COURT FILE NO.: CV-24-00003878-0000
DATE: 2024-11-29
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Nelson Penelas, NP Provix Holdco Inc., and Carlisle Investment Group Inc., Applicants
AND:
Trevor Cruise, Tyrell Corp., TC Provix Holdco Inc., NT&T Investment Partners Ltd., Stanmech Technologies Inc., NTI Provix Holdco Inc., Provix Inc., and 1442491 Ontario Inc., Respondents
BEFORE: Kurz J.
COUNSEL: John J. Adair, for the Applicants
Stephen Brown-Okruhlik and Fernanda Martins, for the Respondents, Trevor Cruise, Tyrell Corp., and TC Provix Holdco Inc.
HEARD: October 25, 2024
ENDORSEMENT
Introduction
[1] The parties bring cross-motions for interlocutory injunctions. One, dealing with the confidentiality of corporate documentation has been resolved on consent. The remaining one, brought by the Applicants is in essence a request to restore the Applicant, Nelson Penelas (“Penelas”) to his role as director of the Respondent, Stanmech Technologies Inc., (“Stanmech”), upon certain terms regarding his involvement with that corporation, until trial.
[2] The Respondent, Trevor Cruise (“Cruise”), cast the only vote to remove Penelas from his role as officer and director of Stanmech. He claimed the right to do so because of his role as President of NT&T Investment Partners Ltd. (“NT&T”), the holding company which owns 95% of the shares in Stanmech. Cruise voted all of the shares in NT&T against Penelas’ wishes and interests even though he and Penelas were both officers, directors and (through their personal holding companies) equal shareholders of NT&T.
[3] Cruise took that step because, he claimed, Penelas had “abandoned his post” with Stanmech. Cruise asserts that Penelas was not paying sufficient attention to the company, had permanently moved to Spain and that Penelas was giving orders that countermanded his own.
[4] Cruise argues that his role as President entitled him to oust Penelas, despite the equity of their interests in NT&T and through it, Stanmech. Cruise adds that he had good cause to do so and that he was acting in the best interests of Stanmech.
[5] While both Penelas and Cruise agreed that they must go their separate ways and that one has to buy out the interests of the other in Stanmech, they cannot agree on who will be the buyer and how that process will occur. That is an issue for trial.
[6] While that is a matter for another day, Penelas argues that the parties are unable to agree on how Stanmech will be operated and by whom during the period until that process is resolved. This motion is intended to make that determination.
[7] Penelas argues that Cruise lacked the authority to oust him and that in purporting to do so, he acted in a conflict of interest. That is, Cruise preferred his interests to those of both Penelas and Stanmech. Penelas contends that in ousting him, Cruise placed himself in a superior position in the ultimate determination of who controls Stanmech. With Penelas out, Cruise can run Stanmech as he sees fit, including hiring and firing allies, without Penelas’ input. It also gives him a superior position with Stanmech’s main supplier. That all gives Cruise a leg-up in negotiations for whatever buy-sell arrangement is agreed upon or any terms imposed by the court.
[8] The parties agree that in this motion for a mandatory interlocutory injunction, the test under RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 SCR 311 (SCC) requires Penelas to prove that:
a. He has a strong prima facie case;
b. He would suffer irreparable damage if the injunction were not granted; and
c. The balance of convenience favours him.
[9] Of course, the parties disagree about whether Penelas meets any elements of the three-part test. For the reasons that follow, I find that he does and grant an interlocutory injunction which reinstates Penelas as a director but not officer of Stanmech, upon terms set out in detail below.
Background
Corporate Structure of NT&T and Stanmech
[10] Cruise and Penelas are both sophisticated businessmen who until recently were friends. In or about 2022 they decided to go into business together as equal partners in the purchase and operation of mature companies. Their first purchase, in February 2022, was a 95% interest in Stanmech. They did so through their holding company, NT&T.
[11] NT&T was in turn equally owned by Cruise and Penelas’ own holding companies, Tyrell Corp. (“Tyrell”) for Cruise and Carlisle Investment Group Inc. (“Carlisle”) for Penelas.[^1] The remaining 5% interest in Stanmech is held by a third party, Arun Kwinta (“Kwinta”), who is not a party to this proceeding and has offered no evidence in this motion.
[12] Stanmech is a distributor of tools used in the application of heat and air, for example during construction. Stanmech’s key contractual relationship is its role as a distributor of products manufactured by Leister Technologies AG (“Leister”), a Swiss manufacturer.
[13] In 2024 Cruise and Penelas, through other holding companies, jointly purchased an interest in a second company, Provix Inc. (“Provix”). They have already resolved that Cruise will purchase Penelas’ interest in Provix for the amount paid for that interest. I will have more to say about that below.
[14] Penelas’ evidence is that he and Cruise agreed that they would be equal partners not only in ownership but also in the operation and management of Stanmech. Each had their own separate roles in that regard. Until he was ousted by Cruise, they were the only two officers and directors of both NT&T and Stanmech. Penelas asserts that he and Cruise agreed that there would be “no unilateral decision making about any significant issues.” Nothing of the sort occurred until the events that led to this proceeding.
[15] Cruise contends that he and Penelas agreed that he would be installed as the president of NT&T because he was quitting his job and because he had a greater role than Penelas in operating Stanmech. That contention is not confirmed by any evidence before me but Cruise’s own word.
[16] Penelas’ version is corroborated, at least in part, in a NT&T “Confidential Information Memorandum”[^2], prepared for lenders to assist NT&T in the acquisition of Stanmech[^3]. In that memorandum, each of Penelas and Cruise were described as “partner” and “co-founder” of NT&T. In an organizational chart of NT&T, Penelas and Cruise were described as “Co-Presidents”. In a section of the memorandum labelled “Leadership”, the Role of “Co-Presidents” is described as follows:
Co-President Role:
STI [i.e. Stanmech] will be lead by Trevor Cruise and Nelson Penelas who will provide strategic direction and oversee all finance, business development and operational functions.
Trevor and Nelson will work with the Vendor through a 12-month transitional period to ensure a smooth transition process
Trevor will focus predominantly on the financial and operational side of the business given his extensive experience as CFO of a privately held Insurance brokerage and years as an accountant at BDO
Nelson will focus on STI’s sales and business development initiatives with the goal of accelerating the sales penetration rate in the current market and capitalize on the positive industry tailwinds.
[17] While not determinative, this memorandum offers some evidence of the intention of Cruise and Penelas, at the time of the acquisition of Stanmech, to have co-equal positions with the newly acquired corporation.
[18] Nonetheless, Cruise claims that as the president of NT&T, he was entitled to utilize its 95% shares of Stanmech to oust Penelas as an officer and director of Stanmech. He claims to have discovered further misconduct by Penelas after he ousted him. Cruise asserts that if Penelas were reinstated to his previous role, he would cause chaos in the operation of Stanmech.
Cruise’s Ouster of Penelas
[19] There is no dispute that Penelas has moved to Spain, whether temporarily, as he claims or permanently, as Cruise asserts. That is the ostensible reason for Cruise’s ouster of Penelas.
[20] Penelas deposes that he has spent time in Europe, where his family originates, over the past few years. During that time, his two sons have played soccer with elite European youth teams. He says that this summer his sons were offered the opportunity to train with an elite Spanish youth team. Penelas asserts that he and his wife decided to move temporarily to Spain, for 3 – 9 months. He made the move in September 2024.
[21] Penelas deposes that he has kept his Ontario home, maintained his Ontario car insurance, and confirmed with his sons’ Ontario school that they can return mid-term. He says that each of his and his wife’s families reside in southwestern Ontario. His Spanish accommodations and car are rented.
[22] Cruise denies the claim that the move is temporary. He points to correspondence, some in draft form, that implies or says that the move will be permanent. Cruise also relies on the affidavit evidence of Haseeb Javed (“Javed”), who is both the Interim General Manager as well as a 15% shareholder of Provix (through a holding company). In his affidavit, Javed complains about Penelas’ lack of work for Provix, in the time between late June 2024 and his affidavit of October 15, 2024. Javed further asserted that in a telephone call of August 9, 2024, Penelas “told me about the move, he said that it would be ‘permanent’” [emphasis added].
[23] However, in cross-examination, Javed conceded that his understanding of the permanence of the move was only his assumption. It was based on the fact that the Penelas children being admitted into the Spanish soccer programme. In other words, it was not something that Penelas said to him.
[24] All told, the evidence relied on by Cruise to prove the permanence of Penelas’ move to Spain is far from determinative and must be met with caution at this stage. As set out below, while I have issues with the credibility of each of Cruise and Penelas, I have more issues with that of Cruise. In addition, I find that Javed is not a credible witness. Javed only assumed that Penelas’ move was permanent. But he deposed that this is something Cruise told him. That is clearly not true. I add that Javed is not an objective witness. His interests are clearly aligned with those of Cruise. Thus, Javed fails to corroborate Cruise’s assertions.
[25] Penelas also replies that in any event, the permanent vs. temporary dichotomy is a “somewhat of a red herring” because he can do his work by Zoom from anywhere as he has done in the past, even when in Ontario. There is some merit to that claim. I will have more to say about the evidence supporting that contention below.
[26] On August 7, 2024, Penelas advised Cruise of his plan to move to Spain. Cruise’s response was that he no longer wished to be in business together with Penelas and that they should work to separate their business interests. Cruise says that on August 9, 2024, Penelas agreed to sell his interest in Provix to Cruise for the price that they paid for it the previous month. Penelas does not deny this but contends that the agreed upon sale of his Provix interest was conditional on a resolution of the issue of ownership of Stanmech, i.e. who would buy the other out and for how much.
[27] Penelas says that the parties agreed to a “shotgun” buy/sell of their interests in NT&T. Cruise denies that claim. But Penelas produced a August 12, 2024 email from Cruise to him, in which Cruise accuses Penelas of backing off on an agreement to make an offer for Cruises’ shares through a shotgun arrangement. Cruise wrote:
Nelson, You said on Friday to me that you will be making me an offer today and then based on our recent discussion you are going back on what we agreed to. While very disappointing it’s not surprising, so going forward all communication needs to be in writing or go through Aran. We have agreed on doing a shotgun. I will have Aran get back to you on timelines and mechanics and you will make the first offer.
[Emphasis added]
[28] The buyout discussions broke down towards the end of August. There has still been no transfer of the Provix shares, as Penelas appears to see them as a package deal.
[29] When those discussions broke down in late August 2024, Cruise decided to take steps to oust Cruise from his role with Stanmech. He lacked the authority to call a special meeting of the Stanmech shareholders to do so. Instead, he prepared a shareholder’s resolution to amend the Stanmech by-laws to allow the CEO to call the meeting. He then signed the draft resolution on behalf of NT&T. The resolution was also signed by the 5% shareholder, Kwinta, but not shown in advance to Penelas. To no surprise, the resolution passed.
[30] Cruise then called the special meeting of Stanmech’s shareholders for the sole purpose of removing Penelas as a director. On September 9, 2024, he gave notice of the meeting, called for September 19, 2024.
[31] Three days before the special meeting, Penelas’ solicitors wrote to Cruise’s counsel and Kwinta, stating that the resolution to amend Stanmech’s by-laws was invalid. They cited two reasons, First, it had not been put to the Stanmech directors (including Penelas), as required by s. 103(1) of the Canada Business Corporations Act (“CBCA”) and if approved by the directors, put to the shareholders for a vote as required by s. 103(2). Those provisions state:
103 (1) Unless the articles, by-laws or a unanimous shareholder agreement otherwise provide, the directors may, by resolution, make, amend or repeal any by-laws that regulate the business or affairs of the corporation.
(2) The directors shall submit a by-law, or an amendment or a repeal of a by-law, made under subsection (1) to the shareholders at the next meeting of shareholders, and the shareholders may, by ordinary resolution, confirm, reject or amend the by-law, amendment or repeal.
[32] Second, Penelas’ counsel asserted that Cruise lacked the right to vote NT&T’s shares without the consent of Penelas as the NT&T by-laws provide that its board can only act on a majority vote. Lacking Penelas’ vote, Penelas’ counsel stated that Cruise could not act on behalf of NT&T.
[33] Despite Penelas’ objection, Cruise held the meeting on September 19, 2024. It was not much of a meeting as neither Penelas nor Kwinta attended. As Penelas’ counsel archly observed: “[n]ot surprisingly, he was able to persuade himself to sign his own resolution giving him sole authority”.
The Manner of Penelas’ Performance of his Duties Prior to his Ouster
[34] The parties disagree on the manner in which Penelas performed his duties on behalf of Penelas before his removal. Cruise asserts that Penelas:
a. Abandoned his post (in charge of sales). In that regard, he stopped meaningfully overseeing Stanmech’s sales;
b. Failed to advance key operational initiatives for the company that were his responsibility;
c. Rarely showed up to leadership meetings.
[35] Cruise also offered evidence regarding concerns allegedly offered to him by unnamed Stanmech staff. But that evidence is unreliable hearsay. I give it no weight.
[36] That being said in his cross-examination, Cruise conceded that prior to an August 7, 2024 meeting with Penelas, he never:
a. sent Penelas a written communication regarding a failure to perform his duties as an officer of Stanmech; or
b. told Penelas orally or in writing that he may need to remove him as an officer of Stanmech.
[37] Further, as Penelas points out, in 2024, Stanmech was named Leister’s “Distributor of the Year” and awarded “Gold Partner” status for its sales and collaboration efforts. Sales was Penelas’ key area of responsibility with Stanmech. Further, Penelas asserts, without contradiction, that Stanmech’s earnings have grown significantly since he and Cruise purchased their majority interest in Stanmech through NT&T.
[38] In light of Cruise’s allegations of neglect of duty, Penelas’ counsel examined Stanmech’s sales manager, Peter Borris, under r. 39.03. Mr. Borris testified that:
a. Penelas’ role was managing and overseeing Stanmech’s sales department;
b. He directly reported to Penelas;
c. During 2023 things were working “very well” in the sales department;
d. In terms of Penelas’ “commitment to the job; his performance, et etcetra”, nothing changed in any material way in 2024 prior to August 2024;
e. As far as he was aware, Penelas’ absences from Canada made no difference in his ability to exercise his sales oversight function. Business carried on as usual. Nothing changed in their “day-to-day contacts, weekly meetings”.
f. Until he was removed from Stanmech, Penelas continued to do his job as he always did. As far as Borris could tell, Penelas was doing his job properly.
g. Before Penelas was removed from Stanmech, management of the sales team and the sales effort principally occurred through electronic communications, e-mail, phone, and Zoom. Penelas and Borris had weekly Zoom meetings and telephone calls on an as-needed basis.
h. The weekly meetings were by Zoom because Borris is located in Montreal, while Penelas was in Toronto or Burlington and the other two salespeople were located in Alberta and Oshawa. In addition, the use of Zoom allowed for the sharing of screens to allow the participants to “share information, sales figures, activities, et cetra”.
i. The sales team would only be in the same place and time once per year.
j. Penelas was available to Mr. Borris “[a]nytime I needed him”.
k. From the time that Penelas went to Spain with his family until his ouster, Penelas continued to be available as he had always been, any time of the day. Nothing that Borris noticed would cause him to believe that Penelas was no longer doing his job properly. They interacted “nearly on a daily basis and met for our Zoom meetings weekly. Nothing changed”.
l. Borris also agreed that Penelas was available during normal business hours to take calls and emails.
m. Borris disagreed with Cruise’s assertion that Penelas had abandoned his post with Stanmech.
n. Of all of the people at Stanmech, Borris had the most frequent contact with Penelas.
o. It was not necessary for Penelas to be physically present at the office for a significant period of time. The previous owners of Stanmech operated in a hybrid (virtual and in-person) manner as they travelled to Florida and around the world. Sales staff communicated with them by Zoom.
p. Borris disagreed with Cruise’s claim that after Penelas was removed, Cruise discovered that Penelas “failed to advance most of the major objectives he was responsible for” including the implementation of a new financial records system.
q. Further, and again contrary to Cruise’s assertion, Borris testified that Penelas was “actively engaged” with him on a particular new segment of product that was a strategic priority for Stanmech. They had some success in finding sales opportunities for that product. They discussed the sales of the product to two particular Stanmech customers. Borris denied Cruise’s claim that sales staff were not aware of the priority and that no outreach had occurred.
r. Penelas also attended to leadership meetings in July – September 2024. No one commented that he was absent.
s. Contrary to Cruise’s claims, Penelas never threatened to sue Borris if he followed Cruise’s instructions;
t. Borris was not aware of similar threats to other members of the sales department.
[39] Counsel for Cruise objected to the Borris examination, both before and while it took place. He asks the court to refuse to consider Borris’ evidence. He complains that the notice of Borris’ examination was very last minute (the day before other examinations were already scheduled to take place). In fact, Cruise, who at present is effectively Borris’ boss, and his counsel tried to convince Borris not to attend the examination and that the notice of examination was “ridiculous” and illegitimate.
[40] I do not agree and see no need to reject Borris’ evidence. While r. 39.03(3) states that the right to an examination “shall be exercised with reasonable diligence”, the examination of October 17, 2024 was conducted in response to allegations made only two days earlier in Cruise’s affidavit of October 15, 2024.
[41] Cruise seeks to impugn Borris’ evidence on the basis that he is an employee of Stanmech yet spoke to Penelas after the latter was ousted from Stanmech. I do not see that fact as impeaching the credibility or reliability of Borris’ evidence. It was Cruise and his lawyer who directly communicated with Borris to attempt to dissuade him from testifying. But Borris was served with a notice of examination and was required to attend.
[42] In light of the fluid issue of who should be in charge of Stanmech as well as the fact that Borris worked closely with Penelas, I do not find that Borris’ evidence is impugned by his contact or relationship with Penelas. No evidence has been raised that points to any impropriety in Penelas seeking out Borris’ evidence. It was open to Cruise’s lawyer to cross-examine Borris on that point but he chose not to do so.
[43] Further, the fact that Cruise has effective control of Stanmech and thus could have fired Borris at any time, makes his evidence, which in many ways contradicts that of Cruise, very credible. It is far more objective that the evidence of either party, each of whom have a strong financial interest in the result of this motion and proceeding.
Jurisdiction to Grant an Interlocutory Injunction
[44] The jurisdiction to grant an interlocutory injunction is found in s. 101 of the Courts of Justice Act, RSO 1990 c. C-43, as am. That provision allows the court to grant an interlocutory injunction “where it appears to a judge of the court to be just or convenient to do so”.
Has Penelas Raised a Strong Prima Facie Case?
[45] At para. 54 of RJR MacDonald, the Court stated that when the strong prima facie test applies, the court must undertake “a more extensive review of the merits of the case” than it would when the test is merely a serious issue to be tried.
[46] In that review of the merits, the moving party must prove that there is “a strong likelihood on the law and evidence” that the moving party will succeed in the proceeding”: Ali v. New Spadina Garment Industry Corp. 2020 ONSC 3244 (Ont. Div Ct.) at para. 38.
[47] The difference between a serious issue and a strong prima facie case was discussed by the Divisional Court in Loops, L.L.C. v. Maxill Inc., 2020 ONSC 5438 (Ont. Div. Ct.), at para. 44. There the court described the difference, as follows:
A serious issue to be tried is a flexible standard. There are no specific requirements to be satisfied. The judge is to make only a preliminary assessment of the merits. The threshold to be met is low. The judge must be satisfied that that the application is neither frivolous or vexatious. Conversely, a strong prima facie case is a high standard, said, in one case to be "a strong case with a high although not absolutely assured likelihood of success based on the material presently before the court." [^4]
[48] In Loops, the Divisional Court added that when the moving party is held to the “strong prima facie case” requirement, “the weight to be given to the second and third parts of the test may be reduced. They may become less of a concern depending on the strength of the plaintiff's case”: at para. 15.
[49] In supporting his removal of Penelas, Cruise points to s. 3.8 of Stanmech’s by-laws which allows the “shareholders…by ordinary resolution passed at an annual or special meeting of the shareholders to remove a director from office before the expiry of his term…” The shareholder in question here is NT&T, not Cruise or Penelas personally.
[50] As set out above, Cruise used his position of president of NT&T to vote all of its shares to remove Penelas as a director. He relies on s. 5.4(c) of the NT&T by-laws which sets out the role of the president of NT&T, to justify his right to take that action. The provision reads as follows:
President – The president shall be the chief operating officer of the Corporation. During the absence or disability of the managing director, or if no managing director has been appointed, the president shall, subject to the authority of the board, have general supervision of the business and affairs of the Corporation.
[51] No managing director was ever appointed for NT&T, thus those powers accrued in the role of the president.
[52] Cruise argues that NT&T’s only business is to own shares in Stanmech. He states that “it is not controversial” that he was the one who always exercised NT&T’s shareholder rights in Stanmech and actually signed the resolution appointing Penelas as a director of Stanmech in the first place. Of course, until he ousted Penelas from the Stanmech board, there was no controversy about the exercise of his power to vote the NT&T shares, nor was an issue raised that required the oversight of the NT&T board.
[53] Cruise contends that Penelas “fixates” over the “subject to the authority of the board” clause in by-law 5.4(c). His counsel writes in his factum that Penelas’ argument means that he “holds a veto over any decision of Mr. Cruise in his role as President”. That implies that Cruise has, by virtue of his title as NT&T president (Penelas was secretary), the right to effectively rule NT&T and by extension, Stanmech, by fiat. His counsel is more direct in his factum, writing: “Mr. Penelas’ individual protests [i.e. prior to Cruise holding the meeting in which Penelas was ousted] did not impose a restraint on Mr. Cruise’s power as President to vote NT&T’s shares in Stanmech”.
[54] Cruise appears to be taken aback by the notion that his equal shareholder and partner, Penelas, has any say in any of these matters, even when they strip Penelas of his rights to the benefit of Cruise.
[55] Cruise continues, arguing that Penelas does not constitute the board of NT&T. He states that s. 3.2 of the NT&T by-laws provides for directors to transact business by resolutions passed at meetings or by unanimous written resolution. Votes at the meetings are governed by a majority and if there is a split, the Chairman of the meeting (which he says is himself), has the deciding vote. Cruise adds that the NT&T board never restricted his rights to exercise his presidential powers. Again, of course, it never had to.
[56] Cruise contends that in the absence of restraint, he can act as he pleases to vote the NT&T shares. He points out that s. 140(2) of the Canada Business Corporation Act, RSC 1985, c. C-44, as am. (“CBCA”), which governs Stanmech, requires the board of a subsidiary corporation to recognize the duly authorized representative of a parent corporation. That provision reads as follows:
140(2) Representative
If a body corporate or association is a shareholder of a corporation, the corporation shall recognize any individual authorized by resolution of the directors or governing body of the body corporate or association to represent it at meetings of shareholders of the corporation.
[57] Cruise then goes further, drawing the spectre of country-wide corporate chaos if he is found unable to vote the NT&T shares as he pleases. His counsel argues in his factum that if Penelas succeeds in his interpretation of CBCA s. 140, it would “would instantly invalidate millions of corporate decisions in Canada”. That complaint is extravagant in light of the fact that my decision is based only on the particular factual context of this case.
[58] I agree with Penelas that the entire argument in regard to a serious issue comes down to whether Cruise is correct that as president of NT&T he had authority delegated from its board of directors to vote its shares in Stanmech as he did at a special shareholder’s meeting to remove Penelas.
[59] Penelas says that Cruise is wrong for four reasons. First, s. s. 5(4)(c) of NT&T’s by-laws make the president’s role in the management and supervision of the business of the corporation “subject to the authority of the board”. While Cruise may wish to downplay the import of those words, they have meaning. Any delegation of power to the president was limited by the authority of the board.
[60] Second and related to the first point, Cruise lacked the authority of the NT&T board to vote its shares to oust Penelas. As he stated in cross-examination, Cruise felt that he had the authority to deal with the shares of NT&T as he saw fit. Yet Cruise knew that the NT&T board, of which Penelas was one of two directors, did not approve his actions to oust Penelas. He had formally registered his objection through his counsel’s letter.
[61] Third, Penelas argues that Cruise failed to deliver to Stanmech a resolution of NT&T confirming his authority to vote NT&T’s shares. This is a technical argument based on the wording of s. 140 of the CBCA, set out above, which requires a subsidiary to recognize “any individual authorized by resolution of the directors or governing body of the body corporate or association to represent it at meetings of shareholders of the corporation.” No such resolution was presented to the Stanmech board.
[62] That being said though, I must note that even if that were the case: 1) Cruise previously voted NT&T’s shares without objection, and 2) CBCA s. 140 does not require the delivery of that resolution as a condition precedent to voting a parent company’s shares. Rather it prohibits the subsidiary from refusing the recognize the person properly voting on behalf of the parent company. That did not occur.
[63] Fourth and finally, Cruise failed to declare his obvious conflict of interest and for that reason alone, the resolution is invalid.
Analysis of Presence of a Strong Prima Facie Case
[64] Cruise’s argument in favour of his conduct and against the finding of a strong prima facie case is that he was correct that 1) he had the authority to unilaterally oust Penelas from the Stanmech board; and 2) Penelas’ ouster was in the best interests of Stanmech because Penelas had essentially “abandoned his post”.
[65] Based on the evidence presently before me, I do not agree with either assertion.
[66] The only way that Cruise could have taken the steps he took to oust Penelas was if he had the unlimited authority to vote NT&T’s shares as he pleased. Yet his authority under s. 5.4(c) was with regard to the “general supervision of the business and affairs” of NT&T. I do not accept that the defenestration of an equal shareholder and director “partner” is part of the general supervision of the business of NT&T; even accepting that the role of NT&T is simply to hold shares of Stanmech.
[67] Further, the words “subject to the authority of the board” cannot be devoid of meaning or they would not have been included in the by-law. I cannot simply ignore the term. That view is in accord with rules of contractual interpretation, which attempt to avoid an interpretation which omits terms of a contract and avoids commercial absurdity.
[68] As Chang J. summarized in the context of commercial contracts in 1201466 Ontario Inc. v. 1799144 Ontario Inc., 2024 ONSC 1511, at para. 65:
[65] A commercial contract is to be interpreted as a whole document, i.e., “in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective” (see: 2651171 Ontario Inc. v Brey, 2022 ONCA 148, at para. 16). It should also be interpreted in a manner that is commercially reasonable and avoids commercial absurdity (see: Harvey Kalles, at para. 6).
[69] That means that the provision regarding the authority of the board must be read as a limit on the scope of the president’s role. Here, Cruise went behind the back of the NT&T board by failing to give notice to his sole fellow board member and equal shareholder. He did so, knowing that Penelas would never approve.
[70] Cruise relies on the Saskatchewan Court of Appeal decision in Mann v. Mann, 2023 SKCA 99, which, he argues, confirms his authority to act as he did. He asserts that the facts and principles set out in Mann are analogous to this case.
[71] In Mann, two brothers were equal shareholders in a holding company (“the Holdco”) which owned two subsidiary corporations (the “subsidiaries”). One brother was the president of the Holdco.
[72] The Holdco’s by-law setting out the powers of its president were similar but not identical to those of NT&T. It stated that the president: “shall be charged with the general supervision of the business and affairs of the corporation" and, except when the board has appointed a general manager or managing director, "shall also have the powers and be charged with the duties of that office".
[73] The two brothers did not agree on certain financing arrangements for a capital investment that the Holdco wished to engage in through the subsidiaries.
[74] When the brothers deadlocked, the brother who acted as president of the Holdco used his role to vote the shares of the Holdco to pass four resolutions in the subsidiaries, which included a change in the board structure of the subsidiaries to add a representative of an investor, but did not remove the dissenting brother.
[75] Both the Saskatchewan Court of Queens Bench and then the Court of Appeal approved the conduct of the president. It found that the resolutions allowed the president to act as he had, particularly because there had been a deadlock of the Holdco board. In that case, there had been days of fruitless board meetings regarding various financing options, including the one that was adopted. At para. 48 of its decision, the Saskatchewan Court of Appeal wrote that “[t]he simple fact is that the directors were deadlocked, and this impasse prevented the board of directors, as a deliberative body, from making any decision about these matters.”
[76] I find that the Saskatchewan Court of Appeal decision in Mann does not assist Cruise in the manner he claims. There are three key differences between the facts of Mann and those in this case.
[77] First, unlike this case, a provision of the Holdco by-law in Mann gave its president explicit powers to change the board’s composition. The relevant by-law section stated that the general manager (and by implication, the president, since the Holdco had no general manager):
shall have the general management and direction, subject to the authority of the board and the supervision of the president, of the corporation's business and affairs and the power to appoint and remove any and all officers, employees and agents of the corporation not elected or appointed directly by the board and to settle the terms of their employment and remuneration".
[Emphasis added.]
[78] Those explicit powers are not invested in the President of NT&T.
[79] Second, while Mann referred to days of deadlock in the Holdco board, there was no deadlock here of the NT&T board. Cruise avoided the deadlock by arrogating the right to vote the shares without a meeting of the NT&T board.
[80] Third, unlike this case, there was no hint of conflict of interest in Mann. Here, as set out below, there is more than a strong whiff of that concern. Cruise ousted what he determined to be his rival for control of Stanmech when he realized that he no longer wanted Penelas as his partner.
[81] The correspondence set out above shows that in the days before he removed Penelas, Cruise was aware that one of them would have to buy out the interests of the other in Stanmech. He originally insisted on a “shotgun” resolution and claimed that they agreed to the term; a position from which he now resiles.
[82] It is clear that in the parting of the ways between NT&T’s two principals, there was and continues to be a jockeying for position as to who would be able to buy out the other and ultimately control Stanmech. Cruise did what he could to make sure that he was the winning jockey.
[83] By removing Penelas, Cruise gave himself control of Stanmech and the stronger position in their negotiations over its control. He could control all aspects of Stanmech’s operations, including hiring and firing, and financial decisions. He could do so in a manner that would favour his position, whether it was to buy out Penelas at a low figure or have him buy Cruise out at a high price.
[84] In his factum, Cruise complains of the “unfair” effects of a shotgun buy/sell arrangement to which he appears to have originally agreed and then resiled. He states that a shotgun would “reward Mr. Penelas for his own misbehaviour”. It would allow him to:
a. “Extract a punitively high purchase price from Mr. Cruise (higher than would be achieved through a third-party valuation process)”; or
b. “(If the strike price is too high) allow Mr. Penelas to expropriate Mr. Cruise’s interest in” NT&T.
[85] However, by maintaining control of Stanmech, Cruise can be said to be doing just what he accuses Penelas of attempting to do.
[86] One example of the advantage that Cruise seized for himself by ousting Penelas relates to their dealings with Leister. Penelas had earlier planned a meeting with Leister, Stanmech’s main supplier. The meeting was scheduled to take place on October 24 and 25, 2024. Maintaining that relationship is vital to Stanmech’s success. Cruise points to the result of Penelas’ ouster in regard to Leister when his counsel writes in his factum that:
Mr. Cruise has already taken over planning for that meeting, made necessary arrangements and prepared a presentation for the visiting Leister personnel. … By the time this motion is heard, the Leister visit will be concluding.
[87] In fact, when this motion was argued, Cruise’s counsel advised the court that he was not present in court because he was meeting with Leister personnel. Being shut out of that meeting, Penelas was present at court.
[88] It is not known what was discussed during the two days of meetings, but it is hard to imagine that the subject of Penelas’ absence was not raised, if not already discussed. In light of Cruise’s evidence in this motion, including his characterization of Penelas’ “misconduct” any such discussion would not have been favourable to Penelas.
[89] Thus, Cruise gained himself an advantage with Stanmech’s main supplier. That advantage may serve to significantly disadvantage Penelas in his negotiations for the purchase of Cruise’s shares or in any argument regarding the ultimate disposition of control of NT&T and Stanmech. For example, if Penelas is the successful party, he may find his relationship with Stanmech is damaged, which in turn may affect the value to him of Stanmech.
[90] Turning to the merits of Cruise’s claim that Penelas had abandoned his post, to Stanmech’s detriment, the evidence cited above does not support his claim. In saying this, I point to Stanmech’s awarding of Leister’s Gold Leaf award, its increasing sales figures and the most objective evidence before the court; that of Borris. Recall that at present, Borris remains subject to Cruise’s sole supervision. Yet his evidence directly contradicted Cruise’s evidence regarding Penelas’ alleged dereliction of duties while abroad. Borris also pointed out that most of Penelas’ work had been and can continue to be conducted remotely. I do not accept that Cruise “abandoned his post” or that his removal was in the best interests of Stanmech. It was in the best interests of Cruise.
[91] Cruise points to subsequently discovered “misconduct” by Penelas. He says that Penelas:
a. lied regarding his reason for moving to Spain when he claimed that the move was motivated by the opportunity to enroll his sons in a Spanish soccer programme (although he does not disprove that enrollment);
b. planned to buy a Spanish corporation that dealt with Leister;
c. Penelas hopes to acquire Stanmech for himself in this litigation. If he does so, he will bring in another partner; and
d. failed to attend to his duties for Stanmech regarding the implementation of a new system and failed to take various steps in his role in charge of sales.
[92] Based on the evidence before me, I do not accept these allegations. I say that for the following reasons:
a. While I find that there are reasons to doubt the credibility of the evidence of both Cruise and Penelas, I have greater concern with that of Cruise than Penelas.
b. Regarding Penelas, he claims not to have moved permanently to Spain, but there is at least some evidence, particularly in his actual and draft correspondence, which raises questions regarding that issue. As stated above, I place no weight on the evidence of Javed. A trial may be required to determine the permanence of Penelas’ move for the purposes of this proceeding. The issue may actually be a “red herring” other than with regard to credibility.
c. However, Cruise’s evidence regarding the ultimate disposition of this proceeding is contradictory and troubling. In his own correspondence with Penelas, Cruise took Penelas to task for allegedly resiling from their agreement to utilize a shotgun arrangement for the resolution of their conflict regarding control of Stanmech. Yet in his materials for this motion, Cruise denies any agreement and speaks of such an arrangement as being highly unfair to himself. Cruise fails to explain the contradictions.
d. I see no contradiction between Penelas’ duties to Stanmech and his interest in buying a Spanish company which does business with Leister.
e. Penelas’ desire to buy out Cruise’s interest in Stanmech is no worse than the converse. Cruise clearly wants to be able to buy out Penelas’ interest. While Cruise claims the greater right, I do not see it on the evidence. There is nothing improper about either alternative.
f. The idea that Penelas wishes to buy out Cruise’s interest in Stanmech either supports the view that his move is not permanent or that he can do his job remotely. Either alternative contradicts strong positions taken by Cruise.
g. As stated above, I place great weight on the independent evidence of Borris. By offering his evidence, Borris may be acting contrary to his own interests should Cruise succeed in taking full control of Stanmech, Borris’ employer. Yet Borris’ evidence contradicts most of Cruise’s claims of Penelas’ dereliction of duties and “misconduct”.
h. In addition, Stanmech’s 2024 receipt of Leister’s “Distributor of the Year” award and “Gold Partner” status all support Borris’ evidence and undermines that of Cruise.
Conflict of Interest
[93] The applicable corporate by-laws and statutes do not allow Cruise to utilize his powers in a manner that places him in a conflict of interest regarding NT&T or its subsidiary, Stanmech, or the interests of Cruise’s equal shareholding partner, Penelas.
[94] Both NT&T by-law 4.10 and Stanmech by-law 4.11, which are identical, require the disclosure of conflicts of interest as follows:
Disclosure - Conflict of Interest - A director or officer of the Corporation who is a party to, or who is a director or an officer of, or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with the Corporation, shall disclose in writing to the Corporation or request to have entered in the minutes of meetings of directors the nature and extent of his interest. Disclosure, as aforesaid, shall be made at the time and in the manner required by the Act, and a director so having an interest in a contract or transaction shall, unless expressly permitted by the Act, not vote on any resolution to approve the contract or transaction.
[Emphasis added]
[95] Similarly, both s. 132(1) of the OBCA and s. 120(1) of the CBCA require a director or officer to disclosure any conflicts of interest regarding a “material contract or transaction”.
[96] Section 132(1) of the OBCA states:
Disclosure: conflict of interest
132 (1) A director or officer of a corporation who,
(a) is a party to a material contract or transaction or proposed material contract or transaction with the corporation; or
(b) is a director or an officer of, or has a material interest in, any person who is a party to a material contract or transaction or proposed material contract or transaction with the corporation,
shall disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of his or her interest.
[97] OBCA s. 132(5) prohibits a conflicted director from attending “any part of a meeting of directors during which the contract or transaction is discussed and shall not vote on any resolution to approve the contract or transaction.” The exceptions to this rule arise when the vote is regarding the remuneration of a director or affiliate, indemnity for insurance or a contract or transaction is “one with an affiliate”.
[98] Similarly, CBCA s. 120(1) requires disclosure when a director or officer is a party to the contract or transaction or has a material interest in it. The provision reads as follows:
120 (1) A director or an officer of a corporation shall disclose to the corporation, in writing or by requesting to have it entered in the minutes of meetings of directors or of meetings of committees of directors, the nature and extent of any interest that he or she has in a material contract or material transaction, whether made or proposed, with the corporation, if the director or officer
(a) is a party to the contract or transaction;
(b) is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or transaction; or
(c) has a material interest in a party to the contract or transaction.
[99] CBCA s. 120(5) is similar to OBCA s. 132(5). It prohibits a conflicted director from “[voting] on any resolution to approve the contract or transaction, subject to the same exceptions found in OBCA s. 132(5)”.
[100] During oral argument, I raised the question, to which the parties responded in writing, whether the resolutions which ousted Penelas amounted to a “material contract or transaction” as defined in the applicable by-laws and statutes. I have reviewed the parties’ written responses.
[101] The Oxford Canadian Dictionary, 1998, Barber ed., Oxford U. Press, defines the term “transaction” as including
1a a piece of esp. commercial business done; a deal (a profitable transaction); … c the management of a business etc.
[102] Black’s Law Dictionary defines the term, transaction, as “[a]ct of transacting or conducting any business; negotiation; management… It must consist of an act or agreement … in which more than one person is concerned and in which the legal relations of such persons between themselves are altered”.
[103] In Venini v Venini, 2023 ABKB 524, Marion J. considered the meaning of the term, “transaction”, found in s. 120 of the Alberta Business Corporations Act (“ABCA”) regarding conflicts of interest. That provision is substantively the same as OBCA s. 132 and CBCA s. 120. Marion J. found that the term should be given a liberal rather than narrow or technical interpretation. While the term is not defined in the ABCA, it is used liberally in the ABCA. That is equally true for the OBCA and CBCA. The ubiquity of the term in the ABCA led to Marion J. to state at para. 83 that “[a]ll of this suggests ‘transaction’ in section 120 is intended to have a broad meaning.”
[104] Marion J. then concluded at para. 84 as follows:
84 In my view, a transaction as used in sections 120(1) and 120(6) of the ABCA can include the transaction of any business, affairs or exercise of powers by a corporation within its capacity as per section 16 of the ABCA. If the transaction of the corporation's business, affairs or powers is material and a director or officer is party to it, then section 120 is engaged. Further, it is not limited to the transaction of new business in the sense that it involves the creation of a new relationship. The termination of a material contract or relationship is as much a transaction of business as the creation of a new one.
[105] Nonetheless, Cruise argues that he did not have an “interest in a material contract or transaction” or an economic interest in removing Penelas because it did not change Penelas’ equal shareholding rights in NT&T. That exceeding narrow view of a conflict of interest ignores the facts set out above regarding the advantages that Cruise granted himself and the disadvantages that his ouster imposed on Penelas. Cruise adds that disclosure would have made no difference because NT&T knew of his conflict. Thus any disclosure would not have affected any vote.
[106] I do not accept that interpretation. Rather, adopting a broad interpretation of the term “transaction” called for in Venini, I agree with Penelas that Cruise’s signing of the resolutions in question amounted to transactions, as cited in the relevant NT&T and Stanmech by-laws as well as s. 132 of the OBCA and s. 120 of the CBCA. He should not have been in a position to be the sole vote to oust Penelas when he had a clear economic interest in the vote. This placed him in a clear conflict of interest.
[107] For all of the reasons set out above, I find that there is a strong prima facie case that the ouster of Penelas through the corporate manoeuvres described above, will be set aside, whether on technical grounds or based on Cruise’s conflict of interest in removing Penelas.
Irreparable Harm
[108] At para. 59 of RJR MacDonald, Sopinka and Cory JJ. wrote for the Supreme Court that "[i]rreparable' refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other."
[109] The removal of a shareholder who is an officer and director of a corporation can constitute irreparable harm to that person. In Cheema v. Dhjaliwal, 2023 ONSC 6693, a case dealing with a closely held family corporation, the president was accused of acting contrary to the interests of the corporation and the applicants, whom he ousted from the corporation. Doi J. found irreparable harm. He wrote at para. 21 that: “there is real risk of damage to the Corporation and its business if the Respondents are not restrained to act in the best interests of the Corporation and without prejudice to the Applicants. There would be no amount of money that could compensate the Applicants for loss of their ownership, control, and oversight of the family business.”
[110] Doi J. concluded at para. 22 that “the Applicants would suffer irreparable harm if the Respondents were not restrained from exercising their powers including taking any measures with respect to the ownership, management, business, or operation of the Corporation, that are prejudicial to the rights and interests of the Applicants.”
[111] In Matter Corp. v. Southside Construction Management Ltd., 2024 ONSC 4879, Kimmel J. of Toronto Commercial List, adopted the reasoning of Doi J. in Cheema as well as other authorities, writing at paras. 61 - 62:
61 While the cases cited by Matter Corp. involve the potential harm that can be done by someone who has allegedly improperly seized control of a corporation away from the moving party (see Ayotte v. Beauline, 2016 ONSC 4928 and Cheema v. Dhaliwal, 2023 ONSC 6693), in principle there is no distinction between that and a situation where a party is allegedly improperly exercising its control in a manner that exceeds its authorization, to do things that may be difficult or impossible to undo.
62 As was stated by Pepall J. in Le Maitre Limited v. Segeren, 2007 18735, at para. 34: "Turning to the issue of irreparable harm, it has repeatedly been stated that courts should avoid taking a narrow view of irreparable harm. It seems to me that irreparable harm would ensue if the transaction were completed and rendered irreversible."
[112] Cruise argues that Penelas will suffer no irreparable harm if his injunction request is dismissed. He states that Cruise’s financial interests as an equal shareholder in NT&T will be preserved if the injunction is rejected. He adds that there is no risk that Leister will change its contractual relationship with Stanmech as a result of the change in management arrangements. He states, without confirmatory evidence from Leister, that it consented to the change. What he fails to say is what he told Leister about the Penelas ouster to obtain that consent and when he did so.
[113] Cruise has taken a number of steps with his unilateral control of Stanmech. They include hiring a new comptroller and engaging in the dealings with Leister, cited above. Those steps, particularly regarding Leister, will likely prejudice Penelas, whether in regard to the sale of his interest in NT&T or the purchase of Cruise’s interest. Those steps may be difficult to reverse.
[114] In all of the circumstances cited above I find that the test of irreparable harm is met.
Balance of Convenience
[115] In Quiznos Canada,[^5] Perell J. spoke to the role of the relative strength of parties’ cases in considering the balance of convenience. He wrote at para. 46
46 In considering the balance of convenience, it is appropriate to reconsider the comparative strength of the parties' cases. If the plaintiff's case seems weak, then the undoubted convenience of an injunction may not balance the inconvenience of the defendant suffering the interference with his or her rights based on a doubtful claim. Conversely, if the merits of the plaintiff's case seem quite strong then the plaintiff's inconvenience of being denied an interlocutory remedy may seem to outbalance the inconvenience of the defendant having to suffer a restraint on his or her rights.
[116] I have already made a finding that Penelas has a strong prima facie case.
[117] Cruise argues that reinstating Penelas now would create chaos in Stanmech. It would confuse staff who would be unclear as to who is in charge. Cruise points to the fact that Borris has offered evidence in this proceeding. He also points to the fact that Penelas has contacted Stanmech’s bank to challenge Cruise’s attempts to oust his signing privileges. He also points out that Penelas cites his hiring of a new employee as part of his argument of irreparable harm.
[118] Cruise refers to Gal v. Lavine, 2012 ONSC 592, where Perell J. declined to restore an ousted equal shareholder of a corporation operating a daycare centre. Perell J. cited “dysfunctional business and personal relationships” to find that there would be irreparable harm to both parties if the moving party were restored. He noted at para. 27 that “the business seems to be getting on without her”.
[119] However, Perell J. did offer injunctive relief to each party, including restoring the moving party’s salary, which the respondent had unilaterally cut off.
[120] Gal v. Lavine is a case decided on its facts and even then does not offer any broad principle that buttresses Cruise’s case.
[121] The finding I made regarding irreparable harm is relevant to the balance of convenience analysis. Penelas would be strongly prejudiced if the present status quo were allowed to continue.
[122] Following the argument of this motion, I asked the parties for supplemental submissions as to the appropriate corporate governance of Stanmech were I to grant an injunction. I have considered those submissions in determining whether the imposition of terms could fairly balance the convenience of the parties without harming Stanmech.
[123] Penelas cites the decision of Corthorn J. in Scullion v. Munro, 2016 ONSC 116, as an example of the manner in which the “playing field “can be leveled between the parties without interfering with the proper operation of Stanmech. He submits that the court order as follows:
Mr. Penelas is confirmed to be a director of Stanmech, but not an officer and will not be involved in managing the day-to-day business;
Mr. Penelas is not permitted to negotiate or sign any contracts for Stanmech, or hold himself out to third parties as having the authority to do so;
Mr. Penelas is permitted to have ad hoc discussions with employees or other stakeholders regarding Stanmech’s business, for informational purposes only and without interfering in any way with the conduct of Stanmech’s business;
Mr. Penelas will attend weekly leadership team meetings and receive the weekly “dashboard” reports;
Mr. Penelas’ email, IT, and banking access will be restored;
Mr. Penelas’ compensation (including indirect compensation paid to his spouse) as of September 1, 2024 will be restored;
Neither Mr. Penelas nor Mr. Cruise will have substantive discussions with Leister without the other participating;
There will be no non-ordinary course steps or transactions with respect to the Stanmech business;
If Mr. Cruise wishes to terminate the employment of any Stanmech employee, Mr. Cruise will consult with Mr. Penelas about the proposed termination;
If Mr. Cruise proposes to hire a new employee in order to replace an employee who resigns, or whose employment is terminated, then Mr. Cruise and Mr. Penelas will participate together in all candidate interviews.
[124] For his part, Cruise argues against an injunction. But if one is to be granted, he requests that it impose very limited terms which do not reinstate Penelas to the role of director. Rather, Cruise sets out a list of actions that he will not engage in as “management” of NT&T and Stanmech, while retaining his exclusive role in that regard. Those terms are set out below:
Restrictions on Management
None of the following actions shall be taken without the consent of Mr. Penelas or approval of the Court in respect of Stanmech or NT&T (together, the “Corporations”):
(a) the redemption, purchase or other acquisition of any shares by the Corporations;
(b) the taking of any steps to amalgamate or merge the Corporations with another entity or to continue the Corporations under the laws of another jurisdiction;
(c) the taking of any steps to wind-up, dissolve, reorganize or terminate the corporate existence of the Corporations or the taking of any steps in respect of Bankruptcy Proceedings by or against the Corporations;
(d) the sale, lease, exchange, encumbrance, transfer or other disposition of all or a substantial part of the assets of the Corporations or any subsidiary of the Corporations, including the granting of an option for any such transaction.
(e) any material change in the business carried on by the Corporations;
(f) the taking, holding, subscribing for or agreeing to purchase or acquire shares in the capital of any Corporations;
(g) the entering into of a partnership, joint venture or any other arrangement for the sharing of profits;
(h) the determination of any salary, fee, bonus, benefits or other remuneration of any Shareholder, director, officer or employee greater than:
(i) in the case of an Officer of the Corporations, compensation above prevailing market rates;
(ii) in the case of an employee of the Corporations, total compensation above $150,000;
(i) any change in the Auditor;
(j) any change in the financial year of the Corporations;
(k) the making of any capital expenditures in excess of $150,000 in any financial year of the Corporations;
(l) the hiring or dismissal of any officer or senior executive of the Corporations;
Hiring or terminating (with or without cause) senior staff of the Corporations shall be done on ten business days’ notice to Mr. Penelas to permit him to state any objection or seek urgent direction from the Court.
[125] In Scullion v. Munro, Corthorn J. declined to grant an injunction despite the moving party, an equal shareholder to the party who ousted him, demonstrating a serious issue with regard to their removal from a corporate board. But Corthorn J. did not find that the second and third elements of the RJR MacDonald test were met, mainly because the moving party failed to come to court with clean hands (there were allegations of impropriety against the moving party).
[126] Nonetheless, utilizing the OBCA’s oppression remedies Corthorn J. took steps to “level the playing field” until a final determination. Those terms allowed for joint management of the subject corporation. Details of the terms that were impose covered three pages. Those terms gave each of the parties, as shareholders, an equal right of approval of various corporate actions, rules regarding the deposit of money into the corporate bank account, equal access to corporate records and facilities, equal rights to direct employees, equal rights to remuneration, and a term that in the event of disagreement, an unnamed person will make the relevant decision in the best interests of the court.
[127] Here, Cruise is adamant in his submissions that Penelas “not” (emphasis in Cruise’s submissions) be allowed to have any active role in Stanmech’s business, have a company email; have veto rights over normal business management activities like hiring or firing; or have the title of “director”. All of that would be, in his estimation, confusing.
[128] If any confusion arises from any form of reinstatement of Penelas to any element of his previous responsibilities, it arises from Cruise’s unilateral actions. The evidence shows that Penelas’ conduct in his role on behalf of Stanmech was in the corporation’s best interests, while those of Cruise, removing a valuable leader for his own ends, was not. Stanmech was thriving under the previous status quo of its two equal “partners”, each with their own area of responsibility.
[129] It was open to Cruise to seek a less drastic resolution to the dispute that he created by purporting to remove Penelas, through negotiation and even an application to the court. He did not choose those routes.
[130] The terms that Penelas is seeking are not as extensive as those imposed in Scullion v. Munro or set out in Penelas’ notice of motion. They do not seek to reinstate Penelas as an officer or to have him interfere with Cruise’s day-to-day operation of Stanmech. They do put him on an even footing with Cruise with regard to the corporate issues moving forward.
[131] I find that the if terms set out at para. 112 above are adopted until trial, the balance of convenience would favour Penelas. They are fair and reasonable in the circumstances and in the best interests of both NT&T and Stanmech. It will be the job of Cruise and Penelas and in their mutual interest, to make that arrangement work.
Order
[132] Interlocutory order to go as follows:
- Penelas is reinstated as a director of Stanmech, effective forthwith, upon the following terms:
a. Penelas will not be involved in managing the day-to-day business of Stanmech
b. Penelas is not permitted to negotiate or sign any contracts for Stanmech, or hold himself out to third parties as having the authority to do so.
c. Penelas is permitted to have ad hoc discussions with employees or other stakeholders regarding Stanmech’s business, for informational purposes only and without interfering in any way with the conduct of Stanmech’s business.
d. Penelas will attend weekly leadership team meetings and receive the weekly “dashboard” reports.
Cruise and Stanmech shall forthwith restore Penelas’ email, IT, and banking access;
Stanmech shall forthwith restore Penelas’ compensation (including indirect compensation paid to his spouse) effective September 1, 2024;
Neither Penelas nor Cruise shall have any substantive discussions with Leister without the other participating;
No non-ordinary course steps or transactions with respect to the Stanmech business shall be undertaken without the express written consent of both Cruise and Penelas;
Cruise shall not terminate the employment of any Stanmech employee without first consulting with Penelas about the proposed termination;
Stanmech shall not hire a new employee without Cruise’s and Penelas’ joint participation in the hiring process, including all candidate interviews;
This order is effective until terminated by further order of the court; and
If any dispute(s) arise(s) respecting the implementation of the terms of any of this order, the parties may request a case conference before me.
[133] On November 6, 2024, Mr. Brown-Okruhlik wrote to the court, presumably with the consent of Mr. Adair, to request a case conference before me regarding the sale of Penelas’ interest in Provix to Cruise. I direct court staff to arrange such a conference. It should be in person.
Costs
[134] Penelas was the winning party in this motion. He is presumptively entitled to costs of the motion.
[135] The parties should attempt to resolve the issue of costs on their own. If they are unable to do so, Penelas may submit his costs submissions of up to three pages, double-spaced, one-inch margins, plus a bill of costs/costs outline and offers to settle within 14 days of release of this endorsement. He need not include the authorities upon which he relies so long as they are found in the commonly referenced reporting services (i.e. LexisNexis Quicklaw, or WestlawNext) and the relevant paragraph references are included. Cruise may respond in kind within a further 14 days. No reply submission will be accepted unless I request it. If I have not received any submissions within the time frames set out above, I will assume that the parties have resolved the issue and will make no costs order.
Marvin Kurz J.
Date: 2024-11-29
[^1]: Carlisle is jointly owned by Penelas and his wife but effectively controlled by Penelas. In these reasons, I treat Carlisle as if it were Penelas’ personal holding company.
[^2]: The memorandum is found in Cruise’s affidavit of October 4, 2024 in the action regarding Provix (File no. CV-24-3785).
[^3]: I do not include any proprietary or confidential information from that memorandum in this decision.
[^4]: Citing Quizno's Canada Restaurant Corporation v. 1450987 Ontario Corp., 2009 20708, [2009] O.J. No. 1743 (SCJ), at para. 42
[^5]: Cited at footnote 4, above