SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Richard Hames, R. Hames Family Trust and BHCC Services Inc., Applicants

AND:

Stanley Greenberg, S. Greenberg Family Trust, Zvia Wered, Josip Zaborski, J. Zaborski Family Trust, Sabatino Cipro, S. Cipro Family Trust, 1327519 Ontario Inc., Residential Energy Savings Products Inc. and Consumer’s Choice Home Improvements Corp., Respondents

BEFORE: D. M. Brown J.

COUNSEL: L. Munro, for the Applicants

M. Klaiman, for the individual Respondents

J. Levitt, for the corporate Respondents

HEARD: December 13, 2013

REASONS FOR DECISION

I. Motion for interim costs in an OBCA oppression application

[1] In this oppression application under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, the applicants moved for (i) an order requiring the corporate respondents to pay their interim costs of the application in the amount of $300,000.00, (ii) an order restraining the corporate respondents from indemnifying the other respondents their costs of this proceeding, (iii) an order requiring the individual and trust respondents to refund to the corporate respondents any amounts already paid for their legal costs, and (iv) an order amending the Notice of Application. At the hearing the applicants advised that they were not proceeding with their amendment request, and the individual respondents stated they did not oppose the request that the corporations not indemnify them.

[2] For the reasons set out below, I order the corporate respondents to pay Richard Hames interim costs in the amount of $54,000.00, on terms, and I grant an order restraining the corporate respondents from paying or indemnifying the individual respondents, including the respondent family trusts, their costs of this proceeding, subject to any further order by the judge who disposes of this application.

II. Legal principles governing the granting of interim costs under OBCA s. 249(1)

[3] Section 249(4) of the OBCA enables a court to grant interim costs in an application brought under Part XVII of that Act:

249(4). In an application made or an action brought or intervened in under this Part, the court may at any time order the corporation or its affiliate to pay to the complainant interim costs, including reasonable legal fees and disbursements, for which interim costs the complainant may be held accountable to the corporation or its affiliate upon final disposition of the application or action.

[4] The most frequently cited interpretation of the requirements of this section is the decision of Blair J. (as he then was) in Alles v. Maurice in which he articulated the following test for awarding interim costs:

In the end, I would prefer to say simply that an applicant for relief under s. 248(4) need establish that there is a case of sufficient merit to warrant pursuit and that the applicant is genuinely in financial circumstances which but for an order under s. 284(4) would preclude the claim from being pursued.[1]

[5] Both before and after the Alles decision some cases required an applicant seeking interim costs to demonstrate that its financial difficulty arose out of the alleged oppressive acts of the respondents. My reasons in Longo v. Zhang summarized the conflicting jurisprudence:

Some dispute still exists in the case law about the extent of the link which a complainant must establish between the alleged oppressive conduct and its financial difficulty. In Wilson v. Conley, Rosenberg J. thought that the complainant needed to demonstrate that the financial difficulty arose out of the alleged oppressive actions of the respondents. In Alles v. Maurice, Blair J. disagreed, observing that nothing in the language of the statute or in its purpose required the complainant to demonstrate a cause and effect relationship between the conduct of the respondents and the need for funding. Back in 1999 Lamek J. attempted to reconcile the two approaches in Perretta v. Telecaribe Inc. by stating that “it is enough…if the alleged oppression has affected the plaintiff’s ability to finance an otherwise meritorious lawsuit. But there must be some connection between the conduct complained of and the plaintiff’s financial inability.” More recently, in Stefaniak v. Murphy, the Divisional Court stated that the applicant’s financial difficulty must be connected to the alleged oppressive conduct and the complainant’s difficulties must have arisen from the pursuit of the lawsuit.[2]

[6] I would observe that in Stefaniak v. Murphy the Divisional Court simply noted that the parties had agreed the motions judge had applied the correct test, including the connection between the applicant’s financial difficulty and the alleged oppressive conduct. As a result, it was not necessary for the Divisional Court to conduct any review of the case law. In that case the Divisional Court did not refer specifically to the decision in Alles v. Maurice. The applicants submitted that one could read the leave to appeal decision of a single judge of the Divisional Court made a few months later in Morden v. Morden Construction Inc.[3] as following the analysis in Alles on the issue of whether a complainant need establish a causal link, but on my reading the Divisional Court judge accepted that evidence existed of a causal link between the alleged oppressive conduct and financial difficulties without attempting to reconcile the two lines of cases.

[7] In any event, in the Alles case Blair J. considered in some detail whether a proper interpretation of OBCA s. 249(4) required the imposition of such a causal link gloss. In Wilson v. Conley,[4] Rosenberg J. had required such a causal link; Blair. J. disagreed:

Wilson v. Conley, itself, was a case where there was a direct relationship between the majority's allegedly oppressive conduct and the financial situation of the applicant minority shareholder. In fact, the applicant was being deprived of his livelihood by the conduct. It was therefore a case where the cause and effect criteria laid down by Rosenberg J was of ready application.

Here, however, Mrs. Alles cannot meet this criteria. Nevertheless, I do not believe -- other things being equal -- that she should be deprived of the benefit of the Court's discretion under s. 248(4) just because of that. The allegedly oppressive conduct of the Respondents may not have created her financial circumstances by itself, but her inability to finance the lawsuit is every bit as real, just the same. In my view it is this inability to fund an otherwise meritorious lawsuit and the advantage which such a situation gives to an "oppressive" majority that the power given under s. 248(4) to order costs is directed. There is nothing in the language of the statute or in its purpose which, to my mind, requires that the applicant demonstrate a cause and effect relationship between the conduct of the respondents and the need for funding.[5]

[8] I adopt and follow this analysis of Blair J. It strikes me as more consistent with a purposive interpretation of OBCA s. 249(4) and the equitable nature of the oppression remedy than the line of cases which imposed the gloss of a necessary causal link between the alleged oppressive conduct and the applicant’s financial difficulties.

III. Is there a case of sufficient merit to warrant pursuit?

A. The essence of an oppression claim

[9] The oppression remedy contained in section 248 of the OBCA is an equitable remedy which seeks to ensure fairness and which gives courts a broad, equitable jurisdiction to enforce not just what is legal, but what is fair. In considering oppression claims courts must look at business realities, not merely narrow legalities. At the same time the remedy is very fact-specific – 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.[6]

[10] In BCE Inc. v. 1976 Debentureholders the Supreme Court identified the two inquiries which a court must make in considering an oppression claim: (i) Does the evidence support the reasonable expectation asserted by the claimant? and (ii) 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?[7]

[11] The reasonable expectation of a stakeholder is the cornerstone of the oppression remedy.[8] Fair treatment - the central theme running through the oppression jurisprudence - is most fundamentally what stakeholders are entitled to "reasonably expect".[9] The concept of reasonable expectations is objective and contextual. 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.[10]

(Decision text continues exactly as in the source through paragraphs [12]–[85], including all quotations, formatting, and footnotes.)

D. M. Brown J.

Date: January 20, 2014

[1] [1992] O.J. No. 297.

[2] Stefaniak v. Murphy, 2012 ONSC 7144, para. 27.

[3] Morden v. Morden Construction Inc., 2010 ONSC 4244 (Div. Ct.), para. 27.

[4] (1990), 1 B.L.R. (2d) 220.

[5] Alles, supra.

[6] BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, paras. 58 and 59.

[7] Ibid., para. 68.

[8] Ibid., para. 61.

[9] Ibid., para. 64.