Caron v Canadian Energy Inc, 2017 ABQB 767

Court of Queen’s Bench of Alberta Citation: Caron v Canadian Energy Inc, 2017 ABQB 767 Date: 20171208 Docket: 1703 23631 Registry: Edmonton Between: Richard Caron and Norac Capital Inc. Applicants - and - Canadian Energy Inc., Mount Western Investments Inc., Don Caron, Fritz Boehm and Rainald Heinisch Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Robert A. Graesser _______________________________________________________ Introduction [ 1 ] Richard Caron and Norac Capital Inc. apply on short notice for relief under

section 242 of the Business Corporations Act , RSA 2000, c B-9, to prevent Mount Western Investments Inc from paying out dividends to its shareholders. [ 2 ] Richard Caron controls Norac Capital Inc, which is a 25 percent shareholder in Mount Western Investments Inc. Richard Caron is a director of all three corporations, together with other corporations owned by Canadian Energy Inc. [ 3 ] The funds in Mount Western Investments Inc. resulted largely from a dividend paid to it by its subsidiary Canadian Energy Inc in 2016. [ 4 ] I heard the application on November 30 and reserved my decision.

I indicated that pending my decision, the dividend should not be paid out to Mount Western Investments’ shareholders. I made no direction concerning an undertaking as to damages pending my decision.

[ 5 ] At the outset, I should indicate that on the information provided to me, this is not a dire situation where anyone outside the corporations should be concerned or seek to become involved. These matters, at this stage, involve the indoor management of the group of companies. [ 6 ] I advised the parties that when people or entities come to court for remedies, the open court principle applies and any intrusion into that rule needs careful scrutiny. Division 4 of

Part 6 of the Rules of Court deals with “Restriction on Media Reporting and Public Access to Court Proceedings.” In this case, access to the courtroom was not restricted, no publication bans were put in place, and nothing was sealed. I was satisfied that the privacy rights of the parties would be adequately protected at this stage of the proceedings by not requiring that the affidavit in support of the application be filed. Before anything else gets filed, if the parties are concerned about privacy, they should be mindful of the requirements of Division 4 of the Rules.

Background [ 7 ] Donald Caron, Fritz Boehm and Rainald Heinisch control corporations who are the other shareholders in Mount Western Investments Inc. They are all directors of Mount Western Investments Inc. Only Don Caron and Fritz Boehm are directors of Canadian Energy Inc and corporations owned or controlled by Canadian Energy Inc. [ 8 ] Essentially, Richard Caron, Don Caron and Fritz Boehm are the directors of the operating companies in this group, being Canadian Energy Inc and its subsidiaries. [ 9 ] Richard Caron and Don Caron reside in Alberta.

Fritz Boehm resides in British Columbia, and Rainald Heinisch resides in Germany. [ 10 ] Somewhat surprisingly, there is no unanimous shareholders’ agreement involving this highly successful group of companies. [ 11 ] The Mount Western group of companies operates a landfill in the County of Parkland, Alberta and carries on various related activities through subsidiaries Northland Material Handling Inc, United Roadbuilders Inc and Northland Recycling Inc. [ 12 ] Fritz Boehm and Rainald Heinisch were not represented at the application, although they had some notice of it. Mr.

Wilson appeared for Canadian Energy Inc (“Energy”) to oppose the application, as did Mr. Delblanc, appearing for Don Caron. [ 13 ] The only evidence before me was the unfiled affidavit of Richard Caron, sworn November 30, 2017. The application was brought on short notice because Richard Caron feared that Mount Western Investments Inc (“Investments”) was about to pay a large dividend to its shareholders, including Norac Capital Inc. The dividend had been declared by the directors of Investments in May 2016.

Richard Caron objected to the declaration of the dividend, but he was outvoted. [ 14 ] Shortly before the dividend was declared, and obviously in anticipation of being outvoted on the issue, Richard Caron gave notice to the other directors of Investments: Pursuant to s. 240 of the ABCA I am obligated to provide Notice that on behalf of Mount-Western Investments Inc. the (“Corporation”) and myself as a director we will be making an application pursuant to S. 240/242 of the ABCA.

Pursuant to S. 240 we will be asking the court to intervene should the directors not discontinue the action to propose, declare and pay an improper dividend. [ 15 ] Richard Caron also gave notice under

section 118 of the Business Corporations Act of his dissent to the dividend declaration. [ 16 ] Richard Caron’s notice suggested that the monies to be dividended out to Investments’ shareholders instead be held in trust until the disagreement amongst the directors could be resolved. [ 17 ] The disagreement amongst the directors has obviously not been resolved.

No explanation was given to me as to why the dividend was not immediately paid up to Investments, or why it was being paid out on December 1, 2017. [ 18 ] For the purposes of this decision, it is unnecessary to go into the disputed issues amongst the directors.

Suffice it to say that Richard Caron has concerns as to the validity of the dividend declaration, and he has strong views that keeping the funds in Energy and not paying them out to its shareholder Investments is in the best interests of Energy, as well as the directors of Energy and its subsidiaries. [ 19 ] Richard Caron proposes in his Originating Application that there be orders: (

a) restraining payment of the dividends; (

b) that an independent legal opinion be obtained relating to the issues concerning Richard Caron; (

c) that there be an independent calculation for funds available for distribution; (

d) that there be an independent calculation of the eligible dividend amount; (

e) that an issue be determined as to whether the dividend declaration was proper; (

f) for solicitor and client costs; and (

g) as the Court considers appropriate.

[20] The relief sought by Richard Caron was opposed by Energy, as well as by Don Caron. It is unclear what status Energy had onthe application, but Mr. Wilson has since confirmed that he represents Investments as well. [21] At the application, the only thing that everyone agreed on was that the corporations within the Mount Western group were allprofitable. These are all private corporations so their financial statements are not publicly available, but my review of what was providedin Richard Caron’s affidavit confirms that statement. [22] The basis for opposition to the relief sought was: 1.

Richard Caron is seeking equitable relief, which should be denied because he has failed to take any action regarding his May2016 notice such that laches should apply to his application; 2. The relief sought is essentially injunctive in nature, and Richard Caron has not provided an undertaking as to damages; 3. No irreparable harm or oppressive conduct has been demonstrated in Richard Caron’s affidavit materials; 4.

Richard Caron’s evidence concerning the matters in dispute is contested, and before granting any relief, the Respondents shouldhave the opportunity of cross-examining him and potentially putting further evidence before the Court; and 5. The Court should not intervene in what is essentially a business dispute. [23] Mr. Bieganek, on behalf of Richard Caron, referred to: R Floden Services Ltd v Solomon, 2015 ABQB 450; and Wilson v Alharayeri, 2017 SCC 39. [24] Mr. Wilson referred to: Vue Weekly (Vue Magazine) v See Magazine Inc., 1995 ABCA 461; 864789 Alberta Ltd.

V Haas Enterprises Inc., 2008 ABCA 420; and Groeneveld v 1034936 Alberta Ltd., 2005 ABQB 834. Analysis [25]

Section 242 of the Business Corporations Act (“BCA”) provides: 242(1) A complainant may apply to the Court for an order under this section.

(2) If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates (

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive orunfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the Court may make anorder to rectify the matters complained of. [26] The powers of the Court are contained in subsection (3), including the particular remedy sought here:

(3) In connection with an application under this section, the Court may make any interim or final order it thinks fit including, withoutlimiting the generality of the foregoing, any or all of the following: (

a) an order restraining the conduct complained of... [27] In R Floden Services Ltd v Solomon, Renke J reviewed the relevant authorities, and concluded at paragraphs 27-29: How should s 242 be interpreted? [27] The test for determining whether conduct “is oppressive or unfairly prejudicial to or … unfairly disregards the interests of anysecurity holder” was established in BCE Inc. v 1976 Debentureholders, [2008] 3 S.C.R. 560, 2008 SCC 69 ; see also Sandhu atpara 50; 1216808 Alberta Ltd. (Prairie Bailiff Services) v Devtex Ltd., 2014 ABCA 386 at para 18; Frydman v Pelletier, 2015ABQB 289 at paras 301 – 303; Krulc v Krulc, 2015 ABQB 213 at para 18; Luebke v Manluk Industries Inc., 2013ABQB 264 at para 32; Builders’ Floor Centre Ltd. v Thiessen, 2013 ABQB 23 at para 87; Hunter v Ingarfield, 2010ABQB 74 at para 58. [28] The test has two elements, described in BCE Inc. at paras 68 and 56: (

a) does the evidence support a reasonable expectation asserted by the claimant? (

b) does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression,”

“unfair prejudice” or “unfair disregard” of a relevant interest? [29] The claimant bears the burden of establishing the asserted expectation, the reasonableness of the expectation, and the violation ofthe expectation by conduct that was oppressive or unfairly prejudicial or that unfairly disregarded a relevant interest: 1216808 AlbertaLtd. (Prairie Bailiff Services) v Devtex Ltd. at para 39; BCE Inc. at paras 119, 137. [28] The most recent word from the Supreme Court on oppressive conduct is Wilson v Alharayeri, which at paragraph 24reaffirms the Court’s decision in BCE Inc. v 1976 Debentureholders, 2008 SCC 69. [29] On the evidence before me, which I realize is largely contested but as yet uncontradicted by any other evidence, I am satisfiedthat Richard Caron’s allegation that interests as a director have been unfairly disregarded is made out on a prima facie basis.

He hasdemonstrated a reasonable expectation relating to his interests as a director. While he is in a similar position to at least Don Caron andFritz Boehm, there are some differences such that their interests are not identical.

As a result of these differences, the evidence alsoestablishes, on a prima facie basis, that his reasonable expectations as a director have been unfairly prejudiced or unfairly disregarded. [30] Richard Caron articulated his concerns in his unfiled affidavit and supported them with excerpts from directors’ meetings andvarious financial statements of corporations in the Mount Western group.

The concerns described satisfy me for the purposes of thisapplication that Richard Caron is acting in good faith and that his concerns are not frivolous. [31] The real issues are whether I should intervene by way of granting the remedies sought, or any of them. Relief under section242(3) is discretionary. Wilson v Alharayeri gives guidance on remedies at paragraphs 26 and 27: [26] Section 241(3) thus gives a trial court broad discretion to “make any interim or final order it thinks fit,” before enumeratingspecific examples of permissible orders. But this discretion is not limitless.

It must be exercised within legal bounds, and, as a startingpoint, it must be exercised within the bounds expressly delineated by the CBCA. [27] Any order made under s. 241(3) exists solely to “rectify the matters complained of,” as provided by s. 241(2). The purpose of theoppression remedy is therefore corrective: “. . . in seeking to redress inequities between private parties . . .” the oppression remedy seeksto “apply a measure of corrective justice” (J. G. MacIntosh, “The Retrospectivity of the Oppression Remedy” (1987), 13 Can. Bus. L.J.219, at p. 225; see also Naneff v.

Con-Crete Holdings Ltd. (1995), (ON CA), 23 O.R. (3d) 481 (C.A.) (“Naneff”); 820099 Ontario Inc. v. Harold E. Ballard Ltd. (1991), 3 B.L.R. (2d) 113 (Ont. C.J. (Gen. Div.)), at p. 197 (“Ballard”)). In other words, anorder made under s. 241(3) should go no further than necessary to correct the injustice or unfairness between the parties. [32] Messrs. Wilson and Delblanc argue that I should grant no remedy for the reasons described above.

Of their reasons, for thepurposes of granting interim relief pending the Respondents being able to cross-examine Richard Caron on his affidavit and put theirown evidence before the Court, the objections I feel I need to deal with are with respect to Richard Caron’s failure to bring thisapplication in a timely way, the absence of an undertaking as to damages, and whether this is simply a business dispute with which theCourt ought not interfere, at least by way of injunctive-type relief. [33] I am satisfied that the only appropriate remedy is to restrain the conduct complained of on an interim basis, if I am inclined togrant a remedy, as I cannot think of any other order that could correct any unfairness between the parties. 1.

Should relief be denied because Richard Caron failed to takeany action regarding his May 2016 notice? [34] There is no explanation why Richard Caron did not immediately commence the derivative action threatened by his May 2016notice, and why he himself did not take steps under

section 242 to attack the dividend. That being said, there is no information before meas to why Investments waited until December 1, 2017 to pay out the dividend. Until Richard Caron had reason to believe that thedividends were actually going to be paid out, there was no particular urgency. It may be that there were ongoing discussions amongst thedirectors concerning these issues. [35] Of greater concern is that the decision to pay the dividends was apparently made at a board meeting around November 21 or22. Mr.

Wilson advised of the exact date at the hearing, and also advised that there was a court reporter present, so the proceedings havebeen transcribed. He asks, not unreasonably, why the application was not made until the eve of the day the dividends were to be paid out. [36] The explanation provided was that Richard Caron’s lawyer was busy and got the application done in time to try to prevent thedividends from being paid.

No urgency was indicated as to the payment. [37] In the absence of any compelling reason why the dividends should be paid out forthwith, or cause serious harm to any of theprospective recipients, I am satisfied that it is appropriate to maintain the status quo of some 18 months and keep the funds inInvestments for the time being. [38] Applications of this nature are almost invariably brought on short notice (or even without notice) and in the circumstances ofthis matter, at least as I know them, complaints about timing are not so egregious as to deny an interim remedy such as is being sought. 2.

Should Richard Caron provide an undertaking as todamages? [39] Vue Weekly v See Magazine deals with an injunction application, and 864789 v Haas is an application for a stay pending

appeal. The test for a stay is essentially the same as it is for an interlocutory injunction. In 864789 v Haas , Côté JA noted at paragraph 20 that such injunctions are rarely granted without an undertaking as to damages, sometimes with security. He notes that the “absence of a meaningful one (undertaking) dramatically tips the balance of convenience.” [ 40 ] In Groeneveld v 1034936 , Gallant J considered an undertaking as to damages in the context of relief claimed under

section 242 of the BCA . He considered that the absence of an undertaking as to damages tipped the balance of convenience towards the respondents, and declined to grant the order. [ 41 ] I recognize that the Court has the power to order an undertaking as to damages as a condition of granting relief under

section 242 . Such an undertaking is not a requirement under the BCA , but falls within the discretionary powers of the Court being asked to grant a remedy. [ 42 ] In Vue Weekly , the effect of the injunction was to put the respondents out of business. In 864789 , the absence of a stay would have kept the appellants in business in circumstances where their new business had been found to have been started using assets taken from the successful plaintiff.

That case turned on the absence of security for the stay. [ 43 ] In Groeneveld , the effect of the relief sought would have removed the respondents from their residence and put them out of work. [ 44 ] As noted by Côté JA in 864789 half of the arguments on the balance of convenience come from the party seeking the relief. The other half comes from the party against who the relief is sought. Here, the only evidence on the balance of convenience comes from the Applicants.

The Respondents have not put forth any information as to how they may suffer if the payment of dividends is delayed. [ 45 ] That the shareholders in Investments will be delayed in being able to enjoy the benefits of having a significant amount of money if I grant the order sought is an obvious consequence. But whether the absence of the funds will cause any great harm to the shareholders is not clear.

As I said at the hearing, it is possible that the payment of the dividends was timed with the closing of a significant transaction where one or more of the shareholders is counting on these funds to be able to close. But that was in the hypothetical, and neither Mr. Wilson nor Mr. Delblanc had any information to suggest any serious harm resulting from delay. [ 46 ] In fairness, they had little time to respond to the application, and it is not clear if either Mr. Boehm or Mr.

Heinisch knew that the application was being made. [ 47 ] In the absence of any information as to serious harm to the Respondents, I do not see the absence of an undertaking as to damages as being fatal to the application, nor do I see it as a necessary pre-condition to the granting of relief.

The absence of an undertaking as to damages does not mean that the party obtaining relief is immune from claims in the event the relief is ultimately set aside or found to have been improperly granted in the first place. [ 48 ] To the effect this may be in issue, the granting of an order without an undertaking will not preclude the Respondents from claiming damages if loss results and the Applicant is found to have acted wrongfully. [ 49 ] Here, the reality is that Richard Caron is as affected by the relief he seeks as anyone else.

He will have his dividends withheld, which are the same as Don Caron’s and greater than Rainald Heinisch’s. Fritz Boehm’s interest is greater, but not substantially. Security for any damages, in a practical sense, remains within the group of companies. 3. Should the Court intervene in what is essentially a business dispute? [ 50 ] Business disputes or business decisions are at the root of many oppressive conduct claims. Courts are not in the business of telling people how to run their businesses, or what investments to make, or what opportunities to pursue or forego.

Courts are in the business of telling directors, officers and shareholders what they cannot do, which is to unfairly disregard the legitimate interests of other stakeholders. [ 51 ] As such, where a prima facie case of oppressive conduct is made out, I see no impediment in the Court intervening in as minimal a way as possible in the circumstances, to address the imbalance or complained of conduct. The ultimate test requires an assessment of the best interests of the corporation, but the corporation is more than its shareholders, directors and officers.

This case involves a balancing of competing interests, and until there is more fulsome information on many subjects, I do not see the granting of interim relief here as an unwarranted intrusion by the Court into the corporation’s business affairs. Decision [ 52 ] I am satisfied that it is appropriate to restrain Investments from paying any dividends without the unanimous consent of the existing directors or further court order.

I do not at this stage require the Applicants to give an undertaking as to damages. [ 53 ] This is intended to be interim relief, which may be reviewed by me or another Queen’s Bench judge on the application of any of the Respondents, following questioning of Richard Caron and filing such materials (if any) the Respondents wish to rely upon. If that occurs, Richard Caron should have a reasonable opportunity to question on any reply affidavit.

Questioning should be conducted on an expedited basis. [ 54 ] The Respondents may also apply, on providing evidence as to any serious harm to them arising out of the granting of this order, to have me or another judge revisit the need for an undertaking as to damages and security.

[ 55 ] I also direct that an independent legal opinion be obtained relating to the issues concerning Richard Caron as described in his affidavit. Such a legal opinion, which may require the use of independent experts (including accounting experts) seems to me to be a necessary preliminary step in determining what funds are available for distribution and the calculation of the eligible dividend amount.

The costs of doing this should be borne in the first instance by Investments, and will be finally determined by agreement of the parties or by the Court. [ 56 ] This may not be urgent (subject to pressing needs of any of Investments’ shareholders) and it may be prudent to wait until the Respondents have had an opportunity to consider their position regarding the restraint on paying dividends at this time and the absence of an undertaking as to damages.

This is something to be discussed amongst the parties and their counsel. [ 57 ] To the extent that the parties are unable to agree on the appointment or selection of a lawyer to conduct the independent review, the parties may apply to me or another Queen’s Bench judge for direction. [ 58 ] No costs are awarded at this stage; they will be determined ultimately by agreement or by the Court. [ 59 ] I am certainly prepared to make myself available to the parties for further applications but do not seize myself with the matter. Heard on the 30 th day of November, 2017.

Dated at the City of Edmonton, Alberta, this 8 th day of December, 2017. Robert A. Graesser J.C.Q.B.A. Appearances: Darren R. Bieganek, Q.C. Duncan Craig LLP for the Applicants Donald J. Wilson DLA Piper (Canada) LLP for the Respondent Canadian Energy Inc Sigurd Delblanc Bryan & Company LLP for the Respondent Don Caron