Argo Protective Coatings Inc., Re, 2006 NSSC 283

• Judge: Warner, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: June 15, 2006
• Jurisdiction: Nova Scotia
• Citations: 2006 NSSC 283;(2006), 248 N.S.R.(2d) 127 (SC)

Argo Protective Coatings Inc., Re (2006), 248 N.S.R.(2d) 127 (SC);

    789 A.P.R. 127

MLB headnote and full text

Temp. Cite: [2006] N.S.R.(2d) TBEd. OC.006

In The Matter Of the Companies Act, being Chapter 81 of the Revised Statutes of Nova Scotia, 1989, and amendments thereto;

 

And In The Matter Of the Application of 3026709 Nova Scotia Ltd. ("Numberco") for an Order Appointing an Inspector to Investigate the Affairs of Argo Protective Coatings Inc. and to Report thereon, pursuant to Section 5(3) of the Third Schedule, and Section 116 of the Companies Act.

(S.H. No. 263538; 2006 NSSC 283)

Indexed As: Argo Protective Coatings Inc., Re

Nova Scotia Supreme Court

Warner, J.

October 2, 2006.

Summary:

Argo's minority shareholder was also its largest customer. The minority shareholder alleged that it was oppressed, unfairly prejudiced and unfairly disregarded by the majority shareholders, relying on partial information respecting related party transactions giving preferential treatment to the majority shareholder. The minority shareholder, alleging insufficient access to Argo's books and records to investigate its allegations, applied for interim relief under the Companies Act (investigation under s. 116), seeking the appointment of its own external auditor to inspect the books and records.

The Nova Scotia Supreme Court allowed the application in part. The court appointed an independent accounting firm to conduct an inspection limited to "an investigation of all information that the inspector determines is relevant to the two of the five complaints that, on their face, constituted oppressive or unfair conduct by Argo".

Company Law - Topic 2213

Shareholders - Shareholders' rights - Investigation of company - By inspector - General - [See Company Law - Topic 9798 ].

Company Law - Topic 2215

Shareholders - Shareholders' rights - Investigation of company - By inspector - Evidence - [See Company Law - Topic 9796.1 ].

Company Law - Topic 9796.1

Actions against corporations and directors - Action for oppressive conduct - Interim relief - A minority shareholder applied under s. 5(3)(m) of the Third Schedule of the Companies Act for the interim relief of appointment of an inspector under s. 116 - The Nova Scotia Supreme Court stated that "the evidence that will satisfy the burden for interim relief depends upon the specific circumstances, and remedies sought, in the context of the specific case. It should be a contextual analysis. In the context of a request for an investigation - to access the information that may confirm or disprove the specific allegations of oppression, the burden should not be as high as requests for some of the other remedies enumerated in s. 5(3) of the Third Schedule to the Companies Act, which are more intrusive and should only be ordered on proof of oppression ... An interim order should not authorize a fishing expedition. On the other hand, imposing a burden of proof of the kind normally assigned to a plaintiff in a civil trial ... as a precondition to an interim order, in particular an interim order to investigate, would make the interim procedure meaningless for any practical purpose. The term 'strong prima facie case' has a nebulous meaning, especially in the civil context, and is not helpful in this circumstance. When a complainant has no legal entitlement to the specific factual information to confirm or disprove its complaint and seeks the means to obtain that evidence, the complainant's threshold burden of proof of oppression is met when the evidence presented by the complainant, on its face, and in the absence of better evidence ... leads the court to a reasonable inference that the act or conduct complained about likely occurred." - See paragraphs 49, 50, 54.

Company Law - Topic 9798

Actions against corporations and directors - Action for oppressive conduct - Appointment of auditor, inspector or receiver - Argo's minority shareholder was also its largest customer - The minority shareholder alleged that it was oppressed, unfairly prejudiced and unfairly disregarded by the majority shareholders, relying on partial information respecting related party transactions giving preferential treatment to the majority shareholder - The minority shareholder, alleging insufficient access to Argo's books and records to investigate its allegations, applied for interim relief under the Companies Act (investigation under s. 116), seeking the appointment of its own external auditor to inspect the books and records - The Nova Scotia Supreme Court allowed the application in part - The minority shareholder established, on the face of the evidence, two of its five complaints (differential gross profit margin and differential treatment of trade receivables) - The remaining three acts complained of, although aggravating, were not on their face oppressive or unfair - The court ordered that it was "appropriate to appoint an accounting firm, independent of all parties, to search for, recover, maintain custody of, and report to the parties and the court on the relevant factual information, so as to enable this court, at the next stage in this proceeding ... to determine, on all the relevant facts, what oppression or unfairness, if any, occurred, and what final remedy is appropriate. ... The inspection will be limited to an investigation of all information that the inspector determines is relevant to the two complaints that, on their face, constitute oppressive or unfair conduct by Argo".

Cases Noticed:

Ebrahimi v. Westbourne Galleries Ltd. et al., [1973] A.C. 360 (H.L.), refd to. [para. 14].

Sparling v. Javelin International Ltd., [1986] R.J.Q. 1073 (S.C.), refd to. [para. 14].

Mason v. Intercity Property Ltd. (1987), 22 O.A.C. 161; 37 B.L.R. 6 (C.A.), refd to. [para. 14].

820099 Ontario Inc. v. Harold E. Ballard Ltd., 1991 CarswellOnt 142 (C.J.), refd to. [para. 14].

Westfair Foods Ltd. v. Watt et al. (1991), 115 A.R. 34; 1991 CarswellAlta 63 (C.A.), refd to. [para. 14].

Pente Investment Management Ltd. et al. v. Schneider Corp. et al. (1998), 113 O.A.C. 253; 1998 CarswellOnt 4035 (C.A.), refd to. [para. 14].

Pelley v. Pelley et al. (2003), 221 Nfld. & P.E.I.R. 1; 661 A.P.R. 1; 2003 NLCA 6, refd to. [para. 14].

Harbert Distressed Investment Master Fund Ltd. et al. v. Calpine Canada Energy Finance II ULC et al. (2005), 235 N.S.R.(2d) 297; 747 A.P.R. 297; 2005 NSSC 211, refd to. [para. 15].

Ferguson v. Imax Systems Corp. et al. (1983), 4 O.A.C. 188; 1983 CarswellOnt 926 (Div. Ct.), refd to. [para. 23].

Aquino et al. v. First Choice Capital Fund Ltd. et al. (1995), 130 Sask.R. 252; 1995 CarswellSask 54 (Q.B.), refd to. [para. 24].

Aquino et al. v. First Choice Capital Fund Ltd. et al. (1996), 143 Sask.R. 81; 1996 CarswellSask 224 (Q.B.), refd to. [para. 24].

SCI Systems Inc. v. Gornitzki Thompson & Little Co. et al. (1997), 29 O.T.C. 148; 1997 CarswellOnt 1769 (Gen. Div.), refd to. [para. 24].

Naneff v. Con-Crete Holdings Ltd. et al. (1995), 85 O.A.C. 29; 1995 CarswellOnt 1207 (C.A.), refd to. [para. 25].

Jaska v. Jaska, 1996 CarswellMan 570 (C.A.), refd to. [para. 28].

HSBC Capital Canada Inc. v. First Mortgage Alberta Fund (V) Inc. et al. (1999), 247 A.R. 37; 1999 ABQB 406, refd to. [para. 34].

Deluce Holdings Inc. v. Air Canada (1992), 12 O.R.(3d) 131 (Gen. Div.), refd to. [para. 34].

Royal Trustco Ltd. (No. 3), Re (1981), 14 B.L.R. 307 (Ont. H.C.), refd to. [para. 34].

Woodford v. Johnston et al., [2001] N.B.R.(2d) (Supp.) No. 53; 17 B.L.R.(3d) 42 (T.D.), refd to. [para. 36].

First Investors Corp. and Associated Investors of Canada Ltd., Re (1988), 87 A.R. 279 (Q.B.), refd to. [para. 38].

Consolidated Enfield Corp. v. Blair, [1995] O.J. No. 2593 (Gen. Div.), refd to. [para. 38].

Catalyst Fund General Partner I Inc. v. Hollinger Inc., [2004] O.T.C. Uned. 815 (Sup. Ct.), refd to. [para. 38].

Bell ExpressVu Limited Partnership v. Rex et al. (2002), 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1; 2002 SCC 42, refd to. [para. 45].

Authors and Works Noticed:

Morritt, David, Bjorkquist, Sonya, and Coleman, Allan, The Oppression Remedy (2004) (2006 Looseleaf), generally [para. 13].

Sopinka, John, Lederman, Sidney N., and Bryant, Alan W., The Law of Evidence in Canada (2nd Ed. 1999), c. 5.43 [para. 43].

Counsel:

A. Douglas Tupper, Q.C., and Sarah Kirby, for the applicant;

David P.S. Farrar, Q.C., and Sheree Conlon, for the respondent.

This application was heard on June 15, 2006, at Halifax, N.S., before Warner, J., of the Nova Scotia Supreme Court, who delivered the following judgment on October 2, 2006.