COURT FILE NO.: CV-17-3350-00
DATE: 2019 12 04
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
SUBASH CHANDER SHARMA
Plaintiff
Pawan Sharma for the Plaintiff/Moving Party
- and -
BALJIT SINGH PANDORI, NAGINDER SINGH JOHAL and BLUE & WHITE TAXI LTD
Defendants
Bobby Sachdeva, for the Defendants
HEARD: September 17, 2019
REASONS FOR DECISION
L. SHAW J.
Overview
[1] On September 29, 2011, the parties entered into a Unanimous Shareholder’s Agreement (“USA”) in connection with the share ownership in, and operation of, Blue & White Taxi Ltd. (“the business”). Pursuant to that agreement, the plaintiff owns 15 (30%) voting common shares of the business. He is a director and Vice-President of the business. The defendant, Baljit Pandori, owns 25 (50%) voting common shares and the defendant, Naginder Johal, owns 10 (20%) voting common shares.
[2] Blue & White carries on business as a taxi dispatch service for a number of taxi owners and operators in Mississauga.
[3] Mr. Pandori operates and manages the business on a day-to-day basis. At examinations for discovery conducted on January 17, 2019, the plaintiff acknowledged that he was never involved in the day-to-day management of the business.
[4] The USA governs the management of the business as well as the relationship between the three shareholders and the business. Article Two sets out the specifics concerning business management and operations. Pursuant to Article 2.01, no material change in the organization or operation of the business shall be made without the consent of all shareholders. That same article of the USA also sets out acts or actions which can only occur with 70% of the shareholders’ consent. Such actions include long-term loans made by the business to any person or company or changing any of the business’s banking arrangements.
[5] On August 3, 2017, the plaintiff commenced an application seeking a declaration that the business was being conducted by the defendants in a manner that was oppressive, unfairly prejudicial to and unfairly disregarded his interests contrary to s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c B. 16 (the “OBCA”). The relief sought included appointing a receiver, seeking production of various records and documents, and an order that the business be wound up under s. 207 of the OBCA.
[6] On October 11, 2018, on consent, Fowler Byrne J. ordered that the application would be converted to an action. She also ordered a timetable for dates to exchange pleadings, produce affidavit of documents, schedule discoveries, satisfy undertakings and schedule motions. In compliance with that order, pleadings were exchanged and discoveries conducted in January 2019.
[7] As a result of outstanding undertakings, the plaintiff now moves for an order that the defendants satisfy outstanding undertakings and produce other financial records regarding the business which have been requested. The plaintiff also seeks an order that he be added as a mandatory signing officer for all cheques written for $500 or more.
[8] There are deficiencies with the plaintiff’s motion material, particularly as it relates to his request for relief from the alleged oppressive conduct of the defendants towards himself, a minority shareholder in the business.
[9] Firstly, the plaintiff filed a factum for this motion but provided no legislative or judicial authority for the relief sought in relation to his request to be granted signing authority. In fact, his factum provided no overview of the law whatsoever. It was of marginal, if any, assistance.
[10] Secondly, the two affidavits filed in support of the relief sought in the notice of motion were sworn by the plaintiff’s counsel, Mr. Folkes, on July 2, 2019, and August 8, 2019, and not by the plaintiff. It is not uncommon in motions dealing with undertakings to have counsel or a law clerk file an affidavit setting out evidence regarding noncontentious issues such as the date of discoveries, a list of outstanding undertakings and efforts made to compel compliance. Mr. Folkes’ affidavits, however, did not simply deal with the issue of undertakings and requests for disclosure. His affidavits included evidence on very contentious issues that are at the heart of this dispute – whether there was oppressive conduct.
[11] For example, he deposed that the defendant, Mr. Pandori, unilaterally reduced the goodwill in the business by 10% for a total of $305,000 without any discussion with the plaintiff. Mr. Folkes deposed that it appears this was done to deliberately erode the value of the business, to the plaintiff’s detriment. He also deposed that, based on a review of the business’s Financial Statements, the plaintiff believes that the defendants are purposely generating losses to his detriment by conscious mismanagement in an attempt to erode the equity of the business after “squeezing out the plaintiff since late 2016.”
[12] This type of affidavit filed by the lawyer of record is improper and inappropriate. I place no weight on any of his evidence regarding any allegations connected to the claim of oppressive behaviour or mismanagement of the business. The proper party to swear such an affidavit is the plaintiff who can then be cross-examined. In this case, Mr. Folkes was cross-examined on his affidavit and the transcript reveals that he had little, if any, direct knowledge of its contents. For example, his evidence was that he had no personal knowledge that the business was being mismanaged. When cross-examined, it was also his evidence that he could not point to any improper payment made by the business in the past four years.
[13] No explanation was provided with respect to why the plaintiff was not the deponent of those affidavits as it relates to the issue of alleged oppressive conduct and the basis for his relief sought to be added as a signing officer.
[14] Counsel for the applicant requested that the plaintiff’s affidavit sworn August 1, 2017, in support of the initial application, could be relied upon in support of the relief requested in this motion. I agreed to this request and heard submissions on that basis. Unfortunately, the defendants’ affidavit filed in response to this motion only responded to Mr. Folkes’ affidavits and not the plaintiff’s original affidavit because the defendants were unaware that there was going to be a request to rely on the initial affidavit – although it was referenced in the confirmation form as a document that would be relied upon for the motion.
[15] For the reasons that follow, the plaintiff’s motion is granted as it relates to undertakings and disclosure. I decline to grant him signing authority for cheques over $500, however.
Undertakings and Production
[16] There is no dispute that three out of eight undertakings given by the defendants at examinations for discovery remain outstanding. Letters were written to counsel for the defendants requesting compliance. The defendants’ position is that, while there has been partial satisfaction of some of the outstanding undertakings, they agree that they must fully satisfy the undertakings. The defendants are therefore ordered to provide documentation to satisfy the following three undertakings by January 31, 2020:
a) Monthly list of owners and operators, per Tab 37 of Baljit Pandori’s affidavit of documents of November 2018 for the 2018 year;
b) Monthly dues paid statements of all taxi’s owned by ABC Taxi for the year 2016 through December 2018;
c) Detailed monthly breakdown of all shareholder’s loans, including account details and the proof of cheques deposited.
[17] The plaintiff also has a list of outstanding requests for disclosure and records regarding the business which is attached as Schedule “A.” The defendants do not dispute that the plaintiff is entitled to the disclosure but explained that some of the data and information may not be in the form requested by the plaintiff. Counsel for the defendants has undertaken to produce the documents and records, if they exist. If the records requested do not exist, he will provide specific details of what exists and where it can be found in the documents that have been produced. I order that this be done by January 31, 2020.
[18] If there are any ongoing issues regarding disclosure, the parties are to schedule a further motion before myself at 9:00 a.m. on a date in February or March 2020 to be arranged through the trial coordinator.
Signing Authority
[19] In the notice of motion, the Plaintiff pleads that the grounds for the relief requested for a change in signing authority for the business is that, as a 30% shareholder in the business, he is being treated unfairly by the majority shareholders and has been squeezed out of management and long-standing employment with the business since late 2016. Another ground for the relief sought is that he received the 2017 and 2018 Financial Statements which showed a net profit in 2017 and a net loss in 2018. He alleges that the defendants are generating these losses to his detriment through purposeful mismanagement in an attempt to erode the equity of the business. He proposes being added as a signing officer until the end of trial to safeguard the business’s assets and prevent any further erosion of equity through mismanagement.
[20] Mr. Pandori’s evidence is that the business processes over 2,500 monthly payments. He deposed that, if the plaintiff is made a signing officer, it will negatively impact the business’ ability to pay its bills in a timely manner and will give the plaintiff a veto over all such payments – a power beyond that to which he is entitled under the USA.
[21] The Plaintiff disputes the evidence regarding the monthly volume of payments and points to an RBC bank statement for the period of November 30, 2017, to December 29, 2017, which showed only 25 transactions for an amount greater than $500.
[22] Pursuant to s. 248(3) of the OBCA, the court may make any interim or final order it deems fit in an application brought pursuant to the oppression remedy provisions of the act. The court can make a wide range of orders pursuant to this section, if it finds that there has been conduct that is oppressive, unfairly prejudicial, or conduct that disregards the interest of any shareholder.
[23] The reasonable expectation of the shareholder to be treated in a certain way is the cornerstone of the oppression remedy; BCE Inc. v. Debentureholders, 2008 SCC 69, [2008] S.C.R. 560 at para. 61. The question is whether the expectation is reasonable having regard to 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; BCE at para. 62. The remedy is based on concepts of fairness and equity rather than on legal rights. Not all conduct that is harmful to a stakeholder will give rise to a remedy for oppression as against the corporation: BCE at para. 71.
[24] The claimant must first identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held. Some factors useful in determining whether a reasonable expectation exists include the following: commercial practices; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders: BCE at paras. 70-72.
[25] Once the claimant establishes the first element of an action for oppression – reasonable expectations – the claimant must then show that the failure to meet this expectation involved unfair conduct and prejudicial consequences: BCE at para 89.
[26] The plaintiff’s evidence regarding the alleged oppressive conduct can be summarized as follows from his August 1, 2017, affidavit:
a) He has not been repaid his shareholder loan at the same rate as the defendants and there was no prior consultation with him;
b) New premises were purchased in October 2015, from which Blue & White operates together with other business operated by Mr. Pandori that do not pay fair market rent to the business;
c) He has not been provided details of the use of the sale proceeds of the sale of the prior premises owned by the business;
d) Mr. Pandori made unilateral decisions which deprived the business of annual revenue streams to his personal benefit;
e) The defendants have hired family members who are being paid by the business and there is no clarity regarding whether they are adding value to the business;
f) There was an agreement to purchase a competitor in March 2015 but the deal did not close resulting in an action being commenced against the business;
g) The plaintiff has made repeated requests for disclosure commencing in November 2015, a number of which remain outstanding.
[27] The defendants have filed a very detailed Statement of Defence that denies each of the plaintiff’s allegations. Those are issues that will be determined by the trial judge.
[28] The basis for the plaintiff’s request to be signing authority is based on his allegation that the business suffered a loss in 2018 and a vague allegation of financial mismanagement. He proposes that, if he is granted signing authority, this will safeguard the assets of the business and prevent any further erosion in equity.
[29] Mr. Pandori swore an affidavit responding to that of Mr. Folkes, which I have determined I will not rely upon. Mr. Pandori’s affidavit addressed many issues raised by Mr. Folkes regarding the alleged poor financial performance of the business. Mr. Pandori’s evidence is that the business is not being mismanaged or operated in a manner to decrease its equity. He asserts that the financial data supports his evidence that the financial position of the business has in fact improved and not declined.
[30] I accept Mr. Pandori’s evidence in this regard as he is a director and officer of the business with first-hand knowledge of its operations, as opposed to Mr. Folkes, the plaintiff’s lawyer.
[31] With respect to the plaintiff’s expectations, his evidence from discoveries was that the USA should have stated that all decisions had to be unanimous and made by all three shareholders. On the evidence before me, I find that unanimity in decision-making is not a reasonable expectation when the plaintiff is a minority shareholder with 30% share ownership. Furthermore, the USA specifically identifies those decisions which require unanimous consent and those that do not. In addition, the plaintiff is not involved in the day-to-day operations of the business. His expectation of unanimity in decision-making, which would result if he is to be added as a signing officer for any cheque over $500, is not a reasonable expectation given his limited role with the daily management of the business since 2011.
[32] Even if I were to find on the limited and contested evidence on this motion that the plaintiff has established a reasonable expectation that he be treated in a certain way, the issues are whether there has been conduct which is oppressive, unfairly prejudicial to or disregards the plaintiff’s interest. These issues cannot be determined on a motion where there is conflicting evidence on these key points. There is insufficient evidence to make a finding on this motion that there has been oppressive conduct that warrants the relief claimed by the plaintiff on an interim basis. Furthermore, there is conflicting evidence regarding the financial management of the business and insufficient evidence that the business is being improperly managed.
[33] I am not prepared to grant relief which would, in effect, override the USA. The plaintiff would have equal say in all financial matters over $500 and could veto many daily financial decisions. That is not what was contemplated in the USA in his role as a minority shareholder. Altering signing authority in these circumstances would have a significant impact on the day to day operations of the business. There is insufficient evidence to justify that relief and I, therefore, decline the plaintiff’s request for signing authority. The status quo should be maintained pending trial.
Costs
[34] The parties provided costs outline/bill of costs. The defendants’ bill of costs, on a partial indemnity basis, is $20,099. The plaintiff’s partial indemnity fees are $3,751. The difference is significant but there was a difference in the quality of the material filed.
[35] There was split success on this motion. The plaintiff should not have been required to bring a motion dealing with undertakings and requests for disclosure which the defendants agree he is entitled to from the business. However, the defendants were successful in opposing the plaintiff’s request to a change in the signing authority for the business. Given those circumstances, I find that there will be no order as to costs.
L. Shaw J.
Released: December 4, 2019
COURT FILE NO.: CV-17-3350-00
DATE: 2019 12 04
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E N:
SUBASH CHANDER SHARMA
Plaintiff
- and -
BALJIT SINGH PANDORI, NAGINDER SINGH JOHAL and BLUE & WHITE TAXI LTD.
Defendants
REASONS FOR DECISION
L. Shaw J.
Released: December 4, 2019