Cytrynbaum et al. v. Look Communications Inc., 2013 ONCA 455

• Judge: MacPherson, Sharpe and Lauwers, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: July 04, 2013
• Jurisdiction: Ontario
• Citations: 2013 ONCA 455;(2013), 307 O.A.C. 152 (CA)

Cytrynbaum v. Look Com. Inc. (2013), 307 O.A.C. 152 (CA)

MLB headnote and full text

Temp. Cite: [2013] O.A.C. TBEd. JL.005

Michael Cytrynbaum, First Fiscal Management Ltd., Stuart Smith, Scott Colbran and Jason Redman (applicants/appellants) v. Look Communications Inc. (respondent/respondent)

Jolian Investments Limited and Gerald McGoey (applicants/appellants) v. Look Communications Inc. (respondent/respondent)

Alex Dolgonos and DOL Technologies Inc. (applicants/appellant) v. Look Communications Inc. (respondent/respondent)

(C56147; C56149; C56154; C56177; C56182; 2013 ONCA 455)

Indexed As: Cytrynbaum et al. v. Look Communications Inc.

Ontario Court of Appeal

MacPherson, Sharpe and Lauwers, JJ.A.

July 4, 2013.

Summary:

The applicants, former corporate directors and officers of the respondent Look Communications Inc. (Look), claimed advance funding of their legal costs to defend an action brought against them by the corporation. The action alleged breach of fiduciary duty, breach of statutory duty, negligence and unjust enrichment. The applicants relied on Look's bylaws and indemnification agreements. The claims were resisted by Look, pursuant to s. 124(4) of the Canada Business Corporations Act, on the ground that the applicants did not act honestly and in good faith.

The Ontario Superior Court, in a decision reported at [2012] O.T.C. Uned. 5478, dismissed the claims. The court rejected the applicants' contention that s. 124(4), based on the marginal note, applied only to derivative actions. The judge then found that Look had made out a strong prima facie case that the applicants had acted in bad faith.

The Ontario Court of Appeal dismissed the appeal.

Company Law - Topic 4132

Directors - Compensation - Indemnity - Bars to - [See first Company Law - Topic 4482 ].

Company Law - Topic 4194

Directors - Liability of directors - Indemnity clauses - Scope of - [See third Company Law - Topic 4482 ].

Company Law - Topic 4482

Officers and agents - Compensation - Indemnity for legal fees or judgments against - The applicants, former corporate directors and officers of the respondent corporation, claimed for advance funding of their legal costs to defend an action brought against them by the corporation - The corporation resisted the claims pursuant to s. 124(4) of the Canada Business Corporations Act, on the ground that the applicants did not act honestly and in good faith - The application judge rejected the contention that s. 124(4) applied only to derivative actions, and then found that the corporation had made out a strong prima facie case that the applicants had acted in bad faith (valuation of shares had no relationship to the actual market value; payments for legal retainers in excess of $1.5 million) - The Ontario Court of Appeal dismissed the appeal - "The statute imposes a judicial filter on advance funding and the strong prima facie test for determining whether advancement should be denied is apt. That test comports with the statutory requirement for court approval but also is sufficiently stringent to ensure that advance funding is ordinarily available to those claiming it unless there is strong evidence of bad faith" - There was ample evidence to support the finding that the respondent's evidence overcame the presumption of good faith and that the respondent was likely to succeed at trial - See paragraphs 3, 49 to 70.

Company Law - Topic 4482

Officers and agents - Compensation - Indemnity for legal fees or judgments against - The applicants, former corporate directors and officers of the respondent corporation, claimed advance funding of their legal costs to defend an action brought against them by the corporation - The corporation resisted the claims, pursuant to s. 124(4) of the Canada Business Corporations Act, on the ground that the applicants did not act honestly and in good faith - The application judge rejected the applicants' contention that s. 124(4), based on the marginal note, applied only to derivative actions - The Ontario Court of Appeal dismissed the appeal - "[T]he marginal note 'Indemnification in derivative actions' cannot cut down or limit the meaning of the unambiguous wording of the text of s. 124(4) which extends its reach to actions 'by or on behalf of the corporation'" - There was no principled rationale for applying one regime for advance costs in derivative actions and another for actions brought by the corporation itself - See paragraphs 41 and 42.

Company Law - Topic 4482

Officers and agents - Compensation - Indemnity for legal fees or judgments against - The applicants, former corporate directors and officers of the respondent corporation, claimed advance funding of their legal costs to defend an action brought against them by the corporation - The applicants relied on the corporation's bylaws and indemnification agreements - The corporation resisted the claims, pursuant to s. 124(4) of the Canada Business Corporations Act, on the ground that the applicants did not act honestly and in good faith - The Ontario Court of Appeal concluded that the application judge correctly held that s. 124(4) applied in this case to the directors' and officers' claims for advance funding - It followed that the bylaws and indemnity agreements could not oust s. 124(4) - "Section 124(4), when read with the other subsections of s. 124, provides that court approval is required for advance funding and that approval can only be granted if the officer or director claiming advancement 'acted honestly and in good faith with a view to the best interests of the corporation'." - See paragraph 48.

Company Law - Topic 9413.1

Action by corporations - Parties - Derivative actions - Costs (incl. claim for advance funding) - [See second Company Law - Topic 4482 ].

Guarantee and Indemnity - Topic 7083

Indemnity - Extent of - Legal fees - [See first Company Law - Topic 4482 ].

Practice - Topic 7883

Costs - Funding before judgment - When interim or advance costs available - [See first Company Law - Topic 4482 ].

Statutes - Topic 1845

Interpretation - Intrinsic aids - Titles, headings and section numbers - Headings and marginal notes - [See second Company Law - Topic 4482 ].

Statutes - Topic 2603

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context) - Intention from whole of section or statute - [See third Company Law - Topic 4482 ].

Cases Noticed:

Jolian Investments Ltd. v. Unique Broadband Systems Inc., 90 B.L.R.(4th) 188; 2011 ONSC 3241, not folld. [para. 25].

R. v. Bata Industries Ltd. (1995), 83 O.A.C. 343; 25 O.R.(3d) 321 (C.A.), refd to. [para. 26].

Blair v. Consolidated Enfield Corp., [1995] 4 S.C.R. 5; 187 N.R. 241; 86 O.A.C. 245, refd to. [para. 27].

Bell ExpressVu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1; 2002 SCC 42, refd to. [para. 35].

Skapinker v. Law Society of Upper Canada, [1984] 1 S.C.R. 357; 53 N.R. 169; 3 O.A.C. 321, refd to. [para. 40].

R. v. Stevenson and McLean (1981), 57 C.C.C.(2d) 526 (Ont. C.A.), refd to. [para. 40].

Imperial Oil Ltd. v. Minister of National Revenue, [2006] 2 S.C.R. 447; 353 N.R. 201; 2006 SCC 46, refd to. [para. 41].

Bennett v. Bennett Environmental Inc. (2009), 264 O.A.C. 198; 94 O.R.(3d) 481; 2009 ONCA 198, refd to. [para. 42].

Med-Chem Health Care Ltd. v. Misir et al. (2010), 265 O.A.C. 390; 103 O.R.(3d) 769; 2010 ONCA 380, refd to. [para. 43].

Catalyst Fund General Partner I Inc. v. Hollinger Inc. et al., [2006] O.T.C. Uned. 729; 15 B.L.R.(4th) 48 (S.C.), refd to. [para. 43].

Reddy v. Electronic Data Systems Corp., 2002 WL 1358761, affd. 820 A.2d 371 (Delaware 2003), refd to. [para. 45].

Statutes Noticed:

Canadian Business Corporations Act, R.S.C. 1985, c. C-44, sect. 124 [para. 22].

Interpretation Act, R.S.C. 1985, c. I-21, sect. 14 [para. 41].

Authors and Works Noticed:

Driedger, Elmer A., Construction of Statutes (2d Ed. 1983), p. 87 [para. 35].

Radin, Stephen A., Sinners Who Find Religion: Advancement of Litigation Expenses to Corporate Officials Accused of Wrongdoing (2006), 25 Rev. Litig. 251 [para. 45].

Sullivan, Ruth, Sullivan on the Construction of Statutes (5th Ed. 2008), pp. 394 [para. 40]; 397 [para. 41].

Counsel:

Peter H. Griffin, Matthew Sammon and Rory Gillis, for the appellants, Michael Cytrynbaum and First Fiscal Management Ltd.;

Joseph Groia, for the appellants, Jolian Investments Limited and Gerald McGoey;

Edward Babin and Cynthia Spry, for the appellant, Stuart Smith;

Andrew Lewis, for the appellant, Jason Redman;

Peter Roy and Sean Grayson, for the appellant, DOL Technologies Inc.;

Benjamin Zarnett, David Conklin and Peter Kolla, for the respondent.

These appeals were heard on May 27-28, 2013, before MacPherson, Sharpe and Lauwers, JJ.A., of the Ontario Court of Appeal. In reasons for judgment written by Sharpe, J.A., the Court delivered the following judgment, released on July 4, 2013.