IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Sohi v. Best Choice Blueberry Farms Limited, |
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2018 BCSC 36 |
Date: 20180112
Docket: S156607
Registry: Vancouver
Between:
Yadwinder Singh Sohi
Petitioner
And
Best Choice
Blueberry Farms Limited
Gurdial Singh Sohi
Gurjeet Singh Sohi
Respondents
Before: The Honourable Mr. Justice Milman
Reasons for Judgment
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Counsel for the Petitioner: |
S. Bhura |
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Counsel for the Respondents: |
R. Robb |
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Place and Date of Trial/Hearing: |
Vancouver, B.C. November 27-29, 2017 |
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Place and Date of Judgment: |
Vancouver, B.C. January 12, 2018 |
Table of Contents
III. The Arguments of the Parties
C. Yadwinder’s response to the conversion application
C. Liquidation and Dissolution
[1] The respondent, Best Choice Blueberry Farms Limited (“Best Choice”) has three owners who happen to be brothers. When they formed Best Choice in 2012, the three brothers each took a third of the shares and all three were appointed directors. They have since had a serious falling out, however. On February 3, 2015, they met as shareholders and two of the brothers, the respondents Gurdial Singh Sohi (“Gurdial”) and Gurjeet Singh Sohi (“Gurjeet”) voted to remove the third brother, the petitioner Yadwinder Singh Sohi (“Yadwinder”), as a director and relieve him of all managerial duties. This case is primarily about why that occurred and whether it was justified.
[2] Yadwinder says it was not. He asserts that Best Choice, although formally a company, was in fact operating until then as a “quasi-partnership” because he and his brothers had gone into business together as partners and only incorporated later for tax purposes. He claims to have had a reasonable expectation, for that reason, that he would remain a director indefinitely unless his brothers had good reason to remove him from that position. He says they did not. On that basis, he seeks relief under s. 227 of the Business Corporations Act, S.B.C. 2002, c. 57 (the “BCA”), including a declaration that the affairs of Best Choice have been conducted in a manner that is oppressive to him. He also seeks to have Best Choice liquidated and dissolved under s. 324 of the BCA. He urges the Court to make the requested declarations now and adjourn the selection of other remedies to a later date.
[3] Gurdial and Gurjeet oppose the petition on the basis that they had, they say, good grounds to do what they did. In any event, they assert that it would be premature to rule on the sufficiency of their grounds at this stage. Instead, they urge the Court to convert this proceeding into an action and remit the matter to the trial list.
[4] For the reasons that follow, I have concluded that the oppression claim cannot be resolved without a trial. I am satisfied, however, that an order can and should be made under s. 324 of the BCA.
[5] The three brothers, their two sisters and their parents immigrated to Canada from India in 1988. The brothers are all married and have their own children. I will refer to the entire family collectively as the “Sohi Family.”
[6] The Sohi Family arrived in Canada with few resources. Until late 2014, they shared whatever they had. All of their earnings were deposited into a joint account (the “Sohi Family Account”). There is a dispute among the parties in related proceedings as to who actually owned the Sohi Family Account. Gurdial and Gurjeet contend that it belonged to the brothers only. Yadwinder and the parents contend that it belonged to the brothers as well as their parents.
[7] The brothers worked hard to establish themselves in their new country. They took on various jobs. By 2000, they were working as longshoremen.
[8] In 2001, the brothers learned through a co-worker that an 80-acre farm located at 5415-104th Street in Delta, British Columbia (the “80-Acre Farm”) was for sale. They decided to buy it and operate it as a blueberry farm. Although they had worked as blueberry pickers before, they had never operated a farm.
[9] The brothers purchased the 80-Acre Farm in 2002 with funds from the Sohi Family Account. The three brothers each took title to one-third interests as tenants in common.
[10] When the brothers acquired it, the 80-Acre Farm was leased to potato and vegetable farmers. There were two houses on the property. Initially, Yadwinder, his wife and children and the parents moved into the first house. In 2003, that house was rented out to tenants and the entire Sohi Family moved into the second house (the “Main House”). The Main House proved too small for that many occupants, however, and so the brothers sought planning permission from the Corporation of Delta to replace it and build a larger one on the site. They were told that such permission would only be forthcoming if they were farming the land themselves. They decided to do so.
[11] To that end, in 2004 the brothers formed a general partnership which they registered as the “Sohi Blueberry Farm.”
[12] The brothers prepared the land for blueberry farming in 2004, planted the first crop in 2005 and began harvesting in 2008.
[13] By 2012, the Sohi Blueberry Farm was generating sufficient income that its accountants recommended incorporating the business to save tax.
[14] Best Choice was incorporated for that purpose in June 2012. The three brothers were each appointed directors and they or their respective family trusts were made the only shareholders. By an Asset Purchase Agreement dated September 7, 2012, Best Choice acquired the assets of the Sohi Blueberry Farm partnership. An agency agreement of that same date declared that the brothers’ interests in the 80-Acre Farm (excluding the Main House and land surrounding it that was not used for farming) were now held as agents and nominees for Best Choice.
[15] On October 13, 2013, Best Choice purchased a 23-acre property across the street from the 80-Acre Farm (the “23-Acre Farm”).
[16] It appears that a significant source of tension between Yadwinder and his two brothers involved a separate venture that Yadwinder was pursuing with his wife, Gurmanjit, and her brother, Harmanjit Swatch, also known as “Romy.”
[17] In 2006, Romy purchased a Subway restaurant franchise, partly with money that he borrowed from the Sohi brothers. That money was repaid with interest in 2009.
[18] In 2008, Romy wanted to purchase a second Subway franchise and again approached the Sohi brothers to help pay for it. They agreed to make the investment, but there is a conflict in the evidence as to the nature of the agreement that was reached in that regard.
[19] Yadwinder says that Gurmanjit and Romy purchased the franchise and set up a corporation called Sohi & Swatch Enterprises Ltd. (“SSEL”) to own it. Gurmanjit and Romy were made the directors and shareholders of that company, although Yadwinder asserts that Gurmanjit held her shares in trust for the Sohi Family. Part of the purchase price for the new restaurant was taken from Best Choice’s line of credit.
[20] Gurdial and Gurjeet’s understanding of the agreement is that they were supposed to own half of the new venture because they were contributing more than half of the funds to acquire it. Although Gurdial and Gurjeet say they wanted to be formally made co-owners, Romy told them that the franchisor would not permit this because only franchisees would be acceptable as owners. They say that Yadwinder told them, while he was responsible for keeping Best Choice’s books, that Romy had repaid some of the monies that he owed to Best Choice, but no record of any such repayment could be found when Gurdial and Gurjeet later examined the books for themselves. All of this led Gurdial and Gurjeet to become increasingly suspicious that money from the farm business was being used without their knowledge or consent for the restaurant businesses.
[21] In 2013, Yadwinder became involved in a third restaurant venture with Romy, known as the “Donair Affair.” That business was being operated through a company called Swatch & Sohi Ltd. (“SSL”), of which Yadwinder and Bhupinder (Romy’s wife), were made directors. Bhupinder and Yadwinder were made shareholders but Yadwinder’s shares were held, he says, in trust for the Sohi Family.
[22] Yadwinder says the brothers and their parents agreed to contribute to that venture using funds from the Sohi Family Account. Gurjeet says that he did not agree to the use of those funds for that purpose.
[23] Yadwinder says that Gurdial and Gurjeet demanded ownership interests in both SSEL and SSL.
[24] In order to address their concerns, Yadwinder agreed to transfer 2/3 of his stake in SSEL and SSL to Gurdial and Gurjeet or their wives, with the following result:
(a) with respect to SSEL (the Subway franchise):
(i) Romy continued to own half of the shares; and
(ii) the other half stake came to be shared equally by Gurmanjit, Gurjeet and Gurdial (i.e., 1/6 each);
(b) with respect to SSL (the Donair Affair):
(i) Bhupinder (Romy’s wife) continued to own half of the shares; and
(ii) the other half stake came to be shared equally by Yadwinder, Gurjeet’s wife and Gurdial’s wife (i.e., 1/6 each).
[25] Despite that accommodation, Yadwinder says Gurdial and Gurjeet were still not satisfied. He says they also demanded to be added as directors and named on the bank accounts, leases and franchise agreements of the restaurant businesses. When he refused, their relationship deteriorated to the point that they began to harass and bully him and on one occasion physically assaulted him. While Gurdial and Gurjeet acknowledge a rise in tensions over the issue, they deny that any physical violence occurred.
[26] Yadwinder asserts that it was this dispute over the restaurant businesses that led to his removal as a director of Best Choice. He also claims that Gurdial and Gurjeet began preventing him from working on the farm and removed the company cheque book from his section of the Main House.
[27] Gurdial and Gurjeet dispute this. They say that Yadwinder had not been contributing his fair share to the farm business for many years despite their repeated requests of him to do more. They say that when they began reconstruction of the Main House, it was agreed that they would focus on the construction work while Yadwinder would focus on the farm. According to them, Yadwinder did not fulfill his end of that bargain, which left them in the position of having to do most of the work themselves. Eventually Yadwinder agreed to do some of the bookkeeping for the business but little else. By the end of 2013, they say, Yadwinder refused to continue doing even that. He stopped attending their bi-weekly management meetings after 2012 and was no longer contributing to the Sohi Family Account.
[28] In his first affidavit made October 30, 2015, Gurjeet put it this way: it had “become impracticable to operate and manage [Best Choice] and the Farm while the Board of Directors was divided.” In his first affidavit made October 30, 2015, Gurdial summarised his and Gurjeet’s rationale for Yadwinder’s removal as follows:
Finally, by late 2014 it was clear that Yadwinder would no longer participate in the farm business, for the reasons set out by Gurjeet in his affidavit. As a result, in the best interests of the Company, Gurjeet and I decided that Yadwinder should be removed as a director.
[29] Gurdial and Gurjeet later asserted that the disagreements over the use of Sohi Family money, including money from Best Choice, to fund the restaurant businesses also contributed to their decision to remove him as a director of Best Choice. They say they wanted to be made directors of SSEL and SSL so that they could learn what Yadwinder was doing with the funds in the restaurant businesses, some of which had come from either them or Best Choice.
[30] By notice dated August 29, 2014, Gurjeet gave Yadwinder notice of a special meeting of the directors of Best Choice to set up a meeting of the shareholders at which resolutions were to be put to the shareholders calling for the removal of Yadwinder as a director and a reduction of the number of directors from three to two.
[31] Yadwinder retained counsel and responded with a letter dated September 18, 2014 to Best Choice’s counsel asserting that proceeding with and approving the proposed resolutions would be oppressive to him and contrary to law. It asked who set the meeting and on what basis the proxy forms came to include a recommendation in favour of the resolutions.
[32] No response to that letter was forthcoming.
[33] Several months later, another lawyer wrote to Yadwinder advising that “Gurdial and Gurjeet were calling a meeting of the directors on January 14 to consider whether to convene a meeting of the shareholders to consider the two resolutions.
[34] Again, Yadwinder’s counsel responded inquiring about whom the lawyer represented, but no response was forthcoming.
[35] The directors meeting was held on January 14, 2015. Gurdial and Gurjeet voted to convene a shareholders meeting to consider the resolutions. Thereafter, Yadwinder received notice dated January 14, 2015 of a shareholders meeting to be held on February 3, 2015. The shareholders meeting proceeded on that date and Gurdial and Gurjeet voted to remove Yadwinder as a director at that time.
[36] Although Gurdial and Gurjeet assert that their reasons for taking that step were discussed orally with Yadwinder before the meeting, Yadwinder says that it was only after the meeting, by letter dated July 9, 2015 from Gurdial and Gurjeet’s counsel to his, that he first received an explanation. That letter stated as follows:
Your client has had no role in the operations of the Company’s blueberry farm for some time, and as you know, as a result of his lack of participation in the farm, he was removed as a director of the Company earlier this year.
[Emphasis added].
[37] After a further exchange, counsel for Gurdial and Gurjeet stated the following in a letter dated August 6, 2015:
The situation is not tenable. It arises directly from your client’s actions, particularly his unauthorized use of monies belonging to all three of our clients to fund the Subway and Donair restaurants operated by [SSEL] and by [SSL]. Our clients and their spouses have never received any monies or other benefit from these businesses, which are apparently sufficiently successful that further businesses are now being opened.
[38] Since then, Gurdial and Gurjeet have kept Yadwinder away from the 80-Acre Farm. He complains of other acts to harass him. For example, he was denied use of Best Choice’s supply of gasoline, which had hitherto been available to him and the rest of the Sohi Family. Yadwinder suspects that Gurjeet caused the Corporation of Delta to issue a stop work order preventing the completion of construction on the Main House. Gurdial and Gurjeet have since moved into the rental house, which has forced Yadwinder to move with his family into rented accommodations elsewhere.
[39] Yadwinder complains that Gurdial and Gurjeet have yet to declare any dividends, although he has never asked for that to occur. He notes that Best Choice’s earnings have grown, according to the company’s unaudited financial statements, from $370,639 in 2014 (against expenses of $324,893) to $668,092 in 2015 and $916,523 in 2016.
[40] During the hearing, Gurdial and Gurjeet produced audited financial statements for Best Choice for 2016. These suggested that Best Choice actually had a negative net income in 2016. The discrepancies between the unaudited and the audited 2016 financial statements were described and explained in a note to the audited version. That note attributes the discrepancies to errors in the unaudited version which had the effect of overstating the 2016 retained earnings by $169,630 and understating the 2015 retained earnings by $260,536.
[41] Best Choice’s articles require that Yadwinder obtain the consent of Gurdial and Gurjeet to dispose of his shares.
i. Oppression
[42] Yadwinder relies on s. 227(2) of the BCA, which states in relevant part as follows:
A shareholder may apply to the court for an order under this section on the ground
(a) that the affairs of the company are being or have been conducted, or that the powers of the directors are being or have been exercised, in a manner oppressive to one or more of the shareholders, including the applicant, or
(b) that … some resolution of the shareholders … has been passed … that is unfairly prejudicial to one or more of the shareholders, including the applicant.
[43] The test to be applied in determining whether such an order should be made was explained by the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69. There, the Court described the test as having two prongs, as follows:
(a) first, has there been a breach of the applicant’s “reasonable expectations”; and
(b) if so, does it constitute oppression or unfair prejudice.
[44] Yadwinder argues that his reasonable expectations in this case were informed primarily by the origins of Best Choice as a partnership among the three brothers. He places considerable emphasis on the decision of the House of Lords in Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360, which was cited with approval by the Supreme Court of Canada in BCE. In Ebrahimi, the previous incarnation of the company as a partnership was found to be a “fact of cardinal importance.”
[45] Ebrahami and the many cases that follow it have found that in the appropriate circumstances, former partners in a venture that incorporates can expect to continue to be permitted to manage the venture after incorporation, just as they did when they were partners. The removal of such a shareholder as a director can in itself be “unfairly prejudicial” for the purpose of the oppression test – see, for example, Diligenti v. RWMD Operations Kelowna Ltd., (1976), 1 B.C.L.R. 36 (S.C.).
[46] Yadwinder says his legitimate expectations are coincident with the rights and duties that flowed from the brothers’ relationship as partners. Consequently, he says, he could not be legitimately removed as a director unless the preconditions to expelling a partner under s. 38 of the Partnership Act, R.S.B.C. 1996, c. 348 were met.
[47] That provision states, in relevant part, as follows:
38 (1) On application by a partner, the court may decree a dissolution of the partnership in any of the following cases:
…
(c) when a partner, other than the partner suing, has been guilty of conduct that, in the opinion of the court, regard being had to the nature of the business, is calculated to affect prejudicially the carrying on of the business;
(d) when a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself or herself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him or her;
…
(f) whenever circumstances have arisen that, in the opinion of the court, render it just and equitable that the partnership be dissolved.
(2) If there are 3 or more partners, the partnership may be dissolved or may be dissolved as between the partner whose condition or conduct gave rise to the application and the remaining partners.
[48] Yadwinder says that Gurdial and Gurjeet have never put forward grounds for his removal that would have met the test under s. 38. He argues that Gurdial and Gurjeet were not acting bona fide, but even if they were, the result of their actions was unfairly prejudicial to him as a partner and as such, sufficient to justify oppression relief.
[49] Yadwinder argues that his removal as a director was unfairly prejudicial to him because it was based on extraneous considerations, i.e., Gurdial and Gurjeet’s unrelated grievances involving the ownership and management of the restaurant businesses.
[50] Yadwinder urges me to reject the evidence of Gurdial and Gurjeet where it conflicts with his, despite the summary nature of this application, on the basis that his evidence is more consistent with the reasonable probabilities of the case.
[51] Yadwinder refers in particular to the following considerations:
(a) in the first half of 2014, Gurdial and Gurjeet were pressuring Yadwinder and demanding to be made shareholders of SSEL and SSL;
(b) Gurdial and Gurjeet first gave formal notice of their intention to convene a directors meeting to set up the shareholders meeting to vote on the removal resolutions just before they and their spouses were made shareholders in the restaurant businesses, but not directors;
(c) all of the evidence points consistently to the presence of tension surrounding the restaurant businesses;
(d) Gurdial and Gurjeet’s complaints centre on matters unrelated to Best Choice, such as the restaurant businesses and Yadwinder’s failure to contribute to the Sohi Family Account;
(e) Gurdial and Gurjeet have not provided concrete examples of actions by Yadwinder that impeded the operation of Best Choice;
(f) the failure of Gurdial and Gurjeet to articulate a reasons for the removal until five months after the fact;
(g) other acts of bullying and harassment by Gurdial and Gurjeet against Yadwinder since his removal;
(h) Gurdial and Gurjeet allegation of Yadwinder’s lack of participation in management is not coherent, in that:
(i) despite alleging that his refusal to participate in management began as early as 2009, Best Choice was not incorporated until 2012 and Gurdial and Gurjeet would not have included him as a director at that time if that was their view;
(ii) Gurdial and Gurjeet acknowledges that Yadwinder did some work, such as bookkeeping and arranging for the incorporation of the business in 2012;
(iii) despite their misgivings Gurdial and Gurjeet still asked Yadwinder to take charge of the farm;
(iv) Gurdial complains that it became clear in late 2014 that Yadwinder would no longer participate in the business, but by then they had given him notice and already shut him out; and
(v) Yadwinder’s being a director was not deadlocking the operations because he could be outvoted.
[52] Even if I were to accept the explanation offered by Gurdial and Gurjeet and their contention that they honestly believed they were acting in the best interests of the company, Yadwinder argues, it would still not be an answer to his claim of unfair prejudice. That is because their rationale for removing him, taken at its highest, is not the sort of conduct that would meet the test for expulsion under s. 38 of the Partnership Act.
ii. Liquidation and Dissolution
[53] In the alternative, Yadwinder seeks a liquidation and dissolution under s. 324 of the BCA.
[54] That provision states as follows:
324 (1) On an application made in respect of a company that is a financial institution by the commission, or made in respect of a company, including a company that is a financial institution, by the company, a shareholder of the company, a beneficial owner of a share of the company, a director of the company or any other person, including a creditor of the company, whom the court considers to be an appropriate person to make the application, the court may order that the company be liquidated and dissolved if
… (b) the court otherwise considers it just and equitable to do so.
…
(3) If the court considers that an applicant for an order referred to in subsection (1) (b) is a person who is entitled to relief either by liquidating and dissolving the company or under section 227, the court may do one of the following:
(a) make an order that the company be liquidated and dissolved;
(b) make any order under section 227 (3) it considers appropriate.
[55] Yadwinder says the test is easier to meet than that for oppression. He refers to the decision of Greyell J. in Golden Pheasant Holding Corp. v. Synergy Corporate Management Ltd., 2011 BCSC 173, as follows, at paras. 56-57:
[56] The threshold for liquidation and dissolution under s. 324 is that the court considers it "just and equitable", as provided in s. 324(3)(1)(b). This is a lower threshold than the oppression remedy in s. 227, which requires a finding of oppression or unfairly prejudicial conduct. The court has discretion to fashion a remedy that is "just and equitable" where the conduct complained of falls short of oppressive or unfairly prejudicial acts. There does not need to be a finding of oppression or wrongdoing to engage s. 324: ... The court's jurisdiction is engaged where, for example, there is a deadlock between the shareholders, as in the case at bar.
[57] The "just and equitable" test thus permits a broader approach to assess conduct that is unfairly prejudicial to a shareholder's legal or equitable rights… .
[Citations omitted].
[56] Yadwinder relies on the partnership analogy in invoking this provision as well. He says that failed partnerships in the guise of corporations can be ordered wound up in circumstances where the dissolution of a partnership would be appropriate under s. 38(1)(f) of the Partnership Act, citing Vivian v. Firth, 2012 BCSC 517, in which Fitch J. (as he then was), stated as follows:
[72] Where the relationship between the parties resembles a partnership more than arm’s length shareholders such that it can be said that the entity is, in substance, a partnership in the guise of a private company, courts have been prepared in some circumstances to liquidate a corporation on the same grounds that would justify the winding-up of a partnership…
[73] References to “quasi-partnerships” or “in substance partnerships”, while a convenient short-hand way of describing the circumstances in which it may be appropriate to apply the kind of equitable considerations that govern the dissolution of partnerships to applications to wind-up the business of a company, may be misleading. The Court is not engaged in a labelling exercise in determining whether a partnership analogy is appropriate, but in an assessment of a constellation of factors that may, as between one person and another, make it unjust to insist on a strict application of legal rights. Lord Wilberforce put it this way in [Ebrahimi] at p. 500:
The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be ‘sleeping’ members), of the shareholders shall participate in the conduct of the business; (iii) restriction on the transfer of the members’ interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.
It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to ‘quasi-partnerships’ or ‘in substance partnerships’ may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words ‘just and equitable’ sum these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure. But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in the company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.
[74] The “partnership analogy” ground has been summarized in the following terms: in the case of a private company which is in substance a partnership the Court, in exercising its jurisdiction under the “just and equitable” rule, should apply the same principles as would be applied in a claim for dissolution of a partnership …
…
[78] To paraphrase Lord Wilberforce, the common use of the words “just and equitable” in s. 348 of the Business Corporations Act and s. 38 of the Partnership Act provide a bridge between cases under s. 348 of the Business Corporations Act and principles of equity developed in relation to partnerships. Accordingly, if a partnership analogy is found to be apt, it is necessary to identify the circumstances which would justify intervention on equitable grounds and a winding-up order. Those circumstances have been found to encompass “a breakdown of the mutual trust and confidence upon which the original undertaking was founded” … a “destruction of mutual confidence” as between the members or “a breach of the original agreement and of the good faith which underlay it”, “a justifiable lack of confidence in the conduct of the company's affairs” … where that lack of confidence is “grounded on the conduct of the directors in regard to the company's business”...and reveals a “lack of probity, good faith or other improper conduct on the part of a majority of directors” …, “a refusal to meet on matters of business, continued quarreling and such a state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation” and a situation where it is “impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it ….”
[citations omitted]
[57] Yadwinder argues that this test is met here. He says that there has been a “complete breakdown in the relationship” and so, regardless of whether Gurdial and Gurjeet’s decision to remove him was done with good cause, in good faith and in the best interests of the company, as they allege, a winding up is still appropriate – see Dia-Kas Inc. v. Virani (1997), 88 B.C.A.C. 26. In that case, Newbury J.A., writing for the Court, held that it was not necessary to allocate fault to justify a winding up on this ground where both parties bore shared responsibility for the breakdown in the relationship. She held as follows:
[19] The situation is different, however, in the Chateau Granville action because the parties were clearly partners in form and substance and Mr. Virani has clearly excluded Mr. Karim from participation in the partnership's only business. The respondent's strongest argument in this action is that the exclusion was not arbitrary, but was justified by Mr. Virani's discovery that certain expenses relating to Atlas had been charged against his account, and by certain other dealings on Mr. Karim's part giving rise to suspicion in Mr. Virani's mind.
[20] Clearly, if one party misconducts himself, the fact that his partner or partners thereafter are reluctant to include him in the management of the business does not normally give him the right to a winding-up. Putting this in legal terms, Mr. Shapray says that the winding-up of a partnership may not be ordered where the petitioner does not come to court with clean hands. This requirement was adverted to by Lord Cross in his well-known judgment in Ebrahami v. Westbourne Galleries [1973] A.C. 360, although the other Law Lords did not emphasize such a requirement.
[21] Mr. Andrews argued however that the "clean hands" doctrine does not apply where both parties are found to have unclean hands. Where that situation exists, it is sufficient for the court to see that the relationship has broken down and that winding-up would be appropriate. Hence, findings of fault were not necessary for the winding-up to be granted in Oakley v. McDougall (1987) 14 B.C.L.R. (2d) 128 (B.C.C.A.) or in Ivan Investments v. Pe Ben Pipelines Ltd. (1978) 90 O.R. (3d) 262 (S.C.); and the fault of the petitioner did not preclude an order for winding-up in Re Yenidge Tobacco Co. Ltd. [1916] 2 Ch. 426.
[22] I agree with Mr. Andrews that the clean hands doctrine is not a hard and fast rule that requires the court to inquire into and assign blame whenever a partnership is sought to be wound-up. The equitable remedy, being discretionary, may well be appropriate when the parties both appear to be at fault but are unable to carry on on the previous harmonious basis. When it becomes a matter of relative fault, the clean hands doctrine seems largely irrelevant to the practical issue of what should be done to bring the disagreement to an end. One suspects that the just and equitable jurisdiction will continue to be applied flexibly, as it was in Safarik v. Ocean Fisheries (1995) 12 B.C.L.R. (3d) 342 (B.C.C.A.), to address situations in which parties are excluded from participation, even where no fault may have been found.
[23] In the case of the Chateau Granville, I am persuaded that the breakdown of the parties' relationship is complete and that regardless of the different allocations of fault or blame that might be made by a trial judge, there is no reasonable possibility that a different result would be reached at the end of a trial. I would therefore dismiss the respondents' appeal in the Chateau Granville action.
[Original emphasis].
[58] Yadwinder says those same conditions are present here. If I accept that the removal of Yadwinder as a director was justified and therefore at least partly his fault, then Gurdial and Gurjeet are also at fault, Yadwinder says, for their harassment and bullying behaviour, all of which has contributed to the breakdown in the relationship. The brothers no longer have confidence in each other. There is no prospect of reconciliation.
[59] Moreover, Yadwinder cannot dispose of his shares and he has received nothing from the business. His capital has been tied up in it since December 2014. He has been forced to leave his family home.
[60] These events have left him “financially and emotionally crippled.”
[61] Gurdial and Gurjeet argue, in the first instance, that the petition should be converted into an action and remitted to the trial list.
[62] They say the test for conversion of a petition into an action was recently reiterated authoritatively by the Court of Appeal in British Columbia (Milk Marketing Board) v. Saputo Products Canada G.P., 2017 BCCA 247. There, Goepel J.A., writing for the Court, rejected the use of the so-called multifactorial test sometimes applied by this Court:
[43] This Court has long held that proceedings brought by petition should be referred to the trial list when there are disputes of fact or law, unless the party requesting the trial is bound to lose: Bank of British Columbia v. Pickering (1983), 62 B.C.L.R. 136 (C.A.) at 138; Montroyal Estates Ltd v. D.J.C.A. Investments Ltd. (1984), 55 B.C.L.R. 137 (C.A.) at 138–139; Douglas Lake Cattle Co. v. Smith (1991), 54 B.C.L.R. (2d) 52 (C.A.) at paras. 35–37; Dia-Kas Inc. v. Virani (1997), 88 B.C.A.C. 26 at para. 7; Dockside Brewing Co. Ltd. v. Strata Plan LMS 3837, 2007 BCCA 183 at para. 78; Wang v. British Columbia Medical Association, 2010 BCCA 43 at para. 67; Robertson v. Dhillon, 2015 BCCA 469 at paras. 55–56.
[44] In Robertson, the Court set out the test to determine whether a petition should be converted to a trial:
[55] On the hearing of a petition, a judge must be satisfied that there is no dispute as to the facts or law which raises a reasonable doubt or which suggests that there is a defence that deserves to be tried: Douglas Lake Cattle Co. v. Smith (1991), 54 B.C.L.R. (2d) 52 (C.A.) at 59. If such a dispute exists, the judge may refer the matter to the trial list, pursuant to R. 22-1(7) (former R. 52(11)(d)).
[56] The test is not that used to determine a summary trial. Rather it is akin to that on an application for summary judgment under R. 9-6. Mr. Justice Lambert summarized the task in Montroyal Estates Ltd. v. D.J.C.A. Investments Ltd. (1984), 55 B.C.L.R. 137 (C.A.) at 138-39:
We were referred by counsel for T & A Holdings Ltd. to the judgment of Esson J. (as he then was) in Progressive Const. Ltd. v. Newton, 25 B.C.L.R. 330, [1981] 2 W.W.R. 741, 117 D.L.R. (3d) 591 (S.C.), and particularly at p. 334. There Esson J. summarizes, in my opinion, accurately, the law in relation to establishing a defence on an application for summary judgment in these words [pp. 334-35]:
The cases do not establish an invariable rule as to what steps must be taken to resist a R. 18 application for summary judgment. On all such applications the issue is whether, on the relevant facts and applicable law, there is a bona fide triable issue. The onus of establishing that there is not such an issue rests upon the applicant, and must be carried to the point of making it “manifestly clear”, which I take to mean much the same as beyond a reasonable doubt. If the judge hearing the application is left in doubt as to whether there is a triable issue, the application should be dismissed.
In essence, if the defendant is bound to lose, the application should be granted, but if he is not bound to lose, then the application should be dismissed.
[Emphasis added by Goepel J.A.]
[45] In recent years, the trial court appears to have adopted a multifactorial test to determine whether a petition should be converted to a trial: Haagsman v. British Columbia (Minister of Forests) (1998), 64 B.C.L.R. (3d) 180 (S.C.); Terasen Gas Inc. v. Surrey (City), 2009 BCSC 627 [Terasen]; Boffo Developments (Jewel 2) Ltd. v. Pinnacle International (Wilson) Plaza Inc., 2009 BCSC 1701 [Boffo]. In Boffo, a case cited by the chambers judge in this proceeding, Ballance J. suggested that the mere existence of a bona fide triable issue may not in itself warrant conversion to the trial list. In that regard she said:
[48] The dominant principle is that the Court should exercise its discretion under the rule to convert a petition into trial where there is a bona fide triable issue that cannot be determined by reference to the documents, and would affect the outcome of the proceeding. A bona fide triable issue arises where on the evidence before the Court there is a dispute as to facts or law which raises a reasonable doubt or suggests there is a defence that deserves to be tried: Douglas Lake Cattle Co. v. Smith, [1991] B.C.J. No. 484 (C.A.). The threshold is, appropriately, a relatively low one.
[49] The authorities indicate a tendency of the Court to convert a summary process to a full trial where serious and disputed questions of fact or law are raised. However, the mere existence of a bona fide triable issue may not, of itself, be enough to warrant conversion to the trial list. If lesser measures will suffice, such as ordering cross-examination on affidavits, or even more broadly, and allowing some document disclosure, then the Court may decide against exercising its discretion to order conversion even where a bona fide triable issue is present: Woodward’s Ltd. v. Montreal Trust Co., [1992] B.C.J. No. 1263, 69 B.C.L.R. (2d) 348 (S.C.); Canada Trust Co. v. Ringrose, [2008] B.C.J. No. 1790, 2008 BCSC 1268. That would be especially likely where practical considerations such as costs and timeliness militate against ordering a conventional trial.
[51] In Terasen Gas Inc. v. Surrey (City), 2009 BCSC 627, Dardi J. surveyed the leading authorities, including Haagsman, and conveniently summarized the well-settled factors the Court is to consider in determining whether to order conversion to an action. They are:
(a) the undesirability of multiple proceedings;
(b) the desirability of avoiding unnecessary costs and delay;
(c) whether the particular issues involved require an assessment of the credibility of witnesses; and
(d) the need for the Court to have a full grasp of all the evidence; and
(e) whether it is in the interests of justice that there be pleadings and discovery in the usual way to resolve the dispute.
[46] The factors referenced in Haagsman, Terasen and Boffo are similar to those often applied in the trial court in determining whether a matter is suitable for summary trial under Rule 9-7. However, as noted in Robertson, the test for determining whether a matter should be converted into an action is not that used to determine suitability for a summary trial, but rather is akin to that on application for summary judgment under Rule 9-6. The suggestion in Boffo that the mere existence of a bona fide triable issue is not in itself sufficient to warrant conversion to the trial list is, with respect, contrary to the test for converting a matter to an action established in this Court.
[47] I would note the fact that a matter is converted to an action does not necessarily mean that a full trial will be required. It still remains open to the parties to bring a summary trial application under Rule 9-7.
[48] Given the authorities in this Court, it is not open to this division to adopt the Boffo approach. A five-justice division would be necessary as it would require overruling previous decisions of this Court: Bell v. Cessna Aircraft Co., (1983) 46 B.C.L.R. 145 (C.A.). I should also note that although Haagsman, Terasen and Boffo all suggest a different test, in each of those cases the petition was converted into an action.
[63] On that basis, Gurdial and Gurjeet argue that their conversion application must succeed if they are found to have raised issues of fact or law on which they are not bound to lose.
[64] They say there are a number of such issues, including:
(i) whether Yadwinder was participating equally in management of the farm;
(ii) what Yadwinder’s reasonable expectations were as a shareholder in light of his involvement or lack of it;
(iii) whether Yadwinder made use of Best Choice funds in the restaurant business without the consent of Gurdial and Gurjeet;
(iv) whether Gurdial and Gurjeet’s conduct was oppressive or unfairly prejudicial to Yadwinder; and
(v) whether it would be just and equitable to wind Best Choice up.
[65] Gurdial and Gurjeet say that the answers to these questions will turn on the credibility of witnesses. They say that the affidavit evidence adduced thus far conflicts on these points. The cross-examinations on those affidavits that have taken place have not, they say, assisted in resolving those conflicts.
[66] Gurdial and Gurjeet also submit that the issues in dispute in this proceeding overlap with the claim made by their parents in an action that the parents have brought against the brothers seeking a one-quarter beneficial interest in the 80-Acre Farm. They argue that both claims should proceed to trial together.
[67] In the alternative, Gurdial and Gurjeet submit that if the Court determines that it can resolve the petition at this stage, it should be dismissed.
[68] While they acknowledge that the origin of Best Choice as a partnership is relevant, they argue that it is not the sole consideration and should not overwhelm the analysis.
[69] In answer to the oppression claim, they say, first, that Yadwinder cannot have reasonably expected that he would remain a director in perpetuity. They say they were entitled to exercise the powers given them in the articles in the best interests of Best Choice, which they did. They argue that an act that conforms with the articles cannot be oppressive unless it was done in bad faith. They cite Kuo v. Phoenix Technologies Inc., Ma & Chuang, 2007 BCSC 106 at para.109, for the proposition that “actions permitted under the articles of the company will rarely be found to be oppressive or unfairly prejudicial.”
[70] They argue that Yadwinder has suffered no prejudice in his capacity as a shareholder; he has not raised any serious allegation of mismanagement. He has never asked to be paid a dividend.
[71] With respect to Yadwinder’s request for a liquidation and dissolution order under s. 324 of the BCA, Gurdial and Gurjeet argue that it would not be just and equitable to grant such an order. They argue that such an order is generally refused where the petitioner has another remedy available to him – see Talwerdi v. Infonet, 2001 BCSC 1304 at para. 43 and Hull Limited v. Bean Services Inc., 2013 BCSC 1208 at para. 78. Such a result is particularly to be avoided where, as here, the company is a family run business and most of the family wishes to see it continue in operation: Rendle v. Stanhope Dairy Farm Ltd., 2003 BCSC 1894.
[72] They argue that in order to make such an order, the Court must be satisfied that Yadwinder’s removal as a director was carried out in bad faith and not in the best interests of the company. They rely for that proposition on Boffo Family Holdings Ltd. v. Garden Construction Ltd., 2011 BCSC 1246 at paras. 152-156, where Goepel J. (as he then was) stated as follows:
[152] In this case, BFHL submits there are two principle grounds for ordering a winding up of Garden: (1) a justifiable lack of confidence and (2) the partnership analogy. In this case, Terry and Daniel have both sworn that BFHL has lost faith in Otto and the directors’ ability to properly manage the affairs of Garden.
[153] In determining whether or not it is just and equitable to wind up the company, the court must look at all the circumstances. The impetus of this application is a private dispute between two brothers, each of whom own approximately 17% of Garden’s shares. There are four other shareholders who collectively own approximately 66.7% of Garden.
[154] have found no oppressive conduct. The affairs of Garden are not deadlocked. There is no evidence of dishonesty or lack of probity in the conduct of Garden’s affairs. The fact that a minority disagrees or is dissatisfied with decisions made by a majority of shareholders does not, without more, justify an order that a company be wound up: Coutu v. San Jose Mines Ltd., 2005 BCSC 453 at para. 39. While the petitioner submits that it has lost confidence in Garden’s management, no examples of mismanagement with respect to the affairs of Garden are identified.
[155] Even if Garden could be considered a quasi-partnership, the removal of a BFHL representative from the board is not a reason for holding that it is just and equitable that the company be wound up, unless it can be shown that the removal was not exercised bona fide in the interests of the company, or the grounds of exercising the power were such that no reasonable person could think the removal was in the interests of the company: Safarik #1 at paras. 73-76. In this case, I have found that the decision not to appoint a BFHL representative to the board was in Garden’s best interests.
[156] Section 324 is not a mechanism to allow a minority shareholder to monetize its investment. The genesis of this dispute is Terry’s decision to separate his business relationship with his brother. This personal dispute has interfered with the operations of Garden, a company in which each is a minority shareholder. The dispute has now impacted on the other shareholders. In the circumstances of this case, it would be neither just nor equitable to order Garden dissolved.
[73] To succeed on the basis of a “justifiable lack of confidence”, the loss of confidence must be “grounded on the conduct of the directors in regard to the company’s business” … and reveal a “lack of probity, good faith or other improper conduct on the part of a majority of directors”: Vivian at para. 78. Here, they say, there is no basis for such a conclusion.
[74] Finally, they say that any remedy granted must be narrowly tailored, in the sense that it should balance the scales, and not overshoot the mark by putting Yadwinder in a better position that he would have been in had he not been wronged as he alleges. They refer to the decision of Chiasson J.A. in Hui v. Hoa, 2015 BCCA 128 at paras. 46-47 and that of Gerow J. in Callahan at paras. 56-59.
[75] They submit in particular that if the Court determines that Yadwinder is entitled to relief under s. 324, then the appropriate remedy would not be a liquidation and dissolution but rather an order directing them to buy out of his shares at an amount to be set by an independent valuator agreed upon by the parties.
[76] Yadwinder responds that this case can and should be resolved summarily and should not have to go to trial, which would be disproportionate and wasteful. He argues that the parties have adequately crystallized the evidence through the record already created, which includes cross-examinations on the affidavits.
[77] He submits that the judgment of Goepel J.A. in Saputo must be read in light of the decision of the Supreme Court of Canada in Hyrniak v. Mauldin, 2014 SCC 7, in which, he argues, the Court sets out a more liberal test for resolving summary applications without recourse to trials.
[78] I consider myself bound by Saputo on the test to be applied in determining whether this proceeding should be converted into an action. I agree with Gurdial and Gurjeet that the Court of Appeal must be presumed to have been aware of Hyrniak in reiterating the test for conversion as it did in Saputo.
[79] It follows that in order to dismiss the conversion application of Gurdial and Gurjeet and resolve the matter summarily now, I must find that Yadwinder has demonstrated his entitlement to relief on at least one of the grounds he advances and that Gurdial and Gurjeet have failed to raise a triable issue in their defence to that aspect of his claim.
[80] I begin with the question of whether a triable issue has been raised, first in relation to the oppression claim and then in relation to the liquidation and dissolution claim.
[81] I agree with Yadwinder that the origin of Best Choice as a partnership has a significant bearing on the brothers’ legitimate expectations following its incorporation. I accept in particular that Yadwinder’s expectations would have remained those of a partner – both with respect to his rights and his duties. I therefore agree with Yadwinder that the statutory conditions for the expulsion of a partner under s. 38 of the Partnership Act are instructive as to the content of his legitimate expectations in that regard.
[82] In light of that finding, I do not accept that the oppression claim must fail merely because Gurdial and Gurjeet complied with the requirements of the articles of Best Choice when they removed Yadwinder as a director, or that they may have considered themselves to be acting in the best interests of Best Choice when they did so. This is one of those cases referred to by the Supreme Court of Canada in BCE in which the analysis must go beyond such “narrow legalities” (at paras. 58-9):
First, oppression is an equitable remedy. It seeks to ensure fairness – what is ‘just and equitable’. It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair … [citations omitted]. It follows that courts considering claims for oppression should look at business realities, not merely narrow legalities.
[83] The rationale that Gurdial and Gurjeet have given for the removal of Yadwinder as a director appears to be captured best by s. 38(d) of the Partnership Act. That provision allows for the expulsion of a partner “when a partner … wilfully or persistently … so conducts himself … in matters relating to the partnership business that it is not reasonably practicable for the other … partners to carry on the business in partnership with him ....”.
[84] The allegations that Gurdial and Gurjeet have made, if proven, could satisfy that condition.
[85] The evidence adduced by the parties on that issue conflicts, however. Gurdial and Gurjeet allege that Yadwinder refused over many years to participate in managing or running the farm to the extent he should have as a director and co-owner. They also allege that he was unable or unwilling to account for the funds that were used in the restaurant businesses and in particular, the degree to which those funds might have been sourced from Best Choice. Yadwinder denies all of that. He alleges that the real motive for his removal was his refusal to accede to their demand that they be added as directors of SSEL and SSL. The former explanation could justify his removal as a director. The latter probably would not.
[86] I cannot resolve this conflict in the evidence with the record I have before me. I disagree with Yadwinder that Gurdial and Gurjeet have put forward only conclusory statements in support of their theory or that it is inherently implausible. Rather, I find that there are two competing theories as to what occurred and that a trial is needed to resolve the conflict. It is only by succeeding in such a trial that Yadwinder will be able to establish the requisite element of “oppression” or “unfair prejudice.”
[87] I am therefore unable to make the declarations sought by Yadwinder under s. 227 of the BCA before such a trial takes place.
[88] I turn next to the question of whether Gurdial and Gurjeet raise a triable issue in defence to the claim for relief under s. 324 of the BCA.
[89] As was noted in my summary of the parties’ arguments, this claim can be made out on a showing that it would be “just and equitable” for a liquidation and dissolution order to be made, even if the oppression claim fails. As stated by Goepel J. (as he then was) in Boffo, at para. 151: “[s]ection 324 allows the court to windup a company when it considers it just and equitable to do so. The words ‘just and equitable’ are of the widest significance and confer a broad discretion on the court.”
[90] As Fitch J. (as he then was) put it in Vivian, at para. 64:
[64] The words “just and equitable” are of the widest significance and confer upon the court a broad discretion to make a winding-up order under s. 324 or any other order under s.227(3) it considers appropriate: Re Rogers and Agincourt Holdings Ltd. et al. (1977), 14 O.R. (2d) 489 (Ont. C.A.). It is not necessary to establish oppressive or unfairly prejudicial conduct to engage the panoply of remedies available under s. 324: Samra v. Bel-Air Taxi Ltd., 2009 BCSC 548 at para. 92; Golden Pheasant Holding Corp. v. Synergy Corporate Management Ltd., 2011 BCSC 173 at para. 56. The test does not admit of a strict categorical approach. As Lacourciere J.A. observed in Re Rogers and Agincourt Holdings Ltd. at p. 493, “the Court must be careful not to construe the authorities as setting out a series of restrictive principles which would confine the phrase “just and equitable” to rigid categories, for each case depends to a large extent on its own facts.”
[91] Although broad, the discretion is not unbounded, but “must be exercised judicially, on a principled basis, and in recognition of the reluctance of the Court to interfere lightly in the internal affairs of a company” (Vivian at para. 67).
[92] The determination of what is just and equitable will therefore vary with the context. Although the analysis must go beyond simply placing the case into a specific category, certain kinds of situations have in the past given rise to relief under s. 324. These have been said to include the following:
(a) loss of substratum;
(b) a justifiable lack of confidence among the members;
(c) a deadlock among the parties; and
(d) the partnership analogy.
[93] Yadwinder places considerable emphasis on the latter ground. He relies heavily on the judgment of the House of Lords in Ebrahimi, where Lord Wilberforce suggested the following factors to guide the analysis of whether the partnership analogy is applicable:
The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be ‘sleeping’ members), of the shareholders shall participate in the conduct of the business; (iii) restriction on the transfer of the members’ interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.
[94] As Yadwinder argues, these factors apply here.
[95] Another factor militating in that direction is the fact that this is a “private family company where some significant disagreement has arisen including exclusion of one family member from participation in the business”: Vivian at para. 66.
[96] I agree with Yadwinder that this is a case in which the partnership analogy applies, but that is not the end of the analysis. As Fitch J. noted, the partnership analogy is merely the first step. The applicant must “go further and establish equitable grounds for a winding-up order”: Vivian at para. 77.
[97] In para. 78 of Vivian, Fitch J. canvassed the authorities for examples of the kind of “equitable grounds” that have in the past been held to justify a s. 324 order in the partnership context, several of which can be said to apply here, on either parties’ versions of events. Those possible grounds included the following:
(a) “a breakdown of the mutual trust and confidence upon which the original undertaking was founded” (citing Paulson v. Dogwood Holdings Ltd. [1990] B.C.J. No. 2281 (S.C.));
(b) … a “destruction of mutual confidence” as between the members where that lack of confidence is “grounded on the conduct of the directors in regard to the company's business”... and reveals a “lack of probity, good faith or other improper conduct on the part of a majority of directors” (Re R.C. Young Insurance Ltd., [1955] O.R. 598 (C.A.) per Laidlaw J.A. at pp. 601- 602, cited in Mroz v. Shuttleworth (1996), 30 O.R. (3d) 205 (Ont. Ct. Gen. Div.) at pp. 219-220);
(c) “… a refusal to meet on matters of business, continued quarreling and such a state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation” (citing M. Koehnen, Oppression and Related Remedies (Toronto: Thompson Canada Ltd., 2004) at p. 407 as cited in Golden Pheasant at para. 61); and
(d) a situation where it is “impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it” (citing Koehnen, at p. 407 as cited in Golden Pheasant).
[98] At para. 80 of Vivian, Fitch J. adopts the formulation of the test by Coultas J. in Paulson, where it was distilled down to the following two essential elements:
...firstly, the existence of an undertaking that is in substance a partnership in the guise of a private company, and secondly, a breakdown of the mutual trust and confidence upon which the original undertaking was founded.
[99] That test is clearly met here.
[100] Yadwinder relies on Dia-Kas as authority for the proposition that a s. 324 order is appropriate to remedy a breakdown in a partnership relationship where both parties can be said to be at least partly responsible. I agree that this is such a case, in that responsibility is at least partly shared by Gurdial and Gurjeet.
[101] Even in the absence of some wrongful or blameworthy conduct by Gurdial and Gurjeet, I find the requisite additional equitable grounds referred to by Fitch J., beyond the mere application of the partnership analogy, are present here and that an order under s. 324 is therefore appropriate.
[102] In para. 79 of Vivian, Fitch J. distinguished the facts before him from the facts in Kurt v. Pryde (2007), 160 A.C.W.S. (3d) 94 (Ont. S.C.), on the following basis:
The court declined to issue a winding-up order but imposed a framework for the voluntary purchase by Pryde of Kurt's interest in the company. In my view, the judgment does not stand for the proposition that shareholders holding an equal interest in a company which is, in truth, a partnership, may obtain a winding-up order whenever one of them wishes to liquidate their investment. In Kurt v. Pryde, the parties agreed that, as former spouses, they could no longer work together in the operation of the company; that the mutual trust between them had been irretrievably lost. Accordingly, live issues for determination in the case at bar were conceded in Kurt v. Pryde. In addition, the case is one which would, in any event, warrant a more liberal approach to the “just and equitable” test given the relationship between the parties.
[103] The instant case resembles Kurt, having regard to those factors, more than it does Vivian. There appears to be no dispute in this case that the brothers can no longer work together in the operation of the company and that the mutual trust between them has been irretrievably lost.
[104] Moreover, this is not a case that is motivated exclusively or primarily by a desire to monetize an investment, as was the case in Vivian, Boffo, or Paulson. Here there is an acknowledged breakdown in a family relationship that formerly served as the foundation of the brothers’ partnership.
[105] Boffo is distinguishable on its facts. In this case, the argument in support of a s. 324 order is only partly based on the act of removing Yadwinder as a director. It rests more broadly on the breakdown of a relationship of trust and cooperation that was an essential premise of a family business. Moreover, Boffo, unlike this case, involved a dispute between only two directors in a company with many other stakeholders. Goepel J. described the situation in that case as follows (at para. 153):
[153] In determining whether or not it is just and equitable to wind up the company, the court must look at all the circumstances. The impetus of this application is a private dispute between two brothers, each of whom own approximately 17% of Garden’s shares. There are four other shareholders who collectively own approximately 66.7% of Garden.
[106] The instant case is more similar to Rendle, which likewise involved a family-run farming business which had to be dissolved following a breakdown of the relationships among the family members. At paras. 17 and 18, the state of affairs leading to the court application was described in this way, which resonates here:
[17] The atmosphere at the farm is nothing short of toxic. The family dispute, which has evolved to the point of pitting Richard and Doris on the one hand against Gordon, Karen, Rod and Debbie on the other, has culminated in accusations of theft of assets and allegations of assault among the parties and even their children.
[18] The business of a dairy farm is labour intensive. The evidence shows that all members of the three families must work in close proximity for long hours. The three families live adjacent to one another. There is tension and distress for all concerned. The evidence shows the two "factions" refuse to speak to one another; their communication is limited to an exchange of faxes. Richard and Doris and their children wish to leave the farm and to pursue other endeavours. Gordon and Karen, together with Rod and Debbie, and their children wish to remain living on the farm and to pursue their chosen vocation as dairy farmers. At least one of their children has expressed a serious interest in becoming the fourth generation Rendle dairy farmer.
[107] Given that state of affairs, Dorgan J. held as follows (at paras. 50-53):
[50] The facts of this case lead me to a consideration of the just and equitable provisions under s. 271 [the predecessor to s. 324]. As was noted at para. 100 of [Safarik], family companies differ from non-family companies and, as noted at para. 102:
But, in my opinion, it is not erroneous to take a more liberal approach to the words "just and equitable" in the case of a family company in which one of the family after many years of service is no longer permitted to participate in the business.
[51] This is a case in which the petitioners and the respondents no longer desire to participate as a group in the affairs of this company. The allegations of conduct of a criminal nature make that obvious. Further, the respondents take the position that, while
... there is no basis for using the "just and equitable" provisions of section 271(3)(a) of the Company Act to require either that Stanhope Dairy Farm Ltd. ("Stanhope") be wound up, or alternatively to require the personal respondents to purchase the Petitioners' shares in Stanhope, as sought by the Petitioners,
the respondents are prepared, under s. 271 to accede to a remedy which allows Richard and Doris to be bought out of the company.
[52] I find that the level of animosity between all of the parties has reached intolerable levels and that it is appropriate in all of the circumstances for a remedy to be fashioned under s. 272 of the Act.
[53] As to remedy, an order winding up the company would require no consideration of the evidence as to valuation of the shares at issue. However, given that this is a family operated business and that two of the three families involved wish to continue its operation, the court is loathe to grant the unusual remedy of winding up without exercising its discretion to allow the parties reasonable time to make alternate arrangements. In order to focus the determination of the reality of alternate remedies, the corporate shares must be valued in all of the circumstances.
[108] I, like Newbury J.A., speaking of the “Chateau Granville” action in Dia-Kas at para.23, am persuaded that “the breakdown of the parties' relationship is complete and that regardless of the different allocations of fault or blame that might be made by a trial judge, there is no reasonable possibility that a different result would be reached at the end of a trial.”
[109] I conclude, therefore, that Yadwinder has established his entitlement to relief under s. 324 and that Gurdial and Gurjeet have failed to raise a triable issue that could undermine it.
[110] Section 324(3) of the BCA states as follows:
(3) If the court considers that an applicant for an order referred to in subsection (1) (b) is a person who is entitled to relief either by liquidating and dissolving the company or under section 227, the court may do one of the following:
(a) make an order that the company be liquidated and dissolved;
(b) make any order under section 227 (3) it considers appropriate.
[111] Section 227(3) states as follows:
(3) On an application under this section, the court may, with a view to remedying or bringing to an end the matters complained of and subject to subsection (4) of this section, make any interim or final order it considers appropriate, including an order …
(h) directing a shareholder to purchase some or all of the shares of any other shareholder …
[112] The parties have adduced conflicting evidence of the value of Best Choice. That value consists primarily of the 80-Acre Farm and the 23-Acre Farm.
[113] Yadwinder has adduced an appraisal suggesting a combined value of $14,401,848.
[114] Gurdial and Gurjeet’s appraisal yields a value in the range of $6.8 million - $7.6 million for the 80-Acre Farm and between $2.99 million and $3.22 million for the 23-Acre Farm.
[115] Yadwinder has been denied access to Best Choice’s books and there needs to be an independent review of them before this proceeding can be resolved. The audited financial statements for 2016 suggest at the very least that the earlier financial statements contain errors and will need to be corrected for this purpose.
[116] Yadwinder urges me to bifurcate the question of his entitlement to relief from the question of remedies and to adjourn the latter to a later date. I agree with Gurdial and Gurjeet that there is no need to bifurcate the hearing of this matter.
[117] I am ordering Gurdial and Gurjeet to purchase Yadwinder’s shares in Best Choice, valued as of the date of this order, at a price to be determined by a valuator selected and agreed upon by the parties. My order will be stayed pending the completion of that valuation, which must take into account, among other things, whatever amounts may still be owing to Best Choice for advances it made to the restaurant businesses as well as the impact of the parents’ action, once it is finally resolved, on the value of the brothers’ shares.
[118] Pursuant to s. 324(1)(b) of the BCA, I declare that is just an equitable for Best Choice to be liquidated and dissolved.
[119] Rather than order the liquidation and dissolution, however, I am ordering instead pursuant to s. 324(3)(b) of the BCA that Gurdial and Gurjeet buy Yadwinder’s shares in Best Choice, but I am staying my order pending completion of the valuation of the company in accordance with these reasons.
[120] Finally, I award costs of this proceeding to Yadwinder, except for the cost of the valuation I have ordered, which is to be borne rateably by the brothers, one third each.
“Milman J.”
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The Honourable Mr. Justice Milman