Frydman v Pelletier, 2013 ABQB 225

Court of Queen ’ s Bench of Alberta Citation: Frydman v Pelletier, 2013 ABQB 225 Date: 20130415 Docket: 1201 10909 Registry: Calgary Between: Jean Frydman Applicant/ Respondent in Cross-Application - and - Jean-Pierre Pelletier Respondent/ Applicant in Cross-Application _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice C.L. Kenny _______________________________________________________ Introduction [ 1 ] The Applicant, Mr.

Frydman, brings an Originating Application seeking among other things a declaration that certain shares in Vialta Investments Ltd. (Vialta) are held in trust for him by the Respondent, Mr. Pelletier, and asks to have those shares transferred to him as the legal owner. Mr. Frydman alleges that Mr. Pelletier engaged in conduct that is oppressive or unfairly prejudicial to him and Vialta.

[ 2 ] Mr. Pelletier opposes the application and brings a cross application to have this matter consolidated with action number 1201-03475 wherein a number of parties including Mr. Frydman have brought action against Mr. Pelletier and his company for damages for fraudulent activity. Originating Application Issues [ 3 ] Has Mr. Pelletier engaged in conduct which is oppressive or unfairly prejudicial or unfairly disregards the interests of Mr. Frydman as beneficial owner of the Vialta shares? [ 4 ] If so, what is the appropriate remedy? Background [ 5 ] Mr.

Frydman is an international businessman with interests in many Canadian and foreign corporations. He is ordinarily resident in France. He is, through a corporate entity, a 49% shareholder in Vialta and claims he is also the beneficial owner of the remaining 51% of Vialta shares. [ 6 ] Mr. Pelletier is Mr. Frydman’s son-in-law. Mr. Pelletier worked for Mr. Frydman and his companies for about 40 years. In 1975, at Mr. Frydman’s request Mr. Pelletier moved to Alberta to manage the day to day operations of many of Mr. Frydman’s interests in Canada.

He became a Canadian citizen in 1980. [ 7 ] Vialta was incorporated in 1978. Mr. Pelletier was named a director of Vialta which he remains to the present. He has held shares in Vialta since 1979, but Mr. Frydman alleges that those shares are held in trust for him. [ 8 ] Mr. Frydman held land in Alberta through other companies which were eventually amalgamated with Vialta. All monies in Vialta came from other companies owned by Mr. Frydman or by revenue earned by Vialta. Mr.

Pelletier never put any funds into Vialta or any other corporation which amalgamated with Vialta. [ 9 ] Prior to 1977, agricultural land in Alberta could be owned by a foreign entity. In 1977 the rules changed such that any company acquiring agricultural land in Alberta had to have a Canadian citizen as a majority shareholder to qualify as a resident corporation. Mr. Pelletier suggested to Mr. Frydman that Mr. Pelletier be the majority shareholder for Vialta in the event that Vialta wished to purchase further agricultural land. Mr. Frydman agreed to have Mr. Pelletier hold his shares in trust: Mr.

Pelletier was Mr. Frydman’s son-in-law and the son of a family friend and had worked for him for many years. He trusted him. [ 10 ] In April of 2011, while preparing his will with his legal counsel, Mr. Frydman was advised to commit to writing the oral trust regarding the 51% shares in Vialta held by Mr. Pelletier. In May of 2011, Mr. Frydman had Mr. Pelletier execute a “Convention”. It was prepared by Mr. Frydman’s legal counsel and reviewed, modified, and then signed by Mr. Pelletier. The Convention indicates that the shares in Vialta held by Mr.

Pelletier have been, from the start, held by him in a fiduciary capacity in his name on behalf of and at the risk of Mr. Frydman. The Convention also provides that Mr. Pelletier will return the shares upon request. Mr. Frydman requested a transfer of the shares in November of 2011. Mr. Pelletier refused to transfer the shares as required by the Convention and has refused to transfer them to date. [ 11 ] In late 2010, Mr. Frydman became aware, through his corporate accountant, of certain irregularities in the finances of his

Canadian companies. He had accountants investigate these irregularities. At this point he was not really sure what the problem was. In July of 2011 when he arrived in Alberta, he discovered what he alleges is Mr. Pelletier’s wrongdoing with respect to expenses of several corporations including Vialta. [ 12 ] Once the investigation was complete with respect to the financial irregularities, the action referred to above was commenced on March 15, 2012 by a number of entities against Mr. Pelletier for, among other things, fraudulent activity with respect to the various entities. [ 13 ] Mr.

Pelletier acknowledges that during his time in Alberta managing Mr. Frydman’s interests, Mr. Frydman maintained full control of all business interests including Vialta and was involved in all major decisions. He acknowledges that Mr. Frydman, through corporate entities, funded every Vialta business transaction including those in other corporations which eventually amalgamated with Vialta. Mr. Pelletier never disclosed Vialta shares as an asset for tax purposes. [ 14 ] Mr. Pelletier claims in his affidavit that Mr.

Frydman gave him 50% of Vialta in 1979 as compensation for his work and the benefit of his Canadian citizenship and that he was entitled to 50% of all profits of Vialta. The other 50% went to Mr. Frydman’s step- son. The step-son left the company in 1982 and transferred his shares to Mr. Pelletier for no consideration. At some point in time, 49% of the shares were transferred to a company owned and controlled by Mr. Frydman. [ 15 ] Mr. Pelletier says that he received no compensation between 1979 and 1999, other than the shares, for his role in operating Vialta as a real estate management company.

He says he received compensation from other companies during this time for management time but not from Vialta. [ 16 ] Mr. Pelletier says that he and Mr. Frydman had an oral agreement sometime before the Convention was signed. He says that the agreement was that he would resign as a director of all of Mr. Frydman’s companies including Vialta and transfer all his shares to Mr. Frydman only on the condition that it would be a complete settlement of any claims between them including allegations contained in the fraud action.

In questioning, he acknowledged that there was no fraud action at the time of signing the Convention and that Mr. Frydman did not raise any of the allegations later raised in the fraud action at the signing of the Convention. Nonetheless, Mr. Pelletier claims that he signed the Convention in fulfilment of the oral agreement. The only change Mr. Pelletier made to the Convention was to add a phrase “without taxes” in relation to the transfer of the shares as he was concerned that he may be responsible for taxes on the transfer to Mr.

Frydman. [ 17 ] Upon resigning as a director of Pincher Creek Ranches Co. (another of Mr. Frydman’s corporations) and signing the Convention, Mr. Pelletier considered the oral agreement concluded even though he did not resign as a director from Mr. Frydman’s other companies including Vialta. When Mr. Frydman demanded return of a family loan from his daughter, Mr. Pelletier’s wife, Mr. Pelletier considered this a breach of the oral agreement between him and Mr. Frydman such that when Mr. Frydman’s lawyer requested transfer of the Vialta shares pursuant to the Convention, Mr. Pelletier refused.

He considered the Convention to be conditional on this earlier oral agreement and since Mr. Frydman breached the oral agreement by demanding return of a loan to his daughter, the Convention was at an end and he no longer held the shares in trust for Mr. Frydman. Oppression remedy [ 18 ] The oppression remedy is set out in subsection 242(2) of the Alberta Business Corporations Act , RSA 2000, c B-9 (“ABCA”). Mr. Pelletier argues that the Originating Application is not a proper oppression action and therefore there is no remedy available to Mr. Frydman. [ 19 ] In particular, Mr.

Pelletier argues that oppression relates only to the actions of a corporation or its directors that do harm to legal and equitable interests of stakeholders not individual parties vis a vis one another. He says that this is a personal dispute between him and Mr. Frydman in their personal capacities and therefore does not engage Vialta at all. There is no action against Vialta or a director of Vialta with respect to the actions of the corporation.

He further argues that one can only bring an oppression action against a director personally where the corporation through its directors or officers acted oppressively against a stakeholder and it is appropriate to remedy the oppression by an order against the director personally. [ 20 ] Mr. Frydman takes issue with Mr. Pelletier’s narrow

interpretation of the oppression remedy, in particular, his failure to

acknowledge the plain wording of subsection 242(2) of the ABCA. The

section refers to: any act or omission of the corporation, thebusiness or affairs of the corporation, or the powers of the directors of the corporation conducted in a manner oppressive or unfairlyprejudicial to the interests of a security holder. [21] In this case, Mr. Frydman seeks a declaration that he is the owner of 51% of the shares of Vialta by virtue of the oral trust, asevidenced by the Convention, and that the oral trust and Convention are part of the affairs of the corporation. Mr.

Pelletier, acting as adirector and de facto majority shareholder, has taken over control of Vialta which control he has acknowledged was always exercised byMr. Frydman. By those actions as a director and legal majority shareholder, he has refused to convey the shares that he hasacknowledged, by way of the Convention, that he holds in trust for Mr. Frydman and has refused to rectify the corporate records toreflect the appropriate shareholdings. His refusal oppresses Mr. Frydman and disregards his interests as a beneficial shareholder.

It is anact or omission by a corporate officer or director that is prejudicial to Mr. Frydman. [22] The underlying issue here is the share ownership and control of Vialta. There is a dispute over a transaction that determines, inthis case, majority shareholder control of a corporation and as such engages the oppression remedy. Relationships between shareholdersand among a corporation, its shareholders, officers and directors constitute the affairs of a corporation: GATX Corp. v Hawker SiddeleyCanada Inc. (1996), (ON SC), 27 BLR (2d) 251 (ONGD) at para 145.

Determining share ownership is part of the affairs of a corporation: Csak v Aumon (1990), (ON SC), 69 DLR (4th) 567 (ONSC) at para 21. The oppressionremedy requires a liberal

interpretation and flexible application. [23] To bring the application, one must be a “complainant”. “Complainant” means “a registered holder or beneficial owner……ofa security of a corporation…..”: ABCA, s 239(b). Mr. Frydman takes the position that he is a complainant. He is the beneficialshareholder of the Vialta shares pursuant to the oral trust and the written Convention signed by Mr. Pelletier acknowledging that heholds 51% of the shares of Vialta in trust for Mr. Frydman. In the alternative, he is a proper person to bring the application to determinethe beneficial ownership of the shares.

Beneficial ownership does not need to be undisputed. A person claiming such beneficialownership can use the legislation to attempt to prove their status as part of the claim for relief from oppressive action: Czak at para 12-15and 21, Evans v Facey, 2000 CarswellOnt 2102 at para 100. [24] Mr. Pelletier argues that Mr. Frydman is not a proper person to bring the application as the ABCA does not allow just anyinterested person to be a complainant. [25] Mr. Frydman is not just any interested person. He is the alleged beneficial owner of 51% of the shares of Vialta. Furthermore,it is acknowledged that Mr.

Frydman had full control and was involved in all major decisions of Vialta. Mr. Frydman is clearly a“complainant” under the ABCA. [26] The court can only consider whether the complained of conduct amounts to oppressive or unfairly prejudicial conduct if thecomplainant can first establish that the conduct is in breach of the complainant’s reasonable expectations. [27] Mr. Frydman agues that he reasonably expected Mr. Pelletier to honour the oral trust and the Convention with respect to theVialta shares and that Mr. Pelletier, in his fiduciary capacity, would comply with the instructions provided by Mr. Frydman.

He furtherexpected that Mr. Pelletier, as a director, would abide by his legal obligations under the ABCA to act in the best interests of thecorporation which best interests can include the interests of the shareholders. [28] Mr.

Pelletier argues again that reasonable expectations relate only to the conduct of the corporation or by those acting onbehalf of the corporation and that all actions complained of here are not actions of Vialta or on behalf of Vialta. [29] As discussed above, oppressive conduct need not relate only to the conduct of the corporation but has a much broaderdefinition both in the ABCA and by case law which encourages a broad and liberal

interpretation of the legislation. [30] Finally, I must consider whether Mr. Pelletier’s conduct as a director and legal majority shareholder of Vialta is oppressive.Mr. Pelletier signed the Convention. It acknowledges that his shares in Vialta have been held by him from the start in a fiduciary

capacity on behalf of Mr. Frydman. He agrees to return the shares upon request. He acknowledges that he will act in compliance with Mr. Frydman’s instructions and in his interests. He has refused to do so. In light of the oral trust confirmed by the written Convention, and as a director and legal majority shareholder of Vialta, Mr. Pelletier has breached Mr. Frydman’s reasonable expectations that he would transfer the shares belonging to Mr. Frydman to him when requested to do so and amend the share registry to reflect the fact that Mr. Frydman holds 51% of the shares.

This relates to the affairs of Vialta and the actions of a director that is oppressive, unfairly prejudicial and unfairly disregards Mr. Frydman’s interests as the beneficial owner of those shares. [ 31 ] Mr. Pelletier argues that there is no evidence that he held the shares in trust for Mr. Frydman. He further argues that the Convention is ambiguous, does not contain the entire agreement and is conditional. In particular, he argues there is no evidence of an oral trust in 1979 in that there is a blank in the Convention where it says “this fiduciary relationship that exists in fact since……”.

He also says that normal business practice was that trust agreements were in writing and this one was not. Mr. Pelletier argues that the Convention only makes sense when taken in the context of what he alleges is a prior oral conditional agreement and therefore parole evidence is necessary to understand the Convention. That conditional agreement, Mr. Pelletier alleges, is that in February of 2011 Mr. Frydman asked Mr. Pelletier to resign as a director from all of his companies and transfer to him the 51% of the shares held by Mr. Pelletier in Vialta. Mr.

Pelletier says he agreed on the condition that by doing so it would be a complete settlement of all claims between them including allegations in the fraud action which was not commenced until 2012. In the alternative, Mr. Pelletier argues that the Convention is invalid because there is no consideration for the Convention, it was the result of undue influence and was unconscionable. No evidence is put forward to support these arguements. [ 32 ] Mr. Pelletier’s evidence is not believable. He contradicts himself within his own affidavit and between his affidavit and the answers given in questioning.

He has no documents to support his position. He talks about an oral conditional agreement that relates to matters that did not even arise until much later – the fraud allegations. By his version of events, after a falling out with Mr. Frydman where Mr. Frydman sought his resignation as a director of a number of his corporations and the transfer of the shares in Vialta, why would Mr. Pelletier sign a Convention saying the shares were held in trust for Mr. Frydman? Why would he not just resign and transfer the shares in exchange for a release?

There is no reference in the Convention to a condition, a release, or the requirement to resign as a director. [ 33 ] Mr. Pelletier then argues that the shares were given to him as compensation for his services to Vialta, in spite of the fact that throughout this time he was receiving compensation from other companies owned and controlled by Mr. Frydman. It makes no sense that Mr. Pelletier, who alleges he is the majority shareholder of Vialta and a director, would not have any money in the company and would relinquish full control of the company and all major decisions to Mr. Frydman.

He acknowledges that he did as Mr. Frydman directed with respect to all companies including Vialta. This is in keeping with the Convention. [ 34 ] Mr. Frydman’s version of events is supported by the evidence and the documents. The Convention is not ambiguous, conditional or uncertain. It identifies the shares and that they are held in a fiduciary capacity by Mr. Pelletier for the benefit of Mr. Frydman and have been so held since the start. They are to be transferred on request. Mr. Pelletier will continue to carry on his mandate diligently and comply with all instructions from Mr. Frydman.

This is in keeping with the evidence of both Mr. Pelletier and Mr. Frydman that Mr. Frydman exercised total control over Vialta and made all major decisions with respect to the company. There is nothing that references the alleged earlier agreement and in fact, this Convention contradicts the prior conditional agreement alleged by Mr. Pelletier. [ 35 ] Mr. Pelletier raises the issue of Mr. Frydman proceeding by way of Originating Application. He says that one cannot proceed in this fashion unless there is no substantial factual dispute: Rule 3.2(2) (a), Alberta Rules of Court , AR 124/2010. Mr.

Pelletier says there are many issues in dispute including when the shares were held in trust, whether the shares were for compensation, and whether the Convention was part of a larger agreement. Credibility, he argues, is an issue and full discovery and questioning needs to take place along with a trial to ascertain all of the facts. Even if appropriate, the Court should convert the Originating Application to a Statement of Claim to deal with all of the complex unsettled issues regarding

interpretation of contract, parole evidence, the principles of the oppression remedy and the doctrine of unclean hands. This latter issue arises by virtue of Mr. Pelletier’s allegations that Mr. Frydman brings his application with unclean hands because the law in Alberta prevents certain foreign entities from holding agricultural land and these companies including Vialta were structured to get around this limitation. In my view, what the company can and cannot do and what the ramifications will be of the company holding land in Alberta have nothing to do with this application.

The evidence raised also indicates issues with Mr. Pelletier’s dealings with the company and so it is ironic that he would raise the issue of unclean hands when he is an accomplice in the dealings of the company. I do not find that Mr. Frydman has commenced this action with unclean hands. [ 36 ] This application is straightforward. Mr. Pelletier raises a number of issues in an effort to convince the court that it is much too complicated and that there are a number of issues that need to be considered in addition to the shares and the Convention.

No doubt all of those issues will be raised in the other proceedings. Most of the issues raised by Mr. Pelletier do not relate to the Convention, have no basis in fact, are contradicted by evidence adduced by Mr. Frydman and are contradicted within Mr. Pelletier’s own evidence. As Mr. Frydman argues, the evidence is not going to get better for a trial – it is all before the court on this issue now.

[37] Mr. Pelletier further argues that the application should be struck as an abuse of process. He alleges that the OriginatingApplication and the Statement of Claim both deal with the same issues including how Mr. Pelletier was to be compensated and hisconduct. Mr. Pelletier says this application was brought only to pressure him to settle the fraudulent claims action and to increase hislegal costs and therefore is an abuse of process and should be struck or at least stayed until the other action is resolved. I do not find thisapplication an abuse of process. [38] I find that Mr.

Frydman is a complainant under the ABCA, that he is the beneficial owner of the 51% of the shares in Vialtaheld by Mr. Pelletier, that his reasonable expectations were breached and that the actions of Mr. Pelletier in refusing to transfer theshares and amend the share registry accordingly are oppressive, unfairly prejudicial and unfairly disregard the interests of Mr. Frydman. Cross Application to Consolidate the Actions [39] Mr. Pelletier argues that the two actions involve the same parties and a relationship that spans 30 years involving manycompanies.

Both actions must be consolidated to be heard at the same time so the issues of the shareholdings and the fraud allegationscan be heard together. Many of the same documents will arise in both actions. Mr. Pelletier says the two actions have common issues oflaw and fact. [40] The court maintains discretion as to when it is appropriate to consolidate actions under Rule 3.72. Some factors to consider areset out in Mikisew Cree First Nation v Canada (1998), 1998 ABQB 675 , 224 AR 157 (QB) at p 158. These are:

a) whether there are common claims, disputes, and relationships between the parties;

b) whether consolidation will save time and resources in pretrial procedures;

c) whether time at trial will be reduced;

d) whether one party will be seriously prejudiced by having two trials together;

e) whether one action is at a more advanced stage than the other; and

f) whether consolidation will delay the trial of one action which will cause serious prejudice to one party. [41] The risk of inconsistent verdicts is also a reason for consolidation. Common Claims, Disputes, and Relationships [42] Mr. Pelletier argues that both applications arise out of the same family dispute and how he was to be compensated for hisservices to Mr. Frydman and his companies. [43] Mr. Frydman says this is not the case. The Originating Application deals with the return of shares under an oral trust in 1979confirmed by the Convention in 2011. It alleges oppression.

The fraud action involves many more parties, relates to improper personalexpenses and conversion of $1.3 million of Vialta’s funds to Mr. Pelletier’s use. It deals with unjust enrichment, fraud, constructive trust,breach of fiduciary duty and conversion. Mr. Pelletier raises the issue of the shares in Vialta being compensation for his services, but inhis defence to the fraud action filed before the Originating Application, he never refers to the shares as part of his compensation.

It israised for the first time in response to the Originating Application, it is parole evidence and as such inadmissible in any application ortrial except in very strict circumstances which do not exist here. [44] Mr. Frydman further points out that any reference to the allegations of fraud in this application are only for context to pointout why he demanded return of his shares under the Convention.

Saving of Time and Resources [ 45 ] Mr. Pelletier argues that both actions require questioning on how he was to be compensated and therefore consolidation will save time and money. [ 46 ] Mr. Frydman points out that the affidavits, briefs and questioning are all complete in this application; it is ready for decision. The fraud action on the other hand has not even started with questioning and still must go through all the usual pre-trial procedures.

There is no savings to the fraud action by consolidation particularly given the voluminous disclosure but there is delay to this application if the matters are consolidated. Trial Time [ 47 ] Mr. Pelletier argues that the main evidence in both actions will be his testimony and that of Mr. Frydman and therefore it will save trial time if they only have to testify once. It will also ensure that only one judge is assessing credibility [ 48 ] Mr. Frydman says that Mr. Pelletier assumes this application will be converted to a Statement of Claim and a trial. That is not the case.

All of the evidence is now before the court. Even if this application were to be consolidated with the fraud action, the issue here is very narrow and straightforward and would not require all of the forensic and expert witnesses necessary for a complicated fraud action. Prejudice [ 49 ] Mr. Pelletier alleges no serious prejudice to either party. Mr. Frydman on the other hand points to the complexity of the fraud action and that it will be some time before a trial is heard. In the meantime, Mr. Pelletier would be free to deal with the shares and property of Vialta in an attempt to defeat Mr.

Frydman’s claim to the shares. The allegations of fraud against Mr. Pelletier make this more of a concern. Inconsistent Decisions [ 50 ] Mr. Frydman points out this is not a concern as the issues of fact and law are very distinct. This application deals with ownership of shares. The other action deals with allegations of fraud. There are no overlapping issues. [ 51 ] In reviewing all of the factors in this matter, I am satisfied that there is no merit whatsoever in consolidating the two actions. To do so would cause delay in a decision in this application which is ready to be heard.

All evidence has been adduced and Mr. Pelletier does not allege that the court does not have enough information to make a decision on the issue of the shares. There are no common issues of fact or law. Consolidating the actions would simply leave the issue of the shares up in the air until a full trial is heard some time down the road. That would prejudice Mr. Frydman and his ability to deal with the shares he alleges are his. Decision [ 52 ] The cross application for consolidation is dismissed. [ 53 ] The Originating Application is made out and Mr.

Frydman is declared the legal owner of 51% of the Vialta shares currently held in trust for him by Mr. Pelletier. Vialta shall cancel those shares and issue share certificates to Mr. Frydman representing 51% of Vialta’s shares. The books and records of Vialta shall be amended accordingly. Mr. Pelletier shall be removed from any positions as an

officer and director. Heard on the 12 th and 13 th day of February, 2013. Dated at the City of Calgary, Alberta this 15th day of April, 2013. C.L. Kenny J.C.Q.B.A. Appearances: Steven T. Robertson/Christine Plante for the Applicant/Respondent by Cross-Application Stacy Petriuk/Sean Currie for the Respondent/Applicant by Cross-Application