COURT FILE NO.: CV-21-76264

DATE: 20210923

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kathy Ann Di Silvestro and Kandis Developments Limited, Plaintiffs/Responding Parties

AND:

Laura Marie Di Silvestro, Matthew Dennis Di Silvestro, Anthony Di Silvestro, Marie Frances Teresa Di Silvestro, 547955 Ontario Limited and Adisco Limited. Defendants/Moving Parties

BEFORE: JUSTICE L. SHEARD, Case Management Judge

COUNSEL: Shawn Laubman, Bradley Vermeersch, Harold Nyman and Fabian Suarez-Amaya for the Plaintiffs/Responding Parties Derek J. Bell and Katelyn Ellins, for Defendants/Moving Parties

HEARD: In Hamilton, via videoconference, on September 3, 2021

REASONS FOR DECISION ON MOTION

Overview

[1] The defendants bring this motion to strike certain paragraphs of the Amended Statement of Claim (the “Claim”).

[2] In their Notice of Motion, the defendants grouped the challenged paragraphs of the Claim (collectively, the “Impugned Paragraphs”) as follows:

(1) the “Relief Passages”: subparagraphs 1(b), (c), (d), (f), (g), (h), (i), (t), (u), (v), and (w);

(2) the “Derivative Action Passages”: paragraphs 16, 18, 23-28 and 32;

(3) the “Estate Plan Passages”: para. 33-42;

(4) the “Kandis Loans Passages”: para. 95-98; and

(5) paragraph 94.

[3] In oral argument, the defendants conceded that with respect to 547955 Ontario Limited (“547”), Kathy Ann Di Silvestro (“Kathy”) is a complainant and is entitled to maintain an oppression claim in respect of 547. On that basis, the defendants withdrew their motion to strike para. 28 of the Claim.

[4] This motion is brought under rule 21.01 of the Rules of Civil Procedure[^1]. Under that rule, no evidence is permitted and for the purposes of the motion, the allegations set out in the pleadings are assumed to be true or capable of being proven, unless they are patently ridiculous or incapable of proof. In this case, the pleadings consist of the Claim, the defendants’ Demand for Particulars (the “Demand”) and the Plaintiffs’ Amended Response to Demand for Particulars (the “Response”). I find no allegations made in the Claim are patently ridiculous or incapable of proof. As such, I accept as true the allegations set out in the Claim.

Background

[5] The factual background set out below is taken from the pleadings.

[6] Kathy and the defendants, Laura Marie Di Silvestro (“Laura”), and Matthew Dennis Di Silvestro (“Matthew”), are three of the four children of Anthony Di Silvestro (“Anthony”) and his wife, Marie Frances Teresa Di Silvestro (“Marie”). The fourth child, Anthony John Di Silvestro (“Tony”), is not a party to the litigation, although he figures prominently in the pleadings.

[7] The Di Silvestro family has been involved in the real estate development industry for over 60 years. Their real estate development enterprise (the “Family Business”) is run through Adisco, an Ontario corporation that is wholly owned by 547.

[8] Adisco owns the majority of the assets comprising the Family Business, which are worth approximately $50 million. The corporate structure is complex, involving numerous subsidiary entities, family trusts, and holding companies which, in turn, own various development projects, including in partnership with unrelated companies.

[9] 547 is owned by the Di Silvestro family as follows:

(i) Anthony holds one common share in trust for each of Kathy, Laura, Matthew, Tony and Marie, each of whom has a one-fifth beneficial interest therein;

(ii) Kathy, Laura, Matthew, Tony, and Marie, each own 20% of the remaining issued and outstanding common shares of 547; and

(iii) Anthony owns all the issued and outstanding Class A and Class B shares of 547, which gives Anthony voting control over 547 and, as a result, control over Adisco.

[10] As at January 2021, Anthony was 93, and Marie 86, years of age.

[11] Kathy is a real estate developer with 32 years of experience and owns her own real estate brokerage. Kandis Developments Limited (“Kandis”) is a private Ontario corporation beneficially owned by Kathy. Kathy has not been involved in or kept informed of the operations of the Family Business and has relied on Anthony and Tony to protect her interest in the Family Business.

[12] Tony is an officer of Adisco and for the last 23 years has been closely involved in the management and direction of the Family Business. Historically, Tony has also acted as real estate lawyer for Anthony and Marie.

[13] In 2016, Anthony announced that Tony would be his successor and would assume responsibility for the management of the Family Business. In 2016 or 2017, Laura began working in the Family Business. The plaintiffs allege that sometime after that, Anthony’s behaviour toward Tony changed and Anthony began “freezing Tony out of the Family Business in favour” of Laura and began making “short-sighted and erratic business and personal decisions” which he “refuses or is unable to explain”; Anthony has been exhibiting “clear signs of cognitive impairment, and is unable to engage in a detailed conversation about his development plans or risk strategy”. (Claim, at paras. 16, 17, 18 and 19).

[14] The plaintiffs allege that in August 2020, Laura was “secretly appointed as a Vice President of 547 without the knowledge or consent of Tony and Kathy, and without proper notice or authority”, Laura has seized control of 547 “for herself” and is “disrupting the ordinary management that had been in place for over two decades”; “Laura will not allow Anthony to share information regarding the Family Business with Tony and Kathy” and has acted in a manner that is oppressive and prejudicial to the interests of the shareholders of Adisco by diverting corporate opportunities to Laura’s private business; misappropriating and misusing corporate assets; paying significant management fees to herself and to Matthew; and withholding financial and other relevant information from Kathy. (Claim, at paras. 22, 23, 24 and 25)

[15] The Response provides particulars relating to allegations in paras. 16, 17, 22, 23(b), (f), and (g) of the Claim. The Response does not provide particulars requested in the Demand respecting paras. 23(a), (c), and (d), 24, 33, or 34 of the Claim on the basis that particulars are either not required or are provided in other paragraphs of the Claim. The numbering used in the Demand appears to be based on the original Statement of Claim.

Grounds of the Motion

[16] In their Notice of Motion, the defendants assert that the Impugned Passages should be struck on the grounds that: 1) they disclose no reasonable cause of action; 2) have been inserted “purely for colour and for improper and vexatious purposes”; 3) the Derivative Action Passages could only be asserted by way of a derivative action; and, 4) in respect of Adisco Limited (“Adisco”), a derivative action could only be commenced by a proper complainant, which the plaintiffs are not.

[17] In support of their motion, the defendants assert that:

(1) if 547 committed any wrongful acts that were unique to Kathy and she had some reasonable expectations with respect to 547, then, as a shareholder of 547, Kathy could assert an oppression claim against 547;

(2) if there were wrongful acts that harmed 547, Kathy would be a “complainant” as defined under s.245 of the OBCA[^2] and could seek leave under s. 246 to commence a derivative action;

(3) Kathy’s claim for oppression in relation to Adisco cannot succeed: Kathy is not a “complainant” and is not capable of obtaining a remedy against Adisco;

(4) the Derivative Action Passages and the Kandis Oppression Passages cannot succeed and should be struck because:

a. the harm alleged in those passages are harms to Adisco and not to Kathy, as a 547 shareholder, or to Kandis, as a creditor of Adisco;

b. the plaintiffs have not pleaded sufficient material facts to ground their oppression claims;

c. even if the plaintiffs were found to be “complainants”, “virtually all of the claims asserted in relation to Adisco are derivative in nature”: the plaintiffs have failed to include particularized allegations of wrongs done to Kathy, as a shareholder of 547 that are distinct from any wrong affecting the 547 shareholders collectively, or to Kandis, as a creditor of Adisco; and

d. the claims set out in the Derivative Action Passages and the Kandis Oppression Passages can only be brought by way of a derivative action under s. 246 of the OBCA;

(5) the claims set out at paragraphs 2(c) and 2(d); 25(a),(b)(c ) (d) (e)(f) and (g) should be struck on the basis that the Claim fails to plead sufficient material facts to support these claims;

(6) the Estate Plan Passages should be struck on the basis that:

a. the plaintiffs do not have standing to assert a claim for harm done to any of the corporations that comprise the Family Business, which claims must be brought as a derivative action, with leave, under s. 246 of the OBCA;

b. neither plaintiff has identified a reasonable expectation that they have been harmed by the Estate Plan Changes and, only the reasonable expectations of Kathy, as a shareholder 547, or Kandis, as a creditor of Adisco, are protected by the oppression remedy;

c. the plaintiffs have failed to plead sufficient material facts to support an oppression claim in para. 42 and, therefore, paras. 33-42 and the related particulars should be struck;

(7) the plaintiffs have failed to properly plead any of the oppression claims outlined in paragraphs 25, 42 and subparagraphs 2(c) and 2(d) and paragraphs 1. (b), (c), (d), (f), (g), (h), (i), (t), (u), (v), and (w) and paras. 23, 24, 26, 27, 28 and 32 should be struck on the grounds that they are irrelevant to any matter in issue if the oppression claims at para. 25, 42 and 2(c) and 2(d) are struck; and

(8) the Kandis Loans Passages should be struck on the basis that the plaintiffs have not claimed that Kandis made a prior demand for repayment of the loans, which demand was refused and, therefore, the plaintiffs’ claim for repayment of the loans has no reasonable prospect of success.

Disposition

[18] Except as stated otherwise, for the reasons set out below the defendants’ motion is dismissed.

The Law: Motion to Strike

[19] As stated above, the defendants’ motion to strike out portions of the Claim is brought pursuant to r. 21.01(1)(b) and r. 25.11(b), which read as follows:

21.01 (1) A party may move before a judge,

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,

and the judge may make an order or grant judgment accordingly.

(2) No evidence is admissible on a motion,

(b) under clause (1) (b). R.R.O. 1990, Reg. 194, r. 21.01 (2).

25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(b) is scandalous, frivolous or vexatious;

[20] On a motion to strike a statement of claim, or portions of it, brought under rule 21.01(1)(b) the court may consider only the statement of claim, the documents to which it specifically refers and any answers to a demand for particulars. The court is to accept the allegations set out in the statement of claim as proven unless they are “patently ridiculous or incapable of proof”. The pleadings are to be read generously, with allowance to be given for inadequacies arising from drafting deficiencies: Paul Shaughnessy Investments Inc. v. Drain, 2018 ONSC 1850, at para.19 (“Shaughnessy”).

[21] “A pleading should be “brief, clear, focused and contain the skeletal or core facts and not the evidence that details those facts unless particulars are required by the rules”: Stedfasts Inc. v. Dynacare Laboratories, 2019 ONSC 6626, at para. 29.

[22] A claim may be struck out under r. 25.11(b) if it asserts untenable pleas or contains insufficient material facts to support the allegations made. Parties are to be allowed a great deal of latitude in how they plead, but the court may strike a pleading to remove vague allegations (Stedfasts, at para. 34).

[23] A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action…has no reasonable prospect of success: R. v. Imperial Tobacco Canada, [2011] SCC 42, at para 17.

[24] A claim should be struck “when the facts as pleaded are taken to be true, the claim is plainly doomed to fail”: Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, at para. 19.

[25] The power to strike out claims that have no reasonable prospect of success is a valuable “house-keeping measure essential to effective and fair litigation”. It used to weed out “the hopeless claims” while ensuring that those with some chance of success go on to trial and it allows the litigants to focus on “serious claims, without devoting days and sometimes weeks of evidence and argument to claims that are in any event hopeless” (Imperial Tobacco, at paras. 19, 20).

[26] The defendants assert that certain allegations in the Claim suffer from “a lack of particularity”, rendering them “largely incapable of a response”. By way of example, the defendants identify the allegation in the Claim that “corporate opportunities” were diverted from 547 and Adisco, without providing particulars of the corporate opportunities.

Analysis: Alleged Lack of Particularity

[27] I begin by addressing the assertion that the paragraphs of the Claim should be struck for lack of particularity.

[28] In my view, the Response provides a sufficient answer to the Demand. With respect to those paragraphs for which no particulars were provided, I accept the plaintiffs’ submissions that the particulars were not within the knowledge of the plaintiffs but were known to the defendants. For example, the defendants asked for particulars of corporate opportunities diverted from 547 and/or Adisco. Those particulars were not included in the Response because Kathy has not been provided with financial and other disclosure relating to those corporations. I find that the particulars requested and to which the plaintiffs did not respond, are within the knowledge of the defendants and, in any event, are not necessary to enable the defendants to plead.

[29] In oral submissions, counsel for the defendants asserted that the lack of particularity creates a “free-for-all” that will inevitably lead to further motions respecting the scope of documentary production and of the examinations for discovery. For example, will Laura be required to produce all of the records of all of the corporations in which she has in interest in order to respond to an allegation that she or one of her companies might have taken unfair advantage of an opportunity that should have or did belong to Adisco? Or, based on the Claim and Response, will the defendants be required to respond to claims that are statute-barred?

[30] Even if there may be some validity to the concerns expressed by the defendants that in the absence of greater particularity, the stage is being set for more motions to be brought, that is not a basis upon which this motion may be decided. At this juncture, the role of the court is to determine whether, as pleaded, the allegations made in the Claim are doomed to fail and to “weed out the hopeless claims”.

[31] The pleadings clearly set out that this dispute concerns a family and a number of closely-held corporations. The pleadings describe events that have taken place when the family patriarch is elderly and, it is alleged, suffering a cognitive decline and that Laura and Matthew have taken advantage of the situation. The Claim alleges that there has been a significant change in how the Family Business is operated. For example, Tony, who Anthony had publicly identified as his heir apparent and who had acted as legal counsel to the Family Business for 23 years, has been replaced by Laura, who, it is alleged, has had little historical hands-on experience with the Family Business.

[32] The pleadings also clearly identify certain transactions that are described as out of keeping with Anthony and Marie’s known, and long-held, estate plans, which transactions benefit Laura and/or Matthew, and are detrimental to Kathy and also, potentially to Maria, who, it is alleged, is incapable of managing property and her personal care.

[33] The defendants do not seek to strike many of the paragraphs that assert that actions taken by Anthony are out of character for him; nor to strike the paragraphs concerning actions taken by, or on behalf of Maria, for whom, it is alleged, financial and personal care decisions must be made by Anthony and Laura, as Maria’s attorney for property and personal care. The paragraphs that the defendants do seek to strike concern assertions that unexplained changes have been made to the long-standing business succession plans that detrimentally affect Kathy and/or Kandis, on the basis that neither Kathy nor Kandis have standing to assert such claims.

[34] Without providing an exhaustive summary, I note that the plaintiffs have provided the particulars of the following allegations:

(1) the transfer to Laura, for no consideration, in 2020 of the family cottage, purchased in 1978 and enjoyed by all members of the family;

(2) the transfer was effected by Anthony as attorney for property of Marie;

(3) the lawyer who acted on this transfer was new to Anthony and Marie, as they had historically used Tony as their lawyer;

(4) this transaction took place during the COVID-19 pandemic, which limited the ability of new counsel to meet with and obtain clear instructions from one or both of Anthony and Marie;

(5) the transfer to Laura in November 2019 of a piece of property that abutted Anthony and Marie’s home, thereby affecting the value of the home; and

(6) a mortgage purportedly obtained by Marie in 2016 and registered against her home at a time when Marie was incapable of appreciating the nature of consequences of that action, which loan was renewed in November 2019, at a time when Marie was incapable.

[35] I am satisfied that the facts set out in the Claim and the particulars contained in the Response are sufficient to allow the defendants to plead and, on their face, provide sufficient facts on which to base the related allegations set out in the Claim.

[36] In my view, and accepting the facts as pleaded, some of which are referenced above, the plaintiffs have identified a number of actions and transactions made by, or on behalf of, Anthony and/or Marie at a time when Marie appears to have been clearly incapable and Anthony, possibly so; that were out of character for Anthony and Marie; and which actions and transactions appear to conflict with Anthony and Marie’s known and longstanding business succession and estate plans.

[37] As a child and known beneficiary of her parents’ estate plans, I cannot conclude on the record before me on this motion that Kathy’s claims set out at paragraphs 33-42 and 94 of the Claim and are hopeless or doomed to fail or should be struck out on the basis of lack of particularity. I address below whether Kathy’s claims respecting the Family Business should be struck on a different basis.

Allegation of Voting Trust Agreement

[38] At paragraph 14 of the plaintiffs’ factum on this motion, it is asserted that the corporate governance of the Family Business was conducted pursuant to a Voting Trust Agreement, which has since expired. Despite that, Kathy asserts that Anthony continues to act as sole voting shareholder. Paragraph 14 of the factum references para. 30 of the Claim as supporting that submission. Paragraph 30 of the Claim states that Anthony has voted on shareholder resolutions on Kathy’s behalf without authorization or approval thereby depriving Kathy of her rights as a shareholder of 547.

[39] I accept the defendants’ submissions that the Claim lacks details to support the allegation made at paragraph 30 that Anthony no longer has authority to vote on behalf of Kathy. The Claim contains no mention of a Voting Trust Agreement, the expiry of which no longer permits Anthony to vote on behalf of Kathy. The allegations at paragraph 30 of the Claim, support, in part, Kathy’s claim to have been oppressed as a shareholder by Anthony’s conduct. Accordingly, additional facts would assist to explain that assertion.

Leave to amend

[40] The plaintiffs are hereby granted leave to amend the Claim to plead facts to further support the allegations set out at paragraph 30 and, in particular, to provide facts relating to an alleged Voting Trust Agreement and/or its expiry.

[41] While, as drafted, paragraph 30 of the Claim gives rise to a question concerning when and how Anthony had authority to vote on behalf of Kathy and why he no longer has that authority, that paragraph is not sufficiently problematic such as to justify an order that it, or any portion of it, be struck out, should the plaintiffs choose not to amend the Claim and I make no such order.

No Reasonable Cause of Action

Kandis Loans Claims

[42] The defendants seek an order striking out paragraphs 95-98 of the Claim on the basis that the plaintiffs have not alleged that the loan is due and payable and, also, that Kandis’s oppression remedy claim is doomed to fail because Kandis does not meet the definition of a complainant under the OBCA.

[43] The plaintiff responds that demand for repayment may be made through a statement of claim, which amounts to written and unequivocal notice: D’Antonio v. Monaco, 2015 ONCA 274, at para. 19.

[44] I accept the plaintiffs’ submissions that, pursuant to D’Antonio, the Claim provided notice of Kandis’ demand for payment. The defendant’s motion that Kandis’ claims should be struck out on that basis is dismissed.

Leave to Amend: Kandis’ Oppression Remedy Claim

[45] The plaintiffs assert that the Family Business has assets that are worth $50 million. The defendants assert that the Claim lacks facts to support Kandis’ alternate claim for a declaration under s. 248 of the OBCA that it has been treated oppressively, is a person aggrieved pursuant to s. 248 of the OBCA, or that would support Kandis’s allegation that Adisco or 547 has acted in a manner that is oppressive or unfairly prejudicial to Kandis.

[46] I accept the defendants’ submissions on this issue. I find that, as pleaded, the relief claimed by Kandis at paragraphs 2(c) and (d) of the Claim is not supported by sufficient facts. Among other things, Kandis does not assert that the oppressive conduct has or will prevent it from collecting of the loans.

[47] However, I grant the plaintiffs leave to amend the Claim to plead facts to support the relief claimed in paras. 2(c) and (d). If the plaintiffs do not amend the Claim as permitted herein within 60 days of the date of these reasons, then these reasons shall operate to strike out paragraphs 2(c) and (d) of the Claim, without further motion.

Oppression Remedy and Derivative Claims

[48] A principal focus of the written and oral submissions on this motion was whether Kathy’s claims for relief under s. 248 of the OBCA relating to Adisco were hopeless and doomed to fail.

[49] The defendants assert that Kathy cannot bring herself within s. 245 of the OBCA, which defines a “complainant” as follows:

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

[50] The Claim seeks relief under s.248 of the OBCA. S. 248(1), (2) and (3) of the OBCA provide as follows:

(1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section. 1994, c. 27, s. 71 (33).

(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. R.S.O. 1990, c. B.16, s. 248 (2).

Court order

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue. R.S.O. 1990, c. B.16, s. 248 (3).

[51] The defendants assert that on the facts as pleaded, Kathy is incapable of qualifying as a “complainant”. Kathy acknowledges that she does not own shares in Adisco, which is wholly- owned by 547, and that Anthony has voting control over 547 through his ownership of all the issued and outstanding Class A and B shares. Also, Kathy is not a shareholder, director, officer or creditor of Adisco.

[52] The defendants also assert that the complaints that are alleged are purely derivative in nature; that at their core, the complaints are that Laura principally, and Anthony secondarily, “committed a parade of horribles that ultimately harmed 547. That is the type of claim that could arguably be asserted, with leave of the court, through a derivative action. It is not a proper claim of oppression” (Defendants’ factum at para. 2).

[53] The defendants acknowledge that while s.245(c) gives the court an “unfettered discretion” to determine who is a complainant, there must be a basis for such a finding.

[54] The defendants acknowledge that Kathy is a registered security holder of an “affiliate” of Adisco - 547 - but submit that Kathy’s remedy lies only as against 547. The defendants further submit that Kathy has pleaded no facts upon which a court could find that she is a “proper person” (under s.245(c)) to make an oppression complaint against Adisco. In fact, they submit, the pleadings lead to the opposite conclusion: Anthony holds the majority of the voting shares, and Kathy is neither a director nor an employee of Adisco and there is no basis upon which to find that Kathy had any “reasonable expectation” that might form the basis of an oppression claim.

[55] The defendants refer to the decision of Newbold J. in Re Nortel Networks Corporation et al, 2013 ONSC 6973. At para. 350 of Nortel, Newbold J. quotes from the decision of Farley J. in PMSM Investments Ltd. v. Bureau (1995), 25 O.R, (3d) 586, that to sustain an oppression remedy the oppression in question must affect the interests of the complainant in the corporation that is being accused of oppressive conduct (emphasis added). The defendants submit that if that principle is applied to this case, the plaintiffs would have to establish that Adisco’s behaviour was oppressive or unfairly prejudicial to Kathy’s interests in Adisco, and not just to her interests as a shareholder in 547, which owns Adisco.

[56] Farley J.’s conclusion was explained by Newbold J. as having to do with “basic corporate governance principles” under which directors and officers owe fiduciary duties to the corporation for which they are directors or officers. If they cause the corporation to act in an oppressive manner that harms the corporation and affects the interest of its stakeholders, there are statutory remedies such as the bringing of a derivative action or the bringing of an oppression remedy. With respect to the latter, the reasonable expectations of stakeholders that are at the heart of the oppression remedy is that the directors will act in the best interests of the corporation; the purpose of the oppression remedy is to protect complainants from prejudicial acts that affect the corporation in which they are a shareholder, creditor etc. (Nortel, at paras. 356,357)

[57] The defendants assert that in an oppression case, the plaintiff must show that their reasonable expectations have not been met. In this case, the defendants submit in the absence of a legal relationship between Kathy and Adisco, Kathy cannot have “reasonable expectations” concerning the conduct of the directors of Adisco.

[58] In the Claim, Kathy has asserted that she has reasonable expectations concerning the Family Business and has set out the basis for those reasonable expectations and why they have not been met. I am not persuaded that the principle stated by Farley J. in PMSM, adopted by Newbold J. in Nortel can be strictly applied in this case. As discussed below, disputes involving closely-held private corporations have been viewed somewhat differently from cases involving widely-held public corporations. In light of the jurisprudence, it is also not clear that whether Kathy’s claims as a complainant can be determined on the pleadings alone, in the absence of a fuller evidentiary record: see Folia et al v. Grid Link Corp., et al, 2021 ONSC 703 (“Folia”).

[59] In oral argument, both parties referred to the Ontario Court of Appeal decision in Rea v. Wildeboer, 2015 ONCA 373. In Rea, the Court was called on to determine whether a claim was properly brought by way of an oppression remedy or should be pursued by way of a derivative action. The plaintiffs/appellants had asserted an oppression claim under s. 248 of OBCA, alleging that funds had been misappropriated from the defendant corporation, Martinrea International Inc.

[60] In Rea, the court stated that the oppression remedy is intended to provide a complainant with the right to apply to the court, without leave, “to recover for wrongs done to the individual complainant by the company or as a result of the affairs of the company being conducted in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of the complainant. The oppression remedy is a personal claim [citations omitted] (at para. 19).

[61] The court stated that two forms of redress available through the derivative action and the oppression frequently intersect and that the distinction between them remains “murky”, yet the statutory distinctions remain (at paras. 20, 21).

[62] At para. 29, the court stated that the two forms of relief are not mutually exclusive and that there are “cases where an oppression claim has been permitted to proceed even though the wrongs asserted were wrongs to the corporation, those same wrongful acts have, for the most part, also directly affect the complainant in a manner that was different from the indirect effect of the conduct on similarly placed complainants. And most, if not all, involve small closely-held corporations not public companies.

[63] The appellate court found that no overlap existed between the derivative action and the oppression remedy as the appellants had not asserted that their personal interests as shareholders had been adversely affected in any way other than the type of harm suffered by all shareholders and upheld the lower court’s dismissal of the plaintiff’s claim. The court concluded that the oppression remedy was not available unless the alleged harm affected the complainant personally; the impugned conduct had to be oppressive or unfairly prejudicial to or unfairly disregard the interests of the complainant personally, giving rise to a personal action. (Rea, at paras. 32-35).

[64] Although the appellate court upheld the lower court’s ruling and dismissed the appeal, the court stated as follows:

[26] I accept that the derivative action and the oppression remedy are not

mutually exclusive. Cases like Malata and Jabalee [^3] make it clear that there are

circumstances where the factual underpinning will give rise to both types of

redress and in which a complainant will nonetheless be entitled to proceed by

way of oppression remedy. Other examples include: Ontario (Securities

Commission) v. McLaughlin, [1987] O.J. No 1247 (H.C.J.); Deluce Holdings Inc. v. Air Canada (1992), 12 O.R. (3d) 131 (Gen. Div.); C.I. Covington Fund Inc. v. White, [2000] O.J. No. 4589 (S.C.), aff’d [2001] O.J. No. 3918 (Div. Ct.); Waxman v. Waxman, [2004] O.J. No. 1765 (C.A.), at para. 526, leave to appeal refused, [2004] S.C.C.A. No. 291.

[27] However, I agree with the respondents that claims must be pursued by way of a derivative action after obtaining leave of the court where, as here, the claim asserted seeks to recover solely for wrongs done to a public corporation, the

thrust of the relief sought is solely for the benefit of that corporation, and there is

no allegation that the complainant’s individualized personal interests have been

affected by the wrongful conduct.

[29] While this debate is interesting, it is not necessary to resolve it here. On my reading of the authorities, in the cases where an oppression claim has been

permitted to proceed even though the wrongs asserted were wrongs to the

corporation, those same wrongful acts have, for the most part, also directly

affected the complainant in a manner that was different from the indirect effect of

the conduct on similarly placed complainants. And most, if not all, involve small

closely-held corporations not public companies.

[30] Waxman is a good example. The company was a family scrap metal

business. Some of the acts complained of, including the wrongful distribution of

bonuses, could have been the subject of a derivative action, but it was not

disputed on appeal that the complainant “was personally aggrieved by the

distribution” and that it “was done at the expense of his interest in the company”:

para. 526.

[31] Malata – a case involving another closely-held company – is also a good

example. The misappropriation of funds in that case affected not only the

company (and therefore the indirect interests of all shareholders), but the direct

interests of the minority shareholder as a creditor of the company.

[65] In Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, the court observed that “there is not a bright-line distinction between the claims that may be advanced under the derivative action section of the OBCA and those that may be advanced under the oppression remedy provisions” (at para. 26). The court stated further that there can be overlap between the oppression remedy and the derivative action “where directors in closely held corporations engage in self-dealing to the detriment of the corporation and other shareholders or creditors” (at para. 31).

[66] The appellate court in Malata was persuaded by the analysis of Swinton J. in C.I. Covington Fund Inc. v. White, [2000] O.J. No. 4589 (S.C.J.), who concluded that section 248(3) of the OBCA confers a broad discretion on the court to determine an appropriate remedy.

[67] In Covington, the complainant had purchased shares in and loaned money to a closely held company. The respondent, CEO a majority shareholder, misappropriated intellectual property belonging to the company, resulting in the company’s inability to pay its creditors. The court invoked s. 248(3) to make an order that the respondent cease using the technology.

[68] In Malata the appellate court observed that in the case before it, and in Covington, the complainant had alleged misappropriation of corporate property by another shareholder and director, which resulted in a derivative loss to the complainant. The court concluded that in disputes involving closely held companies with relatively few shareholders, there was less reason to require a plaintiff to seek the leave of the court, given that the small number of shareholders minimized “the risk of frivolous lawsuits against the corporation, thus weakening the main rationale for requiring a claim to proceed as a derivative action” (at paras 32 - 34, 39).

[69] A similar observation was made in Mozas v. Medcan Health Management Inc., 2017 ONSC 1524, at para. 16, in which Wilton-Siegel J. observed that Rea had left open the possibility of an overlap between derivative and oppression claims “particularly in the case of claims involving small, closely held corporations, where the same wrongful acts can directly affect a complainant in a manner that is different from the indirect effect of the conduct of similarly placed complainants.”

[70] In Mozas, the claimant alleged that the defendants had treated the corporation “as their personal piggy bank” and sought the repurchase of their shares at fair value based on the income that the corporation would have enjoyed but for the improper payments. The court concluded that in the context of a small, closely held corporation, there was a real potential for the overlap of personal and derivative claims, which were contemplated by section 247(c) which allowed a court to order an amount to be paid by a defendant in a derivative action, in whole or in part, to a former or present security-holder of the corporation instead of to the corporation.

[71] Mozas flags an additional reason to distinguish between claims involving widely-held public corporations and claims involving closely held private corporations: in the former, a shareholder can sell their shares, in the latter, the shareholder must look to the other shareholders or to the corporation to repurchase their shares. In this case, Kathy includes a claim that her interest in the 547 and Adisco be repurchased at fair value.

[72] On this motion, the plaintiffs acknowledge that if the relief sought can only be for the benefit of the corporation, then the action must proceed by way of a derivative action. However, the plaintiffs submit that Kathy’s claims are also personal to her. For example:

(i) at para. 1(e) of the Claim, Kathy seeks an order appointing an auditor to prepare consolidated audited financial statements for Adisco and 547. That relief is not opposed;

(ii) at paragraph 1(i) of the Claim, Kathy asks for an interim and interlocutory order compelling disclosure of the financial and corporate records of 547 and Adisco and including those of subsidiary and related entities; and

(iii) at paragraph 1(f) of the Claim, Kathy asks for an order directing one or both of 547 and Adisco to purchase her interest and holdings at fair value, without any application of any liquidity, minority or other discount or, alternatively, to transfer to her sufficient assets to satisfy her interest. Again, that relief belongs to Kathy and is not a derivative claim.

[73] The plaintiffs submit that in decisions that post-date Rea, courts have distinguished between claims involving widely-held public corporations and those involving closely held family corporations. The decision of Charney J. in Shaughnessy provides a helpful analysis of developments post-Rea.

[74] In Shaughnessy, as here, the matter before the court was a motion brought by the defendant to strike out the statement of claim on the ground that it was plain and obvious that the claim disclosed no reasonable cause of action. There, as here, the claim at issue was an oppression action brought pursuant to s.248 of the OBCA. There, as here, the defendants argued that the plaintiff’s claim should fail because it was not pleaded as a derivative action under s.246 of the OBCA, which requires the leave of the court, similar to the submissions made by the defendants on this motion.

[75] In Shaughnessy, the defendants argued that in order to properly plead a claim of oppression, the plaintiffs were required to allege that they were “uniquely affected by the conduct of the defendants” and that if the allegations of misconduct related to a wrong by the defendants against the corporation, and not against the plaintiff shareholder personally, the claims could only be made derivatively by the shareholders bringing a derivative action under s. 246 of the OBCA, with leave of the court.

[76] In Shaugnessy, as here, the plaintiff’s submitted that in cases involving small, closely held corporations there may be an overlap between the oppression remedy and the derivative action “where directors and closely-held corporations engaged in self-dealing to the detriment of the corporation and other corporate stakeholders: (Shaughnessy, at para. 69, quoting Ryan Bell J. in 1217174 Ontario Ltd. v. 141608 Canada Inc., 2017 ONSC 7698).

[77] In Shaughnessy (at para. 83), the court distinguished Rea, noting that Rea concerned a widely-held public company, and concluded that “it was not plain and obvious that the principles stated in Rea preclude the plaintiffs from pursuing these claims as oppression claims” and that having concluded that “at least two of the claims do assert individualized personal interests of the plaintiffs, supports the conclusion that the claim should be permitted to proceed and not be struck out under rule 21.01”.

[78] As noted in Shaughnessy (at para. 64), the court in Rea recognized a distinction between cases involving a widely-held public corporation and the closely held private corporation. In the latter, with allegations of misappropriation or self-dealing by a director, officer and major shareholder, there may well be “an overlap and coexistence between the wrong caused by the alleged misappropriation to the corporate collectivity and the wrong caused by it to the minority shareholder/creditor” (Rea, at para. 40).

Analysis: Claims under s.248 OBCA

[79] I first consider whether the pleadings contain allegations that the individual and personal interests of the plaintiffs were affected by the alleged wrongful conduct.

[80] The Claim includes the following allegations:

(a) at para. 22, the plaintiffs assert that Laura was secretly appointed a VP of 547 and as an officer of Adisco, without the knowledge or consent of Kathy and without proper notice or authority;

(b) at para. 24, the plaintiffs allege that Laura will not permit Anthony to share information regarding the Family Business with Kathy such that she no longer knows the type or magnitude of the risks being taken by Anthony;

(c) at para 25, the plaintiffs assert that Laura has acted in a self-interested matter and unduly influenced Anthony to act in a manner that is oppressive, prejudicial and unfairly disregards the interests of the other shareholders (other than Laura and Matthew) by misappropriating and misusing corporate assets for the use of Laura, her children and/or Matthew; by paying Laura and Matthew significant management fees and salaries, without authority and without the other shareholders’ knowledge and consent, while refusing to refuse to issue shareholder dividends contrary to long-standing practice and the shareholders’ reasonable expectations;

(d) at para. 25, the plaintiffs assert that information relevant to the interests of Adisco in 547 in other companies, trusts, and other vehicles comprising the Family Business, have been withheld from Kathy from whom financial and other information has also been withheld;

(e) at para. 30, the plaintiffs assert that Anthony and/or Laura have failed to notify Kathy of 547’s shareholder meetings and resolutions and that Anthony has voted on Kathy’s behalf without authorization or approval; and

(f) at para. 31, the plaintiffs assert that Anthony and/or Laura have denied Kathy access to information regarding the Family Business.

[81] In my view, the pleadings contain allegations that Kathy’s individual and personal interests have been affected and that she has been treated in a manner that is different from similarly-placed shareholders. As such, on the facts as set out in the pleadings, it is not plain and obvious that Kathy’s oppression claim will fail or that redress must be by way of a derivative action.

Could a court find Kathy to be a complainant?

[82] In Pricewaterhousecoopers Inc. v. Olympia & York Realty Corp., 2003 ONCA (“O&Y”) the Court of Appeal considered the scope of the court’s discretion under s.245(c) to determine who is a proper person to be a complainant. In the decision under appeal, the trial judge had determined that the trustee in bankruptcy of a corporation qualified as a complainant with respect to claims made against a wholly-owned subsidiary corporation.

[83] As noted at para. 350, at that time, there were no decisions in which a court recognized a valid complaint by a creditor or security holder arising from oppressive conduct that had affected only an associated corporation other than the corporation of which the complainant is a stakeholder. Despite that, the appellate court upheld the decision of the lower court noting that s.245(c) confers the court with an unfettered discretion to determine whether an applicant is a proper person to commence or oppression proceedings under s.248. The appellate court noted that the provision is designed to provide the court with flexibility in determining who should be a complainant in any particular case, which accompanies the court’s flexibility in determining if there has been oppression, and in fashioning an appropriate remedy.

[84] The facts in this case, while not identical, are analogous to the situation in O&Y.

[85] Folia provides an example of an oppression claim that is more analogous to the claim in this case. In Folia, the plaintiff was not a shareholder of the corporation against whom the oppression remedy was sought. In Folia, the motion was brought pursuant to r.21.01(1); to strike the pleading in its entirety.

[86] The applicants were minority shareholders of the respondent, 1928025 Ontario Ltd. (“192”). The respondent Bernst, was a majority shareholder of the respondent, Grid Link Corp. (“GL”); 192 was a minority shareholder of GL. The respondents asserted that, while the applicants could seek leave to have to bring a derivative action against GL, they were not proper “complainants” in respect of GL under s.245 of the OBCA, as they were not shareholders of GL,

[87] The applicants conceded that they did not qualify as complainants under s.245 (a) or (b) and the dispute was whether they qualified as complainants under s. 245(c). The moving parties submitted that there was no Ontario decision in which a minority shareholder of a corporation that was a minority shareholder of another corporation, had brought a claim for oppression. As such, it was plain and obvious that the applicants would never be considered to be complainants under s.245(c).

[88] The motions judge disagreed. Fitzpatrick J. concluded that it was not plain and obvious that the applicants were not complainants and, at best, it was a question of mixed fact and law that ultimately required a full evidentiary record to determine. In reaching that conclusion, Fitzpatrick J. considered the court’s comments in O&Y that s.245(c) confers the court with an “unfettered discretion”.

[89] Fitzpatrick J. stated that

an “unfettered discretion” is the highest and best degree of discretion that can be exercised by an adjudicative body. Given the broad discretion granted to the court and the connections of the Applicants to [the respondent] GL, it is not plain and obvious to me that a court would not exercise its unfettered discretion in their favour and consider their claims for a finding of oppressive conduct by the [respondent] Bernst” (Folia, at para. 21).

[90] The facts in in this case support a conclusion similar to that reached in Folia: Kathy’s connection to the defendants, which is neither tenuous nor remote, is such that it is not plain and obvious to me that a court would not exercise its discretion under s.245(c) to find Kathy to be a complainant, nor is it plain and obvious to me that she would not succeed in her oppression claims or in obtaining the remedies she seeks.

[91] In oral submissions, the defendants referred to the endorsement of I.F. Leach J., in Struthmann v, Struthmann, 2020 ONSC 759. That decision followed the hearing of an Application and Counter-Application and proceeded on a full evidentiary record. For that and other reasons, the decision is distinguishable, and has no application to this motion.

Costs

[92] As the successful parties on this motion, the plaintiffs are presumptively entitled to their costs. I would urge the parties to attempt to reach an agreement on costs. If they are unable to do so, then costs submissions shall be made as follows:

1. Within 14 days of the date of the release of this decision, the plaintiffs shall serve and file its written costs submissions, not to exceed three pages, double-spaced, together with a draft bill of costs and copies of any relevant offers to settle.

2. Within 7 days of the service of the plaintiffs’ costs submissions, the defendants shall serve and file their responding submissions of no more than three pages, double-spaced, together with a draft bill of costs and copies of any relevant offers to settle.

[93] If no submissions are received within 21 days of the date of the release of these reasons, the parties shall be deemed to have resolved the issue of the costs and costs will not be determined by the court.

Justice L. Sheard

Date: September 23, 2021

COURT FILE NO.: CV-21-76264

DATE: 20210923

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Kathy Ann Di Silvestro and Kandis Developments Limited

Plaintiffs/Responding Parties

• and –

Laura Marie Di Silvestro, Matthew Dennis Di Silvestro, Anthony Di Silvestro, Marie Frances Teresa Di Silvestro, 547955 Ontario Limited and Adisco Limited. Defendants/Moving Parties

Defendants/Moving Parties

REASONS FOR DECISION ON MOTION

Released: September 23, 2021

[^1]: R.R.O. 1990, Reg.194. [^2]: Business Corporations Act, RSO 1990, c. B.16 [^3]: Jabalee v. Abalmark Inc., [1996] O.J. No. 2609 (CA)