Nowosad v Boutillier, 2015 ABQB 763

Court of Queen ’ s Bench of Alberta Citation: Nowosad v Boutillier, 2015 ABQB 763 Date: 20151201 Docket: 1503 03333 Registry: Edmonton Between: Tyler Nowosad and Proven Fusion Ltd. Applicants - and - Jordy Boutillier, Amanda Boutillier and KKM Oilfield Services Ltd. Respondents _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice J.H.

Goss _______________________________________________________ Introduction [ 1 ] On October 29, 2013, Tyler Nowosad and Jordy Boutillier incorporated Heston-Blake Industries Inc. (HBII) to carry on welding, pipefitting and oilfield constructions services. HBII commenced operations in early December 2013. [ 2 ] By mid-March 2014, Tyler and Jordy determined that they could no longer work together. Tyler ceased working for HBII. There was no prior written or oral agreement governing such a departure. Jordy and Tyler discussed paying out Tyler for his share in the company.

They could not agree on the terms of a payout. [ 3 ] Jordy continued to operate HBII in conjunction with his own company, KKM. Tyler returned to his previous employer to provide welding services. [ 4 ] Tyler and his company, Proven Fusion Ltd. (the Applicants) now seek relief including an oppression remedy under Alberta’s Business Corporations Act , RSA 2000, c B-9 ( ABCA ).

Procedural background [ 5 ] Two originating notices have been filed in relation to this dispute. [ 6 ] The Applicants in this action (the Nowosad Action) seek relief including a declaration of oppression, disgorgement of profits, and leave to bring a derivative action. [ 7 ] No previous orders have been granted to either side in the Nowosad Action. [ 8 ] The Respondents brought a previous application in the Boutillier Action in the Court of Queen's Bench of Alberta, Judicial District of St.

Paul, Court File Number 1514 00087, seeking relief against Tyler, Helen Nowosad (Helen) and Proven Fusion, also pursuant to the oppression provisions of the ABCA . [ 9 ] Two orders have been granted in the Boutillier Action. Graesser J. granted an ex parte order on March 20, 2015 restraining Tyler and Helen from having any involvement in or representing themselves as having capacity as employees, directors or officers of HBII.

In addition, Tyler and Helen were restrained from contacting suppliers of HBII, all of whom were instructed to refuse to provide information to Tyler or Helen. [ 10 ] A second Without Prejudice Consent Order was granted March 30, 2015 by Schutz J. affirming Graesser J.’s Order without prejudice to the right of Tyler, Helen and Proven Fusion to apply to set aside, strike, vary or amend the Order granted. [ 11 ] The Nowosad Action and the Boutillier Action have not been consolidated. [ 12 ] The parties referred to, and provided to the Court, affidavits filed in the Boutillier Action and questioning on those affidavits.

Facts [ 13 ] Tyler and Helen are directors and 50/50 shareholders of Proven Fusion. Jordy and Amanda are directors and 50/50 shareholders of KKM. [ 14 ] There was some confusion in the evidence as to the identity of the HBII shareholders as no share certificates were ever issued. Apparently, the parties’ initial intention was that Tyler, Helen, Proven Fusion and/or a combination thereof (the Nowosads) would be issued 50% of the shares of HBII. Jordy, Amanda, KKM and/or a combination thereof (the Boutilliers) would be issued the other 50% of the shares.

Jordy's Affidavit evidence, confirmed on questioning, is that ultimately it was decided that the shares would be held by Tyler and Jordy equally. [ 15 ] When HBII was incorporated, both Jordy and Tyler were named as directors. Jordy deposed that the original agreement was to set up the signing authority to require two signatures, but that they agreed that only one signature would be required as Tyler would not always be available. [ 16 ] Both Jordy and Tyler brought initial assets into HBII, either personally or through KKM and Proven Fusion, respectively.

Tyler deposes that his initial cash investment was around $97,500 while Jordy’s was around $50,000. [ 17 ] Proven Fusion provided: Unit 1 (2005 GMC TopKick), Unit 2 (2003 Dodge 3500 with Welder), Unit 4 (1995 truck and Welder), and Unit 100 (Trailer) (collectively, the Initial Assets). Each of those assets remained the property of Proven Fusion, but HBII was to pay all of the expenses related to operating all of the Units, including loan payments, insurance, repairs and registration. Those expenses were invoiced to HBII.

Proven Fusion was paid $17,714.29 from December 2013 through March 17, 2014. [ 18 ] Jordy and Tyler worked for HBII. The Nowosads were to be paid $6,000 per month and the Boutilliers were to be paid $6,000 per month. This was considerably less than Tyler had been earning previously. Jordy in argument takes the position that he and Tyler agreed they would take reduced wage payments for a period of time and perhaps be paid later to ensure that all other bills were paid. However, Jordy deposed that they agreed that they would invoice HBII for the backpay/wages.

Tyler never received backpay on the basis of his work at an hourly rate. [ 19 ] At the time of incorporation, Jordy and Amanda expressed an intention to purchase a house and shop from Calvin and Lana Saville, but could not afford to purchase the property at that time. Instead, HBII rented a shop located on Tyler and Helen’s property for approximately $1,500 per month. [ 20 ] From the commencement of operations, Tyler was primarily in the field providing welding services, while Jordy conducted various duties, including finding customers and working in the office.

Initially, Jordy and Tyler tried to make joint decisions, but Jordy became the primary decision maker. [ 21 ] In January 2014, Jordy advised Tyler that Craig Fitzpatrick (Fitzpatrick) and Braden Lorenz (Lorenz) wanted to become shareholders, and that he was implementing some changes requested by Lorenz and Fitzpatrick. Tyler did not disagree with Fitzpatrick and Lorenz becoming shareholders.

However, he disagreed with the changes requested by them. [ 22 ] Jordy deposed that at a certain point the communications between Tyler and Jordy clearly indicated to him that Tyler no longer wanted to be involved in HBII but rather wished to be paid out. On March 16, 2014, Jordy sent an email to Tyler suggesting that Jordy, Lorenz and Fitzpatrick purchase Tyler’s interest in HBII. Tyler accepted. [ 23 ] Tyler’s employment and working involvement with HBII was terminated and ceased effective March 17, 2014. Tyler returned to his previous employer Riverhill Industries to provide welding services.

There is conflicting evidence as to whether Tyler’s return to

Riverhill was approved or opposed by Jordy. [ 24 ] Upon ceasing his work with HBII, Tyler removed some of the Initial Assets financed or brought into HBII by Proven Fusion. HBII purchased others.

Jordy deposes that Proven Fusion received an overall benefit in that: • HBII purchased Unit 4 from Proven Fusion for the full purchase price despite the fact that the unit had been hit by a moose while in operation, and was therefore no longer worth that price; • HBII purchased tools from Proven Fusion for fair market value; • HBII had paid for the insurance, registration and maintenance on Units 1 and 2, and the loan payments on Units 1, 2 and 100, which units Proven Fusion kept after March 2014. [ 25 ] Tyler deposes that shortly before he ceased working, he requested that Jordy give him copies of the Newalta invoices.

Jordy refused to do so and then indicated that the copies could only be viewed at his office. After he ceased working, Tyler requested financial information and specific documents for the purposes of determining his share valuation, but those documents were not provided. [ 26 ] On April 11, 2014, Tyler’s counsel, David Kozicki, sent correspondence to Jordy’s counsel, John Cumming: ...Our client has advised our office that Mr. Boutillier has effectively taken control of the Corporation, preventing my client from having access to the Corporation’s email account and financial records.

Obviously as a director and shareholder of the Corporation my client is entitled to access to this information. It is our understanding that the shareholders’ respective goals for the Corporation have diverged and that a reconciliation is not possible. At this time our client is prepared to discuss a reasonable exit from the Corporation however for our client to be in a position to propose anything we will require the following information that they have been denied access to... [ 27 ] On April 17, 2014, Mr. Cumming wrote to Mr.

Kozicki: Our client agrees with the statement in the third paragraph of your letter that “the shareholders’ respective goals for the Corporation have diverged and that a reconciliation is not possible”. Our client would propose that a valuation of the Corporation be determined as at March 14, 2014, by the accountants of the Corporation, with a view to determining the value of your client’s shares as at that date.

Presumably the accountant would also determine whether the proposed transaction would proceed by way of redemption of your client’s shares, or transfer of your client’s shares to the other shareholder depending upon what is considered to be the most tax advantageous procedure to be followed, for all parties involved. Our client has now contacted the accountants and will hopefully obtain that valuation as soon as possible. [ 28 ] Mr. Cumming went on to provide explanations for various transfers and withdrawals from HBII’s bank accounts which Tyler had questioned.

He continued: Our client has expressed concern that your client still has access to the Corporation’s financial information through the banking website. This, I suppose, is to be expected since your client is still an officer and shareholder of the Corporation, but we would expect that your client would take no steps in connection with any financial transfers of the Corporation, showing good faith that the proposed share redemption or transfer will proceed in a timely basis.

We would appreciate it if you would confirm with your client that a proposal of obtaining a valuation of the Corporation as at March 14, 2014 would be appropriate. [ 29 ] Mr. Kozicki responded in a letter dated April 21, 2014: ...I can confirm my clients are fine with a valuation from the Corporation’s accountant as a starting point however for clarity it will be non-binding as there is obviously a number of ways to value a company. Such valuation will at minimum need to include unpaid wages to my clients, the use of my clients’ equipment, shareholder loans and obviously the work in progress of the Corporation.

As for the date of the valuation my clients would propose that the valuation be done as of April 1 as my clients’ equipment continued to work for the Corporation until that time. However my clients reserve the right to request a new valuation date in the event this process is delayed beyond a reasonable period of time... [ 30 ] The parties have never reached an agreement on purchase of Tyler’s interest in HBII. [ 31 ] Jordy denies having refused to provide information to Tyler or that Tyler did not have access to information, either before or after he left HBII.

Jordy deposes that before Tyler ceased working, he could have asked for whatever information he wanted directly from the accountant, who had all of HBII's records, or from HBII’s lawyer. Tyler also had access to all of the online banking for HBII. Jordy stated that after Tyler ceased working, he would have had to access information through legal counsel.

However, Jordy takes the position in argument that Tyler could have access to information provided that he used it with a view to the best interests of HBII, but Jordy did not believe Tyler had the best interest of the company in mind. [ 32 ] After Tyler ceased working for HBII around March 17, 2014, Jordy and Tyler had limited contact by email and text message. The Boutilliers operated HBII with hired contract welders, and Jordy made all of the decisions. Jordy did not inform Tyler about contracts, new equipment or wages. Jordy stated on questioning that if Tyler did not ask, Jordy did not tell.

Tyler has not been involved in the day to day operation or decision-making of HBII in any capacity as a director or employee since his departure.

[ 33 ] HBII agreed to lease the Savilles’ house, shop and property effective March 30, 2014 for the sum of $10,000 per month. The Saville Property enabled HBII to store or house all of its equipment inside the shop through the winter. HBII made prepaid lease payments for the months of March through August 2014, for total payments of $60,000. The first rent payment of $30,000 was made on May 2, 2014 for March/April/May, the second of $20,000 was made on May 15, 2014 for June/July, and a third payment of $10,000 (cheque 167) was made on June 10, 2014 for August.

However, cheque 167 is reflected on the bank statements as being in the amount of $20,000. On the HBII general ledger under the category “Director’s Advance – Jordan B”, cheque 167 appears to constitute an advance of $10,000 from the Savilles to Jordy. [ 34 ] On May 23, 2014, Jordy provided a letter addressed to “Whom It May Concern” confirming that “[HBII] will be gifting Braden Lorenz the full amount of the down payment for the truck loan he is applying for”. On June 11, 2014, HBII paid $5,000 to ARW Truck Equipment Ltd. on a vehicle. On July 2, 2014, HBII issued a cheque to Lorenz in the amount of $37,575.62.

Two days later, Lorenz purchased a 2014 Ford F550 from ARW for the sum of $124,454.40. On July 8, 2014, HBII entered into a Lease Agreement with Lorenz in relation to the truck and agreed to pay all expenses for it, including the deposit and the loan payments. Jordy stated that the down payment made on the Lorenz truck was reflected in the general ledger as a prepaid lease down payment. The lease payments made by HBII were recorded as advances to KKM from HBII. At the time, Lorenz was an employee of HBII. He later became an independent contractor of KKM.

Jordy’s only disclosure to Tyler about the truck was a text message on July 4, 2014 which read: “We put a $40,000.00 down payment on a new crew truck yesterday...” [ 35 ] From the time of incorporation, all HBII cheques had required only one signature. On July 3, 2014, Tyler requested that the HBII account require two signatures on each cheque.

Jordy agreed to sign the authorization to effect that change, but never did so. [ 36 ] In or around July 2014, Jordy altered the nature of the business being operated by HBII from that of providing welding, pipefitting and oilfield construction services to simply renting equipment to KKM. In turn, KKM provided welding, pipefitting and oilfield construction services to customers in the oil and gas industry.

As a result, from July 2014 onward, the services that had been previously provided by HBII were provided solely by Jordy's corporation, KKM. [ 37 ] On July 17, 2014, Jordy and Amanda entered into an agreement with the Savilles to purchase the property on which the shop was located for the sum of $900,000. Jordy and Amanda were credited for an initial deposit of $50,000. This amount was recorded as an advance to KKM from HBII on the general ledger.

The timing of the purchase perhaps explains the $10,000 “advance” from the Savilles to Jordy in relation to cheque 167 for August rent. [ 38 ] On July 19, 2014, Jordy wrote to Tyler stating: “We have been slow. I have been out looking for work”. However, KKM rendered six invoices dated July 28 through to August 29, 2014 to Beretta Enterprises Ltd. for work completed from July 9 to September 1, 2014 in the total amount of $116,455.50.

HBII daily work timesheets were submitted to Beretta as supporting documents for the invoices in the name of KKM, and HBII equipment, tools, safety programs and insurance were utilized in this work. [ 39 ] Jordy initially deposed that the six Beretta invoices were HBII invoices. However, he confirmed on questioning that they were in fact KKM invoices.

Jordy deposes that everything thereafter was invoiced through KKM in order to keep operating the business. [ 40 ] As well, in June and/or July 2014, Lorenz was paid backpay when the HBII account was in an overdraft position, and work was described by Jordy to be slow. No backpay was paid to Tyler. Jordy stated that the difference was that Lorenz was paid hourly as an employee, while Tyler had been paid a monthly salary. [ 41 ] Around August 15, 2014, Tyler and Helen froze the HBII bank account. As a result, HBII could not meet its ongoing financial obligations.

Consequently, Jordy and Amanda began covering these obligations through KKM's payroll accounts and bank accounts. Services that had been previously invoiced and billed by HBII were now invoiced and billed by KKM. HBII invoiced KKM for the use of the equipment, and KKM would invoice the customers for the work done. KKM collected the revenue and paid expenses on behalf of HBII. [ 42 ] All invoices for work done prior to September 30, 2014 were recorded as income of HBII and reported on the financial statements of HBII for the year ending September 30, 2014.

All work done after September 30, 2014 was recorded as income to KKM. HBII’s income from October 1, 2014 forward relates to the revenue received from KKM for equipment rental. KKM's invoices to Beretta up to March 2015 total $627,644.89, but are not accounted for in HBII profits. [ 43 ] The net income for KKM for the year ending September 30, 2014 was $68,009. A dividend was declared in the amount of $68,000, leaving retained earnings in the amount of $9. [ 44 ] Tyler resigned as a director and officer of HBII on March 6, 2015.

He deposed that he resigned out of concerns over liability and that he was no longer covered by HBII’s insurance. [ 45 ] The HBII financial statements from September 30, 2014 through August 31, 2015 have been completed. [ 46 ] The KKM unaudited Financial Statements show a significant increase in the business of KKM. Revenue doubled from $113,800 in September 2013 to $236,096 in September 2014. KKM’s assets tripled from $60,193 in September 2013 to $180,212 in September 2014. [ 47 ] The Financial Statements for the fiscal year ending September 30, 2014 show a liability from KKM to HBII in the amount of $44,985.

The Note indicates that the advance is unsecured, non-interest bearing, and has no set repayment term. [ 48 ] For the period October 1, 2014 to August 31, 2015, KKM revenue was $1,207,260. KKM assets totalled $1,071,227 as of August 31, 2015.

Parties’ Positions [ 49 ] Tyler argues that the Applicants have not been paid anything with respect to outstanding invoices, shareholders’ loans and directors’ advances, Helen and Tyler have not been paid outstanding wages, and Tyler has never received anything for his share of the equity in HBII. [ 50 ] Tyler submits that Jordy purposely drained HBII of cash, either so that there would be nothing left to liquidate if it was dissolved, or to reduce the share price. In July 2014, KKM began to misappropriate the business opportunities available to HBII, and continues to do so.

HBII’s equipment was leased by KKM so that KKM could provide those services. Tyler notes evidence that KKM began invoicing HBII customers on July 28, 2014 for work done as early as July 9, 2014. The HBII bank account was not frozen until August 15, 2014. [ 51 ] There is no written lease agreement between HBII and KKM, but Tyler maintains that Jordy stated that every time HBII trucks or equipment are used by KKM, HBII is entitled to receive 33% of the revenue generated from the use of the piece of equipment.

The welding, pipefitting and oilfield construction services are now performed exclusively by KKM, and HBII’s only business is leasing equipment to KKM. In mid-August 2014, employees of HBII became employees or independent contractors with KKM. HBII currently has no employees. Jordy had no discussions with Tyler prior to changing the nature of HBII’s business.

No shareholders’ or directors’ meeting were held. [ 52 ] Tyler also points to the transactions outlined above which occurred after his departure in support of his argument that Jordy has breached his duties to HBII, and has embarked upon a course of covert actions to divert funds, resources and corporate opportunities for his own use and benefit. Tyler submits that his reasonable expectations as a shareholder of HBII have been breached by Jordy's improper conduct, particularly from July 2014 to the present, amounting to oppression, unfair prejudice to, and unfair disregard of, his interest as shareholder.

He seeks relief including a declaration of oppression, disgorgement of profits, and the right to bring a derivative action. [ 53 ] Jordy’s position is that in March 2014, Tyler made it clear that he no longer wished to be involved in the business. When Tyler left the fledgling HBII, Jordy had to take the steps necessary to continue the business. He had to find other workers, equipment, and shop space.

When the HBII bank account was frozen, he had to use KKM in order to cover HBII’s ongoing obligations. [ 54 ] Jordy argues that Tyler has been reimbursed for all of his capital contributions, and that Tyler received the value of any interest he had in HBII when he took the assets which he and Proven Fusion had brought into HBII. [ 55 ] Jordy submits that his conduct has not been oppressive or unfairly prejudicial to the Applicants, nor has it unfairly disregarded the Applicants’ interests. Neither Jordy nor KKM has misappropriated corporate opportunities belonging to HBII.

He argues that HBII became a supplier for KKM upon the freezing of the bank accounts on August 15, 2014. From that point on, KKM rented equipment from HBII for KKM's use. The nature of the business remained the same and continued to operate under the HBII name and logo, but the entity through which the business was being operated changed, as it was invoiced through KKM.

This was done as operations had to continue, employees still had to be paid and remittances still had to be made after the HBII bank account was frozen. [ 56 ] Jordy takes the position that it is Tyler who has breached his duties to HBII by acting in a manner prejudicial to the company. [ 57 ] Jordy acknowledges that HBII still owes Tyler or Proven Fusion a shareholder’s loan of $5,753, invoiced amounts of $3,349, and rent of $5,040. [ 58 ] Jordy seeks to have the application in the Boutillier Action considered as a cross-application within the Nowosad action.

That application seeks, inter alia , removal of Tyler as an officer and director, a direction that Tyler, Helen and Proven Fusion have no interest in HBII as shareholders of HBII or in its equity, an order restraining Tyler and Helen from representing or acting on behalf of HBII in any capacity, and leave to bring a derivative action on behalf of HBII against them. [ 59 ] The Applicants argue that the application brought in the Boutillier Action is not properly before the Court and cannot form part of the relief granted.

Tyler brings this application in the Nowosad Action in their capacity as 50% shareholders of HBII and as creditors, and not in any capacity as director or employee of HBII. Issues [ 60 ] The Court must determine the following issues: 1. Should the Respondents’ application in the Boutillier Action be considered as a cross-application within this action? 2. Who were the initial shareholders of HBII? 3. Did Tyler’s withdrawal of assets, and HBII’s purchase of others, amount to full consideration for his share in HBII? 4. Does Tyler have standing to bring an application for an oppression remedy?

5. If so, what were Tyler’s reasonable expectations and were they breached? 6. Were Tyler’s reasonable expectations violated by conduct falling within the realm of oppression, unfair prejudice or unfair disregard of relevant interests? 7. Did Tyler act contrary to the interests of HBII? 8. What, if any, remedy is appropriate? Analysis 1. Should this Court consider the application in the Boutillier action? [ 61 ] The Alberta Rules of Court , Alta Reg 124/2010 provide: 1.4

(1) To implement and advance the purpose and intention of these rules described in rule 1.2 the Court may, subject to any specific provision of these rules, make any order with respect to practice or procedure, or both, in an action, application or proceeding before the Court.

(2) Without limiting subrule (1), and in addition to any specific authority the Court has under these rules, the Court may, unless specifically limited by these rules, do one or more of the following: ...(

c) give orders ... or make a ruling with respect to an action, application or proceeding, or a related matter... 3.72

(1) The Court may order one or more of the following: (

a) that 2 or more claims or actions be consolidated...

(2) An order under subrule (1) may be made for any reason the Court considers appropriate, including, without limitation, that 2 or more claims or actions (

a) have a common question of law or fact, or (

b) arise out of the same transaction or occurrence or series of transactions or occurrences. [ 62 ] The Nowosad and Boutillier actions are related in that they have common questions of law and fact, and they arise out of exactly the same series of transactions or occurrences. Therefore, I order under Rule 3.72 that the two actions be consolidated. [ 63 ] As the facts relevant to both actions are identical, and the parties have referred to affidavits in the Boutillier action, I will consider both applications. 2. Who were the initial shareholders of HBII? [ 64 ] Tyler and Jordy are not sophisticated businessmen.

They launched HBII with little in the way of documentation. The evidence before the Court is that the intention of the parties was that 50% of the shares of HBII would be issued to the Nowosads and 50% to the Boutilliers. Jordy's Affidavit evidence, confirmed on questioning, is that it was ultimately decided that the shares would be held equally by Tyler and Jordy. [ 65 ] I find that all of the shares of HBII were held equally by Tyler and Jordy. 3.

Did Tyler’s withdrawal of assets amount to full consideration for his share in HBII? [ 66 ] The parties disagree as to whether Tyler remained a shareholder after he withdrew some of the assets he brought into HBII and sold the others to HBII. [ 67 ] Each of those assets remained throughout the property of Proven Fusion, but HBII was invoiced for, and paid, all of the expenses related to operating all of those Units, including loan payments until around mid-March 2014. [ 68 ] The evidence is that Tyler’s departure from HBII was predicated on the understanding that he would be paid out for his interest in HBII.

Jordy’s e-mail to that effect was sent on March 16, 2014, and Tyler ceased working on March 17, 2014. Tyler’s counsel asked for a valuation by HBII’s accountants in April 2014. Jordy’s counsel responded in terms acknowledging Tyler’s continued status as a shareholder. Jordy never did purchase Tyler’s interest in HBII.

[69] Based on the evidence before the Court, both Tyler and Jordy understood that Tyler’s removal of the Proven Fusion assets,and HBII’s purchase of others, did not amount to full satisfaction for the value of Tyler’s share in HBII. The evidence is clear that bothexpected that Tyler would be paid something further with respect to his share in HBII. [70] In Trautwien v Telsco Security Systems Inc, 2011 ABCA 282, [2011] AJ No 1055, Slatter J.A. stated: 12 The respondent argues that the appellant is a shareholder in name only.

There is, however, no transfer of her shares, nor is thereapparently any agreement for purchase and sale that deems the shares to have been transferred notwithstanding the non-payment of thepurchase price, much less the lack of agreement as to the valuation date or price. The appellant remains a shareholder... [71] As the purchase of Tyler’s share has never taken place, Tyler remains a 50% shareholder in HBII. 4. Does Tyler have standing to bring an application for an oppression remedy? [72] “Complainant” as defined in s. 239(

b) of the ABCA includes a shareholder, former shareholder, director or former director.Tyler falls within this definition. Although this is sufficient to give him standing, “complainant” also includes a creditor for certainpurposes; Tyler would also arguably have standing as a creditor, as Jordy has acknowledged certain outstanding debts. [73] Counsel cited law to the effect that an oppression remedy is not generally available where the only directors and officers arethe two equal shareholders of a closely held corporation, and neither one has legal or de facto control.

However, where one shareholderhas day-to-day control of the financial affairs of the corporation, the remedy may be available: Mace v Dirk, 2006 ABCA 106 at para 29,English v Sylvan Lands Development Corp, 2004 ABQB 479 at paras 24-28, 368 AR 132; Munro v Nopper, 2002 ABQB 810 paras 24-25, 326 AR 58; First Edmonton Place v 315888 Alberta Ltd, (AB KB), [1988] AJ No 511 at para 31, 40 BLR 28. [74] At the inception of HBII, both Jordy and Tyler were appointed directors. Tyler worked primarily in the field. Jordy signed onthe bank account. He described himself as the directing mind of the company.

To the extent that it is necessary for the purpose ofstanding, I find that Jordy exercised day-to-day control of the business. [75] However, as noted by the authors of The Oppression Remedy (Aurora, ON: Canada Law Book, 2004-) at 2-9, the weight ofauthority supports the view that any stakeholder of the company can have standing to claim oppression, including a majority shareholder.Standing is a separate issue from likelihood of success.

The practical reality is that many majority or equal shareholders are less likely tobe in a position to be oppressed, and therefore may have more difficulty obtaining a remedy. [76] I find that Tyler has standing. 5.

What were Tyler’s reasonable expectations and were they breached? [77] Section 242(2) of the ABCA provides that the Court may rectify matters complained of if it is satisfied that the business oraffairs or powers of the directors of a corporation or any of its affiliates have been conducted in a manner that is oppressive or unfairlyprejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer. [78] In BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 59, [2008] 3 SCR 560, the Court held that in assessing anoppression claim, a Court must determine whether: (1) the evidence supports the reasonable expectation asserted by the claimant and (2)the evidence establishes that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfairprejudice” or “unfair disregard” of a relevant interest. [79] The Court explained at para 59 that what is just and equitable is judged by the reasonable expectations of the stakeholdersconsidered in the context of, and with regard to, the business relationship.

Conduct that may be oppressive in one situation may not be soin another. [80] Tyler and Jordy reached a mutual understanding in March 2014 that their business relationship was over. Tyler does not allegethat the termination of the relationship, in and of itself, was unfair. Nor is there any suggestion by Tyler of any misconduct on Jordy’spart up to the time that they parted ways, other than the fact that Jordy never arranged for two signatures on the bank account.

Theallegations of misconduct really relate to acts which occurred following Tyler’s departure. [81] In my view, the evidence does not support a finding that Tyler had a reasonable expectation that he would personally continueto operate or manage HBII, or actively participate in its work after he ceased to work for HBII on March 17, 2014. He removedequipment from HBII and sold other equipment to HBII. Both parties carried on working in the welding industry independently afterMarch 2014. Tyler went to work for Riverhill.

Jordy and Tyler contemplated that Tyler’s interest in HBII would be purchased and eachemployed a lawyer to that end. [82] In the circumstances, Tyler could not reasonably expect to be subsequently included in corporate decisions regardingmanagement of HBII with respect to its long-term prospects. However, he could reasonably expect that HBII would not be managed soas to undermine his entitlement to be paid out in a timely fashion for his fair share of HBII.

In particular, Tyler could reasonably expectthat Jordy, as director of HBII, would co-operate with Tyler in establishing a fair value for Tyler’s share in HBII, would be transparent interms of the HBII’s financial situation, would manage HBII so as not to undermine Tyler’s entitlement to be paid that fair value, andwould pay him accordingly. I find that those expectations were breached. 6. Were Tyler’s reasonable expectations violated by conduct falling within therealm of oppression, unfair prejudice or unfair disregard of relevant interests?

[83] If a breach of a stakeholder’s reasonable expectations is established, the Court must go on to consider whether the conductcomplained of amounts to “oppression”, “unfair prejudice” or “unfair disregard”, the prohibited conduct referred to in s. 242(2). [84] The oppression remedy is equitable and addresses wrongful conduct, not merely illegal conduct: BCE at para 71.“Oppression” is conduct that is coercive and abusive, and suggests bad faith; “unfair prejudice” is conduct that may not involve badfaith, but nevertheless has unfair consequences; “unfair disregard” means ignoring an interest as being of no importance, contrary to thestakeholders' reasonable expectations: BCE at para 67. [85] The failure of Jordy and Tyler to agree regarding the value of Tyler’s share does not, in and of itself, constitute oppressiveconduct: Re A Company, [1983] 1 Ch 178 at 191, [1983] 2 All ER 36. [86] However, there are cases where a shareholder wishing to conclude its relationship with a corporation by selling shares isoppressed in the process.

For example, in Osborne v Bucci, [1998] OJ No 3736, 75 OTC 232 (Gen Div), the two 50% shareholders hadagreed to part ways, but one shareholder prevented the other from receiving timely information about the company’s affairs, and alteredthe business relationship with a primary customer to artificially lower the revenue and profit. In Schwenke v Fortune FinancialManagement Inc, [1998] OJ No 497 (Gen Div), the majority shareholders refused to value a departing shareholder’s shares inaccordance with a share agreement.

In Lee v To, (SK CA), [1998] SJ No 347, 39 BLR (3d) 293 (CA), bad record-keeping and intermingling of money between two companies left the exiting minority shareholder with no way of assessing the businessactivity, management or financial position of the corporation. In Smith v Ritchie, 2009 ABCA 373, [2009] AJ No 1218, the majorityshareholders failed to provide financial statements to a departing shareholder and took no steps to acquire his shares.

In 1043325 OntarioLtd v Jeck, 2014 BCSC 1197, [2014] BCJ No 1375, the Court found oppression in the failure to provide audited financial statements,provision of misleading information about the company’s performance, and payment of high management fees. [87] In this case, the following is established on the evidence before the Court: 1) HBII provided over $40,000 on a $125,000 truck for an employee and agreed to pay all expenses for it, including the leasepayments; the lease payments made by HBII were recorded as advances to KKM from HBII; Jordy advised Tyler on July 4, 2014: “Weput a $40,000.00 down payment on a new crew truck yesterday...” 2) HBII made a $60,000 pre-payment of a shop lease, paying the full $10,000 for the month of March although it was notrented for more than half of the month; in July 2014, Jordy then purchased the house on which the shop was located for $900,000 with a$50,000 deposit, recorded as an advance to KKM from HBII. 3) On July 19, 2014, Jordy told Tyler that work was slow, however, KKM rendered invoices to Beretta Enterprises Ltd. forwork completed from July 9 to September 1, 2014 based on HBII daily work timesheets; HBII equipment, tools, safety programs andinsurance were utilized in this work. 4) From July 2014, the services that had been previously provided by HBII were provided by KKM.

This is not entirelyexplained by the freezing of the bank account on August 15, 2014. 5) The net income for KKM for the year ending September 30, 2014 was $68,009. A dividend was declared in the amount of$68,000, leaving retained earnings in the amount of $9. 6) HBII currently has $17,000 in the bank and assets of $295,000, the most significant of which is a KKM receivable.

TheHBII August 2015 income statement shows no income. 7) Tyler has had difficulty obtaining HBII financial information. [88] Complaints about lack of financial information will not amount to oppression if the complainant took no steps to obtain it: Jeffrie v Hendriksen, 2015 NSCA 49, [2015] NSJ No 206. The evidence is clear that Tyler has taken steps toward valuation andensuring HBII remained viable, including hiring a lawyer to negotiate a payout, trying to keep tabs on what was going on with HBII, andrepeatedly requesting financial information.

He also attempted to change the banking arrangements so as to require two signatures, andeventually froze the HBII bank account when he became concerned about certain transactions. [89] The oppression remedy is equitable and addresses wrongful conduct, not just illegal conduct. Jordy and Tyler agreed to partways in March 2014, and Tyler removed his equipment.

Jordy cannot be faulted for continuing to manage HBII, nor for subsequentlyrestructuring the work of HBII and KKM. [90] However, the failure to provide financial information, when viewed against the backdrop of a lack of communication and aseries of events which have subsequently reduced or at the very least obscured the value of HBII, have been unfairly prejudicial toTyler’s entitlement to be paid out based on a fair valuation of his 50% share. 7. Did Tyler act contrary to the interests of HBII? [91] Jordy pursued the discussion about Tyler leaving HBII and suggested that Tyler be paid for his share in HBII.

Tyler ceasedworking in March 2014, took his equipment, and commenced work for Riverhill. There is conflicting evidence regarding a non-compete

agreement. In any event, in July 2014 KKM embarked on the work HBII had been doing, so the same complaints about Tyler’s work for Riverhill could be levelled against Jordy. [ 92 ] While freezing the HBII bank account may have been counterproductive, the evidence supports a finding that Tyler was justifiably frustrated at the lack of communication and progress with respect to his payout, and concerned about some of the events outlined above. Tyler’s work for Riverhill and freezing of the bank account must be viewed in context.

Significantly, HBII has never paid the Applicants the amounts outstanding acknowledged by Jordy, nor has Tyler ever been paid anything on account of his remaining entitlement in HBII. [ 93 ] I find no substance to the argument that Tyler has acted contrary to the interests of HBII so as to warrant any remedy. 8.

What, if any, remedy is appropriate? [ 94 ] Section 242(3) of the ABCA gives the Court broad discretion to make any order, enumerating a number of possible remedies. [ 95 ] The Applicants requested that the Court suspend Jordy’s rights or powers in relation to HBII, remove him as a director, appoint Tyler, and enjoin Jordy from carrying on business under the auspices of HBII.

Given all of the circumstances, and in particular my finding that Tyler did not have a reasonable expectation that he would continue to be involved in the work and management of HBII after March 2014, such an order would be neither justified nor productive. [ 96 ] The Respondents seek a declaration removing Tyler as an officer and director and declaring Jordy to be the only director. This is unnecessary, as Tyler resigned in March 2015. They also seek a declaration that Tyler, Helen and Proven Fusion have no interest in HBII as shareholders or otherwise, or in the equity of HBII.

For the foregoing reasons, the Court has determined that Tyler remains a 50% shareholder of HBII. [ 97 ] The Applicants seek a replevin order in relation to the assets of the Nowosads and HBII held by Jordy. A replevin order is an interlocutory remedy allowing an applicant to get possession of personal property allegedly unlawfully taken or detained. The remedy is only available where the plaintiff gives evidence that the chattel was unlawfully taken from the plaintiff, or is unlawfully detained from him, and that the plaintiff is the true owner or entitled to legal possession.

The evidence must be clear and specific as to the description of the personal property and its value. I am not satisfied that the basis for granting a replevin order has been made out on the evidence before me. [ 98 ] Both parties sought leave to commence derivative actions in the name and on behalf of HBII against the other parties. In my view, a derivative action is not appropriate in the circumstances. [ 99 ] In the end result, Tyler’s reasonable expectations must inform the appropriate remedy.

I have found that Tyler developed a reasonable expectation that he would be paid, in a timely fashion, for the value of his share of HBII as at April 1, 2014 or within a reasonable time thereafter. [ 100 ] Therefore, in my view, the most appropriate remedy in the circumstances of this case is an order under s. 242(

g) that Jordy purchase Tyler’s 50% share. Such an order gives effect to the parties’ intentions as expressed around March and April 2014, which formed the basis for Tyler’s reasonable expectation of a payout, and for his subsequent actions. I so order. [ 101 ] Section 242(3) (

k) of the ABCA authorizes the Court to require a corporation, within a time specified by the Court, to produce to the Court or an interested person financial statements in the form required by

section 155, or an accounting in any other form the Court may determine. [ 102 ] To facilitate the determination of the purchase price, I order that Jordy and KKM provide to Tyler, within 90 days, a forensic audit of HBII from October 29, 2013 to the present, and of KKM from March 1, 2014 to the present.

If the parties cannot agree on an independent auditor for this purpose, either party may apply for directions. [ 103 ] As the Applicants did not seek an order for purchase of Tyler’s shares, the issue of an appropriate valuation date was not addressed. [ 104 ] The Originating Application in the Nowosad Action was filed on March 17, 2015. The Originating Application in the Boutillier Action was filed on March 19, 2015. [ 105 ] Tyler argues that Jordy had the opportunity to purchase Tyler’s interest in March 2014 but deliberately opted not to pursue that opportunity. [ 106 ] Mr.

Kozicki’s letter dated April 21, 2014 put Jordy on notice that Tyler did not necessarily agree to April 1, 2014 as the valuation date if the process was unreasonably delayed. [ 107 ] Tyler also relies on s. 190 of the ABCA which provides that a lease of all or substantially all of the property of the corporation other than in the ordinary course of its business requires the approval of the shareholders.

Section 191 allows a shareholder to dissent if the corporation resolves to lease all or substantially all of the property. Tyler argued that Jordy’s decision in July 2014 to convert the operations of HBII from those of a service provider to an equipment lessor constituted a significant change in the business operations of HBII to trigger these provisions.

If notice had been given to Tyler as shareholder, he could have demanded to be paid the fair value of his shares around July 2014 pursuant to s. 191(3). [ 108 ] Jordy deposed that offers had gone back and forth between the parties, but they had never been able to reach an agreement. [ 109 ] In Smith v Ritchie , 2009 ABCA 373 , [2009] AJ No 1218, the Court of Appeal stated:

19 ... although normally the valuation date is the date on which the action was commenced, other dates may also be appropriate. The date will depend upon the circumstances of the case, and will be selected with the objective of achieving fairness between the parties. The case law in this area is accurately summarized in The Oppressor Remedy , Canada Law Book 2007 at

section 6:70.50. [ 110 ] If the parties cannot agree on an appropriate valuation date(

s) for the purposes of the forensic audit, they may apply to the Court for further direction. [ 111 ] The Applicants also seek a preservation order. In the absence of any reliable valuation of Tyler’s entitlement, I decline to make such an order at this time. [ 112 ] Finally, I order that Jordy pay forthwith, or arrange for HBII to pay, the amounts which he has acknowledged are owing by HBII, being: a shareholder’s loan of $5,753, invoiced amounts of $3,349, and rent of $5,040.

This payment shall be without prejudice to any argument Jordy may have with respect to the accuracy of these amounts or how these amounts should be accounted for in the valuation. [ 113 ] Schutz J.’s consent order remains in effect. Costs [ 114 ] The Applicants shall have their costs of this application in the amount of $1,500. Heard on the 23 rd day of October, 2015. Dated at the City of Edmonton, Alberta, this 1 st day of December, 2015. J.H. Goss J.C.Q.B.A. Appearances: Edward R. Feehan Duncan & Craig LLP for the Applicants Ryan B. Armstrong Robertson Moskal Sarsons

for the Respondents