2022 NLSC 147, 2022 NLSC 147

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Sharp v. Cook , 2022 NLSC 147 Date : October 14, 2022 Docket : 201801G5450 Between: GLENN SHARP First Plaintiff And: SHARP MANAGEMENT INC. Second Plaintiff And: ERIC T. COOK First Defendant And: 1272020 ONTARIO INC. Second Defendant (D iscontinued ) And: KENNETH WILLIAMS Third Defendant And: GARRY BATTCOCK Fourth Defendant And: ABYDOZ ENVIRONMENTAL INC. Fifth Defendant Before: Justice Alexander MacDonald

Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: September 21, 2022 Appearances: Paul D. Dicks, K.C. Appearing on behalf of the Plaintiffs Jonathan D. Dale Appearing on behalf of the First, Third, Fourth and Fifth Defendants Authorities Cited: CASES CONSIDERED: RJR — MacDonald Inc. v. Canada (Attorney General), (SCC), [1994] 1 S.C.R. 311; R. v.Canadian Broadcasting Corp., 2018 SCC 5; Deluce Holdings Inc. v. Air Canada (1992), (ON SC), 12 O.R. (3d) 131,98 D.L.R. (4th) 509 (Ct. J. (Gen. Div. – Comm.)); Richardson v.

Control Fire Holdings Inc. (2002), 29 B.L.R. (3d) 208, 113 A.C.W.S.(3d) 823 (Ont. Sup. Ct. J.); Hurley v. Slate Ventures Inc. (1996), (NL SC), 136 Nfld. & P.E.I.R. 341, 423 A.P.R. 341,(Nfld. S.C. (T.D.)); Hogan v. Newfoundland (Attorney General) (1998), (NL CA), 172 Nfld. & P.E.I.R. 185, 528A.P.R. 185 (Nfld. C.A.); BCE Inc., Re, 2008 SCC 69; 820099 Ontario Inc. v. Harold E. Ballard Ltd. (1991), 3 B.L.R. (2d) 123, 25A.C.W.S. (3d) 853 (Ont. Ct. J. (Gen. Div.)); Alharayeri v.

Black, 2014 QCCS 180, aff’d 2015 QCCA 1350; Primex Investments Ltd. v.Northwest Sports Enterprises Ltd., [1998] B.C.W.L.D. 274, 77 A.C.W.S. (3d) 751 (S.C.) STATUTES CONSIDERED: Corporations Act, R.S.N.L. 1990, c. C-36 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D TEXTS CONSIDERED: Markus Koehnen, Oppression and Related Remedies (N.p.: Thomson Carswell, 2004) REASONS FOR JUDGMENT MacDonald J.: INTRODUCTION [1] Glenn Sharp owns 41.07% of the issued and outstanding common shares of Abydoz Environmental Inc. (“Company”) (616 of1500 shares).

Eric Cook owns 53.67% (805 shares), and 1272020 Ontario Inc. (corporate shareholder owned by Kenneth Williams) owns5.26% (79 shares)[1]. Eric Cook, Kenneth Williams and Garry Battcock are directors of the Company (“Directors”), but Glenn Sharp isnot. [2] In August 2018, Glenn Sharp and Sharp Management Inc., a company he controls, issued a Statement of Claim against theCompany, its Directors and other shareholders alleging, among other things, that they oppressed them under

section 371 of theCorporations Act, R.S.N.L. 1990, c. C-36 (“Act”). [3] On March 7, 2022, Glenn Sharp and Sharp Management Inc. took an Interlocutory Application seeking interim relief undersection 371 of the Act. Most of the relief relates to obligations owed to Glenn Sharp as a shareholder, but for convenience, I will refer tothem both as the Sharps.

[ 4 ] The relief related to the Directors’ decision to increase the Company’s share capital by offering to its shareholders 400,001 common shares for $1 per share (“Share Offering”). The Sharps says the Company and Directors took this action to dilute their share interest in the Company. [ 5 ] The Sharps asked the Court to order that the Company and Directors postpone the Share Offering until this Court adjudicated their oppression claim. They also asked the Court to restrain the Directors from making certain fundamental decisions without their approval.

In particular, they sought to prevent the Directors and Company completing the Share Offering. [ 6 ] On April 7, 2022, Justice Button ordered, among other things, that the defendants “preserve the status quo”. She ordered that the Directors or Company issue no further shares to anyone until the hearing of this application. She made no order with respect to the 214,667 shares the Company issued to Eric Cook pursuant to the Share Offering on March 8, 2022. [ 7 ] Justice Button scheduled a hearing on this Application for May 3, 2022.

Because of scheduling conflicts, the Court could not hear the Application at that time. I then held a case management meeting on June 23, 2022. [ 8 ] With the consent of the parties, I rescinded Justice Button’s order. I ordered that all shareholders could avail of their right to contribute cash to the Company equivalent to the value of the shares they could subscribe to at $1.00 per share (“Second Order”). [ 9 ] However, I ordered that the Company treat this cash not as share capital, but as shareholder loans repayable on terms that I would determine later.

I scheduled the hearing of Sharps’ Interlocutory Application for September 19, 2022. The Court rescheduled the hearing to September 21, 2022 because of the Court’s closure for a national day of mourning in remembrance of Her Majesty, Queen Elizabeth II. [ 10 ] After the Second Order, Glenn Sharp contributed $82,134 of the $164,267 he was entitled to contribute. [2] Kenneth Williams contributed $21,067 [3] . The cash is in the trust account of the Company’s corporate counsel pending the outcome of this Application. [ 11 ] I also ordered that the Company: (

a) not make any payments outside the normal course of business; (

b) not pay any expenses for non-business travel, entertainment, promotion, or for insurance premiums in respect of this claim, or payments to non-arm’s length parties (other than for salaries); and (

c) report to the parties on its use of the shareholder loans. [ 12 ] At this hearing, the Sharps asked that I continue the Second Order with modifications. The Company and Directors did not consent, whether I modified it or not. They asked that I dismiss Sharps’ application for an injunction. ISSUE [ 13 ] I am therefore to decide: (

a) what relief do the Sharps seek? (

b) have the Sharps established the grounds to support an Injunction? (

i) have the Sharps established the grounds of a triable case (or a strong prima facie case if the injunction is a mandatory one? (ii) will the Sharps suffer irreparable harm if I do not grant the injunction? and (iii) does the balance of convenience favour the Court granting the injunction? (

c) did the Sharps provide a satisfactory undertaking for damages? [ 14 ] I hereby order that the Company and the Directors take no further action under the Share Offering. They shall not issue any shares to anyone who is not at arm’s length to them until further order of this Court. [ 15 ] I further order that Eric Cook shall not be entitled to exercise any voting rights with respect to the 214,667 shares issued to him under the Share Offering. The Company and its shareholders will conduct shareholder votes and other shareholder business without allowing for any rights associated with Eric Cook’s 214,667 shares.

[16] I will explain why I made this decision. I will first deal with the relief the Sharps seek. DISCUSSION Issue 1: What relief do the Sharps seek? [17] In their Interim Application, the Sharps ask for a wide variety of relief. However, in paragraph 65 of their Application Brief,they narrowed their request and asked me to find, “there are no grounds on which the share issuance has been justified as bona fide andthis oppressive contact should, accordingly, be prohibited”. [18] In paragraph 66, they say that when they took this Application, Eric Cook had already contributed $214,667 pursuant to theShare Offering.

Accordingly, in the alternative, they ask that I prevent Mr. Cook from exercising any voting rights associated with thesubscribed shares until the matter is resolved at trial. [19] I now turn to whether the Sharps established the grounds to support an Injunction. Issue 2: Have the Sharps established the grounds to support an Injunction [20] The traditional test courts apply when they consider injunction applications is contained in the Supreme Court of Canada caseof RJR — MacDonald Inc. v. Canada (Attorney General), (SCC), [1994] 1 S.C.R. 311.

The Supreme Court sets out athree-part test. [21] The first test is have the applicants established a triable case (or a strong prima facie case if the injunction is a mandatory one).The second is will they suffer irreparable harm if I do not grant the injunction. The third is does the balance of convenience favourgranting the injunction. [22] The Supreme Court of Canada in R. v. Canadian Broadcasting Corp., 2018 SCC 5 at para. 15, directs that when applicants takean application for a mandatory injunction, they must show they have a “strong prima facie case”. [23] In Deluce Holdings Inc. v.

Air Canada (1992), (ON SC), 12 O.R. (3d) 131, 98 D.L.R. (4th) 509 (Ct. J. (Gen.Div. – Comm.)), the court concluded, at paragraph 69, that I have wide-ranging power to grant interim relief under the oppressionremedy. I may grant any interim order that I think fit. [24] In Richardson v. Control Fire Holdings Inc. (2002), 29 B.L.R. (3d) 208, 113 A.C.W.S. (3d) 823 (Ont. Sup. Ct.

J.), the courtconcluded, at paragraph 6, that the overall purpose of interim awards under the oppression remedy is to preserve the rights of the partiespending hearing on the merits, to preserve the status quo to the extent possible and permit the corporation to continue to operate. [25] Interim orders in an oppression case may often contain mandatory provisions on corporate governance. They may provide forfinancial reporting, the treatment of share capital, appointment of directors, shares, and other corporate matters most often relating to thecomplaint of oppressive conduct.

Many orders may be mandatory. [26] I included a number of mandatory orders in the Second Order. I preserved the status quo. I allowed the Company to receive thecash called for under the Share Offering, and I preserved the rights of the parties pending a hearing of the matter. [27] It is difficult for a court, in a case like this and in many corporate matters, to determine whether an applicant has a strong primafacie case based on affidavit evidence only. The parties disagree on facts.

Thus, the application of the RJR test can limit courts’ creativityin creating interim orders that preserve the status quo while allowing a company to operate. [28] However, no one argued that my ability to provide interim relief under the oppression remedy is broader in light of theexpansive wording of section 371(3) of the Act. Resolution of that issue will await another day. I therefore will apply RJR and will turnto the first test.

Issue 2(a): Have the Sharps established the grounds of a triable case (or a strong prima facie case if the injunction is a mandatory one [29] Justice Green, as he was then, discussed the issue of the applicable first test in oppression cases, Hurley v. Slate Ventures Inc.(1996), (NL SC), 136 Nfld. & P.E.I.R. 341, 423 A.P.R. 341, (Nfld.

S.C. (T.D.)). [30] At paragraph 20, he observed that, “The threshold test for the grant of an interim order was expressed by Blair J. [in Deluce] atp. 152 to be the establishment of ‘a strong prima facie case on the merits’.” [31] He said that Blair J. “was of the view that concepts of irreparable harm and balance of convenience akin to those applicable tothe granting of an interlocutory injunction should be applied to an interim order under the Ontario equivalent of

Section 371.” (paragraph20). [32] Green J. further says, “I have concluded that the threshold test for issuing an interlocutory injunction is that of a ‘serious issueto be tried’, I would be more inclined to hold that a similar threshold test should apply under

Section 371, rather than the ‘prima faciecase’ threshold enunciated in Deluce. Nevertheless, on the facts of this case, whichever test is applied, the result would be the same.”(paragraph 20). [33] This suggests he would apply the “serious issue to be tried” to all interim orders under

section 371, whether they are mandatoryor not. Thus, he suggests that he might modify the RJR first test with respect to mandatory injections. [34] However, as he said that the applicant met both tests, I will consider his observation about the applicable first test as obiter. Iwill thus consider whether under RJR, the Sharps must show they have a strong prima facie case. I therefore must consider whether theSharps ask for a mandatory injunction. I find that they do not.

[35] The Supreme Court of Canada in Canadian Broadcasting described a mandatory injunction as one that “directs the defendant toundertake a positive course of action, such as taking steps to restore the status quo, or otherwise ‘put the situation back to what it shouldbe’….” (paragraph15). [36] The Supreme Court of Canada acknowledged the difficulty of distinguishing mandatory from prohibitive injunctions.Prohibitive injunctions may have the effect of forcing a party to take positive actions.

The Supreme Court of Canada directs that I mustexamine “whether, in substance, the overall effect of the injunction would be to require the defendant to do something, or to refrain fromdoing something.” (paragraph16). [Emphasis in original.] [37] I find that the Sharps ask for a prohibitive injunction because they ask that I prohibit the Directors and Company from closingthe Share Offering.

Alternatively, they ask that I prohibit 1272020 Ontario Inc. or Kenneth Williams from closing the Share Offering hehas yet to finalize, and prohibit Eric Cook from exercising any voting rights relating to the Share Offering he already closed. [38] In both cases, I prohibit actions. I do not prescribe them. The Directors alleged that by doing so I am ordering that the Directorstake positive action to undo the Company’s resolution to issue shares. [39] I disagree.

The Sharps do not ask that the Company and Directors take positive action in either substance or form. [40] Therefore, as the Sharps seek a prohibitive injunction, they must show they have a serious issue to be tried, being an issue thatis not frivolous or vexatious. I need not make a detailed examination of the merits of the case. See Hogan v. Newfoundland (AttorneyGeneral) (1998), (NL CA), 172 Nfld. & P.E.I.R. 185, 528 A.P.R. 185 at paras. 30-34 (Nfld. C.A.). [41] Justice Green in Hurley observed that in an injunction application under

section 371 of the Act, “it is not necessary that thecourt be in a position to make an actual finding of oppression before an interim order can be made”. (paragraph 20). [42] I find that the Sharps have established that they have a serious issue to be tried. I will now explain why I made that decision. Iwill first discuss the elements of oppression remedy. [43] The Supreme Court of Canada outlined the elements of the oppression remedy in BCE Inc., Re, 2008 SCC 69. I am todetermine: (

a) Did the Directors exercise a power as Directors of the Company? If so; (

b) Did the Directors’ exercise of this power breach the Sharps’ reasonable expectations? If so; (

c) Was the conduct oppressive to the Sharps, unfairly prejudicial to the Sharps, or did it unfairly disregard the Sharps’ interests? [44] I find that the Directors did exercise their powers when it structured the Share Offering and brought it before the shareholders.The Directors took the actions leading up to the Share Offering in that capacity. Did the Directors’ exercise of this power breach theSharps’ reasonable expectations? I find that they did. I will now explain why I made that decision. [45] In 820099 Ontario Inc. v. Harold E.

Ballard Ltd. (1991), 3 B.L.R. (2d) 123, 25 A.C.W.S. (3d) 853 at para. 129 (Ont. Ct. J.(Gen. Div.)), the court said, “Thwarted shareholder expectation is what the oppression remedy is all about.” [46] The oppression remedy under the Act is an equitable one. I am to ensure both fairness and what is just and equitable. I shouldlook at the business realities, not merely narrow legalities. Oppression is fact-specific. [47] The Sharps must identify the expectations they claim the Directors have thwarted. They must establish that they reasonablyheld those expectations.

I must keep in mind that oppression generally turns on particular expectations arising in particular situations(BCE at para. 70). [48] I am to judge what is just and equitable by the reasonable expectations of the stakeholders in the context of the relationships atplay.

I am to decide whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue in theentire context of the relationship, including the fact that there may be conflicting plans and expectations. [49] In all cases, I may look at the circumstances leading up to the Share Offering to see if the shareholders were motivated by, andhad, a legitimate purpose. [50] In oppression remedies, parties will often object where the proposed change alters voting power, issuance of shares orredemption of shares. [51] Justice Hamilton in Alharayeri v.

Black, 2014 QCCS 180 at para. 120 provides very useful guidance[4], being: (a) “The motive behind the share issue is of great importance. A share issuance motivated by an improper purpose is oppressive.However, a share issue may be oppressive even where the purpose was proper. The Courts will examine the balance between corporatebenefit and individual harm; (

b) Extending the offering to all shareholders reduces the likelihood of oppression, but is not determinative. The share issue willbe oppressive where the decision to issue shares is motivated by the knowledge that the applicant cannot accept the invitation to

participate; (

c) Where the proponents of the share issuance benefit by obtaining increased control of the corporation, Courts will view the transaction with much greater suspicion; (

d) Issuing shares in the face of another dispute with the applicant creates an inference of oppression that requires strong evidence of a legitimate corporate purpose to overcome; and (

e) Share offerings at a discount to book value, without a proper assessment of value or for otherwise inadequate consideration, are also oppressive.” [ 52 ] The Quebec Court of Appeal upheld this decision ( 2015 QCCA 1350 .) It referred to Koehnen and at paragraph 14, identified situations that lend themselves to orders against directors because of oppression: (

a) Where directors obtain a personal financial benefit from their conduct; (

b) Where directors have increased their control of the corporation by the oppressive conduct; (

c) Where directors have breached a personal duty as directors; (

d) Where directors have misused a corporate power; and (

e) Where a remedy against the corporation would prejudice other security holders. [ 53 ] The Company is a private one. As such, all shareholders, including Glenn Sharp, are vulnerable to dilution. Shareholders have little power and a limited market in which to sell the shares. Dilution decreases their power and liquidity further. [ 54 ] Glenn Sharp complains about the Directors’ conduct as he describes in his Statement of Claim and in this and a previous Interim Application.

The Directors approved the Share Offering despite knowing that he, a shareholder owning 41.07% of the Company, objected to it. [ 55 ] Glenn Sharp says the Directors knew he was under financial strain because the Directors excluded him from any role in the Company. He says they are taking advantage of his current financial situation to dilute his shareholdings. [ 56 ] He says that the Directors forced him to elect to participate in the Share Offering with inadequate notice and despite knowing he was out of the country visiting a sick relative.

Because of this, he could not review the Share Offering and attend the meeting called to approve the Share Offering. [ 57 ] Glenn Sharp says that the Share Offering price of $1.00 per share is unreasonably low. The Court will examine share price when the price is at a discount to book value, or for otherwise inadequate consideration. [ 58 ] The Directors say the Company made the Share Offering to all shareholders, including Glenn Sharp.

All, then, can preserve their relative interest in the Company by subscribing. [ 59 ] The Company said it made the Share Offering for two reasons. [ 60 ] The first reason is that the Company’s February 28, 2021, financial statements show a retained earnings deficit of about $185,000 [5] . It says because of this poor balance sheet, the Business Development Bank refused to finance an equipment acquisition.

The Bank said the “main contributing factors was the financial performance from previous year ends/interim statements and the retained earnings position based on the last few years”. [6] [ 61 ] However, the Company confirms it was able to finance this equipment from another source. Thus, there is evidence that the Company is able to finance its business. [ 62 ] Furthermore, I only have the financial statements for the fiscal year ending February 28, 2021. These include a comparison to fiscal year 2020.

[ 63 ] Mr. Cook testified that the Company borrowed $1.12 million from non-arm’s length individuals from March 28, 2016 to June 3, 2021 [7] . The interest rate on all these loans is 15%. He says that more than $510,000 is outstanding [8] . This annual interest obligation would range from about $76,500 (on a balance of $510,000) to about $168,000 (on a balance of $1.12 million). [ 64 ] He says that the Company borrowed an additional $820,000 from non-arm’s length parties in 2014. The Company repaid this amount. [9] [ 65 ] The Company’s 2021 (year-end February 28) financial statements show: (

a) about $335,000 of the non-arm’s length is outstanding. [10] I cannot explain the discrepancy with Mr. Cook’s statement that more than $510,000 is outstanding. It may be that Mr. Cook has access to more current financial information; (

b) the Company paid about $44,000 on its non-arm’s length debt in 2021 [11] . In 2021, it owed about $71,000 to Elaine Cook and this amount appears in the balance sheet; [12] (

c) the Company paid Elaine Cook over $32,000 in “Occupancy costs”, “Utilities” and “Insurance”; [13] and (

d) the Company paid $34,027 for insurance. [14] I do not know how much of this was for the directors’ liability insurance. [ 66 ] In 2021, the non-arm’s length payments and obligations were more than $147,000. These payments and obligations constitute almost 80% of the total deficit in retained earnings of about $185,000. [ 67 ] The payments of about $76,000 to non-arm’s length persons are about 38% of the Company’s net loss of about $200,000 (excluding the receivable to Elaine Cook, as this obligation is included in the balance sheet and not the income statement).

These percentages are higher if I include a reasonable amount for the directors’ liability insurance. [ 68 ] The actual 2022 and interim 2023 financial statements might provide more clarity on both the share value and the Company’s need for cash provided for in the Share Offering. [ 69 ] As I do not have this information, I cannot determine if the Company priced the Share Offering at a discount to book value.

I do know that in late 2018, a certified public accountant provided an estimate of the fair market value of the shares of the Company at about $64,000, or about $43 per share. [15] [ 70 ] The second reason is the Company says its insurance underwriters required a $200,000 equity injection before it would renew the insurance policy. [ 71 ] The documents presented by the Company, including the Answers to Interrogatories [16] , do not show that the insurance broker made the renewal conditional upon a $200,000 equity injection.

The evidence shows that the policy would have a “Bankruptcy and Insolvency Exclusion” unless the shareholders made the equity injection. [17] [ 72 ] The insurance underwriters describe the insurance as “Management Liability Insurance”.

The Company communicated with the “Senior Underwriter, VP, Directors and Officers liability”. [ 73 ] The Company did not tell me what risk this insurance covers, nor why an insurance company would want balance sheet protection if it were insuring against the Company’s accidental claims. [ 74 ] Furthermore, the insurance underwriter asked for an updated estimate on the “overall severity” of a “large open claim that is proceeding to arbitration”. [18] This seems to be the dispute described in this action. [19] [ 75 ] Glenn Sharp suggests this policy insures against directors’ liability. [ 76 ] I agree.

This might explain why this insurance underwriter was preoccupied with the Company’s balance sheet and the outstanding arbitration claim. It also explains the description of the insurance as “Management Liability Insurance” and the title of the insurance company correspondent as “Senior Underwriter, VP, Directors and Officers liability”. [ 77 ] If this is so, the Company is requiring Glenn Sharp to contribute equity to support insurance to protect the Directors from his own claim, and then only if the Company become insolvent or bankrupt.

A significant cause of the Company’s retained earning deficit is non-arm’s length payments and the insurance premiums. Liability for these costs could be a significant cause of any future insolvency or bankruptcy. [ 78 ] It is obvious how this policy benefits the Directors. It is not obvious how it benefits the Company. [ 79 ] Therefore, the Sharps’ action is not frivolous. They may be able to establish that the Directors and the Company: (

a) have no legitimate purpose for the Share Offering; (

b) made the Share Offering knowing that Mr. Sharp could not avail of it;

(

c) made the Share Offering price at a discount to book value; (

d) are indirectly asking Glenn Sharp to pay for the costs of directors’ liability insurance which may compensate the Directors from any liability to Glenn Sharp arising from this action; and (

e) the Directors and not the Company benefited from the non-arm’s length transactions, and the directors’ liability insurance. [ 80 ] If the Sharps are able to establish these matters at trial, the Company must explain how it benefited from the Share Offering .

It must be able to draw a rational connection between the purported best interests of the Company and the manner in which it and the Directors carried out the Share Offering. [ 81 ] Thus the Corporation, even if it can otherwise defend Sharps’ oppression allegations, the financial statements and balance sheet might provide a reasonable explanation for a $200,000 cash injection. [ 82 ] However, the Directors did not provide any explanation as to why the funds must be shareholders’ equity, rather than a loan.

The balance sheet shows that the Company’s preferred method of financing is not by share equity, but by non-arm’s length loans. [ 83 ] Thus, the Sharps have established that they have a serious issue to be tried as to whether: (

a) the Directors exercised a power as a director of the Company; (

b) the Directors’ exercise of this power breached the Sharps’ reasonable expectations; and (

c) the conduct was oppressive to, unfairly prejudicial to, or unfairly in disregards to the Sharps’ interests. [ 84 ] I now turn to whether the Sharps will suffer irreparable harm if I do not grant the injunction. Issue 2(b): Will the Sharps suffer Irreparable Harm if I do not Grant the Injunction? [ 85 ] Therefore, I find that the Sharps have established that they have a serious issue to be tried. I now turn to whether the Sharps will suffer irreparable harm if I do not grant an injunction. I find that they do. [ 86 ] Irreparable harm is in relation to “the nature of the harm suffered rather than its magnitude”.

The harm must be one that I cannot quantify in money. If I can quantify it, the money must be uncollectible. ( RJR at para. 64).

The Sharps bear the onus of presenting evidence to justify they will suffer irreparable harm. [ 87 ] Glenn Sharp deals with this issue in his affidavit by saying, “I am concerned and do verily believe that, if the meeting proceeds, further acts of oppression will be agreed to or sanctioned by the shareholders which will cause irreparable harm to me as set forth in the application.” [20] [ 88 ] The only reference in the Interim Application to irreparable harm is in paragraph 31, where Glenn Sharp says, “If the Annual General Meeting is not postponed and the subscription is allowed to proceed, Sharp will suffer irreparable harm and his shares will be diluted to 0.15%.” [ 89 ] Mr.

Sharp seeks to prevent the Share Offering from being fully completed. Prior to March 8, 2022, Eric Cook owned 53.67% of the shares of the Company. After March 8, 2022, when Eric Cook subscribed for 214,667 shares, he now owns over 99%. If 1272020 Ontario Inc. (or Kenneth Williams) subscribes to its shares, the Share Offering will further dilute Glenn Sharp’s shares. [ 90 ] In Primex Investments Ltd. v.

Northwest Sports Enterprises Ltd. , [1998] B.C.W.L.D. 274, 77 A.C.W.S. (3d) 751 (S.C.) , Justice Kirkpatrick, in granting an interlocutory injunction in an oppression action, prevented a Share Offering, and observed at paragraph 43 “[t]he fundamental thrust of [the applicant’s] argument … is that if the rights offering proceeds, [its] interest in [the Company] and in the derivative action may be diluted.

In essence, [the applicant] is concerned to preserve its opportunity to participate in the long-term in a potentially lucrative entity. [ 91 ] Justice Green discussed irreparable harm in Hurley , and said “the evidentiary basis for the harm to [the applicant’s] reputation is not present … the potential that the company's affairs might be adversely affected by poor decisions by [the Directors] in the interim is too speculative.” (paragraph 31). [ 92 ] He said, “It may equally be the case that, freed from the distractions and the acrimony of shareholder disputes, [the Directors] might be able to devote more time to the business and improve the value of the company for the benefit of all shareholders.” (paragraph 31). [ 93 ] Nevertheless, he said at paragraph 33, “There will be irreparable harm to [the applicant] if an injunction is not granted, in the sense that his proportionate position as a shareholder may be imperiled.

Such a loss cannot be easily calculated in damages.”

[ 94 ] He continued and said, “It is not simply a matter of valuing his existing shareholding and paying him damages, because that would result in a buyout against his will; if successful at trial, he would be entitled, as a shareholder to participate in any accretions value over time until he is bought out pursuant to the shareholders agreement or pursuant to general corporate law.” [ 95 ] The arm’s length debt that the Company used to fund significant non-arm’s length payments, in a large part, drives the balance sheet deficit in retained earnings.

If the Company were to repay this debt, this might adversely affect the Sharps’ remedy against the Company. [ 96 ] I am not satisfied that the Company’s offer to allow Glenn Sharp to participate in the Share Offering offers him any real option. Non-arm’s length transactions are a significant part of the Company’s cash deficiencies. If he subscribes under the current corporate governance, as a minority shareholder he may have little ability to influence these or future similar payments. [ 97 ] Thus, if I were to deny the injunction, Glenn Sharp’s shareholdings will be less than 1%.

The Company will operate under the new shareholdings for, perhaps, years until this matter is resolved at trial. [ 98 ] I find that a share dilution of a shareholder with more than 41% of the Company to less than 1% is in fact irreparable harm. I agree with Justice Green that it is difficult to quantify damages that could flow from such a reduction in shareholdings. [ 99 ] I now turn to the balance of convenience.

Issue 2(c): Does the Balance of Convenience favour granting the Injunction? [ 100 ] I find that the balance of convenience favours granting the injunction. [ 101 ] I must balance the potential harm to the Sharps, if I do not grant an injunction, against the potential harm to the Company and Directors, if I grant one. The balance of convenience “is also affected by the scope of the injunction being sought.

In turn, the scope of the injunction is determined by the extent of irreparable harm against which the applicant seeks protection.” ( Hurley at para. 39 ). [ 102 ] I have explained earlier in this decision the potential harm to the Sharps if I do not grant the injunction. I now turn to the harm to the Company and the Directors if I do grant one. [ 103 ] The Company might need a cash injection of $200,000, as this amount eliminates the Company’s accumulated retained earnings deficit. I have not reversed the $214,667 injected by Eric Cook.

This allows the Company to meet its current reasonable cash requirements. [ 104 ] I allow this even though I have no evidence of the Company’s current financial performance, and even though the Sharps may establish at trial that the Company overstated its retained earnings deficit because it incurred non-arm’s payments that may be oppressive. [ 105 ] Eric Cook still is the majority, voting shareholder. He still can avail of any other rights under the Company’s constating documents. I have merely restrained his exercise of voting rights associated with his new shares pending resolution of the matter.

The prejudice to Eric Cook, 1272020 Ontario Inc., and the Company is less than the potential harm to the Sharps if I do not grant an injunction. I now turn to the Sharps’ undertaking. Issue 3: Did the Sharps provide a satisfactory Undertaking for Damages? [ 106 ] Justice Green in Hurley at para. 35 , referring to a judgment of then Justice Noel Goodridge, said that I must also determine the damages the Company and Directors are likely to suffer because of the injunction.

I must satisfy myself that the Sharps will be able to pay those damages and that they provided me with an undertaking to pay those damages. [ 107 ] Mr. Sharp did provide an undertaking to pay damages. He provided a statement showing he has a positive net worth of about $1.4 million. He says that about $959,000 relates to his ownership in corporations, including an amount outstanding from the Company of $82,000. [ 108 ] If I exclude the corporate assets, Glenn Sharp has a net worth in excess of $450,000. The Company says the cumulative deficit in retained earnings is about $200,000.

I allowed Eric Cook’s share injection of $214,667. Therefore, I find Mr. Sharp’s undertaking is sufficient. DISPOSITION [ 109 ] I hereby order that: (

a) The Company and the Directors take no further action under the Share Offering. They shall not issue shares to anyone who is not at arm’s length to them until further order of this Court; and (

b) Eric Cook shall not be entitled to exercise any voting rights with respect to the 214,667 shares issued to him under the Share Offering. The Company and its shareholders will conduct shareholder votes and other shareholder business without allowing for any rights associated with Eric Cook’s 214,667 shares. [ 110 ] The parties may apply to vary this order if the Company suffers a material change in its financial circumstances.

I would expect, in such a case, that the Company would provide the Court with its current year-end and any interim year-to-date financial statements. [ 111 ] I hereby immediately revoke the Second Order. It is no longer effective. McInnis Cooper shall immediately return all amounts

paid “in trust” to it by Kenneth Williams (or 1272020 Ontario Inc.) and Glenn Sharp pursuant to that Order. Neither the Company, the Directors, nor McInnes Cooper shall deduct expenses from the trust amounts. [ 112 ] The Sharps were successful, and they are entitled to their costs on a Column 3 basis of the Scale of Costs in the Appendix to Rule 55 of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch.

D . _____________________________ Alexander MacDonald Justice [2] Affidavit of Eric Cook, filed August 31, 2022 [Second Cook Affidavit], at para. 5(b). [3] Ibid. at para. 5(a). [7] Ibid . at para. 49. [8] Ibid. at para. 49. [9] Ibid. at para. 106. [10] 2021 Financial Statements, Tab A, p. 5, “Short-term note payable”. [11] Ibid. at Tab A, p. 3. [12] Ibid. at Tab A, p. 11.

Note 9. [13] Ibid. [14] Ibid. at p. 3. [15] First Cook Affidavit at Tab E. [16] Answers to Interrogatories, filed May 26, 2022 [Interrogatories] at Answers 33-36. [17] Ibid. at Answer 33. [18] First Cook Affidavit at Tab M. [19] Interrogatories at Answer 21.