summary statements cannot be reconciled readily to Holdco’s financial statements where corresponding years are reported. For example, the summary statements recorded management fees for 2004 as zero for Brianco and Daleco, but Holdco’s financial statements recorded a total of $237,000 in management fees for that year.[^26] Management fees for 2005 were shown on the summary statement as $400,000 split evenly between the two personal holding companies, but the financial statements for Holdco recorded only $163,000 in management fees for that year. Accordingly, the fluctuations and inconsistencies in the amounts of draws and/or management fees paid out each year by Holdco to each brothers’ holding companies render such evidence inadequate to displace the shareholdings recorded in the minute books.

[127] Finally on this point, although ownership of a number of the Jointly Owned Properties[^27] was held 62:38 by Brianco and Daleco, two significant properties – the Birches property on which was located ProNorth’s head office and the Callander cottage which Mr. McLeod described as a “mansion” – were held 50:50. When two such significant assets are held in equal ownership, I place little weight on the fact that other properties were held 62:38. Overall, the evidence of property ownership is ambiguous on the issue of share ownership.

[128] In conclusion, I find that the evidence Brian points to in support of his assertion that he owns 62% of Holdco’s shares comes nowhere near displacing the presumption enjoyed by the information recorded in the minute books under section 139(3) of the OBCA, which information was supported by the overwhelming weight of other evidence from outside the minute book. Consequently, I find that from May 1, 1992 until the present the issued and outstanding common shares of Holdco were owned in equal amounts (100 shares each) by Brianco and Daleco.

VI. SECOND ISSUE: THE OPPRESSION CLAIM: DID BRIAN/BRIANCO AND/OR PRONORTH ACT IN A MANNER WHICH WAS OPPRESSIVE OR UNFAIRLY PREJUDICIAL TO OR THAT UNFAIRLY DISREGARDED THE INTERESTS OF DALE AS A SHAREHOLDER, DIRECTOR OR OFFICER OF HOLDCO?

A. The allegations of oppression

[129] Dale and Daleco, in their capacities as shareholders, officers and directors of the ProNorth Group, invoked section 248 of the OBCA to seek relief from conduct which they pleaded was oppressive or unfairly prejudicial. A significant component of that claim was that Dale and Brian could no longer work together and, as a result, Holdco should be sold or Brian should buy out Dale’s interest. By the time of the trial the parties had agreed that Brian should buy-out Dale, so in this part of my Reasons I will deal only with the remaining claims of oppression which were pleaded and the subject of evidence at trial. They can be grouped as follows:

(i) Dale was denied access to financial and operational information about the ProNorth Group;

(ii) Brian directed ProNorth employees to deprive Dale of assistance he required to perform company work;

(iii) Holdco failed to make rental payments for properties in which Dale or Daleco had an interest;

(iv) Holdco failed to provide Dale with information about “off-shore accounts” for an insurance pool;

(v) Brian used ProNorth money to buy personal “toys”;

(vi) Dale was excluded from a shareholders’ meeting held on September 2, 2009, at which time he was wrongfully removed as a director of Holdco; and,

(vii) Since September, 2009 Holdco stopped paying any compensation or salary to Dale or Daleco;

[130] Dale and Daleco also pleaded a claim of oppression against the McLeod Defendants, but I will consider that claim later in the section dealing with the liability of those defendants.

B. Governing legal principles

[131] In Harris v. Leikin Group[^28]I attempted to summarize the principles concerning the oppression remedy under the OBCA:

[295] 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.

[296] In BCE Inc. v. 1976 Debentureholders 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?

[297] The reasonable expectations of specified stakeholders is the cornerstone of the oppression remedy. Fair treatment -- the central theme running through the oppression jurisprudence -- is most fundamentally what stakeholders are entitled to "reasonably expect".

[298] 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.

[299] 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. Factors which a court may consider in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders.

[132] In BCE Inc. v. 1976 Debentureholders[^29] the Supreme Court of Canada made the following observations about the oppression remedy:

(i) Actual unlawfulness is not required to invoke the oppression remedy; it applies "where the impugned conduct is wrongful, even if it is not actually unlawful". The remedy is focused on concepts of fairness and equity rather than on legal rights. In determining whether there is a reasonable expectation or interest to be considered, the court looks beyond legality to what is fair, given all of the interests at play;[^30]

(ii) Even if reasonable, not every unmet expectation gives rise to an oppression claim. The section requires that the conduct complained of amount to "oppression", "unfair prejudice" or "unfair disregard" of relevant interests. "Oppression" carries the sense of conduct that is coercive and abusive, and suggests bad faith. "Unfair prejudice" may admit of a less culpable state of mind, that nevertheless has unfair consequences. Finally, "unfair disregard" of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders' reasonable expectations;[^31]

(iii) Nevertheless, as in any action in equity, wrongful conduct, causation and compensable injury must be established in a claim for oppression;[^32] and,

(iv) The concepts of oppression, unfair prejudice and unfairly disregarding relevant interests are adjectival. They indicate the type of wrong or conduct that the oppression remedy is aimed at. However, they do not represent watertight compartments, and often overlap and intermingle.[^33]

C. Some further historical background

C.1 The fraying of the brothers’ relationship

[133] Dale testified that since 1991 he had acted as the Vice-President of Marketing and Sales for ProNorth, developing a sales strategy which saw ProNorth transport the products of forestry and mining companies in Northern Ontario south to the Great Lakes area, and haul back dry freight from the States through Toronto to various distribution centres in the north, such as those for National Grocers and Walmart. Dale talked with great pride about his ability to secure major customers, such as Walmart, under extremely competitive circumstances.

[134] At the same time Dale stressed at numerous points during his testimony that he thought Brian did not appreciate all of his sales efforts. Dale attributed the loss of a large potential contract in 2004 with Temboard to his brother’s refusal to show flexibility over a modest border fee. Dale stated that the loss of the Temboard contract at that time “destroyed me” and he pointed to that loss as a factor in his divorce from his wife, from whom he separated in early 2006.

[135] Dale testified that prior to 2001 his relationship with Brian was a good one, but it began to deteriorate after that date. Dale attributed the deterioration in part to Brian’s marital problems.

[136] During his testimony Dale made much of a comment uttered by Brian at a company meeting at the Clarion Hotel in North Bay in 2004. He recalled Brian interjecting during the meeting that no Glass would run the company. Brian agreed that he made such a statement, but said he did so thinking if they could bring in an outsider to run their company, the brothers might salvage their relationship.

[137] From Brian’s perspective he regarded Dale as losing interest in the business and not doing serious work for the company following his separation from his wife. Brian contended that since 2005 Dale had not brought a single account into the business.

C.2 Attempt by Brian to buy-out Dale’s interest in ProNorth: 2006-2008

[138] Dale testified that in 2006 Brian approached him offering to buy out his shares. After a couple of months’ reflection, Dale agreed to the proposition. Brian offered a different version of events, testifying that during a discussion in his brother’s office he asked Dale what he wanted to do about his role in the business, and Dale answered that he wanted out. To which Brian said, “OK, fine”.

[139] In any event, Norm McLeod became involved in preparing some valuation figures for the ProNorth companies. Dale retained Renzo Silveri, an accountant with experience in mergers and acquisitions, to assist him in the negotiations.

[140] The negotiations culminated in the brothers signing a February 3, 2008 Memorandum of Agreement (the “Purchase Memorandum”) under which Brianco agreed to purchase Daleco’s shares in Holdco, plus all interests which Daleco enjoyed in any other asset or investment relating to the operation of ProNorth. Completion of the Purchase Memorandum was subject to several conditions, including Brianco obtaining bank financing, the preparation of detailed agreements covering the assets and liabilities involved, and a draft plan showing how Daleco could receive the sale proceeds free of taxes. Sandy Nixon, who had some involvement in the negotiation of the buyout, testified that the document was not a formal agreement, but would require a series of formal agreements and the satisfaction of some conditions to complete. Mr. McLeod stated that it would have taken a lot of “careful, slow work” to have concluded the deal.

[141] Brian testified that after he had signed the memorandum he learned that Walmart would be conducting a bidding process for its business. He stated that Dale had known about the information for a month, but had not told him. Loss of the Walmart business would have had a material impact on the value of the company. Dale admitted that he had not passed the information about Walmart on to his brother, but he contended that Isaac Fehr, a senior ProNorth employee, knew about the bidding and could have told Brian.

[142] On June 4, 2008 Brian signed back a version of the Purchase Memorandum amended to alter the security to be given for his purchase of Dale’s interest. Dale did not accept that proposed amendment but, on June 18, through Mr. Silveri, proposed some counter-terms. Brian did not accept them. Unfortunately no buy-out occurred.

[143] In this lawsuit Dale testified that Brian breached the Purchase Memorandum by failing to follow through on his financing. Dale contended that the Bank of Montreal was prepared to provide Brian with the necessary financing to close the agreement, although Dale simultaneously contended that Brian had adequate assets to perform the agreement without the need for financing. On cross-examination Dale was taken to a May 12, 2008 email to him from Gary Shiff, a lawyer at Blakes who was acting for Dale on the transaction. In the email Mr. Shiff informed Dale that Sandy Nixon had told him “BMO has elected not to support the transaction”. Dale described that information from Mr. Nixon as a “lie” from his brother to Mr. Nixon, and Dale contended that Marion Cook, an employee of BMO, would confirm his position when she testified.

[144] When Marion Cook, a commercial account manager in the North Bay office of BMO, took the stand, she testified that in the first part of 2008 Brian had approached BMO to discuss possible financing to buy-out his brother. In response BMO had prepared and sent some financing discussion papers – or offers to pursue a credit application - to Brian in March, April and June, and BMO had commissioned appraisals of two properties as part of that process. Ms. Cook stated that BMO never received a formal application from Brian for the financing. Ms. Cook stated BMO never declined the financing request because it had never received a formal application.

[145] I heard much evidence during the trial about the negotiations surrounding the Purchase Memorandum and which party was at fault for not performing the agreement, including over a day’s worth of evidence from Mr. Silveri. Having considered that evidence, I conclude that it is of little assistance on the issues before me for two reasons.

[146] First, Dale does not seek an order for specific performance of the Purchase Memorandum. That is not surprising given that in a May 26, 2008 email Mr. Silveri described the document as a “letter of intent” and from his email of June 18, 2008 it is apparent that he and Dale understood that a binding agreement of purchase and sale was not yet in place, and they were working to put one together.

[147] Second, although Dale asserted a claim for damages for unlawful interference with economic relations/inducing breach of contract in respect of the Purchase Memorandum,[^34] that unquantified claim for damages was inconsistent with the relief sought by the plaintiffs that Brianco purchase their interests in Holdco and the Jointly Owned Properties for fair value, which the plaintiffs contended was roughly $10 million. Under the Purchase Memorandum Daleco was to net $4.4 million for the sale of its interest in those assets. Obviously the plaintiffs now think that the ProNorth-related assets are worth more than the value attributed to them under the Purchase Memorandum, so it is difficult to see what claim for damages they can assert in respect of the alleged non-performance of the Purchase Memorandum.

D. Analysis of some of the pleaded particulars of oppressive conduct

D.1 Dale was denied access to financial and operational information about the ProNorth Group

[148] Dale pleaded that (i) financial records of Holdco and related companies were kept from him, (ii) the companies had not maintained structured reports for key performance indicators, (iii) the companies had failed to provide full and frank disclosure of all financial security measures, (iv) the financial controller for Holdco failed to report to Dale, and (v) Brian had refused to allow ProNorth staff time to answer his questions.[^35]

[149] There was little in the way of evidence adduced at trial to support allegations (ii), (iii) and (iv). As to the general allegation made by Dale that he was not allowed access to ProNorth financial information, the evidence did not substantiate that claim.

[150] Brian testified that his brother had the same online access to the company’s financial information as he did. He said that staff provided internal financial statements on a monthly basis. Mr. McLeod testified that Dale received all of the financial statements of the ProNorth Group.

[151] Joanne Simpson worked in ProNorth’s accounting department from 2007 through 2010. She testified that ProNorth had in place a system under which all invoices were scanned and coded, with the relevant information reposing in ProNorth’s computer system. Ms. Simpson stated that both brothers had access to this information on the computer system.

[152] In chief Dale acknowledged that he did receive some accounting records, including financial statements, although he did not specify which records he had received. On cross-examination Dale agreed that he had received annual financial statements for Holdco and Opco, which he reviewed; but he did not believe them and stopped signing them some four or five years ago. Dale acknowledged that he had the opportunity to discuss the financial statements with Mr. McLeod if he had so chosen. Emails of periodic financial reports by ProNorth employees to both Dale and Brian in 2006 and 2007 were filed in evidence.

[153] Dale also agreed that prior to September, 2009 he had full access online to the company’s banking information.

[154] As to the allegation that Brian had directed ProNorth staff not to answer Dale’s questions, Isaac Fehr, ProNorth’s Director of Operations, against whom Dale withdrew his claims in this lawsuit, testified that Brian never told him to withhold business information from Dale, although Dale asked him to withhold information from Brian about pending business meetings.

[155] Let me comment briefly on the brothers’ credibility on the oppression-related issues. Of the two brothers Brian struck me as possessing a more realistic understanding of the needs of the ProNorth business, especially since the economic downturn in 2008 placed great pressure on the business. From Dale’s evidence it was apparent that by 2008 he was tuning out of the business and more concerned about putting an exit mechanism in place. In his evidence Dale underplayed his knowledge about the financial position of company and, while dismissing out of hand the amounts due from Brianco and Daleco to Holdco stated on its financial statements as “fictitious”, he offered no alternative number. During cross-examination Dale frequently was argumentative, tended to overstate, or over-describe, his work with the company, and was often flippant and caustic in his responses to questions. While I have not accepted Brian’s evidence on the shareholdings – indeed while on the stand Brian seemed to treat the shareholding issue more as a game, than a serious matter – documentary evidence indicated that by 2007 Brian was aware that ProNorth had to be run in a cost-conscious manner, and he had begun to take steps to inject more financial discipline into its operations. Overall, I preferred Brian’s evidence on operational matters.

[156] Turning back to Dale’s allegation about lack of access to ProNorth financial information, I find that at least until January, 2010, when his access password to ProNorth’s computer system was disabled, Dale had access to on-going company financial information. Until removed as a co-signer of company cheques following the September, 2009 shareholders’ meeting, Dale also had access to ProNorth’s banking information through the BMO on-line banking system. While matters certainly changed after the shareholders’ meeting, I find that prior to that meeting Dale enjoyed access to ProNorth financial information.

D.2 Brian directed ProNorth employees to deprive Dale of assistance he required to perform company work

[157] Dale pleaded that Brian had refused to allow ProNorth staff time to answer his questions.[^36] Dale testified that in 2009 he prepared a response to an RFP from Labatt to let-out its fleet work, but his efforts to secure that business were not supported by Brian or the relevant employees of ProNorth. Dale stated in chief that he encountered difficulties in securing necessary fixed and variable cost information from Ron MacVicar, ProNorth’s controller, to prepare the pitch to Labatts. Yet on cross Dale conceded that Mr. MacVicar had helped him go through the “tedious questionnaire” presented by Labatt. In July, 2009, ProNorth ended up submitting a response to Labatt’s RFP which contained detailed cost breakdowns. In the result, Labatt decided not to out-source its fleet work, and no one got the deal.

[158] David Mulligan, who initially had met Dale while working for Supply Chain Management, a logistics manager for Walmart, testified that he was retained to help Dale prepare the response to the Labatt RFP. He described the relationship between Dale and other ProNorth employees as “dysfunctional”, and he stated that one employee, Isaac Fehr, sometimes delayed a day or two in providing information Mulligan had requested for the proposal response. Isaac Fehr, ProNorth’s Director of Operations, testified that he was not told by Brian to refuse to assist Dale on the Labatt proposal and that he provided Dale with the operational information he requested, although sometimes it took some time to obtain it. Brian testified that he did not tell staff to refrain from assisting Dale on the proposal.

[159] On balance Dale has not made out this allegation. The Labatt proposal was prepared and submitted, using ProNorth financial and cost information. While I have no doubt that by mid-2009 Dale had a strained relationship with some ProNorth employees, much of that was of his own making, especially the foot-dragging he displayed in signing company cheques, an event I will consider in more detail below.

D.3 Holdco failed to provide Dale with information about “off-shore accounts” for an insurance pool

[160] As a particular of his brother’s oppressive conduct Dale pleaded that the defendants had failed “to communicate alleged funds and account authorities of off-shore account(s) of a so-called dividend pool understood to have been opened and cash injected into a so-called insurance dividend that will shortly pay out hundreds of thousands of dollars in the range of $500,000.00 or more.”

[161] Norm McIntyre, who had acted as ProNorth’s insurance broker for a number of years, explained that the genesis of ProNorth’s participation in the Polaris captive insurance program was the high level of premiums the company faced in 2005 because of some large past claims under its insurance policies. To better control its insurance costs ProNorth joined the Polaris captive insurance program at its inception in March, 2005. About 20 other companies joined the pool which was set up off-shore in the Grand Cayman Islands. Under a captive insurance program ProNorth would pay a premium up front, but stood to obtain the return of some of the premium if its claims performance was good. After a period of time pool members might become eligible for a return of some of their premiums, but who became eligible to receive premium returns and the amount of the returns were determined annually by the pool’s executive committee taking into consideration the overall claims performance of the pool and that of each individual member.

[162] From his evidence in chief Dale acknowledged that: (i) he understood that in the early 2000s ProNorth’s insurance costs had spiked and the company was paying an “exorbitant amount” of insurance and, (ii) he understood that the company had joined an insurance pool – the Polaris captive insurance plan – in order to reduce insurance costs.

[163] Dale had participated in meetings with Norm McIntyre in which the insurance program had been explained, and he had received information on an on-going basis from Norm McIntyre about the pool’s dividend policy and performance.[^37] In his evidence Dale expressed no objection to ProNorth attempting to reduce its insurance costs.

[164] Mr. McIntyre recalled both brothers attending a detailed, two-day meeting with him in Toronto in which the captive insurance program was discussed. He described the level of detail as “pretty intensive”. Mr. McIntyre stated that it was up to the executive committee of the captive insurance pool to determine, on an annual basis in light of claims performance, what level of dividends would be returned to pool members in a year and which member would get how much. He stated that the nature of the dividend program had been discussed with Dale.

[165] Dale went on to testify that he understood a significant dividend would be coming back to ProNorth from the Polaris pool starting in 2009, and he interpreted a document prepared by the Polaris pool as indicating that between 2005 and 2010 ProNorth would receive dividends totaling $1.090 million.[^38] Dale was less than clear in his evidence about the precise nature of his complaint about the captive insurance program, but the gist of his complaint seemed to be that he thought ProNorth was not receiving back the level of dividends from the program which initially he had expected would occur.

[166] Note 13(b) to Holdco’s 2010 financial statements described the Alternative Risk Underwriting (“ARU”) arrangement into which the company had entered and stated that as of March 31, 2010 the amount of the company’s dividend pool was $604,202. The note further stated: “Any payment from ARU is also dependent upon the amount of claims against the company and the approval of the ARU Board of Directors. There is no assurance that any amount will ever be recovered from ARU.” At the annual meeting of Polaris in May, 2011, the finance committee recommended a total dividend payout of $70,444 to six eligible pool members, of which ProNorth was one.

[167] Dale has not established this allegation as pleaded. Indeed, the language he used to plead his complaint suggested that ProNorth was engaged in some inappropriate off-shore use of its assets. That pleading was extravagant and reflective of Dale’s animosity towards his brother rather than any real legal complaint. The evidence shows, and I find, that at all material times Dale knew about the workings of the Polaris captive insurance fund, approved ProNorth participating in it, and received periodic reports from Mr. McIntyre about the performance of the fund. Dale has not adduced any evidence to suggest that the captive insurance fund is operating otherwise than in accordance with the contractual terms of participation, nor has he adduced any evidence that ProNorth somehow is not receiving the return of premiums to which it is entitled. There is no basis to this allegation by Dale.

D.4 Brian used ProNorth money to buy personal “toys”

[168] The plaintiffs, in paragraphs 41(n) and 42 of their Amended Statement of Claim, alleged that the defendants “used the funds received for purposes inconsistent with reasons for receipt” and “appropriated corporate opportunities”. Their pleading did not provide particulars of these allegations.

[169] This claim was not articulated with much clarity at trial. However, from my understanding of Dale’s evidence, this part of his claim seemed to involve what Dale described as his brother’s “irresponsible acts”. He complained that Brian had used corporate funds for personal purposes,[^39] including purchases of family assets, renovations to his homes, as well as performing renovations to his girlfriend’s house. Dale adduced a list he had prepared of what he contended were Brian’s personal expenses run through ProNorth. The expenses covered the period 1996 to 2003. Dale did not adduce any documentation to back-up the expenses he had set out on this list. Dale also acknowledged that he had agreed to some of the expenses – e.g. Brian’s purchase of a Ferrari. Dale also conceded that the cost of the Ferrari purchase would have been charged to Brian’s shareholder’s account with Holdco.

[170] On cross-examination it was suggested to Dale that he also had bought personal items using Holdco money. Dale initially equivocated in his answers, but ultimately reluctantly acknowledged that he might have bought a motorcycle and a boat (with his brother) using Holdco funds, as well as having work done on his Wallace Heights house and the restoration of a 1969 Camero.[^40]

[171] Dale has not made out this particular of his claim of oppression. There can be no dispute on the evidence that both brothers extracted money from Holdco, through their personal holding companies, to fund the acquisition of “toys” and renovations to their personal properties. Indeed, Dale called Holdco the “mother ship” for the purchases. Both brothers benefitted from this arrangement, and the intercompany loans between Holdco and the two personal holding companies were adjusted to track those benefits. Dale has not established that his brother did anything other than what he, himself, was doing.

E. The September, 2009 shareholder meeting oppression claim

[172] Dale’s real oppression claim concerned his exclusion from the September 2, 2009 shareholders’ meeting, his resulting termination as a director of Holdco, and his ultimate expulsion from the affairs of the company, with an accompanying cessation in monthly draws.[^41]

E.1 Brian calls for a shareholders’ meeting in the Spring of 2009

[173] By notice dated April 23, 2009 Brianco, in its capacity as a shareholder of Holdco, requisitioned a shareholders’ meeting of Holdco to be held “as soon as possible”. The notice identified four agenda items: (i) approval of financial statements, (ii) appointment of auditor, (iii) to decide if resolutions could be passed electronically, and (iv) to elect directors. Dale stated that he did not consent to the meeting because he did not have the financial information referred to in the notice, nor did he understand the reference to electronic resolutions. Dale contended that at that time no financial information about ProNorth was coming to him. (I have not accepted this assertion by Dale.) That meeting did not proceed in the Spring of 2009.

E.2 Background to the September meeting

The cheque-signing issue

[174] From Brian’s perspective one of the reasons which prompted him to call a shareholders’ meeting was the difficulty the ProNorth Group was encountering in getting Dale to co-sign cheques. Company cheques required the signatures of Brian and Dale. As early as December, 2005 Dale had started to refuse to co-sign cheques for the acquisition of new equipment or the payment of suppliers. In 2007 Dale refused to sign cheques to pay ProNorth’s corporate counsel unless the company paid for the cost of Dale using Mr. Silveri’s services in negotiating his buy-out agreement. In late 2007 Dale delayed signing for several days cheques generated by the company’s standard accounts payable run including, according to Isaac Fehr, reimbursement to employees for expenses incurred on corporate credit cards. In March, 2008 Dale took the position with ProNorth staff that he would not sign ordinary course cheques unless Mr. Silveri’s accounts were paid by the company. When on cross-examination Dale was shown the various emails describing these events, he conceded that “possibly” he was not co-operating in signing ordinary course company cheques.

[175] Ms. Simpson testified that in the fall of 2007 problems arose in securing Dale’s signature on some cheques. Sometimes he wanted information about the invoice, and Ms. Simpson showed Dale how to retrieve information about invoices from the computer system. Other times Dale would not sign a cheque (e.g. for Loopstra Nixon accounts) unless Brian signed off on certain invoices Dale wanted paid, such as Mr. Silveri’s fees or airplane expenses, which Brian refused to sign. After Dale moved to Toronto in mid-2008, Ms. Simpson would send batches of cheques down from North Bay for his signature, but often would receive back only some cheques signed. She testified by that point in time she was encountering problems securing Dale’s signature on some cheques in every weekly cheque run. Ms. Simpson stated that the delays in securing Dale’s signature for some payables resulted in ProNorth receiving collection letters and threats from suppliers to stop selling to ProNorth.

[176] In March, 2008 ProNorth’s controller wrote Dale to caution that his failure to sign cheques for everyday operating expenses would cost the company money and affect its credit with key suppliers. Sandy Nixon passed the letter on to Dale’s advisor, Renzo Silveri, stating that he had “been instructed to do whatever is necessary to have Dale removed as an officer and director and signing officer unless he complies with his legal obligations immediately.” At trial Dale stated he regarded that warning as mere “gamesmanship” and that his delays in signing cheques did not damage the company.

Dale’s dispute with Norman McLeod

[177] Early in 2009 Dale stopped using Norman McLeod as his personal accountant and hired a new one, Domenic Torelli. Dale testified that he wanted to provide financial information to his new accountant before the shareholders’ meeting took place. In June his new accountants sent Mr. McLeod a letter asking for a large volume of information regarding Daleco and the ProNorth Group of companies. While Mr. McLeod advised Dale that he would provide the requested information regarding Daleco (although wished some compensation given the large volume requested), he would require authorization from the ProNorth Group to provide their financial information to Dale’s personal accountants. Several letters went back and forth between Dale and Mr. McLeod. On July 14 the latter explained that his accounting firm did not keep ProNorth’s books and records; those documents were maintained at the company’s head office. Dale concluded on August 12, 2009 by stating that “what I want is full and complete access to the accounting records [for ProNorth] so I can effectively manage this business. Please co-operate with my accountants.”

Credit facility

[178] Brian testified that in 2008 ProNorth was facing a slumping transportation market, challenges to its cash flow, and a line of credit which was “maxed out”. He said Dale would not sign a resolution to amend their credit facility in a more cash-flow friendly way. Brian stated that he was putting up with a “living hell” with company operations at the time and Dale’s refusal to sign some cheques, and he did not take the decision to call a shareholders’ meeting lightly.

E.3 Prelude to the September 2, 2009 meeting

[179] On August 11, 2009 Dale’s personal accountant, Domenic Torelli, emailed Brian asking to review the accounting records and documents of ProNorth and requesting delivery of specified documents within one week. The list of requested documents included financial statements, general ledgers, trial balances, income tax returns, bank statements, insurance policies and rental agreements for Holdco and Opco for the last three years.

[180] By letter dated August 19, 2009 Brian Glass arranged for Dale to be sent a notice of a shareholders’ meeting scheduled for September 2, 2009. On August 24, 2009 Dale wrote back to Brian, addressing his brother as “Dear Mr. Glass”, and stating that the shareholders’ meeting could not proceed on September 2 because Dale had not received proper financial information and wanted clarification of what specific business was proposed under item 4 in the notice, “Other Business”. He concluded his letter by writing:

I am prepared to reschedule the annual meeting on a mutually convenient date after we receive the financial information that I have been asking for (and that I am entitled to get) for the last six months.

[181] Brian responded on August 28 stating that “the financial statements referred to in the notice of the annual meeting have been supplied to you on many occasions, I have attached a copy of the statements from when they have been supplied to you on November 6, 2008, at which time I believe you supplied them to Walmart. The annual meeting can proceed on September 2, 2009.”

[182] On September 1 Mr. Torelli re-sent his August 11 email to Brian requesting three years of financial information for Holdco and Opco.

E.4 The September 2, 2009 shareholders’ meeting

[183] The shareholders’ meeting took place on September 2. Dale testified that he was out of town that day meeting with his lawyer, but he provided Mr. Silveri with a proxy to attend the meeting on his behalf. Although a copy of the proxy was not filed in evidence, an email from Dale to Ron MacVicar at around 8 a.m. on September 2 (and shortly thereafter also sent to Brian) informed Mr. MacVicar that Mr. Silveri would be attending the meeting and that Dale would phone in.

[184] Dale learned that Mr. Silveri would not be allowed into the meeting. Dale stated he then tried to participate by way of conference call, asking Brian’s son, Cory, to tell his father that Dale was on the line wanting to participate by telephone. Dale was not allowed to participate by telephone.

[185] Mr. Silveri testified that on the morning of September 2 Dale phoned him and asked him to attend the meeting. Dale’s lawyer sent Mr. Silveri a proxy. Mr. Silveri stated he went to ProNorth’s office in North Bay (which was near his office) and met Greg Ducharme, a lawyer, at the reception. He gave Mr. Ducharme the proxy and asked to be let into the meeting. According to Mr. Silveri, Mr. Ducharme went upstairs and when he came back down stated that proxies were not permitted by the company’s by-laws. At the same time Mr. Silveri overheard Brian’s son, Cory, speaking on the phone with Dale, asking Dale to hold while he went upstairs to check something, and then came back down and told Dale that he and his lawyer could not participate by conference call.

[186] Brian testified that Dale did try to phone into the meeting, but after consulting Mr. Ducharme and Mr. McLeod he took the position that ProNorth’s by-laws did not permit electronic shareholder meetings. According to Brian, Mr. Silveri did not attend with a proxy, so was not allowed into the meeting.

[187] Isaac Fehr testified that a few days before the meeting Brian had asked him to attend and indicated that he wanted to make Isaac a director of ProNorth. Isaac attended the meeting. He recalled that Norm McLeod and a lawyer were present. Mr. Fehr stated that Mr. McLeod said Brian was the majority shareholder of ProNorth. Mr. McLeod denied making that statement; he said Mr. Ducharme must have made it. When on cross it was suggested to Mr. McLeod that Mr. Ducharme must have relied on his April, 2009 affidavit, Mr. McLeod replied that he presumed Mr. Ducharme had looked at it.

[188] Mr. McLeod stated that he learned of the meeting only two days before it was held, and he did not know that Brian intended to remove Dale as a director. According to Mr. McLeod, the lawyer, Mr. Ducharme, conducted the meeting.

[189] Mr. Ducharme did not testify at the trial. ProNorth’s counsel advised that notwithstanding requests by him to Mr. Ducharme for the production of the latter’s files on the matter, Mr. Ducharme would not disclose them. It is also worth noting that a little over two years prior to the shareholder’s meeting Mr. Ducharme had acted for Dale on a personal tax matter.[^42]

[190] Dale learned about the results of the shareholders’ meeting when his lawyer, Emilio Bisceglia, received a September 11, 2009 letter from Gregory Ducharme. Given the importance of this letter to several issues in dispute, let me reproduce it in full:

Further to our telephone conversation of Tuesday September 8, 2009 we write to you as follows.

We act for 979253 Ontario Inc.

Our client, on or about April 23, 2009, in its capacity as shareholder of 618718 Ontario Inc. requested that the directors of 618718 Ontario Inc. call a meeting of the shareholders of 618718 Ontario Inc. as soon as possible. The directors of 618718 Ontario Inc. did not call a meeting of the shareholders notwithstanding the request of our client. On or about August 21, 2009, and pursuant to Ss 105(4) of the Ontario Business Corporation’s Act, our client called such a shareholder’s meeting for September 2, 2009 at 1:30 at the head office of 618718 Ontario Inc. 979254 Ontario Inc. and Dale Glass received notice of said meeting and confirmed same.

The shareholder’s meeting ensued as per the notice. Brian Glass chaired the meeting of shareholders. Your client did not attend the shareholder’s meeting. Dale Glass requested that he be allowed to attend the meeting by telephone. The request was denied. The request of Renzo Silveri to attend the meeting was similarly denied.

The fact is that 979253 Ontario Inc.:

Owns 62% of the issued and outstanding shares of 618718 Ontario Inc.

There is no valid shareholder’s agreement which governs the affairs of 618718 Ontario Inc.

Please see enclosed affidavit of Norm McLeod for further details.

At the meeting of the shareholder’s a new board of directors was elected which is comprised of:

Brian Glass

Isaac Fehr (general manager of 618718 Ontario Inc.)

Immediately thereafter, a meeting of directors was held. The directors waived notice of said meeting. New bank signing officers were appointed. These are either:

Brian Glass and Ron MacVicar

Brian Glass and Milton Miller

We trust that this is the information that you have requested and should you have any further questions or concerns, please contact our office.

P.S. We would invite your client to provide us, by affidavit, with any evidence or information contrary to the facts set out by Norm McLeod.

Brian acknowledged that he had approved Mr. Ducharme sending out the letter. Dale testified that when he learned this information he thought that his brother was trying to squeeze him out.

[191] As a result of the September 2, 2009 shareholders’ meeting, Dale was removed as a director of Holdco.

[192] I should note that in their Amended Statement of Claim the plaintiffs alleged that the defendants had induced the breach of certain (undefined) contracts. On cross-examination Dale explained that this allegation was directed towards his brother and Norm McLeod and referred to his exclusion from the September 2, 2009 shareholders’ meeting.

E.5 Analysis

[193] Since May, 1992 Dale, through Daleco, had been a 50% shareholder in Holdco. Since May, 1993 he had been a director of Holdco. The By-laws of Holdco stipulated that a quorum for a shareholders’ meeting was a majority of the shares entitled to vote at a meeting of shareholders “present in person or by proxy”,[^43] and that a director could only be removed by a majority of the votes cast at a shareholders’ meeting.[^44] The By-laws expressly permitted a shareholder to appoint a proxy holder to attend and vote at a shareholders’ meeting,[^45] a provision consistent with section 110(1) of the OBCA which provides:

110(1). Every shareholder entitled to vote at a meeting of shareholders may by means of a proxy appoint a proxyholder or one or more alternate proxyholders, who need not be shareholders, as the shareholder’s nominee to attend and act at the meeting in the manner, to the extent and with the authority conferred by the proxy.

[194] I have found that Brian and Dale signed the 1996 Shareholders’ Agreement. Section 3.01(d) of that agreement stipulated that “a quorum for a meeting of shareholders shall be all shareholders of the Corporation present or represented by proxy”.

[195] At the time of the 2009 shareholders’ meeting section 94(2) of the OBCA authorized participation in a shareholders’ meeting by telephone:

94(2). Unless the articles or the by-laws provide otherwise, a meeting of the shareholders may be held by telephonic or electronic means and a shareholder who, through those means, votes at the meeting or establishes a communications link to the meeting shall be deemed for the purposes of this Act to be present at the meeting.

None of Holdco’s Articles of Incorporation, Articles of Amendment, or By-law No. 4 prohibited participation by way of telephone at a shareholders’ meeting.[^46]

[196] Based on the provisions of the OBCA and Holdco’s By-law No. 4, I find that Dale had a reasonable expectation that as a shareholder of Holdco he could (i) appoint a person, such as Mr. Silveri, as his proxy to attend and vote at the September 2, 2009 shareholders’ meeting and (ii) participate in the shareholders’ meeting by way of telephone, and that based on the By-law and the 1996 Shareholders’ Agreement he also had a reasonable expectation that a quorum for the shareholders’ meeting would be both shareholders, Brianco and Daleco.

[197] The evidence leaves no doubt that Dale attempted to establish a communications link to the meeting by telephone, reached the ProNorth office, but was denied participation by way of telephone because, according to Brian, he received advice from Mr. Ducharme and Mr. McLeod that the by-laws did not permit electronic shareholders’ meetings. Mr. McLeod was not questioned on that point. Mr. Ducharme did not testify, but in his September 11, 2009 letter he wrote:

Dale Glass requested that he be allowed to attend the meeting by telephone. The request was denied.

On the evidence before me I cannot make any finding about who gave whom what advice. I can and do find, however, that Brian’s refusal to allow Dale to participate by telephone was unlawful – section 94(2) of the OBCA permits such mode of participation, and Holdco’s constating documents did not place any restriction on that statutory right. Accordingly, I find that Brian wrongfully refused to allow his fellow shareholder, Dale, to participate in the September 2, 2009 shareholders’ meeting and such conduct was oppressive within the meaning of section 248(2) of the OBCA.

[198] In light of that finding of wrongful exclusion of Dale from the shareholders’ meeting, it follows, either under section 6.06 of By-law No. 4 or section 3.01(d) of the 1996 Shareholders’ Agreement, that a proper quorum did not exist for the September 2, 2009 shareholders’ meeting. Accordingly, the business conducted at that meeting was null and void: the election of Mr. Fehr as a director was null and void, and the subsequent directors’ resolution to remove Dale as a director was null and void.

[199] I make those findings independent of the issue of whether Renzo Silveri attended at the ProNorth offices with a proxy. Dale testified that on September 2 he was at the office of his lawyer, Emilio Bisceglia, from where a proxy was sent to Mr. Silveri, who testified that he presented a proxy to Mr. Ducharme. Brian denied that Mr. Silveri presented a proxy; Mr. Ducharme did not testify. A copy of the proxy was not filed in evidence.

[200] While I question why a copy of the proxy was not placed in evidence, at the same time it strikes me as highly improbable that Mr. Silveri, a person versed in business matters, would attend at ProNorth’s head office without a proxy and expect that he would be admitted to the meeting. Most significantly, Mr. Ducharme, who acted for Brian and Brianco, was not called to testify at trial. It was within Brian’s power to compel Mr. Ducharme to testify about the events of September 2, 2009. I draw an adverse inference against Brian and Brianco from their failure to call Mr. Ducharme. I conclude that had Mr. Ducharme testified, his evidence would not have supported that of Brian. I therefore find that Renzo Silveri attended at ProNorth’s office with a proxy from Dale and that Brian wrongfully refused to allow Mr. Silveri to participate, as Daleco’s proxy, in the shareholders’ meeting.

[201] By way of summary, I find that Brian, as a director and co-owner of Holdco, wrongfully excluded Dale, a co-shareholder in and director of Holdco, from the shareholders’ meeting on September 2, 2009, and that such conduct was oppressive of Dale’s interests in Holdco as a shareholder through Daleco. I also find that the purported election at that meeting of a new board of directors was null and void, and the purported removal of Dale as a director was both null and void and oppressive conduct.

[202] Let me conclude this part of my Reasons by recalling that at certain points during the trial I stated that I felt as if I was watching two young boys fight in a sand-box. The events of September 2, 2009 were an instance of such a mindset on the part of both brothers. Dale attempted to delay the holding of the shareholders’ meeting, consistent with the “dragging the feet” conduct he had displayed since 2006. Brian, obviously frustrated by Dale’s conduct and concerned about the health of ProNorth in a very challenging economic climate, decided to force the issue. He ignored the memos he had received from Sandy Nixon in 2008 and 2009 advising that the brothers’ shareholdings were shown as 50:50, he somehow persuaded Norman McLeod to swear his extraordinary April, 2009 affidavit, and he then proceeded to put in place a meeting which, come hell or high water, would see Dale removed as a director. So, Dale avoided dealing with issues which needed to be solved, and Brian ignored the minute books and drove home the solution he thought best. To what end? Over two years later they are exactly where they were on September 2, 2009, with only high legal bills to show for their mutual stubbornness.

[203] Before dealing with the issue of remedy under section 248 of the OBCA, let me consider two issues which flowed from the events of September 2, 2009 – the ultimate cessation of Dale working at ProNorth and the payment of rent by Holdco for some of the Jointly Owned Properties.

E.6 Cessation of Dale working at ProNorth

Evidence

[204] Dale testified that for many years he received a monthly $15,000 “draw” from Holdco. He contended that the sum did not represent payment for his work for the company, but “it was my draw”. Dale testified that following the September, 2009 shareholders’ meeting he stopped receiving his monthly draw of $15,000.00. According to Dale, he now has no other source of income.

[205] Those draws, or payments, were made by Holdco to Daleco. The records show that the last payment made to Daleco was dated October 1, 2009.[^47] In final argument counsel for Dale and Brian agreed that the “draws” were not included as part of the “management fees” recorded on Holdco financial documents. Both parties left the record quite unclear about where “draws” were recorded on the financial statements and what went into “management fees”.

[206] Dale testified that following the September, 2009 shareholders’ meeting he continued to work at ProNorth dealing with issues which usually fell within his area of responsibility. He stated that it was during a “spring 2010” conference call with Walmart that his brother started telling customers not to deal with him.

[207] Dale testified that by early in 2010 he no longer had access to his ProNorth email account. He acknowledged that he had accessed the ProNorth computer system many times in January, 2010 following the start of this litigation. When it was suggested to Dale on cross-examination that he had deleted documents from the ProNorth system at that time, he replied that he did not believe he had, and if he did the documents would not be relevant to this case.

[208] Dale testified that in the fall of 2010 he entertained some discussions with Triumph Express about a position as director of sales and marketing. David Mulligan testified that he had introduced Dale to the owners of Triumph Express, with whom he now worked. Those discussions got down to the “short strokes” and Dale was anticipating generating anywhere from $350,000 to 700,000 in income from the position. However, he did not pursue the opportunity because he thought it would place him in a position where he was competing for the same business against ProNorth, a company in which he was an owner. Dale testified that there were a couple of emails back and forth on this proposal, but he did not file them at trial. David Mulligan stated that he was not aware of the reason Dale did not end of working for Triumph. Dale stated that in 2010 he did not go out to chase an employment position, nor did he make any efforts to find new employment.

[209] Brian took the position that Dale had abandoned his employment with ProNorth.

Analysis

[210] The cessation of Holdco paying “draws” to Dale was linked directly to, and caused by, the decision taken by Brian at the September 2, 2009 shareholders’ and director’s meetings to remove Dale as a director of Holdco, thereby removing him from the management of the affairs of the corporation. The evidence supports a finding that the monthly draws paid to Daleco reflected Dale’s participation in the management of Holdco and the ProNorth Group. Typically those draws were paid on the first day of each month. I find that the last draw paid by Holdco to Daleco was on October 1, 2009. I further find, based on the notes to the draft and audited Holdco financial statements for the year ended March 31, 2010, that Holdco continued to pay Brianco draws after October 1, 2009.[^48]

[211] I am unable to find specifically when Dale stopped working for Holdco, but it appears to have happened sometime in the first four months of 2010. I do not accept Brian’s evidence that Dale abandoned his work at Holdco. Brian acted to squeeze Dale out from the operations of Holdco at the September 2, 2009, and he succeeded – Dale ultimately no longer showed up for work. That was caused by Brian’s conduct.

E.7 Holdco failed to make rental payments for properties in which Dale or Daleco had an interest

Evidence

[212] Dale pleaded that Holdco failed to make rental payments for the Jointly Owned Properties[^49] which were used by ProNorth to carry on business – i.e. the North Bay head office and terminal at 324 Birches, North Bay, the Sudbury Terminal at 1727 Pioneer Road, Sudbury, and the Mississauga Terminal on Lucknow Road, Mississauga.

[213] The evidence of Dale, Brian and Mr. McLeod agreed that they had set up a system under which Holdco paid rent for its use of Jointly Owned Properties into a joint account controlled by both Brian and Dale. The money in the joint account was then used to pay the mortgages and carrying costs of those properties. All parties agreed that none of the money in that joint account was ever paid to the brothers; it was always used to service the costs of the Jointly Owned Properties used by ProNorth for its operations.

[214] Dale testified that following the September, 2009 shareholders’ meeting he did not receive any “beneficial value” for the rent for the Jointly Owned Properties. Mr. Silveri testified that his partial examination of the joint account showed a significant drop in rent receipts from 2007 to 2008 which was not explained by the stated lease obligations of Holdco. However, the consolidated financial statements of Holdco and Opco recorded the making annual rent payments after 2007. The particulars are summarized on the following table:

Year-end March 31	2004	2005	2006	2007	2008	2009	2010
Annual Rent	358,802	542,652	693,668	609,629	340,546	221,753[^50]	430,185
Recorded lease commitments	Not available	N/A	N/A	4 leases: $487,560 North Bay Mississauga Toronto Timmins	4 leases: $503,400 North Bay Mississauga Toronto Timmins	2 leases: $70,800 Toronto Timmins	3 leases: $115,732 Montreal Toronto Timmins

[215] Holdco’s financial statements for the year-ended March 31, 2009, showed that Holdco paid rent on properties in Toronto and Timmins. Dale testified that he thought Holdco should be paying rent for use of the head office (Birches) property as well as the Sudbury terminal, but the financial statements indicated that it was not.

[216] Brian stated that no written leases existed between Holdco and the two personal holdings companies for the properties used by ProNorth. The rents were used to pay off the mortgages placed on those properties. The gist of Brian’s evidence was that once the mortgages were paid off, Holdco would pay a reduced level of rent on the properties. He considered that arrangement fair because Holdco had funded extensive improvements to some of the properties, including the Lucknow terminal. Brian said Dale was aware of these arrangements.

[217] Mr. McLeod testified that under an oral agreement between the brothers the operating company would pay all expenses for the properties in lieu of rent. Once the mortgages were paid off, they would re-assess the situation and set up a market rent situation. Mr. McLeod said the companies had not yet quite achieved that situation.

[218] Of the three Jointly Owned Properties used by ProNorth, only Lucknow has a mortgage on it.

Analysis

[219] As part of their claim for damages the plaintiffs contended that the ProNorth Defendants should pay $838,530 in rental arrears for the three Jointly Owned Properties used by ProNorth, calculated as $18,634 per month for 45 months. The plaintiffs argued that Holdco and Opco stopped paying rent for those properties on January 1, 2008 and the rent which should be applied was the fair market rent referred to by PWC in its expert’s report.

[220] I have significant difficulties with this part of the plaintiffs’ claim. The plaintiffs based the January 1, 2008 rent arrears start date on evidence given by Mr. Silveri. He testified that he had reviewed records of the joint account up to the middle of 2008 and it appeared to him that after 2007 rents were reduced or sporadic. Mr. Silveri stated that he did not know what that meant, but it was a preliminary indicator to him that some problem was going on. I do not understand Mr. Silveri’s evidence to be that all rent payments stopped on January 1, 2008. According to the Holdco consolidated financial statements for 2008, 2009 and 2010, the company continued to make rental payments for some of the Jointly Owned Properties.

[221] Relying on the financial statements, I find that Holdco continued to make rental payments for the North Bay, Sudbury and Mississauga properties in 2008, and for the Mississauga property in 2009. Commencing with its 2009 financial statement Holdco began to report “rent, utilities and taxes” as a line item, whereas previously it had reported “rent” and “utilities”. The parties did not explore that issue at trial. Notwithstanding the ample time for discovery before trial and the retainer of several expert witnesses, I am left with a paucity of evidence on the issue of how much Holdco paid into the joint account in 2008, 2009 and 2010 for use to pay any mortgages and carrying costs on the three Jointly Owned Properties that it used and what amount, if any, remained in the joint account as of the date of trial. The plaintiffs in final argument sought a specific order that they were entitled to 50% of the joint account as of September, 2009. I have difficulty seeing how a court could make such an order in the absence of evidence about what amount was in the account at that time. In any event, I consider below the fair and proper treatment of this rent arrears claim.

[222] Turning to the notional rent the plaintiffs used in their damages calculation, in its business valuation report PWC commented that the rent Holdco paid on the three properties was not at market value, so for the purpose of ascertaining the amount of maintainable EBITDA to use in its valuation PWC replaced the rent expense shown on the financial statements with a significantly higher amount which it estimated represented the fair market rent for the three properties. At least with respect to the North Bay property, the square foot rent used by PWC was at the high end of the range of rents estimated by the two property valuators, Morland Real Estate Appraisals[^51] and Colliers International.[^52]

[223] The payment of rent by Holdco to the joint bank account was designed to generate a source of funds to service the expenses associated with the Jointly Owned Properties used by Holdco and Opco. Both brothers were clear: the rent was not paid to them personally. The evidence indicates that the amounts of Holdco’s rent payments were set below fair market rent. That appeared to be part of the arrangement between the brothers: rent was pegged to the level of actual carrying costs, not to market rates. Of course, once the relationship between owners fractures, below-market past arrangements can become unfair, and the evidence suggests that since 2009 rent may not have been paid for the North Bay and Sudbury properties, although carrying costs likely were – frankly, it was difficult to tell from the evidence.

[224] As the Court of Appeal made clear in Naneff v. Con-Crete Holdings Limited,[^53] a court may only exercise its remedial discretion under section 248(3) of the OBCA to rectify oppressive conduct by protecting a person’s interest as shareholder, officer or director as such. The onus rested on Dale or Daleco to establish that since 2008 it/they had lost the benefit of rent payments by reason of the defendants’ conduct and that loss should be rectified. I am not satisfied that they have discharged that onus. Under the arrangement in place with his brother for the joint account, Dale’s reasonable expectation was that Holdco would pay an amount into the joint account which would service the various carrying costs of the three Jointly Owned Properties which it used. Dale could not have had a reasonable expectation that Holdco would pay rent to Daleco which Dale could extract for his own personal benefit. That was not how the joint account operated according to the evidence. Accordingly, I see no basis for an order under OBCA s. 248(3) for the payment of rental arrears. Instead, given the frailties of the evidence on this point, and in light of the past purpose of the rent to pay on-going carrying costs of the properties and not to make payments to Dale or Brian, I think conceptually the best way to deal with the rent issue is through the valuation process. PWC has noted that in calculating an EBITDA for its analysis, it used an estimate of fair market rent for those properties. Also, the property valuators employed a lease valuation as a check on their valuations of the properties. As well, Daleco, as an owner of the properties, continued to receive the benefits of some payments from Holdco because no evidence was placed before me suggesting that the carrying expenses on the properties had not continued to be paid through to trial.

F. Remedy under section 248(3) of the OBCA

[225] I have found that Brian, as a director of Holdco and through Brianco as a shareholder of Holdco, engaged in oppressive conduct against Dale and Daleco by excluding Dale/Daleco from the September 2, 2009 shareholders’ meeting and by removing Dale as a director of Holdco. As a direct consequence of that conduct Dale lost the ability to participate in the management of Holdco and the ProNorth Group, and Holdco stopped paying Daleco monthly draw payments after October, 2009.

[226] The plaintiffs seek an order under section 248(3) of the OBCA that Brian and/or Brianco purchase their shares in Holdco. Those defendants agreed to such an order. That order will rectify most of the effects of the defendants’ oppressive conduct by compensating Dale for the fair value of his interest in Holdco.

[227] Dale also seeks an order that he be paid severance of $37,000 a month for a period of 24 months as compensation for his exclusion from the affairs of the company. Dale argued that when one looks at the levels of “management fees” paid to him over the years until 2006, they averaged around $263,000 a year. To that Dale argued should be added his monthly draw of $15,000, resulting in a claim of $37,000 per month. Dale contended that two years would be a reasonable period of notice, in effect, which led him to seek damages of $888,000.00.

[228] Dale’s claim for compensation in his Amended Statement of Claim was limited to the payment of $15,000 per month retroactive to September, 2009; there was no claim for retroactive payment of additional “management fees”. No amendment was sought to that part of the pleading.

[229] The ProNorth Defendants argued that Dale was not entitled to any compensation because (i) he had failed to mitigate his loss by finding new employment, (ii) he had abandoned his employment position with the company when he moved to Toronto in the summer of 2008 and, (iii) in any event, his removal in September, 2009 was necessary and in the best interests of Holdco.

[230] The evidence does not support the contention of the ProNorth Defendants that Dale abandoned his work with the company in 2008. The record does not disclose any contemporaneous written communication from Brian taking the position that Dale had abandoned his work. There were communications which indicated that Brian was trying to persuade Dale to become more engaged in the business, but that is not the same thing as treating a person as having abandoned his work. Moreover, the evidence showed that Dale prepared the response to the Labatt RFP in the first half of 2009 and was dealing with customers as late as early 2010.

[231] I think that Dale is entitled to some order for compensation as an aggrieved person by reason of his exclusion from the management of the business. I am satisfied that Dale, as a shareholder through Daleco, had a reasonable expectation of participating in the management of Holdco.[^54] While as a general rule in cases of termination the most typical oppression remedy is to compel a buy-out of the complainant’s shares,[^55] such a general rule is not an invariable rule, and cases do exist where a shareholder excluded from participation in the business received compensation.[^56] I have found that Dale’s exclusion from participation in management of Holdco was caused by his wrongful removal as a director in September, 2009. His draws stopped the next month, yet Brian’s continued. It would be unfair to permit one 50% shareholder to continue to receive monthly draws from Holdco while denying such draws to the other shareholder who had been excluded wrongfully from the management of the business.

[232] At the same time, I think it would not be fit to compensate Dale by awarding his monthly draws for the full period of time from November, 2009 until January, 2012, or 27 months. First, Dale did not clearly establish whether the draw was in respect of his interest as a shareholder, director or employee, or all of those interests. Second, as an aggrieved party Dale was under some obligation to mitigate this aspect of his loss, yet he candidly testified that he made few efforts to find a new source of income. Third, although Dale’s removal as a director occurred in a wrongful manner at the September, 2009 shareholders’ meeting, the evidence lends some support to Brian’s contention that he needed to remove Dale so that ProNorth could operate in a more normal manner. I accept that Dale’s delays in signing cheques imposed a burden on ProNorth. Considering all of those factors together in light of the equitable purpose of the oppression remedy, I conclude that a fit award of compensation to Dale for his exclusion from the management of the ProNorth Group would be the equivalent of 12 months of his monthly draw of $15,000.00, or an amount of $180,000.00, and I order Holdco, Brian and/or Brianco to pay such amount to Dale. I wish to emphasize that I have arrived at this amount not on a stand-alone basis, but as part of, and taking into consideration all of, the relief which I grant in these Reasons under section 248(3) of the OBCA. The choice of $180,000 as the appropriate level of damages cannot be divorced from all the other elements of section 248(3) relief which I grant; they are inextricably intertwined and interdependent.

VII. PLAINTIFFS’ CLAIMS FOR INDUCING BREACH OF CONTRACT CLAIMS

[233] The plaintiffs alleged that the defendants unlawfully interfered with the economic relations of the plaintiffs by “authorizing, condoning or acquiescing in the breach of the Shareholders Agreement, Purchase Agreement, rights of the Plaintiffs as shareholders, directors and officers, ownership rights and agreements as to compensation…” On cross-examination Dale explained that this allegation was directed towards his brother and Norm McLeod and referred to his exclusion from the September 2, 2009 shareholders’ meeting. I have dealt with that issue above, and the plaintiffs made no separate submission at trial about this part of their claim.

VIII. THIRD ISSUE: HOLDCO COUNTER-CLAIM AGAINST DALE IN RESPECT OF THE CESSNA 414 AIRCRAFT

A. The nature of the claim asserted

[234] Holdco owns a Cessna 414 airplane. Holdco counter-claims against Dale for a return of that plane and an accounting for his personal use of that corporate asset. In their Statement of Defence and Counterclaim the ProNorth Defendants pleaded that Dale must take the aircraft as part of the separation of the parties’ interests with its value calculated at its fair market value as at April, 2005 plus the accumulated value of the monies spent on the aircraft since that time.

B. The history of the aircraft

[235] Dale testified that Holdco purchased a Cessna 414 in 1999 in order to help him react to customers throughout Ontario, Quebec and the U.S. The plane cost U.S. $375,000.00. Dale obtained his pilot’s licence and began to fly the plane a year or two later. In 2008 Dale moved to Toronto. He stated that the use of the plane dropped dramatically as a result. In chief he stated that his position in 2008 was that ProNorth could take back the corporate aircraft. Dale contended that he attempted to return the plane to the hanger in North Bay, but found that his brother had sold it. So, he left the plane at the Toronto Island airport.

[236] On their part the ProNorth Defendants sought to recover from Dale $189,204 in airplane expenses for the period 2006 through 2010 which they contend were caused by Dale’s wrongful refusal to return the plane. On cross-examination Dale stated that $75,000 of those expenses consisted of damage suffered by the plane when it hit a light while taxing. Dale contended that the accident was caused by Brian’s failure to keep a proper lookout during the taxi while Dale was piloting the plane.

[237] The evidence showed that Brian began to press Dale to sell the plane in early 2005 following an expression of interest by a third party in buying it. On April 13, 2007 Brian emailed Dale stating that the company needed to reduce its costs immediately in order to “stop draining cash flow” and he identified the plane as one of the assets which should be sold. Brian wrote: “WE need to this done immediately”. He followed up on April 19, 2007 writing that they “need to take action now”. Dale turned a deaf ear to those requests.

[238] Starting with a letter dated December 2, 2009, ProNorth’s lawyers asked Dale’s lawyer to identify where he was keeping the plane and to provide immediate access to the flight and maintenance logs for the aircraft. Dale’s lawyer replied promptly, advising that the plane was at the “Toronto Airport” – without specifying which airport in Toronto - and that Dale did not object to its sale. ProNorth learned that the plane was at the Toronto Island airport only because in April, 2010 it received an invoice for unpaid parking fees. However, Dale did not initially turn over the original journey log for the plane, a record needed to sell the plane. It appears that at some point in 2010 or 2011 he did, although it was not clear from the evidence at trial precisely when that occurred.

[239] The ProNorth Defendants filed a summary of aircraft expenses incurred from 2007 through 2010 for the aircraft showing expenses totaling $55,664.00. They also filed a report from Eagle Aircraft Inc. from December, 2010 estimating that to bring the aircraft up to current Canadian Airworthiness Requirements it was likely that at least $37,500 would need to be spent to replace parts, as well as $17,000 in labour.

C. Analysis

[240] Dale was the sole user of the plane. By the time he moved to Toronto in 2008 ProNorth no longer had any business need for the plane. As the dispute between the brothers unfolded in 2007 the plane became a pawn Dale used for his advantage in the dispute. Although he testified that at an early stage he took the position that Holdco could reclaim the plane, that is not the approach he adopted through his lawyer in response to Holdco’s December, 2009 demand for the plane. Dale would not specify precisely where the plane was kept and he delayed turning over the all-important flight log. I conclude that the evidence supports making a finding that from 2007 until sometime in 2010 Dale refused to turn over the plane and its flight log to Holdco thereby preventing Holdco from selling a corporate asset and causing Holdco unnecessarily to incur expenses. Dale had no legal basis for such a refusal – the plane was a corporate asset.

[241] Consequently, I conclude that Holdco is entitled to damages from Dale for wrongful detention of corporate property. I fix those damages at $55,000.00 for expenses incurred by Holdco for the plane from 2007 through 2010 together with $50,000.00 for estimated costs which Holdco will incur to bring the plane back up to a marketable standard, for a total of $105,000.00.

[242] In Part VI.F above I awarded Dale damages against Holdco, Brian and/or Brianco in the amount of $180,000.00 for unpaid draws. That was an award of damages pursuant to the equitable oppression remedy. As a result of the order which I will make requiring Brian and/or Brianco to purchase Daleco’s shares in Holdco, Brian will indirectly own all of Holdco. In those circumstances, I think equity requires that Holdco, Brian and/or Brianco be able to set-off, as against the award of damages to Dale, the amount I have ordered Dale to pay by way of damages for wrongful detention of the airplane. That will result in a net damage award against Holdco, Brian and/or Brianco in favour of Dale in the amount of $75,000.00.

IX. FOURTH ISSUE: VALUATION OF THE SHARES IN HOLDCO AND OPCO

A. Positions of the parties

[243] The plaintiffs submitted that I should find the en bloc fair value of the ProNorth shares to be $14.3 million. The ProNorth Defendants contended that fair value should be fixed at $9.9 million.

B. Applicable legal principles

[244] I am sure that many trial judges faced with the task of considering conflicting valuation evidence would sympathize with the following remarks made by a judge of the Delaware Chancery Court:

In coming to my valuation, I have had to stagger through a sandstorm of contending arguments, on all points great and small. Many of these playground tussles involve issues that emerge in the actual application of broad corporate finance principles that are commonly taught in academic institutions…The process of appraisal calling for the court to derive a single best estimate of value based on the “expert input” of finance professionals paid to achieve diametrically opposite objectives tends, regrettably, to surface minor, granular issues of this kind, which are not well addressed in the academic literature.[^57]

[245] A good place to start any consideration of the principles guiding the judicial valuation exercise is the “one true rule” articulated by Lambert J.A. in Cyprus Anvil Mining Corp. v. Dickson where he wrote:

The one true rule is to consider all the evidence that might be helpful, and to consider the particular factors in the particular case, and to exercise the best judgment that can be brought to bear on all the evidence and all the factors. I emphasize: it is a question of judgment.[^58]

[246] A helpful summary of the particulars underlying the application of the “one true rule” can be found in the article by Hunter and Pearce, “Fair Value” – A Common Issue with Surprisingly Sparse Canadian Authority:[^59]

The following basic principles appear to be well-established by the authorities:

Valuation of shares pursuant to a legislative appraisal remedy is a fact-based assessment, which requires “an important element of judgment” by the court.

In exercising its judgment, “a court is advised to be prudent - to proceed not on the basis of the most optimistic approach…” Dissenting shareholders are not entitled to a better value than other shareholders simply because they are dissenting. The appraisal remedy is a “safeguard, not a bonus.”

Neither party bears the burden of proving the fair value of the shares. Although each party who asserts a proposition must prove it on the balance of probabilities, by a preponderance of the evidence, it is the court that must ultimately make the assessment of fair value. While expert evidence is commonly put forward to assist in establishing fair value, the court is not obliged to accept it.

Complicating the court’s task is the frequently expressed admonition that judges should exercise caution in attempting to mix and match portions of competing expert reports and thereby cast themselves in the role of performing their own valuation. As the trial judge put it in the Brant Investments case:

In arriving at my valuation I do not propose to go through the valuation exercise followed by the experts, substituting my own conclusion as to the basic ingredients for theirs. The wide disparity exhibited by them in the application of their technique does not inspire me with any confidence in the result which I would achieve as an amateur in its application.

Market value “is the highest price expressed in money obtainable in an open and unrestricted market between knowledgeable, prudent, and willing parties dealing at arm’s length, who are fully informed and under no compulsion to transact”. However, “market value” is not equivalent to “fair value”, although…fair market value can be an important part of the fair value determinate depending on the circumstances.

Fair value is a value that is “just and equitable” – one which provides “adequate compensation (indemnity), consistent with the requirements of justice and equity.” One important implication of the distinction between market and fair value is that, in general, no minority discount can be applied in determining “fair value”…

Generally, neither the parties nor the court may rely on hindsight evidence. Events that were not know as of the valuation date are not relevant to determination of fair value on the valuation date. However, while hindsight is generally excluded, there are some limited but potentially significant exceptions to this principle…

Now, while the authors discussed those principles in the context of statutory appraisal remedies, for the most part they apply with equal force to the task of fixing the fair value of shares when ordering a buy-out of securities under the oppression remedy.[^60]

C. The valuation evidence

C.1 The reports

[247] At trial the ProNorth Defendants called as a business valuator Mr. John Seigel of PriceWaterhouse Coopers who prepared an expert report dated March 18, 2011 estimating the en bloc value of all issued and outstanding shares of Holdco, Opco and a related company, 1208760 Ontario Inc., as of March 3, 2011. The plaintiffs called Mr. Christopher Nobes, a business valuator with Campbell Valuation Partners Limited (“CVPL”), who prepared a Limited Critique Report dated April 6, 2011. No objection was taken to qualifying both gentlemen as expert business valuators.

[248] The Canadian Institute of Chartered Business Valuators recognizes three types of valuation reports: a comprehensive valuation report; an estimate valuation report; and, a calculation valuation report. The PWC report was an estimate valuation report. As such it contained a conclusion as to the value of shares, but one based on limited review, analysis and corroboration of relevant information. By contrast the CVPL report was not a valuation report, but a Limited Critique Report. Standards Nos. 410 and 420 of The Canadian Institute of Chartered Business Valuators define a Limited Critique Report as one which comments on another report which contains a conclusion as to the value of shares, but does not itself contain a valuation conclusion. While a Limited Critique Report cannot offer its own conclusion on the value of shares, the Standards do permit it to comment on the calculations in the original valuation report and make statements “of directional impact of differing calculations or assumptions on the Original Report’s conclusion, as appropriate…”

[249] While a Limited Critique Report should not contain a conclusion on the value of shares, Schedule 1 to the CVPL report effectively offered such a conclusion by showing the en bloc fair market value of the ProNorth shares after making the adjustments it recommended to the PWC report. In closing argument plaintiffs’ counsel argued as if the CVPL report contained a conclusion about the fair value of the shares. That was not a proper use of the report and was an attempt to stretch the discussion in the report beyond the proper bounds permitted by the Institute’s Standards.

C.2 Court-directed “hot-tubbing”: the Joint Statement

[250] As noted earlier, in a mid-trial ruling I gave directions to the business valuators to meet and to prepare a joint statement in advance of their testimony. They did so.[^61] While the valuators were unable to develop a consensus range of share value, their Joint Statement proved of great assistance in identifying the areas of disagreement and the financial implications of those disagreements. I wish to thank Mr. Seigel and Mr. Nobes for their work in preparing the Joint Statement.

C.3 Areas of agreement between the valuators

[251] PWC used an income (earnings/cash flow) methodology for determining the fair value of the shares in light of the going-concern operations of the ProNorth Group. CVPL agreed with the selection of that methodology. I accept that methodology as appropriate in the circumstances of the ProNorth Group.

[252] Under the income valuation methodology PWC calculated a level of maintainable EBITDA of $2.471 million which was the average level of EBITDA ProNorth was expected to maintain in the future before consideration of future growth potential. PWC then made adjustments to the maintainable EBITDA to account for non-arm’s length transactions and deducted corporate income taxes and capital expenditures net of their tax shield to estimate maintainable cash flow. To that PWC applied a cash-flow multiple by calculating the reciprocal of the companies’ capitalization rate. PWC derived a cash-flow multiple of 9.0. That allowed PWC to calculate an Operating Business Enterprise Value for ProNorth of $9.595 million. After considering the reasonableness of that value in light of economic and industry circumstances, and then taking into account redundant assets and deducting debt, PWC calculated the Business Enterprise Value for ProNorth at $9.3 million, which it used as the mid-point of its en bloc valuation of the shares as falling in the plus/minus 10% range of $8.4 million to $10.2 million.

[253] CVPL disagreed with PWC’s starting maintainable EBITDA of $2.471 million, arguing that a number of adjustments should be made. CVPL agreed with the cash-flow multiple of 9.0. CVPL advanced a number of critiques of adjustments which PWC had made during its calculation. On page 4 of their Joint Statement the experts identified the areas of original disagreement between them.

[254] As a result of their meeting the experts were able to narrow their areas of disagreement. They were able to reach agreement on: (i) part of the issue concerning the level of estimated telephone expenses for use in calculating maintainable EBITDA; (ii) no use of a stub period adjustment; (iii) the treatment of marketable securities as a redundant asset using the market value as of the valuation date; and, (iv) the reasonableness of the amount used for Brian’s annual compensation. A table on page 9 of the Joint Statement identified the new points of agreement and the remaining points of disagreement and indicated that PWC had revised its mid-point en bloc share valuation from an original $9.3 million to $9.9 million.

[255] In their Joint Statement the experts identified the following as the remaining areas of disagreement:

(i) the level of maintainable EBITDA;

(ii) the treatment of amounts due to ProNorth from its shareholders, Brianco and Daleco; and,

(iii) whether any incremental value exists to the company from its Polaris captive insurance arrangement.

Let me consider each area of disagreement in turn.

D. Analysis

D.1 The level of maintainable EBITDA: estimates of future revenues and expenses

[256] CVPL thought that PWC had understated the level of ProNorth’s maintainable EBITDA by $112,000 to $167,000 per annum by reason of (i) overstating telephone expenses by $54,000, (ii) understating revenue by $79,000 to $80,000, and (iii) overstating maintainable insurance expenses by $33,000.

Expert evidence on telephone expenses

[257] CVPL stated that ProNorth’s telephone expenses began to decline in fiscal 2009 as a result of efficiencies gained from a new telephone system and that decline continued in fiscal 2010.

[258] For fiscal 2011 PWC estimated the annual amount by pro-rating the results for the 9 months ended December 31, 2010. PWC noted that because not all expenses had been accrued, the 2011 EBITDA figure was likely overstated. For the telephone expenses PWC initially used a maintainable level based on the average expense as a percentage of revenue for fiscal 2005 to 2010. Mr. Seigel testified that once he learned that technological efficiencies had reduced annual telephone expenses, he decided to use the lower 2010 actual expense number, rather than a five year average, because the historical number was not representative of current experience. However, he disagreed with Mr. Nobes about using the estimate for 2011 expenses for several reasons – a general skepticism about using interim internal financial statements to fix a value so far out from the year-end because accruals might not be captured in that figure and a concern that the projected estimate might not reflect unaccrued expenses

[259] Mr. Nobes testified that there could be concerns about using a 9-month interim figure to project an annualized expense because of possible unaccrued expenses, but he thought the risk to be low in the case of telephone expenses which typically were not a material issue. Although he had not talked to ProNorth about this item, he thought it reasonable that telephone expenses would continue to decline in 2011.

Expert evidence on understating revenue

[260] In its report PWC used a maintainable annual revenue of $25 million. ProNorth’s actual revenue fell from $35.4 million in 2006 to $23.4 million in 2010. PWC estimated 2011 revenue at $25.9 million based on management’s expectation that the level of revenue would recover somewhat from fiscal 2010. The 9-month interim revenue for fiscal 2011 shown on internal management statements was $19.2 million.

[261] CVPL focused on the relationship in fiscal 2010 between 9-month results and actual results and argued that the same ratio (1.34x) should be applied to the interim 2011 9-month results to derive estimated revenue of $25.763 million. I should note that PWC’s 2011 estimate was not much different: $25.9 million.

[262] CVPL argued that one should use the estimate of the most recent annual revenues to form the basis for maintainable revenue for the purposes of calculating maintainable EBITDA. CVPL contended that ProNorth’s growth in 2011 as compared to projected GDP justified using a higher, more optimistic maintainable revenue for EBITDA. Mr. Nobes thought that PWC’s revenue estimate was “directionally conservative”.

[263] PWC disagreed with CVPL’s use of one year’s “seasonality” in revenue in light of the significant decline in ProNorth’s revenue from fiscal 2006 to 2010. Mr. Seigel thought that the company’s decline had been reversed and its earnings were now stabilized. Although in 2011 the economy was coming out of a recession, Mr. Seigel stated that some of ProNorth’s major customers were out of business and, on balance, he thought $25 million in revenues was maintainable in the future. Mr. Seigel he took the estimate of 2011 earnings with a grain of salt because of lots of unaccrued expenses. PWC stated that its estimate of maintainable revenue was meant to represent the average of all future years.

Expert evidence on overstating insurance expenses

[264] ProNorth’s annual insurance expense declined from $1.78 million in fiscal 2005 to $578,134 in 2010, reflecting the benefits derived by ProNorth from its participation in the Polaris captive insurance plan. PWC estimated 2011 insurance expenses at $544,572 and used a maintainable insurance expense of $578,134. PWC used actual 2010 insurances expenses for its maintainable level “as reductions in recent years are expected to continue.”

[265] CVPL thought the maintainable insurance expense should reflect a further $33,000 in savings per annum in large part based upon the projection of lower 2011 insurance expenses. PWC disagreed, contending that the actual 2010 cost was the best indicator for the future. Mr. Seigel did not think that the projected 2011 expense amount was as reliable as the 2010 actual.

Conclusion on maintainable EBITDA

[266] In Grandison v. Nova Gold Resources[^62] the court offered the following comments on how to proceed in the face of competing valuation opinions:

[T]he best that can be said is that if each opinion is considered in the context of its material assumptions, it is possible to determine which of two ranges of value appears more reasonable.

In respect of those assumptions, as noted above, a court should be prudent and not proceed on the basis of the most optimistic approach.

[267] On these three areas of disagreement between PWC and CVPL on the calculation of EBITDA, it is apparent that CVPL thought that a more optimistic approach was reasonable – take the most recent 9 months of interim results, estimate an annual amount and use the most recent annual amount to estimate future EBITDA. PWC took a more conservative approach. I think that more restrained approach appropriate in the circumstances of ProNorth, a company which saw a very, very significant decline in revenues from 2005 to 2010. It operates in Northern Ontario, an area hard hit by the recession, especially with the closing of pulp and paper mills. Both brothers testified to the loss of that business. PWC thought that by 2011 ProNorth had stabilized its revenues, and the evidence indicated that ProNorth had worked hard to reduce operational costs, including in telephone and insurance expenses. PWC’s discussion of North American economic conditions as of early 2011 highlighted the fragile and modest nature of macro-economic growth. Given the uncertainties surrounding macro economic growth indicators, and the more particular evidence that by 2011 ProNorth was stabilizing after several years of significant business reduction, I think the most prudent approach to estimating future EBITDA, in both its revenue and expense elements, was the one adopted by PWC. I therefore do not accept the critiques advanced by CVPL.

D.3 Whether any incremental value exists to the company from its Polaris captive insurance arrangement

The expert evidence

[268] As discussed above in Part VI.D.3, in 2005 ProNorth joined the Polaris captive insurance pool. Members of that pool could become eligible for the return of some premiums paid, but their eligibility is determined annually by a management committee taking into account the performance of the pool and the claims history of the individual pool member. The discretionary nature of any dividends paid to pool members is set out in section 6 of the Polaris Segregated Portfolio Shareholders Agreement:[^63]

Each Segregated Portfolio Share constitutes a different class of share each of which relate to the Segregated Portfolio. Dividends will be declared separately on each Segregated Portfolio Share. The company may pay such dividends on the Segregated Portfolio Shares as may be determined by the Directors. Consideration in such determination will include the cash position of the Segregated Portfolio, Fronting Insurer collateral requirements and the Dividend Pool Balance of the relevant Shareholder.

[269] In its Estimate Report PWC took into account the decline in recent years of ProNorth’s insurance expenses in formulating a view of maintainable EBITDA. CVPL contended that a further incremental value should be recognized for ProNorth’s participation in the Polaris captive pool. CVPL characterized the annual reductions in insurance expenses experienced by ProNorth since it joined Polaris as a type of investment in the Polaris plan which should be valued using a multiple appropriate for insurance companies. CVPL argued that this incremental value, which it estimated at between $228,000 and $468,000, should be added to the Operating Business Enterprise Value as part of the fair value calculation.

[270] PWC disagreed with this approach. It contended that future claims experience could not be projected with any certainty and there was no reason to believe that any excess funds were available from the pool to any member. In addition, it viewed CVPL’s calculations as essentially an attempt to value the Polaris captive insurance company, an exercise which neither PWC nor CVPL were in a position to undertake. PWC thought that in the event a future dividend was received by ProNorth from the pool, the appropriate treatment would be to book it as a credit against insurance expenses. I should observe that Mr. McLeod also thought that would be the appropriate accounting treatment for a dividend.

Conclusion

[271] I do not accept CVPL’s critique on this point. CVPL’s proposal to recognize ProNorth’s participation in the Polaris captive insurance pool as a form of investment which could be quantified by valuing the pool stands at odds with ProNorth’s contractual rights as set out in the Polaris shareholders’ agreement. Section 6 of that agreement indicates that any “return” which ProNorth might receive would be in the nature of a return of premium contingent upon a decision by the Polaris management committee to declare such a dividend in favour of ProNorth. That contractual right does not amount to an “investment” by ProNorth in Polaris which could be valued as if ProNorth were entitled to the amount as of right, which CVPL effectively tried to do. I accept that the more reasonable accounting treatment for any dividend received by ProNorth from Polaris would be to record it as a credit against insurance expenses in the year received.

D.4 Treatment of intercompany loans between Holdco and the two personal holdcos

Evidence

[272] The most financially significant critique made by CVPL of PWC’s valuation estimate concerned the treatment of receivables due to Holdco from Brianco and Daleco. According to Holdco’s fiscal 2010 financial statements, Brianco owed Holdco $1,621,564 and Daleco owed Holdco $1,467,815. Note 10 to those financial statements described those amounts due as follows: “The following amounts due from (to) related companies do not presently bear interest and are due on demand…There are no fixed plans for repayment and no intention on the part of the related company to demand repayment within the next year.”

[273] “Redundant assets” are defined as those which are not necessary to on-going operations of a business enterprise or which need to be valued separately from operations because the rates of return are different from the broader operations. Redundant assets are valued separately and then added to the enterprise value of a company.

[274] In calculating the Business Entreprise Value of ProNorth PWC did not treat receivables from shareholders due to Holdco as redundant assets.

[275] By contrast, in its Limited Critique Report CVPL concluded that those intercompany receivables totaling $3.109 million were not required to operate the on-going business activity of ProNorth – “collection of the advanced funds was not required to sustain the ongoing operations of ProNorth” - and therefore should be added to the business enterprise value as redundant assets. CVPL acknowledged that the amounts receivable had been outstanding “for a number of years”, noting that the receivables appeared to have arisen during the period 1993 to 2006 and 2008.

[276] In the Joint Statement CVPL articulated another, different reason, for the need to include the value of the intercompany receivables in the fair value of ProNorth’s shares:

If the amounts receivable are excluded from the fair market value of the shares of ProNorth, and DaleCo is required to repay the amounts it owes to ProNorth, than those funds would confer an unwarranted benefit to BrianCo as the owners of 100% of the shares of ProNorth following the acquisition of DaleCo’s share interest therein.

[277] Mr. Nobes elaborated on this point in his evidence, largely in response to my questions. He stated that if the value of shareholder receivables was not included in fair value, then part of any remedy should be to discharge Daleco from all intercompany debt so that there would be a wash. He agreed that it was unlikely a third party would buy the intercompany receivable. In his evidence on June 2, 2011 he summarized his concerns in the following way:

If you think about an en bloc sale, a sale of a hundred percent of the shares, the shareholders of Pronorth each owe liabilities to Pronorth. They wouldn’t agree to sell Pronorth with the receivables because the buyer would not likely want to pay for those receivables because it would end, they would have to get financing, pay for it, then collect it, and they would be no further ahead. I mean there would be some interest but, so what would happen is before the sale, the two shareholders if they want to sell the business, would only do so if they both agreed to put those shareholder loans receivable sort of in a separate corporation or agree to forgive each other loans, because if I was shareholder selling I wouldn’t want to end up selling those shares and not get a benefit for the shareholder loan receivable, and still have a liability.[^64]

On cross Mr. Nobes said there would not be double paying if Brian were to buy out Dale on the properties and then forgive Daleco’s loan from Holdco.

[278] CVPL also observed that Dale’s contention that ProNorth had underpaid rent for the Jointly Owned Properties it used could cut both ways: “CVPL agrees that if it is found by the Court that ProNorth had liabilities owing to BrianCo and DaleCo for prior unpaid rents for these buildings and trailers then the resultant liability would reduce the fair market of the shares of ProNorth.”

[279] In the Joint Statement PWC stated that the receivables due from shareholders did not meet the definition of redundant assets, which are also called “non-operating assets”, because the monies advanced to the brothers’ two holding companies “were used principally to purchase operating assets, including the three terminals in which the business operates…” In his evidence in chief Mr. Seigel explained that redundant assets are added to the business enterprise value because a purchaser could buy the business, liquidate the redundant assets, yet still have earnings from the business.

[280] Mr. McLeod testified that he set up the structure under which Brianco and Daleco would borrow money from Holdco to purchase the Jointly Owned Properties. According to Mr. McLeod, those inter-company loans were without interest or any term of repayment (as reflected on notes to financial statements). He described the arrangement as “spectacular” because under it the brothers could get assets into their personal hands with no cost. That evidence of Mr. McLeod would suggest that notwithstanding the on-going recording of the intercompany loans on the books of all three companies, the expectation was that the personal holding companies would not have to repay the loans.

Conclusion

[281] I am not persuaded by CVPL’s argument that the accounting definition of “redundant assets” requires that the amount of the receivables due to Holdco from the brothers’ two personal holding companies should be added to the Business Enterprise Value. Although the parties did not put in evidence a list of the items which made up the amounts of those receivables as recorded on the fiscal 2010 Holdco financial statements, the list of intercompany loans as of 2006[^65] strongly suggests that the receivables may consist of advances from Holdco going back many, many years, and the parties proceeded on that basis at trial.

[282] All agree that the fair value exercise is conducted against the backdrop of what a fully informed, arm’s length buyer would be prepared to pay for an asset. Irrespective of whether the assets purchased by the Holdco advances were mostly linked to the operations of Holdco, as in the case of the terminals, or not linked to its operations, in the case of funds used for the personal benefit of the brothers, as Mr. Nobes acknowledged the business reality of those receivables is that a third party buyer would not purchase them. Neither expert directly addressed the question of collectability. Yet, given the age of some of the advances and their description on Holdco’s financial statement as “due on demand”, it is highly likely that the prescription period has run on a significant proportion of the advances. Even though some of the receivables might not be necessary for the ongoing operations of Holdco, at the same time it is most improbable that an arm’s-length purchaser would ascribe any value to them. Accordingly, it would not be reasonable to add the full amount of those receivables to the Business Enterprise Value for the purposes of determining fair value of the shares. I accept PWC’s evidence on that point.

[283] At the same time I accept Mr. Nobes’s admonition that if the amount of the receivables is not added to the Business Enterprise Value when determining fair value of the shares, it would be unfair if, after Brian’s purchase of Daleco’s shares, Holdco, now wholly owned by Brian, could turn around and seek to collect the receivables due from Daleco to Holdco. That would only spawn another round of inter-brother litigation over what proportion, if any, of Daleco’s 1996 to 2008 debt to Holdco was not statute-barred. I think it appropriate, as part of the package of relief which I grant under section 248(3) of the OBCA, to declare that upon Brian’s purchase of Dale’s shares, the amounts due from Daleco to ProNorth are extinguished. As I will explain below, as part of the package of equitable relief under OBCA s. 283(4) I also intend to require Brian or Brianco to purchase Daleco’s interests in the three Jointly Owned Properties used by ProNorth in its business. That will mean that upon Brian buying Dale’s shares and his interests in those three properties, Brian will be the ultimate owner of all of the assets necessary to operate ProNorth. Daleco’s indebtedness to ProNorth will be extinguished and Brian, as the sole shareholder of Holdco, can deal with Brianco’s indebtedness to ProNorth as he see fits.[^66]

[284] Although there may be tax consequences to this judicial course of action, last May I cautioned both brothers that given the absence of evidence led at trial about the tax implications about various remedial alternatives, they should try to settle the case before it resumed in August. They did not, so the remedies which I am granting have not taken into account potential tax consequences because of the lack of any evidence on that point.

E. Conclusion on valuation of shares

[285] Taking the totality of the evidence into account, including the expert evidence from PWC and CVPL, I conclude that the en bloc fair value of the ProNorth Group as of March 3, 2011 is the low-end of the range identified by PWC – i.e. $8.91 million, or a 10% variation from the mid-point vale of $9.9 million. I consider the low-end value to be the fair value especially in light of the treatment which I have given to Daleco’s indebtedness to Holdco. No party argued for a valuation date different from that used by PWC. Consequently, pursuant to section 248(3) of the OBCA I order Brian and/or Brianco to purchase from Daleco its 100 common shares in Holdco for $4,455,000.00. I further order that upon that purchase of Daleco’s shares, any amounts owed by Daleco to the ProNorth Group are extinguished.

[286] In their closing submissions the ProNorth Defendants submitted that they should be given up to six months to complete the purchase in order arrange financing. I see no need for such a long period of time. It was evident during the trial last May that Brian would end up buying Dale’s shares; the only questions were how many shares and at what price? Brian has had ample time to discuss possible financing, if financing is required. Accordingly, I order Brian and/or Brianco to purchase Daleco’s shares within 120 days of the date of these Reasons.

[287] Before moving to the Jointly Owned Properties issue, let me deal with a few loose ends. First, in their closing submissions the plaintiffs submitted that a 10% premium should be added to the amount payable to Daleco for its shares. The plaintiffs relied on section 10.02 of the 1996 Shareholders’ Agreement which provided that if Brianco exercised its call right to purchase Daleco’s shares, the purchase price would be 110% of the fair market value of those shares. Brianco did not exercise its call right, so that premium is not applicable.

[288] The plaintiffs also sought to recover from Brianco an intercompany loan receivable of $284,127.35 shown on a March 31, 2007 working ledger for Daleco. The plaintiffs asked the court to exercise its “discretion” to require Brianco to pay Daleco that amount. This claim was not pleaded; it was only raised at trial. No evidence of the particulars of this intercompany item were placed in evidence, and the ledger suggests that the loan was outstanding as of March 31, 2007, more than two years before this action was commenced on November 5, 2009, so there may be a limitations issue. Since this claim was not pleaded, it was not before me, and I need not deal with it.

[289] Another item falling in the “let’s-throw-it-into-the-mix-at-trial-and-see-what-happens” pile concerns a list of trailer registrations[^67] which the plaintiffs contended showed that some of the trailers operated by Holdco or Opco were in fact owned by 1208760 Ontario Limited. One document suggested that Mr. McLeod might own the company in trust for both brothers. The plaintiffs sought an order dividing those trailers between the brothers. That claim was not pleaded. Moreover, PWC included 1208760 Ontario Limited in the en bloc valuation which it performed, so Daleco will receive some value for the trailers it may own. There is no merit to its claim to divide the trailers.

[290] Finally, on his part Brian, in his final submissions, contended that the court should deduct from the fixed fair value of Daleco’s shares the amount of the intercompany indebtedness owed by Daleco to Holdco. In other words, Daleco should be ordered to repay that indebtedness to Holdco. Such an order would mean that the receivables owed by Daleco had real value. Yet, at trial Brian relied on the PWC report which concluded that the intercompany receivables were not redundant assets. This inconsistency in approach was characteristic of the attitudes displayed by both Brian and Dale in their final submissions at trial, trying to extract the last possible penny from the other, with total disregard for the big picture.

EDITED TO HERE Sunday night

X. FIFTH ISSUE: THE JOINTLY-OWNED PROPERTIES

A. The properties

[291] The brothers’ holding companies jointly own, or there is a dispute about whether they jointly own, the following properties:

Property	Use	Ownership	Was valuation evidence filed?
1. Pinewood Park Drive, North Bay (“Pinewood)”	Vacant Land	Undisputed: Brianco 62%; Daleco 38%	No
2. 324 Birches, North Bay (“Birches”)	ProNorth Head office	Undisputed: 50/50 as between Brianco and Daleco	Plaintiffs: Colliers International;[^68] Defendants: Morland Real Estate[^69]
3. Sudbury Terminal: 1727 Pioneer Road	ProNorth terminal	Undisputed: Brianco 62%; Daleco 38%	Plaintiffs: Colliers International;[^70] Defendants: Appraisal North Realty[^71]
4. Birchgrove farm, Callander (“Birchgrove Farm”)	Family recreational property	Undisputed: Brianco 62%; Daleco 38%
5. Lucknow Road, Mississauga (“Lucknow”)	ProNorth Mississauga terminal	Undisputed: Brianco 62%; Daleco 38%	Plaintiffs: Colliers International;[^72] Defendants: Thomas Johnson Realty
6. 494 Vaughan Mills Road	Single-family residential property	Dale’s position: Daleco is the 100% owner Brian’s position: 62% Brianco; 38% Daleco

[292] There is no dispute that all of the money used to acquire these properties came from the ProNorth companies and was allocated between the two personal holdcos as part of the on-going recording of loans by Holdco to Daleco and Brianco.[^73] Except for Lucknow, the properties are mortgage-free.

[293] Three of the properties – Birches, North Bay; Pioneer Road, Sudbury; and Lucknow, Mississauga - are used by ProNorth for its operations.

B. The claims asserted

[294] In his pleading Dale (and Daleco) sought orders for partition and sale in respect of all the Jointly Owned Properties, with further orders either dividing the proceeds between the two owners or requiring Brian or Brianco to purchase Daleco’s interests in the properties at current or fair market value. At trial Dale continued to seek an order for partition and sale of all Jointly Owned Properties, including those used by ProNorth in its business, or, alternatively, an order that Brian purchase his interest in the Jointly Owned Properties used by ProNorth and partition and sale of the rest of the other two properties, Pinewood and the Birchgrove Farm. Daleco sought a declaration that it was the sole owner of the Vaughan Mills property.

[295] Dale admitted that in most instances the monies used to purchase these jointly-owned properties came from Holdco and that those monies were charged to the shareholder accounts due to Holdco from the brothers’ two personal holding companies.

[296] Brian is prepared to purchase Dale’s interests in the ProNorth-used properties at fair market value.

[297] Brian seeks an order for the partition and sale of the Vaughan Mills property or, alternatively, an order that Dale, or Daleco, purchase Brianco’s interest in the property at fair value.

C. Analysis of claims for partition and sale

[298] As their primary position the plaintiffs submitted that all Jointly Owned Properties should be partitioned and sold, relying on the principle that joint owners of property enjoy a prima facie right under the Partition Act[^74] to partition and sale, with the Court limited to refusing such relief only in narrow circumstances where it is demonstrated that the applicant has acted maliciously, oppressively or with vexatious intent toward the respondent.[^75]

[299] Let me simply say that the plaintiffs’ submission entirely ignores the context of the proceeding they have commenced. The plaintiffs seek equitable relief under the OBCA section 248(3) oppression remedy, specifically the purchase of their shares in Holdco. Holdco uses three of the Jointly Owned Properties for its operations, yet as their primary relief the plaintiffs seek an order that those properties be sold. Such a claim is inconsistent with their invoking of this Court’s equitable jurisdiction under the oppression remedy and is nothing more than an attempt by Dale to give Brian a poke in the eye. Pursuant to section 248(3) of the OBCA I have ordered that Brian and/or Brianco purchase Daleco’s shares in Holdco and I have ordered that upon such purchase Daleco’s intercompany indebtedness to the ProNorth Group will be extinguished. As part of that package of equitable remedies under section 248(3) I will permit Brianco to retain the Birches, Sudbury and Lucknow properties upon payment to Daleco of their fair value which I will determine below.

[300] As I will explain shortly, I find that the Vaughan Mills property is a Jointly Owned Property. I will order the partition and sale of the three Jointly Owned Properties not used by ProNorth – the Birchgrove Farm, Pinewood and Vaughan Mills (with a caveat) – but I will allow either brother to bid on those properties.

D. Who owns 494 Vaughan Mills, Woodbridge?

D.1 The ownership dispute

[301] 494 Vaughan Mills Road, Woodbridge, is a single-family residential property. There is no mortgage on the property. The property was purchased in 2003 under an agreement of purchase and sale in which Brianco was the purchaser. On closing title was put in the name of Daleco. Dale acknowledged that the money used to purchase the house came from Holdco.

[302] Following its purchase the house initially was used by ProNorth employees. Joanne Simpson, a ProNorth employee, lived with her husband, Isaac Fehr, at Vaughan Mills from 2004 until 2007. They did not pay any rent. Both testified that while they lived at Vaughan Mills Dale never mentioned that he or his holding company owned the property.

[303] After Ms. Simpson and Mr. Fehr left, Holdco rented the house out to some people. Dale moved into the property in 2008 and currently resides there. Dale claims that Daleco is the sole owner of the property.

D.2 The evidence regarding purchase and payment of expenses

[304] The documentation concerning the acquisition of the property in 2003 is quite clear. Brianco entered into an agreement of purchase and sale on July 25, 2003 and provided a deposit cheque of $25,000.00 dated July 30, 2003. Draft pre-closing documentation contemplated that title would be taken jointly in the names of Brianco and Daleco each as to an undivided 50% interest, but on closing Brianco gave a direction that title be taken solely in the name of Daleco. Brian testified that he agreed to Daleco taking title because at the time he, Brian, was going through a divorce and he did not want his personal holding company on title to the property so that his wife could claim an interest in the property. As he put it in cross, he did not want to “freak out” his wife (even though the property was acquired after his separation).

[305] The $575,000 used to purchase the property was financed, in part, by taking out a $432,250.00 mortgage with the Bank of Montreal. According to Marion Cook, the application for a mortgage initially was made by both Brianco and Daleco, but when the bank learned that title would be taken only in Daleco’s name, it required a guarantee from Brianco, which is what happened. Dale acknowledged that most of the rest of the money to acquire the property came from the “mother ship”, Holdco.

[306] As to the payment of expenses on the property, including mortgage payments, Dale admitted that prior to his occupation of the Vaughan Mills property in July, 2008, Holdco paid the expenses.[^76] In her December 9, 2009 order Pepall J. ordered the plaintiffs to pay the maintenance expenses associated with the Vaughan Mills property. At trial a dispute emerged as to who had paid those expenses from July, 2008 until December, 2009. Dale contended that he had, although he was taken on cross-examination to an affidavit he had sworn on December 7, 2009 in which he had deposed that Holdco was the source of the funds used to acquire and pay for the expenses for the property.[^77] Dale did not adduce at trial documents demonstrating that he or Daleco had paid for the maintenance expenses during the July, 2008 to December, 2009 period.

[307] On the books and records of Holdco the amounts due from the two shareholders, Brianco and Daleco, treated the underlying ownership of the Vaughan Mills property as 62% owned by Brianco and 38% owned by Daleco. That 62/38 split was also reflected on the numbers used to prepare the financial statements of Brianco and Daleco.[^78]

[308] The Vaughan Mills property formed part of the subject-matter of the February 3, 2008 Purchase Memorandum entered into by the brothers. That agreement contemplated Dale would exchange the one half share of the Rocky Shore Drive property owned by his wife for the Vaughan Mills property. In October, 2008 Dale attempted to sell the Vaughan Mills property without notice to his brother. That sale was stopped.

D.3 Analysis

[309] Where Person A provides the funds to purchase a property, but title is taken in the name of Person B, the presumption arises that Person B becomes a resulting trustee for Person A.[^79] The evidence is uncontraverted the Dale/Daleco did not provide any funds to purchase Vaughan Mills - the cash came from Brianco and Holdco. At least until July, 2008 Holdco paid all expenses associated with the property, including mortgage payments. Dale did not point to any words of gift by which Holdco, or Brianco, purported to give the property to Daleco. Following the purchase of the property, the financial records for Holdco, Brianco and Daleco treated the acquisition and carrying costs as an advance by Holdco to the two personal holding companies.[^80] In light of that evidence I find that Daleco holds the title to the Vaughan Mills property as resulting trustee for Brianco and Daleco.

[310] As to the respective interests of the personal holding companies in the Vaughan Mills property, all the financial records of Holdco, Brianco and Daleco show that the expenses were allocated 62% to Brianco and 38% to Daleco. In light of that consistent treatment of the property’s expenses prior to this proceeding, I find that Brianco owns a 62% share in the property and Daleco owns 32%.

E. Fair value of Birches Road: ProNorth’s North Bay head office

E.1 The reports

[311] Brianco and Daleco are equal owners of an industrial property located at 348 Birchs Road, North Bay, which is used by ProNorth as its head office and as a terminal. Two pieces of valuation evidence were filed at trial on this property. The ProNorth Defendants called Mr. Donald Blair, a commercial appraiser with Morland Real Estate Appraisals Ltd., who prepared a May 4, 2011 appraisal report which estimated that market value of the property as of April 29, 2011 at $1.35 million. The plaintiffs called Mr. Peter McKenna, a Vice-President in the Industrial and Land Division of Colliers International, who prepared a Letter of Opinion dated March 25, 2010 which valued the property as of March, 2011 at $2 million for its current use “or if placed on the open market an asking price of $2,250,000”.

[312] Differences existed in the qualifications of Messrs. Blair and McKenna, as well as in the kind of report each prepared.

[313] Mr. Blair is an Accredited Appraiser Canadian Institute, a designation awarded by the Appraisal Institute of Canada. He has appraised all types of industrial and commercial properties for 20 years and held the AACI designation for the past 12 years. At trial Mr. Blair was qualified as an expert appraiser. Mr. Blair prepared a lengthy Appraisal Report, disclosed his retainer letter from counsel, and signed the Acknowledgement of Expert’s Duty.

[314] Mr. McKenna has over 30 years experience in industrial commercial real estate sales and leasing. He is not an accredited appraiser. He prepared a very short Letter of Opinion and signed an Acknowledgement of Expert’s Duty. The plaintiffs tendered Mr. McKenna as an expert in commercial industrial property valuation; the ProNorth Defendants did not oppose Mr. McKenna giving evidence on valuation. I ruled that I would receive his evidence.

[315] Mr. McKenna testified that a Letter of Opinion report generally is used for advertising and general information on a property, as noted on the Disclaimer at the end of the letter. He testified that he had known the Glass brothers for quite a while and was asked on an annual or biannual basis to provide them with opinions of value. His letter of opinion came about as a result of contact from Dale Glass. When he prepared the letter Mr. McKenna did not know the Glass brothers were in litigation or that his opinion would be used in the litigation; he only learned that after he had delivered his letter. That said, Mr. McKenna stated that he would not have done his report differently if he knew it would be used in litigation.

[316] Mr. Blair’s report is the kind of detailed appraisal report one normally sees in valuation litigation – an extensive description of the property and the community in which it is located; photographs of the land and buildings; the identification of assumptions and limiting conditions; information on the economic conditions of the community in which the property is situate; an explanation for the choice of the particular valuation methodology, in this case the Direct Comparison Approach; detailed information on the comparables considered; an analysis of the data using the selected methodology; an explanation of any check employed to test the value derived, in this case the performance of a valuation using the Income Approach; and, the final conclusion.

[317] By contrast Mr. McKenna’s letter of opinion contained four (4) pages of text: market overview, property overview, valuation and summary. The valuation page referred to some sales which were used as comparisons, without identifying or describing those properties. It also contained a paragraph setting out a lease valuation.

[318] The evidence indicates that the two reports were prepared for different purposes. Mr. Blair’s Appraisal Report was a formal valuation prepared for litigation. Although he testified that he knew the report would be used for litigation, he was not aware whether the party who retained him would be the buyer or seller of the property. Mr. McKenna’s letter of opinion was not made in contemplation of litigation, did not purport to constitute a formal appraisal and, by its Disclaimer and Mr. McKenna’s acknowledgement at trial, was designed only for advertising and general information. Mr. McKenna stated that such a Disclaimer would not appear in an appraisal report. Indeed his Summary suggested an initial listing price for the property. Mr. McKenna testified that Dale told him his reports would be used for financing purposes. While I do not fault Mr. McKenna for the brevity of his letter – he was not told by Dale how his letter would be used – I simply cannot give that letter anywhere near the same weight as the detailed formal appraisal prepared by Mr. Blair. The documents are birds of a different feather. That said, Mr. McKenna obviously has extensive experience in the industrial commercial real estate leasing and sales area, and I will take into account the points which he made in his report and on the stand.

E.2 The property

[319] Mr. Blair described the property as consisting of 15 acres of land, zoned M3 – light industrial zone. Three buildings are located on the site: a main office/industrial building, containing 34,851 square feet, used as an office and terminal; an older metal-clad industrial building of 4,050 square feet; and, a metal cold storage building of 4,400 square feet.

[320] Mr. McKenna described the property as containing 17.3 acres, of which he thought 8 acres qualified as “excess land”.

E.3 The valuations

Morland Realty

[321] Mr. Blair visited the property on April 29, 2011. He described the main building as in average condition, with two smaller, metal storage buildings in very poor condition, as a result of which he discounted any value in them.

[322] Mr. Blair concluded that the highest and best use for the property was its existing light industrial use. Applying the Direct Comparison Approach he valued the property at $1.325 million; using the Income Approach he derived an estimated value of $1.433 million. He concluded that the fair value of the property was $1.35 million.

[323] Mr. Blair wrote that the commercial market in North Bay had been soft for the past few years with supply exceeding demand, whereas industrial properties appeared to be increasing in value as few were listed on the market and sold quickly.

[324] Mr. Blair’s analysis led him to identify and use four properties as comparables. None was of similar land size: they ranged from 1 acre to 7.7 acres. Their building sizes ranged from 4,760 square feet to 43,542 square feet and were of similar age. Location was average or superior – the Birchs Rd. property was average. Zoning was comparable. Their sale dates fell in the period May, 2009 to December, 2010, with prices per square foot ranging from $36.52 to $48.25. Mr. Blair explained in his report why he made negative adjustments to three of the comparables, and a positive adjustment to one. He derived an adjusted price per square foot in the range of $36.52 to $39.20, with a mid-point of $38.00 per square foot. Applying that amount to the size of the Birchs Road main building led him to estimate a market value of $1.325 million.

[325] As a check Mr. Blair conducted an Income Approach valuation, identifying the lease rates for six industrial properties which ranged from $4.50 to $5.88 per square foot net. From that information Mr. Blair calculated a net operating income using $5.00 per square foot, applied a direct capitalization method based on an analysis of the cap rates for four industrial buildings sold between 2007 and 2009, resulting in the selection of a cap rate of 10.4%. That led Mr. Blair to estimate the value of the property using an Income Approach at $1.433 million.

[326] Mr. Blair placed more weight on the Direct Comparison approach because the subject property was more suited to an owner/operator than a rental and the Direct Comparison approach is more favoured in those circumstances. Mr. Blair’s final estimate of the value of the property as of April 29, 2011 was $1.35 million.

[327] Mr. Blair stated that he did not consider there to be excess acreage on the property in view of its overall use as a truck terminal.

Colliers International

[328] Mr. McKenna also visited the property, but he did not enter the buildings. Mr. McKenna relied on information from the North Bay Economic Development Office to ascertain the price of lands and the history of comparable sales. He stated that there had not been any comparable sales since 2008, and that the City gave a value of $10,000 - $15,000 an acre for servicing a lot, to which he added a sale price of $20,000 an acre, which resulted in a price of $30,000 an acre which he used to derive his “comparable value” for the property of between $1,993,980 to $2,050,000. Mr. McKenna added a premium of 25% to 30% for the Birch Rd. property because the other facilities were inferior, but on cross he conceded that he did not have statistics to back up that premium. Mr. McKenna also placed a value of $250,000 on what he regarded as eight acres of excess land on the property; he thought that Morland had not given value to the vacant land.

[329] In his letter Mr. McKenna wrote that based on current market conditions he suggested lease rates between $5.25 and $5.50 a square foot net. He obtained this information from the City of North Bay and he used rental information contained in a March, 2008 Mid-North Appraisals report prepared for BMO as part of its preparation for a credit application by Brian to finance his buy-out of Dale.[^81] He used a 12% cap rate, leading him to estimate the value of the subject property as ranging between $1.8 million and $1.9 million.

[330] Mr. McKenna concluded that the range of values would be $1.9 to $2.0 million, and he concluded that the value of the property as of March, 2011 would be $2.0 million for its current use, or it could be placed on the market with an asking price of $2.25 million.

E.4 Analysis

[331] Taking into account the two reports and the evidence given by Messrs. Blair and McKenna at trial, I prefer the estimate of value given by Mr. Blair for several reasons. First, Mr. Blair conducted a much more thorough and rigorous valuation of the property. By contrast, Mr. McKenna was led to believe that his letter would be used for advertising or general information purposes, with the result that his analysis was less thorough.

[332] Second, Mr. McKenna’s letter suggested a listing price for the property, indicating that the value might contain an upward bias since he thought it would be used for marketing purposes.

[333] Third, Mr. Blair conducted a much more detailed comparables analysis. Mr. McKenna relied on sales information from the City of North Bay and understood that no sale of industrial land had taken place since 2008. The list of comparables used by Mr. Blair showed that Mr. McKenna’s understanding was incorrect. Also, the $43.75 per square foot used by Mr. McKenna based on his inquiries with the City was significantly higher than the adjusted range of $36.52 to $39.20 derived by Mr. Blair from his review of actual, more recent comparable transactions.

[334] Fourth, on the face of his letter of opinion Mr. McKenna did not set out formulaically how he arrived at a direct comparison value of $1.99 to $2.050 million. I tried to replicate his calculation, based on the description in his letter and his evidence at trial, but could not: $35.00 per square foot, plus a premium of 25% to 30%, applied against the size of the warehouse, dock, shop and office of 37,648 square foot, to which is added the value of 8 acres of “excess land” at $30,000 per acre. That results in a low-end value of: $43.75/square foot x 37,648 = $1,647,100, plus $240,000, for total of $1,887,100, which is below the low-end of $1,993,980 used in his letter.

[335] Fifth, Mr. McKenna did not explain why he chose a cap rate of 12% for his Income Approach analysis.

[336] Finally, I accept Mr. Blair’s testimony that the two out-sheds have little value; the pictures corroborate his view. I find his use of 34,851 square feet as more commercially reasonable. I also accept his view that one cannot regard the 8 acres as “excess” in light of the historic use of the property and the continuation of that use as the highest and best use.

[337] Based on that assessment of the evidence, and recalling the legal principles governing valuations which I set out in the section on the share valuation, I conclude that the fair value of the property located at 348 Birchs Road as of April 29, 2011 was $1.35 million.

E.5 Order

[338] As noted above, given the importance of the Birchs Road property to the operations of ProNorth I conclude, as part of my overall consideration of the plaintiffs’ request for relief under section 248(3) of the OBCA, that a partition of the property would not be appropriate. Instead, I order Brian or Brianco to purchase from Daleco, on the closing of the Holdco share purchase transaction, its 50% interest in the Birchs Road property for the sum of $675,000.00.

F. Fair value of Lucknow: ProNorth’s Mississauga terminal

F.1 The property

[339] Brianco and Daleco own 62:38 interests in a truck terminal located at 2375 Lucknow Drive in Mississauga. The building on the property houses an office, a small cross dock warehouse (5 truck level doors per side), a four bay drive-in truck service area and unpaved land for parking. A mortgage remains on the property.

F.2 The reports and valuations

[340] The plaintiffs filed a report from Mr. McKenna of Colliers International similar in format to his letter of opinion for the North Bay property, but including detailed information on four comparable properties. This report also contained a Disclaimer that it was prepared for advertising and general information purposes.

[341] Mr. McKenna estimated the value of the property using a Direct Comparison Approach in the range of $4.042 million to $4.648 million, and a lower range of $4.042 million to $4.5 million using an Income Approach. He concluded that the value of the property as of March 25, 2011 would be $4.25 million for its current use leased back by the current owner, or $4.5 million if placed vacant on the open market.

[342] The ProNorth Defendants filed an April 13, 2011 letter report from Mr. Raymond Lyons, a broker with Thomas L. Johnson Realty Ltd. His report was similar in brevity to that of Mr. McKenna, but he also included detailed information on sales and leasing comparables. Like Mr. McKenna, Mr. Lyons is not a certified appraiser; like Mr. McKenna, Mr. Lyons has extensive experience in the sale and leasing of commercial and industrial properties; like Mr. McKenna, Mr. Lyons did not know at the time of preparing his letter that there was a lawsuit or that his work would be used in court. Indeed he concluded his letter by writing: “This opinion is for the use of the party to whom it is addressed and the writer is not required to give testimony or attendance in court by reason of this opinion.” Using a Direct Comparison approach Mr. Lyons wrote that the land and building value “would likely be in the $2,800,000 to $3,200,000 range”.

F.3 Analysis

[343] Neither brother placed before the court an appraisal report for the Lucknow property prepared by a qualified appraiser. The evidence before me consists of the considered views of two very experienced commercial and industrial sales professionals who, not knowing they would be called on to testify, provided each brother with short opinions on the value of the property. Given the limited purposes of both letters, and their resulting brevity, I am left with “thin” evidence about the value of the property. However, it is apparent both brothers want the value determined on this evidence, so I will do so.

[344] Both letters, and the evidence given by each gentleman in court, contained some common themes:

(i) the Lucknow property is somewhat unique in nature, limiting the number of buyers who would be interested in it, but making it quite attractive to the buyer looking for that specific kind of property;

(ii) no comparable was bang on, and all would require some adjustments. From their evidence it was apparent that both Mr. McKenna and Mr. Lyons made some adjustments, but nothing in writing was filed to explain how they made their adjustments; and,

(iii) the income approach would result in a lower value for the property, but the direct comparison approach was the more appropriate one to use for this property.

[345] I have examined the comparables used by both gentlemen. The Lucknow property has a building to land coverage ratio of 12%. I accept Mr. McKenna’s evidence that property used for transportation businesses generally has a 15% to 18% coverage ratio, whereas industrial warehousing and manufacturing sees densities of 45% to 60%. The reason for the difference is the need for a transportation business to have adequate land on which to park trucks.

[346] Looking at the comparables reviewed by Mr. Lyons, three sales had coverage ratios of 20% or less, with sale prices ranging from $101 per square foot to $183.60 per square foot, with the latter being the most recent sale at the time of his testimony. He also included a listing for a property with a 15% coverage ratio at a price of $171.43 per square foot. All four comparables used by Mr. McKenna were sales of properties with coverage ratios of less than 15%, with prices per square foot ranging from $195 to $253, all being 2010 sales.

[347] Mr. Lyons conducted an Income Approach analysis using a rent of about $5.75 per square foot net for the dock and service bays, monthly rent in the range of $16,000 to $18,000 and a cap rate of 8% to 8.5%. That yielded a value of $2.55 million to $2.7 million. Mr. McKenna used a similar cap rate, but expressed achievable rent in a different way, so I could not compare apples with apples. He estimated the capitalized income value at between $4.0 million and $4.5 million.

[348] I have paid more attention to the direct comparison evidence because both gentlemen stated it was the preferred approach and also because I could more easily compare their respective results. For his valuation Mr. Lyons used a price per square foot of between $138 and $165, whereas Mr. McKenna used a range of $200 to $230 per square foot. The comparables with coverage ratios under 20% suggest that the appropriate price per square foot is higher than that used by Mr. Lyons and closer to the lower $200s as suggested by Mr. McKenna. That is to say, the fair value probably is higher than $3.2 million, but slightly less than $4 million. Consequently, based on the limited evidence before me, I conclude that a fair value for the Lucknow property would be $3.85 million as of April 1, 2011.

F.4 Order

[349] Given the importance of the Lucknow Drive property to the operations of ProNorth I conclude, as part of my overall consideration of the plaintiffs’ request for relief under section 248(3) of the OBCA, that a partition of the property would not be appropriate. Instead, I order Brian or Brianco to purchase from Daleco, on the closing of the Holdco share purchase transaction, its 38% interest in the Lucknow Drive property for the sum of $1,463,000.00, less an amount equal to 38% of the principal balance outstanding on the mortgage as of the date of closing of the Holdco share purchase. Although Messrs. Lyons and McKenna used March/April, 2011 valuation dates, I think it fair and fit under OBCA s. 248(3) to give Dalco the benefit of mortgage payments up until the date of the closing of the Holdco share purchase transaction.

G. Fair value of the Pioneer Road, Sudbury terminal

G.1 The property

[350] Brianco and Daleco own the industrial property at 1727 Pioneer Road, Sudbury in the ratio of 62:38. ProNorth operates a small terminal on the property. A unique feature of the property is that its rear half is located on a designated flood plain, as a result of which existing uses are permitted, but no new buildings or structures may be erected on the flood plain area. The applicable zoning by-law limits the permitted use of the land to a transport terminal, restricted to the existing building.

G.2 The reports and valuation

[351] The ProNorth Defendants called at trial Mr. Philippe Hébert, an Accredited Appraiser Canadian Institute with Appraisals North Realty Inc., who prepared a formal appraisal report in which he opined that the market value of the property as of April 21, 2011 was $385,000.00. The plaintiffs called Mr. McKenna who had prepared a letter of opinion, containing slightly more detail than his Lucknow Drive one, in which he stated that the value of the property as of May 24, 2011 would be $520,000.00.

[352] Mr. Hébert has worked as an appraiser since 2006 and received his AACI accreditation in September, 2009. His experience is in the institutional, industrial and commercial real estate area. I accepted Mr. Hébert as an expert qualified to give valuation evidence about industrial properties.

[353] In his appraisal report Mr. Hébert concluded that the highest and best use of the property was its current one as a transport terminal. Using both an Income and Direct Comparison approach to value the property, Mr. Hébert identified five comparables for ascertaining current lease rates, concluding that an overall market rent for the property would be $8.00 per square foot net. Selecting mostly different comparables for the purposes of a cap rate, due to a paucity of data in the immediate locale, Mr. Hébert considered 9.1% to be an appropriate cap rate. Applying that information he derived an estimated value of $382,000 using the Income Approach.

[354] Mr. Hébert identified five comparables for the direct comparison approach being sales in the period 2008 to 2011. He provided detailed information on each comparable, and explained the adjustments which he made to each. He concluded that the comparable range would be $75.15 to $98.13 per square foot, concluding that the current market value would be $85.00 per square foot, or $385,000. He explained why he placed more weight on the direct comparison approach, and concluded that the market value of the property as of April 21, 2011 was $385,000.

[355] Mr. McKenna’s report contained the same Disclaimer as his other ones. He wrote that the sales data he obtained from local, Sudbury experts did not differ from those used by Mr. Hébert. Mr. McKenna thought that a value on the building should be set at $85.00 per square foot, and “there should be a premium placed upon the excess land associated with the facility”. Inquiries confirmed to Mr. McKenna that restrictions existed on the use of the land which would have “a great effect upon the value of the property”, so he reduced the value per square foot for the building land to $80.00 per square foot, resulting in a value of $361,600.00. However, notwithstanding that the rears lands were “not developable or severable independent of the current use”, he opined that additional value should be attributed to the rear 2.8 acres of $55,000.00 per acre, giving an overall value of the property of $515,600.00.

[356] Applying the Income Approach, he suggested a lease rate of $7.00 per square foot net using a 9% cap rate. In addition, he calculated a rental for the excess land based upon a 10% return of market value. This led to an Income Approach value of $520,000.00.

G.3 Analysis

[357] As can be seen from the descriptions of the two reports, the difference in the values expressed turned on the approach taken to the land at the rear of the property located on a flood plain. Mr. Hébert attributed no additional value to that land; Mr. McKenna applied a premium.

[358] As a result of the flood plain restrictions no building can be erected on the rear portion of the land. Mr. Hébert was of the view that no commercial use could be made of the rear area other than its existing use as parking space and that the flood plain restrictions would not permit severance of the land. Mr. McKenna acknowledged the latter point in his report. Mr. Hébert testified that if one could not sever the land, it then became difficult to attribute any value to it as excess land.

[359] I prefer the evidence of Mr. Hébert, an appraiser, on the issue of the excess lands. Given the severe legal restrictions imposed on the use of the rear land and the inability to sever that land, it seems reasonable not to treat the rear portion of the property as excess land capable of independent valuation.

[360] Consequently, I find that the fair value for the Sudbury property would be $385,000.00 as of April 1, 2011.

G.4 Order

[361] Given the importance of the Sudbury property to the operations of ProNorth I conclude, as part of my overall consideration of the plaintiffs’ request for relief under section 248(3) of the OBCA, that a partition of the property would not be appropriate. Instead, I order Brian or Brianco to purchase from Daleco, on the closing of the Holdco share purchase transaction, its 38% interest in the Sudbury property for the sum of $146,300.00.

H. Partition and sale of the Birchgrove Farm, Vaughan Mills and Pinewood

Vaughan Mills

[362] The ProNorth Defendants submitted that as part of any order concerning Vaughan Mills the court should require Dale to pay Brian/Brianco occupation rent from July, 2008 in the amount of $2,000 per month. No evidence was led as to the market rent for the property during that period of time, accordingly I have no evidentiary basis on which to make a finding regarding occupation rent, so I do not grant this request.

[363] Dale uses the Vaughan Mills property as his personal residence. No later than 12 noon on February 3, 2012, Dale must deliver to Brian’s counsel a written notice indicating whether he intends to continue to use the property as his personal residence. If Dale fails to deliver the notice within that stipulated time he shall be deemed to have elected not to continue to use the property as his personal residence.

[364] If Dale gives notice that he intends to continue to use Vaughan Mills as his personal residence, then I order as follows:

(i) No later than February 29, 2012 each party must deliver to the other a written valuation of the fair market value of the property as of February 1, 2012. Dale must provide Brian’s valuator with all necessary access to the property for the purposes of preparing the report;

(ii) If by March 9, 2012 Dale and Brian can agree on the fair market value of the property, then Dale shall pay to Brian or Brianco an amount equal to 62% of the agreed fair market value in return for Brian or Brianco releasing any interest it has in the property. The amount owed by Dale to Brian/Brianco shall be deducted from the amount that Brian/Brianco must pay to Daleco for the purchase of its shares in Holdco;

(iii) If by March 9, 2012 Dale and Brian cannot agree on the fair market value of the property, then the valuators retained by Dale and Brian shall meet and select, no later than March 19, 2012, a third valuator to prepare an opinion on the fair market value of the property as of February 1, 2012. The third valuator shall consider the initial two valuation reports, but shall prepare his/her own independent valuation and deliver a report expressing the fair market value of the property as of February 1, 2012 no later than March 30, 2012. Dale shall pay to Brian or Brianco an amount equal to 62% of the fair market value found by the third valuator in return for Brian or Brianco releasing any interest it has in the property. The amount owed by Dale to Brian/Brianco shall be deducted from the amount that Brian/Brianco must pay to Daleco for the purchase of its shares in Holdco.

[365] If Dale gives notice to Brian that he does not intend to use the property as his personal residence, or if on February 3, 2012 Dale is deemed to have elected not to continue to use it as his personal residence, then the Vaughan Mills property shall be partitioned and sold using the sale process described in paragraph 367 below.

Birchgrove Farm and Pinewood

[366] The parties agree that the ownership interests in the Birchgrove Farm and Pinewood properties are a 62% interest owned by Brianco and a 38% interest owned by Daleco. I order that those properties be partitioned and sold.

[367] I would encourage the brothers to agree upon a sale process. Either brother may submit a bid on the property. If they cannot reach such an agreement by February 17, 2012, then I order that both properties be sold pursuant to a process set and supervised by a Master of this Court in the Toronto Region. In such an event, Brian shall file a motion with a Master, no later than February 29, 2012, seeking directions for the sale process for both properties.

XI. SIXTH ISSUE: CLAIM AGAINST MCLEOD DEFENDANTS

A. Claims asserted against the McLeod Defendants

[368] The focus of the plaintiffs’ complaint against Mr. McLeod was the affidavit he swore in April, 2009 in which he stated that Daleco owned 38% of the shares in Holdco, not the 50% recorded in the minute book and that no shareholders’ agreement existed. In closing submissions the plaintiffs contended that Mr. McLeod knowingly swore a false affidavit which was used by Brian as the basis for removing Dale from the Board of Directors at the September 2, 2009 shareholders’ meeting. The plaintiffs also stated that at that meeting Mr. McLeod represented that Brianco owned 62% of Holdco’s shares, and they pointed to the recollection of Mr. Fehr in that regard. According to the plaintiffs, as a result of the false affidavit sworn by Mr. McLeod Brian received a benefit and Dale was prejudiced.

[369] The plaintiffs submitted that such conduct by Mr. McLeod (i) formed part of the oppressive conduct against Dale, (ii) involved a breach by Mr. McLeod of a duty of loyalty which he owed Dale, a former client, and (iii) made Mr. McLeod part of a conspiracy with Brian to injure Dale’s economic interests. Although those claims were not pleaded as crisply as I have summarized them, I think they are apparent from a fair reading of the relevant portions of the Amended Statement of Claim.[^82]

[370] In final argument the plaintiffs contended that by reason of his misconduct Mr. McLeod should be jointly and severally responsible with Holdco, Brian and Brianco for $800,000 in damages for Dale’s severance claim and the 10% premium payable on the buy-out of his shares. I have rejected the 10% premium argument, and I have fixed the amount payable as damages by Holdco, Brian and/or Brianco to Dale for his exclusion from the management of the ProNorth Group at $180,000.00.

B. Evidence

[371] Before dealing with the parties’ submissions on the legal claims advanced by the plaintiffs against Mr. McLeod, I must first make findings of fact about his conduct. I have set out above the relevant evidence about the April, 2009 affidavit and the September 2, 2009 shareholders’ meeting.[^83] From that evidence I make the following findings of fact:

(i) When asked by Brian’s lawyers at the Wallace Klein firm to swear the affidavit, Mr. McLeod knew that the request was made in the context of Brian’s intention to call a shareholders’ meeting;

(ii) Notwithstanding the language at the end of the affidavit that its purpose was for inclusion in the minute book to correct errors, I find that Mr. McLeod knew that Brian likely would use his affidavit against Dale at the future shareholders’ meeting;

(iii) Mr. McLeod did not consult with Dale about Brian’s request for his affidavit notwithstanding that Mr. McLeod had acted as Dale’s personal accountant until only three months before;

(iv) Mr. McLeod knew that his statement under oath that Brianco owned 62% of Holdco’s shares and Daleco 38% contradicted the respective shareholdings of those two companies recorded in the minute books of Holdco. Mr. McLeod swore the affidavit only a few days after receiving Holdco’s minute book from Loopstra, Nixon and Mr. McLeod knew what the minute book recorded by virtue of his long history as Holdco’s auditor and the accountant for Brianco and Daleco;

(v) Mr. McLeod knew that his statement under oath that Brianco owned 62% of Holdco’s shares and Daleco 38% directly contradicted the representations which he had made on behalf of Holdco, Brianco and Daleco to the Canadian tax authorities[^84] and directly contradicted the basis upon which he had approached the negotiations of the 2008 Purchase Memorandum for which he had prepared notes recording a 50:50 ownership split;[^85]

(vi) Mr. McLeod knew that his statement under oath that no shareholders’ agreement existed directly contradicted the last clause in the 2008 Purchase Memorandum which he had drafted which referred to the existence of the 1996 Shareholders’ Agreement;

(vii) Whether Mr. McLeod falsely swore the April, 2009 affidavit is a more difficult question because he testified that the discussions at the “coin toss meeting” provided him with a reasonable basis for his assertions, under oath, that the ownership split was 62:38. I have expressed my great surprise that an auditor, who testified at trial that he regarded the minute books of Holdco as his “bible”, would swear an affidavit such as the April, 2009 one. But I have concluded that it is not necessary to determine whether Mr. McLeod falsely swore that affidavit for the purposes of adjudicating the dispute before me;

(viii) At the September 2, 2009 shareholders’ meeting Mr. McLeod stated that Brianco owned 62% of the shares of Holdco. Mr. McLeod denied making such a statement, contending that Mr. Ducharme had made it, but I prefer the evidence of Mr. Fehr on this point. He was a more disinterested party. In any event, whatever information Mr. Ducharme possessed at that meeting came from Mr. McLeod’s affidavit – Mr. Ducharme’s letter of September 11 made that clear. So ultimately the source of the information about the 62:38 split used at the September 2, 2009 meeting was Mr. McLeod; and,

(ix) At the September 2, 2009 shareholders’ meeting Brian used and relied, in part, on the information contained in Mr. McLeod’s April affidavit to take the position that he was the majority shareholder. I say “in part” because Brian’s testimony indicated that he always thought he was the majority shareholder, regardless of what the minute book said. However, the position formally articulated by Brian in his lawyer’s letter of September 11 to justify his actions at the meeting referred solely to Mr. McLeod’s affidavit.

C. Analysis

C.1 Claim under the oppression remedy

[372] The plaintiffs submitted that the scope of the oppression remedy was broad enough to encompass, within the ambit of “corporate conduct”, the acts of a corporation’s accountant. In support of that proposition they pointed to the following passage in the BCE decision:

Section 241(2) speaks of the "act or omission" of the corporation or any of its affiliates, the conduct of "business or affairs" of the corporation and the "powers of the directors of the corporation or any of its affiliates". Often, the conduct complained of is the conduct of the corporation or of its directors, who are responsible for the governance of the corporation. However, the conduct of other actors, such as shareholders, may also support a claim for oppression: see Koehnen, at pp. 109-10; GATX Corp. v. Hawker Siddeley Canada Inc. (1996), 1996 CanLII 8286 (ON SC), 27 B.L.R. (2d) 251 (Ont. Ct. (Gen. Div.)).[^86]

[373] The Supreme Court’s reference in that passage to “other actors”, the plaintiffs contended, contemplates that non-corporate actors, such as accountants, might be liable under the oppression remedy. I doubt that. The passage from Mr. Koehnen cited by the Supreme Court strongly suggests that the Court was simply stating that disputes between shareholders could fall within corporate conduct covered by the oppression remedy. In Oppression and Related Remedies Mr. Koehnen wrote:

It is respectfully submitted that requiring corporate conduct as a prerequisite to applying the

I. Overview

II. The parties

A. The individuals

B. The various ProNorth and ProNorth-related companies

III. Procedural history to this matter

IV. Issues

V. FIRST ISSUE: THE GLASS BROTHERS’ RESPECTIVE SHAREHOLDINGS IN HOLDCO

A. What Holdco’s share register records

B. The brothers’ evidence about the transactions recorded in Holdco’s share register

B.1 Who started ProNorth?

B.2 Brian’s first shareholding in ProNorth

B.3 Contentions about various sales of shares within the family: 1989 to 1992

B.4 The brothers incorporate their holdcos

B.5 The “coin toss” meeting

B.6 The “Dad never owned shares” agreement: January, 1993

B.7 Post-1992 entries in Holdco’s Minute Books

B.8 Brian’s explanations for why Holdco’s Shareholders’ Register records a 50/50 share ownership

C. Evidence consistent with the facts stated in the share register

C.1 Representations of shareholdings to third parties

C.2 1996 Shareholders’ Agreement

C.3 2003 conversation between Marion Cook, BMO, and Norman McLeod

C.4 2003 letter of Norman McLeod to CRA

C.5 2004 affidavit for BMO guarantee

C.6 2004 Notes of Norman McLeod

C.7 2005 Financial Statements of Brianco and Daleco

C.8 2005 Holdco Directors’ resolution

C.9 Brian’s separation agreement with his wife

C.10 McLeod’s 2006 draft buy-out agreement

C.11 McLeod’s working documents for the 2008 Purchase Memorandum

C.12 February, 2008: Loopstra, Nixon memo to Brian Glass

C.13 November, 2008: Loopstra, Nixon letter to Brian Glass

C.14 March, 2009: Nixon memo to Brian Glass

D. Is there “evidence to the contrary” of the facts stated in the share register?

D.1 February 12, 1991 “To Whom It May Concern” document

D.2 March, 1993 directors’ resolution

D.3 Robert Clark’s corporate chart (1998)

D.4 Monthly draws

D.5 Brian’s 2008 demand

D.6 April 9, 2009 affidavit of Norman McLeod

E. Analysis and conclusion regarding shareholdings

E.1 Governing legal principles

E.2 Analysis

VI. SECOND ISSUE: THE OPPRESSION CLAIM: DID BRIAN/BRIANCO AND/OR PRONORTH ACT IN A MANNER WHICH WAS OPPRESSIVE OR UNFAIRLY PREJUDICIAL TO OR THAT UNFAIRLY DISREGARDED THE INTERESTS OF DALE AS A SHAREHOLDER, DIRECTOR OR OFFICER OF HOLDCO?

A. The allegations of oppression

B. Governing legal principles

C. Some further historical background

C.1 The fraying of the brothers’ relationship

C.2 Attempt by Brian to buy-out Dale’s interest in ProNorth: 2006-2008

D. Analysis of some of the pleaded particulars of oppressive conduct

D.1 Dale was denied access to financial and operational information about the ProNorth Group

D.2 Brian directed ProNorth employees to deprive Dale of assistance he required to perform company work

D.3 Holdco failed to provide Dale with information about “off-shore accounts” for an insurance pool

D.4 Brian used ProNorth money to buy personal “toys”

E. The September, 2009 shareholder meeting oppression claim

E.1 Brian calls for a shareholders’ meeting in the Spring of 2009

E.2 Background to the September meeting

The cheque-signing issue

Dale’s dispute with Norman McLeod

Credit facility

E.3 Prelude to the September 2, 2009 meeting

E.4 The September 2, 2009 shareholders’ meeting

E.5 Analysis

E.6 Cessation of Dale working at ProNorth

Evidence

Analysis

E.7 Holdco failed to make rental payments for properties in which Dale or Daleco had an interest

Evidence

Analysis

F. Remedy under section 248(3) of the OBCA

VII. PLAINTIFFS’ CLAIMS FOR INDUCING BREACH OF CONTRACT CLAIMS

VIII. THIRD ISSUE: HOLDCO COUNTER-CLAIM AGAINST DALE IN RESPECT OF THE CESSNA 414 AIRCRAFT

A. The nature of the claim asserted

B. The history of the aircraft

C. Analysis

IX. FOURTH ISSUE: VALUATION OF THE SHARES IN HOLDCO AND OPCO

A. Positions of the parties

B. Applicable legal principles

C. The valuation evidence

C.1 The reports

C.2 Court-directed “hot-tubbing”: the Joint Statement