Court File and Parties
Court File No.: CV-18-602355 Date: 2019/04/15 Ontario Superior Court of Justice
Between: Barry Paulin and Wayne Biggar, Plaintiffs
- and - Jack Pinder, Victor Dusik, and Innotech Safety Solutions Inc., Defendants
Counsel: Douglas J. Spiller, for the Plaintiffs Stephen R. Barbier, for the Defendants
Heard: March 29, 2019
Perell, J.
Reasons for Decision
[1]
Overview
There are two major legal battles in this internecine warfare amongst the shareholders of the startup company, Innotech Safety Solutions Inc. One battle is about whether several minority shareholders have voting rights. The second battle is an oppression remedy action and a fight for control between the Plaintiffs, Barry Paulin and Wayne Biggar, and the Defendants, Jack Pinder and Victor Dusik.
2The animosity and distrust amongst the shareholders became litigious when the Plaintiffs brought this oppression remedy action and they obtained an interlocutory injunction from Justice Myers that included terms that Messrs. Pinder and Dusik provide information about, among other things, a $10 million private investment by the State of Kuwait to establish a subsidiary Innotech corporation in the State of Kuwait.
3Messrs. Pinder and Dusik submit that they have now provided the information ordered by Justice Myers, and they bring on a motion to dissolve the interlocutory injunction, and they seek other relief that would allow for a meeting of the shareholders to go forward. In particular, the Defendants seek: (a) an Order lifting the interim injunction ordered by Justice Myers on August 24, 2018; (b) declaring that TFT Investments Ltd. is the valid holder of 417 Class “A” common shares in Innotech, and declaring that Ashley Spilak is the valid holder of 278 Class “A” common shares in Innotech, and declaring that Carrie Wilcox is the valid holder of 278 Class “A” common shares in Innotech, and that they all are entitled to notice of and participation in any shareholders’ meeting.
4The Plaintiffs, however, submit that the information order by Justice Myers has not been provided, and they bring a contempt motion; and the Plaintiffs ask that the Defendants’ motion be adjourned. The Plaintiffs also ask that the injunctive orders of this court be continued and made permanent and that the Defendants be expelled from their positions at Innotech.
5At the hearing of the motions, I dismissed the contempt motion with reasons to follow. I made the following endorsement:
The plaintiffs Barry Paulin and Wayne Biggar sue Jack Pinder and Victor Dusik and Innotech Safety Solutions Inc. for an oppression remedy. The plaintiffs obtained an injunction from Justice Myers that was continued by Justice Lederer. The injunction order compelled the defendants Pinder and Dusik to produce relevant documents. The plaintiffs now bring a contempt motion alleging that the defendants have breached the order of Justice Myers. They seek an order that the defendants be held in contempt and be ordered to produce further documents. The plaintiffs also seek an adjournment of their oppression remedy motion and an adjournment of the defendants’ cross-motion, both returnable today. For written reasons to follow, I am satisfied that the contempt motion should be denied. Briefly, it is debatable whether the defendants conduct was contemptuous, but if it was [contemptuous conduct] that contempt has been purged by the delivery of documents upon which the defendants were cross-examined. There have been voluminous productions, and the plaintiffs have ample evidence for their argument that there has been oppressive corporate conduct. Costs of this motion reserved to the motion and cross-motion.
6I heard the parties competing motions on their merits. I reserved judgment on the motion and cross-motion. For the reasons that follow, I dissolve the injunctive order. I order the Plaintiffs to pay costs for the failed contempt motion and for the motion for injunctive relief. I make no further order. Any other order for a remedy requires a trial or a summary judgment motion.
7For what it is worth, I suggest that any shareholder of Innotech bring an application to wind up Innotech and to sell its assets. That might be an application that the court could resolve without a trial or a summary judgment motion. What clearly emerges from the record on the various motions is that any shareholder has a very strong case for a winding up of Innotech which has a dysfunctional Board of Directors and a frustrated, uncooperative, and distrusting group of shareholders.
[8]
Background
There is a massive evidentiary record, but for the present purposes of deciding the several motions before the court, the factual background can be summarized as follows.
9Mr. Paulin, who is a resident of Ontario, worked for over thirty years in the automotive industry as a tire specialist. Mr. Biggar, who is an Ontario resident, worked as a long-haul truck driver for over thirty years. After their respective retirements, they collaborated and designed technology that could detect an imminent wheel loss in a vehicle’s wheel axle system. The Plaintiffs developed a prototype for testing and further development of the technology.
10The prototype showed promise, and in 2012, Messrs. Paulin and Bigger invited Mr. Pinder, who is a resident of British Columbia, to join the development team. Mr. Pinder is Mr. Paulin’s uncle, and he had experience in marketing and sales. Mr. Pinder then introduced Mr. Dusik, a resident of British Columbia, who had a background in business and finance, to join the startup team. They decided to incorporate Innotech to develop the promising technology as equal owners sharing the management of Innotech.
11On July 31, 2012, Innotech was incorporated under the Canada Business Corporations Act with a registered office in Calgary, Alberta with the business purpose of developing the wheel loss detection system invented by Messrs. Paulin and Biggar. The four thousand common voting shares of the company were divided equally.
12Mr. Pinder had forty years of experience in the automotive industry in managing the development of new businesses, research and development, bringing together investors and other financing. Mr. Pinder ceased his consulting work and started working full time on the new business. Mr. Dusik was a Chartered Accountant with an MBA. He was a former partner at Ernst & Young LLP. The day-to-day business of Innotech, such as it was, was largely left to Mr. Pinder.
13The prototype became the property of Innotech and is formally titled in the USA Patent serial number "14/050/904 as a "Wheel Loss Detection Aspect and Theft Deterrent Aspect System and Device for Vehicles".
14The shareholders understood that they would eventually need to raise millions of dollars to develop a proof of concept, obtain patents, conduct tests, obtain approvals from regulators and manufacture and sell their device to the automotive industry. In the meantime, with the exception of Mr. Paulin, who was on a disability pension, the founders of Innotech contributed some seed capital. Mr. Pinder contributed $65,213. Mr. Dusik contributed $15,465, and Mr. Biggar contributed $10,370.
15Mr. Pinder was the Chairman and CEO, Mr. Bigger was Chief Operating Officer, Mr. Dusik was Chief Financial Officer, and Mr. Paulin was the President of Innotech. There was no shareholders’ agreement, and the management of the business was informal. Mr. Pinder took the lead in managing the business. The practice was for him to speak to Mr. Dusik and to Mr. Paulin, who would in turn report to Mr. Biggar. Practically speaking, Innotech was deadlocked with the Plaintiff innovators in one camp and the Defendant capitalists in the other camp, but Innotech’s business plans moved forward consensually and by consensus.
16After Innotech was incorporated, the founders agreed among themselves to invite others to purchase shares and to invest in the business. In October, 2013, Mr. Paulin invited Carrie Wilcox to be a shareholder, and she purchased 278 shares for $20,000. In November, 2013, Mr. Pinder invited Ashley Spilak to be a shareholder, and she purchased 278 shares for $20,000. In September, 2013, Mr. Pinder invited Gary Tomporowski (an acquaintance who was an architect) to purchase 278 shares for $20,000. Mr. Tomporowski placed the shares in his family trust, TFT Investments. In June 2015, TFT Investments purchased another 139 shares for $10,000.
17The Plaintiffs concede that Ms. Wilcox, Ms. Spilak, and Mr. Tomporowski are minority shareholders, but the Plaintiffs say that they understood that Ms. Wilcox, Ms. Spilak, and Mr. Tomporowski were to receive non-voting shares. This is disputed by the minority shareholders and by the Defendants.
18The dispute about what voting rights the minority shareholders have cannot be resolved on the motions now before the court, it is a genuine issue that requires a trial or a summary judgment motion, and I note, in particular, that Ms. Wilcox, Ms. Spilak, and Mr. Tomporowski and his company need to be joined as parties or they need to bring an action or application as they may be advised to resolve the issue about what voting rights they have in Innotech.
19By the end of 2013, the shareholders of Innotech were the Plaintiffs, the Defendants, and the minority shareholders. Unfortunately, the corporate lawyer of Innotech may not have kept the corporate minute books up to date or accurate, but I repeat that the shareholders’ rights issue cannot be resolved short of a trial or a summary judgment motion.
20From 2014 to 2016, led by Mr. Pinder, efforts were made to bring Innotech's technology to market and to seek funding or investment from the public or the private sector.
21It is a very long and very convoluted story or events, but by January 2017, Mr. Pinder, Fred Mandl, a business consultant and a professor at British Columbia Institute of Technology, His Excellency Ali Hussain S.H. Alsamrnak, the Kawaiti Ambassador to Canada, and Satpal Dilgir, an international investment consultant who has a personal relationship with the Kuwaiti Royal Family, were simultaneous working together on two projects. One project was a charitable contribution. Mr. Pinder is a mason, and he was fund raising for a Shriners’ Hospital to be built in British Columbia. The second project, the project at the center of this litigation, was that Mr. Pinder was pitching an investment in Innotech to the Kuwaiti Royal Family.
22Throughout 2017, Mr. Pinder advised Mr. Paulin about the prospect of Kuwaiti investors in Innotech, and he believed that Mr. Paulin was keeping Mr. Biggar advised. In his affidavit material for the injunction motion, Mr. Paulin said that he was not being kept informed by Mr. Pinder. Under cross-examination for the motions now before the court, however, it emerged that while perhaps not comprehensively informed of the minutest details, Mr. Paulin was not being kept in the dark, and he knew all he needed to know to perform his responsibilities as the president of Innotech and as a member of its Board of Directors.
23By May or June of 2017, the Kuwaiti investors indicated that they were interested in proceeding with both projects. With an apparent green light, Mr. Pinder planned to travel to Kuwait and lock up the investment. In July 2017, he prepared a resolution for the Board of Directors to authorize him to consummate the deal. Pausing here in the narrative, it is important to emphasize that not then and not to this day is there a binding commitment to or from the Kuwaiti investors to make an investment in Innotech.
24Returning to the narrative, it is at this point that several other very convoluted events overtook Mr. Pinder’s plans to go to Kuwait, and the wheels came off the project to develop a promising technology to keep wheels from coming off vehicles.
25In 2017, Mr. Dusik lost interest in Innotech, and he wished to withdraw as shareholder. Mr. Pinder offered to buy Mr. Dusik’s shares, which he mistakenly thought he could do without board approval. While this share transfer would not disturb the balance of corporate power between the Plaintiffs and the Defendants, Mr. Paulin regarded the sale as an attempt to gain control of Innotech, and he demanded that Mr. Dusik’s shares be shared amongst the Plaintiffs and Mr. Pinder, which share transfer actually would have shifted control to the Plaintiffs. When Mr. Pinder learned that this maneuver might succeed because the transfer of shares required board approval, he persuaded Mr. Dusik to remain a shareholder. At the same time, Mr. Pinder issued a call of capital contributions from the shareholders. At the same time, in the summer of 2017, for what appears to be good reasons that for present purposes, I need not outline, Mr. Pinder unilaterally changed the corporate lawyer of Innotech with little detailed explanation to the other shareholders. The result of all these events was that there was suspicion, animosity, and an irreparable breakdown of trust between the Plaintiffs and the Defendants.
26The distrust amongst the shareholders continued, and the business of Innotech, such as it was, was stalled. In the spring of 2018, Mr. Pinder called a Board of Directors’ meeting, but the Plaintiffs refused to attend. The Defendants then scheduled a shareholder’s meeting so that a new board and new officers could be installed. The Defendants and the minority shareholders proposed to remove the Plaintiffs as officers and directors of Innotech at this shareholder’s meeting. The shareholders’ meeting, however, was abandoned in May 2018, after the Plaintiffs retained Slater & Spiller LLP to represent them. This litigation then ensued.
[27]
The Litigation
Thus, in the summer of 2018, the Plaintiffs brought an oppression remedy action, and they brought a motion for an interim interlocutory injunction. On August 24, 2018, Justice Myers granted an interim interlocutory injunction. The interim injunctive order was continued by Justice Lederer on October 16, 2018. After Justice Lederer was unsuccessful in mediating a settlement, the parties continued their litigation and prepared to argue whether the interim injunction should be continued.
28Between Justice Myers’s order and an in-chambers meeting with Justice Lederer on October 16, 2018, the Defendants delivered over 1,000 pages of affidavits and documents to the Plaintiffs. On September 21, 2018, the Plaintiffs’ counsel attended at the office of the Defendants counsel, McCague Borlack LLP, to inspect the corporate record book. On October 15, 2018, counsel for the Defendants provided Plaintiffs' counsel with the complete bank records for Innotech.
29Pausing here, it should be noted that the orders made by Justice Myers and Justice Lederer were essentially made on consent or as unopposed motions pending full argument, if necessary, on the merits of the claim for injunctive relief or pending a determination of the merits of the action.
30Through the fall of 2018 and into the winter of 2019, the Plaintiffs pressed for comprehensive disclosure from the Defendants in accordance with Justice Myers’ order. The Defendants provided most everything that was demanded, but the Defendants’ disclosures were never satisfactory to the Plaintiff. When the Defendants brought on the motion to dissolve the injunction granted by Justice Myers, the Plaintiffs countered with a contempt motion about the production of documents, and for a request to adjourn the Defendants’ motion.
[31]
The Contempt Motion
As noted above, I dismissed the contempt motion.
32Where the alleged contempt is the failure to comply with a court order, a three-pronged test is applied: (1) Did the order alleged to have been breached clearly and unequivocally state what should and should not be done? (2) Did the party alleged to have breached the order have actual knowledge of it? and (3) Did the party allegedly in breach intentionally do the act that the order prohibits or did he or she intentionally fail to do the act the order compels? Carey v. Laiken, 2015 SCC 17, [2015] 2 S.C.R. 79 at paras. 33-35; Greenberg v. Nowack, 2016 ONCA 949 at para. 25. Each of the elements of the test must be proven beyond a reasonable doubt Bell ExpressVu Limited Partnership v. Torroni, 2009 ONCA 85, 94 O.R. (3d) 614 at para. 21 (C.A.); Hobbs v. Hobbs, 2008 ONCA 598, [2008] O.J. No. 3312 at paras. 26-28 (C.A.).
33In the case at bar, the Defendants did the best they could to satisfy the disclosure demands of the Plaintiffs, but given the distrust between the parties, the Defendants will never sate the Plaintiffs’ demands. A contempt motion, however, is quasi-criminal, and the onus of proof of contemptuous behavior is beyond a reasonable doubt. On the contempt motion, the Plaintiffs have failed to meet the onus of proof. The most the Plaintiffs have achieved is convincing me that subject perhaps to a refusals motion to determine the relevance, admissibility, and proportionality of a very few unproduced documents that may or may not be within the possession or control of the Defendants, the Defendant have complied with Justice Myers’ order. There is no evidence that they willfully disobeyed the order. If some documents were not produced as quickly as the Plaintiffs would wish, then the Plaintiffs who cross-examined the Defendants relying on those documents can hardly use those produced documents to prove that the Defendants’ behaviour was contemptuous.
34What has happened is that the cross-examinations of the parties have revealed that the Plaintiffs’ case for an interlocutory injunction is hopeless, and they are attempting to use the contempt motion as life support for a continuance of the interlocutory injunction.
[35]
The Interlocutory Injunction
To be clear, the Plaintiffs may have a meritorious claim for an oppression remedy (and any of the shareholders may have a meritorious claim to wind up their dysfunctional startup) but the Plaintiffs do not satisfy the well-known test from RJR-Macdonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 for an interlocutory injunction.
36The Plaintiffs’ motion for an interlocutory injunction was built upon the factual allegations that Mr. Pinder was keeping his fellow shareholders in the dark about the Kuwaitis’ investment and that he had committed Innotech to a corporate partnership with members of the Kuwaiti Royal Family. The cross-examinations and the production of documents, however, reveal that neither allegation is true. The Plaintiffs motion for interlocutory relief has no factually underpinning.
37No injunction is necessary to sustain the status quo of corporate dysfunctionality, which will remain the status quo, because short of a trial of the oppression claim or a winding-up application, the Board of Directors is deadlocked and a shareholders’ meeting to elect a new board is futile given the uncertainty over the voting rights of Mesdames Wilcox and Spilak and Mr. Tomporowski’s corporation.
[38]
Conclusion and Costs
For the above reasons, I therefore, dismiss the contempt motion with costs against the Plaintiffs and I dissolve the interlocutory injunction with costs against the Plaintiffs.
39If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the submissions of the Defendants within twenty days of the release of these Reasons for Decision followed by the Plaintiffs’ submissions within a further twenty days.
Perell, J.
Released: April 15, 2019