IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Dubois v. Lucid Distributors Inc.,

 

2018 BCSC 1582

Date: 20180914

Docket: S125437

Registry: Vancouver

Between:

Kelvin Dubois

Plaintiff

And

Lucid Distributors Inc. and

Carey Milne

Defendants

 

Before: The Honourable Mr. Justice Tindale

 

Reasons for Judgment

Counsel for plaintiff:

J.D. Vilvang, Q.C.

J.M.S. Woolley

Counsel for defendants:

A. Rees-Thomas

S.W. You

Place and Dates of Trial:

Vancouver, B.C.

March 5 – 9, 2018;

March 12 – 15, 2018

Place and Date of Judgment:

Vancouver, B.C.

September 14, 2018


 

[1]             The plaintiff seeks the following relief pursuant to the Business Corporations Act, S.B.C. 2002, c.57 (“BCA”):

a)    a declaration that the affairs of Lucid Distributors Inc. (“Lucid”) have been conducted or the powers of the director have been exercised, in a manner oppressive or unfairly prejudicial to the plaintiff;

b)    an order appointing a valuator to determine the value of the plaintiff’s shares in Lucid, as of the date of the plaintiff’s termination on January 4, 2011 or in the alternative the date that the petition in this matter was filed on August 1, 2012.

c)     an order directing that either the defendant Carey Milne (‘Milne”) purchase the shares of the plaintiff or, in the alternative, that Lucid redeem the plaintiff’s shares, for an amount determined by the evaluator.

[2]             In the event that this Court finds the proper valuation date for the plaintiff’s shares is the date of trial, the plaintiff seeks the following additional orders:

a)    an order that Milne repay all funds paid without proper authority to him by Lucid; and

b)    an order that the defendants comply with the Articles of Lucid, and that Lucid forthwith pay to the plaintiff all dividends to which the plaintiff was entitled pursuant to the Articles.

[3]             The defendants are opposed to this relief.

Background

[4]             The plaintiff Kelvin Dubois (“Dubois”) and the defendant Carey Milne (“Milne”) met each other in approximately 1992. Milne began the business of wholesale distribution of pet food and supplies in 1994.

[5]             Lucid is a British Columbia corporation which was incorporated on June 20, 1996 by Milne.

[6]             Dubois and his then common-law wife Sharon McKay invested $10,000 into Lucid in September 1997. They each acquired 100 Class B Non- Voting shares and each became 5% shareholders of Lucid.

[7]             W. Son’s Enterprises Ltd. also invested and became a shareholder of Lucid in 1997.

[8]             Milne, Dubois, Sharon McKay, W. Son’s Enterprises Ltd. and Lucid entered into a Shareholders Agreement (“Agreement”) on November 24, 1997. The Agreement forms part of Exhibit 14 in these proceedings.

[9]             Dubois began employment with Lucid in April 1998.

[10]         W. Son’s Enterprises Ltd. ceased to be a shareholder of Lucid on May 17, 2000.

[11]          Dubois acquired 800 Class C Non-Voting Common shares on June 29, 2000 by way of transfer from Milne for a purchase price of $17,500. As a result of Dubois acquiring these shares he held a 45% interest in Lucid.

[12]         Dubois’ employment with Lucid was terminated by Milne on January 4, 2011.

[13]         Dubois commenced this action against the defendants by way of a petition filed August 1, 2012.

[14]         The defendants filed their response to petition on October 15, 2012.

[15]         On March 2, 2017 an order was pronounced by consent that there will be a trial of the petition.

[16]         Exhibit 1 on this trial is a document agreement entered into by the parties. In addition the parties also agreed that the affidavits filed in this proceeding will form part of the evidence on the trial.

Evidence

Plaintiff

Laura Cuner

[17]         Laura Cuner started an organic materials distribution company in New York City called Della Natura in 1998. In 2007 she moved to Vancouver and operated Della Natura from there. Also in 2007, she incorporated Della Natura Commodities (Canada) Ltd. (“Della Natura Commodities”).

[18]         In October 2009 Ms. Cuner rebranded Della Natura Commodities to the name of Avafina. On October 20, 2009 Ms. Cuner incorporated Avafina Commodities Inc. (“Commodities”) and Avafina Holdings Ltd. (“Holdings”). Della Natura Commodities ceased to operate in 2009 and in effect became Holdings.

[19]         Ms. Cuner agreed that under the corporate structure of the Avafina group of companies Dubois received 100% of Class A voting common shares in Commodities and 100% of Class A voting common shares in Holdings. She agreed that Dubois controlled Commodities through Holdings.

[20]          Ms. Cuner was in a romantic relationship with Dubois by 2009 and they later married. She deposed in her affidavit made on March 5, 2018 that she wanted her companies to appear bigger than they were so she put pictures of Dubois, her father and another individual named Martin Valerga on her website and gave them job titles. She referred to Dubois as the General Manager even though he was not involved in the business of Avafina.

[21]         Ms. Cuner testified that in 2007 she rented office space at the warehouse of Lucid. She denied that she spent considerable time talking to Dubois during the workday. She also denied that Dubois would come over to her office and spend time with her during the workday.

[22]         Ms. Cuner agreed that she did not personally observe Milne and Dubois interact at work. She testified that Milne did not come in to the offices of Lucid in 2009 and that she saw him in the hospital suffering from the effects of alcoholism.

[23]         Ms. Cuner agreed that Ryan Murphy was the warehouse manager for Lucid. She remembers having an altercation with him in October 2010. She believes it was because Mr. Murphy prompted her to leave her place of work around 5:30 pm and she was not finished working.

[24]         Ms. Cuner agreed that on January 31, 2011, Holdings issued 300 Class C shares to Dubois as a dividend on his Class A voting shares. She also agreed that Commodities issued her 330 Class C shares as a dividend. She then transferred the 330 shares to Holdings.

[25]         In early January 2011 Ms. Cuner was aware that Dubois was terminated by Milne. Dubois then started his own company which was a pet food distribution business named Avafina Pet Products.

[26]         On September 30, 2012 Holdings gave $400,000 to Dubois to start his business Avafina Pet Products.

[27]         Ms. Cuner agreed that while Dubois was working at Lucid he would accompany her on business trips as it made her feel safe. She disagreed that Dubois would negotiate with her customers.

[28]         Ms. Cuner disagreed that Dubois engaged in her business. She agreed that she made the business cards which have been marked as Exhibit 5 in this trial.

[29]         Ms. Cuner agreed on cross-examination that in 2009, she was the president of Della Nutura Commodities. She said that Dubois was given a title in the company for the purposes of her website.

[30]         Ms. Cuner agreed that in November 2008, Dubois became a director of Della Natura Commodities as evidenced in Exhibit 11.

Kelvin Dubois

[31]         Exhibit 14 is an affidavit of Dubois made on July 24, 2012. That affidavit outlines much of Dubois’ personal history.

[32]         Dubois testified that he along with his then spouse Sharon McKay invested $10,000 into Lucid and they each received 5% shares in that business venture.

[33]         Dubois testified that it was his understanding that he would be involved in the day-to-day affairs and management of Lucid. He testified that he took a cut in pay to work at Lucid.

[34]         Dubois testified that on June 20, 1999, he had an argument with Milne which resulted in Milne telling him that half of Lucid was his. He purchased an additional 800 shares in Lucid for $17,500. This purchase gave him a 45% interest in Lucid.

[35]         Dubois testified that when he initially began working at Lucid they had a 3000 square foot warehouse. He constructed a staircase and put in an office for himself and Milne.

[36]         Later, Dubois found a larger warehouse for Lucid at 5027 Still Creek Avenue in Burnaby. He testified that he did substantial renovations to that warehouse and over the years they expanded this warehouse.

[37]         Dubois testified that by 2006, Milne was not coming in to the office as often as before. Dubois said that by 2009, Milne was only coming into the office twice a week to sign cheques.

[38]         Dubois testified that up until 2006, both he and Milne were characterized as subcontractors for income tax purposes. However, after 2006, they both became employees of Lucid.

[39]         Dubois testified that he and Milne would go over the finances of Lucid every quarter and determine what their monthly draws should be.

[40]         Dubois testified that in 2009, Milne was being paid $60,000 per year. As Milne was not coming to the offices as often Dubois insisted on an adjustment to his salary. Milne agreed to this in February 2009, and Dubois’ salary was increased to $100,000.

[41]         Dubois testified that at the end of 2009, he had to run Lucid for a couple months, as Milne was hospitalized as a result of his drinking.

[42]         Dubois testified that when Milne came back to work in 2010, he told Milne that he would back off from his involvement in Lucid so that Milne could reinstate himself in the company. Dubois also needed time off to work on his house and he testified that Milne was agreeable to this.

[43]         In 2010, Dubois was responsible for ordering products, organizing the warehouse and dealing with staffing issues. He testified that in 2010, he had relaxed hours and he would work from home though he always had a cell phone with him. Milne did not tell him that he had any difficulty with this arrangement.

[44]         Dubois testified that in 2010, the biggest issue that Lucid had was that they were growing and needed more space. Dubois was looking for another warehouse or additional space. Dubois testified that in October 2010, Milne signed a one-year extension on the lease for the warehouse at Still Creek Avenue without consulting him.

[45]         On January 4, 2011, Dubois was fired from Lucid by Milne. Exhibit 19 is a letter sent by Milne to Dubois outlining the reasons for his termination, which related to both Dubois’ roles as Inventory Manager and Operations Manager.

[46]         In the letter of January 4, 2011, Milne stated that he had provided copious verbal notices to Dubois about problems he had with Dubois. Dubois denied that he was ever given any notice of any issues with his employment at Lucid prior to his termination.

[47]         Dubois denied that he was grossly negligent in his duties as Inventory Manager. He testified that he had implemented good procedures for ordering inventory and had taught other purchasers how to do the ordering. He also noted that he had brought on new product lines during his tenure at Lucid and that Lucid was very successful during this time.

[48]         Dubois also denied that he delegated his job responsibilities to others without authorization. In fact he testified that Milne encouraged him to delegate responsibilities to be more effective as a manager.

[49]         Dubois denied that he lacked accountability for some of the issues of Lucid. With regard to the complaint that he had an inability to comprehend the consequences and cost of inventory depletions, Dubois testified that the major problem with Lucid was that they did not have enough space. It was Milne who would not address this issue.

[50]         With regard to Dubois’ role as operations manager he denied that he was chronically absent. He noted that he was always paid and was not docked any pay for being absent.

[51]         Dubois disagreed that he did not understand the job functions of the other employees. Rather, he created the various jobs and procedures for the other employees, was in charge of new hiring and structured the employees’ days.

[52]         Dubois disagreed that there was a lack of communication with regard to the operation of Lucid and he disagreed that he provided misleading information to employees and company vendors. He agreed that he did use the title of CEO, however, he testified that before he did this Milne agreed to him using this title.

[53]         Dubois disagreed that he was in a conflict of interest because of his participation in Commodities or Holdings. While he conceded that he was a shareholder and director in these companies, he testified that he had no direct involvement in the running of the companies.

[54]         Dubois testified that Ms. Cuner had an office in their warehouse and they would drive to work together, however, he did not spend a lot of time at her office.

[55]         Dubois testified that he initially thought Milne would buy his shares after he was terminated. This did not happen and Dubois took legal action for his termination which was settled in 2016.

[56]         Dubois testified that he did not receive any dividend payments for 2010 until March 2011. Dubois testified that he recalled dividends being paid later on for earlier years.

[57]         Dubois testified that he had received considerably less dividends than he should have after his termination.

[58]         Dubois testified that Milne has breached the Agreement by not discussing with him decisions that were made of significance to Lucid. For instance, Milne made the following resolutions with regard to his remuneration at Lucid:

a)    on July 11, 2010, Milne, as the sole director of Lucid, consented to a resolution that he would receive $50,000 per year as president of Lucid

b)    on October 25, 2010, Milne, as the sole director of Lucid, consented to a resolution that he would receive $100,000 per year as Chief Financial Officer of Lucid; and

c)     on February 4, 2011, Milne, as the sole director of Lucid, consented to a resolution that he would be appointed General Manager of Lucid and received $60,000 per year for that job

[59]         Dubois testified that, after his termination, Milne told him that he would “squeeze” him out.

[60]         Dubois later started a raw pet food company called Avafina Pet.

[61]         Dubois agreed on cross-examination that Milne guaranteed his initial investment in Lucid. Dubois also agreed that since 1998 Lucid had amazing growth. He agreed that all dividends were paid after the payment of corporate taxes.

[62]         Dubois also agreed that he was a 100% owner of Holdings. He disagreed that he had any active role in that company. Dubois agreed that he was a director in Commodities.

[63]         Dubois disagreed that he was directly competing with Lucid with his company Avafina Pet because Lucid dealt primarily in dry pet food. However, he did agree that the two companies do have some common product lines.

[64]         Dubois testified on cross-examination that Avafina Pet is very financially successful.

[65]         On cross-examination Dubois testified that he took on the day-to-day operations excluding the finances of Lucid in 2001.

[66]         Dubois agreed that he was never formally given the title of Chief Executive Officer of Lucid, and that he just used that title because he liked the way it sounded.

[67]         Dubois disagreed that he spent a lot of time in 2010 at the offices of Ms. Cuner.

[68]         Dubois agreed that he did use the company van of Lucid in 2010, though he said that was done rarely.

[69]         Dubois testified that Milne increased his salary to $100,000 because Milne was feeling guilty about the larger role that Dubois had in Lucid.

[70]         Dubois testified that he noticed a big increase in Milne’s drinking in 2009. He also testified that when Milne returned to work, they were no longer best friends and he did not know why.

[71]         Dubois agreed that he had no role in the drafting of the Agreement, though he said he discussed it with Milne.

[72]         Dubois agreed on cross-examination that he and Milne would leave some money in Lucid. He agreed that the retained earnings of Lucid between 2006 and 2010 increase substantially though he said he did not realize it at the time.

[73]         Dubois agreed that after 2006, not all of the net profits were paid out to the shareholders as dividends.

Michael Harrison

[74]         Exhibit 67 is an affidavit made on March 8, 2018, by Mr. Harrison. Exhibit A to that affidavit is a Will Say Statement dated February 16, 2018, and Exhibit B is an affidavit made by Mr. Harrison on October 11, 2012.

[75]         Mr. Harrison is currently employed by Commodities. At the time that he made Exhibit B to Exhibit 67 he was employed as the Vice President of Sales and Operations for Lucid.

[76]         There is a stark difference between the evidence found in exhibit A and exhibit B to Exhibit 67.

[77]         Mr. Harrison ceased working at Lucid on September 30, 2017.

[78]         Mr. Harrison testified that, with regard to the ordering of inventory and the ability to fill orders for their clients, a number of factors can confound this process such as: shipping delays, shortages by the manufacturers, issues at the border and not ordering the product on time.

[79]         Mr. Harrison testified that Lucid grew when Dubois was there and there did not seem to be any cash flow issues. Mr. Harrison testified that neither Commodities nor Holdings was a competitor of Lucid. He also testified that Dubois never said anything to him that he thought might have been a conflict of interest to his role at Lucid.

[80]         Mr. Harrison testified that he left Lucid because of Milne’s controlling and micromanaging style of running Lucid.

[81]         Mr. Harrison also testified that he could not comment on whether or not Dubois was negligent in his ordering of product for Lucid.

[82]         Mr. Harrison testified that when he signed Exhibit B to Exhibit 67, Milne strongly encouraged him to sign the affidavit. He did not feel that he had an option as to whether or not he signed it. He testified that Milne reviewed the affidavit and made changes to it.

[83]         On cross-examination Mr. Harrison testified that in his opinion the fill rate was a problem at Lucid. The fill rate is the ability for Lucid to fill a particular customer’s order.

[84]         Mr. Harrison on cross-examination testified that he felt coerced and tricked into signing Exhibit B of Exhibit 67. He said that there are some nuggets of truth in that document and that he has not lied.

Kate Beaumont

[85]         Exhibit 68 is an affidavit made on March 8, 2018, by Ms. Beaumont. This affidavit attaches as Exhibit A a Will Say Statement made on February 16, 2018, and as exhibit B an affidavit made by Ms. Beaumont on October 11, 2012.

[86]         Ms. Beaumont worked for Lucid until November 2014. On January 1, 2015, she began employment with Avafina Pet.

[87]         Ms. Beaumont testified that she did not understand the legal ramifications when she swore Exhibit B of Exhibit 68. She felt intimidated by Milne to make this affidavit.

[88]         Ms. Beaumont testified that she was not able to determine if the purchasing done at Lucid was ineffective. She now knows from her current employment that purchasing is very complex.

[89]         Ms. Beaumont also testified that she did not make any observations as to whether or not Dubois was able to learn the Blue Link computer system which was implemented at Lucid.

[90]         On cross-examination Ms. Beaumont agreed that often documents would get stuck on Dubois’ desk. She also agreed that Dubois and Milne had flexible hours and that Dubois spent some time at Ms. Cuner’s offices.

[91]         On cross-examination Ms. Beaumont testified that when Milne took over ordering, the fill rates were good for a number of months.

Defendants

Carey Milne

[92]         Exhibit 69 is an affidavit of Milne made on October 12, 2012. This affidavit details much of Milne’s personal circumstances and his history with Dubois.

[93]         Milne testified that he never agreed to give voting shares in Lucid to Dubois, nor did he do anything which would lead Dubois to believe that this was the case.

[94]          Milne testified that Lucid was profitable up until approximately 2014. He agreed that the first dividends declared after Dubois was terminated were in 2014 and he believes he paid the dividends for 2013 first and then worked his way backwards.

[95]         Milne testified that in 2012, he was working 70 hours per week.

[96]         Milne testified that he increased Dubois’ salary to $100,000 per year in February 2010, because he felt guilty as he was not working as much.

[97]         Milne testified that when he returned after he was hospitalized he was clean and sober and he started noticing problems with Lucid. He testified that he showed Dubois that there were product shortages and that he had push back from Dubois on that issue. Milne testified that Dubois was not ordering enough product and that they had space for extra product.

[98]         Milne testified that in 2010, he came in to work no later than 10:00 am.

[99]         Milne agreed that Dubois is owed money for dividends. Milne also agreed that by 2000, Dubois was participating in the management of Lucid in his capacity as the General Manager and Purchasing Manager.

[100]     Milne testified that when he returned to work, Dubois brought up the Agreement. He agreed that he found out that Dubois was a director of Commodities and Holdings, however, he never confronted him about this prior to his termination.

[101]     Milne testified that Exhibit 59 is a Lease Modification Agreement. He acknowledged that Dubois had been looking for a new warehouse and had showed him one warehouse which was not suitable for Lucid. Milne testified that, as the lease was running out, he decided to sign the Lease Modification Agreement.

[102]     Milne testified that in 2014, Lucid’s sales started dropping because they lost one of their biggest suppliers. This resulted in a loss of $1,200,000 in sales.

[103]     Near the end of 2012, the premises of Lucid moved from 5027 Still Creek Avenue to 5888 Trapp Avenue in Burnaby. Milne testified that this move was good for Lucid.

[104]     Milne agreed that there were no formal complaints made against Dubois when he was employed at Lucid.

[105]     Milne testified that dividends were calculated after the payment of corporate tax.

[106]     Milne testified that he had increased his salary. He testified that Dubois was receiving a salary of $100,000 for purchasing and once Milne took on those duties, he believed he was doing about 75% of that job. Milne, as a result of that belief, paid himself $75,000. He also testified that if he thought that was going to be an issue in this litigation, he would have hired somebody to take over Dubois’ job.

[107]     Milne testified that he has always taken care of the financial aspects of Lucid.

[108]     Milne testified that Lucid is not insolvent.

[109]     Milne testified on cross-examination that when he sold 40% of the Class C shares to Dubois he wanted somebody at Lucid with a vested interest in the company. He disagreed that once Dubois had 45% of the shares that he considered him an equal in Lucid.

[110]     Milne agreed on cross-examination that Dubois did the renovations to the Lucid warehouse in 2006.

[111]     Milne agreed that he made Dubois a beneficiary in his will.

[112]     Exhibit 51 are the minutes of the meeting of Lucid held April 2006, in La Quinta California. On cross-examination Milne testified that it was not an official meeting that he and Dubois were drinking. He does not recall discussing the equity of Lucid or cash flow issues at that meeting.

[113]     Milne disagreed that Dubois spoke to him about his drinking. Milne said that he felt guilty from being away from Lucid because of a severe problem that he had with his nose. That is the reason that he gave the salary increase to Dubois.

[114]     Milne agreed on cross-examination that Dubois worked very hard at Lucid. He agreed that there was no evidence of any wrongdoing with regard to Dubois and his signing authority.

[115]     Milne testified that by late November 2010, he had made up his mind that he wanted Dubois out of Lucid.

[116]     Milne testified that he did sign cheques between May 2009 and January 2010.

[117]     Milne agreed that he did not discuss the word “negligent” with Dubois in relationship to his work performance.

[118]     Milne testified that he spoke to Dubois about delegating his responsibilities.

[119]     Milne agreed on cross-examination that he never gave a direct order to Dubois that Dubois did not follow. He also agreed that he has not seen any documentation or evidence that Dubois did business on behalf of Commodities or Holdings.

[120]     Milne agreed on cross-examination that he never complained about Dubois going to tradeshows with his wife.

[121]     Milne disagreed that he increased his salary for the purpose of reducing dividends.

[122]     Milne agreed that in 2010, he had avoided a few calls from Dubois.

[123]     Milne agreed that in 2010, there was some discussion about the Agreement.

Angela Kaiser

[124]     Ms. Kaiser has been the corporate accountant for Lucid since approximately 2000. She testified that prior to 2006, all profits of Lucid were distributed quarterly. She testified that dividends were calculated after the corporate taxes were accounted for.

[125]     Ms. Kaiser testified that Lucid was a highly profitable company and it is a common tax planning strategy to declare bonuses to reduce the threshold of profits that a company would pay tax on.

[126]     Ms. Kaiser testified that in 2011, she started preparing audited financial statements. She noted that shareholders could waive the preparation of an audited financial statement however they did not all sign the waiver form. Ms. Kaiser testified that the cost of an audit could range from $10,000 - $16,000.

[127]     Ms. Kaiser testified that in 2012, the net income was down for Lucid. She testified this was because of a variety of factors including: the change to a new warehouse, the exchange rate with regard to foreign suppliers, advertising costs and a higher incidence of obsolete inventory which had to be written off.

[128]     Exhibit 35 is a document that Ms. Kaiser created showing dividends that were declared.

[129]     Ms. Kaiser testified that Milne took the approach that he would play catch-up in paying out dividends for prior years

[130]     Exhibit 95 is a dividend summary created by Ms. Kaiser. She notes that not all dividends declared for 2010 were paid in 2010, but rather some were paid in 2011.

[131]     Exhibit 96 is a summary of retained earnings for Lucid. Ms. Kaiser testified that 2006 was the first year that Lucid retained earnings. These earnings were retained for the purpose of building up the capital base to support the growth of the Lucid.

[132]     Ms. Kaiser testified on cross-examination that for the years 2008 through 2011, she would have been in contact primarily with Milne.

[133]     Ms. Kaiser testified on cross-examination that she spoke to Dubois about his desire to build up Lucid and to retain earnings.

[134]     Ms. Kaiser agreed on cross-examination that retained earnings are available to pay out dividends.

Jane Dowhaniuk

[135]     Ms. Dowhaniuk made an affidavit on October 11, 2012, which is been marked as Exhibit 98 in these proceedings. Ms. Dowhaniuk began working for Lucid in April 2008.

[136]     Ms. Dowhaniuk testified that Dubois was difficult to contact at work and he would go over to the offices of Commodities.

[137]     She also testified that Lucid purchased the computer operating software called Blue Link and Dubois left it up to her to set up the entire product line in that system without any proper direction or supervision.

[138]     Ms. Dowhaniuk testified that, in hindsight, when Milne returned to Lucid in 2010, he was trying to learn how Lucid operated. She would have to tell Milne how things were running because he did not know.

[139]     Ms. Dowhaniuk also testified that Milne sent emails that were insulting to Dubois and Milne always had to put Dubois down when he spoke about him.

[140]     On cross-examination Ms. Dowhaniuk agreed that Milne strongly suggested what she should write in her affidavit and he would tell her how to correct the affidavit.

[141]     She also agreed on cross-examination that when she was first hired Milne was only in the office two times per week and she did not really know what he did initially.

[142]     Ms. Dowhaniuk agreed that Milne and Dubois were treated as equals. She also agreed that Dubois was running the day-to-day affairs of Lucid. When she first started at Lucid it was running well. She testified that Dubois was a very welcoming and friendly boss.

[143]     Ms. Dowhaniuk testified that Milne became angry and disrespectful after his hospitalization. She also agreed that she was having limited communication with Milne in 2009.

[144]     Ms. Dowhaniuk agreed on cross-examination that Dubois did not decline to try to learn the Blue Link system.

[145]     Ms. Dowhaniuk testified on cross-examination that Milne became more militant and manipulative when he took over the running of Lucid after his return in 2010. She testified that Milne micromanaged Lucid and was not looking for solutions as he had already made up his mind about any particular problem.

[146]     Ms. Dowhaniuk agreed on cross-examination that in 2010, Milne was avoiding Dubois.

Ryan Murphy

[147]     Mr. Murphy made an affidavit on October 11, 2012 which has been marked as Exhibit 99 in this proceeding. He began working for Lucid in August 2007 and was hired by Dubois.

[148]     Mr. Murphy testified that Milne was not around much after his collapse in 2009. Mr. Murphy said Dubois was running the show.

[149]     Mr. Murphy testified that he could not say that Dubois was working at Commodities.

[150]     Mr. Murphy testified on cross-examination that Dubois could be contacted if he was out of the office and he assumed that Dubois was working at home. He also agreed that after Milne returned in 2010 he was saying disparaging things about Dubois.

[151]     Mr. Murphy agreed that up until 2010, Milne was out of touch with the operation of Lucid. He said that the Trapp Avenue warehouse is too big.

[152]     Mr. Murphy testified on cross-examination that Dubois’ departure had a negative effect on Lucid.

Position of the Parties

Plaintiff

[153]     The plaintiff argues that the defendant Milne is responsible for the following oppressive conduct or unfairly prejudicial actions:

a)    terminating the plaintiff’s employment and failing to purchase his shares in Lucid;

b)    improperly removing funds from Lucid;

c)     failing to pay dividends due to the plaintiff; and

d)    withholding financial information from the plaintiff.

[154]     The plaintiff argues that Lucid’s Company Articles provide that the holders of the Class B and C shares are entitled to be paid yearly dividends as determined by the company’s accountant.

[155]     The plaintiff argues that starting in 2006, Milne would be at the office periodically. This was typically only for a couple of days per week. The plaintiff took a greater involvement and leadership role in Lucid. Because of this the plaintiff asked for an increase in salary and in February 2009, Milne agreed to increase the plaintiff’s salary to $100,000.

[156]     The evidence discloses that Lucid’s premises expanded over the years and became steadily profitable up to 2011.

[157]     The plaintiff acknowledges that, beginning in 2006, not all of the net income was paid out to the shareholders by way of dividends. This was done to finance Lucid’s growth.

[158]     The plaintiff argues that after Milne’s hospitalization, he spoke to Milne about Milne reasserting control over Lucid. The plaintiff argues that Milne was agreeable to the plaintiff taking time off to work on his house. The plaintiff also spoke to Milne about reviewing and changing the outdated Agreement.

[159]     The plaintiff argues that Milne was pretending to approve the more relaxed hours of the plaintiff, his travel plans and work on his home to, in effect, set him up for termination.

[160]     The plaintiff argues that his termination was not justified. Milne stated in Exhibit 19 that he had given the plaintiff copious verbal notices. However, on cross-examination he conceded that he had never confronted the plaintiff about his performance.

[161]     The plaintiff argues that oppression is an equitable remedy and is fact specific. The plaintiff argues that he had a reasonable expectation that so long as he was a shareholder of Lucid he would have a right to be employed and participate in the management of Lucid.

[162]     The plaintiff argues that it was reasonable to expect that his shares in the company would be repurchased for their fair value.

[163]     The plaintiff argues that the evidence discloses that Milne not only wanted the plaintiff’s money but also wanted his abilities to run the company. This is evidenced by the fact that the plaintiff acquired an additional 40% of the shares in Lucid in 2000 for $17,500. Those shares had earlier been sold to W. Son’s Enterprises Ltd. for $40,000.

[164]     The plaintiff argues that this transaction clearly illustrates Milne’s desire to have the plaintiff provide services for Lucid. Milne agreed that he wanted the plaintiff to have a vested interest in the company.

[165]     The plaintiff argues that his actions were that of an owner. He would work long hours either at home or at the office. He renovated the various warehouses of Lucid.

[166]     The plaintiff argues that there is no evidence which would support his termination from Lucid.

[167]     The plaintiff also denies the complaints by Milne relating to his duties as a purchasing manager.

[168]     The plaintiff argues that there is no evidence of any losses to Lucid associated with his performance as a purchaser. The plaintiff notes that he had been in charge of purchasing for many years and during those years, Lucid experienced considerable growth and success.

[169]     Milne never discussed with the plaintiff that he was grossly negligent in his duties.

[170]     The plaintiff argues that the evidence does not disclose that he improperly delegated any of his duties. He was the general manager of Lucid and was responsible for human resource issues which included hiring employees, creating job descriptions and supervising employees.

[171]     The plaintiff argues that there is no evidence that he lacked accountability or lacked in his efforts to resolve problems. The plaintiff notes that he created a shared network folder at Lucid so that the staff could check on both the status of any of their products availability and any reasons for delays.

[172]     The plaintiff argues that Milne’s complaint that he was not a team player is not borne out by the evidence. Both Mr. Murphy and Ms. Dowhaniuk gave evidence that Lucid was a great place to work up until 2010.

[173]     The plaintiff argues that there is no basis for the complaints made by Milne with regard to his performance as operations manager. The plaintiff denies that he ever refused to follow an order from Milne. Milne acknowledged in cross-examination that he had never given the plaintiff a direct order which he refused to follow.

[174]     The plaintiff argues that he had an understanding with Milne that neither of them had to keep regular hours.

[175]     The plaintiff argues that there is no evidence that he lacked understanding of employee job functions or procedures. The evidence discloses that he was the general manager of Lucid for 10 years and he did much of the hiring for Lucid as well as developing job descriptions and procedures.

[176]     The plaintiff also argues that there is no evidence that there was any harm done to Lucid by him using the title of CEO and that, in any event, this issue was resolved prior to his termination.

[177]     The plaintiff argues that there is no evidence of a conflict of interest because of his involvement in Ms. Cuner’s business. Milne agreed that he was unable to produce any evidence that the plaintiff did any business on behalf of her companies.

[178]     The plaintiff argues that Milne agreed that he did not give the plaintiff copious verbal notices when he terminated him.

[179]     The plaintiff argues that Milne’s actions in increasing his salary were a clear breach of the Agreement, which restricts his salary to $60,000.

[180]     The plaintiff notes that Milne increased his salary threefold after he was terminated. The plaintiff argues that the defendants’ statement that because Milne was doing multiple jobs he deserved multiple salaries is nonsensical. The plaintiff argues that there is no evidence that Milne was working the equivalent of three full-time jobs.

[181]     The plaintiff argues that the Articles of Lucid have a contractual effect. The holders of Class B shares are entitled to receive yearly dividends amounting to 10% of the net income earned by Lucid in its previous fiscal year. The holders of the Class C shares are entitled to receive yearly dividends amounting to 40% of the net income earned by Lucid in the previous years. The plaintiff argues this is not discretionary but mandatory.

[182]     The plaintiff acknowledges that there is some evidence that, beginning in 2006, he and Milne agreed to defer the payment of dividends in order to build up a nest egg and finance the growth of Lucid. The plaintiff argues however there is no evidence that he agreed to waive or permanently forego his entitlement to dividends.

[183]      The plaintiff argues that Milne either failed to pay or delayed paying dividends owed to him as follows:

a)    in fiscal year 2011, Lucid’s net income after taxes was $573,210, however Milne declared and paid only $100,000 in dividends;

b)    in fiscal year 2012, Lucid’s net income after taxes was $113,836, however Milne declared and paid no dividends;

c)     in fiscal year 2013, Lucid’s net income after taxes was $78,354, however Milne declared and paid no dividends;

d)    in fiscal year 2014, Lucid’s net income after taxes was $12,220, however Milne declared and paid dividends of $113,836 in respect of money earned in fiscal year 2012 which amounted to a two-year delay;

e)    in fiscal year 2015, Lucid had a negative net income and Milne declared and paid out dividends of $39,177, in respect of income earned in fiscal year 2013 which amounted to a two-year delay;

f)      in fiscal year 2016, Lucid had a negative net income and Milne declared and paid dividends of $39,177 in respect of income earned in fiscal year 2013, and $12,220 in respect of net income earned in fiscal year 2014 which amounts to a three-year and two-year delay respectively; and

g)    in fiscal year 2017, Lucid had a negative net income and declared and paid dividends in the amount of $160,000 in respect of net income earned in fiscal year 2011 which amounts to a five year delay.

[184]     The plaintiff argues that Milne caused Lucid to retain money that should have been paid to him in dividends for a number of years. Lucid had the benefit of those monies. It was not until the trial of this matter was approaching that Milne finally paid the dividends in respect of 2011.

[185]     The plaintiff argues that Milne withheld financial information from him in 2010. Despite the fact that the plaintiff would ask for this information, it would not be provided to him. The plaintiff was not able to access information on taxes, online banking and had no signing authority for Lucid at this time.

[186]     The plaintiff argues that the defendant Milne appeared guarded in his testimony and tried to minimize the plaintiff’s leadership role in Lucid.

[187]     The plaintiff seeks an order appointing a valuator to determine the value of the shares in Lucid at the date of his termination on January 4, 2011, or in the alternative, the date when the petition was filed on August 1, 2012.

[188]     The plaintiff also seeks an order that Milne purchase the plaintiff’s shares in Lucid or in the alternative Lucid redeem the plaintiff’s shares for an amount determined by the valuator.

[189]     The plaintiff seeks an order that, if the Court finds that the proper valuation date for his shares is the date of trial, then Milne repay all funds paid without proper authority to him by Lucid.

Defendants

[190]     The defendants argue that the plaintiff must identify the expectations that he claims have been violated by the conduct at issue and establish that these expectations are reasonably held. If a breach of a reasonable expectation is established it must then be determined whether the reasonable expectation was violated by conduct falling within the terms of oppression or unfair prejudice.

[191]     The defendants argue that the issues in dispute are as follows:

a)    whether the net income of Lucid available for distribution as dividends is calculated on net income after taxes or before taxes;

b)    whether the plaintiff has a reasonable expectation to receive 45% of the net income of Lucid for the fiscal years ending June 30, 2010, and June 30, 2011;

c)     whether the plaintiff had a reasonable expectation that Milne’s salary would be restricted to $60,000 per annum;

d)    whether the plaintiff had a reasonable expectation for continued employment and participation in the management of Lucid as long as he was a shareholder;

e)    whether Milne mismanaged the affairs of Lucid; and

f)      whether Milne withheld information from the plaintiff.

[192]     The defendants argue that Ms. Kaiser stated that for the purposes of declaring dividends, the net income is calculated after tax. Also, the records of Lucid show that from 2006 through 2010, the dividends were calculated based on the net income after tax.

[193]     The defendants agree that the plaintiff had a reasonable expectation when he purchased his shares in 1997 and 2000 that Lucid would pay all of the net income as dividends. The defendants argue, however, that the plaintiff should have reasonably expected that Lucid would set aside funds for the operation with respect to its net income for the 2010 and 2011 fiscal years, as the shareholders had agreed to leave profits in Lucid in or about 2006.

[194]     The defendants argue that an examination of Exhibits 55, 57, 60, 61 and 62 show that not all of Lucid’s net income was paid out as dividends after 2006. The defendants note that for the fiscal years 2007 and 2009 there were no dividends paid.

[195]     The defendants argue that the plaintiff has provided no evidence that he asked Milne or Lucid to pay out all of Lucid’s net income as dividends for 2010 and 2011 without reserving any operating funds for Lucid.

[196]     The defendants note that Lucid paid all the net income for the fiscal years 2012, 2013 and 2014 as dividends and did not pay out any dividends in the years that Lucid incurred losses.

[197]     The defendants argue that the plaintiff did not begin working for Lucid until April 1998. There was no verbal or written employment agreement and the defendant Milne never gave up any voting rights for Lucid.

[198]     The defendants argue that the plaintiff knew or ought to have known that he could not reasonably expect to participate in the management of Lucid when he purchased his shares because he was not entitled to vote at any of the general meetings of the shareholders.

[199]     The defendants argue that the plaintiff could not have reasonably expected that ownership of his Class C shares would have guaranteed him employment at Lucid because he knew that the previous owners W. Sons Enterprises Ltd. were not employed by Lucid.

[200]     The defendants argue that even if the plaintiff was wrongfully dismissed that, in itself, does not justify a finding of oppression. It is only in circumstances where the interests of an employee are closely intertwined with his interest as a shareholder and there is a pattern of conduct to exclude the plaintiff from participation in the company that his dismissal can be found to be an act of oppression.

[201]     The defendants say the plaintiff has failed to establish that he had a reasonable expectation to participate in the management of Lucid.

[202]     The defendants argue that the Agreement does not form the basis of the plaintiff’s reasonable expectation that Milne’s salary would not increase after his termination. The defendants argue that the plaintiff’s Class B shares were purchased before there was an Agreement and the sale of the Class C shares was in contravention of the Agreement because the sale was within three years of the original purchase date. Neither the defendant Milne nor the plaintiff discussed salaries because both of them were making a lot of money in excess of the prescribed salaries.

[203]     The defendants argue that it is reasonable for Milne to have paid himself more money because he was taking on other duties, including the jobs previously done by the plaintiff.

[204]     The defendants argue that Milne did not mismanage the affairs of Lucid. Milne testified that they required a new warehouse and Mr. Harrison also testified that the new warehouse was adequate when they moved into it. Milne also testified that the pet food market has changed and they had lost some of their major suppliers. Milne and Ms. Kaiser also gave evidence of how foreign exchange rates impact Lucid’s profits.

[205]     The defendants argue that as long as the directors of Lucid have acted honestly and reasonably, the Court should not substitute its own business judgment for that of the Board of Directors.

[206]     The defendants argue that the plaintiff failed to establish that Milne has mismanaged the affairs of Lucid. Lucid is a going concern seven years after the plaintiff’s termination.

[207]     The defendants argue that the plaintiff’s claim that he has not received financial statements are unlikely and unreasonable. Milne gave evidence that he provided financial information to the plaintiff by registered mail and through legal counsel.

[208]     The defendants ask the Court to dismiss the plaintiff’s claim against them.

[209]     In the alternative, if the Court should find that the plaintiff had a reasonable expectation for any one of the claims, the remedy granted to the plaintiff should be the least intrusive remedy that offers adequate redress to the plaintiff.

[210]     The defendants further argue that if the Court finds that the plaintiff’s shares should be purchased, the valuation date for the plaintiff’s shares should be the date of the trial. The valuation date for valuing shares in oppression remedy cases should be the fairest date based on the facts of the case.

[211]     The defendants argue that it would be unfair to them if the valuation date is the date of filing of the petition because the petition was filed August 1, 2012, yet no interim applications were made by the plaintiff until the matter was heard at trial in 2018. Lucid has paid all of the net income for the fiscal years ending 2012 to 2014 as dividends to the plaintiff. Lucid did not pay any dividends because it incurred financial losses in 2015, 2016 and 2017. Also, Lucid’s current economic condition was not caused by Milne but rather was caused by a change in the pet food industry. Finally, Lucid has been paying dividends to the plaintiff with respect to the fiscal year 2011.

Decision

[212]     The plaintiff seeks relief pursuant to s. 227 of the BCA which states:

(2) 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 act of the company has been done or is threatened, or that some resolution of the shareholders or of the shareholders holding shares of a class or series of shares has been passed or is proposed, that is unfairly prejudicial to one or more of the shareholders, including the applicant.

[213]     The BCA grants the court a broad range of remedial powers pursuant to subsection 3 which states:

(3) On an application under this section, the court may, with the 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

(a) directing or prohibiting any act,

….

(g) directing the company, subject to subsections (5) and (6), to purchase some or all of the shares of a shareholder and, if required, to reduce its capital in the manner specified by the court,

(h) directing a shareholder to purchase some or all of the shares of any other shareholder,

….

(k) varying or setting aside a resolution,

[214]     Before an order can be made pursuant to s. 227 (3) (g) the court must consider ss. 227 (5) & (6), which state:

(5) If an order is made under subsection (3) (g), (i) or (m), the company must pay to a person the full amount payable under that order unless there are reasonable grounds for believing that

(a) the company is insolvent, or

(b) the payment would render the company insolvent,

(6) If reasonable grounds exist for believing that subsection (5 (a) or (b) applies,

(a) the company is prohibited from paying the person the full amount of money to which the person is entitled,

(b) the company must pay to the person as much of the amount as is possible without causing a circumstance set out in subsection (5) to occur, and

(c) the company must pay the balance of the amount as soon as the company is able to do so without causing a circumstance set out in subsection (5) to occur.

[215]     The plaintiff argues that Milne’s actions amount to conduct which is oppressive and is unfairly prejudicial to him.

[216]     The Supreme Court of Canada in BCE Inc. v. 1976 Debentures, 2008 SCC 69 [BCE] discussed the approach to be used in an analysis of an oppression case at paras. 56-62:

[56] In our view, the best approach to the interpretation of s. 241 (2) is one that combines the two approaches developed in the cases. One should look first to the principles underlying the oppression remedy, and in particular the concept of reasonable expectations. If a breach of a reasonable expectation is established, one must go on to consider whether the conduct complained of amounts to “oppression”, “unfair prejudice” or “unfair disregard” as set out in s. 241 (2) of the CBCA.

[57] We preface our discussion of the twin prongs of the oppression inquiry by two preliminary observations that run throughout all the jurisprudence.

[58] 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: Wright v. Donald S. Montgomery Holdings Ltd. (1998), 39 B.C.L. (2d) 266 (Ont. Ct. (Gen. Div.)), at p. 273; Re Keho Holdings Ltd. and Noble (1987), 38 D.L.R. (4th) 368 (Alta. C.A.), at p. 374; see, more generally, Koehnen, at pp. 78-79. It follows that courts considering claims for oppression should look at business realities, not merely narrow legalities: Scottish Co-operative Wholesale Society, at p. 343.

[59] Second, like many equitable remedies, oppression is fact specific. What is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in the relationships at play. Conduct that may be oppressive in one situation may not be in another.

[60] Against this background, we turn to the first prong of the inquiry, the principles underlying the remedy of oppression. In Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360 (H.L.) at p. 379, Lord Wilberforce, interpreting s. 222 of the U.K. Companies Act, 1948, described the remedy of oppression in the following seminal terms:

The words [”just and equitable”] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.

[61] Lord Wilberforce spoke of the equitable remedy in terms of the “rights, expectations and obligations” of individuals. “Rights” and “”obligations” connote interests enforceable at law without recourse to special remedies, for example, through a contractual suit or a derivative action under s. 238 of the CBCA. It is left for the oppression remedy to deal with the “expectations” of affected shareholders. The reasonable expectations of the shareholders is the cornerstone of the oppression remedy.

[62] As denoted by “reasonable”, the concept of reasonable expectations is objective and contextual. The actual expectation of a particular shareholder is not conclusive. In the context of whether it would be “just and equitable” to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.

[217]     The Court in BCE went on to describe the factors that are useful in determining whether a reasonable expectation exists at para. 72, which include:

(i)    general commercial practice

(ii)   the nature of the corporation;

(iii) the relationship between the parties;

(iv) past practice;

(v)   steps the claimant could have taken to protect itself;

(vi) representations and agreements; and

(vii) the fair resolution of conflicting interests between corporate stakeholders.

[218]     The evidence in this case consisted of affidavit evidence as well as viva voce evidence for most of the witnesses.

[219]     There emerged a clear theme among many of the witnesses of loyalty to their employer. The analysis of the reliability of many of the witnesses’ testimonies is complicated by the fact that many years have passed since the incidents in question occurred.

[220]     Both Mr. Harrison and Ms. Beaumont were in a difficult situation when they made their affidavits in 2012, because they were employed by Lucid.

[221]     Mr. Harrison’s viva voce evidence was substantially different from his evidence that is contained in his affidavit made on October 11, 2012. Mr. Harrison was working for Lucid when he made that affidavit, however he is now employed by Ms. Cuner’s company Commodities.

[222]     A substantial portion of Mr. Harrison’s affidavit was redacted by consent because it contained hearsay evidence and was speculative in nature.

[223]     Mr. Harrison testified that he felt coerced by Milne into making his affidavit of October 11, 2012. He said there were some nuggets of truth in that document.

[224]     I accept that Mr. Harrison felt coerced by Milne in making his affidavit. I accept that primarily because this is another theme that has emerged among the witnesses that were called on both sides. I am placing no weight on the rest of Mr. Harrison’s evidence because I cannot determine whether any of it is reliable.

[225]     The fact that Mr. Harrison agreed that not all of his affidavit was truthful seriously undermines his credibility.

[226]     Ms. Beaumont’s evidence in her affidavit made on October 11, 2012, was also quite different from her evidence given at trial.

[227]     Ms. Beaumont was working for Lucid in October 2012, and now works for Dubois at Avafina Pet.

[228]     I accept that Ms. Beaumont felt intimidated by Milne when she made her affidavit on October 11, 2012. Ms. Beaumont also testified that she did not understand the ramifications of making an affidavit.

[229]     The fact that Ms. Beaumont made an affidavit that was not reliable seriously undermines her credibility. I am placing no weight on Ms. Beaumont’s evidence other than that I accept that she felt intimidated by Milne when she made her affidavit.

[230]     I found Ms. Cuner to be a forthright witness. Even though she is the spouse of Dubois, I accept her explanations for Dubois’ involvement in her companies. Ms. Cuner was fair in her testimony.

[231]     I accept Ms. Dowhaniuk’s evidence that she was also influenced by Milne when she made her affidavit on October 11, 2012. I generally found Ms. Dowhaniuk to be a credible and forthright witness. In my view, Ms. Dowhaniuk was fair in her testimony in relationship to both Dubois and Milne.

[232]     I also accept the evidence of Mr. Murphy as I found him to be a generally credible witness as well. His evidence was fair and balanced with regard to both Dubois and Milne.

[233]     I found Ms. Kaiser to be a credible witness and I accept her evidence in its entirety.

[234]     I had difficulties with the evidence of Milne. First of all, Mr. Harrison, Ms. Beaumont and Ms. Dowhaniuk all testified that Milne either coerced, intimidated or influenced them when they were making their respective affidavits.

[235]     It is also clear from the evidence of Ms. Dowhaniuk that Milne was making disparaging comments about Dubois and was avoiding him after Milne returned from his hospitalization.

[236]     Milne’s evidence was inconsistent. He testified that Dubois was made the General Manager of Lucid in 2000, and that he was also the Purchasing Manager. However, Milne disagreed that Dubois participated in the management of Lucid.

[237]     Milne testified that Dubois hired, trained and took care of all employee problems. Milne also testified that Dubois dealt with all of the purchasing of product for Lucid and that Lucid was a very successful company while Dubois was there. Yet, Milne took the position that Dubois did not understand how to run Lucid.

[238]     Milne denies that when Dubois purchased the 800 Class C shares that his employment was tied to the shares. Dubois had a 45% interest in Lucid after he purchased those shares. Dubois became General Manager of Lucid in 2000, and on Milne’s own evidence he wanted someone at Lucid with a vested interest in the company.

[239]     Milne suggested that one of the reasons Dubois was terminated was that he was grossly negligent in carrying out his duties at Lucid. This makes little sense. Milne acknowledges that Dubois was running the day-to-day affairs of Lucid other than the finances and Lucid was a very successful company. Milne increased Dubois’ salary $100,000 prior to his termination. This is inconsistent with Milne’s view that Dubois was grossly negligent in his duties at Lucid.

[240]     Milne suggested that he had given copious warnings to Dubois about his deficiencies at Lucid however on cross-examination he agreed that he had not.

[241]     In regards to his salary at Lucid, Milne deposed in Exhibit 69 at para. 45, to the following:

Dubois’ alleged amounts taken by me are incorrect and overstated. The actual amounts received by me are:

Up to October 2010-$60,000

Upon CFO appointment in October 2010 up to December 2010-$100,000

Upon President remuneration in January 2011 up to March 2012-$150,000

Upon Director of Purchasing appointment in April 2012 to present-$225,000

[242]     Milne justified the salary increases by saying that he took on the duties of Dubois. Milne testified that he was performing the functions of three different positions. This is not how Lucid was operated in the past and it is inconceivable that Milne was actually performing the duties of three full-time positions.

[243]     Milne agreed that Dubois was entitled to considerable compensation in the form of dividends though the evidence shows he did not pay the dividends to Dubois in a timely fashion or for some years at all.

[244]     Milne explained that he did not initially pay the dividends because there was an agreement between the shareholders, including Dubois, to leave some of the money in the company to finance growth. He also said that he was waiting to determine the outcome of the wrongful dismissal claim started by Dubois.

[245]     I do not find either of these reasons particularly compelling because it is not reasonable to assume that after Dubois was terminated from Lucid that he would continue to leave 100% of his dividends in Lucid. There is also no evidence that the viability of Lucid would have been compromised by the wrongful termination lawsuit.

[246]     Milne also testified that one of the reasons he terminated Dubois was because Dubois was in a conflict of interest with Lucid because of his relation to Commodities and Holdings. Milne however agreed on cross-examination that he had no evidence that Dubois actually played an active role in Commodities or Holdings.

[247]     I generally found Dubois to be a forthright and credible witness. I accept Dubois’ evidence that after Milne returned from his hospitalization they had an agreement whereby Milne would re-establish his role in Lucid and Dubois would take some time off to work on his house.

[248]     Milne, based on all the evidence, clearly became very controlling after his hospitalization and began to micromanage Lucid. He made disparaging comments about Dubois after his hospitalization and avoided Dubois.

[249]     Milne, in my view, pushed Dubois out of Lucid in an effort to maintain control of that company.  An example of Milne’s need for control was his actions in influencing what some of the witnesses said when they made their affidavits.

[250]      For all of the above reasons, where the evidence of Milne is in conflict with that of Dubois, I accept the evidence of Dubois.

Reasonable Expectations of Dubois

[251]     The onus is on the plaintiff to establish what his subjective expectations were and that those expectations are objectively reasonable: BCE at para. 70; Jaguar Financial Corporation v. Alternative Earth Resources Inc., 2016 BCCA 193 at para. 113.

[252]     Dubois expected that so long as he was a shareholder of Lucid he would have a right to be employed by Lucid. He also expected that he would participate in the management of Lucid.

[253]     Dubois and Milne had been friends for a long time prior to Milne starting Lucid. Dubois, along with his then wife Sharon McKay, initially invested $10,000 into Lucid. Dubois left stable and lucrative employment to work at Lucid.

[254]     In 2000, Dubois became the General Manager of Lucid and obtained 800 Class C shares in Lucid. Dubois, based on the evidence, ran the day-to-day affairs of Lucid while Milne dealt with the financial aspects of the company.

[255]     Dubois obtained the 800 Class C shares for $17,500 which was a significant reduction in the cost of the shares. Milne testified that he wanted somebody with a vested interest in Lucid as one of the reasons that he sold Dubois the shares.

[256]     Considering the nature of Lucid, the relationship between Milne and Dubois, and their roles in Lucid, it is objectively reasonable for Dubois to expect that, so long as he was a shareholder of Lucid, he would have a right to be employed by that company and to participate in the management of Lucid. That is what occurred from at least 2000 onwards. It is also clear that this was Milne’s expectation, given his comments that he wanted someone with a vested interest in Lucid and given the reduced purchase price at which he sold the Class C shares to Dubois.

[257]     It is also objectively reasonable that Dubois would expect to not be terminated without cause from his employment at Lucid. Based on the above noted evidence there was no basis for Milne to terminate Dubois when he did. The evidence does not substantiate Milne’s reasons for terminating Dubois that are set out in Exhibit 19.     

[258]     Dubois expected that he would be paid 45% of the net profits of Lucid. Dubois took the position that the net profits should be calculated before taxes.

[259]     There is no argument from the defendants that Dubois, pursuant to the Articles of Lucid, is entitled to 45% of the net profits. The defendants argue however that the dividends are properly calculated on the net profits after taxes.

[260]     The defendants also argue that there was an agreement between the shareholders since 2006 that the net profits would be retained in Lucid.

[261]     With regard to whether or not the dividends were calculated based on net profit before or after taxes, the evidence is clear, from both Ms. Kaiser’s testimony and the financial statements of Lucid, that the calculation is made on net profit after tax.

[262]     There is some evidence that Dubois and Milne agreed after 2006 to retain earnings in Lucid. The Articles of Lucid, however, guarantee that Dubois is paid 45% of the net earnings of Lucid. The evidence does not disclose that Dubois waived his rights to dividends and clearly the payment of dividends were a substantial part of his remuneration.

[263]     As I have already found, Dubois had a reasonable expectation that he would have employment with Lucid as long as he was a shareholder. It is reasonable that Dubois would expect to be paid the dividends he was owed, upon termination of his employment.

[264]     I find that Dubois had a reasonable expectation to be paid 45% of the net profits of Lucid, albeit after taxes.

[265]     Dubois had a reasonable expectation that Milne’s salary would remain at $60,000. The Agreement provided for a maximum salary to Milne as a manager of $5,000 per month. The history of the operations of Lucid also does not justify the salary that Milne took after Dubois was terminated.

[266]     Based on the evidence, I cannot conclude that Milne deliberately withheld pertinent information from Dubois. Though it appears that some information was not forthcoming to Dubois, this seems to have been rectified by Milne or through his counsel.

[267]     Based on a review of the evidence I make the following findings with regard to Dubois’ reasonable expectations:

a)    Dubois had a reasonable expectation that he would receive 45% of the net income after taxes from Lucid including for fiscal years ending June 30, 2010 and June 30, 2011.

b)    Dubois had a reasonable expectation that not only was he a 45% owner of Lucid, but that he would have a role in Lucid’s management.

c)     Dubois had a reasonable expectation that he would have employment with Lucid for as long as he had shares in Lucid.

d)    Dubois had a reasonable expectation that Milne’s salary would be restricted to $60,000 per year based on the Agreement.

Oppression and Unfairly Prejudicial

[268]     Oppressive conduct and unfairly prejudicial conduct were discussed in Urquhart v. Technovision Systems Inc., 2002 BCSC 172, aff’d 2003 BCCA 45, at paras 35-37:

 

 [35] The law that governs what can be said to be “oppressive” and what can amount to “unfair prejudice” has not developed with great clarity. Generally, founded on what Viscount Simon said in Scottish Co-op Wholesale Soc. Ltd. v. Meyer, [1958] 3 All E.R. 66 at 71, “oppression” has been said to mean conduct that is burdensome, harsh and wrongful or, following what Lord Keith said at p. 86, it is said to mean conduct that lacks probity and fair dealing in the affairs of the company to the prejudice of some of its members. “Unfairly prejudicial” has been distinguished as having a broader meaning protecting a wider range of rights, but it has not been, and perhaps cannot be, as well defined.

[36] In Diligenti v. RWMD Operations Kelowna Ltd. (1976), 1 B.C.L.R. 36, which appears to have been the first consideration of the term in the context of the oppression remedy, this court equated that which is unfairly prejudicial to that which is unjust and inequitable. In so doing, Lord Wilberforce’s discussion of those words in Ebrahimi v. Westborne Galleries Ltd. (1972), 2 All E.R. 492 in the context of what was then the English statutory oppression remedy was cited at some length. There it was recognized (p. 500) that behind the legal entity a company represents “there are individuals with rights, expectations, and obligations inter se that are not necessarily submerged in the company structure” which the remedy enables the court to invoke equity to protect.

[37] The words “oppressive” and “unfairly prejudicial” had been further distinguished by this Court in that the focus with regard to “oppression” has been seen to be on the character of the conduct complained of while the focus in considering what is said to be “unfairly prejudicial” has been on the effect of the impugned conduct on the injured shareholder.

[269]     Dubois’ reasonable expectations that he would participate in the management of Lucid and that he would have employment with Lucid as long as he was a shareholder were contravened by the actions of Milne in wrongfully terminating Dubois’ employment.

[270]     Wrongful dismissal by itself will not justify a finding of oppression. It is only where the interests of the employee are closely intertwined with his interest as a shareholder, and where the dismissal is part of a pattern of conduct to exclude the complainant from participation in the corporation, that the dismissal can be found to be an act of oppression: Krynen v. Bugg (2003), 64 O.R. (3d) 393 (S.C.J.) at para. 74.

[271]     Milne wanted not only Dubois’ money in purchasing the shares in Lucid, but also his ability and skills. Dubois considered himself on an equal footing to Milne and I infer, based on the evidence, that up until 2010, Milne shared the same view.

[272]     Dubois’ interests as an employee were closely intertwined with his interest as a shareholder. Dubois worked long hours and conducted himself as an owner would.

[273]     In my view the wrongful dismissal of Dubois establishes a finding of oppression on its own.

[274]     Further, Milne tripled his salary after Dubois was terminated. This was contrary to the Agreement and there was no precedent in the operation of Lucid to justify this. Based on the evidence, I find that Milne increased his salary for the specific purpose of depriving Dubois of the dividends he was entitled to.

[275]      Milne wrongfully withheld dividends from Dubois, again for the purpose of forcing Dubois out of Lucid.

[276]     In my view, these two further grounds would establish a finding of oppression on their own. However, I am confident that the cumulative effect of these actions by Milne clearly establishes oppression on his part against Dubois.

Remedy

[277]     The plaintiff is entitled to a declaration that the affairs of Lucid have been conducted, or the powers of the director have been exercised, in a manner oppressive or unfairly prejudicial to him.

[278]     The plaintiff seeks an order that a valuator be appointed to determine the value of his shares. He also seeks an order directing that either Milne purchase his shares or, in the alternative, that Lucid redeem his shares for the amount determined by the valuator.

[279]     Milne’s relationship with Dubois is toxic. Milne began disparaging and avoiding Dubois prior to his termination of Dubois. After Dubois’ termination Milne tried to influence a number of witnesses in making their affidavits in an attempt to paint Dubois in a bad light.  Milne withheld dividends from Dubois. Considering all of these factors, the only fair remedy available is that either Milne purchase the shares of Dubois or that Lucid redeem his shares.

[280]     The evidence from Milne is that Lucid is not insolvent. However, at this point in time, I do not know the value of Dubois’ shares. For that reason the appropriate order is that Milne purchase Dubois’ shares for a purchase price determined by the valuator.

[281]     The plaintiff seeks an order that the date to value his shares be his termination from employment on January 4, 2011, or alternatively, the date that the petition was filed on August 1, 2012.

[282]     The defendants say that the valuation date for valuing shares in oppression cases should be the fairest date based on the facts of the case. In this case the defendants say that the appropriate date for the valuation of the shares is the date of the trial because six years have passed since the filing of the petition and no interim applications were made. Lucid has paid the net income for the years June 30, 2012 to June 30, 2014, as dividends to the plaintiff. Lucid’s current economic condition was not caused by Milne, but rather by change in the pet food industry. Finally Lucid has paid some of the dividends for the year ending June 30, 2011.

[283]     In 1043325 Ontario Ltd. v. CSA Building Services Western Ltd., 2015 BCSC 1160, the court considered the date for determining the value of shares. In that case the defendants argued that there had been a delay by the petitioners in bringing the litigation to a close and the fortune of the company had changed. The petitioners argued that prior excessive fees taken should be calculated into the value of the shares. The court concluded that, in the circumstances of that case, the fairest date would be when the petition was filed.

[284]     There is authority that the valuation date in cases involving termination of a shareholder’s employment should be the termination date: Kabutey v. New-Form Manufacturing Co., [1999] O.J. No. 3635 at para.61.

[285]     Taking into account the delay in bringing this matter to trial, the excessive amounts that Milne took as a salary and Lucid’s current economic situation, in my view the appropriate date to value Dubois’ shares is the date the petition was filed on August 1, 2012.

 

Conclusion

[286]     The plaintiff is entitled to a declaration that the affairs of Lucid have been conducted, or the powers of the director have been exercised, in a manner oppressive or unfairly prejudicial to the plaintiff.

[287]     A valuator shall be appointed to determine the value of Dubois’ shares in Lucid.  If the parties cannot agree on a valuator they have leave to bring this matter before me to determine that issue.

[288]     The valuation date of the shares will be August 1, 2012.

[289]     Milne will purchase the shares of Dubois for a value as determined by the valuator.

[290]     The plaintiff is entitled to his costs unless there are issues I am unaware of and in that case the parties have leave to address me in regard to costs.

“The Honourable Mr. Justice Tindale”