Matthews Investments Ltd. et al. v. Assiniboine Medical Holdings Ltd. et al., 2008 MBQB 52

• Judge: Joyal, J.
• Court: Court of Queen's Bench of Manitoba (Canada)
• Case Date: February 14, 2008
• Jurisdiction: Manitoba
• Citations: 2008 MBQB 52;(2008), 227 Man.R.(2d) 9 (QB)

Matthews Inv. v. Assiniboine Medical (2008), 227 Man.R.(2d) 9 (QB)

MLB headnote and full text

Temp. Cite: [2008] Man.R.(2d) TBEd. FE.033

Matthews Investments Ltd., Mosher Investments Limited, Blomert Investments Limited, Coodin Investments Limited, JLD Investments Limited, Ridge Investments Ltd., Wightman Investments Limited, Young Investments Ltd., Levern Investments Limited, David Mitchell Blomert, The Public Trustee of Manitoba, in its capacity as Executor of the Estate of Harvey Isadore Coodin, Deceased, James Dorland Brown, Ian Jeffrey Goldstine, Reginald Clive Wightman, Jimmy Donald Young, Peter Connelly, Graham Bruce Patrick Matthews and Garth Everett Mosher (plaintiffs) v. Assiniboine Medical Holdings Ltd., Sharon Masumi Mould, Russell Egan Albak, Wayne Allison Van Horne, Francis Marcel Renouf, David Breckman, Yatish Kotecha, Michael Stephenson, Colin Fletcher, Brian Rumbolt, Jas Atwal and Jonathan Elkin (defendants)

(CI 04-01-38095; 2008 MBQB 52)

Indexed As: Matthews Investments Ltd. et al. v. Assiniboine Medical Holdings Ltd. et al.

Manitoba Court of Queen's Bench

Winnipeg Centre

Joyal, J.

February 14, 2008.

Summary:

The plaintiff shareholders sued the defendant corporate directors, claiming that, pursuant to a 1993 unanimous shareholder agreement, the directors were required to allocate and declare dividends in favour of the class B and class C withdrawing shareholders for the pro rata share of the net income of Assiniboine Medical Holdings Ltd. for the fiscal years ended January 31, 2000 and subsequent. By not so allocating and declaring the dividends in question, the plaintiffs alleged that the defendants violated their obligations under the 1993 agreement and breached their fiduciary duties as partners and directors. The plaintiffs further alleged that such conduct was oppressive in that it was inconsistent with their "reasonable" expectations and unfairly prejudicial to and unfairly disregarding of their interests.

The Manitoba Court of Queen's Bench dismissed the action. The defendants acted within their discretion and in compliance with the 1993 agreement. They owed no fiduciary duty to the plaintiffs. Their actions did not constitute oppressive conduct.

Editor's Note: For a related decision see 221 Man.R.(2d) 55.

Company Law - Topic 2166

Shareholders - Shareholders' rights - Respecting company profits - The plaintiff shareholders sued the defendant corporate directors, claiming, inter alia, that they breached a 1993 unanimous shareholder agreement by failing to declare dividends in favour of the class B and class C withdrawing shareholders for the pro rata share of the net income of Assiniboine Medical Holdings Ltd. (AMHL) for the fiscal years ended January 31, 2000 and subsequent - The Manitoba Court of Queen's Bench dismissed the action - The directors did not have absolute discretion in the declaration of dividends - However, the court would only interfere with the directors' wide discretion reluctantly and cautiously - The directors possessed a clear but qualified discretion respecting whether to declare dividends for the years 2000 to 2004 - Their decision to not declare dividends in those years was taken for valid business reasons and in the best interests of AMHL - They acted within their discretion and in compliance with the 1993 agreement - See paragraphs 95 to 136.

Company Law - Topic 2422

Shareholders - Agreements - Unanimous shareholders agreement - [See Company Law - Topic 2166 ].

Company Law - Topic 4262

Directors - Duties - General principles - Fiduciary duty - The plaintiff shareholders sued the defendant corporate directors, claiming, inter alia, that they breached a 1993 unanimous shareholder agreement by failing to declare dividends in favour of the class B and class C withdrawing shareholders for the pro rata share of the net income of Assiniboine Medical Holdings Ltd. (AMHL) for several years - They also argued that they breached their fiduciary duties as partners and directors - The Manitoba Court of Queen's Bench agreed with the defendants that directors of a corporation owed a fiduciary duty to the corporation and not, as the plaintiffs suggested, to all class C shareholders - There were no facts in this case that would cause the court to displace the transcendent fiduciary duty owed to AMHL and instead, find a duty to one particular shareholder or an entire class of shareholders - See paragraphs 137 to 138.

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - The plaintiff shareholders sued the defendant corporate directors, claiming, inter alia, that they breached a 1993 unanimous shareholder agreement by failing to declare dividends in favour of the class B and class C withdrawing shareholders for the pro rata share of the net income of Assiniboine Medical Holdings Ltd. (AMHL) for several years - The directors had decided to accumulate reserves for anticipated operating expenses rather than declare dividends - The plaintiffs argued that such conduct was oppressive in that it was inconsistent with their "reasonable" expectations and unfairly prejudicial to and unfairly disregarding of their interests - The Manitoba Court of Queen's Bench rejected the argument - The decision to not declare dividends affected all classes of shareholders - The court was unable to find, on any objective basis, a "reasonable" expectation regarding the defendants' obligation to declare dividends - Although subjectively the plaintiffs might hold such an expectation, that expectation was neither "reasonable" by itself nor could it be seen as reasonably derived from the compact among the shareholders - It was not reasonable for one group of shareholders to expect directors to exercise their discretion in a way that those directors had reasonably concluded would be unfavourable to the short-term and long-term interests of all classes of shareholders and the corporation - See paragraphs 140 to 175.

Cases Noticed:

McClurg v. Minister of National Revenue, [1990] 3 S.C.R. 1020; 119 N.R. 101, refd to. [para. 123].

Fidelity Management & Research Co. et al. v. Gulf Canada Resources Ltd. et al. (1996), 11 O.T.C. 198; 27 B.L.R.(2d) 135 (Gen. Div.), refd to. [para. 124].

Brant Investments Ltd. et al. v. Keeprite Inc. et al. (1988), 37 B.L.R. 65 (Ont. H.C.), refd to. [para. 124].

Western Finance Co. and Rannard v. Tasker Enterprises Ltd. and Tasker, [1980] 1 W.W.R. 323; 1 Man.R.(2d) 338 (C.A.), refd to. [para. 138].

Jaska v. Jaska (1996), 141 D.L.R.(4th) 385 (Man. C.A.), refd to. [para. 142].

Cohen v. Jonco Holdings Ltd. et al. (2005), 192 Man.R.(2d) 252; 340 W.A.C. 252; 2005 MBCA 48, refd to. [para. 142].

Feierstein and Fishman Medical Corp. v. Costas Ataliotis - see Danylchuk et al. v. Wolinsky et al.

Danylchuk et al. v. Wolinsky et al. (2007), 225 Man.R.(2d) 2; 419 W.A.C. 2; 2007 MBCA 132, refd to. [para. 142].

Cholakis v. Cholakis (2007), 225 Man.R.(2d) 53; 419 W.A.C. 53; 2007 MBCA 156, refd to. [para. 142].

Diligenti v. RWMD Operations Kelowna Ltd. (1976), 1 B.C.L.R. 36 (S.C.), refd to. [para. 143].

Ferguson and Imax Systems Corp., Re (1983), 150 D.L.R.(3d) 718 (Ont. C.A.), refd to. [para. 145].

Low and Anderson v. Ascot Jockey Club Ltd. et al. (1986), 1 B.C.L.R.(2d) 123 (S.C.), refd to. [para. 146].

Keho Holdings Ltd. and Oliver v. Noble et al. (1987), 78 A.R. 131; 52 Alta. L.R.(2d) 195; 38 D.L.R.(4th) 368 (C.A.), refd to. [para. 147].

Eiserman v. Ara Farms Ltd., [1988] 5 W.W.R. 97; 67 Sask.R. 1 (C.A.), refd to. [para. 148].

Arthur v. Signum Communications Ltd., [1993] O.J. No. 1928 (Div. Ct.), refd to. [para. 163].

Authors and Works Noticed:

McGuinness, Kevin Patrick, The Law and Practice of Canadian Business Corporations (1999), §§ 8.88, 8.106 [para. 107]; 9.220 [para. 143]; 9.221 [para. 144]; 9.227 [para. 145]; 9.233 [para. 146]; 9.240 [para. 147].

Welling, Bruce L., Corporate Law in Canada: The Governing Principles (2nd Ed. 1991), pp. 319 [para. 101]; 481 to 483 [para. 103].

Counsel:

Donald G. Douglas, for the plaintiffs;

Robert L. Tapper, Q.C., and Peter Halaman-daris, for the defendants.

This action was heard before Joyal, J., of the Manitoba Court of Queen's Bench, Winnipeg Centre, who delivered the following judgment on February 14, 2008.