Court File Numbers

CV-24-00722977-0000 and CV-24-00725585-0000

Date

March 6, 2025

Ontario Superior Court of Justice

Between

Gayan Asanka Adduwa Hewage
Applicant and Respondent by Counterapplication

Eranga Madhubhashini Senanayake Senanayake Adhipathirage
Respondent by Counterapplication

– and –

1000635690 Ontario Inc.
and
Adduwa Hewage Shamali Nimasha Rangika Karunathilake
Respondents and Applicants by Counterapplication

James Clark, for the Applicant and Respondents by Counterapplication
Arash Jazayeri, for the Respondents and Applicants by Counterapplication

Heard: February 5, 2025

Edward Akazaki

Reasons for Judgment

Overview

[1] This proceeding entails an oppression remedy application and a counterapplication under s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA). The opposing parties are two siblings of Sri Lankan origin, Asanka and Shamali. I will follow their counsel’s lead and call them and the supporting cast of individuals by their first names. Asanka, an entrepreneur, came to Canada in 2022 with his wife, Eranga. Shamali and Janaka, Asanka’s sister and brother, were already established here and, respectively, have worked as an accountant and an engineer.

[2] Shamali and Janaka wanted to help Asanka and his wife settle in Canada. Janaka helped them find a place to live and guaranteed the lease. Shamali offered to help Asanka by setting him up in business. On August 18, 2023, Asanka and Eranga applied for refugee status.

[3] The parties dispute whether Shamali served as Asanka’s proxy for the purchase of a variety store or whether she bought it as an investment to create a job for him. The basic transactional details were straightforward, even if the evidence of their intentions and expectations was not. Asanka had neither the credit rating nor the residency status to take over the balance of the store lease and to apply for a lottery kiosk or point-of-sale payment system. Shamali had to be the officer, director, and shareholder of the company buying the store. She also signed a personal guarantee on the five-year lease, ending October 1, 2028. After the purchase, Asanka operated it, until Shamali locked him out in circumstances originating the lawsuit.

[4] The common ground then ends on a key issue that became the flash point after Shamali became nervous about the financial commitment she had incurred and about Asanka managing the store without her prior approval of significant steps. In the litigation, Shamali characterized the original purchase funds as an indirect repayment of a 2016 loan to Asanka. She considered herself the purchaser, and the store an investment in her future. Asanka contends this was a convenient and untruthful retelling of facts. His position is that he intended Shamali to act as his proxy and a trustee of his shares in the corporation. These opposing expectations animate the dispute that the court must resolve.

[5] If the court’s task were limited to deciding whose version is more credible, the court could not do so in a summary application without directing some form of trial requiring live evidence. Containing the scope of relevance in such a trial could prove challenging, because each side relies on collateral events in the conflict to attack the other’s credibility and good faith.

[6] Asanka submits that Shamali’s position is so obviously lacking in credibility and legal foundation that the court can render judgment in his favour on a summary application. The basic flaw in this argument is that handing over control of the corporation to Asanka (or to Janaka as the replacement proxy) would unjustly leave Shamali exposed to the personal guarantee on the lease. The parties could be free to settle the legal issues by having Janaka assume that guarantee, but neither he nor the landlord is a party to the proceedings.

[7] Even though Shamali’s reliance on a time-barred loan may seem tenuous, her formal management role and assumption of risk should not be dismissed as worthless or inconsequential. Between the trappings of a resulting trust claim by Asanka and the recognition of value brought to the enterprise by Shamali, the court’s duty is to search for a remedy under s. 248 that gives effect to both sides’ reasonable expectations and valid concerns.

[8] One outcome that seems grotesquely disproportionate would be for the court to refuse adjudication and require the parties to submit to a trial process. What, then, should the court order? Any just and viable result appears to require a period of collaboration under the framework of 1000635690 Ontario Inc., at least until Shamali can be relieved of her financial exposure by the expiry of the lease or by having Janaka take it over.

Additional Background

[9] Despite the lack of common ground between the parties on the events stemming from the emotional conflict between them, those events are largely incidental for the purposes of the legal and transactional issues.

[10] Shamali contended that, between 2016 and 2023, she had lent Asanka about $86,000. Out of that amount, she said that prior to Asanka’s arrival in Canada, she lent him $52,950 in April 2016 to help him establish a successful printer toner trading business in Sri Lanka. According to her, Asanka and his wife lived there in a lavish apartment. The evidence established that Asanka sold the apartment before leaving for Canada and used some of the proceeds to pay for the acquisition of the store, the main consideration being the inventory. Her take on this transaction was that all the money Asanka provided to fund the store purchase, an $8,000 deposit and the $70,000 balance on closing, was repayment of the 2016-2023 loans.

[11] Asanka denied having borrowed the $52,950. He disputed the authenticity of an email Shamali sent to a money transfer company purporting to send that money to him in Sri Lanka. Shamali’s position was corroborated by the parties’ father, who testified that he accompanied Asanka to the money transfer location and that Asanka told him about the funds as a loan from his sister to help him set up the printer toner business. Asanka points to his father’s animosity and to financial aid Shamali provided to the father as motives for providing false testimony. The court obviously has a hard time assessing this evidence on a paper record.

[12] There was no evidence of an acknowledgement of a specific sum qualifying the alleged loan for a tolling of the limitation period under s. 13 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. Legally, any indebtedness that was not barred by the two-year prescription under s. 4 would have been a fraction of the $78,000 consideration for the store purchase. The significance of this is that Asanka’s trust claim would survive to make him a majority beneficial shareholder, even if the court found that Shamali lent him all the money she alleged.

[13] Asanka arrived in Canada with the proceeds of the sale of his Sri Lankan home. Originally, he had discussed with Janaka his intention to buy a restaurant. Janaka swiftly dissuaded him by pointing out that Asanka did not have enough money to buy and fix up a restaurant. Asanka decided that a convenience store was more affordable and easier to set up. This simple decision path based on what he could afford corroborates Asanka’s intention to buy the store as his business, not Shamali’s. He also made his decision based on the money he had and not any amount owed to Shamali. Shamali could very well have misread Shamali’s intentions and considered some measure of short-term return for herself, if the business did turn a profit. Shamali’s position was not terribly convincing. A solitary convenience store to be used to provide income for Asanka and his family would not have been a good investment and would have carried considerable risk.

[14] Once the store opened, Asanka used the store’s till as a cash account for himself and his family, with Shamali’s knowledge. There was little, if any, evidence that the store was profitable. Indeed, the absence of proper accounting of cash revenues and costs became a source of tension, because Shamali had to file HST returns based on bank statements, even though she was aware of Asanka’s failure to deposit all the store’s cash receipts. As the personal guarantor of the lease, she risked financial ruin and auditing by the CRA, while her brother faced no comparable exposure.

[15] In October 2023, the relationship between Shamali and Asanka began to sour. Each accuses the other for this development. Their communications about store equipment leases, permits, security, and banking became less informal and more adversarial in this period. To mediate between the siblings, the other brother, Janaka, offered to take over Shamali’s position and incorporated a new company. This transfer fell apart over the responsibility for the payment of Shamali’s legal fees. Shamali’s position in her affidavit was that this was an attempt by Asanka and Janaka to steal the business from her. Shamali locked Asanka out, and this litigation ensued. A revival of the deal may still be on the cards, but the court cannot rely on this contingency.

[16] In June 2024, Shamali hired a locksmith to change the locks. She closed the store for several days until she installed her uncle as the manager. This prompted Asanka to sue. In response to the suit, Asanka alleges, Shamali made false reports to the Immigration and Refugee Board about Asanka’s connections to the Sri Lankan underworld, made threats against Asanka’s family members, and threatened to report Asanka to the Toronto Children’s Aid Society. The exchange of these allegations of threatening conduct was akin to the evidence in family law disputes, in that the summary proceeding left no satisfactory means of making findings of fact without a full trial. From an objective vantage, Shamali’s allegations seemed to describe a less credible narrative than Asanka’s, if only because the parties’ sudden acrimony was out of proportion to any organic escalation of irritants in the business affairs. In this commercial context, these personal conflicts made it harder for the court to craft a remedy involving co-existence within the same corporate construct. From a procedural vantage, trying the evidence about the personal conflict makes little practical sense. None of it is even tangentially probative of either party’s position in the s. 248 issues, but the taking of this evidence would occupy several days of court time and require the parties’ counsel to prepare for extensive live cross-examinations.

Is Summary Application the Appropriate Procedure?

[17] Statutory oppression remedies form part of the state’s regulation of corporate governance. Corporations derive their legal status as persons from statutory patents. In the case of for-profit corporations in Ontario, the starting point for the adjudication of disputes started by those aggrieved by corporate act is s. 248 of the OBCA:

Oppression remedy

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

Idem

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of. R.S.O. 1990, c. B.16, s. 248 (2).

[18] Shamali controls the corporation as its sole shareholder, officer, and director. For that reason, her counterapplication for declaratory relief and damages for conversion and other torts appears to be a response to the application instead of a true claim for oppression. Her claims are based on Asanka’s business practice of taking uncounted living expenses directly from the business instead of paying himself a defined salary or wage. Her counsel admitted that she tolerated but did not condone this practice. Asanka’s counsel pointed out that this was Asanka’s sole income from the business. If he were a mere employee, he would not have put in the long hours at the store for nothing.

[19] Despite the conceptual difficulty of demonstrating how a person with full legal control can be oppressed, there is no doubt that Shamali, as the holder of the shares and as the sole director of the company, qualifies as a “complainant” under s. 245 of the OBCA for the purpose of a s. 248 application. Asanka’s standing, however, is less clear.

[20] The legislature intended to define standing to bring an oppression remedy application broadly. In s. 245, the definition of “complainant” for the purposes of s. 248 includes a beneficial owner of a security (such as a share) or “any other person who, in the discretion of the court, is a proper person to make an application under this Part.” Asanka asserted status as a beneficial owner of the shares of the corporation and claimed that Shamali was a bare trustee. Since the standing to seek the remedy does not require a final ruling on this contention, I am prepared to hold that Asanka qualifies as a “complainant” based on the uncontested fact that he was the direct source of the funds used by the company to purchase the store. The granting of standing does not obviate the need to consider whether the court can bring the case to its conclusion without determining whether Asanka’s role in funding the purchase was as a settlor creating a trust or as a creditor repaying an outstanding loan.

[21] The courts have long established that corporate oppression remedies protect stakeholders’ reasonable expectations arising from the status giving rise to their complaints. Once a court finds a breach of a reasonable expectation, it must consider whether the conduct of the controlling interest amounts to oppression, unfair disregard, or unfair prejudice: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, paras. 53-68; Cerieco Canada Corp. v. Mizrahi, 2023 ONSC 1856, paras. 34-41. Except in rare instances where the court might order cancellation of the registration and liquidation of assets, the overarching judicial mandate is to intervene only as much as necessary to keep the concern going and to safeguard the interests of the stakeholders.

[22] Despite the statutory description of a court proceeding for oppression remedies under s. 248 of the OBCA as an application, parties are free to pursue them by application or by action: Chilian v. Augdome Corp.. An application is a summary procedure available to parties when there are no significant issues of credibility: Cavasinni v. Cavasinni, 2024 ONSC 2212, para. 13. Based on this simple logic, the easy disposition to this case would be to refer it to trial, either by converting it into an action or directing trial of one or more issues.

[23] If this were a dispute over breach of contract or proprietary rights, the court should be reluctant to grant a remedy such as damages or a declaration of right without the benefit of a trial with live evidence. The parties have not framed the case in such terms. Rather, they have both applied to the court for remedies under s. 248. This procedure, usually contemplated as defaulting to the simplest and least expensive mode of adjudication, allows the court more flexibility in terms of the remedial orders.

[24] The case entails corporate control of a very small business of questionable profitability. At this point, after exchanges of extensive affidavits, completion of cross-examinations, delivery of factums, and attendance at case conferences, it is remarkable that the parties on both sides have not thrown in the towel. As the Supreme Court stated in Hryniak v. Mauldin, 2014 SCC 7, paras. 58-60, a summary procedure must be considered in relation to the full trial of a dispute and the interests of justice. A correct result, in the sense of fact-finding exactitude after a trial with live evidence, is not necessarily a just one. If the court can render a just result with the tools provided by the legislature in s. 248, the parties and the rule of law would emerge better off.

[25] The questions of mixed fact and law in this case nevertheless present adjudicative challenges. Asanka’s status as the sole funder of the store purchase directly supports his claim to a beneficial interest in the shares of the company. Shamali’s rebuttal, based on a largely undocumented and mostly prescribed loan, suffers credibility problems but might establish a genuine issue requiring a trial. Her anxiety over the financial risk, however, is as valid as Asanka’s transactional claim. These three components of the competing claims could provide a foundation for a judicial remedy that is imperfect but preferable to subjecting the parties to further delay and the crushing weight of legal expenses.

The Parties’ Reasonable Expectations

[26] Oppression is, first and foremost, an equitable remedy. This means the court must consider the business realities and relationships, without being stuck on legal formalities: BCE, at paras. 58-59. The parties’ presentation of the issue, between the settlement of a trust and the repayment of a loan, does import certain legal outcomes favouring Asanka.

[27] Since Asanka was the source of the purchase money, the presumption of a resulting trust is strong: Pecore v. Pecore, 2007 SCC 17, para. 20. In contrast, Shamali’s claim to having lent Asanka money lacks credibility from a transactional perspective, because she failed to adduce documentary evidence of the source of her cash for the initial loan. Even if money is transmitted to developing countries through money traders, the cash Shamali procured had to come from a financial institution. Her income in Canada all came to her through institutional channels.

[28] There was corroboration from the siblings’ father describing the transmission of funds to Asanka through local money traders. If one believes there was such a transmission, the same principles of equity on which Asanka relies also create a presumption, in the case of the 2016 funds, that there was some bargain, as opposed to a gift: Crossroads-DMD Mortgage Investment Corporation v. MNP Ltd., 2021 ABCA 417, para. 82. To complete the analysis of the loan allegation, the court cannot ignore the likelihood that most of it was legally prescribed.

[29] When one expands the fact-finding perspective beyond the legalities and transactional details, the situational unfairness to Shamali of ruling wholly in Asanka’s favour becomes rather evident. Her terse communications with Asanka denoted a strong underlying anxiety about being personally liable for a lease guarantee in respect of the business. It does not take a trained accountant to perceive, at least, that Asanka’s casual practices served up a recipe for business failure. Asanka, for his part, could afford to do as he pleased, because he had much less to lose compared to his sister. His stake in the business had been spent and has already provided income to feed, clothe and shelter his family. Even if Shamali were a trustee of Asanka’s shares, the nature of her personal risk qualifies that trust with an interest like a mortgage or other security for a contingent debt. Thus, to declare Shamali a bare trustee of Asanka’s shares, or to hold her in breach of trust for having locked him out, would ignore the reality that she assumed all the future risk without standing to make a gain beyond, perhaps, partial repayment of her alleged loan to Asanka.

[30] The equities in the case therefore depend heavily on one’s appreciation of the store as an asset or a liability. In the absence of an expert valuation of the store, or even the raw bookkeeping data to measure its profitability, one can only evaluate the business from the reasonableness of Shamali’s panic in removing Asanka or from his outrage in having been locked out. As for Shamali’s allegation of Asanka’s moral indebtedness, even with the weakness of the legal claim, her financial risk deserves recognition through at least an equal share in the rewards of the business. If it were a partnership exchange of her Canadian status and credit rating for Asanka’s industry in operating the business, any profits would be shared. This assessment of the business reality as a kind of partnership leads organically to the choice of remedies.

Remedy

[31] Each party, in their own way, has been oppressed by the other’s conduct. This includes oppression of Shamali, even though she had legal control of the corporation. Asanka’s mismanagement could be construed as having oppressed Shamali. On balance, Asanka did not foresee that his funding of the store purchase would end up being treated as the settlement of an old debt. For her part, Shamali did help her brother and became nervous about the outcome after panicking about how he was running the business. This would suggest that Asanka should be afforded the opportunity to work at the store and to obtain a return for his money and labour, and that Shamali should be afforded control of the corporation’s finances until the term of the lease has expired and a share of profits to compensate her for the financial management she brings to the business.

[32] For the most part, they can both remain involved in the business for a limited term, without requiring them to occupy the same physical space. As imperfect as the result may be, I have concluded that the court should make the following orders under s. 248 of the OBCA:

1. Shamali and 1000635690 Ontario Inc. shall immediately restore Asanka’s access and daily management of the store. A permanent injunction shall issue against locking him out.

2. The parties are prohibited from receiving draws from the capital or income of the store, as owned and operated by 1000635690 Ontario Inc. Any financial remuneration shall be disbursed as set out in paragraphs 3 and 4 below.

3. Asanka shall be paid a monthly 50% share of the profits of 1000635690 Ontario Inc. If there are no profits in any given month, he shall receive no income. An injunction shall issue against Asanka paying himself cash before the store’s daily cash receipts are deposited at the bank.

4. Shamali shall retain control over the banking transactions of 1000635690 Ontario Inc. She shall be remunerated for her management of the company with 25% of the monthly profits. As with Asanka, if there are no monthly profits, Shamali shall receive no income.

5. The remaining 25% of the profits shall be retained by 1000635690 Ontario Inc. until the expiry of the current lease, to build the capital base of the business.

6. On the expiry of the lease, Shamali shall convey 100% of the shares of 1000635690 Ontario Inc. to Asanka or his proxy (acting as trustee). The consideration for the shares shall be 50% of the accumulated retained profits of the company as of October 1, 2028. That sum of the retained profits – if there are any – shall be paid out to Shamali in four equal instalments over the course of 12 months. The remaining half of the retained profits shall remain with 1000635690 Ontario Inc. as directed by Asanka and/or his proxy.

[33] Counsel for the parties are at liberty to propose a draft order conforming to the above disposition that functions better for the business and for any tax consequences to the parties. The terms of the order may be included in any shareholder agreement and may be used as the template for any agreement for Janaka taking over Shamali’s position.

[34] The parties shall each bear their own costs of these proceedings.

Edward Akazaki

Released: March 6, 2025