ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
IN THE MATTER OF the BUSINESS CORPORATIONS ACT, R.S.O. 1990 c. B.16, as amended
RE: ASHA KHER, Applicant
AND:
VINOD ARORA, SACHIN ARORA and ARORA COMMERCIAL CORPORATION, Respondents
APPLICATION under Rules 14.05(3)(d), (g) and (h) of the Rules of Civil Procedure and Section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16
BEFORE: Osborne J.
COUNSEL: Brian Radnoff and Alyssandra Antonangeli, for the Applicant
Robert Macdonald and Teodora Obradovic, for the Respondents
HEARD: April 24, 25 & May 1, 2023
Reasons for Judgment
1The Applicant, Ms. Asha Kher (“Kher”) brought this oppression Application against the Respondents, Vinod Arora (“Arora”), Sachin Arora (“Sachin”) and Arora Commercial Corporation (“ACC”).
2By order dated April 17, 2023 made on the consent of the parties:
a. the application was converted to an action; and
b. a summary trial was directed on defined issues. The direct evidence of the parties included affidavits already filed in this proceeding, including, in respect of experts, their expert reports. The issues to be determined at the summary trial were defined as these:
i. is the Applicant entitled to an additional sum as consideration for her shares in ACC? If yes, what was the fair market value of the Applicant’s shares as at February 4, 2020 (the “Valuation Date”)?
ii. was the Applicant oppressed in accordance with the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”) or at common law?
iii. if the Applicant was oppressed, is she entitled to an award of damages?
iv. if the Applicant is entitled to an award of damages:
what is the quantum of her damages?
which of the Defendants (Respondents) is liable to pay her damages and in what proportion?
is she entitled to pre-judgment or post-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43?
v. are any of the Applicant’s claims barred by the expiry of any limitation period, including the limitation period provided by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. or by the equitable doctrine of laches?
vi. are any of the Applicant’s claims barred by the doctrine of waiver? and
vii. are any of the Applicant’s claims barred by the doctrine of estoppel?
3The Respondents did not pursue at trial the last two arguments above.
4The trial was conducted in-person at the Courthouse in Toronto, with the one exception that Kher testified remotely via Zoom from New Jersey, at her request. The trial was, again on consent, in the nature of a summary trial as the matter had originally been commenced as an Application.
5For this summary trial, the record included, in addition to the evidence of those witnesses who gave evidence at trial and documents marked as exhibits through those witnesses, affidavits of those individuals with principal involvement in the events giving rise to this proceeding, transcripts of cross-examinations on those affidavits, and documents marked as exhibits during such examinations.
Background and Context
6All of the parties are related.
7ACC was incorporated on June 20, 2003. The original shareholders were Kher, Arora and Hukam Chand (“Chand”).
8Chand was the Applicant Kher’s father and the Respondent Arora’s uncle, with the result that Kher and Arora are cousins. Kher, a retired teacher, lives in New Jersey, United States where she has resided since 1986.
9Chand died on April 12, 2019 at the age of 93. From December, 2014 until his death, Chand lived in a nursing home in India.
10Sachin is Arora’s adult son. Both Sachin and Arora reside in the Toronto area.
11The three original shareholders and ACC entered into a unanimous shareholders agreement (the “USA”) some months after ACC was incorporated, made as of November 7, 2003. Pursuant to the USA, the shareholders were to share in the profits of ACC based on, and in proportion to, their ownership interests.
12As further described below, the USA also included a buy-sell provision, often colloquially referred to as a shotgun buy-sell provision, that could be triggered by any shareholder (the “Shotgun Clause”).
13From the date ACC was incorporated in 2003 until Chand’s death in 2019, Arora owned two-thirds of the shares (200 common shares of ACC) and Chand and Kher jointly owned one-third of the shares (100 common shares of ACC).
14On March 6, 2008, Chand signed a direction to ACC to gift his jointly held shares to Kher, as well as a further gift to authorize a right of survivorship over the remaining shares in favour of Kher upon his death. Following his death in 2019, and pursuant to that direction as well as the relevant provisions of the USA, the 100 common shares that had been jointly held by Chand and Kher were transferred to, and thereafter solely owned by, Kher.
15ACC had, and has, only one asset: a commercial property located at 190-210 Broadway, Orangeville, Ontario (the “Broadway Property”). ACC purchased the Broadway Property on April 29, 2004 for $7 million. It has a mix of commercial tenants. ACC has owned and operated the Broadway Property since that time.
16Arora commissioned an appraisal of the Broadway Property as at December 2, 2014 (the “2014 Appraisal”), at which time the appraised value was $8,360,000.
17From 2003 when ACC was incorporated until at least September 2018, payments from ACC to its shareholders were distributed largely as shareholder loan repayments, and always in the same share ownership ratio: two-thirds to Arora and one-third to Chand.
18Arora looked after most of the management and operations. Arora and Chand got along well, and there were no issues until approximately one year before Chand’s death when his daughter, Kher, began making inquiries of Arora.
19The parties agree that Kher made inquiries into ACC, for the first time, and requested financial information from Arora, in May-June 2018, around the time that Chand’s health began to deteriorate.
20On July 22, 2019, Arora offered to purchase Kher’s interest in ACC for a purchase price of $2,077,057. Enclosed with Arora’s offer for the shares held by Kher was a draft appraisal of the Broadway Property, effective as of February 26, 2019 (the “2019 Draft Appraisal”), which reflected an appraisal value of $8,600,000. The 2019 Draft Appraisal was enclosed as support for the proposed purchase price and the implicit share value it reflected. The offer was not accepted.
21Kher commenced this oppression Application two days later on July 24, 2019, alleging oppression against Arora and Sachin (as well as ACC) and seeking a declaration that Arora was in breach of the USA.
22Kher also sought an order, among other things, pursuant to section 248 of the OBCA requiring Arora to purchase her shares at fair market value. She also sought interim and interlocutory orders requiring the individual Respondents (Arora and Sachin) to provide information regarding ACC that she (Kher) required to complete an appraisal of the Broadway Property, and other accounting information and documents.
23Finally, Kher sought an order tracing any funds alleged to have been improperly taken from ACC by Arora and Sachin or anyone related to them, together with damages.
24At the time the Application was commenced, Kher was a director of ACC and each of Arora and his son Sachin were both directors and officers. Arora was the President, and Sachin was the Treasurer/Secretary. Arora had been President since the company was incorporated in 2003. Chand had been Chair of the Board until his death. Kher had never been an officer of the company.
25On December 6, 2019 and while this Application was pending, Arora delivered to Kher an Initiating Notice dated December 5, 2019 pursuant to the Shotgun Clause in the USA, triggering that provision.
26Pursuant to that Initiating Notice, Arora proposed to purchase Kher’s 100 common shares in ACC, or in the alternative proposed to sell to Kher his 200 common shares, for a Designated Price of $21,370 per share. The Designated Price meant that if Kher elected to be a seller, she would receive the aggregate amount of $2,137,400, and if she elected to be a buyer, Arora would receive the aggregate amount of $4,274,800.
27The Designated Price was calculated and based, in part, on the valuation of the Broadway Property in the 2019 Draft Appraisal. The deadline for a response from Kher to the Initiating Notice was January 8, 2020, by which date according to the terms of the USA, if Kher failed to deliver notice of her election, she would be deemed to have elected to sell all of her shares at the Designated Price.
28Kher took the position that triggering the Shotgun Clause while this Application was pending was itself oppressive, and demanded that Arora withdraw the Initiating Notice. He refused, and as a result, Kher brought an injunction motion within this proceeding seeking an order prohibiting the triggering of the Shotgun Clause or the exercising of the Initiating Notice until the final disposition of this Application.
29On January 6, 2020, the date scheduled for the hearing of the injunction motion, the parties settled it on agreed terms captured in Schedule “A” to the Endorsement of Conway, J. of that date. Those terms included the agreement of the parties to the effect that:
a. the Initiating Notice delivered by Arora pursuant to section 5.3 of the USA was binding;
b. despite section 8.2(c) of the USA, no release would be required as part of the closing of the sale of the Applicant’s shares in ACC; and
c. the sale of the Applicant’s shares in ACC was without prejudice to the Applicant pursuing this Application, including, without limitation, her rights under the oppression remedy.
30Kher elected not to purchase Arora’s shares and instead sell her own shares to Arora at the price set out in the Initiating Notice, with the result that she became a seller of her shares and Arora became a purchaser.
31On February 4, 2020 (the “Valuation Date”), Kher received $2,137,400 for her shares in ACC, (i.e., the Designated Price set out in the Initiating Notice) together with an additional sum of $80,400 representing the balance of her shareholder loan account in ACC, for aggregate proceeds of $2,217,800.
32It is as against this background and chronology that I must determine the issues set out above. I will address them in turn.
The First Issue: Is the Applicant Kher Entitled to any Additional Sum for her Shares: The Requirement for Oppression
33The April 17, 2023 Order defining the issues to be determined at this trial was made on consent. The first issue is: is the Applicant entitled to an additional sum as consideration for her shares? If yes, as at February 4, 2020, what was the value of the Applicant’s shares in ACC?
34Accordingly, I must first determine whether Kher is entitled to any additional sum for her shares, and only if I conclude that the answer to that question is “yes”, do I determine (at least for the purposes of this issue) what the value of her shares should be, as at the Valuation Date.1
35Kher takes the position that she is entitled to fair market value (which, she submits, is greater than the Designated Price at which she sold her shares) whether or not any finding of oppression is made, with the result that she need not succeed on her claim of oppression in order to be entitled to an order requiring Arora, as purchaser pursuant to the Shotgun Clause, to pay her fair value for her 100 common shares.
36The Respondents, on the other hand, take the position that absent a finding of oppression, Arora has no entitlement to “fair value”, or “fair market value”, (and both of these phrases are discussed further below). Their position is that the terms of the USA, and the Shotgun Clause in particular, entitle either party to trigger the Shotgun Clause at any Designated Price they may choose.
37In my view, Kher is not entitled to any additional sum for her shares absent a finding of oppression.
38First, the purchase by Arora of Kher’s shares was clearly made pursuant to the Shotgun Clause. Arora specifically triggered that provision and delivered an Initiating Notice as contemplated in the USA. The January 6, 2020 Endorsement of Conway, J., capturing in an order the settlement reached by the parties in the context of the pending injunction motion, was clear (as described above) that the Initiating Notice delivered pursuant to Article 5.3 of the USA was binding. There can be no question that the share sale was effected pursuant to the Shotgun Clause.
39I recognize that the settlement and the Endorsement were also clear that, notwithstanding the provisions of Article 5, Kher would not be required to provide a release and the sale was without prejudice to her right to continue this Application and to pursue the relief sought therein. That settlement preserved Kher’s ability to continue her claim for oppression.
40I further recognize that her allegations of oppression include the allegation that delivery of the Initiating Notice itself was oppressive. However, those allegations are properly dealt with as part of the analysis of the second element of this first issue (i.e., whether there has been oppression).
41In my view, Kher’s reservation of rights as part of the settlement of the injunction motion does not amend the terms of the Shotgun Clause and nor does it entitle Kher to anything other than the Designated Price, absent a finding of oppression. I reach this conclusion for the reasons set out below.
42I begin with the terms of the USA itself, as that agreement represents the bargain the parties made and pursuant to the provisions of which the sale took place.
43The Shotgun Clause is found at Article 5. It refers to the sale of shares being at the “Designated Price”, defined in Article 5.1 as the “price per ACC share at which the Initiating Party (in this case Arora) would be willing to either sell his shares or purchase the shares of the party receiving the Initiating Notice. There is no reference in Article 5 to “fair value” or “fair market value”.
44The USA does include as a defined term “Fair Market Value” but there is nothing in the USA to suggest that this defined term applies to a sale pursuant to the Shotgun Clause.
45It is Article 7 that deals with “Fair Market Value” and provides that the provisions of [Article 7] shall apply with respect to any determination of Fair Market Value required to be made pursuant to this Agreement. It defines Fair Market Value in Article 7.2(a) as:
the price per Common Share, determined by an Accountant or Valuator pursuant to this Article as of the relevant Valuation Date, that would be received upon a sale of all of the issued and outstanding Common Shares in a single transaction determined in an open and unrestricted market between prudent parties, acting at arm’s-length and under no compulsion to act, and having reasonable knowledge of all relevant facts concerning ACC. In determining the Fair Market Value of the Common Shares, such Accountant or Valuator shall be considered as an expert and shall not be construed as acting as an arbitrator …
46Article 7.3 addresses how the Accountants are to deliver to the Vendor and Purchaser their estimate as to the Fair Market Value of the Common Shares following receipt of a notice under Article 11.
47The USA addresses in Articles 4, 9 and 112 the possibility of a sale of Shares in certain circumstances, in addition to a sale pursuant to a triggering of the Shotgun Clause. None of those applies here.
48Article 4 deals with rights of first refusal that apply where any Shareholder desires to sell their shares to a third party. It makes no reference to Fair Market Value, which makes sense since the clear intent and purpose of the provision is to give a right of first refusal to the other shareholder, to match an offer received from a party at any proposed purchase price (i.e., whether considered fair or not). It has no application here.
49Article 9 contemplates a sale of shares in circumstances to which the Family Law Act applies, and provides that the purchase price shall be the value (i.e. the Fair Market Value) determined pursuant to Article 7. This provision also has no application here.
50Similarly, Article 11 deals with the sale of shares on the death of either Chand or Arora, which shares are to be transferred at Fair Market Value. That is obviously not applicable here either.
51Accordingly, there is nothing in the USA that expressly makes Fair Market Value, as defined in the USA, relevant to a share sale pursuant to the Shotgun Clause at all. In my view, this is not at all surprising, since the whole structure of this Shotgun Clause (or any other typical such clause (they are quite common in shareholder agreements) is inconsistent with a requirement that a sale be effected at any objectively determined fair market value.
52On the contrary, that is the whole point of such clauses. The initiating shareholder may trigger a shotgun clause at any price it chooses. The governor or limitation on what price may be set is found not in any requirement that the price represent fair market value or fair value, but rather in the fact that the initiating shareholder does not know, at the time he or she triggers the shotgun provision, whether they will be a buyer or a seller. It is that risk and uncertainty that provides the basis for the incentive of the initiating shareholder to select a price that is inherently fair: that shareholder is declaring that he is prepared either to buy the shares of the other shareholders, or to sell his own shares, at the designated price.
53It need not be “fair” by any objective measure. If it is low, in the sense that the designated price is markedly less than the value of the shares in the eyes of the receiving shareholder, that receiving shareholder will presumably elect to purchase the shares of the initiating shareholder. If the opposite is true, and the offer is high relative to the value ascribed to the shares by the receiving shareholder, presumably he or she is a seller.
54In my view, a shotgun buy-sell provision is the corporate example of the very same structure designed to incentivize fairness when two children are splitting a piece of cake. One child cuts the cake, and the other chooses which piece he or she wants. Beautiful in its simplicity, the structure means that the child cutting the cake (i.e. the initiating shareholder under a shotgun buy-sell provision) is incentivized to make the cut as fair as possible lest he or she end up with the smaller piece. But there is no requirement that he cut the cake at any particular place or in any particular way. The consequence lies in the risk that the other child will select the bigger piece, not in a claim for more cake.
55This approach has been endorsed by several Canadian courts. In Kinzie v. The Dells Holdings Ltd., 2010 BCSC 1360, the British Colombia Supreme Court expressed it this way at para. 25:
A shot gun sale combines the advantages of a market sale with the advantages of buyout by one of the parties. The parties avoid the costs associated with a market sale and are not required to cooperate with respect to the sale to a third party. In addition, the parties are not saddled with a determination of value by the court in circumstances where there is a volatile real estate market. In a shot gun sale, each party has an incentive to make their offer as close to market value as possible. If the offer is too low, it will be readily accepted at an obvious loss to the offeror, and if the offer is too high, the offeror may be forced to pay that price in the event the offeree refuses to accept the offer. The shot gun sale also respects the ownership rights of both parties by giving them an equal opportunity to acquire the others interest in the business.
[Emphasis added]
56This approach was further endorsed by the British Colombia Court of Appeal in Blackmore Management Inc. Carmanah Management Corporation, 2022 BCCA 117, which was an oppression case in which the Court quoted with approval the approach adopted in Kinzie above, at paras. 144 – 145.
An important feature of a shotgun mechanism is that each party has an incentive to make their offer as close to market value as possible because the instigator does not know whether it will be required to buy or sell: Kinzie v. The Dell Holdings Ltd., 2010 BCSC 1360 at para. 25. […] The fairness of a shotgun mechanism depends, in part, on the possibility that the instigator may be forced to sell its shares. The respondents’ interpretation would not motivate offers at fair market value.
Shotgun provisions are not intended to allow shareholders to “test out” valuations of a company, but rather to end the shareholder relationship on mutually fair terms […]. I note the respondents point to no cases where a shotgun clause has been interpreted to be revocable.
[Emphasis added]
57The same approach has been adopted by courts in Ontario. See, for example: Classic Organ Co. v. Artisan Organ Ltd., 1997 12434 (ON SC), [1997] O.J. No 2161 at para. 33; and Muscillo v. Bulk Transfer Systems Inc., (2009), 2009 38508 (ON SC), 179 ACWS (3d) 600 at para. 85.
58Presumptively, shotgun buy-sell provisions reflect the fair market value and the fair value of the subject shares. As stated by the British Columbia Court of Appeal in Safarik v. Ocean Fisheries Ltd., (1996), 1996 10202 (BC CA), 17 BCLR (3d) 354 at para. 23: “I know of no better way to have a man put a fair value on what he owns, he knowing all the facts about its worth, than to require him to say what he will sell it for.”
59For these reasons, I find that Arora was entitled to trigger the Shotgun Clause at whatever Designated Price he chose. That, without more, does not entitle Kher to any adjustment to compensate her for the difference between the Designated Price and what she submits is the “fair market value” of her shares.
The Value of Kher’s Shares as at the Valuation Date
60Since I have determined that Kher is not entitled to any additional sum for her shares sold pursuant to the Shotgun Clause, it is not necessary for me to determine (for the purposes of this issue) the second element of the first issue; namely, whether the Designated Price she received for her shares represented “fair value” or “fair market value”, at least absent a finding of oppression.
61However, in the event that I am wrong with respect to the first element, I will determine the appropriate value of the shares as at the Valuation Date. I pause to observe that Kher also seeks an order under the oppression remedy provisions of the OBCA directing Arora to purchase her shares at fair market value, with the result that the analysis must be undertaken in the context of the allegations of oppression in any event.
62At the outset, it is important to observe that “fair value” is not the same as “fair market value”. I note that both terms are used in the OBCA, but neither is defined in that statute.
63In distinguishing these two concepts, I largely accept the submissions of the Respondents.
64In Kreitzman Estate v. Kreitzman, (2003), 2003 43638 (ON SC), 125 ACWS (3d) 933 (“Kreitzman”), an appeal from an arbitration about a share valuation, Pepall, J. (as she then was) expressed it this way at para. 4:
The appellant took the position that the shareholders’ agreement was silent on the valuation method and that the valuation should be based on the fair value of the shares rather than fair market value. Fair value is calculated without regard to minority discount. Fair market value, in contrast, may include a minority discount component.
65The Court in Carlock v. ExxonMobil Canada Holdings ULC, 2020 YKCA, a dissenting shareholder case, stated at paras. 7 - 8:
The meaning of “fair value” is not in dispute. Fair value is related to fair market value. Fair market value means “the highest price available in an open and unrestricted market between informed and prudent parties, acting at arm’s length and under no compulsion to act”.
The terms are not, however, always equivalent: see Nixon v. Trace, 2012 BCCA 48 at paras. 10–13; Grandison v. NovaGold Resources Inc., 2007 BCSC 1780 at para. 152.
66In Lajoie v. Lajoie Brothers Contracting Ltd. (“Lajoie”), 1989 CarswellOnt 129, the Court of Appeal for Ontario stated at para. 17:
In Daniels v. Fielder (1988), 1988 4535 (ON SC), 65 O.R. (2d) 629 at 636, 52 D. L.R. (4th) 424 (H.C.), Eberle, J. held:
I want to make it clear to the arbitrators that the value to be arrived at is not what is commonly called 'fair market value', to the extent that that phrase implies the existence of a market for the shares. We are dealing here with less than the majority of the shares in a private company and there may be little or no market for such shares. The value to be arrived at is the value without any discount arising from the equality of shareholdings in the company or from a consideration of anything similar to what is commonly called a 'minority discount'. The remedy with which we are here dealing, namely an 'oppression' remedy under s. 247 of the Ontario Business Corporations Act, 1982, should not normally, in my view, and certainly not in this case, take into account any such discount or any diminution of value because of the absence of any effective market for the shares.
[Emphasis added]
67In Ford Motor Company of Canada, Ltd. v. Ontario Municipal Employees Retirement Board, (2006), 2006 15 (ON CA), 79 O.R. (3d) 81 (“Ford”) at paras. 131 – 132 (leave to SCC denied), the Court of Appeal for Ontario stated the following with respect to the principles governing fair value of the shares held by oppressed minority shareholders in an oppression case:
[…] most courts accept that fair value is not synonymous with fair market value and that the concept embraces some notion of equitable treatment. The need for this flexibility is especially evident where, as here, the act triggering the dissent is a squeeze out or expropriation of the shares of the minority shareholders. In Dennis H. Peterson, Shareholder Remedies in Canada (Markham: Butterworths, 2004) at 4.17, the author describes the notion of fair value as "what is just and equitable in the circumstances" which "confers a broad and flexible jurisdiction on the courts to determine share values".
Although the jurisdiction may be broad and flexible, the section does not confer on the court an unfettered discretion to do whatever the judge feels would be fair. The determination of fair value must be anchored in the principle that gives rise to the jurisdiction. […]
[Emphasis added]
68In Leitch v. Global Atomic Corporation, 2021 ONSC 6745 (“Leitch”) at paras. 21 – 22, Penny, J. of this Court stated:
[…] Fair value is not synonymous with fair market value. The concept of fair value embraces some notion of equitable treatment – what is just and equitable in the circumstances. Section 185 confers a broad and flexible jurisdiction on the court to determine the value of a dissenting shareholders shares: Ford Motor Company of Canada v. OMERS, 2006 15 (ONCA) at para. 131.
The concept of fair value cannot be reduced to a set of rules or to a formula or equation. Each case must be examined on its own facts. Each case presents its own difficulties. The one true rule is to consider all the evidence that might be helpful, to consider the particular factors in the particular case, and to exercise the best judgment that can be brought to bear on all the evidence and all the factors. It is, in the end, a question of judgment: Cyprus Anvil Mining Corp. v. Dickson, 1986 811 (BC CA).
69Accordingly, it seems to me that my task is to determine the “fair value” of Kher’s shares as at the Valuation Date in the sense that such a value must include a consideration of what is just and equitable in the particular circumstances of this case.
70Kher submits that since the Designated Price (at which she ultimately sold her shares to Arora) was calculated based on the 2019 Draft Appraisal valuation of the Broadway Property, which she submits undervalued the Broadway Property, such that she is entitled to be paid more. Her position is that the 2019 Draft Appraisal valuation is too low, since it would mean that the Broadway Property had increased in value only by $1,600,000 in the 15 years since that was purchased in 2004, and by only $240,000 in the five years since the 2014 Appraisal was completed.
71Kher argues that her position is reinforced by the fact that the Designated Price of $21,370 per share must be too low since it is inconsistent with the basis for the prior offer Arora had made for her shares in July 2019, at a value per share of $20,770.57.
72Kher submits that Arora put a low value (i.e., a low Designated Price) in his offer pursuant to the Shotgun Clause because he knew that she would not be able to buy out his interest in ACC which would have required her to raise over $4 million to complete the purchase. She also submits that the terms of the USA provided that, at the time of closing of any purchase or sale of shares pursuant to the Shotgun Clause, the seller would provide a release, which in turn would mean that she, as the presumptive seller, would be prevented from continuing to pursue this proceeding.3
73Kher also takes the position that there should be no minority discount applied to any valuation of her shares.
74The Respondents dispute both allegations or positions. They maintain that their valuation of the Broadway Property is appropriate, and also that Arora has always owned two-thirds of the equity in ACC, and purchased the shares of Kher which always represented only a one-third interest in the company, with the result that it is appropriate that a minority discount be applied to any valuation of Kher’s shares.
75Both the Applicants and the Respondents called expert evidence with respect to the value of the shares as at the Valuation Date. I pause to note that the parties agreed that all experts called by the parties (valuation experts and property appraisers) were qualified to offer opinion evidence in their respective areas of expertise. I agree.
76The difference in the opinions of the respective valuators as to the share valuations is the result almost exclusively of two factors:
a. the difference in the opinions of the respective appraisers with respect to the value of the Broadway Property as the sole material asset of ACC; and
b. whether a minority discount should be applied to the value of the shares.
77I will address each of these issues in turn.
The Value of the Broadway Property as the Basis for the Value of the Shares
78Since, as noted above, the Broadway Property is the only significant asset of ACC, and it has no operations other than managing the Broadway Property, I accept that the value of the Broadway Property is the main input into any calculation of the value of ACC shares.
79What, then, is the value of the Broadway Property as at the Valuation Date? On this issue, the difference between the respective positions of the Applicant and the Respondents is approximately $1.5 million.
80The Applicant relies on the property appraisal opinion of Dino Bottero (“Bottero”) as set out in his report dated April 17, 2020 (the “First Bottero Report”) that the value of the Broadway Property as at the Valuation Date was $11,600,000. In his reply report dated January 11, 2022, (the “Bottero Reply Report”), Bottero also provided a critique of the appraisal opinion of Yvonne Whyte (“Whyte”) relied on by the Respondents.
81The Respondents rely on the property appraisal opinion of Whyte, of KPMG LLP, as set out in her report dated August 17, 2021 (the “First Whyte Report”) that the value of the Broadway Property as at the Valuation Date was $10,100,000. Whyte also provided a critique of the Bottero opinion in her reply report dated November 5, 2021 (the “Whyte Reply Report”).
82Each of Bottero and Whyte gave evidence at trial which was consistent with their respective opinions as set out above, subject to the discussion below. Each was and is an experienced real estate appraiser and valuator. That experience was plain in the evidence of each. I found each of Bottero and Whyte to be honest and forthright, and to be trying to value the Broadway Property as at February 4, 2020 to the best of their ability.
83The Applicant also relies on the share valuation opinion of Peter Weinstein (“Weinstein”) of KSV Soriano Inc. The Respondents rely on the valuation opinion of Rohan Sethi (“Sethi”) of KPMG. Again, the primary input into those share valuation opinions is the property valuation used.
84Weinstein delivered two expert reports. The first of those, dated March 19, 2021, was based, as was fairly conceded by Weinstein in his evidence, on an analysis that included both notional and actual disbursements in the calculation of the equalization payment claimed by Kher. Kher and her experts already had the affidavits of Arora and Kaushik which stated clearly that the books and records of ACC contained notional expenses recorded but not actually paid in cash. Moreover, in the preparation of that first report, Weinstein had not been provided with ACC’s banking statements, although they had been provided to Kher.
85The Respondents retained Sethi initially to respond to the first report of Weinstein, and principally to address the issue of the inclusion of the notional amounts in the analysis of disbursements from ACC.
86In his reply expert report dated October 31, 2022, Weinstein fairly reconsidered his initial analysis and approach to the equalization payment issues, and adopted the approach taken by Sethi and KPMG.
87This is discussed further below in the section entitled Improper Disbursements.
88The evidence of Weinstein was consistent with the summary set out in his Memorandum dated April 20, 2023, to the effect that, based on the valuation of the Broadway Property in the opinion of Bottero as set out above, together with updated calculations Weinstein performed based in turn on additional information received from KPMG prior to trial, the fair market value of Kher’s one-third interest in ACC as of the Valuation Date was $2,839,000. To that amount he added an additional $42,000 in respect of a refundable dividend tax on hand (“RDTOH”) in ACC for a total value of Kher’s shares as at the Valuation Date of $2,882,000.
89Based on Weinstein’s Memorandum, KPMG adjusted its own calculations and confirmed that it agreed with Weinstein’s approach to a valuation of the RDTOH of $42,000.4
90The difference between the two valuations relied on by the parties respectively, is summarized in KPMG Exhibit II – Revised (Trial Exhibit #8), which is based upon KPMG’s original calculations and the adjustments based on the KSV Reply Report and Memorandum. This Exhibit illustrates the difference in share value between the positions of the Applicants and the Respondents, in three separate Scenarios.
91Exhibit #8 demonstrates graphically the point observed above that the delta between the opinions is driven by two factors: which property appraisal is used; and whether a 20% minority discount (expressed by KPMG as a “discount for lack of control and marketability”) is applied, subject to other relatively more minor adjustments5.
92The total value of the shares in ACC is then prorated to reflect the one-third interest of Kher. The position of the Applicant is that the analysis should end there. The Respondents, however, would go on to adjust the share value in each of the three Scenarios to apply the 20% minority discount. Finally, the amount already paid to Kher for her shares ($2,137,400) is deducted to yield the difference as to the amount, if any, owing to her.
93Accordingly, if the Bottero appraisal value is used, the Applicant submits that she is entitled to an additional amount (in excess of the amount already received for her shares as set out above) of $744,600 (based on a fair market value of her shares of $2,882,000).
94The Respondents submit that even if the Bottero appraisal value is used, the Applicant is entitled to $167,600 (based on a fair market value of Kher’s shares of $2,305,000 using the adjusted KPMG figures), yielding a difference between the two approaches of $577,000.
95In either case, pre-judgment interest would be applicable from the Valuation Date of February 4, 2020.
96If the Whyte appraisal value is used, the Respondents submit that the Applicant would not be entitled to any additional amount for her shares (in fact the difference would be a negative: - $170,400) based on a fair market value of her shares of $1,967,000.
97Accordingly, I must consider the evidence of the respective property appraisal experts, Bottero and Whyte.
98While both of these experts testified in a manner that I found was generally forthright and consistent with their obligations as independent experts as stated above, I prefer the valuation of Whyte with respect to the value of the Broadway Property as at the Valuation Date.
99I address below the expert opinions of these two property valuators.
100The primary driver of the difference in their respective conclusions is the capitalization rate (sometimes colloquially referred to as a “cap rate”) used by each. Bottero uses a capitalization rate of 5.0% while Whyte uses a capitalization rate of 6.75%. The analysis used in either case is extremely sensitive to the specific capitalization rate used. For example, as emphasized by the Respondents, if Bottero’s analysis is replicated but the capitalization rate is increased by only 0.5% to 5.5%, his valuation of the Broadway Property decreases by over $1 million to only $10,621,000.
101Bottero’s capitalization rate, in turn, is derived from the comparable properties that he uses to inform his estimate of value of the Broadway Property.
102The Applicant makes three main criticisms of the valuation conducted by Whyte.
103First, the Applicant is critical of her analysis because she performed a physical inspection of only the exterior of the building as she did not have interior access. The Applicant submits that this is a fundamental flaw since the information upon which her valuation analysis was based is necessarily incomplete, and more substantively, the finishes in the interior of the building at the Broadway Property were above average such that Whyte improperly ascribed a lower value to the building than is appropriate.
104Having heard the evidence of both Bottero and Whyte, including but not limited to the vigourous cross-examination of Whyte, in my view her opinion was not compromised by the analysis undertaken by her. The evidence of Whyte was to the effect that she could see some, but by no means all, of the interior finishes from the exterior by looking in through windows, and she was provided with multiple photographs of the interior. I observe that the photographs she reviewed were those in Bottero’s own report. In her professional opinion, the finishes were consistent with what she would expect in a building of that level of quality and age. I accept this evidence.
105Second, the Applicant criticizes the Whyte report on the basis that the date of the report is the same as the date on which she inspected the building, with the result that the Applicant submits that the only reasonable inference is that her comparable properties were selected in advance, and prior to her having physically inspected the Broadway Property.
106Whyte’s evidence when challenged on this point in cross-examination was to the effect that the date of her report may have been mistaken, and it could have been completed earlier. I accept that as the Applicant submits, she was not certain on the point and her recollection was not clear. However, in my view, even if I were to assume that the date of her report is correct with the result that she did in fact inspect the comparable properties in advance, such a finding would not materially compromise her opinion.
107Whyte had significant knowledge and information. The information is set out in her expert report. In my view, that information, and particularly basic information such as the location, size, tenant mix and age of the building, would have informed a professional property appraiser like her about the fundamental characteristics of the building such that it was not unreasonable or improper for her to consider possible comparable properties before she physically saw the building.
108Moreover, there was nothing to prevent her from changing her view about the appropriateness of potentially comparable buildings after the site visit, had she found it necessary to do so. If a comparable property that had, prior to the physical inspection of the building, seemed appropriate, but was, in her professional opinion following the building inspection, no longer so, it could have been excluded. Other, new, comparable properties could have been considered afresh. The date of the report might have been delayed, or a supplementary report could have been delivered.
109However, the evidence of Whyte was to the effect that her physical inspection of the Broadway Property did not change her view either way. On the contrary, it was unremarkable in her professional opinion in the sense that the building was much as she had expected it would be. I reject the criticism of her analysis based on the date of the report.
110Third, the Applicant is critical of the comparable properties relied upon by Whyte to inform her estimate of value on the basis that the locations of those comparable properties or at least some of them made them inappropriate proxies of value for the Broadway Property. I cannot accept these criticisms either.
111For example, the Applicant submits that the Whyte Report is inaccurate because it refers to Orangeville as being adjacent to the Greater Toronto Area (“GTA”) when in fact it is some material distance away. In my view, nothing turns on this. Both experts understood precisely where the Broadway Property was located, and knew exactly where the Town of Orangeville was located, both relative to the GTA and relative to the location of the Broadway Property, which is in Orangeville.
112I am of the same view with respect to the criticism of Whyte by the Applicant in cross-examination at trial to the effect that she misdescribed the location of the Town of Newmarket, in that she described it as being located “at the top of Highway 404” rather than, as the Applicant submits, at the “top end” of the 404, since that highway in fact proceeds north of Newmarket. Nothing turns on this. I am satisfied that neither expert was confused about the physical location of the Broadway Property or the access to it.
113In the main, in my view the comparable properties relied upon by Whyte were more appropriate than those relied on by Bottero. He selected three properties in Brampton, Ontario and one in Guelph, Ontario. I observe that he did not select a single comparable in Orangeville, Ontario, where the Broadway Property is located.
114His evidence was to the effect that he was unable to locate even a single property in Orangeville that he considered to be an appropriate comparable, with the result that he used comparable properties from other municipalities and made appropriate valuation adjustments as necessary.
115In my view, there is nothing improper about such an approach. However, if there are comparable properties in the same municipality as the subject property, they are generally to be preferred here since, as a general approach, an estimate of value will be more accurate where it is more closely comparable to the subject property being appraised, such that the necessity of employing theoretical adjustments to account for differing factors, is minimized.
116It is Bottero’s use of the three Brampton properties, with corresponding low capitalization rates, that drives the ultimate capitalization rate that he concludes is appropriate, of 5.0%. I pause to observe that Whyte also used a Brampton comparable in her analysis. Again, there is nothing improper about using a comparable property from a nearby municipality if appropriate adjustments are made. Whyte’s criticism, which I accept, is not that a Brampton property was used by Bottero, but rather that properties in Orangeville, where the Broadway Property itself is located, were excluded altogether.
117I further accept the submission of the Respondents to the effect that Bottero’s exclusion of any comparable properties whatsoever in Orangeville is all the more inexplicable since in his alternate valuation approach (the Direct Comparison Approach), Bottero not only includes comparable properties from Orangeville, but in fact relies upon them exclusively. He did not explain in evidence why one such property (22-28 Mill Street), with its corresponding high capitalization rate, was appropriate under his own Direct Comparison approach, but not under the Income Capitalization Approach.
118I generally accept the appraisal value and underlying methodology of Whyte as reflected in her report and in her evidence given at trial. Whyte placed the greatest emphasis on income stream and characteristics, the location of the Broadway Property in Orangeville, and its overall condition. In my view, those were appropriate factors to apply when considering appropriate comparable properties and inputs into a valuation analysis.
119In cross-examination, Whyte conceded, fairly in my view, that some adjustments could have been made to the opinion reflected in her report. However, in the main she maintained her position on the appropriate capitalization rate to be applied, and her Income Capitalization Approach remained unchanged. I accept her estimate of the value of the Broadway Property as at the Valuation Date of $10,100,000.
120As stated above, Kher retained another property appraiser (Mr. Peter Bobechko) in early 2019 to appraise, on her behalf, Broadway Property. That appraiser met with Maddern (of TAG, the property manager) at the Broadway Property in February 2019, and he was given access to all the tenanted spaces. He was introduced to the site superintendent and assisted with his inspection of the property, including both common areas and the spaces occupied by tenants.
121Prior to that site visit, Kher had received a copy of the rent roll and had received from TAG copies of leases, extension agreements and amendments, in addition to the monthly financial information (which reflected monthly gross income and operating expenses). Kher’s appraiser received additional copies of the leases and extension agreements from TAG.
122However, the evidence was to the effect that the 2019 appraisal was never completed. Certainly, it is not in the record. While the parties disagree on why it was not completed, or at least what, if any, inference ought to be drawn against Kher as a result, I am satisfied that the information and records, together with the full access to the Broadway Property including tenanted spaces, was provided to Kher and/or her appraiser in and around February 2019 and also earlier.
123This reinforces my conclusion that Kher had all necessary information to accurately value the Broadway Property or have that done on her behalf.
124Moreover, and while Kher maintains the position that this 2019 appraisal was frustrated and could not be completed due to continuing difficulties in getting the necessary information to the appraiser, no motion for interim or interlocutory relief (such as production to complete the appraisal) was ever brought. The objective fact is that the appraisal was simply never completed by or on behalf of Kher. In any event, Kher subsequently retained Bottero who completed his own appraisal, on which Kher relied at trial.
Should a Minority Discount be Applied?
125Having determined the value of the Broadway Property, I must determine the second issue set out above; namely, whether any minority discount ought to be applied to the valuation of the ACC shares as at the Valuation Date.
126The Applicant maintains that there is no basis to apply a minority discount to the valuation of Kher’s shares, let alone an arbitrary discount of 20%.
127The Respondents submit that since Kher owns only one-third of the equity in ACC, and it is a privately held company, a discount to reflect a lack of liquidity in that minority position is appropriate. They submit that 20% represents a reasonable reflection of these factors and should be applied to the valuation of Kher’s shares.
128In my view, it is not appropriate to apply any minority discount.
129It is clear in Article 7.2(b) of the USA that neither a minority discount nor a control premium should be applied to a determination of the fair market value of the shares:
Such a determination of the Fair Market Value of the Common Shares shall be made as if ACC were a “going concern” without any discount for a minority interest or any premium for Control. The value of the Common Shares shall not be diminished because of the fact that the Common Shares are not publicly traded, the fact that the Vendor owns a minority interest in ACC, or the fact that ACC has lost the services of the Vendor in the case of a Sale Transaction resulting from the death or disability of a Shareholder or Principal. The proceeds of life insurance, if any, which are payable to ACC because of the death of the deceased Vendor shall not be taken into account in making such valuation.
[Emphasis added]
130I recognize that, as discussed above, Article 7, and the determination of fair market value generally, does not apply to a sale of shares of ACC pursuant to the Shotgun Clause. It is, however, a reflection of the intention of the parties with respect to whether a minority discount should be applied to a sale of shares otherwise. However, that is not the end of the analysis.
131In my view, I must determine the fair value of the shares, as opposed to the fair market value in circumstances like these where there is no market within which fair market value could be tested, given the fact that ACC is a privately held company, owned exclusively by parties who are related to one another, and the shares to be valued are subject to various transfer and other restrictions pursuant to the terms of the USA.
132It is clear from the authorities above that a determination of fair value of the shares must include a consideration of what is just and equitable in the particular circumstances of each case (see, for example, Ford and Leitch). I note that no minority discount was applied by the courts in Kreitzman or Lajoie.
133In my view, it would not be just and equitable to apply a minority discount in the circumstances of this case. There is no evidence to the effect that the shareholders ever intended that a minority discount should apply to a sale of shares pursuant to the Shotgun Clause.
134Moreover, given that there were only two shareholders in ACC, and Arora held a two-thirds majority interest since incorporation, while Kher (or previously, Kher together with her father Chand) held a one-third minority interest, it could only ever work one way - in the context of a sale of Kher’s shares to Arora. That would mean that the shares would automatically be valued differently depending on which party was the seller and which party was the buyer.
135Kher, as a seller, would always be subjected to a minority discount, and Arora never would. Whether Arora would take the position that if he were a seller, he ought to be entitled to a control premium (i.e., an adjustment in the opposite direction), I cannot and need not determine, but even if he did, such would exacerbate the problem and the inequity, in my view, rather than solve it.
136There is simply no evidence in the record on which I can conclude that a minority discount is just and equitable in the circumstances of this case.
137The Respondents’ valuation expert, Sethi, included the 20% minority discount in his valuation of the shares. However, he did not do so as a result of his professional judgment as an expert valuator applying that judgment to the particular circumstances of this case.
138Rather, Sethi admitted on cross-examination that he was instructed to consider the application of a discount for a minority interest or any premium for control. In other words, his mandate included the assumption or limiting term to the effect that he ought to apply the adjustment (in this case, a minority discount).
139For all of these reasons, I find that it would not be appropriate to apply a minority discount to the valuation of the ACC shares.
Share Valuation Based on Whyte’s Appraised Value for the Broadway Property without a Minority Discount
140Applying the above conclusions to the share valuation, and using again for convenience Trial Exhibit #8, I have used the KPMG (Whyte) appraised value, the KPMG (Sethi) adjusted figures as described above, and declined to apply a minority discount.
141The result is what is described in Exhibit #8 as “KPMG (Adjusted) Scenario 2”, which yields a pro rata value of Kher’s interest in ACC as $2,881,589. Given my determination above, however, as to the Designated Price in the context of the Shotgun Clause in the USA, the fact that this share valuation amount is greater than that received by Kher is relevant to the disposition of this Application only if there is a finding of oppression and even then only if there is a finding of oppression in respect of which the appropriate remedy is an order directing the Respondents or one of them to pay to the Applicant an amount equal to this difference in share value (as opposed, for example, to an order for damages).
The Allegations of Oppression
142The oppression remedy is found in s. 248 of the OBCA:
248 (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.
143A primary purpose of the oppression remedy is to provide an avenue for relief to minority shareholders in closely held corporations, although it applies also to other stakeholders such as creditors, directors and officers: Re Ferguson and Imax Systems Corp (1983), 1983 1646 (ON CA), 43 OR (2d) 128, leave to appeal refused December 5, 1983, S.C.C. File No. 18093; Mason and Intercity Properties Ltd, Re (1987), 1987 173 (ON CA), 59 OR (2d) 631; David S. Morritt, Sonia L. Bjorkquist & Allan D. Coleman, The Oppression Remedy, [2022] Thomson Reuters Canada (Proview) [Morritt, Oppression Remedy], online, at §2:4.
144The Supreme Court of Canada has been clear that conduct will be found to be in breach of s. 248 if:
a. the conduct breached the reasonable expectations of the applicant; and
b. the breach amounts to oppression, unfair prejudice, or an unfair disregard of a relevant interest.
See BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] SCC 560 (“BCE”) at paras. 56 and 68.
145Oppression is an equitable remedy. It seeks to ensure fairness - what is “just and equitable”. It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair. Like many equitable remedies, oppression is fact specific. What is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play. Conduct that may be oppressive in one situation may not be in another: BCE at paras. 58 and 59.
146The nature and scope of the oppression remedy was summarized by Kimmel, J. in Seferovic v. 285 Spadina SPV Inc., 2022 ONSC 2429 at paras. 53 – 56:
[53] There is a spectrum of what type of conduct constitutes oppression. The burden of proof for establishing unfair prejudice or disregard of interests (which are more focused on the result of the conduct on the complainant) is less rigorous than the burden to establish oppression (which is more focused on the state of mind of the “oppressor” and/or the character of the conduct itself, which often arises from an abuse of corporate power). But even oppression, while described as “burdensome, harsh and wrongful,” does not require proof of bad faith: see Waxman v. Waxman, 2002 49644 (Ont. S.C,), at paras. 1508 and 1521 – 1522, aff’d 2004 39040 (Ont. C.A.); C.I. Covington Fund Inc. v. White, 2000 22676 (Ont. S.C.), at para. 21.
[54] The oppression remedy protects reasonable expectations and interests, rather than legal rights, particularly in a closely held corporation: see BCE, at paras. 61 – 64.
[55] What constitutes reasonable expectations for purposes of the oppression remedy was extensively canvassed by the Supreme Court of Canada in BCE (at paras. 59, 61 – 78).
a. Fundamentally, a stakeholder has a reasonable expectation of fair treatment;
b. Reasonable expectations may not be solely found in written agreements between the parties;
c. A protected expectation must be one that could be said to have been part of the “compact” of the shareholders. This may be determined with regard to 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.
d. The reasonableness of any particular expectation asserted must be considered and evaluated objectively, with regard to the "facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations."
e. Reasonable expectations are not static and may evolve over time.
[56] In order to make a successful oppression claim, a complainant must:
a. identify the expectation(s), that he or she claims have been violated by the conduct at issue;
b. establish that the expectations were reasonably held; and
c. demonstrate that the defendants' failure to meet this expectation:
i. caused detrimental consequences; and
ii. that it amounted to "oppression," "unfair prejudice," or "unfair disregard" of a relevant interest.
See BCE at paras. 70 and 95.
147I agree with the approach of Kimmel, J.
148In the case of family corporations, such as ACC, different standards than those applicable to arm’s-length corporations may apply to the oppression analysis, but only if the family circumstances affect the complainant’s reasonable expectations or corporate interests: Koehnen, Markus, Oppression and Related Remedies, [2004] Thomson/Carswell, at §3.14.
149In Castillo v. Xela Enterprises Ltd., 2016 ONSC 6088, the Divisional Court stated at paras. 39 – 43:
The Appellants rely upon Naneff v. Con-Crete Holdings Ltd., (1995), 1995 959 (ONCA) as authority for the proposition that a Court may look to family background in order to establish a party’s reasonable expectations. […]
Courts may thus consider familial discord when examining the oppression remedy in the case of family-held companies. […] Family circumstances and motivations will thus affect the imposition of the oppression remedy in closely-held family corporations if those family differences affect the corporate interests in question. Contrary to counsel’s assertion that such a principle would throw the commercial bar into chaos, consideration of oblique family differences in oppression remedy proceedings would cause a Court to consider irrelevant evidence and thus prolong proceedings that are, by their very nature, both difficult and arduous. Courts must only decide matters based on relevant material evidence last the system get bogged down in irrelevant immaterial animosities.
[Emphasis added]
150I must now apply these principles to the allegations of oppression in this case, which involves a closely-held family corporation.
151The Applicant alleges that Arora and his son Sachin conducted the business and affairs of ACC in a manner that was oppressive and unfairly prejudicial.
152In the main, Kher’s allegations of oppression centre largely around requests by her for information and financial reporting that she alleges were answered at best haltingly, and in some cases only after this Application was commenced. (Kher also alleges oppression in the form of monetary benefits taken or enjoyed by Arora, and those are discussed separately below).
153Kher, who is not and never was a director of ACC, alleges that the outright refusal or at least reluctance to provide such information on a timely basis or, in some cases, at all, was contrary to her reasonable expectations as a one-third shareholder.
154Kher also alleges that Arora and Sachin paid themselves or family members amounts to which they were not entitled as improper disbursements. She alleges that these benefits were paid in violation of the USA and without the required written approval of all shareholders.
155Finally, and as noted above, Kher alleges that the triggering of the Shotgun Clause while this Application was pending was itself an act of oppression.
156Five fact witnesses gave evidence at trial potentially relevant to the allegations of oppression: Kher, Arora, Sachin, Ajay Kaushik (“Kaushik”) and Trevor Maddern (“Maddern”).
157Kaushik is the external bookkeeper for ACC, and has acted in this capacity since 2003 when it was incorporated. He has been close to the family for years and has known both Kher and Aurora since they were children.
158Kaushik was candid and forthright in his evidence to the effect that while he was, prior to emigrating to Canada, a licensed professional accountant in India, he holds no professional designation in Canada.
159Maddern is the president of TAG Management, a property management firm that manages the Broadway Property for and on behalf of ACC.
160Sachin is, as stated above, Arora’s son.
Failure to Produce Relevant Records to which Kher was entitled as a Shareholder
161I will address first the alleged oppression based on the failure to produce relevant documents and financial records.
162Kher’s evidence was to the effect that she decided to become more involved with ACC in or around mid-2018. She began by requesting information from Arora and thereafter from Kaushik and TAG when Arora directed her requests to one of them.
163Kher conceded in her evidence that she received some information and documents. She maintains, however, that it was incomplete and in some respects inaccurate, particularly relating to the disclosure about salaries paid to Arora and his immediate family. Kher also testified that both Arora and Kaushik reacted negatively and on occasion aggressively to some of her requests for information.
164In particular, Kher submits that certain information was not provided until after this Application was commenced, if at all, despite the requests of Kher (through her counsel, accountant or property appraiser Bobechko (who did not give evidence at trial)), and had been outstanding for months:
a. the electronic QuickBooks file;
b. employment and wage related records;
c. all financial statements for ACC since inception;
d. updated copies of the rent roll;
e. details of Arora’s car lease payments paid by ACC;
f. shareholder loan accounts; and
g. information on the RBC loan (discussed further below in the section regarding Improper Disbursements).
165Kher submits that Arora’s emphatic statement that she had complete and unrestricted access to the books and records of ACC is demonstrably inaccurate. She points, as an example, to the fact that Arora agreed on cross-examination that she could not, for example, attend at ACC’s office any time, unannounced and unplanned, and demand unrestricted access to all electronic and physical documents in the office.
166Kher also relies on the admission of Arora that his own personal knowledge of whether or not she received all of the information requested was limited, and in cross-examination he deferred several such questions to Kaushik, saying that he (Kaushik) would be better positioned to confirm whether or not Kher had received the requested information in question.
167Kher further submits that the response to some of her requests from Arora and Kaushik to the effect that she was welcome to conduct an audit of ACC if she wished, was unresponsive to her requests and was also unfair and contrary to the statutory obligation of ACC to conduct an audit.
168The evidence of the Respondents on these issues came principally from Arora, Kaushik and Maddern. All three of these witnesses were credible and straightforward. It was clear that there was frustration with what they, and Arora in particular, viewed as never-ending and ever-expanding requests for information from and on behalf of Kher beginning in mid-2018. However, in my view, and while this frustration was reflected in the tone of some of the correspondence responding to the information requests, those responses were not unfairly prejudicial or oppressive, and the requests were largely answered.
169I also observe that the requests were not at all consistent, in substance, frequency or number, with the requests for information from Chand or Kher during the preceding 15 years. Chand is deceased, so the court did not have the benefit of direct evidence from him at trial. However, Kher herself had been a shareholder since ACC was incorporated in 2003.
170It is common ground between the Applicant and the Respondents that she left the business of ACC, and the communications and dialogue with Arora, to her father, Chand. While this seems reasonable in the circumstances, the objective fact (admitted by her in cross-examination) is that she made essentially no requests whatsoever until her father’s health deteriorated and she began making inquiries in mid-2018.
171As to the period before that time, the evidence of Arora, supported by Kaushik who was also involved as the accountant throughout, was to the effect that Chand spoke regularly with Arora, was well aware of the business of ACC and in particular its accounting practices (i.e., with respect to the shareholder loan accounts and the treatment of salaries) and the two of them had no issues. The evidence was to the effect that all shareholders benefited from the tax planning strategies and accounting practices employed by the company.
172Most of the initial capital in the company came from Arora. By October 2003, he had invested more than $2.78 million of his own funds into the company. Chand had yet to invest any funds. The Broadway Property had not yet been purchased.
173When the Broadway Property was purchased in April 2004, Arora invested another $2 million of his own funds towards the purchase. Chand contributed $750,000 of his own funds, plus an additional $250,000 that Arora loaned him, bringing Chand’s total investment to $1 million (hence the two-third – one-third relative shareholdings).
174Arora and Chand had participated in joint investments with one another previously, including investments in real estate. The evidence of Arora was that Chand was not a passive investor nor was he inexperienced, and that the two of them ran the company together almost in the nature of a partnership such that Chand was involved in all of the major accounting decisions affecting ACC.
175Kher conceded that she had no expectations, let alone any that were not met, with respect to documents or information about ACC or its operations before 2018. Arora’s evidence was to the effect that Chand asked that Kher be named as a co-shareholder so that she would receive income from ACC, while he could ensure that it was operated properly since Kher did not have relevant business experience and would not be involved in the company.
176Thereafter, as noted above, Kher began asking for documents and information and in particular, asked to be included in communications between and among Arora, Kaushik, ACC’s corporate solicitor, and its property manager TAG.
177In response, Arora instructed each of Kaushik, the corporate solicitor, and TAG to include Kher in their communications, and they did so. I accept the evidence of Arora, Kaushik and Maddern to the effect that no restrictions were placed on the type of information that she was permitted to access.
178Moreover, I am satisfied that the responses from Kher, when they were made, were generally answered in a reasonable period of time (some certainly not instantly), and that those answers provided in the aggregate all of the information that Kher and/or her advisors could reasonably need to investigate and prosecute their claims of oppression.
179The evidence shows, for example, that in 2018 alone:
a. on Arora’s instruction, Kaushik provided to Kher’s own accountant, Mr. Roy Ohm (at his request on her instruction), a copy of ACC’s general ledger for 2003 through to 2018;
b. on Arora’s instruction, TAG gave Kher copies of the rent roll and all of the leases, lease extensions and lease amendments for tenants at the Broadway Property;
c. on Arora’s instruction, TAG began sending Kher regular electronic mail communications which included, among other things:
i. a monthly balance sheet;
ii. a monthly income statement showing revenue and expenses;
iii. an accounts receivable statement;
iv. an accounts payable statement;
v. TAG’s bank reconciliation;
vi. TAG’s transaction statements; and
vii. a monthly general ledger.
180I accept the submission of the Applicant to the effect that some information was not provided until after this Application was commenced. She makes that submission in support of her position that it is not reasonable for a shareholder to expect to have to commence an oppression proceeding to receive information to which she ought to be entitled, with the result that the delay in responding to such request and forcing her to bring this proceeding amounts to oppression.
181In my view, however, the acts or omissions of the Respondents do not amount to oppression in the particular circumstances of this case. A review of the correspondence and exchanges between the parties and/or their respective professional advisors, which is voluminous and expansive, leads me to the conclusion that generally, although not perfectly and sometimes not quickly, Kher substantively got the information she was seeking.
182I am satisfied that in the main, her requests (which were expansive, detailed and time-consuming to answer), were in fact answered and the information provided. Indeed, it is largely that information on which she relies in this Application. For example, virtually all of the seven enumerated categories of information set out above that she had requested, were indeed provided, albeit later than might have been ideal.
183However, ACC is not a large company with unlimited employees and resources. Some of the information was historical. Other aspects of the requests related to current information or materials that were more readily available.
184In a perfect world, reasonable requests from a shareholder would be responded to on an immediate and timely basis, although what might be considered “timely” is dependent on the particular circumstances of each case, and is also informed by the nature and extent of the requests, the frequency and repetitiveness of those requests, and the practical ability and resources of the receiving parties (here, the Respondents) to address them.
185Without question, some of the information requested by Kher was not provided until after this Application was commenced. However, I also observe that the Application was commenced in the midst of the milieu and dialogue between the parties and their respective advisors.
186Events were occurring in fairly rapid succession. Kher began to get involved in the company for the first time, not in the sense of being involved in operations, but certainly through requests for information, in mid-2018 when the health of her father, Chand, deteriorated. He died in June 2019. Arora first offered to purchase Kher’s shares on July 22, 2019. Then, only two days later on July 24, 2019, Kher commenced this Application.
187At that time, there were information requests outstanding. However, there were also multiple additional information requests made thereafter, and those were answered also.
188Considering all of the circumstances of this case, and particularly the accelerated timetable of events (and acrimony) principally through the latter half of 2019, I cannot conclude that the fact that certain information was provided after the Application was commenced, constituted oppression.
189On the contrary, I am satisfied that the information and materials that Kher received significantly exceeded the scope of information material that would typically be provided to a shareholder not involved in the day-to-day management of the business, and it certainly amounted to more than she reasonably needed in order to protect her interests. There was no oppression in the provision of information and documents.
190With respect to the audit, the OBCA permits all of the shareholders to consent to exempt the Corporation from the audit requirement. Kher submits that there is nothing in the USA that reflects such a consent from the shareholders of ACC. Again, Kher’s complaints relate to the period from mid-2018 forward, and not to the first 15 years of the corporate existence of ACC. ACC had never conducted an audit.
191The evidence of Arora and Kaushik was to the effect that first, Chand agreed with this and never once raised any objection or suggestion that an audit should be conducted; and second, that the shareholders agreed not to have the company conduct an audit as did many small privately held companies to avoid the very significant cost.
192The records going back to 2003 are not perfect. The court had the benefit of evidence from Arora and Kaushik, but not from Chand. I am not persuaded that the absence of a specific consent in the USA to an exemption from the requirement to conduct an audit, in the circumstances here where that USA was signed by all shareholders and there is no evidence of any dispute about, or even request for, an audit for at least the first 15 years thereafter, constitutes oppression. I also cannot conclude on the record that had an audit been performed, what, if any, conclusion might flow therefrom.
193Having considered all of the evidence, in my view the provision of information and financial records to Kher was consistent with her reasonable expectations as a shareholder in ACC. As a result, there was no oppression with respect to these allegations.
The Improper Disbursements
194As noted above, the Applicant also claims an “equalization payment” in respect of certain disbursements that she alleges were improper. This would effectively compensate Kher to the extent of her one-third proportionate shareholding in respect of contested disbursements made by the Respondents out of ACC to them and/or for their benefit.
195The disbursements alleged to be improper included:
a. salaries paid to Arora’s wife which were not approved by the shareholders and which were apparently in respect of work done not by her, but rather by Arora;
b. car expenses for Arora not required for the business of ACC, including principally the lease of an Audi sport utility vehicle used by Arora on a daily basis for business and personal travel; and
c. a shareholder loan from Hepcoe Credit Union that was refinanced with RBC, which refinancing resulted, effectively, in the transfer to ACC from Arora of a portion of his personal loan with a value of $60,782.
196Kher alleges that all of these disbursements were improper as they were not related to the business of ACC and had not been approved by all shareholders as required by the USA.
197Arora disputes that any of these disbursements were improper and indeed described them as simply “unexplained” in that, in part due to the passage of time, Arora was unable to produce backup documentation such as invoices and receipts to show the matters to which the disbursements related.
198The Respondents further take the position that the damages amount claimed in respect of these alleged improper disbursements is de minimis in that they were said to have been accrued over a 16 year period (from 2004 to 2020) with the result that the claim, even if the claimed amount of $154,717 is allowed in full, that it is essentially negligible as it amounts to only approximately $9,600 “of alleged oppression per year”.
199In my view, that arithmetic is roughly correct, but it is not an answer to the claim with respect to these disbursements. The oppression remedy measures conduct as against the reasonable expectations of, in this case, a shareholder. It does not measure conduct against the yardstick of what amount might be material relative to the annual income or asset value of a company.
200The parties (and their respective experts) agree that what were described in evidence at trial as “notional” payments can be excluded from the calculation of improper disbursements since the shareholder loan balances were not considered in the valuation of the shares owned by Kher in ACC.
201These so-called “notional” payments were payments recorded in the books and records but not in fact dispersed in cash. The most common example was the payment of salaries, which I pause to observe were paid to both shareholders, and, I am satisfied, with the knowledge of each. The salary payments were considered to be notional since they were recorded as salary expenses, but the amounts were added to the shareholder loans rather than paid in cash.
202Kher alleges that these disbursements were improper because they were made in violation of the USA (and specifically section 2.2(h)). She also alleges that these payments were likely made in breach of the Income Tax Act, and particularly s. 67, which permits deductions for salaries if they are reasonable in the circumstances (i.e., what a businessperson would pay an unrelated person who did the same work).
203The evidence was also to the effect that, in addition to the so-called notional salaries, Arora’s wife, Asha Arora, was paid a salary ranging from $10,400 and $20,400 between 2007 and 2017. Arora testified that his wife was paid for the little work she did, which he described as effectively office and administrative support.
204The Applicant submits that without any documentary evidence of Arora’s wife doing this work (and she did not give evidence at trial), it is highly unlikely that the salary paid to Arora’s wife would be deemed reasonable and paid in accordance with the Income Tax Act.
205There was no evidence led at trial (either from the fact witnesses or the respective valuation experts (even if they were qualified to opine on such an issue in any event) as to whether the payments would in fact contravene any statutory provision. In the absence of such evidence, I cannot make any determination on that issue and I do not do so. In my view, I do not need to determine that issue, however, for the purposes of the disposition of this Application.
206I am unable to determine whether the disbursements were in technical compliance with the USA, in the sense that all shareholders had approved them. Arora argues vigourously, and gave evidence to the effect that, Chand was well aware of how the business was run in all respects and agreed with the treatment of salaries throughout. Chand is deceased so I did not have the benefit of his evidence at trial (nor at examination for discovery or by way of affidavit) such that the court could not test the evidence of both Arora and Kaushik to the effect that Chand was well aware of the accounting practices of ACC and its expenses.
207Arora himself was cross-examined with respect to salaries accrued and paid. Kaushik gave evidence on these issues as well. I am satisfied that the only member of Arora’s family who received an actual salary from ACC was his wife. I am further satisfied that the salary was nominal. It was not, however, zero.
208Kher denies that her father, Chand, ever advised her (if indeed he himself had been advised, as Arora and Kaushik testified he had been) about any salary paid to Arora’s wife.
209However, as stated above, Kher, by her own admission, made no inquiries whatsoever at any time between the time of the incorporation of ACC in 2003 and 2018 when she began to make inquiries about its operations and affairs. When she began making inquiries, I am satisfied that this matter, among others, was disclosed.
210For example, Arora provided to Kher a copy of the company’s then most recent tax return, for the year 2017. In the cover email under which the 2017 ACC tax return was provided, Arora specifically advised her that the company was not issuing cheques to Arora, and that the only individual getting paid a nominal amount was his spouse, Asha Arora. Salary was simply accrued for Arora himself and others. Kher does not deny receiving this email message.
211Accordingly, I need not rely on what may very well be hearsay evidence of Arora in any event. Consistent with what was the practice at ACC, the recording of notional salaries was reflected in the company’s books and records, including for greater certainty the books and records that were provided to Kher and her expert accountant in response to her requests. I am satisfied on the basis of the documents themselves that the treatment of salaries and the shareholder accounts was clearly reflected in the books and records of ACC.
212Kher also alleges oppression arising from the manner in which the accounting was done for Arora’s shareholder loan account. As stated above, his salary was recorded as an expense and deducted against income of ACC. However, it was not paid in cash, but rather was reflected as an increase in his shareholder loan account. Kher alleges that she has been prejudiced to the extent of the aggregate quantum of these salary amounts since Arora received a benefit not shared by her (in proportion to their respective shareholdings).
213Kher’s submission is that since the salary amounts increased Arora’s shareholder loan account, he could withdraw that money from ACC at any time on a tax-free basis to repay those shareholder loans, with the result that he received a direct benefit through personal tax savings (a benefit she did not receive to a proportionate extent or at all).
214Kher’s expert accountant, Weinstein, estimates those benefits to have a value of somewhere between $330,000 and $635,000. He cannot be more specific since the exact amount of the benefits is not known because Arora refused to produce his personal income tax returns that would allow these benefits to be calculated.
215Arora submits that there is no evidence of any benefit actually having been received by him in this regard.
216I am unable to conclude that the treatment of Arora’s salary in his shareholder loan account amounts to oppression against Kher.
217First, as stated above, Arora’s personal tax returns were not produced and were not in the record at trial. There is no evidence that Kher brought a motion prior to trial (and she did not do so at trial) to seek production of Arora’s personal tax returns, even on a redacted basis, to show only repayments of shareholder loans or receipt of salary amounts from ACC. Kher invites me to draw an adverse inference against Arora as the basis for a finding that not only did he receive a benefit denied to Kher in the form of personal tax savings, but that he did so at the maximum amount of the (very wide) range estimated by Weinstein - $635,000.
218I decline to do so. Arora is not seeking to rely now on documents that were refused. His argument is simply that Kher has not met her burden of proof in this regard.
219In addition, Weinstein conceded on cross-examination that there was no evidence that Arora had actually ever paid himself the notional amounts attributed to his shareholder loan account. Weinstein also conceded, quite fairly, that the alleged tax benefit (referenced in his second report) was based on a hypothetical situation that may or may not take place in the future.
220Finally, and as fairly conceded by Weinstein in cross-examination, for Kher to have received an equal, hypothetical future tax benefit, a proportionate amount of notional income would have to be attributed to her, and those notional amounts would be subject to income tax, and the applicable marginal rate of tax for Kher might be higher given her non-resident status. Then, whatever amount resulted would presumably have to be discounted back to a present value, and I have no basis upon which I can conclude what a correct present value would be (i.e., there is no evidence about the hypothetical or notional future period of time to which whatever discount rate was selected should be applied).
221Moreover, there is no basis in the record on which any accurate determination as to the quantum of the benefit, indeed if any at all, received by Arora, let alone net of any corresponding benefit received or not received by Kher, could be made. There is certainly no sufficient basis for me to make any findings about net effective tax rates applicable to the income of either Arora or Kher.
222However, and even more fundamentally, I cannot conclude on the basis of the record that an improper benefit was received by Arora. As was clear from the evidence of both accounting experts (Weinstein and Sethi), there is nothing inherently improper about salaries being paid in cash or by way of increases in shareholder loans. However, tax is payable by the recipient employee either way, depending on the manner in which the payment of salaries is treated. In either event, the corporation can take the deduction to reflect the salaries paid as an expense, such that its business income is reduced accordingly to the benefit of all shareholders in proportion to their respective shareholdings amounts. The key is that the salary is recorded in the books and records of the Company as having been paid to the employee.
223How that salary is paid to the employee is where the issue arises here, since Arora was also a shareholder. If salary is paid in cash, the company disperses that cash, and the employee must declare that income and pay tax accordingly. If the amount paid is described as simply an increase in the shareholder loan account, such a description may not be an accurate reflection of what is really happening, or at least what ought to be happening in two sequential steps: the salary is paid to the employee by the company and then loaned back to the company by the employee, thus reflected as an increase in that employee’s shareholder loan account.
224Given the incomplete records here, the accounting experts were unable to conclude, and in the same way I am unable to conclude, whether any benefit, let alone any benefit that was improper (in the sense of representing a violation of the Income Tax Act), or prejudicial or oppressive to Kher, was received by Arora. Clearly, on the basis of the record as it stands, I cannot conclude what the quantum of that benefit would be, and therefore cannot conclude what the quantum of any appropriate payment to Kher would be, even if I were satisfied that the treatment of Arora’s salary and shareholder loan account were oppressive. I decline to make any finding of oppression in this regard.
225Finally, with respect to the salary of Arora, much was made at trial about the fact that the amounts represented by Arora as having been paid or accrued as salary expenses did not correspond directly to the information subsequently provided to Kher in the form of precise payroll records. To be clear, this was advanced as an issue separate from the alleged income tax benefit discussed above, and rather as a separate act of oppression in that the books and records provided to Kher in her capacity as a shareholder were simply not accurate.
226I cannot conclude that this constituted oppression either. The payroll table provided to her via email (in response to her requests) on January 9, 2019 included payroll information, and specific amounts with respect to salary accruals for Arora and Sachin among others, and cash payments and T4 income for Asha Arora. The evidence at trial was to the effect that this payroll table was accurate.
227Another of the disbursements alleged to have been improper related to the leasing and financing costs of an Audi SUV leased and driven by Arora, but paid for by ACC.
228Arora admitted in cross-examination that he used the vehicle for personal as well as business uses. He was cross-examined vigourously about what the alleged business uses were, and on this point, I accept the position of the Applicant. ACC had only one property - the Broadway Property. There were not multiple corporate properties between and among which Arora was required to travel for ACC business purposes.
229Moreover, the Broadway Property was actually managed for and on behalf of ACC by TAG as property manager. The evidence, principally from Maddern but also Arora and Kaushik, was consistent and to the effect that Maddern and his team at TAG looked after virtually all aspects of operation and management for the Broadway Property: collecting rents, dealing with tenant issues and complaints, if any, managing property maintenance, etc.
230In short, I am satisfied that there was no ACC business purpose for Arora to have a vehicle funded by the company.
231The balance of the disbursements said to be improper are generally unexplained payments for expenses, including but not limited to travel expenses, in respect of which ACC has no records to justify. These are largely as set out in Weinstein’s second expert report.
232In the absence of such records, and in the absence of written shareholder approval as required by the USA, I am not prepared to conclude that they were ordinary course business expenses, the disbursements for which were appropriate.
233I reach the same conclusion with respect to the RBC loan transfer involving the Hepcoe Credit Union as discussed above. I am satisfied that this amounted to a benefit to Arora by way of the transfer of a personal liability to ACC.
234For all of these I am satisfied that the Improper Disbursements (only) were oppressive and prejudicial to Kher. The quantum of the Improper Disbursements is discussed below in the section on the appropriate remedy.
Was the Triggering of the Shotgun Clause itself Oppressive?
235Finally, Kher alleges that notwithstanding that the USA provided that any shareholder could trigger the Shotgun Clause by delivering an Initiating Notice, the circumstances in which it was triggered here by Arora constituted a further act of oppression.
236The allegation is that even if the triggering of the Shotgun Clause might have otherwise been appropriate, it was done when this Application in which Kher alleged oppression was pending, and was done at a time when Arora knew Kher lacked the financial resources to buy out his shares, with the result that it was virtually automatic that she would be a seller.
237I am unable to conclude that the triggering of the Shotgun Clause was oppressive here.
238The chronology is straightforward, and there is no question that the Shotgun Clause was indeed triggered while this Application was pending. Indeed, as discussed above, that act resulted in the injunction motion, ultimately settled on the terms set out in the Endorsement of Conway, J. (pursuant to which Kher did not deliver a release and reserved her rights to pursue this Application).
239In my view, the fact that this Application was pending does not itself make the triggering of the Shotgun Clause oppressive in the particular circumstances of this case.
240Pursuant to the terms of the USA, the Shotgun Clause may be triggered by either shareholder at any time. It follows, clearly in my view, that the triggering of that very clause could not be said to be oppressive or inconsistent with the reasonable expectations of the shareholders who were parties to the USA.
241In my view, the fact that the Shotgun Clause was ultimately triggered while this Application was pending does not change the fact that the reasonable expectations of the shareholders were that the Shotgun Clause could be triggered at any time. It would be an unreasonable expectation of a shareholder here that the issuing of a Notice of Application amounted, without more, to what would effectively be an injunction or temporary stay prohibiting the exercise of that Shotgun Clause pending a determination of the Application. There is no basis for the conclusion that such an expectation would have been reasonable, at least in the particular circumstances of this case.
242Here, the parties disagree, and the evidence was not consistent, on whether, and the extent to which, a possible sale of the shares owned by Kher and previously owned by her together with her father, Chand, had been discussed between and among the parties earlier.
243Kher’s evidence was to the effect that over the years, Arora had pressured her father, Chand, to sell his shares. Arora denied that. There was no evidence of any discussions about Kher (or Chand) ever buying out the position of Arora. In any event, the parties never reached an agreement with respect to a buyout either way prior to the commencement of this Application.
244It was the position of the Respondents that this Application was never a manifestation of Kher’s reasonable expectations as a shareholder for the provision of information and documentation not being met. Rather, in submission of the Respondents, the Application was brought from the outset with a view to obtaining more information to better inform Kher’s decision about value and to force Arora to buy out her shares. Kher, of course, denies this and maintains her allegations of oppression.
245Equally, Kher argues that Arora triggered the Shotgun Clause not because he genuinely wanted to purchase Kher’s shares, but rather he did it in order to pressure her to abandon this Application, an allegation which he denies.
246In my view, I need not make any determination about the motivation of Kher in bringing this Application in order to determine whether the triggering of the Shotgun Clause constituted oppression.
247I am unable to conclude on the evidence that Arora triggered the Shotgun Clause with a nefarious intent such that by doing so, he oppressed Kher or acted in a manner that was unfairly prejudicial to or that unfairly disregarded her interests.
248I am satisfied that Arora likely thought that if he purchased Kher’s shares pursuant to his Initiating Notice, it might bring an end to this Application. If that is indeed what Arora thought, clearly his expectation or hope in that regard was misguided, and ultimately pursuant to the terms of the settlement, a sale was completed but the Application proceeded notwithstanding.
249However, as noted above, at the time he delivered the Initiating Notice, and by doing so, Kher was declaring that he was prepared to be either a buyer of the shares held by Kher, or a seller of his shares, at the election of Kher.
250There is no evidence of the state of Arora’s knowledge of Kher’s financial means on which I could conclude that he knew that Kher lacked the financial resources to buy out his position with the result that she would automatically be a seller. I pause to note that even if I had been persuaded that Arora had this knowledge, it does not follow automatically that his delivery of the Initiating Notice to trigger the Shotgun Clause would be oppressive.
251It seems to me that any shareholder who is a party to an agreement that gives any shareholder the right to trigger a buy-sell provision, is entitled to consider in the course of determining whether to exercise that trigger right, all of the circumstances that existed at that time. Those might reasonably include a consideration of whether the receiving party was likely to accept the offer and be a seller, or instead be a buyer, and that in turn might include a consideration of the likelihood of the liquidity or purchasing power of the receiving party. Absent evidence of bad faith, for example, that is not unreasonable or improper.
252In the circumstances of this case, I cannot conclude that the triggering of the Shotgun Clause at the time it was triggered, was oppressive. There may be circumstances in other cases where the fact that an oppression remedy application was pending, and other factors were present, such that those factors or circumstances weighed in favour of a finding that the triggering of such a notice was oppressive. But in my view, such is not the case here.
The Involvement of Sachin Arora
253As stated above, Arora’s son Sachin is a Respondent. Sachin gave evidence at trial and the record included two affidavits previously sworn by him.
254In short, I am satisfied that there is no basis for any relief to be awarded as against him.
255He was simply not involved in virtually all of the events giving rise to the allegations. He has never been involved in the operations or management of ACC in any meaningful way, and certainly not with respect to the events giving rise to the allegations in this proceeding.
256Sachin gave evidence at trial, in addition to, but consistent with, his two affidavits filed. Without question, and as the Applicant alleges, he was a director of ACC and he authored a few electronic-mail messages to Kher in early 2018.
257In those electronic-mail messages, in summary, he effectively undertook to provide to her additional information or materials. The allegation is that he failed, however, to provide the materials as he had agreed to do with the result that his conduct was such that he was part of the series of oppressive acts committed by his father, Arora.
258I am satisfied that in all material respects, ACC was managed and operated by Arora. To the extent that Sachin was involved at all, which was clearly to an extremely minimal extent, he was acting on the instructions of, and at the direction of, his father.
259Even more substantively, I cannot conclude on the basis of the evidence at trial that Sachin himself committed any acts or omissions that were oppressive to, or unfairly disregarded or prejudiced, the interests and reasonable expectations of Kher.
260There is no basis for any relief to be awarded as against Sachin. It was also clear in the closing submissions of counsel for the Applicant that the relief the Applicant was seeking was primarily sought against Arora in any event.
Limitation Periods
261Oppression claims in Ontario are subject to the general two-year limitation period in the Limitations Act, 2002.
262Claims arising from singular discrete acts of oppression (in a series of such acts) that are discoverable more than two years before an action are statute barred. As a result, a series of singular discrete acts of oppression that stretches over a period of time may result in some claims for oppression arising from earlier acts in the series being statute barred while claims arising from later acts in the series are not: Zhao v. Li, 2020 ONCA 121, 149 OR (3d) 353 at para. 29.
263The law regarding limitations is not seriously disputed between the parties here.
264Applying that law to the circumstances of this case, I cannot conclude that Kher’s claim for oppression is barred by the expiry of the applicable limitation period, since I am satisfied that her claim was brought within two years of the date on which she knew or ought to have discovered her claim.
265To be clear, the parties are in agreement, and I also agree, that even if the limitation period did apply, it would not bar Kher’s claim entirely, but rather limit the claims she could assert to those going back for two years (for example, the improper disbursements going back for a period of two years prior to the commencement of this proceeding).
266I have discussed above the chronology relating to the requests for, and provision of, financial information and records. I stated in the course of that discussion that I was satisfied that certain of the information provided to her had in fact not been provided until after the commencement of this Application.
267Moreover, I reject the argument of the Respondents to the effect that Kher could and should have advanced her claims well before she did, and during the period between 2003 and 2018, during which time she was always entitled to information as a shareholder. I accept the position of Kher that she had no reason to make further inquiries or request such documents, and that it was only following on her initial inquiries made in 2018, that she became aware of the facts necessary to sustain a cause of action.
268I am satisfied that all of the claims advanced by Kher, and particularly the allegations related to the Improper Disbursements which I have found ought to entitle her to an order for the payment of the amount to which she is entitled in respect thereof, are not barred by the expiry of any limitation period.
269As noted at the outset of these Reasons, arguments were not pursued with respect to waiver and estoppel with the result that I need not address them further.
The Appropriate Remedy for Oppression
270Given these findings, I must consider the appropriate remedy in the particular circumstances of this case.
271The OBCA sets out 14 different remedies for oppression, although that list does not limit the court’s broad remedial discretion to make such order as it thinks fit. The court must tailor the relief carefully to do no more than is necessary to remedy the oppressive conduct: Basegmez v. Akman, 2018 ONSC 812 at para. 8.
272The Supreme Court of Canada has also been clear about the general principles of a fit oppression remedy in any particular case: Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 SCR 1037:
a. the remedy requested must be a fair way to deal with the situation (para. 52);
b. the order should go no further than necessary to rectify the oppression; it should only go as far as necessary to correct the injustice, and if the remedy is monetary, it must be carefully calculated to rectify the loss (paras. 27 and 53);
c. the order may only serve to vindicate the reasonable expectations of the claimant in their capacity as corporate stakeholders. It should remain “rooted in, informed by, and responsive to the reasonable expectations of the corporate stakeholder”. (para. 54); and
d. a court should consider the general corporate law context in exercising its remedial discretion. An oppression remedy cannot be a surrogate for other forms of statutory or common law of relief, particularly where other such relief may be more fitting in the circumstances (para. 55).
273I concluded for the reasons set out above that the provision of information and financial records by the Respondents to the Applicant did not itself amount to oppression. Accordingly, there is no basis for any oppression remedy to be awarded in respect of those allegations.
274I also concluded there was no oppression such as would entitle Kher to the payment of an additional amount for her shares, above the Designated Price set out in the Initiating Notice, which she has already received. It follows that she is not entitled to any order for an additional amount for her shares.
275I further concluded that the notional payment of a salary to Arora by way of an increase to a shareholder loan account rather than the payment in cash, was not oppressive. However, if I found that it had been, I would still not conclude on the evidence that Kher ought to be entitled to an award of damages as claimed (in the amount of $211,166), a sum that is said to be equal to one-third of the maximum tax benefit that could be enjoyed by Arora.
276I reach this conclusion because in my view, not only was the strategy used by ACC and disclosed to the shareholders since the time of incorporation, but all shareholders also benefited from this practice by the increase in the salary expense recorded, the corresponding decrease in net income and therefore tax liability of the company. This accrued to the benefit of all shareholders.
277I did, however, find that the Improper Disbursements paid to or for the benefit of Arora, to be oppressive to Kher. In my view, and given the arithmetic nature of this oppression since it relates to specifically enumerated disbursement charges, the appropriate remedy is an order directing the Respondents Arora and, so it is bound by the result, ACC, to pay an amount to Kher to put her in the position she would have been in as a one-third shareholder if the Improper Disbursements had not been made and all disbursements were made properly and proportionately.
278The experts for the parties are close, but not in complete agreement as to the quantum of this equalization payment if the court concludes that the disbursements are in fact improper. The experts agree that the quantum of disbursements received by Arora is $466,152, described by the Respondents’ expert, Sethi, as: “cash payments to the Arora Parties during the Review Period, which were in excess of the shareholder distributions pursuant to the [USA]”. However, and notwithstanding that agreement, the experts (and the parties) are not in agreement with respect to the so-called equalization payment owing to Kher based thereon.
279As stated above, Weinstein included in his calculation of the quantum of the improper disbursements in his first report notional as well as cash disbursements. Following the delivery of Sethi’s first report on behalf of the Respondents, Weinstein fairly conceded that the KPMG approach was correct, subject to relatively minor adjustments. That concession reduced Weinstein’s original calculation of the improper disbursements at $602,452, to $154,717.
280The Applicant relies on the expert opinion of Weinstein that the quantum of the equalization payment due to Kher as a result of the improper disbursements is $154,717 (also with pre-judgment interest payable from the Valuation Date). The Respondents rely on the expert opinion of Sethi to the effect that the equalization payment should be $149,410, with the result that the delta between the respective experts is only $5,307.
281I prefer on these issues the opinion of Weinstein. While the difference in the conclusions of the experts is relatively small in monetary terms, I found that particularly in cross-examination on these points, Weinstein was more forthright, objective, prepared to concede when such concessions were appropriate, and in my view, I preferred his evidence and conclusions on these points.
282Accordingly, Kher is entitled to an order directing the payment to her of $154,717, together with pre-judgment interest payable from the Valuation Date forward.
Result and Disposition
283The Application is allowed with respect to the finding of oppression in respect of the Improper Disbursements and the corresponding order for payment to Kher in an amount in respect thereof, all as set out above.
284The Application is otherwise dismissed.
285In the result, success was somewhat divided. I urge the parties to agree on costs. If they cannot do so, the parties may make written submissions on costs, not to exceed three pages in length, which can be delivered to me via email to my judicial assistant, Mary Sibenik, at mary.sibenik@ontario.ca, within 20 days of the date of these Reasons. Submissions may be accompanied by a Bill of Costs, and any other relevant documents such as any offers to settle.
286Order to go in accordance with these Reasons.
Osborne J.
Date: February 20, 2024
Footnotes
- The Applicant alleges oppression and seeks damages for that oppression, in addition to any adjustment to the Purchase Price.
- The numbering of the articles in the USA is disjointed and contains what are likely typographical errors. For example, Article 1 begins with sub- article 1.1 and so on. Article 7 begins on page 14 of the USA with sub- article 7.1. The next Article begins on page 16 and is also entitled "Article 7", although it begins with sub- article 8.1. The title should likely be "Article 8". That error carries through the balance of the USA, such that Article 8 begins with sub- article 9.1, and Article 9 begins with sub- article 10.1 etc. References above to specific Articles are references to what the correct numbering should be, as reflected in the sub-articles which appear to be all correctly numbered.
- As stated above, the settlement of the injunction motion included a term that, notwithstanding the provisions of the USA, no release was required to be provided.
- While the Respondents’ expert, KPMG, agrees with Weinstein's calculation of the RDTOH, the Respondents do not concede that Kher is entitled to a proportionate benefit (i.e., as to one-third).
- These other adjustments are summarized in Exhibit #8 and evidence was led at trial with respect to each of them. They include other assets of ACC (i.e., other than the Broadway Property); the RDTOH balance based on ACC’s income tax return of $398,326, to which KPMG applies an estimated personal tax rate of 36.5% applicable to dividends and the discount factor of 50% to reflect the present value and the timing uncertainty of payment, an approach consistent with the treatment in the KSV Memorandum); a mortgage loan; and a factor for a contingent disposition re: (selling) costs.