SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
COURT FILE NO.: CV-12-9959-00CL
CV-13-9984-00 CL
DATE: 20130315
RE: THE BROCKHEDGE INVESTMENT GROUP (1) INC.
Applicant
- and -
CAMPUS COURT DEVELOPMENTS LTD.; CAMPUS COURT LLC; NORMAN WEISFELD, BRUCE WEISFELD, MACDONALD, SAGER, MANIS LLP; and AIRD & BERLIS LLP
Respondents
AND RE:
THE BROCKHEDGE INVESTMENT GROUP (1) INC.; GABI WEISFELD LIMITED; GEORGE HALASI, in trust; MARG D. B. INC.; BAYLA CHAIKOF; and LEO CHAIKOF
Applicants
- and -
CAMPUS COURT DEVELOPMENTS LTD.; CAMPUS COURT LLC; AIRD & BERLIS LLP; MACDONALD, SAGER, MANIS LLP; BRUCE WEISFELD; and NORMAN WEISFELD
Respondents
BEFORE: Newbould J.
COUNSEL:
Larry J. Levine, Q.C., for the applicants
Hilary Book, for the respondents
Howard Manis, for Campus Court Developments Ltd. and Macdonald, Sager, Manis LLP
HEARD: March 13, 2013
[1] The applicants bring two applications, one under section 207 of the OBCA and one under section 248 of the OBCA, both involving Campus Court Developments Limited (CCDL). The applications arise following attempts by the respondents Bruce and Norman Weisfeld, owners of the respondent Campus Court LLC (CCLLC) to hold a shareholders meeting to change the board of directors of CCDL. These attempts followed the sale of all of the assets of CCDL, being a substantial shopping plaza in the City of Waterloo, and a dispute over the validity of three amounts said to be payable by CCDL. There is clear acrimony between the two sides. CCLLC has brought its own application against Gilad Abrahami under section 248 of the OBCA for alleged oppressive conduct and breach of fiduciary duties owed to CCDL.
Brief relevant history
[2] The respondent CCLLC owns 54.78% of CCDL’s shares. The respondents Bruce Weisfeld and Norman Weisfeld own and control CCLLC. The applicants own 45.22% of the shares of CCDL. They are The Brockhedge Investment Group (1) Inc., controlled by Mr. Abrahami, as to 10.64%, Gabi Weisfeld Limited, whose principal is Mr. Abrahami’s mother, as to 18.62%, George Halasi in trust as to 5.32%, Marg D.B. Inc. as to 5.32% and Bayla and Leo Chaikof as to 5.32%.
[3] There is no shareholders’ agreement. Until now the by-laws have provided for two directors and Mr. Abrahami and Mr. Weisfeld have held those positions. This has meant that the two have had to agree on matters coming before the board.
[4] On Friday afternoon, December 21, 2012, Campus Court was sold for $16 million in cash. Funds from the sale proceeds were paid in satisfaction of the existing mortgage on the property, along with outstanding legal fees of MacDonald, Sager, Manis, who acted in the sale transaction for CCDL. Following the closing, the sum of approximately $9.6 million is in the MacDonald, Sager, Manis trust account. The law firm of Aird & Berlis holds approximately $862,000 of CCDL’s money in its trust account while CCDL itself has approximately $900,000 in its bank account at Bank of Nova Scotia in Thornhill, Ontario. The total cash assets of the company therefore approximate $11.4 million.
[5] In December, 2012, prior to the sale closing, Mr. Weisfeld learned of an agreement between 1328442 Ontario Inc., a company controlled by a Mr. Seko, and CCDL dated February 23, 2011 under which Mr. Seko’s company was entitled to a fee, claimed to be $1,600,000 and payable on the closing of the sale of the property. The agreement was signed by Mr. Abrahami on behalf of CCDL without the knowledge of Mr. Weisfeld, who became upset upon learning of the agreement. Mr. Weisfeld also learned before the closing that Mr. Abrahami was claiming a fee of $500,000 to be paid on closing, something that had not been discussed with him by Mr. Abrahami.
[6] Prior to the closing, Mr. Abrahami learned that Aird & Berlis had unbilled work in progress and other accounts not paid that Mr. Abrahami was concerned would be improperly charged to CCDL rather than to CCLLC. He also had concerns that Mr. Weisfeld intended to pay to CCLLC by way of redemption of shares its percentage of the balance of the funds held after the sale without holding back sufficient money to take care of the outstanding claims. These issues were raised by his lawyer with CCLLC’s lawyer prior to closing.
[7] At 5 p.m. on Friday, December 21, 2012 after the sale of CCDL’s property closed, Mr. Weisfeld had Mr. Abrahami and the other shareholders of CCDL served with a notice of a shareholder’s meeting to be held on December 31, 2012 to remove Mr. Abrahami as a director of CCDL and elect Norman Weisfeld as a director. The notice also stated that the meeting was to consider increasing the size of the board to three, which would require a special resolution of the shareholders.
[8] On December 27, 2012, Brockhedge commenced an application against CCLLC, the Weisfelds and others under s. 248 of the OBCA, requesting amongst other things an order restraining the distribution of funds without a court order and an order restraining the holding of the shareholders’ meeting schedule for December 31, 2012.
[9] On December 31, 2013, CCLLC commenced an application under s. 248 of the OBCA against Mr. Abrahami, Brockhedge and CCDL requesting orders freezing all bank accounts of CCDL, an order discharging Mr. Abrahami as an officer and director of CCDL and an order that any distribution of the sale proceeds to Brockhedge be held back as security to indemnify CCDL for any liability of the claim by 1328442 Ontario Inc. of $1,600,000.
[10] On the same day, CCLLC served a notice of requisition on the directors of CCDL requesting the directors to call a shareholders’ meeting to consider removing Mr. Abrahami as a director, to elect a director to be nominated at the meeting and to increase the number of directors to three. There is no indication that the two directors, Mr. Abrahami and Mr. Weisfeld, met or considered this request. It is highly unlikely that they did as they were at complete loggerheads by then.
[11] By agreement of counsel, the shareholders’ meeting scheduled for December 31, 2012 did not take place and the applications were adjourned, sine die, on consent.
[12] On March 5, 2013, CCLLC caused Aird & Berlis to send a Notice of Shareholders’ Meeting and information package to CCDL’s shareholders, calling a meeting for March 18, 2013 to consider removing Mr. Abrahami and replacing him with a Mr. Ian Macdonald, said by Mr. Weisfeld to be independent, and to consider increasing the board to three directors. In his affidavit, Mr. Weisfeld states that CCLLC intends to remove Mr. Abrahami as a director, and as it has more than 50% of the votes, it is evident that will occur. The notice of meeting explains in some detail the reason for wanting Mr. Abrahami removed as a director, being the two amounts in dispute regarding the fee Mr. Abrahami has claimed and the fee claimed by the numbered company for $1.6 million. It is those two things that are also the reasons put by Mr. Weisfeld in his affidavit as to why Mr. Abrahami should be removed as a director.
[13] There are three matters in dispute between Mr. Abrahami and the Weisfeld/CCLLC interests:
(i) The claim by Mr. Abrahami for a success fee of $500,000.
(ii) The claim for the $1.6 million fee under the agreement made between 1328442 Ontario Inc. and CCDL. Since the claim was made, Mr. Abrahami or a company controlled by him has paid Mr. Seko or his numbered company $500,000 plus HST of $65,000 in satisfaction of the claim and has taken an assignment of the agreement. Mr. Levine says this was done to mitigate the damages and that while Mr. Abrahami might well be entitled to claim the full amount of $1.6 million, he will seek only the $500,000 plus HST that he paid.
(iii) The legal accounts of Aird & Berlis. Mr. Abrahami states that Aird & Berlis have acted for the Weisfelds for years. Mr. Weisfeld states that is not so and that he believes that Aird & Berlis’ services have been of benefit to CCDL and all of its shareholders, not just CCLLC. These accounts totalling about $350,000 were first received by the applicants just three days before the argument in this case. There are several and they date from August 16, 2010 to January 15, 2013. Mr. Levine says they appear in part to be statute-barred. They are all addressed to CCLLC to the attention of Mr. Weisfeld in New York City. If these accounts are properly the accounts of CCLLC, their payment by CCDL would of course be an imporper benefit to CCLLC.
[14] Counsel have agreed to a method and schedule to have these three issues determined, as follows:
(i) The actions will be consolidated into a statement of claim to be delivered by March 28, 2013. A statement of defence and counterclaim is to be delivered by April 7, 2013. A reply and defence to counterclaim is to be delivered by April 14, 2013.
(ii) Documents are to be produced by April 30, 2013 and discoveries held during the last two weeks of May, 2013.
(iii) A mediation/pretrial is to be held during the last week of May or first week of June.
(iv) Trial to be held during the week of June 24, 2013 or as soon as can be scheduled with the Court.
[15] Ms. Book contended in argument that Mr. Abrahami was wrong to make the commission agreement with Mr. Seko’s company without the knowledge and consent of Mr. Weisfeld and that such conduct should weight against any claim by Mr. Abrahami for equitable relief. However, like all of the three issues in dispute, I am not in a position to make any finding that Mr. Abrahami’s conduct was or was not proper. He swears that he made the agreement for good reason in the best interests of CCDL. That assertion, like the assertions of Mr. Weisfeld, has not been tested by any cross-examination and will have to await the results of the intended litigation unless settled beforehand.
Analysis
[16] S. 207 of the OBCA provides, in part,:
- (1) A corporation may be wound up by order of the court,
(a) where the court is satisfied that in respect of the corporation or any of its affiliates,
(i) any act or omission of the corporation or any of its affiliates effects a result,
(ii) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
(iii) the powers of the directors of the corporation or any of its affiliates are or have been 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; or
(b) where the court is satisfied that,
(iv) it is just and equitable for some reason, other than the bankruptcy or insolvency of the corporation, that it should be wound up;
(2) Upon an application under this section, the court may make such order under this section or section 248 as it thinks fit. R.S.O. 1990, c. B.16, s. 207 (2).
[17] These provisions are broad in scope and each case depends primarily on its own facts. In Rogers v. Agincourt Holdings Ltd. (1976) 1976 736 (ON CA), 14 O.R. (2d) 489 (Ont. C.A.) Lacourciere J.A. stated:
In interpreting this subsection there are two points that appear especially important. Firstly, Courts from time to time have commented that the words "just and equitable" are words "of the widest significance", and must be given a broad interpretation: … It is quite proper, of course, to draw upon previous cases for general guidance but counsel and the Court must be careful not to construe the authorities as setting out a series of restrictive principles which would confine the phrase "just and equitable" to rigid categories, for each case depends to a large extent on its own facts. ..
[18] CCDL has no business. It has sold its asset and is in the process of paying its debts and then distributing its cash to its shareholders. It is, in the words of Ms. Book, winding itself up in the colloquial use of the term. Mr. Weisfeld states in his affidavit that there is no dispute that CCDL should pay its taxes and any other legitimate liabilities incurred in the ordinary course of business and that it should retain enough cash to do so. He says what is in dispute are the three outstanding issues already discussed. It is clear that the parties are not on speaking terms.
[19] Ms. Book stated in argument that CCLLC wants to control the board of CCDL in order to make a decision about the three matters in issue. There is no legitimate purpose in having the board do this however. Those three matters in dispute are to be determined in the manner agreed. Both sides are agreeable to all other outstanding expenses being paid.
[20] In my view, there are grounds for an order to be made under section 207 of the OBCA. It is quite evident that until the events of late 2012, the parties were able to agree on matters. Mr. Abrahami states in his affidavit that since the incorporation of CCDL, the parties have functioned as a partnership in the guise of a corporation with no issue until recently incapable of resolution by the parties. The fact that the company had only two directors supports this view. Mr. Weisfeld has not directly contradicted this in his affidavit, although he has denied that there was an agreement in place to manage equally the affairs of CCDL, and stated that it was CCLLC’s understanding and expectation that in the event of controversy between the shareholders, CCLLC’s majority shareholding would entitle it to make any decisions for which a simple majority was required. That statement does not detract from the notion that the parties functioned as a partnership in the guise of a corporation, but speaks only to what would occur if there was a falling out, which has clearly occurred.
[21] S. 248 of the OBCA provides for relief from oppression and other conduct described in it. It provides, in part:
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;
(b) the business or affairs of the corporation or 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.
[22] Oppressive conduct is the most serious, usually connoting harsh and abusive conduct. Unfairly prejudicial conduct is conduct less offensive than oppression and conduct that unfairly disregards the interests of the affected person is viewed as the least serious of the three categories. See BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560 at paras. 92 to 94. The focus is on business realities, not merely narrow legalities. 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. The reasonable expectation of the affected stakeholders is the cornerstone of the oppression remedy. See BCE at paras. 58 to 62.
[23] Ms. Book asserts that CCLLC is quite entitled to remove a director as the majority shareholder. While in corporate law the majority rules, all things being equal, that rule gives way to the requirements of section 248 of the OBCA. See McGuiness, The Law and Practice of Canadian Business Corporations (Butterworths) at §9.227-228. Ms. Book concedes that it would be improper if the Mr. Weisfeld and CCLLC were using their powers to prejudice Mr. Abrahami. She asserts however that there is no evidence that once Mr. Abrahami is removed as a director that the new board will do anything improper to prejudice Mr. Abrahami or the other shareholders of CCDL.
[24] In my view, on the evidence before me, it seems clear that the new board likely will act to prejudice Mr. Abrahami and the other shareholders of CCDL. The threat of an action is sufficient to engage the powers contained in section 248 of the OBCA.
[25] The only possible purpose in removing Mr. Abrahami from the board and replacing him with a nominee of CCLLC is to affect how those three issues will be dealt with. Ms. Book has conceded that. Mr. Weisfeld is clear in his view that the Aird & Berlis accounts addressed to CCLLC should be paid by CCDL and that the two claims for fees should not be. It is evident that Mr. Weisfeld intends to distribute the cash on hand without maintaining a reserve to cover these disputed claims.
[26] On January 22, 2013 Mr. Levine on behalf of the applicants wrote to WeirFoulds who are acting for the respondents and asked for confirmation that if CCLLC gained control of CCDL it would cause enough funds of the company to be held in trust to cover the three outstanding issues plus $2.3 million for estimated taxes and a contingency of $200,000 until these claims had been either settled by the parties or determined by the Court. No answer to that request was provided.
[27] Mr. Abrahami has a concern, which on the record appears reasonably supported, that it is the intention of Mr. Weisfeld and CCLLC to have CCDL pay the Aird & Berlis accounts and distribute remaining cash after paying trade creditors and outstanding taxes to at least CCLLC without any holdback for the other two contested claims. It would be easy enough for Mr. Weisfeld to say that was not his intention, but he has not said so. I infer from his silence that it is his intention to do what Mr. Abrahami fears.
[28] It would constitute oppressive conduct to strip a company of its assets with the result that creditors would go unpaid. This has been held to be the case with persons who were not creditors of the defendant at the time of the impugned action. It was held to apply to a claimant with a quantum meruit claim, which would appear to be one basis of the claim by Mr. Abrahami for a fee. See Gignac, Sutts and Woodall Construction Co. v. Harris (1997), 1997 12437 (ON SC), 36 B.L.R. (2d) 210. It has also been held to be the case with a reorganization that stripped the defendant of its assets pending a trial by a plaintiff for wrongful dismissal without maintaining a reserve to meet the contingent liability. This is also akin to the position of Mr. Abrahami in seeking payment on the two claims for fees. See Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 8538 (ON CA), 54 O.R. (3d) 161 (C.A.) at para. 62. See also G. T. Campbell & Associates Ltd. et al. v. Hugh Carson Co. Ltd. et al. (1979), 1979 1847 (ON CA), 24 O.R. (2d) 758 in which it was held that a person with an unliquidated claim for damages was a creditor under section 253 of the OBCA in an action after dissolution of the company against shareholders who received payments from the company on the dissolution.
[29] In my view, causing CCDL to pay the Aird & Berlis accounts if they are properly the responsibility of CCLLC would be unfairly prejudicial to the minority shareholders and unfairly disregard their interests as shareholders. The reasonable expectations of the shareholders could not have been that accounts properly belonging to CCLLC would be paid by CCDL. The stated intention of Mr. Weisfeld is a threat to do so, contrary to section 248 of the OBCA.
[30] Paying out the proceeds of the sale of the company’s property without maintaining a reserve for the contingent liability to pay Mr. Abrahami his claimed fee of $500,000 or his claim on the $1.6 million claim assigned to him for $500,000 plus HST would also in my view be unfairly prejudicial to Mr. Abrahami and unfairly disregard his interests as a creditor. It could not have been the reasonable expectation of Mr. Abrahami or the shareholders that the company would be stripped of its assets and unable to meet its contingent obligations, or that the majority shareholder would be paid out its interest in the company and leave the minority shareholders to shoulder the burden of meeting the company’s obligations, particularly as here the shareholders have agreed to litigate whether the obligations exist. No creditor should have to be in the position of having to chase after payment against another corporation such as CCLLC or its directors in a foreign jurisdiction. They would be unfairly prejudiced by being put in that position.
Order to be made
[31] It is argued on behalf of the respondents that what is sought is an interlocutory injunction and that the principles of RJR-MacDonald Inc. v. Canada, 1994 117 (SCC), [1994] 1 S.C.R. 311 do not permit such an injunction, primarily because the applicants cannot establish irreparable harm. I do not see this as an interlocutory injunction. The relief to be made is not interlocutory, but rather relief under sections 207 and 248 of the OBCA. Even if it were an interlocutory injunction, I would hold that the tests for it have been met. Denuding CCDL of assets to pay a claim would make payment of a judgment against CCDL impossible, a relevant consideration according to RJR. The balance of convenience would favour the applicants as there is no evidence of urgency requiring money to be paid out pending the resolution of the three issues on the timetable agreed by the parties.
[32] While there are grounds to order that CCDL be wound-up, I am hesitant to make such an order as there might be negative income tax implications of such an order. As well, such an order is not required as the parties are in the process of winding up the affairs of CCDL. The appropriate relief, which I order under sections 207 and 248 of the OBCA, is as follows:
(a) The shareholders’ meeting scheduled for March 18, 2013, or any other shareholders’ meeting, is enjoined.
(b) CCDL is directed to pay the known creditors of CCDL the amounts set out in Schedule B of the with prejudice offer of the applicants to settle dated March 6, 2013, unless the amount is changed on the written consent of the parties.
(c) CCDL is directed to pay CRA any outstanding income taxes, the amount to be agreed by the parties in writing or, failing agreement, to be set by the court.
(d) CCDL is directed to pay its shareholders the shareholders’ advances as set out in Schedule C of the said offer to settle in the amount of $655,569, unless the amount is changed on the written consent of the parties.
(e) CCDL shall not pay any amount to Aird & Berlis or to Mr. Abrahami for the matters which are the subject of dispute except with the written consent of the parties or on final order in the action to be instituted pursuant to the agreement of counsel referred to in paragraph 13 herein.
(f) No further money is to be distributed to any shareholders of CCDL without the written consent of the parties unless there is held back on a pro rata basis according to the percentage shareholdings of each shareholder:
(i) $350,000 to cover the accounts of Aird & Berlis that are in dispute;
(ii) $565,000 to cover the claim of Mr. Abrahami on the assignment of the agreement made between 1328442 Ontario Inc. and CCDL;
(iii) $500,000 to cover the claim by Mr. Abrahami for a fee claimed to be owing to him by CCDL;
(iv) $200,000 for contingencies;
(v) $150,000 for legal costs regarding the three disputed matters.
(g) The balance of any funds held by CCDL net of the amounts in subparagraphs (b) to (f) may be distributed to the shareholders on a pro rata basis according to the percentage shareholdings of each shareholder. Any amounts to be paid to CCLLC shall be net of all withholding or other such taxes payable on such amounts in Canada. All amounts to be paid to the remaining shareholders of CCDL shall be paid by way of a capital dividend and the directors and shareholders of CCDL shall sign the necessary resolutions for such capital dividend.
(h) The parties may move by way of motion for any order regarding any unresolved issue arising from the applications and this order.
[33] If any party seeks costs, it shall provide brief written argument and a cost outline in accordance with the rules within 10 days and the responding party shall have 10 further days to deliver a brief written reply.
Newbould J.
Released: March 15, 2013
COURT FILE NO.: CV-12-9959-00CL
CV-13-9984-00 CL
DATE: 20130315
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
THE BROCKHEDGE INVESTMENT GROUP (1) INC.
Applicant
- and -
CAMPUS COURT DEVELOPMENTS LTD.; CAMPUS COURT LLC; NORMAN WEISFELD, BRUCE WEISFELD, MACDONALD, SAGER, MANIS LLP; and AIRD & BERLIS LLP
Respondents
AND RE:
THE BROCKHEDGE INVESTMENT GROUP (1) INC.; GABI WEISFELD LIMITED; GEORGE HALASI, in trust; MARG D. B. INC.; BAYLA CHAIKOF; and LEO CHAIKOF
Applicants
- and -
CAMPUS COURT DEVELOPMENTS LTD.; CAMPUS COURT LLC; AIRD & BERLIS LLP; MACDONALD, SAGER, MANIS LLP; BRUCE WEISFELD; and NORMAN WEISFELD
REASONS FOR JUDGMENT
Newbould J.
Released: March 15, 2013