COURT FILE NO.: 6873/12
DATE: 2013/02/25
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JAMES RICE
Applicant
– and –
BARRY SMITH, CHUNG-LIE TING and BLS TEXTILES INC.
Respondents
Mavis J. Butkus, for the Applicant
John W. Findlay, for the Defendants
HEARD: January 30, 2013
Leach j.
[1] Before me is a motion by the Applicant for an order removing John W. McDonald (“McDonald”) as lawyer of record for all of the Respondents.
[2] In the alternative, the Applicant seeks an order removing McDonald as lawyer of record for the corporate Respondent, BLS Textiles Inc. (“BLS”).
Background
[3] The motion is brought within the larger context of an application to address and resolve various issues stemming from a serious dispute between the only three shareholders and directors of BLS: the Applicant James Rice (“Rice”), and the individual Respondents Barry Smith (“Smith”) and Chung-Lie Ting (“Ting”).
[4] Litigation of the application has not yet progressed to examinations in relation to the extended affidavit and documentary evidence filed by the parties, and the substantive merits of the application, (including underlying factual disputes), are not before me for resolution. These reasons accordingly should not be taken as any binding determination in that regard.
[5] However, by way of background:
BLS is incorporated federally, pursuant to the laws of Canada, and is based in Cambridge, Ontario. It apparently was founded by Smith in late 2005 or early 2006, and initially focused on the sale and marketing of textiles, including high performance fabrics like Kevlar.
Ting joined BLS at some point between 2006 and 2008, during which time the company’s operations included, to some extent at least, production of body armour components.
Rice joined BLS in 2008, after spending many years with the Canadian Armed Forces and in private business acquiring and developing experience and expertise relating to terminal ballistics and armour protection for personnel and vehicles.
The formal corporate arrangements put in place in 2008, (by way of a share purchase agreement, a unanimous shareholders’ agreement, director election by the shareholders, and corporate by-law enactment), resulted in the following BLS shareholdings: Smith 37.5 percent; Ting 37.5 percent; and Rice 25 percent. All three individuals were directors of BLS. All three individuals also continued to work for the company in various officer and employee capacities.
The business of BLS grew rapidly through extensive production and supply of products used by police for vehicle and personnel protection, and it now annually generates many millions of dollars in sales. However, relations between the shareholders deteriorated over the course of 2010 and 2011. The reasons for this are disputed. In broad terms:
The Applicant contends that the shareholders’ respective efforts and involvement in the operations of BLS were disproportionate and inequitable, resulting in friction that was compounded by disagreements concerning corporate financing and future business plans. All of this is said to have prompted unsuccessful discussions and proposals, (explored and developed with appropriate professional assistance), concerning further share sale and purchase arrangements. These included efforts by Ting to obtain a business valuation, (as a prelude to overall sale of BLS or a sale of Ting’s interest in the company), and efforts by Rice to investigate and propose his purchase of the shares held by Smith and Ting; a possibility discussed at a meeting or meetings between Rice, Smith and McDonald in November of 2011. When these various discussions and proposals failed, and relations became acrimonious, Smith and Ting allegedly abused their majority shareholding to exclude Rice and effectively appropriate his interest in BLS, relying on various baseless allegations of misconduct.
The Respondents contend that Rice wrongly breached his fiduciary duties owed to BLS, breached corporate confidence and/or otherwise misappropriated confidential information of BLS, violated BLS rights of intellectual property (including patent rights), and interfered with the contractual relations of BLS. These allegations are based, in part, on Rice’s sharing of otherwise confidential BLS information, (such as financial statements and plans), with his banker, accountant and lawyers.