Lavigne v., 2013 ABQB 234

Court of Queen ’ s Bench of Alberta Citation: Lavigne v. 972111 Alberta Ltd., 2013 ABQB 234 Date: 20130418 Docket: 1103 08424 Registry: Edmonton Between: Darren Joseph Lavigne Applicant - and - 972111 Alberta Ltd., Victor Lavigne, and Mairead M. Lavigne Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _______________________________________________________

Summary [ 1 ] Invoking the court ’ s authority to order the liquidation and dissolution of corporations where it is just and equitable to do so, Darren Lavigne, a 33% shareholder and director of 972111 Alberta Ltd., asks the court to dissolve 972111, a privately-held corporation. Specifically, Darren Lavigne states that there has been a loss of substratum in 972, that he has a justifiable lack of confidence in the current management of 972, and that the relationship between himself and the other shareholders and directors of the company has broken down. [ 2 ] The application is denied.

[3] Mr. Lavigne has not established that there has been a loss of substratum; on the contrary, 972 was incorporated to hold realestate and that is precisely what it continues to do. Nor has he established a justifiable, or reasonable, lack of confidence in themanagement of 972; not only has he failed to show any mismanagement of the subject company, his complaints about past actions of therespondents in other companies were waived by him in a formal document in 2008. Although Mr.

Lavigne has established that both heand his former common-law partner have a vitriolic relationship with the personal respondents, that alone does not entitle Mr. Lavigne toa “no-fault corporate divorce”. The partnership analogy aspect of the just and equitable jurisdiction does not, on the facts of this case,apply to the situation here. Cases and authority cited [4] By the Applicant: Business Corporations Act, R.S.A. 2000, c. B-9; Scozzafava v. Prosperi, 2003 ABQB 248; KehoHoldings Ltd. v. Noble (1987), 1987 ABCA 84 , 52 Alta. L.R. (2d) 195 (Alta.

C.A.); Re Pe Ben Pipelines Ltd. (1978), (AB KB), 14 AR 480; Gallelli Estate v Bill Gallelli Investments Ltd. (AB KB), 1994 CarswellAlta 30,16 Alta.L.R. (3d) 417 (QB). [5] By the Court: B.C.E. Inc. v 1976 Debentureholders 2008 SCC 69; Falus v Marta Developments 87 Ltd. 2012 ONSC2301; Buffo Family Holdings Ltd. v Garden Construction Ltd. 2011 BCSC 1246; O’Neill and Another v Phillips and Others [1999]UKHL 24. 1. Background [6] Darren Lavigne holds 33% of the voting shares of 972111 Alberta Ltd.

The respondent Victor Lavigne, Darren’s father,hold 66% of the shares, and Mairead Lavigne, Darren’s mother, holds 1% of the shares. Darren, Victor and Mairead are all directors of972. [7] 972 was incorporated in 2002. At that time, each of Darren, Victor and Mairead were all shareholders and directors ofNational Courier Services Ltd. NCS decided to roll out the land and buildings which it owned into a separate company, 972.

Theshareholding in 972 exactly mirrored the shareholding in NCS. [8] In 2008, Darren Lavigne incorporated a separate entity to purchase the assets and goodwill of National Courier - and thenew entity is referred to by all parties as New National Courier. New National Courier operated the business until April 2010 when itwent into bankruptcy. [9] Darren alleges that, in 2002, Victor and Mairead caused 972 to advance to each of them a bonus of $750,000.00, althoughhe did not receive any such advance; this allegation may, in fact, relate to the Old National Courier Services, not to 972.

Darren alsoalleges that, in the past, Victor and Mairead have made inappropriate payments to themselves from corporate funds. [10] Darren states that, in 2004, against his wishes, Victor and Mairead caused 972 to borrow one million dollars, for which thecompany granted a mortgage on 972's property.

In 2010, Darren Lavigne asked his parents, who are now in their 70s, to refinance thatmortgage for an increased amount of $1.7 million in order to allow him to repay his personal indebtedness to Servus Credit Union in theamount of approximately $500,000.00. [11] In 2006, 972 recorded a shareholder loan in the amount of $500,000.00 from Darren Lavigne; no money changed hands. In2008, when Darren incorporated New National Courier Service, he notionally paid $500,000.00 for the corporate assets and goodwill.The transaction was treated as a forgiveness of the shareholder loan. No money changed hands.

As part of the purchase of the assets andgoodwill of Old National Courier Services in 2008, with the advice and assistance of a lawyer, Darren Lavigne signed a release in favorof Victor Lavigne, Mairead Lavigne and Old National Courier Services itself.

[ 12 ] In 2010 and 2011, as Director, Darren Lavigne approved the financial statements of 972. [ 13 ] Darren Lavigne has included in his application a long series of vitriolic emails from his then common-law wife to Victor Lavigne and Mairead Lavigne. An email posted to Facebook on March 31, 2011, addressed to Vic Lavigne, is somewhat representative of these communications, both in tone, and in relation to the fact that these communications were all one-sided, mainly from Darren Lavigne ’ s common-law to his parents, although Darren may have posted one or two messages himself.

His parents did not, however, respond to these messages.: Subject: You are insane! If you think you are walking away with MY money AND your reputations intact . . . . dream on! You refuse to communicate with us in any way, treat us like shit, and think we will do nothing? By the time we are done with you, you WILL be living a pauper ’ s existence, perhaps in jail, and try to imagine how LITTLE we care! (Emphasis in original) In September 2011, based on the actions of both Darren Lavigne and his common-law partner, Victor and Mairead Lavigne obtained a restraining order against their son and his then partner.

That restraining order has since lapsed. [ 14 ] Darren Lavigne states that, after New National Courier Services went into bankruptcy in 2010, he assisted his son in starting a business, Keystone, whose mandate was to create tenancy in the warehouse portion of 972. Darren Lavigne states that Victor Lavigne undermined the success of Keystone by taking steps to enforce 972's lease with Keystone, which allegedly forced Keystone out of business.

Darren Lavigne ’ s position with respect to the lease is set out in his special chambers brief as follows: In order to secure conventional financing, the parties had to demonstrate to the bank that there was a lease arrangement between 972 [and Keystone].

A lease was created that was never intended to be enforced, however, despite that, Victor took steps to enforce the lease on Keystone and demanded back payments which forced Keystone out of business. [ 15 ] Finally, without offering any substantiating evidence, Darren Lavigne has made generic complaints about the management of 972, relating to the amount of rent requested for warehouse and office space, the poor mechanical condition of the building, the lack of upkeep of the building, etc. [ 16 ] Darren Lavigne has specified the following grounds for his application: - he and the respondents Victor Lavigne and Mairead Lavigne are the only shareholders, directors and officers of 972; - he and the respondents have been involved in various shareholder and personal disputes since 2002 and those disputes are characterized by a mutual profound distrust and suspicion; - since the dispute arose, the parties have made allegations of improper conduct as against one another, particularly with respect to inappropriate expenses alleged to have been reimbursed by the company; - he has not participated in the operations of the company and has not been provided with corporate information. 2.

There has been no loss of substratum

[ 17 ] The only evidence on this application is that 972 continues to own buildings as it did when incorporated. There is no loss of substratum in that corporation. 3. There is no justifiable loss of confidence in the management of 972 [ 18 ] Darren Lavigne argues that the mismanagement which he alleges, even if it relates to companies other than 972, can constitute a reasonable basis for his apprehension that his father and mother will mismanage 972 even though he makes no real allegations of mismanagement of 972 itself. With respect, this argument is untenable.

Not only are all of the allegations themselves unsupported, Darren Lavigne acknowledges that, in relation to the old company, as of 2008, he consciously waived any claims he had of mismanagement. Moreover, in relation specifically to 972 , Darren Lavigne has acknowledged that he signed off on the company ’ s financial statements; in that sense, Darren Lavigne acknowledged that nothing improper was done with 972's assets.

As to the operational management of 972, Darren Lavigne ’ s allegations about undesirable storage, inadequate mechanical and other systems, non-commercial rental rates, etc. are given no context whatever; for example, no photographs are provided of the state of the warehouse, no comparable rental rates in the Edmonton warehouse market are set out, no building code violations are reported, etc. In short, Darren Lavigne has provided no basis on which 972's management can be assessed. 4.

Darren Lavigne is not entitled to a “ no-fault corporate divorce ” ; there are no just and equitable grounds justifying the liquidation of 972 [ 19 ] Darren Lavigne correctly argues that the “ just and equitable ” basis for liquidation must be considered separately from, and establishes a lower threshold than, any claimed oppression. [ 20 ] Darren Lavigne relies on McMahon J. ’ s decision in Gallelli Estate .

However, on the issue relating to loss of confidence in management, McMahon J. held that any such lack of confidence “ must arise from management ’ s conduct in regards to the company ’ s business and not in relation to personal matters or disputes ” .

Similarly, on the issue of deadlock, McMahon J. found that there was no deadlock in the management of the company ’ s affairs even though in that case, the share structure was much closer to potential deadlock than the situation here. [ 21 ] Therefore, the only part of the Gallelli Estate decision on which Darren Lavigne can potentially rely is the part of the decision which implements the partnership analogy approach developed in Ziegler ’ s Studies in Canadian Company Law vol. 2, as cited with approval in Re Pe Ben Pipelines Ltd. : It now seems quite clear that, on the authority of cases such as Yenidje, it is not necessary to establish any misconduct or a deadlock in order to succeed in obtaining a winding-up order.

All that is required is a fundamental and persistent disagreement that makes it impossible for the parties to get together again and work in harmony and mutual cooperation. It may one day even be sufficient to show mere mutual incompatibility. The liberalization of the 'just and equitable' rule by the broad scope of the 'partnership analogy' bodes well for the dissident minority shareholder who seeks to be rescued by the court from an unpleasant business relationship.

If the true nature of the corporation sought to be wound up is such that it resembles a 'marriage' of partners, then the 'partnership analogy' has provided what would appear to be, in most circumstances, very broad and effective grounds for 'divorce'. [ 22 ] However, in order to establish a partnership analogy, it is useful to go back to Lord Wilberforce ’ s actual comments in Ebrahimi . To understand how Lord Wilberforce ’ s comments in that decision have been interpreted in English law today, we are assisted by the opinion of Lord Hoffman in O ’ Neill , an opinion with which the other Law Lords all agreed: 8.

No-fault divorce?

Mr. Hollington, who appeared for Mr. O'Neill, said that it did not matter whether Mr. Phillips had done anything unfair. The fact was that trust and confidence between the parties had broken down. In those circumstances it was obvious that there ought to be a parting of the ways and the unfairness lay in Mr. Phillips, who accepted this to be the case, not being willing to allow Mr. O'Neill to recover his stake in the company. Even if Mr. Phillips was not at fault in causing the breakdown, it would be unfair to leave Mr. O'Neill locked into the company as a minority shareholder. Mr.

Hollington's submission comes to saying that, in a "quasi-partnership" company, one partner ought to be entitled at will to require the other partner or partners to buy his shares at a fair value. All he need do is to declare that trust and confidence has broken down. In the present case, trust and confidence broke down, first, because Mr. Phillips failed to do certain things which, on the judge's findings, he had never promised to do; secondly, because Mr. O'Neill wrongly thought that Mr.

Phillips had committed various improprieties; and finally because, as the judge said, he was "inclined to see base motives in everything that Mr. Phillips did." Nevertheless it is submitted that fairness requires that Mr. Phillips or the company ought to raise the necessary liquid capital to pay Mr. O'Neill a fair price for his shares. I do not think that there is any support in the authorities for such a stark right of unilateral withdrawal.

There are cases, such as In re A Company (No. 006834 of 1988) (1989) 5 B.C.C. 218, in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns often occur (as in this case) without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets locked in the company.

But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others. I rather doubt whether even in partnership law a dissolution would be granted on this ground in a case in which it was still possible under the articles for the business of the partnership to be continued.

And as Lord Wilberforce observed in In re Westbourne Galleries Ltd. [1973] A.C. 360 , 380, one should not press the quasi-partnership analogy too far: "A company, however small, however domestic, is a company not a partnership or even a quasi-partnership . . . ." The Law Commission, in the report to which I have already referred, Shareholder Remedies (Law Com. No. 246) (1997) (Cm. 3769) considered whether to recommend the introduction of a statutory remedy "in situations where there is no fault," so that members of a quasi-partnership could exit at will.

They said, in paragraph 3.66: "In our view there are strong economic arguments against allowing shareholders to exit at will. Also, as a matter of principle, such a right would fundamentally contravene the sanctity of the contract binding the members and the company which we considered should guide our approach to shareholder remedies." The Law Commission plainly did not consider that

section 459 already provided a right to exit at will and I do not think so either. (Emphasis added) [ 23 ] It appears to me, with respect, that Lord Hoffman ’ s outline accurately represents the state of the law in Canada today. It is not in every case that a closely held family company will be dissolved because one stakeholder wishes it. I note, for example, that, in its comments on business corporations, HBC 301, Halsbury ’ s Laws of Canada summarizes Gallelli as standing for the proposition that it “ may be oppressive to refrain from paying dividends on the unusual facts of a particular case ” .

Clearly, the facts will determine whether a particular situation is one in which the partnership analogy can be applied. [ 24 ] In order to be applicable, the partnership analogy requires more that a fundamental disagreement making it impossible for the parties to work again in harmony; it requires an evidential basis for a reasonable expectation that the shareholder will be treated like a partner. In the situation here, Mr.

Lavigne advances no evidence to establish that the partnership analogy would be appropriate. 972 was not created from a partnership; nor is there any evidence that the corporation was formed on the basis of a personal relationship involving mutual confidence. There is no evidence of any agreement amongst 972's partners that the corporation would be wound up at the request of the minority shareholder. There is no evidence that 972 was formed on the basis that Darren Lavigne would participate in the conduct of the business.

Rather, the situation here is one in which Darren Lavigne essentially tenders no evidence beyond evidence of animosity between himself and his parents and of his second thoughts with respect to transactions he has previously approved; he offers no evidence of reasonable expectations of non-corporate, or partnership, treatment. His situation does not require the application of equitable relief. Rather, Mr.

Lavigne ’ s position is more analogous to other minority shareholders who have not been granted equitable relief; see , for example, Falus and Buffo Family Holdings. [ 25 ] In the former of those cases, Brown J. usefully outlines the development of Lord Wilberforce ’ s concept in contemporary

Canadian corporate law: see para. 42 and following. [26] Buffo Family Holdings provides another example of a decision where the partnership analogy potential was recognized butthe just and equitable relief requested was not granted. 121 The just and equitable test represents a lower threshold than that under the oppression remedy in s. 227. There does not need to bea finding of oppression or unfairly prejudicial conduct to engage s. 324: Samra v. Bel-Air Taxi Ltd., 2009 BCSC 548 at para. 92.

Thissection gives the court the power to fashion a remedy that is just and equitable where the conduct complained of falls short of oppressiveor unfairly prejudicial: Golden Pheasant Holding Corp. v. Synergy Corporate Management Ltd., 2011 BCSC 173 at para. 56. 122 Circumstances in which the court has exercised their jurisdiction under the just and equitable ground have included those in whichthere is a justifiable lack of confidence among the members, the parties are in deadlock or where a partnership analogy applies: Palmieriv. A.C.

Paving Co. (1999), (BC SC), 48 B.L.R. (2d) 130 (B.C.S.C.) at paras. 26-30. [27] In

summary, therefore, this is not a situation in which the specific facts call for the equitable mechanism of applying apartnership analogy. What we must then do is to apply the standard oppression/just and equitable analysis to this application. In thisregard, we are fortunate in having recent direction from the Supreme Court of Canada on the definition of the oppression/just andequitable remedy in Canadian corporate law.

The following extract from 1976 Debetureholders summarizes the applicable principles: 66 The fact that the conduct of the directors is often at the centre of oppression actions might seem to suggest that directors are under adirect duty to individual stakeholders who may be affected by a corporate decision. Directors, acting in the best interests of thecorporation, may be obliged to consider the impact of their decisions on corporate stakeholders, such as the debentureholders in theseappeals.

This is what we mean when we speak of a director being required to act in the best interests of the corporation viewed as a goodcorporate citizen. However, the directors owe a fiduciary duty to the corporation, and only to the corporation. People sometimes speak interms of directors owing a duty to both the corporation and to stakeholders. Usually this is harmless, since the reasonable expectations ofthe stakeholder in a particular outcome often coincides with what is in the best interests of the corporation. However, cases (such as theseappeals) may arise where these interests do not coincide.

In such cases, it is important to be clear that the directors owe their duty to thecorporation, not to stakeholders, and that the reasonable expectation of stakeholders is simply that the directors act in the best interests ofthe corporation. 67 Having discussed the concept of reasonable expectations that underlies the oppression remedy, we arrive at the second prong of thes. 241 oppression remedy. Even if reasonable, not every unmet expectation gives rise to claim under s. 241. The

section requires that theconduct complained of amount to "oppression", "unfair prejudice" or "unfair disregard" of relevant interests. "Oppression" carries thesense of conduct that is coercive and abusive, and suggests bad faith. "Unfair prejudice" may admit of a less culpable state of mind, thatnevertheless has unfair consequences. Finally, "unfair disregard" of interests extends the remedy to ignoring an interest as being of noimportance, contrary to the stakeholders' reasonable expectations: see Koehnen, at pp. 81-88. The phrases describe, in adjectival terms,ways in which corporate actors may fail to meet the reasonable expectations of stakeholders. 68 In

summary, the foregoing discussion suggests conducting two related inquiries in a claim for oppression:

(1) Does the evidencesupport the reasonable expectation asserted by the claimant? and

(2) Does the evidence establish that the reasonable expectation wasviolated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest? [28] Darren Lavigne has presented no independent factual basis for his allegations. He has not established a reasonable expectationthat he would be treated like a partner. Nor has he established any oppression by the management of 972 in relation to his stake in thecompany. Darren Lavigne has not proved that he is entitled either to the liquidation of 972 or even of any other remedy less fundamentalthan liquidation. 5.

Costs [29] If the parties are not agreed on costs, I may be spoken to within 30 days of the release of this decision.

Heard on the 16 th day of April, 2013. Dated at the City of Edmonton, Alberta this 18 th day of April, 2013. J.B. Veit J.C.Q.B.A. Appearances: Liza J. Wold, Bryan & Compan y LLP for the Applicant, Darren Lavigne Janice A. Agrios, Q.C., Kennedy Agrios LLP for the Respondents