CITATION: Guertin v. Legault, 2015 ONSC 1391
COURT FILE NO.: 12-55009
DATE: 2015/03/11
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: BERNARD GUERTIN and GUERTIN HOLDINGS INC., Plaintiffs
AND
LUC LEGAULT, LUCIEN LEGAULT, LEGAULT HOLDINGS INC., LEGAULT BUILDERS INC. and 139019 CANADA INC., Defendants
BEFORE: Mr. Justice Marc R. Labrosse
COUNSEL: Kenneth Radnoff, Q.C. and Jonathan P.M. Collings, Counsel for the Plaintiffs
Ronald F. Caza and Marc Sauvé, Counsel for the Defendants
HEARD: December 10-11, 2014 at Ottawa
ENDORSEMENT
OVERVIEW
[1] On March 4, 1988, Bernard Guertin and Lucien Legault signed an agreement which governed the management and operations of Legault Builders Inc., a company operated to develop property in the Belcourt area of Orléans in the City of Ottawa. For approximately 24 years, Mr. Guertin and Mr. Legault operated Legault Builders Inc. (the “Company”) with virtually no paperwork or written communications between the two shareholders. All contact between the shareholders was done orally. Over the years, the Company sold over 250 residential homes.
[2] In 1985, Luc Legault started working for the Company on a part‑time basis helping with the bookkeeping, given his accounting background. In the following years, Luc Legault’s involvement went from part‑time to full‑time and he gradually took over the management and operations of the Company with Lucien Legault. During this same period, Bernard Guertin’s involvement in the company gradually decreased to the point where he was inactive in the management and operations after 2004.
[3] A conflict developed in 2012 after Lucien Legault authorized the payment of retroactive salaries to both himself and Luc Legault. Mr. Guertin was not advised of the payment of the retroactive salaries.
[4] The Plaintiffs commenced a claim seeking a declaration of oppressive conduct by the Defendants in July of 2012. The Plaintiffs now move for summary judgment seeking the dissolution of the Company and the appointment of a receiver to liquidate the assets.
[5] The Plaintiffs advance that it is appropriate to dissolve the Company as a result of its mismanagement by Lucien Legault for the following two main reasons:
(a) Lucien Legault failed to operate the Company in accordance with the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”); and
(b) Lucien Legault authorized the payment of retroactive salaries to both himself and Luc Legault to the detriment of the Company and the Plaintiffs, contrary to the provisions of the March 4, 1988 agreement between the shareholders and directors.
[6] Consequently, the Plaintiffs state that the relationship between Lucien Legault and Bernard Guertin has deteriorated to such an extent that the only reasonable solution is to dissolve the Company.
[7] For the reasons which follow, I am of the view that the Plaintiffs have not made out the claim for summary judgment. It is not appropriate for the Plaintiffs to have accepted the informal manner in which the Company was operated for many years and then to attempt to use those informalities to justify the dissolution of the Company. With respect to the payment of retroactive salaries, there was an understanding between Lucien Legault, Luc Legault and Bernard Guertin that the payment of salaries to Luc Legault and Lucien Legault was being delayed. The period during which retroactive salaries are payable and the annual amounts remains to be decided. The actions of the Defendants do not amount to oppressive conduct, however, the relationship between the parties must end. Accounting evidence is required to update the Company’s ledgers and shareholders accounts after payment of the retroactive salaries, and to establish the value of the Plaintiffs’ interests in the Company, in keeping with the 1988 agreement amongst the shareholders and directors. In the absence of a buy out by one of the Defendants, the assets of the Company are to be liquidated.
[8] With the proper accounting evidence, I am of the view that I can remain seized of this matter and make the required findings to facilitate a proportionate and just adjudication of the issues, which may avoid the need to dissolve the Company and a lengthy trial.
BACKGROUND FACTS
[9] Legault Builders Inc. was incorporated in 1976 by Lucien Legault and Bernard Guertin to develop land in the Belcourt area of Orléans in the City of Ottawa. Legault Holdings Inc. and Guertin Holdings Inc. are now the sole equal shareholders of the Company following a share freeze in 1985. Lucien Legault is the sole shareholder of Legault Holdings Inc. and Bernard Guertin is the sole shareholder of Guertin Holdings Inc.
[10] Since its incorporation, the Company has sold over 250 residential homes. The remaining assets are fifteen (15) lots for residential development and approximately $350,000 held in trust by Sicotte Guilbault LLP. The said lots are subject to a Certificate of Pending Litigation registered by the Plaintiffs.
[11] On March 4, 1988, Mr. Legault and Mr. Guertin signed an agreement which set out their respective obligations (the “1988 Agreement”). As part of those responsibilities, Mr. Guertin was to prepare the legal documents for the Company and Lucien Legault was the site superintendent and responsible for the hiring of employees.
[12] In 1985, the Company hired Luc Legault, Lucien’s son, on a part‑time basis to assist with accounting. By agreement dated December 31, 1985, Lucien Legault and Bernard Guertin agreed that Luc Legault was entitled to be paid a salary for his accounting work in an amount to be determined (the “1985 Agreement”). In 1992, Luc Legault began to work full‑time for the Company. It is apparent that he slowly took over many of the responsibilities associated with the management and operation of the Company.
[13] Although the Articles of Incorporation of Legault Builders Inc. show a fixed number of two directors, at some point in the 1990s, Luc Legault started acting as a Director and Vice‑President of the Company. The Company’s Corporation Profile Report indicates that Luc Legault began acting as a director and officer on June 30, 1997. The Articles of Incorporation were not amended to increase the number of directors and there was no valid resolution appointing Luc Legault as either a director or officer.
[14] Although Mr. Guertin asserts that he was forced out of the management and operations of the Company, he agrees that he was not involved in any active capacity since at least 2004. Further, Mr. Guertin did not prepare the Annual Shareholders and Directors Minutes after 1988 when Luc Legault asked to borrow the Company’s minute book. Mr. Guertin never asked that the minute book be returned to him.
[15] On December 10, 2008, Lucien Legault caused a mortgage in the amount of $1,500,000 to be registered against certain lots owned by the Company in favour of 139019 Canada Inc., being Luc Legault’s holding company. No funds were ever payable on the mortgage.
[16] While the 1988 Agreement allows Lucien Legault to draw a salary and hire employees such as Luc Legault, neither Lucien nor Luc Legault took a salary for several years. From 2009 to 2011, retroactive salaries were paid out to Luc and Lucien Legault however the exact amounts are in dispute as they were accompanied by certain accounting adjustments. Mr. Guertin was not consulted on the decision to pay retroactive salaries.
[17] In or about 2012, Mr. Guertin objected to the payment of the retroactive salaries and had the Company’s bank account frozen. As the Company had ongoing obligations, Luc Legault continued to operate the Company’s finances through the bank account for his own numbered company, 139019 Canada Inc.
POSITION OF THE PARTIES
[18] The Plaintiffs move for summary judgment claiming that there are no genuine issues requiring a trial with respect to the dissolution of the Company, pursuant to the oppression remedy provisions of the OBCA. Upon the Court making an order for the dissolution of the Company, the Plaintiffs request that a receiver be appointed to divide the assets amongst the shareholders on a tax‑efficient basis.
[19] The Plaintiffs also seek an order that Luc Legault is not and never has been, a duly elected director of the Company.
[20] In support of their position, the Plaintiffs state:
(a) the Defendants wrongfully removed funds from the Company and classified them as salaries or otherwise;
(b) the Defendants unlawfully and unilaterally claimed retroactive salaries of $1,238,000;
(c) the mortgage in the amount of $1,500,000 registered in favour of 139019 Canada Inc. against the Company’s property is invalid and should be discharged from title;
(d) the relationship between the shareholders has been damaged to such an extent that it is impossible for the Company to complete the development of the remaining lots;
(e) Luc Legault was never properly elected as a director or officer of the Company but has acted as such without Mr. Guertin’s consent; and
(f) the Defendants have prevented Mr. Guertin from fulfilling his responsibilities and he has effectively been shut out of the operation and management of the Company.
[21] The Plaintiffs insist that a finding of oppressive conduct is clear based on the evidentiary record. However, the Plaintiffs state that a finding of oppression is not necessary for the Court to order the dissolution of the Company. The significant breakdown in the relationship between the shareholders is sufficient to warrant a dissolution and the assets can be left in the hands of the liquidator who can deal with them with the supervision of the Court.
[22] The Plaintiffs also acknowledge that the Court has very broad powers under the OBCA and that there are other options available to the Court which may not require the dissolution of the Company, such as a valuation of the Company and buy out of the Plaintiffs’ interests. In order to arrive at a fair valuation of the Company, the Plaintiffs require the return of the retroactive salaries. The Plaintiffs accept that a reasonable salary should be paid to Lucien Legault and Luc Legault but only since 2009.
[23] The Defendants dispute the alleged oppressive conduct listed above, and state that it would be inappropriate to dissolve the Company regardless of a finding of oppression. The Defendants state that the dissolution of a company is the most severe action that can be taken and that it should only be a measure of last resort.
[24] The Defendants state that the Company is an active corporation with experience in residential development. To turn the lots over to a receiver for liquidation would not be in the interest of either shareholder. The Defendants propose that the remaining assets of the Corporation be valued and that the Court establish a procedure for the Defendants to buy out the Plaintiffs’ interest. Further, the Court would have to receive evidence on the issue of retroactive salaries and determine for what years they should be payable and the proper amount.
[25] In support of their position, the Defendants have advanced that as of December 31, 2013 the amounts due to the shareholders are relatively equal. The Defendants rely on the 1988 Agreement which stated that profits were to be distributed equally to the members of the Guertin and Legault families. This is evident from the Corporation’s minute book which reflects that for several years, bonuses were paid out to the various members of their respective families. This took place while Mr. Guertin had the minute book and also during some of the years that Luc Legault had the minute book. The Defendants state that over the years, the amount paid out to the Guertin Family was $1,508,588 and the amount paid out to the Legault Family was $1,413,323. The Defendants suggest that the Plaintiffs have not been disadvantaged by the operation and management of the Company by Lucien and Luc Legault.
[26] Finally, the Defendants allege that Mr. Guertin is solely responsible for his withdrawal from the operation and management of the Company. It is claimed that he never fulfilled his obligations as set out in the 1988 Agreement and has not made any efforts to participate since 2004. Further, Mr. Guertin has always been able to participate as he had full access to the bank accounts and for some years, reviewed the annual financial statements with his own accountant. He stopped preparing annual minutes years ago and never requested that the Company maintain its books and records in accordance with the OBCA.
ANALYSIS
[27] Rule 20.04(2) (a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides that summary judgment shall be granted where there is no genuine issue for trial. In determining whether there is a genuine issue requiring a trial, Rule 20.04(2.1) grants certain fact finding powers and Rule 20.04(2.2) allows for a mini‑trial to be held to receive oral evidence from one or more parties.
[28] On a motion for summary judgment, the Court must first determine if there is a genuine issue requiring a trial based only on the evidence before the Court. If there appears to be a genuine issue requiring a trial, the Court should then determine if the need for a trial can be avoided by using the fact‑finding powers under Rules 20.04(2.1) and 20.04(2.2).
[29] The leading case on the use of summary judgment is Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 at para. 49, where the Supreme Court of Canada stated:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
[30] As set out in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 at para. 33, where the court cannot grant summary judgment, the court should decide those issues that can be decided, identify additional steps required to complete the record and seize itself of the further steps required to bring the matter to a conclusion.
[31] On the evidence before me, I conclude that there remain genuine issues, which cannot be resolved without additional evidence and a possible mini‑trial. I do not feel, however, that a trial is required.
[32] Based on the evidentiary record before me, I am able to make a number of findings and decide certain issues, which I set out as follows:
(a) In 1985, Bernard Guertin and Lucien Legault agreed that Luc Legault was entitled to be paid a salary (amount to be determined) to perform accounting functions for the Company as set out in the 1985 Agreement;
(b) The 1988 Agreement authorized Lucien Legault to hire Luc Legault and to pay him a reasonable salary. Lucien Legault was also entitled to the payment of a salary, however, neither Lucien Legault nor Bernard Guertin claimed salaries for their operation and management of the Company. Luc Legault was to do all the accounting work for the Company and be paid $150.00 per house sold;
(c) I accept the Defendants’ evidence that as of 1992, Luc Legault started working full‑time for the Company and his duties expanded beyond doing the accounting work for the Company. He effectively took over the management and operation of the Company during the 1990s;
(d) By 2004, Bernard Guertin withdrew from the management and operation of the Company. I find that he was not forced out by Lucien Legault or Luc Legault. Mr. Guertin limited his involvement to the review of the financial statements and was content to receive his share of the profits;
(e) It is unclear as to the amount of benefit received by Luc Legault since 1985 and this needs to be determined. I find that Luc Legault is entitled to be paid for his accounting duties as per the 1985 Agreement and 1988 Agreement until 1991, and the actual amounts received must be confirmed;
(f) From 1992 until 2004, I find that Luc Legault assumed the operation and management of the Company. The 1988 Agreement did not contemplate his increased functions and a proper income must be determined for this period while Bernard Guertin continued to be involved in the operation and management of the Company. I accept the evidence of Luc Legault at para. 58 of his Affidavit dated May 16, 2014 that over the years, Bernard Guertin was aware that Luc Legault was not working for free and that the issue of fair compensation for the work done for the Company would be dealt with at a later date. I reject the evidence of Bernard Guertin on this issue as set out in the Transcript of his Cross‑Examination at p. 37 where he states that he is still not aware that Luc Legault was working full‑time for the Company;
(g) Prior to 2005, I find that Bernard Guertin and Lucien Legault agreed that neither would receive a salary for their contributions to the Company other than the annual bonuses, which were paid out to them and the members of their respective families. Neither of them are entitled to claim retroactive salaries prior to January 1, 2005;
(h) As of January 1, 2005, I find that Lucien Legault and Luc Legault are entitled to be paid a salary as a result of Bernard Guertin’s withdrawal from the management and operation of the Company. As previously stated, I accept the evidence of Luc Legault that Mr. Guertin agreed on a number of occasions that unpaid salaries would be paid in the future. This can be seen where Mr. Guertin acknowledged that certain adjustments would be required for the work performed by Lucien and Luc Legault in his March 15, 2012 correspondence. Further, the Plaintiffs have agreed in argument that Luc Legault and Lucien Legault are entitled to be paid a salary but only since 2009 as they rely on the Limitations Act, S.O. 2002, c. 24, Sched. B. However, the Limitations Act does not extinguish the Company’s debt for deferred salaries. At best the Limitations Act would provide immunity from liability but the debt still exists. In any event, the two year limitation period would only commence from the date Luc and Lucien Legault were advised that the agreement to defer salaries was no longer being honoured by Mr. Guertin. I find Mr. Guertin had agreed that the deferred salaries were an ongoing issue that would have to be dealt with eventually. The salaries for Lucien and Luc Legault are properly payable back to 2005 until they stopped actively working for the Company;
(i) The failure of Lucien and Luc Legault to have prepared annual minutes of the shareholders and directors or other required resolutions, as of the date they received the Company’s minute book does not represent oppressive conduct pursuant to the OBCA. Mr. Guertin participated in the informal nature in which the Company was operated, which formed part of the reasonable expectations of the parties;
(j) The registration of a mortgage in favour of 139019 Canada Inc. by Lucien Legault in the amount of $1,500,000 does not represent oppressive conduct pursuant to the OBCA. The mortgage was registered to secure the property of the Company and the Plaintiffs have suffered no damage as a result of the registration of the mortgage. As the issues are now before the courts, the mortgage should be discharged at the expense of the Defendants within 30 days of the date of this Endorsement;
(k) In the absence of evidence showing inappropriate transactions, I find that the steps taken by Lucien Legault and Luc Legault to continue the operations of the Company through the bank account of 139019 Canada Inc. do not represent oppressive conduct pursuant to the OBCA. The evidence before me suggests that this was done in good faith to allow the Company to meet its obligations in the face of the bank account having been frozen. A full accounting should be provided by the Defendants and any dispute may be resolved by me;
(l) Luc Legault is not a director of the Company. His purported election did not comply with the Articles of Incorporation or the OBCA. However, any actions taken by him while purporting to act as a director do not represent oppressive conduct pursuant to the OBCA. I find that both Lucien Legault and Bernard Guertin were aware that Luc Legault was fulfilling the duties of a director even if he had not been formally elected. On my review of the evidence, I find that he continued to act in the best interests of the Company;
(m) Luc Legault has properly acted as vice‑president and general manager of the Company. I find that both Lucien Legault and Bernard Guertin were aware that Luc Legault was fulfilling the duties of those offices and as such, all actions taken were either explicitly or implicitly authorized by the directors of the Company;
(n) Given my finding of an agreement on the deferred salaries for Lucien and Luc Legault, the payment of the retroactive salaries and the manner in which it was done does not represent oppressive conduct pursuant to the OBCA, although I am of the opinion that Mr. Guertin should have been properly notified and it should have been done under the guidance of the Company’s accountants;
(o) I accept that Lucien Legault and Bernard Guertin are no longer able to work together to complete the development of the remaining lots. Although I make no finding of oppressive conduct by any of the parties, it is appropriate for me to exercise my authority under section 207 of the OBCA to order that one of the Defendants be provided with an opportunity to buy out the interest of Guertin Holdings Inc. This is the most just and efficient way to resolve the dispute between the parties in a manner which is minimally intrusive and consistent with the reasonable expectations of the parties, as set out in the 1988 Agreement and the way in which the Company has been operated since that date. In doing so, I adopt the reasoning of R. MacKinnon J. in King City Holding, [2001] O.J. No. 1464 at para. 13 and Epstein J. in Classic Organ Co. v. Artisan Organ Ltd., 1997 12434 (ON SC), 1997 12434 (ON SC) at paras. 32‑34; and
(p) In the event that one of the Defendants is unable or unwilling to buy out the interest of Guertin Holdings Inc., the remaining assets of the Company will be liquidated and divided between the shareholders in keeping with the 1988 Agreement that calls for the families of both directors to share equally in the benefits of the Company.
[33] As a result of the above findings, I identify the following issues, which are genuine issues which still require adjudication:
(a) The amount of salary which should be paid to Luc Legault for his work from 1985 to 1991 under the authority of the 1985 Agreement and the 1988 Agreement, and then from 1992 to 2004 under the agreement that the payment of salaries would be delayed. The annual amount of salary should be reflective of the work done for the Company over those years;
(b) The amount of salaries which should be paid to Lucien Legault and Luc Legault since January 1, 2005, being the date that they solely assumed the management and operation of the Company until they stopped actively working for the Company. Again, the amount should be reflective of the work done during those years;
(c) The necessary adjustments to be made to the Company ledgers, including shareholder accounts, as a result of the retroactive salaries;
(d) The valuation of the Company for the purposes of buying out the interest of Guertin Holdings Inc. The amount of the buy out must take into account the stated intention of the 1988 Agreement that the Guertin and Legault families would share equally in the benefits of the Company; and
(e) In the event that the Defendants are unwilling to buy out the interest of Guertin Holdings Inc., the manner in which the assets of the Company will be liquidated, including the possible appointment of a liquidator.
[34] In addressing the above issues, the documents filed suggest that the parties may be in agreement that the Company’s ledgers and accounts are in order up to and including December 31, 2009 with the exception of the necessary adjustments for salaries. If this is not the case, evidence may be required on this issue.
[35] In keeping with the objective of having the issues adjudicated in a proportionate manner, I hereby seize myself of the following additional steps:
(a) An initial finding must be made on the salaries to be paid to Lucien and Luc Legault for the periods described above unless the parties can agree;
(b) Following the determination of the retroactive salaries, each party shall be given an opportunity to file accounting evidence on the valuation of the Company as at December 31, 2014 and a finding shall be made on the appropriate amount of the buy out of the interest of Guertin Holdings Inc. in keeping with the intent of the 1988 Agreement for equal benefits between the two families; and
(c) Where no Defendant is prepared to purchase the interest of Guertin Holdings Inc., a process shall be determined for liquidating the assets of the Company.
[36] The above additional steps are proposed by the Court while realizing that there may be other issues which the parties require dealt with, which have not been considered. The parties may wish to include a process to deal with the Certificate of Pending Litigation, the accounting by 139019 Canada Inc. or the ongoing operations of Legault Builders Inc. going forward. A trial management conference shall be held with me to determine the required steps and a process shall be determined, which may include a mini‑trial, depending on what remains to be decided.
[37] Finally, costs will be dealt with when the matter is finally concluded.
CONCLUSION
[38] The Plaintiffs’ motion for summary judgment is denied. The Court has used its powers under Rule 20.04(2.1) to decide certain issues as per paragraph 32 of this Endorsement. Further, the Court shall use its powers under Rule 20.04(2.2) and orders the additional steps set out in paragraph 35 of this Endorsement. The parties are to contact the trial coordinator to set the date of the trial management conference.
Mr. Justice Marc R. Labrosse
Released: March 11, 2015
CITATION: Guertin v. Legault, 2015 ONSC 1391
COURT FILE NO.: 12-55009
DATE: 2015/03/11
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: BERNARD GUERTIN and GUERTIN HOLDINGS INC., Plaintiffs
AND
LUC LEGAULT, LUCIEN LEGAULT, LEGAULT HOLDINGS INC., LEGAULT BUILDERS INC. and 139019 CANADA INC., Defendants
BEFORE: Mr. Justice Marc R. Labrosse
COUNSEL: Kenneth Radnoff, Q.C. and Jonathan P.M. Collings, Counsel for the Plaintiffs
Ronald F. Caza and Marc Sauvé, Counsel for the Defendants
ENDORSEMENT
Labrosse J.
Released: March 11, 2015