0463382 B.C. Ltd. Petitioner v. Hornby Island Resort Ltd. and 1292383 B.C. Ltd., 2021 BCSC 1305

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: 0463382 B.C. Ltd. v. Hornby Island Resort Ltd., 2021 BCSC 1305 Date: 20240624 Docket: 93176 Registry: Nanaimo Between: 0463382 B.C. Ltd. Petitioner And Hornby Island Resort Ltd. and 1292383 B.C. Ltd. Respondents Before: The Honourable Madam Justice Murray Oral Reasons for Judgment Counsel for the Petitioner: M. W. Buhler Counsel for Respondents: P. J. Giroday Place and Date of Hearing: Nanaimo, B.C. June 21, 2021 Place and Date of Judgment: Nanaimo, B.C. June 24, 2021 Introduction [ 1 ] The Petitioner, 0463382 B.C.

Ltd. (“046”) seeks orders: 1) Adding parties 630914 B.C. Ltd. (“630”), Lazo Management Corp. and Gregory Osborne as respondents; and 2) Extending the asset preservation order made by Mr. Justice Branch on March 24, 2021 until final judgment in this proceeding is rendered. [ 2 ] The respondents consent to the granting of the first order. The sole issue therefore is whether the injunction should be extended.

Background [ 3 ] By way of brief background, in or about April 2007, the parties entered into an agreement to incorporate Hornby Island Resort Ltd. (the “Company”) and purchase property on Hornby Island (the “Property”).

At the time of entering into the agreement the parties intended to develop and sell strata lots on the Property and build a new pub and restaurant. [ 4 ] The agreement between the shareholders, which was never put into writing, was that: 1) all four shareholders would be directors of the Company; 2) the benefits and risks would be shared equally between the shareholders in proportion to their respective ownership stake (25%); and 3) each shareholder would participate in the management of the Company. [ 5 ] According to Mr. Jack Hornstein (the principal of one of the respondents, 630), by 2012 at the latest, Mr.

John Ross (the principal of the petitioner, 046) informed the other principals that he no longer wanted to be involved with the Company or the principals and wanted to have his shares purchased by the other shareholders. In an email dated May 30, 2012, Mr. Hornstein wrote to Mr. Ross advising him that buying him out was “not an option”. [ 6 ] At a directors’ meeting on May 29, 2012 that Mr. Ross did not attend, the respondents voted to reduce Mr. Ross’s involvement in the management of the Company. At a directors’ meeting on September 5, 2012 that Mr. Ross left early, the respondents voted to

remove Mr. Ross from any management role. [ 7 ] According to the uncontroverted evidence, since 2012 Mr. Ross has repeatedly taken the position that he: 1) wanted nothing to do with the Company or other shareholders; 2) would not invest any further funds in the Company; 3) would not assume any additional risk of financial loss; 4) wanted the other shareholders to buy his shares; and 5) was not prepared to participate in the development of the Property or the Company. [ 8 ] Mr.

Ross’s refusal to contribute financially to the Company left the burden to keep the Company afloat on the respondents, who have all had to contribute significantly. [ 9 ] As a result of Mr. Ross’s desired intention to withdraw from the Company and his refusal to invest further funds, in April 2015 the respondents passed a directors’ resolution to reduce the number of directors to three (from four) and elected the principals other than Mr. Ross as directors. [ 10 ] In 2017 the Company’s mortgage was coming up for renewal.

The credit union would only renew it if the Company’s line of credit was paid down by $400,000. Mr. Ross, on behalf of 046, refused to contribute to the line of credit debt on the basis that he never approved the mortgage financing. The other shareholders each paid $135,000 in order to reduce the line of credit. [ 11 ] From August 2017 until December 2020, the directors listed the Property for sale. They received no offers. [ 12 ] In 2019 the directors decided to risk additional capital to develop the Property. Mr.

Ross again expressly refused to contribute or participate in the development. [ 13 ] In about March 2021 the respondents formed a new numbered company and proposed selling the Property to it. At the meeting at which this motion was passed, Mr. Ross neither objected nor opposed the sale. After the vote in favour of the motion, Mr. Ross wanted to discuss being paid out by the Company. [ 14 ] On March 24, 2021, the petitioner brought an ex parte application for a Mareva injunction in order to prevent the respondents from disposing of, encumbering, or diminishing the value of the Property. Mr.

Justice Branch ordered the injunction and expressly stated in the order that the respondents “must not in any way dispose of, or encumber or diminish the value of the property” so as not to restrict the current operations on the Property (the “Order”). [ 15 ] In his reasons for judgment, Mr. Justice Branch found that, based on Mr. Ross’s affidavit sworn in support of the ex parte order the petitioner made out a good arguable case of oppression. In finding that the balance of convenience favoured the granting of the Order, Mr.

Justice Branch reasoned, inter alia : 1) “although there is not an express indication that the defendants are trying to damage the petitioner’s interest, there are at least badges of potential fraud in terms of the exclusionary treatment of the principal of the petitioner and the petitioner without any explanation being provided ”; and 2) the Order “ should not cause any harm to the existing operations of the lodge ” as it only restricts the disposal, encumbrance or diminishment of the Property.

He then noted “…it will not restrict any current operations taking place on site, which I am informed may include operating a restaurant at a minimum”. [ 16 ] The Order, which was in effect until April 30, 2021, has been extended twice by consent. It is that order that the petitioner seeks to extend again.

Should the Order be extended? [ 17 ] With that background, I now turn to consider whether the Order should be extended. [ 18 ] The respondents argue that the Order should not be extended as the petitioner misled the court when making the ex parte application by providing incomplete information, misstating material facts and failing to provide full and frank disclosure of all material facts. In particular, they argue that Mr.

Ross failed to disclose: 1) that he was getting paid for his work for the Company including obtaining the rezoning; 2) that since 2012 he wanted nothing to do with the Company or the other shareholders and wanted them to buy his shares; 3) that since 2012 he has refused to contribute any funds into the Company to keep it alive while the other shareholders were doing so; 4) that he refused to agree to the Company applying for further financing; 5) that the Company was losing money and was being sustained only by the contribution of funds from the respondents; 6) that in 2019 he refused to contribute funds for the development of the Property and made it clear that he was not prepared to

participate in it; 7) that the Property had been listed for sale from July 2017 to December 2020 and the Company received no offers. Instead, Mr.Ross stated in his affidavit that Hornby Island Resort Ltd. was selling the Property to the new numbered company without placing it onthe open market to obtain the best available selling price; 8) that there were no agent’s fees involved in the sale of the Property to the respondents; and 9) of the reasons the respondents had for removing him from management. [19] The respondents also allege that Mr.

Ross failed to disclose that his removal from management was in 2012, the resolution forthe payment of interest on disproportionate amounts owed by the shareholders in 2013 and the resolution reducing the number ofdirectors in 2015.

This is significant as, under s. 227(4) of the Business Corporations Act, S.B.C. 2002, c. 57, an application for reliefunder s. 227 must be brought “in a timely manner”. [20] A Mareva injunction is an interlocutory injunction intended to preserve the assets of the opposing party, to guard against the riskof dissipation of assets or removal of them from the court’s jurisdiction pending determination of the issues.

It is an extraordinary remedyand involves the exercise of discretion. [21] The court’s jurisdiction to order a Mareva injunction is derived from s. 39 of the Law and Equity Act, R.S.B.C. 1996, c. 253;Rule 10-4 of the Supreme Court Rules, B.C. Reg. 168/2009; and the court’s inherent jurisdiction: Fernandes v. Legacy FinancialSystems, Inc., 2020 BCSC 885 at para. 7. [22] In Kepis & Pobe Financial Group Inc. v.

Timis Corp., 2018 BCCA 420, our Court of Appeal summarized the test for granting aMareva injunction as a flexible one where, “once an applicant has established a strong prima facie case, the focus of the applicationshifts to the balance of justice and convenience between the parties”: at para. 10. The fundamental question the issuing judge mustconsider is whether the granting of an injunction is just and equitable in all the circumstances: Cermaq Canada Ltd. v. Stewart, 2017BCSC 2526 at para. 53. [23] The process for setting aside a Mareva order was succinctly set out by Mr.

Justice Macintosh in Northwestpharmacy.com Inc. v.Yates, 2018 BCSC 41, as follows: [15] In the set-aside hearing, a court considers whether the ex parte order should be set aside because of material non-disclosure bythe ex parte applicant. If not, the court proceeds to a hearing de novo on the merits of the injunction application, where the ex parteapplicant must again meet the tests for obtaining the injunction, even though that party is the respondent on the set-aside application. See Mooney v. Orr, (BC SC), [1994] B.C.J. No. 2652 (S.C.); and Global Chinese Press Inc. v.

Zhang, 2016 BCSC874, at para. 11. [16] A material fact is one that may affect the outcome of the application. See Pierce v. Jivraj, 2013 BCSC 1850, at paras. 37–38. [17] The applicant in the ex parte application must be "profoundly fair", must disclose all important aspects of the evidence, and mustavoid opinion and invective. See Pierce v. Jivraj, cited above, at paras. 22 and 37–38; and Hollinger Inc. v. Radler, 2006 BCCA 539 atpara. 39. [18] If a court finds material non-disclosure, it may, and likely will, set aside the Mareva order.

However, material non-disclosure isrelevant as well in the second part of the analysis. The court can take non-disclosure on the ex parte hearing into account when it isdeciding whether to maintain an existing Mareva order, or grant a new one. See Mooney v. Orr, cited above, at para. 30; andMacLachlan v. Nadeau, 2017 BCCA 326, at paras. 28, 32 and 37. [19] The legal analysis, summarized above, is grounded in fairness. The ultimate question is whether it is just or convenient that theinjunction be given, or maintained, in accordance with s. 39 of the Law and Equity Act, R.S.B.C. 1996, c. 253.

"[J]ust or convenient" isperhaps not highly informative in itself. However, it derives from the fact that injunctive relief is equitable. It will only be granted, ormaintained, in accordance with principles of fairness. [Emphasis added.] [24] Turning to the present application, I find that there was non-disclosure by the petitioner at the ex parte hearing as outlined by therespondents. The question is whether it was material. [25] Having considered all of the evidence, I am satisfied that it was. By failing to provide full and frank disclosure of material facts,the petitioner left Mr.

Justice Branch with a skewed version of events that led Branch J. to conclude that the petitioner was beingexcluded without explanation from a company and business venture that he worked on and wanted to be part of. This is far fromaccurate. The petitioner left the impression that the respondents would do whatever they needed to, including perpetrating fraud, in orderto exclude the petitioner from participating in the affairs of the Company. Alleging that the respondents planned to sell the Property tothemselves without offering it on the open market is just one example of this. Further, Mr.

Justice Branch was led to believe that theOrder would not affect the current operations of the Property, which it clearly does. The Order frustrates development by precluding therespondents from obtaining financing in respect of the Property. [26] I am satisfied that this non-disclosure or misinformation was deliberate and intentional and was designed to strengthen thepetitioner’s oppression claim. Accordingly, I find that the Order made by Mr. Justice Branch on March 24, 2021 must be set aside. Conclusion

[ 27 ] The petitioner’s application to extend the Order made by Mr. Justice Branch on March 24, 2021 is dismissed and the Order is hereby set aside. [ 28 ] The respondents are entitled to the costs of this application in any event of the cause. “The Honourable Madam Justice Murray”