COURT FILE NO.: CV-12-9597-00CL

DATE: 20130215

SUPERIOR COURT OF JUSTICE - ONTARIO

COMMERCIAL LIST

RE: CAN-AM LUBRICANTS INC., Applicant

A N D:

1658586 ONTARIO INC., YUAN SHENG OU YANG and MING ZHU ZHUANG, Respondents

BEFORE: MESBUR J.

COUNSEL: D. Chitiz and A. McNish, for the Applicant

A. Habas, for the Respondents

HEARD: January 22, 2013

E N D O R S E M E N T

Nature of the application:

[1] In this oppression application the parties agreed to bifurcate certain issues for initial hearing and determination. Campbell J made a consent order setting out the questions for the first hearing. They are described in the order in the following way:

a) In all the circumstances of this case, it is oppressive to the interests of the applicant as a 10% shareholder in 1658586 Ontario Inc. (“Landlord Corp”), or otherwise a breach of their statutory duties, for the two directors to cause the Landlord Corp to rent the premises owned by Landlord Corp to a corporation that is directly or indirectly controlled by them (“Tenant Corp”) for an amount that is less than fair market value and/or on terms that are less than fair market terms (the “FMV Threshold Issue”);

b) If the answer to (a) is yes, then what remedy, if any, is available to the Applicant (the “FMV Compensation”);

c) Are there any accounting irregularities on the part of the Respondents as alleged in paragraph (u) of the Grounds for the Application or otherwise;

d) If the answer to (c) is yes, then what remedy, if any, should be imposed by the court.

[2] The accounting irregularities referred to in (c) above are alleged to be the following:

i) Failure to take the appropriate steps to compel Yuan Ming Supermarket to pay rent in accordance with the terms of the Lease;

ii) Landlord Corp paying numerous expenses that are more properly for the account of Yuan Ming Supermarket under the terms of the Lease, including for equipment and other assets used by Yuan Ming Supermarket in its operations and which are of no benefit to Landlord Corp; and

iii) The decision to have Landlord Corp incur expenses for the benefit of other entities that are not at arm’s length to Ou Yang and/or Zhang.

[3] The order provides that if the applicant prevails on the FMV Threshold issue, then the judge hearing the application must set a timetable for a hearing to determine the amount of FMV Compensation and any other remedies considered appropriate.

[4] The motion I heard was to determine these preliminary issues.

Factual findings:

[5] The parties contemplated the court might require oral evidence from their clients, even though each party had filed extensive affidavit material, and had conducted thorough cross-examinations of all affiants. At the end of the day I determined I did not need to hear from the parties, but could make the necessary factual findings on the basis of reasonable inferences to be drawn from the evidence.

[6] Mr. Barry Wan and his wife Rita Ho Wan are the sole shareholders of the applicant Can-Am. Mr. Wan is a commercial real estate agent by profession. He was born and educated in Hong Kong, and immigrated to Canada in about 1988. He has a college education, and experience as a banker in Hong Kong. His wife has a similar background.

[7] After working in some other businesses, Mr. Wan obtained a real estate licence in 1990. He has been working as a full time real estate agent since 1997. Mr. Wan focuses in large part on the Asian supermarket sector of the commercial real estate market in the Greater Toronto Area. He specializes in leasing grocery stores.

[8] The respondent Yuan Sheng Ou Yang is from China. Unlike Mr. Wan, he has only a grade school education. He speaks little English, and does not read or write the language. He immigrated to Canada in 1990 at the age of 40. Although he lacks formal education and facility in English he has enjoyed considerable financial success in Canada. He began working for the Big Land Farms Supermarket chain as manager of its fruits and vegetable department. After 4 or 5 years he had saved enough money to start his own grocery business. He and his wife, the respondent Zhuang, are the principals of a number of companies. They have used these corporate vehicles for their various business ventures, including their foray into the Asian supermarket business.

[9] Mr. Wan and Mr. Yang first met in the mid-1990s. In 2001 Mr. Wan introduced Mr. Yang to a grocery business that was for sale on Hurontario Street in Mississauga. Mr. Yang bought it. After this time, Mr. Wan and Mr. Yang became friends.

[10] In 2003 Mr. Wan became the listing agent for a property at 1000 Burnhamthorpe Road West in Mississauga. This property is made up of a 54,000 square foot building on a large piece of land. Big Land Farms (Burnhamthorpe) Ltd. owned the real estate and operated a large grocery store that occupied the whole of the building. Big Land Farms was looking for a purchaser of the property, but wished to remain as a tenant to operate its grocery store. Big Land Farms required that any purchaser lease the store to Big Land Farms for a twenty year term at a base rent of $10 per square foot.

[11] Mr. Wan introduced the Yangs to the property. They were interested in buying it as an investment property. Although Mr. Wan viewed the rent as below market, he recommended the purchase to Mr. Yang since the tenancy would yield a reasonable return of about 10% on the investment. Mr. Wan also viewed the parcel as large enough to accommodate developing an addition 16,000 square foot of retail space.

Buying the property

[12] Mr. Yang decided to buy the property. He entered into an agreement of purchase and sale to buy the property for $5,350,000. The offer was drawn in his wife’s name, in trust for a company to be incorporated.

[13] Although the parties disagree on precisely the reason[^1] why Mr. Wan and his wife became 10% owners of the company that purchased the property, it is clear they became 10% shareholders of the respondent 1658586 Ontario Inc., (Landlord Corp) which had been incorporated to hold the property and became the registered owner of it. Mr. and Mrs. Lam eventually paid a total of $205,000 for their interest, and decided to acquire it through their company, the applicant Can-Am. Mr. and Mrs. Lam are equal shareholders of Can-Am.

[14] Part of the purchase price was financed with a first mortgage on the property in favour of HSBC in the net amount of $3,737,072.08, with the balance coming from the Yangs and the Wans. The Wans advanced a total of $205,000 with the balance coming from the Yangs. Mr. Yang and his wife provided limited guarantees, and collaterally mortgaged their home to assist in the financing. Like the Lams, the Yangs did not hold their interest in Landlord Corp personally. Instead, their corporation, which was owned 30% by Mr. Yang, 30% by Mrs. Yang, and 20% by each of their two sons, acquired 90% of the shares of Landlord Corp.

[15] The deal closed as anticipated, with Big Land Farms remaining as a tenant. Big Land Farms’ lease was for a 20-year term, at a net rental of $10 per square foot. Big Land Farms also had the right to renew the lease for two successive terms of 5 years each. The lease contained another provision that if Big Land Farms assigned the lease to a third party then the lease would be reduced to a 10-year term at $10 per square foot for the first 5 years, and $12 per square foot for the remaining five years.

Big Land Farms defaults

[16] On August 1, 2005, almost immediately after closing, Big Land Farms defaulted on its lease. Mr. Yang discovered that Big Land Farms had removed its entire inventory and some of its equipment from the premises. Landlord Corp distrained for rent, and took possession of the premises. Big Land Farms sued, seeking relief from forfeiture. The litigation was finally resolved in Landlord Corp’s favour in early February 2006. Until then, however, Landlord Corp was subject to a preservation order that prevented it from dealing with the premises without Big Land Farms’ consent. During this period, however, the mortgage and other expenses still had to be paid.

[17] After the default Mr. Wan listed the property for lease at a rental rate of $15 per foot. While there were some telephone inquiries about the property only two written offers were received. The first was unsigned, and was an offer to lease for 15 years, with the first three years at $10 per square foot, escalating every 3 years until the last 3 years of the lease would be at $12 per square foot.

[18] The second written offer was to lease the property for a term of 15 years with rent for the first 5 years at $10 per square foot, $11.50 per square foot for the second 5 years and $13 per square foot for the last 5 years of the term.

[19] Mr. Yang deposes he was worried about leasing to a third party who might not pay rent and taxes as they fell due. He was at greater risk than Mr. Wan since he and his wife had far more of their own money invested in the property and they had also provided collateral security to the bank, while Mr. Wan and his wife had not. Since he had experience in running a grocery store, Mr. Yang decided it would be a good idea to rent the property himself. He and Mr. Wan began to discuss this proposition.

Mr. Yang’s business leases the property

[20] Eventually they agreed that Mr. Yang would rent the premises at a net/net rental of $12 per square foot. Although Mr. Wan believed Landlord Corp could have obtained a higher rent from an arms’ length tenant, he did not object to leasing to Mr. Yang’s corporation 2083278 Ontario Inc. which would operate a grocery store called Yuan Ming Supermarket. I will refer to 2083278 Ontario Inc. as Yang Ming Supermarket. It entered into a lease with Landlord Corp for a base rent of $12 per square foot. In doing so, Yuan Ming Supermarket also acquired the chattels and fixtures in the premises. Yuan Ming Supermarket did not pay anything in addition for these items.

Acquiring chattels and fixtures

[21] Big Land Farms had abandoned some chattels and fixtures in the store. Some were subject to a security interest in favour of CIT Financial. By the fall of 2005 Yang Ming Supermarket had acquired the items covered by CIT’s security for $126,000.

[22] Some other equipment was not covered by the CIT security. Those items had been appraised by the bailiff at $86,710 and Landlord Corp ultimately acquired them for that price.

[23] When Yang Ming Supermarket moved into the premises, it took over the chattels and fixtures that remained there. It did not pay Landlord Corp anything for them. Mr. Wan takes the position Mr. Yang obtained a “windfall” when he acquired these chattels and fixtures. Mr. Wan says had the premises been let to an arms’ length tenant, the tenant would likely have paid Landlord Corp $1 million to acquire these very valuable chattels and fixtures. I have no independent evidence to corroborate his belief. Nevertheless, Mr. Wan agreed to Landlord Corp leasing to Yuan Ming Supermarket.

[24] Mr. Wan says part of the reason he agreed to the lease with Yuan Ming Supermarket was because Mr. Yang had promised “to look after him”. He understood this to mean that somehow Mr. Yang would compensate him for his “loss” on the chattels and fixtures. Mr. Wan quantifies his “loss” as being equivalent to 10% of the $1 million he says the chattels and fixtures would have fetched from an arm’s length tenant.

[25] Yuan Ming Supermarket took possession of the leased premises in March of 2006, just after the litigation with Big Land Farms ended, and Landlord Corp was no longer enjoined from dealing with the property. Even though it did not take possession until then, the actual lease between Landlord Corp and Yuan Ming Supermarket was dated October of 2005. It provided for a term of five years commencing 15 November 2005 to and including November 14, 2010 at a net/net rent of $12 per square foot, or $53,000 per month plus GST. The tenant was also to pay additional rent as set out in the lease.

[26] The lease contained an option to renew in favour of the tenant. As long as the tenant was not in default of any of its obligations under the lease, it had the option to renew for a further 5 year term “at the then prevailing market rate of rent payable for comparable premises in the vicinity...”[^2] The tenant was obliged to give at least 6 months’ written notice of its intention to renew, prior to the end of the first five year term.

[27] The lease also provided that if the tenant overheld the premises at the end of the tenancy, Landlord Corp was entitled to receive accelerated rent at the rate of triple the base rent.

Yuan Ming Supermarket pays less that the stated rent

[28] Although the lease stipulated that Yuan Ming Supermarket was to pay $12 per square foot in base rent or $53,000 per month, it actually only paid $30,000 per month. Mr. Yang seemed to think that it would make more sense for Yang Ming Supermarket to pay only what was necessary for Landlord Corp to meet its expenses. He put this at the $30,000 per month.

[29] At the same time as Yuan Ming Supermarket began to pay this lesser amount of rent Mr. Yang began to give Mr. Wan monthly cash payments of $2,300. Mr. Wan says he interpreted this cash payment as Mr. Yang’s paying Mr. Wan his “share” of the lost revenue on the chattels and fixtures, and was tied to Mr Yang’s promise to “take care of” Mr. Wan.

[30] Mr. Yang takes the position that the cash payments were meant to compensate Mr. Wan for Yuan Ming Supermarket paying $30,000 per month in rent instead of $53,000 per month required by the lease. He reasons that the difference between what was paid and what was owed was $23,000 per month and since Mr. Wan indirectly holds 10% of Landlord Corp his “share” would be $2,300 per month.

[31] Mr. Yang says paying Mr. Wan cash of $2,300 per month was a way to accomplish the same result as having Yang Ming Supermarket pay the stipulated rent under the lease. With this arrangement there would be no need for Landlord Corp to collect $12 per square foot from Yang Ming Supermarket, pay Landlord Corp’s expenses and then dividend out the surplus to Can-Am as to 10% and Mr. Yang’s company as to 90%. Mr. Yang views this arrangement as making Mr. Wan whole. What the arrangement ignores, however, is the cost to the Canada Revenue Agency for lost taxes on dividends that otherwise would have been paid.

[32] The cash payments went on for years, from March of 2006 until they finally ended in October of 2011, just a few months before Mr. Wan began this application. In all, Mr. Wan received $156,400 in cash.

[33] When I look at each party’s explanation for the cash payments I find Mr. Yang’s more credible, although I am far from persuaded that the parties had any actual agreement as to what the cash was for.

[34] Objectively speaking, if Mr. Wan were correct that the chattels and fixtures were really worth $1 million to Landlord Corp, then “his” loss would be no more than 10% of that figure, or $100,000. If Mr. Wan’s position were to prevail, he has no explanation of why he was entitled to receive more than 50% more than what he calculated his entitlement to be.

[35] Conversely, Mr. Yang’s explanation is oddly persuasive. He seems to have thought that as long as Mr. Wan received what he otherwise would have from the larger rent, then somehow Mr. Yang could carry on as he wished as between Landlord Corp and Yang Ming Supermarket.

Mr. Wan’s complaints

[36] Mr. Wan says that when he finally received the financial statements for Landlord Corp for the fiscal years 2006 to 2010 he first learned that Yang Ming Supermarket was actually paying only $30,000 per month not $53,000. In fact, he learned that there had been eleven months when Yang Ming Supermarket failed to pay any rent at all.

[37] As the lease term approached its end, Mr. Wan began to discuss renewal terms with Mr. Yang. Mr. Wan was of the view that current market rents then were about $18 per square foot for comparable properties. He approached Mr. Yang about increasing the rent to this kind of level.

[38] Mr. Yang responded that Yang Ming Supermarket was making no money, and could not afford to pay that kind of rent. Mr. Wan then suggested they find a new tenant who could pay market rent. Mr. Yang refused.

[39] Mr. Wan then discovered what he calls accounting discrepancies in the books of Landlord Corp. These, coupled with the fact Landlord Corp had not entered into a new lease with either Yang Ming Supermarket or another tenant, prompted this application.

Discussion:

[40] This is an oppression application. The focus of this hearing, however, is to deal first with the threshold question of whether, in the circumstances of this case, renting at less than fair market value is oppressive to the minority shareholder. The next question is to decide if there have been accounting irregularities. In each case, if the answer is “yes”, the next question is how to fashion a remedy.

[41] The parties have yet to commission appraisals of the shares of the corporation, although Mr. Yang did obtain an appraisal of the property itself from CB Richard Ellis in the summer of 2011. Mr. Wan disagrees with the property valuation. I have no evidence of actual fair market rent for the property. I must therefore decide the FMV Threshold issue in the abstract and without regard to the actual quantum of fair market value rent.

[42] When it comes to remedy, the parties have agreed they no longer wish to continue in business together. In order to accomplish their “corporate divorce” the Yangs will purchase the applicant’s shares in Landlord Corp. The parties agree that if oppression is found, then the valuation of the applicant’s shares should be without regard to any minority discount. They also agree that if oppression is not found, it will be left to the trial judge to determine whether or not it is appropriate to apply a minority discount in valuing the applicant’s shares. The buyout, however, may not be a sufficient remedy if there are accounting irregularities.

The legal framework

[43] Subsection 248(2) of the Ontario Business Corporations Act (OBCA)[^3] sets out the “oppression remedy” as follows:

Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or of any of its affiliates,

a) Any act or omission of the corporation or any of its affiliates effects or threatens to a effect a result;

b) The business or affairs of the corporation of any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

c) The powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

That is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

[44] The parties agree that when looking at what shareholder interests are protected by subsection 248(2) the courts must look at “reasonable expectations” of shareholders in the overall context of the case [^4] to determine whether a shareholder has been oppressed. If the court finds oppression, then it has a broad discretion to fashion an appropriate remedy for it.

FMV Threshold Issue

[45] The first question I must address is what the parties have called the “FMV Threshold Issue”, namely, whether in the circumstances of this case it is oppressive to the applicant’s interests as minority shareholder in Landlord Corp for Landlord Corp’s two directors to rent the premises to Yang Ming Supermarket at less than fair market value, or on terms that are less than fair market terms.

[46] When I look at shareholder expectations, and particularly the applicant’s reasonable expectations in the context of this case, it seems to me the written documents are the best evidence of what the parties could reasonably expect in relation to the rental of the premises.

[47] At the time Landlord Corp acquired the property it was subject to a long-term lease in favour of Big Land Farms. According to the terms of the lease, Landlord Corp could expect rental of $10 per square foot for a period of twenty years.

[48] Mr. Wan viewed $10 per square foot as less than market value in 2005, but still saw the acquisition of the property as a “good deal” even subject to these lease terms, and recommended it to the Yangs.

[49] From this I infer that in 2005 the applicant’s initial “reasonable expectations” were that the property would fetch $10 per square foot until 2025, whether or not that was reflective of fair market rent. At best, if Big Land Farms sublet the premises, then the expectation would have been for a new ten year term for the subtenant at $10 per square foot for the first five years, and $12 per square foot for the second five years.

[50] Therefore, in looking at reasonable shareholder expectations at the time the applicant acquired its shares in Landlord Corp I conclude that it must have expected that even if Big Land Farms sublet immediately, the rental would have been at a rate of $10 per square foot until 2010 and $12 per square foot from 2010 until 2015. In either the case of Big Land Farms continuing to rent, or subletting, these rental rates must have been what was reasonably expected by the applicants, whether or not those rates reflected fair market rental rates.

[51] But Big Land Farms’ default and subsequent events changed things. Landlord Corp then had to look to rent to a different tenant. I see the lease it entered into with Yang Ming Supermarket as an objective indicator of what the shareholders of Landlord Corp, and the applicant in particular, could reasonably have expected at that time.

[52] Mr. Yang takes the position that since Mr. Wan admits he did not even see the lease until sometime in 2006, the lease could not have formed the foundation of his reasonable expectations. I disagree. Certainly from 2006 onward, having seen the terms of the lease, Mr Wan’s reasonable expectations must have been informed by it.

[53] Looking at the lease itself, several things emerge. First, the shareholders of Landlord Corp could reasonably expect the new tenant Yang Ming Supermarket to pay rent according to the lease, remit GST as required, and pay the additional rent stipulated under the lease.

[54] Second, the shareholders of Landlord Corp could reasonably expect Yang Ming Supermarket to give written notice of any intention to renew the lease no later than May 14, 2010 if it wished to continue to occupy the premises after the term expired in November of 2010.

[55] Third, if Yang Ming Supermarket gave written notice and the lease was renewed for a further five-year term, the shareholders of Landlord Corp could reasonably expect the rental rate for that term would be at then prevailing market rents.

[56] Last, if Yang Ming Supermarket did not give written notice of an intention to renew, then the shareholders of Landlord Corp could reasonably expect Yang Ming Supermarket to pay triple rent until it vacated the premises.

[57] The applicant, as a shareholder of Landlord Corp, could reasonably have expected these things to occur. As I have said, having seen the lease in 2006, Mr. Wan would have had these expectations from that point forward. What these things confirm is that

a) Yang Ming Supermarket should have paid $12 per square foot for the first five years of the lease;

b) Yang Ming Supermarket should have properly renewed the lease if it intended to stay beyond November 2010;

c) If it renewed the lease beyond November of 2010 Yang Ming Supermarket should have paid market rent, whatever that was; and

d) If Yang Ming Supermarket did not properly renew the lease and stayed on in the premises after the lease expired in November 2010, then it would pay triple rent until it vacated the premises.

[58] Mr. Yang and his family members control Landlord Corp, owning 90% of its shares. Mr. Yang and his wife are the only officers and directors of Landlord Corp. Mr. Yang also controls Yang Ming Supermarket. I can only conclude that it was Mr. Yang who made the decisions about what rent Yang Ming Supermarket would actually pay. He also decided what rental Landlord Corp would actually receive. He did so without regard to the terms of the lease between Landlord Corp and Yang Ming Supermarket, and did so without regard to Mr. Wan’s reasonable expectations, set out above.

[59] On the basis of the provisions of the lease Mr. Wan could reasonably expect that Yang Ming Supermarket would meet its obligations under the lease and would properly renew or vacate at the end of the term. If it renewed, it would be at market rent. If it did not, it would pay triple rent until it vacated. If Yang Ming Supermarket was paying less than fair market rent from November of 2010 onward Mr. Wan’s reasonable expectations as a shareholder would be thwarted.

[60] On the FMV Threshold issue I am asked only to address whether renting for an amount less than fair market value is oppressive. I am not asked to address whether any other conduct on the part of the Yangs is also oppressive. On the first question, therefore, I conclude that in the circumstances of this case failing to rent at fair market value from November of 2010 onward is oppressive to the interests of the applicant as minority shareholder in Landlord Corp.

FMV Compensation

[61] Since I have found oppression on the FMV Threshold Issue, I must now turn to the question of FMV Compensation, that is to say, what is the appropriate remedy.

[62] It seems to me that the appropriate remedy is to put the applicant in the position it would have been had the terms of the lease been followed. This involves a determination of what reasonable market rent could the premises have been rented at from November 15, 2010 onward, or alternatively, requiring Yang Ming Supermarket to pay triple rent from November 15, 2010. In either case, this is a question for the judge who must determine the actual amount of FMV Compensation. Yang Ming Supermarket will then have to pay the appropriate amount to Landlord Corp, which in turn will have to determine when and how any surplus amounts will be paid out to the minority shareholder.

[63] This brings me to the issue of the alleged accounting irregularities.

Accounting irregularities?

[64] In the notice of application, the applicant alleges the respondents have caused the following accounting irregularities to occur:

a) Failure to take steps to compel Yuan Ming Supermarket to pay the rent due under the lease;

b) Landlord Corp paying expenses that Yuan Ming Supermarket should have paid;

c) Landlord Corp paying expenses for companies that are not at arm’s length to Mr. and Mrs. Yang.

[65] The applicant retained Collins Barrow Toronto LLP, Chartered Accountants to review certain financial statements, bank statements, deposit books and other records of Landlord Corp with a view to determining whether there are any accounting irregularities. Collins Barrow did not conduct an audit, and therefore expresses no opinion as it would if it had conducted an audit.

[66] Collins Barrow did, however conclude that Yang Ming Supermarket failed to pay rent due under the lease. It also determined that Landlord Corp paid certain expenses that Yang Ming Supermarket should have paid. Last, it concluded that Landlord Corp paid some expenses that are Yang Ming Supermarket expenses, quite apart from the lease. This evidence is largely uncontradicted.

[67] On the basis of the questions posed, therefore, the Yangs, who indirectly control Landlord Corp failed to take steps to compel Yang Ming Supermarket to pay the rent due under the lease.

[68] Landlord Corp paid expenses that Yang Ming Supermarket should have paid under the terms of the lease. Landlord Corp also paid some of Yang Ming Supermarket’s expenses, quite apart from the lease.

[69] Yang Ming Supermarket has repaid some of the improper expenses to Landlord Corp. Given the limitations of the Collins Barrow report I cannot determine whether all have been repaid or not.

[70] This leads to the issue of the appropriate remedy for these accounting irregularities.

Remedy for accounting irregularities

[71] In order to remedy all the accounting irregularities they must be corrected, and both Yang Ming Supermarket and Landlord Corp must comply with all their respective obligations under the lease. This would involve Yang Ming Supermarket retroactively paying the appropriate rent under the lease, and Mr. Wan repaying to Landlord Corp all the cash payments he received after Yang Ming Supermarket took possession. I would require Mr. Wan to repay the cash because I find Mr. Yang’s explanation of the payments more credible than Mr. Wan’s. Since they represented a share of the rent that should have been paid to Landlord Corp before being paid out to a shareholder, the money must be repaid to Landlord Corp so that its books and records can accurately reflect its proper financial situation both to its shareholders and to the Canada Revenue Agency.

[72] When all of that has occurred, amended financial statements will have to be prepared, and decisions taken about declaring dividends for surplus income. Obviously, corrected income tax returns will have to be filed and all taxes and penalties paid.

[73] All of this will be a very costly and time consuming exercise. The court has no other alternative but to ensure everything is corrected so that Landlord Corp, its shareholders and CRA have an accurate financial picture of the corporation before the shareholders embark on the next stage of disentangling themselves from one another.

[74] At the end of the day, the parties agree that the applicant’s shares in Landlord Corp will be purchased at fair market value. This, of course, will involve valuations of both the property and the shares. As the parties agreed, since I have found oppression, there will be no minority discount for the applicant’s shares in Landlord Corp.

[75] This leaves the question of a timetable to determine next steps.

Timetable

[76] Although the bifurcation order contemplated my setting a timetable for the hearing to determine the amount of FMV Compensation and other remedies, it is premature for me to do so, since many steps must be taken before that can be accomplished. I will therefore set a timetable for the preliminary steps as follows:

a) The parties will first take the necessary steps to determine what amounts must be repaid to Landlord Corp by both Yang Ming Supermarket and the applicant/Wans as contemplated by these reasons. They should agree on an accountant to undertake this task. If they cannot, each party will retain an accountant to do so. The accountants will complete their work by May 24, 2013;

b) Once the amounts are determined under (a), above, amended financial statements will be prepared to reflect the appropriate amounts that should have been included in them. If the parties have not agreed on the amounts, then each accountant will prepare amended financial statement. In either case, the amended financial statements (for fiscal years 2006 to 2012) will be completed by August 31, 2013. If the parties have not agreed on the appropriate financial statements then the issue of which will prevail is an issue to be scheduled at the case conference referred to in (d), below;

c) Each of the parties will obtain valuations of the applicant’s 10% interest in Landlord Corp, without minority discount. Valuations will be obtained no later than August 31, 2013;

d) The parties will arrange a case conference with me, if I am available, at some time after August 31,2013 to schedule next steps, including the hearing.

[77] The hearing will involve:

a) Determining all the adjustments to made in terms of both repayments to Landlord Corp by both Mr. Wan and Yang Ming Supermarket as well as to the new financial statements, if the parties have not been able to agree on them;

b) The amount and terms of a buyout of the applicant’s 10% interest in Landlord Corp, if the parties have not been able to agree on that.

[78] I strongly encourage the parties to attempt to resolve all the outstanding issues between them without going to the considerable expense all these steps will necessarily involve.

Conclusion:

[79] Therefore, on the questions posed in the order of Campbell J of 23 April 2012 I find first that in the circumstances of this case it is oppressive to the interests of the applicant for the two directors to rent the premises to Yang Ming Supermarket at less than market rent from and after November 15, 2010.

[80] The remedy (i.e. the FMV Compensation) is to put the applicant in the position it would have been had the terms of the lease been followed. This involves a determination of what reasonable market rent could the premises have been rented at from November 15, 2010 onward, or alternatively, requiring Yang Ming Supermarket to pay triple rent from November 15, 2010. In either case, this is a question for the judge who must determine the amount of FMV Compensation.

[81] I also find there have been accounting irregularities, which must be remedied as set out in paragraphs 71 to 74, above.

[82] The timetable for next steps is set out in paragraphs 76 and 77 above.

[83] The applicant has enjoyed significant success on this aspect of the application, and is entitled to its costs. The parties agreed that the losing party would pay costs of $25,000, all inclusive. The applicant will therefore have its cost of this aspect of the application fixed at $25,000 all inclusive. The parties also agreed that if the applicant prevailed in a finding of oppression then Landlord Corp would also pay the fees of Collins Barrow, fixed at $14,790 plus HST. An order will also go to that effect.

MESBUR J.

Released: 20130215

[^1]: Mr. Wan says that because Mr. Yang does not speak English, he wanted Mr. Wan to be a shareholder so that he could deal with Big Land Farms. Mr. Yang knew the principals of Big Land Farms, since he had worked for them for some years. He knew them to be difficult to deal with. Mr. Yang denies he asked Mr. Wan to participate in the deal for this reason. Instead, he says that Mr. Wan wanted a piece of the deal because it was a good investment. [^2]: Article XVII, 17(3) [^3]: R.S.O.1990, c. B.16 [^4]: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69