COURT FILE NO.: 40835/18
DATE: 20190204
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
P.M.M.
Applicant
– and –
Y.W.M.
Respondent
– and –
V[…].
Respondent
John Cox, for the Applicant
Mary Anne Kril and Michael Kril-Mascarin, for the Respondent
Sreya Roy, for the Respondent on the Consolidation motion
John Cox, for the Respondent V[…].
HEARD: December 20, 2018
REASONS FOR DECISION ON MOTION
chozik J.
A. Introduction
[1] This is a divorce application involving property interests, equalization and support claims. The proceeding is in its early stages. On this motion for interim relief, the Applicant husband seeks adjudication of many of the central property issues. The husband seeks relief under the Family Law Act[^1] and the Business Corporations Act (“OBCA”).[^2] The main objective of the motion is to compel the Respondent wife to comply with the decisions of the husband in her capacity as a director of three closely held corporations, to disentangle the business dealings of the parties through the transfer of the wife’s shares in four separate corporations to the husband, and to remove her as director. Alternatively, the husband seeks an order winding up the companies. The wife opposes the relief sought. As these reasons will address, I have concluded that this relief is not available to the husband.
[2] The husband also seeks a restraining order against the wife pursuant to s. 46(1) of the Family Law Act and an order that a separate civil proceeding (#CV-18-597046) be consolidated with the matrimonial proceeding pursuant to r. 6 of the Rules of Civil Procedure.[^3] The wife seeks a sealing order respecting an exhibit filed on this motion pursuant to s. 137(2) of the Courts of Justice Act.[^4]
B. Background
[3] The parties were married in South Africa in June 1989. They immigrated to Canada in 1990. They have three children of the marriage, who are now 25, 23 and 18 years old. The elder two are independent, while the youngest child spends his summers with the parties but lives away from them during the school year. The parties were married 27 years. During their marriage, they grew two successful businesses: V[…]. (“V[…]”), which manufactures intelligent electronic devices used in the power generation industry, and I[…]. (“I[…]”), which operates a solar farm.
[4] The husband is an engineer. The wife is a chartered accountant. Some time ago, largely for tax planning purposes, a corporate structure was put in place to deal with some of the family’s assets and businesses. This corporate structure includes V[…] and I[…], as well as 23[…] Ontario Inc. (“B[…]”), which owns the commercial building out of which V[…] operates (the “V[…] premises”), the M[…] (the “F[…]”) and 21[…] Ontario Limited (“2[…]”), which is a beneficiary under the trust. Until recently, the husband and wife were both directors of V[…]. They are the sole two directors of the other companies. They are equal shareholders in B[…] and I[…]. The husband is the majority shareholder in V[…] and 2[…].
[5] On May 4, 2016, the parties separated. The husband left the matrimonial home. On May 10, 2016, the husband terminated the wife from her position as Vice President of Finance for V[…]. A few months later, in the fall of 2016, the husband had the wife removed as a director and replaced her with his brother. The wife remains an officer of V[…].
[6] The wife, in her affidavit sworn on November 8, 2018, candidly admits that for some time after the separation, she had difficulty accepting that the 27-year marriage was over. The husband maintains that as a result of the wife’s actions since the separation, their business relationship became, and remains, unsustainable. In February 2018, the wife was charged criminally for sexually assaulting the husband at his V[…] office. The charge was resolved in August 2018 by way of a peace bond under s. 810 of the Criminal Code.[^5] The conditions of the peace bond impose limits on the wife’s ability to communicate with the husband or be near him and prohibit her from going to the V[…] premises. The peace bond will end in August 2019.
[7] On this motion, brought pursuant to the Family Law Rules and in relation to an application under the Divorce Act, the husband essentially seeks to unravel the complex business structure that developed over the course of the couple’s 27-year marriage.
[8] Specifically, the husband seeks the following relief, including among other things, (i) an order for the transfer of the wife’s shares in the various corporations to the husband; (ii) an order removing the wife as director and/or officer of the various corporations and as trustee and beneficiary of the F[…]; (iii) an order compelling the wife to approve the sale of the contracts held by I[…] to a prospective purchaser (the “solar transaction”) and to otherwise cooperate with the sale by providing access to the property, financial and other records; and (iv) that once the solar transaction is complete, title to the farm property be transferred to the wife in her name alone. In the alternative, the husband seeks a winding up of all the companies and the F[…].
[9] At the time of the hearing of the motion, the husband also sought orders compelling the wife to approve the sale of the V[…] premises, directing the distribution of the proceeds of the sale and compelling the wife, as a director of B[…], to execute a guarantee to RBC of V[…]’s indebtedness. These issues have now been settled by the parties, and I therefore need not address them or deal with the related request for the transfer of the wife’s shares or winding up of B[…].
[10] At this point, the parties do not agree as to the value of most, if not all, the assets in question. The evidence before me is insufficient to place a value on the shares or the value of the solar transaction. The husband proposes that the details as to the value of the various transfers be adjusted at a later point, once the net family property is determined and an equalization is to be made.
[11] The wife does not disagree that the parties need to disentangle their financial and business affairs. Indeed, in her answer dated June 6, 2018, the wife sought to have the court order V[…] to purchase her shares at fair market value and, in the alternative, an order directing the wind-up of V[…]. The wife takes the position that there is no jurisdiction on an interim motion to order the relief sought by the husband, which would be a redistribution of a large part of the family’s assets and would in effect amount to an equalization of family property.
[12] For the following reasons, I have concluded that I lack the jurisdiction to order the relief sought by the husband on this interim motion. Even if there was jurisdiction, I would decline to grant this relief.
[13] The husband also seeks a restraining order under the Family Law Act against the wife. For the reasons below, I decline to grant such an order.
[14] The wife seeks an order pursuant to s. 136 of the Courts of Justice Act to “seal” from the public a USB key filed as an exhibit on this motion that contains a video recorded by the husband without her knowledge that purports to show her sexually assaulting the husband at his V[…] office in February 2018. For the reasons that follow, I grant this order.
[15] Finally, the husband seeks to consolidate the wife’s wrongful dismissal action (#CV-18-597046) with the matrimonial proceedings. I am of the view that it would be in the interests of justice to transfer the wrongful dismissal action from Toronto to Milton and, for the reasons set out below, have the matters heard together, or one after the other, or otherwise as directed by the trial judge.
C. The M. Corporate Structure
[16] There are essentially four separate corporate entities held by the husband and wife.
[17] B[…][…] Ontario Inc. (“B[…]”) is a single purpose entity that owns the land located at P[…] Drive in Oakville (the “V[…] premises”). The V[…] premises consist of a commercial building that V[…] rents from B[…]. B[…] is in turn owned by the M[…]. The parties are the only directors of B[…]. The husband and wife each have equal control of the company and each has 50 per cent of the shares. Neither can make unilateral decisions for the company.
1) V[…]
[18] This was the parties’ main business. The husband owns 780,000 Class A Preference Shares and 600 Class C Special Shares; the wife owns 420,000 Class B Preference Shares and 400 Class C Special Shares. This arrangement gives the husband 60 per cent voting control and the wife 40 per cent. In the fall of 2016 the husband removed the wife as director of V[…] over her objection. He also terminated her from the most senior financial position at V[…]. From 1995 until 2016 she had managed all of V[…]’s finances, while the husband focused on the creative, sales and marketing aspects of the company’s product.
2) The M[…]
[19] The parties are each the sole trustees of the M[…]. The beneficiaries of the trust are the husband, the wife, their three children, and 21[…] Ontario Limited (“2[…]”). 2[…] was incorporated in 2006. It does not carry on any business. It is a beneficiary of the F[…] and holds a large life insurance policy on the lives of the husband and the wife, with a substantial cash surrender value. The husband owns 60 Class A Common shares in 2[…], while the wife owns 40 Class B Common shares. V[…] owes 2[…] $3.9 million, representing a non-interest-bearing demand loan, which is secured by a General Security Agreement on all of V[…]’s assets.
3) I[…]
[20] The husband and wife are each 50 per cent owners and the only directors of I[…]. I[…] operates two mid-sized solar farms (the “solar assets”) situated on land known as F[…] Line in Central Elgin. The land (approximately 250 acres) is owned personally by the husband and wife as joint tenants. I[…] also has an agricultural operation with approximately 75 sheep and 16 cattle. This provides a small additional revenue source for I[…]. The sheep have the added benefit of controlling the vegetation around the solar operation. I[…] holds two contracts to provide energy to the electricity grid, each for a term of 20 years ending in 2032 (the “solar contracts”). The parties have not agreed on a value of the farm (i.e. the land).[^6] They also do not agree on the value of the solar contract(s). There have been three prospective purchasers of the solar contract(s). The highest offer was approximately $6.2 million to buy the remainder of the 20 year contract(s). There is no dispute that the value of the solar contract(s) diminishes with time.
D. The Position of the Parties
(i) Removal of Wife as Director and Transfer of Shares
[21] The husband seeks an order to remove the wife as an officer of V[…]., a director and officer 2[…] and I[…], and to compel the wife to transfer her shares in these corporations to the husband. The husband also seeks an order to remove the wife as trustee and beneficiary of the F[…]. The husband submits that the jurisdiction to grant this relief lies in ss. 9, 10 and 12 of the Family Law Act. Alternatively, he relies on s. 248 (the “oppression remedy”) of the OBCA to establish the jurisdiction for this court to order the relief he seeks. He submits that as directors, he and his wife are “deadlocked”, that his wife’s conduct is oppressive within the meaning of s. 248. The peace bond she entered into in August 2018 makes communication and the running of these companies together “impossible”. In the alternative, the husband asks the court to make an order under s. 207 of the OBCA winding up the companies.
[22] The husband asks that the court “pierce the corporate veil” in order to resolve the corporate issues and the family law issues as they are all interrelated.
[23] The wife submits that this court does not have jurisdiction under the Family Law Act to transfer shares before equalization. The wife further submits that her actions do not amount to oppression and that the husband is not entitled to an equitable remedy under the OBCA because he has acted in an oppressive manner. The wife maintains that her actions are reasonable business decisions made in the best interest of the various corporations. She opposes the winding up of the corporations at this stage.
(ii) The Proposed Sale of the I[…] Solar Contract
[24] The husband seeks an order compelling the wife to approve I[…]’s sale of the solar contract pursuant to the Term Letter dated November 2, 2018, presented by the proposed purchaser in the amount of $6,200,000. He also seeks an order directing the wife to cooperate fully by providing access to the farm property and to all books and other financial documents to facilitate completion of the sale. Once the sale of the solar contract is complete, the husband asks that title to the farm property be transferred to the wife’s name alone.
[25] The husband initially sought an order that he transfer his shares to the wife, in effect an order compelling her to accept these shares. During the oral hearing, the husband suggested that if the wife does not want those shares – she maintains she does not want the shares as she has no interest in owning or running the solar farms – then she should be compelled to transfer her shares to him.
[26] At the examinations for discovery, on December 6, 2018, the wife testified that she does not object to cooperating with the potential sale of the solar contracts. The wife resists an order compelling her to approve the sale of the energy contract pursuant to the Term Letter dated November 2, 2018, because the proposed sale is in its infancy and too many details have not yet been determined.
E. Analysis
(i) Sections 9, 10 and 12 of the Family Law Act
[27] Sections 9, 10 and 12 of the Family Law Act give the court wide discretion to implement a judgment. No order for equalization or support has been made in this case and so there is no judgment to be implemented.
[28] Equalization under the Family Law Act requires that on separation, the parties equalize the value of the assets accumulated during the marriage, as fixed on the valuation date. This is accomplished through a formula in which each party values their net property at the date of the marriage and at the date of separation, and the net difference is then equalized. This sharing of value does not create an ownership interest. The Family Law Act provides for the sharing of value and not the division of property that is individually owned.[^7]
[29] Under the Family Law Act, the authority to order the transfer of property from one spouse to another is found in s. 9. It is clear from reading the provision in context, and together with ss. 5(1) and 7(1), that the transfer and sale provisions in s. 9 can only be invoked to satisfy an equalization payment, and that there is no jurisdiction to order the sale of the property prior to trial unless such an order is necessary to preserve the asset.[^8] In Buttar, the Court of Appeal for Ontario confirmed that there is no jurisdiction under the Family Law Act to make an order for the redistribution of the parties’ assets prior to an order for equalization of net family property. The Court of Appeal held that the “transfer power under section 9 is specifically connected to the satisfaction of the order for the equalization of net family properties rather than a general transfer power for the settlement of disputes arising from marital breakdown.”[^9] Rosenberg J.A. approved the interpretation of the Family Law Act scheme endorsed by the court in Thibodeau v. Thibodeau,[^10] wherein Blair J.A. observed that “[s]eparating spouses are not entitled to receive a division of property. … An equalization payment is the chosen legislative default position”.[^11] It is clear from these decisions that an order redistributing assets to achieve what one or another of the parties views as an equal distribution is simply not the type of order the court can make under the Family Law Act.
[30] Section 10 of the Family Law Act permits the court to determine questions of title between spouses other than questions arising out of an equalization of net family property. Where there is no issue as to title, s. 10 is not an appropriate basis for partition and sale.[^12]
[31] Under s. 12 of the Family Law Act, the court has jurisdiction to make an order to preserve the other spouse’s interests on an application for equalization or determination of title. The court may make a restraining order to prevent the depletion of a spouse’s property, or an order for the “possession, delivering up, safekeeping and preservation of the property”. The purpose of a s. 12 order is to ensure that there are sufficient assets to satisfy an equalization order if one is made under s. 9. This provision does not give the court jurisdiction to order the sale of property simply because the parties do not agree on how to divide it. Section 12 ensures that funds are not dissipated in advance of equalization or support payment orders. To this end, the applicant must establish that there is a real risk that the equalization claim could be defeated if the preservation order is not made.[^13]
[32] Here, the husband urges a very broad interpretation of ss. 9, 10 and 12 of the Family Law Act to find jurisdiction to grant the relief sought on the basis that such an order would be aimed at preserving assets for future equalization. In light of the above legal principles and authorities, I have concluded that the relief sought by the husband – the compelled acceptance of the “solar transaction” and the transfer of wife’s shares in V[…], 2[…], I[…] and the F[…] to the husband – is simply not available at this stage of the proceedings under the Family Law Act. No equalization order has been made. No risk of depletion of the assets by the wife has been established. No issue as to title of the assets arises. The husband really asks for judgment prior to a finding of liability, which is not permitted in law.
[33] In my view, special additional concern arises with respect to the proposed transfer of the shares at this early stage of the matrimonial proceeding. The husband has had a valuation of V[…] shares prepared, but the wife has not. She does not accept the husband’s valuation. For the purpose of the equalization, the shares are to be valued as of the date of separation, May 4, 2016. For the purpose of the transfer of shares under the OBCA, or their sale at fair market value to the husband or the corporation, a different valuation date may be appropriate. The husband proposes to transfer the shares now, without an assigned value, without an agreed upon valuation date, without compensation to the wife. He proposes to leave questions of value and compensation to be resolved later when net family property is calculated. Essentially, the husband asks this court to order the wife to transfer property to him without compensation, on a promise of some unknown compensation at some unknown future point for an unknown amount, and in the absence of any proposal for how the fair value of the property would be assessed. Respectfully, this proposal is not fair. It oversimplifies the situation and ignores potentially significant financial consequences to the wife.
(ii) “Piercing the Corporate Veil”
[34] The husband asks the court to “pierce the corporate veil” and look behind the corporate structure to justify the relief sought. He relies on the principle that a party in a family law proceeding should not be able to use a “corporate veil” to shield him or herself to hide assets or income. This principle, however, has no application in this case.
[35] In Wildman, MacPherson J.A., writing for the Court, considered circumstances when it is appropriate for the court to look behind the corporate structure – or ‘pierce the corporate veil’. [^14] It is important to note that in Wildman, the issue was the enforcement of final orders made under the Family Law Act. First, MacPherson J.A. observed that there is a statutory exception mandating the corporate veil to be lifted for the imputation of income for the purpose of child support calculations and the enforcement of child support obligations. Second, the corporate veil may be lifted where (i) an individual exercises complete control of the finances, policy and business practices of the company, (ii) that control must have been used by the individual to commit a fraud or a wrong that would unjustly deprive a claimant of his or her rights, and (iii) the misconduct must be the reason for the third party’s injury or loss. All these criteria arose in Wildman.[^15] That decision makes it clear that the purpose of lifting the corporate veil is to look for the immediate income source and prevent corporations from being a vehicle through which funds flow, disguising the real income source. The decision does not stand for the proposition that a court should lift the corporate veil in any other circumstances or that somehow the corporate structure becomes irrelevant for the purpose of matrimonial proceedings.
[36] Similarly, in Lynch v. Segal, the Court of Appeal identified the improper use of the corporation as key to a finding of beneficial ownership. The court found that the husband was not using the corporation for permissible corporate arrangements but “using the corporate structure for one sole purpose, to disguise his property so that his spouse and children would have no claim against him should he ever have to defend against a claim.”[^16] Absent a finding that one spouse is perpetrating a “blatant injustice” against the other, lifting the corporate veil to secure amounts owing directly against the corporation is not appropriate.[^17]
[37] The circumstances in which the corporate veil will be lifted in matrimonial proceedings are limited. It would not be appropriate to disregard the corporate structure in this case. The wife does not maintain “complete control of finances, policy or business practices of the company”. To the contrary, she either shares equal control with the husband or has no control. There is no evidence that the wife used whatever control she has to commit a “fraud” or other “wrong” (which must imply a legal wrong) that would unjustly deprive the husband of his rights. Further, there is no evidence that her misconduct (if any could be found), is the reason for a loss or injury. Indeed, there is no evidence of actual loss or injury. The enforcement of child support does not arise in this case. I therefore conclude that this is not an appropriate case in which to “pierce the corporate veil”.
(iii) Failure to Name I[…], 2[…] and the M[…] as Parties
[38] I[…], 2[…] and the F[…] are not named parties to these matrimonial proceedings. V[…] was added as party at the request of the wife. The failure to name the affected corporations as parties to this application is, in my view, fatal to the relief sought. This is not one of those cases where the husband and wife ought to be treated as one and the same as the corporations.
[39] In Wildman, MacPherson J.A. gave no effect to the submission that the failure to name a corporation as a party in a matrimonial proceeding was a bar to relief against that corporation. He said: “[t]his is matrimonial litigation, not commercial litigation”.[^18] The record in that case established that the husband was one and the same as the corporation. No third party had any interest in the company. Since the husband in that case had notice of the proceedings, the Court concluded that the corporation was deemed to have notice, too.
[40] While some of the same factors are present in this case, there is a defining difference – the absence of fraud or other legal wrong committed while hiding behind the corporate veil. Rather, this is a case where despite the fact that only two individuals are the principals behind the various corporations, the corporate structure cannot be disregarded.[^19] This case is also different from a scenario where the court is asked to make certain orders after final judgment.[^20] As corporations, I[…] and 2[…] have the capacity, rights, powers and privileges of a natural person.[^21] These corporations are separate legal persons who are entitled to notice of this motion and legal representation. [^22] With respect to I[…], the husband is asking for the sale of most of its assets. Essentially, his claim for relief is directly against the company.[^23] Similarly, the F[…] has beneficiaries beyond just the husband and wife. In these circumstances, the case law is clear – the corporations should be named as parties.
(iv) Remedy for Oppression and the Application of Sections 248 and 207 of the OBCA
[41] The husband relies on ss. 248 and 207 of the OBCA in asking the court to order the transfer of the wife’s shares to him, and in the alternative to order the winding up of the corporations. I have considered whether the transfer of shares and/or winding up of otherwise viable corporations are available on an interim family law motion. They is not. These are final orders. These orders cannot be undone. It would not be appropriate to grant them on an interim motion.
[42] In the alternative, I have also considered the substantive application of ss. 248 and 207 of the OBCA in the circumstances of this case. The evidence before me supports, to some extent, that there are serious differences between the parties with respect to running and making decisions on behalf of V[…] and I[…].[^24] Nevertheless, the husband has not discharged his onus to justify a remedy under s. 248 (exchange of shares) or an order under s. 207 (winding up) of the OBCA.
(a) Legal Principles - Oppression
[43] Section 248 of the Business Corporations Act provides that:
248 (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;
(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or
(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.
[44] Where the criteria under s. 248(1) are satisfied, the court has discretion to grant a broad range of interim or final remedies pursuant to s. 248(3) including an order restraining the conduct complained of; an order appointing a receiver or receiver-manager; an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement; an order directing an issue or exchange of securities; an order appointing or removing directors; an order directing a corporation to purchase securities of a security holder; an order directing a corporation or any other person to pay to a security holder any part of the money paid by the security; an order winding up the corporation under s. 207; and an order requiring the trial of any issue.
[45] The test for establishing oppression under s. 248 of the OBCA was settled by the Supreme Court of Canada in BCE.[^25] The two-part test requires the claimant to first “identify the expectations that he or she claims have been violated … and establish that these expectations were reasonably held.”[^26] The claimant must show that those reasonable expectations were violated by conduct falling within the statutory terms, that is, conduct that was oppressive, unfairly prejudicial to, or unfairly disregarded the interests of the person seeking relief, or any other security holder. In defining these terms, the Supreme Court of Canada held that: (i) “‘[o]ppression’ carries the sense of conduct that is coercive, abusive and suggests bad faith”; (ii) “‘[u]nfair prejudice’ may admit of a less culpable state of mind, that nevertheless has unfair consequences”; and, (iii) “‘unfair disregard’ of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders’ reasonable expectations”.[^27]
[46] In BCE, courts are directed to first look at the principles underlying the oppression remedy, and in particular at the reasonable expectations of the shareholders. These expectations are the bedrock of the oppression remedy. Only where a breach of a reasonable expectation is established does the court consider whether the conduct complained of amounts to “oppression”, “unfair prejudice” or “unfair disregard”.[^28] Clearly not all conduct that is harmful to a stakeholder will give rise to a remedy for oppression.
[47] If the court finds that there has been oppression, unfair prejudice or unfair disregard, the second part of the test under s. 248 of the OBCA requires the court to tailor the relief to the shareholder, notwithstanding any other positions that shareholder may have held within the corporation. Section 248(3) sets out the various interim and final relief that could be invoked to address the inequity. In other words, the oppression remedy is aimed at protecting shareholders. An oppression remedy focuses on harm to the legal and equitable stakeholders affected by oppressive acts of a corporation, its directors or officers.[^29]
[48] The cases recognize to some extent that the status of minority shareholders in a closely held family corporation may differ from that of a minority shareholder in a widely held public corporation.[^30] For example, in a family run corporation, the shareholder may depend on the corporation to make a living, or the exclusion of the shareholder from the running of the business may render his or her shares worthless. If the corporation remains viable, then the appropriate solution is for the corporation to purchase the shares of one of the stakeholders at fair market value.[^31] Winding up is not always appropriate.
(b) Legal Principles - Winding Up
[49] Under s. 207 of the OBCA a court may order the winding up of a corporation where it is “just and equitable” to do so. This relief is available either in a separate application, or as a remedy for oppression under s. 248(3). In closely held corporations, it may be just and equitable to order a winding up where there is a lack of confidence or trust between the parties.[^32] At the same time, mere disharmony will not trigger an equitable winding up.[^33] Rather, such a remedy will only be engaged by a failure to meet the reasonable expectations held by the complaining shareholder(s) or, alternatively, the corporation’s inability to make fundamental corporate decisions.[^34] Winding up may be appropriate where the breakdown of the relationship results in circumstances supporting a reasonable inference that the parties did not intend their business association to continue. A mere inability to work together, especially in the context of a family business, by itself is not sufficient to order a winding up.[^35]
[50] Winding up or liquidating a corporation may not be the appropriate remedy where the corporation can continue to operate profitably. The court is obliged to consider whether less restrictive alternatives are available.[^36] Allowing the applicant or the corporation to make an offer to purchase the shares of the other at fair market value is often the least intrusive resolution for the continued operation of the corporation.[^37] An order for the corporation to purchase the shares at fair market value is not the same as an order to transfer the shares to the husband without compensation.
(c) Application to this Case
[51] While there may be valid reasons prompting the husband to seek a quick resolution of the issues between the parties, I am not satisfied that he has discharged his onus to establish oppression by the wife. In my view, the case law is clear that disagreement between directors and shareholders does not automatically lead to a remedy under ss. 248 or 207 of the OBCA.[^38]
[52] At the outset, the claimant must identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held.[^39] The husband has adduced no evidence directed at this first part of the test. His affidavit is silent as to his expectations, why these expectations would be reasonable, or how the conduct alleged runs counter to his reasonably held expectations. I have no evidence with respect to the commercial practice, past practice, representations or agreements, or any preventative steps taken. Rather, the husband relies solely on the breakdown of the relationship between him and his wife. On my reading of the law, since BCE this is not enough to establish oppression under s. 248 or to order the winding up of an otherwise viable corporation under s. 207 of the OBCA. The first step of the test for oppression is therefore not met.
[53] Although his failure to meet the first part of the test is dispositive, I have considered the second step of the test as well. The husband relies on the following conduct by the wife to establish oppression, unfair prejudice or unfair disregard:
a. Between January and April 2018, the wife attempted to evade service of the divorce application;
b. The wife was provided with a copy of the Agreement of Purchase and Sale of the V[…] premises on December 2, 2018, with a closing of February 22, 2019; at the cross-examination on December 6, 2018, she stated that she does not agree to the sale (this issue is now settled);
c. The wife attempted to leverage her refusal to sign the forbearance agreement in the matrimonial dispute;
d. The wife refused to sign the Guarantee and Postponement claim (a document required by RBC but overlooked by them in August 2018). The wife refused to sign this document despite indication from RBC corporate counsel that RBC would then take the matter to court. This could have been disastrous to V[…] (but is now settled by the parties);
e. The wife initially characterized the term sheet for the sale of the solar contracts as a “concoction” by the husband. At questioning, the wife testified that she is prepared to cooperate with the proposed purchaser’s requests so that they can continue with their due diligence. She also indicated that she is prepared to provide the documents requested, but that she could not locate these in the matrimonial home;
f. The wife refused to permit a contractor into her house to set up a remote web browser to allow her to access V[…] documents. The husband was ordered to provide the wife with access to these documents by Justice Seppi on May 14, 2018. The husband agreed to sign a non-disclosure agreement requested by the wife but has not produced one. The wife is not prepared to incur the expense of having one drafted for his execution;
g. The wife has launched an action for wrongful dismissal against V[…];
h. The wife is subject to the terms of a s. 810 peace bond. The husband says in his reply affidavit that she is “aggressive” and “violent”; and,
i. The husband says that his wife is “argumentative”. He fears that she will oppose whatever decisions he makes. Thus, he says, they are unable to make joint decisions.
[54] In my view, none of this conduct, if proven, would amount to oppression, unfair prejudice or unfair disregard under s. 248 of the OBCA.
[55] In particular, with respect to V[…], I observe that the husband is the majority shareholder. The husband terminated the wife as the VP of Finance within days of their marital separation. He had her removed as a director and replaced by his brother a few months later. He has run the company without her input since the fall of 2016. Oppression is a remedy for shareholders against a corporation and its directors. Significantly, the wife is no longer a director of V[…]. His affidavits make clear that he makes the business decisions of this company. A court order had to be made to compel the husband to include the wife in the business by sharing information with her. Although there is a peace bond in place that prohibits the wife from communicating with the husband except through counsel, the parties have effectively used counsel to conduct their dealings with each other for some time. Communication may be inefficient, expensive and unpleasant, but it is not “impossible”.
[56] I also conclude that the wife’s opposition to the husband’s decision-making is not oppressive, unfairly prejudicial or amounting to unfair disregard. As a director of I[…], the wife has a fiduciary duty to act in the best interests of the company. She also has a duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. The wife is entitled to, indeed she is obliged to use her judgment to make decisions in the best interest of the corporation.[^40] The court is obliged to give deference to the business decisions of a director so long as those decisions lie within a range of reasonable alternatives.[^41] In my view, the wife’s refusal to approve the Term Letter falls within a reasonable business alternative. The Term Letter clearly states that the transaction is conditional upon entering into a definitive agreement of purchase and sale (i.e. it is not the agreement of purchase and sale). It is silent on many essential points and will require further negotiations. For example, no provision is made with respect to the land upon which the solar assets sit. It cannot at this point be presumed that the solar transaction will be completed. The wife’s decisions regarding the negotiation of this contact fall within the scope of the “business judgment rule”. As the director, she is entitled to insist that the sale of substantially all of I[…]’s assets is at fair market value and on the most favourable terms. Her conduct in this regard is not oppressive within the meaning of s. 248 of the OBCA.
[57] I need not decide whether the husband’s actions disentitle him to relief under s. 248 as the principal cause of the oppression.
[58] There is no evidence before me as to any strife or conflict with respect to the running of 2[…] or the F[…], or the inability to make joint corporate decisions in their regard. I note that the husband is also the majority shareholder in 2[…]. There is no other evidence before me as to the decision-making structure of these entities.
[59] I therefore decline to make an order under s. 248 OBCA transferring the shares in I[…], 2[…], V[…] or the F[…].
[60] I also refuse to order the winding up of the corporations in question. In Wittlin v. Bergman, the Court of Appeal for Ontario observed that liquidation or dissolution is usually appropriate where a corporation is deadlocked with each of two shareholders or groups of shareholders holding fifty percent of the shares. In such a situation, if the shareholders cannot work together, the company is likely doomed to failure within a foreseeable time. Liquidation or dissolution could be an appropriate solution to avoid the inevitable deterioration in the value of the company.[^42] V[…]’s circumstances are entirely different. The husband has been operating V[…] for more than two years without the wife, and makes decisions without her. He is the majority shareholder. The oppression remedy is usually for the minority shareholder to claim.
[61] I[…]’s circumstances are not akin to those in described in Wittlin v. Bergman either. I[…] is not experiencing “deadlock”. The wife is prepared to provide access and disclosure to the proposed purchasers and otherwise cooperate in order for the purchaser to conduct its due diligence and so that a contract for the purchase of the solar contract can be finalized. If she were to fail to carry through on her avowed willingness to take these steps, it might well make out oppression so as make the remedies sought by the husband available.
F. The Husband’s Request for a Restraining Order under s. 46(1) of the Family Law Act
[62] The husband seeks a restraining order under s. 46(1) of the Family Law Act, prohibiting the wife from having any contact or communication with him and from attending within 500 metres of the husband’s residence, place of employment or any place he is known to be, except if there is a situation involving emergency care and attention for one of the children of the marriage.
[63] It is not disputed that on February 26, 2018, the wife attended at the V[…] main office at around 4:00 pm. She entered the husband’s office. She begged him to reconcile. She lay on the floor and refused to leave. At points she put her arm around the husband’s neck and tried to kiss him. The husband told her to stop. At one point she grabbed him by the genitals. The husband surreptitiously recorded the interaction on his cell phone. The Applicant was charged with sexual assault arising from this incident. On August 8, 2018, over the objections of the husband, the Crown withdrew the sexual assault charge and the wife entered into a peace bond pursuant to s. 810 of the Criminal Code. The terms of the peace bond are that the wife keep the peace and be of good behaviour (a statutory condition), that she not contact the husband directly or indirectly except through counsel or while at court, and that she not attend the residence, workplace, including V[…], or any other place the husband is known to be except while at court. There are also a number of conditions that require the wife to attend counseling.
[64] The husband also says that there were at least two other incidents in 2017, one at Thanksgiving at the matrimonial home and one at Christmas at Pearson Airport, where he says the wife tried to grab him and kiss him without his consent. One of the incidents occurred in the presence of the parties’ adult daughter. He says that between May 2016 and February 2018, the wife sent him 1000 text messages ranging from ones praising him to ones belittling him, and many that were “irrational babble”. He stopped responding to these texts, which he described as persistent and harassing. Significantly, he does not say they were threatening or caused him to fear for his safety. Most importantly, this conduct ceased in February 2018.
[65] Section 46(1) of the Family Law Act permits the making of an interim or final restraining order where the applicant has “reasonable grounds to fear for his or her own safety of for the safety of any child in his or her lawful custody.” The applicant’s fear for his safety must be “legitimate”.[^43] An interim restraining order may also be granted to permit a litigant to conduct the litigation in as reasoned an atmosphere as possible.[^44]
[66] I am not satisfied that the test in s. 46(1) of the Family Law Act is met. The most serious incident relied on by the applicant to ground his fear occurred almost a year ago. Since she was charged in February 2018, the wife has not had direct communication with the husband. Nor has she assaulted or otherwise threatened him or caused him any reason to fear for his safety. She has complied with the terms of the peace bond imposed on August 8, 2018, without incident. There is no evidence before me that the wife poses a risk to the safety of the husband at this time, or that any fear in this regard is reasonable. While she may have had difficulty accepting the end of her 27-year marriage in May 2016 and for some time afterwards, there is no evidence before me that she continues to do so now. To the contrary, the wife says in her affidavit that she now accepts that the marriage is over. There is simply no evidence that the wife poses a current threat to the husband or that he has reasonable grounds to fear for his safety to justify the imposition of a restraining order in addition to or as an extension of the peace bond already in place. I decline to grant a restraining order at this time without prejudice to the husband’s ability to renew the request should circumstances change.
G. The Wife’s Motion for a Sealing Order
[67] The wife seeks relief under s. 137(2) of the Courts of Justice Act. The husband has filed as part of the evidence in support of the motion, a USB key containing the recording of the incident at the V[…] office, which he alleges depicts the wife sexually assaulting him on February 26, 2018. The husband describes the incident in his affidavit sworn November 8, 2018. The wife describes the incident in her affidavit sworn November 28, 2018, in greater detail. The wife is seeking an order preventing the dissemination of the contents of the USB key (the video) to the public by sealing the USB key from the public. She submits that the video is humiliating to her and unnecessary to the proper hearing of the issues on this motion. The husband did not take a position on the request that the USB key be sealed.
[68] Pursuant to s. 137(2) of the Courts of Justice Act, a court may order that any document filed in a civil proceeding be treated as confidential, sealed and that it not form part of the public record. In Sierra Club v. Canada (Minister of Finance),[^45] the Supreme Court of Canada adapted the analytical framework of Dagenais[^46] and subsequent cases, to the context of a commercial proceeding. The Court held that a court should exercise its discretion to grant a sealing order where the order is necessary to prevent a serious risk to an important interest, which could include a commercial interest, where reasonable alternative measures will not prevent the risk and the salutary effects of the order outweigh its deleterious effects, including the effects on the right of free expression, which includes the public interest in open an accessible court proceedings.[^47] The fundamental question on an application for a confidentiality or sealing order is whether, in the circumstances, the right to freedom of expression underlying the principle that openness of judicial proceedings to the public should be compromised.[^48]
[69] In my view, the interest at stake here is the appearance of fairness and integrity of the proceedings. There is a serious risk to the fairness of the proceeding and the public confidence in the administration of justice. The salutary effects of the sealing order outweigh the deleterious effects. The order requested represents a minimal intrusion into the open court rule and would not have significant deleterious effects. Preventing public access to the video contained on the USB key in no way inhibits the husband’s right to a fair hearing of this motion or at trial. It in no way impedes the fair adjudication of the issues. Indeed, it does not prevent the public from having a clear understanding of that incident. At the same time, litigants who come before the courts must be confident in their ability to have their disputes heard by the court on the merits without unnecessary, gratuitous humiliation and embarrassment. The contents of the video are humiliating. More importantly, the video itself is of marginal, if any, relevance. There is a detailed description of the events depicted on the video in both parties’ affidavits. The events alleged by the husband are not disputed by the wife. Having the video available for public consumption accomplishes little but adds to the potential humiliation of the wife and embarrassment to their children. The only restriction contemplated by the order relates to the video’s public distribution. The video would be available to the court and the parties. Public access to the proceedings would not be impeded. I therefore order that the USB key attached to the Affidavit of P.M.M. sworn November 8, 2018, filed in this proceeding, and its contents, be sealed and not form part of the public record in this proceeding.
H. Transfer of Wrongful Dismissal Action
[70] The husband seeks the “consolidation” of a civil action bearing court file no. CV-18-597046 with the matrimonial proceeding pursuant to r. 6.01(1) of the Rules of Civil Procedure. The civil action is an action for wrongful dismissal brought by the wife against V[…]. The husband is not named as a party in that action. The wrongful dismissal action is brought by the wife in Toronto. In oral argument, it became clear that the husband is not seeking a true “consolidation” of the two actions in the sense that new pleadings would be filed, but rather he seeks the transfer of the wrongful dismissal suit to Milton and an order that the trial of the family law matter and the trial of the action for wrongful dismissal be heard at the same time, or one immediately after the other. In oral argument, the wife did not oppose the transfer of the wrongful dismissal action to Milton from Toronto – there is no connection for either party or any of the corporate entities involved in the matrimonial proceeding or the wrongful dismissal action to Toronto. Rather, the wife takes the position that there is no factual or legal issue in common in the two proceedings and that joining the two actions would result in greater costs and inefficiency. She submits that the wrongful dismissal action deals with discreet factual events and legal questions, and that it would not be within a balance of convenience to connect it with the larger and more complex matrimonial dispute.
[71] The intent behind r. 6.01 is “to avoid a multiplicity of proceedings, to promote expeditious and inexpensive determinations of disputes, and to avoid inconsistent judicial findings.”[^49] The rule contemplates the consolidation of actions and the hearing of matters together where it appears the two or more proceedings have a question of law or fact in common; the relief claimed in them arises out of the same transaction, occurrence, or series of transactions or occurrences; or for any other reason. The first part of the two-part test on a motion under r. 6 is to determine whether any of these criteria are met. If one or more criteria are met, then the court is to consider whether the balance of convenience favours such an order.[^50] The onus is on the party seeking the consolidation to persuade the court that the two-part test under r. 6 is met.
[72] Pursuant to the Practice Directions of this Court, motions to transfer civil proceedings to another county made pursuant to r. 13.01.02 of the Rules of Civil Proceedings are to be brought before the Regional Senior Judge or his or her designate in the region to which transfer is sought. I have been designated by the Regional Senior Justice to hear and decide the transfer motion in this case.
[73] It appears to me that the claims in the matrimonial proceeding and the wrongful dismissal action involve at least some factual determinations that are in common. For example, in both proceedings the trier of fact is likely to be called upon to determine the wife’s role in V[…] and the circumstances surrounding her termination. The wife’s termination from V[…] is clearly connected to the breakdown of the marriage. The relief sought, whether spousal support or damages, arises out of the same transaction, occurrence, or series of events. The evidence that is to be called by the parties is likely to involve considerable overlap, including the testimony of the same employees and other witnesses. There is a real risk of inconsistent verdicts should the factual determinations that underpin these events be left to different triers of fact. The balance of convenience also favours the hearing of the two proceedings together or one after the other. For example, during questioning in the matrimonial dispute the wife declined to answer questions that touched upon her dismissal from V[…]. The need for additional and separate questioning could have been avoided if the two matters were proceeding together. The practical and procedural concerns about how to conduct the proceeding efficiently and cost effectively can be addressed through case management and dealt with by the trial judge in the exercise of his or her inherent trial management power.
[74] I have concluded that test under r. 6.01 has been met and that the two proceedings should be heard together in Milton. I therefore order that the civil action bearing court file no. CV-18-597046 be transferred from Toronto to Milton, and that the two proceedings be heard together, or one after the other, as directed by the trial judge.
[75] Given the complexity of this matter, and the additional action to be transferred in, I am recommending to the Regional Senior Judge in the Central West Region that a case management judge be assigned to manage this civil/family proceeding.
Costs of this Motion
[76] The parties are encouraged to agree upon appropriate costs for this motion. If the parties are not able to agree on costs, they may make brief written submissions to me (maximum two pages double-spaced, plus a bill of costs). The Applicant may have 14 days from the release of this decision to provide his submissions, with a copy to the Respondent; the Respondent a further 14 days to respond; and the Applicant a further 7 days for a reply, if any. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves. If I have not received response or reply submissions within the specified timelines after the Applicant’s initial submission, I will consider that the parties do not wish to make any further submissions and I will decide on the basis of the material that I have received.
Chozik J.
Released: February 4, 2019
COURT FILE NO.: 40835/18
DATE: 20190204
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
P.M.M.
Applicant
– and –
Y.W.M.
Respondent
– and –
V[…].
Respondent
REASONS FOR JUDGMENT
Chozik J.
Released: February 4, 2019
[^1]: Family Law Act, R.S.O. 1990, c. F.3. [^2]: Business Corporations Act, R.S.O. 1990, c. B.16. [^3]: Rules of Civil Procedure, R.R.O. 1990, Reg. 194. [^4]: Courts of Justice Act, R.S.O. 1990, c. C.43. [^5]: Criminal Code of Canada, R.S.C. 1985, c. C-46. [^6]: An appraisal dated May 31, 2018, showed the value as $2,050,000. The husband has filed materials showing the value as $2,500,000. [^7]: Buttar v. Buttar, 2013 ONCA 517, 116 O.R. (3d) 481 [Buttar] at paras. 48-53; Martin v. Watts, 2018 ONSC 2622 at paras. 20, 22; Colquhoun v. Colquhoun, [2007] O.J. No. 9 (Sup. Ct.) at paras. 11-12, 166-171. [^8]: Buttar at para. 53; Batler v. Batler (1988), 1988 CanLII 4726 (ON SC), 67 O.R. (2d) 355 (H. Ct. J.) at para. 14; see Family Law Act, s. 12. [^9]: Buttar at para. 53. Emphasis original. [^10]: Buttar at para. 54. [^11]: Thibodeau v. Thibodeau, 2011 ONCA 110, 104 O.R. (3d) 161 at para. 37. Emphasis added. [^12]: Leon v. Leon, [2008] O.J. No. 1038 (Sup. Ct.) at paras. 7-10, 16. [^13]: Taus v. Harry, 2016 ONSC 219 at para. 35; Barbieri v. Vistoli, 2018 ONSC 7256 at paras. 38-40. [^14]: Wildman v. Wildman, 2006 CanLII 33540 (ON CA), [2006] 82 O.R. (3d) 401; 273 D.L.R. (4th) 37 (C.A.) [Wildman]; see also Colivas v. Colivas, 2017 ONSC 4730. [^15]: Wildman at paras. 24-42; MacPherson J.A. cites the three-part test at paras. 31 & 42. [^16]: Lynch v. Segal (2006), 2006 CanLII 42240 (ON CA), 82 O.R. (3d) 641; 277 D.L.R. (4th) 36 at para. 38. [^17]: Brisson v. Gagnier, 2011 ONSC 6340 [Brisson] at paras. 18-21. [^18]: Wildman, at paras. 47-49. [^19]: Galsan Holdings Inc. v. Davalnat Holdings Inc., 2018 ONSC 3600 at para. 34. [^20]: Brisson at para. 29. [^21]: OBCA, s. 15. [^22]: Brisson at paras. 28-30. [^23]: Ibid at para. 28. [^24]: There is no evidence before me of any conflict that has arisen with respect to 2[…] or the f[…]. [^25]: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560 [BCE]. [^26]: BCE at para. 70. [^27]: BCE at para. 67. [^28]: BCE at paras. 56, 61. [^29]: Baxter v. Baxter, [2000] O.J. No. 1172 (Sup. Ct.) [Baxter] at paras. 21-23. [^30]: Baxter at para. 23; Stel-Van Homes Ltd. v. Fortini, 2001 CarswellOnt 2096 (Ont. Sup. Ct.) [Stel-Van] at paras. 177-188, citing Belman v. Belman (1995), 1995 CanLII 7220 (ON SC), 26 O.R. (3d) 56 (Ont. Gen. Div.). [^31]: Baxter at para. 26. [^32]: Goft v. 1206468 Ont. Ltd., [2001] O.J. No. 126 (Sup. Ct.) at para. 30, citing Ebrahimi v. Westbourne Galleries Ltd., [1972] 2 All E.R. 492 (U.K. H.L.) at p. 500. [^33]: Animal House Investments Inc. v Lisgar Development Ltd., 2007 CanLII 82794 (ON SC), [2007] 87 O.R. (3d) 529 (Sup. Ct.) [Animal House] at para. 56, aff’d 2008 CanLII 27471 (ON SCDC), [2008] 237 O.A.C. 261 (Div. Ct.) at para. 7. [^34]: Wittlin v. Bergman, 1995 CanLII 790 (ON CA), [1995] 25 O.R. (3d) 761 (C.A.) [Wittlin] at para. 8. [^35]: Animal House at para. 70. [^36]: Gold v. Rose, [2001] O.J. No. 12 (Sup. Ct.) at para. 18. [^37]: Stel-Van at paras. 185-189. [^38]: Animal House at paras. 56-57. [^39]: BCE at para. 70. [^40]: BCE at paras. 36-39. [^41]: BCE at para. 40. [^42]: Wittlin at para. 8. [^43]: P.F. v. S.F., 2011 ONSC 154 at para. 32. [^44]: Callon v. Callon, [1999] O.J. No. 3108 (Div. Ct.) at para. 1. [^45]: Sierra Club v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522 [Sierra Club]. [^46]: Dagenais v. Canadian Broadcasting Corporation, 1994 CanLII 39 (SCC), [1994] 3 S.C.R. 835. [^47]: Sierra Club at para. 53. [^48]: Sierra Club at paras. 36-37. [^49]: Singh v. Trump Sr., 2018 ONSC 4649 [Singh] at para. 19; Brown v. Matawa Project Management Group Inc., [2005] O.J. No. 2313 (Sup. Ct.) at para. 5. [^50]: Singh at para. 19; Marchant v. R.B.C. Dominion Securities Inc, 2013 ONSC 2042 at para. 11.