SUPERIOR COURT OF JUSTICE - ONTARIO
RE: DOUG MIDDLETON,
Applicant
AND:
DIRECT BROADCAST SATELLITE COMMUNICATIONS CORP., THE BENEFITS GROUP INC. and MARK BER
Respondents
AND RE: JDM GROUP LTD. and JASON MIDDLETON
Applicants
AND:
DIRECT BROADCAST SATELLITE COMMUNICATIONS CORP., PRODUCERS PLANNING GROUP LTD., THE BENEFITS GROUP INC., THORNBRIDGE CAPITAL INC. and MARK BER
Respondents
AND RE: DIRECT BROADCASTING SATELLITE COMMUNICATIONS CORP., THE PRODUCERS GROUP LTD. and MARK BER
Applicants
AND:
JDM GROUP LTD., PRODUCERS PLANNING GROUP INC., THE BENEFITS GROUP INC., THORNBRIDGE CAPITAL GROUP INC., DOUG MIDDLETON and JASON MIODDLETON
Respondents
BEFORE: Justice Cavanagh
COUNSEL: Howard Borlack, Stephen Barbier and Ben Tustain for Doug Middleton, JDM Group Ltd., and Jason Middleton
Kevin L. MacDonald and Jamie Sanderson for Direct Broadcasting Satellite Communications Corp., The Producers Group Ltd. and Mark Ber
HEARD: June 27, 2022; supplementary written submissions made on August 31, 2022 and on September 15, 2022.
ENDORSEMENT
Introduction
1The following three applications are before me:
a. Doug Middleton commenced an application against Direct Broadcast (sic) Satellite Communications Corp., The Benefits Group Inc., and Mark Ber (the principal and shareholder of DBS) by Notice of Application issued on October 22, 2020.
b. Jason Middleton and JDM Group Ltd. (“JDM”) commenced an application against Direct Broadcast (sic) Satellite Communications Corp., Producers Planning Group Inc., TBG, Thornbridge Capital Inc. and Mark Ber by Notice of Application issued on January 25, 2021.
c. Direct Broadcasting Satellite Communications Corp. (“DBS”), The Producers Group Ltd. (“PG”), and Mark Ber commenced an application against Jason Middleton, JDM, PPG, TBG, Thornbridge, and Doug Middleton by Notice of Application issued on March 23, 2021.
2The applicants in the separate applications commenced by Doug Middleton and Jason Middleton are represented by the same legal counsel and their interests are aligned.
3For ease of reference, I refer to Mark Ber, Jason Middleton, and Doug Middleton by their first names.
4The three applications concern claims for shareholder remedies and related relief in relation to three closely held corporations: Producers Planning Group Ltd. (“PPG”), The Benefits Group Inc. (“TBG”), and Thornbridge Capital Group Inc. (“Thornbridge”).
5PPG and TBG carry on business as insurance brokerages with a focus on group benefits and life insurance.
6The shares of PPG are owned equally by Mark and by Jason, through their respective holding companies. The shares of TBG are owned by Doug (one-third), Jason (one-third, through his family holding company), and Mark (one-third, through his holding company).
7Thornbridge is an investment holding company. The shares of Thornbridge are owned equally by Mark and by Jason, through their respective holding companies.
8Mark seeks an order pursuant to s. 248(1) of the Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”) declaring that Jason and JDM have caused the business or affairs of PPG and TBG to be operated in a manner that is oppressive, unfairly prejudicial to, or that unfairly disregards the interests of Mark and DBS. Mark also seeks a similar declaratory order based on a finding of oppression that he asks to be made against Doug as a director, officer and shareholder of TBG.
9Mark seeks the following remedial orders under s. 248(3) of the OBCA to rectify the matters complained of:
a. An order that Jason purchase his shares in PPG (50%, held through DBS) for an amount to be determined and subject to such terms as may be set by the Court.
b. An order that Jason and/or Doug purchase his shares in TBG (33.3%) for the sum of $5,000 and subject to such other terms as may be set by the Court.
c. An order that Jason and Doug provide an accounting of all commission and other income earned by them from October 2020 to date.
d. An order that Mark, DBS and PG be compensated for funds allegedly diverted from PPG and TBG by Jason and Doug.
e. An order directing the trial of:
i. the issue of the amount to be paid, and terms of sale, for the purchase by Jason of the shares of Mark (held through DBS) in PPG;
ii. the issue of the accounting of commissions and income earned by Jason and Doug.
10Jason seeks an order under s. 207 of the OBCA winding up and dissolving PPG and TBG. In the alternative, Jason seeks an order declaring that Mark and DBS have caused the business or affairs of PPG, TBG, and Thornbridge to be operated in a manner that is oppressive, unfairly prejudicial to or that unfairly disregards the interests of Jason and JDM. Jason seeks an order directing Mark and DBS to purchase Jason’s shares in PPG and TBG.
11With respect to Thornbridge, Jason seeks an order directing Thornbridge to transfer 50% of its investment assets to JDM in consideration for the redemption of JDM’s shares and other nominal consideration.
12Doug seeks an order under s. 207 of the OBCA winding up and dissolving TBG. In the alternative, Doug seeks an order directing Mark to purchase his shares in TBG.
13Doug also sought damages from Mark arising from his termination as a director, officer or employee of TBG. At the hearing, Doug’s counsel stated that Doug was not pursuing this claim.
14With respect to the claims in each of the three applications for declaratory orders based on findings of oppression, I am not satisfied that the applicants in each application have established that the respondents in each application caused the business or affairs of PPG, TBG, or Thornbridge to be conducted in a way that is oppressive or unfairly prejudicial to or that unfairly disregards the applicants’ interests. The claims in each application for declaratory relief that the respondents acted oppressively and for remedial orders to rectify the matters complained of are not granted.
15The shareholders of PPG, Mark (through his holding company, DBS) and Jason (through a family holding company, JDM) and the shareholders of TBG (Mark, Jason and Doug) are hopelessly deadlocked and unable to continue to carry on the businesses of PPG and TBG with each other as shareholders on an ongoing basis.
16I am satisfied that it is just and equitable that PPG and TBG should be wound up and that an independent person be appointed to sell the businesses of PPG and TBG.
Evidentiary Background
17I set out below the evidentiary background to the three applications.
18The parties filed many affidavits on these applications. Doug filed four affidavits. Jason filed five affidavits. Mark filed five affidavits.
19Much of the factual background to these three applications is not contentious. I have identified the source of the evidence to which I refer where the evidence is not wholly agreed upon.
Formation of PPG
20Mark has been in the insurance business for over 35 years. He established a business known as Producers Group Ltd. (“PG”) that provided services to, and operated as an independent brokerage representing, insurance carriers to the public.
21Mark became acquainted with Jason in or around 2008 when Jason was working at Transamerica Insurance. Mark invited Jason to join a new venture for the purpose of sharing in the revenues and expenses of an insurance brokerage. Jason agreed to join the new venture.
22On March 10, 2008, PPG was incorporated. Mark is a director, the President and, through DBS, a shareholder of half of the shares of PPG. Jason and his wife, Dana Middleton, through JDM, hold the other half of the shares of PPG. Jason is also a director and officer of PPG.
23Initially, Jason continued to work at Transamerica while he and Mark were beginning to establish and grow PPG. In the fall of 2010, Jason left Transamerica to start working at PPG full-time.
24In September 2011, each of Mark and Jason (on his own behalf and on behalf of DBS, JDM, PG and PPG) signed a unanimous shareholders agreement in respect of PPG (the “PPG USA”).
The Richardson Contract
25Soon after joining PPG, Jason developed a new business relationship for PPG with Richardson GMP Insurance Services Limited (“Richardson”). Richardson is a publicly traded, national wealth management and insurance company.
26Until the fall of 2021, Richardson wrote insurance through outside Managing General Agents (“MGAs”) with sales and service of the policies being handled by outside service providers like PPG.
27Jason negotiated a distribution agreement to be entered into between PPG and Richardson whereby PPG would service Richardson’s clients by helping to establish and maintain new insurance contracts. In exchange for those services, PPG would receive commission fees.
28On January 10, 2011, PPG and Richardson entered into a written contract (the “Richardson Contract”). The Richardson Contract permitted Richardson to terminate it at any time, for any reason, and without notice, following which the client serviced by PPG would revert to Richardson.
29Upon termination, the Richardson Contract provides PPG with the right to ongoing renewal commissions for three years on all policies written by PPG as they continue to be renewed. Upon termination of the Richardson Contract, PPG is obligated to return to Richardson all client information respecting Richardson-related clients.
30The Richardson Contract also included a provision by which PPG agreed that following termination of the Richardson Contract for a period of eighteen months PPG would not offer any insurance service or insurance product to any Richardson client and that PPG would not to solicit or attempt to solicit any Richardson client.
31The Richardson Contract was terminated by Richardson by letter written in August 2021, effective September 1, 2021. PPG was notified of Richardson’s intention to terminate the Richardson Contract effective September 1, 2021, through an email sent by a Richardson executive, Jeff Fray, on May 10, 2021.
Doug Middleton is asked to join the group benefits business
32In or around 2015, Mark and Jason invited Doug, Jason’s cousin, to join the group benefits business. Doug was employed as a small group insurance representative at a life insurance company. Doug was not licensed to sell insurance and did not have a book of business. Mark and Jason decided that TBG would be incorporated to carry out the new joint business venture with Doug.
33TBG was incorporated in November 2015. Each of Jason (through JDM), Doug and Mark (through DBS) holds one-third of the shares of TBG. At the time of TBG’s incorporation until approximately September 2020, Mark, Doug and Jason were all directors and officers of TBG.
34Subsequent to TBG’s incorporation, Doug, Mark and Jason, on their own behalf and on behalf of TBG, PPG, JDM and DBS, negotiated a unanimous shareholders agreement in respect of TBG (the “TBG USA”). This agreement was not signed. Jason’s evidence is that the parties understood that it would govern their business relationship, including issues in relation to the withdrawal of one of them from TBG. Mark does not dispute that the parties agreed to act under the TBG USA.
35The TBG USA, as written, provides for a phase-in period to be completed on January 1, 2019 if TBG has annual group renewals of at least $400,000. During this phase-in period, PPG’s group business was to remain with PPG. However, all new group business, whether from TBG or PPG, was to be placed into TBG. Once the phase-in period was over with TBG and PPG reaching parity of their group benefits businesses, the TBG USA required PPG’s group business to be transferred to TBG.
36Section 3.3(c) of the TBG USA provides that until the phase-in period has been completed, Mark and Jason (through their companies) may, upon thirty days’ written notice to Doug, elect to purchase Doug’s shares of TBG. The purchase price is stated to be based on the value of the new group business that Doug has written on behalf of TBG and will be determined reasonably using a formula that represents prevailing market conditions at the time.
37The evidence of Jason and Doug is that $400,000 was chosen because the purpose of the phase-in period was to have Doug develop a group benefits business equal to PPG’s group benefits business which was then thought to produce $400,000 of yearly renewals. Their evidence is that once TBG began operations, they discovered that PPG’s group benefits renewal income from year to year was only approximately $200,000 per year.
38Jason and Doug contend that once TBG commenced operations, the shareholders understood that the renewal threshold for the phase-in period would be satisfied by $200,000 (and not $400,000) of renewals, which would put it in parity with PPG’s group benefits business. Regardless of this evidence from Jason and Doug of the understanding of the parties (which Mark disputes), the evidence is clear that the TBG USA was not amended to reduce the annual group renewal threshold from $400,000 to $200,000. The TBG USA contains an entire agreement clause that provides that it shall not be modified or amended except with the consent in writing of the parties.
39Jason’s evidence is that after Doug joined the business and TBG was incorporated, Doug, Mark and Jason agreed that the long-term plan was for TBG and PPG to be merged and, in order to accomplish that goal, the group benefits clients of PPG would gradually be transferred to TBG. Jason’s evidence is that this plan was provided for in Article 3 of the TBG USA and was the result of a consensus reached among Jason, Mark and Doug.
40Mark’s evidence is that PPG was never to be merged with TBG and that the valuation methods in the TBG USA only applied in the event of a shareholder death or disability and did not address a share purchase or dissolution.
The shareholders agree to move forward with a negotiated arrangement to go their separate ways
41Jason’s evidence is that Mark was unwilling to allow TBG and PPG’s group business to be consolidated because it would not provide him with a large enough passive income as he approach retirement. Jason’s evidence is that Mark initiated discussions about buying out Doug’s interest in TBG and, by April 2020, Doug, Jason and Mark were in earnest discussions about the groups that they felt were attributable to each other’s business activities, with a view to ending the working partnership altogether.
42Going into the summer of 2020, Doug’s and Jason’s relationship with Mark continue to deteriorate over disagreements about the phase-in of the TBG business and other issues.
43In a June 12, 2020 email to Jason and Doug, Mark agreed to Jason’s proposal made the day before that the three partners “move forward in an orderly fashion to go our separate ways in the companies we own together”.
44The next day, Jason wrote to Jeff Fray, an executive at Richardson, advising that he and Mark are parting ways.
Letter dated June 19, 2020 terminating Doug’s employment
45Doug did not meet the renewal target of $400,000. Mark viewed Doug’s performance as an employee of TBG as poor.
46By the fall of 2019, Mark wished to terminate Doug’s employment and exercise the shareholders’ option to buy Doug’s shares pursuant to s. 3.03(c) of the TBG USA. Jason, Doug, and Mark had discussions about parting ways but they were unable to reach agreement.
47In June 2020, Jason agreed to terminate Doug’s employment and exercise the shareholder option, provided that Doug received 100 days notice instead of 30 days notice. Mark agreed.
48On June 19, 2020, Mark and Jason sent a letter to Doug on behalf of TBG. In this letter, Doug was notified of the termination of his employment with TBG effective September 30, 2020. Doug was told that he would be paid his current base salary and employment benefits up to and including the termination date. The letter also addressed settlement of obligations related to the TBG USA. The letter stated that DBS and JDM, the shareholders of TBG, will continue to negotiate with Doug in good faith on the settlement of obligations related to the TBG USA. The position of Mark and DBS is that this letter is notice given to Doug under section 3.03(c) of the TBG USA.
49Mark engaged in negotiations with Doug about the value of his book of business in TBG.
50On July 10, 2020, Mark sent an email to Doug and Jason in which he encouraged Doug to “move forward in taking your groups out of TBG”. Mark attached a “term sheet” for what a settlement could look like. This proposal was not accepted by Doug.
51Mark did an analysis that showed that Doug introduced five new group clients to TBG and the annual income attributable to Doug was $2,250. Mark expressed his conclusion based on this analysis and applying a multiplier of three times commission income that Doug was entitled to $6,750 for this shares in TBG. Doug did not maintain written records of the customers or clients that he introduced.
52Doug did not accept Mark’s purported termination of his office and directorship at TBG as valid. In a letter dated August 18, 2020 from Doug’s then legal counsel, Doug disputed the purported termination of his employment and indicated that a properly constituted shareholders meeting would be required to remove him from his position as a director and as president.
53Through January 1, 2020 to September 30, 2020, Doug was paid $90,000 in salary and benefits.
Termination of Richardson Contract
54The Richardson Contract was terminated effective September 1, 2021.
Jason’s new position at Richardson
55Jason accepted an offer to work in-house at Richardson as of October 17, 2021.
56At Richardson, Jason continues to service the Richardson clients that TBG and PPG used to service.
Thornbridge
57Thornbridge is an investment holding company, the shares of which are equally divided between JDM and DBS. Both Jason and Mark are directors of Thornbury. Aside from funds in its bank account, thorn bridge has two primary assets:
a. A loan of $100,000 to BevMax Investment in various US-based liquor stores.
b. A US $600,000 investment in Legacy Lifestyles, a real estate project in Florida.
58Thornbridge is involved in ongoing litigation with corporations constituting the Legacy Lifestyles project.
Analysis
59I address the issues raised by the applicants in each of the three applications separately.
Application by Mark, DBS and PG
60I first address the application by Mark and his co-applicants. The issues raised on this application are:
a. Have JDM and Jason caused the business or affairs of PPG and TBG to be operated in a manner that is oppressive, or that is prejudicial to or unfairly disregards their interests and, if so, what remedial order should be made?
b. Has Doug has caused the business or affairs of TBG to be operated in a manner that is oppressive, or that is unfairly prejudicial to or disregards their interests and, if so, what remedial order should be made?
Has Mark shown that Jason and Doug acted oppressively toward him?
61The applicants in Mark’s application seek relief pursuant to s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”).
62Section 248(1) of the OBCA provides that a complainant may apply to the court for an order under this section. Section 248(2) provides that 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 affect 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.
63In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, the Supreme Court of Canada explained the principles that apply to the oppression remedy provision of the CBCA. The Supreme Court of Canada held that oppression is an equitable remedy that seeks to ensure fairness – what is “just and equitable”. The court has broad, equitable jurisdiction to enforce not just what is legal but what is fair. The courts considering claims for oppression should look at business realities, not merely narrow technicalities. What is just and equitable is judged by the reasonable expectations of the stakeholders and in regard to the relationships at play. Conduct that may be oppressive in one situation may not be in another. See BCE, at paras. 58-59.
64At the outset, the claimant must identify the expectations that he or she claims to have been violated by the conduct at issue and establish that the expectations were reasonably held. The complainant must show that the failure to meet his or her reasonable expectation involved unfair conduct and prejudicial consequences. See BCE, at paras. 70-73 and 89.
65Mark relies on Jason’s fiduciary duty owed as a director of PPG and TBG to act in the best interest of PPG and TBG and avoid conflicts of interest with them. Section 134 of the OBCA provides that every director and officer of a corporation in exercising his or her powers and discharging his or her duties to the corporation shall (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
66Mark submits that he had the following reasonable expectations that were violated by Jason and by Doug:
a. Jason and Doug would continue to place all insurance business implemented by them through PPG or TBG, respectively, in accordance with the applicable USA.
b. Jason would buy out Mark as he neared retirement.
c. As directors, Jason and Doug would:
i. Act honestly and in good faith with a view to the best interests of PPG and TBG; and
ii. Serve PPG and TBG selflessly, honestly and loyally.
d. Jason and Doug would comply with the terms of the applicable USAs. Specifically, Doug would not deliberately breach the restrictive covenant with Jason’s assistance and approval.
e. Jason and Doug would maintain the confidentiality of the information they acquired.
f. Jason and Doug would fulfill their fiduciary duties, be transparent and provide frank and full disclosure.
67Mark submits that Jason breached his fiduciary duties to PPG in a number of ways and thereby acted oppressively toward him.
Did Jason breach fiduciary duties owed to PPG by influencing Richardson to terminate the Richardson contract?
68Mark contends that Jason breached his fiduciary duty to PPG by influencing Richardson to terminate the Richardson contract with PPG and that such breach constitutes oppressive conduct.
69Mark relies on an email from Jason to Jeff Fray dated June 13, 2020 in which Jason told Jeff Fray of Middleton:
Mark and I are officially splitting up the business and going our separate ways (It will be organized).
I might need some technically CRM support and may have to figure out some staffing issues. We will see how it unfolds.
Just thought you should know.
70In response to Jason’s June 13, 2020 email, Mr. Fray responded: “We have your back ... get free ... We are in this together u TIL the fk u pile is to our satisfaction ...”.
71Mark submits that the email from Jason to Jeff Fray at Richardson was incorrect and that this email correspondence between Jason and Jeff Fray supports an inference that Jason and Jeff Fray collaborated on a course of action, termination of the Richardson Contract, for the purpose of benefiting themselves and injuring PPG. Mark submits that this email correspondence shows that Jason and Mr. Fray negotiated Jason’s role at Richardson more than a year before any termination notice was delivered to PPG. Mark and DBS submits that Jason breached his duty to disclose to Mark that Jason was working with Mr. Fray to take for his own benefit the Richardson Contract.
72The correspondence between Jason and Mr. Fray on June 13, 2020 must be viewed in the context of events at that time. Jason’s email on June 13, 2020 followed an email dated June 12, 2020 from Mark to Jason (with a copy to Doug) in which Mark responded to Jason’s email on June 11, 2020 stating that he “believes it’s best to begin discussions on breaking up the entire company in an orderly fashion and going our separate ways”. Mark responded: “Agreed”. He stated that he is “prepared to move forward in an orderly fashion and go our separate ways in the companies we own together”. In this context, it was not unreasonable for Jason to believe that his business relationship with Mark would be coming to an end through a negotiated process.
73The Richardson Contract could be terminated by Richardson at any time without notice. This fact was known to Mark. The evidence shows that the risk of termination of the Richardson Contract was raised at a strategic planning meeting on May 9, 2019 where the loss of Richardson as a referral source was noted in the meeting minutes. Mark prepared a memorandum that was provided to a third-party valuator in 2020 in which the Richardson Contract is addressed and the fact that Richardson had the option to “insource” the work that PPG is doing is identified.
74Mr. Fray of Richardson was examined as a witness on these applications. On his examination, Mr. Fray testified that part of his responsibilities when he joined Richardson was to evaluate its insurance business and make proposals to grow the business. He testified that part of these responsibilities involved potentially changing Richardson’s relation with PPG and other similar producers across the country. Mr. Fray testified that Richardson hired an outside consulting group to provide advice on this potential change. Mr. Fray recommended that Richardson “internalize” the insurance business. This recommendation was accepted. By email dated May 10, 2021, Mr. Fray then told the external representatives, including PPG, of Richardson’s intention to terminate the relationships. In addition to PPG, Richardson terminated five other contracts. Mr. Fray testified that Jason had no influence on Richardson’s decision to terminate the Richardson Contract, and that this decision would have been taken whether or not Jason joined Richardson.
75The evidence given by Mr. Fray that the termination of the Richardson Contract with PPG was part of an overall business strategy that was not targeted to PPG is unchallenged. I accept his evidence. Mark has failed to show that Jason acted unfairly to influence Richardson to terminate the Richardson contract. Mark has failed to show that Jason acted oppressively toward Mark by breaching his fiduciary duties to PPG by obtaining the benefit of the Richardson Contract for himself.
Did Jason breach his fiduciary duties to PPG and thereby act oppressively by accepting employment with Richardson?
76Mark submits that by accepting employment with Richardson, a competitor of PPG in the insurance business, Jason breached his fiduciary duties to PPG and thereby acted oppressively toward Mark and his co-applicants.
77Jason accepted an offer to work in-house at Richardson as of October 17, 2021 servicing those clients of Richardson who were formerly serviced by PPG when the Richardson contract was in effect. Jason’s role at Richardson does not involve solicitation of business for Richardson from new clients. Under the Richardson Contract, PPG is entitled to receive three years of renewal income on policies written for Richardson-related clients at the time of cancellation of the Richardson contract. To the extent that Jason’s work with Richardson resulted in renewals of policies, PPG would benefit through the renewal income.
78Mark cites Jordan Inc. v. Jordan Engineering Inc. (2004), 2004 CanLII 5863 (ON SC), 48 B.L.R. (3d) 115 for the principle that although it is not a breach of a fiduciary duty for a director to terminate his or her relationship with a corporation and go into competition with it, a fiduciary cannot compete with the corporation while he or she remains in her capacity as a fiduciary.
79Mark and DBS submit that Jason is a director of PPG and, at the same time, competing with PPG by virtue of being an employee of Richardson, a competitor of PPG. Mark and DBS submit that by so competing, Jason is breaching his fiduciary duty to PPG.
80Jason denies that by being employed with Richardson he is breaching fiduciary duties owed to PPG.
81In Palumbo v. Quercia, 2018 ONSC 5034, at para. 61, Dunphy J. noted that although there is no question that a fiduciary’s duties to a corporation do not cease following departure, absent a non-competition agreement or other similar restriction, the fiduciary may use his or her own skills and experience and compete with the corporation post-departure provided this is not done unfairly. The burden of establishing unfair competition, including solicitation, falls upon the party asserting it.
82As I have noted, the Richardson Contract was cancelled by Richardson by providing a written notification to PPG in accordance with its terms.
83Under the Richardson Contract, PPG acknowledged that Richardson has the ownership of Richardson clients for whom PPG will offer its services. PPG agreed that at termination of the Richardson Contract, PPG agreed to remit to Richardson any information related to Richardson clients and not to keep a copy of such information. The clients for whom PPG provided services under the Richardson Contract have reverted to Richardson as provided for by the Richardson Contract. Under the Richardson Contract, these customers are not available to be solicited by PPG for a period of eighteen months.
84In these circumstances, I am not satisfied that Mark has shown that Jason has usurped for himself or for Richardson opportunities that PPG is able to pursue. Mark has failed to show that Jason has acted unfairly in breach of his fiduciary duties owed to PPG through his work at Richardson with Richardson clients for whom he formerly provided services at PPG. This is because PPG is contractually precluded from soliciting customers of Richardson who were formerly clients of PPG for a period of eighteen months after termination of the Richardson Contract.
85Even if I were to have found that Jason’s employment at Richardson conflicts with his fiduciary duties as a director of PPG, I would not find that his employment at Richardson is conduct that violates Mark’s reasonable expectations. When Mark and Jason agreed that it made sense to negotiate a separation of their interests in PPG and TBG, they would reasonably expect that each would be involved in some way in the insurance business going forward. Mark has not shown that Jason’s employment at Richardson has harmed the business of PPG, given that the termination of the Richardson Contract was a decision made by Richardson and that PPG is subject to a contractual restriction from soliciting customers of Richardson for eighteen months after termination of the Richardson Contract.
Did Jason acted oppressively by breaching his obligation to fully disclose the opportunity with Richardson?
86Mark submits that Jason withheld from Mark, the other director of PPG, that he had started discussions with Richardson in connection with a proposed employment contract with Richardson, that he was negotiating such a contract, and that he had entered into such a contract. Mark and DBS submit that through this conduct, Jason breached his obligations as a director to PPG.
87In the context of the exchange of emails between Jason and Mark on June 11 and 12, 2020 in which Mark expressed his agreement with Jason proposal that they begin discussions on going their separate ways, and the notice by Richardson on May 10, 2021 of its intention to terminate the Richardson contract, the fact that Jason engaged in discussions with Richardson about employment does not violate Mark’s reasonable expectations.
88Mark has not shown that Jason acted oppressively toward him by failing to disclose to him this discussions with Richardson.
Did Jason and Doug breach duties owed to PPG through their involvement in Beyond Benefits?
89Mark contends that Jason and Doug started to compete with PPG/TBG by starting a company “Beyond Benefits Workplace Solution Inc. (“Beyond Benefits”).
90Mark relies on evidence that on September 1, 2020, Doug created a trade name: “Beyond Benefits Workplace Solution”. The TBG monthly newsletter was named “Beyond Benefits”. In September 2020, Doug and Jason acquired a website domain name: “beyondbenefits.ca”. On October 1, 2020, Beyond Benefits was incorporated. Doug Middleton is the sole officer and director of Beyond Benefits. In October 2020, the Financial Services Commission of Ontario (“FSCO”) issued a licence to Beyond Benefits to sell group insurance.
91Jason’s evidence is that he incorporated a company, Beyondco Insurance Ltd. (“Beyondco”) and secured a FSCO licence and insurance coverage for it. His evidence is that he has not used this company to write any new business. Jason provided copies of bank statements for Beyondco to support his evidence that the company has not earned income. Jason’s evidence is that he took steps to prepare to engage in business after the issues with Mark are resolved.
92Mark submits that by taking steps with a view to carrying on business through Beyond Benefits or through Beyondco, (i) Doug breached the restrictive covenant in the TBG USA; and (ii) Jason breached his fiduciary duties owed to PPG.
93Mark relies on an email dated August 10, 2020 from Doug to Jason in which Doug, while still employed by TBG, sent Jason a business plan for a business that would be competing with PPG with, under one scenario, Jason receiving $4,000 a month.
94The steps that Doug took, with Jason’s knowledge, to set up Beyond Benefits were taken after Doug had been notified of the termination of his employment with TBG. In addition, in September 2020, Mark removed Doug as a director of TBG, although this was done without shareholder approval.
95In response to questions asked on his examination, Doug produced income tax filings for Beyond Benefits with Canada Revenue Agency that show that it did not earn income in 2020 or 2021. The filings show recorded assets in 2021 of $134. The evidence before me on these applications does not support a finding that Beyond Benefits actively carried on business or earned any income.
96Mark asks me to draw an adverse inference based on Doug’s refusal, in response to questions on his cross-examination, to produce a complete accounting of all commissions he earned personally or through Beyond benefits together with supporting documents. Mark submits that Doug’s failure to provide the requested accounting in response to this application justifies an order directing a trial of an issue with respect to the requested accounting.
97Doug relies on his production of bank records and income tax filings for Beyond Benefits to justify his position on the requested accounting. On the evidentiary record before me, I do not agree that an adverse inference should be drawn that justifies an order directing the trial of an issue. The income tax filings for Beyond Benefits show that the company did not earn any income in 2020 or 2021.
98Mark has not shown that Doug or Jason acted oppressively toward him by earning income through unfair competition with PPG or TBG through a business operated by Beyond Benefits or Beyondco.
Did Jason act oppressively toward Mark by breaching the PPG USA?
99Mark submits that Jason breached his reasonable expectations by joining Richardson as an employee and placing insurance with Richardson rather than with PPG, in contravention of his obligations under the PPG USA.
100For the reasons I have given, Jason’s employment with Richardson is not conduct that violates Mark’s reasonable expectations in the circumstances.
Did Jason act oppressively by improperly using PPG’s confidential information?
101Mark contends that Jason secretly downloaded confidential and private files from PPG’s server to a USB drive and offered them to Richardson. Mark submits that this is oppressive conduct toward him.
102Mark points to evidence given on Jason’s cross-examination in which he confirmed that he had downloaded electronic documents from PPG’s server to a USB drive. The electronic documents included client lists, company information including financial information, PPG’s advisor codes and passwords for access to PPG’s information technology systems, PPG’s employee data and information concerning sales made by PPG and PG.
103The USB contained three client lists created by Jason on September 1, 2021. The previous day, Jason had received an email from Richardson asking for a copy of the “Excel extraction of the business in your CRM database”.
104Mark relies on the principle that a corporate fiduciary who has obtained confidential information belonging to a corporation is not allowed to make use of such information as a springboard for activities detrimental to the corporation.
105In response, Jason contends that Mark knew of the USB before the cross-examinations. He points to an email from Mark dated November 22, 2021 in which Mark asserts that Jason “down loaded the entire client information list to Richardson”. Mark’s then lawyers were copied.
106Jason’s evidence is that he prepared the USB only after Mark resisted providing Richardson with information about Richardson’s clients that PPG was contractually required to provide to Richardson following termination of the Richardson Contract. Jason’s evidence is that the USB contained some files not related to Richardson clients because he took a mirror image of PPG’s client files as the most efficient way to “safeguard the information”.
107Jason’s evidence is that the USB was never shared with anyone until a copy was made to provide to Mark’s counsel. There is no evidence that Jason shared this information with Richardson.
108Mark has failed to show that Jason breached his fiduciary duties owned to PPG by improperly disclosing confidential information owned by PPG to a third party, Richardson. Mark has failed to show that Jason violated his reasonable expectations by making the USB and keeping the information on it.
Did Jason breach his fiduciary duties to PPG by improperly soliciting an employee of PPG to join him at Richardson and thereby act oppressively toward Mark?
109Mark relies on evidence that, he contends, shows that Jason recruited Carolyn Witmer, a PPG employee, to join him at Richardson. Ms. Witmer advised Mark on August 27, 2021 that she was leaving PPG to join Richardson.
110Ms. Witmer was examined as a witness on these pending applications. She testified that Jason asked her to forward her resume to Richardson in August 2021. Jason told her that if she was interested in joining Richardson, there might be a position for her. Ms. Witmer then had a phone interview with Mr. Fray who told her that if she moved to Richardson, she would be continuing to work with Jason. Ms. Witmer delivered her notice of resignation on August 27, 2021. She did not take anything with her when she joined Richardson.
111Ms. Witmer testified that in 2019 she had reached out to Richardson by telephone about whether there would be a position for her. She testified that she made this contact because she was not happy at PPG and wanted to explore her options. She understood in July 202o that Jason and Mark were discussing what would happen to the business of PPG as they were trying to work out a separation, and she was concerned about whether she would have a job. Ms. Witmer testified that Jason told her that she had a choice as to whether to continue to work at PPG or whether to work at Richardson or elsewhere. She testified that she had made the decision to leave PPG to go somewhere else.
112Jason’s evidence is that he did not induce Ms. Witmer to leave PPG or offer her a job at Richardson. His evidence is that he advised Ms. Witmer that she would need to make a decision on her own about who she would prefer to work for.
113The evidence shows that Jason spoke with Ms. Witmer about an opportunity to work for Richardson. However, I am unable to find that Ms. Witmer would not have left PPG without Jason’s overture. Ms. Witmer was unhappy at PPG, and her evidence is that she would have left PPG even if she had not joined Richardson. I do not accept that Jason’s overture to Ms. Witmer was, in the circumstances, a violation of Mark’s reasonable expectations that constitutes oppressive conduct toward Mark or that Mark suffered prejudice caused by Jason’s overture.
Did Jason violate Mark’s reasonable expectations by failing to purchase his interest in PPG and TBG as Mark approached retirement?
114In his affidavit sworn March 19, 2021, Mark states that when he created PPG with Jason, his expectation was that Jason’s efforts over the life of the new venture would equal or eclipse the value of Mark’s contributions. Mark states that it was understood that Jason would “buy me out” of his interests when it came time for Mark to retire.
115Mark submits that his reasonable expectations have been violated because Jason has refused to purchase Mark’s interests in PPG and TBG.
116Mark has failed to tender evidence to support his assertion that he reasonably expected Jason to purchase his interest in PPG or TBG as he approached retirement. Mark may have hoped for or expected this to happen, but there is no evidence that Jason made such a commitment.
117I am not satisfied that that Mark has shown that Jason or Doug caused the business or affairs of PPG or TBG to be operated in a manner that is oppressive, unfairly prejudicial to, or that unfairly disregards Mark’s interests. I decline to grant the requested declaratory orders.
118As a result of this decision, it is not necessary for me to decide what orders should be made to rectify the matters complained of.
Application by Jason and JDM and Application by Doug
119I now turn to Jason’s application and Doug’s application.
120Jason and JDM were granted leave at the hearing of the applications to amend their Notice of Application in the form of the Amended Notice of Application, filed.
121The primary relief sought by Jason and JDM is an order pursuant to section 207(1) (b)(iv) of the OBCA that PPG and TBG be wound up on the basis that such an order is just and equitable.
122The primary relief sought by Doug is an order pursuant to s. 207 of the OBCA winding up TBG on such terms as are just.
Have Jason and Doug shown that it is just and equitable that PPG and TBG be wound up by order of the court?
123In Falus v. Martap Developments 87 Limited, 2012 ONSC 2301, Brown J. (as he then was), at para. 40, explained the court’s power under s. 207(1)(b)(iv):
Pursuant to section 207(1)(b)(iv) of the OBCA a court may order the winding up of a corporation where “it is just and equitable for some reason, other than the bankruptcy or insolvency of the corporation, that it should be wound up”. If the court concludes that the winding-up of a corporation would be just and equitable, it “made make such order under this section or section 248 as it thinks fit”. Although the “just and equitable” ground does not require a finding of “oppression”, the remedial powers of the court under OBCA s. 207(2) enable it to grant the wide range of discretionary remedies available to it in an oppression remedy case, even though facts justifying a determination on the ground of oppression do not exist.
124In Falus, at paras. 43-44, Brown J. (as he then was) explained how the “just and equitable” principle has been used to wind up a company in certain circumstances:
Often the “just and equitable” principle has been used to wind up a company in circumstances where a dominating or more powerful shareholder attempts to exclude another or force another out of the relationship. But the concept goes further, applying where the relationship between the parties has reached a deadlock or where the relationship has broken down because of incompatibility or quarreling: “continued quarreling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly co-operation is sufficient to justify the order.” Consequently, the case indicates that where in essence a corporation resembles a partnership, if the relationship of trust and confidence between the partners in corporate guise has broken down and the continuation of the business between them operating as equal partners is not possible, judicial intervention under OBCA s. 207 is appropriate.
But the breakdown in mutual confidence must be such that the partner-shareholders cannot work together in the way originally contemplated. The need to establish a link between the breakdown in mutual confidence in the financial fate of the corporate enterprise was identified by the Court of Appeal in Wittlin v. Bergman:
The usual situation for a finding that liquidation or dissolution is appropriate is where the corporation is deadlocked with each of two shareholders or groups of shareholders holding fifty percent of the shares. In such a situation, if the shareholders cannot work together, the company is likely doomed to failure within a foreseeable time. To avoid the inevitable deterioration and value of the company, liquidation or dissolution could be the appropriate solution. (emphasis by Brown J.)
125The evidence shows that PPG was formed by Mark and Jason, as equal shareholders, to carry on an insurance brokerage business. The company operated similar to a partnership, and the success of the business required close cooperation between the two shareholders. To similar effect, TBG was formed with three equal shareholders with an expectation that they would work closely together to make the business a success.
126The evidence is clear that the relationship between Mark, on the one hand, and Jason and Doug, on the other hand, has been irreparably broken and they are unable to work together to carry on the business of PPG or TBG. The shareholders no longer trust each other and the level of their distrust is so high that there is no prospect that they will be able to work together in the future. There is no hope of reconciliation.
127Neither of Mark or Jason wishes to purchase the interest of the other in PPG. Mark’s position at the hearing was that if his claim for oppression is unsuccessful, the shareholders are irreparably deadlocked and an order for winding up of PPG and TBG should be made and the businesses sold.
128I am satisfied that it is just and equitable for an order to be made that PPG and TBG be wound up and the businesses be sold.
129Jason and Doug argue that relief is also warranted under s. 207(1) (a) of the OBCA in that Mark has carried on the affairs of PPG and TBG in a way that is oppressive to Jason and Doug. Jason and Doug rely on evidence (i) of how Mark acted to terminate Doug’s employment with TBG and remove him as a director, (ii) Mark using funds belonging to PPG to pay personal expenses (that was addressed by Koehnen J. in an endorsement in this litigation), (iii) discontinuing Jason’s salary at PPG and removing his access to email records and accounts, and (iv) allegedly interfering with client relationships (that belong to Richardson) that Jason needs in his role at Richardson.
130Much of the alleged conduct upon which Jason and Doug rely happened during the course of this litigation. I am not satisfied that the conduct that arose during the litigation constitutes oppressive conduct by Mark toward Jason and Doug. The conduct preceding the litigation that led to the falling out among Jason and Doug, on one hand, and Mark on the other hand, involved Doug’s failure to meet the phase-in target in the TBG USA which led to unsuccessful negotiations toward a separation of the shareholders’ interests in the businesses carried on by PPG and TBG. The decision by Richardson to terminate the Richardson Contract aggravated the hard feelings and distrust of Mark and Jason toward each other.
131Given my decision that it is just and equitable that an order be made that PPG and TBG be wound up and that the businesses be sold, it is not necessary for me to make a finding as to whether Mark acted oppressively toward Jason and Doug. However, there was extensive evidence filed in relation to this issue and full submissions were made. If I had concluded that, absent findings of oppression, it is not just and equitable for PPG and TBG to be wound up, I would not find that the conduct upon which Jason and Doug rely constitutes oppressive conduct by Mark that violated their reasonable expectations. I would have declined to grant the alternative declaratory relief sought by Jason and Doug.
Have Jason and Doug shown that it is just and equitable for Thornbridge to be wound up?
132Thornbridge does not carry on an operating business. It is an investment holding company. The shares of Thornbridge are equally owned by Mark and Jason, through their respective holding companies. The principles in Falus about the effect of deadlocked shareholders who are unable to work together in an operating business do not apply in the same way to an investment holding company.
133The evidence is that Thornbridge is an active, successful, investment company. Thornbridge is one of twelve plaintiffs in litigation in this Court which settled on favourable terms in February 2022.
134I am not satisfied that Jason has shown that it is just and equitable that Thornbridge should be wound up.
Disposition
135I make an order pursuant to s. 207(1) (b)(iv) of the OBCA that that PPG and TBG be wound up and that the businesses be sold with a professional, arm’s length and independent person to be appointed as an officer of the court as a sales process administrator to provide advice and recommendations to the court with respect to the sales process and completion of the sale.
136At the hearing of the applications, I asked counsel to jointly provide me with proposed terms to be included in an order providing for the sale of the businesses of PPG and TBG as part of a winding up order, if such an order were to be made. Counsel advised that the parties were unable to agree on such terms. The parties later provided separate written submissions with respect to such terms.
137I have reviewed the supplementary written submissions made by the parties with respect to proposed sale terms. There are considerable areas of disagreement with respect to the sale terms.
138Now that the winding up order has been made, and given the importance to the parties of the terms of the formal order providing for a sales process and the terms for a sale, I ask the parties to confer and provide me with an approved form of order to give effect to the winding up order I have made. If counsel are unable to agree on the form of order, they should arrange an appointment before me (through my assistant) to settle the terms of the order.
139If the parties are unable to agree on costs of the three applications, they may make written submissions in accordance with a page limit and timetable to be agreed upon by counsel and provided to me for approval.
Cavanagh J.
Date: December 30, 2022