2017 QCCA 1724, 2017 QCCA 1724

Naimer c. Naimer 2017 QCCA 1724 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026969-170 (500-11-048871-152) MINUTES OF THE HEARING DATE: October 30, 2017 CORAM: THE HONOURABLE MARIE-FRANCE BICH , J.A. JACQUES DUFRESNE , J.A. NICHOLAS KASIRER , J.A. APPELLANTS COUNSEL DARREN NAIMER CLIFFORD NAIMER Mtre STEPHAN H. TRIHEY Mtre LUCIE LANCTUIT (Miller Thomson) RESPONDENTS COUNSEL bram naimer jobra investments ltd. Mtre MAX R. BERNARD (LCM Avocats inc.) richard yufe cactus ridge ltd. haleand park investments ltd. Mtre FRANCIS ROULEAU (Blake Cassels & Graydon s.e.n.c.r.l.) IMPLEADED PARTIES COUNSEL

UNION PROPERTIES LTD. Mtre FRANCIS ROULEAU (Blake Cassels & Graydon s.e.n.c.r.l.) GESHAR INVESTMENTS LTD. Me DOUG MITCHELL ( Irving Mitchell Kalichman s.e.n.c.r.l. / LLP) 9298-3832 QUÉBEC INC. On appeal from a judgment rendered on June 26, 2017 by the Honourable Justice Louis J.

Gouin of the Superior Court, District of Montreal DESCRIPTION : Application de bene esse for leave to appeal of a judgment rendered in the course of a proceeding (Article 31 C.C.P .) Application of respondents and mis-en-cause Union Properties Inc. to dismiss the appeal (Article 365 C.C.P .) Application of mis-en-cause Geshar Investments Inc. to dismiss the appeal (Article 365 C.C.P .) Application of appellants for case management (Article 367 C.C.P .) Clerk: Robert Osadchuck Courtroom: Pierre-Basile-Mignault

HEARING 12:26 Commencement of the hearing. Identification of counsel. 12:26 Mtre Mitchell has nothing to add to his Motion to dismiss the appeal. 12:27 Submissions by Mtre Bernard. 12:34 Submissions by Mtre Rouleau 12:41 Submissions by Mtre Trihey. 13:05 Reply by Mtre Mitchell. 13:06 Reply by Mtre Bernard. 13:08 Additional submissions by Mtre Trihey 13:09 Recess. 13:15 Resumption of the hearing. 13:16 By the Court: judgment – see page 3.

Robert Osadchuck Clerk BY THE COURT JUDGMENT [ 1 ] Darren Naimer and Clifford Naimer have appealed a judgment of the Superior Cour, District of Montreal (the Honourable Louis Gouin), rendered on June 26, 2017, dismissing their “Modified Application for Leave to Institute a Derivative Action” in the name of Geshar Investments Ltd. They also seek leave to appeal de bene esse , pursuant to

article 31 C.C.P., in the event that the judgment is characterized as one rendered in the course of a proceeding rather than one that terminates a proceeding.

The appellants have brought a further motion asking the Court for case management of the appeal. [ 2 ] The mises-en-cause Geshar Investments Ltd. (“Geshar”) as well as Union Properties Ltd. (“UPL”), Bram Naimer, Jobra Investments Ltd ("Jobra"), Richard Yufe, Cactus Ridge Ltd. (“Cactus”) and Haleand Park Investments Ltd. have brought separate motions to dismiss, both of which allege that the appeal has no reasonable prospect of success. *** [ 3 ] Before the Superior Court, the appellants sought authorization to institute a derivative action in name of Geshar for two purposes: first, so that Geshar might bring an oppression recourse under the

Canada Business Corporations Act , R.S.C. 1985, c C-44 (the “ CBCA ”) against certain shareholders of 9298-3832 Québec inc. (“3832”). (3832 is UPL’s holding company).The oppression action alleges that Geshar suffered prejudice as a result of the allocation of shares as between Geshar and other shareholders of 3832 following a purchase of 3832 shares by Geshar, Jobra and Cactus; and, second, so that Geshar, as a shareholder of 3832, might institute a further derivative action impugning loans made to Jobra and Cactus in connection with the sale because those loans were made without proper security. [ 4 ] The judge correctly identified the requirements for leave to bring a derivative action under sections 238 and 239 of the CBCA , in particular that the complainants give proper notice to the directors of the corporation (not an issue here); that the complainants act in good faith in bringing the derivative action; and that the derivative action appear to be in the interests of the corporation.

In this respect of this latter requirement, he noted that the complainants had the burden of showing that the derivative action was in the interests of Geshar, for the proposed Geshar oppression action, and in the interests of 3832 (and by extension UPL), for the second-order derivative remedy based on the loans. [ 5 ] In the Superior Court, the appellants argued that following the sale, the shares of 3832 should have been allocated between Geshar and Jobra such that these two corporations would acquire control of 3832 and UPL in the same proportion as had existed between them before the transaction.

Instead, Geshar’s stake after the sale was only 30%. That of Jobra, controlled by their brother Bram, was proportionately more significant, as was that of Cactus, the shares of which are controlled by persons connected to Bram Naimer. This allocation, said the appellants, failed to respect their own expectation as to what their stake in the investment should be as part of Geshar’s ongoing business. Furthermore, they argued, this share allocation failed to adhere to the reasonable expectations of Geshar, as shareholder of 3832, in the circumstances.

[ 6 ] The judge dismissed the application for leave to institute the derivative action. [ 7 ] He held, inter alia , that the appellants’ personal expectation as to how the shares would be allocated following the sale was not the same as Geshar’s reasonable expectation. He concluded therefore that the appellants’ had failed to show, on a prima facie basis as the law requires, that the proposed action was in Geshar’s interest. [ 8 ] Furthermore, the judge found that there was no evidence of a wrong done to Geshar upon which an oppression remedy might rest.

He held that there was no evidence that Geshar’s decision to limit its investment in 3832 and UPL following the sale was anything but a sound business decision.

In the absence of any proof of unfair or oppressive conduct giving rise to prejudice suffered by Geshar, the oppression action that the appellants proposed to institute in Geshar’s name had no reasonable chance of success. [ 9 ] Given that the appellants were not authorized to act on behalf of Geshar in the oppression action, the judge held that it was not appropriate to grant them leave on behalf of Geshar to bring a distinct derivative action in the name of UPL to claim and collect the loans connected to the sale. *** [ 10 ] In their notice of appeal, the appellants argue that the judge committed overriding errors of fact and law in his analysis of Geshar’s reasonable expectations for the purposes of allowing them to institute a derivative action.

They note that these expectations should be measured in respect of 3832, UPL’s holding company, and not UPL itself. Further, the judge erred by placing emphasis on the appellants’ “particular expectation” rather than Geshar’s “reasonable expectation” as to the share allocation after the sale.

Specifically, they submit that: Geshar avait une attente raisonnable que l’actionnariat direct et indirect de UP resterait dans la famille des appelants et que les actions seraient réparties proportionnellement au sein de 3832 entre Geshar et Jobra à l’exclusion de Cactus. [ 11 ] In any event, they say, there is no reason that the expectations of shareholders and the expectations of the corporation should not coincide. [ 12 ] More generally, argue the appellants, the judge should have limited his examination of the question as to whether they had shown, on a prima facie basis, that their action had a reasonable chance of success.

Instead, he is said to have decided the matter on the merits, which constitutes a reviewable error. Moreover he committed a myriad of palpable errors of fact in his analysis that have an overriding effect on his conclusion to dismiss the action at this early stage. *** [ 13 ] The Court is of the view that the appeal has no reasonable prospect of success. [ 14 ] First, the fact that the judge referred to UPL, rather than shareholdings in the holding company 3832, has no material consequence on the present appeal.

Second, and more importantly, the appellants have failed to identify a cogent argument that would suggest the judge erred in concluding that the appellants have alleged a breach of their own expectations, rather than the reasonable expectations of Geshar, in seeking leave to institute the derivative action. Their proceedings make plain that the expectation they seek to defend is their own. The appellants claim that treating them fairly required Geshar and Jobra to allocate shares in the same proportion as they had been in the past would protect their own stake in the investment.

The appellants give no compelling reason why their expectation should necessarily be that of the Geshar when its controlling shareholder was of another view and they themselves have no voting shares in the corporation. [ 15 ] Indeed, the judge observed that the evidence disclosed that Gerald Naimer, the controlling shareholder of Geshar, sought to cap the corporation’s stake in the new investment at 30% following the sale of shares in order to limit the corporation’s risk.

Ultimately, Gerald Naimer was of the view that this would reflect an appropriate participation for his three children in the investment from the perspective of Geshar’s stake therein (see, e.g ., paragraphs [55], [126] to [130] of the judgment in appeal). [ 16 ] This finding alone is a bar to obtaining leave to bring a derivative action in name of Geshar. No serious argument has been made to suggest that Gerald Naimer did not have this authority.

None of the various errors alleged by the appellants, including the supposed confusion in the judgment between 3832 and UPL, changes this fact. [ 17 ] The judge also found that Geshar’s decision in respect of the share allocation reflected sound business judgment and, as such, could not be the foundation of an oppression remedy. The appellants have pointed to no evidence that would suggest that the decision not to increase the proportionate share of Geshar’s stake in this investment was not in the corporation’s best interest.

Nothing in the judgment that would allow this Court to conclude that the judge erred when he held that there was no wrong committed against Geshar that would entitle it to seek an oppression remedy. [ 18 ] In sum, the appellants have pointed to no error of law and no palpable and overriding error of fact that would allow this Court to interfere with the judgment of the Superior Court. An appeal of this judgment would have no reasonable prospect of success. Similarly, the de bene esse application for leave must also be dismissed.

The motion for case management is thus moot. [ 19 ] The Court would reiterate the suggestion that the parties seek to resolve their differences – which give every indication that the problem is as much a family matter as a business dispute – through renewed efforts at mediation rather than in costly litigation. [ 20 ] FOR THE FOREGOING REASONS , the Court: [ 21 ] GRANTS Geshar Investment Ltd.’s motion to dismiss, with legal costs against the appellants; [ 22 ] GRANTS the motion to dismiss brought by Union Properties Ltd., Bram Naimer, Jobra Investments Ltd., Richard Yufe, Cactus

Ridge Ltd. and Haleand Park Investments Ltd., with legal costs against the appellants; [ 23 ] DISMISSES the appeal, with legal costs against the appellants; [ 24 ] DISMISSES appellants’ de bene esse application for leave to appeal, without legal costs; [ 25 ] DISMISSES appellants’ motion for case management as being without further object, without legal costs. MARIE-FRANCE BICH, J.A. JACQUES DUFRESNE, J.A. NICHOLAS KASIRER, J.A.