Voong v., 2012 ABQB 51

Court of Queen ’ s Bench of Alberta Citation: Voong v. 733180 Alberta Ltd., 2012 ABQB 51 Date: 20120120 Docket: 1001 05547 Registry: Calgary Between: Vincent Voong and Lisa Voong Plaintiffs - and - 733180 Alberta Ltd, Electric Foods Inc., Bencheryl International Ltd, Danny Wong and Joyce Wong Defendants _______________________________________________________ Reasons for Judgment of J.B. Hanebury, Master in Chambers _______________________________________________________ [ 1 ] Two long-time friends became involved in the purchase and development of A & W franchises.

One took preferred shares and the other common shares in an investment company, 733180 Alberta Ltd. (733 Ltd.). That company lent funds to another company, Electric Foods Inc., for the purchase and development of the franchises. Twelve years later the common shareholder redeemed his friend’s preferred shares for $200.00. The preferred shareholders launched this action which includes claims against Electric Foods and two parties who allegedly received funds that should have gone to the preferred shareholders. Those three parties seek the

summary dismissal of the claims against them.

Facts [ 2 ] Mr Voong and Mr. Wong were friends for ten years when they considered purchasing and running A & W franchises in Calgary. Both put up approximately $150,000.00 and the business, while it went through some rough patches, has flourished. [ 3 ] Their stories diverge on the nature of their business arrangement. [ 4 ] Mr. Voong says that they were to be joint partners and would both hold common shares in the company that would purchase the franchises. He says that when he and Mr. Wong discovered the degree of personal liability that the business venture would involve, Mr. Wong asked Mr.

Voong to make his investment in a way that would not leave Mr. Voong open to personal liability. Then, if the venture failed, Mr. Voong could look after Mr. Wong’s family. [ 5 ] Mr Wong has a different recollection of events. He says that Mr. Voong did not want any personal liability and as a result refused to invest in the venture directly. [ 6 ] Regardless of the reason, the parties eventually set up 733 Ltd and each put approximately $150,000.00 into that company. The sums invested by both Mr. Wong and Mr.

Voong were shown as a shareholders’ loans but there appear to have been no terms set for the payment of interest or the timing of repayment. Mr. Wong received common shares in the company, while his wife, and Mr. Voong and his wife, received preferred shares.

There is a disagreement as to what, if any, terms governed the redemption of these preferred shares. [ 7 ] 733 Ltd. then lent the money invested to another company, Electric Foods, which, in turn, invested in the franchises. 733 Ltd. held 60 % of the shares of Electric Foods. 733 Ltd.’s interest subsequently increased to 80% of the shares of the company. [ 8 ] Mr. Voong was not involved in the day to day business operations of the franchises, although he made further investments in 733 Ltd. over the years, which were shown on the books as shareholders’ loans. He says he acted as a mentor to Mr. Wong. Mr.

Wong was paid separately for his involvement in the day-to-day running of the Electric Food business. [ 9 ] Profits were paid from Electric Foods to 733 Ltd. and then to the Wongs and the Voongs equally over the ensuing ten years and the funds were shown on the records of the company as the repayment of shareholders’ loans, dividends and management fees. The shareholders’ loans were paid out in 2007. Since the repayment of the loans a further $180,000.00 of the profits of Electric Foods was paid by 733 Ltd. to the Voongs. [ 10 ] Mr.

Voong says that in April, 2008, he asked for the redemption of the preferred shares of he and his wife. They were not redeemed, and funds continued to flow from Electric Foods to 733 Ltd. to the Voongs. This continued until November, 2009. [ 11 ] In December, 2009, Mr. Wong redeemed the Voongs’ preferred shares for $200.00. Mr.

Voong commenced this action, alleging oppression and seeking the payment of the proper value of the shares, or a declaration that the redemption was improper, in which case he asks for the issuance of new shares and the repayment of funds paid from the profits of Electric Foods to Joyce Wong and Bencheryl International Limited. The latter is a company in which Mr. and Mrs. Wong have shares. [ 12 ] Mr. Voong argues that the arrangement was that he was an equal partner in 733 Ltd. and the net profits of Electric Foods were to flow through in equal shares to the Wongs and the Voongs.

His investment he says, was a capital investment, not a mere shareholder’s loan. He believes funds may have been diverted inappropriately from the profits of Electric Foods to Mrs. Wong and Bencheryl International, particularly after the repayment of the shareholders’ loans. He says that the defendant companies have refused to provide the financial information necessary to determine the issue.

[ 13 ] He has a cross-application seeking the production of the financial statements subsequent to the purported redemption for 733 Ltd. and the financial statements for the last ten years for Electric Foods. [ 14 ] Mr. Voong alleges that he and his wife have been oppressed as shareholders of the company and he relies on the provisions of the Business Corporations Act R.S.A. 2000 c. B-9. [ 15 ] Mr. Wong acknowledges that there is a triable dispute existing in relation to the value of the redeemed shares. He does not seek to dismiss the claim against 733 Ltd. or himself.

There are questions as to when various documents were signed and what, if any, terms governed the redemption of the preferred shares. There are also questions as to the intention of the parties in relation to Mr. Voong’s role in the venture. [ 16 ] However, Mr. Wong [1] on behalf of all of the defendants argue that there is no triable issue in relation to the other parties. In essence their argument is that the Voongs have no cause of action against Electric Foods, Joyce Wong, and the Wongs’ company, Bencheryl International Ltd., and the claim should be dismissed.

Issues [ 17 ] This application raises several issues: 1. Is there a genuine issue for trial on the question of whether the Voongs have standing as complainants under the Business Corporation Act ? 2. Is there a genuine issue for trial in relation to their claim against Electric Foods? 3. Is there a genuine issue for trial in relation to their claim against Mrs. Wong and Bencheryl International? 4. Are the missing financial records for 733 Ltd. and Electric Foods relevant and material to the claim and therefore, producible?

Analysis [ 18 ] Is there a genuine issue for trial on the question of whether the Voongs have standing as complainants under the Business Corporation Act ? [ 19 ] For Mr. and Mrs. Voong to rely on the oppression remedies they are seeking against Electric Foods, Mrs. Wong and Bencheryl International, they must be complainants under the Business Corporations Act . [ 20 ] Section 239(1)(b)(

i) of the Act provides that a security holder or a former security holder of a corporation or any of its affiliates has standing as a complainant. A security holder is defined to include a holder of shares. [ 21 ] Subsection 2(1) of the Act provides that a company is affiliated with another company if one of them is the subsidiary of the other or each of them is controlled by the same person . A corporate subsidiary is a company controlled by another company.

[22] Mr. Wong has all of the voting shares of 733 Ltd. which has 80% of the voting shares of Electric Foods. He was the soledirector of 733 Ltd. Therefore, it is argued, he has the de jure control of both companies: Duhai Printes (Western) Ltd. v. R., 1998CarswellNat 750 (S.C.C.). Furthermore, Electric Foods is a corporate subsidiary of 733 Ltd. As a result the companies appear to beaffiliates. [23] Therefore, it cannot be said that there is no triable issue as to the Voongs having standing as complainants under the Act, atleast in relation to their oppression claim against Electric Foods.

Their standing in relation to their complaints against Mrs. Wong andBencheryl International under s. 118 of the Act is considered further in the analysis below. [24] Is there a genuine issue for trial in relation to the Voongs’ claim against Electric Foods? [25] Mr. and Mrs. Voong then argue that they have been oppressed pursuant to s. 242(1) and (2) of the Act: 242(1) A complainant may apply to the Court for an order under this section (2) If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive orunfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director, or officer, the Court may make anorder to rectify the matters complained of. [emphasis added] [26] The Act does not define oppression. In Re BCE Inc. 2008 SCC 69 , [2008] 3 S.C.R. 560, the Supreme Court ofCanada considered the nature of an oppression remedy.

It said that the Court should first look to the concept of reasonable expectationsand, if a breach of a reasonable expectation is established, the Court must consider whether the conduct complained of amounts to“oppression”, “unfair prejudice”to, or “unfair disregard” of, the claimant’s interests, as set out in the Act. [27] Recognizing that it is impossible to catalogue the situations where a reasonable expectation may arise[2], the Court providedsome generalizations. Actual unlawfulness is not necessary.

When deciding if there is a reasonable expectation or interest to beconsidered, the court said that it looks beyond legality to what is fair or equitable, taking into account all of the interests at play. [28] Some of the factors to be considered in determining if the claimant had a reasonable expectation include the nature, size, andstructure of the corporation; the commercial practice in place; the personal relationships between the claimant and other corporate actors;past practice; preventative steps the claimant could have taken; representations and agreements; and whether a fair resolution ofconflicting interests occurred. [29] Once a reasonable expectation is established, the claimant must establish that the failure to meet this expectation involvedconduct that unfairly prejudiced or disregarded his or her interests.

Pursuant to s. 242(3), the remedies available to the Court to remedythe situation are wide-ranging: Such v. RW-LB Holdings Ltd. (1993) 3 W.W.R. 725 (ABQB) [30] In argument the Voongs allege that they have been oppressed by Electric Foods in two ways. Firstly, they expected theirshares to be properly redeemed and for their true worth.

This did not occur and Electric Foods, as a company integral to 733 Ltd,participated in that improper redemption, which conduct was oppressive, unfairly prejudicial to, or unfairly disregarded their interests. [31] Secondly, they say that they had a reasonable expectation that they would receive one half of 80% of the profits of ElectricFoods. They allege that prior to and since the improper redemption, Electric Foods has failed to send 80% of its profits to 733 Ltd. as

expected, and improperly distributed them elsewhere. This conduct was also oppressive, and unfairly prejudicial to, or unfairly disregarded their interests. [ 32 ] Mr. Wong takes the position that this alleged claim should be dismissed against Electric Foods for several reasons. [ 33 ] Firstly, he says that Mr. Voong lacks credibility. He argues that the lawyer who set up the arrangement in 1997 has provided a memo that refutes Mr.

Voong’s recollection of events at the time and his evidence clearly overrides that of the Voongs. [ 34 ] In my view, the evidence of the Voongs should not be discounted on the basis of credibility. The evidence of the lawyer is not under oath and therefore cannot be questioned. It is his recollection of events that happened some fourteen years ago. The deal did not have the importance to the lawyer that it had to Mr. Voong. Furthermore, credibility is almost never determined at a

summary judgment application and this is not a situation that begs to be the exception. [ 35 ] Secondly, Mr. Wong says that the evidence of Mr. Voong should be ignored as it is self-serving: Richter v. Chemerinski , 2011 ABCA 111 . He says that the facts make it impossible to accept his evidence. [ 36 ] I disagree. Mr. Voong’s evidence is not without legs. It is not disputed that substantial funds continued to flow from Electric Foods to 733 Ltd. to the Voongs for over two years after the shareholders’ loans were repaid and for over a year after Mr.

Voong says he asked to have their preferred shares redeemed. [3] That raises the natural question of why this occurred if the Voongs were, as alleged by Mr. Wong, only preferred shareholders, holding shares worth $200? [ 37 ] Finally, Mr. Wong argues that even if Mr.

Voong’s evidence is considered, he gave a number of clear admissions that contradict his claim: he acknowledged that the shareholder’s loan had been repaid; he said that he sought only the proper payment for his shares and acknowledged that he had asked to have them redeemed; he acknowledged that he had no legal relationship with Electric Foods; and, he did not attend director’s or shareholders’ meetings for the company or work in the day-to-day business of the franchises. These admissions, Mr Wong says, make it clear that Mr.

Voong had no interest in Electric Foods and is seeking only the payment by 733 Ltd. of the value of his shares. [ 38 ] First, I note that it was acknowledged by counsel that the nature of the arrangement between Mr. Wong and Mr. Voong is a “mess”. It will need to be determined at trial. The fact that Mr. Voong did not attend meetings or work in the business of Electric Foods is not sufficient to deny his right to claim against the company. His view of the arrangement with Mr.

Wong saw them as joint “partners” in the company that had Electric Foods as its only business. [ 39 ] Turning to the other admissions relied upon by counsel, the statements made by Mr. Voong must be considered in context. A review of the entire transcript of his cross-examination indicates that the necessary clarity is not there to find that, contrary to the allegations in their statement of claim, the Voongs are limiting their claim to the redemption value of their shares.

Nor do the facts indicate that there should be a limitation on their remedy in light of the almost two years that lapsed, and the payments made, between the request for redemption and its alleged occurrence. [ 40 ] Mr. Wong also argues that the claim is, itself, insupportable in law. The Voongs simply have no claim against Electric Foods. [ 41 ] As earlier noted, the case law has established that each case must be examined on its own facts.

The Voongs must establish a reasonable expectation to something from Electric Foods and there are facts to support their argument that they had those expectations in relation to the profits from Electric Foods, 733 Ltd.’s affiliated company. There is a triable issue as to whether they were oppressed or unfairly prejudiced or disregarded by the alleged redemption of the shares for $200 and the flow of the profits of Electric Foods elsewhere. [ 42 ] In

summary, the Voongs have standing to complain about the conduct of an affiliated company, and there is a triable issue as to whether the actions of 733 Ltd. in concert with Electric Foods Ltd. was oppressive. [ 43 ] Is there a genuine issue for trial in relation to the Voongs ’ claim against Mrs. Wong and Bencheryl International?

[ 44 ] The Amended Statement of Claim refers to Mr. Wong, Mrs. Wong and Bencheryl International as the “Wong Defendants”. As earlier noted, Mr. Wong is not seeking to dismiss the action against him. The claim against Mrs. Wong and Bencheryl International is based on alleged “excess payments” made to the Wong Defendants. [ 45 ] The excess payments to the Wong Defendants are funds that the Voongs say should have gone to them and are alleged to have been made in three ways. The statement of claim defines them in three ways in paragraph 17( c ). Firstly, it is alleged that Mr.

Wong caused the Wong Defendants to receive excessive expenses, dividends, management fees and other monies from the profits of Electric Foods. It is unclear if the alleged diversions took place while the funds were in the coffers of Electric Foods or 733 Ltd., or both. Secondly, Electric Foods is alleged to have paid Mr. Wong or entities he controls excessive amounts of salary. Finally, it is alleged that Mr. Wong diverted to himself or entities he controls the proceeds of the sales of franchises of Electric Foods.

Again, it is unclear if the alleged diversions took place while the funds were in the coffers of Electric Foods or 733 Ltd., or both. This is not surprising as Mr. Voong alleges that he does not have the relevant financial information. [ 46 ] Mrs. Wong is a shareholder of 733 Ltd. only, and Bencheryl International is a shareholder of neither it nor Electric Foods. Mr. and Mrs. Wong have shares in Bencheryl International. [ 47 ] The Voongs rely on s. 118(5) and (6) of the Business Corporations Act , the doctrine of unjust enrichment and an allegation of a constructive trust to claim against Mrs.

Wong and Bencheryl International. [ 48 ] Mr. Wong responds that no claim in law is possible against Mrs. Wong and Bencheryl International.

Furthermore, there are no allegations of fraud or a fraudulent transfer, and it is acknowledged that the companies are not in financial difficulty. [ 49 ] Section 118(5) and (6) of the Act provide that if money of a corporation was paid or distributed to a shareholder contrary to s. 242, a director, shareholder or creditor of the corporation at the time of the payment is entitled to apply to the Court for an order restoring the funds to the corporation. [ 50 ] Mr Voong argues that if he is entitled to a claim against an affiliated corporation under s. 242, then he has a right to apply for an order against a shareholder receiving funds from that affiliated corporation under s. 118. [ 51 ] This argument ignores the plain wording of s. 118.

The requirement to bring an application against a shareholder of a corporation is that the applicant was a director, shareholder or creditor of the corporation. The Voongs were never directors, shareholders or creditors of Electric Foods. The legislature was free to expand the definition of corporation in this

section to include affiliates as it did for s. 242, but did not do so. [ 52 ] Furthermore, the payment must be a shareholder of Electric Foods and neither Mrs. Wong nor Bencheryl International were shareholders of Electric Foods and only Mrs. Wong was a shareholder of 733 Ltd. Therefore, a claim against Mrs. Wong under s. 118 can only be supported if payments were made to her from 733 Ltd. in excess of her alleged pro-rate share prior to the redemption of the Voongs’ shares, or, if payments were made to her after the purported invalid redemption of the Voong’s shares. [ 53 ] Mr.

Voong then relies on the doctrine of unjust enrichment and a claim of a constructive trust. He provided no case law that supported a claim on either basis by a shareholder of one corporation against a company or person receiving funds from another corporation. [ 54 ] Mr. Wong argued, and I agree, that those claims are not sustainable by the Voongs for excessive payments made to Mrs. Wong and Bencheryl International from Electric Foods. If they were to be brought, they should be brought in the name of the 733 Ltd.

It is 733 Ltd. who has a claim against the profits of Electric Foods and can argue that they have been wrongfully diverted.

[55] However, if such alleged improper payments were made to Mrs. Wong and Bencheryl International from 733 Ltd., there is atriable issue as to the Voongs’ ability to follow those funds to these two defendants. [56] In the result, insofar as the claim against Mrs. Wong and Bencheryl International is based on payments received from ElectricFoods, it is struck. Insofar as the claim is based on payments received by them from 733 Ltd.: the claim based on s. 118 of the Act maycontinue against Mrs.

Wong alone as she is a shareholder; and, the claim based on constructive trust and unjust enrichment may continueagainst both Mrs. Wong and Bencheryl International. [57] Are the missing financial records for 733 Ltd. and Electric Foods relevant and material to the claim and therefore,producible? [58] It became clear during argument that there was some confusion as to what financial information was in the possession of Mr.Voong. As a result, counsel for Mr. Wong then provided complete financial statements for Electric Foods to 2007 and 733 Ltd. until2009. [59] Mr.

Voong therefore seeks the production of the financial statements of Electric Foods for the period 2007 to 2011 and theproduction of the financial statements for 733 Ltd. for 2010 and 2011. He says that, regardless of whether the

summary dismissalapplication is granted, the statements are required to value the shares that he alleges were improperly redeemed. [60] Mr. Wong argues that the financial statements of Electric Foods are not relevant as it is information relating to the assets ofthe company which should not be considered in a share evaluation: Westfair Foods Ltd. v. Watt 1992 ABCA 234 , 131 A.R.142 (ABCA) para. 34, 37. [61] A review of that case indicates that it is distinguishable from the situation in this case. The only business and income of 733Ltd. is that of Electric Foods.

The former is essentially a holding company, holding the shares of the latter, and its only income comesfrom Electric Foods. If the trial judge ultimately orders that the shares were improperly redeemed and compensation should be paid tothe Voongs for the ensuing time period, information will be necessary to determine what that compensation should be, and it will likelybe based on the profits of Electric Foods. Therefore the financial statements of both companies are relevant, material and are to beproduced. Decision [62] The application to dismiss the claim of the Voongs against Electric Foods is denied.

The application to dismiss the claimagainst Bencheryl International and Mrs. Wong is granted insofar as any payments were made to them by Electric Foods. Should thefinancial statements prior to December, 2009 reveal a payment made to Mrs. Wong by 733 Ltd. in excess of her alleged agreed-to-shareof the profits or should the financial statements subsequent reveal payments made to either Mrs. Wong or Bencheryl International by 733Ltd., the claim remains. [63] The financial statements for 733 Ltd. are to be provided for 2010 and, when available, 2011.

The financial statements forElectric Foods for the period 2007 to 2010 are to be provided, as is the one for 2011, when available. [64] If the parties cannot agree as to costs, they make address costs before me within 30 days of the release of this decision. In anideal world, the application for the financial statements would have been determined before hearing the application for

summarydismissal. It wasn’t. Therefore, if, after reviewing the financial statements, there is a disagreement as to what portion of the claimremains, the parties may seek clarification.

Heard on the 07th day of December, 2011. Dated at the City of Calgary, Alberta this 20th day of January, 2012. J.B. Hanebury M.C.C.Q.B.A. Appearances: Shaun T. MacIsaac Elsy D. Gagne Pittman MacIsaac & Roy LLP for the Plaintiffs Kevin P. McGuigan McGuigan Nelson LLP for the Defendants [1]While the party arguing is referred to as Mr. Wong, as his affidavit was in evidence, his counsel was in fact representing all of thedefendants. [2]See as well Re Westfair Foods Ltd. and Watt et al. (1991) 1991 ABCA 122 , 79 D.L.R. (4th) 48 (Alta.

C.A.) where the Courtnoted that the test is always fact specific. [3]And for over two years from 2007, which is when Mr. Wong says Mr. Voong asked to have his preferred shares redeemed.