Court File and Parties

Citation: Zhao v. Zhao, 2016 ONSC 2469 Court File No.: CV-11-9459-00CL, CV-12-9609-00CL Date: 2016-04-12 Ontario Superior Court of Justice

Between: Pingbo Zhao and 7111703 Canada Inc., Applicants – and – Pingyuan Zhao and 51.ca Inc. and 2194467 Ontario Inc. and 2258797 Ontario Inc., Respondents

And Between: Pingyuan Zhao and 51.ca Inc. and 2194467 Ontario Inc., Applicants – and – Pingbo Zhao, Respondents

Counsel: Gregory Sidlofsky and Brendan Donovan, for the Applicants Igor Ellyn and Belinda Schubert, for the Respondents

Heard: December 8, 9, 10, 11, 12, 2014, December 15, 16, 17, 18, 19, 2014, April 20, 21, 22, 2015 and July 23, 2015

REASONS FOR JUDGMENT

Wilton-Siegel J.

[1] In this action, Pingbo Zhao (“Pingbo”) seeks, among other things, an order that the business of a website known as “51.ca” (the “Business”) has been operated as a partnership between Pingbo and his brother Pingyuan Zhao (“Pingyuan”) in which Pingbo has a 40% interest and Pingyuan has a 60% interest or, alternatively, that the Business is owned by a corporation in which Pingbo has a 40% shareholding interest. Pingbo further seeks an order that it is just and equitable that the partnership be dissolved or, alternatively, a declaration that Pingyuan has acted in a manner that constitutes oppressive activity for the purposes of section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”) and an order requiring the purchase of his shares at their fair market value. Pingyuan denies that the Business has been operated as a partnership between him and Pingbo and says that, instead, Pingbo and his personal corporation acted as an independent contractor providing advertising and administrative services to the Business.

[2] In a cross-application, Pingyuan seeks, among other things, declarations that Pingyuan is the owner of 85% of the shares of the 51.ca Inc. and 2194467 Ontario Inc., which own the Business, and that Pingbo has acted in a manner that constitutes a breach of his fiduciary obligations or oppressive behaviour for the purposes of section 248 of the OBCA. He also seeks an order requiring Pingbo to sell his shares in such corporations back to them at their fair market value, although his estimate of fair value differs from Pingbo’s estimate.

Background

The Parties

[3] Pingbo was born and educated in China and immigrated to Canada in 1997. He was aged 52 at the commencement of the trial. He is married to Meng Li Zhao (“Meng Li”), who was also born and educated in China prior to immigrating to Canada with Pingbo.

[4] Pingyuan is Pingbo’s younger brother. He was also born and educated in China. He immigrated to Canada in 2000. He was aged 46 at the commencement of the trial. He is married to Celine Zhang (“Celine”), who was also born and educated in China prior to coming to Canada with Pingyuan.

The Creation of the 51.ca Website

[5] Upon his arrival in Canada in 2000, Pingyuan started a website. He had learned website development in the course of his employment in China prior to immigrating to Canada. However, his website was not profitable, in part due to a business model that was no longer attractive to the market. He terminated work on it after approximately three months in the spring of 2001.

[6] In March or April 2001, Pingyuan commenced work on a new website that he named “51.ca”. The website was directed toward immigrants from mainland China. The language of the website was Mandarin. Over time, the 51.ca website, which was formally launched in July 2001, developed a number of different modules or features described below.

The Incorporation and Proposed Sale of Shares of 51.ca Inc.

[7] Pingyuan registered the 51.ca domain name in his personal name in or about July 2001. However, the website developed slowly. In early 2002, Pingyuan commenced discussions with a Chinese media group described below for the sale of the website in return for shares in the media group and an employment contract.

[8] In anticipation of this transaction, Pingyuan incorporated 51.ca Inc. under the OBCA on February 27, 2002. 51.ca Inc. was incorporated to own the Business, although no formal transfer of assets from Pingyuan to 51.ca Inc. ever occurred. In the articles of incorporation, Pingyuan and Pingbo are both shown as the incorporators, but Pingyuan is shown as the sole initial director.

[9] At the time, Pingyuan’s command of English was not extensive and his understanding of Canadian corporate law was negligible. He believed that an Ontario corporation required two shareholders. Accordingly, in the articles of incorporation, he purported to give Pingbo 30,000 common shares, representing 15% of the authorized common shares of 51.ca Inc. Pingbo was more capable in English. He assisted Pingyuan in preparing and filing the incorporation documentation. There is no suggestion, however, that Pingbo mislead Pingyuan with respect to the necessity for two shareholders.

[10] No by-laws, minute book, share ledger or share certificates were ever created or issued for 51.ca Inc. As a result, it could be argued that the 30,000 shares purportedly issued to Pingbo by the articles of incorporation were never properly authorized and issued. However, after the incorporation of 51.ca Inc., the parties proceeded on the basis that these shares had been issued to Pingbo, and Pingyuan does not take a contrary position in this proceeding. I have therefore proceeded on the basis that these shares were issued to Pingbo.

[11] The only other corporate documentation in the record is a corporate filing of 51.ca Inc. made later at an undetermined date, although possibly still in 2002. It shows Pingyuan as being the president, general manager and a director of the corporation from March 8, 2002. It also shows Pingbo as being the vice-president and a director from that date.

[12] On March 2, 2002, Pingyuan and Pingbo signed an agreement with N&E Star Group Inc. (“N&E”), a corporation that was affiliated with a Chinese media group owned by Chinese New Star Inc., for the sale of 130,000 shares of 51.ca Inc., representing 65% of the shares of the company. In return, N&E was to issue 50,000 shares, representing 13% of the shares of N&E, and to invest $30,000 annually for a number of years to develop the 51.ca website.

[13] As the transaction envisaged a share exchange involving the outstanding shares of 51.ca Inc., it would have been necessary to allocate the 50,000 shares of N&E to be received on the transaction between Pingyuan and Pingbo. However, Pingbo and Pingyuan never addressed the respective proportions of the 130,000 shares in 51.ca Inc. to be exchanged in the transaction.

[14] Pingbo says that the intention was to end up with a shareholding arrangement as follows: the N&E – 65%; Pingyuan – 20%; and Pingbo – 15%. This assumes that all of the 51.ca Inc. shares to be exchanged were to come from Pingyuan’s shareholdings. Pingbo says he accepted that Pingyuan should have a higher percentage in view of the fact that he had contributed significantly more to the 51.ca website from its inception to such time. Pingyuan says this was not the intended shareholding arrangement after completion of the proposed transaction. As the transaction did not close and there is no other documentation pertaining to the shareholding arrangements, it is not possible to draw any conclusions from the documentation relating to this proposed transaction.

[15] In anticipation of the completion of the proposed transaction, Pingyuan began to work for the website of N&E and its affiliate. However, by September 2002, Pingyuan had become convinced that N&E and its affiliate were using the proposed transaction as a means of obtaining cheap programming labour from him and that N&E had no intention of closing the proposed transaction. Pingyuan therefore ceased working for N&E and its affiliate and the parties effectively terminated the transaction agreement. However, the transaction agreement was not formally terminated until much later. N&E commenced an action in 2011 that was settled in 2012 by an agreement which provided for an exchange of mutual releases and a dismissal of the action on a "without costs" basis.

The 51.ca Website is Developed in Earnest

[16] In or about the autumn of 2002, Pingyuan started work again on the 51.ca website, including the development of a property rental module.

[17] The evidence indicates that Pingbo had little involvement with the Business prior to this time, apart from his involvement in the incorporation of 51.ca Inc. Pingbo had also started a website in 2000 which had been more successful than Pingyuan’s. However, Pingbo eventually abandoned his website. Instead, Pingbo became more actively involved as a sales agent for Rogers Cable as well as providing translation services, from which he was collectively earning a reasonable income.

[18] The business model for the Business envisaged revenue from advertising placed on the website. The advertising could be either classified advertising (also referred to as “yellow page ads”), placed by the customers themselves, or banner advertising, which required design services provided by Pingyuan initially and, after 2005, by an employee engaged by Pingyuan.

[19] The advertising model for the Business involved granting clients who bought and paid for advertising for a longer period of time a higher ranking on the 51.ca website than advertisers who bought and paid for advertising for a shorter period.

[20] In anticipation of returning to China to seek one or more programmers to assist in the development of the website and one or more investors, Pingyuan asked Pingbo to assist him by dealing with issues pertaining to the Business that required an individual in Toronto. This involved answering any telephone calls, paying bills, depositing monies received for advertising on the website. Such activities were, however, minimal as the website was generating little advertising revenue at the time. At or about this time, Pingyuan also agreed to pay Pingbo a commission for any advertising that he obtained.

[21] Pingbo agreed to assist Pingyuan during his absence in China, which lasted from November 29, 2002 to mid-June 2003. After Pingyuan's return to Canada in July 2003, Pingbo indicated that he did not wish to continue providing his services to the Business as it was unduly time consuming relative to the economic reward. At the time, however, Pingyuan anticipated having to return to China at the end of August 2003 for several months. Pingyuan convinced Pingbo to continue his activities for the Business during his absence, promising to return as soon as possible and to take over the administration of the Business when he returned.

The Transformation of the Business

[22] Pingyuan was in China from late August 2003 to November 2003. During this period, Pingbo posted news articles received from other sources on the 51.ca website. He also dealt with parties who sought out the Business for advertising, for which he received a commission as discussed below. Pingyuan continued to be involved from China in upgrading the website by adding a flea market module, a chat forum and a classified advertising module.

[23] Pingyuan estimates that advertising revenues were approximately $1,000 to $2,000 per month in August 2003 and that they rose to approximately $3,000 per month by November 2003. Pingbo does not dispute this estimate. The increase in advertising revenues reflected an increase in traffic at the 51.ca website.

[24] A significant factor in the increased traffic was the 51.ca website’s active response to the Cecilia Zhang murder in Toronto in October 2003. The 51.ca website was a source of current news articles on developments in this matter. It also offered a blog site which was very popular. In Pingyuan’s absence, Pingbo was active in keeping the news articles current as well as promoting discussion on the blog site.

Pingbo’s Commission Arrangements

[25] During the period of Pingyuan’s absence in China between November 2002 and mid-June 2003, and in the autumn of 2003, as mentioned, Pingbo received a commission of 40% of all advertising revenues. After Pingyuan’s return from China, Pingbo’s commission for advertising revenues was reduced to 20% of such revenues.

[26] Subsequently, however, in early 2004, as the 51.ca website traffic continued to increase, Pingyuan agreed to give a third party a commission of 50% of advertising revenues for active solicitation of classified ads. At Pingbo’s request, Pingyuan agreed that Pingbo could get the same rate, plus an additional 10% as a fee for his administrative services, i.e., 60% on classified ads and 20% on banner advertising reflecting Pingyuan's time on this type of advertising. This continued to be Pingbo’s payment arrangement until 2006, with the exception of a lengthy period in 2005 when Pingbo received 25% of non-classified advertising revenues to reflect additional work on his part posting news articles at the time. During that period, Pingyuan was busy working on other matters related to the Business.

[27] During the period from 2003 to 2005, Pingyuan created new modules for the website for real estate and job searching to increase traffic to the 51.ca website. Pingbo says these modules were added on his instructions. It is more accurate to say that he recommended such modules based on feedback that he received from advertising clients and users of the site. Pingyuan was also principally responsible in this period for the content on the 51.ca website, including news articles.

[28] The traffic on the 51.ca website continued to grow between 2004 and 2006. Advertising revenues also grew significantly during this period. As a result, Pingyuan began to have concerns regarding Pingbo’s payment arrangement in two respects. First, it was becoming apparent that, at the current rate of increase, in Pingyuan’s estimation, Pingbo’s income would be disproportionately high relative to Pingyuan’s income. It should be noted, as well, that Pingbo did not actively solicit new advertising. By this time, his responsibilities were limited to dealing with existing advertisers and new advertisers who themselves sought out the Business. Pingbo does not suggest that he ever actively solicited new advertising for the Business, other than at a very early stage in the development of the website. The 60% commission rate therefore assumed a more active role than Pingbo was performing. In addition, the 60%/20% commission structure provided an incentive to Pingbo to steer potential advertisers toward classified ads.

[29] Rather than raise these concerns directly with Pingbo, Pingyuan chose to discuss his concerns with their father Youchun Zhao (“Youchun”), who was visiting Canada at the time. Youchun had previously visited Canada in 2000 for approximately two years, when he stayed with Pingbo. He returned in May 2006 and stayed until November 5, 2006. During this time, he stayed with Pingyuan for most of the time, but did spend some time in a condominium owned or rented by Pingbo for him.

The Youchun Letter

[30] With a view to assisting the brothers to sort out the arrangements between them, given Pingyuan’s concerns as expressed to him, Youchun wrote a letter dated October 5, 2006 (the “Youchun Letter”) which he addressed to each of Pingbo, Pingyuan and their wives. The Youchun Letter set out Youchun’s observations regarding the existing situation and proposed three options for their consideration.

[31] In his mind, the three options were directed toward two objectives: (1) ensuring that the relationship between Pingbo and Pingyuan was strengthened rather than diminished by the economic arrangements between them; and (2) ensuring that sufficient funds were left in the Business to ensure that it could continue to grow.

[32] Prior to sending the Youchun Letter, Youchun discussed the situation with each of Pingbo and Pingyuan. Pingyuan thought a fixed ratio of 1:2 was an appropriate split of revenues between them. Pingbo apparently accepted the principle of a fixed split, but thought a 2:3 ratio was more appropriate.

[33] The three options are described in the Youchun Letter, the relevant translated portions of which read as follows:

The problems that the new distribution plan must solve can be boiled down, in simple words, to identifying a reasonable ratio to give both of you the shares that you each deserve. But that also involves deciding what expenses you should include in your costs, as well as whether you can realize the “deserved shares” for both parties as actual income. As for the ratio, you’ve indicated that the distribution ratio of 2:3 is appropriate or acceptable. So that settles the ratio. Then what’s left for you to discuss are the “problems involved”. To my mind, if “cost” can be defined as “any expenses made in the name of the company”, then it should include:

(i) Fixed monthly expenses, i.e. server fees, employees’ salary (editor, accountant etc.), royalties, office expenses, etc.;

(ii) Incidental expenses, such as legal fees, sponsorship, reception, duty-visit expenses, etc.; and

(iii) Government taxes that must be paid in the company’s name.

Of the items above, item (i) obviously poses no problem. Item (ii) occurs only a limited number of times, and you can discuss and deal with it whenever it occurs. But the format and amount of item (iii) are more difficult to define clearly, and you must both clarify it together in consultation with the accountant. As for the problem of "realization" of income, the reason for its existence is: if Pingyuan also transfers his "deserved share" to his own personal account (not to say at this point whether this is possible or whether there's any risk), won't the company be left without even a cent? In that case, how can you talk about future development? The company can't exist even legally. Isn't this scenario impossible? Have you thought about this point?

Considering the above, I've come up with three solutions for your reference:

(1) Solution 1: Every month from now on, take 25% of the distribution funds (i.e. the remainder after deducting the cost expenditure of that month from the monthly gross income) as "company reserve" and leave that amount in the company's account. Don't distribute this amount for the time being. Wait until the company has accumulated a reserve fund of a considerable amount, then take a portion out annually and distribute it according to the ratio of 2:3. The remaining sum (75%) could be distributed month by month, according to the ratio of 2:3. This way, Pingbo would take the amount of (monthly gross income – cost expenditure of that month) x 30% in advance. At the same time, Pingyuan could transfer (monthly gross income – cost expenditure of that month) x 45%, at the most, into his personal account (of course, that amount could still be left in the company's account, provided that it was clearly recorded). My point here is: judging from the company's current income, withdrawing only 75% for distribution would leave you with enough income as it is. You mustn't spend everything immediately. "Canada with no worries" is the source of your livelihood and the foundation for your future!

(2) Solution 2: Disregard Solution 1 completely. Just give Pingbo 1/3 of the "deserved share" as defined above, leave the remaining 2/3 in the company's account and give all of that to Pingyuan, who'd then be solely and personally responsible for settling all problems hereafter. The basic point of this suggestion is: Pingyuan's "timidity" or cautious character would ensure a considerable amount of cash left in in the company's account, which would guarantee the company's existence and development. Of course, if you decided to adopt this solution, Pingyuan would still have to make some form of guarantee, and at the same time, it should be clearly stated that Pingbo could have access to, inspect and verify the company accounts at any time, as a means of supervision, to ensure that the remaining sum in the company's account would not be less than 1/6 (2/3 – 1/2) of the total monthly accumulated distributable funds. This way, there would be a guarantee that what Pingyuan got wouldn't exceed the ratio of 2:3 for his deserved share. Solution 1 would not only guarantee the existence and development of the company, it would also clearly and directly follow the principle of distribution according to the ratio of 2:3. According to Solution 2, Pingbo's income in the long run would be less than that of Solution 1 by 2/5 – 1/3 = 1/5. If calculated by the month, his income would be much higher than this. Even though that Ping Yuan got would not exceed his deserved share or be even lower, he would then feel assured.

(3) Solution 3: Both people would take only a definite amount every month, as an advance on the bonus. At the end of the financial year, when the accountant had verified the actual amount of the company's bonus, it would then be distributed according to the ratio 2:3. Both people would have to repay (if the amount received exceeded what he should get) or receive (if he was supposed to get more than what he received) the arrears. This solution would strictly adhere to the principle of distributing according to the ratio 2:3. According to this solution, since you have to pay personal income tax, you might actually get much less every month, but you would feel completely secure, and both your families would really be tied together. This is the solution that your mother and I hope very much that you will adopt, because in this way, you could still live very well, and an affluent and safe way of life is the most desirable way of life. Furthermore, there are still ways and means to lessen the amount of tax payable; for example, a portion of the salary could be put under the names of Meng Li and Xiu Zheng, or the amounts could be set lower, and then the money would be taken out in the form of loans or other tax-free, legal methods, when required.

[34] The parties agree that they settled on Solution #2 in the Youchun letter (hereinafter referred to as “Solution #2”). Pingbo claims he thought that Solutions #1 and #3 would be very complicated given that they both required year-end reconciliations and Pingyuan was in China a great deal of the time. It is significant, however, that there was no discussion of changing the share ownership of 51.ca Inc., nor was there any consideration of issues pertaining to a sharing of control of, or decision-making regarding, the Business.

[35] The proposed arrangements were the subject of continuing discussions between the parties for the remainder of 2006. As discussed below, Pingyuan and Pingbo disagree on the proper interpretation of Solution #2, specifically upon whether the agreed split of the distributable amount was effectively 1:2, as Pingyuan argues and Youchun appears to have proposed, or 2:3, as Pingbo argues. This is reflected in differing views regarding the ownership of the 1/6 of revenues to be kept in the Business under Solution #2, which amount is herein referred to as the “Buffer Fund”. Underlying this issue is the question of the respective ownership interests of the parties in the Business.

The Pingbo 2007 Memorandum

[36] On December 31, 2006, Pingbo drafted a lengthy memorandum which he sent to Pingyuan on January 1, 2007 (the “Pingbo 2007 Memorandum”). The Pingbo 2007 Memorandum reviewed the history and financial performance of the Business, with an emphasis on Pingbo’s contribution to the Business, as well as the alleged consequences of his active involvement in the Business on his other business activities in justification of his position regarding his entitlement.

[37] The Pingbo 2007 Memorandum concluded with the following summary of his position:

Thus at the end of this document, my stance is as follows:

1. Like what I brought up to father last time, I believe that it would be just and reasonable for me to receive 2/5 of the monthly net profits and for Pingyuan to receive the remaining 3/5.

2. I have not carefully scrutinized father's proposal. Both Pingyuan and father seem to believe that after I receive a 1/3 share and Pingyuan receives 1/2, the remaining 1/6 should belong to Pingyuan, with me having supervisory rights over the fund. How does that make sense?

3. After voicing my concerns, if father and Pingyuan still insist on the previous solution, I would have no other complaint. I would rather prefer, however, that I receive 1/3 while Pingyuan gets 2/3 and we forgo the retained earnings component. From a personal standpoint, I do not believe that a 1:2 split between me and Pingyuan is just and reasonable. Yet if both parents and Pingyuan all agree that it is, then I would fully accept this arrangement.

4. I confess that regardless of a 2:3 split or 1:2 split, I would gladly accept the final decision. I would continue investing all my efforts into the company and would never act out on any perceived imbalance. I very much value the comfortable income I am currently enjoying.

5. Another point to clarify is that I am very surprised at mother and father's comments on Li Meng. My requirements for Li Meng have been clear on any 51 website-related matters: no participation. Family is family and work is work. Before Li Meng quit last year, I asked Pingyuan whether we could hire her. Pingyuan's outright refusal to this request is still unknown to Li Meng; she only knows that I wished her to go into real estate after her resignation.

[38] The Pingbo 2007 Memorandum effectively ended the discussion regarding the new financial arrangements for a period of time at least. There are, however, five important matters that emerge from this document. First, Pingbo acknowledged that he had made no contribution in 2002 that justified a 15% shareholding interest in 51.ca Inc. and, more generally, that Pingyuan was the main contributor to the Business. Second, he based his entitlement to a greater interest in the Business on his contributions beginning two years after the commencement of the operations of the 51.ca website, principally in publicizing the 51.ca website through its coverage of the Cecilia Zhang incident and in respect of a law suit in which 51.ca Inc. was the defendant. Pingbo stated that, after these events, he no longer thought of himself as an employee or administrator of the Business but as a partner or co-owner. Third, Pingbo acknowledged that he did not discuss a change in the shareholding arrangements with Pingyuan, instead believing that they would reach an amicable agreement regarding the split of any sales proceeds if the Business were sold. From this statement, it is clear that Pingbo’s principal interest was not his percentage ownership of the Business, but rather the income arrangements. Fourth, although Pingbo continued to believe that a 2:3 split was just and reasonable, he accepted the arrangement because Youchun and Pingyuan thought it was more just and reasonable. Lastly, he accepted that Meng Li would not be hired to work in the Business — a suggestion Pingbo had made in late 2006.

Pingbo Reporting of Income

[39] Pingbo began reporting advertising revenues and his commission entitlement to Pingyuan on a monthly basis as early as the autumn of 2003. Commencing in April 2005, the reporting included a reference to Pingbo’s personal GST registration number. Subsequently, commencing in March 2006, Pingbo included an invoice directed to 51.ca Inc. regarding the amount due to him personally.

[40] Commencing with the reporting for the month of September 2006, Pingbo’s reporting reflected the new arrangements implementing Solution #2, which continued for the remainder of the period to August 2010.

[41] Pingbo’s reporting was conducted in the following manner. Pingbo would provide two calculations on a monthly basis which were reflected in two one-page reports delivered to Pingyuan. The first calculation reflected monies paid by cheque into the account of 51.ca Inc., less GST and less the Business expenses during the month (the “distributable amount”). Each month, after receiving the bank statement for 51.ca Inc., Pingbo calculated the monies owning to him, being 1/3 of the distributable amount plus GST. Pingbo would cause this amount to be paid into his personal account. Initially, he also calculated 1/6 of the distributable amount and kept a calculation of the cumulative total of this amount. However, he stopped making this calculation at some point, he says because of the disagreement over the entitlement to the Buffer Fund.

[42] In addition, Pingbo prepared a separate calculation of all cash and blank cheques that he received from advertising customers who were unwilling to pay GST. Pingbo calculated 60% of such amount and deposited such amount in the account of 51.ca Inc. or otherwise paid it to Pingyuan. The amount of cash and cheques received from such advertising customers was typically considerably less than the amounts received from customers who paid by cheque and who included GST. The 60% rate reflected the 2:3 distribution ratio that was contemplated in the Youchun Letter as, apparently, no amount was paid in respect of these receipts into the Buffer Fund.

[43] It should be noted that Pingbo received his payment either personally or in his personal corporation after its incorporation as described below. At all times, Pingbo and his corporation had a GST number. The payments were made as commissions with the monthly statements being treated by the parties as invoices of Pingbo or his personal corporation.

Developments Between 2006 and 2010

[44] During the period from September 2006 to August 2010, when Pingbo left the Business in the circumstances described below, each of Pingyuan and Pingbo worked from their respective homes on their respective aspects of the Business. As a formal matter, the registered office of 51.ca Inc. was Pingyuan’s home while the advertising and business office for the Business was Pingbo’s home, as Pingbo received the advertising revenues and paid most of the business expenses. In addition, two employees were hired by the Business during the period 2006 to 2010.

[45] Beginning in 2007, however, Celine also began working on matters pertaining to the Business, supplementing Pingyuan’s work under his direction. Her activities included: designing banner advertising, managing content on the chat forum, checking for inappropriate content on the rental and flea market sites, monitoring competitors, and providing feedback on new modules prior to their implementation. For her services, commencing in August 2007, Celine was paid an annual salary of $36,000. Pingyuan effectively paid her salary out of his portion of the distributable amount of the earnings of the Business, as he did not require 51.ca Inc. to pay him most of his “distributable amount”. Pingbo was aware of Celine’s involvement from that time, but he did not raise it as an issue prior to 2010. Celine’s salary arrangements were of no real consequence to him financially, as the costs of the Business that were deducted before payment of his commission never included Celine’s salary. After Pingbo left the Business in 2010, Pingyuan increased Celine’s salary to $56,000 and began paying her salary out of the earnings of the Business.

[46] In January 2009, Pingyuan caused another corporation to be incorporated, 2194467 Ontario Limited ("219"). Pingyuan says the company was incorporated out of a concern for possible legal action against 51.ca Inc. by a Chinese individual who had registered "51.ca" as a trademark in China. Oliver Xing ("Xing"), the accountant for the Business, prepared the incorporation documentation for Pingyuan. The certificate of incorporation shows both Pingyuan and Pingbo as the incorporators and the initial directors. There is no evidence that shares in 219 were ever issued to either party although at one point Pingyuan indicated to Pingbo, when the latter raised the issue, that he intended the shareholdings of 219 to be the same as for 51.ca Inc.

[47] There is also no evidence that the assets constituting the Business were formally transferred to 219. Nevertheless, commencing in 2009, 51.ca. Inc. had significantly reduced income which declined in each year, other than from 2009 to 2010 in which there was a slight increase in revenues. The financial statements of 219 for 2009 and 2010 reflect revenues that were slightly higher than the revenues of 51.ca. Inc. in 2008. In addition, most of the revenues of the Business were placed in a bank account maintained by 219 during 2009 and 2010. It appears, therefore, that the advertising revenues of the Business were, in large measure, diverted from 51.ca. Inc. to 219 in these two years. While it appears that 51.ca. Inc. continued to own some assets of the Business in these two years, the parties proceeded on the basis that 219, rather than 51.ca. Inc., owned the Business during this period. Given Pingyuan’s acknowledgement that Pingbo had the same shareholding interest in 219 and 51.ca. Inc., however, the actual owner of the Business is not material to the issues in this action.

[48] The 85/15 share ownership arrangement did, however, create continuing friction between the parties as Pingbo considered himself to be a 40% owner of the Business and, accordingly, considered himself entitled to 40% of the shares of 219. In response to Pingyuan's refusal to issue him additional shares in recognition of his claim, Pingbo incorporated his own corporation, 7111703 Canada Inc. (“711”), in or about January 2009. Pingbo considered that 771 was the designated corporation responsible for, and entitled to solicit, all advertising for the Business. Pingbo appears to have considered that the incorporation of 219 called for this response from him. Further, he appears to have considered that, from this day forward, the Business was effectively split between 771 and 219, based on the respective responsibilities of Pingbo and Pingyuan as described below.

The Triggering Events of 2010

[49] On or about June 3, 2010, Pingbo obtained Pingyuan’s permission to borrow approximately $100,000 from the Business. The loan was for the purpose of acquiring a real estate property in Florida. On this occasion, Pingbo gave Pingyuan at least a week’s notice prior to the date on which he required the advance of funds. Pingbo signed an IOU on his own behalf and on behalf of 711 promising to repay the loan out of monthly commissions due to Pingbo/711.

[50] In early August 2010, Pingbo urgently required a further loan of $70,000 to avoid incurring a penalty that would be payable if he failed to close another real estate transaction that was scheduled to close on August 4, 2010. He did not call Pingyuan to ask for the further loan until early in the morning of that day.

[51] While Pingyuan gave his consent to the loan, he felt pressured into giving the loan and was unhappy. In addition, he was not pleased with Pingbo’s view of his entitlement to these two loans. Pingbo considered that the loans were a means of accessing monies in the Buffer Fund, being the 1/6 of the distributable amount of the revenues of the Business that was retained by 219 in accordance with the financial arrangements agreed to by the parties described above. However, rather than speaking directly to Pingbo about his displeasure, Pingyuan sent an email to Youchun expressing his dissatisfaction and asking his father for assistance in respect of Pingbo.

[52] Pingbo apparently saw a copy of the email and responded with an email to Pingyuan on August 7, 2010 (the “August 7, 2010 Email”). Pingbo says that the August 7, 2010 Email was intended to be an apology for his actions in the hopes that the parties could move on. However, in the course of the August 7, 2010 Email, Pingbo raised a number of grievances. In addition, and more importantly, he revealed to Pingyuan that Meng Li had been taking money from the cash received from advertising clients since 2006.

[53] The relevant portions of the August 7, 2010 Email, as translated, are as follows:

In talking about this, I don’t mean to manifest how noble I am as a person. In fact, all I’ve been pursuing painstakingly, or in other words, my principle of life, is exploring a moral reasonableness, and such reasonableness is not necessarily noble. The following example speaks to this point, and I have long wanted to tell Pingyuan, but now I would like to take this opportunity to make some explanations: this point is known to Pingyuan: the majority of the company’s income is in cheques, and even if deposited into my personal account, they are mostly cheques or bank transfers, but there is a small amount of cash payment made at my home. I generally handed the cash to LI, Meng, and she would gather it and tell me a total figure every month so that I can settle the accounts with Pingyuan.

LI, Meng, as a woman, always has such mentality of taking petty advantage, wanting to appropriate a bit of monthly cash for herself; a few hundred dollars, and even increasing to one thousand dollar recently. Such behavior is of course unethical, but it has its reasons:

First, LI more or less has to be involved in the company’s work, e.g. when I’m not by the phone or driving, LI has to answer client’s phone call, or sometimes bank errands and deposits have to be done by LI. Every month, there are some tough customers, and when they come to see me, LI has to receive them briefly. For example, in Mr. Gong’s ranking payment race this time, the couple came to our home and sat for a long while, and LI had to be with them. How is such kind of work remunerated? Could we have the nerve to write a bill and ask Pingyuan for money? If it is to be taken really seriously, what are LI’s work hours? Is $15/hour enough for such job? How big of a deal of money can it be if it is dealt with in a business-like manner?

Second, it’s the LI’s mentality of unfairness. Since I’m business with work, she is the full-time housewife, without income – she would always play the woman: such accounts alerting and collection job I can do better with my accounting background. You take care of the kids, and let me do your job! Ok, I said all my income is yours, and that should be fine. But how meaningful is it to make issue with yours or mine, as a family? The truly meaningful thing is to misappropriate a bit of company cash for herself, as an extra income, so that she would feel more comfortable at heart.

Third, it’s also about estimating you have more than sufficient income, so you surely would not mind LI’s taking such petty advantage. Prior to 06, it can be said that the income distribution between us brothers had not the slightest inaccuracy. But after our income increased, especially after our distribution became 2:1, this cash embezzlement of small mount started to emerge.

Based on my personality, I espouse moral reasonableness: since my wife made this request, such a request is certainly not on the right morally speaking, but it only does this much damage to my brother. Therefore, I can only lean towards my wife for the harmony of the family.

[54] As the foregoing extract reveals, Pingbo considered that he was wrong in failing to disclose the fact that Meng Li had taken various amounts of the cash receipts of the Business. However, he did not consider that he acted improperly in allowing Meng Li to keep the money. Pingbo considered that Meng Li was entitled to remuneration from the Business because she filled in for Pingbo with clients when he was not home.

[55] Although he did not refer to this matter in the August 7, 2010 Email, Pingbo also considered that Pingyuan was himself guilty of non-disclosure of a greater magnitude. In Pingbo's opinion, Pingyuan had improperly withheld certain revenue that Pingyuan had been receiving since 2005 referred to as Google “AdSense Revenues”. In addition, he considered it was unfair that Pingyuan's wife was receiving a salary from the Business while Meng Li was not.

[56] Pingyuan had not previously been aware of Meng Li's appropriation of cash from the Business. Pingbo says that the amounts ranged from $100 or $200 monthly, initially, to as high as $1,000 monthly by 2010 as Meng Li's workload increased, with an average monthly amount of approximately $500. Because Pingbo's reporting of cash to Pingyuan was calculated after the deduction of cash by Meng Li, Meng Li's receipt of cash was not transparent to him. Nor was it possible to verify how much Meng Li had, in fact, received in the period 2007 to 2010. Further, Pingyuan considered these actions to be contrary to the spirit, if not the express language, of the Pingbo 2007 Memorandum dealing with Pingbo’s suggestion that the Business hire Meng Li.

[57] Pingyuan called Pingbo on the evening of August 7, 2010 to say that Meng Li's actions were unacceptable to him and that he was very upset. The next day, August 8, 2010, Pingyuan sent Pingbo an email. In the email, Pingyuan explained that he had not paid Pingbo any of the Google AdSense Revenues as the related advertising had originally been placed on the 51.ca website in 2005 by Pingyuan and its continuation on the 51.ca website did not involve any maintenance or processing activity on the part of Pingbo. On that basis, he considered that such revenues were not part of the commission arrangement with Pingbo. However, he apologized for not including the revenues in such arrangements, provided a calculation of the total amount received since 2005, being U.S. $34,893.17, and proposed that Pingbo's share should be 1/3, plus interest, for a total of U.S. $12,000.

[58] Thereafter, matters escalated between the parties in various conversations. Pingyuan says he wanted a commitment that Meng Li would not take any more money, which he says Pingbo did not consider to be important. For his part, Pingbo expressed the view that he and Meng Li were getting less than they deserved from the Business. The parties exchanged views regarding their respective positions and proposals to establish a new arrangement between them in a number of emails and other communications. However, they failed to reach any agreement. The positions of the parties is discussed further below.

[59] Matters came to a head after August 25, 2010. On that day, Pingyuan arranged to have the banking authorities for the bank accounts of 51.ca Inc. and 219 at the Toronto-Dominion Bank (the "T-D") changed to delete Pingbo's signing authority, although Pingbo remained authorized to deposit cheques. Pingyuan notified Pingbo of this action by letter of the same date which was apparently emailed at the end of the business day. In that letter, Pingyuan stated that he considered that Pingbo’s regular duties would not be affected by this change, apart from issuing cheques.

[60] Pingbo called Pingyuan that evening and demanded that his signing authority be reinstated, failing which he threatened to publish an open letter regarding their dispute. Pingyuan made it clear that such an action would be taken as an indication that Pingbo no longer wanted to have any involvement with the Business.

[61] Pingbo responded by email the following morning on August 26, 2010. In that email, Pingbo demanded that Pingyuan agree to two propositions: (1) that Pingyuan reinstate his cheque signing authority; and (2) that 771 receive 50% of advertising revenues, of which Pingbo proposed to remit 40% to a charity fund for the Chinese community in Toronto. Pingbo then stated “[i]f you don’t make an immediate response today, I will have no choice but to publicize and socialize the disputes between (us) brothers tomorrow.”

The Open Letter

[62] Pingyuan did not accept these propositions. Pingbo followed through with his threat in his email of the preceding day by writing a very lengthy letter which was expressed to be an open letter from Pingbo to the Toronto Chinese community (the “Open Letter”). In the Open Letter, among other things, Pingbo discussed at some length the dispute between the parties, including the revenue sharing arrangements and his view of the fairness of such arrangements. Pingbo also included a proposal that the Buffer Fund should be used for charitable purposes.

[63] Pingbo sent the Open Letter early in the morning of August 28, 2010 to an individual known to the parties who also ran a media site. Pingbo says he was anguished and wrote the Open Letter out of despair. He said he wanted a "just resolution" of the affairs between them and felt that, after Youchun had sided with Pingyuan in their dispute, he had no option but to write the Open Letter. Pingbo says he expected that the individual to whom he sent the Open Letter would contact Pingyuan before publishing it to ask for permission. Pingbo says he also expected that Pingyuan would deny such request and, therefore, that the Open Letter never would be published.

[64] Although the individual did contact Pingyuan around 7:00 or 7:30 am to get a comment from him, the media site published the Open Letter in its entirety without requesting permission and before Pingyuan had an opportunity to read and comment on it.

[65] Apart from the confusing logic of Pingbo’s attempt to exonerate himself from responsibility for the publication of the Open Letter, the facts also contradict his suggestion that he wrote the Open Letter in a moment of anguish and despair. As mentioned, the Letter was preceded by a telephone conversation between the parties in which Pingbo threatened Pingyuan with going public regarding their dispute if his signing authority was not reinstated. This was followed by a letter to Pingyuan on August 26, 2010 in which Pingbo set out the two demands described above.

[66] It is difficult to do justice to this remarkable document, let alone to Pingbo’s justification of it. In his factum, Pingbo acknowledges that it was “a rambling, largely difficult to follow effort by Pingbo to invoke the moral suasion of the Chinese community against his exclusion from the [Business].” Rather than providing a complete summary, I will limit the discussion of the Open Letter to the following five observations that are of relevance for the issues in this trial.

[67] First, Pingbo publicly declared that the conflict between himself and Pingyuan was irreconcilable. He says in the Open Letter that he wrote it “to seek an objective evaluation from public opinion and solicit legally feasible solutions”. In short, he hoped the recipients would side with him and force Pingyuan to accept his position.

[68] Second, Pingbo set out, in some detail, the historical and current commission structure between the parties, as well as the approximate level of Pingyuan’s share of the monthly distributable amount under the current financial arrangements.

[69] Third, while acknowledging Pingyuan’s initial contribution dwarfed his own, Pingbo cast his own contributions in recent years as overwhelming those of Pingyuan. Significantly, however, when Pingbo turned to the issue of ownership of the Business, he discussed the issue in terms of his proposal that 771 and Pingyuan/51.ca Inc. would enter into an “equal contractual arrangement” to separate their respective functions in the Business so that each party would have complete control over their respective areas of responsibility. Pingbo does not suggest that any such arrangement currently existed.

[70] Third, Pingbo’s objective was a 50% commission rate. In other words, his principal concern was the level of his income. While he did propose the contractual structure described above, it was not for the purpose of confirming a partnership between the parties, but as a means of ensuring a continuing involvement on his part, notwithstanding, and indeed because of, the irreconcilable philosophic and operational difficulties that Pingbo says existed between them.

[71] Fourth, Pingbo’s publicly expressed pessimism regarding the economic future of the Business. He stated: “…our good days are approaching their end: with the growth ad volume [sic], the client erosion is also on the increase and it has nearly reached dynamic equilibrium now.”

[72] Lastly, he explicitly itemized the strengths and weaknesses of the positions of both parties, as he saw them, from a legal perspective. In the course of doing so, he came perilously close to threatening to appropriate the advertising revenue of the Business and requiring Pingyuan to sue him. Underlying this approach appears to be a belief that, while Pingyuan owned the domain name “51.ca”, Pingbo, or 771, “owned” the advertising clients of the Business, and therefore the revenue stream derived from it, subject to his agreement with Pingyuan.

Subsequent Events

[73] After seeing the Open Letter, Pingyuan sent Pingbo an email shortly after 8:00 am on August 28, 2010 advising him that the Business no longer needed his services and requesting return of all of its documentation in his possession by September 3, 2010 after which he said the outstanding commission would be settled between the parties. Concurrently, by posting a notice on the 51.ca website, Pingyuan also advised the customers of the Business that the payment address for advertising had been changed to his home address. Pingbo called Pingyuan later on the same day and told Pingyuan that these actions were “illegal”.

[74] Later the same morning, Pingbo also published another, shorter letter which he says was intended to ensure that any advertising clients communicated any concerns directly with Pingyuan as Pingbo had started a holiday. However, the letter contains further references to the dispute between the parties, including a statement that Pingyuan had abused his authority by depriving him of his authority to access “[51.ca] website management, including the authority of advertising management”. Pingbo further stated “For this matter, I hereby issue this urgent appeal and seek advice from local legal community: what shall we do to such an action that jeopardizes public interest out of personal grudges?”

[75] On September 15, 2010, 771 sent an invoice to 219 for income which Pingbo claims is owing for August 2010. The total amount invoiced was $36,697.21, which represents Pingbo’s calculation of the average monthly distributable amount including cash paid to 771 plus HST. This amount has not been paid to date. Subsequently, Pingbo also provided a calculation of the amount of the Buffer Fund that he alleged was owing to 771 as of May 11, 2011. Pingbo’s calculation totals $204,790.72.

[76] On or about September 22, 2010, Pingbo's legal counsel at the time wrote a letter to the T-D requesting that the bank accounts of 51.ca Inc. and 219 be frozen. The T-D responded by freezing the bank accounts of these corporations on or about September 23, 2010. As this letter is not before the Court, the basis for such request and the Bank's reasons for acceding to it, are not clear. Eventually, after obtaining legal counsel, Pingyuan succeeded in having these accounts unfrozen in the spring of 2011.

[77] On October 1, 2010, Pingyuan incorporated a new Ontario corporation, 2258797 Ontario Inc. (“225”). Pingyuan was the sole incorporator and director of 225. It does not appear that any shares of 225 were ever formally issued. However, Pingyuan acknowledges that it was his intention that he and Pingbo would have the same shareholdings in 225 as they do in each of 219 and 51.ca Inc. In these Reasons, 51.ca, 219 and 225 are collectively referred to as the “51.ca Corporations”.

[78] Pingyuan says he transferred the Business to 225 in order to deal with the difficulties presented by Pingbo's actions in causing the bank accounts of 51.ca Inc. and 219 to be frozen by the Bank. The financial statements of 225 and 51.ca Inc. suggest that the Business was carried on by 225 after October 1, 2010 until at least December 31, 2013 (the last period for which there are financial statements before the Court), although there was also no formal transfer of assets from 51.ca Inc. or 219 to 225.

[79] On or about October 15, 2010, Pingbo received notice of a special meeting of shareholders of 219 to be convened on October 25, 2010 for the purpose of electing Pingyuan as the sole director of 219 and appointing him the sole signing authority of the corporation. The meeting was subsequently held and the business transacted without Pingbo's attendance.

[80] Subsequently, on October 21, 2010, Pingbo sent a further lengthy email to a considerable number of Chinese language media sites in Canada addressing in considerable detail the ownership dispute between the parties (the “Second Open Letter”). Pingbo says he sent the Second Open Letter in the hope that the recipients, who he says were all friends of the parties, would persuade Pingyuan to settle the dispute between them. This email was headed "Bank assets of 51.ca website have been frozen". The letter contains a detailed history of the dispute between the parties from Pingbo's perspective. Pingbo claims that he expected that the Second Open Letter also would not be published because Pingyuan would have demanded of its recipients that there be no publication. In the end, however, the Second Open Letter was published on a number of websites.

[81] Pingbo made the following statements in the Second Open Letter of relevance to this proceeding. First, he described the incorporation of 771 as his response to Pingyuan’s incorporation of 219. In his mind, the incorporation of 771 was intended to result in both companies “managing the [51.ca] website”. Second, he considered his actions in freezing the assets of 51.ca Inc. and 219 to have resulted from Pingyuan’s refusal to sign a memorandum of agreement on Pingbo’s terms and instead “unilaterally engaging in trouble-making style law-breaking all the way” which also had the consequence of “a simple business dispute turning complicated”. Third, he describes the purpose of the earlier Open Letter as being “to appeal for public opinion to urge [Pingyuan] to admit his mistake and reinstate [Pingbo’s] signing authorities.” Fourth, Pingbo asserted that, overall, he had made the larger contribution to the website.

[82] Pingbo ceased to have any involvement with the Business after August 28, 2010. Pingyuan has carried on the Business since that date on his own.

Damage Calculations

[83] Each of the parties produced valuation experts whose reports were introduced as evidence at the trial and who also testified.

[84] The plaintiff’s expert, Marnie Silver, produced an updated valuation report, dated May 30, 2014 (the “SF Report”), a limited critique report of the FL Report (as defined below) and a report containing comments on the limited critique report of FL (as defined below). In addition, Ms. Silver produced a report, dated December 2, 2014, setting out certain calculations respecting the amounts due to Pingbo under various scenarios based on the valuation in the SF Report. Ms. Silver testified at the trial.

[85] In addition, the plaintiff produced a report, dated September 25, 2014, of Ken Froese, a forensic accountant, regarding the treatment of advertising revenues of the Business as current revenue or deferred revenue (the “Froese Report”), together with a reply report of Mr. Froese, dated November 27, 2014, to the limited critique report of FL (as described below) respecting the Froese Report. Mr. Froese also testified at the trial.

[86] The defendant’s expert, Bruce Roher, produced a valuation report, dated April 11, 2014 (the “FL Report”), an addendum to the FL Report, dated November 12, 2014 (the “FL Addendum”), a limited critique report, dated November 12, 2014, regarding the Froese Report and a limited critique report, dated April 11, 2014, regarding the SF Report. In addition, Mr. Roher produced a report, dated November 12, 2014, setting out certain calculations respecting the amounts due to Pingbo under various scenarios based on the valuation in the FL Report. The relevant calculations are set out in a schedule to that report which was Exhibit 19-1 in this trial. Mr. Roher also testified at the trial.

Preliminary Matters

[87] As a preliminary matter, it is necessary to address the share ownership of the 51.ca Corporations and the entities which own the Business. I would note that resolution of these issues establishes a framework that is necessary for a coherent determination of the inter-related issues in this proceeding.

The Share Ownership of the 51.ca Corporations

[88] In these Reasons, I have proceeded on the basis that Pingbo has a 15% interest in each of the 51.ca Corporations for the following reasons.

[89] Both parties agree that Pingbo was allocated 15% of the shares of 51.ca. Inc. on incorporation, which is reflected in the articles of incorporation. While Pingbo was allocated the shares due to Pingyuan’s mistaken belief that two shareholders were required to incorporate an Ontario corporation, Pingyuan does not deny that Pingbo has such a shareholding interest and does not seek any relief revoking the issue of such shares. In fact, the existence of such shares was a factor that Pingyuan says he took into consideration in assessing the overall fairness of Pingbo’s compensation. Similarly, Pingyuan testified that he intended the share ownership of 219 to reflect the same arrangements. While 225 was incorporated by Pingyuan to deal with the problem of frozen bank accounts at the instigation of Pingbo, Pingyuan does not suggest that he intended to modify the shareholding arrangements in the corporations owning the Business on such incorporation.

[90] On the other hand, there is no evidence that the parties ever discussed, much less agreed on, an increase in Pingbo’s share ownership from 15% to 40% in any of the 51.ca Corporations. Nor would this have been necessary, given Pingbo’s principal position at trial that he considered that the Business was conducted as a partnership between himself and Pingyuan or between 771 and 229.

[91] Accordingly, insofar as Pingbo’s asserts a claim to 40% of the shares of the 51.ca Corporations, it must be by way of order for relief based on his oppression claim. The availability of such relief turns on Pingbo’s principal claim that he was effectively a 40% partner in the Business, which is addressed below.

The Entities Which Own the Business

[92] In addition to the principal issue of the respective ownership interests of the parties in the Business, which is discussed below, there is an issue as to the manner in which the Business was owned.

[93] In the period from the commencement of the Business until August 2010, the assets of the Business were principally current assets and intangible assets. They comprise ownership of the “51.ca” domain name, the accounts receivable from time to time, any prepaid deposits for advertising, cash and cash equivalents. While the balance sheets of the 51.ca Corporations also includes computers, equipment and furniture, the value of such assets was immaterial.

[94] The evidence indicates that Pingyuan owned the domain name and that he purported to carry on the Business successively in each of the 51.ca Corporations. As Pingbo acknowledges, however, neither of the parties was aware of the rules of corporate or commercial law, nor was their advisor, their accountant Xing, knowledgeable in these matters. As a result, among other things, there are no transfers of the assets of the Business from Pingyuan to 51.ca Inc. upon its incorporation, or from 51.ca Inc. to 219, or from 219 to 225 upon their incorporation. On this basis, it is at least arguable that all of the assets were, and continue to be, owned by Pingyuan personally.

[95] As mentioned, Pingbo’s principal position at the trial was that the Business was run as a partnership between him and Pingyuan outside of the 51.ca Corporations. However, the financial statements of the 51.ca Corporations proceed on the basis that such corporations owned the Business at the relevant points in time. Further, Pingyuan carried on the Business as if it were owned by the 51.ca Corporations at all relevant times. It also appears that Pingyuan intended the 51.ca Corporations to own the Business. I have therefore proceeded on the basis that the 51.ca Corporations owned the Business at all relevant times.

Principal Determinations

[96] A central issue in this proceeding is Pingbo’s relationship to the Business. The following sets out the findings of the Court regarding Pingbo’s relationship to the Business as well as the ownership of the Buffer Fund.

Was the Business Operated as a Partnership Between the Parties?

Positions of the Parties

[97] Pingbo says that, from the early stages of the 51.ca website, he considered that he was a 40% partner in a partnership that owned the Business. Pingbo submits that the parties formed a partnership in 2001 when they agreed to pursue the new website together. He says that Pingyuan was responsible for the technology (which apparently included the website content as well), and he was responsible for advertising. He says he believed that neither party was to interfere in the work of the other and, more importantly, that neither could terminate the involvement of the other.

[98] In the alternative, if the Court finds that the Business was owned by the 51.ca Corporations, Pingbo’s position is that he is entitled to an order that he was a 40% shareholder in such Corporations.

[99] Pingyuan’s position is that Pingbo was an independent contractor who provided advertising and administrative services to the Business pursuant to a contract that was terminated by Pingyuan on August 28, 2010.

Applicable Law

[100] The parties agree that the three essential ingredients of a partnership are: (1) a business (2) carried on in common (3) with a view to profit: see the Partnerships Act, R.S.O. 1990, c. P.5, s.2 and Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367, at para. 18.

[101] It is also agreed that consideration of this issue requires an analysis of the entire relationship between the parties: see Kassian v. Canada (Attorney General), 2014 ONSC 844 (Div. Ct.), at para. 93. To ascertain whether a partnership exists, “the courts must inquire into whether the objective, documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit”: see Backman, at para. 25. In this case, the requirements of a business carried on with a view to profit are demonstrated. The issue in this proceeding is whether the parties intended to carry on the Business in common as partners.

[102] The following provisions of paragraph 3(3) of the Partnerships Act are also relevant for this issue:

The receipt by a person of a share of the profits of a business is proof, in the absence of evidence to the contrary, that the person is a partner in the business, but the receipt of such a share or payment, contingent on or varying with the profits of a business, does not of itself make him or her a partner in the business, and in particular,…

(a) a contract for the remuneration of a servant or agent or a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such;…

Analysis and Conclusions

[103] I find that the parties did not form a partnership either in 2002 or in 2006. Instead, the evidence strongly suggests that Pingbo provided advertising and administrative services to the Business as an independent contractor. I will set out the reasons for this conclusion by first considering Pingbo’s position that the parties created a partnership in 2002 on the inception of the Business, and then considering whether the relationship of the parties changed in 2006.

[104] The evidence does not support Pingbo’s assertion that the parties intended to form a partnership in 2001. In this regard, the following considerations are relevant.

[105] First, there is no evidence that the parties intended to create a partnership relationship at the time of the formation of the Business or at the time of the incorporation of 51.ca Inc. Consistent with this, Pingbo had no involvement with 51.ca Inc. for a considerable period after its incorporation. Moreover, the minimal assets of the Business, principally the domain name, were held in Pingyuan’s name. In addition, Pingbo’s shareholding interest was given to him by Pingyuan in the mistaken belief that two shareholders were required. It does not evidence any partnership intent.

[106] As a related matter, Pingbo submits that the fact that each of the parties had their own websites and talked about, and visited, each other’s websites argues in favour of the formation of a partnership in respect of the 51.ca website. I think these facts argue for the contrary result. Each brother had previously started another website, neither of which succeeded. Nevertheless, despite much interaction between them regarding these websites, there is no suggestion that these earlier websites were conducted as partnerships between them. Each brother then started a new website. Ultimately, Pingbo’s site failed and he turned to other more remunerative work. However, given their previous history and the absence of any other indicia of an intention to create a partnership in respect of the 51.ca website, I do not think that the degree of interaction between the parties in the early stages of this website is indicative of a partnership intention on the part of either party.

[107] Second, neither the purpose of, nor the arrangements pertaining to, the proposed share exchange transaction with N&E evidence the existence of any partnership at the time. Pingbo testified that the purpose of the transaction was to provide employment to Pingyuan, rather than to benefit each of the parties as partners. While Pingbo attended many of the negotiation sessions with N&E, there is no evidence regarding the nature of his involvement that indicates that he was participating in the role of a partner as opposed to an interested brother assisting Pingyuan to obtain permanent employment.

[108] Moreover, there is no clarity regarding the intended shareholdings in 51.ca Inc. as between Pingbo and Pingyuan after the proposed transaction. Further, even if Pingbo’s version of the intended share ownership were accepted, the resulting percentage of share ownership between Pingbo and Pingyuan would not have established the 40/60 ratio that he says represented their respective partnership interests in the Business. Nor is there any explanation for such a proportionate shareholding given Pingbo’s acknowledgement, addressed below, of negligible involvement in the 51.ca website to this point in time and no anticipation of any future involvement after completion of the transaction. In addition, and in any event, I do not see how the post-transaction shareholdings are indicative of a partnership between Pingbo and Pingyuan when the Business would have been controlled by N&E as the majority shareholder.

[109] Third, Pingbo’s actions in July 2003, after Pingyuan’s return from China, negative any continuing relationship with the Business let alone evidence an existing partnership arrangement. At that time, Pingbo sought to terminate his activities in connection with the Business and was convinced to remain during a further absence of Pingyuan by the promise of an agreed date by which Pingyuan would return and reassume Pingbo’s functions. At no time did he suggest that he had a partnership interest that should be purchased in some manner on the termination of his activities on behalf of the Business.

[110] Fourth, there is no evidence in any of the documentation or communications between the parties that Pingbo understood that he was responsible for sharing in any losses of the Business. In this regard, I note that the financial statements of 51.ca Inc. for the 2003 calendar year reflect a loss of $8,334. This was borne entirely by Pingyuan. Pingbo’s response when apprised of this fact was to allege that the expenses had been falsified by Pingyuan. There is, however, no evidence of such activity by Pingyuan in this trial.

[111] As a related matter, as described below, under Solution #2, Pingyuan ultimately bore any residual liabilities of the Business after application of the Buffer Fund. Further, as the Youchun Letter observed, Pingbo's income in the long run under Solution #2 would be less than under Solution #1, but, on a monthly basis, would be much higher in the nearer term. This trade-off reflected very different arrangements regarding the assumption of risk. In a very real sense, therefore, Pingbo’s choice of Solution #2 over Solution #1 represented a conscious decision to prefer receipt of a larger income in the near term with Pingyuan bearing the residual liability risk over the potential receipt of a larger income over the long run under an arrangement in which both parties would bear the residual liability risk.

[112] Fifth, as Pingbo himself acknowledged in the Open Letter, Pingyuan’s involvement on behalf of the Business dwarfed his own in the early years of the Business. Pingbo’s involvement with the Business did not occur until after Pingyuan’s return to China late 2002, at which point there was a need for someone to perform administrative functions in his absence. Even then, his actual involvement was modest. His meaningful involvement did not commence until Pingyuan took his second trip to China in late August 2003. Such involvement was not anticipated by the parties at any earlier stage in the development of the Business. It therefore does not validate or confirm the existence of a partnership from the time of the commencement of the Business.

[113] More importantly, on other occasions, Pingyuan has taken the position that it was his involvement since August 2003 or November 2003, either in respect of the Cecilia Zhang matter or more generally, that justified his claim to a partnership. This position was taken, for example, both in the Open Letter and, in a slightly different way, in the Pingbo 2007 Memorandum. In that Memorandum, Pingbo traced his involvement with the Business. He says that he “formally joined” the Business in late November 2003 as “an advertising administrator of 51.ca”. He says that he considered that he was, or became, a partner in the Business after his contributions in respect of the Cecilia Zhang matter and the lawsuit involving the Business, not before. While Pingyuan may believe he was entitled to a 40% partnership interest as a result of such involvement, the fact is that he did not assert that he was a 40% partner in 2003 after Pingyuan’s return from China or after the lawsuit terminated. Accordingly, Pingbo’s own actions contradict the formation of a partnership earlier at the time of the commencement of the Business.

[114] Sixth, and significantly, Pingbo’s commission rate and commission structure varied during the period from 2002 to 2006 at the discretion of Pingyuan, who decided the commission rates based on his assessment of what was in the best interest of the Business. Further, the commission structure under which the parties operated for most of the period bore no relationship whatsoever to the 60/40 partnership that Pingbo alleges existed between the parties throughout the period. Moreover, it was Pingyuan’s estimation that Pingbo was receiving a disproportionate portion of the revenues of the Business that led to the events of 2006.

[115] Seventh, Pingbo alleges that he invested “sweat equity” in the form of the following actions: cold-calling potential advertisers (which, at best, was minimal); answering calls from advertisers; receiving and depositing cheques; adding news stories to the website (for which the evidence is limited to the autumn of 2003); dealing with the banking for the website; invoicing customers for advertisements; collecting payments from advertisers; dealing with customers; hosting customers at his home; dealing with client complaints; keeping the books and records of the business; preparing and sending monthly statements to Pingyuan setting out the revenues and expenses of the business; and writing cheques to employees. This submission is a variant of his view that he became a partner after his contributions in respect of the Cecilia Zhang matter and the lawsuit involving the Business.

[116] As a general observation, apart from the advertising and administrative services described above, Pingbo’s activities in regard to the 51.ca website, which he inflates, were limited to his activities during Pingyuan’s absence in 2003 and to providing feedback received from advertising customers thereafter. His involvement did not include, among other things, creation of the numerous modules that created the real value of the Business. More importantly, as mentioned, all of Pingbo`s activities developed well after Pingyuan established the 51.ca website and were not in contemplation at such time. Pingbo’s involvement developed later in response to Pingyuan’s request that he perform these functions in his absence and, in fact, were only reluctantly continued in the fall of 2003. It is not possible on the evidence to assess his alleged involvement in respect of the lawsuit. Pingbo believes that his involvement in the Business entitles him to a 40% partnership interest. However, there is no evidence that Pingyuan ever acceded to this view. More generally, there is no objective evidence of a subjective intention of the parties to carry on the Business as a partnership in recognition of Pingbo’s alleged “sweat equity”.

[117] Lastly, for clarity, the fact that the parties paid no attention to the corporate requirements for the issuance of shares of the 51.ca Corporations and their corporate governance is not determinative of the relationship between them. I accept that the parties essentially disregarded the existence of the 51.ca Corporations for operational purposes. However, that fact only begs the question of whether the Business was owned by Pingyuan or by a partnership comprised of Pingbo and Pingyuan. It is not determinative of a partnership arrangement. For the reasons above, I conclude that, as between Pingbo and Pingyuan, the Business was owned by Pingyuan who treated the Business as owned by the 51.ca Corporations as described above.

[118] In summary, during this period, the Business became an additional revenue source for Pingbo pursuant to an informal contractual arrangement between himself and Pingyuan. This arrangement arose out of a need for his services that, as mentioned, commenced upon Pingyuan’s decision to return to China for a period of time in late 2002 and was continued, to their mutual benefit, after the Business took off in late 2003. At this time, Pingbo realized the Business could be a profitable source of additional commission revenue and he decided to continue to devote time to processing the advertising revenues. However, as is discussed further below, Pingbo’s activities were principally limited to dealing with the advertising and processing the advertising revenues. Control of the Business rested with Pingyuan who paid Pingbo for his services. There is no evidence that the parties agreed to a partnership at the outset. There is also no evidence that they agreed to a 65/15 partnership that was to be adjusted according to the parties’ relative contributions to the Business. Whether or not Pingbo is correct that he made at least as great a contribution to the Business as Pingyuan, he was paid for that contribution as an independent contractor. There is no evidence that the parties reached an agreement that they were to conduct the Business as a partnership between them and no evidence that reflects a partnership relationship between them during this period.

[119] At the trial, Pingbo did not assert that the alleged partnership was created in 2006, although he did make this argument in his written submissions. Pingbo argued instead that the circumstances leading to the agreement of the parties to implement Solution #2 reflected the existence of a partnership by that date. For the reasons set out above, I do not agree. I have, however, considered whether, in fact, the agreement of the parties to adopt Solution #2 constituted the formation of a partnership. I conclude that there is no evidence that it did so for the following reasons.

[120] First, given that Pingbo was not a partner prior to 2006, it is necessary to demonstrate that the parties intended to convert their relationship into a partnership. There is, however, no evidence of any such mutual intention in connection with the discussions between the parties that resulted in their agreement to Solution #2. In particular, there is no evidence of any discussions or communications between the parties respecting the establishment of a partnership. Nor is there any evidence of the creation or existence of a partnership in the Pingbo 2007 Memorandum, which, apart from the Youchun Letter is the only document from this period. In fact, in one passage, Pingbo implicitly characterized himself as an independent contractor or an employee when he expressed the view that Pingyuan could never fire him because, as a practical matter, in his view the entire Business would collapse in view of his critical role as the advertising sales person. While he subsequently denied an employment relationship in a later passage, I think this thought is consistent with the Court’s determination of an independent contractor relationship.

[121] Second, the language of the Youchun Letter, while not determinative on its own right because it was written by their father, who was a third party to the relationship, contains no language evidencing a partnership. More significantly, however, as indicated above, Solution #2 provided that the Buffer Fund was to be available to Pingyuan pursuant to an arrangement under which Pingyuan would be responsible for any liabilities of the Business not treated as expenses for distribution purposes. At the time, there was at least one threatened legal action involving an indeterminate liability that was therefore to be Pingyuan’s responsibility. Such an arrangement, under which Pingbo did not assume any of the downside risk associated with the Business, supports a conclusion that the parties did not intend a partnership.

[122] Third, the context in which the parties agreed to Solution #2 also negatives such a finding. Pingbo acknowledges that the issue in dispute was an appropriate remuneration for Pingbo given the nature of his role. The discussion was occasioned by the fact that Pingyuan, as the creator of the website, was locked into a commission arrangement with Pingbo that generated very high revenues for Pingbo based on the success of the site, which was attributable to Pingyuan’s efforts, rather than to Pingbo’s active generation of new advertising clients. The 2006 Agreement contemplated a reduction, or at least a potential reduction, of Pingbo’s commission income. I am quite certain that Pingbo would have raised the issue of formalization of partnership arrangements as a condition of his agreement to a potential reduction of his income if that had been intended. However, he did not say then, as he says now, that his contribution to the Business warranted a partnership arrangement, much less evidenced a pre-existing partnership agreement. Nor did he seek any understanding respecting decision-making regarding the Business. Instead, at all times, the evidence indicates that his sole concern was maximizing his revenues from the provision of his advertising services.

[123] Fourth, I acknowledge that the arrangements between the parties after implementation of Solution #2 had the result that Pingbo’s remuneration was calculated as a percentage of revenues after deducting a significant portion of the operating expenses of the Business. However, as set out above, paragraph (3)3 of the Partnerships Act provides that such an arrangement is not determinative on its own. A profit sharing arrangement is a material consideration if it evidences an arrangement in which the parties share the risks as well as the rewards of the Business. However, as mentioned, in this case, Pingbo did not share the risks of the Business. The arrangements regarding the Buffer Fund under Solution #2 had the result that Pingyuan bore the residual risk of the Business.

[124] Fifth, it is also significant that the record evidences that, throughout the period 2002 to 2010, while the parties talked regularly about the 51.ca website and Pingbo offered his suggestions, all strategic decisions regarding the website, including, in particular, the design of the website, were taken by Pingyuan. In addition, while it is unclear who initially proposed the advertising model that the Business adopted, Pingyuan had the final say on this matter as well. In other words, while many decisions regarding the nature of the Business may have been taken collectively, Pingyuan had the final say in the event of any disagreement between them. Such an arrangement is obviously inconsistent with the existence of a partnership, not just with Pingyuan’s alleged 60% interest in a partnership.

[125] Based on the foregoing, I find that the parties did not carry on the Business as a partnership between them and that, in particular, Pingbo was not, at any time, a 40% partner in the Business. Further, Pingbo’s alternative position that he is a 40% shareholder in each of the 51.ca Corporations is also dismissed. I conclude that there is no evidence of an agreement between the parties that he was entitled to a 40% shareholding interest in any of the 51.ca Corporations for the same reasons as I have found that he was not a 40% partner in a partnership that owned and operated the Business.

The Ownership of the Buffer Fund

[126] Pingbo submits that the parties agreed that he was entitled to a 40% share of the Buffer Fund. He submits that he is therefore entitled to receive his share of the Buffer Fund as of the date of his departure from the Business.

[127] Pingbo’s argument rests primarily on his view that the parties agreed to a 2:3 ratio which was implemented in each of the three solutions proposed in the Youchun Letter. He also says that the right in his favour to access, inspect and verify the accounts of 51.ca Inc. at any time, which was contemplated in Solution #2, would have had no purpose if the money belonged to Pingyuan.

[128] The effect of Solution #2 was that each of Pingbo and Pingyuan would receive distributions out of net revenues of the Business in the proportions of 2:3 respectively. In addition, an amount equal to 1/6 of such net revenues was also paid to Pingyuan to be placed in the Buffer Fund. While it is not expressed as clearly as it might be, I think the understanding underlying Solution #2 is that, as between the parties, Pingbo had no claim to such monies and, accordingly, that Pingyuan had the ultimate entitlement to such monies. I reach this conclusion for the following reasons.

[129] First, the Youchun Letter expressly contemplates that, after distribution of a one-third share of distribution monies to Pingbo, the remaining two-thirds would be left in the bank account of 51.ca Inc. and given to Pingyuan who would be responsible for all of the company’s liabilities thereafter. In other words, Solution #2 contemplated that Pingyuan would receive 50% of the distributable amount as his share according to the 2:3 ratio plus the remaining 1/6 (bringing the total to 2/3 of the distributable amount), in return for the fact that he was “solely and personally responsible for settling all problems hereafter”. Further, the Youchun Letter expressly notes that, under this arrangement, Pingbo’s income, in the long-run, would be less than 40% of the distributable monies by an amount equal to the difference between that amount and the 1/3 he would actually receive. It does not suggest that his income might include some amount of this difference at any point in the future to the extent of any surplus in the Buffer Fund.

[130] Second, Pingbo expressly acknowledged and accepted this consequence of Solution #2 in the Pingbo 2007 Memorandum, however reluctantly. In that document, he wrote as follows:

2. I have not carefully scrutinized father's proposal. Both Pingyuan and father seem to believe that after I receive a 1/3 share and Pingyuan receives 1/2, the remaining 1/6 should belong to Pingyuan, with me having supervisory rights over the fund. How does that make sense?

3. After voicing my concerns, if father and Pingyuan still insist on the previous solution, I would have no other complaint. I would rather prefer, however, that I receive 1/3 while Pingyuan gets 2/3 and we forgo the retained earnings component. From a personal standpoint, I do not believe that a 1:2 split between me and Pingyuan is just and reasonable. Yet if both parents and Pingyuan all agree that it is, then I would fully accept this arrangement.

[131] Third, Pingbo similarly acknowledged the 1:2 split in the Open Letter. He also expressly acknowledged that all monies in the 51.ca Inc. bank account, which would include the Buffer Fund, belonged to Pingyuan.

[132] Fourth, there was never any discussion regarding a process or mechanism for determining whether the amount in the Buffer Fund was, at any given time, more or less than was reasonably needed. This follows from the agreement that Pingyuan was to be responsible for any liabilities of the Business over and above the operating expenses that Pingbo paid out of the advertising revenues. Given Pingbo’s priorities, the fact that he did not raise the possibility of receiving any excess monies in the Buffer Fund in the future supports the conclusion that he understood that he had no further claim on any monies in the Buffer Fund under Solution #2.

[133] Fifth, this conclusion is consistent with the conclusion reached above regarding Pingbo’s assertion of a partnership. In the absence of a partnership, Pingyuan bore the entire risk of any residual liabilities of the Business after payment of the operating expenses paid by Pingbo. On this basis, under Solution #2, Pingbo received certainty of his share of the distributable amount, whereas Pingyuan’s income was ultimately dependent upon the extent of any residual liabilities.

[134] Sixth, I am not persuaded that the fact that Pingbo kept 40% of the cash is evidence of a 2:3 ratio between the parties. As the parties also adhered to the 2:3 ratio in the context of Solution #2 as described above, the fact that the parties also applied the 2:3 ratio in the distribution of cash is of no probative value. The more important consideration is that the amount of cash received was relatively minor. Pingbo received these monies. I suspect that this treatment reflects more on Pingyuan’s reluctance to raise this issue with Pingbo than on any indication of the parties’ intention regarding the entitlement to the Buffer Fund.

[135] Lastly, Pingbo’s right to access, inspect and verify the bank accounts of 51.ca Inc. regarding the Buffer Fund is not necessarily indicative of an ownership interest. This feature of the arrangement demonstrates Youchun’s interest as a father in attempting to find a reconciliation that reflected the interests of each of the brothers. In the case of Pingbo, he had shown no interest in bearing any personal risk, but he did want to know that the Business was capable of satisfying any unanticipated liabilities in order to protect his revenue stream, given that, by 2006, he was working exclusively for the Business. Ensuring that Pingbo retained at least 1/6 of the distributable monies in the Business as a reserve against unanticipated risks was a reasonable basis of satisfying Pingbo that the Business could continue indefinitely. At the same time, this arrangement was consistent with Pingyuan’s more conservative nature, with the result being that Youchun could be confident that Pingyuan would have no objection to the establishment of the Buffer Fund in such circumstances.

The Nature of Pingbo’s Relationship to the Business

[136] Pingbo argues that, in the event he is not found to have been a partner in the Business, his relationship to the Business is properly characterized as that of an employee. Pingyuan argues that Pingbo was an independent contractor. For the following reasons, I conclude that Pingbo provided his advertising and administrative services to the Business as an independent contractor, initially on a personal basis, and then through 771, rather than as an employee.

[137] The test to determine whether an individual is an employee or an independent contractor was addressed by Major J. in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, at paras. 46 to 48:

In my opinion, there is no one conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor. Lord Denning stated in Stevenson Jordan, supra, that it may be impossible to give a precise definition of the distinction (p. 111) and, similarly, Fleming observed that “no single test seems to yield an invariably clear and acceptable answer to the many variables of ever changing employment relations . . .” (p. 416). Further, I agree with MacGuigan J.A. in Wiebe Door, at p. 563, citing Atiyah, supra, at p. 38, that what must always occur is a search for the total relationship of the parties:

[I]t is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a contract of service any longer serves a useful purpose.... The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones.

Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.

It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.

[138] In the present case, the following factors are relevant.

[139] First, Pingbo’s involvement in the Business commenced in late 2002 when Pingyuan returned to China. During Pingyuan’s absence and his second absence later in 2003, Pingbo provided a number of services to the Business. In large measure, he operated autonomously with little supervision or control from Pingyuan. This relationship persisted for the remainder of the period of his involvement.

[140] Second, at the time Pingbo commenced his involvement, he carried on a number of other businesses. This was no more than another business activity for him, which became more onerous than he wished until it became profitable in the autumn of 2003.

[141] Third, Pingbo carried on these activities at his own home, rather than at any office of the Business. He also used his own computer for such purposes. Further, Pingbo was able to determine his own work schedule, subject to being available as required to meet with any advertising clients who had matters to discuss.

[142] Fourth, Pingbo’s remuneration took the form of a commission based on the advertising revenues related to his involvement after deduction of most of the operating expenses of the Business. He was not paid a fixed, or a minimum, salary. In addition, it is relevant that Pingbo, and later 771, invoiced the Business the monthly amount of their services plus HST.

[143] Lastly, the degree of control inherent in an employee relationship is fundamentally incompatible with Pingbo’s view of his relationship with Pingyuan as his younger brother and with his assertion of a partnership relationship between them.

[144] In summary, the foregoing features of the arrangements between the parties are more consistent with an independent contractor arrangement than with employee status. On this basis, I find that Pingbo’s advertising and administrative services were provided by Pingbo, and subsequently by 771, pursuant to a relationship as an independent contractor to the Business.

Disposition of the Application of Pingbo

[145] I turn then to the relief claimed by Pingbo in his application. He seeks the following principal relief: (1) an order that it is just and equitable that the alleged partnership between himself and Pingyuan that operates the Business be dissolved; (2) a declaration that he has an interest in the Buffer Fund; (3) as an alternative to the relief in (1), a declaration that Pingyuan has acted in a manner that constitutes oppressive activity for the purposes of section 248 of the OBCA; and (4) as an alternative to the relief in (1) and (3), an order that he has been wrongfully dismissed as an employee or as an independent contractor of the Business. I address each claim below.

Winding-Up of the Alleged Partnership and Entitlement to the Buffer Fund

[146] Pingbo’s principal claim is for an order under section 35(1) of the Partnership Act that it is just and equitable that the alleged partnership between himself that operates the Business be dissolved or, alternatively, that Pingyuan’s actions have been such as to entitle Pingbo to an order of dissolution of such alleged partnership under section 35(1)(d) of such statute. In connection with this relief, he seeks an order that he is entitled to receive his alleged 40% interest in the Business valued as of the most current date available together with 40% of the net distributable earnings since August 2010 and certain other amounts.

[147] I have concluded for the reasons set out above that the parties did not enter into a partnership to own and operate the Business. Accordingly, there is no basis for this relief.

[148] I have also concluded that Pingbo has no claim to the monies comprising the Buffer Fund. Accordingly, this claim is also dismissed.

Allegation of Wrongful Dismissal

[149] Pingbo says that, if he was neither a 40% partner in the Business nor a 40% shareholder in a corporation that owns the Business (a claim that will be addressed below), he was an employee of the Business who was wrongfully dismissed on August 25, 2010. Given the determinations above, it would appear unnecessary to address this issue. I have done so, however, in the event that Pingbo is found to have been an employee of the Business, rather than an independent contractor in his relationship to the Business or that the issue of termination for cause is otherwise found to be relevant to the termination of Pingbo’s relationship with the Business.

[150] Pingbo submits that just cause requires demonstration that an employee has repudiated the contract of employment or has caused actual damage to the finances or reputation of a business. Pingbo says that there was nothing in his conduct, either in giving cash payments to Meng Li, or in posting the Open Letter, that constituted cause for dismissal as an employee. Pingbo also argues, in the alternative, that he was constructively dismissed prior to the time of publication of the Open Letter with the result that his actions in publishing the Open Letter cannot constitute cause for termination.

[151] For the following reasons, however, I find that: (1) Pingyuan was entitled to terminate Pingbo’s relationship with the Business on two separate grounds; and (2) that Pingbo was not constructively dismissed on August 25, 2010.

[152] First, Pingbo’s actions in paying Meng Li a salary, or permitting her to take a salary for her activities, allegedly on behalf of the Business, were totally inconsistent with the agreement between the parties respecting Pingbo’s compensation. The parties agreed that Pingbo would provide specified services in return for his agreed-upon compensation. If he required additional assistance, the cost of such assistance was for his account and represented a cost to him of obtaining his agreed compensation. This was, in fact, the manner in which Pingyuan operated in respect of the payment of Celine’s salary.

[153] There was therefore no basis on which Pingbo could justify his actions. Instead, however, he compounded his improper conduct in two respects. He deliberately lied in suggesting that Meng Li took the money on her own. Then, he suggested that he disclosed her actions in order to force Pingyuan to disclose his own receipt of the Google AdSense Revenues, which Pingbo considered to be more egregious. I note that, given the findings that the parties were not operating as a partnership, there was nothing improper in Pingyuan’s retention of the Google AdSense Revenues. This is addressed further below.

[154] Moreover, in raising this issue, Pingbo acted disingenuously. Pingbo had known about the Google AdSense Revenues for some time, probably as far back as the initial receipt of such revenues in 2005. However, he chose not to raise his alleged concern until the August 7, 2010 Email, when he raised it as a defence to his own actions. This strongly suggests that he did not previously have any problem with Pingyuan’s treatment of these revenues, which would be consistent with Pingyuan’s entitlement to such revenues.

[155] These actions of Pingbo seriously breached the duty of honesty and loyalty owed by an employee to an employer. They destroyed the relationship of trust that is fundamental to the employer-employee relationship. On this basis, Pingyuan was entitled to terminate Pingbo’s employment on and after August 25, 2010.

[156] Second, Pingyuan’s actions on August 25, 2010 in revoking Pingbo’s signing authority for the 51.ca Inc. and 219 bank accounts did not constitute constructive dismissal for two reasons. As a matter of law, Pingbo cannot have been constructively dismissed in circumstances where a valid cause for termination existed and termination occurred shortly thereafter. In addition, the change in Pingbo’s signing authority was not sufficient to trigger a constructive dismissal. Pingbo’s fundamental responsibility was to manage the advertising on the 51.ca website, including receipt of all advertising revenues. As Pingyuan noted, the change in the banking authorities did not prevent Pingbo from continuing to perform these functions, including depositing all receipts in the Business’ bank accounts. While this change in banking authorities did mean that he could no longer write cheques to pay the Business’ expenses, this was not a significant reduction in his role. Pingbo did not exercise any meaningful authority in the execution of the administrative duties for which signing authority was required. More importantly, Pingyuan did not alter, let alone reduce, Pingbo’s remuneration arrangements.

[157] Third, publication of the Open Letter similarly resulted in Pingbo’s wilful repudiation and destruction of whatever remained of the relationship of trust that is fundamental to the employer-employee relationship. Whether or not the contents of the Open Letter contained confidential information as Pingyuan asserts is not relevant in this context. Publication of the Open Letter was a blatant attempt to seek the intervention of third parties in respect of a dispute between the parties. It represented a further negation of the duty of honesty and loyalty owed by an employee to an employer.

[158] Moreover, the circumstances leading up to the publication of the Open Letter reinforce the destructive nature and consequences of Pingbo’s actions. As mentioned above, Pingbo called Pingyuan during the evening of August 25, 2010 and threatened to publish an open letter regarding their dispute if his signing authority was not re-instated. Pingyuan made it clear that such an action would be taken as an indication that Pingbo no longer wanted to have any involvement with the Business. Pingbo followed up this call with an email the morning of August 26, 2010 in which he demanded that Pingyuan agree to two propositions described above. Pingbo then stated “[i]f you don’t make an immediate response today, I will have no choice but to publicize and socialize the disputes between (us) brothers tomorrow.”

[159] Pingbo ignored the warning and published the Open Letter. His evidence that he did not expect it to be published is disingenuous and not credible. So too is his suggestion that the Open Letter was written in haste in a moment of weakness when he was upset at Pingyuan’s actions in changing the banking authorities. His threat was made on August 26, 2010. The Open Letter was sent to its recipients on August 28, 2010. Pingbo had ample opportunity to reflect on the likely consequences of his actions.

[160] Based on the foregoing, I conclude that Pingbo’s claim for wrongful termination should be dismissed. To the extent that Pingbo is otherwise entitled to assert a similar claim in respect of his termination as an independent contractor with the Business, such a claim is also dismissed for the same reasons.

Alleged Oppression Under the OBCA

[161] Pingbo also asserts that Pingyuan’s actions constituted oppressive behavior for the purposes of section 248(2) of the OBCA. As relief for such oppression, Pingbo seeks a declaration that he is a 40% shareholder of each of the 51.ca Corporations and an order that Pingyuan buy out his 40% interest, at a price based on the valuation of his expert valuator, Ms. Silver, or an order that the Business be sold.

[162] Section 248(2) 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.

[163] Pingbo says he reasonably expected that: (1) he would continue to participate in the management of the Business, and would remain an officer and director of any corporate entity involved in the operation of the Business; (2) he would continue to have a 40% interest in the Business and continue to receive income in accordance with Solution #2; and (3) neither brother would have the right to exclude the other from the Business.

[164] Pingbo says he was oppressed when Pingyuan: (1) cancelled his signing authority; (2) deprived him of his monthly draws; (3) excluded him from management; (4) wrongfully dismissed him “as one would a mere employee”; (5) transferred all of the assets of the Business to 225; and (6) launched a money-losing newspaper in 2011, being the 51.ca weekly newspaper.

[165] This claim must be analysed on the basis of the determinations above that: (1) Pingbo was not a 40% partner in a partnership that owned the Business, nor was he a 40% shareholder in each of the 51.ca Corporations; (2) Pingbo had no entitlement to any monies in the Buffer Fund; and (3) Pingyuan was entitled to terminate, for cause or otherwise, Pingbo’s relationship with 51.ca Inc. and 219 as an independent contractor providing advertising and administration services to such corporations, or, alternatively, Pingbo’s employment with such corporations.

[166] This claim is denied in its entirety for the following reasons.

[167] First, the Court has found that Pingbo was not entitled to an order that he is a 40% shareholder in each of the 51.ca Corporations. Given this finding, his expectation that he had a 40% interest in the Business as a 40% shareholder of the 51.ca Corporations was unreasonable and cannot ground a claim of oppression.

[168] Second, there is also no basis for an expectation that Pingbo would remain a director and officer of any corporate entity involved in the operation of the Business. Given the foregoing determinations, this claim of oppression must rest on his 15% shareholding interest in the 51.ca Corporations. It is trite to say that a 15% shareholder of a corporation can only have an expectation of a continuing position as an officer and/or director of a corporation if there is an agreement among the shareholders to such effect. There is no such agreement in this case.

[169] On Pingbo’s own evidence, there was no expectation of any future involvement as an officer or director that was reflected in the grant to him of his 15% shareholding interest. According to Pingbo, 51.ca. Inc. was incorporated with the express intention that control of the corporation would be sold to N&E, which would become the 65% shareholder. The 15% shareholding interest was given to Pingbo based on a mistaken belief that two shareholders were required to incorporate a corporation under the OBCA. Further, Pingbo says, and the Court has found, that after this transaction failed to proceed, the parties disregarded the corporate relationship in their dealings between themselves. Consistent with this understanding, there is no evidence that Pingbo ever purported to perform any services for any of the 51.ca Corporations in his capacity as an officer or director of any of them. While Pingbo continued to be an officer, this was solely in the context of his signing authority for 51.ca Inc. and 219 at the discretion of Pingyuan, as Pingyuan had chosen to operate the Business in these Corporations. While Pingbo suggests that the Pingbo 2007 Memorandum could be regarded as a shareholders agreement, it did not address these matters.

[170] Third, the Court has found that Pingbo was an independent contractor with the Business. There was no written contract between the parties addressing termination of the relationship. The Youchun Letter was also silent with respect to Pingbo’s continuing involvement. However, as set out above, the agreement of the parties to Solution #2 proceeded on the basis that Pingyuan owned the Business. Given these findings, Pingbo had no more than a contractual right to provide advertising-related services to the Business and to receive remuneration for such services in accordance with Solution #2 until such time as the arrangements were terminated by one of the parties. Accordingly, I find that either party was entitled to terminate Pingbo’s relationship with the Business.

[171] On this basis, Pingbo’s expectation that he had a non-terminable right to receive income in accordance with the arrangements provided under Solution #2 was not reasonable and cannot ground his claim of oppression. In particular, the agreement of the parties to Solution #2 did not constitute a basis for an expectation that Pingyuan would have no right to terminate Pingbo’s relationship to the Business. As an independent contractor providing advertising and related banking services to the Business, Pingbo could not reasonably have expected that the relationship would continue until such time as he, rather than Pingyuan, chose to terminate the relationship. He was always subject to Pingyuan’s right to terminate the relationship – even if the nature of the personal relationship, as well as their father’s involvement, might have placed certain practical constraints on that right in the event of a decision to terminate otherwise than for cause.

[172] Fourth, for the foregoing reasons, there was also no basis for Pingbo’s expectation that he had a right to continue to participate in the management of the Business and that neither party had the right to exclude the other from the Business. Each party had the right to terminate the relationship as a matter of law, given Pingbo’s status as an independent contractor to the Business in the circumstances described above. Pingbo’s 15% shareholding interest in the 51.ca Corporations could not give rise to such an expectation for the same reasons that his 15% shareholding interest could not give rise to a reasonable expectation of a continuing position as an officer and/or director of such Corporations.

[173] There is therefore no basis on which Pingyuan’s actions in cancelling Pingbo’s signing authority and in terminating his relationship with the Business – thereby terminating his monthly draws, which comprise the basis for Pingbo’s claims of oppression in items (1) to (4) above – can constitute oppressive behavior for the purposes of section 248 of the OBCA.

[174] Last, and in any event, given Pingbo’s relationship to the Business, Pingyuan had the right to terminate that relationship for cause for the reasons set out above Pingyuan. Any expectation of a continuing involvement with the Business, or continuing right to receive income, terminated with such actions.

[175] For completeness, Pingbo also alleges that Pingyuan’s actions in transferring all of the assets of the Business to 225 in 2010 and in launching the 51.ca weekly newspaper in 2011 constituted oppressive activity for the purposes of section 248. These actions occurred after the termination of Pingbo’s relationship with the Business. Given the determination that Pingyuan had the right to terminate this relationship, Pingbo cannot assert that any actions taken after such termination were oppressive in respect of him.

Summary Regarding the Disposition of Pingbo’s Application

[176] Based on the foregoing, Pingbo’s application is dismissed in its entirety, except to the extent of certain determinations below under “Remaining Monetary Claims”.

Disposition of the Cross-Application of Pingyuan

[177] Pingyuan, 51.ca Inc. and 219 (collectively “the respondents”) seek an order directing that the 51.ca Corporations purchase Pingbo’s 15% shareholding interest in such Corporations based on the value of such interest at August 28, 2010. The respondents say the relationship of the parties has terminated. They seek a means of terminating Pingbo’s shareholding interest in the absence of any agreement between Pingbo and Pingyuan that would permit such a purchase or determine the terms of such purchase. The respondents argue that such relief would be appropriate under sections 207 or 248 of the OBCA or, alternatively, as an equitable remedy for a breach of Pingbo’s statutory and common law duties to 51.ca Inc., 219 and Pingyuan.

[178] I will address the factual basis of this submission before considering the application of these provisions to the present circumstances.

The Factual Basis for the Relief Sought

[179] The respondents say that Pingbo abused his role as a director of 51.ca Inc. and 219 (herein collectively the “respondent corporations”) by numerous acts listed below which were not done honestly and in good faith with a view to the best interests of such corporations, but instead they say involved preferring Pingbo’s own interests to that of these corporations. They say these actions damaged the 51.ca Corporations, that Pingyuan has had to repair the damage, and that it would be inequitable if the 51.ca Corporations were not compensated in a reasonable manner for such damage.

[180] The following is the complete litany of actions set out in the respondents’ factum in the language of that factum: (1) Pingbo claimed that he was a partner of 51.ca Inc., when he was only a 15% shareholder as Pingbo admitted in both the Open Letter and the Second Open Letter; (2) Pingbo claimed that he was entitled to more shares just because the advertising revenues of 51.ca Inc. grew; (3) Pingbo embezzled at least $36,000 of 51.ca Inc.’s and 219’s revenues to give his wife a secret salary, after he wrote in the Pingbo 2007 Memorandum that he would not do so; (4) Pingbo failed to fully record all revenues of 51.ca Inc. and 219 in the records of the corporations and failed to deposit all of the corporate advertising revenues in the corporations’ bank accounts; he sometimes deposited the corporations’ advertising revenues in his own account; (5) Pingbo exposed 51.ca Inc. and 219 to reassessment and/or prosecution by the Canada Revenue Agency by failing to properly record all of the revenues of the corporations; the corporations may be exposed to paying income tax on the revenues which Pingbo personally received; (6) Pingbo failed to properly record all GST and HST payable by 51.ca Inc. and 219, and by so doing exposed 51.ca Inc. and 219 to GST and HST on the portion of the corporate revenues, which he received personally; (7) Pingbo disclosed confidential details about the Business in the Open Letter and the Second Open Letter to the Chinese media; (8) Pingbo falsely claimed publicly that 711 was the “51 Advertising Company” and an owner of the 51.ca website, when he knew that Pingyuan expressly refused to agree to this; (9) Pingbo falsely publicly claimed that as “51 Advertising Company”, he was entitled to keep the records of the customers of 51.ca Inc. and 219; (10) Pingbo publicly threatened to deposit 51.ca Inc.’s and 219’s revenues in his own account unless Pingyuan reinstated his signing authority; (11) Pingbo damaged the Business by refusing to turn over the customer lists and records in his possession following his termination; (12) Pingbo refused to turn over revenues belonging to 51.ca Inc. and 219 received by him in August 2010; (13) Pingbo borrowed $170,000 from 219 in June 2010 without Pingyuan’s advance permission, telling him on the day he was writing the cheques that 219 had to lend him the money; (14) Pingbo sent emails to employees of the respondent corporations in May 2014 disclosing all the details about the dispute between Pingbo and Pingyuan and asking the employees to “tell your boss to settle”; (15) Pingbo publicly disclosed Pingyuan’s personal financial details and investment preferences; (16) Pingbo publicly defamed Pingyuan, the president of 51.ca Inc. and 219, by alleging that (i) Pingyuan had committed non-existent crimes; (ii) Pingyuan was a trouble-making lawbreaker; (iii) Pingyuan was a miser; and (iv) Pingyuan is a legal illiterate, which would harm public confidence in the Business; (17) Pingbo publicly informed the Business’ competitors and customers that “the best days of 51.ca are over” and published details of the Business’ revenues and advertising model; (18) Pingbo embarrassed the Business and its majority shareholder by committing them to set up a charity fund for the Chinese community as a ruse to have Pingyuan reinstate Pingbo’s signing authority; (19) Pingbo damaged the business of 219 and 51.ca Inc. by instructing a lawyer to wrongfully freeze the business bank accounts; (20) Pingbo set up two competing websites, 1yc.ca and sortown.ca, as a reaction to his removal as a director of 51.ca Inc. and 219; (21) Pingbo publicly declared that his website, 1yc.ca, will be hotter than 51.ca in three to five years, in an effort to financially harm the Business; and (22) Pingbo falsely publicly claimed that 711 is the majority shareholder of the 51.ca Corporations and that this matter must be determined by the courts, when he knew that he only owned 15% of the corporations.

[181] I would observe that a number of these allegations should be dismissed for reasons specific to the particular allegation. For example, Pingbo was entitled to assert his claims of a partnership relationship in this litigation. Nor is it actionable, for this reason alone, that he set out this position in the Open Letter and in other letters that he published to the Chinese community or sent to family members. Also, nothing prevented Pingbo from establishing new websites after the termination of his relationship with the Business or from predicting, or boasting, that his websites would be more successful than the 51.ca website. In addition, as Pingyuan agreed to the two loans requested by Pingbo, the respondents cannot now assert that Pingbo’s actions in requesting such loans were somehow improper. Similarly, the treatment of cash revenues of the Business, including the failure of the parties to disclose such revenues for tax purposes, was known to Pingyuan who took no action to change the practice, even if he acquiesced with reservations as he now suggests. Pingyuan shares the responsibility for this decision with Pingbo. Therefore, the respondents cannot now assert that Pingbo’s involvement in these actions is actionable in the present proceeding. I also observe that a number of the allegations listed above are repeated in different forms. I will address the significance of the principal remaining allegations below.

Claim of Breach of Fiduciary Duty

[182] Pingyuan asserts that Pingbo breached his statutory duties as a director and officer under section 134(1) of the OBCA, as well as his common law duties as a director and officer, to act honestly and in good faith. He relies on the fact that Pingbo was a director of the 51.ca Corporations and a vice-president of at least 51.ca Inc. when he took the actions set out above.

[183] Section 134(1) provides as follows:

134. (1) Every director and officer of a corporation in exercising his or her powers and discharging his or her duties to the corporation shall,

(a) act honestly and in good faith with a view to the best interests of the corporation; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

[184] The respondents acknowledge that such statutory duties are owed to 51.ca Inc. and 219, rather than to Pingyuan. However, they suggest that Pingbo also owed a fiduciary duty at common law to Pingyuan as the majority shareholder. They argue that the Court should fashion an equitable remedy for these breaches of Pingbo’s statutory duties to 51.ca Inc. and 219 and of Pingbo’s common law fiduciary duty to Pingyuan, collectively, that includes an order that Pingbo sell his shares to these corporations at their fair market value as of August 28, 2010, less certain amounts dealt with below.

[185] As a preliminary matter, I note that, as Pingbo was never appointed an officer or director of 225, as Pingyuan purported to remove Pingbo as a director and officer of 219 as of October 20, 2010, and as 51.ca Inc. did not operate after that date in any meaningful way, Pingyuan cannot rely on any of Pingbo’s actions after October 20, 2010 for the purpose of this claim.

[186] In their written submissions, the respondents do not specify the particular actions that they allege breached these obligations. They do, however, make two general submissions which I will consider in turn.

[187] First, the respondents refer generally to the actions of Pingbo described elsewhere in the submissions. Based on the equitable remedy sought, it would appear the principal allegations pertain to the withholding of cash revenues by Meng Li, Pingbo’s failure to deliver the cash revenues of the Business for August 2010, Pingbo’s actions in retaining books and records of 51.ca Inc. and 219 after August 28, 2010 despite Pingyuan’s request for their return, and disclosure of financial and business information regarding the Business in the Open Letter and other letters written by Pingbo. In addition, it could be argued that Pingbo breached his obligations as a director of 219 in causing the T-D to freeze the bank accounts of such corporation.

[188] Second, in their written submissions, the respondents also allege a broader claim based on the alleged breaches of these statutory and common law duties. They submit that the actions set out above constitute vengeful actions of Pingbo that were collectively designed to damage the Business and obtain a financial benefit for himself. They say that, as a director, Pingbo had an obligation to Pingyuan to place the financial interests of 51.ca Inc. and 219 ahead of his own interests, which duty required him to refrain from taking such actions.

[189] I will address both of these allegations together as the same principles apply to each formulation of the respondents’ claim. I conclude that these claims for equitable relief in the form of an order that Pingbo sell his shares in the 51.ca Corporations to such Corporations must fail for the following four reasons.

[190] First, the respondents’ claim against Pingbo for breach of his statutory and common law duties to 51.ca Inc. and 219 must be based on something more than furthering his personal financial interest during a period of time during which he was a director or officer of these corporations. Section 134 of the OBCA imposes the duties in that provision on an officer or director “in exercising his or her powers and discharging his or her duties to the corporation”. Accordingly, to be actionable under section 134, Pingbo’s actions must have been taken in the capacity of an officer or director of the respondent corporations. The common law duties of officers and directors of a corporation are similarly limited.

[191] In this case, with the possible exception of freezing the 219 bank account, the actions upon which the respondents base their claim were not actions taken by Pingbo in the course of exercising his powers and discharging his duties to the respondent corporations as a director or officer. Each of these matters pertains to actions taken by Pingbo, or more precisely by 771, in respect of Pingbo’s relationship with the Business as an independent contractor.

[192] In particular, Pingbo’s actions in respect of the retention of monies by Meng Li, the exclusion of such cash revenues from the invoices provided to 51.ca Inc. and 219, the retention of the August 2010 cash revenues of the Business, the retention of books and records of the Business in his possession after August 28, 2010, and the disclosure of the allegedly confidential matters regarding the Business were taken in his capacity as an independent contractor or in the course of his dispute with Pingyuan for termination of that relationship. Similarly, any information regarding the financial and business affairs of the Business that he disclosed after August 28, 2010 was received in his capacity as an independent contractor rather than as an officer or director of 51.ca Inc. or 219.

[193] Pingyuan’s position in this proceeding is that Pingbo was acting as an independent contractor rather than as an employee of 51.ca Inc. or 219 in providing his advertising and administrative services to the Business. He cannot assert the fact of Pingbo’s nominal position as a director and officer during this period as a basis for a claim of breach of statutory or common law fiduciary duties.

[194] Second, Pingyuan has failed to establish any damages that flowed from these alleged breaches, apart from the specific monetary issues addressed below under “Remaining Monetary Claims” which pertain to Pingbo’s breach of the obligations that he owed the respondents as an independent contractor. In particular, the causation alleged in respect of the costs of settlement of the N&E litigation, which Pingyuan suggests resulted from the disclosures in the Open Letter, is far too remote to ground an actionable claim. Similarly, insofar as it is arguable that Pingbo exercised his powers as a director in causing the T-D to freeze the bank account of 219, there is no evidence of material damage to 219 that would, on its own, justify an order of compulsory sale of Pingbo’s shares to the 51.ca Corporations.

[195] Third, in respect of Pingyuan, the respondents assert that he was reasonably entitled to expect that Pingbo, as a director of 51.ca Inc. and 219, would put the financial interests of these corporations ahead of Pingbo’s own interests and would therefore refrain from taking the actions listed above. In effect, Pingyuan asserts that Pingbo, as a director or as a minority shareholder, owed a duty to Pingyuan as a majority shareholder of these corporations. I do not think that, as a matter of common law, Pingbo owed any fiduciary duty to Pingyuan as the majority shareholder of 51.ca Inc. or 219 by virtue of his position as a director or officer of these corporations. The respondents have not provided any authority which supports their position. While I accept that breach of a director’s or an officer’s duties to a corporation may entitle a shareholder to relief under section 248 of the OBCA, that is a different issue entirely which is addressed below. Nor do I think that, as a matter of law, Pingbo owed Pingyuan any fiduciary duty by virtue of his minority shareholding in the 51.ca Corporations. A minority shareholder could only owe a duty to a majority shareholder in unusual circumstances that are not present in this case.

[196] Fourth, the respondents’ also claim that Pingbo’s actions entitle them to an equitable order of compulsory sale because the actions were directed to damaging the respondent corporations. These claims are not directly referable to breaches of any statutory or common law duties of Pingbo in his capacity as a director or officer. While the respondents attempt to establish such a basis by expressing the claims as a breach of a duty to prefer the interests of the respondent corporations to his personal financial interests, that is far too broad an expression of his duties as a director. Moreover, a claim of a breach of a director’s statutory and common law duties based on an alleged intention to injure is not actionable as such for two reasons.

[197] First, there is no recognised tort claim in respect of damage caused by an individual whose actions were directed towards causing economic damage to another individual. Any such claim would require two or more parties acting in concert such that there was a claim in conspiracy. Where damage is allegedly caused by a single individual, a complainant must allege one or more of the recognized tort claims. Second, as the respondents suggest, this claim is not actually based on a breach of a director’s duties. It is really in the nature of an oppression claim under section 248 of the OBCA. I have addressed the viability of such a claim in the next section.

[198] Based on the foregoing, I conclude that Pingbo’s actions, as set out above, do not constitute breaches of his statutory and common law duties as a director and officer of the respondent corporations that entitle the respondents to equitable relief in the form of an order that Pingbo sell his shares in the 51.ca Corporations to such Corporations.

The Claim of Oppression Under Section 248

[199] As mentioned section 248(2) 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.

[200] Section 248(2) requires demonstration that Pingyuan had reasonable expectations that were breached by Pingbo pursuant to actions that fall within one of the three categories in paragraphs 248(2)(a), (b) or (c).

[201] The respondents argue that the actions of Pingbo described above which are relied upon for their breach of fiduciary claim also support a claim of oppression under section 248. The respondents are not particularly clear, however, with respect to Pingyuan’s expectations for this purpose. Broadly, however, the respondents appear to rely on alleged expectations that parallel their claims for breach of Pingbo’s statutory and common law fiduciary duties. They say that Pingbo’s actions breached Pingyuan’s expectations that, in his capacity as a director and officer of 51.ca Inc. and 219, Pingbo would honour his obligations to the respondent corporations and would not prefer his own financial interest to that of the respondent corporations. They argue that Pingbo's actions, including publishing the Open Letter and the Second Open Letter, as well as causing the T-D to freeze the bank account of 219, were directed toward destroying, or at least seriously damaging, the Business. They suggest that such actions breached Pingyuan’s reasonable expectations that Pingbo would not seek to damage the corporations of which he is a minority shareholder and was a director and officer.

[202] The actions of Pingbo upon which the respondents rely do not involve any act or omission of either 51.ca Inc. or 219 or the conduct of the business or affairs of either of these corporations. Nor could they, as Pingbo was not in a position to cause any actions on the part of the respondent corporations given Pingyuan’s control of the Business. Accordingly, to succeed in their claim of oppression, the respondents must demonstrate that Pingbo’s actions involved the exercise, or the threatened exercise, of the powers of the directors of such corporations by Pingbo such that they fall under section 248(2)(c). Moreover, as was the case in respect of the respondents’ breach of fiduciary claim, it is not sufficient to establish simply that Pingbo was a director at the time that he took the actions upon which the respondents rely for their claim of oppressive activity. It is necessary to establish that Pingbo exercised his powers as a director in taking such actions.

[203] Given this framework, there are a number of reasons why the actions of Pingbo upon which Pingyuan relies do not constitute oppressive behaviour, which substantially parallel the reasons for the denial of the respondents’ claim for breach of Pingbo’s statutory and common law fiduciary duties.

[204] First, none of the actions of which Pingyuan complains were taken by Pingbo in his capacity as a director or officer, except, perhaps, the action of causing the accounts of 51.ca Inc. and 219 to be frozen by the T-D. As described above, as between themselves, Pingyuan and Pingbo paid no attention to the corporate structure in running the Business, notwithstanding that the 51.ca Corporations owned the Business. In particular, there is no evidence that the parties ever purported to act as directors of the Corporations. Instead, as discussed above, the principal complaints of Pingyuan relate to Pingbo’s actions as an independent contractor to the Business.

[205] Second, in any event, there is no evidence of any damage to any of the respondents attributable to the actions of Pingbo listed above, apart from the allegations that Pingbo improperly paid Meng Li $36,000 of corporate funds and failed to turn over cash revenues in August 2010 estimated to be $6,500. These claims are addressed below. Moreover, the monetary loss associated with these claims did not arise as a result of Pingbo’s exercise of any powers as a director or officer of 51.ca Inc. or 219. In addition, as mentioned above, the causation involved in Pingyuan’s claim of damages in the amount of $127,000 on account of legal fees to defend the N&E legal action is too remote to support a finding that Pingbo caused such loss.

[206] Third, in addition, these monetary damages do not justify an order that Pingbo's shares be repurchased, even if a court were to find such claims entailed oppressive activity under section 248. Courts are mandated to fashion awards under section 248 that are limited to that which is necessary to rectify the oppression: see Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481 (C.A.), per Galligan J.A., at p. 488.

[207] In this case, the total of such monetary losses is not material relative to the value of Pingbo’s 15% shareholding interest in the 51.ca Corporations. Any such monetary damages can be addressed by an order requiring Pingbo to pay the monies owed to the respondents. Further, as discussed above, there is no evidence, let alone quantification, of any losses related to Pingbo’s actions in publishing his letters to the Chinese community, to their relatives and to the employees of the Business after the termination of his relationship with the Business.

[208] Fourth, as mentioned above, a number of the actions of Pingbo upon which the respondents rely occurred after Pingbo ceased to be even a nominal director and officer of 219.

[209] I have some sympathy for Pingyuan’s position insofar as Pingbo may have intended to injure the Business by various actions taken after August 28, 2010. However, the fact that Pingbo was a minority shareholder of the 51.ca Corporations does not mean that Pingyuan must have a remedy available to him under section 248 of the OBCA. The oppression remedy is not available in all situations involving disputes between shareholders. Its focus is to protect the vulnerable stakeholder, rather than to provide a majority shareholder with the means of expelling a fractious minority shareholder. While such a remedy might be desirable in this exceptional case, I do not read section 248 to provide a remedy in the present circumstances. Accordingly, Pingyuan must look to the more traditional tort law remedies, to the extent available, to pursue any damage claims he may have against Pingbo as a consequence of his actions.

[210] Based on the foregoing, the respondents’ claim of oppression under section 248 of the OBCA is dismissed.

The Request for Relief Under Section 207

[211] In the alternative, Pingbo submits that the Court should grant the relief sought under sections 207 of the OBCA. He relies upon the provisions of section 207 which provide that a court may order a liquidation of a corporation in the following circumstances:

(1) A corporation may be wound up by order of the court,

(a) where the court is satisfied that in respect of the corporation or any of its affiliates,

(i) any act or omission of the corporation or any of its affiliates effects a result,

(ii) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or

(iii) the powers of the directors of the corporation or any of its affiliates are or have been 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; or

(b) where the court is satisfied that,

(i) a unanimous shareholder agreement entitled a complaining shareholder to demand dissolution of the corporation after the occurrence of a specified event and that event has occurred, …

(iv) it is just and equitable for some reason, other than the bankruptcy or insolvency of the corporation, that it should be wound up; …

(2) Upon an application under this section, the court may make such order under this section or section 248 as it thinks fit.

[212] The circumstances of this case do not fall within the circumstances contemplated by paragraph 207(1)(a), or within paragraphs 207(1)(b)(i) or (iv), for the following reasons.

[213] First, paragraph 207(1)(a) provides that a court can grant relief in the circumstances in which a shareholder’s actions satisfy the requirement for oppressive behaviour under section 248. However, for the reasons set out above, I have concluded that Pingbo’s actions do not constitute oppressive activity for the purposes of that provision. Accordingly, the comparable claim cannot succeed under paragraph 207(1)(a).

[214] Second, there is no a unanimous shareholder agreement entitling Pingyuan to relief in the present circumstances under 207(1)(b)(i).

[215] Third, paragraph 207(1)(b)(iv) provides that a court may grant such relief if it concludes that it is “just and equitable” that the relief should be granted. I find that this provision is not available to Pingyuan for the following reasons.

[216] The leading decision on the applicable principles in respect of the court's equitable power to wind-up a corporation is that of Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360, [1972] 2 All E.R. 492 (H.L.). In that decision, Lord Wilberforce expressed the view that, while the power to wind up a corporation has been applied in cases in which the shareholders are said to be in substance partners or quasi-partners, the conceptual basis for the court's intervention should be expressed more broadly in terms of giving effect to rights, expectations and obligations of a personal nature of shareholders inter se that are not necessarily addressed in the corporate structure (at pp. 499-500):

. . .The foundation of it all lies in the words ‘just and equitable’ and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere judicial entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act 1948 and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The ‘just and equitable' provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.

[217] Ebrahimi therefore establishes that the following conditions must be satisfied to invoke the court’s discretion. The applicant must demonstrate that: (1) there are “rights, expectations and obligations inter se” that are not “submerged” in the corporate structure; (2) such rights, expectations and obligations have not been satisfied or discharged, whether as a result of a breach by one party, a dispute among the parties, or otherwise; (3) the resulting circumstances result in an unfairness or prejudice to one or more of the shareholders; and (4) such unfairness or prejudice is sufficiently serious that it can only be rectified by a winding-up or other relief contemplated by section 248(3) of the Act.

[218] Ebrahimi involved a commercial enterprise among three shareholders of a private corporation, each of whom had invested in the corporation. The present proceeding involves circumstances that differ from those in Ebrahimi in four respects. First, Pingbo did not become a shareholder in the 51.ca Corporations by way of any investment on his part, but instead received his shares by way of a gift from Pingyuan on the incorporation of each of the 51.ca Corporations. Second, Pingyuan is the owner of the Business, which he has chosen to operate in the 51.ca Corporations. Third, the Business has been run by Pingyuan without any involvement of Pingbo in his capacity as a director or officer, or as a shareholder, of any of the corporations. As a result, Pingyuan has been able to run the Business since 2010 without any interference from Pingbo by virtue of his control of the 51.ca Corporations. Lastly, and significantly, Pingyuan is the majority shareholder of the 51.ca Corporations, rather than a minority shareholder.

[219] For the purposes of this claim, Pingyuan asserts that the Business was carried on effectively as a partnership, in the guise of a corporation, in which he and Pingbo had an 85% and a 15% partnership interest, respectively. Pingyuan says he had a reasonable expectation that such a partnership would be wound up if the parties reached the point of irreconcilable differences. There are three difficulties with this position.

[220] First, and most important, this position is in total contradiction with Pingyuan’s position in these proceedings, which is that Pingbo was an independent contractor to the Business which Pingyuan owned. He cannot assert an 85/15 partnership within 51.ca Inc. and 219 for the purposes of seeking an order that it is just and equitable to wind up the 51.ca Corporations under paragraph 207(1)(b)(iv) on the basis that the Business was, in substance, a partnership.

[221] Second, in Animal House Investments Inc. v. Lisgar Development Ltd., [2008] O.J. No. 2240 (Div. Ct.), the Divisional Court upheld the principle that irreconcilable differences among the directors and shareholders are not sufficient to support relief under section 207(1)(b)(iv) in the absence of a reasonable expectation that was frustrated by the other party. In the present case, the respondents have not put forward an alleged expectation that Pingbo has breached in circumstances that have resulted in an unfairness or prejudice that is sufficiently serious that it can only be rectified by an order under paragraph 207(1)(b)(iv).

[222] The respondents effectively put forward two expectations as a basis for the relief sought.

[223] First, they submit that the irreconcilable differences between the parties call for an order of the Court that completes their separation. This translates into an expectation that Pingyuan reasonably expected that, notwithstanding his 85% shareholding interest, the parties would wind up their relationship if they reached the point of irreconcilable differences. There is no evidence of any such expectation nor would it be reasonable. Irreconcilable differences between a majority shareholder and a minority shareholder are a common occurrence. The existence of such differences is not sufficient to trigger an order under paragraph 207(1)(b)(iv), unless the circumstances prevent the continued operation of the business. In this case, the breakdown in the relationship between the parties has not prevented Pingyuan from continuing to carry on the Business since 2010.

[224] Second, the respondents submit that Pingbo’s actions, as set out above, have been directed to causing damage to the Business and to obtaining a financial benefit for himself. However, I do not think that such actions, even if established, are sufficient to entitle the respondents to an order under paragraph 207(1)(b)(iv). As discussed above, there is no evidence of any damage caused to any of the respondents as a result of Pingbo’s actions, apart from some modest expenses associated with Pingbo’s actions in freezing the bank account of 219. In particular, while some of Pingbo’s actions have probably caused Pingyuan some embarrassment, the Business does not appear to have suffered and has, in fact, prospered under his sole management. There is also no evidence that Pingbo has profited in any manner from his actions. On balance, it is probable that Pingbo has caused more embarrassment to himself than to any of the respondents. Accordingly, I do not think that Pingyuan has demonstrated any breach of an expectation that is sufficiently serious that it can only be rectified by a “just and equitable” winding up order.

[225] There are also two issues that bear on the fairness or equity of an order compelling the sale of Pingbo’s shares.

[226] First, Pingyuan gave Pingbo his shareholding in the 51.ca Corporations based on a mistaken belief of his own. Essentially, Pingyuan is asking the Court to relieve him of the consequences of this action in circumstances in which there is no basis for equitable relief based on improper conduct on the part of Pingbo in the original grant of the shares to him.

[227] Second, Pingyuan testified that he established Pingyuan’s commission with a view to a number of factors, including Pingbo’s 15% shareholding interest in the 51.ca Corporations. As there were no dividends paid on such shares, and no expectation of either party that dividends would ever be paid on such shares, this admission constitutes a recognition on Pingyuan’s part that Pingbo was entitled to share in the increase in the value of the Business as part of his remuneration as an independent contractor. While this does not necessarily imply that Pingbo was entitled to remain a shareholder until the Business was sold or wound up by Pingyuan, the absence of any shareholders agreement suggests that this may well have been the intention of the parties.

[228] Based on the foregoing, I find that the respondents are not entitled to an order granting relief pursuant to paragraph 207(1)(b)(iv) of the OBCA.

Fair Market Value Calculation

[229] Based on the foregoing, it is not necessary to calculate the fair market value of the Business for purposes of a compulsory purchase of a partnership interest of Pingbo in the Business or of Pingbo’s shares in the 51.ca Corporations. I have, however, set out below my findings with respect to the fair market value of the Business as at August 28, 2010 in case I have erred in finding that Pingyuan was not entitled to an order requiring Pingbo to sell his shares in the 51.ca Corporations to Pingyuan at their fair market value as of that date.

[230] By way of summary, the SF Report and the FL Report approached the valuation of the enterprise value of the Business on a similar basis. The FL Report capitalized estimated annual maintainable pre-interest, after-tax earnings, the mid-point of which was $666,000. The SF Report capitalized estimated cash flow, the mid-point of which was $685,000. Each valuation then applied a multiple which is discussed below and deducted from the result the agreed amount of $105,291, representing interest-bearing debt of the Business to shareholders. Each valuation also added the net realizable value of redundant assets, being $917,652 in the case of the SF Report and $764,143 in the case of the FL Report. The difference in this calculation reflects differing approaches to the quantification of deferred revenue which is not, however, material for the 2010 valuations. After rounding, the SF Report calculation for the enterprise value of the Business was $7,600,000 and the FL Report calculation was $3,450,000.

[231] I will address the principal differences between those calculations. In the determination of the components of the valuation, I have proceeded on the basis that the Court should determine the variable which is the more probable in the opinion of the Court, rather than determine a different figure altogether based on the Court’s view of an appropriate figure.

[232] First, the difference between the mid-point values for annual maintainable pre-interest, after-tax earnings of $666,000 and annual maintainable cash flow of $685,000 – being $19,000 – is not material for the purpose of the calculation. There are some differences between the components of these estimated earnings or cash flow, principally deferred revenue, wages and cash revenues. The net effect of those differences is not, however, material. The remaining difference was the inclusion of unreported cash revenues in the SF calculation. As the existence of unreported cash revenues was established, I accept the SF mid-point calculation of $685,000 as the starting point for the valuation.

[233] Second, the principal difference between the parties pertains to the calculation of the weighted average cost of capital (the “WACC”) from which the capitalization multiple was derived as its inverse. SF derived a WACC of 9.87%, whereas FL derived a WACC of 25.40%. The principal differences pertained to: (1) the size premium; (2) the company specific risk premium; (3) the debt to equity weighting; and (4) the growth factor. I will address each in turn.

[234] The size premium reflects the generally inverse relationship between the size of an enterprise and the associated risk. SF used a value of 3.99%, while FL used 10.06%. Both parties selected a size premium having regard to the Ibbotson SBBI 2010 Valuation Yearbook, which established size premiums for various portfolios ranked by size in deciles. SF used the average of deciles 9 and 10, being referred to as the “micro-cap” portfolio for which the enterprise value range is between $1.139 million and $514,209 million. FL used the size premium for decile 10b, which is the lower of the two categories comprising decile 10. Both the FL Report and the SF Report valued the Business in an amount in the lower end of decile 10b, for which the enterprise value range is between $1.139 million and $165,600 million.

[235] On the evidence, the most appropriate size premium is that which pertains to companies whose enterprise value most closely matches that of the enterprise being valued. Given the very high equity values included in the upper range of the micro-cap portfolio, and the evidence that the inclusion of distressed companies in a portfolio has a negligible impact on overall returns on the entire portfolio, I find that decile 10b is a more appropriate category from which to select the size premium. Given the number of companies in the decile 10b data set, the inclusion of a larger number of companies in the data set for the micro-cap portfolio is not a sufficient benefit to compensate for the inevitable skewing associated with the substantially greater enterprise value for a great many of the companies in the portfolio, even including companies within decile 10b.

[236] The company specific risk premium addresses specific risks of an enterprise in addition to the general risks associated with its relative size. SF used a figure of 6.50%, while FL used a figure of 11.50%. In this case, both valuators observed positive factors. In my view, the SF Report pays too little attention to the existence of negative factors as evidenced, among other things, by the absence of any reference to negative factors in paragraph 87 of the SF Report. In particular, the absence of any significant tangible assets and the low barriers to entry into the industry in which the Business operated constituted risks that justified a higher company specific premium. In addition, the deferred revenue associated with the advertising model described above represented a risk to the ability of the Business to increase its revenues. For these reasons, I accept the company risk premium applied in the FL Report.

[237] In weighting the cost of debt and equity, SF used a 30:70 debt/equity ratio, while FL used a 10:90 ratio. The FL ratio was supported by a Statistics Canada publication (NAICS 519130), which established that the median debt/equity ratio for companies in the internet publishing and broadcasting and web search portal sector was 10:90 for enterprises that have a value up to $5 million. SF approached this issue on the basis that it believed the Business could have supported greater leverage. I find this is far less certain. It did not reflect the Business as it was run in August 2010. More importantly, I am also not persuaded on the evidence that an arm’s length purchaser would have paid a purchase price for the Business calculated on the basis that it could have obtained financing to this extent. Nor is there any evidence that such financing would have been available from an arm’s length party. Accordingly, I accept the debt/equity weighting of 10:90 employed in the FL Report.

[238] The remaining item is the growth factor, which reduces the WACC otherwise determined to reflect the potential for indefinite growth into the future relative to an inflation target of 2%. FL employed a 2% factor representing steady growth at the inflation target level. SF applied a rate of 5.12%. I accept the FL Report figure for the reason that continuing above-average growth indefinitely into the future, to the extent implied by the SF valuation, is not supportable on the evidence before the Court for a number of reasons. These include the fact that, as Pingbo observed in the Open Letter, there was a real risk in 2010 that advertising revenue growth had peaked and that continued increases at historical rates would be hard to sustain, even if the absolute amount of advertising might continue to increase. In this regard, it is also relevant that the advertising model was premised on obtaining advertising commitments for increasingly lengthy periods into the future. Whether or not this actually occurred in the short run is not determinative of this issue, although it does appear that the rate of growth of advertising did diminish after 2010. Other factors suggesting a diminished rate of growth include the high degree of competition in the market, the effective limitation of the market to the Mandarin-speaking community in the Greater Toronto Area and the risk of technological change with concomitant risk of substantial capital expenditures to maintain the Business’ existing position in the market.

[239] Based on the foregoing, I accept the WACC set out in the FL Report, being 25.40% which translates into a multiple of 3.9. Applying this multiple to the SF estimate of maintainable cash flow yields a value of $2,671,500. Adjusting for the net realizable value of redundant assets as calculated by SF (which is lower than the FL Report estimation) and the interest bearing debts, the calculated enterprise value of the Business is $3,330,352. As that number that is slightly lower than the FL Report calculation of $3,450,000, I find that this latter figure represents the fair value of the Business as of August 28, 2010. The calculation of Pingbo’s interest in the Business is addressed below.

Punitive Damages

[240] Pingyuan also seeks punitive damages of $50,000. He bases this claim on his allegation that Pingbo’s behavior was outrageous and calculated to damage Pingyuan and the Business.

[241] As Pingyuan notes, punitive damages are to be awarded only rarely and with restraint. They are directed at addressing the need for retribution, deterrence and denunciation. Pingyuan does not suggest that punitive damages should be awarded to address behavior related to these proceedings. Nor is there any evidence of actions in these proceedings that would attract punitive damages. Instead, Pingyuan seeks an award of punitive damages based on Pingbo’s behavior prior to the commencement of the litigation as itemized above.

[242] However, while Pingbo acted foolishly, and undoubtedly tried Pingyuan’s patience, I am not persuaded that the circumstances upon which Pingyuan relies are sufficient to constitute behavior requiring the Court’s denunciation. Pingyuan has the right to pursue Pingbo for any claims he may have in tort based on the actions he suggests should be the basis for a punitive damages award. Punitive damages are not, however, intended to constitute an alternative means of pursuing such claims or a means of remedying any issue of proof of damages in respect of such claims.

[243] Accordingly, the claim for punitive damages is denied.

Summary Regarding the Disposition of Pingyuan’s Cross-Application

[244] Based on the foregoing, Pingyuan’s cross-application is dismissed in its entirety, except to the extent of certain determinations below under “Remaining Monetary Claims”.

Remaining Monetary Claims

[245] Pingbo acknowledges that there remains an amount outstanding and due in respect of the two loans that he received from Pingyuan totalling $117,791 as of August 28, 2010. There remain to be addressed two monetary issues pertaining to claims of the respondents against Pingbo in respect of the Business and two claims of Pingbo against the Business.

Retention of Monies by Meng Li

[246] In the August 7 Email, Pingbo admitted that Meng Li improperly retained cash revenues that Pingbo and/or 771 was obligated to account for in the performance of Pingbo’s advertising and administrative services as an independent contractor to the Business. As discussed above, retention of such monies constituted a breach of the implied contractual arrangements between 51.ca Inc. and 219, and Pingbo and/or 771 as an independent contractor. Pingbo was aware of, and even justified, such actions. He is therefore liable to account for such monies to the Business. Pingyuan claims the amount of $36,000.

[247] Pingbo says Meng Li received payments beginning in 2007 which averaged $500 per month. On this basis, the total payments to Meng Li would have approximated $22,000 over the 44-month period from January 1, 2007 to August 28, 2010. The testimony of Meng Li was consistent with this amount.

[248] The amount of $36,000 sought by Pingyuan represents a little over $800 per month over the period. I have little doubt that Pingbo underestimated the amount given to Meng Li, in part to emphasize the greater impropriety, as he saw it, of Pingyuan’s retention of the Google AdSense Revenues. On the other hand, the evidence of Meng Li suggests that the average amount implied by Pingyuan’s claim is too high.

[249] Based on the foregoing, I find that the aggregate payments to Meng Li totalled approximately $30,000.

Pingbo’s Distributable Amount for August 2010

[250] 771 submitted an invoice for the amount of his distributable share for August 2010. As Pingbo did not have access to the records necessary to do an actual calculation, he prepared his invoice on the basis of the average of the monthly amounts received in 2010. This amount was $36,697.21 including HST.

[251] In the absence of any other more accurate calculation before the Court which is based on the actual revenues of the Business in August 2010, I conclude that this is an appropriate estimation of the amount owing to 771 in respect of that month.

August 2010 Cash Revenues

[252] Pingyuan alleges that Pingbo retained the cash revenues of the Business received in August 2010. Pingbo denies this allegation, except to the extent of a $400 payment. There is, however, no evidence before the Court of any deposits in the bank accounts of 51.ca Inc. or 219 that has been identified as cash revenues in August 2010. Nor was there any accounting furnished for this month by Pingbo, who also refused to return books and records of the Business in his possession which apparently would have addressed this issue.

[253] In the absence of any evidence before the Court regarding the actual cash revenues of the Business in August 2010, I think the amount due from Pingbo to Pingyuan in respect of cash revenues of the Business for August 2010 should be determined to be the amount of the average monthly cash revenues in 2010 until July 31, 2010.

Google AdSense Revenue

[254] Pingbo also claims 40% of the Google AdSense Revenues received by Pingyuan during the period 2005 to 2010, which totaled U.S. $35,396.13. Pingyuan offered to settle this matter for U.S. $12,000. Pingbo rejected this offer.

[255] Pingyuan’s offer to pay Pingbo an amount on account of the Google AdSense Revenues was made in the context of an overall settlement of the issues between them, which would also have involved a payment by Meng Li or Pingbo representing the cash revenues appropriated by Meng Li. As the parties failed to reach any agreement on these other issues, and as Pingbo rejected Pingyuan’s offer of U.S. $12,000 believing he was entitled to 40%, Pingyuan is not contractually obligated to pay such amount to Pingbo.

[256] I also conclude that there is otherwise no obligation on Pingyuan to pay any amount on account of the Google AdSense Revenues for the following reasons. First, receipt of the Google AdSense Revenues did not involve any action on the part of Pingbo whatsoever. He neither received the Revenues nor provided for them in his monthly accounting. In short, his advertising and administrative services did not include processing these revenues. Second, Pingbo knew about these revenues for a considerable period of time, probably since 2005, and made no claim for them. He only asserted his claim to these revenues as an offset to the monies appropriated by Meng Li when he disclosed them in 2010. I think Pingbo’s own inaction therefore also confirms Pingyuan’s entitlement to these revenues.

Calculation of the Value of Pingbo’s Interest

[257] As set out above, I find that fair value of the Business at August 28, 2010 to be $3,450,000. Given the determinations above, the correct approach to the determination of the value of Pingbo’s 15% shareholding interest is the approach applied under Scenario 2 in the calculations set out in Exhibit 19-1.

However, if a determination of the value of Pingbo’s 15% shareholding interest in the 51.ca Corporations is required, the calculations in Exhibit 19-1 must be redone to give the effect to the determinations herein regarding the amount of the cash revenues in August 2010 and Pingbo’s distributable amount for August 2010. While this should be a straight-forward arithmetic exercise, the parties can schedule a 9:30 am conference if necessary to resolve any issues that may arise if such a determination is necessary.

Conclusions

[258] Based on the foregoing, Pingbo’s application is dismissed in its entirety, apart from the determination of his entitlement to an amount on account of his distributable share for August 2010. Further, as set out above, Pingyuan’s cross-application is also dismissed, except to the extent of the determinations of the monetary amounts due to him in respect of Meng Li’s appropriation of monies and the cash revenues of the Business for August 2010.

[259] If the parties are unable to agree on costs, they shall have thirty days to submit written submissions as to costs, not exceeding five pages, together with a costs outline as required under the Rules of Civil Procedure.

Wilton-Siegel J.

Released: April 12, 2016