Amack v AW Holdings Corp, 2014 ABQB 623

Court of Queen ’ s Bench of Alberta Citation: Amack v AW Holdings Corp, 2014 ABQB 623 Date: 20141024 Docket: 1303 11857 Registry: Edmonton Between: Jonathan James Amack Applicant - and - AW Holdings Corp., 952110 Alberta Ltd., Booster Juice Inc., Kiwi Kiss Frozen Yogurt Ltd., and Dale Wishewan Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice J.J. Gill _______________________________________________________ Introduction [ 1 ] The Applicant Jonathan James Amack (Mr.

Amack) filed an application (the “Derivative Action Leave Application”) on August 19, 2013, for leave under s 240 of the Business Corporations Act , RSA 2000, C. B-10 (the “ABCA”):

(

a) to commence a derivative action in the name of AW Holdings Corp. (“AW”) against the Respondents, Dale Wishewan (“Mr. Wishewan”), Kiwi Kiss Frozen Yogurt Ltd. (“Kiwi Kiss”) and Booster Juice Inc. (“BJI”) (the proposed “AW Derivative Action”); (

b) to commence a derivative action in the name of 952110 Alberta Ltd. (“952”) against Dale Wishewan (the “Proposed 952 Derivative Action”). [ 2 ] Mr. Amack alleges improper conflicts of interest, self-dealing and breach of fiduciary, statutory and other duties by Mr. Wishewan in his administration of the business and financial affairs of AW and 952. [ 3 ] The Respondents submit that the Derivative Action Leave Application should be dismissed as the Applicant has not met the test for granting leave.

Facts [ 4 ] The parties have filed a large number of Affidavits, Transcripts of Questionings, documents Exhibited at the Questionings, Responses to Undertakings and the Reports of the Inspector from the

Part 18 Proceedings. [ 5 ] Mr. Amack and Mr. Wishewan are the founders, sole directors and sole shareholders of Alberta corporations, AW and 952. [ 6 ] AW is the franchisor of “Booster Juice” retail fresh fruit smoothie and juice bars in Canada and internationally. 952 is a single purpose corporation which exists solely to receive rebates paid by AW franchisees for product supplied to their Booster Juice franchise stores pursuant to their respective franchise agreements with AW. [ 7 ] AW was incorporated in August of 1999 by Mr. Amack (a resident of West Linn, Oregon, U.S.A.) and Mr.

Wishewan (a resident of Sherwood Park, Alberta). Prior to entering into business together, Mr. Amack and Mr. Wishewan were college friends. [ 8 ] Mr. Amack and Mr. Wishewan jointly developed and managed the business of AW from 1999 until 2004. From and after 2005, Mr. Amack assumed primary responsibility for the U.S. operations of the “Booster Juice” franchise (the franchisor of which was a Nevada corporation owned by Mr. Amack and Mr. Wishewan), and Mr. Wishewan assumed virtually exclusive responsibility for the Canadian-based operations of AW. [ 9 ] From and after 2006, Mr.

Amack travelled from Oregon to Edmonton approximately once a year. Mr. Wishewan served as an employee and president and CEO of AW, and ran the “Booster Juice” franchise in Canada and internationally (apart from the U.S.). [ 10 ] In the fall of 2009, Mr. Amack was contacted by Summer Bradko, an Edmonton lawyer who worked as in-house counsel to AW. At an October, 2009 meeting with Mr. Amack, Ms. Bradko described certain conduct of Mr. Wishewan relating to the business and financial affairs of AW which caused her serious concern.

She alleged wrongful diversion of rebate revenues due to AW shareholders, undisclosed and inappropriate use of resources of AW to benefit other corporations and personal expenses of Mr. Wishewan being paid by AW. She provided Mr. Amack with certain information regarding the business activities of an Alberta corporation affiliated with AW known as Frozen Canuck Import Corp. (“Frozen Canuck”) which had been owned by Mr. Amack and Mr. Wishewan. [ 11 ] As a result of receiving this information from Ms. Bradko, Mr. Amack swore an Affidavit on December 28, 2009 (the “December 28, 2009 Amack Affidavit”)’.

The December 28, 2009 Amack Affidavit alleged (the “Subject Allegations”): (

a) that Mr. Wishewan had caused his former wife, Ann Wishewan, to be placed on the AW payroll and to receive a salary despite doing no work for AW; (

b) that Mr. Wishewan had caused AW to pay personal expenses charged to his credit card (without reimbursing AW for same); (

c) that Mr. Wishewan had caused employees and resources of AW to be actively deployed in the development of a new frozen yogurt enterprise by a corporation owned or controlled by Mr. Wishewan and known as Kiwi Kiss Frozen Yogurt Ltd. (“Kiwi Kiss”) in which Mr. Amack had no ownership interest; (

d) that rebates which ought to have been paid to 952 by AW franchisees had been improperly diverted to Frozen Canuck (Mr. Amack had previously been informed that this corporation had been eliminated); and (

e) that Mr. Amack appeared potentially to have been removed as a shareholder and/or director of Frozen Canuck and that Frozen Canuck appeared to have continued to carry on business subsequent to 2005 (contrary to information that had previously been provided to Mr. Amack). [ 12 ] Mr. Amack filed the December 28, 2009 Amack Affidavit in Action No. 1003 00161 (the “Part 18 Proceedings”) under

Part 18 of the ABCA. On January 6, 2010, Mr. Justice R.P. Belzil granted an Ex Parte Order (the “Inspection Order”) under s 238 of the ABCA appointing KPMG Forensic Inc. of Calgary, Alberta (the “Inspector”) to investigate and report to the Court on certain aspects of the business and financial affairs of AW (including the Subject Allegations). [ 13 ] The Inspector initially commenced pursuant to the Inspection Order in January of 2010 and delivered its First Interim Inspector’s Report on January 25, 2010.

The work of the Inspector was delayed as a result of a number of applications relating to the “Inspection Order”. [ 14 ] The Inspector resumed its work under the Inspection Order in March of 2012. Between March 2012 until March 2013, it issued six additional Interim Reports and a Final Report dated March 22, 2013 (the “Inspector’s Final Report”). [ 15 ] The Inspector’s Final Report contained a number of observations regarding the Subject Allegations.

[16] On August 28, 2013, Mr. Justice Belzil ordered that no remedial relief would be granted within the

Part 18 Proceedings andthat all applications for remedies arising out of the Inspector’s Final Report be brought before another Judge. Legal Framework [17] The requirements to obtain leave to commence a derivative action are set out in s 239, and 240 of the ABCA. 239.

Definitions In this Part, (a) “action” means an action under this Act or any other law; (b) “complainant” means (

i) a registered holder or beneficial owner, or a former registered holder or beneficial owner, of a security of a corporation or any of itsaffiliates, (ii) a director or an officer or a former director or officer of a corporation or of any of its affiliates, (iii) a creditor (

A) in respect of an application under

section 240, or (

B) in respect of an application under

section 242, if the Court exercises its discretion under subclause (iv), or (iv) any other person who, in the discretion of the Court, is a proper person to make an application under this Part. 1981 cB-15 s231; 2000 c10 s3 Commencing derivative action 240(1) Subject to subsection (2), a complainant may apply to the Court for leave to (

a) bring an action in the name and on behalf of a corporation or any of its subsidiaries, or (

b) intervene in an action to which a corporation or any of its subsidiaries is a party, for the purpose of prosecuting, defending ordiscontinuing the action on behalf of the corporation or subsidiary.

(2) No leave may be granted under subsection (1) unless the Court is satisfied that (

a) the complainant has given reasonable notice to the directors of the corporation or its subsidiary of the complainant’s intention toapply to the Court under subsection (1) if the directors of the corporation or its subsidiary do not bring, diligently prosecute, defend ordiscontinue the action, (

b) the complainant is acting in good faith, and (

c) it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued.

(3) Notwithstanding subsection (2), when all the directors of the corporation or its subsidiary have been named as defendants, notice tothe directors under subsection (2)(

a) of the complainant’s intention to apply to the Court is not required. RSA 2000 cB-9 s240; 2005 c8 s54 [18] In

summary,

Part 19 of the ABCA sets out four requirements which an applicant must satisfy in order to obtain leave tocommence a derivative action, namely: (

a) the applicant must have standing as a complainant to bring the leave application; (

b) the applicant must have given reasonable notice to the directors of the corporation of his or her intention to bring the leaveapplication; (

c) the applicant must make the leave application in good faith; and (

d) bringing the proposed derivative action must appear to be in the interests of the corporation. [19] A good description of the objectives of a derivative action remedy is contained in the Ontario Court of Appeal case ofRichardson Greenshields of Canada Ltd. v. Kalmacoff (1996) (ON CA), 22 O.R. (3d) 577 at 584: 21 In deciding whether leave should be granted, it should be borne in mind that a derivative action brought by an individualshareholder on behalf of a corporation serves a dual purpose.

First, it ensures that a shareholder has a right to recover property or enforcerights for the corporation if the directors refuse to do so. Second, and more important for our present purposes, it helps to guarantee somedegree of accountability and to ensure that control exists over the board of directors by allowing shareholders the right to bring an actionagainst directors if they have breached their duty to the company: M.A. Maloney, “Whither The Statutory Derivative Action?” (1986) 64

Can. Bar Rev. 309. 22 It should also be borne in mind that s 339 is drawn in broad terms and, as remedial legislation, should be given a liberalinterpretation in favour of the complainant. The Court is not called upon at the leave stage to determine questions of credibility or toresolve the issues in dispute, and ought not to try. These are matters for trial. Before granting leave, the Court should be satisfied thatthere is a legitimate or arguable one. The preconditions of s 339 cannot be considered in isolation.

Whether they have been satisfied mustbe determined in the light of the potential validity of the proposed action. Issues [20] Has Mr. Amack satisfied the statutory requirements for the granting of leave to commence the Proposed AW DerivativeAction and the Proposed 952 Derivative Action (collectively, the “Proposed Derivative Actions”)? [21] Should the

summary judgment application brought by the Respondents be granted? [22] If Mr. Amack’s applications are granted, is it appropriate for the Court to direct, pursuant to s 241 of the ABCA, that carriage andcontrol of the Proposed Derivative Actions be granted to Mr. Amack? Analysis A. Standing as Complainant (s. 240(2)(a)) [22] The Respondents acknowledge that Mr. Amack is a complainant within the meaning of s 239(

b) of the ABCA. B. Reasonable Notice (s. 240(2)(a)) [23] The Respondents acknowledge that Mr. Amack gave notice of the application to Mr. Wishewan. However, they note that noevidence has been led that Mr. Amack is a director of AW and 952 and that he called a meeting of the directors of either company toconsider the commencement of the proposed Derivative Action. [24] Mr. Wishewan and Mr. Amack are the only directors of both AW and 952. Mr. Amack through counsel sent a letter, datedMarch 28, 2013, giving notice of his intention to bring the Derivative Action Leave Application to Mr. Wishewan.

In addition, Mr.Amack sent another letter dated May 16, 2014 advising of his intention to bring the Derivative Action Leave Application. [25] I am satisfied that these letters constitute sufficient notice to comply with the requirements of s 240(2)(

a) of the ABCA. [26] If I am wrong, then I rely upon the finding of Graesser J. in Porter v Anytime Custom Mechanical Ltd, 2014 ABQB 193 that“Notice is sufficient if all of the directors and the corporation are parties to the action” (at para. 44). This being the case here, Mr.Amack has satisfied the notice requirements. C. Good Faith (s. 240(2)(b)) [27] The Respondents submit that the Applicant is not making the leave application in good faith. They put forward severalreasons including: (

a) the proposed Derivative Actions could be considered vexatious orspurious; (

b) the proper parties have not been named in the actions. Mr. Amack shouldhave been named as a party. He is a director and could be liable for the alleged claims. [28] In Valgardson v. Valgardson, 2012 ABCA 124, the Alberta Court of Appeal discussed the meaning of “good faith”. At para20, the Court stated: “....the question of good faith requires the Court to ensure that the proposed action is not frivolous or vexatious: Acapulco Holdings Ltd.at para 17; First Edmonton Place Ltd. v. 315888 Alberta Ltd., (AB KB), [1988] A.J. No 511 at para 67, 60 L.R. (2d)122, 40 B.L.R.28 QB.

There is both a subjective and objective component to the requirement of good faith. The subjective aspectrequires that the Applicant believes that the proposed derivative action has merit. This guards against actions spurned by self-interest orprivate vendetta. But even where the Applicant believes that the proposed action has merit, the Court still must consider whetherobjectively viewed, the action is not frivolous and vexatious”. (

i) Subjective Component of Good Faith [29] Mr. Amack was advised in October of 2009 by then, AW in-house counsel, Summer Bradko, of apparent inappropriate

payments made to Mr. Wishewan’s ex-wife, Ann Heather Wishewan and possible inappropriate expenses of Mr. Wishewan being paid by AW. He was also provided information concerning the business activities of another company, Frozen Canuck Import Corp. (“Frozen Canuck”). [ 30 ] Upon receiving this information, Mr. Amack gathered additional information which raised concerns relating to a corporation, Kiwi Kiss Frozen Yogurt (“Kiwi Kiss”), owned or controlled by Mr. Wishewan. It also raised concerns about rebates that have been paid to 952 by AW franchises.

This information was put into a December 28, 2009 Amack Affidavit, which was the basis on which Mr. Justice Belzil granted an Ex Parte Inspection Order under s 238 of ABCA on January 6, 2010. [ 31 ] The Amack Affidavit, dated December 28th, 2009, and the other Affidavits sworn by Mr.

Amack, along with the Transcripts of those Questionings, provide the subjective component of merit for the Proposed Derivative Action. (ii) Objective Component of Good Faith [ 32 ] As noted in Valgardson supra, even when the Applicant believes that the proposed action has merit, the Court must still consider whether, viewed objectively, the action is not frivolous and vexatious. [ 33 ] Both the evidence of Mr. Amack and the evidence of the Inspector’s Reports support the conclusion that the Proposed Derivative Actions are not frivolous and vexatious.

The 60 page Appendix to the Final Report of the Inspector made a number of comments relating to the allegations that form the basis of the Derivative Actions. These comments include the following. include: (

a) In relation to the alleged improper conduct of Mr. Wishewan, causing AW to pay a salary to Ann Wishewan pursuant to a divorce settlement agreement when Ann Wishewan performed no work for AW The Inspector interviewed the parties. He notes that Ann Wishewan was paid a salary pursuant to a divorce settlement. Mr. Amack maintained that he did not know that she was on the AW payroll and that he did not approve it. Ann Wishewan does not appear to have provided services for a period of time despite being on the payroll (

b) In relation to the alleged breach of fiduciary duty by Dale Wishewan causing AW to pay his personal expenses charged to his credit The Inspector interviewed both Mr. Wishewan and Mr. Amack. He reviewed documentation showing personal expenses attributable to Mr. Wishewan of approximately $130,000.00 charged to AW. Mr. Wishewan confirmed that some personal expenses were paid by AW. Mr. Amack denies approving it. The inspector concluded that he was not in a position to decide whether Mr. Amack’s or Mr. Wishewan’s evidence should be preferred. (

c) In relation to the alleged breach of fiduciary duty by Dale Wishewan causing and directing AW to use AW resources (i.e. AW employees) to work in Kiwi Kiss business The Inspector reviewed corporate documentation. He noted that approximately $70,019.00 to $76,000.00 of costs had been charged by AW to Kiwi Kiss for the use of corporate resources. (

d) In relation to the alleged breach of fiduciary duty by Dale Wishewan for failing to ensure that tenant improvement allowances received by Booster Juice Inc. were passed through, paid or distributed to AW The Inspector reported in his final report that since 2011, Booster Juice Inc. (“BJI”) had accumulated a cash balance in the amount of approximately $239,000.00. He noted: “Mr. Amack and Mr. Wishewan differ on whether these monies should have properly been deposited to the account of AW. The Inspector cannot make a finding on credibility between Mr. Amack and Mr. Wishewan on this matter. (

e) In relation to the alleged breach of fiduciary and statutory duty by Dale Wishewan to ensure that 952 received payment of all rebates to which it was entitled The Inspector noted that due to the lack of documentation he cannot comment on the completeness of the rebates to 952 and whether 952 received all of the rebates to which it was entitled. For example, there is a lack of supporting documentation for a substantial amount ($2,776,209.00) of the rebate payments from 2005 to 2012. He was also unable to determine why there appeared to be significant variations in rebates when compared to royalty revenue paid by franchisees. (

f) In relation to the alleged breach of fiduciary and other duties by Dale Wishewan to disclose to directors of 952 existing or potential conflict between Mr. Wishewan’s duties to 952 and his personal business interests in Frozen Canuck and breach of duty to avoid entering into contracts, arrangements or situations when existing or potential conflict arose between Mr. Wishewan’s duties to 952 and his personal interest in Frozen Canuck The Inspector indicated he did not have enough information to come to any conclusions relating to the actions of Mr. Wishewan. He concluded that the questions of whether Mr.

Wishewan is in a conflict of interest with respect to Individually Quick Frozen fruit (“IQF”) pricing as a result of the various roles he occupies in AW, 952 and Frozen Canuck, and what the effect of such a conflict may be are legal questions and was beyond the scope of the Inspector’s mandate and accordingly, are issues on which the Inspector makes no findings.

While the Inspector did not come to any conclusions on the allegations, I find that the Inspector’s detailed analysis of the supply chain and the pricing of the IQF fruit along with the lack of documentation raises serious questions and provides some evidentiary basis for

this allegation. [34] I note also that while much of the evidence of Mr. Amack and Mr. Wishewan relating to the allegations is disputed andcontradictory, there is evidence from existing and former employees including former AW in-house counsel Summer Bradko, NikCekelic and Ann Wishewan which lend credence to some or all of the allegations. [35] There are questions of credibility to be resolved. In addition any adjudication will involve an

interpretation of voluminousdocumentation and years of corporate practices. [36] I am satisfied particularly that there is more than sufficient objective evidentiary components for each of the proposed claimsto satisfy the test of good faith. The evidence clearly shows that the proposed Derivative Actions are neither frivolous nor vexatious. Theevidence satisfies me that the complainant is acting in good faith. The application meets the requirement of s 240(2)(

b) of the ABCA. D. Appears to be in the interests of AW and 952 (s. 240(2)(c)). [37] Mr. Wishewan submits that the Derivative Actions are not in the Interests of AW and 952 and are bound to fail for a numberof reasons: (

i) several of the claims have not been shown to be anything more than mere allegations, nor has Mr. Amack shown thepotential relief of pursuing such claims would warrant the expense and convenience to the companies; (ii) several of the claims are bound to fail, as the limitation period with respect to such claims have expired, and therefore, suchclaims are spurious, frivolous and vexatious; (iii) the claims are not brought in good faith with respect to the wrongful personal expense payments claim as Mr.

Amack hadbeen selective in the naming of the Defendants in the proposed action by not naming himself and is equally plausible that he ispotentially liable for this alleged claim as he was at all times a shareholder and director of AW and 952. [38] In Valgardson v. Valgardson, supra, the Alberta Court of Appeal approved the following definition of “interests”: 27 The Derivative Actions can only be in the interests of the Vauxhall and Rivers if they have some chance of success.

Courts havealso described this standard as meaning the claims are not bound to fail: Mackenzie at paras 36-40; First Edmonton Place at 159;Primex at paras 39-41. [39] The comment by Mr. Justice Marceau in Pathak v. Moloo, 2008 ABQB 389, at para 13 is also relevant: “... the onus on the Applicant is to show a prima facie case; to do so he must show that the issues are at least arguable even if theproffered evidence is contradictory. I take this to mean that for the purposes of section 240(2)(

c) showing a prima facie case is a pre-condition to a finding that "it appears to be in the interests of the corporation that the action be brought." [40] The fact that there is contradictory evidence does not mean that the Applicant has failed to establish that prosecuting theProposed Derivative Actions is in the interests of the corporation. Certainty of success is not required at this stage. Questions of disputedfacts and possible defences are matters for trial. [41] I am satisfied that Mr. Amack has made more than mere allegations on each of these claims.

Each claim is supported by morethan sufficient evidence to conclude that they have at least some chance of success and are “not bound to fail”. The Inspector’sinvolvement in interviewing the witnesses and cataloguing much of the evidence strongly supports this conclusion that there is at least aprima facie case. [42] Each of the amounts claimed are significant and are of a type that warrant the expense or inconvenience to pursue.

I note forexample that a preliminary estimate of the claim to the alleged breach of fiduciary and other duties by Dale Wishewan to disclose todirectors of 952 existing or potential conflict for 2007 to 2011 based upon the IQF Fruit Pricing is over $700,000. The Limitations Act [43] Mr. Wishewan submits that s 3(1)(

a) of the Limitations Act should be considered in determining whether or not it is in theinterests of either 952 or AW for leave to be granted to commence some or all of the claims. [44] Mr. Wishewan submits that several of the claims have no chance of success as there is undisputed evidence whichdemonstrates that Mr. Amack had sufficient knowledge prior to June 4, 2011 regarding: (

a) AW’s payment of the salary to Ms. Blanchard; (

b) reimbursement of AW by Kiwi Kiss for the time expended by AW employees on Kiwi Kiss employees; and (

c) the payment of Mr. Wishewan’s personal expenses by AW. [45] Mr. Wishewan points to the evidence of the meeting between Mr. Amack and Ms. Bradko on October 20, 2009, theInspector’s first interim report and Mr. Wishewan’s June 2, 2011 Affidavit. [46] In Gayton v. Lacasse, 2010 ABCA 123 , 2010 ABCA123, the Court of Appeal outlined the test for determining whena claimant “ought to have known” that an action should have been started at paragraph 20:

[20] Finally, the test for determining when a claimant has discovered, or ought to have discovered, the enumerated criteria in section3(1)(

a) was discussed by this court in J.N. v. Kozens, 2004 ABCA 394 , 2004 ABC 394, 361 A.R. 177 at paras. 14-16. Thecourt adopted the test described by McLachlin J. (as she then was) in Novak v.

Bond, (SCC), [1999] 1 S.C.R.808, 172D.L.R. (4th) 385, a case dealing with British Columbia’s limitation legislation, in which she described the test as a “restrictivesubjective/objective approach” which asks the question “in light of his or her own circumstances and interests, at what point could theplaintiff reasonably have brought an action?” Thus, while the test is objective, in that it employs the “ought to have known” standard, thetest is applied having regard to a claimant’s personal circumstances.

In Alberta, given the decision in Kozens, this test applies to all threeof the criteria set out in section 3(1)(a). [47] I find that the actions are not statute barred. Mr. Amack’s actions in waiting for the Inspector to complete his investigationbefore deciding whether to commence an action was appropriate having regard to Mr. Amack’s circumstances and interests. [48] Mr. Amack first obtained information concerning the possible claims in this action in October of 2009, when he wascontacted by Ms. Summer Bradko (then AW in-house counsel). Mr.

Amack quickly took steps to obtain more information in 2009 and2010. [49] I agree with the submissions of counsel for Mr. Amack that as of December 28, 2009, Mr. Amack’s suspicions were generalin nature and pertained to the character of acts and omissions that Mr. Wishewan was suspect of committing, as opposed to specific harmor injury suffered as a result of such suspected acts and omissions. [50] After the

Part 18 Proceedings were commenced Mr. Amack continued to attempt to get more information etc. [51] Prior to delivery of the Final Inspector’s Report in March 2013, he lacked the degree of knowledge of facts with respect to anyparticular harm or injury suffered by AW and 952 as a result of acts and omissions of Mr. Wishewan required to trigger thecommencement of the limitation period with regard to such injury or harm. [52] On the evidence Mr. Amack did not and could not know whether a prospective action was “warranted” as required by s 3(1)(

a) of the Limitations Act. Mr. Justice Clackson commented on this same issue in Condominium Plan 9421549 v. Main StreetDevelopments Ltd., (AB KB), 2004 ABQB 962 at para 63: 63 It is not every nick, bump, bruise, failing or deficiency that warrants action. Thankfully, we Canadians are still reasonablytolerant and non-litigious. The question of whether an injury warrants proceedings is not strictly an issue of fault, nor even potentialeconomic gain. What warrants proceedings embraces a consideration of the extent of the injury in comparison to the economics ofprospective action. This assessment involves a blended objective/subjective analysis. [53] I also find that the very fact that a

Part 18 ABCA Inspection Order was granted supports the conclusion that Mr. Amack wasnot in a position to commence proceedings in respect of the alleged injuries and that therefore such proceedings were not warrantedwithin the meaning of s 3(1)(

a) of the Limitations Act until the

Part 18 Proceedings were complete and the Final Inspector’s Report wasin hand. See Archmetal Industries Corp v. Jag Flocomponents (North America) Inc., 2004 ABQB 662; Western Canadian OilManagement Services Inc. v. Arlyn Enterprises Ltd., 2008 ABQB 521. [54] Mr. Amack’s actions in waiting for the Inspector to complete his investigation before deciding whether to commence anotheraction also avoided the prospect of multiple actions or proceedings dealing with the same issues. [55] Finally the comment made by the Court of Appeal in Valgardson v. Valgardson is also applicable. At para 29, the Courtstated: 29 ...

Given this lack of certainty, it was not open to the chambers judge to conclude that the derivative actions had no chance ofsuccess. Rather, the divergence between the parties as to the effect of the Settlement Agreement and the availability of limitations orlaches defences demonstrates that there are triable issues raised by the derivative actions. [56] I am satisfied that further to s 240(2)(

c) of the ABCA, bringing the proposed Derivative Actions appears to be in the interestsof AW and 952. [57] As regards the submission that that Mr. Amack should have been named as a party. I find that there is no basis for adding Mr.Amack as a defendant. The allegations involve inappropriate conduct by Mr. Wishewan which was not known or not approved of by Mr.Amack. Conclusion Re: Proposed Derivative Actions. [58] I find that the Applicant has met the requirements of

Part 19 of the ABCA and that leave should be granted to commence theProposed Derivative Actions. The

summary judgment application is dismissed. Other Issues Carriage and control of the Proposed Derivative Actions [59] Mr. Amack requests an order granting him carriage of the Proposed Derivative Actions and providing that his reasonable legalfees and expenses incurred in prosecuting the Derivative Actions be paid directly by AW and 952.

[60] Mr. Wishewan opposes granting Mr. Amack carriage of the Proposed Derivative Actions. He also requests that the Courtdefer the decision to award costs associated with this Derivative Action until the conclusion of the Actions. [61]

Section 241 of the ABCA reads as follows: Powers of the Court 241 In connection with an action brought or intervened in under

section 240 or 242(3)(q), the Court may at any time make any order itthinks fit including, without limiting the generality of the foregoing, any or all of the following: (

a) an order authorizing the complainant or any other person to control the conduct of the action; (

b) an order giving directions for the conduct of the action; (

c) an order directing that any amount adjudged payable by a defendant in the action shall be paid, in whole or in part, directly to formerand present security holders of the corporation or its subsidiary instead of to the corporation or its subsidiary; (

d) an order requiring the corporation or its subsidiary to pay reasonable legal fees incurred by the complainant in connection with the action. [62] I find that there should be an order directing that carriage and control of the Proposed Derivative Actions be granted to Mr.Amack for the following reasons. [63] Firstly, as noted in Dennis H. Peterson and Matthew J.

Cumming, Shareholder Remedies in Canada, 2nd edition (Markham,Ont.; LexisNexis 2009): 16.48 An order authorising the complainant or any other person to control the conduct of the action ensures that a person who hasreceived leave to bring, prosecute, defend, or discontinue an action is placed in a position that allows these tasks to be performed.Typically, the complainant is ordered to control the conduct of the action.

If control of the action is left with the directors and officerswho failed to diligently pursue the action, granting permission to the complainant to intervene is meaningless. [64] Secondly, I agree with the reasoning in Barnes v. BWV Investments Ltd., (SK KB), 101 Sask. R. 245where Armstrong J. noted “it is obvious that if the action is to proceed seriously, those who want it brought must have carriage” of it. [65] Thirdly, the reasoning in Berube v. Wingrowich, 2000 ABQB 625, is applicable.

In that case Madame Justice Veit noted atpara. 27 that while the shareholders were in a conflict position, any success or benefit achieved in the litigation will be to the benefit ofboth because they are both shareholders. Legal fees and expenses [66] Mr. Amack requests that the Court order AW and 952 to fund the carriage of the Derivative Actions.

He submits that it iswell established in the United Kingdom and Canada that because a derivative action is ultimately for the benefit of the corporation onwhose benefit it is brought, it is the corporation itself that should fund the carriage of proceedings brought on its behalf. In support ofthat proposition, he refers to Wallersteiner v. Moir (No. 2), 1975 QB 373 (Eng. CA) at 391, Discovery Enterprises Inc. v. EbcoIndustries Ltd. , (BC SC), 1998 1 WWR 494 and Armstrong v. Armbor, 1994 BCJ No. 1548. [67] Mr. Amack alleges that Mr.

Wishewan has manipulated, or disrupted the business and financial affairs of 952 by interferingwith deposit or rebate cheques, distributions of dividends and repayment of shareholders loans by 952 to its shareholders. In addition, hehas disrupted the business and financial affairs of AW by interfering with distribution of dividends and repayment of shareholders byAW to its shareholders. This conduct supports the request for an order funding the legal costs as Mr. Wishewan is in a position toundermine the ability of Mr.

Amack to pursue these cases. [68] Some of the evidence to support these allegations is found in Mr. Amack’s affidavit, dated February 16, 2011. It containsnumerous examples of large rebate cheques from Gordon Food Services (GFS) not being deposited into 952’s bank account for extendedperiods. For example a cheque in the amount of $127,866.50, drawn upon the account of GFS (Ontario Inc.) dated October 22, 2009, wasdated 174 days when it was deposited by Mr. Wishewan. [69] Mr. Wishewan acknowledges that the Court has the authority to grant the Order requested, but strongly opposes any suchOrder being granted.

He also disagrees with Mr. Amack’s characterization of the law in the United Kingdom and Canada. He submitsthat since such an award has the potential to impose what could turn out to be an unnecessary liability upon a company, courts have onlyordered early or advanced payment of costs in exceptional circumstances: Smith v. Croft, 1986 2 All ER 551 Chancery Div. andDiscovery Enterprises Inc. v. Ebco Industries Ltd., 1999 BCCA 749. [70] Mr. Wishewan submits that by reserving the awarding of costs to the conclusion of the Derivative Actions will ensure thatMr.

Amack makes decisions influenced by the knowledge that he may not necessarily be reimbursed for the legal costs incurred. Itwould also be contrary in principle to grant to Mr. Amack an adversarial advantage of the magnitude in issue here at such an early stageof litigation. [71] Mr. Wishewan also submits that where there are concerns over the economic viability of the action and a risk that the legalcosts may be greater than the recovery achieved through the action, courts have deferred awarding costs associated with a derivative

action until the conclusion of the derivative actions: Intercontinental Precious Metals Inc. v. Cooke, (BC SC), 1993 10 BLR (2nd) 203 (BCSC). [72] A useful statement as to the law in this area is found in the BC Court of Appeal case of Discovery Enterprises Inc. v. EbcoIndustries Ltd., supra, Mr. Justice Newbury at para. 18 stated: In the U.K., the two leading cases illustrate a decreasing judicial enthusiasm for making orders as to costs or for the indemnification ofthe plaintiff in a derivative action prior to its disposition. In the first case, Wallersteiner v.

Moir (No. 2) [1975] 1 All E.R. 849, theEnglish Court of Appeal confirmed that the right to apply for indemnity arises not as a matter of contract but "on the plainest principlesof equity." (at 858, per Lord Denning.) The entitlement would arise even if the minority shareholder's action ultimately failed; in LordDenning's analysis: But what if the action fails?

Assuming that the minority shareholder had reasonable ground for bringing the action -- that it was areasonable and prudent course to take in the interests of the company--he should not himself be liable to pay the costs of the other side,but the company itself should be liable, because he was acting for it and not for himself. In addition, he should himself be indemnified bythe company in respect of his own costs even if the action fails. It is a well-known maxim of the law that he who would take the benefitof a venture if it succeeds ought also to bear the burden if it fails.

Qui sentit commodum sentire debet et onus. This indemnity shouldextend to his own costs taxed on a common fund basis. [at 859] In the second and more recent case, Smith v. Croft [1986] 2 All E.R. 551 (Ch. D.), the Court questioned the procedure - an ex partemotion before a master - suggested by Lord Denning in Wallersteiner for plaintiffs applying for indemnification.

Walton J. noted: It is well settled that an order which is made ex parte cannot be relied on in any way unless the person obtaining it has shown the utmostgood faith to the court, and disclosed all facts which would tend to show that his case was, indeed, not a good one. . . . It would beunfortunate in the extreme if, in reliance on a Wallersteiner v. Moir order, plaintiffs in a minority shareholders' action had gone all theway to judgment, and then found out that there was in fact such a fatal flaw in what they had confidently expected would be a completeprotection against costs.

Of course, this is unlikely in the extreme to happen in the case of a single minority shareholder such as Mr.Moir, genuinely battling on his own behalf. But, as in the present case, it frequently happens that minority shareholders are organised bysome third person, who takes charge of the action on their behalf.

They have no means of knowing how much he knows, or what heought to disclose, so that the risk is there. [at 559] After noting that in contrast to Wallersteiner, the company in question had good reason not to bring the action sought by the minorityshareholder, Walton J. continued: The rationale for a Wallersteiner v. Moir order is to ensure that the plaintiff in a minority shareholders' action should not be preventedfrom pursuing an obviously just case through lack of funds, or fear that he may, for some reason, fail at the end of the day and be at riskas to costs which he cannot possibly pay.

It has to be acknowledged that the making of such an order may turn out to have imposed onthe company a liability which ought never to have been imposed on it. Therefore, one should be very careful not to extend that liability.Early payment, i.e. before the conclusion of the trial, does indeed impose an additional liability. That may become necessary; if, forexample, the plaintiff is a person who literally has no resources of his own, then it may well be that an order for interim payment shouldbe made in order to ensure that the action proceeds at all.

Without the supplementary order, the original order may stand in danger ofbeing stultified. It therefore appears to me that in order to hold the balance as fairly as may be in the circumstances between plaintiffs and defendants, itwill be incumbent on the plaintiffs applying for such an order to show that it is genuinely needed, i.e. that they do not have sufficientresources to finance the action in the mean time. If they have, I see no reason at all why this extra burden should be placed on thecompany [at 565; emphasis added].

For somewhat different reasons in the case at bar, I conclude that a similar note of caution is clearly appropriate. [73] In attempting to balance the interests of ensuring that meritorious actions proceed, and not imposing unnecessary liabilities ona company, a court has to examine the individual circumstances in each case. [74] In this case, there is no evidence that Mr. Amack lacks sufficient funds to pay the legal costs. In fact, he clearly has thefinancial resources to pay his legal costs. [75] There is evidence that Mr.

Wishewan has, at times, not been diligent in ensuring that funds flow into 952 for distribution. Thisraises a legitimate concern that Mr. Wishewan could use his position to delay or prevent funds flowing to Mr. Amack. [76] At this stage, however, I am not prepared to order that the cost of the Derivative Action be funded by the corporation. Nonetheless, I act on the suggestion of counsel for Mr.

Wishewan and I order that GFS pay all rebate funds directly into a 952 account.This will reduce the possibility of more allegations that GFS funds are being mismanaged or manipulated and hopefully ensure theongoing flow of funds to the two shareholders. I believe this represents a reasonable balance between the interests of the corporations andthe interests of Mr. Amack who has carriage of the actions. [77] Finally, as regards to Mr. Wishewan’s application that independent counsel be appointed to take carriage of the proposedDerivative Actions, I find no basis has been established for this request.

I find no conflict of interest, or other prejudice, to thecorporation that would justify the denial of the right of Mr. Amack to be represented by his counsel of choice. Heard on the 8th day of October 2014.

Dated at the City of Edmonton, Alberta this 24 th day of October, 2014. J.J. Gill J.C.Q.B.A. Appearances: Jeffrey M. Lee, Q.C. and Dean A. Hutchison (MacPherson Leslie & Tyerman LLP) for the Applicant Richard J. Cotter, Q.C. and Jonathan Hillson (Dentons LLP Canada) for the Respondents [except 952110 Alberta Ltd.]