1043325 Ontario Ltd. v. CSA Building Sciences Western Ltd. et al., (2016) 389 B.C.A.C. 161 (CA)

• Judge: Newbury, Groberman and Willcock, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: May 04, 2016
• Jurisdiction: British Columbia
• Citations: (2016), 389 B.C.A.C. 161 (CA);2016 BCCA 258

1043325 Ont. v. CSA Building (2016), 389 B.C.A.C. 161 (CA);

    671 W.A.C. 161

MLB headnote and full text

Temp. Cite: [2016] B.C.A.C. TBEd. JN.041

1043325 Ontario Ltd. (appellant/petitioner) v. CSA Building Sciences Western Ltd., Ralph Jeck and Maria Jeck (respondents/respondents)

(CA41993; 2016 BCCA 258)

Indexed As: 1043325 Ontario Ltd. v. CSA Building Sciences Western Ltd. et al.

British Columbia Court of Appeal

Newbury, Groberman and Willcock, JJ.A.

June 15, 2016.

Summary:

1043325 Ontario Ltd. ("Skene Co.") was one of two shareholders of CSA Building Sciences Western Ltd. ("CSA"), an engineering consulting company. The two shareholders did not enter into any shareholders' agreement. Skene, the principal of Skene Co., held 44% of the issued shares of CSA. Jeck, a non-engineer and the sole director of CSA, held the remaining 56%. Skene Co. brought an oppression claim against CSA and Jeck, alleging misconduct by Jeck: (1) misleading Skene as to CSA's financial condition, failing to provide Skene Co. with information relating to CSA, and forging Skene's signature on various resolutions and waivers required by the Act; (2) forging Skene's signature to engineering reports of CSA and applying his stamp thereto, without his permission and contrary to the rules of his professional association; (3) causing CSA to pay "excessive" management fees to Jeck; and (4) various breaches of fiduciary duty Jeck owed to CSA as its sole director. Skene also sought leave to bring the fiduciary claims, in the alternative, on behalf of CSA as derivative proceedings. The petition sought primarily oppression remedies under s. 227 of the Business Corporations Act.

The British Columbia Supreme Court, in a decision reported at [2014] B.C.T.C. Uned. 1197, found that only the first group of allegations constituted oppression within the meaning of s. 227, and ordered Jeck to purchase Skene Co.'s shares. The Court, in a decision reported at [2015] B.C.T.C. Uned. 1160, determined that the appropriate date for valuation was the date of the petition, and that $508,000 was a fair price for the buyout, being the mid-point of the valuator's estimated values. Skene Co. appealed, contending that the trial judge erred in failing to find oppression or unfair prejudice with respect to the second and third groups of allegations; specifically, that the trial judge erred: in ruling that the claim for the forgeries and the misuse of Skene's seal was a personal one of Skene's, as an engineer; in placing the onus of proof on Skene Co. as the petitioner; and in conflating the fees payable to Jeck for "managing" CSA, with his compensation as an "owner".

The British Columbia Court of Appeal allowed the appeal in part. Jeck's causing CSA to pay the management fees to him did constitute oppressive or unfairly prejudicial conduct. With respect to remedy, the Court ordered that Jeck pay $249,065 (its 44% share of the excess fees) to Skene Co., failing written submissions as to an alternative order in which the minority's reasonable expectations could be realized under s. 227 of the Act. "The case is a cautionary tale for shareholders of closely-held corporations who proceed without a clear understanding or written agreement that sets out their mutual expectations; and in particular, for minority shareholders who trust the majority to conduct the affairs of the corporation in a fair and equitable manner."

Company Law - Topic 2164

Shareholders - Shareholders' rights - Derivative actions - See paragraphs 47 and 48, 71 to 80.

Company Law - Topic 2170

Shareholders - Shareholders' rights - To rectify oppressive or unfairly prejudicial act - See paragraphs 47 to 83.

Company Law - Topic 2170.1

Shareholders - Shareholders' rights - Oppressive acts - Remedies - See paragraphs 84 to 87.

Company Law - Topic 4125

Directors - Compensation - Fees - Excessive - See paragraphs 59 to 87.

Company Law - Topic 9781

Actions against corporations and directors - Action for oppressive conduct - When available - See paragraphs 47 to 83.

Company Law - Topic 9784

Actions against corporations and directors - Action for oppressive conduct - Conditions precedent - See paragraphs 47 to 83.

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - See paragraphs 47 to 83.

Company Law - Topic 9799

Actions against corporations and directors - Action for oppressive conduct - Evidence (incl. onus and standard of proof) - See paragraphs 60 and 61.

Counsel:

R.S. Fleming, for the appellant;

M.B. Morgan and L.E. Cook, for the respondents.

This appeal was heard at Vancouver, British Columbia, on May 4, 2016, before Newbury, Groberman and Willcock, JJ.A., of the British Columbia Court of Appeal. In reasons written by Newbury, J.A., the Court delivered the following judgment, dated June 15, 2016.