Court File and Parties
COURT FILE NO.: CV-18-78580 DATE: 20200203 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
RICHCRAFT HOMES LTD. Plaintiff – and – URBANDALE CORPORATION, URBANDALE CONSTRUCTION LIMITED, RIVERSIDE SOUTH DEVELOPMENT CORP., AND KNL DEVELOPMENTS INC. AND LAWRENCE WEINSTEIN Defendants
COUNSEL: David R. Elliott and K. Scott McLean, for the Plaintiff Ronald F. Caza, Alyssa Tomkins and James Plotkin, for the Defendant Urbandale Corporation Todd J. Burke and Jahmiah Ferdinand-Hodkin for the Defendant Lawrence Weinstein David Sherriff-Scott and Karen Perron for the Defendant Urbandale Construction Limited.
HEARD: October 31, 2019
REASONS FOR DECISION ON MOTIONS TO STRIKE
R. Smith J.
1Within the context of an action instituted by Richcraft, three of the Defendants, Urbandale Corporation, Urbandale Construction, and Weinstein, have brought motions to strike Richcraft’s claims against them pursuant to Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. They submit that it is plain and obvious that Richcraft has not pleaded material facts that could support any cause of action with a reasonable chance of success.
Factual Background
2Richcraft Homes LTD. (“Richcraft”) has commenced an action against a number of Defendants, including Urbandale Corporation (“Urbandale”), Urbandale Construction Limited (“Urbandale Construction” or “UCL”), and Lawrence Weinstein (“Weinstein”). Richcraft seeks the following declaratory relief:
a) that Urbandale and Weinstein have carried on business or threatened to carry on business in a manner that is oppressive, unfairly prejudicial, or that unfairly disregards Richcraft’s interests, contrary to s. 248 of Ontario’s Business Corporations Act, R.S.O. 1990, c. B.16 (“the OBCA”);
b) that Weinstein has exercised his powers as a director and officer in a manner that is oppressive, unfairly prejudicial to, or that unfairly disregards Richcraft’s interests;
c) a declaration against Urbandale Construction that the issue of the allocation of lots between them in the Kanata Lakes development has already been judicially determined in the lawsuit over the Riverside South development, and that this is therefore res judicata;
d) that Urbandale cannot unilaterally introduce a term to their agreement that interferes with its right to purchase 50% of the residential lots in both the Riverside South and Kanata Lakes development projects;
e) that Urbandale, Riverside South Development Corporation, and KNL Developments Inc. are in breach of their contractual obligations towards Richcraft. Richcraft also seeks an award for damages incurred amounting to $500 million for the Kanata Lakes project and $1.1 billion dollars of lost housing sales for the Riverside South project; and
f) punitive damages of $10 million.
3Urbandale and Richcraft have had a business relationship since the early 2000s. This has consisted of two projects concerning developing land to sell residential lots: one called Riverside South, and the other called Kanata Lakes. The corporate relationships between the parties are set out in the schematic diagram attached as Schedule “A”.
4Urbandale and Richcraft previously litigated the effect of a 2005 Agreement on the Limited Partnership Agreement (“LPA”) for the Riverside South development lands as it related to the allocation of building lots in Riverside South. Richcraft was successful in this prior litigation over the interpretation its rights under the agreements related to the Riverside South project.
5The issue of the interpretation of Richcraft and Urbandale’s rights under the agreements related to Kanata Lakes – namely, the Co-Tenancy Agreement (“CTA”) and the 2005 Agreement – was ordered to be decided by arbitration in November 2019. Urbandale submits that the CTA and the 2005 Agreement, which give each party the first right to purchase an equal number of available lots in the Kanata Lakes project, do not apply to a conveyance but only to the sale of a lot. Richcraft argues that this issue has already been decided in the litigation over the Riverside South limited partnership agreement. This issue will be decided by an arbitrator.
The Parties
6Richcraft is a land development and homebuilding company based in the City of Ottawa. Richcraft is a 20% co-tenant and minority shareholder of the Defendant, KNL Developments Inc. (“KNL”), and a 33.33% partner in Riverside South Development Corporation (“RSDC”).
7Urbandale Corporation is a developer of lands in Ottawa and elsewhere. It was founded over 60 years ago by Lyon Sachs and the late Herb Nadolny, with each of these families owning a one-half interest. Urbandale holds eighty percent (80%) of the shares in KNL, which is nominee trustee and agent for the co-tenants for the Kanata Lakes lands.
8Urbandale Construction Limited is a builder of homes in Ottawa and elsewhere. It is owned and operated by Richard Sachs, the son of Lyon Sachs.
9RSDC is the General Partner in a Limited Partnership formed under the laws of Ontario. Richcraft and Urbandale Corp. are partners therein. The purpose of RSDC is to facilitate the partnership between Richcraft and Urbandale Corp. for the development of lands in the Riverside South area of Ottawa.
10KNL is incorporated pursuant to the laws of Ontario, and is the holder of certain lands in the Kanata Lakes area of Ottawa. KNL is a nominee trustee and agent on behalf of Richcraft and Urbandale Corp., the co-tenants under the Co-Tenancy Agreement.
11Lawrence Weinstein is the principal, founder, and officer of HN Homes Limited Partnership (“HN Homes”) and a director of Urbandale and KNL. Mr. Weinstein is also a lawyer and former partner with the LaBarge Weinstein law firm, and has previously acted as counsel to Urbandale Corp., RSDC, KNL, and Urbandale Construction.
12Urbandale, Urbandale Construction, and HN Homes are related companies pursuing family and commercial interests in common.
Alleged Oppressive Conduct
13Richcraft claims that Urbandale and Lawrence Weinstein have engaged in oppressive conduct against it. They have taken steps, it alleges, to try to prevent it from obtaining 50% of the building lots in the Kanata Lakes project.
14The conduct upon which Richcraft bases its claim of oppression is the following: that Urbandale sought a legal opinion concerning its rights under the co-tenancy agreement, that Urbandale referred the interpretation of its rights under the co-tenancy agreement to arbitration, and that Urbandale proposed to implement a certain agreement of purchase and sale in 2016.
15The details of these claims are as follows:
i) Urbandale Sought a Legal Opinion. On May 23, 2018, Urbandale sought a legal opinion from Paul LaBarge, a former law partner of Mr. Weinstein, without first advising Richcraft. Urbandale asked whether the previous judgments related to the Riverside South LPA and the 2005 Agreement also applied to the allocation of building lots under the CTA in the Kanata Lakes project. The legal opinion was shared with Richcraft when it was received.
ii) Weinstein is Alleged to Have Acted and Participated Inappropriately in Obtaining the Legal Opinion From His Former Law Partner. Richcraft alleges that Weinstein’s objective was to transfer some of the Kanata Lakes lots to HN Homes (owned by Weinstein) from Richcraft’s share of these lots. It alleges that this is oppressive conduct. In addition, Richcraft pleads that Weinstein was in a conflict of interest and acted inappropriately when Urbandale sought the legal opinion from his former law firm and former law partner.
iii) Urbandale Proposed to Implement an Agreement of Purchase and Sale in 2016. In 2016, Urbandale proposed to implement a draft purchase and sale agreement to be used for the sale of all lots in both abovementioned projects. Richcraft was open to discussing the terms of such an agreement. However, Richcraft did not agree with a proposed term that would have allowed Urbandale to repurchase lots sold to either party if they had not built on them within a specified period of time. Urbandale did not proceed with the proposed agreement of Purchase and Sale because Richcraft was not in agreement.
iv) Against Urbandale Construction. Urbandale Construction is a homebuilder that has received lots from Urbandale’s share. Richcraft does not allege that Urbandale Construction has acted oppressively, in bad faith, or that it has breached any contract with it. The only relief sought against Urbandale Construction is a declaration that the court’s previous decision on the allocation of residential lots between Richcraft and Urbandale for the Riverside South project is binding on Urbandale Construction for the Kanata Lakes project.
Issue
16The issue to be determined in each of these Rule 21 motions to strike is the following:
a) Is it plain and obvious that Richcraft’s claims as pleaded against each defendant have no reasonable prospect of success?
Analysis
Legal Test for a Rule 21 Motion
17The parties agree that the test for striking a claim on a Rule 21 motion is set out in Knight v. Imperial Tobacco Canada Ltd, 2011 SCC 42, [2011] 3 S.C.R. 45, at para 22. The Supreme Court stated therein that the test is whether it is plain and obvious that the claim has no reasonable prospect of success. Facts alleged in the statement of claim must be taken as true unless they are patently ridiculous or manifestly incapable of being proven. The Court must give the statement of claim a generous reading, assume the truth of the facts as pled, and construe these in the light most favourable to the plaintiff.
18Oppression claims are fact-specific. The court also has a broad discretion under the oppression remedy set out in s.248(2) of the OBCA. If an act of the corporation threatens to affect a result, if the business affairs of the corporation are threatened to be carried on, or the powers of the directors of the corporation are threatened to be exercised in a manner that is
i) oppressive; ii) unfairly prejudicial; or iii) unfairly disregards the interests of any security holder, creditor, director, or officer of the corporation,
then the court may make an order to rectify the act complained of.
19BCE Inc., Re, 2008 SCC 69, [2008] 3 S.C.R. 560 is the leading case governing the oppression remedy. At para. 36, the Supreme Court held that directors of a corporation are responsible for the governance of the corporation as a whole. Directors are subject to two duties: a fiduciary duty to the corporation, and a duty to exercise the care, diligence, and skill of a reasonably prudent person in comparable circumstances.
20At para. 89, the Court stated that, to establish oppression, a complainant must demonstrate that there has been a breach involving “unfair conduct and prejudicial consequences.” [Emphasis added.] At para. 90, the Court stated that both causation and compensable injury applied broadly to “any action in equity”.
21In Landvis Canada Inc. v. Ocean Choice International Limited Partnership, [2016] NLTD (G) 4 at para 288, aff’d 2016 NLCA 36, 1181 A.P.R. 49, leave to appeal refused, , the Court, following BCE, held that, to establish a claim based on oppressive conduct and breach of reasonable expectations, there must also be both of the following:
a) assertions of compensable injury (prejudicial consequences) to the particular plaintiff, and b) a causal link between the wrongful breach of expectations and the loss in question.
22In Aronowicz v. Emtwo Properties Inc., 2010 ONCA 96, 316 D.L.R. (4th) 621, at para. 67, the Court of Appeal confirmed that an oppression claim made under s. 248 of the OBCA required that harm or detriment be demonstrated.
23In Ciup v. Weinreb, 2018 ONSC 639, at paras. 13-14, the Divisional Court applied the principles set out in BCE and dismissed the appellant’s oppression claim because the impugned acts did not cause any damage. It stated that “the law is clear … that a claim for oppression requires wrongful conduct, causation and compensable injury.”
24Elsewhere, r. 25.06 of the Rules of Civil Procedure also requires that a pleading contain a concise statement of the material facts upon which the party relies for its claim. In Fragomeni v. Greater Sudbury Police Service, 2015 ONSC 3889, the Court held that bald pleadings of conclusions of law cannot be considered to be facts that a court must accept as true.
25In light of this applicable law, I will now analyse whether Richcraft’s pleadings disclose a cause of action with a reasonable prospect of success.
A. Is it plain and obvious that Richcraft’s claims against Urbandale Construction (“UCL”) have no reasonable prospect of success?
26UCL submits that the portions of the Statement of Claim making allegations against it should be struck because they do not disclose or allege a cause of action against it.
27Richcraft agrees that it has not alleged oppressive conduct, bad faith, breach of contract, conspiracy, or tortious conduct by UCL. Nor is Richcraft seeking damages against UCL. Richcraft only seeks a declaration that UCL is bound by the previous decision concerning the Riverside South project.
28Richcraft pleads that UCL has worked with the other Defendants to defeat its interests. However, Richcraft has not set out any material facts or particulars regarding conduct demonstrating that UCL has been working with other Defendants to defeat Richcraft’s interests. Richcraft alleges that the conduct is within UCL’s knowledge and that it therefore does not have to plead any facts or provide particulars regarding the conduct alleged in order to support a cause of action.
29UCL is not a party to the Co-Tenancy Agreement between Urbandale and Richcraft for the Kanata Lakes lands; nor is it a party to the 2005 Agreement. However, it was named as a defendant in the previous litigation related to the Riverside South lands. The arbitration proceeding ordered for the Kanata Lakes lands will determine whether res judicata applies to the interpretation of the CTA and the 2005 Agreement.
30The parties to the Co-Tenancy Agreement and the 2005 Agreement are both sophisticated commercial parties entitled to act in their own commercial interests. They are not fiduciaries of each other. UCL is not a party to either agreement. As such, assuming that it is proven that UCL was involved in discussions with Urbandale, and assuming UCL supported the idea that Urbandale should obtain a legal opinion on the question of whether the court decision concerning the Riverside South lands applied to the agreements related to the Kanata Lakes lands, such conduct is nonetheless unrelated to any cause of action.
31Richcraft further alleges that UCL was involved in discussions with Urbandale and HN Homes to secure a legal opinion to undermine the 2005 Agreement and to diminish Richcraft’s interests. Assuming this pleading is proven, it also does not constitute material facts that relate to any cause of action against UCL that has any possible chance of success.
32At paragraph 66 of the claim, Richcraft alleges that the defendants engaged in breaches of contract. The Plaintiff has subsequently clarified in its submissions, however, that it does not allege any breach of contract by UCL. This makes sense because UCL is not a party to any written or verbal contract with Richcraft.
33At paragraph 67 of the claim, Richcraft alleges that UCL supported Urbandale’s intention to act oppressively and in bad faith towards Richcraft. Again, assuming that this allegation is proven, it does not support a cause of action against UCL. As such, it is plain and obvious that the claim against UCL based on this allegation has no reasonable chance of success.
Is UCL a Necessary Party?
34Rule 5 of the Rules of Civil Procedure states that every person whose presence is necessary to enable the Court to adjudicate effectively and completely on the issues at hand should be joined as a party.
35In this case, Richcraft has not alleged any cause of action based on tort, breach of contract, conspiracy, bad faith, or oppression against UCL. While UCL is a company related to Urbandale, it is a legally separate entity. The fact that UCL is a related company does not make it a necessary party to the action, as its legal rights will not be affected by a decision on matters pleaded in Richcraft’s statement of claim.
36In D&A Grothius, 2009 ONCA 431, the Court of Appeal held that a necessary party is one against whom a tenable cause of action is asserted or whose legal rights are affected by the proceeding. The Court of Appeal stated that it was not enough that a person is simply potentially affected by a proceeding.
37This legal proceeding may indeed affect the number of lots allocated to UCL in the Kanata Lakes project. However, Richcraft has not asserted a tenable cause of action against UCL, and it has not been alleged that UCL’s legal rights will be affected by a decision in this proceeding. I therefore conclude that UCL is not a necessary party to this action.
Is a Declaration an Appropriate Remedy against UCL?
38Under the Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 14 of the Rules of Civil Procedure, proceedings may be instituted seeking a binding declaration of right or a “determination of rights” of a party that depends on the interpretation of an “instrument”.
39In Children's Aid Society of the Regional Municipality of Waterloo v. C.T., 2017 ONCA 931, [2018] 4 C.N.L.R. 31, at paragraphs 74-75, the Court of Appeal held that, in a proceeding in which a declaration is sought, there must exist either a cause of action between the parties against one another or there must be a situation in which it is necessary to identify and resolve the legal rights of the parties to a real dispute.
40In this case, there is no legal relationship between Richcraft and UCL. UCL is not a party to any contract or agreement with Richcraft, and Richcraft has not pleaded that UCL has committed any tort against it. Richcraft has therefore not pleaded or alleged any conduct that could possibly support a cause of action for declaratory relief against UCL.
41Alleging that UCL worked with others to defeat Richcraft’s interest does not amount to pleading material facts that could possibly support a cause of action against UCL.
42For the foregoing reasons, declaratory relief is inappropriate in the circumstances.
Punitive Damages
43Richcraft has made a claim for punitive damages against all Defendants, including UCL.
44In Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at paras. 78-82, the Supreme Court held that punitive damages are only available when a defendant commits an “independent actionable wrong”.
45In this case, in light of the facts mentioned, Richcraft has not pleaded that UCL has committed any independent actionable wrong. As a result, it is plain and obvious that the claim for punitive damages against UCL has no reasonable chance of success, and, as such, is struck.
Leave to Amend
46In its factum, Richcraft seeks, in the alternative, leave to amend its claim to plead particulars of its claim against UCL.
47Richcraft does not have a contractual relationship with UCL, has not made any allegations of any tortious conduct by UCL against Richcraft, and there is no possible oppression claim against UCL because Richcraft is not a security holder, creditor, director, or affiliate of UCL. Richcraft has therefore not provided any evidence of particulars or amendments which could possibly support a cause of action against UCL.
48Rule 26.01 of the Rules of Civil Procedure provides that, on motion at any stage of an action, the court shall grant leave to amend a pleading on terms that are just, unless prejudice would result that cannot be compensated for by costs or an adjournment.
49Richcraft has not brought a motion to seek leave to amend its pleadings; rather, it seeks leave to amend in its factum without setting out any evidence to support its request. Richcraft has not provided any evidence of any proposed amendment for the court’s consideration, nor has it identified any particulars or amendments that it seeks to add to possibly support any cause of action against UCL.
50To obtain this relief on a motion, some evidence is required to support the motion – usually in the form of an affidavit. In this case, I am faced with a complete absence of evidence concerning what the amendments might possibly be because Richcraft has not provided evidence of any material facts to support a cause of action that it wishes to plead against UCL.
51In these circumstances, leave to make unspecified amendments is denied. Richcraft had the opportunity to state the amendments it sought to make when replying to UCL’s motion to strike its claim. It chose not to do so.
Disposition of Urbandale Construction’s Motion to Strike the Claims Against it
52For the abovementioned reasons, I find that it is plain and obvious that Richcraft’s claims against Urbandale Construction have no reasonable chance of success. As a result, its motion to strike is granted and Richcraft’s pleadings against UCL are struck as requested in UCL’s motion without leave to amend.
B. Is it plain and obvious that Richcraft’s claims against Weinstein and Urbandale have no reasonable chance of success?
53Urbandale and Weinstein have also brought a motion to strike Richcraft’s claims against them pursuant to r. 21.01(1)(b) of the Rules of Civil Procedure. They submit that it is plain and obvious that Richcraft’s claims have no reasonable chance of success.
54Weinstein is a director of both Urbandale and KNL. He is a lawyer and a former partner in the LaBarge Weinstein law firm. Richcraft is a minority shareholder in KNL, and is also a co-tenant with Urbandale owning a 20% interest in the Kanata Lakes lands.
Allegations Made Against Weinstein and Urbandale
55Richcraft has made the following allegations against Weinstein and Urbandale in its statement of claim. These are deemed to be proven for purposes of this motion.
a) Request was made to Approve the Sale of Lots to HN Homes from Richcraft's Share (Paragraphs 24 & 26 of the Statement of Claim).
56In 2013, Urbandale asked Richcraft to approve the sale to HN Homes of residential lots in the Kanata Lakes project from Richcraft’s 50% share of the lots. Richcraft refused, but said that it had no objection to HN Homes acquiring lots from Urbandale’s 50% share. Urbandale did not allocate any lots in the Kanata Lakes project to HN Homes from Richcraft’s share.
57At paragraph 26 of its statement of claim, Richcraft alleges that Weinstein and Urbandale were seeking to convert the agreement to allocate lots on a 50/50 basis into a “tripartite agreement” that would disadvantage Richcraft’s interests and unfairly advantage HN Homes’ interests.
58Weinstein was a director of Urbandale. Assuming that the above allegations are proven, they do not constitute material facts that have any possible chance of supporting a cause of action against Weinstein or Urbandale. Neither Urbandale nor Weinstein have threatened to allocate lots to HN Homes from Richcraft’s share of the Kanata Lakes lands, and this is not alleged.
59Richcraft has therefore failed to plead any material facts to support a claim provable on a balance of probabilities that Urbandale or Weinstein threatened to allocate lots to HN Homes from Richcraft’s share, which has any possible chance of supporting a finding of threatened oppressive conduct.
b) Obtaining a Legal Opinion from LaBarge Weinstein (Paragraphs 42-46, and 48 of the Statement of Claim).
60On May 23, 2018, Urbandale sought a legal opinion from Paul LaBarge, a former law partner of Mr. Weinstein’s, on its rights under the co-tenancy agreement it made with Richcraft. Richcraft claims that the Instructing Letter and responding legal opinion from Paul LaBarge explored options to undermine and defeat the 2005 Agreement and diminish Richcraft’s share interest to the benefit of Weinstein, Urbandale, and HN Homes. The pleading does not particularize any details of the instructions given or the legal advice received. The legal opinion was shared with Richcraft after it was received.
61Richcraft further alleges that Weinstein participated and promoted discussions related to the LaBarge/Weinstein Opinion. The Instructing Letter was signed by the President of Urbandale, but Richcraft alleges that Weinstein was involved in obtaining the legal opinion and was inappropriately involved in the opinion given. The reason given for this allegation is the fact that the legal opinion was provided by Weinstein’s former law partner, Paul LaBarge.
62However, Richcraft does not set out any material facts providing the details of inappropriate actions by Weinstein, nor does Richcraft allege any material facts that could support a cause of action against Weinstein or Urbandale. Assuming that Weinstein was involved in drafting the letter of instruction, and assuming that Weinstein expressed his views about what Paul LaBarge’s legal opinion should state, these still do not constitute material facts that could support a cause of action with any reasonable chance of success against Weinstein or Urbandale. A party to a co-tenancy agreement or a director of a corporation that is a party to a co-tenancy agreement is free to seek a legal opinion on its rights under the agreement. It is plain and obvious that such conduct cannot possibly support a claim of oppressive conduct that has any chance of success.
c) Proposed Lot Purchase and Sale Agreement (Paragraphs 49-51, 53, and 57 of the Statement of Claim)
63In 2016, Urbandale proposed that they implement a lot purchase and sale agreement (LPSA) for all builders, including Richcraft. The proposed LPSA contained a clause that would allow the vendor, KNL, to “repurchase” any “unbuilt lots” after a specified length of time.
64Richcraft claims that the introduction of the LPSA was a means of undermining the 2005 Agreement for the benefit of HN Homes and Weinstein. However, Urbandale did not proceed to implement the LPSA because Richcraft did not agree with the proposed terms.
65Richcraft claims that Weinstein breached his duties as a director of Urbandale by proposing to implement the LPSA with the claw back clause, and alleges that he acted in a conflict of interest with regards to the proposed LPSA. However, Richcraft does not plead any material facts that would support a claim of threatened oppressive conduct against Weinstein as a result of his participation in proposing the LPSA.
66The abovementioned paragraphs do not plead material facts that would support a cause of action against Weinstein with any possible chance of success because the proposed LPSA was not implemented. In addition, Richcraft has not pleaded any facts that could possibly support a finding on a balance of probabilities that it was clear that implementation of the LPSA would take place.
d) Oppressive Conduct by Urbandale and Weinstein (Paragraphs 1(b) & (c), 36, 41(f) of the Statement of Claim.)
67In the above-cited paragraphs, Richcraft claims the following:
i) that Urbandale and Weinstein carried out or threatened to carry out the business affairs of KNL and RSDC in a manner that was oppressive, unfairly prejudicial, or that unfairly disregarded the interests of Richcraft; and
ii) that Weinstein exercised his powers as a director and officer of Urbandale and KNL in a manner that was oppressive, unfairly prejudicial, or that unfairly disregarded the interests of Richcraft.
68Richcraft also seeks a declaration that Urbandale and Weinstein have acted oppressively and in bad faith in their attempts to subvert Richcraft’s share interest and promote their own interests.
69Richcraft is a minority shareholder in KNL. Urbandale is the majority shareholder in the company, and Weinstein is a director of both KNL and Urbandale. Richcraft and Urbandale are co-tenants of the Kanata Lakes lands, and KNL is a nominee or trustee and holds title to the lands as a trustee for the two co-tenants.
70In these pleadings, Richcraft has made a bald claim of oppressive or threatened oppressive conduct by both Weinstein and Urbandale without specifying any particular acts of Urbandale or Weinstein that could possibly support a claim for oppression or threatened oppressive conduct. The only actions alleged against them were the obtaining of a legal opinion from LaBarge Weinstein to advise Urbandale of its rights under the CTA, the submitting of the interpretation of the CTA to arbitration (which was ordered), and proposing to introduce a LPSA in 2016 (which was never implemented).
71I am satisfied that Richcraft may be successful in obtaining a declaration that it is a complainant as defined in s. 245 of the OBCA. Nevertheless, while Richcraft has pleaded that Weinstein and Urbandale have acted in an oppressive manner against it and have acted in bad faith, it has not pleaded that it has sustained or that it will probably sustain any loss or compensable injury as a result of the alleged conduct of Urbandale or Weinstein.
Alleged Representations by Weinstein
72Richcraft alleges that Weinstein made representations that Richcraft did not have an entitlement to purchase 50% of the lots under the CTA (this issue will be decided in the Arbitration); that he supported the unilateral introduction of a LPSA (which was never implemented); and that he “actively promoted” such discussions between Urbandale, UCL, and HN Homes.
73Even if it is proven that Weinstein made these representations, it is plain and obvious that they do not constitute material facts which support a cause of action that has any reasonable chance of success. In response to Weinstein’s Demand for Particulars, Richcraft stated that the material facts were within Mr. Weinstein’s knowledge. This included, notably, the details of his alleged involvement in drafting the instructing letter and with the legal opinion that was obtained, and his involvement in proposing to introduce the LPSA, which Richcraft did not agree with. These are not material facts that could possibly support a cause of action against Weinstein.
Richcraft has Not Pleaded that it Has or Will likely Suffer Compensable Injury as a Result of Weinstein’s or Urbandale’s Conduct
74Section 248(2) of the OBCA allows a court to rectify matters complained of where an “act or omission of the corporation … threatens to effect a result that is oppressive or unfairly prejudicial to the interest of any security holder.”
75In BCE, at para. 89, the Supreme Court stated as follows:
“However, to complete a claim for oppression, the claimant must show that the failure to meet this expectation involved unfair conduct and prejudicial consequences within section 241 of the CBCA. Not every failure to meet reasonable expectations will give use to the equitable considerations that ground actions for oppression…” [Emphasis added.]
76At paragraph 90, the Supreme Court went on to state the following:
“In most cases, proof of a reasonable expectation will be tied up with one or more of the concepts of oppression, unfair prejudice, or unfair disregard of interests set out in section 241 and the two prongs will in fact merge. Nevertheless, it is worth noting that as in any action in equity, wrongful conduct, causation and compensable injury must be established in a claim for oppression.” [Emphasis added.]
77Richcraft submits that it is not required to plead any material facts to support a finding that it has suffered any compensable injury as a result of the conduct of Urbandale or Weinstein. It argues that these statements by the Supreme Court were made in relation to a claim for oppression under the CBCA, and that therefore its reasoning does not apply to this case. This is because the claim in the present case alleges oppressive conduct under s. 248 of the OBCA, which encompasses a wider range of conduct that includes threatened oppressive conduct.
78In Greenlight Capital Inc. v. Stronach (2006), 22 B.L.R. (4th) 11 (Ont. S.C), at para. 106, the Court referred the following principle, set out by Farley J. in 820099 Ontario Inc. v. Harold E. Ballard Ltd. (1991), 3 B.L.R. (2d) 113 (Ont. Div. Ct.), at para. 201, where he addressed the rule to apply when a claim is based on threatened oppressive conduct: “it would appear to me that apprehension of future oppression might be dealt with if it was clear on a balance of probabilities that such oppression would take place.”
79To have a chance of success in obtaining a remedy under section 248(2) of the OBCA based on threatened oppressive conduct, the plaintiff must plead the material facts to establish on a balance of probabilities that the threatened oppressive conduct will occur. Richcraft has not done so. It has not pleaded that it has suffered any loss or compensable injury based on any of the alleged conduct of Weinstein or Urbandale to date, and no facts have been pleaded that could possibly support a finding on a balance of probabilities that any threatened action will take place.
80While BCE considered the requirements for the oppression remedy under s. 241 of the CBCA, as opposed to the OBCA, the principles set out therein apply equally to the OBCA. The OBCA uses slightly more expansive wording because it allows for a finding of oppression based on threatened oppressive conduct, which is not included in the CBCA. Nevertheless, I find that the reasoning of the Supreme Court in BCE, stating that both evidence of unfair conduct and compensable injury must be shown to establish oppressive conduct, is also applicable.
81Therefore, while the provisions of the OBCA allow for a finding of oppressive conduct or threatened oppressive conduct, the evidence required to support a claim for threatened oppressive conduct must nonetheless include facts to support a finding that the threatened oppressive conduct, consisting of both the unfair conduct and conduct that will cause compensable injury, will occur on a balance of probabilities.
82In summary, in a claim in oppression, facts must be pled that, if true, establish the following the elements for the claim to proceed:
i) that the claimant is an enumerated corporate stakeholder; ii) that the corporation in question has threatened certain behavior that is oppressive, unfairly prejudicial, or that unfairly disregards the stakeholder’s legitimate interests; iii) that the threatened behavior is likely to occur on the balance of probabilities; and iv) that this threat causes a compensable injury.
83Richcraft has not pleaded any facts to support a finding that it has suffered compensable injury or that the threatened conduct will occur.
Directors’ Duties
84In BCE, at para. 64, the Supreme Court states that directors are not permitted to treat individual shareholders unfairly. Fair treatment is what stakeholders are entitled to “reasonably expect”. Nevertheless, at para. 66, the Court also held that directors of a corporation owe their primary duty to the corporation, not to stakeholders:
“The fact that the conduct of the directors is often at the centre of oppression actions might seem to suggest that directors are under a direct duty to individual stakeholders who may be affected by a corporate decision. Directors, acting in the best interests of the corporation, may be obliged to consider the impact of their decisions on corporate stakeholders, such as the debentureholders in these appeals. This is what we mean when we speak of a director being required to act in the best interests of the corporation viewed as a good corporate citizen. However, the directors owe a fiduciary duty to the corporation, and only to the corporation. People sometimes speak in terms of directors owing a duty to both the corporation and to stakeholders. Usually this is harmless, since the reasonable expectations of the stakeholder in a particular outcome often coincide with what is in the best interests of the corporation. However, cases (such as these appeals) may arise where these interests do not coincide. In such cases, it is important to be clear that the directors owe their duty to the corporation, not to stakeholders, and that the reasonable expectation of stakeholders is simply that the directors act in the best interest of the corporation.”
85In this case, Richcraft claims that Urbandale and Weinstein have taken the following oppressive and bad faith actions: seeking a legal opinion on Urbandale’s rights under the Co-Tenancy Agreement and the 2005 Agreement, submitting the interpretation to arbitration, and proposing to implement the LPSA in 2016.
86For the reasons that follow, Richcraft has not pleaded any facts alleging any threatened conduct or that any damage has been suffered.
A. Legal Opinion
87Richcraft claims that, by seeking a legal opinion concerning the interpretation of two commercial agreements to determine Urbandale’s rights on the issue of allocating lots between it and Richcraft under the CTA, the majority shareholder (Urbandale) and director (Weinstein) engaged in oppressive actions.
88This claim has no reasonable chance of being found to amount to bad faith, or oppressive or threatened oppressive conduct. Any party to a commercial agreement, including a majority shareholder, is entitled to seek a legal opinion concerning the interpretation its rights under a contract. This is so even if the majority shareholder hopes to receive a legal opinion favourable to its interests over the minority shareholder’s interest. Therefore, assuming the facts alleged are proven, it is plain and obvious that the conduct in question does not constitute material facts that could reasonably support a cause of with any reasonable chance of success.
89Furthermore, the issue of the interpretation of the CTA and the 2005 Agreement as it affects the allocation of lots in the Kanata Lakes lands will be determined by arbitration in any event. If the arbitrator agrees with Richcraft’s interpretation of the CTA and the 2005 Agreement, the parties will follow the Arbitrator’s decision, and Richcraft will not suffer any injury. If the Arbitrator agrees with the LaBarge opinion on the interpretation of the CTA and the 2005 Agreement Richcraft, Richcraft will have no grounds for establishing bad faith, oppressive, or threatened conduct by Urbandale or Weinstein.
B. Submission to Arbitration
90On November 20, 2018, Urbandale submitted the interpretation of the CTA and the 2005 Agreement to arbitration. Richcraft opposed proceeding to arbitration, but the matter was nonetheless ordered to be decided by arbitration pursuant to the arbitration clause contained in the CTA on or about November 22, 2019. Richcraft claims that submitting the interpretation to arbitration constitutes oppressive conduct by Urbandale.
91As stated previously, there is nothing oppressive or improper about a seeking and obtaining of a legal opinion from a law firm – even if the instructions were that the lawyer consider possible interpretations that were more favourable to Urbandale than to Richcraft. Likewise, there was no related threatened oppressive conduct because Urbandale did not threaten to implement any aspect of the LaBarge legal opinion. The opinion was obtained on August 8, 2018, and the issue of the interpretation of the agreement was referred to arbitration in November 2018 by Urbandale. It is clear that, rather than illicitly acting on the legal opinion despite Richcraft’s disagreement, Urbandale sought to have the interpretation of the CTA decided by arbitration.
92Richcraft has not pleaded any facts to possibly support a finding on a balance of probabilities that it has or that it will suffer any compensable injury based on the actions of Urbandale or Weinstein in submitting the interpretation of the CTA and the 2005 Agreement to arbitration. Referring the interpretation to arbitration has not even been pleaded to have caused any compensable injury to Richcraft. As such, it is plain and obvious that Richcraft’s claims as pleaded of threatened or actual oppressive conduct by Urbandale and Weinstein have no reasonable chance of success.
93For the same reasons, even assuming that Weinstein sought and obtained a legal opinion as a director of Urbandale or KNL, there is no pleading that he made any threat or took any action to implement the legal opinion which caused or is likely to cause imminent compensable harm to Richcraft. In addition, Richcraft has not pleaded any material facts based on the above conduct on which there is any possible chance of success of obtaining a finding that Weinstein breached his duties as a director, acted in bad faith, or acted or threatened to act in an oppressive manner which has caused or would cause any compensable injury to Richcraft.
94It is plain and obvious that the submission of an issue to arbitration pursuant to an agreement entered into by both parties has no reasonable chance of success, on its own, of establishing that Urbandale or Weinstein threatened to act or acted oppressively. The reasoning concerning injuries suffered, as set forth previously, also applies: Richcraft has not suffered any compensable injury as defined by law from having the interpretation of the CTA determined by arbitration.
C. Proposal to Implement LPSA
95In 2016, Urbandale proposed that a particular purchase and sale agreement be used when anyone purchased a lot in either project. Richcraft was agreeable to engaging in discussions related to this matter.
96On April 2, 2018, Urbandale provided Richcraft with a draft LPSA, which included a term allowing for the repurchase of a lot if it had not been built on within a certain period of time. Richcraft did not agree with this “claw back” term. As a result, Urbandale did not proceed to implement the LPSA, and it has not threatened to implement it unilaterally.
97Richcraft has not pleaded that Urbandale has proceeded with or is threatening to implement the LPSA. In fact, this matter was last mentioned one and a half (1 ½ ) years ago. It is therefore plain and obvious that Richcraft has no possible chance of success in establishing that Urbandale or Weinstein acted oppressively by proposing the terms of a draft agreement of purchase and sale in 2018.
98Section 248(2) OBCA states that a court may make an order to rectify the act complained of where the act constituted oppressive conduct. In the present case, there is no act or threatened imminent act to rectify. Richcraft has not pleaded that has or will probably suffer any compensable injury as a result of Weinstein or Urbandale’s actions in proposing a draft LPSA.
99It is therefore plain and obvious that Richcraft has no reasonable chance of success in establishing that Urbandale or Weinstein acted oppressively or in bad faith, or that Weinstein breached his duties as a director when they proposed to implement a draft LPSA.
Disposition on All Motions to Strike
100For the reasons provided above, the requests to strike Richcraft’s pleadings set out in the motions by Urbandale, Weinstein, and UCL are granted without leave to amend the pleadings.
101Leave to amend is denied because Richcraft has not brought a motion in which it sought to amend its pleadings, and did not propose any actual amendments or propose to plead further facts that could possibly support a cause of action.
102Richcraft was served with a Demand for Particulars by Weinstein, and was given the opportunity to specify material facts which could support a cause of action. It failed to do so.
103In any event, Richcraft has not pleaded any material facts to support a finding that it has suffered or will suffer any compensable injury, or that any oppressive conduct that would, on a balance of possibilities, cause compensable injury was threatened.
Punitive Damages
104The claim for punitive damages is also struck because Richcraft has not pleaded material facts to support a cause of action against any of the Defendants. As such, it is plain and obvious that its claim for punitive damages does not have any reasonable chance of success.
Claim for Breach of Contract
105Richcraft has sought a declaration for damages arising out of a breach of contract. However, it has not pleaded material facts that set out particulars of conduct that could possibly be found to be a breach of contract. As Richcraft has not pleaded any material facts to support a breach of contract, it is plain and obvious that this claim has no reasonable chance of success based on the conduct alleged against any of the defendants. This claim is therefore is struck against all defendants.
Costs
106Urbandale, Weinstein, and UCL shall have 20 days to make submissions on costs. Richcraft shall have 20 days to respond to these submissions, and the moving parties shall have 10 days to reply to Richcraft’s response.
Mr. Justice Robert Smith Released: February 3, 2020