Giffin v. Soontiens et al., (2011) 310 N.S.R.(2d) 81 (SC)

• Judge: Moir, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: October 31, 2011
• Jurisdiction: Nova Scotia
• Citations: (2011), 310 N.S.R.(2d) 81 (SC);2011 NSSC 404

Giffin v. Soontiens (2011), 310 N.S.R.(2d) 81 (SC);

    983 A.P.R. 81

MLB headnote and full text

Temp. Cite: [2011] N.S.R.(2d) TBEd. NO.008

Gordon Giffin (plaintiff) v. Nicole Soontiens, Ilona MacAlpine, XL Electric Limited, a body corporate, Huntec Limited, a body corporate, and CNCA Holdings Limited, a body corporate (defendants)

(Hfx. No. 292594; 2011 NSSC 404)

Indexed As: Giffin v. Soontiens et al.

Nova Scotia Supreme Court

Moir, J.

October 31, 2011.

Summary:

Giffin and the defendants, MacAlpine and Soontiens, started the defendant company, XL Electric Ltd. Each took on an equally important role in the new company. However, Soontiens and MacAlpine invested $95,000 in start-up costs to Giffin's $5,000. The investments were set up as directors' loans and the company paid interest on the excess, $85,000, and eventually it began to substantially pay off the principal. When a shareholder agreement was eventually prepared, the shares were not distributed equally, and the shareholder agreement established inequalities between Giffin and his co-adventurers. The company reached the point where the principals could take out real profits, above normal compensation. However, the payments were grossly unequal in favour of MacAlpine and Soontiens. Giffin left the company. He brought an action, alleging shareholder oppression, estoppel, misrepresentation and breach of fiduciary duties.

The Nova Scotia Supreme Court held that various actions taken by the company, including a declaration of grossly unequal dividends, amounted to shareholder oppression and Giffin was entitled to remedies to redress the oppression. The court ordered that the defendants cause the equity in XL to be valued by a chartered business valuer and that the defendants purchase Giffin's shares for a price determined as set out by the court. The other causes of action alleged were not established.

Company Law - Topic 2170

Shareholders - Shareholders' rights - To rectify oppressive or unfairly prejudicial act - Giffin and the defendants, MacAlpine and Soontiens, started the defendant company, XL Electric Ltd. - Each took on an equally important role in a new company - However, Soontiens and MacAlpine invested $95,000 in start-up costs to Giffin's $5,000 - The investments were set up as directors' loans and the company paid interest on the excess, $85,000, and eventually it began to substantially pay off the principal - When a shareholder agreement was eventually prepared, the shares were not distributed equally, and the shareholder agreement established inequalities between Giffin and his co-adventurers - The company reached the point where the principals could take out real profits, above normal compensation - However, the payments were grossly unequal in favour of MacAlpine and Soontiens - Giffin left the company - The Nova Scotia Supreme Court held that various actions taken by the company, including a declaration of grossly unequal dividends, amounted to shareholder oppression - The evidence established that Giffin had an expectation of equal treatment within XL and the expectation of general equality remained reasonable - The fair remedy was one that compensated Giffin for the monetary value of XL to him - The shareholder agreement and the share terms provided the guides for valuing that interest, i.e., it should be measured as of the day Giffin terminated his employment, without any component for future loss - The court ordered that the defendants cause the equity in XL to be valued by a chartered business valuer and that the defendants purchase Giffin's shares for a price determined as set out by the court - See paragraphs 373 to 421 and 432 to 438.

Company Law - Topic 2170.1

Shareholders - Shareholders' rights - Oppressive acts - Remedies - [See Company Law - Topic 2170 ].

Company Law - Topic 2421

Shareholders - Agreements - General (incl. interpretation) - Term 1(c) of a shareholder agreement stated that holders of class A shares "are entitled to receive the remaining property of the company in priority to the holders of the other classes of shares" - Term 2(c) stated that holders of class B shares "are entitled to receive the remaining property of the company" and term 3(c) stated that holders of class C shares "are entitled to receive the remaining property of the company" - The Nova Scotia Supreme Court held that the terms created ambiguities as, literally read, term 1(c) distributed all of the equity, but 2(c) and 3(c) called for further distributions - The court stated that its obligation was to "attempt to find an interpretation which can reasonably give meaning to each of the terms" and that it must not dismiss a term as meaningless unless there was no "interpretation giving reasonable consistency to the terms" - The court held that the conflicting terms could be reconciled through a commercially reasonable interpretation grounded in both the text and the external context - The court concluded that term 1(c) provided for distribution of the equity first to retire outstanding, unequal investment, term 2(c) provided for distribution of any balance to retire equal investments and to compensate for unpaid labour, and term 3(c) provided for distribution of any remaining equity to the holders of class C shares - See paragraphs 334 to 364.

Company Law - Topic 2485

Shareholders - Shares - General - Classes of shares - Rights respecting - [See Company Law - Topic 2421 ].

Company Law - Topic 2724

Shareholders - Duties of shareholders - Fiduciary duty - Giffin and the defendants, MacAlpine and Soontiens, started the defendant company, XL Electric Ltd. - The company reached the point where the principals could take out real profits, over and above normal compensation - However, the payments were grossly unequal in favour of MacAlpine and Soontiens - Giffin left the company - He brought an action, alleging, inter alia, breach of fiduciary duty - Giffin submitted that Soontiens owed him fiduciary duties as a result of her undertaking the task of getting XL set up and getting a draft shareholder agreement prepared - He also submitted that both Soontiens and MacAlpine owed fiduciary duties to him because they had "primary responsibility for financial and legal governance" of XL - The Nova Scotia Supreme Court held that no fiduciary relationship arose - There was no mutual understanding that Soontiens would relinquish her own self-interest in order to act solely for Giffin's good when she saw to the incorporation, the share terms, or the shareholder agreement - Giffin was not in a position of vulnerability - There were three directors - Giffin was the equal of Soontiens and MacAlpine when it came to the general management of their company - See paragraphs 422 to 431.

Company Law - Topic 2725

Shareholders - Duties of shareholders - To other shareholders - [See Company Law - Topic 2724 ].

Company Law - Topic 7013

Fundamental changes and shareholders' rights - Rights of minority or dissenting shareholders - Oppression - What constitutes - [See Company Law - Topic 2170 ].

Company Law - Topic 9785

Actions against corporations and directions - Action for oppressive conduct - Oppression, prejudice or disregard of interests - [See Company Law - Topic 2170 ].

Company Law - Topic 9797

Actions against corporations and directors - Action for oppressive conduct - Remedies - [See Company Law - Topic 2170 ].

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - [See Company Law - Topic 2724 ].

Estoppel - Topic 1163

Estoppel in pais (by conduct) - Representation - By conduct - Practice or course of conduct - Giffin and the two defendants started a company - When a shareholder agreement was eventually prepared, the shares were not distributed equally, and the shareholder agreement established many inequalities between Giffin and his co-adventurers - The company reached the point where the principals could take out real profits, over and above normal compensation - However, the payments were grossly unequal in favour of the defendants - Giffin left the company and brought an action - He attempted to establish promissory estoppel on the basis of the equal treatment of the shareholders in the six years after the company was started when they were paid dividends, bonuses, and salaries equally - The Nova Scotia Supreme Court stated that "While it lulled Mr. Giffin into a sense that he would be treated equally despite the shareholder agreement, that conduct did not amount to a representation" - See paragraph 365.

Evidence - Topic 4615

Witnesses - Examination - General principles - Recalling of witnesses - The plaintiff objected to a witness (Mr. Berta) being recalled to give evidence - The Nova Scotia Supreme Court stated that "It is sufficient that the testimony was on a new subject and that damage to the order of Mr. Berta's earlier testimony is protected against by the right to cross-examine on the new subject. Also, I see no splitting of the defendants' case caused by the recall" - See paragraphs 213 to 214.

Fraud and Misrepresentation - Topic 52

Fraudulent misrepresentation - Elements - Future matters - [See Fraud and Misrepresentation - Topic 2501 ].

Fraud and Misrepresentation - Topic 2501

Misrepresentation - General principles - Representation defined - Giffin, Soontiens and MacAlpine started a company - Giffin submitted that a shareholder agreement should be set aside as a result of a misrepresentation on behalf of Soontiens and MacAlpine - The Nova Scotia Supreme Court rejected the argument - The court stated that "'it was clearly represented to Giffin that he, Soontiens, and MacAlpine would be treated as equals under any contract'. I emphasize the word 'any'. It shows the defect in the argument. The representation was about an intention for something to be created in the future. ... The understanding for generally equal treatment was part of the formative discussions along the road to a contract that was being negotiated and was to be finalized later. As such, the understanding was neither a false statement nor the kind of representation that could, if false, lead to avoidance of the contract. The representation was about future intent, a subject to be refined when the contract was developed" - See paragraphs 367 to 372.

Cases Noticed:

True Blue Cattle Co. et al. v. Toronto-Dominion Bank et al., [2004] A.R. Uned. 238 (Q.B.), refd to. [para. 213].

Davison et al. v. Nova Scotia Government Employees Union (2005), 231 N.S.R.(2d) 245; 733 A.P.R. 245; 2005 NSCA 51, refd to. [para. 291].

Taylor v. Taylor, [2009] N.S.R.(2d) Uned. 226; 2009 NSSC 380, refd to. [para. 345].

BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81; 20 B.C.A.C. 241; 35 W.A.C. 241, refd to. [para. 346].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 346].

Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102; 32 N.R. 191, refd to. [para. 368].

Bank of Nova Scotia v. Zackheim, [1983] O.J. No. 3258 (C.A.), refd to. [para. 368].

Canadian Imperial Bank of Commerce v. Dorey et al. (1991), 110 N.S.R.(2d) 432; 299 A.P.R. 432 (S.C.), refd to. [para. 368].

Cape Breton Development Corp. v. Roper (D.) Services Ltd. (2001), 202 N.S.R.(2d) 201; 632 A.P.R. 201 (S.C.), refd to. [para. 369].

Ford et al. v. Kennie et al. (2002), 203 N.S.R.(2d) 234; 635 A.P.R. 234 (S.C.), refd to. [para. 369].

Aegon Capital Management Inc. et al. v. BCE Inc. et al., [2008] 3 S.C.R. 560; 383 N.R. 119; 2008 SCC 69, consd. [para. 376].

Ebrahimi v. Westbourne Galleries, [1972] 2 All E.R. 492 (H.L.), refd to. [para. 398].

Ferguson and Imax Systems Corp., Re (1983), 43 O.R.(2d) 128 (C.A.), refd to. [para. 398].

Hodgkinson v. Simms et al. (1994), 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1 (S.C.C.), refd to. [para. 424].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 425].

Peoples Department Stores Inc. (Bankrupt) v. Wise (2004), 326 N.R. 267 (S.C.C.), refd to. [para. 425].

Coleman v. Myers, [1977] 2 N.Z.L.R. 225 (C.A.), refd to. [para. 426].

Dusik v. Newton, [1983] B.C.J. No. 2157 (C.A.), refd to. [para. 426].

Vladi Private Islands Ltd. v. Haase et al. (1990), 96 N.S.R.(2d) 323; 253 A.P.R. 323 (C.A.), refd to. [para. 426].

Counsel:

John A. Keith, Andrew D. Taillon, and Jack J. Townsend, articled clerk, for plaintiff;

George W. MacDonald, Q.C., Kiersten Amos, and Michael Blades, articled clerk, for defendants;

Scott Sterns, with watching brief for Tibor Berta and Western Electrics (2004) Ltd.

This action was heard on various dates in January 2010 and January and February 2011, before Moir, J., of the Nova Scotia Supreme Court, who delivered the following decision on October 31, 2011.