COURT FILE NO.: CV-13-10235-00CL

DATE: 20131021

SUPERIOR COURT OF JUSTICE - ONTARIO

COMMERCIAL LIST

RE: Melflor Investments Ltd., Stanley Naimer, Fred Naimer, Mark Naimer and Shari Naimer, Applicants

AND

Naim Investments Ltd, the Estate of Chaim Marcovitz by its executors Leora Marcovitz and Sharon Hart, Gerald Naimer, Sharon Naimer, Bram Naimer, Joanna Yufe, Geshar Investment Ltd., Jobra Investments Inc. and Kongshiek Achong Low, Respondents

COUNSEL: Adrian Lang and Sean Gibson for applicants

Donald Jack and Sanj Sood for the “family” respondents, Gerald Naimer, Sharon Naimer, Bram Naimer, Joanna Yufe, Geshar Investments Lid., Jobra Investments Inc.;

James Klein for the respondent, Estate of Chaim Marcovitz

David Preger for the respondent Kongshiek Achong Low

HEARD: Friday, October 18, 2013

BEFORE: MESBUR J

Background to this oppression application:

[1] This is an oppression application. It arises in the context of a fight for power and control among a group of first cousins and their children in relation to a family company, the respondent Naim Investments Limited. Naim has been owned and operated in one form or another since 1914, primarily by members of the Naimer family. Naim is essentially an investment company. Its only asset is a 53% interest in a corporation called Union Properties Ltd. Union Properties’ main asset is a commercial property in the City of Montréal.

Naim Investments Limited

[2] The current iteration of the family company, Naim Investments Limited, was founded in 1970 by Gerald Naimer, Stanley Naimer, the late Melvyn Naimer, and the late Chaim Marcovitz. Gerald, Stanley and Melvyn were first cousins. Chaim, a chartered accountant, had many years of dedicated service to the Naimer family and was a trusted financial and business advisor to them. Gerald, Stanley, Melvyn and Chaim were Naim’s founding directors. When Naim was created, Chaim received 10% of Naim’s common shares to reward him for his long-standing service to the Naimer family. The rest of Naim’s shares were owned by the cousins, including Stanley’s brother, Alfred. Over time, the cousins’ personal corporations and their children, through their own personal corporations, also acquired some shares.

[3] When Stanley’s brother Alfred died, Stanley became involved in litigation with Alfred’s estate. Stanley had assumed that since he was Alfred’s brother, he would acquire Alfred’s shares in Naim. Instead, Alfred’s shares found their way to Gerald’s family. Gerald’s son Bram Naimer acquired Alfred’s shares through his personal company, the respondent Jobra Investments Inc. The transaction occurred in 2002, and since then, relations among family members have deteriorated significantly. Since Alfred’s death, only three branches of the Naimer family, Stanley’s, Melvyn’s and Gerald’s have shares in Naim. Historically, no one family branch has ever had control of Naim.

Naim’s current shareholders

[4] Stanley owns 15% of Naim personally. Melvyn (now deceased) held his shares through his family company, the applicant Melflor Investments Ltd. Melvyn’s son, the applicant Mark Naimer, is now a shareholder in Melflor, along with his sister, the applicant Shari Naimer and a brother, Brian Naimer. Melflor continues to hold 30% of Naim’s shares.

[5] Gerry’s family holds 45% of Naim’s shares through Gerry’s own family company, Geshar Investments Limited, and his son Bram’s family company, Jobra Investments Inc. Geshar owns 30% of Naim’s shares, and Jobra owns 15%, bringing Gerry’s family’s total ownership interest to 45%.

[6] Chaim always held 10% of Naim’s shares, from the date it was incorporated in 1970. Chaim died 2010. Chaim’s estate continues to hold his 10% in Naim.

Naim’s only asset: Union Properties Ltd.

[7] Naim has one significant asset. It owns 53% of a company called Union Properties Ltd. Union Properties’ other shareholders are also Naimer family members. Their ownership interests are as follows:

a) Andfred Investments Ltd. (Stanley’s three children) 10.2%

b) Melflor Investments Ltd (the late Melvyn) 14%

c) Geshar Investments Ltd. (Gerry) 12.98%

d) Jobra Investments Ltd. (Gerry’s son and his wife) 10%

[8] Union Properties Ltd. owns real estate. Its most significant property is a commercial building in Montreal. One of the tenants in the commercial building is a business which I will call Union Electric Montreal. Stanley’s son Fred and Gerry’s son Bram used to own Union Electric Montreal together. They had a falling out, resulting in Fred triggering a shotgun buy/sell provision in their shareholders’ agreement. Fred offered to buy Bram’s shares.

[9] Bram was concerned that Fred was looking for a perpetual lease in the property. This raised concern over the impact a provision like that would have on the value of the property, and thus the value of Union Properties. Instead of selling his shares, Bram opted to buy, and purchased Fred’s shares in Union Electric Montreal in March of this year. Fred and his wife have now apparently opened a competing business not far from Union Electric Montreal’s location. Bad blood continues to boil.

[10] As can be seen in the title of proceedings, this dispute runs along family lines, with Stanley and his son Fred together with the late Melvyn’s children Mark and Shari, aligned against Gerald and Gerry’s son Bram and his wife Joanna.

[11] Underlying this application is the property in Montreal, and control of it. Thus, it really revolves over control of Union Properties Ltd. When one looks at both the families’ direct holdings in Union, and their indirect holdings through Naim, the holdings in Union Properties look like this:

a) Chaim’s estate 5.3%

b) Melflor (the late Melvyn & Florence) 29.9%

c) Stanley (and his children) 17.95%

d) Gerry (and his family) 46.83%

Chaim’s estate wants to sell

[12] Chaim’s estate trustees would now like to sell the estate’s 10% interest in Naim. Chaim’s estate and the respondent Kongshiek Achong Low are brought into this litigation because the estate wishes to sell Chaim’s shares to Dr. Low.

[13] In essence, the applicants (whom I will primarily refer to as Stanley or Stanley’s family) take the position that the proposed sale would put control of Naim in the hands of Gerry’s family. More importantly, as can be seen by the table, above, if Gerry’s family were to acquire the estate’s shares in Naim, Gerry’s family would effectively control both Naim and Union Properties. With the estate’s shares in Naim, Gerry’s family would have 55% of its shares. They would control Union as well. Stanley’s family says this runs contrary to the applicants’ reasonable expectations that no one family group would control Naim or Union Properties. He refers to this as an unwritten “Control Agreement”.

[14] Stanley’s family suggests the proposed sale to Dr. Low is not a true arms’ length sale, but is really a way for Gerry to gain indirect control of Naim and Union Properties through Dr. Low. Stanley says contravenes the provisions of what he calls an Ownership Restriction Agreement (ORA) that he and Gerry signed.

[15] This proposed sale of Chaim’s shares thus creates the genesis for this application, since in many respects those shares represent control of Naim and ultimately of Union Properties if there is a deadlock among the other shareholders.

[16] In a nutshell, Chaim’s shares, and his estate’s wish to sell them to Dr. Low lie at the heart of the battle for control issues here.

The proposed sale to Dr. Low

[17] Chaim’s estate now wishes to sell its shares in Naim to the respondent Dr. Low. In order to do so, the board of directors would have to approve the sale. The share certificate originally issued to Chaim says: “No shares of the corporation shall be transferred without the consent of the board of directors signified by resolution or in writing.” Board approval is the only restriction. Before an annual general meeting held in August of this year, Naim’s board had reduced, because of deaths of its members, to only four directors, instead of the requisite seven. The remaining four directors were Stanley and his wife, and Gerald and his wife. One can assume Stanley and his wife would vote against approving the sale, while Gerry and his wife would approve it. The board, as a result would be deadlocked on the issue of approving a sale.

[18] Naim’s board is supposed to be comprised of seven members. Historically, from the date Naim was incorporated, Chaim was on the board as a seventh “independent” board member. Although at first the board had only its four initial directors, Gerry, Stanley, Melvyn and Chaim, from 1978 to 2002 the company was compliant, and maintained a board of seven. For that period, the board was made up of Gerry and his wife Sharon, Melvyn and his wife Florence, Stanley and his wife Reisha, and Chaim. Thus, for this period, each of the three remaining branches of the family had equal representation on the board, with Chaim providing the independent voice.

[19] Melvyn died in 2003, but was not replaced on the Board. His wife Florence died in 2009. She, too, was not replaced. Of course, Chaim died in 2010, and he was not replaced until the events giving rise to this oppression application.

[20] Although the board has had insufficient members since 2003, it apparently has neither met nor called annual general meetings of shareholders for years. That changed in August of 2013 when Gerry’s family requisitioned an annual general meeting for Naim.

Events leading to the August AGM

[21] Before the AGM was called, Gerry’s son Bram had a number of discussions with Chaim’s daughter Sharon, one of his estate trustees. First, Bram raised the question of whether the estate was interested in selling Chaim’s shares in Naim. Some time before Chaim’s death, Stanley’s son Fred had approached Chaim about buying his 10% in Naim, and had proposed a price of $1 million. That transaction did not proceed.

[22] Meanwhile, Bram and Fred were having a falling out in Union Electric Montreal. One of the problems, as Bram saw it, was that Fred wanted to have a perpetual lease for Union Electric Montreal in the Montréal property Union Properties owned. Bram viewed this as having a detrimental effect on the underlying value of the property.

[23] Since Naim controls Union Electric Montréal’s landlord, Naim would effectively be involved in deciding whether to approve a perpetual lease or not. Since Bram did not support a perpetual lease, he approached Sharon with a proposal that she sign a voting agreement, whereby she would agree to vote the estate’s shares against a perpetual lease, and would also agree to vote the estate’s shares “in the manner in which Jobra[^1] directs … without any reservation … and to appoint Jobra as … nominee with the authority to vote … as Jobra sees fit” into the future.

[24] Sharon rejected the proposed voting agreement. She did say, however, that the estate would entertain voting with Bram/Jobra on the issue of rejecting Fred’s request for a perpetual lease. Her email to Bram goes on to discuss the possible sale of the estate’s shares, an amount to be paid for the shares, and possible purchasers. In that regard she says if the estate decided to sell within the next 12 months, the transaction would be with one of the current shareholders. She said she did not wish to engage in transactions with a third party.[^2]

[25] Bram suggested to Sharon that he could find a buyer for Chaim’s shares. He suggested a cousin of Sharon’s as a purchaser, but she was not interested in mixing family with business. Bram then brought another potential purchaser, the respondent Dr. Low. The estate decided it was prepared to sell to Dr. Low and entered into a purchase agreement with him in June of this year.

[26] Dr. Low is an old friend of Bram’s father in law, Boris Yufe. Both men come from Trinidad, both trained at McGill medical school, and both are specialists in obstetrics and gynaecology. In addition to practicing medicine, Dr. Low has various business interests. He is chairman, founder and largest shareholder of Medcorp Ltd., a company which owns and operates a private hospital and medical facility in Port of Spain. Bram’s father in law and brother in law sit on Medcorp’s board. Gerry has a small shareholding in Medcorp.

[27] Dr. Low also invests in real estate, both in Trinidad and in Canada.[^3] Dr. Low could be described as a passive real estate investor, with a broad range of investments. His real estate investments include a number in which both he and Bram are among the investors, a number in which he and Bram’s father in law Boris are among the investors, and a number in which he is a co-investors with other investors completely unrelated to any of the parties here.

[28] Dr. Low is familiar with the property in Montréal. That property is Naim’s underlying asset. Dr. Low visited the property 2008 for a board meeting of Medcorp’s Canadian board members. He says that earlier this year, Boris (Bram’s father in law) mentioned the possibility to him of buying the estate’s shares in Naim.

[29] On June 6 of this year, Dr. Low and the estate entered into a share purchase agreement whereby he would purchase the estate’s shares for a net price of $900,000. He paid a deposit of $75,000. The share purchase agreement also contains a provision requiring Dr. Low to indemnify the estate for claims that could be instituted against the estate. The deal was scheduled to close on October 18, 2012. Because of this application, and the fact it was scheduled for argument on October 18, Dr. Low paid an additional deposit as consideration for delaying the closing of the transaction. While the applicants seem to view this as somehow sinister, it seems to me it reflects nothing more than common business practice.

[30] In order for the sale to Dr. Low to proceed, Board approval was necessary. As I have mentioned, because of the deaths of Chaim, Melvyn and Florence, since 2010 the board has been made up of two representatives from each of the two remaining families: Stanley’s and Gerry’s. The families have been in conflict for some time. It was clear the board would be deadlocked.

[31] Accordingly, Gerry’s family requisitioned an annual general meeting of Naim for the purpose of electing the directors of the corporation, considering the financial statements and auditor’s report, if any, appoint the auditor or agree to an exemption from the auditor requirement, and transact such other business as may be properly brought before the meeting. Stanley, as Naim’s secretary, sent the notice of meeting on July 3, 2013.

[32] The notice generated a flurry of activity from Stanley’s side.

[33] Their counsel wrote to Sharon, suggesting she was in the process of selling the estate’s shares to Gerry’s family group. They suggested this was in breach of an agreement that provided shares had to be sold to Naimer family members, and no one family could own more than half of the common shares of Union Properties, directly or indirectly. The letter went on to assert that this agreement prohibited the board from approving any share transfer to a non-family member. It concluded by threatening legal action if a sale went forward. All the shareholders were copied with this letter.

[34] Before the AGM, Stanley’s side repeatedly asked Gerry’s side who they proposed as an independent director. They got no response.

[35] Instead, Gerry’s side entered into a voting agreement with Chaim’s estate whereby the estate agreed to vote its shares to elect Gerry, his wife Sharon, his son Bram and daughter in law Joanna as four of Naim’s seven directors.

[36] At the AGM, over Stanley’s side’s protests, Gerry’s slate was elected, along with Stanley’s son Fred, and the late Melvyn’s children Mark and Shari. Thus, Gerry’s side controlled the board.

[37] At a board meeting called for September 3, 2013, the newly constituted board approved the sale of the estate’s 10% share of Naim to Dr. Low. This application was launched virtually simultaneously.

How the applicants frame oppression:

[38] The applicants say the respondents’ actions constitute oppression. They say all the shareholders always understood, agreed and expected no one family would have control of Naim. They say a sale to Dr. Low is really a sale to Gerry’s family, and will breach that understanding.

[39] The applicants suggest the AGM was improper. They say the election of the board at the AGM was improper. They say the sale to Dr. Low is impermissible because he is not a member of the Naimer family, or alternatively, the sale to Dr. Low is really a sale to Gerry’s family, because Dr. Low is not at arms’ length to Gerry, and Gerry will really be the beneficial owner of Chaim’s 10% interest in Naim. They also say Dr. Low is paying a suspiciously high price for the estate’s shares. They suggest the indemnity he has provided in the share purchase agreement is equally suspicious. They say their suspicions lead to the necessary inference that Gerry’s family is really the purchaser of the estate’s shares.

[40] The applicants say this would run contrary to long-standing familial agreements, both written and simply “understood”, that family shareholdings in Naim would be equal, and no one family would be able to acquire a controlling interest. The applicants say the estate is required to sell its shares to one of them in order to prevent any one of the three family branches from obtaining control. Stanley’s family says they and Melvyn’s family cannot be considered as only one “branch” of the family. They say that although they and Melvyn’s family are aligned on this application, they are not necessarily aligned on all issues.

[41] To support their position that no one family should have control, the applicants rely on an agreement Stanley and Gerry signed. They refer to this agreement as the “Ownership Restriction Agreement”, or ORA. In the ORA, Stanley and Gerry agreed, on behalf of themselves and their families:

[42] At no time should either family own directly or indirectly more than 50% of the common shares of Union Properties Ltd.,

[43] If any shares of Union Properties become available, Stanley and his family would have the option to purchase them until his family acquired holdings of about 46% of the total outstanding common shares of Union Properties, (the same as Gerry and his family presently control)

[44] Stanley’s family argues that because Naim owns 53% of Union Properties, if Gerry’s family were to acquire Chaim’s shares, they would indirectly own more than half of the shares of Union Properties, thus breaching this agreement.

[45] Although Chaim apparently drew up this agreement, neither he nor Melvyn signed it.

[46] At first, Stanley’s family took the position that the estate could only sell to a Naimer family member. It seems to have stepped back from that position, and says that although the estate could sell to a non-family member, the sale to Dr. Low is not an arms’ length sale. As a result, Stanley’s family takes the position that a sale to Dr. Low (who is a friend of Bram’s father in law, Boris Yufe) would actually result in Gerry’s family acquiring Chaim’s 10% of Naim. They suggest that Dr. Low is effectively in the control of Gerry’s family, and is therefore prohibited from purchasing the estate’s shares, because in effect, the purchase would be a purchase for Gerry’s family and would put him in breach of the ORA.

[47] The applicants also say there is another long-standing agreement among the cousins that no one family would ever control Naim. They refer to this as the “Control Agreement”. They suggest this agreement also effectively prohibits the proposed sale.

[48] Stanley’s family says calling the AGM, Gerry’s family and the estate entering into the voting agreement, controlling the election of the board, and then approving the sale of Chaim’s shares to Dr. Low are all actions of the respondents that have resulted in their reasonable expectations as shareholders being thwarted. They say they always expected and understood there would be an independent member of the board, apart from family members. They say they expected that each “side” of the family would elect three directors and then together they would choose a seventh independent director. They say they always expected and understood no one family would control Naim. They say a sale to Dr. Low runs afoul of these reasonable expectations, and constitutes oppression.

[49] Gerry’s family, the estate and Dr. Low deny all of this. They say there is no oppression, and the application must fail.

The legal framework:

[50] All the parties agree that the law of oppression is grounded in the notion of parties’ reasonable expectations, and whether actions of the corporation have not met those reasonable expectations. If reasonable expectations are unmet, the court must then decide whether the corporation’s actions in failing to meet those reasonable expectations is oppressive or unfairly prejudicial to, or unfairly disregards the interests of the complaining party.

[51] Section 248 of the Ontario Business Corporations Act. [^4] (OBCA), deals with oppression, and gives the court broad discretion to remedy the matters complained of. To find oppression, the court must be satisfied:

(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...

[52] The seminal decision on oppression (amongst other things) is the Supreme Court of Canada’s decision in BCE Inc. v. 1976 Debentureholders,[^5] whose principles are often quoted. There, the court held that in order to assess a claim for oppression, the court must answer two questions: first, does the evidence support the reasonable expectations the claimant asserts, and second, 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?

[53] Oppression cases are fact based, and thus are essentially fact specific.

Discussion:

[54] What could these shareholders, namely Stanley and Melvyn’s families reasonably expect?

[55] They say there was some kind of “Control Agreement” in place that provided no one family would have control of Naim. They reason that to permit the sale to Low would breach that control agreement by effectively giving Gerry control over Low’s shares, and thus give Gerry and his family control over Naim.

[56] Gerry denies any such agreement, but confirms no one family has ever actually controlled Naim. Stanley’s family concedes there is nothing in writing to support the existence of a Control Agreement. I have no doubt Stanley’s family hoped no one family would control Naim. That being said, there are no notes, emails, or memoranda that would support a Control Agreement’s existence. I am left with opposing statements from each side. It is impossible to determine, on this written record, whose position is more likely to be true. Without any independent evidence to confirm the existence of this understanding, or Control Agreement, I cannot rely on it, one way or the other.

[57] In all the circumstances, I am not persuaded there is any Control Agreement that supports Stanley’s family’s expectation no one family would control Naim. The historical jockeying for position in this family flies in the face of there being any understanding or expectation, express or implied, that no one family would have control.

[58] Even if there were a Control Agreement, I am by no means satisfied that Dr. Low is Gerry’s puppet, will vote his shares as Gerry requires, or will effectively put his shares under Gerry’s power and control. Dr. Low has sworn that he is using his own funds for the purchase of the estate’s shares. He says that although Bram’s father in law and Bram brought him the deal, he made his decision to purchase independently, and intends to make his future investment decisions independently as well.

[59] I am also satisfied that, contrary to the applicants’ assertions, Dr. Low is at arms’ length to Gerry and his family. In determining whether someone is at arms’ length, the OBCA incorporates the meaning of the term as defined in the Income Tax Act. [^6] Using this definition, a non-arms’ length relationship can arise in one of two ways. First, between related persons, as they are defined in s. 251 of the ITA, or second, between non-related persons, as a question of fact.

[60] No one suggests Dr. Low is a “related person”, as that term is defined in the ITA. Therefore, I must consider, as question of fact, whether he is nevertheless a non-arms’ length party.

[61] I am not persuaded he is. On the balance of probabilities I accept that Dr. Low came to his decision to purchase the estate’s shares independently. He puts forward credible reasons for his choice. While they are, in some part, dependent on his relationship with Gerry’s family, they depend more on his relationship with Gerry’s daughter in law’s father, Boris, than with his relationship with Gerry’s family members who have shares in Naim. I cannot see the connection to Boris as creating a non-arms’ length relationship.

[62] Also, as Dr. Low says, he often invests in deals where he knows other investors/shareholders. While Stanley’s family views Dr. Low’s involvement as suspicious and alarming, suspicion and alarm of themselves are insufficient to found either a finding of non-arms’ length dealings or oppression.

[63] Since I have determined Dr. Low is at arms’ length to Gerry, Gerry is not acquiring Chaim’s shares. Thus, no one family controls Naim, and thus no one has run afoul of any control agreement, even if one existed.

[64] Initially, the applicants took the position that Chaim’s shares could only be sold to a Naimer family member. This makes no sense. Chaim became a shareholder at the same time as the four Naimer cousins became shareholders. Naim has always had a non-family shareholder, from the moment of its corporate birth. Chaim was a board member to provide independent, sage advice to the other shareholders.

[65] The inference I draw from Chaim being allocated 10% of Naim’s shares from the beginning was that as well as rewarding him for his dedicated service, it was a way to ensure that, all other things being equal, no one family would have voting control. Chaim’s 10% would hold the balance of power as an independent, unrelated shareholder if the others were deadlocked. It seems to me that the reasonable inference to be drawn, if any is to be drawn, is that Chaim’s shares should always be in the hands of an outsider, in order to protect from one family obtaining control. That said, I cannot conclude there was any agreement, one way or the other, as to who could or could not eventually acquire Chaim’s shares.

[66] In any case, the applicants now seem to concede there are no restrictions on who may purchase Chaim’s shares, other than, perhaps, a restriction on a family member buying them. This, somewhat ironically, brings us to a discussion of the ORA, whose terms are set out above.

[67] As I see it, the ORA can only bind Stanley and Gerry’s families. Chaim did not sign it. Melvyn did not sign it. Thus, the ORA cannot restrict what Chaim’s estate does with its shares.

[68] But Stanley’s family suggests the sale to Dr. Low would run afoul of the ORA because the sale is effectively a sale of Chaim’s 10% of Naim to Gerry, who is bound by the ORA. I have already determined that Dr. Low is an independent purchaser. The sale to Dr. Low is not equivalent to a sale to Gerry’s family.

[69] Dr. Low is not bound by the ORA. Chaim’s estate is not bound by the ORA. I cannot give any weight to this argument. I therefore decline to set aside or enjoin the sale to Dr. Low.

[70] If Gerry or his family were to try to acquire Dr. Low’s shares, that might run afoul of Gerry’s agreement in the ORA, in that it might put his family in the position of indirectly owning more than 50% of the shares of Union Properties. That issue, however, is not a live issue today, and may never be. As matters stand now, there is no breach of the ORA.

[71] What about the annual general meeting? As I see it, the August AGM can hardly be seen as oppressive. Naim is legally required to have annual meetings of shareholders. The fact that it had not done so for many years is no answer to a proper requisition to hold such a meeting. It cannot be a reasonable shareholder expectation that a corporation, even a closely held family corporation, will never comply with its duties under the OBCA, and will not hold an annual general meeting, even when a shareholder or shareholders requisition one. Also, it can hardly lie in the applicants’ mouths to say the meeting was improper, when it was Stanley himself who served the notice of the meeting. I conclude the AGM was properly called.

[72] But what about the election of the board? Was that oppressive? Stanley and his family and Melflor complain that somehow the voting agreement among Gerry’s family and the estate is oppressive. Again, I fail to see how this can be so.

[73] Voting agreements are contemplated by the OBCA, unless they are prohibited by the terms of a Unanimous Shareholders’ Agreement. Naim has no USA, and thus its shareholders are free to make voting agreements as they wish.

[74] Here, the estate, as a shareholder, has a legitimate, independent interest in selling a significant estate asset, monetizing it, and proceeding to wind up the estate. Chaim has been dead for three years. It is not surprising the estate would wish to sell his shares, particularly given the increasingly acrimonious dealings among the Naimer families. It is hardly surprising that given the history of litigation among these family members in the past the estate would anticipate litigation over this issue and would seek indemnification for its costs. That is precisely what it insisted on in the share purchase agreement with Dr. Low. I do not view this as sinister or suspicious. Even if it were, that is insufficient to find oppression. I also can make no comment on whether the price Dr. Low is prepared to pay is inflated, and should thus raise suspicions as well. There are no share valuations that would lead me to that conclusion or indeed any other.

[75] The estate can only sell if it obtains Board approval. Prior to the AGM, the board was comprised of only four remaining members, Stanley and his wife, and Gerry and his wife. On its face, the board as it stood would be deadlocked on the issue of whether to approve a sale to Dr. Low.

[76] It was not unreasonable, therefore, for the estate to enter into a voting agreement that would support its right to sell its shares. Agreeing to vote for the four board members proposed by Gerry would ensure that result. It must be a reasonable expectation of the estate, as a shareholder, to be able to dispose of its shares, subject only to board approval. I cannot see that the estate acting to further that reasonable expectation is thwarting any reasonable expectation of the other shareholders.

[77] Is there a requirement for an independent board member? The applicants seem to attack the voting agreement and Gerry’s family’s slate of board members as oppressive because it did not include an “independent” board member. They say that because there was “always” an independent board member, their reasonable expectations were that each “side”[^7] would nominate three members to the board, and those board members together would choose an seventh, independent board member. They therefore argue their reasonable expectation to have such an independent board member is unmet because of the oppressive actions of the Gerry’s family.

[78] The applicants say they kept asking who Gerry’s family proposed as an independent board member, and did not receive a response. They suggest they were blindsided by what happened at the AGM and this constitutes oppression.

[79] Again, I disagree. Chaim was on the board for forty years. There was never any need to address who would replace him, or whether that replacement would be “independent” or not. In my view, it is more likely than not the family members never actually thought about the issue until years after Chaim’s death. By then, there was little or no agreement on anything. I cannot infer any reasonable expectations on the part of anyone concerning Chaim’s replacement.

[80] The board, and thus Naim, has been operating without an independent board member since Chaim died three years ago. Surely if an independent board member were part of the applicants’ reasonable expectations, they would have taken steps to remedy the situation themselves long before now. They did not.

[81] Also, the applicants knew from July 3, when they received the notice of the AGM, until the date of the AGM on August 12 that a new board would be elected. They knew, or must have known, that the estate would control the election of a new board, given the deadlock among the family member shareholders. As far as I can tell, they did nothing to approach the estate, either before or after the notice, to gain the estate’s support for their position. They did not put forward an alternate slate. They did nothing in the three years since Chaim’s death to ensure there was an independent voice on the board.

[82] I therefore fail to see how the respondents’ actions to ensure the composition of a majority of the board constitute oppression. A deadlocked board cannot function. While the board or the shareholders may have informally reached consensus in the past, it has not met in more than a decade, and the familial and corporate landscapes have changed dramatically since then. Family members have died. Chaim has died. Conflict and acrimony have increased exponentially among the Bram/Fred generation. It cannot be a reasonable expectation for a company to continue in conflict and deadlock. I understand the applicants are unhappy with the outcome of the AGM and the election of the board. That, however, is not oppression.

Decision:

[83] For these reasons I find there has been no oppression. The affairs of Naim have not been conducted in a manner which is unfair to, or unduly disregards the interests of the applicants. There is no basis on which to enjoin the sale of the estate’s shares to Dr. Low, or to require Chaim’s estate to sell to Stanley’s family.

[84] The application is therefore dismissed. The parties have agreed on the appropriate costs disposition. Accordingly, the applicants will pay to the respondents costs in the global sum of $100,000, all inclusive. The respondents will allocate those costs among themselves as they agree.

MESBUR J.

Released: 20131021

[^1]: Jobra is Bram’s family company, held by Bram and his wife Joanna Yufe [^2]: Sharon’s email to Bram, 18 April 2013 [^3]: Affidavit of Dr. Low, sworn September 19, 2013 [^4]: R.S.O.1990 c. B.16 [^5]: 2008 SCC 69, [2008] 3 S.C.R. 560 [^6]: Income Tax Act, R.S.C. 1985, c.1 (5^th Supp) [ITA], and ss 23(6), 24(3)(i)-(iii) of the OBCA [^7]: This would suggest there are only two “sides” in this conflict, even though Stanley’s family asserts they are only aligned with Melflor for this application; otherwise they act completely independently of one another