LDS Capital Corporation v. Smalley et al.

[Indexed as: LDS Capital Corp. v. Smalley]

Ontario Reports

Ontario Superior Court of Justice

Dietrich J.

December 4, 2020

153 O.R. (3d) 305 | 2020 ONSC 7435

Case Summary

Corporations — Oppression — Reasonable expectations — Remedies — Two brothers owning transportation company through their respective holding companies — Brother with minority share losing his office space, being excluded from decision making, and having his employment activities restricted prior to being terminated — He and his holding company entitled to oppression remedy — Powers of company exercised in a manner that unfairly disregarded interests of minority shareholder and individual applicant as director and officer.

The individual applicant and the individual respondent were brothers. The applicant, through his holding company, owned about 15 per cent of a transportation company, with his brother's holding company owning the remainder. The respondent was the president of the company and the applicant was vice-president. The applicant's principal roles related to developing the company's computer system and online presence, and community outreach. In 2012, some of his responsibilities became automated and he was asked to work from home. His outreach activities were restricted, and the respondent began to make decisions without the applicant's input. In May 2017, the applicant's holding company purchased a printing company, with the purchase being reported to the respondent a few weeks after closing. In June 2017, the respondent advised the applicant of cashflow problems and the corresponding need to terminate the applicant's employment. A wrongful dismissal action by the applicant was settled. The applicant remained a shareholder and director of the transportation company. He and his holding company applied for a remedy against his brother and his brother's holding company for alleged oppressive conduct.

Held, the application should be allowed.

The powers of the company were exercised in a manner that unfairly disregarded the interests of the minority shareholder and the individual applicant as a director and officer. Any expectation that the individual applicant had as an employee was not relevant, but as a director, he did not expect that his brother would exclude him from the business and its operations and reduce his involvement without consultation. He also did not expect that he would be denied office space, or that he would be terminated and asked to sell his shares in his holding company. He trusted his brother with the financial management of the company and was unaware of the extent to which the respondents' activities favoured themselves and unfairly disregarded the applicants' interests. Expenses such as the individual applicant's life insurance benefits, car insurance, and gym memberships were deducted from dividends otherwise payable to the applicant holding company, whereas no such deductions were taken from dividends paid to the respondent holding company. The applicants also submitted that the individual respondent was paid a salary in excess of the market rate and that he was not forthcoming with information about how much salary he paid to his spouse. The respondents, collectively or individually, were ordered to purchase or redeem the shares of the corporate applicant. Based on valuations done on behalf of both parties, the valuation date was set at February 28, 2019. The valuation price was $1,562,500, being the high point of the range of the applicants' valuation.

Cases referred to

BCE Inc. v. 6796508 Canada Inc., [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 301 D.L.R. (4th) 80, 383 N.R. 119, J.E. 2009-43, 52 B.L.R. (4th) 1, 71 C.P.R. (4th) 303, 172 A.C.W.S. (3d) 915, EYB 2008-151755, 2008 SOACQ para. 10,147, 2008 CCAN para. 10,065, 2009 CCSG para. 51,112, 2009 BCLG para. 78,675, 2009 OCLG para. 51,488, 2009 CCLR para. 200,832, 2009 CSLR para. 900-288, 2009 ACLG para. 79,251; Booth v. Alliance Windsor Insurance Brokers Inc., [2007] O.J. No. 4558, 2007 ONCA 805, 161 A.C.W.S. (3d) 913, 56 C.C.L.I. (4th) 227, 40 B.L.R. (4th) 238; Ferguson v. Imax Systems Corp. (1983), 1983 CanLII 1646 (ON CA), 43 O.R. (2d) 128, [1983] O.J. No. 3156, 150 D.L.R. (3d) 718, 21 A.C.W.S. (2d) 443 (C.A.)

Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16, s. 248 [as am.]

APPLICATION for a remedy for oppressive conduct.

Michael B. McWilliams and Christophe Shammas, for applicants.

Malcolm MacKillop and Hendrik Nieuwland, for respondents.

[1] DIETRICH J.: — David Smalley was the owner and operator of a transportation company known as A & B Courier Service Ltd. (the "Company"). In the mid to late 1980s, he sold the Company to his son John Dewane Smalley ("Dewane"). Dewane's brother, David Dean Smalley ("Dean"), joined the Company shortly thereafter and made an investment in it. As a result, Dewane, through his holding Company, Smalley Capital Corporation ("Smalley Capital"), now holds an 85.36 per cent interest in the Company. Dean, through his holding company, LDS Capital Corporation ("LDS"), holds the remaining 14.64 per cent interest.

[2] Both Dewane and Dean are directors of the Company. Dewane is also the president of the Company and acts as its operating mind. He has responsibility for and makes decisions regarding the Company's finances. Until his termination in 2017, Dean was a vice president. He was involved in the management of the Company, in particular its computer and online systems and community outreach.

[3] Dewane and Dean worked together for some 30 years, growing the small family business into a global operation that provides a full range of courier, trucking and logistics services.

[4] Between 2012 and 2017, Dewane reduced Dean's responsibilities at the Company. In 2017, Dewane terminated Dean's employment and employee benefits. Dean remains a shareholder and director of the Company. Dean brought an action for wrongful dismissal, which has since settled.

[5] Dean and LDS (the "Applicants") bring this application against Dewane, Smalley Capital and the Company (the "respondents") seeking a remedy for alleged oppressive conduct that unfairly prejudiced or disregarded the Applicants' interests. They allege, among other things, that the respondents reduced the dividends payable to LDS, reduced Dean's salary, paid excessive salaries to Dewane and members of his family, paid personal expenses of Dewane and his family, paid Smalley Capital performance bonuses under the guise of shareholder loans and failed to provide audited financial statements to LDS.

[6] The Applicants seek a buyout or redemption of the shares held by LDS at their current fair market value, without discount. They also seek compensation for alleged improper deductions and excessive or inappropriate payments to or for the benefit of Smalley Capital, Dewane and his family.

[7] For the reasons that follow, I find that the respondents conducted themselves in ways that unfairly prejudiced or unfairly disregarded the interests of the Applicants. Accordingly, the respondents shall be required to purchase or redeem LDS's shares of the Company for their fair market value as of February 28, 2019. The respondents shall also be required to pay compensation to the Applicants for the reduction in dividends payable to LDS.

Issues

[8] The issues in this matter are as follows:

(1) Did the respondents act in a manner that oppressed, unfairly prejudiced or unfairly disregarded the interests of the Applicants?

(2) If so:

(a) Are the Applicants entitled to a buyout or redemption of LDS's shares at fair market value?

(b) What is the appropriate valuation for LDS's shares in the Company?

(c) What is the appropriate valuation date for LDS's shares in the Company?

(d) What is the fair market value of LDS's shares in the Company?

Background Facts

[9] Until early 2013, Dean's principal roles in the Company related to developing its computer system and online presence, and community outreach. The latter largely involved donations to and participation in events organized by local charities. He also participated in the management of the Company.

[10] In January 2012, Dewane advised Dean that the Company would only support two charities going forward. Around the same time, some of Dean's responsibilities became automated. Dewane suggested that Dean work from home, and begrudgingly, Dean agreed.

[11] Dewane then began to make decisions without Dean's input. Such decisions included the purchase of the Guaranteed Delivery accounts, in respect of which Dean had some experience, and leasehold improvements to the premises on which the business operated, notwithstanding LDS's co-ownership interest in the premises.

[12] Dewane did not call any directors' or shareholders' meetings during this period. He did not respond meaningfully to Dean's requests that a shareholders' meeting be called in 2018.

[13] On May 12, 2017, LDS purchased a large format printing company known as Unique Media Solutions ("UMS"). UMS operated in a distinct industry space and did not compete with the Company.

[14] Dean reported this purchase to Dewane a few weeks after the closing. Dean advised Dewane that he was not receiving any salary from UMS.

[15] On June 30, 2017, Dewane advised Dean of cashflow problems at the Company and the corresponding need to terminate Dean's employment. Dewane offered three options to Dean: (1) he could quit and be paid two years' salary; (2) he could be fired and be paid two years' salary; or (3) he could sell his shares in the Company to Dewane.

[16] On July 10, 2017, Dewane sent Dean an email in which he stated that the Company would no longer pay Dean a salary as of July 10, 2017; that Dean's benefits would terminate as of August 14, 2017; that the Company would no longer pay Dean's car insurance or repair costs as of August 14, 2017; and that Dean's employment would be terminated as of July 31, 2019. Dean's access to the Company's premises was deactivated on August 14, 2017, though he was later told that his requests for access would be honoured.

[17] Dewane subsequently offered Dean a demotion to a job in which he would work 12 hours a day and report to the manager of the Courier Division.

[18] In addition to his action for wrongful dismissal, Dean brought the within application, commenced on February 2, 2018. This court has granted him two orders for the production of financial documents relating to the Company, including financial statements.

[19] Dean obtained from KPMG Forensics ("KPMG") an Estimate of Value Report for the Company with a valuation date of July 31, 2017. KPMG concluded that the fair value of LDS's 14.64 per cent share of the Company at July 31, 2017 was in the range of $1,450,000 to $1,650,000.

[20] Dean also obtained from KPMG an Estimate of Value Report for the Company with a valuation date of February 28, 2019. KPMG concluded that the fair value of LDS's 14.64 per cent share of the Company at February 28, 2019 was in the range of $1,710,000 to $1,840,000.

[21] Dewane obtained from Valuation Support Partners ("VSP") a Valuation Report dated October 10, 2019. VSP concluded that the fair value of LDS's share of the Company was $747,212 at July 31, 2017, $790,529 at July 31, 2018, and $937,600 at February 28, 2019. Each of these values represents the midpoint of the range of values determined by VSP for each of the respective valuation dates.

[22] VSP also prepared a Limited Critique Report (the "Critique Report") in respect of the KPMG Estimate of Value Reports regarding KPMG's fair value determinations as at July 31, 2017 and February 28, 2019. In response to that Report and the additional information provided therein, KPMG revised its calculations and concluded that the value of LDS's 14.64 per cent share of the Company at July 31, 2017 was in the range of $1,335,000 to $1,456,000 and the value at February 28, 2019 was in the range of $1,533,000 to $1,592,000.

Positions of the Parties

[23] The Applicants assert that they have been unfairly prejudiced or their interests have been disregarded by the respondents in the following ways:

(1) LDS did not receive dividends because the Company accountant, Allen Koroll, was directed to net expenses charged to LDS's shareholder account (e.g., life insurance premiums, home Internet, car insurance, and gym membership) out of dividends payable to Dean in order to bring the dividend balance down to a minimal amount or zero. Dean asserts that the aggregate of the deductions from 2012 to 2017 was $102,523.58.

(2) Dean's compensation from the Company was reduced in the years 2013 to 2016, when his bonus was halved and his salary reduced from $173,000 to $135,000.

(3) Dewane received a salary well in excess of the market rate. Including the salary of his spouse, Christine, paid to her for income-splitting reasons, Dewane received a salary of approximately $430,000 per year between 2012 and 2018. Dean asserts that the market rate for a manager of a courier company is in the range of $150,000 to $200,000.

(4) Dewane caused the Company to make payments to Smalley Capital characterized as shareholder loans, but which Dewane admits were performance bonuses that he does not intend to repay. As of August 2017, those payments totaled $1,003,296.77. In addition, the Applicants assert that KPMG found that the Company paid $201,427 of Dewane's personal credit card expenses, not booked in the shareholder account for Smalley Capital.

(5) Dewane's spouse, Christine, has been paid a salary since 1992 but does not actively work in the Company. Between 2012 and 2019, she received compensation of $1,527,571, plus pension benefits over $27,774.40. This exceeds the compensation paid to Dean during the same period. In addition, the Company paid full-time salaries to each of Dewane's two children for part-time services.

(6) Dewane's personal credit card expenses (e.g., meals, travel, clothing, jewellery, golf memberships, landscaping and housekeeping) were charged to the Company.

(7) Other than for the 2013 fiscal year, the Company has never provided financial statements to the Applicants.

(8) Dewane has been using the Company to pay incorporation charges and expenses for an apparel company he incorporated in January 2018 and for another company incorporated in May 2018, in which the Applicants are not shareholders.

(9) The Company gave Christmas and anniversary bonuses to employees that were not included in their T4s and that were improperly classified as advertising expenses, thereby potentially exposing Dean, as a director, to liability.

[24] Dean asserts that the appropriate remedy to address the alleged oppressive conduct is the following relief:

(1) A buyout or redemption of the shares held by LDS at their current fair market value without discount.

(2) Payment of $102,523.58 in respect of the deductions made to dividends payable to LDS from 2013 to 2017.

(3) Payment of $172,074.33 in respect of the improperly characterized shareholder loans to Smalley Capital.

(4) An accounting and reference to determine the amount payable to the Applicants to compensate them for the excessive compensation paid to Dewane and his spouse, Christine.

(5) An indemnity from the Company in respect of any liability to the Canada Revenue Agency for the conduct of the Company or Dewane.

[25] Dewane asserts that much of the alleged oppressive conduct relates to Dean's employment at the Company and not the rights of LDS as shareholder. Further, Dean is unfairly holding Dewane to a standard that Dean himself did not meet regarding the operation of the Company. For example, Dean's spouse was also on the payroll despite not doing any work for the Company, and Dean and his spouse used a Company credit card to pay for personal expenses. Dean also used a Company credit card to pay for gas used to travel to and from UMS, the company he was financing with the salary he earned at the Company.

[26] Dewane asserts that none of the conduct of the Respondents falls outside of what Dean could reasonably expect as an indirect shareholder, as opposed to an employee, in the closely held family business.

[27] Dewane denies any oppressive conduct and submits that, if oppressive conduct is found, the only remedy should be an order requiring the Company to repurchase Dean's shares for $747,000, the fair market value as of July 31, 2017, when Dean was terminated by the Company.

Legal Principles

[28] Section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 permits a complainant to seek a remedy for oppressive conduct by another. Where the court is satisfied that the powers of a corporation 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.

[29] Before making an order, the court must determine whether the evidence (a) supports the reasonable expectations asserted by the claimant, and (b) establishes that those reasonable expectations were violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard": BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, at para. 68. The Supreme Court of Canada expanded on these terms as follows [at para. 67]:

"Oppression" carries the sense of conduct that is coercive and abusive, and suggests bad faith. "Unfair prejudice" may admit of a less culpable state of mind, that nevertheless has unfair consequences. Finally, "unfair disregard" of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders' reasonable expectations.

[Citation omitted]

[30] In considering whether a reasonable expectation exists, the following factors are relevant:

-- general commercial practice,

-- the nature of the corporation,

-- the relationship between the parties,

-- past practice,

-- steps the claimant could have taken to protect itself,

-- representations and agreements, and

-- the fair resolution of conflicts between corporate shareholders: BCE, at para. 72.

[31] In Booth v. Alliance Windsor Insurance Brokers Inc., [2007] O.J. No. 4558, 2007 ONCA 805, 40 B.L.R, (4th) 238, the Court of Appeal for Ontario held that courts should select the fairest date based on the particular facts when determining the valuation date in an oppression remedy case.

Analysis

[32] Based on the evidentiary record, I am satisfied that the powers of the Company were exercised in a manner that unfairly disregarded the interests of the minority shareholder, LDS, and Dean, a director and officer of the Company. As a shareholder and investor, LDS had a reasonable expectation that the majority shareholder would manage the Company bearing in mind the interest of its minority shareholder. Instead, the majority shareholder operated the Company with a view to enhancing its own interest and the interests of its principal and his family, with little regard for the Applicants' interests. Essentially, from about 2012 onward, Dewane operated the Company as if there were no shareholder other than Smalley Capital and no other officer or director.

The Applicants' Reasonable Expectations

[33] Only the reasonable expectations of LDS and its shareholder, Dean, who continues to be a director of the Company, are relevant to this analysis. Any expectation that Dean may have had as an employee is not relevant.

[34] In determining whether conduct is oppressive in a closely held corporation like the Company, courts have considered the relationship between the shareholders and the bona fides of the corporate transactions in question: Ferguson v. Imax Systems Corp. (1983), 1983 CanLII 1646 (ON CA), 43 O.R. (2d) 128, [1983] O.J. No. 3156 (C.A.), at para. 28.

[35] I accept Dean's assertion that, given their long history of working together and growing the Company, he reasonably expected that Dewane and the Company would treat the Applicants fairly. He did not expect that Dewane would exclude him from the business and its operations and reduce his involvement without consultation. Dean also did not expect that he would be denied office space at the premises in which he had an indirect one-third interest and be asked to work from home, or that he would be terminated and asked to sell his shares in LDS to the respondents.

[36] As an equity shareholder, I accept that LDS reasonably expected a proportionate share in the profits of the Company and to receive dividends when declared. Also, as a director and guarantor on the Company's line of credit, Dean had exposed himself to risk for the benefit of the Company and it was reasonable for him to expect to share in the Company's rewards.

[37] I further accept that Dean trusted Dewane with the financial management of the Company. For that reason, he never asked for, or received, financial statements or records other than for the 2013 fiscal year. It was only when the respondents were ordered by this court to make financial disclosure in 2017 and 2018 that Dean came to appreciate the extent of the respondents' activities, which favoured the respondents and unfairly disregarded the Applicants' interests. These include paying Dewane a significant, possibly above-market, salary; paying Dewane's spouse a significant salary for little, if any, contribution to the Company; paying the personal expenses of Dewane and members of his family from the Company; and reducing Dean's dividend income by deducting from the dividend entitlement expenses paid for Dean's benefit.

Oppressive Conduct

[38] I will now review the instances of oppressive conduct in respect of which Dean seeks compensation.

[39] Dean submits that between 2012 and 2017, Dewane led him to believe that the Company had no money to pay dividends. In fact, the financial records show that during this period Smalley Capital was receiving its pro rata share of dividends but LDS was not. From the dividends otherwise payable to LDS, the Company accountant, Mr. Koroll, deducted expenses such as Dean's corporate life insurance benefits ($71,008.32) and home internet, cell phone, car insurance and gym membership expenses, which had been attributed to LDS's shareholder loan account. The total amount deducted from the LDS dividend entitlement for the period in question, as recorded on Mr. Koroll's working papers, was $102,523.58. Dean asserts that some of these expenses were legitimate corporate expenses and that Mr. Koroll did not consult with him to determine which expenses were corporate and which, if any, were not.

[40] Dewane asserts that the deductions related to personal, not corporate expenses, and were therefore appropriately deducted. He also asserts that Dean was fully aware of deductions for the fiscal years ending on July 31, 2014, 2015 and 2016 because he signed Mr. Koroll's representation letters approving, among other things, "adjusting journal entries" and "accounting records you prepared or changed". Dean also initialed those adjusting journal entries for LDS, which included the following description: "To record dividend received from A & B Courier . . . net against advances payable to A & B Courier."

[41] I find that notwithstanding that Dean may have signed and initialed these documents, there is no evidence to suggest that Mr. Koroll or anyone else explained the impact of the deductions on his dividend entitlement. Nor does the record offer any explanation as to why a similar netting out of expenses was not applied to the dividends paid to Smalley Capital. It seems likely that there would have been premiums for Dewane's life insurance, which were also paid by the Company, but there is no evidence of similar deductions. It appears that Smalley Capital received its full pro rata share of the dividends declared without any deduction. The record provides no explanation for the practice that, on its face, creates unfairness between the shareholders.

[42] In remedying the unfairness, I acknowledge that Dean's home internet and cell phone expenses were settled as part of the wrongful dismissal action and should not be counted again in this proceeding. Deducting those expenses from the total of $102,523.58 leaves a balance of $101,128.34. The record is imperfect with respect to which expenses, if any, were Dean's personal expenses or LDS's corporate expenses paid by the Company. Accordingly, I will reduce the net amount by 20 per cent. In the result, LDS is entitled to $80,902.67 in compensation for dividends that were not paid to LDS for the fiscal years 2015, 2016 and 2017, when they were paid to Smalley Capital.

[43] Dean also submits that Dewane was paid a salary well in excess of the market rate for a manager of a courier company. The expert reports obtained by both parties show that the salary for a manager of a courier company is in the range of $150,000 to $250,000. If Dewane's salary is added to the salary paid to his spouse, Christine, with whom Dewane was income splitting, his average salary for the years from 2012 to 2018 would have been approximately $430,000. Dean asserts that this is "exorbitant" and that Dewane's spouse has received a salary and pension since 1992 despite having done "no work". Moreover, because Dewane has not disclosed the details of the salary and pension paid to Christine, it is impossible to quantify LDS's claim for excess salary paid. He therefore seeks a reference to determine the amount of compensation owing to LDS.

[44] Dewane asserts that Christine has done work for the Company (e.g., cleaning and snow plowing), which justifies her salary. Further, it was in Dean's reasonable expectations that Christine would receive a salary because his own spouse also received a salary from the Company, albeit considerably less and over a shorter period of time.

[45] Dewane argues that, in light of his responsibility to operate and direct the Company, he is entitled to a salary in excess of the range payable to a manager of a courier company. I agree that Dewane's contributions appear to be greater than those of an average courier company manager. Dean himself has admitted that Dewane oversaw the Company's finances and that he deferred to Dewane on significant decisions relating to the Company. Dean does not dispute that, with some assistance from him, Dewane parlayed the Company from a small family business to one that now operates globally, providing a full range of courier, trucking and services.

[46] Dewane also argues that Dean was not targeted or treated unfairly when his salary was reduced. The record shows that in the fiscal years of 2014, 2015 and 2016, when the Company was less profitable, the salaries of both Dewane and Dean were reduced. Dewane's salary declined by an equal or greater percentage.

[47] With respect to salary increases for Dewane and his spouse, especially following Dean's termination, I accept Dean's assertion that Dewane has not been forthcoming with financial information and that he has not fully complied with at least one of the two court orders directing him to disclose salary details. It is reasonable to infer that Dewane may be withholding information relevant to the determination of amounts paid in compensation. However, a reference to determine the precise salary and pension benefits paid to Christine and Dewane will result in considerable cost to both parties, and there is reason to doubt that Dewane will be forthcoming in providing the relevant information. To avoid putting the parties to this additional expense, I will factor the probability that Dewane overpaid himself and his spouse into the purchase price of LDS's shares.

[48] The Applicants assert that, since 2017, following Dean's termination, the Company has paid Smalley Capital at least $1,003,296.77, recorded as loans to the shareholder. Dewane has admitted that this figure represents performance bonuses that he does not intend to repay to the Company. The Applicants argue that these payments are essentially dividends and the minority shareholder should be entitled to its proportionate share, which they claim to be $172,074.33.

[49] Dewane asserts that the bonus payments are justifiable because the Company was growing, doing well and making money, and that Dean in no way contributed to the post-2017 growth. Dewane also asserts that the bonuses paid in 2018, 2019 and 2020 were appropriate because he had taken a salary reduction in 2013, 2014, 2015 and 2016.

[50] Dean disagrees that he made no contribution to the Company after 2017 and asserts that the work that he put into the computer system was still benefiting the company, as was the goodwill generated from his community outreach efforts. And even if Dewane were entitled to a bonus for his efforts, Dean argues that the amounts were excessive. Based on the record, the Company paid Smalley Capital a bonus of 56 per cent of its net income in 2018 and 62 per cent of its net income in 2020. In each of 2018 and 2020, the Company experienced a decrease in net income. Again, the record is imperfect and I cannot determine whether Dewane was entitled to the performance bonuses paid, but it is noteworthy that no dividends were declared in years when Dewane was paid a bonus in the range of $220,435 to $343,314. On a balance of probabilities, I am satisfied that Dewane overcompensated himself through the payment of bonuses in 2018, 2019 and 2020 to avoid having to share the Company's profits with the minority shareholder. Accordingly, it is appropriate to factor an amount to compensate for this overpayment into the value of the LDS shares to be purchased by the respondents.

The Valuation Date

[51] Dewane asserts that the valuation date should be the fiscal year ending July 31, 2017, shortly after the date Dewane asked Dean to sell the LDS shares. This time also coincides with Dean's termination. Dewane further asserts that, after that time, Dean was not making any material contribution to the business of the Company and any increase in share value since July 31, 2017 was not through any effort or contribution by Dean.

[52] Dean submits that July 31, 2017 is not the appropriate valuation date because Dewane made no formal offer to purchase LDS's shares at that time, and, further, Dean's contributions to the Company were still adding value following his termination.

[53] Dean submits that a current valuation will reflect the contributions that he made to the Company for over 30 years and the fact that LDS's capital continues to be at risk. The Company continues to benefit from the computer systems and software initiatives Dean put in place, as well as the goodwill generated through his community outreach. Further, Dean asserts that he continues to bear the risk of having guaranteed the Company's line of credit and through his directorship.

[54] I accept that Dean has made an investment in the Company and is entitled to realize fair value for his share of the equity. I also accept that he has ongoing risk as a guarantor and a director. His continuing contribution to the Company through the use of computer systems he assisted to put in place and the goodwill created through community outreach are more difficult to measure. Dean supervised the installation of the computer systems and provided input to the programmers, but he was not the architect of the system and relied on the information technology expertise of others. Dean admits that he would not have had the skills to write and install the necessary programs. Also, while Dean was still employed at the Company, Dewane reduced the Company's support of charities in the community to two, thereby reducing the benefit to the Company of Dean's community outreach work.

[55] I acknowledge that the Applicants obtained an endorsement of this court that would permit them to prepare a current date valuation if I find that is appropriate. In my view, another valuation, in addition to those already obtained by the parties, will needlessly prolong this litigation and add to the expense of all parties. Both KPMG and VSP have provided a valuation of LDS's shares as at February 28, 2019, which is relatively current. I am satisfied that a valuation at this date reflects the contributions that Dean made to the Company during the 30 years he worked there and served as a director and officer. It also recognizes some contribution to the growth of the Company following Dean's termination, his ongoing risk as a guarantor and a director and the fact that LDS's capital continues to be at risk. Relying on this valuation avoids the expense of further valuations and responding critiques. It should bring the litigation to an end, to the benefit of all parties.

The Valuation Price

[56] Based on a valuation date of February 28, 2019, KPMG found the value of LDS's minority interest in the Company to be in the range of $1,533,000 to $1,592,000. KPMG reduced its range of value from its earlier valuation using the same date following the receipt of further information from VSP and the Critique Report. The midpoint of the KPMG valuation is $1,562,500.

[57] By contrast, VSP found the value of LDS's interest in the Company to be in the range of $883,747 to $991,307 as at February 28, 2019. The midpoint of the VSP valuation is $937,600. The difference between the midpoints reached by the two valuators is $634,900.

[58] The principal areas of difference between the conclusions reached by each of the valuators are the weighted average cost of capital ("WACC") and the selected maintainable earnings before interest, depreciation and amortization ("EBITDA"). These are the areas that KPMG specifically addressed in its response to the Critique Report dated November 14, 2019.

[59] Regarding the WACC, the variance between KPMG and VSP relates to the selection of the size premium (3.4 per cent used by KPMG, as opposed to 12 per cent used by VSP). KPMG, in its response to the Critique Report, asserts that the VSP size premium is overstated. The VSP size premium was taken from a Duff & Phelps report that provides that a U.S. public company with the Company's market capitalization, which is the lowest grouping of the lowest decile, would have a size premium of 11.6 per cent. VSP rounded that number up to 12 per cent. KPMG cautions against blindly following the Duff & Phelps publication because the index may duplicate risks that are captured in other risk factors. The author of the VSP report acknowledged that the sole consideration made by Duff & Phelps is market capitalization and that the index could group the Company with non-comparable companies like pre-venue startups and distressed companies. KPMG relied on its research, analysis and publicly available data regarding equity, as well as discussion among the team working on the mandate. I am prepared to accept KPMG's analysis of the size premium, which relies on a variety of resources, notwithstanding that it does not describe each in detail, as opposed to the VSP analysis that relies on one source that provides a U.S. public company comparable.

[60] Regarding the EBITDA, the principal differences between the valuators relate to the normalization of the non-business-related credit card expenses and computerization expenses. Under cross-examination, KPMG agreed that it did not consider all the relevant facts in support of an increase in computerization expenses for the Company that would have had an impact on the normalization of those expenses. Had it done so, it may not have normalized the computerization expenses. On the evidence, I accept that there was an explanation for the higher computer expenses in 2016 and 2017, which provided a rational basis for not normalizing them. VSP took that approach, which I accept.

[61] Regarding the normalization of the non-business-related credit card expenses, I accept the opinion of KPMG, which reviewed every transaction listed on Dewane's and Christine's credit card statements and assessed its business legitimacy. This amounted to about 1,800 transactions. KPMG found that the Company paid $201,427 of Dewane's personal credit card expenses not booked in the shareholder account for Smalley Capital. VSP, by contrast, did not review every transaction, other than regarding its spot check of 59 transactions. It did not test the business legitimacy of the transactions but relied on the advice of the Company's management instead. It identified $101,422 of personal expenses. When KPMG requested Dewane's input, he declined to speak to KPMG or offer any explanation regarding flagged transactions. I am prepared to draw an adverse inference about Dewane's lack of cooperation and accept the evidence of KPMG.

[62] In summary, considering the differences in approach to the WACC and EBITDA, I prefer the evidence of KPMG, except with respect to the normalization of the computerization expenses, where I prefer the evidence of VSP. KPMG's midpoint valuation would decrease through the exclusion of the normalization of the computerization expenses. However, I am mindful of the need to factor into the valuation the performance bonuses taken by Dewane under the guise of shareholder loans and the salaries paid to Dewane and Christine, all of the details of which have not been disclosed to Dean. Given Dewane's lack of transparency, I am prepared to draw an inference that these payments were excessive and cannot be fully rationalized. Had the payments not been made, the value of the Company would likely be greater, as would LDS's proportionate share.

[63] An order requiring one or more of the respondents to buy or redeem, as the case may be, LDS's shares in the Company is warranted. Having terminated Dean's employment, Dewane is obviously not interested in giving Dean an opportunity to be involved in any way in the business of the Company. Dean continues to be a director, but he has had no role in the Company since July of 2017; in fact, his role has been undermined since about 2012. Because Dean, thorough LDS, has a minority shareholding in the Company, and it appears Dewane would prefer to be the sole shareholder, there should be no prejudice to Dewane in ordering this relief. Accordingly, Dewane shall acquire, or the Company shall redeem, LDS's shares of the Company for $1,592,000, being the high point of the range of the KPMG valuation as of February 28, 2019.

[64] Regarding Dean's claim that he is at personal risk with the Canada Revenue Agency because of Company practices regarding income splitting or paying bonuses using gift cards, or both, I find that Dean has not led any evidence to show that this risk exists. Further, Dean is a director of the Company who participated in income splitting with his spouse and was fully aware of the gift card bonuses. He took no steps to change or end those practices. If there is liability for any period during which Dean was a director, he should reasonably expect to share in it. I decline to order Dewane to indemnify Dean in this regard.

Disposition

[65] I find that the respondents have acted in a manner that oppressed, unfairly prejudiced or unfairly disregarded the Applicants' interests in the Company. The respondents, collectively or individually, shall purchase or redeem LDS's shares, representing its 14.64 per cent shareholding, for fair market value as at February 28, 2019, being $1,592,000. The respondents, or any one or more of them, shall also pay the Applicants $80,902.67 as compensation for dividends that were not paid to LDS for the fiscal years 2015, 2016 and 2017, when they were paid to Smalley Capital. Such purchase or redemption of LDS's shares and the payment of such compensation shall occur within forty-five (45) days of the date of these reasons for decision.

Costs

[66] The Applicants have succeeded on their application and are entitled to their costs. The parties are strongly encouraged to agree on the matter of costs. If they cannot, the Applicants may make written submissions not exceeding three pages in length (excluding a bill of costs or costs outline and offers to settle, if any) within 14 days hereof. The respondents may respond with written submissions not exceeding three pages in length (excluding a bill of costs or costs outline and offers to settle, if any) 14 days thereafter. Reply submissions may only be made with leave.

Appeal allowed.