CITATION: Bimman v. Neiman, 2015 ONSC 2313

COURT FILE NO.: CV-11-0000904800-CL

DATE: 20150416

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Alexander Bimman and 2182474 Ontario Inc.

Plaintiffs

– and –

Arkadi Neiman, Coryana Enterprises Limited, 1050828 Ontario Ltd., Canadian Investment & Consulting Central Corporation, Larwest Canada (Caribbean) Inc., 2182158 Ontario Ltd., 1765350 Ontario Inc., 1771636 Ontario Ltd., Edward Poberezkin, Victor Itkine, Roman Shmulik, Alex Glozman and Corayana Services Ltd.

Defendants

Igor Ellyn and Belinda Schubert, for the Plaintiffs

Douglas Christie and David Rubin, for the Defendants

HEARD: September 29, 30, October 1-3, 6-9, 14-16, November 3-7, 10, 13, 14, 18-21, December 1 and 2, 2014

Gans J.

TABLE OF CONTENTS

The History of the Relationship between the Parties. 4

The Nub of the Action. 15

The Legal Framework. 29

Conclusion – Oppression Remedy. 38

Value of Bimman’s Shares. 39

Ancillary Claims. 52

Recap of Payments. 59

APPENDIX 1

APPENDIX 2

Introduction

[1] In the 1960s, Marshall D. Shulman, the noted American Sovietologist, postulated that détente and rapprochement between the United States and the former Soviet Union could not be achieved, at least at that moment in time, because each state acted, reacted and overreacted in response to the actions or activities of the other.[^1] This state of affairs had all the hallmarks of antagonists who fastened upon distrust, disgust and discord.

[2] The individual parties to this litigation, each of whom is a businessman who originally hailed from one of three former Soviet Republics, have acted or reacted, ironically, as if they were one of the two above described Cold War combatants throughout the deterioration of their relationship over the last four, almost five, years. Their antipathy for each other is evidenced at each benchmark of the conflict, one that had as its genesis, in my view, a rather innocuous event that could and should have been nipped in the bud when it first became apparent.

[3] Regrettably, the events that unfolded thereafter thrust the parties on a collision course which I dare say may not end with this judgment, no matter how Solomonic or rooted in law, or both, it might otherwise be.

[4] At its simplest, Sasha Bimman (“Bimman”) and his numbered company (collectively, the “plaintiffs”) have commenced what is generically referred to as an “oppression remedy” action pursuant to s. 248 of the Ontario Business Corporations Act (the “OBCA”).[^2] The numbered company, as a shareholder in Corayana Enterprises Limited (“CEL”), alleges that the individual defendants and their respective corporate instrumentalities, through which they hold shares in CEL, marginalized and squeezed out the plaintiffs from CEL during the winter of 2010[^3] as a result of one or two cash calls undertaken by the defendants, or the granting of a mortgage against the assets of CEL. The plaintiffs seek redress as a consequence of these actions and the repayment of certain other amounts required now to be paid under a shareholders agreement entered into by the parties in November 2009. The plaintiffs also assert that Bimman, in his personal capacity, is entitled to punitive damages.

[5] The defendants vigorously dispute that the plaintiffs were “oppressed,” as that term has been judicially considered, in respect of either of the cash calls. According to the defendants, the decisions made in advance of the cash calls were protected by the “business judgment rule,” which they maintain is the lens through which all such decisions must be viewed and evaluated. However, in their written argument and on the last day of trial, the defendants conceded that the granting of a mortgage by CEL, which will be discussed in greater detail below, could be viewed as having “unfairly disregarded” the interests of the plaintiffs, thus satisfying the requirements of s. 248 of the OBCA and giving rise to some form of equitable redress which would see the defendants buy out the plaintiff company’s share interest in CEL.[^4] This concession, made in the waning hours of the trial, was driven primarily by the fact that both the defendants and the plaintiffs want to ensure that the Gordian knot that tethers the parties is severed once and for all.[^5]

The History of the Relationship between the Parties

The Early Days

[6] The basic facts and chronology are not in dispute. The parties are in agreement that the benchmark events, at least from 3,000 feet, took place on the dates about which I heard testimony or were recorded in the documentary evidence. Where they part company is really with respect to the details of but few meetings, and the spin that necessarily attaches to their respective positions regarding what was intended at any particular moment in time. Regrettably, particularly with the evidence of the plaintiff and his chief antagonist, the defendant Victor Itkine (“Itkine”), their evidence was so infused by vitriol that the details were often obscured.

[7] Bimman is a licensed real estate broker and advisor who operates his business primarily in Toronto. In the summer of 2007, he was introduced to and investigated the potential of purchasing seven 19-unit older apartment buildings in the town of Thompson, Manitoba (the “Property”). He in turn contacted Arkadi Neiman (“Neiman”), with whom he had a prior business relationship. He had previously introduced Neiman to at least one other property in the GTA, and another in the Niagara Peninsula in which the latter took an equity interest.

[8] The two of them decided to ‘partner up’ in respect of the acquisition of the Property. They prepared an agreement of purchase and sale under which they proposed to purchase the real estate through either a Neiman or Bimman shelf company. The original closing in respect of the acquisition of the real estate was to take place in February 2008,[^6] which date was subsequently pushed off to the summer of 2008 and, as will be described later, ultimately to March 2009.

[9] Neiman and Bimman both realized that they would need to corral other ‘silent partners’ to the deal. Neiman approached Edward Poberezkin (“Poberezkin”), who in turn brought in Itkine and Roman Shmulik (“Shmulik”). Bimman thereupon persuaded his acquaintance, Alex Glozman (“Glozman”), to invest in the project. The non-Bimman and Neiman defendants are collectively referred to as the “Investor Group” throughout these reasons.

[10] The essence of the project, about which all the parties were in agreement, called for the acquisition of the Property, refurbishment of the buildings one at a time, and the sale of units in the individual buildings as part of a condominium development. As a fallback position, although I was not sure that this was the driver for Bimman’s acquisition of the Property in the first place, the buildings could be sold en bloc or held as rental properties, depending upon market conditions.

[11] Bimman and Neiman considered themselves the active managers of the project, while the members of the Investor Group were prepared to assume a passive role in all aspects of its management. This structure was first memorialized in April 2008 in a Bimman-prepared ‘back of the envelope’ letter of understanding, referred to throughout the trial as the “VLOU.”[^7] In addition to defining their respective functions, the VLOU set out the financial contributions that were expected of each participant and their respective percentage interests in the enterprise. While initially each of Bimman and Neiman were only to contribute $125,000 out of a total initial contribution of $1 million, each was nevertheless to be credited with a 20% interest in the joint venture, receiving a partial carried interest, ostensibly for finding the deal in the first place.

[12] In anticipation of the Property being purchased in the middle of August 2008, the parties changed the vehicle through which it was to be held and the project itself was to be undertaken. In that regard, through their various corporate instrumentalities, the parties to this litigation entered into a lawyer-prepared (i.e. complex) limited partnership agreement (the “LPA”). While some of the initial concepts first described in the VLOU were carried forward into the LPA, and the percentage interests remained roughly the same, the LPA called for the elimination of a monthly management fee that each of Bimman and Neiman were then receiving from the commencement of the project through to the summer of 2008. In the place and stead of the stipend, the LPA called for the creation of a deferred management fee (the “DMF”) to be split by Messrs. Bimman and Neiman in a manner not then specified.[^8]

[13] Through the summer of 2008, Bimman spent time looking for financing for the project. He contacted at least four different mortgage funding sources, including the Assiniboine Credit Union, Gibraltar Credit Union, RBC, and Westoba Credit Union. None of his attempts at financing ended in a fixed and permanent deal, although Westoba came closest, a deal having been accepted in principle and a modest commitment fee paid as a consequence.

[14] Because financing could not be obtained in the summer of 2008, the deal did not close in August as anticipated. Indeed, it appeared that the deal was poised to go south, to employ the vernacular. Bimman, in order to keep the intended purchasers’ options open, caused a caveat to be filed against the Property on behalf of him and his cohort, with everyone’s implicit consent. After some negotiations with the vendor group, Bimman was able to rewrite the deal, which called for a late February 2009 closing and an increase in the purchase price of $100,000. Bimman was to – and did – receive a commission of $70,000 on the sale, which was credited towards his cash contribution to the project.

[15] Of greater significance was the fact that the vendors and the parties to this litigation recast the mechanics of the deal. Instead of buying the Property outright, the plaintiffs and the defendants bought the shares of the vendors’ trustee corporation, CEL, which owned the underlying real estate. Each purchaser’s corporate vehicle, namely the plaintiff and corporate defendants described in the style of cause, took shares in CEL.

[16] In addition, the vendors provided the purchasers with a wrap-around vendor take back mortgage (the “VTB”) to cover the outstanding amount of the existing first mortgage and the balance of the purchase price. The total VTB was $746,756 for a term of one year, expiring at the end of February 2010. It was secured not only against the Property, but was coupled with a pledge of the shares of the real estate holding corporation, the notional defendant CEL.

[17] There was a managerial division of labour during the first two years of the venture. Bimman focused on marketing, securing financing, attending to planning and municipal affairs. Neiman, for his part, was responsible for overseeing the creation of construction budgets and the renovation of the buildings. Each hired his own spouse, through their respective corporations, to work on the project. Mrs. Bimman performed back office services (whatever that entailed), while Mrs. Neiman performed bookkeeping services. The corporation of each spouse was paid $3,000 a month commencing April 2008, although this ended in September 2009.

The Start of the Fallout between Bimman and Neiman

[18] The financial well-being of CEL after closing was somewhat tenuous. There was about $400,000 left in the corporate till to devote to the renovations and marketing activities necessarily to be expended at that moment in time to achieve the then anticipated goals. CEL had nowhere near the $400,000 per building that had been budgeted for the renovations, and had barely enough money to complete the showroom and vestibule renovations which were undertaken in Spring 2009 as part of the overall project launch.

[19] The day after the “grand opening,” which was intended to showcase the project for the benefit of the local municipal authorities and industry, Bimman and Neiman had a fateful breakfast meeting (the “July 10 Meeting”) which, as it would turn out, sounded the death knell to their working relationship. Bimman was not pleased with the manner in which the modest renovations to that date had taken place under Neiman’s stewardship. He was evidently not shy about expressing his discontent. He went so far as to suggest to Neiman that their proposed equal split of the anticipated DMF be modified in his favour to more accurately reflect their relative contributions to the project. While the evidence is less than clear on this subject, it is safe to conclude that Neiman was not terribly thrilled with Bimman’s suggestion of a management fee modification and Bimman’s assessment of Neiman’s relative net worth to the project.

[20] The meeting ended with Neiman telling Bimman that a local painting store owner, Lucy Lambert, wanted to involve some of the CEL work crew in two small painting projects she had in Thompson over the next few weeks. Since each of Bimman and Neiman were interested in ensuring that their painting crew stayed active until the renovations started up again in September, rather than transporting them back to Toronto and its environs, Neiman told Lambert that they were prepared to take on the job. Because he was returning to Toronto, he suggested that Ms. Lambert contact Bimman directly to put this contract in motion.

[21] There is no doubt that the scope of work in respect of the Lambert contracts was known and understood by each of Bimman and Neiman. Indeed, it would appear that Neiman received copies of invoices and emails exchanged between Bimman and Lambert in respect of the scope of work, the cost of the Lambert contract, and the timing of its payment.[^9]

[22] What was left undiscussed, if not undecided, at least as far as these two “partners” were concerned, was the manner in which the Lambert contracts were to be taken. It was unclear whether they were to be executed in the name and under the ownership of CEL, or whether they were to be taken separately in an informal partnership of Messrs. Bimman and Neiman through one or other of their individual corporations.

[23] Bimman thought that the Lambert contracts could be taken in the name of Bimman Real Estate Services Inc. (“BRESI”), on behalf of and to be split evenly by BRESI and Neiman’s company, Trans Canada Group (“TCG”). As a consequence, he caused BRESI to issue an invoice to Lambert for the full amount of the contract, $14,175 inclusive of GST, on July 14, 2009.[^10]

[24] Neiman ostensibly took a different view of the contract, and maintained the position that the contract was for all intents and purposes that of CEL. However, at the end of September, he caused TCG to issue an invoice to BRESI for ‘consulting fees’ in an amount equal to one half of the invoice amount for the Lambert job.[^11]

[25] At no time after seeing the relevant documents, including the BRESI invoices to Lambert in July, did Neiman attempt to disabuse or confront Bimman in respect of his apparent “error” in believing the Lambert contract was to be split between his and Bimman’s corporate entities.

[26] To the contrary, as soon as he saw that Bimman intended to book the contract through BRESI, Neiman beat a path to Itkine’s door and convened a meeting of the Investor Group during which, I am satisfied, he more than suggested that Bimman was intent on misappropriating a CEL corporate opportunity for his, Bimman’s, own account.

[27] During this meeting, Neiman hatched a plan, in consultation with Itkine and with the concurrence of the Investor Group,[^12] to ‘determine’ whether or not Bimman was intent on completing the Lambert contract to the ostensible detriment of CEL, a conclusion at which they had already arrived.[^13] The Investor Group passed the following resolution, their protestations in oral evidence to the contrary notwithstanding, which provided in clear and unequivocal terms that Bimman was effectively to be “charged and convicted” before any inquiry, let alone trial, had occurred:

We, the Shareholders of Corayana Enterprises authorize company’s President Mr. Arkadi Neiman, to acquire evidence of misappropriation of company’s funds by Mr. Sasha Bimman who at present time is the Director and Treasurer of Corayana Enterprises.[^14] (Emphasis added)

[28] Neither Neiman nor the Investor Group brought their concerns to or confronted Bimman with Neiman’s “allegations” until the latter part of October, by which point the situation had escalated out of all proportion. Bimman was unknowingly being accused and convicted of a “capital” crime against the partnership.

[29] I have difficulty understanding why Bimman was not confronted with the concerns of the Investor Group right from the get-go, rather than letting the matter fester for months thereafter. This query is of some moment since Neiman was, for all intents and purposes, a putative ‘partner in crime’ in respect of a deal that yielded very little remuneration for either Bimman or CEL, if it were correctly the beneficiary of the Lambert contracts.[^15] Indeed, and notwithstanding the attempts of defendants’ counsel throughout the trial to minimize its impact, I have concluded that the fallout from the Lambert contracts infused the relationship between Bimman, Neiman and the Investor Group, from the middle of July 2009 through to the end of trial.

[30] Put otherwise, I am satisfied that the Lambert contracts at least coloured the actions and reactions of Neiman and the Investor Group from July onwards, if they did not directly drive them.

The Shareholder Agreements and Related Events

[31] Bimman went to the Ukraine in early August to interview work crews for the project. He took the opportunity to visit with family in Israel, during which time he learned that his father had passed away. He remained in Israel to sit shiva, the initial Jewish period of mourning. Contemporaneously with Bimman’s absence from Canada, Itkine, with the assistance of a recent law school graduate, took the occasion to prepare a form of shareholders agreement (the “August Shareholders Agreement”) which he tabled at a meeting convened in mid-August (the “August Meeting”), while Bimman was still absent.[^16]

[32] Because CEL in general, and Bimman in particular, had not been able to secure adequate institutional funding to complete the project as originally intended, the “partners” resolved to raise an additional $1,000,000 in capital to fund the initial building refurbishment, either through related parties or friends and business associates.[^17] Of the almost $900,000 raised by way of high interest, unsecured promissory notes, approximately $500,000 was advanced by Neiman, Itkine and Glozman individually, either by their spouses or other corporate entities with which they were associated.[^18] Bimman, together with Neiman, executed most of the notes on behalf of CEL upon his return to Canada. I find as a fact that Bimman was aware that in August the only source of funding for the project was to come from these related party lenders.

[33] I also find as a fact, notwithstanding his evidence to the contrary, that Bimman executed the August Shareholders Agreement while in Israel. In addition, he amended the Itkine-prepared draft sent to him electronically in a most significant way, about which I will have more to say later in these reasons.[^19]

[34] The Investor Group were also concerned about Bimman’s expense accounts and went so far as to cancel his corporate bank card while he was outside of Canada. They also insisted that the recently acquired related party loan advances be placed in a separate bank account under the sole supervision of Neiman, a move which Bimman grudgingly accepted.[^20] In addition, they designated Shmulik to review and oversee the financial statements of CEL on an ongoing basis. Apparently, there was also some disquiet over the slow progress in the development and marketing of the project as rental let alone condominium buildings.

[35] Suffice it to say, the Investor Group’s confidence in Bimman as one of two managing directors was waning at an ever increasing pace. Finally, at a meeting convened at the end of September, while both Bimman and Neiman were in Thompson, the Investor Group terminated the monthly arrangements with each of Mrs. Neiman and Mrs. Bimman.[^21]

[36] While some progress was being made on the marketing and development front during the fall of 2009, little or no progress was being made in securing long-term institutional financing. In the meantime, Neiman was continuing with at least the renovations on the first building.

[37] However, as became apparent from the evidence, the likelihood of securing institutional financing sufficient to underwrite the refurbishment of the seven buildings proved difficult, if not impossible. The institutions and mortgage brokers contacted would only provide a limited amount of financing secured against the then value of the lands, which in the Fall of 2009, was only marginally more than what had been paid for the Property at first instance. Put otherwise, until such time as the buildings had been renovated, came on-stream with a secure tenant base, or formed part of parcels severed from the whole, the likelihood of obtaining a meaningful mortgage to fund the project was limited. This fact was well known to Bimman and Itkine, if not the other members of the Investor Group.[^22]

[38] While the project was moving slowly on all fronts on the ground, and there were even unanticipated construction issues, the dialogue between Bimman and Itkine was heating up as it related to the proposed amendments to the August Shareholders Agreement. There was a confusing email chain between the two in October, which was filed as a separate exhibit in this action.[^23] Based on my understanding of Exhibit 13, which is a cut and paste rendition of an email exchange first written in Russian, with English translations interspersed, Bimman and Itkine were debating, among other things, the intended purpose and effects of the “cash call” provision which appeared in the August Shareholders Agreement and which features prominently in these reasons below. It was also apparent from the translation that both Bimman and Itkine knew that the VTB, which was to be discharged by the end of February, carried with it a share pledge agreement, a fact which the parties apparently lost sight of as matters progressed in the new year.[^24]

The Confrontation with Bimman and its Aftermath

[39] All meetings of the parties were conducted primarily in Russian; many, if not all, of the meeting minutes were translated into English. This was done either by one of the parties, which gives rise to a number of issues, or by an outside translator who might have been in attendance or listened to tapes after the fact.

[40] The translated minutes of the shareholders’ meeting on October 25, a very significant if not contentious meeting held at Bimman’s office, provide a useful road map of the events as they unfolded that day.[^25]

[41] Some time was first spent reviewing the construction problems being experienced on the ground in Thompson and the expenses from the unanticipated roof and boiler repairs. The discussion switched over to the marketing and sales efforts undertaken by Bimman, whose report was not being met with any great enthusiasm by his partners.

[42] The minutes further reflect a discussion about Bimman’s use of the BRESI name in marketing the project, with which members of the Investor Group were also less than thrilled. After some noted interruptions in Bimman’s presentation and attempts to explain his position on his marketing and other efforts, which he suggested were being thwarted by Neiman’s counterproductive activities with some of the same corporate and governmental prospects, Itkine insisted on being given the floor to raise a matter of some importance to the group.

[43] Itkine then took the lead in confronting Bimman about the Lambert contract payments. This was the first time that the issue had been raised with Bimman since Neiman first reported it to the Investor Group in mid-July.

[44] While somewhat disingenuously suggesting that there must have been some “misunderstanding or mistake” on Bimman’s part in taking the Lambert contract on behalf of BRESI, as the minutes duly record, Itkine proceeded to recite the Neiman-generated details in relation to the transaction. Itkine read his speech from a prepared text, a copy of which he refused to provide Bimman. There was no reference in the minutes to anything that would suggest that Neiman was complicit or implicated in the Lambert contract. Nor was any doubt cast on Neiman’s intentions, which I find were less than honourable.

[45] It is safe to conclude from a review of the minutes and Bimman’s own evidence, that he was caught completely by surprise when the issues were first raised at the meeting. He did not, at the meeting, offer up any explanation or articulate the position he adopted during the course of this trial. I find, however, that this lack of a contemporaneous justification was understandable, having regard to the suddenness and seriousness of the accusations that were being leveled at him. He found himself completely isolated and without an ally.

[46] Indeed, at one point, Shmulik suggested that Bimman become a “silent” director until such time as he provided the Investor Group with an explanation for his involvement in the contracts. Put otherwise, as it was put to a vote, Bimman was pushed off to the side and prohibited from involving himself in any “meetings or phone calls” with lawyers, clients or employees until his explanation was forthcoming. To add insult to injury, Shmulik, who by then was the unofficial overseer of the books of account, demanded an explanation on certain additional Bimman expenses from previous months.

[47] Finding himself in an unenviable position, Bimman “resigned as Director and CEO over impossibility of performance and to pursue other interests,” by way of letter dated October 30.[^26] His resignation was accepted with dispatch by the Investor Group and a public announcement was issued shortly thereafter.

[48] In the course of the trial, a point of contention arose as to whether Bimman had resigned voluntarily or had been stripped of his position and title and forced out of CEL, at least as an officer and Director of the company. As will be described later in these reasons, because of the concessions made by the defendants during closing argument, and because Bimman was not advancing a claim for damages for wrongful dismissal per se, it became unnecessary for me to formally decide between the two alternative theories surrounding Bimman’s departure as director and CEO at the end of October.[^27] Had it not been rendered almost academic, and notwithstanding Bimman’s evidence on this subject including his letter of resignation, I was inclined to the view that Bimman was forced out of his position by the actions of the Investor Group, spearheaded by Itkine and Neiman. To adopt the word used by Itkine in a memo to Poberezkin in January, I am satisfied on a balance of probabilities that Bimman was “stripped” of his office. Indeed, the defendants plead that very fact in their Statement of Defence.

[49] While it became something of another in a continuing series of sideshows, Bimman spent some considerable time and energy preparing memos and correspondence to the Investor Group well into the middle of December, attempting to justify his position on the debits and credits on what he owed – or did not owe – CEL in the fallout from the Lambert contracts.[^28]

[50] At no point in this correspondence did Bimman take the position he expressed at trial, namely that he was at liberty, under the LPA or otherwise, to take the Lambert contracts in the name of BRESI as a co-venture between him and Neiman, and that as such, he was not obliged to account to CEL for any of the profit generated from this contract. On the other hand, I do not accept the argument of plaintiffs’ counsel that Bimman “adopted a conciliatory stance.” Conciliation is not a character trait that I would ascribe to Bimman based upon my observations of his demeanour and testimony during the 25 day-trial.

[51] That said, I think Bimman laboured under the misconception that if he made some concessions to the Investor Group about how much of the Lambert contracts he would repay, net of various complicated debits and credits which he suggested was owed him, he would then be able to claim or be paid some amount of the yet to be determined DMF. In other words, I think Bimman misread the mood of the room at the shareholders’ meeting on November 3 when he suggested that he would provide the Investor Group with a reconciliation in order to safeguard his portion of the DMF, which had to that point not been determined.[^29]

[52] Several conclusions can be drawn from the minutes, evidence and correspondence between the parties:

a. On November 3, a new shareholders agreement was tabled and signed by all the parties, including Bimman. Although it did not change any of the substantive terms of the August Shareholders Agreement, it memorialized Bimman’s resignation and Neiman’s new authority;

b. Itkine became an “official” officer of CEL as opposed to a de facto one;

c. One of the 7 buildings was nearing completion, which would markedly improve the fair market value of the property;[^30]

d. The project game plan changed from a condominium development to a rental project, either en bloc to local industry or as a potential building sale;

e. While Bimman wanted nothing further to do with the day-to-day operation, he intimated that he was entitled to pre-incorporation contacts and contracts, all of which he suggested belonged to him personally;

f. Bimman’s loyalties were not being directed to the continued success of CEL and were limited to his role as a shareholder;

g. The defendants agreed to consider some form of payment to Bimman in respect of the DMF, the particulars of which were yet to be settled upon.

The Continuing Lambert Concerns

[53] On December 8, Bimman prepared one final reconciliation in respect of the debits and credits and remitted a cheque to CEL for $2,254.78, based upon a net profit generated from the Lambert contracts of $3,250.[^31]

[54] This reconciliation did not sit well with Itkine. He fired off a response email alleging that Bimman not only disregarded “shareholders” “demands and decisions,” but clearly and unqualifiedly accused Bimman of having embezzled money from CEL. He demanded repayment of all monies payable under the Lambert contract. Itkine also accused Bimman of engaging in false and misleading statements in his suggestion that the Lambert deal was rooted in discussions Bimman had had with the Neiman in Thompson. He also suggested that Bimman was actively competing with CEL and attempting to interfere with its business. Itkine ended this rather forceful email with the following “call to arms”:

I invite all other shareholders to discuss what kind of legal measures should be taken to force AB submit [sic] to majority decisions.[^32]

[55] The matter did not end with the Itkine email. Unbeknownst to Bimman, the Investor Group wrote a letter, and transmitted documents allegedly in support thereof, to the Major Fraud Unit of the York Regional Police. The letter repeated the Neiman-generated complaints about Bimman’s involvement with the Lambert contracts. The letter concluded with what turned out to be an ill-conceived request for the laying of criminal charges against Bimman and BRESI.[^33] At this point, the accusations had taken on a life of their own and transcended a garden variety internecine battle among shareholders.

[56] Nothing came out of this reportage: the Police directed the combatants to sort out their issues civilly, if not with civility. I note that the defendants did not bathe themselves in any form of glory when this event was mined by counsel for the plaintiffs in his cross-examination of the individual defendants.[^34]

[57] I was left with the distinct impression that at least some of the defendants wished the letter had never been sent and the issue had never been pursued (Poberezkin and Glozman). Shmulik developed, as plaintiffs’ counsel correctly described, “complete amnesia” about the events in question, leaving me to conclude that he was less than honest in his lack of recall, particularly since he was the point person between the Investor Group and the police.

[58] Furthermore, the explanations of the origin of this police complaint offered up by Neiman and Itkine were so far-fetched and self-serving as to colour much of the rest of their evidence. Their evidence on this point left me guessing as to what was fact and what was fiction in their testimony. These two gentlemen, as intelligent and well-schooled in business as each is, would have been better off acknowledging their mistake in undertaking and reporting unproven allegations of fraud and embezzlement and moving on with the true essence of their case. Those issues will be addressed later on in these reasons when I consider Bimman’s claim for punitive damages.

The Nub of the Action

The January 11 Meeting – The First Cash Call

[59] The Lambert issue did not go away, even after the project appeared to have turned a significant corner in December. One building was completely renovated and had just come on stream; there was renewed or increased interest in one or more of the other buildings from at least one major corporation operating in Thompson; and CEL had signed a new contract with a major player in town, ancillary to the rental of apartment units.

[60] Itkine, however, continued to press Bimman for the repayment of the Lambert funds as part of an overall complaint in respect of the latter’s attempt at offering up a form of reconciliation.[^35] It was a cancer that could not be excised as far as Itkine was concerned, and it added fuel to the fire he was fanning with his additional complaints that Bimman was out there competing with CEL at every turn.

[61] Itkine sent out an email notice of meeting on December 30.[^36] While the notice included an agenda reference to the “[f]inancial situation and discussion on the means to raise funds,” there was no suggestion that a capital call would be made. In fact, a cash call was made shortly after Neiman provided the shareholders with a construction and marketing update.[^37]

[62] At that moment in time, Neiman reviewed the budget requirements. He advised the meeting that an immediate $250,000 was needed to complete the second building which had already been committed to Vale-Inco, Thompson’s largest corporate employer, for the first of February. He also reminded the shareholders that the VTB had to be discharged a month later. He indicated that funding would have to come from a cash call (the “First Cash Call”). The initially envisioned proportions of the cash call were as follows:

1. Poberezkin - $62,500
2. Neiman - $52,500
3. Bimman - $50,000
4. Glozman - $30,000
5. Shmulik - $27,500
6. Itkine - $27,500

[63] Bimman immediately responded, without explanation, that he was not prepared to make his proportionate contribution of $50,000. He later stated in evidence that he had previously made it well known to the Investor Group that his contributions would be limited to his “sweat equity,” a proposition with which I had some difficulty.

[64] However, Bimman’s only recorded input on this issue arose when the discussion switched to the number of shares that might be issued as a consequence of the First Cash Call. Bimman reminded the meeting that there was a mechanism for the calculation of the number of shares to be issued found in the November Agreement, one that was tied to the value of CEL immediately before and after the cash call. A discussion followed among several members of the Investor Group which put the number of shares to be issued between 4,000 and 8,000.

[65] After some debate, the group (Bimman dissenting) settled on the issuance of 6,000 shares. The $50,000 that Bimman was to have contributed was split pro-rata among the other shareholders.

[66] The November Agreement contained the following provision, a carry-over from the August Shareholders Agreement and one that was drafted by Itkine and amended by Bimman:[^38]

ARTICLE 6 – FINANCING

6.01 When funds are required to meet financial obligations of the Corporation or continue business operations, shareholders shall have the option to obtain external loans or financing, provided that the terms of such financing are satisfactory to simple majority of the shareholders.

If such funds cannot be obtained from external loans or financing,

(a) Each shareholder shall have the option to advance its proportionate share of the funds required and any such advance shall be without interest.

(b) If one or more than one of the shareholders do not agree or fail to make the advance after a reasonable period of time, given the then existing circumstances, shareholders who contributed the necessary funds shall have the option to receive new shares. Issuance of such new shares by Corayana shall be contingent on the agreement of simple majority of the shareholders. The number of the new shares to be received by contributors would be based on their contributions and the then current values of the shares before and after the contributions. (Emphasis added)

[67] Nothing recorded in the minutes suggests that the parties put their minds to the value of the corporation at the time of the First Cash Call, although I heard from Itkine and Poberezkin that they thought the corporation had a negative net worth at that moment in time. It would appear from the evidence of the defendants that because of their assessment of the value of the company, which was not undertaken with any measure of acuity, they felt the number of shares to be issued could be done as a function of negotiations and the will of the majority, if not some mathematical calculation obliquely connected to the initial contributions. As will be observed later, I am not persuaded that certain members of the Investor Group were as pessimistic about CEL’s prospects at that moment in time as they suggested in evidence.

[68] Four further matters are worthy of note in respect of the First Cash Call and its aftermath: (1) Itkine and Neiman had a discussion before the meeting in which they agreed that a cash call would have to be made, but chose not to or neglected to include that detail in the meeting agenda; (2) Messrs. Poberezkin, Shmulik, and Glozman contributed their required $150,000 in the weeks immediately subsequent to the meeting. Neiman and Itkine did not discharge their respective obligations until after another cash call was made one month later; (3) Poberezkin offered to sell, and Itkine accepted to buy, a portion of the former’s holdings in CEL, if only to permit Poberezkin to meet his obligations under the First Cash Call; (4) Itkine prepared a form of amendment to the November Agreement, by which he proposed to amend Article 6.01(b) above by deleting the underscored last line in the subparagraph and replacing it with the following: “The number of new shares to be received by contributors would be based on their contributions” (the “First Amendment”).

[69] In an email chain commencing shortly after the January 11 meeting, which primarily traced the negotiations between Itkine and Poberezkin in respect of the sale of a portion of the latter’s holdings, Bimman reminded Itkine that no shares could be transferred between Itkine and Poberezkin or issued pursuant to the First Cash Call so long as the pledge agreement executed as part of the VTB was still in force and effect.[^39]

[70] Later that day, and in response to receiving a copy of the First Amendment, Bimman wrote an email to Neiman and the Investor Group as follows:

I categorically object to this change since it contradicts the terms on which I invested my money and advanced my expertise and skills. I shall use all legal means against any attempt to reduce the value of my direct or indirect holdings in Corayana. Please govern yourselves accordingly.[^40] (Emphasis added)

[71] Itkine, Neiman and Shmulik went to see Alan Direnfeld, a commercial lawyer, shortly after receipt of Bimman’s email. They showed Mr. Direnfeld a copy of the First Amendment, but they did not see fit to show him a copy of the November Agreement itself.

[72] At or in the wake of that meeting, they received some information about the operation of the oppression remedy sections of the OBCA, over which a claim for solicitor-client privilege was asserted initially at trial. The details of what they were told by Direnfeld were not introduced in evidence, but proved of little moment when I considered the application of the business judgment rule later in these reasons.

[73] I digress to observe that Mr. Ellyn, plaintiffs’ counsel, excerpted in one of his written responses to questions posed to counsel before argument the following verbatim exchange he had with Itkine during the latter’s cross-examination, which I find to be instructive about the mindset of the defendants:

There is absolutely different mentality in Canada than it was in Russia in 1990s which I was taught. There is established law and there are special sections of business law to protect minorities from the majority can do. I understood that we are doing this business in Canada and we have to obey these rules and these laws. I made some searches in the Internet and I found some articles about oppression remedies, and I read some situations and I understood that my understanding of the agreement was completely wrong. Before Direnfeld, I understood if we have something in agreement, we can say it is your problem Mr. Bimman that you allowed majority to vote. Afterwards I understood that it is not exactly the case. And that we have to be not only obey the agreement. And we have also to be fair in our decisions.[^41]

[74] Two significant events occurred after the meeting with Mr. Direnfeld. First, the second building that would be occupied by Vale-Inco was completed as of February 1, adding significant value to the underlying assets of CEL almost immediately.

[75] Secondly, sometime after the meeting with Mr. Direnfeld in mid-January, Itkine met with a business associate, Christopher McCleave, presumably in search of financing to discharge the VTB and obtain some money for purposes of completing building 3, possibly also building 4, in the spring. McCleave, through a company called ARCAM Holdings Inc. (“ARCAM”), offered to loan CEL $1,500,000 by way of mortgage at 10.125% interest per annum for a period of five years.

[76] While the offer appeared reasonable on its face, a copy was not sent to the CEL participants when Itkine advised them by email late on the 27 of January that “[f]inally we received a good opportunity for re-financing.”[^42] Instead, he sent his ‘partners’ a consent for a “search for and release of personal information” (the “Consent”), which was to be executed by the principal of each CEL shareholder corporation as a precondition for any loan approval.

[77] Although the Consent appears on a preprinted form, it is a curious document which bears reproduction in this judgment:[^43]

HAVE YOU BEEN FOUND GUILTY OF A CRIMINAL OFFENCE FOR WHICH A PARDON HAS NOT BEEN GRANTED?

YES NO

I have applied to ARCAM HOLDINGS INC., or a subsidiary thereof, for commercial/residential mortgage financing. Part of the financing process is an investigation of information that I have provided. These investigations are conducted by ARCAM HOLDINGS INC.'s agent, O.B.N. Screening (*O.B.N.'). Therefore, at this time and until I specifically Inform you to the contrary in writing. in compliance with all Municipal, Provincial and Federal human rights and privacy legislation. I hereby authorize end direct you to release to A R C A M HOLDINGS INC , or its subsidiary, and/or O B.N., information that you have access to concerning my employment, my education record, my driving record, my credit record, my record of criminal convictions for which a pardon has not been granted, and/or any other Information contained in your files relevant to my financing with ARCAM HOLDINGS INC., or its subsidiary.

I consent to have the records of criminal convictions and a summary of police information attainable through CPIC through a police service for which a pardon had not been granted plus records of discharges which have net been removed from the Identification Data Bank In accordance with the Criminal Records Act.

I hereby declare that, to the best of my knowledge, the information I provided both verbally and In correspondence is complete and accurate in every respect I understand that a false statement may disqualify me from financing or cause a subsequent cessation of financing by ARCAM HOLDINGS INC or Its subsidiary.

I hereby release and forever discharge O B N Screening and any police service, their members, employees, agents and assigns from any and all action, claims and demands for damages, loss or injury, which may hereafter be sustained by me, however so arising out of the above-noted disclosure of information and waive all rights thereto. I also acknowledge that the disclosure information may only be confirmed by a comparison of my fingerprints to those on file.

[78] While I heard some rank hearsay evidence from Bimman about the due diligence he performed on ARCAM that I refused to accept for the truth of its contents, he decided, for whatever reason, that he would not execute the Consent, and the deal with ARCAM fell away almost immediately.[^44]

The February 11 Meeting – A Second Cash Call

[79] The next event in the chronology was the shareholders’ meeting of February 11, which was a pivotal meeting on several levels. It was not only viewed as a serious meeting at the time, but one which was characterized by detailed minutes prepared by Glozman, initially in Russian and thereafter translated into English.[^45] But for some issues relating to the reporting of Bimman’s comments about the principals of ARCAM and the proposal for financing, no issue was taken in respect of the recording of the other events that were discussed and voted upon at that meeting.

[80] The meeting took place at a restaurant in Thornhill, with everyone but Bimman personally in attendance. He was conferenced in by speakerphone. For a meeting that covered several contentious issues, and several issues upon which votes were taken, it does not appear from a reading of the minutes to have been terribly rancorous. However, it is clear that the lines between Bimman on the one hand, and Itkine and Neiman on the other, had been clearly drawn. Furthermore, Bimman did not disguise his ‘concern’ over the management of Neiman, if not Itkine.

[81] The first part of the meeting was spent discussing the First Cash Call share allocation, an issue that had not been resolved up to that point. Itkine reported that he and others had attended upon Mr. Direnfeld and learned that the issuance of shares in respect of the First Cash Call at a 3:1 ratio was probably too high in light of the oppression remedy sections of the OBCA. He suggested that the ratio previously agreed to be reduced to 2:1, or 4,000 shares. This number was accepted by everyone except Glozman, who sought to maintain the original ratio. Bimman abstained from the vote.

[82] In addition, Itkine tabled the First Amendment, which called for a fundamental change to clause 6.01(b). Bimman maintained his position that the original intent of the parties was to issue new shares as a consequence of a cash call based on the value of the underlying assets. His concerns were not accepted by the others. The amendment was passed, with Bimman dissenting.

[83] The discussion then focused on the recently completed construction and the relative increased value of the Property now that CEL had two renovated buildings and a new contract with Vale-Inco.

[84] Next, Bimman was asked why he refused to participate in the proposed financing from ARCAM, an issue which devolved into something of a sideshow both then and in the months to come.

[85] Because the repayment of the VTB was imminent, and because there was no chance of obtaining alternative or institutional financing in a timely fashion, if at all, Neiman made a “call to funds” (the “Second Cash Call”), by which he asked all the shareholders to contribute their proportionate share to meet the needs of CEL totaling $1,350,000. Bimman was told that he would be required to contribute $270,000, or 20% of the cash call. I note that this amount was set without regard to any dilution that might have occurred in the wake of the First Cash Call.

[86] A discussion ensued before a vote was taken. Each shareholder was given an opportunity to express his position about the Second Cash Call. While some expressed disquiet over the fact that another cash call was being made in such short order, no one objected to the discussion taking place or the cash call being made, notwithstanding the fact that no notice of the call had been given prior to the meeting.

[87] Itkine raised a concern that the profit sharing provision found in article 6.02, referred to as the ‘waterfall provision,’ be removed from the November Agreement because of the repeated cash calls. Bimman voted against this proposed amendment; Neiman abstained. Bimman then expressed his concern over the fact that CEL shareholders were, with some frequency, being faced with repeated cash calls, a complaint with which Itkine agreed.

[88] Shortly after that discussion, which, in part, focused on Bimman’s complaint about Neiman’s skill as a ‘money manager,’ another vote was held by which the shareholders, over Bimman’s objection, approved a further amendment to the November Agreement. The amendment permitted a repayment of monies advanced pursuant to cash call contributions ahead of all other debts.

[89] The discussion was then directed by Itkine to refocus on what he considered to be the pressing issue of the Second Cash Call. He, Neiman and Shmulik indicated their willingness to contribute their required amounts. Poberezkin expressed some concerns about his ability to meet the call in its entirety, but ultimately agreed to comply with the request at least in the main. What was not clear from the minutes was the percentage at which each of the shareholders was to contribute, i.e. percentages established either pre- or post- the First Cash Call.

[90] Bimman indicated, at least initially, that he was prepared to contribute on the condition that professionals be hired to manage or assist in the management of CEL. Implicit in this conditional approval was the less than veiled suggestion that Neiman be removed as the COO. The discussion morphed into another sideshow which only ended when Poberezkin reminded Bimman that time was of the essence as the VTB had to be paid off in a matter of weeks.

[91] Bimman is then recorded as saying that he could find even more money than was asked of him and suggested that he could come to the table with an additional $1.5 million, presumably if he were permitted some time to put the funding in place. After making this blanket offer, he further seemed to backtrack on his ‘sweat equity’ position, and said that he would not personally contribute anything further unless and until present management was replaced.

[92] Another digression ensued, which resulted in a “non-confidence” vote in respect of the then-present management. The motion was defeated, with Bimman voting in favour and Neiman abstaining.

[93] Finally, after some discussion about what amounts would be required, and of whom, in the event that Bimman did not meet the call, the Second Cash Call was put to a vote. The Second Cash Call was approved, with Bimman dissenting yet again.

[94] When pressed by Itkine as to whether he objected to the cash call in principle, the minutes indicate that Bimman said that he did not object to the cash call in and of itself. Rather, he objected to the ratio at which treasury shares were to be issued to the contributors, as the group had settled on a 2:1 basis once more. He did acknowledge that he understood that the VTB had to be discharged in the near future, an acknowledgement he made again in his evidence at trial.

[95] The next day, after some horse trading between Itkine and Poberezkine, the final numbers were agreed to as follows:

Neiman - $354,375 Itkine - $345,625 Poberezkin - $261,875 Glozman - $202,500 Shmulik - $185,625 Bimman - $0 Total: $1,350,000

[96] From my review of the evidence, both written and oral, I am not persuaded that the number of shares to be issued in respect of the Second Cash Call was established at the conclusion of the February 11 meeting, or even by the next day. It was agreed by the parties that 21,600 shares were eventually issued pro-rata pursuant to the Second Cash Call, but not until March 31. Itkine was firm in his evidence that CEL was, but a scant month before, in a negative net worth position. In actual fact, he was fast becoming, along with Neiman, the largest shareholder and the largest holder of CEL paper.

The March 31 Meeting— Share Subscription and Issuance, and the JIN Mortgage

[97] The month of March turned out to be a very busy month for the Investor Group and Neiman, culminating in another shareholders meeting on March 31. At this meeting, several amendments to the November Shareholders Agreement were formally passed, and shares were subscribed for and issued as a consequence of the First and Second Cash Calls. In addition, a mortgage in favor of several members of the Investor Group, their personal companies or companies controlled by their spouses, was approved for execution by CEL (the “JIN mortgage”). Bimman, who attended the meeting again by conference call, expressed strong objections to the proposed amendments and the share issuance. He also questioned the business sense of the new mortgage, or at least the interest rate that was being charged, and suggested that those voting in favour who were part of the mortgagee group had a conflict of interest.

[98] I am satisfied on the evidence that Itkine, alone or in concert with Neiman, was spearheading the technical aspects to the necessary documents behind the changes to the corporate structure, the share issuance and its calculations, and the negotiation and implementation of the new mortgage.

[99] The legal and financial activities undertaken from the date of the February 11 meeting to March 31 included the following:[^46]

a. Neiman and the members of the Investor Group made their respective payments under the First and Second cash calls primarily in February, with some tag-end amounts being paid by mid-March;

b. The VTB was discharged at the end of February, using funds from the cash call payments received in that month;

c. Lawyers were consulted to assist in the preparation of the requisite corporate resolutions and amendments;

d. Shares were formally subscribed for by Neiman and the members of the Investor Group and were thereupon issued out of treasury by CEL, which resulted in the following totals and percentage interests:

Shareholder	Total Number of Shares	Percentage Ownership
218	2,000	5.617978
105	8,820	24.77528
CICC	7,140	20.05618
21821	4,620	12.97753
Larwest	7,980	22.41573
176	5,040	14.1573
TOTAL	35,600	100

e. The November Agreement was amended in several significant respects (“Amendment No. 2”);[^47]

i. Repayment of cash advances simply on a pro-rata basis in accordance with a shareholder’s actual investment was eliminated;[^48]

1. In its place, an amendment permitting the repayment of cash advances on a last in, first out basis (“LIFO”) was instituted. This amendment specifically permitted the repayment of money paid under the Second Cash Call before any other repayments of capital were permitted;

ii. The repayment of the next $1,250,000 of anticipated surplus in accordance with proportionate shareholdings was eliminated;

1. In its place, an amendment permitting the repayment of the remaining cash advances, in accordance with the shareholdings, was instituted;

iii. The Waterfall Provision, which established an elaborate distribution of profit intended to primarily benefit the original Directors, Bimman and Neiman, was eliminated;

1. In its place, an amendment which called for the distribution of all remaining profits in accordance with the proportionate shareholdings was instituted.

[100] At the March 31 meeting, Neiman and the Investor Group tabled the particulars of and the documents in relation to the JIN mortgage. This mortgage, which was taken in the name of a Neiman-family company (JIN) as trustee, called for each of Neiman, Itkine and Poberezkin (in their own name or associated corporations or with one or other of their spouses) to advance $2.4 million to CEL, to be secured by the Property. The interests of each were as follows: Neiman - $1.5 million; Itkine - $750,000; Poberezkin - $100,000. The JIN mortgage was a five-year, interest only mortgage paying 10% per annum, and open for repayment without penalty.

[101] Although Bimman took issue with the rate being charged, suggesting he could secure a mortgage for much less than 10%, he had not undertaken any further study of the mortgage market, nor was he then in a position to advise of any potential lender who could come to the table to advance the funds that the other shareholders were prepared to lend at that moment in time. The mortgage was put to a vote and approved over Bimman’s objection, and Neiman and Itkine were authorized to sign the requisite mortgage documents.

Operational Matters

[102] From an operational point of view, the month of March proved equally significant for CEL. Renovations to the third building had recently been completed, it was fully rented, and occupancy was to commence at the beginning of April. The fourth building was being vacated for renovations which were anticipated to start at the end of April. Roofing work and boiler installation for the remaining buildings was now being considered and provided for in the budget. In fact, the ostensible purpose of the JIN mortgage was to cover off the balance of the anticipated remedial work to the buildings.

[103] On March 31, Neiman advised A.S.H. Management, the property manager who had been retained in the early days of the project, that its services were terminated effective April 1.[^49] Curiously, by way of contract dated and executed April 7, Neiman was hired as the manager of the project at an annual salary equal to 20% of ‘gross annual income’ to a maximum of $22,000 per annum, effective as of February 1.[^50] In addition, he was “awarded” an advance on his portion of the DMF of $20,000 for past services to that date and his wife—or her company—was hired as his personal assistant at a cost of $3,000 per month. Neither the termination of A.S.H. Management nor the hiring of Neiman as manager appears to have been discussed at or recorded in the minutes of the March 31 meeting.

[104] In addition, Vale-Inco awarded a contract for concierge services to CEL (the “Concierge Contract”), which was later transferred to CSL. By this contract, Vale-Inco paid CEL a monthly fee for additional services performed for and on behalf of the Vale-Inco employees who were stationed and working in Thompson, in addition to the rent that it was paying for one of the buildings.

Sideshows

[105] This last contract gave rise to another in a series of disputes between Bimman and the other CEL shareholders.

[106] Several months prior, Bimman had bid on the Concierge Contract when he knew that CEL had submitted a tender as well. When confronted, he denied he had bid on the contract. Unfortunately for him, the staff at Vale-Inco disclosed the identity of the unsuccessful tenderers to Neiman when CEL was awarded the contract. This disclosure gave Itkine an opening to “punish” Bimman for his apparent disloyalty to the group and deceitful conduct.

[107] In addition, Itkine used Bimman’s previous refusal to participate in the ARCAM “due diligence” and the manner in which he criticized the principals of ARCAM at the February meeting as an entrée for further piling on. He took the occasion to advise his fellow investors that McCleave, president of ARCAM and his business associate, was angered by Bimman’s observations made at the February meeting and suggested that they were defamatory.

[108] Itkine neglected to acknowledge at the March meeting that he had in fact shared the contents of the discussion held during the February meeting with McCleave, notwithstanding that the November Shareholders Agreement required that all CEL matters be conducted confidentially and not be disclosed to outsiders.[^51] He also neglected to disclose that ARCAM had threatened suit against Bimman, of which I am satisfied he was well aware.[^52]

[109] In effect, Itkine used these two events to backstop his barrage against Bimman for his lack of fidelity to the group, which then permitted him to revisit past grievances, including Bimman’s alleged financial indiscretions.

[110] In fact, close to the conclusion of the meeting, there was a discussion originated by Poberezkin during which it was suggested that Bimman sell his shares in CEL. This was followed up by a suggestion from Glozman that he would be prepared to buy Bimman’s shares. However, the discussion went no further since neither side wished to start the negotiation process.

[111] Regrettably, the sideshow did not subside with the end of the March meeting. Bimman, presumably in response to ARCAM’s threatened suit, proffered a retraction and an apology for his comments made during the February meeting, which he address to CEL care of Itkine.[^53] Not satisfied with his explanation, Itkine and Neiman followed up with their own demand for further disclosure of the Bimman sources to which he made reference in the course of the February meeting. I recite this series of events in these reasons as part of the factual backdrop against which my decision has been fashioned.

Second Cash Call Repaid

[112] Within days of the funding of the JIN mortgage, each of Neiman and the members of the Investor Group, on behalf of the corporate defendants, entered into separate agreements with CEL under which each lending corporation would be repaid a portion of the money advanced under the Second Cash Call. It was recited in each agreement that CEL had more than sufficient money on hand to fund the balance of the renovation costs and more than enough money from the JIN mortgage to fund the operation of CEL for at least another six months. Each participant in the Second Cash Call was to be repaid a percentage of the amount initially called for on the understanding that if funds were needed in the future to complete the “properties renovations,” then CEL could make a demand for same (the “Conditional Contribution Loan”).[^54] These agreements, which appear to have been prepared by a lawyer, were executed separately by the named defendants between April 30 and May 4.

[113] It is safe to infer that the terms of the Conditional Contribution Loan agreements were concluded on or about the date the funds were paid to CEL under the JIN mortgage. As will be discussed later, there is no leap in logic to conclude that the essence of these agreements was afoot when the JIN mortgage was conceived of and Amendment No. 2, which permitted a LIFO payment, was enacted. This conclusion would put the timing of the activities to the first part of March, if not earlier.

[114] In the first week of May, a total of $600,000 was repaid the contributors to the Second Cash Call as follows:

Itkine - $153,611 Poberezkin - $116,389 Glozman - $90,000 Neiman - $157,500 Shmulik - $82,500

[115] Upon repayment of a portion of the Second Cash Call, none of the contributors surrendered any of the shares they were issued in exchange for their participation in that cash call only a month before. I find this fact curious, since Itkine observed during the March 31 meeting that the shares were given as compensation for the contributed money.[^55]

[116] Put otherwise, the percentage holdings of each was not changed to reflect either the fact that the JIN mortgage was given for more than was initially needed to complete the project, or that the second cash call was excessive in the first place.

[117] In addition to the repayment of a portion of the Second Cash Call, CEL discharged the 2009 promissory notes, of which a total of $450,000 was repaid to an Itkine company, to Neiman’s wife, and to Glozman. A further $63,000 was paid to Itkine and Mrs. Neiman to discharge other unsecured debt which apparently arose from separate obligations to those two sometime after August 2009.

[118] To preview what lies ahead, the fourth, fifth, and sixth buildings were all completed before December 2010.[^56] No recall of funds was made to that point under the Conditional Loan Agreements. Building 7 was completed on or about August 1, 2011, during which a modest recall purportedly under these agreements was made.[^57] A further discussion of this seeming correlation is found below in these reasons.

The Lawsuit and the Sale of Two Buildings

[119] The wheels finally fell off the CEL ‘partnership’ wagon in April 2010, when Bimman commenced an action in Manitoba wherein he sought declaratory relief on behalf of the corporate plaintiff that it was an “owner” of the Property. As a consequence, he sought and obtained a caveat, or certificate of pending litigation, which was filed against the title to the Property. Shortly thereafter, in mid-June, Bimman and the corporate plaintiff brought the instant action in Ontario. The gloves were off and first blood was drawn.

[120] I will not chronologize the events, motions and Court orders that arose or were issued between June 2010 and September 2014, when this trial commenced before me. Suffice it to say that the costs for both sides became something of a run-away wagon, which seems to have driven much of the agenda thereafter, as often occurs in many lawsuits.

[121] But for the continuing litigation, matters unfolded in respect of the renovations and rentals as was anticipated during the next fiscal year to April 2011. The remaining buildings came on stream and on budget, and the rental market remained firm with corporate support.

[122] The Manitoba Government, having committed in 2010[^58] to expand the University College of the North (“UCN”), was casting about for student housing. It made an offer for two of the CEL buildings in late April for $3.9 million, some $200,000 above the appraised value.[^59] The purchase and sale closed in August 2011. The gain on the sale of the property was almost $2.6 million.

[123] As an expected result, but unwelcome from the defendants’ point of view, the money from the UCN purchase was paid into court to the credit of the instant action, pursuant to two hotly negotiated caveat agreements concluded between the parties.[^60] While the defendants sought the release of the funds before Newbould J. in October 2013, the sale proceeds plus interest remain in court. Both sides acknowledge and desire that these proceeds be used to fund any eventual payout of the plaintiff, Bimman. The great divide is, of course, the amount.

The Legal Framework

Introduction

[124] There is very little to separate the parties in respect of their positions on the law associated with the oppression remedy. Counsel referenced and relied on many of the same cases in the course of their written and oral arguments.

[125] The statutory regime for oppression, s. 248(2) of the OBCA, provides as follows:

(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.[^61]

[126] Indeed, both sides implicitly agreed that the starting point for any reasoned analysis can be found in the recent judgment of the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders[^62] (hereafter “Bell”), a judgment which traces and distils the development of the law in this area over the 50 years since the House of Lords issued its first pronouncement on the subject in Ebrahimi v. Westbourne Galleries Ltd.[^63]

[127] Rather than quoting extensively from Bell between paragraphs 39 – 93, I have borrowed liberally from the original source headnote, as did counsel in their written arguments, which I find to be an accurate and succinct summary of the essence of the law as set out in that judgment:

The oppression remedy focuses on harm to the legal and equitable interests of a wide range of stakeholders affected by oppressive acts of a corporation or its directors. This remedy gives a court a broad jurisdiction to enforce not just what is legal but what is fair. Oppression is also 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.

In assessing a claim of oppression, a court must answer two questions: (1) Does the evidence support the reasonable expectation asserted by the claimant? and (2) 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? For the first question, useful factors from the case law 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 stakeholders. For the second question, a claimant must show that the failure to meet the reasonable expectation involved unfair conduct and prejudicial consequences under s. 241.

Where conflicting interests arise, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation. The cases on oppression, taken as a whole, confirm that this duty comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly. There are no absolute rules and no principle that one set of interests should prevail over another. In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations, including – but not confined to – the need to treat affected stakeholders in a fair manner, commensurate with the corporation’s duties as a reasonable corporate citizen. Where it is impossible to please all stakeholders, it will be irrelevant that the directors rejected alternative transactions that were no more beneficial than the chosen one.

[128] In assessing the reasonable expectations of the parties, I find instructive the following description of some of the “useful factors,” as set out by the Supreme Court in Bell:

(ii) The Nature of the Corporation

[74] The size, nature and structure of the corporation are relevant factors in assessing reasonable expectations. Courts may accord more latitude to the directors of a small, closely held corporation to deviate from strict formalities than to the directors of a larger public company.

(iii) Relationships

[75] Reasonable expectations may emerge from the personal relationships between the claimant and other corporate actors. Relationships between shareholders based on ties of family or friendship may be governed by different standards than relationships between arm’s length shareholders in a widely held corporation. As noted in Re Ferguson and Imax Systems Corp. (1983), 1983 CanLII 1646 (ON CA), 150 D.L.R. (3d) 718 (Ont. C.A.), “when dealing with a close corporation, the court may consider the relationship between the shareholders and not simply legal rights as such” (p. 727).

(iv) Past Practice

[76] Past practice may create reasonable expectations, especially among shareholders of a closely held corporation on matters relating to participation of shareholders in the corporation’s profits and governance: Gibbons v. Medical Carriers Ltd. (2001), 17 B.L.R. (3d) 280, 2001 MBQB 229; 820099 Ontario. For instance, in Gibbons, the court found that the shareholders had a legitimate expectation that all monies paid out of the corporation would be paid to shareholders in proportion to the percentage of shares they held. The authorization by the new directors to pay fees to themselves, for which the shareholders would not receive any comparable payments, was in breach of those expectations.

(vi) Representations and Agreements

[79] Shareholder agreements may be viewed as reflecting the reasonable expectations of the parties.

[80] Reasonable expectations may also be affected by representations made to stakeholders or to the public in promotional material, prospectuses, offering circulars and other communications.

[129] The Supreme Court reminds us in Bell, however, that not every failure to meet a reasonable expectation gives rise to the conclusion that the conduct was unfair and results in prejudicial consequences to the complainant. A court must thereafter determine whether the conduct complained of falls within one or other of the enumerated heads of “oppression,” “unfair prejudice” or “unfair disregard” of the claimant’s interest, conduct which the Supreme Court has interpreted to be not only adjectival, but hierarchical in nature. The Court’s observations in Bell, at paragraphs 92-94, are illustrative of this conclusion:

[92] The original wrong recognized in the cases was described simply as oppression, and was generally associated with conduct that has variously been described as “burdensome, harsh and wrongful”, “a visible departure from standards of fair dealing”, and an “abuse of power” going to the probity of how the corporation’s affairs are being conducted: see Koehnen, at p. 81. It is this wrong that gave the remedy its name, which now is generally used to cover all s. 241 claims. However, the term also operates to connote a particular type of injury within the modern rubric of oppression generally – a wrong of the most serious sort.

[93] The CBCA has added “unfair prejudice” and “unfair disregard” of interests to the original common law concept, making it clear that wrongs falling short of the harsh and abusive conduct connoted by “oppression” may fall within s. 241. “Unfair prejudice” is generally seen as involving conduct less offensive than “oppression”. Examples include squeezing out a minority shareholder, failing to disclose related party transactions, changing corporate structure to drastically alter debt ratios, adopting a “poison pill” to prevent a takeover bid, paying dividends without a formal declaration, preferring some shareholders with management fees and paying directors’ fees higher than the industry norm: see Koehnen, at pp. 82-83.

[94] “Unfair disregard” is viewed as the least serious of the three injuries, or wrongs, mentioned in s. 241. Examples include favouring a director by failing to properly prosecute claims, improperly reducing a shareholder’s dividend, or failing to deliver property belonging to the claimant: see Koehnen, at pp. 83-84.

[130] There are additional rules of construction which I set out below as an aide memoire to my deliberations:

• Relationships between shareholders based on their ‘friendship’ may be governed by different standards than relationships between arm’s length shareholders in a widely held corporation.[^64]

• Past practices may create reasonable expectations, especially among shareholders of a closely held corporation, on matters relating to participation in the corporations profits or governance.[^65]

• Agreements between shareholders may be viewed as reflecting the reasonable expectation of the parties.[^66]

• Business judgment that, in hindsight, has proven to be mistaken, misguided or imperfect will not necessarily give rise to liability through an oppression remedy.[^67]

[131] Two further points bear repeating, which I have excerpted from decisions of two former judges of this Court:

1. The business judgment rule:

… operates to shield from court intervention business decisions which have been made honestly, prudently, in good faith and on reasonable grounds. In such cases, the board’s decisions will not be subject to microscopic examinations and the court will be reluctant to interfere and to usurp the board of directors’ function in managing the corporation.[^68]

2. A court will find oppression in the dilution of a minority shareholder’s interest when the minority shareholder has not been given the opportunity to participate in the issuance of the new shares; there is not any bona fide purpose for the issuance of the new shares; and the shares have been issued at below market price.[^69]

Disposition of the Oppression Claim

[132] To restate the obvious, CEL was at all relevant times in the winter of 2010 – as it is today – a closely held private corporation. There were six shareholders; one director (Neiman); and two officers (Neiman and Itkine). The November Agreement was the operative agreement between the shareholders when the First Cash call was made in January 2010. At that time, Bimman held 20% of CEL, or 2,000 shares of the corporation, for which he had paid $125,000 or $62.50 a share.

[133] While no doubt the matters tabled at the series of shareholders meetings were infused with the handiwork of Itkine and Neiman preliminary to the holding of such meetings the issues surrounding the two cash calls, the granting of the JIN mortgage and the proposed and purported amendments to the November Agreement (collectively referred to as the “Pivotal Issues”) were all discussed and voted upon at the various meetings. Bimman expressed his strong objection and universally voted against the Pivotal Issues at each meeting. While not determinative of the issue of “oppression,” I would also observe that there was inadequate and insufficient notice in respect of each of the meetings at which the Pivotal Issues were passed.[^70]

First Cash Call

[134] Taken in isolation, I do not find this cash call engages the oppression remedy section on any of the hierarchical levels of the section, notwithstanding Mr. Bimman’s position that he had a reasonable expectation that he would not be required to put in any more capital if demanded, as the cash component of his participation was limited to his initial contribution and his “sweat equity” thereafter. I find this position to be a tad disingenuous having regard to the fact that he worked with Itkine on the wording of Article 6.01(b), repeated below. In my opinion, he cannot now be heard to say that the cash call provision, which he helped draft, was limited to calls made of Neiman and the Investor Group only.

[135] Nor was it reasonable for him to assume that this provision would only be exercised on a last ditch basis.[^71] He knew—as did the others—that CEL was fast running out of money sufficient to complete the renovations. He knew as well that third party financing was not available after the summer of 2009 when the Westoba financing was rejected by the other shareholders. Indeed, I find that he was aware that financing could not be obtained piecemeal until either the individual buildings were renovated or the Property had been severed. He is and was a real estate broker and can be presumed to know how financing of such projects generally proceeds.

[136] That said, it was reasonable for him to assume that once the First Cash Call was made over his protestations, the November Agreement would be complied with in terms of its dilution provision. It was equally reasonable to expect that those who voted in favour of the cash call would meet their respective obligations in a timely fashion.

Interpretation of Article 6.01(b)

[137] To repeat, Article 6 .01(b) provides as follows:

If one or more than one of the shareholders do not agree or fail to make the advance after a reasonable period of time, given the then existing circumstances, shareholders who contributed the necessary funds shall have the option to receive new shares. Issuance of such new shares by Corayana shall be contingent on the agreement of simple majority of the shareholders. The number of the new shares to be received by contributors would be based on their contributions and the then current values of the shares before and after the contributions. (Emphasis added)

[138] As I read this section, it appears to me that the number of shares issued as a consequence of a cash call when one or other of the shareholders has not met his obligation must bear a direct relationship to the value of the shares at the moment immediately before any cash was contributed in response to the call and the moment immediately after payment.

[139] Furthermore, I am satisfied on the evidence of the business valuators called by each party, Bruce Roher and Paul Mandel, that CEL had a positive “en bloc” value as of January 11, 2010, a value that increased as a result of building renovations during the Fall of 2009 and the Winter of 2010.[^72] It did not have a negative value as was suggested by several of the defendants in their evidence.

[140] Notwithstanding the views of Itkine and Poberezkin on CEL’s intrinsic value, there was no unanimity amongst the shareholders at the time of the First Cash Call in respect of the appropriate number of shares that should be issued as a consequence. Indeed, the minutes of the January 11 meeting and Itkine’s own evidence at trial underscore this divergence of opinion.[^73]

[141] In any event, the defendants did not undertake any analysis at that time that would relate the number of shares issued to the “en bloc” adjusted book value of the company in January, presumably because they believed that CEL was under water.

[142] When the numbers were settled upon at the end of March, Neiman and the Investor Group decided that 4,000 shares would be issued in respect of the $250,000 sought at the time. While Itkine said that the shares issued were designed to withstand an oppression scrutiny, they were also pegged to the value of the shares initially issued to Bimman and Neiman, at $62.50 per share. In other words, while the evidence is less than clear on this subject, Itkine suggested that the number of shares issued in accordance with each of the two cash calls was calculated on the same basis as that charged to Bimman and Neiman at first instance, namely $62.50 per share.[^74]

[143] Interestingly enough, not all the $250,000 was “contributed” when called for. As previously indicated, Itkine and Neiman failed or neglected to make their required contribution until after the Second Cash Call. But the “dilution” factor to which Bimman was subjected presupposed the full contribution, which I find to be an error on the part of the Defendants.

[144] I have calculated Bimman’s dilution as of January 11, 2010, based upon the Roher analysis found in Exhibits 18-21. I have attached more detailed calculations as Appendix 1 to these reasons, but will briefly summarize them here. As previously indicated, since Itkine and Neiman did not contribute their $100,000 from the First Cash Call until much later, I have not included their contributions in my calculation regarding Bimman’s dilution on January 11. Therefore, I calculate the total of the First Cash Call on January 11 to have been $150,000. Immediately prior to the cash call, CEL had 10,000 shares and an “en bloc” value of $652,000, giving the shares a value of $65 each. In consequence, 2,307 shares ought to have been issued as a result of the First Cash Call, that number being $150,000 divided by a value of $65 per share.

[145] The defendants were therefore wrong to issue themselves 4,000 shares as a result of the First Cash Call. While I accept the fact that there is a correlation between this number and the price per share paid by each of Neiman and Bimman for their initial subscription, I am not satisfied that the analysis seemingly undertaken by the Defendants as at March 31 accords with the correct interpretation of Article 6.01(b), at least as it relates to the First Cash Call. And in any event, when the total numbers were arrived at for the Second Cash Call, there was no reckoning for any imputed diminution in Bimman’s obligation after the First Cash Call.

[146] I find that Bimman’s ownership in CEL should have been reduced to 16.25% as a result of the First Cash Call.[^75]

Second Cash Call

[147] This cash call has provided me with a bit of an intellectual dilemma. Bimman agreed that funds had to be cobbled together in order to complete the renovations to the third building by the end of March and to discharge the VTB by the end of February. However, it was his counsel’s position in argument that a cash call which carried with it a dilution of shares was unnecessary at this moment in time, since money from other sources was available to CEL.

[148] It was Mr. Ellyn’s position that Itkine and Neiman, at least, had the wherewithal to loan the necessary funds to CEL without a formal cash call, as had been done by way of unsecured loans the previous summer. According to Mr. Ellyn, their respective contributions to the Second Cash Call and JIN Mortgage, if not the Itkine purchase of Poberezkin’s shares, prove this thesis. In addition, Mr. Ellyn postulated that Neiman and Itkine failed or neglected to canvass the waterfront in not securing conventional financing to replace at least the VTB debt. Implicit in this position, but not proven, was the suggestion that the urgency of the cash call was manufactured merely to water-down Bimman.

[149] While I found the evidence on this thesis to be, at times, appealing, I would be falling into error if I incorporated the events that unfolded in March or April as part of the foundation for such a conclusion. First, I do not have sufficient evidence to question the personal financial decisions that were undertaken by Neiman, for example, in terms of why he invested in one vehicle as opposed to another and the timing for these decisions.

[150] Secondly, Itkine’s evidence on why he was prepared to answer the cash calls even though he appeared to be a man of considerable substance and had not elected to put the money in as part of a further unsecured loan resonated with me. Basically, Itkine testified that he was not prepared to put any more money into the project until he saw which of his ‘partners’ was prepared to backstop the apparent illiquidity issue. That explanation was more than reasonable.

[151] However, even though the Investor Group and Neiman purported to amend the dilution provision, as set out above in paragraph 99(e), an action with which I find fault, I am not persuaded that they were permitted to effect such an amendment or at least rely on the amendment for purposes of calculating the amount of the cash call and consequential share issuance as at February 11.

[152] In addition, it would be improper and manifestly unfair to calculate Bimman’s dilution on the basis of the full amount of the money contributed as a result of the Second Cash Call. A full $600,000 of the Second Cash Call was almost immediately paid back out of the proceeds of the JIN mortgage, and I am satisfied that the mechanics of that mortgage were well under way when that deal and the paper in respect of the Second Cash Call, share subscription and Agreement amendments were tabled. In other words, either the cash call amount was too great in the first place, or the defendants should have returned the excess shares for cancellation that were purportedly delivered under the cash call.[^76]

[153] In the final analysis, and referring yet again to Appendix 1, I have calculated the appropriate number of total shares that should have been issued pursuant to the contribution of $750,000 under the Second Cash Call and $100,000 in respect of the balance of the Itkine and Neiman obligation under the First Cash Call. CEL’s shares were worth $148 each at that moment in time.[^77] Therefore, the defendants’ contribution of $850,000 ought to have resulted in the issuance of only 5,743 new shares, rather than the 21,600 shares that the defendants actually received.[^78] Accordingly, Bimman’s interest in CEL following the Second Cash Call should have been reduced to 11.08%.[^79]

Conclusion – Oppression Remedy

[154] The starting position for this analysis can be found in the concession offered up by the Defendants during closing argument and confirmed in writing after I retired to contemplate this matter. Counsel provided me with the following acknowledgment, which I find to be most instructive:

While the defendants do not expressly agree that oppression exists on the evidence before the Court, we are prepared to agree for all purposes that the grant of the JIN Mortgage following the meeting of March 31, 2010 unfairly disregards the interests of the plaintiffs because the amount of that mortgage was greater than the immediate needs of Corayana.

[155] Indeed, much of the defendants’ written damages analysis appended to their factum included scenarios which purported to subtract from the full amount of the Second Cash Call the amount of the money paid back to the contributors from the JIN Mortgage proceeds, as I have done in my analysis above.

[156] In my opinion, the events culminating in the meeting of March 31 (reviewed in detail above) meet the threshold for application of s. 248 of the OBCA. While I don’t believe it rose to the level of “burdensome, harsh and wrongful,” although it came perilously close to that level, I am satisfied that the actions of the defendants, taken cumulatively, were significantly more harmful than simply ‘unfairly disregarding’ Bimman’s interest.

[157] The events that I have set out above were, in my opinion, unfairly prejudicial to Bimman. The purported amendments to the November Agreement did more than just marginalize him at that moment in time. They firmly entrenched Itkine and Neiman as the chief beneficiaries of the continued operation of CEL as its now majority shareholders in a business which was at that moment in time poised to be more than modestly successful.

[158] The rules of the game were changed at Bimman’s expense. The reasonable expectations of the Investor Group shifted from the time they first came on board in 2008 to March 31, 2010, an evolution embodied in Amendment No. 2, which was again at Bimman’s expense. By March 31, 2010, his interest in CEL had not only been ratcheted down in an amount which did not accord with the originally negotiated deal, but he was subjected to the will of the majority in terms of the manner in which the cash calls would play out and the order in which the funds could be repaid.

[159] Furthermore, the original formula for profit distribution was significantly altered by the Amendment, although at both of Bimman and Neiman’s expense, at least on paper. Interestingly, Neiman did not vote against this aspect of the Amendment; he merely abstained. I am satisfied that his abstention was motivated in part by the fact that he was given a “secret” management contract, a draw against the DMF and his wife was hired as his paid assistant.

Value of Bimman’s Shares

[160] Mr. Ellyn did not lump all the events of the month of March as I have, but argued that because the shares in respect of each of the two cash calls were not subscribed for and issued until March 31, the dilution was not complete until that date. Hence, he argued that Bimman’s interest remained at 20% for valuation purposes as a result of a finding of oppression.

[161] While this argument had some appeal, in my view it would only succeed if I found that the cash calls were either not necessary or a ruse at the relevant time, and that none of the money had been contributed along the way. I am satisfied the evidence belies those conclusions. Therefore, I hold that Bimman’s interest in CEL as at March 31, 2010, should be reduced to 11.08%. I now must embark upon a calculation of its value as at December 31, 2013, which is the date of reckoning the parties are agreed is my starting point.

Valuation of CEL

Expert Evidence – Some Observations

[162] When I was first parachuted into this case some few weeks before the scheduled commencement of trial, very little trial management had been undertaken.[^80]

[163] At my suggestion, the three sets of experts, namely the Actuaries, Real Estate Appraisers and Business Valuators, met or spoke to discuss their respective reports, without counsel, in an effort to determine whether there was any congruence of opinion and to what level their points of divergence could be clarified. Mercifully, the actuarial conclusions were agreed to. This left me ultimately to decide a question of law, one which I have deferred to the back end of these reasons.

[164] The Real Estate Appraisers, Graydon Rodgers and Jason Schellenberg, came to a virtual meeting of the minds and issued a joint report, which set out in some detail their conclusions on many issues.[^81] They also identified the one analytical component upon which they differed. In the final analysis, I was left to decide this one issue, although that too was tweaked by agreement of counsel in the end.

[165] The Business Valuators, Bruce Roher of Fuller Landau Valuations Inc. and Paul Mandel from Collins Barrow Toronto Valuations Inc., started out poles apart, even after they caucused. As matters developed during the course of their evidence, certain issues fell away, leaving me to assess their respective evidence by employing standard evaluative criteria applicable to expert evidence generally. As will be seen later, I preferred the evidence of Mr. Roher to that of Mr. Mandel, a conclusion which was virtually echoed by counsel for the defendants during final argument.

Real Estate Appraisal Evidence

[166] The parties were in agreement that the value of the CEL shares was driven primarily by the value of the underlying real estate, namely the five remaining identical three-story buildings. As indicated, two of the buildings had been sold to the UCN in 2011 for $3,900,000, funds which have been paid into court to the credit of the action.

[167] Renovations to the seven buildings took place over a two year period, the first coming on stream in December 2009, with the last being completed at the beginning of August 2011. The renovations in respect of the first three buildings were completed by the March 31 meeting, a date which basically set the bar for the value of the shares of the corporation at the moment in time when I have concluded that Bimman’s complaint crystallized.

[168] There is very little to choose between the evidence of Messrs. Rodgers and Schellenberg. Each had the requisite and sufficient professional qualifications and experience. Each prepared reports in accordance with the standards of professional appraisal practice. Each gave his evidence in a clear, reasonably concise and relatively neutral manner.

[169] Both concluded that the Cost and Market Comparable Approach methods were not appropriate in the circumstances, which lead them to conclude that the proper methodology to be applied was the Net Income Approach. In arriving at what is referred to as the ‘normalized annual net income,’ they were in agreement on three key variables, namely: projected gross annual income, effective gross income, and projected total expenses.

[170] In the final analysis, the major point of departure arose from their respective choice of the capitalization rate to be applied to the stream of net income agreed upon.[^82] In his report, Mr. Schellenberg chose a rate of 8.9%, based primarily upon a comparable he relied upon situated in the Town of Thompson. This choice yielded an end number of $8.97 million. Mr. Rodgers chose a rate rooted in the applicable rates derived from the sale of the first two buildings to the UCN, which he tweaked to 7.5%. The value he ascribed to the buildings in his report, net of the CSL income, was $10.647 million.[^83]

[171] The evidence of each expert was nibbled away at in a meaningful fashion through the carefully crafted cross-examinations by Mr. Christie, on behalf of the defendants, and by Mr. Ellyn, for the plaintiffs. Because appraisal evidence is anything but an exact science, at the conclusion of their evidence, I urged the parties to rethink the differential and provide me with a “bottom-line” number, which they did. The plaintiffs proposed a “bottom-line” value of $10,000,000; the defendants, $9,742,353.

[172] The plaintiffs’ proposed value of $10,000,000 employs a net income of $811,029, a figure roughly $13,000 greater than the amount discussed and settled upon by Messrs. Schellenberg and Rodgers. That number was arrived at by reducing the management fee component of the expense items by the amount charged to CEL by the A.S.H. Management Group, whose services were terminated in late March 2010 when there were but two buildings in the mix. The plaintiffs then employed a capitalization rate of 8.1%, a number close to the rate settled on by the defendants in their own re-worked analysis. This gave rise to an overall value of $10,012,704, which the plaintiffs rounded down to $10,000,000.

[173] First, while there was some evidence from A.S.H. Management on what they charged CEL as a percentage of income, and what they now thought was appropriate, I am not sure there is any principled reason to move away from the agreed upon rate of Messrs. Schellenberg and Rodgers. Indeed, such a departure would do a disservice to the notion of having experts come to an agreement prior to or during trial after the evidence to assist the trier of fact.

[174] Furthermore, the rate negotiated by A.S.H. with CEL was at a time when the Property was markedly different than it is today. There are now five fully functioning buildings that are tenanted beyond the levels of 2010. I think it is fair to conclude that today’s scope of work was within the contemplation of Messrs. Schellenberg and Rodgers at the time that they came to their agreement on the applicable management fee. I therefore decline to tinker with that number as the plaintiffs would have me do.

[175] Finally, I am not persuaded that the cap rate advocated by the plaintiffs – 8.1% – is anchored in anything more precise than the mid-point of 8.2 % chosen by the defendants. I also agree with the argument of the defendants that this arithmetic can be equally justified on the nuanced differences found in the attributes of the comparables discussed in evidence.[^84]

[176] I find, therefore, that the appropriate value for the underlying real estate should be set at $9,742,353, rounded down to $9,740,000, based on a normalized net income of $798,873 and using a cap rate of 8.2%.[^85]

CEL – Global Valuation

[177] The defendants correctly state that in the final analysis there is “basic agreement” between Messrs. Roher and Mandel on the methodology to be employed in arriving at an “en bloc” value for CEL.[^86] Indeed, this convergence of opinion is repeated in the plaintiffs’ factum.[^87] Where they part company in respect of the end numbers is the underlying market value of the Property and what was referred to as the contingent disposition costs (“CDC”).[^88] CDC, another definition in respect of which Messrs. Roher and Mandel are in essential agreement, covers the anticipated real estate commission, legal fees and income taxes to be incurred in respect of the sale of the buildings or the shares of CEL on an ongoing basis. Again, there is apparent agreement on at least two of the three variables which form part of the calculation of CDC, namely commissions and legal fees payable. There remains, however, one variable for my determination — the anticipated tax payable by CEL on disposition of the remaining buildings. Since their respective theories in arriving at the appropriate rate of deferred tax are markedly different, it is of some moment to discuss the “acceptability” of their evidence qua expert, in general, and in respect of this topic, in specific.

[178] Putting it simply, and as I alluded to before, I prefer the evidence of Mr. Roher to that of Mr. Mandel in all respects. While each expert has roughly the same educational and business background, I had more than modest reservations about Mr. Mandel’s evidence both in terms of its accuracy and of equal importance, its impartiality.[^89] In that respect, I agree with Mr. Ellyn’s observations that Mr. Mandel was inclined to overstate his position as it related to the overall financial condition of CEL at all material times;[^90] appeared to be unfamiliar with or not in possession of the underlying relevant corporate documents, minutes and exchanges between the parties relevant to certain matters in issue;[^91] was dotted with errors; and failed or neglected to interview others than Neiman (and perhaps Itkine) who might have been able to shed light on the operation of the corporation and its financial health at the relevant time, including but not limited to Bimman, CEL’s accountants and auditors.[^92]

[179] In so far as the deferred or embedded income tax issue was concerned, I totally reject Mr. Mandel’s analysis and his use of a concept which he labelled as the “Loss of Tax Shield.” In the first place, Mr. Mandel could not provide me with any academic or professional underpinning for the adoption of his tax calculation methodology. Secondly, he appeared to be unaware of a recent decision of the Tax Court of Canada which approved and adopted the methodology employed by Mr. Roher in similar circumstances to those of the instant case.[^93] Finally, his analysis, as best as I understood it, contemplated a perpetual hold of the underlying assets and seemed to work only if there were a share and not an asset sale, a proposition with which I take issue having regard to the most recently reported amounts for the undepreciated capital cost of the subject buildings. In other words, I find that it would be unrealistic to assume that a willing buyer of the Property would opt for shares as opposed to the hard assets.

[180] In the final analysis, I reject Mr. Mandel’s methodology and accept Mr. Roher’s calculus on this aspect of the CDC. That said, I asked Mr. Mandel, as I did Mr. Roher, to ‘run some numbers’ for me assuming that I accepted the defendants’ valuation of the Property and rejected their calculation of CDC, but accepted the arithmetic propounded by Mr. Roher. This he did, in a calculation which was filed as Exhibit 28. I have appended as Appendix 2 to these Reasons two columns of Exhibit 28, which is reflective of the task I asked Mr. Mandel to undertake.

[181] A review of this Appendix shows that the difference in valuation, all other variables considered equal,[^94] is the difference between a value of CEL as of December 31, 2013, of $7,747,900 and $7,382,908, or a difference of about $365,000.[^95] I therefore find the value of CEL on December 31, 2013, to have been $7,747,900. This means that Bimman’s 11.08% share was worth $858,468.31.

Criminal Rate of Interest

[182] Before moving to the plaintiffs’ “ancillary” claims, I think it appropriate at this moment in time to deal with the argument that Bimman’s interest in CEL should not be diluted at all as the issuance of shares in response to the two Cash Calls engaged the criminal interest rate provisions of the Criminal Code[^96] and should be set aside.

[183] The primary issue before me with respect to the application of the criminal interest section of the Code was whether the shares that the defendant shareholders received as a result of their loans to CEL fall within the definition of “interest” as that term is defined at s. 347(2). I am of the view that they do not. In particular, I do not think that the issuance of shares to the defendants constituted a “charge or expense” pursuant to s. 347(2). Nor do I think this transaction, which can best be classified as a hybrid debt-equity transaction, was one which Parliament intended be caught in the web of the prohibition.

[184] Criminal Code s. 347(1) is set out below, along with the term “interest” as defined at s. 347(2):

347. (1) Despite any other Act of Parliament, every one who enters into an agreement or arrangement to receive interest at a criminal rate, or receives a payment or partial payment of interest at a criminal rate, is

(a) guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or

(b) guilty of an offence punishable on summary conviction and liable to a fine not exceeding $25,000 or to imprisonment for a term not exceeding six months or to both.

(2) In this section,

“interest” means the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit under an agreement or arrangement, by or on behalf of the person to whom the credit is or is to be advanced, irrespective of the person to whom any such charges and expenses are or are to be paid or payable, but does not include any repayment of credit advanced or any insurance charge, official fee, overdraft charge, required deposit balance or, in the case of a mortgage transaction, any amount required to be paid on account of property taxes; (emphasis added)

[185] I do not believe there is any issue that s. 347 was promulgated as an anti-usury provision ostensibly aimed at criminal loan-sharking,[^97] even if its legislative record yields few clues as to the intended scope of its application.[^98] Transactions such as those in the case before me – shareholder loans in exchange for or coupled with the issuance of shares – do not strike me as the type of transaction that Parliament intended to prohibit in enacting s. 347.

[186] Nonetheless, I am mindful that the Supreme Court has held that s. 347 imposes “a generally applicable ceiling on all types of credit arrangements without regard to the sophistication of the parties or the amount in issue. […] [I]t is now well settled that s. 347 applies to a very broad range of commercial and consumer transactions involving the advancement of credit, including secured and unsecured loans, mortgages and commercial financing agreements.”[^99]

[187] The provision is drafted so as to prevent its deliberate evasion by means of misleadingly-worded contracts or cleverly-structured deals. Furthermore, in determining whether a particular transaction runs afoul of s. 347, the Court must have regard to the substance of the transaction and not merely its form.[^100] That said, I agree with the observation that the section’s focus is “on the actual benefit given to the borrower and the real cost of borrowing.”[^101]

[188] The applicability of s. 347 to the present transactions turns, in my view, on the meaning of “interest.” In Garland, at paras. 27 and 30, the Supreme Court considered the meaning to be given to the statutory definition of “interest”:

It is apparent from this definition that for the purposes of s. 347 “interest” is an extremely comprehensive term, encompassing many types of fixed payments which would not be considered interest proper at common law or under general accounting principles. In particular, charges or expenses “in the form of a ... penalty” are expressly included as interest under s. 347. At common law, interest is a charge for the use or retention of money which accrues day by day; it does not include penalties.

It is equally clear, however, that not every charge or expense will be subject to the criminal interest rate provision. In order to constitute “interest” under s. 347, a charge -- whatever its form -- must be “paid or payable for the advancing of credit under an agreement or arrangement”. (emphasis added)

[189] In this respect, Levine J.A.’s holding in Boyd is particularly instructive with respect to the task before me:

… the question of whether a particular payment is “interest” as defined in s. 347(2) will be determined in the circumstances of each case. It is impossible to set out a general rule based on the facts of this particular transaction or any other, given the ingenuity of the financial world and the variety of financial transactions developed to meet the needs of its participants.[^102]

[190] A helpful distillation of the cases, and one which has considered the definition of “interest” in the context of s. 347, is found in an article by Barry Tarshis, a senior practitioner in the area of commercial financing transactions. While Mr. Tarshis readily acknowledges the principles found in Garland and Boyd, he suggests that because the definition section commences with the word “means,” Parliament intended the definition to be “finite” and not simply inclusive, a conclusion with which I am in agreement.[^103] In addition, he suggests that the following extract properly isolates the essence of the meaning of the term “interest” when considering its application to any particular transaction:

Interest is any charge or expense paid or payable for credit by or on behalf of the borrower, regardless of the recipient of the charge or expense.[^104]

[191] One of the only reported cases which has considered whether shares constitute “interest” is J.D.M. Capital Ltd. v. Smith.[^105] The facts in J.D.M. are somewhat complex, but are succinctly summarized by the Court of Appeal:

The trial judge found that the appellant J.D.M. Capital Inc. (JDM) agreed to lend $2,280,000 to Robert Atkinson to enable Mercer [a defendant] to acquire 70,000 Nalcap shares. The shares would secure the loan, which was to be repaid within six months (later extended to eight months) with interest at prime plus 1 per cent. As well, Mercer would use its best efforts to enable JDM’s related company, Fusion Capital Corporation (Fusion), to acquire treasury shares in Bison at a discount of .75:1 from book value, such that the appellants would receive tax free what they described as a “lift” of $1.666 million dollars. After paying $5 million to acquire the shares, the value of the appellants’ interest in Bison would be $6.66 million, calculated with reference to the book value of the shares. Thus, the $1.666 million lift was the financial benefit anticipated by the appellants in return for making the $2.28 million loan to Mr. Atkinson as a conduit for Mercer and investing $5 million in Bison treasury shares. No issue is taken with these findings.[^106]

[192] Thus, at trial, the judge found that the plaintiffs had obtained a collateral benefit of $1.66 million from an investment of $2.28 million.[^107] Quoting from Blair J.A.’s reasons in William E. Thomson Associates Inc. v. Carpenter,[^108] the trial judge concluded the following:

... In my opinion, the $1.66 million claimed by the plaintiffs is a collateral advantage connected with the loan which the plaintiff in effect granted to the defendants, even though it was most effectively guaranteed by Mr. Robert Atkinson. A collateral advantage of this type comes, in my view, within the meaning of the word “interest” as defined by s. 347(2) of the Criminal Code, and as such is unenforceable.[^109]

[193] This decision was appealed to the British Columbia Court of Appeal where the appellants advanced three arguments. They contended that the trial judge erred: (1) in holding that the acquisition of Bison shares by Fusion falls within the definition of “interest”; (2) by failing to recognize that “credit advanced” means the aggregate of the money and the monetary value of any goods, services or benefits actually advanced or to be advanced; and, (3) by equating the yield earned by the lender to the cost incurred by the borrower.[^110] The Court of Appeal disposed of the appeal on the basis of the third ground alone and remitted the matter to the trial division for quantification of the loss caused to the appellants by the respondents’ denial of its best efforts promise.[^111]

[194] The Court did not decide whether the acquisition of shares can or always constitutes “interest” within that term’s meaning in s. 347(2). In obiter, the Court observed the following:

Moreover, [the appellants’] submission that an [investment] opportunity “should” not be included as a charge or expense coming within “interest” as defined in s. 347(2), suggests an attractive means of limiting the incursion of s. 347 into the commercial realm.

However, I do not accept that an investment opportunity given as a cost of a loan must necessarily be excluded from the definition of interest in s. 347(2).[^112]

[195] The parties to this litigation have called on me to decide the issue not addressed by the Court of Appeal in J.D.M. – namely, whether the issuance of shares as part of a loan transaction can constitute “interest” for the purpose of applying s. 347 of the Criminal Code. Without determining whether shares are categorically excluded from s. 347, and bearing in mind that each case is to be decided on its own particular facts, I am not persuaded that the shares issued to the defendant shareholders constituted a “charge or expense” as those terms are used in the definition of “interest” at s. 347(2).

[196] The defendant shareholders are on both sides of the impugned transactions. In that respect, the calculation revealed in the actuarial evidence reflects the benefit received by the lenders and is not reflective of the cost to the borrower, CEL. I do not conclude as well that the one is the mirror image of the other.

[197] Furthermore, while there may be a cost associated with issuing shares at sub-market value, it is a cost that is borne by the shareholders of the company as distinct from the company itself.[^113] Similarly, in this case, the cost of issuing shares is borne by CEL’s shareholders in one of two ways: either in the lending shareholders’ failure to pay fair market value for the issued shares, thereby depriving CEL of capital; or in the diminution of each share’s value as a result of the increased number of shares without a corresponding increase in CEL’s value.

[198] In either case, it is the shareholders – the residual owners of the company – who have suffered any detriment resulting from the impugned transactions. While CEL and the defendant shareholders are separate legal entities, their relationship is of such a nature that the issuance of shares as compensation for the interest-free loans cannot be characterized as a “charge or expense.”

[199] Additionally, the issuance of shares is not a charge that is “paid or payable” by CEL and therefore does not fall within the definition of “interest” at s. 347(2). The shares were not redeemable at the option of the shareholders and CEL was not committed to re-purchasing them at any time in the future. Furthermore, the shares did not guarantee any right to future payment. In these circumstances, the difference in value between $0.01 and the fair market value of the shares was not an amount “paid or payable” by CEL to the defendant shareholders.

[200] I note in passing that none of the parties to the impugned transactions has raised its legality before the Court. Neither the defendant shareholders (the lenders), nor CEL (the borrower), have attacked the shareholder loans as violating s. 347. This anomaly makes this case an outlier amongst the jurisprudence dealing with the civil application of Criminal Code s. 347, jurisprudence which typically sees a borrower attacking a loan agreement as unenforceable.[^114]

[201] Further, it indicates why the transactions and their effects on the plaintiffs are more appropriately dealt within the oppression remedy framework rather than through the application of the Criminal Code’s criminal interest rate provision. Put otherwise, the plaintiffs are not without a remedy and need not resort to the Code.

[202] The defendants have also argued that the transactions are by their very nature equity or share transactions or part equity and debt, but in any event are excluded from the purview of s. 347.[^115] Similarly, they have taken the position that the transactions represent a profit-sharing arrangement involving joint risk-taking, and are similarly not caught by s. 347.[^116]

[203] The starting point for an analysis of this nature is found in the observations of Justice Iacobucci at pp. 590-591 of Canada Deposit Insurance Corp.:

….I see nothing wrong in recognizing the arrangement for what it is, namely, one of a hybrid nature, combining elements of both debt and equity but which, in substance, reflects a debtor-creditor relationship. Financial and capital markets have been most creative in the variety of investments and securities that have been fashioned to meet the needs and interest of those who participate in those markets. It is not because an agreement has certain equity features that a court must either ignore these features as if they did not exist or characterize the transaction on the whole as an investment. There is an alternative. It is permissible, and often required, or desirable for, for debt and equity to co-exist in a given financial transaction without altering the substance of the agreement. Furthermore, it does not follow that each and every aspect of the agreement must be given the exact same weight when addressing a characterization issue. Again, it is not because there are equity features that it is necessarily an investment in capital. This is particularly true when, as here, the equity features are nothing more than supplementary to and not definitive of the essence of the transaction. When a court is searching for the substance of a particular transaction, it should not too easily be distracted by aspects which are, in reality, only incidental or secondary in nature to the main thrust of the agreement.

[204] The overall transaction in respect of the two Cash Calls constituted an advance from the shareholders. Article 6.01(a) specifically prohibits any such advances from attracting interest. That said, the shares issued by way of ‘compensation,’ as Mr. Itkine allowed, simply permit the recipients a right to share in the profit, if any, in an amount not then specified. There was no guarantee of any repayment. Nor indeed did the issuance of the shares oblige CEL to redeem them in any amount at any time in the future. The shares were supplementary to and not, by any reckoning, the essence of the transaction.

[205] As Mr. Tarshis suggests the following in the above cited article:

Equity can take various forms, such as shares in the capital of a corporation (and their equivalent in other forms of organization, such as an interest in a partnership or trust), warrants to purchase shares, convertible debentures (a hybrid allowing or requiring the lender to convert all or a portion of the debt to equity), an agreement for profit participation, a royalty agreement or a joint venture. There is no limit on the bundle of rights which could be considered to constitute equity. Equity rights may also be bundled with debt or have characteristics of debt, such as a convertible debenture or an arrangement under which the holder has some assurance of repayment of his capital. In the purest form, the investment in equity provides no assurance as to the return on investment or the return of capital. Notably, equity is not an obligation entitling the holder to a specific sum of money. It is the author’s view that the absence of this characteristic necessarily distinguishes equity from debt.

Equity is the antithesis of a liquidated debt claim. If the holder of an equity interest or a person entitled to receive an equity interest has a cause of action against the borrower, he would assert his claim in an action for damages. A claim for debt is substantively and procedurally different.

The ordinary legal sense of the term ‘debt’ is an obligation for the payment of money founded upon a contract, express or implied ... In the main, the distinguishing characteristic of such an obligation is that it is for a sum certain, or sum readily reducible to a certainty .... It is an obligation to pay a sum certain, or a sum which may be ascertained by a simple mathematical calculation from known facts, regardless of whether the liability arises from contract or is implied or imposed by law ... Whatever the law enjoins one to pay takes the legal classification of a debt ....[^117]

[206] I am of the view that the shares issued as a consequence of the cash call do not have the attributes of “interest” as defined at s. 347 and cannot be shoehorned into the prohibition on criminal rates of interest.

[207] Consequently, I am not persuaded that Bimman’s interest in CEL was not insulated from dilution as a result of the Cash Calls, as detailed above.

Ancillary Claims

[208] The plaintiffs advanced additional and/or alternative claims to the substantive claim under s. 248 for a payout of CEL shares. Several of these claims arise out of the November Agreement, both pre- and post-amendment. Others arise from the treatment to which Bimman, if not CEL, was subjected. I will deal with them mainly in the order in which they appear in the plaintiffs’ written argument.

Deferred Management Fee (DMF)

[209] Article 6.02(c) of the November Agreement provides as follows:

… to pay directors deferred management fee - flat $500,000.00 for the entire period of the project’s existence;

[210] As I noted above, this provision was first introduced when the LPA was being negotiated because Itkine wanted to do away with the management fee of $4,000 per month that was then being paid to or accrued for the benefit of Bimman and Neiman. The notion was carried forward into the versions of the August and November Agreements.

[211] Bimman asserts that he is entitled to 50% of the DMF even though he resigned as a director and officer in October 2009. He argues, among other things, that because he was forced to resign he should not be disentitled to a share of the DMF even though he is technically no longer a director of CEL. He further argues, in a manner that was not all that clear to me, that he should be entitled to one half of the DMF, or $250,000, as a payment in lieu of damages for wrongful dismissal, even though he did not specifically assert such a claim as part of these proceedings nor maintain a claim for wrongful dismissal to the end of trial.

[212] Alternatively, he suggested that he should be paid one half of the DMF on a quantum meruit basis. In support of that notion, plaintiffs’ counsel sets out 24 reasons in support of the argument that Bimman’s work effort to the date of his resignation warrants compensation of at least half of the amount reserved for payment of the DMF.[^118]

[213] The defendants do not take issue with the proposition that Bimman is entitled to something under this head of damages even though he ‘resigned’ as a director in October 2009. Again as previously noted, they asserted throughout the proceedings that Bimman was effectively forced to resign from his position, if not ousted, because of his misconduct in misappropriating CEL funds, principally from the Lambert Contracts.[^119]

[214] It is their position, however, that Bimman is at best entitled to but 27.5% of one half of the total reserve, or $68,750. This sum is a function of the number of months Bimman worked for the venture, from the date of the acquisition of the Property (March 2009) to the date of his resignation (late October 2009), divided by the total number of months elapsed to the end of the renovations, which were completed by August 2011. The total project length is the time which the defendants suggest covers the entirety of the renovations for the buildings of the project.[^120] The defendants’ calculation is therefore 8 months divided by 29 months, giving Bimman a supposed entitlement to 27.5% of his share of the DMF.

[215] The defendants purport to justify the starting date as the closing date on the real estate transaction because they suggest that Bimman was more than compensated for his earlier efforts by the carried interest of 7.5% he received at first instance. This “carried interest” is based upon his contribution of only 12.5% of the initial cash subscription, whereas his total initial interest in CEL was fixed at 20%.

[216] They further suggest that Bimman’s cash contribution was only a portion of the required amount since he was credited with a sales commission of $70,000 given him by the vendor of the Property as part of his initial equity contribution. In other words, the defendants argue that Bimman was more than compensated for his efforts prior to closing.

[217] The defendants further suggest that because Bimman’s scheme in attempting to convert that Property into condominiums was an abject failure, he should receive but a fee equivalent to $5,000 per month for a period of 8 months only, and not the $68,750 based upon the above described arithmetic.

[218] In my view, both parties are overreaching in their respective positions. This view is based upon the evidence of what work was done for, and in respect of, the acquisition and development of the Property.

[219] While I agree with the defendants that an attempt to create a condominium in Thompson was an ill-fated concept, and was probably based upon Bimman’s representations that such a plan would fly, I do not believe that this mistake warrants a reduction in entitlement.

[220] Conversely, I am not persuaded that Bimman’s activities prior to October 2009 warrant compensation to the levels he proposes. From my understanding of the project, namely a conversion of very modest apartments to prime rental property in Thompson, the day-to-day activities associated with the renovations were really left to Neiman and the team he assembled to complete. I am satisfied that much of the heavy lifting in respect of the renovation work and the subsequent marketing and rental of the units, if not as entire buildings, was done after Bimman was forced out of the day-to-day management of the Property.

[221] Furthermore, while Bimman may have introduced UCN to the Property, and may have been instrumental in retaining appraisers to assist in the marketing of the two buildings, the deal that was struck was concluded under Neiman’s watch, with little or no Bimman involvement.

[222] I have not lost sight of the fact that Bimman was forced out of the management group as a result of exaggerated, if not unfounded, allegations of impropriety bordering on embezzlement. I have concluded that while Bimman’s resignation was perhaps ill-advised, the defendants, with Itkine at the helm, made his life positively miserable during this period of time. He had no alternative but to resign, if only to secure his entitlement to a healthy portion of the DMF, a negotiation which never took place, notwithstanding earlier promises from Itkine to the contrary.

[223] Bimman did not, however, have a reasonable expectation to one half of the amount reserved for the DMF, or $250,000, after his resignation and based on the status of the development to that date. Indeed, it does not appear that he ever asserted such a claim, as it is not evidenced in any of the meeting minutes either prior to or following the date of his resignation and into early 2010. His final entitlement to a portion of the DMF was very much a matter left for future negotiation.

[224] That said, I am satisfied that but for the timing of his forced resignation from CEL, he would have been permitted to stay and participate in the management of the project and undoubtedly would have been entitled to an increased share of the DMF, a share greater than that to which the defendants suggest he’s entitled. In that respect, I find that he is entitled to share in the DMF up to the end of March 2010, the moment in time that I have held that the oppression took place. This adds an additional five months to the calculation. Using the straight mathematical formula that both parties are agreed to, this calculation yields a DMF entitlement of $112,068.[^121]

Punitive Damages

[225] The plaintiffs assert that the defendants should be sanctioned for their conduct in asserting throughout the course of these proceedings, as well as in their actions from the summer of 2009 to the date of the commencement of the instant action, unfounded allegations of misconduct, embezzlement and bribery against Bimman.

[226] In that regard, they argue that punitive damages should be visited upon all the defendants, following the judgment of Simmons J.A. in Keeton v. The Bank of Nova Scotia:

Punitive damages are awarded only in extreme cases to address misconduct that represents a marked departure from ordinary standards of decent behaviour. They are awarded to address the need for retribution, deterrence and denunciation and not for the purpose of compensating the plaintiff, and, are to be awarded only rarely and with restraint. In addressing a claim for punitive damages, the court should relate the facts of the particular case to the underlying purposes of punitive damages and ask itself how, in particular, an award would further one or other of the objectives of the law: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at paras. 36, 43, 68, 69 and 71; see also McIntyre v. Grigg 2006 CanLII 37326 (ON C.A.), (2006), 83 O.R. (3d) 161 (C.A.).[^122]

[227] I am, however, mindful of the cautionary note that was sounded by the Supreme Court in Honda Canada Inc. v. Keays:

Even if I were to give deference to the trial judge on this issue, this Court has stated that punitive damages should “receive the most careful consideration and the discretion to award them should be most cautiously exercised” (Vorvis, at pp. 1104-5). Courts should only resort to punitive damages in exceptional cases (Whiten, at para. 69). The independent actionable wrong requirement is but one of many factors that merit careful consideration by the courts in allocating punitive damages. Another important thing to be considered is that conduct meriting punitive damages awards must be “harsh, vindictive, reprehensible and malicious”, as well as “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment” (Vorvis, at p. 1108).

Before delving into the factual analysis, however, it is worth mentioning that even if the facts had justified an award of punitive damages, the lower courts should have been alert to the fact that compensatory damages were already awarded, and that under the old test, they carried an element of deterrence. This stems from the important principle that courts, when allocating punitive damages, must focus on the defendant’s misconduct, not on the plaintiff’s loss (Whiten, at para. 73). In this case, the same conduct underlays the awards of damages for conduct in dismissal and punitive damages. The lower courts erred by not questioning whether the allocation of punitive damages was necessary for the purposes of denunciation, deterrence and retribution, once the damages for conduct in dismissal were awarded.[^123]

[228] In my view, and not to repeat unduly what has been set out in great detail in the facts portion of this judgment, I find that the activities of Itkine and Neiman amounted to a “marked departure from ordinary standards of decent behavior.” Among other things, the conduct which forms the subject of the award of punitive damages is the following: (1) surreptitiously using the Lambert contract to pillory Bimman; (2) furthering their agenda to rid CEL of Bimman, to the point that they (unsuccessfully) attempted to engage the good offices of the local constabulary to do their bidding; and (3) in the constant harangue that filled the minutes of the shareholders meetings.

[229] Bimman was not the most sympathetic plaintiff. He was often haughty during the course of the trial and, as is evidenced in the minutes and other exchanges between the parties, he was quick to criticize his opponents, a personality trait which no doubt infused his dealings with Neiman and the other members of the Investor Group from the early days of the project. However, he was not deserving of the treatment to which he was subjected. Itkine and Neiman used a “misunderstanding,” about which Neiman was fully apprised, in their ongoing battle between themselves and Bimman.

[230] Furthermore, I am somewhat skeptical about the bona fides of the ARCAM Holdings mortgage proposal and whether the requested ‘personal’ information was truly necessary as a pre-condition for financing, particularly since the Defendants did not call ARCAM’s principal to testify. I was also more than modestly concerned that Itkine had breached the terms of the November Agreement by reporting the nature and contents of Bimman’s comments at the relevant shareholders meeting to Mr. McCleave. There was no valid business reason for such disclosure and it amounted to a violation of the November Agreement.[^124] It is not unreasonable to infer that this purposeful disclosure would have the intended result of a threatened suit against Bimman for defamation, with the full support and encouragement of at least Itkine, if not Neiman.

[231] In the final analysis, I am of the view that an award of punitive damages of $25,000 is appropriate in the circumstances. In doing so, I acknowledge that some modest form of compensatory damages is already included in the award of a bump-up to Bimman’s share of the DMF, calculated above.

[232] This sum, however, shall only be payable by Messrs. Itkine and Neiman in their personal capacity, and not by CEL or the remaining shareholders, since the denunciation is directed at them for such appalling behaviour.

Excess Property Management Expenses

[233] The plaintiffs further argued—and paid consulting fees in respect of same[^125]–that CEL incurred unnecessary management fees, particularly after A.S.H. Management was dismissed, in the management and operation of the Property following Bimman’s leave taking. They advance an argument that the total ‘excessive’ fees amounted to $181,000, of which the corporate plaintiff should recover $36,000 if its initial interest in CEL remained undiluted at 20%.

[234] The plaintiffs further argue that the fees incurred and charged by Neiman, in his personal capacity or by his wife, were excessive and/or unnecessary in the circumstances, particularly in light of the amounts paid to third parties.[^126]

[235] In my opinion, I would be falling into error if I were to award any amount in respect of the suggested overpayment asserted by the plaintiffs. This kind of analysis is typical of the type of analysis prohibited by the business judgment rule, expressed in the cases cited above. I do not believe a review of these expenses is warranted or permitted at law.

[236] Indeed, I would observe that if Itkine had thought that Neiman was gilding the lily in terms of an expense ratio to revenue generation, he would have upbraided him in short order. But for the $2,000 Neiman paid to a fortune teller, a bit of evidence that offered but a brief respite from the inherent stresses of the trial proper, I can only assume that the Investor Group was content with the expense/revenue ratio that was incurred along the way.

Waterfall Provision

[237] The plaintiffs argue that the Second Amendment, which purported to dispense with the Waterfall provision,[^127] was improper, and that Bimman should receive an award of damages which they pegged at $500,000.

[238] The Waterfall provision granted Bimman and Neiman a larger percentage of the profit from the venture if the “lands and the project were sold or completely refinanced” at certain benchmark dates after the Property was acquired. There was a sunset provision within the Waterfall provision, namely 24 months after closing, after which it was no longer operative. That would put the sunset date to no later than March 2011.

[239] The defendants take the position that neither benchmarks were met at the time that Bimman resigned or at any time thereafter, since the Property had not been sold in its entirety or completely refinanced. Alternatively, they argued that the passage of time has now rendered the operation of this provision academic.

[240] I am in agreement with the defendants that none of the benchmarks had been met to warrant a payment under the provision before it was purportedly eliminated by amendment.

[241] Clearly, not all of the buildings have been sold to date, and the sale to UCN of two of the buildings did not trigger a payment under Article 6.02(f), even as originally drafted. It is also fair to say that it was not within the reasonable expectations of the parties to trigger an increased profit participation on a partial sale of the Property.

[242] Furthermore, although the timing of the Second Amendment was anything but coincidental to the roll-out of the other events which give rise to my conclusion on oppression, I am not persuaded that the granting of the JIN Mortgage amounted to a “complete refinancing” as that phrase is used in the original form of the article. Clauses of this nature are designed to permit a payment out to the investors when the venture itself has been converted into cash, either through mortgage financing or a sale. A mortgage covering only a portion of the Property, while the rest of the buildings remained unfinished, does not in my opinion fit this bill.

[243] The fact of the matter is that time has now run out on the effectiveness of the article such that it no longer factors into the calculus. Nothing more need be said on the impact of the amendment, about which I have already commented in the oppression section above. Therefore, no damages will be awarded under this head.

Legal Fees paid by CEL

[244] The plaintiffs argue that the defendants used CEL funds to finance their end of the litigation. Mr. Roher calculated the total fees paid to defendants’ counsel, Messrs. Rubin & Christie and their predecessor firm, to the end of 2013, to be $495,286, or $264,762 net of tax.[^128] No dispute arises in respect of this figure.

[245] There is little doubt that the fees were underwritten by CEL and that such use of corporate funds was not proper. Indeed, Newbould J. expressly doubted the propriety of this course of action in an endorsement made in one of the many interlocutory proceedings in October 2013.

[246] I am of the view, from a temporal perspective, that any funds advanced to CEL subsequent to March 2011 and pursuant to the Conditional Contribution Loan Agreements were used to cover a cash shortage created in part by the legal fees payable, and not in respect of the renovations to the remaining buildings. However, I am not persuaded that the defendants should be “credited” with any portion of these payments. The money advanced is still reflected on the books as a loan to CEL in favour of the particular lender.

[247] The fact that the money was used to finance legal fees does not give rise to a credit or deduction for an improper payment orchestrated by Itkine and Neiman on behalf of CEL, as the defendants postulate. The source of the funds is immaterial to their use from an accounting point of view.

[248] Applying the dilution percentage of 11.08% calculated above to the net figure determined by Mr. Roher of $264,762, Bimman is entitled to recover $29,335.62 under this ancillary claim.

Lambert Contracts

[249] The Lambert Contracts, about which there has been much written in this judgment, netted Bimman’s operating company, BRESI, all of $7,087.50 (including HST), half of which Bimman was prepared to split with Neiman at all material times.[^129] While I have concluded that confusion over the contracts was a misunderstanding that grew out of all proportion, I am not persuaded that Bimman should have taken the fee on account of BRESI, in whole or in part, without first running the deal by the Investor Group.

[250] I have come to this conclusion not because I am persuaded on the evidence I heard, which was less than conclusive, that Bimman appropriated a corporate opportunity. Rather, I come to this conclusion because Bimman intended to and did deploy the services of the CEL trades to fulfill the contract.[^130] In that respect, I think disclosure would have been appropriate.

[251] Having regard to the fact that Bimman was prepared to repay the amount earned in any event, the amount of $7,087.50 will be deducted from the sum payable to Bimman arising from this judgment.

Recap of Payments

[252] In the final analysis, the plaintiffs shall recover judgment against the individual defendants and their respective corporations, and/or CEL, for the following sums:

(a) $858,468.31, which sum is representative of the plaintiff corporation’s diluted interest in CEL as of March 31, 2013;

(b) $125,000, which sum is representative of the plaintiff corporation’s initial recorded shareholder’s loan, together with interest thereon from the date of such advances to the date of this judgment at the rate of 7% per annum, as provided for in the November Agreement;

(c) $112,068, which sum is representative of the plaintiff Bimman’s proportionate share of the DMF;

(d) $22,248.12, which sum is representative of Bimman’s share of the legal fees paid by CEL on behalf of the individual defendants and their respective corporations ($29,335.62) minus the sum of $7,087.50, which sum represents the value of the Lambert Contract.

[253] If memory serves, I believe the parties were in agreement that any amounts payable to the plaintiffs will be discharged from the money held in court pursuant to the various orders of Newbould J. and others of my colleagues. That said, because there are shares that have to be returned to CEL and/or the other defendants as a consequence of this order, I would ask counsel for the parties to consider the manner in which the shares should be returned – for cancellation or otherwise – and advise me of their position accordingly.

[254] In addition to the foregoing, I order that the plaintiff Bimman recover the sum of $25,000 from the defendants Itkine and Neiman in respect of the award of punitive damages.

[255] Insofar as an award of interest and costs is concerned, I invite counsel to provide me with written submissions in that regard at the same time that I receive written submissions on the issue of the share transfer referenced above. I would urge the parties to discuss these issues in the fond hope that resolution, on a without prejudice basis to any right of appeal, can be accomplished prior to my weighing in on the matters.

[256] In that respect, plaintiffs’ counsel shall have three weeks from the release date of this decision to provide me, in electronic and hard copy form, with their position. The defendants shall have an additional two weeks from the date of the receipt of the plaintiffs’ submissions to provide me with their position in the same form and fashion as counsel opposite. The plaintiffs will not have any further right of reply.

[257] When providing me with any argument in respect of costs, both parties shall prepare Bills of Costs in the same form that such were demanded by and provided to Judges of the High Court of Justice, with a break out of the time by lawyer for each benchmark activity from the commencement of suit until the end of trial. I will not accept a “dockets dump.” Clearly, if applicable, all offers to settle, if in compliance with Rule 49 of the Rules of Civil Procedure, should be referenced.

[258] Finally, since the Counterclaim of the Defendants was not pursued at trial and was all but abandoned, I would ask that such be hived out from the global costs claimed, if possible and practicable.

[259] I cannot leave these reasons for judgment without thanking counsel for the manner in which this trial was conducted when it finally came before me, notwithstanding the interruptions that occurred due to pre-arranged trips of counsel and certain religious holidays. This was a most difficult case, made all the harder due to the palpable dislike of the parties, inter se. I commend counsel for rising above the fray, and for the first rate manner in which the case was presented.

GANS J.

Released: April 16, 2015

APPENDIX 1

Calculations regarding dilution of A. Bimman from January 11 to March 31, 2010

Initial Ownership Structure

Bimman $125,000 2,000 shares 20%

Others $875,000 8,000 shares 80%

Total $1,000,000 10,000 shares 100%

January 11 Cash Call

En-Bloc adjusted book value: $652,000

Number of issued shares to January 11: 10,000

Share value: $65 [$652,000 / 10,000]

$150,000 of the $250,000 injected at or around January 11.

$150,000 divided by 65$/share = 2,307 shares – the number of shares that ought to have been issued on January 11 in response to January 11 cash call.

Total shares of CEL following cash call: 12,307 [10,000 + 2,307]

Bimman’s ownership: 16.25% [2,000 / 12,307]

February 11 Cash Call

En-Bloc adjusted book value: $1,823,000

Number of issued shares to February 11: 12,307

Share value: $148 [$1,823,000 / 12,307]

Funds properly injected at or around February 11: $850,000 [$100,000 (outstanding from January cash call) + $750,000 ($1,350,000 for February cash call minus the $600,000 repaid from JIN mortgage)]

$850,000 divided by $148/share = 5,743 shares – the number of shares that ought to have been issued on February 11 in response to the remainder of the January cash call and the proper portion of the February cash call.

Total shares of CEL following February cash call: 18,050 [12,307 + 5,743]

Bimman’s ownership: 11.08% [2,000 / 18,050]

APPENDIX 2

Corayana Enterprises Limited

Adjusted Book Value – Comparison of Collins Barrow and Fuller Landau

Shareholder Advances Classified as Debt

Prepared November 19, 2014

As at December 31, 2013

Real Estate Appraisal Scenario

$9,740,000

	Collins Barrow	Fuller Landau
Shareholders’ Equity as at December 31, 2013	$1,692,932	$1,692,932
Add Market Value of Property and Equipment	9,740,000	9,740,000
Less Book Value of Property and Equipment	(2,840,995)	(2,840,995)
Less Contingent Disposition Costs (FL No. TBD)	(930,000)	(565,000)
Tax Benefit on Difference Between UCC and Book Value	-	-
Add Fair Value of Corayana Services Limited	150,000	150,000
Less Book Value of Corayana Services Limited	(1)	(1)
Less Liability on Capital Gains Reserve	(168,895)	(168,895)
Add Value of Existing RDTOH Balance	57,474	57,474
Less Deferred Management Fees, Net of Taxes	(322,392)	(322,392)
Less Interest Payable on Shareholder Loan	(252,209)	(252,209)
Add Future Income Taxes	111,901	111,901
Add Interest on Funds Held in Court	145,094	145,094
Adjusted Book Value and En-Bloc Fair Value	7,382,908	7,747,909
Rounded	$7,400,000	$7,700,000
Difference In Tax Calculations		365,000

CITATION: Bimman v. Neiman, 2015 ONSC 2313

COURT FILE NO.: CV-11-0000904800-CL

DATE: 20150416

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Alexander Bimman and 2182474 Ontario Inc.

Plaintiffs

– and –

Arkadi Neiman, Coryana Enterprises Limited, 1050828 Ontario Ltd., Canadian Investment & Consulting Central Corporation, Larwest Canada (Caribbean) Inc., 2182158 Ontario Ltd., 1765350 Ontario Inc., 1771636 Ontario Ltd., Edward Poberezkin, Victor Itkine, Roman Shmulik, Alex Glozman and Corayana Services Ltd.

Defendants

REASONS FOR JUDGMENT

GANS J.

Released: April 16, 2015

[^1]: Marshall D. Shulman, Beyond the Cold War, New Haven, CT: Yale University Press, 1966.

[^2]: Business Corporations Act, R.S.O. 1990, c. B.16.

[^3]: Plaintiffs’ factum, p. 7, para. 10.

[^4]: At times throughout this judgment, I will refer to the plaintiffs as Bimman, or his numbered company, or both. While the numbered company is technically the manner in which Bimman owned his interest in CEL, he is the beneficial owner of that interest.

[^5]: Defendants’ factum, p. 86, para. 182.

[^6]: Doc. 01-004: Agreement of Purchase and Sale – Jan. 4, 2008.

[^7]: While the parties signed the VLOU and a subsequent limited partnership agreement, both agreements were superseded by various shareholder agreements. Therefore, I do not intend to spend any time detailing either of these two early agreements, except where the provisions are necessary to give context to the intention of the parties throughout this saga.

[^8]: Although the evidence on this point was not well developed, I am satisfied that at least certain features of the LPA were the work of Itkine, in particular as it relates to the provision and payment of the DMF. This agreement was the first in a series of agreements and activities in which it is clear that Itkine had determined to no longer remain a passive investor, but rather to take a more pro-active role in CEL, something which became increasingly evident as matters moved into the next year.

[^9]: Doc. 03-105 : E-mail from Lambert explaining invoice dating – July 14, 2009; Doc. 03-107: BRESI invoice for work on school – July 15, 2009; Doc. 03-177: E-mail AB date for Lambert invoice – Aug. 20, 2009; Doc. 10-254: E-mail Bimman to Neiman Jul. 29, 2009; Doc. 10-255: CQR Invoice to CEL July 30, 2009; Doc. 10-256: E-mail Bimman to Bindman Aug. 20, 2009.

[^10]: Doc. 03-107: BRESI Invoice for work on school – July 15, 2009.

[^11]: Doc. 04-209: Invoice – Sept. 30, 2009.

[^12]: I am persuaded that the plan to “uncover” Bimman’s intentions, or to put it otherwise, to entrap him, was conceived by Itkine and/or Neiman. I am not persuaded that Glozman and Poberezkin were on the same page; they were still unsure of what Bimman was actually doing and wanted to see how matters actually played out.

[^13]: I use the word “determine” because I was not clear what the defendants were seeking to establish at that moment in time, since the majority of the Investor Group (Itkine, Neiman and Shmulik) had already concluded that Bimman was ripping them off.

[^14]: Doc. 10-253: Shareholders’ authorization Jul. 14, 2009.

[^15]: I am satisfied that Neiman was copied on most if not all the correspondence between Bimman and Lambert, and was well aware of the fact that Bimman intended to execute the Lambert Contracts in BRESI’s name, and that the profits were to be split between that entity and TCG, Neiman’s corporate vehicle. (See Doc. 20-306: 2009-08-14 Neiman e-mail to Bimman re. TH; Doc. 04-209: Invoice – Sept. 30, 2009; Doc. 10-250: BRESI Invoice July 14, 2009; Doc. 10-251: E-mail Bimman to L. Lambert Jul. 14, 2009). I am not persuaded, however, that the members of the Investor Group other than Itkine saw the relevant Lambert documents copied to or originated by Neiman at the time.

[^16]: Defendants’ counsel, Douglas Christie, whose mastery of analogies expressed during oral argument was as poignant as it was engaging, suggested that the preparation of the first shareholders’ agreement by a fledgling lawyer was one of many mistakes committed by the defendants, either because of their collective unfamiliarity with Canadian legal issues or their ill-conceived notion to save on legal fees.

[^17]: It is of some moment to note that this issue was first considered and anticipated by Bimman several weeks before his trip to the Ukraine and Israel. An earlier iteration of the notes that deal with some of the same and other related party lenders is discussed in an email found at tab 8 of Exhibit 12, which is contrary to para. 51 of the plaintiffs’ factum.

[^18]: Doc. 08-105: Promissory Note Aug. 21, 2009; Doc. 08-106: Promissory Note August 31, 2009; Doc. 08-107: Promissory Note Sept. 22, 2009; Doc. 08-108: Promissory Note Oct. 15, 2009; Doc. 08-109: Promissory Note Nov. 12, 2009.

[^19]: Exhibit 10: August 15, 2009 e-mail from SB to AN re. SHA amendments.

[^20]: Doc. 03-191: AN – Special Accounts authorization – Sept. 8, 2009; Cross-examination of A. Bimman: Oct. 6, 2014, p. 50.

[^21]: Doc. 08–145: Shareholders Meeting Sept. 24, 2009.

[^22]: Doc. 04-235: E-mail RBC Financing update – Oct. 20, 2009; Exhibit 13: E-mail V. Itkine to S. Bimman October 15, 2009.

[^23]: While there were 30 numbered exhibits, and seven lettered exhibits marked for identification, Exhibit 1 was a USB key that contained hundreds of documents collected jointly by the parties throughout the course of the litigation. Many of the documents found in Exhibit 1 were referenced countless times during the evidence. They were projected on screens with reasonable facility by counsel, underscoring yet again the value of conducting civil trials electronically. I am indebted to both sets of counsel for their co-operation and willingness to proceed in this fashion. This “two week” trial, which ran to six weeks, would have easily been 10 weeks had we not undertaken it electronically.

[^24]: Exhibit 13: E-mail V. Itkine to S. Bimman October 15, 2009.

[^25]: Doc. 17-023i: 20091025MOM-1 (Minutes of October 25th meeting).

[^26]: Doc. 04-248: E-mail resignation of the Plaintiff – Oct. 30, 2009; Doc. 04-249: E-mail handling AB resignation – Oct. 30-31, 2009; Doc. 04-251: VI e-mail to AB accepting resignation – Oct. 31, 2009; Doc. 08-138: Resignation of A. Bimman Oct. 30, 2009; Doc. 08-139: Resolution of CEL Nov. 3, 2009; Doc. 08-140: Consent Nov. 3, 2009.

[^27]: This exercise would have meant a dissection of the pleadings, a task I was loath to undertake four years after their preparation. Indeed, because plaintiffs’ current counsel did not draft the somewhat vague Statement of Claim and Reply and Defence to Counterclaim—and did not confront any of the defendants in cross-examination with certain alleged admissions—I am happy to side-step this issue.

[^28]: Doc. 08-134: Memorandum from ALB to File Nov. 19, 2009; Doc. 20-307: 2009-12-08 Bimman Letter to Neiman re. Accounting; Doc. 20-308: 2009-12-08 Memo from A. Bimman re. Accounting for Lambert Funds; Doc. 04-261: E-mail chain AB VI charging interest – Dec. 11, 2009; Doc. 04-262: E-mail chain AB VI charging interest – Dec. 13, 2009.

[^29]: Doc. 08-141: Minutes of Meeting Nov. 3, 2009; Doc. 08-101: Shareholders’ Agreement November 3, 2009.

[^30]: Doc. 05-265: Red River Appraisal draft appraisal – Dec. 16, 2009.

[^31]: Exhibit 14: Agreed Statements of Facts.

[^32]: Doc. 08-135: Email from Itkine to Bimman, Neiman, et al. Dec. 11, 2009. This email was the last in a series of “heated” emails exchanged between Bimman and Itkine found at Docs. 04-261, 262, and 263.

[^33]: Exhibit 16: Letter to Detective Glen Slingsby from Corayana re accused A. Bimman (see also: Doc. 10-289).

[^34]: Doc. 10-269: Shmulik e-mail to Itkine forwarding Slingsby e-mail.

[^35]: In retrospect, Bimman may have been better advised making a payment of the entire $14,000 generated under the Lambert contract on a “without prejudice” basis, rather than attempting to justify why he was obliged to refund only a portion of the amounts which he knew the defendants were demanding.

[^36]: Doc. 05-267: VI e-mail on Agenda for January SH meeting – Dec. 30, 2009.

[^37]: Doc. 08-118: Minutes of Meeting January 11, 2010.

[^38]: Article 6. I have reproduced a portion of the article as it appeared in the November and August Agreements since it provides some evidence in understanding the “reasonable expectation of the parties,” as that term is used routinely in the jurisprudence pertaining to the oppression remedy. The balance of the Article is reproduced further below.

[^39]: Doc. 05-274: E-mail chain AB to Defendants – Jan. 19, 2010.

[^40]: Doc. 05-275: E-mail AB to defendants – Jan. 19, 2010.

[^41]: Plaintiffs’ First Response to Judge’s Questions, para. 6.

[^42]: Doc. 10-305: E-mail Itkine to Bimman et al. January 27, 2010.

[^43]: Ibid.; Doc. 08-114: E-mail Itkine to Shareholders with attachments January 29, 2010.

[^44]: I deal below with the reasonableness of Bimman’s position in not signing the Consent in light of the circumstances that existed to that moment in time and the events that transpired thereafter between Bimman and McCleave through the action and activities of Itkine. See plaintiffs’ factum, pp. 35-42, paras. 100-123.

[^45]: See Docs. 08-123 to 08-130 generally (e-mail exchanges with attached minutes).

[^46]: Doc. 08-080: Minutes of Meeting March 31, 2010.

[^47]: Doc. 08-103: Amendment 2 CEL Shareholders’ Agreement November 11, 2010.

[^48]: Article 6.02 of Doc. 08-101: Shareholders’ Agreement November 3, 2009.

[^49]: Doc. 17-016: Termination of A.S.H. Contract.

[^50]: Doc. 17-038cc: Undertakings #1, 2, 12 and 24.

[^51]: Article 2.04 (a) of Doc. 08-101: Shareholders’ Agreement November 3, 2009.

[^52]: Itkine’s evidence at trial as to why he ‘breached’ the November Agreement by disclosing confidential discussions to McCleave, which gave the latter ammunition to threaten a defamation suit against Bimman (Doc. 08-098: Letter Lubczuk to A. Bimman March 30, 2010), had very much a hollow ring to it.

[^53]: Doc. 08-111: Letter Bimman to Larwest April 21, 2010.

[^54]: Doc. 10-287: Conditional Contribution Loan Agreement Apr. 30, 2010.

[^55]: Doc. 08-080: Minutes of Meeting March 32, 2010.

[^56]: Doc. 17-000: FL Comprehensive Valuation Report – May 2, 2014, p. 88.

[^57]: Ibid., pp. 40-46.

[^58]: Doc. 20-309: 2010-04-12 MB News Release – UCN Thompson Funding.

[^59]: Doc. 13-33: Offer to Purchase 11 and 21 Copper Road April 29, 2011; Doc. 13-34: Acceptance of Offer to Purchase April 29, 2011; Doc. 22-04: 2010.12.06 Browaty Appraisal Report.

[^60]: Doc. 17-113: Interim Agreement Concerning the Caveat Issue – May 23, 2011; Doc. 17-114: Final Agreement Concerning the Caveat Issue – Dec. 21, 2011.

[^61]: Although it does not have to be repeated, the relevant section of the OBCA is identical to the oppression provision (s. 241) in the Canada Business Corporation Act, R.S.C. 1985, c. C-44, and hence, jurisprudence that considers the one as opposed to the other is of equal import.

[^62]: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560 [Bell].

[^63]: [1973] A.C. 360.

[^64]: Bell, at para. 75; Re Ferguson and Imax Systems Corp. (1983), 1983 CanLII 1646 (ON CA), 150 D.L.R. (3d) 718 (Ont. C.A.).

[^65]: Bell, at para. 76.

[^66]: Bell, at para. 79.

[^67]: Ford Motor Company of Canada, Ltd. v. Ontario Municipal Employees Retirement Board (2006), 2006 CanLII 15 (ON CA), 79 O.R. (3d) 81 at paras. 40, 55 (C.A.), 2009 ONCA 9, [2009] O.J. No. 27.

[^68]: CW Shareholdings Inc. v. WIC Western International Communications Ltd. (1998), 1998 CanLII 14838 (ON SC), 160 D.L.R. (4th) 131 (O.C.G.D.) at p. 150, 39 O.R. (3d) 755, per Blair J. (as he then was).

[^69]: Toole v. Acres Incorporated, 2007 CanLII 11326 at para. 65 (Ont. S.C.), 30 B.L.R. (4th) 133.

[^70]: It is also of note that s. 98 of the OBCA stipulates that “attendance […] at a meeting of shareholders is a waiver of notice of the meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.” However, “[m]ere attendance of the shareholder at the meeting is not necessarily tantamount to a waiver”: RDS Diagnostics Ltd. v. Stronell, [1999] O.J. No. 2619 (S.C.) at para. 185, 90 A.C.W.S. (3d) 218.

[^71]: Mr. Ellyn argued that Art. 6.01 required CEL to exhaustively search for external funding before making a cash call, focusing on the phrase “[i]f such funds cannot be obtained from external loans or financing” (emphasis added). Mr. Christie took the position that an exhaustive search for external financing was not necessary prior to making a cash call, focusing on the phrase “shareholders shall have the option to obtain external loans or financing” (emphasis added). I find it unnecessary to resolve this dispute over semantics as nothing in the contemporaneous evidence (i.e. the meeting minutes) suggests that Bimman voiced such an interpretation at the time the cash calls were made.

[^72]: I will discuss the evidence of Messrs. Roher and Mandel later in these reasons. However, I prefer the evidence of Roher over Mandel for a variety of reasons discussed in greater detail below. That said, I have used the ‘numbers’ set out by Roher in Exhibits 18-21 as the foundation for the “en bloc” adjusted book value and the calculation of the dilution factor of Bimman’s shares at each benchmark event. I would further observe that I have rejected the testimony of Messrs. Itkine and Poberezkin that CEL had a negative asset value at the moment of the first cash call. Respectfully, these gentlemen confused cash illiquidity and a negative shareholders equity with the true value of CEL’s underlying assets.

[^73]: Doc. 08-118: Minutes of meeting January 11, 2010.

[^74]: The parties ordered transcripts of Itkine’s evidence and delivered additional written submissions regarding this point. Mr. Ellyn’s position was that none of Itkine’s testimony finds any reflection or support in the meeting minutes from January 11 or February 11. Mr. Ellyn argued that Itkine’s witness box calculations were not voiced to the other investors in 2010 and therefore did not form the basis for the decision to issue 4,000 and 21,600 shares in response to the First and Second Cash Calls, respectively. Mr. Christie’s position was that Itkine gave extensive evidence concerning the math behind the 2:1 ratio and the defendants’ efforts to obey the strictures of the law on oppression. Having read the meeting minutes, I am not sure that Itkine’s explanation was delivered contemporaneously to the issuance of shares. In any event, even accepting Itkine’s testimony as true, I have found that the defendants erred in failing to determine the fair market value of CEL shares at the relevant moments in time.

[^75]: Bimman retained his initial 2,000 shares out of a revised total of 12,307 shares of CEL.

[^76]: The defendants would have me read Art. 6.01(b) as permitting the retention of shares issued as a result of a cash call regardless of when the “shareholder loan” is repaid. This is not how I interpret Art. 6.01(b). Such an interpretation would lend itself to abuse and would too easily permit the permanent dilution of a shareholder who refused to participate in a cash call. The repayment of $600,000 shortly after the Second Cash Call was, in essence, a share buyback that ought to have triggered the return of those shares for cancellation.

[^77]: CEL had an “en bloc” adjusted book value of $1,823,000 and 12,307 shares issued.

[^78]: I have used the words “contribution” and “contribute” throughout this section to parallel Article 6.01(b).

[^79]: Bimman retained his initial 2,000 shares out of a revised total of 18,050 shares.

[^80]: At the risk of incurring the wrath of my colleagues for using Reasons for judgment to utter a cri de coeur, I note that this case would have benefitted from early and detailed judicial intervention, if only to narrow the issues that played out over almost six weeks in a trial that was originally scheduled for two. But for the fact the documentary evidence was provided electronically and counsel were more than co-operative – and courteous – in the manner in which the case was presented, the matter could have carried on interminably. Of equal significance was the fact that counsel, at my urging, had their three sets of experts meet to discuss their points of concurrence and divergence. As a result, the evidence of the Actuaries was agreed to and the evidence of the Real Estate Appraisers was significantly narrowed, leaving me to decide between but a narrow band of difference. I am obliged to all those who participated in this endeavor. The administration of justice – and the parties—were well served by this process.

[^81]: I have described it as a “virtual” meeting of the minds, since Rodgers lives and works in the GTA and Schellenberg in the Winnipeg area. They were both provided with the other’s Reports, which formed part of the trial exhibits, and had occasion to speak on the phone, from which they came to an agreement. The letter of agreement, dated November 3, 2014, was filed as trial exhibit 17.

[^82]: There was one other point of divergence between Messrs. Schellenberg and Rodgers which focused on whether or not the income of CEL’s subsidiary, Corayana Services Limited (“CSL”), should be included in the net income of the buildings or considered separately in the global valuation of CEL. Because Messrs. Roher and Mandel agreed on the number attributable to the activities of CSL, this analysis became something of a non-issue, since the agreed upon amount, namely $150,000, was factored in to the final equation for my consideration.

[^83]: In the final analysis, Messrs. Mandel and Roher were in agreement that the value to be ascribed to CSL would be $150,000.

[^84]: See defendants’ factum, paras. 123-131.

[^85]: I choose not to deduct any amount for the refurbishment of the management suite as was suggested in paragraph 127 of the defendants’ argument. That degree of parsing is unnecessary for purposes of this analysis and is as akin to the overreaching exercise employed by the plaintiffs in their argument that I should tweak the management fee percentage.

[^86]: Defendants’ factum, para. 132.

[^87]: Plaintiffs’ factum, para .215.

[^88]: Defendants’ factum, para. 132; plaintiffs’ factum, para. 215.

[^89]: Alfano v. Piersanti, 2012 ONCA 297, 291 O.A.C. 62, at para. 108.

[^90]: Mr. Mandel described CEL as being in “significant financial distress” or “under water” inordinately throughout his written reports, when he knew or ought to have known that at times it was faced with liquidity and cash flow issues. His written reports were anything but neutral in their preparation and presentation.

[^91]: Plaintiffs’ factum, paras. 230 et. seq., which distill Mr. Mandel’s evidence in cross-examination.

[^92]: Plaintiffs’ factum, para 234.

[^93]: Zeller v. The Queen, 2008 TCC 426.

[^94]: The other figures employed in the analysis include the added value yielded from the operation of CSL of $150,000. I have assumed for purposes of this calculation that Mr. Mandel was finally in agreement with Mr. Roher that the aforementioned sum was the appropriate and applicable value to be ascribed to CSL.

[^95]: Mandel purported to round up and down the differential between his methodology and Roher’s, which although yielding the same arithmetic difference, reduces the value of the company by almost $48,000, an amount which I do not find as de minimus, even assuming that Bimman’s share interest has been diluted to marginally over 11%.

[^96]: R.S.C. 1985, c. C-46, s. 347.

[^97]: Garland v. Consumers’ Gas Co., 1998 CanLII 766 (SCC), [1998] 3 S.C.R. 112 at paras. 25, 52, [1998] S.C.J. No. 76 [Garland]; Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7 at para. 43, [2004] 1 S.C.R. 249 [Transport North American]; Boyd v. International Utility Structures Inc., 2001 BCSC 559 at para. 15, 88 B.C.L.R. (3d) 183 [Boyd (S.C.)], aff’d 2002 BCCA 438, 27 B.L.R. (3d) 1 [Boyd (C.A.)].

[^98]: Transport North American at para. 43.

[^99]: Garland at paras. 23 and 25; see also paras. 51-52.

[^100]: Garland at paras. 28, 30, 32, 48.

[^101]: Mira Design Co. v. Seascape Holdings Ltd., 1981 CanLII 721 (BC SC), [1981] B.C.J. No. 1712 at para. 17 (C.A.), 34 B.C.L.R. 55 (cited in Garland at para. 51).

[^102]: Boyd (C.A.) at para. 36.

[^103]: Barry Tarshis, “Is Equity a Crime? Equity as Interest under Section 347 of the Criminal Code,” 21 B.F.L.R. 505 (June, 2006) at p. 510.

[^104]: Tarshis 2006 at p. 510.

[^105]: [1998] B.C.J. No. 2946 (C.A.), rev’g [1997] B.C.J. No. 1455 (S.C.) [J.D.M. (S.C.) and J.D.M. (C.A.), respectively].

[^106]: J.D.M. (C.A.) at para. 5.

[^107]: J.D.M. (C.A.) at para. 16.

[^108]: (1989), 1983 CanLII 162 (SCC), 1 D.L.R. (4th) 1 at p. 6 (Ont. C.A.).

[^109]: J.D.M. (S.C.) at para. 18.

[^110]: J.D.M. (C.A.) at para. 14.

[^111]: J.D.M. (C.A.) at paras. 15, 27.

[^112]: J.D.M. (C.A.) at paras. 17-18.

[^113]: J.D.M. (C.A.) at para. 17.

[^114]: Garland at para. 25. However, this is not dispositive of the issue since some form of derivative shareholders action could arguably ‘remedy’ that situation.

[^115]: Central Capital Corp. (Re) (1996), 1996 CanLII 1521 (ON CA), 27 O.R. (3d) 494 at para. 119 (C.A.), [1996] O.J. No. 359; Canada Deposit Insurance Corp. v. Canadian Commercial Bank, 1992 CanLII 49 (SCC), [1992] 3 S.C.R. 558 at pp. 590-591 [Canada Deposit Insurance Corp.].

[^116]: Pacific National Developments Ltd. v. Standard Trust Co. (1991), 53 B.C.L.R. (2d) 158 at paras. 13, 17 (S.C.); by way of negative example, see 677950 Ontario Ltd. v. Artell Developments Ltd. (1992), 1992 CanLII 8646 (ON CA), 93 D.L.R. (4th) 334 (Ont. C.A.), aff’d 1993 CanLII 94 (SCC), [1993] 2 S.C.R. 443; Boyd (S.C.) at para. 24.

[^117]: Tarshis 2006 at pp. 508-509.

[^118]: Plaintiffs’ factum, para. 177.

[^119]: Statement of Defence and Counterclaim, paras. 11, 14, 18, 85-95, and 105-106.

[^120]: Since the denominator chosen by the defendants is less than what the plaintiff argues is the starting position, I have accepted that number. A higher number would effectively reduce, mathematically, the plaintiff’s claim for entitlement.

[^121]: The math is as follows: 13 months (Bimman’s imputed time as a director of CEL) divided by 29 months (project’s total duration), multiplied by $250,000 (Bimman’s share of the DMF had he stayed on until the end).

[^122]: Keeton v. The Bank of Nova Scotia, 2009 ONCA 662 at para 102.

[^123]: Honda Canada Inc. v. Keays, 2008 SCC 39 at paras. 68-69, [2008] 2 S.C.R. 362.

[^124]: Article 2.04(a). The second sentence of that provision reads: “Each Shareholder and Director agrees that he/she will keep all matters pertaining to the Corporation strictly confidential other than normal disclosures (e.g. brochures, financing offers and documents) made in the course of business.”

[^125]: Doc. 17—000: FL Comprehensive Valuation Report – May 2, 2014, pages 16-18.

[^126]: The plaintiffs itemize these amounts and the third party beneficiaries in paragraphs 182-185 of their factum. In light of my conclusion on the issue, I do not see a need to fully parse this analysis.

[^127]: Article 6.02(f).

[^128]: Exhibit 22: Revised Appendix 10 – Legal expenses to this litigation.

[^129]: Doc 10-258: Bresi cheque to 1050828 Ontario Ltd. Sept. 30 2009.

[^130]: Can. Aero v. O’Malley, 1973 CanLII 23 (SCC), [1974] S.C.R. 592, [1973] S.C.J. No. 97.