COURT OF QUEEN S BENCH OF MANITOBA

Transcription

1 Date: Docket: CI (Winnipeg Centre) Indexed as: Lopes v. M.R. Lopes Investments Inc., et al. Cited as: 2018 MBQB 5 COURT OF QUEEN S BENCH OF MANITOBA B E T W E E N: MARIO LOPES, ) Counsel: ) applicant, ) DARRYL R. BUXTON and ) MICHAEL T. GERSTEIN - and - ) for the applicant ) M.R. LOPES INVESTMENTS INC., ) KEVIN T. WILLIAMS and JULIO LOPES, ROBERT LOPES and ) KYLA A. PEDERSEN JOE RODRIGUES, ) for the respondents ) respondents. ) JUDGMENT DELIVERED: ) JANUARY 9, 2018 GREENBERG J. [1] Julio Lopes and his two sons, Mario Lopes and Robert Lopes, spent 20 years building M.R. Lopes Investments Inc., a company that owns and manages a number of apartment buildings in Winnipeg. Joe Rodrigues joined the company in A few years ago the relationship between Mario and Robert began to unravel. Eventually all parties agreed that Mario should not stay with the company and they began to negotiate 1 For ease of reference, I refer to the parties by their first names.

2 2 terms for his departure. Mario says that, after the parties agreed to separate, the respondents engaged in conduct that was oppressive, unfairly prejudicial and unfairly disregarded his interests. He seeks a remedy for that conduct under s. 234 of The Corporations Act, C.C.S.M. c. C225 (the Act ). BACKGROUND [2] M.R. Lopes Investments Inc. (the Corporation ) was incorporated in 1998 with Julio as the sole shareholder and director. The Corporation s first property was purchased with proceeds of the sale of a house that Julio owned in Portugal. Over the course of the next 20 years the Corporation purchased a number of other properties. Mario, who is a real estate agent, was responsible for finding properties for the Corporation to purchase. Robert managed the Corporation s properties and finances and Julio looked after maintenance and renovation of the properties. Mario and Robert lived in units owned by the Corporation and were paid a salary for their work. [3] In 2005, Joe was hired to look after maintenance of the properties, initially on a part-time basis and then full time when Julio began to wind down his involvement. [4] In or around 2006, Julio began thinking about retirement and passing the business on to his sons through an estate freeze whereby the future growth in the Corporation would go to his sons with his equity being preserved through preferred shares. Once Joe became involved in the business it was decided he should be cut in. [5] In January 2008, the estate freeze was put into effect through a restructuring of the Corporation. Julio was issued 1,500,000 preferred shares with a fixed value of $1 per share. This reflected the value of the equity in all of the Corporation s assets at the

3 3 time. The intention was that Julio s interest in the Corporation would be bought out over time by gradual redemption of his shares. Julio currently has 1,250,000 preferred shares. [6] As a result of the restructuring, Mario and Robert were each issued 40 Class A common shares, valued at $1 per share; Joe was issued 20 Class A common shares. Mario became president and one of two directors of the Corporation. Robert became vice-president and the other director. [7] Mario, Robert and Joe continued to work for the Corporation and to receive salaries in equal amounts. Mario received his salary as a consulting fee to his realty company, Mario Lopes Real Estate Inc. In addition to his salary/consulting fees, Mario received commissions on the sale of the Corporation s properties. [8] The relationship between Mario and Robert began to deteriorate sometime in 2013 when Robert married a woman from Bulgaria whom he had met over the internet. Robert was offended when Mario suggested that he enter into a pre-nuptial agreement and the relationship between the two became worse over the next year or so. By early 2015, the parties had decided that they could no longer work together and that Mario should leave. They began to negotiate Mario s departure by way of a one-wing butterfly (the buy out ), an arrangement whereby some of the Corporation s assets would be transferred to a company owned by Mario. [9] Mario alleges that, during the course of negotiating the buy out, the respondents, in particular Robert, took a number of actions which were oppressive and prejudicial to his interests.

4 4 [10] Things came to a head on May 31, 2015, when Robert sent Mario a letter to advise him that, pursuant to a resolution of the Corporation agreed to the previous day, Mario s consulting contract would be terminated as of June 30, As a result, Mario would no longer receive a monthly consulting fee. At the time, Mario was still one of two directors of the Corporation and had not been consulted with regard to this decision. Mario retained legal counsel and, on July 6, 2015, filed this application. Mario s salary was not in fact terminated until November 2015 after he had been removed as a director at a shareholders meeting attended by him and his counsel. [11] Although this litigation had been commenced, the parties, through their counsel, continued to discuss a buy out. But Mario took the position that the respondents were refusing to provide financial information necessary to obtain the appraisals on which to base a buy out. Ultimately, in October 2016, the parties agreed to an interim order that required the respondents to provide Mario with certain financial information. The Corporation also agreed to reinstate Mario s salary/consulting fees of $7,000 per month, retroactive to October 31, 2015, on a without prejudice basis. That is to say, they agreed that whether Mario should have continued to receive a salary would still be an issue to be decided on this application. They agreed that if I determined that Mario was not entitled to continue to receive a salary after October 2015, the money paid to him (with interest at 3%) would be deducted from other amounts which he would receive for his interest in the Corporation.

5 5 [12] Mario claims that the respondents did not comply with the financial disclosure required by the interim order. He says that the conduct of the respondents and their lawyers showed an ongoing pattern of disregard of his interests. [13] But the respondents evidence is that they did provide a large volume of information and documentation. The respondents say that, in spite of what they provided to Mario, there were continual requests for more information and details about transactions that were dated and time consuming to compile. Mario claims that the respondents were delaying proceedings and not cooperating. But he was also placing roadblocks in the path of the proceedings. For example, when the respondents attempted to get an updated valuation of the Corporation in March 2017, Mario refused to provide his consent even though in the October 2016 order the Corporation agreed to pay part of the costs for Mario obtaining his own valuation. [14] When Mario would not consent to an updated valuation and did not respond to a settlement offer, the respondents concluded that the matter could not be resolved by a buy out. As a result, in April 2017, they consented to an order providing for liquidation and dissolution of the Corporation. ISSUES [15] The process for the sale of the Corporation s properties has already begun. However, Mario still seeks a determination that the actions of the respondents were oppressive, unfairly prejudicial or unfairly disregarded his interests and that he is entitled to damages as a remedy. Specifically, he claims as damages the salary/consulting fees

6 6 that he would have been paid if the respondents had not terminated his contract (that is to say, the money that was paid to him after October 2015 on a without prejudice basis). [16] I am also asked to determine whether Joe owes money to Mario as payment for the Class A common shares that were issued to him in 2008 when the Corporation was restructured. [17] Finally, I am asked to determine whether the Corporation should pay Mario s costs of these proceedings and whether the individual respondents should repay the Corporation the legal fees which the Corporation has been paying on their behalf to respond to this application. THE LAW [18] The oppression remedy under s. 234 of the Act gives the court broad, equitable jurisdiction to enforce not just what is legal but what is fair (see BCE Inc. v Debentureholders, 2008 SCC 69, [2008] S.C.J. No. 37 (QL), at para. 58). The objective of the remedy is to protect the reasonable expectations of the stakeholder. Factors which are relevant in determining reasonable expectations include general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders (para. 72). [19] The assessment of reasonable expectations is fact specific. In that regard, it is not reasonable to expect the same strict formalities to be followed by directors of a small, closely held corporation as directors of a large public one. Nor would one expect parties

7 7 who are related to one another to conduct themselves in the same way as those who operate at arm s length. A company s past practices may create reasonable expectations but they may also undermine a claim to them. [20] If a breach of an applicant s reasonable expectations is established, the court must then consider whether the conduct complained of amounted to oppression, unfair prejudice to or unfair disregard of an applicant s interests. These three wrongs, which cover a spectrum of conduct from the most serious (oppression) to the least serious (unfair disregard), were described in BCE, as follows: 67 "Oppression" carries the sense of conduct that is coercive and abusive, and suggests bad faith. "Unfair prejudice" may admit of a less culpable state of mind, that nevertheless has unfair consequences. Finally, "unfair disregard" of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders' reasonable expectations: see Koehnen, at pp The phrases describe, in adjectival terms, ways in which corporate actors may fail to meet the reasonable expectations of stakeholders. [21] If the court finds that the actions of a respondent were oppressive or unfair, the court should fashion a remedy that rectifies the unfairness. The purpose of the remedy is not to be punitive or to give an applicant more than he could reasonably have expected (see Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481 (Ont. C.A.), at paras. 23 and 34-35). ANALYSIS Credibility [22] While some of the allegations of oppressive conduct in this case are based on uncontentious facts, many are not, and to some extent my findings depend on the

8 8 credibility of the parties. Neither party here suggested that, because there were credibility issues, a trial should be directed on any issue. Nor would it have been appropriate to do so. Applications for an oppression remedy are intended to be summary proceedings to avoid the expense and delay of a trial (see Feierstein and Fishman Medical Corp. v. Costas Ataliotis, 2007 MBCA 132, at paras ). While no trial was directed in this matter, I had the opportunity to observe the parties give evidence because as they could not agree on a schedule for cross-examination on affidavits outside of court, those examinations were conducted before me. As a result, where necessary, I am comfortable making findings of credibility. [23] The source of the rift in this business was the breakdown in the personal relationship between Mario and Robert and they provided most of the evidence on the events that transpired. On those matters where it is necessary to choose between the evidence of the two, I accept the evidence of Robert. I say that for the following reasons. [24] When Robert was cross-examined he answered every question slowly and thoughtfully. He appeared to be taking great care to state things accurately and to not overstate matters. His evidence was supported by the evidence of Joe and Julio. [25] By comparison, I found Mario s evidence to be exaggerated. For example, Mario suggested that Julio was being manipulated by Robert. He questioned whether Julio understands these proceedings and whether the statements in Julio s affidavit are his own. He explained that Julio s first language is Portuguese and that he does not have a strong command of English. But I heard Julio testify and he had no difficulty at all with the English language when he did.

9 9 [26] I found many of Mario s allegations of oppressive conduct to be overblown. Mario acknowledged that the Corporation had always been managed very casually. During the seven years when Mario was president and one of two directors of the Corporation, he never called a directors meeting or a shareholders meeting and never hired an auditor to prepare financial statements. Yet, when he filed this application, he claimed that Robert s failure to call meetings and obtain audited statements was oppressive. [27] There were numerous contradictions within Mario s affidavit evidence. For example, he criticized Robert both for not calling shareholders meetings and for calling them. He asserted that it was unfair when Robert called a shareholders meeting to discuss the sale of some properties because there had never previously been a shareholder s meeting in the entire history of the Corporation (Mario s affidavit affirmed September 16, 2016, para. 63). This makes no sense. [28] I also found Mario s explanation for having his realtor s licence suspended by the Manitoba Securities Commission to be unbelievable. In the summer of 2001, the Securities Commission initiated proceedings to cancel or suspend Mario s registration for fraudulent acts. In August 2001, Mario entered into a settlement agreement with the Securities Commission under which he agreed to a five year suspension. The order of the Securities Commission, which was filed as an exhibit, states that Mario admitted that, in two cases, he provided gift letters to a prospective mortgagee, which purported to be signed by his clients, stating that the client had received a gift from a relative to cover the down payment on the purchase of a house. In fact, the clients had not received a gift and had not seen or signed the letter. Moreover, in one of the two cases, after the

10 10 bank refused financing on the basis of the letter, Mario told his client to put an empty deposit envelope into the automated teller machine at the client s bank indicating that he was making a deposit of $5,000 (when no money was in fact deposited) and to give him the receipt showing that the deposit had been made. Mario told the client that this was not fraud if he did not withdraw money from the account. [29] When cross-examined about the suspension, Mario provided two explanations for his conduct. First, he said that he was working as an assistant for another agent and that he was acting on that agent s instructions. However, the order of the Securities Commission states that Mario admitted that he prepared the gift letters and gave them to the bank, that he instructed the client to make a phoney deposit and that he acknowledged that he committed fraudulent acts. Second, Mario testified that the action for which he was suspended subsequently became legal. He said that right after he was suspended, Canada Mortgage and Housing Corporation legalized the zero down program. He said that he and his employer had simply been guinea pigs, suggesting that all he was doing was trying to get financing for his clients to purchase a home without a down payment. But Mario was not suspended for seeking financing for his clients with no down payment, he was suspended for preparing false documents stating that the clients had the down payment when they did not. [30] The fact that Mario was disciplined for committing fraud is relevant in assessing his credibility, but what impugns his credibility more is that he does not acknowledge what he did. His explanation for the suspension is so incredible that it raises concerns about other aspects of his evidence. Moreover, the evidence of both Robert and Joe is

11 11 that Mario tried to get them involved in a fraudulent act. Mario suggested they use part of a grant from the Manitoba Housing and Renewal Corporation ( MHRC ), which was intended for the renovation of one property, to build homes on another property and to falsify the documents sent to MHRC as to where the money was spent. Was there oppressive conduct? [31] In his affidavit evidence, Mario sets out a litany of complaints of actions by the respondents that he alleges were oppressive. I appreciate that conduct, which on its own may not amount to oppression, when considered in conjunction with other conduct may meet the threshold. However, as I said, I found many of Mario s allegations to be exaggerated and a reflection of his dissatisfaction with no longer being able to control the Corporation, which was the result of his own decision to leave the business. [32] The essence of Mario s numerous complaints is that the respondents terminated his consulting contract and, therefore, his salary without authority; that Robert mismanaged the Corporation s properties; that Robert withheld from Mario financial information necessary to determine the value of the Corporation, while the parties were trying to negotiate the buy out; and that the respondents were negotiating his departure from the business in bad faith. [33] There are three factors in this case which provide an important context for assessing whether Mario s reasonable expectations were infringed by the actions of the respondents. First, this was a small family business which had been run in a very informal way. As I said, during the entire time that Mario was a director and president of the Corporation, there were never any directors or shareholders meetings. Business decisions

12 12 were made by the will of the majority determined through informal discussion. Second, the allegations relate to actions of the respondents that occurred after the parties had agreed that they could no longer work together. This was not a situation where the applicant was being forced out of the Corporation by the respondents. In fact, the decision to leave the Corporation was Mario s. The dispute is over how that separation was to be accomplished. Third, most of the allegations relate to actions that occurred after these proceedings were commenced and both parties had retained counsel. Some of the allegations are directed at the respondents counsel and appear to be more dissatisfaction with the litigation process than with the respondents operation of the Corporation. Terminating Mario s salary and removing Mario as director [34] As I said, in or around January 2015, the parties decided that they should sever their relationship and began negotiating a buy out of Mario s interest. On May 31, 2015, while negotiations were ongoing, Mario received a notice from Robert indicating that by a resolution of the Corporation agreed to on May 30, 2015, his contract as the Corporation s realtor was terminated and that he would no longer receive consulting fees after June 30, Mario retained counsel and these proceedings were launched. [35] Mario was still a director and president of the Corporation at this time. He had received no notice of the meeting where the resolution was passed and, needless to say, did not consent to it. It is clear that Robert, alone or together with the other respondents, had no authority to terminate Mario s consulting contract, even though at this point Mario was doing little, if any, work for the Corporation.

13 13 [36] Mario had been working for the Corporation and receiving payment for that work for 16 years. There is no doubt that he could reasonably expect that his employment would not, in fact could not, be terminated without his consent while he was still a director of the Corporation. I am satisfied that the respondents actions in that regard offended Mario s reasonable expectations and were unfairly prejudicial to him. But the offending conduct was quickly rectified. Mario continued to receive a salary until October His contract was terminated after he had been removed as a director at a properly constituted shareholders meeting. Once he was removed as director, the respondents did have the authority to terminate his contract. [37] Of course, the fact that the respondents actions were lawful does not mean that they did not breach reasonable expectations. Mario says that he did not expect to be removed as director and he did not expect that his contract would be terminated and that both acts were oppressive. I do not believe that Mario expected to stay on as a director and to continue to be involved in the operation of the Corporation once he had decided to leave the Corporation. In any event, if he did expect to stay on, that expectation was not reasonable. In particular, it would not be reasonable for him to have expected to continue to run the business with Robert once he commenced these proceedings. [38] In argument, Mario s counsel said that the evidence was clear that Robert had a plan to oust Mario from the business and that he put that plan into place. But it was Mario who had initiated the separation. In Mario s affidavit affirmed September 28, 2015, he attests:

14 Around January 2015, our personal conflicts became problematic to the point where Robert would only correspond with me via and refused to meet in-person. Our relationship became so strained that it is now impossible to continue to carry on business together. 15. Once I realized how bad the situation had become, I requested that all shareholders meet together with Mr. Cy Fien, a tax lawyer at [Fillmore] Riley LLP, to discuss our options to resolve the situation including a potential one-wing butterfly of myself away from the Corporation. [39] It is clear from this statement that Mario felt he could no longer continue to work with Robert and wished to be bought out. In his affidavit evidence, he also states that he expected that Robert and Joe would vote to remove him as director. [40] But Mario says the parties agreed to maintain the status quo at a meeting with their counsel in July 2015, after these proceedings were commenced. The respondents deny any agreement and there is nothing in the evidence that supports such an agreement. Mario points to an sent by his counsel to the respondents counsel before the meeting, which lists Mario s continuation as director and the continuation of his salary as items that they wished to discuss at the July meeting. He also points to a letter sent to his counsel by the respondents counsel after the meeting that he says confirms his recollection of the meeting. But that letter only confirms that there were settlement discussions at the meeting, in particular an offer by Mario to purchase the respondents shares. The letter makes no reference to any agreement to maintain the status quo. [41] The respondents removed Mario as a director at a shareholders meeting attended by him and his counsel after the July meeting. There is no suggestion that that meeting was not properly constituted. And I am satisfied that it was in the Corporation s interests

15 15 to remove Mario as director. First, as I said, it is undisputed that Mario and Robert could no longer work together. Second, the respondents say, and I accept, that Mario was no longer acting in the best interests of the Corporation. They were concerned when Mario proposed using a grant from MHRC improperly. Robert also found out that Mario had pocketed the down payment when he sold one of the Corporation s properties. And in June 2015, Mario had withdrawn $60,000 from the Corporation s bank account without authorization. Robert also felt that Mario had misled him about the purchase of a property at 210 St. Mary s Road. Robert had agreed to the purchase on Mario s assurance that it would be resold quickly. It was not. Mario has explanations for each of the above events but, as I said, where his evidence conflicts with that of Robert, I accept Robert s version of events. [42] I am satisfied that Mario did not expect to stay on as director once the parties agreed he should leave the business and I am satisfied his removal as director was in the best interests of the Corporation. [43] As for the termination of Mario s salary/consulting fees, Mario says that the termination of his contract in October 2015 was oppressive. (Pursuant to an interim consent order the consulting fees were reinstated on a without prejudice basis.) Mario says that it was his reasonable expectation that all shareholders would continue to receive salaries until the separation was complete. Again, he alleges that this was part of the agreement made at the July meeting to maintain the status quo. But, as I said, the respondents dispute there was any such agreement and, aside from Mario s assertion, there is no evidence to support one.

16 16 [44] Robert says that Mario s contract was terminated because he did no work for the Corporation after the parties decided to separate. Although Mario acknowledges that his workload decreased, he claims that he was still looking for properties for the Corporation in He says that this is confirmed by the fact that, in June 2015, he contacted the Assiniboine Credit Union ( ACU ), where the Corporation did its banking, to determine whether there were funds to purchase some duplexes. But the s between Robert and ACU show the opposite. Robert made it clear to ACU that Mario had no authority to acquire the properties. [45] Mario also claims that he was entitled to continue to be paid consulting fees because of the community work that he did which he says garnered business for the Corporation. He testified that he spent 80 hours a month sitting on 21 charitable and community boards and that his sole reason for doing so was to benefit the Corporation. I find it difficult to believe that he spent that amount of time on unpaid community work. But, even if he did, I do not accept his evidence that his involvement was purely to benefit the Corporation and not to generate business for the private real estate practice which he had resumed in [46] Mario s main role with the Corporation was to act as its realtor to purchase and sell properties. But once the parties decided to separate and were in the process of negotiating a butterfly buy out, there would be no reason to continue to acquire properties for the Corporation. Nor would it have been in the Corporation s interests to continue to use Mario as the agent to sell its properties. They were not getting any accommodation on real estate commissions by using Mario as the agent. He was

17 17 receiving commissions on sales in addition to being paid a substantial salary ($150,000 in 2014). On one sale in 2013, Mario took a commission of $50,000 where the Corporation s profit on the sale was only $140,000. [47] Mario also alleges that terminating his contract was oppressive because he relied on the income from the business. In the affidavit that he affirmed on September 28, 2015, he states that his contract with the Corporation is my only source of income. This statement is not true. Mario had an active private real estate practice. In crossexamination, he acknowledged having sold more than 20 homes in 2015 and about 40 homes in Moreover, if his salary from the Corporation was his only source of income, it is odd that, in one year, the Corporation purchased a Hummer vehicle for him in lieu of a salary, a luxury he would not be able to afford if that was his only income (see affidavit of Roberto Lopes sworn April 13, 2017, Ex. B ). [48] Mario says that it was unfair for Robert and Joe to continue to draw a salary from the Corporation when he was not also receiving a salary. But Robert and Joe were performing services for the Corporation. Mario was not. [49] Mario says that he was entitled to a continued salary because he was instrumental to the success of the Corporation. But his contribution is reflected in the value of the shares which he still owns. It does not entitle him to damages as an oppression remedy. [50] I am satisfied that when Mario s salary was terminated he was no longer performing services for the Corporation and it was not reasonable for him to expect to continue to be paid. Nor has he established any other justification for his salary being continued.

18 18 Mismanaging the business [51] Mario has a number of complaints about the manner in which Robert ran the business. He complains about the informal manner in which the business was operated and says that Robert s mismanagement jeopardized the business. In my view, his complaints are not based on reasonable expectations, nor did Robert s actions place the business in jeopardy. [52] Robert had always been in charge of the Corporation s finances and had always done so in an informal way. In his September 16, 2016 affidavit, Mario explains: 33. Moreover, during this period of time from 1999 to 2013, the Corporation was always run as a tight-knit family business. None of my family members, nor Joe, has ever had any formal training in corporate governance, and we ran the Corporation very casually without formal corporate procedures such as directors meetings, formal shareholders meetings, meeting minutes, or resolutions. [53] In view of this statement, it is surprising that Mario complains that the Corporation never held formal or regular shareholders or directors meetings and did not keep proper minute books. While Mario was a director and president of the Corporation he chose not to follow any formal processes, so he could not reasonably expect Robert to do so after he was removed as director. [54] Mario complains that the respondents did not consult him about major decisions such as listing properties for sale. But, in fact, he did get notice of a shareholders meeting in January 2016 to discuss the sale of properties. [55] Mario s specific allegations of mismanagement on Robert s part include the following complaints:

19 19 Robert extended a loan on one of the properties while they were negotiating the buy out. This was a term loan that had expired and, therefore, required renewal. Robert told ACU that Mario was to be removed as a director and as a result ACU terminated its financial support. But Robert had written to ACU because Mario was trying to access funds to buy properties. So Robert was compelled to tell ACU that Mario had no authority to do so. The Corporation had incurred large shareholder loans owed to Robert, Joe and Julio. Because ACU closed the Corporation s account, including its line of credit, Robert used shareholder loans to pay off the line of credit and a mortgage and to cover monthly expenses. While Mario suggests these loans were illegitimate, they were necessary to keep the Corporation afloat and protected the interests of all shareholders, including Mario. Robert opened a secret bank account. Robert moved the account because after Mario took $60,000 out of the Corporation s account without authorization, he was concerned about his access to other corporate funds. Robert was not attending to tenant complaints in the apartment building at 210 St. Mary s Road. Robert acknowledged that he was not attending to that property as much as he might have. This was because he had agreed to the purchase of the property in December 2014 on Mario s representation that it would be resold within a couple of months. He says that he would not otherwise have agreed to the purchase because he was no longer interested

20 20 in managing smaller blocks like 210 St. Mary s. In any event, the tenant complaints were subsequently taken care of. Robert s wife and Joe s wife were receiving salaries from the Corporation even though they were not doing any work for it. This was done as a form of income splitting for tax purposes and, according to Robert, was done on Mario s recommendation. That is to say, Robert and Joe diverted part of their salaries to their wives. In doing so, they took no more money from the Corporation than they were supposed to receive as salary. [56] There is no question that Robert s accounting methods left a lot to be desired. But, as I said, he ran the Corporation the way he always did. And there is no evidence that he acted in bad faith or that his management style caused prejudice to or unfairly disregarded Mario s interests. Failure to provide financial information [57] Mario alleges that Robert withheld financial information from him both while he was a director of the Corporation and after. To the extent that his complaints about access to financial information relate to the period of time when he was still a director, they are unfounded. While he was a director, Mario had direct access to banking information as a signing authority on the Corporation s account. His own affidavit confirms that he had access to that information. Some of the allegations he makes in this application are based on information he says that he got by reviewing banking records. For example, in his affidavit of September 28, 2015, in suggesting impropriety on Robert s part, he refers to a cheque that he found when he reviewed the bank records.

21 21 [58] Mario also complains that Robert never complied with his requests for audited financial statements, in spite of the fact that he never waived his right as a shareholder to receive them. Again, to the extent that this allegation relates to the period of time when Mario was president and a director of the Corporation, it is unfounded since it was within his power, in fact, it was his obligation, to direct their preparation. Mario remained a director until he commenced this litigation requesting a full accounting and liquidation of the Corporation. Thereafter, the requests for financial disclosure were part of the interaction between counsel and made in the course of continued settlement discussions. Whatever delay there may have been in the provision of financial disclosure, it was related more to the litigation process and attempts to resolve this dispute than to oppressive conduct on the part of Robert. [59] Mario alleges that, in May 2015, Robert provided the accountants, who were preparing an appraisal of the Corporation, with incorrect financial information in order to skew the appraisals and thereby diminish the value of the buy out. Specifically, Mario alleges that Robert provided the appraisers with inaccurate figures about laundry, air conditioning rental and late fee income. [60] Robert says that he was not intentionally misleading the appraisers. He provided the information about that income as it appeared on the Corporation s books. He points out that it was not in his interests to underestimate the income because, as they were negotiating a butterfly buyout at the time, the valuation, whether high or low, would have the same impact on him as it would on Mario. In any event, the error was quickly rectified and the correct information provided.

22 22 [61] Mario claims that, even after the respondents consented to an interim order in October 2016, which required them to provide financial disclosure to him, that information was not provided. The respondents say they did provide a large volume of documents but they were met with continual requests for more. They say that, as of April 2017, they had spent $33,000 in efforts to comply with the interim order. I cannot find on the basis of the evidence before me that the respondents or their counsel were acting unreasonably in the manner in which they responded to requests for financial disclosure. Negotiating in bad faith [62] Mario says that while he made a number of concessions in an attempt to settle this dispute, the respondents were negotiating in bad faith, an example of which is that they reneged on an agreement to arbitrate. In my view, that decision does not reflect bad faith. The respondents explained that they reneged on the agreement after being advised by prospective lenders that the appraisals that had been obtained by the parties overvalued the Corporation s properties. As a result, the respondents determined that they would not be able to get the financing necessary to buy out Mario and so did not want to be bound by a decision with which they could not comply. In any event, Mario is not in a position to criticize since, two months later, it was he who backed out of a second agreement to arbitrate. [63] Mario also criticizes the respondents for not accepting what he considered to be a legitimate settlement offer. But Mario did not accept or respond to two shotgun offers made by the respondents.

23 23 [64] The respondents ultimately agreed to the relief sought by Mario, the liquidation of the Corporation s assets. They say they agreed to liquidation because they could no longer fight the unreasonable positions taken by Mario, the last of which was to refuse his consent to a revised valuation of the Corporation unless he was permitted to have input into the assumptions on which the valuation would be based. This was in spite of the fact that he was getting his own valuation report prepared. [65] Mario also accuses Robert of violating his reasonable expectation that he would not conduct personal attacks against him. Specifically, he says that Robert maliciously sent a letter to his former common-law spouse (with whom he had ongoing court proceedings) with information as to the income that Mario had received from the Corporation in previous years. I am not sure how this amounts to a personal attack, especially since Mario s spouse is legally entitled to this information (see The Family Maintenance Act, C.C.S.M. c. F120, s. 10(1)(f)). [66] Mario says that he reasonably expected the respondents to negotiate his separation from the Corporation in good faith. But he was the one who initiated litigation and once he did, he would have to expect that the nature of the negotiations would change. Both sides allege that the other side was unreasonable. But there is no evidence of bad faith. Since Mario was represented by experienced counsel, he cannot argue that the negotiations unfairly prejudiced or disregarded his interests. Even if the negotiations were hard fought, that would not make them oppressive.

24 24 The remedy [67] Of the many allegations made by Mario, the only one which I find breached reasonable expectations was the respondents decision in May 2015 to terminate Mario s consulting contract. This they had no authority to do. However, the situation was quickly rectified and his salary continued. As I explained, when Mario s salary was ultimately terminated, it was in the Corporation s interests to do so. The purpose of an oppression remedy is not to punish. And as the offending conduct was rectified, there is no basis for a further remedy. As I find that the subsequent termination of the contract was justified, Mario was not entitled to receive consulting fees after October Therefore, in accordance with the agreement between the parties, the Corporation should be reimbursed for the $7,000 per month paid to Mario from November 2015 onwards, plus interest as agreed. [68] None of the other allegations, either alone or together, would entitle Mario to an oppression remedy. In any event, before the application was heard, the respondents did agree to liquidate and that process is underway. So, Mario did get the ultimate remedy he sought. Does Joe owe Mario for his shares? [69] Mario s claim that Joe owes him money for the shares he received in 2008 was not raised in the notice of application that commenced these proceedings and it is a distinct claim from the claim for an oppression remedy. The claim is really one in debt. While I raised with counsel whether I have jurisdiction to order a repayment of the debt as a

25 25 remedy under s. 234 of the Act (see Naneff v. Con-Crete Holdings Ltd., at para. 23), all parties provided evidence on this issue and asked that I decide it. [70] As Julio moved towards retirement, his plan was to transition ownership of the business to his sons by way of an estate freeze. To this end there were discussions with the Corporation s accountant in 2006 who explained that [t]he purpose of the proposed reorganization plan is to freeze Julio s interest in the corporation and allow growth to pass on to the next generation. The plan was that Julio would exchange all of his common shares in the Corporation for voting preferred shares which would have a redemption value equal to the fair market value of the Corporation. The accountant explained: 4. After this exchange the children of Julio will subscribe for new common growth shares in M.R. Lopes for a nominal amount. This is possible as all of the value of the corporation will be in the preferred shares owned by Julio. It is imperative that a valuation is completed and that the preferred shares taken back by Julio equal the fair market value of the corporation to avoid any adverse tax consequences such as attribution of future gains to Julio. (Affidavit of Mario Lopes affirmed October 13, 2016, Ex. N ) [71] The initial plan was that in the restructuring, 100 common shares would be issued, 50 to Mario and 50 to Robert. But once Joe began working for the Corporation, it was decided that he should participate in its growth. So, when the plan to restructure was put into place in 2008, of the 100 common shares that were issued, 40 went to Mario, 40 to Robert and 20 to Joe. [72] Mario claims that the 20 common shares issued to Joe came from the shares originally allotted to him and Robert, and that Joe agreed to pay $300,000 for these shares, $150,000 to each of the brothers. Joe never paid for the shares and Mario is now seeking the $150,000 that he says is owed to him.

26 26 [73] Julio, Robert and Joe all deny that any such agreement exists. Joe did not purchase his shares from Mario. The shares were issued by treasury. The respondents say that the common shares had no value at the time they were issued because all of the equity in the business at the time was allocated to Julio s preferred shares, and the documentary evidence supports this. The subscription for the shares signed by Joe shows that that he paid $20 in full payment of the aggregate subscription price for such shares. The fact that that is all they were worth is consistent with the explanation of the estate freeze provided by the Corporation s accountant. It was essential that the common shares had nominal value to avoid tax consequences. Mario has produced no evidence of an agreement between him and Joe that Joe was to pay him for the shares. [74] I also note that the shareholders agreement made as of June 1, 2008, which Mario filed in evidence, does not suggest that any amount is owed for the shares. The agreement refers to the share distribution, and states: 2.3 Status of Shares Each of the shareholders represents and warrants to and covenants with each of the other parties that the Shares held by such Shareholder are and shall be owned by the said shareholder, free and clear of all mortgages, charges, pledges or other encumbrances except as registered as of the date hereof. The agreement also states: 1.6 Entire Agreement The parties hereto acknowledge, covenant and agree that this Agreement contains the entire Agreement among the parties in respect of its subject matter and the investment in, loans to, and the business of, the Corporation and supersedes all earlier agreements and proposals, written or otherwise. There are no verbal representations or agreements of any kind relating to the subject matter hereof and the investment in loans to and the business of, the Corporation not set out in this Agreement.

27 27 [75] Mario says that he would never have invited Joe to become an equity partner without Joe promising to buy in. But the equity in the Corporation was not his to sell. At the time of the restructuring, the business belonged to Julio. If anyone was to be paid for shares, it would be him. And, as I said, he denies any such agreement. Moreover, if Mario is entitled to be paid, so is Robert. And in spite of the fact that it is in Robert s interest to say he is owed money for the shares, he says that he is not. [76] Mario points to an sent by Robert to him and Joe in March 2015 in which Robert says Joe and Julio appear to have reversed their position that Joe s $300,000 investment debt is owed to Julio. It is now owed to Mario and Robert at $150,000 each (see affidavit of Mario Lopes affirmed October 13, 2016, Ex. M ). This statement was part of a series of calculations by Robert, which include amounts owed by Mario to Joe and Robert, after which Robert concluded that the net amount owed by Joe to Mario was $30,000, not $150,000. [77] When Robert was cross-examined about this , he said that it reflects discussions the parties were having in an attempt to resolve the buy out. Those discussions did not lead to an agreement, so I do not consider the contents of the to be relevant. Costs [78] I have concluded that Mario has not established grounds for an oppression remedy. Nor has he established that Joe owes him any money. In the usual course,

28 28 costs go to the successful party. But Mario argues that, regardless of the outcome, his legal fees should be paid by the Corporation. [79] Mario says that he had no choice but to bring this application in order to obtain a remedy for the respondents oppressive conduct and, eventually, the respondents consented to most of the relief he sought. Therefore, they should pay his costs. [80] But the respondents point out that in his notice of application, Mario does not ask for an order that the respondents be required to buy out his interest, which is what the parties had been negotiating before the application was filed. The remedy he seeks is liquidation of the business. Liquidation of a successful business is an extreme measure. The respondents wanted the business to continue and so they were forced to defend the application. They continued to try to negotiate a buy out of Mario s interest but say they eventually capitulated to the liquidation because of the barrage of demands from Mario for financial information and, ultimately, because of Mario s refusal to cooperate in obtaining an updated valuation of the business. [81] In my view, while Mario may have been justified in filing this application when his consulting contract was terminated, that issue was quickly rectified. Yet, he pursued the application for an oppression remedy, filing five more affidavits which included a litany of complaints, none of which I found had merit. It was not until a year after filing this application, that he first raised the issue of Joe owing him money, also an issue that I found had no merit. [82] Prior to consenting to liquidation, the respondents made two offers to settle this matter by buying out Mario s interest. Mario says that he was not in a position to accept

29 29 the offers because he did not have sufficient financial disclosure. But those offers were shotgun offers that would have allowed Mario to buy out the respondents interest based on the same value as the respondents were prepared to pay for his interest. So the reasonableness of the offer is implicit. Moreover, the offer would have allowed Mario to buy out the respondents for significantly less than the value he had initially placed on the Corporation. The respondents say that by forcing the liquidation, Mario has caused all parties to lose. [83] In my view, the fact that the respondents ultimately consented to liquidation does not mean Mario is entitled to costs. Had they not consented to it, there would have been no basis to grant it as an oppression remedy. The respondents had never disputed Mario s right to be bought out. The issue was always the price. And these proceedings did not help resolve that. In the end, no one was better off by the result. It was not reasonable for Mario to pursue the proceedings and he is not entitled to his costs for doing so. [84] Mario says that, if his costs are not paid by the Corporation, neither should the respondent s costs be paid. While the Corporation is represented by the same counsel as the individual respondents, it is the actions of the individual respondents that is the subject of the dispute. The Corporation is a named party for the purpose of the remedy. The Corporation has been paying the individual respondents legal costs; so, as Mario has a 40% interest in the Corporation, he is effectively paying 40% of their costs. [85] Mario refers to cases where the individual respondents were ordered to pay back legal fees that had been covered by the Corporation. However, in the cases referred to,

30 30 the applicant was the successful party (see, e.g., Gibbons v. Medical Carriers Ltd., 2001 MBQB 310). That is not the case here. [86] As I believe that the respondents were justified in defending the application, it is reasonable that their fees be covered by the Corporation. [87] As Mario is effectively paying a portion of the respondents legal fees, I make no further order of court costs under Court of Queen s Bench Rule 57. CONCLUSION [88] I am dismissing the application. As I said, most of Mario s complaints relate to events that transpired after these proceedings were commenced and many of his complaints seem to be more dissatisfaction with the litigation process than the management of the Corporation. But that observation is in no way meant to be critical of the way counsel conducted the litigation. I, of course, have only a limited view of what transpired outside of the courtroom. But, in the courtroom, counsel on both sides presented their cases in a very thorough and capable manner, and I wish to thank counsel on both sides for that. [89] The difficulty is that s. 234 of the Act is meant to protect commercial interests and to provide a fair resolution of conflicting interests (BCE, para. 72). But this case, as many involving small companies, is really more a family dispute than a business dispute and an applicant cannot reasonably expect that the remedies available under s. 234 will resolve those issues. J.