2018 QCCA 833, 2018 QCCA 833

Losito c. Lauzon 2018 QCCA 833 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-027506-187 (500-11-053337-172) DATE: MAY 18, 2018 BEFORE THE HONOURABLE MARK SCHRAGER, J.A. FRANK LOSITO APPLICANT – Plaintiff v. SEBASTIEN LAUZON PASCAL TRUDENT RESPONDENTS – Defendants and 7077378 CANADA INC. MISE EN CAUSE – mise en cause JUDGMENT [ 1 ] The Applicant, Frank Losito, seeks leave to appeal the judgment rendered on May 9, 2018 by the Superior Court, District of Montreal (the Honourable Gary D.D.

Morrison), which dismissed the Applicant’s Application to Dismiss the Grounds for Defence filed by Respondents and granted in part Applicant’s Demand for Safeguard Orders. [ 2 ] I am also seized with an application for a safeguard order, which in the event leave is granted, seeks in essence the safeguard orders which the judge refused to issue. [ 3 ] The parties, shareholders of the mise en cause, are involved in disputes arising from the exercise of the buyout provisions in their shareholders' agreement as the judge notes in paragraph 42, each party contests the other’s offer to purchase shares alleging non conformity with the shareholders agreement.

In October 2017, Applicant instituted oppression proceedings under s. 241 and fol. of the

Canada Business Corporations Act [1] and obtained on an ex parte basis various safeguard orders for a limited time period, but which were continued until the hearing before Morrison, J.C.S. [ 4 ] Applicant does not seek leave regarding the portions of Morrison, J.C.S.,’s judgment dismissing Applicant’s Application to Dismiss the Grounds of Defence filed by Respondents, although in argument counsel suggested otherwise. This part of the judgment clearly does not qualify for leave under

article 31 C.C.P. [ 5 ] Morrison, J.C.S., granted various orders to safeguard Applicant’s rights as a shareholder of mise en cause (e.g. – communication of various reports relating to the business and financial status of mise en cause, prohibition on the disposition of shares and encumbrance of assets). Leave is, however, sought regarding safeguard orders that Morrison, J.C.S., did not grant. These relate to Applicant’s status as an employee of mise en cause.

It appears that concurrent with the eruption of the shareholder issues, Applicant was also dismissed as an employee or at least “deemed to have resigned” by the other parties. This apparently came about at a directors’ meeting, in Applicant’s absence, despite the quorum requirements in the shareholders’ agreement.

Here is what the judge wrote in such regard: [58] Losito seeks an order to prevent Defendants from terminating his employment and not to remove or otherwise modify his “ existing salary and/or benefits ”, which includes a life insurance policy, medical insurance, credit cards as well as email address and cell phone number. [59] The Court cannot actually order Defendants “not” to do such things, as it understands that they have already been done. Losito’s employment has been terminated, which is why he seeks to be reinstated.

Losito argues that Defendants’ decision to terminate his position as shareholder and administrator, as well as his employment and the benefits associated therewith, was unlawful and that they should have proceeded by way of an action in forced execution before the court instead of unilaterally deciding and passing a resolution thereby ending his involvement with the Company as a shareholder, officer and employee. [60] Moreover, at this preliminary stage, the Court is not aware of an employment contract or of any guarantees or conditions relating to his employment. [61] That being said, there are two issues to consider.

One is reinstatement, the other relates to the payment of Losito’s salary and benefits.

[ 6 ] Upon review of affidavits subscribed by the Defendants and various employees of the mise en cause, the judge decided that an order of reinstatement would be inappropriate because: [65] … the Court would not exercise its discretionary power in a way that could create serious difficulties amongst the disputing owners and the employees, thereby risking the financial situation of the Company. [ 7 ] The judge continues as follows: [67] As for the salary and benefits order he seeks, however, that is another matter.

It should be noted that although he currently receives financial accommodation, it is not actually the Company which is paying his salary.

To date, there has only been an agreement with corresponding Orders, allowing him to be paid amounts equivalent to salary but which are paid from the purchase price Lauzon alleges he owes Losito for the purchase of his shares. [68] What he now seeks is that the Company actually pay his salary and benefits. [69] The Court recognizes that case law exists whereby an Order to pay salary and benefits may be considered appropriate so as to maintain an equilibrium between the parties, as long as an applicant satisfies the criteria applicable to safeguard orders, being the appearance of right, the balance of convenience and irreparable harm. [70] In the present matter, the Court considers that Losito’s right to receive employment income is doubtful for a variety of reasons, including the absence of any employment contract at this stage, Losito’s uncertain rights in the context of the shotgun provisions as they played out, and also the criticism and observations contained in the various employee affidavits. [71] What the proof at this stage demonstrates, as preliminary as it may be, is that Losito may not really have an important daily function at the Company, regardless of whatever title he may have.

Further, there may be an issue with his work ethic and quality. As a result, in the event that Lauzon’s offer to purchase and Losito’s shotgun reply were not to be valid, one cannot conclude that Losito has a clear appearance of right to his employment and the related salary.

Hence the Court’s view that the best that one can say at this stage is that his right to employment revenue is doubtful. [72] Accordingly, the Court must also consider the criteria of balance of inconvenience and irreparable harm and urgency. [73] In this regard, the Court is of the view that Losito has failed to establish at this stage either irreparable harm or urgency. It is insufficient to simply say that Losito has no revenue from employment.

The irreparable harm and urgency criteria are insufficiently supported by details and explanations, and it is not for the Court to essentially assume that the criteria are met. [ 8 ] Accordingly, the requested safeguard orders were not continued or issued by Justice Morrison. [ 9 ] Leave under art. 31 C.C.P. can only be granted where the interlocutory judgment determines part of the dispute or results in a prejudice not susceptible of remedy by the final judgment.

As well, the interests of justice are a factor to consider in whether or not to grant leave (art. 9 and 18 C.C.P. ). [ 10 ] Moreover, leave to appeal judgments refusing the issuance of safeguard orders are to be regarded with particular caution: [1] ... La Cour est fort réservée en matière de permission d'appeler du jugement qui accorde ou, comme en l'espèce, refuse une ordonnance de sauvegarde, remède dont le caractère est essentiellement discrétionnaire.

La permission n'est donc accordée que dans des cas exceptionnels, si l'intérêt de la justice le commande… [2] An apparent weakness in the judgment of the lower court refusing the issuance of a safeguard order should be demonstrated in order for leave to appeal to be granted. [3] The Court of Appeal should not intervene to substitute its discretion for that of the judge in first instance but rather to correct an unreasonable, abusive or non-judicious exercise of that discretion. [4] [ 11 ] The maintenance of salary and benefits for a former employee (even if he is also a shareholder) by way of safeguard order is in itself exceptional.

Here, the shareholder agreement contains no express guarantee of employment. The right is thus highly doubtful if not inexistent. [ 12 ] Applicant alleges financial and medical need for the orders but without any hard evidence in such regard. Moreover and not without sympathy for any health problems, there is no evidence before me of what coverage is extended by the health benefits of the mise en cause as compared to the universal health insurance extended by the Province of Quebec. In any event, the Respondents offered to maintain Applicant in the company’s health benefit plan if he would pay the premiums.

This negates Applicant’s claim of irreparable prejudice particularly given his assertion during a deposition that his wife has money to finance the litigation. [ 13 ] The judge in first instance examined the appearance of right, irreparable harm and balance of inconvenience.

Without necessarily approving all his reasons, the exercise by the trial judge of his discretion not to grant the safeguard orders, the doubtful right, the absence of any established prejudice that could not ultimately be remedied on the merits, and the deference due the first instance judge, militate against the granting of leave under art. 31 C.C.P. I also underline that the judge had the benefit of a detailed submission on the dispute as a whole since he was also seized with the issue of the dismissal of the defence put forward by Respondents. [ 14 ] This case cries out for resolution on the merits.

The delay inherent in an appeal would be an impediment to this. As such, the interest of the administration of justice also dictates that leave not be granted. [ 15 ] Accordingly, in view of all the foregoing, the Application for Leave to Appeal will be dismissed. [ 16 ] Given this conclusion, the Application for a Safeguard Order need not be addressed other than to dismiss it.

FOR ALL OF THE FOREGOING REASONS, THE UNDERSIGNED: [ 17 ] DISMISSES the Application for Leave to Appeal from a Judgment rendered in the course of a proceeding, with legal costs; [ 18 ] DISMISSES the Application for Safeguard Order, without legal costs. MARK SCHRAGER, J.A. Mtre Michael Hollander OIKNINE & ASSOCIÉS For Applicant Mtre Catherine Cloutier Mtre Claudia Giroux-Gamache CLOUTIER CABANES For Respondents Date of hearing: May 18, 2018