SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-480434
DATE: 20140327

RE: John Elio Papais, Jason Rudy Moretto, Katherine Candido also known as Kathy Lisa Meneguzzi, Doris Falconi and Nora Marchi , Applicants

AND:

Loris Moretto, Robert Julio Meneguzzi, Irene Morson, Denise Laura Moretto and 877001 Ontario Inc., Respondents

BEFORE: Carole J. Brown J.

COUNSEL:
Neil Kotnala, for the Applicants

Phillip Sutherland and Christine Lu, for the Respondents

HEARD: February 24, 2014

ENDORSEMENT

[1] The Applicants seek relief pursuant to sections 207 and 248 of the Ontario Business Corporations Act, R.S.O. 1990 ("OBCA").

[2] The parties, all family and extended family members, are shareholders of 877001 Ontario Inc. ("877"). 877 was incorporated in 1990 to enable the acquisition of an investment property by the original investors. A Shareholders Agreement was entered into on February 28, 1990 and thereafter, following the death of Elsa Moretto, on February 15, 2003 her shares were equally distributed among her children, Jason Moretto, Doris Falconi, Nora Marchi and Loris Moretto, who is the only party who was not an original shareholder or investor. Based on the Shareholders Agreement, the parties to the agreement stipulated that they wished the shares to remain in the family and provided a restriction on transfer and a right of first refusal option for parties who wish to transfer shares to another.

[3] The applicants are the majority shareholders of 877. John is a Director and President, Robert, a Director and Vice President and Loris, a Director and Secretary/Treasurer. John and Loris handled the day-to-day operations of 877, with Loris handling the accounting, legal issues, leases and financial affairs, while John dealt with maintenance and upkeep of the commercial property, a tenanted strip plaza, and the collection and deposit of rent cheques. Robert has, from the beginning, never been actively involved in the business.

[4] From the death of Elsa Moretto in 2003, relations among the parties began to become more difficult as regards the operation of the business and other matters.

[5] The applicants allege that they have now been precluded from obtaining any information about the business, that Loris has failed to disclose financial and other information about the operation of the business, has failed to call shareholders meetings since 2006, has obtained and used pre-signed blank cheques from John, has misused them and has misappropriated funds. As regards disclosure, the appellants maintain that the respondents have failed to disclose the business and records of the corporation, despite requests for same. They indicate that John has been unable to access the banking records or bank accounts. However, the transcript evidence indicates that the online bank accounts were unable to be accessed by John, but that he was able to access the bank accounts and to obtain information regarding the business accounts when he went to the bank in person.

[6] The applicants seek orders including removal of Loris as director, repayment by Loris of misappropriated funds, full disclosure of all financial and corporate books and records, an accounting of all the finances of 877, and the winding up of 877, with a sale or court imposed buy-sell process.

[7] It is the position of the respondents that while the relationship between the parties may be strained, the property and business are being managed properly, rent cheques are being collected and deposited, utilities and taxes are being paid, disclosure has been provided, and that the business continues to operate. The respondents state that dividends are being made when the directors decide it is appropriate. It is the position of the applicants that there have been no shareholder meetings since 2006, when the last was called by Loris and, accordingly, there have been no distributions. The applicants further state that attempts to call meetings more recently have failed due to either short notice or a failure to make quorum, which appears to arise from the disaccord among the shareholders. There is evidence that the applicants also refused to attend shareholders meetings called by Loris due, they allege, to the respondent's failure to provide disclosure of business and banking records, to short notice being given for the meetings, or to a conflict, as meetings were to be held at Loris' home.

The Law and Analysis

[8] Pursuant to the OBCA, section 207 section 248, a corporation may be wound up where the court finds conduct that qualifies as "oppressive" or "unfairly prejudicial"; or where the court is satisfied that there is a "just and equitable" ground to do so.

[9] As set forth in Di Felice v 1095195 Ontario Ltd, [2013] O.J. No. 35, the oppression remedy contained in s. 248 of the OBCA, is an equitable remedy which provides courts with a broad, equitable jurisdiction to enforce not only what is legal, but what is just and equitable, judged by the reasonable expectations of the stakeholders.

[10] The Supreme Court of Canada, in summarizing the oppression remedy, has identified the two inquiries which the court must make when considering an oppression claim pursuant to the OBCA, s.248. The court must determine whether the evidence supports the reasonable expectation asserted by the claimant and, second, whether the evidence establishes that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of the relevant interest. The reasonable expectations of specified stakeholders is the cornerstone of the oppression remedy. Fair treatment – the central theme running through the oppression jurisprudence – is most fundamentally what stakeholders are entitled to "reasonably expect": BCE Incorporated v 1976 Debentureholders, [2008] 3 l S.C.R. 560.

[11] The onus lies on the claimant to identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held. Factors which a court may consider in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders. Not every unmet expectation gives rise to an oppression claim. The conduct complained of must amount to "oppression", "unfair prejudice" or "unfair disregard" of related interests. Wrongful conduct, causation and compensable injury must be established. Di Felice v 1095195 Ontario Ltd., supra.

[12] The applicants maintain that they had a reasonable expectation to be provided with ongoing access to financial disclosure with respect to 877 and to be informed about and participate in decisions in all circumstances and particularly those outside the ordinary course of business. The applicants assert that they had a reasonable expectation that control and decision-making would be shared among the officers and directors, that the funds of the corporation would not be misappropriated and that they would be provided with a response to concerns and a forum where those concerns could be addressed expeditiously, namely a corporate shareholders’ meeting.

[13] It is the position of the respondents that the applicant/director, John, was never precluded from obtaining financial disclosure or access to banking records, that he and Loris continued throughout to operate the business, that there was no misappropriation of funds, and all cheques were countersigned by the applicant, John, although there is some indication that blank countersigned cheques were provided for a period of time. Further, the respondent submits that shareholders meetings were called, but that the shareholders, including the applicants, failed to attend, such that there was never quorum.

[14] Pursuant to the OBCA, and the jurisprudence, the court must be satisfied that there has been conduct on the parts of the respondents which is oppressive or unfairly prejudicial or unfairly disregards the rights of the shareholders, in this case the applicant majority shareholders. The court must be satisfied that the evidence supports the reasonable expectations of the applicants; that said reasonable expectations were violated by the respondents' conduct and that such unfairness, prejudice or disregard is sufficiently serious that it can only be rectified by a winding up order or other relief contemplated by section 248 (3) of the OBCA.

[15] I am of the view that the expectations of the parties were reasonable based on general business practice. However, based on all of the evidence before me, I do not find that the evidence supports the applicants' assertions that their reasonable expectations were violated by conduct falling within the terms oppression, unfair prejudice or unfair disregard of the relevant interests. I am satisfied that that there has been disaccord, mistrust and some uncooperative and unbusiness like behavior on the parts of the various shareholders. I am not of the view, however, that such behavior is so oppressive, unfairly prejudicial or so serious as to justify the winding up of the corporation. Further, based on the evidence, it would appear that the conduct is not occurring only on the part of Loris, as urged by the applicants, but that some also comes from the applicants. Accordingly, I am of the view that the evidence does not support or justify a winding up of the corporation.

[16] However, given the ongoing discord among the shareholders, I make the following directions to ensure the continued smooth and proper functioning of the business in the interests of all shareholders:

1. There will be full disclosure of all business records, financial statements, banking records from all banks used by 877 from 2008 to the present, within 30 days. Thereafter, there will be full disclosure on a regular monthly basis, as requested by the shareholders, as well as mandatory annual disclosure of all business, financial and banking records;

2. A shareholders meeting will be held at the business premises, or another neutral place. During that meeting there will be the appointment of a new lawyer, an accountant, and a discussion as regards distribution of dividends, if financial circumstances permit. There will be an exchange of lists of items between the applicants and respondents for other items to be placed on the agenda. The meeting is to be held within 60 days of the release of this decision, with notices to be given pursuant to the Shareholders Agreement and Bylaws and an exchange of lists of items for the agenda 15 days prior to the meeting. It is expected that there will, as much as reasonably possible, be full attendance on the parts of the shareholders in order to make quorum;

3. Shareholders meetings shall be held thereafter, at a minimum, on an annual basis, with notice to be given as required pursuant to the constating documentation;

4. There is to be repayment into the business account of 877 of the withdrawal of

$8,000 for the legal fees paid by Loris as regards this application, until further order of the court;

5. As regards the officers and directors, the status quo from prior to January 6, 2014 is to be restored until such time as the applicants exercise their rights pursuant to the Shareholders Agreement to invoke a sale pursuant to the Agreement.

[17] While it is fully anticipated by this Court that, as regards these directions, the business should run more smoothly and that the shareholders will make every attempt to cooperate in the best interests of the company in its day-to-day operations, the parties are not precluded from further applications as necessary.

[18] I am not seized.

Costs

[19] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, by March 28, 2014.

Carole J. Brown J.

Date: March 27, 2014