Court File and Parties

COURT FILE NO.: CV-11-9459-00CL CV-12-9609-00CL DATE: 20161025 SUPERIOR COURT OF JUSTICE - ONTARIO

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

AND RE: Pingyuan Zhao and 51.ca Inc. and 2194467 Ontario Inc., Applicants AND: Pingbo Zhao, Respondent

BEFORE: Mr. Justice H.J. Wilton-Siegel

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

HEARD: July 26, 2016

Supplemental Reasons for Judgment

[1] After a trial of the issues in this action, the Court released its Reasons for Judgment dated April 12, 2016 (the “Reasons”). On this motion, Pingyuan Zhao (“Pingyuan”) seeks relief in respect of three matters arising from the determinations in the Reasons.

[2] In these Supplemental Reasons for Judgment, capitalized terms not defined herein have the meanings ascribed to them in the Reasons.

Request for Judgment on Pingyuan’s Loans to Pingbo

[3] Pingyuan seeks judgment in favour of 51.ca Inc. for the remaining amounts outstanding under the two promissory notes executed by Pingbo and 711, dated June 3, 2010 and August 4, 2010 (collectively, the “IOUs”), which total $117,791.46. Pingyuan seeks this judgment pursuant to Rule 59.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which allows the court, on a motion, to amend an order in certain circumstances. He seeks an order that Pingbo be required to repay this amount less $36,697.21, which was the amount of commission income that the Court found was due to Pingbo for the month of August, 2010. The IOUs were non-interest-bearing. However, Pingyuan further seeks pre-judgment interest from February 16, 2012, the date of filing of Pingyuan’s cross-application in this proceeding.

[4] At the trial, Pingbo acknowledged that $117,791 remained owing on the IOUs: see paragraph 245 of the Reasons. The Court did not, however, specifically grant judgment in this amount, or address pre-judgment interest. This was because Pingyuan did not seek this relief separately from his claims for breach of fiduciary duty, oppression, and alleged irreconcilable differences between the shareholders justifying an order under section 207(1)(b)(iv) of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”).

[5] Pingbo submits that the request for repayment of the IOUs was not raised in Pingyuan’s cross-application, which sought an order that “all amounts improperly removed from the corporate applicants by Pingbo or his agents be returned to the corporate applicants forthwith”. Pingbo says, correctly, that, while the Court found that Pingbo acknowledged the loans evidenced by the IOUs, it also found that Pingyuan agreed to the loans. Pingbo says this finding precludes any argument that the loans were improper. Pingbo also asserts that repayment of the IOUs was limited in recourse to Pingbo’s commission income, based on the wording of the IOU dated June 3, 2010 and past practice. On the basis of the foregoing, Pingbo submits that Pingyuan’s claim for repayment of the outstanding amounts under the IOUs does not fall within the language of Rule 59.06(1) or Rule 59.06(2)(d).

[6] As I understand the present circumstances, the order of the Court giving effect to the Reasons has not yet been issued. Accordingly, there is no order to which Rule 59.06(1) can apply. Instead, the motion of Pingyuan is more properly characterized as a motion under Rule 59.06(2)(d) to “obtain other relief than that originally awarded”. In such circumstances, while a court has broad discretion to change a judgment, it should exercise that discretion cautiously, with a view to the maintenance of the integrity of the administration of justice: see Montague v. Bank of Nova Scotia (2004), 69 O.R. (3d) 87 (C.A), leave to appeal refused [2004] S.C.C.A. No. 79.

[7] As mentioned, Pingyuan’s notice of application for his cross-application did not specifically claim repayment of the amounts outstanding under the IOUs. However, I do not think that this is fatal to his position on this motion that he is entitled to seek the requested relief under Rule 59.06(2)(d). I accept that Pingyuan’s notice of cross-application addressed only amounts improperly removed from the Corporations. However, in my view, the integrity and efficiency of the administration of justice favour addressing Pingbo’s liability for these loans in this proceeding for the following reasons.

[8] The issue of Pingbo’s liability for the loans evidenced by the IOUs was clearly before the Court in the trial. Paragraph 245 of the Reasons reflects the fact that Pingbo acknowledged his liability for the outstanding amount of $117,791 in respect of such loans. Moreover, the background to such loans, and the manner and extent of repayment of such loans, was also before the Court. Lastly, and most importantly, as discussed further below, at trial each party sought an order requiring the 51.ca Corporations or Pingyuan to purchase Pingbo’s shares in such corporations, although on the basis of very different valuations. In their respective calculations of the amount owing to Pingbo if such an order were granted in their favour, both parties proceeded on the basis that Pingbo’s liability for such loans would be reflected as a credit in Pingyuan’s favour in the determination of any amount owing to Pingbo on the repurchase of his shares in the 51.ca Corporations. These circumstances required a determination of Pingbo’s liability for the outstanding amount under the IOUs, any consequential interest, and the applicability of any defence thereto, including any limited recourse defence. The only reason this did not occur was that the Court rejected the claims of both parties.

[9] As noted in Montague, if a court proposes to exercise its discretion to amend a judgment, it bears a heavy onus of explaining the reason for doing so. In this case, Pingyuan does not actually seek an amendment to an issued order. He seeks a supplement to the Reasons, which would be reflected in a further provision of the order of the Court giving effect to the Reasons when issued. Further, the requested relief does no more than seek a declaration on an issue that was expressly addressed by the Court in its Reasons based on Pingbo’s own testimony, and that was implied in the relief sought by both parties if successful on their respective claims. Moreover, Pingbo does not suggest that there is further evidence that was not before the Court pertaining to his position that the IOUs were limited recourse notes, which is discussed below. There is, therefore, no basis on which Pingbo can say he is prejudiced by the Court addressing this issue.

[10] Further, from the perspective of the administration of justice, the failure to address this issue at this time would be problematic. It would require 51.ca Inc. to commence a new proceeding for which the evidence would be no more than the evidence given in this trial. Such a new action would be needlessly wasteful and therefore unfair to Pingyuan in a manner that, in my opinion, would bring into question the integrity of the administration of justice.

[11] Accordingly, I consider that the Court should exercise its authority to address this issue in these Supplemental Reasons for Judgment.

[12] However, as mentioned in his submissions on this motion, Pingbo raised an issue that was not raised at trial in his testimony. He alleged that repayment of the loans evidenced by the IOUs was limited in recourse to commission payments due to him from 51.ca Inc. Pingbo submits that he is not obligated to repay the amount outstanding under the IOUs out of his personal assets and that, given the determination in the Reasons that there will be no commissions payable to him after August 28, 2010, he has no liability for the net amount owing after deduction of the commission income owing to him in respect of August 2010.

[13] I am not persuaded that the loans were limited recourse loans in the manner proposed by Pingbo for the following reasons.

[14] First, the only IOU that contains the language relied upon by Pingbo is the first note dated June 3, 2010. The second IOU omits this language. There is no basis on which the payment arrangements on the first IOU can render the second subject to the same terms. The second IOU is therefore not subject to the alleged limited recourse provision.

[15] Second, and in any event, the language of the first IOU does not create a limited recourse arrangement. To create a limited recourse arrangement, it must be clear that the parties intended to limit recourse to specified assets or cash flow, in this case to Pingbo’s monthly commission income. The language of the IOU dated June 3, 2010 is at least as likely, if not more likely, to provide simply that, until payment by Pingbo out of his personal assets or a demand for repayment by Pingyuan of the full amount, the loan will be repaid by way of a credit against monthly commission income.

[16] Third, there is nothing in the context in which either loan was negotiated and granted by Pingyuan that would support a conclusion that Pingbo was only required to repay the loans to the extent he received commission income from 51.ca Inc. Moreover, it would not be reasonable to expect that the parties would have agreed that Pingbo would be relieved of his obligation to repay the loans in the event of the termination of his independent contractor relationship with the Business. In particular, given Pingyuan’s position that Pingbo had no claim to the Buffer Fund, which Pingbo understood even if he did not accept it, there could not have been any agreement between the parties based on the Fund that tied repayment of the IOUs to the continuation of Pingbo’s independent contractor relationship with the Business.

[17] Lastly, Pingbo did not suggest in his testimony at trial that these loans were intended to be limited recourse. In addition, his calculations at trial, which netted the outstanding amount of the loans against the fair market value of his shares in the 51.ca Corporations, are evidence that Pingbo did not regard the loans as limited recourse. Pingbo did not raise the limited recourse argument as a limitation on the amount that he would owe Pingyuan if Pingyuan was successful rather than himself.

[18] Based on the foregoing, I find that Pingbo is liable to pay $117,791 to Pingyuan on account of the amount outstanding on the two IOUs executed by Pingbo in favour of 51.ca Inc.

[19] Pingyuan also claims pre-judgment interest on this amount from February 16, 2012, the date of filing of Pingyuan’s notice of cross-application, pursuant to section 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43. I see no reason not to award such pre-judgment interest.

[20] However, the amount owing by Pingbo to 51.ca Inc. must be reduced by the commission income owing to Pingbo in respect of August 2010. The parties are agreed that the net amount after this deduction is $81,093.90. Pre-judgment interest should be calculated on this basis from February 16, 2012.

Request for Repayment of Cash by Pingbo

[21] The Court found that Pingbo was entitled to 60% of the cash received by him on account of advertising revenues from and after implementation of Solution #2 in the Pingbo 2007 Memorandum. In paragraph 249 of the Reasons, the Court found that Pingbo’s wife Meng Li received payments totaling $30,000 out of such cash which properly belonged to the 51.ca Corporations. In paragraph 253, the Court also found that Pingbo failed to account for the cash revenues for the Business for August 2010, which were determined to be $6,332.57.

[22] Pingyuan and 51.ca Inc. sought repayment of these amounts in the counter-application as amounts improperly removed from 51.ca Inc. 51.ca Inc. is entitled to a judgment in its favour in respect of the amounts improperly removed. However, in its Reasons, the Court erred in paragraphs 249 and 253 in finding that Pingbo was required to repay the full amount of these two items, totaling $36,332.57. As Pingbo was entitled to retain a portion of such cash, as addressed below, he is only liable to pay the balance to 51.ca. Inc.

[23] As no order has yet been issued giving effect to the determinations in the Reasons, this request is also not made pursuant to Rule 59.06(1). However, the Court has a general discretion to correct an error arising from an accidental slip in the context of the settlement of an order giving effect to reasons for judgment. In this case, the parties do not dispute the need for such a correction.

[24] The issue between the parties concerns the extent of Pingbo’s entitlement to this cash. Pingyuan says Pingbo is entitled to retain 33 1/3 % rather than 40% of such cash. He argues that the Court did not expressly find that Pingbo was owed the 6 2/3% of the non-cash revenues to which Pingbo considered he was entitled. He argues that the Court’s dismissal of Pingbo’s oppression claim implies that he was entitled to 33 1/3% rather than 40% of the cash taken.

[25] I do not accept this argument. The evidence before the Court was that Pingbo retained 40% rather than 33 1/3% of the cash received by him on account of advertising revenues. The evidence is also that Pingyuan was aware of, and acquiesced in, this practice. There is no evidence that the cash paid by Pingbo to Meng Li came otherwise than from the cash revenues received by Pingbo. In these circumstances, Pingbo must be assumed to have paid Meng Li out of such cash revenues. He would, therefore, have been entitled to retain 40% of such cash revenues pursuant to the arrangements with Pingyuan.

[26] Accordingly, Pingyuan is entitled to an order that Pingbo is required to pay 51.ca Inc. 60% of the total cash retained by him and Meng Li, which is calculated as $21,799.54, plus pre-judgment interest from February 16, 2012.

Request for Alternative Relief Under Section 207(1)(b)(iv) of the OBCA

[27] Lastly, Pingyuan moves under Rule 59.06(2)(d) of the Rules of Civil Procedure to obtain other relief than that originally awarded in the Reasons. He seeks an order of the Court directing the transfer of the shares in the 51.ca Corporations owned by Pingbo based on their value as of August 28, 2010. He argues that it is just and equitable for the Court to grant such relief as, in his opinion, both parties are seeking this relief.

[28] In the Reasons, among other things, the Court dismissed Pingbo’s claim for (1) a compulsory purchase of his shares on the grounds of oppression under section 248 of the OBCA, and (2) a just and equitable winding-up order under section 35(1)(d) of the Partnerships Act, R.S.O. 1990, c. P.5. The Court also dismissed Pingyuan’s claims for a similar order based on breach of fiduciary duty, oppression and alleged irreconcilable differences between the shareholders justifying an order under section 207(1)(b)(iv) of the OBCA.

[29] Pingyuan argues, however, that both parties sought the same remedy, which he describes as an order requiring the transfer of Pingbo’s shares in the 51.ca Corporations to Pingyuan. He says that, given this fact, the Court should have adjudicated the further issue of whether he and the 51.ca Corporations were entitled to an order under section 207(1)(b)(iv) directing a transfer on such terms as the Court considered just and equitable for the purpose of enabling the parties to “make a clean break from each other” regardless of whether the test for an order under section 207(1)(b)(iv) was otherwise satisfied. Significantly, as mentioned, Pingyuan seeks such an order on the basis of the value of Pingbo’s shares in the 51.ca Corporations as of August 28, 2010.

[30] In sum, Pingyuan asserts that the Court should find that it is just and equitable to order a compulsory sale of Pingbo’s shares in the 51.ca Corporations to allow a complete break between the parties, and that, for such purposes, it is just and equitable that the valuation of the shares be conducted as of August 28, 2010. Pingyuan makes two alternative arguments which I will address in turn.

Argument Based on Alleged Crystallization of the Value of Pingbo’s Shares as of August 28, 2010

[31] Pingyuan’s first argument is based on the following three propositions: (1) Pingbo’s shares in the 51.ca Corporations were initially gifted to him; (2) the growth in value of his shares was part of his consideration as an independent contractor to the Business; and (3) Pingbo had requested a repurchase of his shares in his notice of application. On the basis of the foregoing, Pingyuan asserts that it is a logical deduction that he is entitled to repurchase Pingbo’s shares at the date of termination of Pingbo’s independent contractor relationship, being August 28, 2010.

[32] As support for this argument, Pingyuan makes two alternative submissions which have a common theme. Pingyuan asserts that Pingbo could not, and in fact did not, reasonably expect that he would continue to be entitled to any growth in the value of his shares after he ceased to have a relationship with the Business. On this basis, he submits that the value of Pingbo’s shares was “frozen” as of the date of the termination of Pingbo’s relationship with the Business. Given that the value of Pingbo’s shares could not increase in value after August 28, 2010 on this theory, Pingyuan infers that he has a right to purchase Pingbo’s shares as of such date. This theme is based principally, if not entirely, on the Court’s statement in paragraph 227 of the Reasons.

[33] Before considering the basis for Pingyuan’s position, I wish to address the Court’s determination in paragraph 227. The Court did not find, as a matter of fact, that the parties agreed that the value of Pingbo’s shares in the 51.ca Corporations crystallized, or became frozen, as of the date of termination of Pingbo’s status as an independent contractor to the Business. Rather, in the context of considering the equities between the parties, the Court merely observed that, in assessing what Pingyuan considered to be a fair distribution to Pingbo of advertising revenues during the currency of Pingbo’s independent contractor relationship, Pingyuan had regard, among other things, to the increase in value that accrued to Pingbo as a shareholder. The Court then observed that the parties had not expressly, or by necessary implication, agreed that this arrangement permitted Pingbo to retain his shares after termination of his relationship with the Business.

[34] However, the Court also observed that the intention of the parties “may well have been” that Pingbo would be entitled to retain his shares after any such termination until a sale or winding up of the Business. While the Court did not make such a finding, in focusing on this possibility rather than finding that Pingbo would be obligated to sell his shares on the termination of his relationship with the Business, it should be clear that the latter scenario is not a necessary inference from the Court’s statement regarding Pingbo’s remuneration as an independent contractor. I would also add that the Court did not find that Pingbo shared Pingyuan’s view of the arrangements pertaining to his shares in the 51.ca Corporations. Indeed, Pingbo strongly rejected this view, consistent with his position that he and Pingyuan were partners in the Business.

[35] The principal purpose of the Court’s comment in paragraph 227 was to observe that Pingyuan could not take the position that the increase in the value of Pingbo’s shares formed part of the justification of the level of Pingbo’s remuneration, and then deny that fact in any consideration of the equities between the parties regarding Pingbo’s ownership of the shares. Conversely, I observe that Pingbo cannot rely on Pingyuan’s conceptual approach to his remuneration for present purposes when not only did he not agree to this approach to his remuneration, he expressly rejected it.

[36] With this background, I turn to Pingyuan’s two submissions based on the view that the value of Pingbo`s shares in the 51.ca Corporations “crystallized” as of August 28, 2010.

[37] First, Pingyuan says that, throughout these proceedings, Pingbo sought an order of the Court requiring Pingyuan or the 51.ca Corporations to repurchase his shares given the termination of his relationship to the Business in August 2010. Pingyuan bases his argument on the fact that paragraph 1(c) of Pingbo’s Notice of Application and Amended Notice of Application provided:

in the alternative to subparagraphs 1 a) and b) above, an Order that [Pingyuan], purchase all of [Pingbo’s] interest in the Corporate Respondents, for fair market value and without minority discount.

[38] From this, Pingyuan says the Court should infer that, in essence, Pingbo agreed that the value of his shares grew only as long as he was an independent contractor. The Court should infer that Pingyuan was entitled to repurchase Pingbo’s shares once the independent contractor relationship ended and the value of his shares was crystallized.

[39] I do not think that there is any basis in the factual determinations of the Court for such a finding. As set out above, the Court did not find that Pingbo agreed, or had an expectation, that the value of his shares would crystallize at the time of termination of his relationship with the 51.ca Corporations. In fact, as mentioned, it was Pingbo’s position that he was a partner not an independent contractor. This belief, however mistaken, drove very different expectations. Pingbo sought to have his shares repurchased on the basis of his claims as described above and a valuation as of a more current date.

[40] Second, regardless of Pingyuan’s expectations, Pingyuan infers that the Court’s decision to address the fair market value of the Business as at August 28, 2010 implied that the Court considered that this was the appropriate valuation date for any valuation of Pingbo’s shares because such value had crystallized as of the date of termination of his independent contractor relationship with the Business. This position is based on a misreading of paragraph 229 of the Reasons. The Court addressed the valuation of the Business as of August 28, 2010 solely for the purpose of providing such a valuation in the event that it was determined that the Court had erred in finding that Pingyuan was not entitled to an order based on the claims asserted in his counter-application.

[41] Accordingly, there is no basis for Pingyuan’s argument that the value of Pingbo’s shares in the 51.ca Corporations crystallized or became frozen at the date, or as a result, of the termination of his independent contractor relationship with the Business.

Argument Based on the Alleged Similarity of the Relief Sought by the Parties

[42] Pingyuan’s second argument is that the Court failed to consider whether Pingyuan was entitled to an order requiring Pingbo to sell his shares to Pingyuan or the 51.ca Corporations pursuant to section 207(1)(b)(iv) of the OBCA independently of Pingyuan’s claims for oppression, breach of fiduciary duty, or an order under section 207(1)(b)(iv) on the grounds of alleged irreconcilable differences between the shareholders of the 51.ca Corporations.

Pingyuan’s Argument

[43] Pingyuan says that both parties sought an order for a repurchase of Pingbo’s shares on the basis that they wished to make a clean break of each other and that, therefore, the Court must terminate their relationship. Pingyuan suggests that the present circumstances are similar to those in Wittlin v. Bergman (1994), 19 O.R. (3d) 145 (Ont. C.J. (Gen. Div.)), aff’d in part (1995) 25 O.R. (3d) 761 (C.A.). He also relies on the approach in Muscillo v. Bulk Transfer Systems Inc. (2009), 61 B.L.R. (4th) 92 (Ont. S.C.). To be clear, however, Pingyuan does not seek such relief on the basis of a valuation of Pingbo’s shares in the 51.ca Corporations as of a current date or the date of trial, nor does he suggest that the parties agreed that Pingbo’s shares should be valued as of August 28, 2010. He submits that the factual circumstances and the Court’s determination require that the Court determine that it is just and equitable that the valuation be conducted as of August 28, 2010.

[44] I would note that the difference between this argument and the Court’s determination of Pingyuan’s claim for a “just and equitable” winding-up order under section 207(1)(b)(iv) of the OBCA is subtle at best. Pingyuan appears to proceed on the basis that the Court limited its consideration to whether the actions of Pingbo, on their own, justified a “just and equitable” winding-up order in his favour under section 207(1)(b)(iv), and not whether the existence of irreconcilable differences between the shareholders, however arising, justified such an order if the parties themselves acknowledge such a state. I will address this distinction below.

Principal Case Law Relied Upon By Pingyuan

[45] In Wittlin, each party brought an application for relief under section 241(2) (oppression) and 214(2) (dissolution) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44. Farley J. rejected the claims of oppression but concluded that it was appropriate to order relief under the “just and equitable” provisions of 214(1)(b)(ii) of that statute, the counterpart to section 207(1)(b)(iv) under the OBCA. He ordered a mechanism for one party to repurchase the other party’s interest in the corporation, which was varied by the Court of Appeal to be a purchase by the corporation of the shares, at fair market value as determined by an independent valuator, of the party that wanted to sell.

[46] I note that, in Wittlin, the issue of the appropriate date for the determination of the fair market value of the shares to be acquired does not appear to have been at issue. The parties apparently proceeded on the common understanding that the current value of the shares would govern whatever exit mechanism was imposed by the court. In particular, the court was not required to choose between competing valuations and, therefore, the issue of the standard to be applied to make such a determination, or to determine the valuation date, did not arise. Instead, both parties sought a determination of the sales price on the basis that the court considered to be fair.

[47] In Muscillo, one party brought an application alleging oppression under section 248(2) of the OBCA and seeking an order that his shares be acquired at their fair market value as determined by an independent valuator. The other party brought a counter-application also alleging oppression and seeking an order imposing a compulsory buy-out arrangement on the other party. Newbould J. rejected the latter party’s oppression claim. Although he did not expressly find in favour of the first party’s oppression claim, Newbould J. granted the alternative relief sought by the first party, being a compulsory purchase of that party’s shares pursuant to the “just and equitable” provisions of section 207(1)(b)(iv) of the OBCA.

[48] Newbould J. considered that the breakdown in the parties’ relationship justified an order under section 207(1)(b)(iv). He based this decision on the state of the relationship of the parties and his understanding that the parties “have both agreed that a judge should decide what should happen to the company”. Newbould J. fixed the date for the valuation to be approximately six months before the hearing of the application on the basis that, by that date, the second party “had clearly indicated in an open way by his actions in the acquisition of the Ariss Haulage business that he was prepared to take steps to disregard [the first party’s] interests”: Muscillo, at para. 100.

[49] In Muscillo, it appears that both parties were prepared to accept the imposition of a compulsory purchase remedy based on the market value of the shares of the corporations determined as of a date that the court considered appropriate. The parties did not propose competing valuations based on different dates and different valuations. Therefore, as in Wittlin, the court was not required to choose between competing valuations.

[50] However, the court in Muscillo was required to select the appropriate date for valuation of the shares of the corporations and, therefore, the issue of the standard to be applied to make such a determination did arise. Newbould J. fixed the valuation date based on an implicit finding of a breach of the applicant’s reasonable expectations as of a particular date. That is, he implicitly accepted the applicant’s view that the respondent had breached the applicant’s reasonable expectations from and after a certain date and that irreconcilable differences existed between the parties after that date. Newbould J. fixed such date as the valuation date.

Analysis and Conclusions Regarding This Argument

[51] To succeed on this second argument, Pingyuan must establish two separate, though related, circumstances:

1. That it is just and equitable to order a compulsory sale of Pingbo’s shares in the 51.ca Corporations on the basis of irrevocable differences between the parties that do not prevent the continuation of the Business; and
2. That it is just and reasonable that such an order would require the valuation of Pingbo’s shares as of August 28, 2010.

I will address each of these issues in turn.

Is a “Just and Equitable Order” Available in the Circumstances of the Relationship Between the Parties?

[52] Pingyuan argues that the Court failed to address in the Reasons whether the relationship of the parties had deteriorated to the point that they could no longer work together as of August 28, 2010. He argues that the Court failed to address whether such circumstances justified an order that it is “just and equitable” that the relationship be wound up as of that date, based on the value of Pingbo’s shares as of that date. In my opinion, this position assumes an entitlement to a just and equitable winding up order that is broader than the case law contemplates.

[53] In paragraph 223 of the Reasons, the Court expressly addressed the extent to which irreconcilable differences between shareholders of a corporation can support a just and equitable winding-up order under section 207(1)(b)(iv) of the OBCA. The Court held that irreconcilable differences are not sufficient to trigger such an order absent either (1) a reasonable expectation of Pingyuan that the parties would wind up their relationship in such circumstances, or (2) a finding that the differences between the parties prevented the continued operation of the Business. The Court also held that neither circumstance existed in the present situation. I will address each finding in turn.

[54] In paragraph 223 of the Reasons, the Court concluded that Pingyuan did not have an expectation that the parties would wind up their relationship as shareholders of the 51.ca Corporations if they reached the point of irreconcilable differences, nor would any such expectation have been reasonable in the circumstances. The Court based this conclusion on the following facts: (1) the shares were given to Pingbo prior to, and independent of, the independent contractor relationship that developed later; and (2) on Pingyuan’s own approach, Pingbo was in part remunerated for his services as an independent contractor by the growth in value of the shares with no agreement that his entitlement would be frozen if the relationship terminated. Underlying this conclusion is the following analysis.

[55] The parties had two relationships. Pingyuan gave Pingbo 15% of the shares of 51.ca Inc. on the incorporation of that company. Pingyuan may regret having given Pingbo his shares, but he does not suggest that Pingbo misled him in some way in respect of this gift. This relationship pre-dated, and was independent of, the independent contractor relationship that developed later. Pingyuan terminated the independent contractor relationship on August 28, 2010. Pingyuan did not, however, and could not, terminate Pingbo’s relationship as a shareholder as he had gifted the shares to Pingbo without providing for a right to repurchase the shares.

[56] Moreover, under Pingyuan’s approach to Pingbo’s remuneration as an independent contractor, Pingbo was entitled to benefit in the growth of the Business through his ownership of the shares. By Pingyuan’s own logic, Pingbo would have been entitled to a larger percentage of the advertising revenues if he had not held these shares. There is no necessary reason why Pingbo’s entitlement to benefit in the growth of the Business through his ownership of the shares would cease on August 28, 2010.

[57] Pingyuan did not obtain any acknowledgement or agreement from Pingbo that this entitlement would terminate if Pingbo’s independent contractor relationship with the Business were to end. Pingyuan wants the Court to write such an agreement for the parties based on the termination of a relationship that did not exist, and was not in contemplation, at the time of the grant of the shares to Pingbo. In effect, Pingyuan seeks an agreement that provides that, because Pingbo later became an independent contractor to the Business and, in Pingyuan’s mind, Pingbo’s remuneration became, in part, the growth in the value of his shares in the 51.ca Corporations, Pingyuan should be entitled to a right of repurchase that would not have existed if Pingbo never entered into the independent contractor relationship with the Business.

[58] Put another way, Pingyuan looked on Pingbo’s shares as “phantom shares” for remuneration purposes during the currency of Pingbo’s independent contractor relationship with the Business. However, Pingbo’s shares were issued to him as a result of Pingyuan’s earlier decision to gift them to Pingbo prior to the commencement of Pingbo’s independent contractor relationship with the Business. Pingyuan never sought an agreement from Pingbo that his continued ownership of the shares would be tied to continuation of the new independent contractor relationship. In particular, Pingyuan had such an opportunity when the parties renegotiated their arrangements in 2006. Pingyuan could have required Pingbo to accept that, as “phantom shares” in light of Pingyuan’s views of Pingbo’s remuneration, the 51.ca Corporations would have the right to repurchase the shares if Pingbo’s independent contractor status with the Business ceased. Pingyuan did not do so.

[59] Given the foregoing circumstances, in order for Pingyuan to establish that it is just and equitable to wind up the shareholding relationship between the parties in the 51.ca Corporations, he must establish either: (1) that he had a reasonable expectation that the shareholding arrangement would be wound up if the parties reached the point of irreconcilable differences; or (2) that Pingbo’s actions, as a shareholder, prevented the continued operation of the Business.

[60] The Court did not find that Pingyuan had a reasonable expectation that the shareholding arrangements would be wound up in the event of irreconcilable differences between the parties. For the reasons discussed above, I do not think such a finding is supportable on the facts. Any such finding would require demonstration of an agreement or understanding between the parties. This was not demonstrated.

[61] Accordingly, I am of the view, as expressed in paragraph 223 of the Reasons, that it is necessary to establish that the differences between the parties prevented the continued operation of the Business in order to obtain an order under section 207(1)(b)(iv). I do not think that either Wittlin or Muscillo contradicts this view. In particular, in Muscillo, Newbould J. based his decision on the principle that an order under section 207(1)(b)(iv) was available where the continuation of a business between parties operating as equal partners was no longer possible because the relationship of trust and confidence between them had broken down: see Muscillo, at para. 23.

[62] In the present case, the Court held that the parties were not partners, equal or otherwise, and that the breakdown in their relationship has not prevented Pingyuan from continuing to carry on the Business since 2011. Accordingly, the proper course of action of Pingyuan is to appeal the Court’s decision if it disagrees with the Court’s view of the ambit of its authority under section 207(1)(b)(iv) of the OBCA.

If a Just and Equitable Winding up Order is Available, is it Just and Equitable that Such Order Would Require the Valuation of Pingbo’s Shares as of August 28, 2010?

[63] Even if the Court has the authority to grant an order under section 207(1)(b)(iv) of the OBCA solely on the basis that irreconcilable differences between the shareholders had reached the point where both parties wished to be rid of each other, I do not think that such an order is available in the present circumstances because the order that Pingyuan seeks requires that Pingbo’s shares be valued as of August 28, 2010. The reason for this conclusion can be expressed in two different ways, which reflect different aspects of the same fundamental problem with Pingyuan’s argument.

[64] First, at its simplest, Pingyuan and Pingbo did not seek the same relief in this action, despite what Pingyuan suggests. Even if the parties are otherwise entitled to a winding-up order based solely on a desire to go their separate ways, they must come before the court seeking the same relief. It is insufficient to say that each party sought an order under section 207(1)(b)(iv). It is necessary to demonstrate that each party sought the same order under that provision, which necessarily includes the provisions pertaining to the valuation of Pingbo’s shares. That is manifestly not the case in the present circumstances.

[65] As mentioned, Pingyuan seeks an order that the valuation be conducted as of August 28, 2010. Pingbo argued for a later date, being the intended trial date or the actual trial date. In addition, if a date after August 28, 2010 were selected, there is no agreement as to the treatment of the 51Weekly business for valuation purposes, which dispute is related to a further oppression allegation of Pingbo that it was not necessary to address in the Reasons.

[66] Second, insofar as the Court has the authority in the present circumstances to determine a valuation that it considers to be just and equitable in the exercise of its jurisdiction under section 207(1)(b)(iv), there is no basis for finding that a valuation as of August 28, 2010 would meet that requirement as Pingyuan argues.

[67] In Muscillo, the court proceeded on the basis that the determination of the valuation date must be referable to the date of the underlying breach of one party’s reasonable expectations that reasonably required a compulsory sale of the other party’s shares valued as of such date. In other words, in Muscillo the breach of the applicant’s reasonable expectations by the respondent provided the basis for a finding that it was just and equitable to grant an order under section 207(1)(b)(iv), and the basis for the appropriate date for the valuation of the shares subject to such order. In circumstances where there is no agreement regarding the date and approach to valuation between parties seeking an order for the compulsory sale of shares under section 207(1)(b)(iv), the principle applied in Muscillo provides the only credible standard for determination of a valuation date.

[68] In this case, Pingyuan submits that the Court should find that it is just and equitable to order a valuation of Pingbo’s shares as of August 28, 2010. On the foregoing analysis, Pingyuan must therefore demonstrate a breach of a reasonable expectation as of that date that reasonably requires a compulsory sale of Pingbo’s shares, such that they be valued as of the date of such breach. He has failed to do so.

[69] The Court has found that the termination of Pingbo’s relationship as an independent contractor to the Business did not give rise to a reasonable expectation of Pingyuan that Pingbo would sell his shares in the 51.ca Corporations to him, or to 51.ca Inc. In particular, as mentioned, the Court did not find that the value of Pingbo’s shares was frozen as of August 28, 2010 on the basis of the reasonable expectations of Pingyuan.

[70] Accordingly, to succeed on his argument, Pingyuan must establish a breach of a reasonable expectation pertaining to Pingbo’s relationship as a shareholder that justifies such an order. In the absence of a finding in favour of one of the parties on their respective claims, any order that the Business be would up pursuant to section 207(1)(b)(iv) would need to be based on a finding that the relationship between the parties as shareholders of the 51.ca Corporations had reached the point that it was unworkable. The Court concluded that this was not the natural consequence of the events of August 2010, given the fact that Pingbo was only a minority shareholder.

[71] Accordingly, given the findings in paragraphs 223 and 224 of the Reasons, any breach of Pingyuan’s expectations would have occurred after August 28, 2010. Although Pingyuan referred to actions of Pingbo after August 28, 2010 which he considered to be objectionable, Pingyuan did not, however, assert that such actions constituted a breach of his reasonable expectations of Pingbo as a shareholder as of any date other than August 28, 2010. Because Pingyuan did not seek an order under section 207(1)(b)(iv) as of any later time based solely on Pingbo’s actions as a shareholder, the Court did not make any finding as to whether, and if so when, Pingbo’s actions as a shareholder made the relationship between the parties unworkable. As a related matter, the Court also did not make any determination regarding whether Pingyuan’s actions in establishing the 51Weekly business would factor into such a determination, as the significance of this business was limited to valuation issues.

Conclusion

[72] Based on the foregoing, Pingyuan’s request for an order under section 207(1)(b)(iv) of the OBCA requiring a compulsory sale of Pingbo’s shares as of August 28, 2010 is denied.

Costs

[73] This motion is supplemental to the Court’s decision in the Reasons. That decision was not anticipated by the parties insofar as neither party was successful in his claims. The principal issue on the present motion could be characterized, at least in part, as a motion seeking clarification of the Court’s Reasons. The Court declined to award costs in favour of either party in respect of the trial. I think the same result should apply in respect of the costs of this motion for the same reasons, as well as the fact that neither party was entirely successful on this motion.

Wilton-Siegel J.

Date: October 25, 2016