Hevey v. Wonderland Commercial Centre Inc.

Ontario Reports

Ontario Superior Court of Justice

Nicholson J.

January 21, 2021

154 O.R. (3d) 86 | 2021 ONSC 540

Case Summary

Corporations — Derivative actions — Application for leave — Applicant incorporating corporation to acquire and develop land — Multiple claims brought against company arising from applicant's refusal to use sale proceeds of land to pay back loans to company by applicant's estranged spouse — Applicant seeking leave to bring derivative action against his sons as directors and officers for various breaches of duties — Application dismissed — Application commenced to gain tactical advantage in matrimonial proceedings and to remove son as director so applicant not acting in good faith — Allegations by applicant were devoid of merit such that proposed claim was not in company's best interests — Business Corporations Act, R.S.O. 1990, c. B.16, ss. 245, 246.

The applicant incorporated the W corporation in 2000 for the purpose of acquiring and developing a piece of land. The applicant's wife, L, was sole director for about a year before resigning and being replaced by the applicant. In 2006, the applicant replaced himself as director with his sons, J and R. The applicant subsequently separated from L and moved to Florida, followed by matrimonial litigation between the applicant and L. J, R and L were all directly employed by W and did the day-to-day work on the development project, with J becoming president of the company. W sold a portion of the land in 2017, and intended to sell another portion to the same purchaser with a closing date of March 2019. According to J, proceeds of the 2019 sale were to be used to pay back loans that L and her mother made to various companies with the applicant's organization. After J learned that the applicant had no intention of paying back the loans, J issued a notice in January 2019 that no further monies were to be withdrawn from the company's bank accounts without his approval. Despite the notice, the applicant withdrew over $200,000 over the next six weeks without approval. J was not prepared to sign off on the final sale of the property until the loans were repaid. He also refused the applicant's request to sign a resolution effectively relinquishing any and all control he had as an officer and director of the company. Various claims by multiple parties were made against W, jeopardizing the closing for the sale of the second piece of property, leading to a settlement agreement in an attempt to complete the sale. The applicant took the position that his sons failed to act in the best interests of W and failed to comply with their fiduciary duties, duties of care, and statutory duties. He alleged that they used their powers as directors and officers to improperly benefit themselves and others, including prioritizing their mother's claims with respect to the loans, failing to agree to pay arm's length parties as required under the settlement agreement, and failing to do daily tasks such as opening the mail or answering the phone. He applied for leave to commence and prosecute a derivative action in the name of and on behalf of W for damages for oppressive conduct and breach of duties.

Held, the application should be dismissed.

The applicant failed to show that he was acting in good faith. The applicant conceded that he had