Burns Estate v. P. Burns Resources Limited, 2013 ABQB 249

Court of Queen ’ s Bench of Alberta Citation: Burns Estate v. P. Burns Resources Limited, 2013 ABQB 249 Date: 20130426 Docket: 1201 07264 Registry: Calgary Between: Royal Trust Corporation of Canada In Its Capacity As the Trustee of the Honourable Patrick Burns Estate Memorial Trust Plaintiff - and - P. Burns Resources Limited, P. Burns Coal Mines Limited, Patrick D. Burns, Lawrence T. Farell, John L. Horan, Timothy E. McGee and Craig A. Sparrow Defendants _______________________________________________________ Reasons for Judgment of J.B.

Hanebury, Master in Chambers _______________________________________________________ [ 1 ] This is an application to strike portions of a Statement of Claim. The claim seeks information from both the corporate and individual defendants on the grounds of oppression. The defendants argue that portions of the claim should be struck because: it is too late to seek information in relation to an offer to purchase the plaintiff’s shares, as that offer was refused by the plaintiff; and, no claim is made out against the individual defendants.

FACTS [ 2 ] When Senator Patrick Burns died, two companies and a trust were established under his estate: P. Burns Resources Limited, (Burns Resources); P. Burns Coal Mines Limited (Burns Coal); and, the Honourable Patrick Burns Estate Memorial Trust (Burns Trust). The plaintiff, Royal Trust Corporation of Canada, is the trustee of that trust and it is directed to make distributions from the trust to various charities.

The individual defendants are described as directors and/or officers of the two companies. [ 3 ] Burns Resources and Burns Coal each hold various legacy assets from the Burns estate, including rights to petroleum, natural gas, timber and coal, and each year much of the resulting revenue is distributed as dividends to the shareholders in the closely held corporations. [ 4 ] The Burns Trust holds shares in Burns Coal and Burns Resources. A series of transactions involving those corporations resulted in Royal Trust losing confidence in the directors and managers of the corporations.

It is now alleging oppression and commenced this action seeking information in relation to those transactions. [ 5 ] The first transaction involved a June 19, 2010 offer by both companies to purchase the interests of the Burns Trust in the companies for a specified amount. Royal Trust alleges that certain insider information about “the most lucrative transaction in the Corporations’ history” was not properly disclosed to it as trustee when the offer was made. Royal Trust refused the offer and, when it could not get the information it sought, made no counter offer.

It now seeks the disclosure of information relating to the value of the company in relation to the failed offer. [ 6 ] The plaintiff alleges that other transactions also occurred during this time period. A management compensation plan was put in place which, Royal Trust alleges, diluted the share value, gave rights to certain shareholders that Royal Trust does not have, and imposed a restriction on the sale of shares. Shares could only be sold to descendants of Senator Patrick Burns and his family. All of this, Royal Trust alleges, oppressed the interests of the trust in the companies.

It seeks information in relation to those transactions as well. [ 7 ] The claim is solely for the delivery of information, so that Royal Trust may determine the next steps it will take and the further remedies it may seek. The claim reserves its right to seek further relief upon the provision of the requested information. ANALYSIS [ 8 ] The parties provided extensive case law on two fundamental issues: the test to strike a pleading and the nature of the oppression remedy. [1] This law will be outlined first before addressing the primary question of whether portions of the claim should be struck.

The test applied to strike a pleading [ 9 ] Rule 3.68 speaks to striking pleadings in whole or in part for a number of reasons, including the fact that the claim discloses no cause of action.

The rule is permissive and also allows the court to permit the pleading to be amended. [ 10 ] The defendants argue that Royal Trust’s statement of claim discloses no reasonable claim in relation to the request for information about the failed offer to purchase and the individual defendants. [ 11 ] The onus in such an application is on the defendant and it is extremely high. [2] It must be “plain and obvious or beyond reasonable doubt that the claim cannot succeed”. [3]

[ 12 ] The Court should be cautious when considering whether to strike a pleading. [4] Only if an action is certain to fail due to a radical defect should parts of the claim be struck. [5] Yet at the same time needless litigation should be avoided. [6] [ 13 ] The court is to take the facts as stated in the claim. [7] However that does not apply to bare allegations with no facts; speculative allegations and those incapable of proof. [8] [ 14 ] A liberal

interpretation is to be given to the pleadings. [9] The Court has noted that the rule is permissive, not mandatory and if the statement of claim is unclear it should be generously construed. [10] A fatal flaw that comes within the Rule is rare and as a result the rule is commonly misused to try to strike out claims which are “probably bad [but] not certainly bad”. [11] [ 15 ] Consideration can be given to whether the problem with the pleadings can be cured by amendment. [12] [ 16 ] It has also held that where several parties are sued in the alternative and the statement of claim discloses a very good cause of action but it is unclear who was at fault, the claim should not be struck against any of the defendants at the outset. [13] [ 17 ] In

summary, the rule has been extensively considered, the bar is high, the pleadings are to be liberally construed and an amendment to the pleadings can be considered, where appropriate. The Oppression Remedy [ 18 ] The context within which the test to strike the pleadings must be applied is the oppression remedy. Historically minority shareholders had no rights.

Oppression legislation was put in place to balance the interests of the various stakeholders who have an interest in a corporation and to effect this result the courts were given a broad discretion to decide oppression actions on their merits. [14] [ 19 ] In Alberta this legislation is found in s. 242 of the Business Corporations Act , R.S.A. 2000, c.

B-9, and it gives the court wide powers where a corporation carries on or has carried on its business or affairs, or a director has exercised his powers, in a manner that is oppressive, unfairly prejudicial or unfairly disregards the interests of certain stakeholders, which includes shareholders. [ 20 ] In such a case, s. 243(3) gives the court the power to make any interim or final order it thinks fit.

Eighteen possible remedies are suggested, including: an order appointing directors in place of or in addition to all or any of the directors then in office; an order directing a corporation to purchase the securities of a security holder; an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract; and, an order requiring a corporation to produce financial statements or an accounting in any other form the Court may determine. [ 21 ] As remedial legislation, the oppression remedy is to be given a liberal

interpretation in favour of the complainant. [15] [ 22 ] Oppression is defined as a “visible departure from the standards of fair dealing and a violation of the conditions of fair play”. [16] The remedy is fact specific, which means that to determine what is just and equitable in the situation the Court looks at the context, the relationships at play and the expectations of the stakeholders. [17] It then considers whether the evidence supports the reasonable expectation that the applicant is claiming and if that expectation was violated by conduct that can be described as oppressive, unfairly prejudicial or that unfairly disregards the claimant’s relevant interest. [18]

[23] The remedy cannot be used to advance a personal interest, nor can it be used to give to the claimant something he could never have expected.

It can only be used to rectify oppression.[19] [24] However, as Paperny J, (as she then was) noted, an interim order can be made before an actual finding of oppression, and a lack of disclosure raises a strong prima facie case of an unfair disregard of the complainant’s interests.[20] [25] Royal Trust says that it is seeking only the provision of information at this time, and will only seek a specific remedy inrelation to the oppressive conduct once the information has been provided. [26] It is within the context of this legislation that the Court must determine the two issues raised by Burns Resources and BurnsCoal: 1.

Should those portions of the claim seeking information in relation to the failed offer to purchase be struck? 2. Should those portions of the claim seeking a remedy against the individual defendants be struck? Should those portions of the claim seeking information in relation to the failed offer to purchase be struck? [27] The oppression alleged in relation to this aspect of the claim is that, in light of the unsolicited offer to purchase Burns Trust’sshares, the defendants owed a fiduciary duty to provide full disclosure of the companies’ opportunities and arrangements and the failureto do so was oppressive.

The information sought is the production to Royal Trust of full details of the background information inconnection with the purchase negotiations and the details associated with the valuation of the companies for January 1, 2010, December31, 2010, and December 31, 2011. [28] This information is in relation to matters that occurred prior to, during and after the negotiations of 2010, and Royal Trustalleges that as a result of this lack of disclosure it could not properly value the company, therefore refused the offer, and ultimately madeno counter-offer.

It filed this application for the information in June, 2012. [29] The purpose of oppression legislation is to grant jurisdiction to the Court to rectify oppression and unfairness. If such aremedy is not possible, no order should issue: Sparling c. Javelin International Ltd., [1986] Q.J. No. 2453. An oppression remedy is tobe sought in a timely way: Switzer v. Greenland Properties Ltd., 2002 ABQB 38. Usually such remedies are matters of urgency and aresought during the oppression or in anticipation that oppression will occur: Jaska v. Jaska, (MB CA), [1996] M.J. No.579 (Man.

C.A.), para. 28. [30] The defendants argue, and I agree, that the request for this information is out of time, and is not underpinned by an oppressionremedy that could be ultimately granted by the Court. If Royal Trust was concerned that it had insufficient information to determinewhether the offer was fair, it should have brought this application before refusing the offer, or immediately thereafter to determine a faircounter-offer.

I fail to see the purpose of seeking this information almost two years later in relation to a matter that is now defunct. [31] In oral argument Royal Trust alleged that it had made 30 demands for production and remains interested in selling its sharesand determining a sale price for them. That information is not found in the pleadings.

If that is the case, and it is of the view that thereare facts to support an argument that the purchase of the shares remains a live issue between the parties, it may apply to amend its claim.Alternately, if there were specific requests made at the 2011 annual general meeting for information to which it believes it is entitled,irrespective of any desire to sell shares, that allegation requires particularization in the claim and an amendment should be sought. Should those portions of the claim seeking a remedy against the individual defendants be struck?

[32] The Burns companies and the individual defendants argue that there is no duty owed by the directors to the shareholders, theirduty is to the company. Therefore, there is no basis to the claim against the individual defendants. They acknowledge that wheredirectors intentionally manipulate the company for purposes of their personal gain and in so doing knowingly oppress a stakeholder, anaward against a director may be appropriate.

However, they say, the relief sought here is the provision of documents in relation to themanagement incentive and compensation scheme and the restriction on share sales and those documents are the documents of thecompany and can only be demanded from it. There is no relief sought against the individuals and they should not be included in theclaim. Furthermore, the pleadings as drafted do not support a claim against them. [33] Royal Trust responds that s. 242(2)(

c) permits an oppression claim against directors. Furthermore, directors do oweshareholders a duty and, while only documents are being sought at this time, the possibility of a further remedy against the directorsremains. These companies are closely-held and the allegations against the directors are sufficient in this case to support the action. Itargues that the individual defendants have not met the test to strike the claim against them. [34] Historically a corporation has been recognized as a separate legal entity from its officers and directors.

The latter are necessaryfor the corporation to act; however their liability is limited to certain factual situations: Hogarth v. Rocky Mountain Slate Inc., 2013ABCA 57, para. 71 et seq. [35] The legislation provides in s. 242(2)(

c) that an oppression remedy can be claimed against a director if the powers of adirector are exercised in a manner that is oppressive, or unfairly prejudicial to, or unfairly disregards a shareholders interests. Thisstatutory provision takes the criteria for consideration outside those previously considered pursuant to the common law: Budd v. GentraInc., (ON CA), [1998] 43 B.L R. (2d) 27 (Ont. C.A.), para. 33. [36] A number of cases have considered the circumstances in which an oppression remedy can be claimed against a director. [37] In Gottlieb v. Adam, (ON SC), [1994] 21 O.R. (3d) 248 (Ont. Ct. Gen.

Div.), p. 11, a director who tooksteps to appropriate the shares of a majority shareholder contrary to a shareholders’ agreement was found to have acted oppressively. Seeas well: 864789 Alberta Ltd. v. Haas Enterprises Inc., 2008 ABQB 555. [38] In Sidaplex-Plasic Suppliers, Inc. v. Elta Group Inc., (ON SC), [1995] O.J.

No. 4048, the Court notedthat directors’ liability in oppression remedy cases is generally found where the corporation is small and closely held; the director whoseconduct was in issue was the sole controlling owner and its sole directing mind; and where the conduct in question has directly benefitedthat person. In that case a director failed to renew his company’s letter of credit which was security for a judgment against the company.As a result all creditors were paid and he thereby avoided liability under a guarantee while leaving the creditor with an empty judgmentagainst the company.

He was found personally liable: aff’d on appeal: (ON CA), [1998] O.J. No. 2910 (Ont. C.A.). [39] In Budd v. Gentra Inc., (supra), para. 52 the Court noted that the case law has imposed liability on directors when thedirectors or officers personally benefited from the oppressive conduct, or furthered their control over the company through theoppressive conduct.

In other cases, the Court said, oppression applications involve closely held corporations where a director or officerhas virtually total control over the corporation and he or she has been held personally liable to rectify the corporate oppression. [40] The Supreme Court of Canada has considered the oppression remedy in two recent cases, with the latter, BCE Inc. v. 1976Debentureholders, 2008 SCC 69, expanding on the Court’s comments found in the earlier case, Peoples Department Stores Inc.(Trustee of) v.

Wise, 2004 SCC 68. [41] In BCE, the Court held that in determining oppression, one starts with a consideration of whether a reasonable expectationwas breached. This determination is fact specific and must be considered within the relevant context and relationships: para. 55. Onesuch fundamental expectation is that the corporation will act within normal business practices: para. 73. [42] The Court must then determine if the conduct complained of can be described as “oppression”, “unfair prejudice” or “unfairdisregard”: para. 56-59.

At para. 93 the Court provided examples of “unfair prejudice”, which include: squeezing out a minorityshareholder; failing to disclose related party transactions; changing the corporate structures to significantly alter debt ratios; preferringsome shareholders with management fees; and, paying directors’ fees higher than the industry norm.

[ 43 ] The court noted that it has an obligation to look at business realities, not narrow legalities, and it has a broad equitable jurisdiction to do not only what is legal, but what is fair: para. 56-59. [ 44 ] The Court addressed the role and obligations of directors in its judgment. Directors, it said, have a duty to act in the best interest of a corporation that is acting as a good corporate citizen.

However, in the course of that duty, directors “may be obliged to consider the impact of their decisions on corporate stakeholders”, and “to treat individual stakeholders affected by corporate actions equitably and fairly”: paragraphs 66 and 82. [21] [ 45 ] The question of what must be found in the pleadings to support a claim of oppression against a director has also been the subject of judicial consideration. [ 46 ] As noted in Budd , ( supra ), para. 48, to sustain an action against directors or officers there must be allegations which identify the conduct of that individual that allegedly renders him or her liable to the plaintiff.

In that case the Court found that the appellant did not allege that any specific action or inaction by a named director or officer was tied to the decisions or manoeuvres for which the appellant sought a remedy. There was no attempt to connect any individual director or officer to the alleged corporate oppression. A shot gun approach to litigation, the Court said, should be discouraged. Specific facts must be alleged: para. 49. See as well: Hovsepian v. Westfair Foods Ltd. , 2001 ABQB 700 , para. 78 , 79; BAE-Newplan Group Ltd. v.

Altius Minerals Corp , 2012 NLCA 21 . [ 47 ] What is sought in this case, as in HSBC , ( supra ), para. 45, is an interim order, not an “active or intrusive remedy”. While the prayer for relief does not specifically request relief from, or the remediation of, any oppressive conduct, advisedly that is the intention of the reservation of further relief.

Similar to the situation in that case, the applicant in this case has a legal obligation to the beneficiaries as a trustee, and that obligation has led to the filing of this claim seeking this initial relief so that obligation can be fulfilled. [ 48 ] Do the pleadings meet the requirements for the order sought? [ 49 ] As noted, the directors and the companies argue that any documents sought are the documents of the company.

In my view, if the pleadings are sufficient to support a claim of a directors’ liability in relation to the impugned transactions, Royal Trust is entitled to make a claim to the documents related to those transactions both from the company and the directors. [ 50 ] The claim of Royal Trust states that it seeks an oppression remedy against the directors.

The allegations include the establishment of a management incentive plan and a share transfer protocol that respectively, inappropriately benefits the management to the detriment of the shareholders, and reduces the value and liquidity of the trustee’s shares in the company. In essence, Royal Trust is alleging that the directors have closed ranks to augment their positions in, and remuneration from, the companies to the detriment of the trust. [ 51 ] The situation alleged comes within the parameters of the case law establishing directors’ liability in oppression actions.

Although the language of the Court in BCE is not used in the claim, sufficient facts have been alleged to point to a possible abdication of the directors’ responsibility to treat the stakeholders in the corporation “fairly and equitably”.

The facts alleged also come within the examples cited of actions that could fall within the definition of “unfair prejudice” as used in s. 242 of the Act. [ 52 ] However, as noted by the defendants, the aforementioned case law requires that the position of each defendant in relation to the companies must be described as well as the alleged role each played in the oppressive conduct, insofar as it is known. At present, with one exception, the role of each is not described other than to say that they, as a group, are directors and/or officers.

For the claim to stand against the directors it must be amended to describe them individually. CONCLUSION

[ 53 ] The plaintiff has 30 days from the date of these reasons to amend, or where consent is not granted, apply to amend the Statement of Claim. Should this not occur, or should such an application be ultimately denied, the references to the offer to purchase found in paragraphs 15 to 27 of the Statement of Claim and paragraph 36(iii) and (iv) of the prayer for relief are struck.

Similarly, the references in the Statement of Claim to the directors as defendants and the claim for relief against them personally will be struck. [ 54 ] If the parties cannot agree as to costs, they may be spoken to within 30 days of the date of these reasons. Heard on the 18 th day of March, 2013. Dated at the City of Calgary, Alberta this 26 th day of April, 2013. J.B. Hanebury M.C.C.Q.B.A. Appearances: Matthew J. Epp Jensen Shawa Solomon Duguid Hawkes LLP for the Defendants / Applicants Grant N. Stapon, Q.C. Bennett Jones for the Plaintiff / Respondent

[1] Extensive case law was cited on this rule and the remedy of oppression. Therefore, for ease of reading the relevant case law on thesetwo points has been included by way of footnotes. [2] Alberta Adolescent Recovery Centre v. Canadian Broadcasting Corp., 2012 ABQB 48, para. 29. [3] MacKay v. Farm Business Consultants Inc., 2006 ABCA 316 at para. 7; Operation Dismantle Inc. v. R., (SCC),[1985] 1 S.C.R. 441; Hunt v. Carey Canada Inc., (SCC), [1990] 2 S.C.R. 959; Donaldson v. Farrell, 2011 ABQB 11,para. 30. [4] Rewega (Next Friend of) v. Rewega, 2005 ABCA 365, para.9. [5] Wanke v.

University of Calgary, 2011 ABCA 235, para. 16, citing Hunt, (supra), p. 980. [6] Tottrup v. Alberta (Minister of Environment), 2000 ABCA 435, para.9; First Calgary Savings & Credit Union Ltd. v. PereraShawnee Ltd., 2011 ABQB 26, para. 4. [7] First Calgary, (supra) para. 4. [8] Intraquest Ltd. v. Peters, 2008 ABQB 786. [9] Donaldson, (supra). [10] First Mortgage Fund (

V) Inc. (Receiver of) v. Boychuk, 2001 ABQB 712, paragraphs 16, 17; Korte v. Deloitte, Haskins and Sells,1993 CarswellAlta 304 (A.B.C.A.), para. 6, 7. [11] Donaldson, (supra), para. 24 quoting from W. A. Stevenson and J. E. Côté. Alberta Civil Procedure Handbook (Edmonton: 2010,vol. 1) at p. 3-100 & 3-101. [12] Hunt, (supra), para. 28. [13] Korte, (supra), para. 18. [14] First Edmonton Place Ltd. v. 315888 Alberta Ltd., (AB KB), [1988] A.J. No. 511 (Alta. Q.B.), p. 5, 12. [15] HSBC Capital Canada Inc. v. First Mortgage Alberta Fund (

V) Inc., 1999 CarswellAlta 458, (A.B.Q.B.), para. 26. [16] 400280 Alberta Ltd. v. Franko’s Heating & Air Conditioning

(1992) Ltd., (AB KB), [1995] 26 Alta. L.R. (3d)421, para. 24, citing Keho Holdings Ltd. v. Noble, (1987), 1987 ABCA 84 , 78 A.R. 131 (Alta. C.A.), para. 124-135.

[17] BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, para 59. [18] Ibid, para. 68. [19] Naneff v. Con-Crete Holdings Ltd., (ON CA), [1995] 23 O.R. 481 (Ont. C.A.), para. 7, 8, Kwinter v. MetrowestDevelopments Ltd., 2011 ABCA 61. [20] HSBC Capital, (supra ), para. 43 and 44. [21] The exact nature of the duty imposed by these comments has been a topic of some debate: BCE v. 1976 Debentureholders: TheSupreme Court’s Hits and Misses in its Most Important Corporate Law Decision since Peoples, J. Anthony Vanduzer, (2010) 43U.B.C.L. Rev. 205-258.