COURT FILE NO.: CV-530451-00CP

DATE: 2018-06-21

Superior Court of Justice - Ontario

RE: PETER NOBLE, Plaintiff

AND:

NORTH HALTON GOLF AND COUNTRY CLUB LIMITED, Defendant

BEFORE: Justice Glustein

COUNSEL: Morris Cooper, for the Plaintiff Wendy R. Berman, Lara Jackson, and John M. Picone, for the Defendant

HEARD: May 23, 2018

REASONS FOR DECISION

NATURE OF MOTION AND OVERVIEW

[1] The plaintiff, Peter Noble (“Noble”), represents a class of non-golfing and non-member shareholders of the defendant North Halton Golf and Country Club Limited (“North Halton” or the “Company”). North Halton operates a golf and country club (the “Club”) located in Georgetown.

[2] The present action was certified as a class action by Justice Belobaba by reasons dated May 12, 2016 (the “Certification Decision”).[^1] Justice Belobaba defined the common issue as (at para. 30):

Whether the claims of the class (that relate to the actions of the Defendant in May, 2015 and thereafter) give rise to actionable wrongs under sections 241 and 122 of the Canada Business Corporations Act, entitling class members to damages, declaratory relief and statutory remedies under the Canada Business Corporations Act, from the defendant and, if so, the determination of which remedies ought to be ordered.

[3] The definition of the class was subsequently expanded and amended by order of Justice Belobaba on April 12, 2017:

The non-golfing and non-member shareholders of the North Halton Golf and Country Club who hold Class A shares or Class G shares.

[4] I define the plaintiff shareholders collectively as the “Class”.

[5] On this motion, the Class seeks summary judgment on the common issue.

[6] The Class seeks a declaration that the Company’s conduct, by authorizing the sale of new shares in both May 2015 (the “May 2015 Share Sale Program”) and August 2015 (the “August 2015 Share Sale Program”) (collectively, the “Share Sale Programs”), gave rise to actionable wrongs under sections 241 and 122 of the Canada Business Corporations Act, R.S. 1985 c. C. 44 (the “CBCA”). The Class alleges that the Share Sale Programs:

(i) were oppressive or unfairly prejudicial to or unfairly disregarded the interests of the Class (contrary to s. 241(2) of the CBCA), and

(ii) constituted a breach of the North Halton directors’ obligation under s. 122 of the CBCA to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

[7] At the hearing, counsel for the Class advised the court that the only reasonable expectations advanced by the Class were (i) there would be no equity sale of Class G shares by the Company from Treasury at an amount less than $22,000 per share;[^2] and (ii) the Class would be treated fairly in share pricing decisions.

[8] In its factum, the Class sought the following relief under s. 241(3) of the CBCA:

(i) the repayment to the Class of $615,817 which the Class alleges was unfairly taken from it as a result of the Share Sale Programs, and

(ii) an order that North Halton repurchase (a) the Class G shares held by the Class at a “buy-out value” of $88,000 per share and (b) the Class A shares held by the Class at a “buy-out value” of $98,000 per share.

[9] Counsel for the Class advised the court at the hearing that the Class was not pursuing the buy-out order since (i) the Class had no reasonable expectation of a buy-out or that its shares would be liquid and (ii) a buy-out would not be necessary to rectify the alleged diminution of equity. Consequently, the Class only sought a repayment order.

[10] The Class further seeks an order striking the opinion evidence of Mr. Peter Dey (“Dey”) as the Class alleges that it is not admissible as expert evidence on this motion.

[11] North Halton submits that it did not engage in any conduct that violated either s. 241 or s. 122 of the CBCA. It submits that:

(i) the evidence does not support a finding that the any of the expectations articulated by the Class[^3] are objectively reasonable; and

(ii) there is no evidence of any conduct by the Company that was oppressive or that unfairly prejudiced or unfairly disregarded the interests of the Class.

[12] In summary, North Halton submits that its board of directors (the “Board”)[^4] exercised its business judgment in furtherance of its fiduciary duty to the Company, and acted in the best interests of the Company, in order to address serious financial issues arising out of membership attrition.

[13] North Halton submits that the Board (i) considered various alternatives and their effects on the Company and its stakeholders, (ii) provided the shareholders with detailed information as to those alternatives, and (iii) recommended the Share Sale Programs as the preferred alternative based on its conclusion that it was the best approach to maintain the business and operations of the Company as a going concern and to preserve and increase the Company’s value.

[14] North Halton submits that this court should not interfere with the business judgment exercised by the Board.

[15] Consequently, North Halton seeks summary judgment dismissing the class action.

[16] For the reasons that follow, I agree with North Halton’s submissions and grant summary judgment in its favour dismissing the class action. As I do not rely on the Dey opinion in order to make such a finding, I do not address whether it is admissible.

FACTS

A note on the summary judgment process

[17] Both parties submit that this matter is appropriate for summary judgment. I agree.

[18] I summarize the relevant principles on a motion for summary judgment from Hryniak v. Mauldin, 2014 SCC 7 ("Hryniak") and Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 ("Sweda Farms"), affirmed 2014 ONCA 878:

(i) A trial is not required where a summary judgment motion achieves a fair and just adjudication, provides a process that allows a motion judge to make the necessary findings of fact and apply the law to those facts, and is a proportionate, more expeditious, and less expensive means to achieve a just result than going to trial (Hryniak, at paras. 1-4);

(ii) The evidence must be such that the judge is confident that he or she can fairly resolve the dispute (Hryniak, at para. 57);

(iii) The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial (Sweda Farms, at para. 33);

(iv) The "best foot forward" principle has not been displaced by Hryniak. "If anything, this principle is even more important after Hryniak" (Sweda Farms, at para. 32); and

(v) The summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. The proportionality principle means that the best forum for resolving disputes is not always that with the most painstaking procedure (Hryniak, at paras. 5, 28).

[19] Consequently, on the present motion, I assume that all of the evidence is available to the court that would have been presented at trial.

[20] It is settled law that the each oppression case must be determined on its own facts. In order to consider the reasonable expectations of the Class and the conduct of the Company in relation to the impugned Share Sale Programs, I review the evidence before the court on the motion.

The Company and its shareholder structure

[21] North Halton is a “for profit” corporation which owns, operates, and manages the Club. In addition to a golf course, the Club features a restaurant, curling sheets, and social activities for its members. It is a private club but also plays an important role as a community hub. It is a well-utilized and recognized facility for family, social and other events. The Club has been operating for approximately 100 years.

[22] North Halton engages approximately 35 employees with up to an additional 75 employees during the golf season, contributing to the local economy. Over the past five years, the Company has hosted 30 weddings and numerous other community and corporate events.

[23] North Halton was incorporated in 1954 under the Ontario Corporations Act, R.S.O. 1950, c. 59. North Halton is not a reporting issuer and its shares are not traded on any stock exchange.

[24] Upon incorporation, and until the 2008 equity restructuring I review below, the authorized share capital of the Company consisted of 375 common shares and 375 non-voting preferred shares with a par value of $500 each. Each common share and preferred share were held together as a single unit (a “Share Unit”).

[25] North Halton has always been governed by an elected volunteer board and managed by a volunteer senior executive, with a team of management and administrative employees.

[26] The current President of the board is Rod Butcher (“Butcher”), a member of the board since April 2015. Butcher joined the Club in 1998. He is a retired accountant who worked for approximately 40 years with a specialization in tax. Butcher swore an affidavit on behalf of the Company for this motion.

[27] North Halton currently has 462 shareholders,[^5] comprised of 89 Class A shareholders and 373 Class G shareholders.

[28] Not all of the shareholders are golfers or members of the Club. Currently, there are 122 non-golfing and non-member shareholders in the Class.[^6] Consequently, the Class represents approximately 26% of the total number of shareholders.

[29] Not all golfers at the Club are shareholders. Of the Club’s 471 golfing members, 101 are not shareholders. Those non-shareholder golfing members paid non-refundable initiation fees ranging between $0 and $21,000, prior to the Equity Restructuring I review below.

The McNally share purchase: 2006

[30] Over time, one shareholder, William McNally, acquired a substantial share position, which his family continued to increase following his death in 1991.

[31] By 2005, the McNally family collectively held approximately 33% of the Share Units (the “McNally Shares”). The uncontested evidence is that the McNally family had an effective controlling position in the Company.

[32] In 2005, the board was advised that the McNally family had been approached by real estate developers and wished to sell their shares.

[33] The board formed an independent committee to assess various strategic alternatives to respond to the potential sale of the Company to developers. These alternatives included the feasibility of North Halton acquiring the McNally Shares.

[34] The independent committee undertook a careful review and consideration of alternatives, with advice from external legal and financial advisors, and input from management and stakeholders. The independent committee recommended that the Company proceed with the acquisition of the McNally Shares and a restructuring of the Company with a view to begin a transition to a full equity membership structure.

[35] In May 2006, the Company sought and obtained shareholder approval for (i) the acquisition of the McNally Shares at a price of $32,000 per Share Unit, and (ii) authorization for North Halton to borrow such amounts as may be necessary to effect that acquisition.

[36] In October 2006 the transaction closed. The Company borrowed $3.8 million, through a subsidiary incorporated for that purpose, in order to purchase the McNally Shares.

The Equity Restructuring and OSC Order: 2006-2008

[37] Following the purchase of the McNally Shares, the Company, through an independent committee, conducted an assessment of various restructuring options.

[38] The independent committee reviewed and considered the alternatives and obtained feedback from stakeholders, to ensure the continued viability and operation of the Company.

[39] The proposed equity restructuring included a restructuring of existing share capital with various terms and conditions to facilitate a transition towards a full equity club.

[40] In particular, part of the proposed equity restructuring included an amendment of membership requirements so that (i) all new adult golf members would be required to purchase shares and (ii) various incentives would be put in place to encourage existing golf members to acquire shares.

[41] However, the Company did not propose either that (i) existing golfing members who were not already shareholders would be required to purchase shares or (ii) the Company would be required to purchase the Share Units held by the existing non-golfing shareholders.

[42] By order dated February 22, 2008 (the “OSC Order”), the Ontario Securities Commission (“OSC”) approved the proposed equity restructuring. The OSC expressed a desire to prevent an active market or speculation in the Company’s shares, so that shares would not be an investment vehicle but rather a means to join the Club.

[43] The OSC required, as term of its order, that all new adult golf members purchase a Class G equity share. The OSC Order provided:

Following Continuance, new golf members of the Continued Club will be required to purchase one Class G Common Share for consideration, initially, of $22,000.

[44] In April 2008, the Company sought and obtained shareholder approval for the proposed equity restructuring. Prior to approval, shareholders were provided with comprehensive disclosure, including detailed information circulars and other shareholder communications, and were given a number of opportunities to engage in discussions and ask questions about these proposed transactions at shareholder and informal meetings.

[45] As a result of the OSC Order and shareholder approval, on June 6, 2008, North Halton was continued under the CBCA and its share capital was restructured (the “Equity Restructuring”). Under the Equity Restructuring, certain steps were taken including:

(i) The existing 375 Share Units were exchanged for 375 Class A shares. Each Class A share would be exchangeable at any time for one Class G share and for ten Class X shares which could be redeemed for $1,000 each;

(ii) The Company was authorized to issue Class G shares from treasury, valued initially at $22,000, with the total number of outstanding Class A and Class G shares not to exceed 625 shares;

(iii) New golfing members who joined the Club after the effective date of November 1, 2005 would be required to purchase one Class G share for consideration, initially, of $22,000;

(iv) The initial 150 Class G shares purchased by members would be purchased from either the Company or its subsidiary, which held the McNally Shares;

(v) Following the sale of the initial 150 Class G shares, the Company would implement a sales list rotation, whereby Class G shares would be sold to any eligible purchaser (including existing or new members) from the following three sources in rotation: (a) a list of non-golfing shareholders who wished to sell their shares, (b) a list of golfing shareholders who wished to sell their shares,[^7] and (c) from the Company or its subsidiary;

(vi) A Class A shareholder who wished to sell his or her share had to first exchange it for (a) one Class G share, and (b) ten Class X shares redeemable for $1,000 each; and

(vii) Shareholders could sell their Class G shares privately at such price as agreed by the holder and the purchaser, subject to board approval and, in certain circumstances, a transfer fee.

[46] The Class represents non-golfing and non-member shareholders who hold either one of the original Class A shares or a Class G share (for those in the Class who opted to convert their previous Class A shares to the new combination of one Class G share and ten Class X shares).

Financial circumstances affecting North Halton after the Equity Restructuring: 2008 to late 2012

[47] The economic crisis of 2008 adversely affected the market for golf memberships for most golf clubs. After considering alternatives, the Club introduced membership incentive programs to increase membership and replace retiring members.

[48] Those programs included a single-season trial membership program, introduced in 2009, in which individuals could lease a share to ease them into their decision to purchase a Class G share and thereby become a member of the Club. Despite some success with this program, the rate of membership attrition continued to exceed the rate of new membership during this period.

[49] Beginning in April 2011, Noble proposed that existing non-shareholder members should be required to become shareholders. The Company discussed the issue with Noble, including in-person meetings, in order to understand more fully his concerns and to provide an overview of the capital structure, the nature of the legal restrictions regarding the market for shares, the OSC Order, and the Company’s ongoing stakeholder survey process undertaken to provide direction for the development of any revised plan regarding membership policies.

The By-Law Amendments and dues waiver: late 2012 to 2013

[50] In late 2012, the Company considered the market conditions and reviewed various strategic alternatives, with stakeholder input and advice from an external advisor. As a result, the Company recommended and sought approval from its shareholders to amend its by-laws (the “By-Law Amendments”) to introduce, among other things:

(i) membership incentives, including a share subscription plan that would allow trial members to pay for their shares over a period of time, and

(ii) the adjustment of the Sales Lists system to alternate selling one share from the Company with one share from a Sales Lists shareholder, in lieu of the previous share sale rotation of one Company share sale for every two Sales Lists share sales.

[51] In addition to the By-Law Amendments (and conditional on the resolution approving them), the Company also sought shareholder approval to waive or reduce annual golf dues for the first year for new shareholders who subscribed for a Class G share and paid the subscription price in full at the time of the subscription (the “dues waiver”).

[52] Prior to the shareholder vote on the resolutions (i) to implement the By-Law Amendments and (ii) if the By-Law Amendments were approved, to authorize the dues waiver, shareholders were provided with comprehensive disclosure, including an information circular and other shareholder communication, which detailed the terms, the background, implications and business rationale for the resolutions and the strategic plan for the Company.

[53] In particular, the board advised shareholders in the information circular that:

(i) “The economic downturn of 2009 and the startup of several new golf clubs in the catchment area for membership in the Club decreased the pool of new potential members”;

(ii) Adult membership had decreased from 528 members in 2008 to 455 members in 2011, including 21 trial members;

(iii) “The Corporation will be obliged to meet significant capital expenditures and debt repayment in the coming years … The required revenue stream will be achieved through both increase in membership fees and increase in membership”;

(iv) “The proposed changes to the by-law have been developed in order to provide incentives to new candidate members to select the Club at North Halton as their club of choice”;

(v) “A key feature of the amendments is the waiver of up to one year’s annual golfing dues, not including any other fees, levies and food and beverage minimums which will not be waived. Under the amended by-laws, the waiver of dues must be approved by 60% of shareholders”; and

(vi) The Sales Lists system would be modified to a one to one ratio.

[54] The above issues were reviewed at a special meeting of the shareholders on March 28, 2013.

[55] At that time, there were 45 shareholders on the Sales Lists, with 33 non-golfing shareholders and 12 golfing shareholders.

[56] In March 2013, the By-law Amendments and dues waiver were approved by the OSC and the North Halton shareholders. In its order dated March 1, 2013, the OSC noted that “[u]nder the [initial OSC Order] new adult golf-playing members of the Club are required to purchase one Class G Common Share”.

[57] The By-Law Amendments and dues waiver are not challenged in the present action, either under the oppression remedy or under s. 122 of the CBCA.

Noble complains to the OSC: April 2014

[58] In April 2014, Noble sent a letter of complaint to the OSC. In his letter, Noble stated his concerns (i) that he remained on a “waiting list with other non-member shareholders to have our shares paid out as a result of members buying shares in the corporation”; and (ii) “regarding the existing share exchange program between non-member shareholders who wish to cash out their shares and existing member non-shareholders who wish to buy them”.

[59] Noble asked the OSC “to ensure that the share exchange program is a fair and orderly market for non-member shareholders until such time as the transition to a full equity member is complete and all shareholding in [the Company] is incidental to club membership”.

[60] Noble asked the OSC to require the Company “to bring forth a specific conversion plan for shareholder approval to convert non-shareholding members to shareholder status”.

[61] The OSC did not contact North Halton about the complaint.

The May 2015 Share Sale Program

(i) Background: Financial difficulties after the By-Law Amendments

[62] Following the By-Law Amendments, the Company continued to encourage share purchases, and to facilitate share sales through, among other things, marketing programs within the community, trial memberships, and the dues waiver.

[63] Due to both market and economic conditions, the Club continued to experience a reduced demand for golf memberships, causing a negative impact on financial performance. The Company suffered pre-tax losses for the years ending October 3, 2011 ($114,820), 2012 ($136,857), 2013 ($82,651), and 2014 ($107,901). In total, during that period, the Company lost over $440,000.

[64] The Company continued its efforts to increase its member base and ensure continued growth in revenues through golfing fees, dining fees and other expenditures by members using the Club facilities. The Company considered various options to attract new golfing shareholder members in light of the population growth in the local area and the Club’s profile and reputation.

[65] Despite those efforts, between 2009 and 2014, golfing membership in the Club dropped approximately 15%, with total adult golfing membership decreasing from 462 members to 391 members.

[66] During that period, the number of shareholders on the Sales Lists increased, with 68 shareholders as of October 31, 2013 (40 non-golfing or resigned shareholders and 28 golfing shareholders), and 75 shareholders as of October 31, 2014 (44 non-golfing or resigned shareholders and 31 golfing shareholders).

[67] Between 2011 and 2015, there were 29 private share sales (i.e. sales not under the Sales Lists). The market price for shares sold in 2014 ranged from $5,000 to $15,000, with an average price of less than $9,000. While the Company tried to sell shares for $22,000, it had very limited success.

(ii) The process leading to the May 2015 Share Sale Program

[68] Against this background, the Board[^8] assigned its membership committee the task of addressing the circumstances faced by the Company.

[69] The membership committee considered various alternatives to increase revenue, net income, and shareholder value.

[70] The alternatives included reducing the quality of the golf course and facilities, imposing a major capital assessment, instituting a new class of non-shareholder members (subject to regulatory approvals) and increasing the Company’s debt. All of these alternatives were found by the Board not to be in the best interests of the Company or its stakeholders, as I set out in more detail below.

[71] Given prevailing market conditions, including the purchase prices for Class G shares in private sales, the Board considered, among other things, the need to implement a program to increase the number of shareholder golfing members and therefore revenue. The Board assigned to its membership committee the task of designing a plan to achieve those objectives.

[72] The Board noted that other comparable golf clubs had a much lower share price or initiation fee (depending on whether the club was an equity or non-equity club), with a cost of between $0 and $15,000.

[73] The Board further noted that private sales of North Halton shares were taking place at amounts significantly lower than the treasury share issue price.

[74] Average annual revenue generated from each new golfing member, including dues, levies, and house account spending, is approximately $10,000 per year.

[75] Following its deliberations, the Company sought shareholder approval for a temporary program for the limited sale of up to 30 Class G shares at a price of $14,000 in May 2015 with the continued dues waiver (previously defined as the “May 2015 Share Sale Program”).

[76] The May 2015 Share Sale Program provided that the existing shareholders on the Sales Lists would have the option to either sell at the reduced price (if it was their turn on the list) or remain in the same position on their respective list until the temporary program expired.

[77] In advance of the shareholder meeting, shareholders were provided with detailed information about the proposal and the basis for it. Shareholders received (i) a notice of annual general and special meeting of shareholders dated April 3, 2015, (ii) a management circular dated March 31, 2015, (iii) a management discussion and analysis dated March 31, 2015 for the year ending October 31, 2014, and (iv) the Company’s audited financial statements for the year ending October 31, 2014.

[78] In that material, shareholders were advised that the Board considered and determined that (i) cost-effective options and incentives were necessary to attract and retain new members given the growing population and market in Halton Hills and Milton; and (ii) the reduction of share prices for a limited number of shares, for a limited time, would allow the Company to capitalize on the growing market.

[79] The Company advised existing Sales Lists participants that if they chose not to sell at the reduced price during the temporary program, they would not lose their place in the queue.

[80] At an Annual General & Special Shareholders Meeting held on April 23, 2015 and continued on May 13, 2015, the Board reviewed the various alternatives through a Power Point presentation (the “Presentation”). The Board set out, in the Presentation, why it recommended the May 2015 Share Sale Program and did not recommend the other options.

[81] In the Presentation, the Board reviewed the limited success it had in attracting new members in 2014 as well as all of the marketing initiatives it undertook in that regard. It reviewed the Company’s current financial state and noted a “declining market” with “declining revenues”.

[82] In the Presentation, the Board reviewed its consideration of the factors it considered relevant to “Our Future”, including (quoted verbatim):

(i) Golf Market will continue to be very competitive/challenging to attract new interest;

(ii) Prospective new members will continue to have many options;

(iii) Ongoing investments are required and being addressed in Golf Facilities & Operations;

(iv) Non-Shareholder Members will continue to decline;

(v) Need to continue to attract and retain new Shareholder Members; and

(vi) Well positioned to attract new membership in a growing affluent Community.

[83] At the shareholders’ meeting, the Board presented a “Special Report” as part of the Presentation. In the Special Report, the Board reviewed “Golf Industry - Our Challenge/Current Reality” by setting out the following factors (quoted verbatim):

(i) Continued very tough golf market & economy;

(ii) Golf market is very competitive/challenging to attract new members/golfers;

(iii) Prospective new members continue to have many options;

(iv) Clear equity value proposition to obtain new and retain existing members;

(v) Investment is required in the Club’s golf facilities & operations;

(vi) Number of golf members are declining at approximately 15 net per year;

(vii) In 2014 the Club sold only 2 treasury shares; and

(viii) Need to continue to attract and retain new shareholder members.

[84] In the Special Report, North Halton shareholders were advised of share prices and initiation fees at golf clubs in the area, including equity golf clubs at Beverly ($10,000 per share) and at Devil’s Pulpit ($5,000 to $15,000 per share).

[85] In the Special Report, the alternatives considered by the Board (through its membership committee) were reviewed, as well as the reasons for their rejection. Each alternative and its respective advantages and disadvantages[^9] were set out as follows (quoted verbatim):

(i) Reduce Member Services/Quality: Member Survey Identified as a high priority to be maintained & Improved

(ii) Reduce Golf Course Service/Maintenance: Member Survey Identified as a high priority to be maintained & Improved

(iii) Capital Levy/Assessment: The Club has never had major one time Capital Assessment; Need is minimized through successful share sales

(iv) New Class - Non Share Member: Possibly Increases potential revenue, Eliminates Share Sale Market, Reduces Share Value, Requires OSC approval

(v) Further Increase Borrowing: Higher Borrowing Costs/Limit to what can be financed; Risk to potential new shareholder interest; Interest Rate Risk

[86] In the Special Report, the “benefit of increasing golfing members through trials, shareholders and retention” was also reviewed.

(iii) The resolution is passed and implemented

[87] On the basis of the above, the Board proposed to the shareholders a resolution to approve the May 2015 Share Sale Program. As noted above, existing shareholders on the Sales Lists could choose to either sell at the reduced price (if it was their turn on the list) or remain in the same position on their respective list until the temporary program expired.

[88] The May 2015 Share Sale Program was approved by 66% of the 209 shareholders who voted in person or by proxy.

[89] All of the 30 authorized Class G shares were purchased under the May 2015 Share Sale Program. The breakdown of sales was: (i) 13 shares from Treasury, (ii) 7 shares from non-golfing shareholders, (iii) 7 shares from golfing shareholders, and (iv) 3 shares from Treasury by way of deferred subscription, payable over time.

The August 2015 Share Sale Program

[90] After the sale of all available 30 shares in the May 2015 Share Sale Program, the Board evaluated the utility of an additional share sale program. The Board proposed to the shareholders the August 2015 Share Sale Program, under which (i) there would be an additional temporary program for the limited sale of up to 20 Class G shares at a price of $16,000 per share; (ii) if all 20 Class G shares were sold before the end of March 2016, up to an additional 20 Class G shares would be offered at a price of $18,000 per share; and (iii) the dues waiver would be maintained.

[91] Again, shareholders on the Sales Lists had the option to sell their Class G shares at the sale price if a buyer were found (and if it was their turn on the Sales List), or remain on the Sales Lists without losing their position in the queue during the temporary program.

[92] Shareholders were provided with comprehensive disclosure in advance of the shareholder meeting, including a notice of special meeting of shareholders and a management circular dated July 30, 2015.

[93] In the management circular, the Board advised shareholders that:

(i) “Market interest remains strong as a result of [the May 2015 Share Sale Program] at a reduced share price”;

(ii) The result of the May 2015 Share Sale Program “increased the Club’s effective golf membership levels resulting in positive overall revenue to support programs, operations and capital requirements”;

(iii) Adult golf membership increased from 391 members in 2014 to 427 members in 2015 (year-to-date);

(iv) Benefits of the proposed August 2015 Share Sale Program included “Positive cash flow from operations for yearly operating requirements”, “Increase the number of shareholder golfers to potentially increase sales in all other departments”, and “Funding future capital requirements”; and

(v) The potential “detriment of offering another limited time and limited quantity share offer” was that participants on the Sales Lists “may elect to sell their Class G Share for less than they initially expected”.

[94] The proxy circular then reviewed the alternatives considered by the Board, and the “pros/cons” of each. That analysis was the same as in the May 2015 Share Sale Program, but also included an option to “Restructure Capital” of which the “Pro/Con” was stated that “This would cause a further increase to borrowing with associated risks (listed above)”.

[95] The Board stated in the proxy circular that “An additional Common Share offer has the potential to improve cash flow, provide earlier liquidity to Shareholders wishing to sell and increase our financial capability in support of our operations and capital requirements”.

[96] The August 2015 Share Sale Program was approved by 90% of the shareholders who voted, and an extension of the August 2015 Share Sale Program to April 30, 2017 was subsequently approved by 86% of the shareholders who voted.

[97] The August 2015 Share Sale Program ended on April 30, 2016. Under that program, eight Class G shares were sold at a price of $16,000 per share, with seven from Treasury and one from the Sales Lists.

Results of the Share Sale Programs: Current financial position

[98] As a result of the Share Sale Programs, the Company added many new and active member shareholders, who on an ongoing basis pay membership fees, bring in guests who pay guest fees, rent carts, make purchases at the pro shop, and spend money on food and beverages.

[99] North Halton’s revenues increased by $114,080 in 2015, operating at a profit for the first time in four years with a pre-tax profit of $6,180. In 2016, the Company recorded a pre-tax profit of $31,394 and expected a pre-tax profit in 2017 of approximately $93,000. Overall, that represents an increase in pre-tax profit of more than $200,000 from 2014 to 2017.

[100] Further, the number of shareholders on the Sales Lists was reduced by June 30, 2015 from 75 to 62 (40 resigned or non-golfing shareholders and 22 golfing shareholders).

[101] The difference in price between the Treasury value of the shares and the prices under the Share Sale Programs will be recouped by the Company within two to three years as the new shareholder members spend money at the Club.

Shareholders vote against the sale of North Halton’s land: 2017

[102] The recent vote rejecting the sale of the Company’s land is not at issue in this action. Nevertheless, I review the events briefly as some of the evidence is relevant to this motion.

[103] In late 2016, North Halton received unsolicited expressions of interest to purchase its land. The best of these indicated a purchase price of $30 million. The board reviewed these expressions of interest and decided to seek guidance from shareholders. In light of this development, in February 2017 the board decided to halt the sale of shares from Treasury.

[104] On April 27, 2017, shareholders met to consider whether to authorize the board to explore the value of North Halton’s land. During the meeting, the board outlined that (i) any decision to sell the Company’s land could only be made by shareholders and (ii) the CBCA required approval of two-thirds of shareholders for any such sale to proceed.

[105] A supermajority of North Halton’s shareholders approved a resolution authorizing the board to (i) take such actions it considered appropriate to explore a true market valuation by soliciting offers, (ii) report to shareholders no later than October 31, 2017 as to the process and seek further direction from shareholders if necessary, and (iii) hold a meeting in the event that offers were received so that shareholders could consider them.

[106] The board established an independent committee to oversee the solicitation of offers. The committee engaged Colliers International as North Halton’s broker for the marketing and potential sale of its land.

[107] The two best offers were at a price of $1.5 million per developable acre. Given North Halton’s understanding that its base developable acreage is approximately 35.4 acres, the total consideration offered by these developers was approximately $53 million.

[108] On October 4, 2017, a special meeting of the shareholders was held to consider and vote on a resolution authorizing the board to proceed to negotiate and conclude an agreement for the sale of North Halton’s land on terms substantially similar to the two offers.

[109] Given the potential sale was in respect of substantially all of North Halton’s assets, pursuant to the CBCA the resolution required approval by a two-thirds majority. In advance of the meeting, the shareholders were provided with comprehensive disclosure, including a notice of special meeting dated September 19, 2017, a management information circular dated September 18, 2017 and a management proxy circular dated September 19, 2017.

[110] In the materials provided to shareholders, North Halton advised shareholders that, assuming a price of $53 million, after commission payable to its broker, taxes, legal fees, redemption of Class X shares, and retirement of debt and other costs and expenses, the net amount available for distribution to shareholders would be approximately $44 million, or approximately $94,800 per Class G share before taxes.

[111] The board stated that it would not make any recommendation to shareholders. The board also noted that a decision not to sell would not foreclose revisiting that decision in the future.

[112] Approximately 90% of North Halton’s shareholders participated in the vote. A slight majority opposed the sale. Consequently, the vote was well short of the two-thirds majority required to authorize the board to pursue sale negotiations and conclude an agreement for the sale of the land.

THE APPLICABLE LAW

[113] The governing legislative provisions and principles from the case law are not in dispute on this motion.

[114] Both parties rely on the applicable test for oppression and general principles set out in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 (“BCE”). Further, other principles on oppression law from leading cases are not in dispute.

[115] Similarly, the applicable law governing the fiduciary duty of directors to the corporation under s. 122 of the CBCA is also set out in BCE and is not in dispute.

[116] Consequently, I briefly set out the relevant legislation, and then review in more detail the principles from the applicable case law.

The relevant legislation

[117] Section 241 of the CBCA sets out the basis for the oppression remedy. Subsections 241(1) and (2) provide:

241 (1) A complainant may apply to a court for an order under this section.

Grounds

(2) If, on 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 a result,

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

(c) 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, the court may make an order to rectify the matters complained of.

[118] Section 241(3) of the CBCA provides the court with the discretion to make any order it thinks fit, including an order requiring the corporation to compensate or buy back the shares of an aggrieved person, or to liquidate the company (ss. 241(3)(f), (j), and (l) of the CBCA).[^10]

[119] Section 122 of the CBCA provides:

122 (1) Every director and officer of a corporation in exercising their powers and discharging their duties 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.

The applicable principles from the case law

Issue 1: The oppression remedy

(i) General principles applicable to the oppression remedy

[120] The court in BCE set out a two-part test to establish oppression under section 241 of the CBCA (BCE, at paras. 68, 95):

(i) First, a claimant must identify the expectations claimed to have been violated and establish that such expectations were reasonably held;

(ii) Second, a claimant must show that those reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard”.

[121] The burden of establishing oppression is on the claimant (BCE, at para. 165).

[122] The onus cannot be discharged by “mere allegations that are not supported by evidence before the court” (Senyi v. Conakry Holdings Ltd. (2007), 2007 CanLII 20102 (ON SC), 36 B.L.R. (4th) 309 (Ont. S.C.J.) (“Senyi”), at para. 8).

[123] Oppression is fact-specific. In BCE, the court held “What is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play. Conduct that may be oppressive in one situation may not be in another” (BCE, at para. 59).

[124] I now address the applicable law under the two-part test for oppression under BCE.

(ii) Part 1 of the BCE test: the requirement to establish the expectations claimed to have been violated and establish that such expectations were reasonably held

[125] The court held in BCE (at paras. 62 and 64) that:

(i) “[T]he concept of reasonable expectations is objective and contextual. The actual expectation of a particular shareholder is not conclusive”;

(ii) The expectation, viewed objectively, must be reasonably based on the “facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations”; and

(iii) “The oppression remedy recognizes that a corporation is an entity that encompasses and affects various individuals and groups, some of whose interests may conflict with others”.

[126] The reasonable expectation concept does not permit shareholders “to impose individual wishes or unilateral expectations on the corporation or other shareholders” (McEwen v. Goldcorp Inc., 2006 CanLII 35985 (ON SC), [2006] O.J. No. 4265 (S.C.J.), at para. 42, affirmed [2006] O.J. No. 4437 (Div. Ct.)). The “expectations to be considered are not a complainant’s ‘wish list’ but rather the expectations that were or ought to have been considered as part of the compact of the shareholders” (Senyi, at para. 8).

[127] It may be “readily inferred” that all shareholders are entitled to “a reasonable expectation of fair treatment”. However, oppression “generally turns on particular expectations arising in particular situations”, including the “business realities” of each case (BCE, at paras. 58, 70).

[128] In BCE, the court held that shareholder expectations can be formed in a number of ways. The court will consider factors such as “general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and a fair resolution of conflicting interests between corporate stakeholders” (BCE, at para. 72).

[129] The size, nature and structure of the corporation are also relevant factors in assessing the reasonable expectations of shareholders (BCE, at para. 74).

[130] Expectations based on past practice will not be reasonable when there are changing circumstances which result in valid commercial reasons for the change. Reasonable expectations are not a “static matter” and must be “in existence as the directors make their decisions from time to time” (BCE, at paras. 76-77; 820099 Ontario Inc. v. Harold E. Ballard Ltd., [1991] O.J. No. 266 (Gen. Div.) (“Ballard”), at para. 135; affirmed [1991] O.J. No. 1082 (Div. Ct.)).

[131] The oppression remedy protects the reasonable expectations of shareholder interests, not just their legal rights, based on an objective analysis (Westfair Foods Ltd. v. Watt, 1990 CanLII 5514 (AB KB), 1990 CarswellAlta 58 (Q.B.), at paras. 51, 61, and 63; affirmed [1998] A.J. No. 1145 (C.A.); leave to appeal refused [1998] S.C.C.A. No. 634). Those shareholder interests are intertwined with the expectations that have been created by the company’s principals (Pente Investment Management Ltd. v. Schneider Corp., 1998 CanLII 5121 (ON CA), [1998] O.J. No. 4142 (C.A.) (“Pente”), at para. 68).

(iii) Part 2 of the BCE test: the requirement to establish that the reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard”

[132] The oppression remedy recognizes that a corporation encompasses various individuals and groups, some of whose interests may conflict with others (BCE, at para. 64).

[133] “Fair treatment” is what shareholders are entitled to “reasonably expect”. If directors make corporate decisions that unfairly maximize a particular group’s interests at the expense of other stakeholders, such conduct will be oppressive. While a corporation is entitled to maximize share value, it cannot do so by treating its individual stakeholders unfairly (BCE, at para. 64).

[134] However, whether there has been oppression must be judged according to “business realties” (BCE, at para. 58).

[135] In Brant Investments Ltd. v. Keeprite Inc., 1991 CanLII 2705 (ON CA), [1991] O.J. No. 683 (C.A.) (“Brant”), the court cautioned against interfering with the business judgment of the directors, in the context of an oppression claim. McKinlay J.A. held (Brant, at para. 75):

There can be no doubt that on an application under s. 234 the trial judge is required to consider the nature of the impugned acts and the method in which they were carried out. That does not mean that the trial judge should substitute his own business judgment for that of managers, directors, or a committee such as the one involved in assessing this transaction. Indeed, it would generally be impossible for him to do so, regardless of the amount of evidence before him. He is dealing with the matter at a different time and place; it is unlikely that he will have the background knowledge and expertise of the individuals involved; he could have little or no knowledge of the background and skills of the persons who would be carrying out any proposed plan; and it is unlikely that he would have any knowledge of the specialized market in which the corporation operated. In short, he does not know enough to make the business decision required. That does not mean that he is not well equipped to make an objective assessment of the very factors which s. 234 requires him to assess. [Emphasis added.]

[136] The oppression remedy “is not intended to provide the court with unfettered powers to modify corporate structures or to second-guess business judgment” (Stahlke v. Stanfield, 2010 BCSC 142, at para. 22; affirmed 2010 BCCA 633).

[137] In Shefsky v. California Gold Mining Inc., 2016 ABCA 103, the court discussed the business judgment rule as follows (at para. 22, as per Costigan and Schutz JJ.A.):

[C]ourts must not second-guess the business judgment of directors of corporations. Rather, the court must decide whether the directors made decisions which were reasonable in the circumstances and not whether, with the benefit of hindsight, the directors made perfect decisions. Provided the directors acted honestly and reasonably, and made a decision in a range of reasonableness, the court must not substitute its own opinion for that of the Board. If the directors have chosen from one of several reasonable alternatives, deference is accorded to the Board’s decisions. [Emphasis added.]

[138] Deference will only be granted to business judgment if it is “informed” and has a “reasonable basis” (Pente, at para. 33). In Pente, Weiler J.A. stated: “If there are no reasonable grounds to support an assertion by the directors that they have acted in the best interests of the company, a court will be justified in finding that the directors acted for an improper purpose” (Pente, at para. 33).

[139] It is not necessary to establish bad faith. Oppressive or unfair conduct is not determined by the intent but rather by the result (Brant, at para. 32).

(iv) Principles relevant to remedy if oppression is found

[140] The just remedy in an oppression case depends, to an important extent, on the reasonable expectations of the shareholders (Naneff v. Con-Crete Holdings Ltd., 1995 CanLII 959 (ON CA), [1995] O.J. No. 1377 (C.A.) (“Naneff”), at para. 30).

[141] In fashioning the appropriate remedy to address oppressive conduct, “the surgery should be done with a scalpel, and not a battle axe … The job for the court is to even up the balance, not tip it in favour of the hurt party” (Ballard, at para. 140).

[142] The oppression remedy is “not designed to relieve a minority shareholder from the limited liquidity attached to his or her shares or to provide a means of exiting the corporation, in the absence of any oppressive or unfair conduct” (Wilfred v. Dare, 2017 ONSC 1633 (S.C.J. – Comm. List) (“Wilfred”), at para. 70).

Issue 2: The obligations owed by directors under [s. 122](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/rsc-1985-c-c-44.html#sec122_smooth) of the [CBCA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/rsc-1985-c-c-44.html)

[143] The directors owe a fiduciary duty to the corporation, not to the shareholders. If that duty conflicts, the reasonable expectation of stakeholders is that the directors act in the best interests of the corporation (BCE, at paras. 37, 66; Wilfred, at para. 59).

[144] Directors are entrusted with the statutory authority under the CBCA to manage, or to supervise the management of, the business and affairs of the corporation.

[145] Directors do not owe their duties to shareholders at large, minority shareholders in particular, stakeholders generally, or discrete groups of stakeholders. Rather, the statutory duties of good faith, loyalty and care are owed to the corporation. Directors cannot have separate duties of the same nature owing to both the corporation and shareholders. McKinlay J.A. held in Brant, at para. 17:

To impose upon directors and officers a fiduciary duty to the corporation as well as to individual groups of shareholders of the corporation, could place directors in a position of irreconcilable conflict, particularly in situations where the corporation is faced with adverse economic conditions.

[146] Similarly, the business judgment rule applies to the court’s consideration of whether directors have breached their duty of care. In Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (“Peoples”), the court held, at para. 67:

Directors and officers will not be held to be in breach of the duty of care under s. 122(1)(b) of the CBCA if they act prudently and on a reasonably informed basis. The decisions they make must be reasonable business decisions in light of all the circumstances about which the directors or officers knew or ought to have known. In determining whether directors have acted in a manner that breached the duty of care, it is worth repeating that perfection is not demanded. Courts are ill-suited and should be reluctant to second-guess the application of business expertise to the considerations that are involved in corporate decision making, but they are capable, on the facts of any case, of determining whether an appropriate degree of prudence and diligence was brought to bear in reaching what is claimed to be a reasonable business decision at the time it was made. [Emphasis added.]

APPLICATION OF THE LAW TO THE FACTS OF THE CASE

[147] I first consider the claim under the oppression remedy and then the claim under s. 122 of the CBCA.

Issue 1: The oppression remedy

[148] Under the two-part test in BCE, I review whether the Class has:

(i) identified the expectations claimed to have been violated and established that such expectations were reasonably held; and

(ii) shown that those reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice”, or “unfair disregard”.

Part 1 of the BCE test: Has the Class identified the expectations claimed to have been violated and established that such expectations were reasonably held?

[149] There are two steps required under this process. First, the court must determine the particular expectations alleged to have been held by the Class. Second, the court must determine whether such expectations were objectively reasonable based on the evidence.

(i) The expectations held by the Class

[150] There are numerous expectations claimed to have been held (i) by the Class shareholders who filed affidavits, (ii) in the factum filed by the Class, and (iii) in submissions before the court.

[151] Those expectations can be summarized as follows:

(i) Some Class shareholders state in their affidavits that they expected (a) the Company would buy the Class G shares on demand and (b) there would be a liquid market for the Class G shares which would reflect “fair market value” (the “Buy-Out/Liquidity Expectation”);

(ii) Noble swore in his affidavit that “[The Share Sale Programs] represents the most egregious example of the Club’s decision to sell its shares without regard to shareholder equity or share value based upon the value of the corporation’s underlying assets”.

In its factum, the Class submitted that (a) it had an expectation that Class G shares would not be sold “for prices which are entirely unrelated to share value and the underlying value of the corporation’s assets”, (b) share pricing decisions would be “based on the underlying asset or operational value of the corporation, whichever is greater”; and (c) its expectation has not been met because “the share pricing decisions and share sales made by North Halton in 2015 and 2016 were a fraction of the now proven asset value of the shares”.

Consequently, the Class asserted in its factum an expectation that Class G shares could not be sold from Treasury unless at the full land value of the Company;[^11]

(iii) One Class shareholder stated in her affidavit an expectation that Class G shares would not be sold from Treasury at a price of “at least $32,000 the amount that I was advised my share was worth in 2006”;

(iv) One Class shareholder stated in his affidavit that “[t]he sale of shares at less than the $22,000.00 value established in 2006 was … not intended for the long-term benefit of the corporation or its shareholders”;[^12] and

(v) In its factum, at the hearing, and as stated by many Class shareholders in their affidavits, the Class submitted that it had an expectation that it would be treated fairly in share pricing decisions made by the Company (the “Fairness Expectation”).

[152] At the hearing, I asked Class counsel which one or more of the various Pricing Expectations asserted by different shareholders[^13] were put forward as a reasonable expectation of the Class. Class counsel submitted that the reasonable pricing expectation of the Class was that Class G shares would not be sold from Treasury at less than the price of $22,000 initially set under the Equity Restructuring.

[153] Consequently, Class counsel did not pursue the “underlying value” or “McNally Share acquisition” price as a reasonable pricing expectation of the Class.

[154] Further, counsel for the Class advised the court that he did not submit that the Class had a reasonable expectation that their shares would be bought out or would be liquid. In other words, Class counsel advised the court that he was not pursuing the “Buy-Out/Liquidity Expectation” as a reasonable expectation of the Class.

[155] Consequently, the only expectations Class counsel advanced as reasonable were that (i) the Class expected that Class G shares would not be sold from Treasury at less than the initial price of $22,000 set under the Equity Restructuring and (ii) the Class expected to be treated fairly in share pricing decisions.

[156] I now address the reasonableness of all of the purported expectations.

(ii) The reasonableness of the expectations held by the Class

Expectation 1: The Buy-Out/Liquidity Expectation

[157] It is not contested that the Buy-Out/Liquidation Expectation is not reasonable on the evidence in this case.

[158] As Justice Belobaba noted in the Certification Decision (at para. 38), the “raison d’être” of the Company was to operate a golf club. By requiring any new adult golf member to purchase a Class G share, the shareholders and the OSC, through the Equity Restructuring and OSC Order, sought to ensure that shares in North Halton would not be acquired for the purpose of real estate speculation, but rather as an instrument to join a golf club.

[159] While shareholders could always sell their shares in private sales, subject to board approval, North Halton never represented or otherwise indicated that it had a plan, desire, or ability to purchase Class G shares from shareholders who wished to sell them, but could not find their own buyer. There has always been a limited market for the sale of these shares.

[160] Noble confirmed in his reply affidavit that (i) he never had any expectation as to liquidity or share buybacks and (ii) liquidity issues were not part of the class action:

this action is not about the Class’s expectation of the shares being tradeable [sic] and readily saleable, or about whether those shares ought to be bought back by the Corporation. Those are liquidity issues, which are not part of this Class Action.

[161] Further, Noble acknowledged on cross-examination that:

(i) class members do not have a right to demand that North Halton buy back their shares;

(ii) there is no condition on the shares or the OSC orders or anywhere that the Company would repurchase these shares for cancellation; and

(iii) he supported (and voted for) the conditions giving rise to the limited liquidity of the shares in North Halton (i.e. that a purchaser of a Class G share is required to become a member of the Club).

[162] Consequently, I agree with the submission of the Company[^14] that the Buy-Out/Liquidity Expectation “of certain class members [is] not objectively reasonable in context. They are simply a wish list of desires”.

Expectations 2, 3, and 4: The Pricing Expectations

[163] The only Pricing Expectation advanced as reasonable by Class counsel was that Class G shares would not be sold at less than the $22,000 price initially set under the Equity Restructuring. Counsel did not advance a reasonable expectation that Class G shares could not be sold unless at the underlying land value or at the $32,000 price under the McNally share acquisition.

[164] However, the essence of all the Pricing Expectations is that the McNally share acquisition and Equity Restructuring set out a reasonable expectation that future share pricing decisions would be based on (i) the same process used in 2006 to 2008 and (ii) a “floor”[^15] price at either the underlying asset value, $32,000 or $22,000 per Class G share. In its factum, the Class submits:

The McNally’s shares were purchased through a refinancing and restructuring of the corporation with the approval of the Ontario Securities Commission. The 2006 - 2008 process treated its shareholder groups fairly and equitably, and thereby established the reasonable expectations of share value by the shareholders in the subsequent years.

[165] For the reasons that follow, I find that none of the Pricing Expectations can objectively be established.

[166] The OSC Order was clear that “initially”, the price of a Class G share would be set at $22,000. The Equity Restructuring took the necessary steps to put the OSC Order into effect, such that new golfing members after the effective date of November 1, 2005 would be required to purchase one Class G share for consideration, initially, of $22,000.

[167] There was no representation or assurance in either the OSC Order or in the detailed information provided to shareholders for the Equity Restructuring that (a) the same process would be used for future share pricing decisions or (b) future share pricing would be tied to the underlying value of the land, or fixed at a permanent “floor” of either $32,000 or $22,000 per Class G share.

[168] Further, the uncontested evidence is that the buy-out of the McNally Shares was to address the threat of a shareholder with effective control obtaining sufficient votes to force the sale. The McNally buy-out was consistent with the “raison d’être” of the Company, which is to operate a golf and country club.

[169] The process embarked upon in 2006 leading to the purchase of the McNally Shares and Equity Restructuring was not to establish a “floor” share price moving forward, but to achieve the means with which the Company would continue to operate a golf and country club for profit. This view of those transactions is supported by the OSC requirement that new golf members would be equity members of the Club, consistent with the goal of the OSC to ensure that share ownership was not a vehicle for land speculation, but instead related to being a member of the Club.

[170] The reality of the business circumstances in which North Halton operated since 2006 cannot be disregarded by the Class. Expectations that ignore changing circumstances and are based upon a belief that past practice must always prevail are not reasonable: expectations cannot be regarded as a “static matter” (BCE, at paras. 76-77; Ballard, at para. 135).

[171] Share pricing decisions made in 2006 and 2008, undertaken in the circumstances of a developer threatening North Halton’s existence and an equity restructuring to prevent land speculation investment, cannot form the basis for a reasonable expectation for share pricing decisions made almost a decade later in 2015 to address financial difficulties arising from member attrition and economic conditions.

[172] The purchase by North Halton of a control block of shares from the McNally family is not a “past practice” that could give rise to objectively reasonable expectations with respect to either the price at which North Halton would later sell shares from Treasury, or the process to consider that issue. I adopt the following submission from the Company’s factum (references omitted):

It makes even less sense to expect that such a “past practice” would be relevant to the decisions to be taken almost a decade later given the significant changes in North Halton’s circumstances over those ten years, including:

(a) the authorized share capital of North Halton increasing from 375 shares units to 625 shares, some of which have not yet been issued by the Company;

(b) new restrictions being placed on the share capital of North Halton that include the requirement that any new purchaser of a Class G share also become a golfing member of the Club, and as a result of membership in the Club pay mandatory annual dues;

(c) the implementation of the Sales Lists system for shareholders to sell their shares, where only private sales were possible in the past;

(d) the OSC order, which was intended “to prevent an active market or speculation in North Halton’s shares, which were not intended to be an investment vehicle, but instead a means to join the Club. [sic]”;

(e) the economic crisis, its consequent adverse effect on the market for golf memberships, and the membership incentives that were introduced as a result;

(f) the rate of attrition, which exceeded the rate of new membership sales;

(g) North Halton’s significant efforts to encourage share purchases, and to facilitate share sales through marketing programs and trial memberships;

(h) the fact that other golf clubs had reduced their initiation/share prices to anywhere between $0 to $15,000, while North Halton was trying to sell shares from treasury (and the Sales Lists) for $22,000, without success; and

(i) the fact that private sales of shares were taking place in 2014 and 2015 at prices which ranged from $5,000 to $15,000, with an average price of less than $9,000.

[173] I agree with the conclusion set out by the Company in its factum that the Pricing Expectations are not objectively reasonable:

The reasonableness of the expectations of the non-golfing shareholders must be assessed in the entire context, not solely with reference to a unique and historic event that occurred in entirely different circumstance (BCE, at para. 62). The expectations that share pricing decisions in 2015 would be tied to share pricing decisions in 2006 is [sic] unreasonable given the circumstances.

[174] For the above reasons, I find that the Class has not established that any of the Pricing Expectations[^16] were reasonable.

Expectation 5: The Fairness Expectation

[175] The Class submits that it had a reasonable expectation to be treated fairly in share pricing decisions. The Company accepts that such an expectation is reasonable.

[176] The Fairness Expectation is consistent with the comments in BCE that (i) oppressive conduct will be found if directors “make corporate decisions or seek to resolve conflicts [between various individuals and groups affected by the corporation] in a way that abusively or unfairly maximizes a particular group’s interest at the expense of other stakeholders”, and (ii) “[t]he corporation and shareholders are entitled to maximize profit and share value, to be sure, but not by treating individual shareholders unfairly” (BCE, at para. 64).

[177] Consequently, I address the second part of the BCE test and consider whether the Class was treated unfairly by North Halton as a result of the Share Sale Programs.

Part 2 of the BCE test: Has the Class shown that the Fairness Expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice”, or “unfair disregard”

(i) Overview

[178] The Class makes the following submissions in its factum and at the hearing as to the alleged unfairness of the Share Sale Programs:

(i) “North Halton’s unjustifiable decision to establish a rigid link equating initiation fees and share prices is the underlying cause of this Class proceeding”;

(ii) “Those decisions by North Halton to give away equity ownership of its assets in a for-profit corporation, in order to allow the majority golfing shareholders to continue to play inexpensive golf at a private golf club, was the foundation of this oppression remedy claim”;

(iii) “North Halton had no regard for the reasonable expectations of the shareholders of this Class and, indeed, never even identified nor considered the interests of this Class”;

(iv) The Class shareholders were “invisible” to the Board; and

(v) The Share Sale Programs were “simply based on diminishing market demand for initiation fees elsewhere at competitive golf clubs” and on “what golfers in the area would pay to join a non-shareholder owned, non-equity club”.

[179] At the hearing, Class counsel submitted that “the minute” North Halton decided to “price its treasury shares at what the customer is prepared to pay”, unfairness is established.

[180] For the reasons I discuss below, I do not accept the submissions of the Class. Those submissions are not supported by the evidence. The Board concluded that the Share Sale Programs were in the best interests of North Halton and its stakeholders after a thorough process. The Board considered the interests of the various stakeholders, including non-golfing and non-member shareholders, golfing shareholders, and non-shareholder golfing members, all in the context of what Justice Belobaba described as “the reality that the Company’s raison d’être is to operate a golf club”. The Fairness Expectation was not violated.[^17]

(ii) Application of the facts to the law

[181] The evidence establishes that the Board considered the interests of all stakeholders, including the members of the Class. The Board reviewed numerous alternatives to address financial losses and made a reasoned decision which it believed to be in the best interests of the Company to ensure its long-term viability and enhanced value. Under the BCE test, the court should not interfere with or “second-guess” the business judgment of the Board.

[182] The Board determined that (i) the other alternatives raised concerns and (ii) as such, those alternatives would be less effective (if at all) in enhancing shareholder value and ensuring the Company’s viability.

[183] At the hearing, the Class submitted that North Halton could have simply obtained the revenue it required by signing up new members without issuing shares. However, such a class of member was not permitted by the OSC Order, as noted by the Board in the Presentation.

[184] The Board considered the interests of all shareholders (including those in the Class) when it rejected the “New Class - Non Share Member” alternative. The Board considered the detrimental effect such an alternative would have on all shareholders since it “Eliminates Share Sale Market, Reduces Share Value”.

[185] The Board considered the interests of all shareholders who wished to sell their shares (including those in the Class), by protecting those shareholders on the Sales Lists from losing their position in the queue if they chose not to sell during the Share Sale Programs.

[186] Further, those shareholders on the Sales Lists who wanted to sell their shares under the Share Sale Programs had the same opportunity to do so (if it was their turn on the list), whether or not they were golfers or members.

[187] In fact, some non-golfing shareholders voted for the Share Sale Programs and some took advantage of the Share Sale Programs to sell their shares.

[188] Each shareholder (whether or not a golfer or member) may have a different “exit strategy” with respect to whether he or she prefers (i) the long-term operation of the Club with no sale of the land in the foreseeable future and a likely increase in land value or (ii) an immediate sale of the land based on current market value. The Sales Lists contain both non-golfing and golfing shareholders.

[189] Golfing members (whether non-shareholders or shareholders) may have an interest in continuing to play golf. Employees and the community may have an interest in the Club continuing operations.

[190] Under BCE, the Board was entitled to take the interests of all stakeholders into account and make a decision it believed to be in the best interests of the Company, as long as non-golfing and non-member shareholders were not treated unfairly.

[191] By recommending the Share Sale Programs, the Board provided a mechanism to avoid consistent losses, decreased membership, and dwindling revenue, so that the Company could effectively maintain operations and likely benefit from increased land value over time.[^18] This process was reasoned and informed, and considered the interests of all stakeholders.

[192] The evidence is that the Board did not equate share price with the initiation fee for membership in comparable golf clubs. The Board based its share pricing decision on a detailed review of both equity and non-equity golf clubs. In that context, the Board examined both equity and initiation fees, with the North Halton equity fee significantly greater than both the equity fees at the comparable Devil’s Pulpit and Beverly golf clubs and initiation fees at other comparable golf clubs.

[193] There is no evidence that the Board “gave away” equity membership to allow existing members to play “inexpensive golf”. Private share sales prior to the Share Sale Programs averaged under $9,000, ranging between $5,000 and $15,000. Only eight shares were sold at $16,000 under the August 2015 Share Sale Program, while all 30 shares were sold at $14,000 under the May 2015 Share Sale Program. Consequently, the evidence is that the Class G shares were sold under the Share Sale Programs at the “going rate”.[^19]

[194] Further, the minor dilution of the number of shareholders as a result of the Share Sale Programs (approximately 4% given the increase of 20 new shareholders out of a total of 462) equally affected all shareholders.

[195] Also, the evidence is uncontested that any dilution from the alleged value of $22,000 per share for 20 shares, will be recouped in a few years, as each new member spends approximately $10,000 per year at the Club.

[196] The Class submits that, unlike its non-golfing and non-member shareholders, golfing shareholders “enjoy the benefits of golf membership and the use of the Club’s golf course, assets and its operating profits”. However, the evidence was:

(i) Golfing shareholders (and non-shareholder golfing members) pay for all of their golfing, meals, and entertainment at fair market and competitive rates without any “subsidy”[^20] from non-golfing shareholders; and

(ii) Payments by the Club’s members (whether or not shareholders) have generated revenue in the range of $3 million to $4.5 million annually over the past 11 years. This income has allowed North Halton to continue to operate and, by extension, allowed the value of North Halton’s land to increase over time, which benefits all shareholders, including the members of the Class.

[197] The Class relies on the comment of Justice Belobaba in the Certification Decision (at para. 39) that:

[A]ll of the putative class members have this in common: they want their shares sold at the highest possible price and they are entitled to expect, at a minimum, that when share pricing decisions are made by the defendant Company, that they will be made in good faith and will not unfairly disregard their interests.

[198] The Class submits that the effect of Justice Belobaba’s comment is that a share sale at less than the Treasury cost of $22,000 is necessarily oppressive. I do not agree with that submission.

[199] The Board made a decision to sell a limited number of shares for a limited time to ensure the continued viability of the Company, enhance revenues, and increase the value of the Company’s principal asset (the land). That decision is fully consistent with Justice Belobaba’s statement that “the Company’s raison d’être is to operate a golf club” (Certification Decision, at para. 38). Justice Belobaba did not state that the Class shareholders had a reasonable expectation to sell their shares by a particular process or at a particular price or date.

[200] The Share Sale Programs were reasoned, informed, and consistent with the best interests of the Company.

[201] Consequently, the alleged violation of the Fairness Expectation is not founded on the evidence. Instead, the conduct of the Board is consistent with the reasonable expectation in BCE that the directors act in the best interest of the corporation, treating all shareholders fairly.

[202] Faced with various alternatives, the Board recommended what it believed to be the best alternative to address North Halton’s financial circumstances.

[203] Consequently, there is no basis for this court to intervene in the business judgment exercised by the Board in recommending the Share Sale Programs which were approved by the shareholders. It is the Board, not the court, who has expertise in running a corporation whose raison d’être is to operate a golf and country club.

[204] The Class has not established that the Fairness Expectation[^21] was violated by conduct falling within the terms “oppression”, “unfair prejudice”, or “unfair disregard”. I adopt the following summary submissions from the Company’s factum which are consistent with my conclusion (references omitted):

The purpose of the Share Sale Programs was to attract and retain new members in light of strong competition, the overall decline in the golf industry, and the opportunity presented by a growing population in the area. This was a reasonable corporate purpose. With a view toward that corporate purpose, among other things, the Board:

(a) tasked its membership committee with developing a recommendation and considered that private sales were taking place at prices ranging from $5,000 to $15,000, with an average sale price of less than $9,000 per share;

(b) considered multiple alternatives to a limited share sale program, and judged that these alternatives were not in the interests of North Halton or its shareholders;

(c) assessed that a limited share sale program would generate a cash infusion and then additional revenue, year over year, over a lengthy period of time, more than making up for any temporary loss of income resulting from the sale price; and

(d) provided shareholders with comprehensive disclosure relating to, and obtained shareholder approval for, the Share Sale Programs.

In the course of this process, North Halton considered the interest of its various stakeholders, including non-golfing shareholders, which was reasonable for stakeholders to expect and reasonable for the Board to do.

There is no basis to assert that (let alone any evidence that) the Board did anything other than act honestly and reasonably, and make decisions within a range of reasonableness. Instead, the clear evidence is that the Board:

(a) implemented corporate strategies which ensured continued revenue growth despite difficult market conditions and protected and enhanced shareholder value;

(b) maintained the business and operations of North Halton as a going concern, and continuously engaged with shareholders on strategic decisions; and

(c) carefully and thoughtfully considered the interests of all stakeholders, including both golfing and non-golfing shareholders, and pursued steps which it believed, in its judgment, were necessary to preserve and increase shareholder value.

Indeed, among these reasonable decisions was the Board’s decision to put the Share Sale Programs to shareholders for approval, which shareholders supported because they agreed and understood that:

(a) North Halton needed new members to renew the Club through increased participation and spending;

(b) increased revenue and long-term gain would result; and

(c) as long as North Halton was operating, its land value would continue to increase.

[205] Consequently, the Class has not satisfied its onus under the second part of the BCE test.

Remedy

[206] Given my findings above that there was no oppressive conduct, I do not need to address the issue of remedy. However, I consider below some of the arguments raised by the parties before this court, given the evidence at the hearing.

[207] There were two remedies initially sought by the Class: a “buy-out” order[^22] and a “repayment” order. I address each of these remedies below.

(i) The buy-out order

[208] As I discuss above, counsel for the Class advised the court that the Class did not assert that it had a reasonable expectation of liquidity or share buyback. Class counsel also acknowledged that a buy-out order was not required to remedy the alleged dilution of equity. Consequently, Class counsel advised the court that the Class would not pursue the remedy set out in its factum that North Halton buy back the shares of the Class members.

[209] The position taken by Class counsel in this regard was reasonable, since:

(i) As stated in Naneff (at para. 30), “the determination of reasonable expectations will also … have an important bearing on the decision as to what is a just remedy in a particular case”. The Class had no expectation of a buy-out;

(ii) The oppression remedy is “not designed to relieve a minority shareholder from the limited liquidity attached to his or her shares or to provide a means of exiting the corporation, in the absence of any oppressive or unfair conduct” (Wilfred, at para. 70). A buy-out order would violate this principle; and

(iii) A buy-out order would constitute “surgery” with a “battle axe” and not with a “scalpel” (Ballard, at para. 140). If there had been an unfair diminution of equity for the Class as a result of the Share Sale Programs, that conduct could be remedied by repayment of any such lost value. A buy-out order would not “even up the balance”, but instead “tip it in favour of the hurt party” (Ballard, at para. 140).

[210] Consequently, Class counsel’s withdrawal of the request for a buy-out order was reasonable and consistent with the settled law and evidence before the court.

(ii) The repayment order

[211] My comments below address only the calculation of the proposed repayment order.

[212] I make no findings on the other submissions of the Company on the repayment order, which I summarize as follows:

(i) North Halton submits that since the Class seeks damages on the basis of “shareholder equity, which was taken away from the Class and given to new members”,[^23] there is no claim for damages and no basis for the award since dilution did not depend on whether the shareholder was a golfing member of the Club;

(ii) North Halton submits that even if oppression could be established, the Class could not establish causation, as there is no evidence that shares were selling at $22,000 at any time in the four-year period prior to the Share Sale Programs nor did shareholders have any reasonable expectation that they could obtain such a price for their shares. Consequently, North Halton submits that a claim based on a difference is not founded; and

(iii) North Halton submits that any calculation of damages would have to consider the “time value” of the loss of opportunity to sell shares during the limited time period, i.e. the effect on share value if there is a limited time sale for a particular share price. North Halton submits that such an approach would require evidence relating to an appropriate methodology for quantification and actual evidence of damage suffered, and likely expert evidence.

[213] With respect to the calculation issue, the Class seeks repayment of $615,817 based on the following submissions in its factum:

Assuming a fair market value of those Treasury shares at $105,118.00 each, the Club has effectively given away $2,164,832.00 of the fair market value of the Club’s shareholders, (who collectively own all the Treasury shares), to new golfing customers of the Club.

With these impugned share sales and the Club’s share pricing decisions in 2015 and 2016, North Halton gave away $615,817.00 of the Class’s shareholder equity interest in this for-profit corporation. [Emphasis added.]

[214] However, Class counsel advised the court that the Class’s reasonable expectation was that Class G shares would not be sold at a price less than the Treasury value of $22,000. The Class did not submit that it had a reasonable expectation that shares would not be sold from Treasury at a price less than the underlying land value of the Company,[^24] which was the basis for the calculated value in the repayment order as set out in the above submissions of the Class.

[215] Consequently, based on the Pricing Expectation that the Class advanced at the hearing, if the Class was treated unfairly, its damages, at their highest, would be calculated as follows:

(i) The 20 shares sold from Treasury ought to have been sold at $22,000 per share, for a total of $440,000;

(ii) Assuming a price of $9,730 for the 13 shares sold from Treasury in the May 2015 Share Sale Program and $11,730 for the 7 shares sold from Treasury in the August 2015 Share Sale Program,[^25] the actual proceeds from sale would be $126,490 plus $82,110, for a total of $208,600;

(iii) Consequently, there would be a total diminution of shareholder equity of $440,000-$208,600=$231,400; and

(iv) The Class constitutes 26.4% of all shareholders, so the total diminution to the Class would be approximately $61,100, or approximately $500 per share.

[216] Given that the decision to authorize the dues waiver was (i) made and approved by resolution along with approval of the By-Law Amendments, (ii) then carried out before the Share Sale Programs, and (iii) not subject to a claim for oppression, I would not deduct the dues waiver in the calculation of damages. Consequently, damages, at their highest, would be calculated as follows:

(i) The 20 shares sold from Treasury ought to have been sold at $22,000 each, for a total of $440,000;

(ii) Assuming a price of $14,000 for the 13 shares sold from Treasury in the May 2015 Share Sale Program and $16,000 for the 7 shares sold from Treasury in the August 2015 Share Sale Program, the actual proceeds from sale would be $182,000 plus $112,000, for a total of $294,000;

(iii) Consequently, there would be a total diminution of shareholder equity of $440,000-$294,000=$146,000; and

(iv) The Class constitutes 26.4% of all shareholders, so the total diminution to the Class would be approximately $38,500 or approximately $316 per share.

[217] Consequently, regardless of whether the other issues raised by North Halton on the repayment order are well-founded,[^26] the calculation of the repayment order would be far less than the $615,817 sought. I find that a repayment order would be limited, at best, to the amount of $61,100, although I find that the appropriate maximum amount would be $38,500.

The claim under [s. 122](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/rsc-1985-c-c-44.html#sec122_smooth) of the [CBCA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/rsc-1985-c-c-44.html)

[218] In the Certification Decision, Justice Belobaba certified one common issue addressing both s. 241 and s. 122 of the CBCA, but noted (at footnote 25):

I could have insisted that the common issue be divided into two parts, s. 241 and s. 122 of the CBCA, but as the plaintiff has readily acknowledged, the main allegation is oppression under s. 241. [Emphasis added.]

[219] Similarly, at the present hearing, the primary issue before the court was whether North Halton had engaged in oppressive conduct arising from the Share Sale Programs.

[220] For the same reasons I set out above, I follow the approach in Brant and in Peoples. On the evidence, the Board exercised its business judgment to address the financial difficulties facing North Halton. The Board made a reasoned and informed decision, taking into account the best interests of the Company. There is no basis for the court to intervene in the business judgment exercised by the Board.

THE DEY OPINION

[221] I did not rely on the Dey opinion in order to arrive at the decision I reached above. The issues of the reasonable expectations of the Class shareholders and whether such expectations, if they existed, were treated in an unfair manner, were argued by all parties on the evidentiary record, not on the basis of expert opinion.

[222] The court was fully able to consider the process undertaken by the Board and the exercise of its business judgment. The Dey opinion, if admissible, addresses Dey’s purported corporate governance expertise and his conclusion that the corporate decision-making process followed by the Board was proper. I did not require expert evidence on that issue, given the evidence before the court.

[223] Consequently, as I did not rely in any manner on the Dey opinion, I do not address the issue of whether I would have found it to be admissible.

ORDER AND COSTS

[224] For the above reasons, I dismiss the motion for summary judgment brought by the Class. I grant the relief sought by the Company and I dismiss the class action.

[225] At the hearing, counsel agreed that they would attempt to resolve costs and, if unable to do so, would provide written submissions. I agree with that process.

[226] If counsel cannot agree on costs, North Halton shall deliver costs submissions of no more than four pages (not including a bill of costs, costs outline or supporting documents) no later than August 3, 2018. The Class shall deliver responding costs submissions of no more than four pages (not including a bill of costs, costs outline or supporting documents) by no later than August 17, 2018. If necessary, North Halton may deliver a reply costs submission of no more than two pages by August 24, 2018.

GLUSTEIN J.

Date: 2018-06-21

[^1]: (cited as Noble v. North Halton Golf and Country Club Ltd., 2016 ONSC 2692) [^2]: (the initial value set out at the Equity Restructuring (as defined below)) [^3]: (except for the expectation that the Class would be treated fairly in share pricing decisions) [^4]: I refer to the North Halton board of directors at the material time of the decision to implement the Share Sale Programs as the “Board”. I refer to the “board” when discussing the North Halton board of directors outside the relevant period. [^5]: In his affidavit, Noble states that “based on the information supplied by the Club in the October 31, 2016 Shareholders Report and as best as I can determine”, there are 457 shareholders in the Company. While the difference is minimal, I accept Butcher’s evidence of 462 shareholders as it is more current and he is in the best position to provide evidence on this issue. [^6]: There are ten “opt-outs” from the non-golfing and non-member shareholders who have chosen to not be part of the Class. [^7]: I refer to the two shareholder sales lists collectively as the “Sales Lists”. [^8]: I now refer to the “Board” as it is the Share Sale Programs that are at issue in this class action. [^9]: (set out in table format in the Special Report under the headings “Alternative” and “Pros/Cons”) [^10]: As I discuss in these Reasons, counsel for the Class advised the court that the Class was not pursuing a buy-out or wind-up remedy, but instead a repayment order directing the Company to pay the Class the amount of equity allegedly diluted as a result of the Share Sale Programs. [^11]: (which the Class calculated at $105,118 per share) [^12]: Expectations 2, 3, and 4 in this list all address pricing expectations of the shareholders. I define them collectively as the “Pricing Expectations”. [^13]: (i.e. that Class G shares would not be sold at a price less than (i) the underlying value of all assets, (ii) $32,000 (the price paid for the McNally Shares), or (iii) $22,000 (the initial Treasury price)) [^14]: (which is not challenged by Class counsel) [^15]: I use this term to describe the purported pricing expectations of a minimum future share sale price. [^16]: (including the Pricing Expectation relied upon by the Class that Class G shares would not be sold at a price less than $22,000 per share) [^17]: If the Class’s pricing expectation that Class G shares could not be sold from Treasury for less than $22,000 was found to be objectively reasonable (which I do not accept for the reasons I discuss above), I would still find that the evidence does not establish that such a pricing expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice”, or “unfair disregard”, for the same reasons I discuss below. [^18]: (just as the decision to purchase the McNally Shares at $32,000 per share in 2006 resulted in long-term value for shareholders given that the land was valued at $53 million in 2017 with a share value (if the land were sold) estimated by the Company at $94,800 per Class G share) [^19]: (even accepting the Class’s submission (which I do not as set out below) that the dues waiver of $4,270 should be deducted from the sale price to reflect an “actual” sale price of $9,730 under the May 2015 Share Sale Program and $11,730 under the August 2015 Share Sale Program) [^20]: (a term used by the Class in its submissions) [^21]: (or the Pricing Expectation, if it could be established as objectively reasonable) [^22]: (and potentially a winding-up order if North Halton did not have sufficient assets to buy-out the shares held by the Class) [^23]: (as submitted in the Class factum) [^24]: (generating a share price which the Class assessed at $105,118 per Class G share) [^25]: (based on the Class’s submission that the dues waiver of $4,270 should not be included in the price, which I do not accept for the reasons I discuss in the paragraph below) [^26]: (which I do not decide in these Reasons)