COURT FILE NO.: CV-21-00671487-00CL DATE: 2022-07-20
ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)
BETWEEN:
DENISE ALEXANDER Applicant
– and –
DHA HOLDINGS INC., SHEILA ALEXANDER, and 530414 ONTARIO LIMITED Respondents
COUNSEL: Lucas E. Lung and Rebecca Shoom for the Applicant Mark A. Ross and Erin Pleet for the Respondents
HEARD: April 13, 2022
PENNY J.
REASONS FOR JUDGMENT
Overview
[1] In this application Denise Alexander seeks a declaration that her mother, Sheila Alexander, has carried on the business or affairs of DHA Holdings Inc. in a manner that is oppressive or unfairly prejudicial to, or unfairly disregarded, Denise’s interests. Denise seeks an order, among other things, setting aside a debt conversion and share issue implemented by Sheila, an order removing Sheila as director of DHA and appointing Denise in her place, and an order that the respondents pay compensation to Denise in an amount to be determined by the court.
[2] This application takes place in the context of a shareholder dispute in a small, closely held group of enterprises that were created and operated by Keith Alexander. Keith was Sheila’s husband and Denise’s father. Keith died on May 2, 2020. An interim motion was resolved in the course of a case conference before Justice Conway. Part of that interim resolution was the interim consent order of Conway J. of November 30, 2021, which requires the amount of $20,000/month each be paid to Sheila and Denise, as well as a one time payment to each of $60,000.
[3] As I will explain below, the application is granted in part. The debt conversion and share issue is set aside. Both parties, however, are entitled to reasonable payments from DHA as needed to fund their living expenses. Their conflicting interests and expectations must be reconciled in a manner that balances their needs against available resources, and the need for income against capital preservation or enhancement. Further evidence and proceedings are necessary in order to resolve this balancing exercise if it cannot be resolved by the parties themselves. In the meantime, the interim consent order of Conway J. shall remain in force until varied by written consent of all parties or further order of the court.
Background
[4] Keith Alexander was a successful businessman. He suffered a stroke in 2015 and died on May 2, 2020. Keith was survived by his wife Sheila Alexander, who is now 84 years of age, and by three daughters, one of whom is the applicant, Denise.
[5] Keith’s business consisted primarily of the following entities:
a. Jetco Manufacturing Limited, a commercial furniture manufacturing business;
b. Three Dees Management Limited, incorporated in 1966, which indirectly owned 36/38 Milvan Drive (the business premises of Jetco);
c. 40 Penn Drive Inc., a corporation that owned a commercial/industrial property at 40 Penn Drive. 40 Penn earns rental income from its tenants. Three Dees held the majority of the shares of 40 Penn;
d. DHA, which held a one-half interest in a commercial/industrial property at 311 Bowes Road, Vaughan. The other half interest was held by another family. The Bowes property generated rental income from its tenants until it was sold in December 2021. The Alexander share of the proceeds was estimated at about $12 million before taxes. The parties agreed to hold the Alexander share of the proceeds in trust pending the outcome of this proceeding; and
e. 530414 Ontario Inc. (530 Ontario), a holding company owned by Keith and Sheila, which held shares in Jetco and DHA and received funds from the other Alexander entities.
[6] These businesses generated substantial revenue which allowed the Alexander family to have an extremely comfortable lifestyle. Keith and Sheila lived in a home on the Bridle Path, had a second home in Florida, multiple golf club memberships, and went on luxury vacations and cruises. Although none of their three daughters ever worked for the Alexander business, Keith helped pay for their homes, cars and other things with money generated from his businesses. He also caused equity shares in some of his business corporations to be issued to his daughters and caused 530 Ontario to pay monthly stipends to his daughters.
[7] In particular, Denise holds equity in DHA. As this application involves Denise and DHA, I will set out in detail below the corporate and ownership structure of this corporation.
DHA
[8] As noted above, one of the assets in the Alexander group is a half ownership in a commercial rental property at 311 Bowes Road in Vaughan. The Bowes property was owned by 311 Bowes Road Limited. Half of the shares of Bowes Limited were owned, until 2001, by 530 Ontario.
[9] In 2001, Keith implemented an estate freeze. As a result of the estate freeze, 530 Ontario’s shares of Bowes Limited were ultimately transferred to DHA. DHA then issued the following shares:
a. 100,000 Class C non-voting shares to 530 Ontario, with a fixed value of $1.25 million, which was the fair market value of 530 Ontario’s half interest in Bowes Limited in 2001. In 2006, 530 Ontario redeemed its 100,000 Class C shares in exchange for a promissory note from DHA in the amount of $1.25 million, bearing interest at 3% per annum;
b. 240 Class B voting shares to Keith. The Class B shares were entitled to a maximum dividend of up to $0.01 per share per month (i.e. up to $2.40 per month). The redemption value of the Class B shares was $0.10 per share (i.e. $24.00); and
c. 100 common voting shares to Keith, who then transferred them to Denise for no consideration.
[10] As DHA was originally structured, therefore, the Class C shares entitled Keith to the 2001 value of 530 Ontario’s interest in Bowes Limited of $1.25 million, the Class B shares allowed Keith to control DHA and remain as its sole director; and the majority of the future equity growth resided in the common shares.
[11] The articles of incorporation of DHA provide that the power to issue dividends is at the discretion of the director. The articles allow for the issuance of an unlimited number of all share classes, including Class B (what 530 Ontario received) and common shares (what Denise received). The articles allow for up to fifty shareholders; thus, others could theoretically have been issued equity or special shares. The power to issue shares is, again, at the discretion of the director. Denise, as a shareholder, cannot transfer her shares without the director’s consent.
[12] Keith maintained voting control over DHA through his Class B shares and remained DHA’s sole director until his death. When Keith died, both his 240 Class B voting shares in DHA, as well as his 90% interest in 530 Ontario, devolved to Sheila. Keith never caused DHA to issue additional shares. He did, however, routinely cause a monthly stipend, and other payments, to be made out of 530 Ontario to Denise.
Dividends Paid to Denise
[13] DHA did not have a bank account from 2001 until August 2020. Rental income earned from Bowes Road was paid to 530 Ontario, the corporation controlled by Keith and Sheila. The Bowes property rental income was comingled with other Alexander family and corporate funds and used to fund Keith’s and Sheila’s lifestyle. As noted earlier, part of their lifestyle was gifting money to their children. Denise received regular payments by way of the exercise of Keith’s discretion, which were in fact paid out of 530 Ontario. Different amounts, bearing little relationship to what was actually paid to Denise, were booked, after year end, by DHA to Denise as dividends for ‘tax efficiency’ reasons (Denise earned no other income and had a low marginal rate of tax).
[14] Denise’s evidence does not attempt to set out what she actually received from Keith since 2001 by way of annual distributions. What she has set out is the T5s issued by DHA to her since 2013. These show that, for tax purposes at least, Denise was allocated the following (in round numbers):
2013 $293,000 2014 $65,000 2015 $75,000 2016 $163,000 2017 $184,000 2018 $179,000 2019 $193,000 2020 $37,000
[15] Until the interim order of Conway J. was made in November 2021, no payments (dividend or otherwise) were made to Denise by 530 Ontario or DHA after March 2020.
The DHA Debt Conversion
[16] Following Keith’s stroke in 2015, and under the adverse market conditions of a world wide pandemic which began in 2020, the Jetco furniture business declined. Most of Keith and Sheila’s income was coming from Three Dees. In the fall of 2019, Sheila’s three daughters removed Sheila as a director of Three Dees and, after Keith’s death, cut off the flow of all funds to Sheila from Three Dees. Sheila initiated dependent’s relief proceedings against her daughters in connection with those actions. Those proceedings are still outstanding. The issues in that proceeding were not before me on this application. I regard the issues in this application as distinct from, and not dependent on, the outcome of dependent’s relief claims. The parties obviously agreed with that assessment, as no one took a contrary position in their factums or during the oral argument of this matter on April 13, 2022.
[17] Following the actions taken by her daughters regarding Three Dees, on Sheila’s instructions her legal and financial/accounting advisors implemented a change to DHA’s capital structure by way of a Debt Conversion Agreement dated September 30, 2020 (which was actually implemented, apparently, in November 2020.) The Debt Conversion Agreement purports to convert DHA’s debt owing to 530 Ontario (under the 2006 promissory note) in the amount of $1,296,588 into 12,965,880 Class B shares of DHA. Under the terms of the Debt Conversion Agreement, the new 12,965,880 Class B shares have a redemption value of $1,296,588 ($0.10 per share) but are eligible for a non-cumulative dividend of up to $129,659 per month (that is, 10% of the redemption value per month). Sheila signed the agreement on behalf of both DHA and 530 Ontario (she is the sole director of both corporations).
[18] The Debt Conversion was, quite explicitly and admittedly, done to allow Sheila to direct all or substantially all the revenues available to DHA from the Bowes property to herself rather than to Denise.
Analysis
The Oppression “Test”
[19] This is an oppression application brought under s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16. Section 248(2) sets out the circumstances under which a court may grant an order to address oppressive conduct. Where the court is satisfied that:
(a) any act or omission of the corporation 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.
[20] The oppression remedy is intended to provide a broad and flexible form of relief, and courts consequently take a broad and flexible approach to its application.
[21] In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, the Supreme Court mandated a two-step inquiry in assessing oppression claims. The court must first determine (i) whether the evidence supports the reasonable expectation asserted by the claimant and, assuming it does, (ii) it must then determine whether the evidence establishes that the reasonable expectation was violated by conduct that falls within the terms “oppression”, “unfair prejudice” or “unfair disregard”.
[22] Reasonable expectations are considered objectively. Shareholders may compel the corporation to meet a shareholder’s legitimate and objectively reasonable expectations, but it is not an opportunity to impose individual wishes or unilateral expectations on the corporation or other shareholders. Rather, the question is whether the expectation is reasonable having regard to all the relevant circumstances of the case.
[23] Factors that are taken into account in determining whether a reasonable expectation exists include:
- 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 conflicting interests between corporate stakeholders.
[24] Whether a particular expectation is “reasonable” must be determined by an objective and contextual analysis: whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including, importantly for this case, the fact that there may be conflicting claims and expectations. A sense of “fair treatment” is fundamental to the question of “reasonable expectations”.
[25] Once a breach of reasonable expectations has been established, the court must turn to the question of whether the conduct amounts to “oppression”, “unfair prejudice” or “unfair disregard”:
(a) “Oppression” carries the sense of conduct that is coercive and abusive, and suggests bad faith. Oppression has been described as conduct which is “burdensome, harsh and wrongful”, “a visible departure from standards of fair dealing”, an “abuse of power”, and “conduct that is coercive and abusive, and suggests bad faith”;
(b) “Unfair prejudice” may admit of a less culpable state of mind that nevertheless has unfair consequences; and
(c) “Unfair disregard” of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders’ reasonable expectations.
Reasonable Expectations of the Parties
The Reasonable Expectation of Denise
[26] Denise’s alleged reasonable expectations are, to a significant extent, based on her assertions as to her father’s “intention” in establishing the estate freeze and making ongoing monetary distributions to her. These assertions include that:
(a) DHA was “her” company which she “owned”;
(b) as the holder of the common shares, she was entitled to 50% of the net annual income from Bowes Limited which was “paid” to her by way of dividend from DHA;
(c) as the sole common shareholder she was the sole beneficiary of the entire value of DHA, subject only to the redemption of Keith’s Class B shares for $24.00 and payment of the promissory note owed by DHA to 530 Ontario of $1.25 million;
(d) neither Sheila, nor Keith for that matter, could use their voting control and position as sole director of DHA to divert any value from the Bowes property, with the sole exceptions of the redemption value associated with the originally issued 240 Class B shares ($24.00) and the Class C shares/promissory note ($1.25 million); and,
(e) Denise was entitled to expect that Sheila, and Keith, would, as the sole director of DHA, act honestly and in good faith with a view to the best interests of the corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
[27] Keith is dead. He is therefore not able to testify about or respond to Denise’s assertions as to his intentions. Denise’s assertions about Keith’s intentions standing alone, unless corroborated by other reliable and credible evidence, are, in my view, insufficient to support her claimed reasonable expectations in the context of these proceedings.
[28] The same is, of course, true regarding Sheila and her claimed expectations, which also rely on her own assertions about Keith’s intentions. Sheila also relies on the evidence of Keith’s long time friend and legal counsel, Martin Greenglass. Mr. Greenglass’ evidence, however, consists of little more than his opinion, based on his general, albeit long, association with Keith, about what Keith wanted or intended. Mr. Greenglass’ opinions are unsupported by any reference to specific conversations, documents or instructions. I do not regard Mr. Greenglass’ opinion as properly before the court; alternatively, if it is admissible, it must be regarded as lacking any material weight due to the absence of any concrete, specific factual foundation.
[29] Both parties, however, examined Jason Crystal as a witness on a pending application. Mr. Crystal was Keith’s accountant from the early 2000s. Mr. Crystal assisted Keith in the implementation of the estate freeze and in the day to day operations of all of Keith’s enterprises until Keith died. He continues to advise 530 Ontario and Sheila. Mr. Crystal’s evidence was based on specific conversations, instructions from and interactions he had with Keith over a lengthy period of time and, more to the point, his detailed, day to day involvement in how Keith actually ran his multiple businesses and how Keith allocated and deployed all available cash flow from those businesses to himself, Sheila, and other members of his family.
[30] Mr. Crystal testified that the monthly payments to Denise (which were paid from 530 Ontario, not DHA) were not tied directly to the rental income received from the Bowes property. Rather, what she received was based on Keith’s assessment of what the overall enterprise could afford to give her and on Keith’s tax planning objective, which was essentially to minimize overall tax liabilities for the Alexander enterprise and family members. This included allocating dividends to Denise (and causing his companies to pay the tax on those dividends that Denise would otherwise have had to pay) because she had no other income and was taxed at a lower marginal rate than other family members. Contrary to Denise’s assertion, therefore, the annual dividend reflected in the T5s was not the amount DHA paid to her during the year. What she received from 2001 to 2020 was a good deal less than the net revenue derived by the Alexander enterprise from the Bowes property.
[31] Mr. Crystal repeatedly confirmed that it was Keith’s intention that he and Sheila would live off the Alexander companies’ revenues, pay out gifts to their daughters when cash flows permitted, that Sheila would continue in the same vein if Keith died, and that their daughters would inherit the assets following his and her death. He knew this was Keith’s intention because Keith told him. He also knew this was Keith’s intention because this was how Keith, with Mr. Crystal’s accounting assistance, actually ran the Alexander enterprise from 2001 until his death in 2020. This is supported by Mr. Crystal’s own personal knowledge and observations at the time and by documentary evidence, including financial and corporate records.
[32] Mr. Crystal confirmed Sheila’s evidence that before Keith died, he arranged things so that Jetco would receive money from the other companies, including DHA and Three Dees, and Jetco made payments to Keith and Sheila’s holding company 530 Ontario, which would in turn fund Keith and Sheila’s lifestyle. These were typically booked as management fees or intercompany loans.
[33] None of this evidence is contradicted by other reliable evidence. Nor is the past practice outlined in Mr. Crystal’s evidence challenged in these proceedings.
[34] Although Mr. Crystal is clearly aligned with Sheila in this dispute, he is independent in the sense that he has no personal stake in DHA’s finances. He was a professional advisor to Keith and the Alexander enterprises and had professional responsibilities in that role. His evidence is supported by the financial statements and the corporate documents and intercorporate activities. I accept his evidence.
[35] Further, DHA was not, as Denise claims, “her” company. Denise was a minority shareholder who was gifted 100 voting common shares by her father. The articles of incorporation permit DHA to issue any number of any class of shares to a maximum of 50 shareholders. Denise never worked for or contributed to the Alexander enterprises, including DHA, in any way. Although the articles of incorporation of DHA are a matter of public record, Denise never looked at them until after her father died.
[36] This does not mean, however, that Denise is without rights. Justice Wilton-Siegel considered the reasonable expectations of a minority shareholder in Senyi Estate v. Conakry Holdings Ltd.. At para. 9, Justice Wilton-Siegel set out five general expectations, founded in the OBCA. Chief among them is that the directors and officers will conduct the affairs of the corporation in accordance with the statutory and common law duties required of them. Justice Wilton-Siegal wrote:
In the present circumstances, the applicant has inherited a minority common share position in a private company for which there is no shareholders’ agreement. What are the reasonable expectations of a shareholder in such circumstances? I think they are limited to the following five general expectations: (1) that the directors and officers will conduct the affairs of the corporation in accordance with the statutory and common law duties required of them in such capacities; (2) that the shareholder will be entitled to receive annual financial statements of the corporation and to have access to the books and records of the corporation to the limited extent contemplated by the Act; (3) that the shareholder will be entitled to attend an annual meeting of the corporation for the limited purposes of receiving the annual financial statements and electing the directors and auditor of the corporation, or will participate in the approval of such matters by way of a shareholder resolution; (4) that a similar approval process will be conducted in respect of fundamental transactions involving the corporation for which such approval is required under the Act; and (5) that the shareholder will receive the shareholder's pro rata entitlement to dividends and other distributions payable in respect of the common shares of the corporation as and when paid to all of the shareholders.
[37] Denise was not “entitled” to any dividend. The payment of dividends was subject to the exercise of Keith’s discretion (as sole director) under DHA’s articles of incorporation and to corporate and tax laws regulating how and when dividends may be declared. That said, the evidence is that Denise was, at Keith’s direction, consistently paid a monthly stipend out of 530 Ontario (although she was also allocated notional dividends from DHA for tax purposes) from at least 2013 onward until March 2020. In addition, the evidence is that Keith caused the Alexander enterprise to pay for the cost (including insurance) of leasing Denise a luxury vehicle and also made significant monetary gifts to enable her to purchase a home and for other reasons.
[38] Based on the evidence, I find that Denise had a reasonable expectation that, resources permitting, she would continue to receive a monthly stipend from the Alexander enterprise after Keith died, in more or less the same vein as she had before Keith’s death. It was also her reasonable expectation that, when both her parents were gone, she would, through her common shares in DHA, participate in the residual value of DHA.
[39] Sheila argues that Denise could have no reasonable expectation of ongoing payments or dividends because the declaration of dividends is a matter of discretion for the director of DHA. However, Denise, in actual fact, was not paid dividends from DHA; the dividend T5s were, according to the evidence, a notional allocation for tax planning purposes. Her monthly stipends were paid out of 530 Ontario which received revenues from all the Alexander enterprises.
[40] In Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360 (H.L.), at p. 379, Lord Wilberforce, interpreting s. 222 of the U.K. Companies Act, 1948, recognized that a limited company is more than a mere legal entity, with a personality in law of its own. There is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That is precisely what the oppression remedy is intended to do. The Alexanders were a family. Keith knew Denise had no other source of income; that is why he allocated dividends to her (and paid the tax) in excess of what she actually received – to take advantage of her low marginal rate of tax. Mr. Greenglass warned Keith that he was creating a potential problem by giving Denise money ‘for nothing’ but Keith did not heed that warning – he continued to pay her a monthly stipend as cash flow and other circumstances permitted. Keith, in effect, created a dependency over many years by paying Denise a monthly stipend. That, it seems to me, taken in the context of Denise’s common shares in DHA and all of the circumstances, gives rise to a reasonable expectation that the material monthly stream of income Denise had received for many years would continue after Keith’s death as long as resources were reasonably available to do so.
[41] I also find, as discussed above, that Denise had a reasonable expectation that the director and officer of DHA (including Sheila after Keith died) would conduct the affairs of DHA in accordance with the statutory and common law duties required of them. In this case, the relevant duty is the requirement to act in the best interests of DHA. DHA is a small, closely held family company, with no employees or active business, whose role is essentially a holding company. This is all the more so now that the Bowes property has been sold. Now, it is simply a question of DHA’s management of the resulting wealth. In the circumstances of this case, it was not only legitimate for Sheila to consider the interests of all shareholders (i.e., including Denise), it was an absolute necessity. Whatever theoretical distinctions may be made between the interests of a corporation and its shareholders, in this case, with only two shareholders, no employees and only one asset (originally the shares in Bowes Limited, now the Alexander share of the proceeds of sale) involving no active business, Sheila was clearly required to consider the best interests of all shareholders; that is, of Denise as well as herself. However, Sheila gave no consideration to Denise’s interests in bringing about the Debt Conversion and terminating all monthly payments to Denise.
[42] I find that Sheila’s conduct breached Denise’s reasonable expectation that Sheila would act in the best interests of DHA. The Debt Conversion was explicitly done for Sheila’s exclusive benefit with the intention of diverting all of DHA’s revenue entitlements to her alone. The result – cutting Denise off from the income stream that she had been receiving for almost 20 years – was a breach of Sheila’s duty to act with a view to the best interests, not only of Sheila, but of Denise as well. That breach was a violation of Denise’s reasonable expectation.
[43] To be clear, it is not the issuance of shares to Sheila itself that I find defeated Denise’s reasonable expectations. The issuance of new shares is contemplated in DHA’s articles and was therefore within Denise’s reasonable contemplation and expectation. What defeated Denise’s reasonable expectations was diverting essentially all DHA’s revenues to Sheila and terminating all payments to Denise.
[44] Denise also claims that she has been denied access to DHA financial information in a timely manner. After Sheila’s appointment as director, Denise was not provided with such documentation as draft minutes, documentation evidencing the transfer of Keith’s 240 Class B shares to Sheila, and DHA’s financial statements. This was inappropriate and should not have happened. However, Denise ultimately received these documents. As I understand it, most if not all of Denise’s requests for material financial information, falling within the categories outline by Wilton-Siegal J. in Senyi Estate, have been provided. If this is not the case, that documentation (including an accounting of all funds received by Sheila or 530 Ontario from DHA since January 1, 2020) shall be provided within 30 days. Relevant documentation shall continue to be provided on an ongoing basis within a reasonable period of becoming available in the ordinary course.
The Reasonable Expectations of Sheila
[45] As noted earlier, an important factor in assessing reasonable expectations, particularly in the context of a closely held, family owned business, is the existence of conflicting claims and expectations and the need to achieve a fair resolution of these conflicting interests between corporate stakeholders.
[46] As is so often the case with young married couples when they are trying to start up a business and pursue a livelihood and a brighter future for themselves, Sheila contributed to the start of Keith’s business in the late 1950s. She contributed her own money so Keith could buy into a tooling business. She worked for the business on evenings and weekends as it was getting established. On weekdays, she worked as a secretary for another company to generate additional income to support their family. Keith’s earnings went to paying off his debt from acquiring the tooling business. Sheila’s secretary salary was insufficient to support them, so she also took in a lodger (and looked after his meals and laundry). Once the business prospered, Sheila was eventually able to stop working and devote her time to raising their three daughters. Throughout 64 years of marriage to Keith, the revenues and assets of the Alexander enterprises were used to support themselves and to make generous gifts and allocations to their children. This consistent practice was comprehensively described in the evidence of both Sheila and Mr. Crystal.
[47] Based on this evidence, I find Sheila had a reasonable expectation that, after Keith died, she would continue to live off the Alexander companies’ (including DHA’s) revenues, the companies would pay out monetary gifts to their daughters when cash flows permitted, things would continue in more or less the same vein as they did before Keith died, and their daughters would inherit the remaining assets following her death. Implicit in this reasonable expectation, however, are two important qualifications. The first qualification is that Sheila would receive by way of income from DHA that which was reasonably required to maintain her lifestyle at a reasonable level until her death. The second qualification is that, while Sheila might have to rely on capital as well as income to finance her costs of living during her remaining lifetime, she would not loot or strip DHA of its assets or unreasonably and unnecessarily interfere with the preservation of DHA’s capital to the detriment of Denise’s residual interest by virtue of owning common shares in DHA.
Conclusion on Reasonable Expectations
[48] In short, I find it was Denise’s reasonable expectation that she would receive, if resources reasonably permitted, a monthly stipend more or less consistent with the stipend she had been receiving prior to Keith’s death and that, should circumstances require it, she might receive additional reasonable amounts, depending on the ability of DHA to provide them. It was also Denise’s reasonable expectation that she would benefit from the residual value of DHA when both Keith and Sheila were gone. Sheila’s conduct in implementing the Debt Conversion and terminating all payments to Denise breached those reasonable expectations.
[49] It was Sheila’s reasonable expectation that she too would continue to benefit from the Alexander enterprise, including from the Bowes property revenues, after Keith died, in more or less the same way she had before his death. Sheila’s reasonable expectation was that she would, assuming the revenues were available, receive a reasonable income to sustain her in her old age and, if necessary and reasonable, utilize capital assets to do so.
[50] Where there is a conflict in these expectations – for example, if the available resources cannot reasonably support them all – there will need to be a fair resolution of these conflicting interests through a balanced approach to needs and resources. I will return to what this means in practical terms when dealing with remedy below.
Oppression, Unfair Prejudice, Unfair Disregard
[51] Not every breach of an expectation, however reasonable, necessarily qualifies as oppression. Nevertheless, on the evidence, I have no hesitation in concluding that Sheila’s conduct, in purporting to arrogate to herself alone the entire benefit of the Alexander half-ownership in Bowes Limited and purporting to cut Denise off from all benefits derived from this ownership, was burdensome, harsh and wrongful and a visible departure from standards of fair dealing, given Sheila’s role as both a Class B shareholder with voting control and as the sole officer and director of DHA. Further, Sheila’s conduct unquestionably had unfair consequences for Denise, as set out above. And, Sheila’s actions ignored Denise’s legitimate interest and treated Denise’s interest as being of no importance.
[52] Thus, I find Denise has established that the impugned corporate actions of DHA (that is, the Debt Conversion and terminating all payments to Denise), brought about by Sheila as sole office and director of DHA and by virtue of her voting control, fell within the definition of oppression under s. 248(2) of the OBCA.
Remedy
[53] Section 248(2) provides that, once the court has found conduct amounting to oppression, the court “may make an order to rectify the matters complained of”.
[54] The rectification of the matters complained of, in this case, involves two aspects. First, there is the issue of corrective action to reverse or negate the ill effects of the oppressive conduct. Second, there is the issue of how both parties’ reasonable expectations, which as noted above, involve how the value associated with the Alexander share of Bowes property is to be utilized and deployed during Sheila’s lifetime, are to be reconciled and given effect to.
[55] As to the first issue, the oppressive conduct is the Debt Conversion and the termination of all payments to Denise. The Debt Conversion is hereby set aside. The interim November 30, 2021 order of Conway J. shall remain in effect in accordance with, and subject to, the analysis of the second issue set out below.
[56] The record filed on this application does not permit me to adjudicate on specific amounts reasonably necessary to finance Denise and Sheila’s lifestyles in accordance with past practice or any other special needs or circumstances. There is insufficient evidence, for example, to determine what annual or monthly amounts Denise actually received from 530 Ontario during Keith’s lifetime. There is no evidence of her reasonable ongoing and current needs. Likewise, there is essentially no evidence before me justifying what Sheila reasonably requires to live comfortably in her remaining years. Finally, there is no specific evidence of the net realization of DHA’s former stake in the Bowes property or what that stake, invested reasonably with an even hand for both income and growth, is capable of producing by way of income.
[57] As I have said earlier in these reasons, where there are conflicting legitimate claims and expectations, the court must fashion an order that achieves a fair resolution of these conflicting interests between corporate stakeholders. That fair resolution, in the circumstances of this case, requires balancing reasonable needs against resources, as well as reasonable income against capital preservation and growth. This cannot be done without the kind of detailed information outlined above and cannot be done without the benefit of the careful and insightful, but at the same time objective and dispassionate, advice of the parties’ professional consultants, including legal and financial. In fact, in light of my disposition of the issues in these reasons, the parties, acting reasonably and with the benefit of such information and advise, ought to be able to resolve a fair balance that provides Sheila with the means to live comfortably in her old age, provides Denise with a stream of income comparable to or even greater than she received during Keith’s lifetime and preserves capital to the extent reasonably possible in the circumstances.
[58] If, after exchanging further details of the parties’ needs and resources, a reasonable accommodation cannot be reached, the parties shall return to court, on further application in this matter and with further evidence addressing the question of reasonable needs and resources, so that the court may adjudicate the quantum of payments and reach a fair resolution of the conflicting interests between Sheila and Denise.
[59] If I am available on a timetable that coincides with the parties’ scheduling needs and convenience, the further application may be brought before me. If not, I am not formally seized and the next stage may be heard by another judge.
[60] In light of my disposition of the main issue in dispute, I do not think it is necessary, nor am I prepared at this time, to remove Sheila as the sole director and replace her with Denise.
Costs
[61] Following the hearing of this matter, I was advised by counsel that the parties had agreed between themselves to a mechanism for resolving the issue of costs, such that it was not necessary for the court to decide the issue. I therefore order costs as agreed between the parties. I encourage the parties to use a similar approach to the resolution to the remaining outstanding issue of the quantum of payments consistent with the reasonable expectations of both parties.