REDLINE AUTOMOTIVE SERVICES INC. PLAINTIFF And: RMK SERVICES INC. FIRST DEFENDANT And: RODNEY BRUCE SECOND DEFENDANT And: MARY BRUCE THIRD DEFENDANT, 2021 NLSC 113

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Redline Automotive Services Inc. v. RMK Services Inc., 2021 NLSC 113 Date : September 3, 2021 Docket : 202001G2787 Between: REDLINE AUTOMOTIVE SERVICES INC. PLAINTIFF And: RMK SERVICES INC. FIRST DEFENDANT And: RODNEY BRUCE SECOND DEFENDANT And: MARY BRUCE THIRD DEFENDANT Before: Justice Alexander MacDonald Place of Hearing: St. John’s, Newfoundland and Labrador Dates of Hearing: May 6 and June 18, 2021 Appearances: Raymond G. Critch Appearing on behalf of the Plaintiff

Robert H. Fedder Appearing on behalf of the Defendants Authorities Cited: CASES CONSIDERED: BCE Inc., Re , 2008 SCC 69 ; Rees v. Fong , 2018 NLCA 60 ; 820099 Ontario Inc. v. Harold E. Ballard Ltd . (1991), 3 B.LR. (2d) 123, 25 A.C.W.S. (3d) 853 (Ont. Ct. J. (Gen. Div.)) STATUTES CONSIDERED: Corporations Act , R.S.N.L. 1990, c. C-36 ;

Canada Business Corporations Act , R.S.C. 1985, c. C-44 ; Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 RULES CONSIDERED : Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D TEXTS CONSIDERED: Bruce Welling , Corporate Law in Canada: The Governing Principles (Toronto: Butterworths, 1991) REASONS FOR JUDGMENT MacDonald, J. : INTRODUCTION [ 1 ] Redline Automotive Services Inc. is a supplier of an auto parts distributor, and provided these parts to RMK Services Inc. It did so pursuant to a credit and guarantee agreement dated June 20, 2016 (the “Agreement”).

RMK and Rodney Bruce, an officer of RMK, agreed they would be jointly and severally liable for payment of the goods and services purchased from Redline. [ 2 ] RMK did not pay for all of the Redline supplied goods and services. In May 2018, Redline obtained default judgment against RMK and Mr. Bruce, for $226,323.02, together with interest and costs. [ 3 ] Redline was unsuccessful in its attempts to realize on its judgment. Accordingly, in June 2020, it started this action against Mary Bruce, who is the wife of Mr. Bruce and the sole director of RMK.

Redline based its action on the oppression remedy contained in the Newfoundland and Labrador Corporations Act , R.S.N.L. 1990, c. C-36 ( Newfoundland and Labrador Act ). However, RMK was incorporated under the

Canada Business Corporations Act , R.S.C. 1985, c. C-44 (“ Act ” ) . [ 4 ] Neither counsel raised this issue in pleadings or argument. Both Acts have similar oppression provisions. I recalled counsel to Court on June 18, 2021, to discuss this oversight. Redline’s counsel asked that I amend its Application to base it on the Act . Defendants’ counsel agreed to the amendment, and I did so. [ 5 ] Redline said, and the Bruces agreed, that it is a “complainant” under

section 241 of the Act . Mr. Bruce is now an undischarged bankrupt. [ 6 ] Redline said that Mr. Bruce deposited, and Ms. Bruce accepted, both Mr. Bruce’s and RMK’s money into accounts owned either by Ms. Bruce, or owned jointly by Mr. and Ms. Bruce. It also said that Ms. Bruce deposited money that she collected on RMK’s behalf into these accounts. It said that by accepting these deposits, Ms.

Bruce exercised her power as the director of RMK in a manner that unfairly disregards Redline’s interests. [ 7 ] It asked for, among other relief, an order that “$226,145.23 be immediately paid into the office of the High Sheriff and/or counsel and that the said sum be credited against the default judgment.” In the alternative, it sought an order that Ms. Bruce pay to Redline the money she received from RMK and Mr. Bruce. It sought a Preservation Order or Attachment Order. [ 8 ] Although Redline names RMK and Mr. Bruce as parties, it sought no substantive relief from them.

I would not have granted such relief in any event. Redline already has judgment for the full amount of its claim against both, and Mr. Bruce is an undischarged bankrupt. ISSUES [ 9 ] I am to decide: Issue 1: Has Mary Bruce exercised her power as the director of RMK in a manner that which is oppressive, or which is unfairly prejudicial to, or unfairly disregards Redline’s interests? If so; Issue 2: What order should I make to rectify the oppression?

[ 10 ] I dismiss Redline’s claim. I will now explain why. I first deal with whether Ms. Bruce exercised her powers as director of RMK in a manner that unfairly disregards Redline’s interests. Issue 1: Has Mary Bruce exercised her power as the director of RMK in a manner that which is oppressive, or which is unfairly prejudicial to, or unfairly disregards Redline’s interests? [ 11 ] Redline said that Mr. Bruce worked in Newfoundland and Labrador while Redline was an execution creditor.

Redline said that the parties would have reasonably expected that any work he did until RMK stopped carrying on business in June 2019 would have been on behalf of RMK. [ 12 ] It said that he did not deposit the money earned into the corporate bank account. He instead deposited it in accounts owned either by Ms. Bruce, or owned jointly by Mr. and Ms. Bruce, either directly or by giving it to his wife who did so. [ 13 ] Redline said that Mr.

Bruce also worked in Alberta while Redline was an execution creditor and deposited his salary into the couple’s personal joint accounts either directly or by giving it to his wife who did so. [ 14 ] Finally, Redline said Ms. Bruce received RMK’s money while she worked at the counter at RMK, and she deposited this money into personal accounts. RMK also made direct deposits to the joint accounts [ 15 ] As Ms. Bruce was the director of RMK, Redline said her deposits and her acceptance of deposits made by Mr.

Bruce personally, or through RMK, are actions which are oppressive, or which are unfairly prejudicial to, or unfairly disregard the interests of Redline [1] . Elements of Oppression Remedy [ 16 ] The Supreme Court of Canada outlined the elements of the oppression remedy in BCE Inc., Re , 2008 SCC 69 . I am to determine: (

a) Did Ms . Bruce exercise a power as director of RMK? If so; (

b) Did Ms . Bruce’s exercise of this power breach Redline’s reasonable expectations? If so; (

c) Was the conduct oppressive to, unfairly prejudicial to, or did it unfairly disregard Redline’s interests? [ 17 ] The court in 820099 Ontario Inc. v. Harold E. Ballard Ltd . (1991), 3 B.LR. (2d) 123, 25 A.C.W.S. (3d) 853 (Ont. Ct. J. (Gen. Div.)) said, “[t]hwarted shareholder expectation is what the oppression remedy is all about [2] .” This observation is also true for creditor expectations. [ 18 ] Mr. Bruce is an undischarged bankrupt. Under

section 6 9 (1)(

a) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 , no creditor has any remedy against the insolvent person or shall commence or continue any action for the recovery of a claim provable in bankruptcy. [ 19 ] Redline’s judgment against Mr. Bruce is a claim provable in bankruptcy. The trustee may have the option of pursuing recovery of any money improperly paid to or by Mr. Bruce to Ms. Bruce, but Redline does not. Mr. Bruce’s interest in the money and in the joint accounts is now his Trustee’s in Bankruptcy. The Bankruptcy Act stays Redline’s action against Mr.

Bruce. [ 20 ] Therefore, I am to decide if Ms. Bruce’s conduct gives rise to an oppression remedy under the Act . I will first deal with Redline’s reasonable expectations even if Ms. Bruce acted in her capacity as a director of Redline. Parties’ Reasonable Expectations [ 21 ] I find that Ms. Bruce did not breach the parties’ reasonable expectations. I will now explain why. [ 22 ] The oppression remedy under the Act is an equitable one. I am to ensure both fairness and what is just and equitable. I should look at the business realities, not merely narrow legalities. Oppression is fact-specific.

The oppression action against Ms. Bruce can only succeed to the extent she acted in her capacity as the director and then only to the extent that she or the company benefited. [ 23 ] Redline must identify the expectations it claims have been thwarted by Ms. Bruce’s conduct. It must establish that it reasonably held those expectations.

I must keep in mind that oppression generally turns on particular expectations arising in particular situations, BCE Inc., Re , at para. 70 . [ 24 ] I am to judge what is just and equitable by the reasonable expectations of the stakeholders in the context of the relationships at play.

I am to decide whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue in the entire context of the relationship including the fact that there may be conflicting plans and expectations. [ 25 ] Factors useful in helping me determine whether a reasonable expectation exists include general commercial practice, the nature of the corporation, the relationship between the parties, past practice, steps that Redline could have taken to protect itself, representations and agreements, and a fair resolution of conflicting interests between stakeholders. [ 26 ] Redline filed transcripts of discovery evidence by both Mr. and Ms.

Bruce. It is entitled to do so under the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D , (“ Rules ”), Rule 30.13(3) . Both parties agreed that the transcripts filed were accurate recordings of the proceeding. [ 27 ] Mr. Bruce’s discovery focuses on his assets and income. Ms. Bruce’s testimony centres on money payments she received from RMK and her husband, and her role in the company. Redline’s counsel asked questions about the couple’s joint bank accounts. No one

filed the bank statements. [ 28 ] I will first deal with the discovery and affidavit evidence related to the formation and default under the Agreement. Based on this evidence: (

a) Ms. Bruce is the sole director of RMK, and Mr. Bruce was an officer of the company but not a director; (

b) Redline’s business relationship with RMK is reflected in the Agreement; (

c) The Agreement provided that RMK, and its guarantor and officer Mr. Bruce, were jointly and severally liable for any money due to Redline; (

d) Ms. Bruce became the sole director of the company because Mr. Bruce had a prior bankruptcy that they believed would affect RMK’s ability to obtain credit. Ms. Bruce said she was the director “in name only”; (

e) Mr. Bruce was a mechanic and worked in the business as such; (

f) Mr. Bruce managed the day-to-day affairs of RMK, paid employees, and ordered product; (

g) RMK and Mr. Bruce did not respond to an action seeking recovery of money owing under the Agreement; and (

h) Redline obtained the default judgment described earlier. [ 29 ] Redline’s counsel executed its Originating Application and swore the truth of its supporting affidavit. No one from Redline provided evidence. As I am to determine the reasonable expectations of the parties, I would expect that Redline would have filed some evidence of those expectations. [ 30 ] In particular, I would expect that Redline would have filed the Agreement. I would have expected Redline to provide evidence about what steps Redline took to protect itself from its credit risk [3] . In particular I would have expected evidence about: (

a) The circumstances about the negotiation and execution of the Agreement; (

b) Why Redline elected to obtain a guarantee only from Mr. Bruce, who is not a director, and not from Ms. Bruce, the sole director; (

c) Whether either of the Bruces were contractually bound to work only for RMK ; (

d) Whether RMK was contractually bound to deposit proceeds of its business into a particular bank account; (

e) When Redline provided RMK with the goods and services; (

f) Whether, at the time of the complaint of conduct, any of Redline’s product was in the possession of RMK; and (

g) Whether RMK’s equipment and other assets were available to RMK or to Mr. Bruce. [ 31 ] This evidence would have been important to provide context to allow me to determine the parties’ reasonable expectations. Redline did not provide me with this context. Furthermore, evidence referred to in paragraphs [30](

c) through [30](

g) could also have provided evidence that might have supported Redline’s contention that the Bruces diverted RMK’s money in breach of Redline’s reasonable expectations. [ 32 ] Redline instead based its case on the default judgment, its inability to collect on its judgment, and the Bruces’ discovery evidence. Thus, neither Redline nor the Bruces gave evidence about their expectations of the other. [ 33 ] It is Redline’s obligation to establish the reasonable expectation of the parties and it did not do so. I therefore dismiss its claims against the Defendants.

Issue 2: What order should I make to rectify oppression? [ 34 ] Had Redline established that Ms. Bruce breached its reasonable expectations, I would have the discretion to create a remedy to rectify the consequences of the oppression. In such a case, Redline must show how much money it said the Defendants improperly deposited into their joint accounts in breach of Redlines’ reasonable expectations. [ 35 ] Redline’s counsel could not tell me how much money it said the Bruces and RMK improperly deposited (and therefore how much Ms. Bruce improperly accepted).

It referred me to the transcript of discoveries and asked me to decide the amount. Alternatively, it asked me to refer the issue to a master of the Court. [ 36 ] Redline did not establish its loss because I cannot reliably determine the amount. Redline did not submit the bank statements, or any other documentary evidence, which could have given me some context to assess Redline’s potential damages. The onus was on Redline to provide the evidence that would support its case, both as to liability and damages. It did not do so. I will not refer this issue to a master. COSTS . [ 37 ] RMK, Ms. Bruce, and Mr.

Bruce have been successful in this action. They are entitled to their costs on the Rules , Rule 55 , Column 3 basis.

DISPOSITION [ 38 ] I order that: (

a) Redline’s claims against RMK and Ms. Bruce and Mr. Bruce are dismissed; and (

b) Redline shall pay each of RMK, Ms. Bruce, and Mr. Bruce their costs, on a Column 3 basis. _______________________________ Alexander MacDonald Justice