Johnny Mennillo Appellant v. Intramodal inc., 2016 SCC 51

SUPREME COURT OF CANADA Citation: Mennillo v. Intramodal inc., 2016 SCC 51, [2016] 2 S.C.R. 438 Appeal heard: December 8, 2015 Judgment rendered: November 18, 2016 Docket: 36124 Between: Johnny Mennillo Appellant and Intramodal inc. Respondent Official English Translation: Reasons of Côté J. Coram: McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ. Reasons for Judgment: (paras. 1 to 81) Concurring Reasons: (paras. 82 to 89) Dissenting Reasons: (paras. 90 to 263) Cromwell J. (Abella, Karakatsanis, Wagner, Gascon and Brown JJ. concurring) McLachlin C.J. (Moldaver J. concurring) Côté J. Mennillo v. Intramodal inc., 2016 SCC 51, [2016] 2 S.C.R. 438

Johnny Mennillo Appellant v. Intramodal inc. Respondent Indexed as: Mennillo v. Intramodal inc. 2016 SCC 51 File No.: 36124. 2015: December 8; 2016: November 18.

Present: McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ. on appeal from the court of appeal for quebec Commercial law — Corporations — Oppression — Reasonable expectations of shareholder — Shareholder resigning as officer and director of corporation — Whether resignation extended to shareholder status and shares transferred accordingly — Whether evidence supported reasonable expectation asserted by shareholder of being treated as such and, if so, whether reasonable expectation was violated — Whether shareholder unlawfully deprived of shareholder status as a result of corporation’s conduct —

Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 241 . In 2004, M and R, two friends, discussed the possibility of creating a road transportation company. M would contribute the money to start up the business while R would bring skills to ensure its success. R had the company incorporated on July 13, 2004, and that same day, the company’s board of directors passed a resolution to accept notices of subscription to securities by R and M and to issue 51 shares to R and 49 shares to M. Both the notices of subscription and the resolution were signed by R alone. Thereafter, R and M rarely complied with the requirements of the

Canada Business Corporations Act (“ CBCA ”) and almost never put anything in writing. They had neither a partnership nor a shareholders’ agreement, and there was no written contract or any other legal formality relating to M’s advances of substantial amounts of money to R. On May 25, 2005, M sent a letter to the corporation in which he indicated that he was resigning as an officer and director of the company. M asserts that he never intended to stop being a shareholder, but the corporation contends that M also resigned as a shareholder and accordingly transferred his shares to R.

Claiming that the corporation and R unduly and wrongfully stripped him of his status as a shareholder, M applied for an oppression remedy pursuant to s. 241 of the CBCA . The trial judge dismissed M’s oppression claim based on the factual finding that M had undertaken to remain a shareholder only so long as he was willing to guarantee the corporation’s debts and later was no longer willing to do so. A majority of the Court of Appeal dismissed the appeal. Held (Côté J. dissenting): The appeal should be dismissed.

Per Abella, Cromwell, Karakatsanis, Wagner, Gascon and Brown JJ.: The trial judge’s factual findings are not reviewable on appeal because no palpable and overriding error is present here. M’s oppression claim must accordingly be approached on the basis of the trial judge’s factual findings to the effect that from May 25, 2005 onwards, M did not want to be a shareholder, did not want to be treated as such and, as a result, transferred his shares to R. There are two elements of an oppression claim.

The claimant must first identify the expectations that he or she claims have been violated and establish that the expectations were reasonably held. Then the claimant must show that those reasonable expectations were violated by conduct falling within the statutory terms, that is, conduct that was oppressive, unfairly prejudicial to or unfairly disregarding of the interests of any security holder. In the present case, M’s oppression claim is groundless. M could have no reasonable expectation of being treated as a shareholder: he no longer was and expressly demanded not to be so treated.

As against the corporation, the most that can be said is that it failed to carry out M’s wishes as a result of not observing certain necessary corporate formalities. But in light of these findings, it cannot be said that the corporation acted oppressively or that it illegally stripped him of his status as a shareholder. What happened is that the corporation failed to make sure that all the legal formalities were complied with before registering the transfer of shares to R.

The acts of the corporation which M claims to constitute oppression were in fact taken, albeit imperfectly, in accordance with his express wishes. The fact that a corporation fails to comply with the requirements of the CBCA does not, on its own, constitute oppression. What may trigger the remedy is conduct that frustrates reasonable expectations, not simply conduct that is contrary to the CBCA . In the present case, the failure to observe the corporate formalities in removing M as a shareholder in accordance with his express wishes to be so removed cannot be characterized as

an act unfairly prejudicial to the extent that this omission deprived him of his status as a shareholder. The corporation failed to observe the formalities of carrying out his wish not to be a shareholder. Nor can the failure to properly remove him as a shareholder in accordance with his express wishes make it just and equitable for him to regain his status as a shareholder. Regarding the issue of whether the share transfer could have been retroactively cancelled, it is not possible to do so by way of simple oral consent. An issuance of shares can be cancelled only if (

a) the corporation’s articles are amended or (

b) the corporation reaches an agreement to purchase the shares, which requires that the directors pass a resolution, that the shareholder in question gives his or her express consent and that the tests of solvency and liquidity be met. Meeting the requirements with respect to the maintenance of share capital cannot be optional, given that it is the share capital that is the common pledge of the creditors and is the basis for their acceptance of doing business with the corporation.

It is common ground that the shares that were transferred were not endorsed by M. Therefore it is true that the corporation proceeded to register a transfer that did not meet all of the criteria stated in the CBCA . Since this was an important formality required by law, it was to be observed on pain of nullity of the transfer.

But there is no doubt about the fact that M knew that this formality was not complied with when the company proceeded to register the transfer in the corporate books, and that he was aware that he had not endorsed his share certificate when the shares were transferred to R as the trial judge found. As he was aware of the situation of which he now complains more than three years prior, his claim in that regard was and is still prescribed. Even if the transfer was subject to nullity, it did not mean that it was inexistent.

Finally, regarding the possibility of a conditional issuance of the shares, the condition at issue was a result of an agreement between M and R that the former would be a shareholder only if he guaranteed the corporation’s debts. This agreement was reached by M and R; the corporation was not a party to this agreement. Accordingly, it does not attract the corporate formalities applicable to a conditional issuance of shares. Per McLachlin C.J. and Moldaver J.: It is not necessary to determine whether there was an effective transfer of M’s shares to R.

This appeal can be disposed of on the basis that M has failed to show a reasonable expectation that he would not be removed as a shareholder from the corporation’s books given that he asked to be removed as a shareholder. This is confirmed by the fact that subsequently M ceased to conduct himself as an equity shareholder and advanced money as loans. The trial judge’s finding of fact is supported by the evidence. Consequently, the trial judge did not err in denying M’s oppression claim.

Per Côté J. (dissenting): Two key principles are deeply rooted in Canadian corporate law and cannot simply be disregarded or ignored: the principle that a corporation’s legal personality is distinct from that of its shareholder or shareholders, and the principle or rule of the maintenance of capital. The formalities provided for in corporate legislation are imposed to give effect to these principles, and they are necessary to protect the corporation’s patrimony, the common pledge of its creditors. These principles cannot be variable.

The principle that a corporation has a distinct legal personality and the maintenance of capital principle are just as important in the case of a small company as in that of a large one, if not more so. Although expectations may vary from one shareholder to another in the case of a closely held corporation, this does not diminish the importance of these principles. The same is true of the formalities provided for by law to ensure that they are adhered to.

It follows that the conclusion that shares were issued conditionally in this case or that the agreement between the two shareholders regarding M’s shares was cancelled retroactively, simply by their consenting to its being cancelled, and that this cancellation had some effect on the corporation even though the necessary formalities were not observed, jeopardizes important pillars of Canadian corporate law.

Along the same lines, the fact that one shareholder claims he and his fellow shareholder entered into an agreement for the transfer of shares does not relieve the corporation of its legal duty to make the necessary inquiries before passing a resolution approving that transfer of shares and registering the transfer in its registers. The CBCA imposes some very strict requirements to be met before a transfer of shares is registered, including that the security be endorsed and that the transfer be rightful. The corporation’s failure to make such inquiries in this case was in itself a form of oppression.

M did not, by expressing an intention to withdraw from the corporation as a shareholder, extinguish any reasonable expectations he may have had as regards his remaining on the company’s books as a shareholder.

To conclude the opposite would amount to saying that the mere expression of an intention to withdraw from a corporation as a shareholder would also extinguish the reasonable expectation that the corporation in question will act in accordance with the law and with its articles and by-laws and will make the necessary inquiries before depriving a person of his or her shareholder status, and would thereby defeat the oppression remedy.

However, the CBCA itself does not limit access to the oppression remedy in such a manner and, what is more, shareholders are entitled to expect a corporation to act in accordance with its articles and by-laws and, more generally, with the law. These are, so to speak, presumed expectations. The question of reasonable expectations is of greater relevance to the determination of a shareholder’s rights that are not specifically provided for in the legislation and in the corporation’s articles and by-laws.

Where, as in this case, a corporation is alleged to have acted unlawfully, the focus of the analysis is not so much on the question of reasonable expectations as on that of whether the corporation’s conduct was in fact unlawful and, therefore, oppressive. Mere irregularities that are not oppressive or unfairly prejudicial will not be sufficient to justify granting the remedy to the complainant.

On the other hand, a failure to comply with a mandatory legislative provision or with the requirements set out in the corporation’s articles and by-laws that relate to the very recognition of shareholder status may justify granting the oppression remedy. In this case, several aspects of the corporation’s conduct are problematic. The evidence shows that the share certificate in question was not endorsed.

It also shows that the corporation made no inquiries before passing the resolution to transfer M’s shares, and that the resolution was passed retroactively and was signed by a single shareholder (namely the majority shareholder). The corporation’s conduct in this regard, which violated express provisions of the legislation and of its own articles and by-laws, was prejudicial to M: that conduct unlawfully stripped him of his status as a shareholder. It is difficult to imagine how a business corporation could act more oppressively toward a shareholder than by depriving him or her of that status.

The conduct of a corporation that approves a transfer of shares without making any inquiries and that confuses its interests with those of its majority shareholder, as if it were a mere puppet, is not less oppressive simply because another shareholder at some point expressed an intention to withdraw from the corporation without there being any agreement on the terms of such a withdrawal. Furthermore, the trial judge did not find that the corporation’s shareholders had agreed on a transfer of shares. The

interpretation to the effect that he did so find denotes a fragmented reading of the trial judge’s reasons and distorts his conclusions. The trial judge instead concluded that, given that M’s shares had been issued on condition that he guarantee the corporation’s debts, the intention he expressed of withdrawing from the corporation was sufficient for him to be stripped of his status as a shareholder. It is inaccurate to say that the trial judge’s finding that the shares had been transferred was independent of their having been issued

conditionally. The parties characterized the agreement that was alleged to have been entered into by the corporation’s shareholders inseveral different ways, at times as a conditional issuance of shares, at times as a retroactive cancellation and at times as a contract of saleor a contract of gift. This reflects a more fundamental problem, namely that, without some speculation, no intention in this regard can befound in the evidence.

Indeed, the difficulty the courts below had in characterizing the alleged agreement resulted from the fact thatthere was no evidence of the juridical operation contemplated by the corporation’s shareholders on May 25, 2005 that allegedly resultedin the transfer of M’s shares. Moreover, it is impossible to find, as a matter of law, that M transferred his shares on May 25, 2005. Whatever conclusionmight be reached about the credibility of the witnesses in this regard, the intention expressed by M of withdrawing from the corporationhad no effect on his rights as a shareholder.

In this case, the intention expressed by M was at most an invitation to contract. The analysis that is required in the circumstances cannot disregard the interplay between Quebec civil law and the CBCA. Itis contrary to basic principles of Quebec civil law to argue that the intention expressed by M in this case resulted in an agreement of willseven though there was no agreement on the juridical operation being contemplated.

To conclude that the expression of such an intentionbars M’s claim for oppression — thereby approving after the fact the transfer registered by the corporation in its registers — is contraryto the law, to fairness and to common sense. In addition to having no basis in law, the finding that M had expressed his intention of withdrawing as a shareholder and hadtransferred his shares in May 2005 is not supported by the evidence and is thus based on palpable and overriding errors. The trial judgeerred in rejecting M’s testimony in this regard, since he did so on the basis of an unreasonable

interpretation of several pieces of evidencein the record. At most, the evidence shows that M expressed an intention to divest himself of his shares, but no agreement was reachedon how he would dispose of them. Finally, the prescription period applicable to a claim under s. 241 of the CBCA will depend on the basis for the claim. Where— as in this case — the complainant has been acknowledged to be a shareholder at some point and is claiming to have been unlawfullystripped of shareholder status by the corporation, the claim is therefore imprescriptible. Cases Cited By Cromwell J.

Applied: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560; referred to: Premier Tech ltée v. Dollo,2015 QCCA 1159, leave to appeal refused, ; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Stein v. TheShip “Kathy K”, (SCC), [1976] 2 S.C.R. 802; Ingles v. Tutkaluk Construction Ltd., 2000 SCC 12, [2000] 1 S.C.R. 298;Martin v. Dupont, 2016 QCCA 475; Inspecteur général des institutions financières v. Assurances funéraires Rousseau et frère Ltée,[1990] R.R.A. 473. By McLachlin C.J. Applied: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560. By Côté J. (dissenting) Smith v.

Gow-Ganda Mines, Ltd. (1911), (SCC), 44 S.C.R. 621; Budd v. Gentra Inc. (1998), (ON CA), 111 O.A.C. 288; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560; Journet v. Superchef FoodIndustries Ltd., [1984] C.S. 916; Martin v. Dupont, 2016 QCCA 475; Paré v. Paré (Succession de), 2014 QCCA 1138; Grusk v. Sparling(1992), 44 Q.A.C. 219; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Bénard v. Gagnon, , aff’d ; Regroupement des marchands actionnaires inc. v. Métro Inc., 2011 QCCS 2389; Greenberg v. Gruber, .

Statutes and Regulations Cited Act respecting the legal publicity of enterprises, CQLR, c. P-44.1.

Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 24(4), 25(3), 34, 39(6), 49(4)(a), (13), 50(1)(c), 53(d), 60(1), 64, 65(3), 76,79(1)(a), 115(3), 117(1), 118(7), 119(3), 121(a), 146, 238, 241, 243, 247. Civil Code of Québec, arts. 1378, 1381, 1414, 1416, 1422, 1824, 1825, 2922, 2925, 2927. Authors Cited Baudouin, Jean-Louis, et Pierre-Gabriel Jobin. Les obligations, 7e éd., par Pierre-Gabriel Jobin et Nathalie Vézina. Cowansville, Qué.:Yvon Blais, 2013. Campion, John A., Stephanie A. Brown and Alistair M.

Crawley. “The Oppression Remedy: Reasonable Expectations of Shareholders”,in Law of Remedies: Principles and Proofs, Special Lectures of the Law Society of Upper Canada. Scarborough, Ont.: Carswell, 1995,229. Crête, Raymonde, et Stéphane Rousseau. Droit des sociétés par actions, 3e éd. Montréal: Thémis, 2011. Gaudet, Serge. “Inexistence, nullité et annulabilité du contrat: essai de synthèse” (1995), 40 McGill L.J. 291.

Hansmann, Henry, Reinier Kraakman and Richard Squire. “The New Business Entities in Evolutionary Perspective”, [2005] U. Ill. L. Rev. 5. Karim, Vincent. Les obligations , 4 e éd. Montréal: Wilson & Lafleur, 2015. Koehnen, Markus. Oppression and Related Remedies . Toronto: Thomson/Carswell, 2004. Lafond, Pierre-Claude. Précis de droit des biens , 2 e éd. Montréal: Thémis, 2007. Lamontagne, Denys-Claude. Biens et propriété , 7 e éd. Cowansville, Que.: Yvon Blais, 2013. Lluelles, Didier, et Benoît Moore. Droit des obligations , 2 e éd. Montréal: Thémis, 2012. Martel, Paul.

Business Corporations in Canada: Legal and Practical Aspects . Toronto: Thomson Reuters, 2005 (loose-leaf updated 2016, release 6). Morritt, David S., Sonia L. Bjorkquist and Allan D. Coleman. The Oppression Remedy . Toronto: Canada Law Book, 2004 (loose-leaf updated December 2015, release 17). Peterson, Dennis H., and Matthew J. Cumming. Shareholder Remedies in Canada , 2nd ed. Markham, Ont.: LexisNexis, 2009 (loose-leaf updated August 2016, release 39). Wegenast, F. W. The Law of Canadian Companies . Toronto: Carswell, 1979 (reissue of 1931 ed.).

APPEAL from a judgment of the Quebec Court of Appeal (Vézina, Gagnon and St-Pierre JJ.A.), 2014 QCCA 1515 , [2014] AZ-51101093, [2014] J.Q. n o 8429 (QL), 2014 CarswellQue 10625 (WL Can.), affirming a decision of Poirier J., 2012 QCCS 1640 , [2012] AZ-50849648, [2012] J.Q. n o 3574 (QL), 2012 CarswellQue 3855 (WL Can.). Appeal dismissed, Côté J. dissenting. Claude Marseille , Paul Martel and Caroline Dion , for the appellant. Hubert Camirand and Marie-Geneviève Masson , for the respondent. The judgment of Abella, Cromwell, Karakatsanis, Wagner, Gascon and Brown JJ. was delivered by Cromwell J. — I.

Introduction [ 1 ] In this oppression proceeding under the

Canada Business Corporations Act , R.S.C. 1985, c. C-44 (“ CBCA ”), the underlying question is whether, as the appellant, Johnny Mennillo, alleges, the business or affairs of Intramodal inc. were carried on or conducted in a manner that was oppressive or unfairly prejudicial to or unfairly disregarded Mr. Mennillo’s interests: s. 241(2) CBCA . [ 2 ] The informal manner in which the parties dealt with each other and their lack of attention to proper documentation gave rise to some technical points of corporate law including how a share transfer can be properly registered and how a share transfer may be cancelled.

However, the answer to the fundamental question of whether Mr. Mennillo was oppressed in the corporate law sense turns on which of two sharply different versions of the facts — one supported by Mr. Mennillo and the other by Intramodal’s controlling shareholder, Mario Rosati — ought to be accepted. [ 3 ] Mr. Mennillo claims that he was oppressed because he was an investor in Intramodal who was frozen out of equity participation by Mr. Rosati. Intramodal denies this and says that Mr.

Mennillo, far from having been frozen out of the corporation, wanted to be removed as a director and shareholder and transferred his shares to Mr. Rosati. [ 4 ] The trial judge completely rejected Mr. Mennillo’s version of events and substantially accepted Intramodal’s. The judge found that Mr. Mennillo agreed that he would remain a shareholder only so long as he was willing to guarantee the corporation’s debts. He ultimately decided that he did not wish to do so and transferred his shares to Mr. Rosati.

The failure to observe the formalities necessary to complete the transfer of the shares, the judge found, resulted from an error or oversight on the part of Mr. Rosati’s lawyer. [ 5 ] If the trial judge’s findings of fact are accepted, as in my view they ought to be, Mr. Mennillo’s oppression claim is groundless. The critical finding is that Mr. Mennillo did not wish to remain a shareholder and told Mr. Rosati to have him removed as such. On those findings, all the corporation can be accused of is sloppy paperwork. But sloppy paperwork on its own does not constitute oppression.

Neither does the corporation and its controlling shareholder treating Mr. Mennillo exactly as he wanted to be treated. While some errors were made in the courts below on some points of corporate law, Mr. Mennillo’s oppression claim was properly dismissed and I would dismiss his appeal. II. Overview of the Legal Context, Parties’ Positions and Issues A. Legal Context [ 6 ] To understand the facts and issues, it is important to understand the legal framework in which they must be considered. [ 7 ] All of the relief requested by Mr. Mennillo is based solely on his claim of oppression under s. 241 of the CBCA .

Other claims that he might have made, but did not make, are irrelevant to this appeal and cannot be considered. That

section provides:

(1) A complainant may apply to a 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 or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, thecourt may make an order to rectify the matters complained of. [8] The Court set out the nature and constituent elements of an oppression claim in BCE Inc. v. 1976 Debentureholders,2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 53-94.

The oppression remedy is inspired by the principles of equity: it gives courts a broadjurisdiction to enforce “not just what is legal but what is fair” (para. 58; see also Premier Tech ltée v. Dollo, 2015 QCCA 1159, leave toappeal refused, (S.C.C.)). Whether there has been oppression is judged according to “business realities” not “narrowlegalities”: BCE, at para. 58. Furthermore, “[w]hat is just and equitable is judged by the reasonable expectations of the stakeholders inthe context and in regard to the relationships at play”: para. 59. [9] There are two elements of an oppression claim.

The claimant must first “identify the expectations that he or sheclaims have been violated . . . and establish that the expectations were reasonably held”: BCE, at para. 70. Then the claimant must showthat those reasonable expectations were violated by conduct falling within the statutory terms, that is, conduct that was oppressive,unfairly prejudicial to or unfairly disregarding of the interests of any security holder: para. 68; s. 241(2) CBCA. [10] According to the trial judge’s findings of fact, Mr.

Mennillo agreed that he would remain a shareholder of thecorporation on the condition that he guarantee its debts. He decided that he no longer wished to guarantee those debts and transferred hisshares to Mr. Rosati. He could, therefore, have no reasonable expectation of being treated as a shareholder thereafter. He also could bethought to reasonably expect the corporation to ensure that the corporate formalities to register this arrangement would be observed.

Butthe failure to do so (i.e. the conduct that “violated” those expectations) cannot be characterized as “oppressive, unfairly prejudicial orunfairly disregarding” of his interests. This was a two-person, private company in which the dealings between the parties were markedby extreme informality. As this Court said in BCE, “[c]ourts may accord more latitude to the directors of a small, closely heldcorporation to deviate from strict formalities than to the directors of a larger public company”: para. 74. In substance, Mr. Mennillo wasnot oppressed but treated as he wanted the corporation to treat him.

The failure of the company’s lawyer to comply with the corporatelaw requirements to give effect to that intention is not oppression. [11] Contrary to what my colleague Justice Côté concludes, the fact that a corporation fails to comply with therequirements of the CBCA does not, on its own, constitute oppression: paras. 166 and 195. The oppression remedy is a discretionary onethat is equitable in nature: D. S. Morritt, S. L. Bjorkquist and A. D. Coleman, The Oppression Remedy (loose-leaf), at p. 5-10.4; D. H.Peterson and M. J. Cumming, Shareholder Remedies in Canada (2nd ed. (loose-leaf)), at p. 17-14.

What may trigger the remedy isconduct that frustrates reasonable expectations, not simply conduct that is contrary to the CBCA. As I see it, my colleague’s approach notonly represents a significant departure from our jurisprudence, but as applied here permits Mr. Mennillo to use oppression proceedings asan instrument of oppression rather than as a remedy for it. B. Parties’ Positions [12] Mr. Mennillo submits that he was unlawfully removed from the list of shareholders of the corporation through anamended declaration filed with the Registraire des entreprises of Quebec (“REQ”) on July 18, 2005.

He also argues that as a shareholder,he had the right to access the corporate records of the company during the usual business hours, a right which was denied to him until thefourth day of the trial in the Superior Court. Simply put, his oppression claim is that he is a shareholder and investor who was frozen outof the corporation. [13] For its part, Intramodal says that Mr. Mennillo resigned as a director, asked not to be a shareholder and transferredhis shares to Mr. Rosati. His advances of funds were fully repaid with a healthy bonus. Putting the corporation’s position in its simplestterms, Mr.

Mennillo did not want to be an equity shareholder and, as we shall see, he is no longer one. C. Issues [14] Putting aside questions of prescription and remedy, Mr. Mennillo raises two legal points and one factual point onappeal. [15] In relation to the law, he maintains: (

a) The trial judge erred in finding that he had transferred his shares to Mr. Rosati when no such transfer was validly effectedin law (2012 QCCS 1640); and

(

b) The majority of the Court of Appeal erred in concluding that a share subscription could be retroactively cancelled by simple verbal agreement and without complying with the required legal formalities ( 2014 QCCA 1515 ). [ 16 ] In relation to the facts, Mr. Mennillo relies on the conclusions of the dissenting judge in the Court of Appeal and says that the trial judge erred in rejecting his claim that he is a shareholder of the corporation. [ 17 ] I agree with Mr. Mennillo in relation to the second legal point relating to corporate law.

However, this point has no impact on the result of the oppression proceedings. The trial judge found that in May 2005, Mr. Mennillo did not want to remain a shareholder because he no longer wanted to be guarantor of all Intramodal’s debts. Some corporate formalities of the transfer of shares from Mr. Mennillo to Mr. Rosati were not completed as a result of an error or oversight on the part of Mr. Rosati’s lawyer. From that date, Mr. Mennillo agreed to be simply a lender to his friend Mr. Rosati. As of May 25, 2005, Mr. Mennillo ceased to be a shareholder in the corporation.

That is exactly how the corporation treated him. In my view, the dissenting justice in the Court of Appeal was wrong to overturn these findings of fact. There was, to be sure, some very sloppy paperwork. But in light of the key findings of fact, the corporation in substance simply treated Mr. Mennillo as he wanted to be treated and he was repaid all of the money he had loaned with a substantial bonus. III. Analysis A. The Factual Issue

(1) Preliminary Observations [ 18 ] The main question on which the outcome of the appeal depends is whether the trial judge made a reviewable error in finding that in May 2005, Mr. Mennillo did not wish to remain a shareholder because he no longer wanted to be the guarantor of all of Intramodal’s debts and transferred his shares to Mr. Rosati. If these factual findings stand, Mr. Mennillo’s oppression action is groundless: it was not oppressive, unfairly prejudicial to, or unfairly disregarding of his interests for the corporation to treat Mr. Mennillo as he himself asked to be treated.

I recall that, as the Court said in BCE , in considering a claim in oppression, the courts should look at business realities not merely narrow legalities: para. 58. [ 19 ] The appeal also raises some points of corporate law and of the law of prescription. These legal points, however, have no bearing on the ultimate disposition of the appeal. I will briefly address them after I set out my reasons for affirming the trial judge’s fundamental conclusions.

(2) Overview of the Basic Facts [ 20 ] In the winter of 2004, Messrs. Johnny Mennillo and Mario Rosati, two friends, discussed the possibility of creating a company. Mr. Mennillo would contribute the money to start up the business while Mr. Rosati would bring skills to ensure the success of a road transportation company. Mr. Rosati reserved the name “Intramodal” in April 2004. [ 21 ] Mr. Rosati had the company incorporated on July 13, 2004. That same day, Intramodal’s board of directors passed a resolution to accept notices of subscription to securities by Mr. Rosati and Mr.

Mennillo and to issue 51 class “A” shares to Mr. Rosati and 49 shares of the same class to Mr. Mennillo. Both the notices of subscription and the resolution were signed by Mr. Rosati alone. [ 22 ] It is worth mentioning at this point that many of the legal difficulties in this case have arisen as a result of the virtually complete lack of formality that accompanied the parties’ business dealings. They rarely complied with the requirements of the CBCA and in fact almost never put anything in writing. They had neither a partnership nor a shareholders’ agreement. They rarely or never exchanged emails or letters.

Before Intramodal was incorporated, the roles that Messrs. Mennillo and Rosati respectively intended to fulfill in the company were agreed upon by a simple handshake. Once Intramodal was incorporated (on July 13, 2004), they became its directors and shareholders, but neither of them paid for their shares, contrary to the requirements of s. 25(3) CBCA and Mr. Mennillo’s share certificate was never signed as required by s. 49(4) (

a) CBCA . [ 23 ] There was no written contract or indeed any other legal formality relating to Mr. Mennillo’s advances of substantial amounts of money to Mr. Rosati. As evidence of the money provided for Intramodal by Mr. Mennillo, there are only two sheets of a Rolodex, marked up by Mr. Mennillo and initialed by Mr. Rosati. [ 24 ] On May 25, 2005, Mr. Mennillo sent a letter to Intramodal in which he indicated that he was resigning as an officer and director of the company. He and Mr. Rosati give different accounts as to the reasons for and extent of his resignation. Whereas Intramodal argues that Mr.

Mennillo transferred his shares to Mr. Rosati, Mr. Mennillo asserts that he never intended to stop being a shareholder of the company. On July 18, 2005, Daniel Ovadia, Intramodal’s lawyer, filed an amending declaration with the REQ to indicate that Mr. Mennillo had been removed as a director and shareholder of the company. [ 25 ] Between September 2005 and December 5, 2005, Mr. Mennillo advanced $145,000 to Mr. Rosati. Intramodal began operating in December 2005, and Mr. Mennillo continued to advance money to Mr. Rosati.

The amounts he advanced totalled $440,000, which included the $145,000 that had been paid in 2005. The two men met on two occasions in July 2007, and they do not agree about what took place at those meetings. [ 26 ] According to Mr. Mennillo, he was with Mr. Rosati and another friend at the Rib’N Reef restaurant on July 14, 2007 when he noted that Intramodal was thriving and Mr. Rosati was now living very well. Upset about this, Mr. Mennillo complained that he was not sharing in the company’s success. At a second meeting, on July 21, 2007, Mr.

Mennillo asked that the amounts of his loans be repaid and that he receive his share of the profits generated by Intramodal. He rejected at that time an offer to transfer his shares to Mr. Rosati. [ 27 ] According to Mr. Rosati, following the July 14 meeting, Mr. Mennillo was quite unhappy about having received no return on his $440,000 investment that had resulted in the start-up of a lucrative business. Mr. Rosati suggested that they meet a week

later to resolve their differences. At that meeting, Mr. Rosati asked Mr. Mennillo what amount might satisfy him in order to put an end totheir dispute. Mr. Mennillo fixed the amount at $150,000, which meant that the total debt amounted to $690,000, including interest at theannual rate of 10 percent and a bonus of $100,000. [28] In October 2007, Mr. Rosati and Mr. Mennillo met several times together with Antoine Papadimitriou, Mr.Mennillo’s accountant. According to Mr. Mennillo, the purpose of these meetings was to fix a price for the redemption of his shares.

Heclaimed that it was at these meetings that his advisers had suggested that his advances ($440,000) be repaid using false invoices. Mr.Papadimitriou had also suggested that the $440,000 principal amount be increased by approximately 35 percent because the tax owingon it would be paid by Mr. Mennillo’s management company, 147488 Canada Inc. This would raise the amount of the repayment to$690,000. [29] As for Mr. Rosati, he claims to have attended these meetings alone.

He also claims that the purpose of thenegotiations was instead to increase the amount of the repayment that had previously been agreed upon in July 2007. He maintains thatPaolo Carzoli, a tax specialist, suggested that, to enable Mr. Mennillo to claim the capital gains exemption, the company’s books becorrected such that Mr. Mennillo would receive 49 common shares, which he would then sell to Mr. Rosati. Mr. Rosati rejected this. [30] The money Mr. Mennillo had advanced to Mr. Rosati was repaid in its entirety between July 2006 and December 7,2009.

This was done by means of cheques issued by Intramodal for the payment of false invoices issued by 147488 Canada Inc. for“consultation fees” or “management fees”. The total amount paid by Intramodal to Mr. Mennillo’s management company was $690,000. [31] On December 7, 2009, at a meeting in a restaurant, Mr. Rosati gave Mr. Mennillo a cheque for $40,000 marked“Full and Final Payment”. A few days later, Mr. Mennillo consulted his lawyer, Israel Kaufman, about this note. According to Mr.Mennillo, that was when he first understood that he was no longer a shareholder of Intramodal. [32] On February 25, 2010, Mr.

Kaufman sent Intramodal a demand letter. Claiming that Intramodal and Mr. Rosati hadunduly and wrongfully stripped him of his status as a shareholder, Mr. Mennillo applied for an oppression remedy against Intramodal onSeptember 7, 2010.

(3) Findings of Fact at First Instance [33] Poirier J. began by stating that the case before him essentially turned on the credibility of the witnesses. He thenrejected Mr. Mennillo’s version of the facts in its entirety. He concluded that as of May 25, 2005, Mr. Mennillo [translation] refused to participate in this venture [that is, to be an equity shareholder in Intramodal] and asked to be removed from thecompany as a shareholder and a director effective May 25, 2005. As of that date, Mennillo agreed only to be a lender of $440,000 to hisfriend Rosati.

The failure to complete the transfer of Mennillo’s shares to Rosati resulted from an error or oversight on the part ofRosati’s lawyer. Since May 25, 2005, Mennillo has no longer been a shareholder or director of Intramodal. [paras. 74-75 ] [34] It is clear from a careful reading of the trial judge’s reasons that he understood that Mr. Mennillo would cease to be ashareholder as a result of transferring his shares to Mr. Rosati. In the judge’s view, Mr. Mennillo had more than a mere intention ofbeing removed from the company; he found that Mr. Mennillo transferred his shares to Mr.

Rosati and ceased to hold any shares inIntramodal. There was a basis for this conclusion in the evidence notwithstanding that the evidence was admittedly confused andconfusing. However, the critical finding for the purposes of the substance of the oppression claim was that as of May 25, 2005, Mr.Mennillo did not wish to be a shareholder and asked to be removed. On that point, Mr. Rosati’s evidence was unshaken and accepted bythe trial judge. [35] The judge’s conclusions and his rejection of Mr. Menillo’s version of events were based on the following findings offact: (

i) The reason given by Mr. Mennillo for his resignation as a director of Intramodal (i.e. that Mr. Rosati didn’t want a potentialclient, namely Labatt Breweries (“Labatt”), to know that Mr. Mennillo was involved in the corporation) was false. (ii) The funds advanced by Mr. Mennillo, starting before Intramodal had been incorporated, were loans and were not advancedas investments in the corporation. (iii) The figure 250,000 appearing on the “Rolodex record”, which also showed all the amounts advanced by Mr. Mennillo,corresponded to the amount that Mr. Mennillo and Mr.

Rosati had agreed on in July 2007 and that had served to establish the amount ofthe final payment ($440,000 + $250,000 = $690,000). (iv) Two documents relating to an insurance policy taken out on the lives of Mr. Mennillo and Mr. Rosati, the beneficiary ofwhich was Intramodal, proved, first, that Mr. Rosati believed as of August 15, 2006 that he was the sole shareholder and director ofIntramodal and, second, that Mr. Mennillo was only a creditor of the company.

(

v) In a letter from Mr. Kaufman, Mr. Mennillo’s lawyer, dated October 31, 2007, no mention was made of financing for the purchase of shares, as what was referred to was instead the acknowledgment of a debt. (vi) In a memorandum dated November 26, 2007, Mr. Carzoli, a tax adviser retained by Mr. Papadimitriou (Mr. Mennillo’s accountant), described the ownership of shares in Intramodal as of the fall of 2007 and concluded from it that Mr. Mennillo was no longer a shareholder of the company at that time. (vii) The demand letter sent to Intramodal by Mr. Kaufman on February 25, 2010 showed that Mr.

Mennillo knew he was no longer a shareholder and that this had been the case since May 2005, when he had resigned as a director and transferred his shares. (viii) As could be seen in Intramodal’s books, there was a common shares certificate in Mr. Mennillo’s name. However, it was not signed, and the same was true on the share transfer form on the back, which contained only the nominative information. These books also contained a resolution dated May 25, 2005 concerning the transfer of the shares from Mr. Mennillo to Mr. Rosati.

If the transfer was not completed, this was the result of an error or oversight on the part of Mr. Rosati’s lawyer. (ix) An out-of-court examination of Mr. Mennillo on October 28, 2010 supported the view that he had acknowledged that he no longer wanted to be a shareholder of Intramodal as of May 2005. He mentioned several times in the course of that examination that he had removed himself as a shareholder of Intramodal, but then corrected himself to say that he had only resigned as a director.

Moreover, the date he gave as the one at which he had learned he was no longer a shareholder was not the one specified in his motion to institute proceedings and also differed from the one specified in his affidavit of July 29, 2010. The trial judge found that a revelation as important as that should have made an impression on Mr. Mennillo.

(4) Mr. Mennillo’s Position With Respect to These Findings [ 36 ] Mr. Mennillo relies on the conclusions of the dissenting judge who found a number of errors in the reasoning of the trial judge which justified setting aside his findings of fact. I will consider each in turn. (

a) The Reason Mr. Mennillo Gave for Resigning as a Director [ 37 ] The trial judge found that Mr. Mennillo’s explanation of why he had resigned as a director in May 2005 was false. [ 38 ] Mr. Mennillo’s version was that Labatt wished to review Intramodal’s books and to visit its premises. He said that his involvement with the company would not be favourable in Labatt’s eyes because of his activities in hydroponic greenhouses and the sale of tobacco products. Mr.

Mennillo placed this visit by Labatt at a time when Intramodal was acquiring important transportation equipment and he referred repeatedly in his testimony to the fact that Labatt would come to visit the premises. [ 39 ] The trial judge found, however, that Mr. Mennillo’s resignation could not have been linked to the examination of Intramodal’s books by representatives of Labatt because at the time, Intramodal had no equipment or premises. In any case, Mr.

Mennillo’s explanation made no sense because his resignation as a director would not make him disappear from the corporation’s books if, as he claimed, he was a shareholder. The judge also referred to the inconsistencies in Mr. Mennillo’s evidence in relation to this resignation. [ 40 ] The dissenting judge in the Court of Appeal found that the trial judge had erred by setting aside Mr. Mennillo’s version of events. He reasoned that although Intramodal did not have any equipment, it was engaging in some public relations activities at the time of the proposed visit. He also thought that Mr.

Mennillo’s explanation made sense in light of the fact that Labatt would not likely be concerned if Mr. Mennillo’s involvement was only as a minority shareholder and, in any event, the problem could have been resolved by Mr. Mennillo transferring his shares to his management company. [ 41 ] Respectfully, there was no basis for the dissenting judge to set aside the trial judge’s rejection of Mr. Mennillo’s explanation of why he had resigned as a director. As the majority of the Court of Appeal pointed out, Mr. Mennillo linked Labatt’s visit to a time when Intramodal was acquiring transportation equipment.

But it was clear that Intramodal was not doing so in the time leading up to Mr. Mennillo’s resignation in May 2005. I would add that Mr. Mennillo also linked the visit to a time when Labatt could visit the premises. But this made no sense because Intramodal had no premises as of the date of Mr. Mennillo’s resignation as a director. Moreover, the trial judge made no error in concluding that if Mr.

Mennillo stayed on as a shareholder, his involvement would be obvious not only from the books of the corporation but also from the public register. [ 42 ] There was no clear and determinative error on the part of the trial judge with respect to this point. (

b) The Life Insurance Documents [ 43 ] The dissenting judge took issue with the trial judge’s reliance on documents relating to a life insurance in which Mr. Rosati indicated that he was the sole shareholder of the corporation. The dissenting judge thought that these statements needed to be treated with caution as they originated with Mr. Rosati and, in addition, it was hard to understand why, if Mr. Mennillo was simply a creditor, Intramodal would insure his life. However, as the majority of the Court of Appeal pointed out, Mr. Rosati was dealing with a broker who had done business with Mr.

Mennillo for more than 20 years. The trial judge was entitled to take into account that in September 2006, Mr. Rosati was openly claiming, in dealings with Mr. Mennillo’s insurance broker, that Mr. Mennillo was not a

shareholder in the corporation. The trial judge could well conclude that such behaviour on Mr. Rosati’s part enhanced the credibility ofhis theory. There was certainly no basis to interfere with the trial judge’s findings in this regard. (

c) The Carzoli Memorandum [44] The dissenting judge was also of the view that the trial judge had misinterpreted a memo prepared by Mr. Carzoli, atax specialist retained by Mr. Mennillo’s accountant, Mr. Papadimitriou. [45] The trial judge noted that, in a memo prepared after a meeting with Mr. Mennillo’s accountant, Mr. Carzoli wrotethat “[t]he minute book of the company indicates that the shares are owned by only one shareholder . . . . The other shareholder . . . wasonly an investor in the company”: para. 50. The judge took this as some evidence that Mr.

Mennillo did not believe himself to be ashareholder as of the date of the memorandum (i.e. November 26, 2007). [46] The dissenting judge thought that this was an erroneous inference because Mr. Carzoli explained in the rest of thememorandum that the register needed correction in order to reflect the reality that Mr. Mennillo was in fact a shareholder. The dissentingjudge was also of the view that the memorandum showed that Mr. Carzoli’s strategy was based on the premise that Mr.

Mennillo was ashareholder. [47] However, as the majority in the Court of Appeal pointed out, the statement that there was only one shareholder wasmade to Mr. Mennillo’s accountant and yet passed in silence. Moreover, as the trial judge and the majority further noted, thememorandum was inconsistent with Mr.

Mennillo’s testimony that he had only learned that he was not a shareholder in winter of 2009given that the memorandum was dated roughly two years before. [48] Once again, the trial judge’s reliance on the Carzoli memorandum did not provide an appropriate basis for appellateintervention in relation to the trial judge’s rejection of Mr. Mennillo’s evidence. (

d) The October 31, 2007 Letter [49] The dissenting judge also took issue with the trial judge’s reliance on an October 31, 2007 letter from Mr.Mennillo’s lawyer, Mr. Kaufman. In the dissenting judge’s view, a careful reading of that letter showed that it was not contrary to Mr.Mennillo’s position. [50] The trial judge noted that while Messrs. Kaufman and Mennillo took the position that this letter was directed atputting in place financing to permit Mr. Rosati to buy Mr. Mennillo’s shares, the letter itself said nothing about a share purchase butrather was drafted in terms of an acknowledgment of debt.

The majority of the Court of Appeal saw nothing wrong with the trial judge’streatment of this letter and nor do I. It was open to the judge to infer from the letter, and particularly the absence of any mention of sharepurchase in it, that it would be unlikely to omit mention of that element in light of Mr. Mennillo’s contention that he had neverwithdrawn as a shareholder. (

e) The February 25, 2010 Letter [51] Finally, the dissenting judge was of the view that the trial judge had drawn erroneous inferences from the demandletter dated February 25, 2010 sent to Intramodal by Mr. Mennillo’s lawyer, Mr. Kaufman. This letter referred to the alleged request thatMr. Mennillo “resign from the company” because of the interest on the part of Labatt and alleged that his share of the company had notbeen remitted to him following his resignation as promised. [52] The trial judge used this letter to support the inference that, as of May 2005 when he submitted his resignation as adirector, Mr.

Mennillo knew that he was no longer a shareholder and, as well, to infer the date at which Mr. Mennillo stopped being ashareholder. [53] The dissenting judge in the Court of Appeal was of the view that this letter did not support these inferences. In hisopinion, the use by a lawyer (Mr. Kaufman) of the phrase “resign from the company” could not refer to anything but Mr. Mennillo’sresignation as a director; it could not be understood to encompass Mr. Mennillo’s shareholder status. Moreover, the letter insisted thatMr. Mennillo was a 50 percent partner in the corporation.

The dissenting judge saw in this letter a clear expression that [translation]“Mennillo still considered himself a shareholder of (partner in) Intramodal, holding almost 50% of the shares, and as such he was entitledto a share of the profits in the same proportion”: para. 110 . [54] Once again, however, there was no basis for appellate intervention with respect to the trial judge’s reliance on thisletter. I agree with the reasons of the majority of the Court of Appeal for rejecting the dissenting judge’s contention: [translation] It may be possible to disagree about how to interpret this letter, but the Judge’s

interpretation does not seem to me to be“clearly wrong”; indeed, it is easy to defend. Mennillo is claiming $1M, inter alia, “for failing to remit to him his share of the company”.One cannot claim something one already owns. His claim implies that he is not a shareholder of Intramodal, given that he wants tobecome one. [para. 184] (

f) Conclusion Concerning the Trial Judge’s Findings of Fact [55] The trial judge’s factual findings are only reviewable on appeal if they constitute an error that is both palpable andoverriding: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 10; Stein v. The Ship “Kathy K”, (SCC),[1976] 2 S.C.R. 802, at p. 808; Ingles v. Tutkaluk Construction Ltd., 2000 SCC 12, [2000] 1 S.C.R. 298, at para. 42. I agree with themajority of the Court of Appeal that no such error is present here. While the dissenting judge preferred a different

interpretation of someof the evidence than that adopted by the trial judge, he was not entitled to substitute his view absent a palpable and overriding error.When we examine the trial judge’s conclusions in light of the record, we find that there was no such error.

[ 56 ] We must, therefore, approach the case on the basis that, from May 25, 2005 onwards, Mr. Menillo did not want to be a shareholder, did not want to be treated as such and, as a result, transferred his shares to Mr. Rosati. [ 57 ] On these findings of fact, Mr. Mennillo’s oppression claim is groundless. He could have no reasonable expectation of being treated as a shareholder: he no longer was and expressly demanded not to be so treated. As against Intramodal, the most that can be said is that the corporation failed to carry out his wishes as a result of not observing certain necessary corporate formalities.

But in light of these findings, it cannot be said that the corporation acted oppressively or that it illegally stripped him of his status as a shareholder as Justice Côté concludes: para. 198. What happened is that the corporation failed to make sure that all the legal formalities were complied with before registering the transfer. The acts of the corporation which Mr. Mennillo claims to constitute oppression were in fact taken, albeit imperfectly, in accordance with his express wishes. But it cannot be unfairly prejudicial to Mr.

Mennillo for the corporation to register a transfer of shares that he wished to happen, and that, as I will discuss later, he can no longer attack. As a consequence, all of Mr. Mennillo’s claims must fail. [ 58 ] The failure to observe the corporate formalities in removing Mr. Mennillo as a shareholder in accordance with his express wishes to be so removed cannot, in my respectful view, be characterized as

an act unfairly prejudicial to the extent that this omission deprived him of his status as a shareholder: Côté J., at para. 207. The corporation failed to observe the formalities of carrying out his wish not to be a shareholder. Nor can the failure to properly remove him as a shareholder in accordance with his express wishes make it just and equitable for him to regain his status as a shareholder: para. 204. B.

Corporate Law Points [ 59 ] Although it is not strictly speaking necessary to do so, I will address three points of corporate law because some clarification of them will be useful: whether the share transfer could have been retroactively cancelled as the majority of the Court of Appeal thought; the consequence of the failure to observe the formalities prescribed by the CBCA ; and whether the shares could have been issued conditionally.

(1) The Possible Retroactive Cancellation of the Share Transfer [ 60 ] Before the trial judge and the Court of Appeal, Mr. Mennillo argued that he has been a shareholder of Intramodal from its incorporation and remained as such. Before the trial judge, Intramodal presented two different theories in response to Mr. Mennillo’s argument. The first one is that Mr. Mennillo would have become a shareholder had he accepted to financially support the corporation and to be the guarantor of the entirety of its debts, but he declined or neglected to do so and consequently never became a shareholder.

The second one is that Mr. Mennillo resigned as a director of Intramodal and transferred his shares to Mr. Rosati. Intramodal focused on its second theory before the Court of Appeal and argued that the shares were transferred from Mr. Mennillo to Mr. Rosati on May 25, 2005. [ 61 ] The trial judge concluded that Mr. Mennillo agreed that he would remain a shareholder only so long as he was willing to guarantee the corporation’s debts and that Mr. Mennillo ultimately decided that he did not wish to do so and transferred his shares to Mr. Rosati.

In the Court of Appeal, the majority concluded as follows on this issue: [ translation ] . . . Can it be concluded that there was a genuine transfer of the shares from Mennillo to Rosati? It seems to me, rather, that they quite simply agreed on May 25, 2005 to retroactively cancel their agreement to associate with one another that they had originally entered into in 2004.

The agreement had been reached informally, as was the cancellation thereof. [para. 225] [ 62 ] It is worth highlighting that this theory of the retroactive cancellation of the agreement was neither adopted by the trial judge nor pleaded by the parties. [ 63 ] Contrary to what the majority of the Court of Appeal suggested, I am of the opinion that it is not possible to retroactively cancel an issuance of shares by way of simple oral consent. As Mr. Mennillo points out, an issuance of shares can be cancelled only if (

a) the corporation’s articles are amended or (

b) the corporation reaches an agreement to purchase the shares, which requires that the directors pass a resolution, that the shareholder in question gives his or her express consent and that the tests of solvency and liquidity be met. Can such

an act by the corporation be valid even though these requirements of the CBCA have not been met? I do not think so. [ 64 ] The commentators agree that meeting the requirements with respect to the maintenance of share capital cannot be optional, given that it is the share capital that is the common pledge of the creditors and is the basis for their acceptance of doing business with the corporation: P. Martel, Business Corporations in Canada: Legal and Practical Aspects (loose-leaf), at pp. 12-17, 12-18 and 14-31; R. Crête and S. Rousseau, Droit des sociétés par actions (3rd ed. 2011), at pp. 550-52; F. W.

Wegenast, The Law of Canadian Companies (1979 (reissue of 1931 ed.)), at p. 313. [ 65 ] Furthermore, certain American commentators point out that strict protection of a corporation’s capital stock is necessary in a context in which the liability of shareholders is, for its part, limited: Strong entity shielding and limited liability are highly complementary; the presence of one generally calls for the other. . . . . . . limited liability generally requires strong entity shielding, largely because limited liability increases the incentive for owners to withdraw from the firm when its prospects are doubtful.

That incentive, in turn, creates the threat of a run on the firm’s assets, which would destroy going-concern value to the detriment of both the firm’s creditors and its owners. By denying owners the power to withdraw unilaterally, strong entity shielding prevents such runs. [Footnote omitted.]

(H. Hansmann, R. Kraakman and R. Squire, “The New Business Entities in Evolutionary Perspective”, [2005] U. Ill. L. Rev. 5, at pp. 11- 12) [ 66 ] More concretely, why would the law establish strict requirements primarily to protect creditors’ interests if such requirements could validly be ignored? I am unable to find a satisfactory answer to this question, and it is my opinion that the respondent has also failed to provide one.

(2) The Consequence of Non-Compliance With the Formalities of the CBCA [ 67 ] The trial judge held that Mr. Mennillo was no longer a shareholder of Intramodal as of May 25, 2005 and that [ translation ] “[t]he failure to complete the transfer of Mennillo’s shares to Rosati resulted from an error or oversight on the part of Rosati’s lawyer”: para. 74. [ 68 ] Needless to say, there is no evidence in writing of such transfer between Mr. Mennillo and Mr. Rosati. But for the reasons I set out at length above, the trial judge made no palpable and overriding error when he rejected Mr.

Mennillo’s version of events and substantially accepted Intramodal’s. For this reason, I accept his finding that Mr. Mennillo refused to take on the role of Intramodal’s guarantor and transferred his shares to Mr. Rosati. The evidence on the transfer point is conflicting and inconsistent. The judge adopted a view of the evidence that was open to him given the extreme informality of the parties’ dealings and their virtually complete inattention to corporate formalities. As I read his reasons, there was an onerous contract between Mr. Mennillo and Mr.

Rosati for the transfer of the shares, a view supported by the evidence: Martin v. Dupont , 2016 QCCA 475 ; art. 1381 Civil Code of Québec (“ C.C.Q ”). [ 69 ] It is uncontested that Intramodal did not ascertain whether some of the corporate formalities of the CBCA were complied with by Mr. Mennillo and Mr. Rosati when it registered the transfer of shares, but that cannot in and of itself invalidate any transfer between them: Inspecteur général des institutions financières v.

Assurances funéraires Rousseau et frère Ltée , [1990] R.R.A. 473 (C.A.) ; Martel, at pp. 16-28 to 16-30. [ 70 ] On this point, s. 76 CBCA states: 76

(1) Where a security in registered form is presented for transfer, the issuer shall register the transfer if (

a) the security is endorsed by an appropriate person as defined in

section 65; (

b) reasonable assurance is given that that endorsement is genuine and effective; (

c) the issuer has no duty to inquire into adverse claims or has discharged any such duty; (

d) any applicable law relating to the collection of taxes has been complied with; (

e) the transfer is rightful or is to a bona fide purchaser ; and (

f) any fee referred to in subsection 49(2) has been paid.

(2) Where an issuer has a duty to register a transfer of a security, the issuer is liable to the person presenting it for registration for loss resulting from any unreasonable delay in registration or from failure or refusal to register the transfer. [ 71 ] In this case, the requirements of s. 76(1) (

a) CBCA are not fulfilled. It is common ground that the shares that were transferred were not endorsed by Mr. Mennillo. Therefore it is true that Intramodal proceeded to register a transfer that did not meet all of the criteria stated in the CBCA . But this is of no assistance to Mr. Mennillo under the circumstances. It is not as a result of an improper registration of this share transfer that Mr. Mennillo is no longer the holder of any shares in Intramodal. It is rather as a result of his transfer of these shares to Mr.

Rosati, as found by the trial judge. [ 72 ] In that regard, the endorsement of the shares was required to complete the transfer itself between Mr. Mennillo and Mr. Rosati. It was required for the shares to be delivered, which, in turn, was necessary to complete the share transfer: ss. 60(1) and 65(3) CBCA . Since this was an important formality required by law, it was to be observed on pain of nullity of the transfer: arts. 1414 and 1416 C.C.Q. ; Martel, at pp. 16-26 et seq. [ 73 ] With that being said, there is no doubt about the fact that Mr.

Mennillo knew that this formality was not complied with when the company proceeded to register the transfer in the corporate books, some time in 2007. There is also no doubt that he was

aware that he had not endorsed his share certificate when the shares were transferred to Mr. Rosati as the trial judge found. [ 74 ] While it might have been possible for Mr. Mennillo to attack the transfer on the basis of the non-compliance with this required formality of the CBCA , no such claim was or could have been advanced when he instituted his proceedings in September 2010. As he was aware of the situation of which he now complains more than three years prior, his claim in that regard was and is still prescribed: art. 2925 C.C.Q.

Even if the transfer was subject to nullity, it did not mean that it was inexistent. In Quebec civil law, the sanction of nullity needs to be pronounced by a tribunal: S. Gaudet, “Inexistence, nullité et annulabilité du contrat: essai de synthèse” (1995), 40 McGill L.J. 291, at pp. 331-35; J.-L. Baudoin and P.-G. Jobin, Les obligations (7th ed. 2013), by P.-G. Jobin and N. Vézina, at para. 386; D. Lluelles and B. Moore, Droit des obligations (2nd ed. 2012), at para. 1101. Only once nullity is judicially pronounced is a purported contract “deemed never to have existed”: art. 1422 C.C.Q.

Indeed, a “contract which does not meet the necessary conditions of its formation may be [as opposed to is] annulled”: art. 1416 C.C.Q. This judicial intervention must be sought within three years of becoming aware of the cause of nullity: arts. 2925 and 2927 C.C.Q.

(3) The Conditional Issuance of the Shares [ 75 ] In the Court of Appeal, the dissenting judge read the trial judge’s reasons as holding that the issuance of the shares to Mr. Mennillo had been conditional on his remaining a guarantor. The dissenting judge went on to say that this conditional status is not set out in the CBCA and in any event, even if it were, such status would also have needed to be specified in the books of the company.

The dissenting judge also expressed the view that this sort of conditional shareholder status could not depend on an informal agreement between two individuals. [ 76 ] I am in substantial agreement with the dissenting judge about the law on this point. Conditions attaching to the shares need to be specified in the articles of the corporation and in the securities register. Also, the resolution authorizing the issuance of the shares to Mr. Mennillo would have needed to specify their conditional status: ss. 24(4) , 49(13) and 50(1) (

c) CBCA . These formalities were not fulfilled. [ 77 ] But in my respectful view, the dissenting judge misread the trial judge’s reasons. None of the parties argued that they intended the shares to be issued conditionally and in my view the trial judge did not intend to and did not say that any condition was attached to the shares themselves. Rather, when we read his reasons in light of the evidence, we see that he was of the view that the condition to which the trial judge referred was a result of an agreement between Messrs.

Mennillo and Rosati that the former would be a shareholder only if he guaranteed Intramodal’s debts. This agreement was reached by Messrs. Mennillo and Rosati; Intramodal was not a party to this agreement. Accordingly, it does not attract the corporate formalities applicable to a conditional issuance of shares. Understood in this way, there is no legal error in the trial judge’s approach to this issue. C. Prescription and Remedy [ 78 ] The trial judge found that Mr. Mennillo’s oppression claim was prescribed.

He reasoned that the three-year period in art. 2925 C.C.Q. applied and that time began to run in May 2005 when, in his view, Mr. Mennillo knew that he would not be treated as a shareholder. The majority of the Court of Appeal did not deal with this issue. But the dissenting judge found that time had not started to run until December 2009 and in any event that the acts of oppression were continuing. Before this Court, Mr. Mennillo adopts, in a single paragraph of his factum, the reasoning of the dissenting judge on this point.

Intramodal adopts the position of the trial judge. [ 79 ] Given the limited judicial consideration of these points in the reasons of the Superior Court and the Court of Appeal, and the conclusion that Mr. Mennillo’s oppression claim is groundless on its merits, I prefer not to venture a final opinion on this precise point in the context of this appeal. [ 80 ] As a result of my proposed disposition of the appeal in relation to the dismissal of the oppression claim, it is not necessary for me to address what remedies would be appropriate in the event oppression had been established. IV.

Disposition [ 81 ] I would dismiss the appeal with costs and affirm the costs orders made by the Superior Court and the Court of Appeal. The reasons of McLachlin C.J. and Moldaver J. were delivered by [ 82 ] The Chief Justice — I would dismiss the appeal for the following reasons. [ 83 ] This is an action for oppression. Mr.

Mennillo complains that Intramodal inc. acted oppressively in removing him as shareholder from the books of the company. [ 84 ] To establish oppression, the shareholder must show: (1) a reasonable expectation that the corporation would treat him in a certain way; and (2) that the corporation breached that reasonable expectation ( BCE Inc. v. 1976 Debentureholders , 2008 SCC 69 , [2008] 3 S.C.R. 560, at para. 68 ). The action is an equitable action to protect reasonable and legitimate shareholder expectations — the “cornerstone of the oppression remedy” ( BCE , at para. 61).

Evidence of shareholder expectations is essential to whether conduct has been oppressive in a particular case ( BCE , at para. 59; P. Martel, Business Corporations in Canada: Legal and Practical Aspects (loose- leaf), at p. 31-67; D. H. Peterson and M. J. Cumming, Shareholder Remedies in Canada (2nd ed. (loose-leaf)), at §§ 17.41 to 17.43; D. S. Morritt, S. L. Bjorkquist and A. D. Coleman, The Oppression Remedy (loose-leaf), at p. 3-2). [ 85 ] I do not find it necessary to determine whether there was an effective transfer of Mr. Mennillo’s shares in Intramodal inc. to Mr. Rosati.

Suffice it to say that among other things, assessing the nature of the prestations that the parties decided to provide each other under an “onerous contract” — Mr. Rosati gets Mr. Mennillo’s shares in exchange of Intramodal inc. relieving Mr. Mennillo of his obligation to guarantee Intramodal inc.’s debts — is an issue that leaves me somewhat perplexed (a point made by Côté J. at para. 229 of her dissenting reasons).

[86] Be that as it may, in my view, this appeal can be disposed of on the basis that Mr. Mennillo has failed to show areasonable expectation that he would not be removed as a shareholder from Intramodal Inc.’s books. The trial judge found that Mr.Mennillo agreed that his shares should be transferred to Mr. Rosati: [translation] “Mennillo refused to participate in this venture [that is,to be an equity shareholder in Intramodal] and asked to be removed from the company as a shareholder and director as of May 25, 2005”(2012 QCCS 1640, at para. 74 ). [87] Having asked to be removed as a shareholder, Mr.

Mennillo had no reasonable expectation that he would remain onthe books as a shareholder. This is confirmed by the fact that subsequently Mr. Mennillo ceased to conduct himself as an equityshareholder and advanced money as loans. The trial judge’s finding of fact is supported by the evidence. [88] Mr. Mennillo has failed to establish a reasonable expectation that he would remain a shareholder in Intramodal inc. Itfollows that his action for oppression must fail. Consequently, the trial judge did not err in denying Mr. Mennillo’s claim. [89] I would dismiss the appeal.

English version of the reasons delivered by Côté J. (dissenting) — I. Introduction [90] It is sometimes essential to go back to the basics of the law to render the decision that is appropriate in thecircumstances.

It is just as essential to recall some of those basics. [91] Two key principles are deeply rooted in Canadian corporate law and cannot simply be disregarded or ignored: theprinciple that a corporation’s legal personality is distinct from that of its shareholder or shareholders, and the principle or rule of themaintenance of capital. [92] In my view, both the trial judge and the majority of the Court of Appeal completely disregarded these two principlesin their analysis. [93] With respect, the analysis that is required in the circumstances cannot disregard the interplay between Quebec civillaw and the

Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”), and must neither weaken the strict formal requirementsof corporate law — in this area, forma dat esse rei — nor confuse the business corporation with the partnership. Care must be taken notto assume that the registration of a transfer of shares means that there was a contract for the transfer of shares.

Like the trial judge’sassertion that shares can be issued conditionally without the corporation approving the issuance and that of the majority of the Court ofAppeal that a share issuance may be cancelled retroactively without any formalities, the solution proposed by the majority cannot, in myview, be reconciled with the basic principles of corporate law and the civil law. [94] I therefore cannot agree with the majority’s opinion. [95] The appellant, Johnny Mennillo, objects to a resolution passed by the respondent corporation, Intramodal Inc., and toits registration in its registers of a transfer of his shares to its majority shareholder, Mario Rosati.

Although Intramodal initially argued,with a supporting affidavit, that the appellant had never been one of its shareholders, it now acknowledges that he was indeed ashareholder, but it refuses, contrary to the law and to its own articles and by-laws, to recognize that he now has that status and is entitledto the advantages associated therewith. [96] It is also important to be clear that this is a proceeding brought by the appellant against Intramodal under s. 241CBCA.

Contrary to what my colleague seems to be suggesting, this is not a case in which one shareholder sues another over theownership of his or her shares in a company. Mr. Rosati is not a party to this litigation. [97] In his claim, the appellant asked that the resolution passed by the respondent company be revoked and that itsregisters be rectified. This means that, although he brought this claim under s. 241 CBCA, he could also have done so under s. 243 CBCA(rectification of registers) or s. 247 CBCA (failure by a corporation to comply with the legislation or with its articles or by-laws).

Theappellant submitted that Intramodal had breached its legal duties by passing the resolution in question and registering the transfer of hisshares although none of the formalities required by law had been observed. He argued that the respondent company’s conduct in refusingto recognize his status as a shareholder was oppressive and that a remedy was appropriate under s. 241 CBCA.

In addition to a declarationthat he had always remained a shareholder of the company, the appellant asked, as a consequence, that the resolution approving thetransfer of his shares be revoked and that the company’s registers be rectified accordingly. [98] The trial judge and the majority of the Court of Appeal found that the appellant’s claim was without merit on theground that he had, in their view, expressed an intention in May 2005 to withdraw from the respondent company both as a director andofficer and as a shareholder.

It was therefore open to Intramodal to register the transfer of the appellant’s shares to Mr. Rosati despite thefact that there had been no exchange of wills with regard to the terms of the appellant’s withdrawal and even though the principalformalities required by law for the transfer of shares had not been observed.

The dissenting judge found that his colleagues weredisregarding the formal requirements of corporate law. [99] According to the trial judge, the majority of the Court of Appeal and my colleagues, the fact that a shareholderexpresses an intention to withdraw from a business corporation bars the shareholder from bringing any oppression proceeding for theexpress purpose of seeking recognition of his or her status as a shareholder. My colleague Cromwell J. finds that, in the civil law ofQuebec, the expression of such an intention is equivalent to a transfer of shares.

In other words, it is sufficient to cause a person to losehis or her status as a shareholder. [100] With respect, I am of the view that the fact that one shareholder claims he and his fellow shareholder entered into an

agreement for the transfer of shares does not relieve the corporation of its legal duty to make the necessary inquiries before passing a resolution approving that transfer of shares and registering the transfer in its registers. It is clear from the evidence that Intramodal did not discharge any of its legal duties in this regard.

If the respondent company had made the proper inquiries, it would have discovered that the appellant’s share certificate (Intramodal share certificate No. 2) had not been endorsed, contrary to the requirements of the CBCA and to the transfer restrictions set out on the share certificate itself and in the company’s articles. It should then have refrained from registering the transfer in its registers.

As well, the impugned resolution should not have been passed. [ 101 ] In my opinion, Intramodal instead confused its interests with those of its majority shareholder, took a disturbingly lax approach in preparing its corporate documents and displayed wilful blindness as regards its legal duties. That confusion was particularly obvious — to say the least — in each of the courts below, and in this Court, where Intramodal vigorously defended the interests of its majority shareholder, who did not even see fit to intervene in the case but instead used Intramodal as his puppet.

Intramodal could of course have defended itself on the allegations made against it, but it chose instead to expend its energy on defending an alleged agreement to which it was not even a party without even bothering to determine its scope or verify that it was genuine. [ 102 ] By focusing solely on the scope of the alleged agreement between the appellant and Mr.

Rosati without considering the respondent company’s conduct, its failure to discharge its legal duties and the consequences of that failure, the trial judge and the majority of the Court of Appeal disregarded the company’s distinct legal personality as well as the basic requirements of corporate law. Rather than punishing the respondent company’s unlawful conduct, they chose to endorse its actions. [ 103 ] In addition, the trial judge made palpable and overriding errors and disregarded key evidence in arriving at the conclusion that Mr. Mennillo had transferred his shares to Mr.

Rosati in May 2005. [ 104 ] Finally, I find that the trial judge and the majority of the Court of Appeal also erred in concluding that the appellant’s claim was prescribed. In this Court, the parties agreed that the appellant was, at least at some point, a shareholder of Intramodal. By challenging the respondent company’s decision for unlawfully depriving him of his status, the appellant is exercising a remedy that, by its very nature, relates to his right of ownership in his shares. Neither the CBCA nor the Civil Code of Québec (“ C.C.Q. ”) provides that extinctive prescription applies in such a case.

As I will explain below, the ownership of shares, as opposed to the rights conferred by them, is not subject to extinctive prescription in Quebec. As a result, the three-year prescription period provided for in art. 2925 C.C.Q. cannot be set up against the appellant’s claim for oppression. [ 105 ] For these reasons, I am of the opinion that the appeal should be allowed. II. Facts [ 106 ] In 2004, the appellant and his long-time friend, Mr. Rosati — who worked for Canvec Logistics at the time — discussed the possibility of forming a road transportation company.

They agreed that the appellant would provide the start-up financing and that Mr. Rosati would contribute his skills and contacts. [ 107 ] In April 2004, the name “Intramodal” was reserved with Quebec’s Enterprise Registrar (“REQ”). The respondent company was incorporated on July 13, 2004. Its certificate of incorporation and its registers confirm that Mr. Rosati and Mr. Mennillo were appointed directors and officers and that Mr. Rosati held 51 and Mr. Mennillo 49 (share certificates No. 1 and

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