Vaasjo v Jurina, 2016 ABQB 78

Court of Queen ’ s Bench of Alberta Citation: Vaasjo v Jurina, 2016 ABQB 78 Date: 20160208 Docket: 1503 05121 Registry: Edmonton Between: Robert Vaasjo Plaintiff/Defendant by Counterclaim - and - Ken Jurina and Top Draw Inc. Defendant/Plaintiffs by Counterclaim _______________________________________________________ Reasons for Judgment of S. L.

Schulz , Master in Chambers _______________________________________________________ Introduction [ 1 ] Ken Jurina and Top Draw Inc. (collectively referred to as the “Applicants”, individually referred to as “Jurina” and “Top Draw” respectively) apply for an order requiring Robert Vaasjo (“Vaasjo”) to post over $40,000 in security for costs in accordance with Rule 4.22 of the Alberta Rules of Court , Alta Reg 124/2010 [the Rules ].

The Applicants claim that it is just and reasonable to make this order, as each of the factors in Rule 4.22 weighs in their favour. [ 2 ] Vaasjo resists this application first on the basis that his claim is one for oppression, and therefore that he is not required to post security for costs pursuant to s. 243(3) of the Alberta Business Corporations Act , RSA 2000, c B-9 (“ ABCA ”). Second, Vaasjo argues that in any event, it would be unjust and unreasonable to award security for costs in these circumstances. [ 3 ] For the reasons that follow, I find that the application for Security for Costs fails.

Background [ 4 ] Vaasjo developed Search Engine Optimization software that he marketed to a number of web development companies. Top Draw was one of those companies, solely owned and operated by Jurina. Vaasjo and Jurina met sometime in 2002 and incorporated Epiar Inc. (“Epiar”) which was set up to offer search engine marketing services primarily through Vaasjo’s software. [ 5 ] Each owned 50% of the shares in Epiar. Jurina was to be the financier as well as Epiar’s only director and officer. As CEO, Jurina was tasked with the day-to-day management of Epiar, as well as its personnel and marketing decisions.

Vaasjo was to be

responsible for continued research and development of the software. [ 6 ] Around 2005, Top Draw and Epiar purportedly entered into a Joint Venture agreement, according to which the two companies shared office space and employees. The executed Joint Venture agreement was not produced, but Vaasjo provided a draft in his affidavit as Exhibit C. Again, Vaasjo claims that this draft evidences many of the terms to which Epiar and Top Draw agreed. [ 7 ] Regardless of the status of any formal agreement, Epiar and Top Draw did share office space and some employees.

Vaasjo initially worked from the shared Top Draw/Epiar office, but eventually started working from home in 2003. In 2005, Vaasjo moved to Puerto Rico to be closer to family. In 2007, he moved to St. Kitts, and purchased a house there. Vaasjo claims that both he and Jurina agreed to the remote working arrangement. However, Jurina argues that Vaasjo abandoned his obligations to Epiar when he left the country. [ 8 ] In 2011, Vaasjo claims that he and Jurina agreed to turn Epiar into an empty shell of a company, and that Top Draw would absorb all of Epiar’s dealings, including the use of the software.

Vaasjo claims that, in exchange for full and fair compensation for the value of his shares in Epiar, the two agreed to the following:

a) Epiar’s dealings would be absorbed into Top Draw;

b) Top Draw would be granted an unlimited license to use the SEO software initially developed by Vaasjo;

c) Vaasjo would continue developing the software as a contractor to Top Draw in exchange for a reasonable salary, and

d) Upon Vaasjo’s retirement, Jurina and Top Draw would pay him an ongoing 3% royalty payment. [ 9 ] Jurina, on the other hand, contends that the parties did not agree to absorb Epiar into Top Draw. Rather, he claims that Epiar was no longer a profitable business , and he was unable and unwilling to continue managing both Epiar and Top Draw.

The parties agreed to cease Epiar’s operations due to its financial difficulties, and the ongoing contractual relationship between the two had nothing to do with paying Vaasjo fair value for his shares in Epiar. [ 10 ] At this stage of the action, the evidence with respect to any merger between Top Draw and Epiar is scant. Whatever the arrangement, however, Top Draw paid Vaasjo for research and development work until May of 2013. After that time, Vaasjo stopped receiving a salary, and has never received the 3% royalty payment.

The Statement of Claim [ 11 ] Vaasjo claims that Jurina controlled the allocation of all resources and expenses as between Top Draw and Epiar. The pleadings further set out that upon the winding up of Epiar, Vaasjo had a reasonable expectation that he would be compensated for his share value through the continued salary and royalty arrangement.

Vaasjo also claims he had a reasonable expectation that Jurina would abide by all agreements between the parties, and act in the best interests of Epiar as its sole director. [ 12 ] Vaasjo then sets out that Jurina breached the agreements set out above, his fiduciary duties to Epiar as a director, and Vaasjo’s reasonable expectations as a shareholder by the following conduct: • Misallocating resources and expenditures in a fashion prejudicial and unfair to Epiar and Vaasjo, to Top Draw’s advantage; • Failing to keep Vaasjo apprised as to the misallocations; • Preventing Epiar from completing any work or pursuing opportunities that competed in any way with services that Top Draw provided, thus seriously hampering Epiar’s growth and prosperity; • Causing Epiar to cease operations and transferring Epiar’s assets to Top Draw, without providing the agreed-upon or fair compensation to Vaasjo; • Failing to pay Vaasjo a continuing salary for his work on the software as a contractor for Top Draw; • Excluding Vaasjo from work being conducted at Top Draw; • Continuing to use the Linkdesk software for Top Draw’s benefit without the consent of Vaasjo, and without fair payment to Vaasjo. [ 13 ] Vaasjo relies upon the Business Corporations Act, claiming that all of this conduct was done in a manner that was oppressive to, unfairly prejudicial to, and unfairly disregarded his interests, all of this being in breach of his reasonable expectations as a shareholder.

He further claims that Jurina and Top Draw were unjustly enriched by the wrongful conduct. [ 14 ] In addition to leave to commence a derivative action on behalf of Epiar, Vaasjo seeks $1,500,000 in damages. He claims this amount relates either to the 3% royalty owed to him by Top Draw, or alternatively, the lost value of his shares in Epiar as a result of Jurina and Top Draw’s wrongdoing. Issues [ 15 ] This application poses the following questions:

a. Is s. 243(3) ABCA a complete answer to an application for security for costs in oppression actions? b. Does Vaasjo qualify as a complainant under s. 239 of the ABCA; and c. If he does, is the core of this action a claim for the oppression remedy? [16] If the answer to any of these questions is no, then the merits of the security for costs application must be examined. The Positions of the Parties [17] Despite pleading other causes of action, Vaasjo contends the core of this action is oppression. He submits that he is a“complainant”, pursuant to s. 239(

b) of the ABCA as a shareholder of Epiar. Moreover, because Epiar and Top Draw are affiliates underthe ABCA, the action against Top Draw is also one for oppression. He further argues that he has plead all of the remaining elements ofan oppression claim, and therefore that s. 243(3) ABCA is a complete answer to the security for costs application. [18] The Applicants counter these arguments on two grounds.

First, they argue that Vaasjo does not qualify as a “complainant” asagainst Top Draw, and therefore that the action against Top Draw cannot be classified as oppression. [19] Second, the Applicants submit that the oppression aspects of the claim are limitation barred and therefore hopeless. Since theonly valid claims advanced in the Statement of Claim are for breaches of the alleged agreements, s. 243(3) does not protect Vaasjoagainst a security for costs award. Analysis The effect of Section 243(3) of the Business Corporations Act [20] Section 243(3) of the ABCA states that a complainant under

Part 19 (containing both oppression remedies and derivativeactions) is not required to give security for costs in any application made or action brought under that Part. [21] As stated by Mason J in Logan v Riley, 2008 ABQB 72, this provision is “proscriptive and a complete answer to anapplication for security for costs”: at para 31, citing Sodhi v Genesis Land Development Corp, 2004 ABQB 628 at para 25, aff’d 2005ABCA 69 , 367 AR 25 (CA), and Agbi v Durward, 1998 ABQB 1108 (“Agbi”) at para 13. [22] However, merely uttering the word “oppression” is not sufficient to invoke the protection of s. 243(3).

If the action containsdiscrete non-oppression claims, this provision only provides immunity against security for costs orders with respect to the oppression claims: Knoll v Draxis Health Inc, (2000), 45 CPC (4th) 337 (Ont Div Ct) (“Knoll”).

If the Court can reasonably determine whatpercentage of the action involves the oppression claim , security for costs may be awarded for the non-oppression portions of theplaintiff’s claim: Konig v Hobza, 2012 ONSC 2976 (Master) at para 19, citing Uribe v Sanchez, [2006] OJ No 2370 ( Master) atparagraph 15, and Knoll at paras 7, 12. [23] However, if oppression is the core of the claim despite the existence of other causes of action, s. 243(3) can defeat an entireapplication for security for costs. The question for the Court is “what is the real, true nature of the plaintiff’s claim?

See: Abdalla vSkalin, [2004] OJ No 2981 (SC) at para 9. [24] Section 243(3) is therefore a complete answer to any aspect of the Statement of Claim characterized as oppression. Accordingly, the true nature of the claim advanced by Vaasjo must be examined in detail. Is Vaasjo a complainant? [25] In order to invoke Section 243(3) ABCA, Vaasjo must be a complainant as defined under the ABCA: Logan v Riley, 2008ABQB 72 (“Logan”) at para 32. [26]

Section 239(

b) ABCA sets out the definition of complainant: (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, ... or (iv) any other person who, in the discretion of the Court, is a proper person to make an application under this Part. [27] Vaasjo clearly qualifies as a complainant with respect to the claims relating to Epiar as he is a shareholder of that company.He is not, however, a shareholder of Top Draw. [28]

Section 242 ABCA allows for oppression relief for the conduct of a corporation “or any of its affiliates”. Thus, if Top Draw isan affiliate of Epiar, Vaasjo as a shareholder of Epiar satisfies the definition of complainant.

[29] Section 2(1) of the ABCA sets out when corporations are considered “affiliates” for the purpose of that Act. It states: 2(1) For the purposes of this Act, (

a) one body corporate is affiliated with another body corporate if one of them is the subsidiary of the other or both are subsidiaries ofthe same body corporate or each of them is controlled by the same person, and (

b) if 2 bodies corporate are affiliated with the same body corporate at the same time, they are deemed to be affiliated with each other.

(2) For the purposes of this Act, a body corporate is controlled by a person if (

a) securities of the body corporate to which are attached more than 50% of the votes that may be cast to elect directors of the bodycorporate are held, other than by way of security only, by or for the benefit of that person, and (

b) the votes attached to those securities are sufficient, if exercised, to elect a majority of the directors of the body corporate [emphasis added]. [30] Since Top Draw is wholly controlled by Jurina, the issue is whether he can be said to control Epiar such that Epiar and TopDraw are affiliates. [31] Section 2(2)(

a) of the ABCA requires “more than 50%” of the votes to satisfy the definition of control. As Vaasjo and Jurinaare 50-50 shareholders in Epiar, the “greater than 50%” threshold is not met. [32] Vaasjo argues that the question of control does not hinge only on the particular division of shares, but by de facto or effectivecontrol.

In support of this argument, he cites Farley J’s reasoning in Standard Trust Co (Liquidator of) v Cattanach, [1994] OJ No3167 (Gen Div) at para 6: I do not see that this question of control hinges on any particular majority of shares (or votes attaching to shares); rather it is a question inthe circumstances what that shareholder able to exercise (de facto) control over Standard.

It would seem to me that the test in s. 2(2)merely sets out an irrefutable presumption based on a precise number (i.e. 50% of the votes if that is sufficient to elect themajority of the directors). [Emphasis added] [33] Vaasjo argues that this statement implies that the threshold requirement to own greater than 50% of the voting shares is notthe only way a person might be said to control a company. [34] Support for this argument is found in Iacobucci J’s comments in Duha Printers (Western) Ltd v R, (SCC),[1998] 1 SCR 795 (“Duha Printers”) at p. 819, that the determination of de jure control of a corporation “is not limited to a strictlytechnical and narrow

interpretation of the share register and associated share rights of a corporation”. [35] Iacobucci J further stated that, although the de jure control test was the Canadian standard, “it must be recognized at the outsetthat this test is really an attempt to ascertain who is in effective control of the affairs and fortunes of the corporation”: Duha Printers atp. 815. On this basis, the Court justified the examination of the constating documents of a corporation, its articles of incorporation, todetermine who had control.

It should be acknowledged that the Duha case dealt with the Income Tax Act and not legislation related tothe creation or regulation of business corporations such as is found in the ABCA. However, the description of de jure control isconsistent with the “greater than 50%” threshold in the ABCA and other Corporate statutes. [36] In this case, although we have the articles of incorporation outlining the rights of each type of shareholder, we have noevidence as to the actual class of shares held by each party.

Therefore, looking to the constating documents to determine de jure controlis of little use. [37] Nonetheless, there is some evidence relating to control over Epiar.

At questioning on his affidavit on September 9, 2015,Jurina testified to how he and Vaasjo intended to establish Epiar’s organization: The lawyer at the time, Herb Zelyas, was the fellow that was trying to give [Vaasjo] and I what we wanted in the spirit of ourrelationship which was that I was supposed to have control over the company essentially, and [Vaasjo] was supposed to be essentiallyworking on helping to run the company and develop software and so forth.

I can’t recall how Herb had organized the articles of incorporation at that point because I think he was trying to give me controlessentially, and I don’t recall with certainty as to whether that resulted in [Vaasjo] actually having any of those positions or beingassigned a director. Questioning on Affidavit of Ken Jurina, September 9, 2015, p 6, lines 4-18. [38] Jurina states in his affidavit that he himself decided that he would no longer be making efforts to operate Epiar, and warnedVaasjo that he would cease Epiar’s operations.

Vaasjo also deposed in his affidavit that Jurina was in control of Epiar’s operations, andhe felt he did not have the power to arrange for a change in directors in Epiar without Jurina’s agreement. He further stated that Jurinahas always maintained control over the company as its sole director and CEO. See: Affidavit of Ken Jurina sworn August 14, 2015, atpara 13. [39] In Agbi at para 27, McMahon J held that the remedial provisions of the ABCA should be broadly construed. He then cited

with approval an excerpt from Welling, B. Corporate Law in Canada, The Governing Principles, (1984) (Butterworths, Toronto) at 526: The wording of the [oppression]

section in most jurisdictions makes it abundantly clear that the Court is being invited to ignore thetechnical rules binding those involved and to apply some unspecified combination of fair play and legitimate shareholder expectations toresolve a dispute in which the parties are unable to compromise. [40] Given the broad remedial nature of the oppression remedy, as well as the apparent effective control exercised by Jurina overEpiar, I am satisfied that Jurina had sufficient control over Epiar such that Epiar and Top Draw are affiliates under the ABCA. [41] If I am wrong in this regard, I find that Vaasjo is a “proper person” to make an oppression claim under s. 239(b)(iv), and thusqualifies as a complainant as against Top Draw. [42]

Section 239(b)(iv) gives the Court residual discretion to find that a plaintiff who does not satisfy the strict statutory definitionof complainant nonetheless has standing to bring such a claim. In Agbi, McMahon J determined that the plaintiff had standing to bring anoppression action against a corporate defendant, even though the defendant was not an affiliate of the corporation of which the plaintiffwas a shareholder.

This was because the action would likely have resulted in an order that would have affected the proposed affiliate’sinterests, and therefore it was proper to include that corporation as a party. [43] That is also the case here. Vaasjo’s claim is intimately related to promises made by Jurina in his capacity as director of Epiar,as well as owner and director of Top Draw. Vaasjo claims that his reasonable expectation as a shareholder of Epiar was tied to paymentfrom Top Draw, which was stopped in 2012.

He also alleges that Jurina took advantage of his position at Epiar to the benefit of TopDraw. [44] For these reasons, I am satisfied that Top Draw is a proper defendant to the oppression claim, and that Vaasjo qualifies as acomplainant with respect to his claims against that company. Is Vaasjo’s claim one for oppression? [45] Oppression is an equitable remedy partly codified in s. 242 of the ABCA.

Section 242 provides that an oppression remedy isavailable to a complainant to rectify conduct that is oppressive or unfairly prejudicial to their interests or unfairly disregards theirinterests. The

section sets out a broad range of available remedies, including an order directing a corporation to pay a dividend to itsshareholder (s. 242(3)(i)); an order compensating an aggrieved person (s. 242(3)(l)); and an order requiring the trial of any issue (s.242(3)(p)): Shefsky v California Gold Mining Inc, 2014 ABQB 730 at para 68. [46] The Supreme Court in BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 68, and the Court of Queen’s Bench ofAlberta in Voong v 733180 Alberta Ltd, 2012 ABQB 51 at para 26, explained that in order to succeed in an oppression claim theclaimant must establish that:

a) they had a reasonable expectation

b) that was breached by the defendant

c) by conduct that amounts to “oppression”, “unfair prejudice” or “unfair disregard” of the relevant interests. [47] The Applicants argue that Vaasjo’s claim is based on the legal interests created by the alleged agreements between himselfand Jurina concerning ongoing payment. The real nature of this action, therefore, is one of contract and not of oppression. [48] Vaasjo contends that his entire claim is based on his expectations as a shareholder.

He argues that he had a reasonableexpectation that, instead of being paid market value for his shares in Epiar when it ceased operations, he would receive a continuoussalary for his work with the software until he retired, and would thereafter receive a 3% royalty. [49] It is clear that the oppression remedy is meant only to protect a shareholder’s rights as a shareholder: Naneff v Con-CreteHoldings Ltd (1995), (ON CA), 23 OR (3d) 481 (CA) at para 25. [50] The oppression remedy is broader than a claim for breach of contract.

It is aimed at upholding shareholder expectations and isnot limited to a strict determination of a party’s legal rights as found, for example, in a contract: BCE Inc at para 71; Sandhu v Siri GuruNanak Sikh Gurdwara of Alberta, 2015 ABCA 101 at para 50 per Bielby JA. With that said, an agreement between shareholders maynonetheless be the basis for creating the reasonable expectations of one of those shareholders: BCE Inc at para 79. The Supreme Courtin BCE Inc at paragraph 59 also stated that reasonable expectations are determined in the context of the business relationship, makingthe analysis very fact specific.

See also: Nowosad v Boutillier, 2015 ABQB 763 at para 79. [51] Accordingly, the fact that this claim involves contractual elements or a claim for damages does not preclude a finding that itscore claim is a claim for oppression. As the Court’s power to order an oppression remedy is quite broad, the fact that the damagesclaimed resemble contractual damages is not a bar to classification as oppression. Further, Vaasjo seeks leave to bring a derivativeaction, which is also found in

Part 19 of the ABCA, and therefore subject to s. 243(3) of the ABCA. [52] In this case, whether Vaasjo has established his reasonable expectations on the evidence is not before the Court, just thedetermination as to whether the core nature of his claim is oppression. In my view, Vaasjo’s claim that Jurina failed to pay him fairvalue for his shares in Epiar falls within the ambit of the oppression remedy.

Vaasjo claims that Jurina and Top Draw are now using thesoftware owned by Epiar, and that was developed by Vaasjo for Epiar, to their own advantage. [53] In this regard, I note that claims of oppression have involved the breakdown of a business relationship and the subsequent faircompensation for share value: Osborne v Bucci, [1998] OJ No 3736, 75 OTC 232 (Ont Gen Div [Commercial List]), Nowosad, supra.

[ 54 ] In addition, Vaasjo claims that all conduct complained of was done in an oppressive, unfairly prejudicial manner that unfairly disregarded his interests. [ 55 ] Therefore, despite the existence of other causes of actions within the Statement of Claim, the core of the action is one of oppression.

I agree with the comments of Master Muir in Konig v Hobza , 2012 ONSC 2976 at para 26 : A determination of whether a particular action is at its core an oppression action cannot be made on the basis of the mechanical exercise of adding up how many references to oppression can be found in the pleadings or in the evidence or whether such a claim is made as a primary claim as opposed to an alternative claim.

It must be determined on the basis of a consideration of the claim as a whole. [ 56 ] The conduct that might satisfy an action for breach of contract cannot be satisfactorily separated from the conduct involved in the oppression claim. Therefore, Vaasjo is entitled to the benefit of protection from the requirement to post security for costs: Logan at para 35 . Arguable Defence [ 57 ] Counsel for the Applicants argued that, even if the action is one for oppression, those claims are limitation barred, and therefore out of time.

Vaasjo, however, claims that the oppression cause of action did not arise until he stopped receiving payment from Top Draw in May of 2013. If that is the case, his action is not limitation barred as it was filed within the two-year limitation period. [ 58 ] An arguable defence is a consideration for an order for security for costs under Rule 4.22, but when there is a finding that s. 243(3) of the ABCA applies, the limitations defence is not a consideration as that issue arises only in the context of the barred security for costs application.

If the Applicant wishes to raise a limitations defence, it must be raised as a distinct applications such as at a

summary dismissal application or at trial. If I am wrong in this regard, I am unable to assess the strength of the arguments on the limitations defence on the evidence before the Court on this application and decline to grant relief. Conclusion [ 59 ] For these reasons, s. 243(3) is a complete answer to this application. The application for security for costs fails. [ 60 ] The Plaintiff/Defendant by Counterclaim has been successful and is entitled to its party-party costs under the appropriate column. Heard on the 10 th day of December, 2015. Dated at the City of Edmonton, Alberta this 8 th day of February, 2016.

Sandra L. Schulz M.C.C.Q.B.A. Appearances: Nigel J. Forster Bishop & McKenzie LLP for the Applicants, Ken Jurina and Top Draw Inc. Chris B. Zelyas Parlee McLaws LLP for the Respondent, Robert Vaasjo