2014 QCCA 1136, 2014 QCCA 1136

Trackcom Systems International Inc. c. Trackcom Systems Inc. 2014 QCCA 1136 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-023937-139 (500-11-043229-125) DATE: JUNE 2, 2014 CORAM: THE HONOURABLE CLÉMENT GASCON, J.A. DOMINIQUE BÉLANGER, J.A. MARTIN VAUCLAIR, J.A. TRACKCOM SYSTEMS INTERNATIONAL INC. KAVVERI TECHNOLOGIES INC. WILLIAM RONALD MCBRIDE CHENNA UMA REDDY ARUN NAGESH AVANDHANI APPELLANTS - Defendants v. TRACKCOM SYSTEMS INC.

PHILIP MAMBO BARBARA DZIUBA RESPONDENTS - Plaintiffs JUDGMENT [ 1 ] THE COURT: On the appeal from the judgment of the Superior Court, District of Montreal (the Honourable Mr. Justice Martin Castonguay), rendered on September 23, 2013, that maintained in part the motion of the respondents for the issuance of interim orders in the context of the oppression remedy they instituted against the appellants pursuant to

section 241 of the

Canada Business Corporations Act ; [ 2 ] For the reasons of Gascon, J.A., with which Bélanger and Vauclair, JJ.A. agree: [ 3 ] ALLOWS the appeal in part; [ 4 ] REVERSES the judgment a quo to the extent of replacing paragraphs [156] to [161] thereof by the following paragraphs : [156] APPOINTS Caroline Phisel, C.A., of the firm Ernst & Young, to prepare the audited financial statements of Trackcom Systems International Inc. for each of the financial years ending on March 31, 2010, 2011, 2012 and 2013, in accordance with

section 155 of the

Canada Business Corporations Act and sections 70 to 72 of the

Canada Business Corporations Regulations (2001) ; [157] ORDERS the defendants to provide Caroline Phisel with free and unfettered access to the premises and books and records of Trackcom Systems International Inc. for the purposes of the preparation of these audited financial statements; [158] ORDERS that these audited financial statements be completed and filed in the Superior Court record, with a copy to each of the defendants and the plaintiffs, within a maximum delay of six months from the date of this judgment; [159] ORDERS that the costs of preparation of these audited financial statements be borne by the defendants solidarily, in accordance with the budget, retainer, terms of invoicing and maximum amount agreed upon by the parties, and if not, fixed by a judge of the Superior Court following a motion of one of the parties in that regard; [160] ORDERS the defendants, at their cost, to provide the plaintiffs, within a maximum delay of sixty days from the date of this judgment, with any and all of the supporting documentation, of any nature whatsoever, including, without limiting the foregoing, any and all supporting documents with regard to any and all of the entries appearing in the ledger filed in the Superior Court record as Exhibit D- 9, pertaining to:

a) any management or administration fees charged to Trackcom Systems International Inc. by any entity, including Kavveri Technologies Inc. or any of its affiliates, during each of the financial years ending on March 31, 2010, 2011, 2012 and 2013;

b) any transfer of funds or assets of any nature whatsoever between Trackcom Systems International Inc. and Kavveri Technologies Inc. and any of its affiliates, and in particular Til-Tek Canada and DCI Digital Communications Canada, during each of the financial years

ending on March 31, 2010, 2011, 2012 and 2013. [161] DISMISSES the claim for interim costs; [ 5 ] WITHOUT COSTS . CLÉMENT GASCON, J.A. DOMINIQUE BÉLANGER, J.A. MARTIN VAUCLAIR, J.A. Mtre Pierre Y. Lefebvre Mtre Vincent Cérat Lagana FASKEN MARTINEAU DuMOULIN For the Appellants Mtre Ari Yan Sorek Mtre Barbara Anna Karczewska DENTONS CANADA LLP For the Respondents Date of hearing: March 21, 2014 REASONS OF GASCON, J.A. [ 6 ] Interim, provisional or safeguard orders are seldom reviewed by the Court. This is so because of their very nature and the exercise of the trial judge’s judicial discretion they normally entail.

There are, however, exceptions. This is one such case. [ 7 ] Following leave granted by Hilton J.A. on November 11, 2013, [1] the Court is asked to review interim orders issued on September 23, 2013, by the Superior Court, Commercial Division, District of Montreal (the Honourable Mr. Justice Martin Castonguay). The orders were issued in the context of an oppression remedy instituted by the respondents pursuant to

section 241 of the Canada Business Corporations Act . [2] In the end, two aspects of the orders granted are under scrutiny in this appeal. One concerns the investigation ordered by the judge pursuant to sections 229 and 230 CBCA. The other relates to the interim costs that the appellants were ordered, solidarily, to pay to the respondents. [ 8 ] For the reasons that follow, even though I do not impugn the judge’s application of the criteria for the issuance of interim orders under

section 241 CBCA , I consider that, as a result of errors of law that he committed, the investigation he ordered requires significant adjustments. Similarly, I am of the view that he made decisive errors in his assessment of the interim costs of $125,000 that he ordered the appellants to pay to the respondents. Had he correctly applied the relevant criteria in that regard, he would not have ordered the appellants to pay such interim costs.

THE CONTEXT [ 9 ] The judgment under appeal [3] was rendered in the context of an oppression remedy involving the shareholders and directors of appellant Trackcom Systems International Inc. (TSI). TSI is a Montreal-based corporation set up under the CBCA in 1999. It designs and produces components for telecommunication systems.

It was founded by respondent Philip Mambo and partially bought in 2009 by the other appellant, Kavveri Technologies Inc. (Kavveri), the Ontario-based and fully owned subsidiary of Kavveri Telecom Products Ltd. (Kavveri-India), an Indian public corporation. [ 10 ] The three individual appellants are directors of TSI. William Ronald McBride was the executive vice-president as well as a director of Kavveri. He was involved in the acquisition of TSI from start to finish. He was TSI’s secretary. Chenna Uma Reddy was the president of Kavveri-India and listed as president of TSI.

Arun Nagesh Avandhani was a vice-president of Kavveri-India. [ 11 ] Mr. Mambo is an engineer specialized in telecommunications. He founded the corporate respondent Trackcom Systems Inc. (Trackcom) in 1993. Trackcom, a Montreal-based corporation also set up under the CBCA, is Mr. Mambo’s alter ego and must not be confused with TSI . Trackcom was TSI’s sole shareholder until Kavveri got involved in 2009. [ 12 ] The other respondent, Barbara Dziuba, is Mr. Mambo’s wife. She started working for TSI in 2004 and was responsible for tasks of general administration and bookkeeping.

She remained employed until December 2009 when TSI ceased to pay her salary. She

afterwards kept coming regularly to TSI’s place of business without salary to help her husband. She was eventually reinstated as of April 2011 until she would, once again, stop receiving any salary as of May 2012. [ 13 ] On May 14, 2009, Kavveri and Trackcom entered into a Share Purchase Agreement (SPA), pursuant to which Kavveri acquired 67% of Trackcom’s shares in TSI and promised to buy out the remainder (i.e. 33% of the shares) gradually at each of the five (later extended to seven) subsequent anniversaries of the signature of an unanimous shareholder agreement (USA).

The USA was executed on June 12, 2009, at the same time as formal employment agreements were entered into between TSI and the two individual respondents. [ 14 ] For the proper understanding of this appeal, it suffices to say that the relationship between Kavveri and the individual appellants, on the one hand, and the respondents, on the other hand, rapidly turned sour after the execution of the SPA and the USA. [ 15 ] For instance, pursuant to the SPA, the price to be paid at closing, or as soon as all conditions precedent of the SPA were fulfilled, was to be in the form of (

i) an immediate payment of $196,000 to Trackcom and (ii) a deposit of $25,000 in a holdback account. There was also an adjustment clause designed to raise or lower the purchase price in the event that the net equity or the inventory did not mirror the representations made. The holdback account was designed to serve the purpose of securing money for potential adjustments to this price. [ 16 ] Despite this, Trackcom never received the full purchase price minus the holdback (i.e. $196,000). It rather received a cheque of $149,447.99.

According to the SPA, Kavveri was also supposed to provide a closing balance sheet no later than 90 days after closing, that is, at the latest, in August or September 2009. Still, it appears that the balance sheet was only produced on September 26, 2012, after the appellants had received a formal claim and were served with respondents’ current proceedings. [ 17 ] Besides these issues dealing with the execution of the SPA, serious operational breaches and problems appeared in the course of 2010. In July 2010, Mr. McBride announced the transfer of TSI’s management to Kemptville, Ontario.

As a result, some of the problems encountered by the TSI’s facility in Montreal included the fact that many suppliers stopped deliveries, as they were not being paid anymore. It also appears that TSI was charged some $426,782 for operational expenses over the years, which consisted among others of $350,148 in “management fees”. [ 18 ] The relationship between the appellants and the respondents worsened during the summer 2012, at which time particularly revealing e-mail exchanges took place. Mr. Mambo blamed Mr. Reddy for choosing to produce an order made to TSI in India instead of Montreal.

The latter replied by accusing Mr. Mambo of not investing in the company. [ 19 ] At that time, Mr. Mambo complained further that the appellants were not only disrespecting the SPA and failing to produce the closing balance sheet necessary to release the holdback monies, but also of leaving TSI with absolutely no profit margin, thereby affecting the value of Trackcom’s shares. The appellants responded by offering, to no avail, that Mr. Mambo repurchase the shares sold to Kavveri in 2009, [ 20 ] Mr. Mambo received his last pay cheque on May 26, 2012, even though he was never officially dismissed.

Yet, in a supposedly retroactive dismissal letter, dated and sent on December 6, 2012, Mr. McBride claimed, among other things, to terminate his employment contract and purportedly to accept his resignation as a member of TSI’s board. [ 21 ] The respondents filed their motion to institute proceedings on September 5, 2012. It was subsequently amended on three occasions, June 7, June 17 and September 16, 2013. Although the appeal only relates to the interim orders issued by the judge, the broader picture the proceedings reveal cannot be ignored.

In their last amended motion, the respondents sought a myriad of remedies, which, besides the interim orders dealt with by the judge, can be summarized as follows: - a claim for different heads of pecuniary damages to be paid by the appellants solidarily to Trackcom, Mr. Mambo and Mrs. Dziuba ($285,582.93, subject to adjustment); - a claim for moral damages for stress, trouble, inconveniences and loss of opportunities to be paid by the appellants solidarily to Mr. Mambo ($350,000, subject to adjustment) and Mrs.

Dziuba ($75,000, subject to adjustment); - a claim for extrajudicial fees ($20,000, subject to adjustment) to be paid by the appellants solidarily to the respondents; - an order forcing Kavveri to buy the remainder of Trackcom’s shares in TSI. [ 22 ] Save for the amounts Mr. Mambo and Mrs.

Dziuba claimed as a result of their termination with TSI and for their moral damages, all the amounts the respondents seek relate to the purchase price of the initial 67 shares sold to Kaverri and the payment of the remaining 33 shares still held by Trackcom in TSI. [ 23 ] The hearing on the interim measures took place on June 17, 18 and 19, and on July 3 and 10, 2013. The file is apparently far from being ready to be set for trial on the merits of the oppression remedy.

THE TRIAL JUDGMENT [ 24 ] The trial judge granted some (but not all) [4] of the interim orders sought by the respondents, and further ordered provisional execution notwithstanding appeal. More particularly, he issued orders:

a) for the release of the holdback of $25,000 still held in escrow;

b) for an investigation into the affairs of TSI since 2009, including all powers to prepare audited financial statements for that period, to establish the legitimacy of money or assets transfers TSI made to its affiliates and to assess the relevance of the management fees charged to TSI, with the costs of this investigation to be borne by Kavveri;

c) for the payment to the respondents by all the appellants solidarily of interim costs of $125,000. [ 25 ] For a better understanding, it is appropriate to reproduce the precise wording of his conclusions at length : [155] ORDONNE à Lavery, de Billy, LLP, de remettre à Trackcom Systems inc. la somme de 25 000 $ détenue sous écrou en vertu de l’article 3.4 du contrat de vente d’actions intervenu le 14 mai 2009, et ce, dans les cinq jours du présent jugement; [156] ORDONNE la tenue d’une enquête des affaires de Trackcom Systems International inc. par Caroline Phisel, comptable agréée, le cadre de cette enquête étant le suivant : - Vérification des informations financières de Trackcom Systems International inc. depuis 2009 jusqu’à ce jour et préparation d’états financiers vérifiés pour cette même période en tenant compte des éléments suivants : • Mouvements de fonds entre Trackcom Systems International inc. et Kavveri Technologies inc. ou toutes autres compagnies liées à cette dernière tel qu’il appert de la pièce P-19; • Appropriation d’éléments d’actifs de Trackcom Systems International inc. par Kavveri Technologies inc. ou toutes autres compagnies liées à cette dernière tel qu’il appert de la pièce P-19; • Vérification de la pertinence des frais d’administration imposés par Kavveri Technologies inc. à Trackcom Systems International inc. ou par toutes autres compagnies liées à Kavveri Technologies inc. tel qu’il appert de la pièce P19. [157] Pour que cette enquête soit menée à bien le Tribunal ORDONNE qu’il soit donné libre accès à Caroline Phisel aux locaux et livres comptables de Trackcom Systems International inc., Kavveri Technologies inc. ou, toutes autres compagnies liées à celle-ci tel qu’il appert de la pièce P-19, de même que de transmettre et fournir à Caroline Phisel tout document, qui lui serait nécessaire pour mener à bien l’enquête ordonnée par le Tribunal; [158] ORDONNE à Caroline Phisel de faire rapport de son enquête au Tribunal dans les six mois du présent jugement; [159] ORDONNE que les coûts de cette enquête soient défrayés par Kavveri Technologies inc.; [160] ORDONNE à Kavveri Technologies inc., William Ronald McBride, Chenna Uma Reddi, et Arun Nagesh Avandhani, solidairement de payer à Trackcom Systems inc., Philip Mambo et Barbara Dziuba une provision pour frais de 125 000 $ et ce dans les trente jours du présent jugement; [161] LE TOUT exécutoire nonobstant appel; [ 26 ] The judge begun by addressing the criteria applicable to safeguard and interim orders.

He concluded that they were those of an interlocutory injunction. He opined that there was an appearance of right given the omission by TSI to provide audited financial statements and the excessive management fees charged to TSI (paras. [80]-[82]). The urgency criterion was deemed met, given that the situation effectively deteriorated in 2012 and not before as the appellants suggested (paras. [91] and [92]). He considered that irreparable harm could be caused to the respondents since the appellants were not concerned by TSI’s well-being anymore, as shown by Mr.

Mambo’s de facto dismissal and the appellants’ failure to pay the yearly minimal fees to keep the corporation running (paras. [93]-[95]). Finally, he skipped the balance of convenience analysis given what he perceived to be the astonishing appearance of right (para. [97]). [ 27 ] As to the existence of acts of oppression, the judge assessed them to be “ nombreux et sans équivoque ” (para. [101]). To state but a few that he retained, it was put forward that the appellants (

i) required an investment from Mr. Mambo a couple of months after their acquisition, even if they had previously received all information on the corporation, (ii) breached the SPA by refusing to produce the closing balance sheet, (iii) ceased to operate TSI without Mr. Mambo’s consent, thereby breaching the USA, (iv) imposed outrageous management fees, (

v) failed to prepare audited financial statements for TSI, and (vi) did not hold the shareholders’ and directors’ meetings as required by law (para. [103]). [ 28 ] He then analyzed the remedies that he eventually granted. [ 29 ] First, the judge decided that the amount held in escrow ($25,000) was part of the purchase price and was to be paid upon the production of the closing balance sheet. Since the appellants only produced this balance sheet after it became clear that there was to be litigation, the judge characterized their conduct as “ indéfendable ” (para. [115]).

He ordered the immediate payment of that sum. [ 30 ] Second, as to the requested investigation, he concluded that one was warranted because the appellants’ behaviour was properly characterized as oppressive under paragraph 229(2)(

b) CBCA . He held that the appropriation of assets by Til-Tek, an affiliate of TSI, as well as the high management fees charged to TSI, were sufficient for Trackcom and Mr. Mambo to invoke that

section and justify the investigation (para. [125]). He ordered the majority shareholder, Kavveri, to pay for its cost. [ 31 ] Third, as to the interim costs of $250,000 the respondents claimed, the judge reckoned that the three-step test developed in B.C. v. Okanagan Indian Band [5] was satisfied. He justified this conclusion by affirming that the respondents had a good chance of success, that the ends of justice required rebalancing the strength of the opposing parties and that the circumstances were exceptional (paras. [135], [136] and 142). The minority shareholder Trackcom being fully owned by Mr.

Mambo, it was his personal situation and that of his wife that needed to be scrutinized (para. [138]). He granted half of the sum sought, i.e. $125 000, on the basis that Mr. Mambo had no revenue since May 2012 and his alleged loss was close to that amount. [ 32 ] As to whether the interim costs should be ordered against all appellants although they were not, save for TSI, “the corporation or its subsidiary” as stated in subsection 242(4) CBCA , the judge relied on two Superior Court judgments [6] to justify a departure from the statutory strictness and granted the costs against all of them solidarily.

[ 33 ] The interim orders were made executory notwithstanding appeal, since the judge opined that he was “ en présence de faits qui militent en faveur que cette demande soit accordée ”. Furthermore, he held that the proceedings would have been taken in vain if the orders were not rendered executory immediately (paras. [151]-[153]). In granting leave to appeal, [7] however, Hilton J.A. ordered that provisional execution be suspended. [ 34 ] Only the orders pertaining to the investigation and the interim costs are at issue in appeal.

The appellants have voluntarily complied with the order for the release of the $25,000 holdback. ANALYSIS 1.

The criteria for the Court’s intervention [ 35 ] It is well-established that the oppression remedy is an equitable remedy where the trial judge enjoys vast judicial discretion . [8] The opening words of subsection 241(3) CBCA dealing with the powers of the court in that regard are quite explicit as to the extent of this wide judicial discretion: “… the court may make any interim or final order it thinks fit, including …”. [ 36 ] As a result, appellate courts owe a high degree of deference to judgments rendered on oppression remedies.

They should interfere sparingly with the exercise of that discretion, that is, merely in circumstances where it is established that it was exercised in an abusive, unreasonable or non judicial manner. [9] The Court should avoid substituting its opinion for that of the trial judge. It should intervene only when faced with errors of law or decisions rendered on the basis of erroneous principles or irrelevant considerations, or where the judgment is so clearly wrong as to amount to an injustice. On questions of fact, the standard of review of palpable and overriding error must be strictly applied. [10] 2.

The applicable test for the issuance of interim orders in oppression remedies [ 37 ] Here, the trial judge was right in stating that the interim orders sought under

section 241 CBCA were subject to the criteria applicable to the issuance of provisional interlocutory injunctions or safeguard orders. The Court so stated in 176283 Canada inc. c. St- Germain . [11] The criteria include a prima facie right, urgency, an irreparable harm and a balance of convenience that favours the party seeking the remedy. [ 38 ] The appellants recognize that the judge considered the correct criteria, but maintain that he erred on their application to the facts at hand.

I disagree. [ 39 ] On the prima facie right criterion, the judge identified several acts of oppression supported by the evidence presented at the interim stage.

They included the failure of TSI to provide financial statements, the failure to convene shareholders’ and directors’ meetings, the disregard of some provisions of the USA, the existence of some questionable transfers of funds and assets between TSI and its affiliates, and the excessive management fees Kavvery charged to TSI. [ 40 ] With respect to all these findings of facts, the appellants do not really argue that the judge made any palpable and overriding error. They rather suggest that Trackcom and Mr.

Mambo essentially agreed to most of these situations and that TSI has never prepared audited financial statements during its whole history.

In my view, this is quite insufficient to refute the trial judge’s findings on this first criterion. [ 41 ] It is recognized that one of the most pernicious forms of oppression is the denial of financial information to stakeholders. [12] Martel, a well-recognized author in corporate law in this province, writes that a shareholder is entitled to audited financial statements even if the corporation never issued any. [13] The refusal of a corporation to deliver audited financial statements has been considered as a conduct that may amount to oppression. [14] Subsection 155(1) CBCA indeed requires the directors of a corporation to provide the shareholders with “comparative financial statements as prescribed”.

Sections 70 to 72 of the

Canada Business Corporations Regulations (2001) indicate that these financial statements shall be prepared in accordance with Canadian GAAP and the auditors’ report, in accordance with Canadian GAAS. [ 42 ] Similarly, Martel emphasizes that the following acts may amount to oppression given the circumstances: the failure to convene shareholders’ and directors’ meetings, [15] the alleged wrongful appropriation of assets or funds to the benefit of a majority shareholder [16] and the payment to a majority shareholder of excessive or potentially unjustified management fees. [17] [ 43 ] On the urgency criterion, the appellants have not established any error of the trial judge on the exercise of his discretion given the nature of the interim orders sought.

It seems rather obvious that if the investigation sought and the interim costs claimed had to be granted, they were required at an interim stage, and certainly not at the stage of the hearing on the merits.

As for the irreparable harm criterion, it is sufficient to note as well that no final award on the merits could remedy the failure to issue the kind of interim orders sought with regard to the investigation and the interim costs. [ 44 ] On the balance of convenience criterion, the appellants have failed to establish any basis upon which the Court should intervene, particularly given the strength of the prima facie right the judge relied upon with regard to the alleged acts of oppression he identified. [ 45 ] In fact, the gist of the appellants’ arguments in appeal is not that the criteria for the issuance of interim orders were not satisfied under the circumstances.

Their focus is rather on the nature of the remedies granted by the judge with respect to which they contend that decisive errors were made, be it on the investigation ordered or the interim costs granted. 3. The investigation order

[ 46 ] On the investigation order, the appellants maintain that the judge erred in law by failing to consider whether it was appropriate to order such, in particular from the standpoints of its usefulness and costs/benefits ratio. They add that the mandate given in that regard was not properly circumscribed, such that its potential cost could end up being disproportionate with the true value of the current litigation.

Moreover, in their view, there were other means available to achieve the same results at a much lower cost. [ 47 ] I agree with their submissions in that respect. [ 48 ] The objectives the judge pursued in ordering the investigation were legitimate under the circumstances. Yet, I respectfully consider that he nevertheless erred in law by not considering a key step in his assessment of the investigation the respondents sought. Had he done so, he would have realized that other less drastic and more reasonable means were available to achieve similar results.

While I agree that orders should be issued with respect to the preparation of the audited financial statements of TSI and the respondents’ access to information pertaining to the management fees charged to TSI and the transfer of assets or funds between TSI and its affiliates, the investigation order should be set aside. It should be replaced by orders that fall short of an investigation under

part XIX of the CBCA, while still properly addressing the issues validly raised. [ 49 ] To order an investigation into the affairs of TSI, the judge relied on paragraph 241(3)(

m) CBCA : 241. (…)

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing, (…) (

m) an order directing an investigation under

Part XIX to be made; 241. […]

(3) Le tribunal peut, en donnant suite aux demandes visées au présent article, rendre les ordonnances provisoires ou définitives qu’il estime pertinentes pour, notamment : […]

m) prescrire la tenue d’une enquête conformément à la

partie XIX; [ 50 ] The relevant provisions of the CBCA dealing with an investigation under

part XIX are sections 229 and 230. They state in part: 229.

(1) A security holder or the Director may apply, ex parte or on such notice as the court may require, to a court having jurisdiction in the place where the corporation has its registered office for an order directing an investigation to be made of the corporation and any of its affiliated corporations.

(2) If, on an application under subsection (1), it appears to the court that (

a) the business of the corporation or any of its affiliates is or has been carried on with intent to defraud any person, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted, or the powers of the directors are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of a security holder, (

c) the corporation or any of its affiliates was formed for a fraudulent or unlawful purpose or is to be dissolved for a fraudulent or unlawful purpose, or (

d) persons concerned with the formation, business or affairs of the corporation or any of its affiliates have in connection therewith acted fraudulently or dishonestly, the court may order an investigation to be made of the corporation and any of its affiliated corporations. (…) 229.

(1) Tout détenteur de valeurs mobilières ou le directeur peut demander au tribunal du ressort du siège social de la société, ex parte ou après avoir donné l’avis que celui-ci peut exiger, d’ordonner la tenue d’une enquête sur la société et sur toute société du même groupe.

(2) Le tribunal peut ordonner la tenue de l’enquête demandée conformément au paragraphe (1), s’il lui paraît établi, selon le cas :

a) que la société ou des sociétés de son groupe exercent ou ont exercé leurs activités commerciales avec une intention de fraude;

b) que la société ou toute autre société de son groupe, soit par la façon dont elle conduit ou a conduit ses activités commerciales ou ses affaires internes, soit par la façon dont ses administra​teurs exercent ou ont exercé leurs pouvoirs, abuse des droits des déten​teurs de valeurs mobilières ou se montre injuste à leur égard en leur portant préjudice ou en ne tenant pas compte de leurs intérêts;

c) que la constitution ou la dissolution soit de la société soit des sociétés de son groupe répond à un but frauduleux ou illégal;

d) que des personnes ont commis des actes frauduleux ou malhonnêtes en participant à la constitution soit de la société soit de sociétés du même groupe, ou dans la conduite de leurs activités commerciales ou de leurs affaires internes. […]

(1) In connection with an investigation under this Part, the court may make any order it thinks fit including, without limiting the generality of the foregoing, (

a) an order to investigate; (

b) an order appointing an inspector, who may be the Director, fixing the remuneration of an inspector, and replacing an inspector; (

c) an order determining the notice to be given to any interested person, or dispensing with notice to any person; (

d) an order authorizing an inspector to enter any premises in which the court is satisfied there might be relevant information, and to examine any thing and make copies of any document or record found on the premises; (

e) an order requiring any person to produce documents or records to the inspector; (

f) an order authorizing an inspector to conduct a hearing, administer oaths, and examine any person on oath, and prescribing rules for the conduct of the hearing; (

g) an order requiring any person to attend a hearing conducted by an inspector and to give evidence on oath; (

h) an order giving directions to an inspector or any interested person on any matter arising in the investigation; (

i) an order requiring an inspector to make an interim or final report to the court; (

j) an order determining whether a report of an inspector should be published and, if so, ordering the Director to publish the report in whole or in part or to send copies to any person the court designates; (

k) an order requiring an inspector to discontinue an investigation; and (

l) an order requiring the corporation to pay the costs of the investigation. 230.

(1) Dans le cadre de l’enquête prévue à la présente partie, le tribunal peut rendre toute ordonnance qu’il estime pertinente en vue, notamment:

a) de procéder à l’enquête;

b) de nommer un inspecteur, qui peut être le directeur, de fixer sa rémunération et de le remplacer;

c) de décider s’il y a lieu de donner avis aux intéressés ou à toute autre personne;

d) d’autoriser l’inspecteur à visiter les lieux où, selon le tribunal, il peut puiser des renseignements pertinents, ainsi qu’à examiner toute chose et prendre copie de tout document ou livre qu’il y trouve;

e) de requérir la production à l’inspecteur de documents ou de livres;

f) d’autoriser l’inspecteur à tenir une audition, à faire prêter serment et à interroger sous serment, ainsi que de préciser les règles régissant l’audition;

g) de citer toute personne à l’audition tenue par l’inspecteur, pour y déposer sous serment;

h) de donner des instructions à l’inspecteur ou à tout intéressé sur toute question relevant de l’enquête;

i) de demander à l’inspecteur de faire au tribunal un rapport provisoire ou définitif;

j) de statuer sur l’opportunité de la publication du rapport de l’inspecteur et, dans l’affirmative, de demander au directeur de le publier intégralement ou en

partie ou d’en envoyer copie à toute personne désignée par le tribunal;

k) d’arrêter l’enquête;

l) d’enjoindre à la société de payer les frais de l’enquête. [ 51 ] Martel characterizes the investigation ordered pursuant to these provisions as a drastic and exceptional remedy. [18] There are indeed few judgments rendered throughout the years that have ordered investigations under these sections. There are many reasons for that. These investigations may easily prove to be very costly if not properly circumscribed from the outset. It goes without saying that they should not amount to an authorisation to carry out fishing expeditions.

In that regard, the case law has indicated that these investigations exist to enquire into facts, not to assess rights. They should not be ordered to assist parties to prepare for litigation.

In fact, once the report of an inspector appointed to carry out an investigation pursuant to these sections is filed, its content may still be contradicted in subsequent litigation and the facts that form the basis of the report must still be validly proven if litigation develops afterwards. [19] [ 52 ] The Court has apparently never rendered judgment on the criteria applicable for the issuance of an investigation order under sections 229 and 230 CBCA . The decisions of the Quebec Superior Court or the common law provinces on the subject are also limited.

In my view, it is fair to say that, before ordering such an investigation, the judge must apply a three-prong test. [20] [ 53 ] First, the judge must be satisfied that the application is made by a security holder or the Director. [ 54 ] Second, the judge must be satisfied that one of the situation listed in subsection 229(2) has been established prima facie (in particular, the carrying on of the business of the corporation fraudulently or dishonestly, or with the intent to defraud, or for a fraudulent or unlawful purpose, or in a manner that is oppressive or unfairly prejudicial, or that unfairly disregards the interest of a security holder). [ 55 ] Third, the judge must consider the appropriateness of the investigation, bearing in mind its usefulness and reasonableness under

the circumstances, with due consideration to its expected costs and benefits. [ 56 ] With respect to this third step, in Amyot v. Jones , [21] St-Pierre J. (as she then was) explained its purpose in the following terms: [67] Finalement, dans l'hypothèse où le détenteur se décharge de ce fardeau, le tribunal passe à la troisième étape, soit celle du contrôle d'opportunité tenant compte des faits de l'espèce.

Alors, il se demande si l'enquête souhaitée revêt ou non une utilité et constitue un moyen d'action raisonnable, dont le rapport coûts-bénéfices semble adéquat, tenant compte de ce qui doit être recherché ou enquêté et des coûts y associés. [References omitted .] [ 57 ] In Godon v. Cie de taxi Laurentides inc ., [22] then sitting as a trial judge, I wrote the following on the required control of the appropriateness of such investigation: [70] Si le requérant établit prima facie l'existence d'un de ces motifs, l'ordonnance d'enquête n'est pas pour autant automatique.

La loi précise que le tribunal « peut ordonner la tenue de l'enquête demandée » . Il y a donc un contrôle d'opportunité qui doit être fait par le tribunal, lequel dispose à cet égard d'une discrétion qu'il doit bien sûr exercer judiciairement. [71] De l'avis du Tribunal, en exerçant ce contrôle d'opportunité, il appartient entre autres au juge de déterminer si, dans les faits particuliers de l'espèce, l'enquête demandée revêt ou non une utilité quelconque.

Cette utilité sera notamment déterminée en fonction du but recherché par l'enquête et des faits qui sous-tendent la demande. [72] Ainsi, plus la demande d'enquête sera imprécise et ambiguë, moins son utilité sera apparente. De même, plus les faits qui la sous-tendent seront connus et bien cernés, moins l'utilité de l'enquête sera encore une fois justifiée. Comme le souligne la doctrine et la jurisprudence, le recours a pour but d'enquêter sur des faits, non de déterminer des droits.

Bref, il est inutile de rechercher ce qui est déjà trouvé; ce n'est pas l'objectif visé. [73] Par ailleurs, selon le Tribunal, ce contrôle d'opportunité se doit aussi de considérer l'étendue des frais qui devront être encourus pour la tenue de l'enquête envisagée. Il se doit d'y avoir un rapport coûts-bénéfices suffisamment concluant.

Ici encore, plus les coûts rattachés à l'enquête projetée surpasseront les bénéfices qui pourraient en être tirés, moins l'utilité de l'exercice recherché sera justifiée. [74] La tenue de l'enquête qu'envisage l'article 229 LSA n'est généralement pas un exercice simple et peu coûteux. Au contraire, il peut facilement devenir complexe, fastidieux et onéreux. Personne ne s'étonnera du fait que la jurisprudence relève peu de cas où de telles enquêtes sont ordonnées.

Là où elles le sont, il s'agit de situations où l'objectif visé est précis et encadré, tout en s'adressant à des compagnies dont les actifs et le bilan en justifient la tenue. [References omitted.] [ 58 ] This approach of insuring the appropriate character of the remedy before granting it is shared by the judgments of the common law provinces that have considered these provisions or similar provisions in their provincial business corporations acts. For instance, in Western Canadian Oil Management Services Inc. v.

Arlyn Enterprises Ltd ., [23] Bensler J. underlined that “the mere finding of oppressive or unfairly prejudicial behaviour does not necessitate the appointment of an inspector”. As the act uses the term “may”, it denotes a measure of discretion. A judge must therefore assess whether or not an order for an investigation is an appropriate remedy.

Amongst the criteria to consider are the existence or not of better or equally good other remedies by which the same goals can be accomplished and whether other less expensive and as effective means exist to achieve a similar result. [24] [ 59 ] In the judgment under appeal, the first step was not at issue as the respondent Trackcom was a security holder.

The judge was also satisfied that the second step was met in view of his conclusions on the prima facie evidence of the acts of oppression that have been previously enumerated and with respect to which the appellants do not identify any palpable and overriding error. The reasons of the judge on the investigation he ordered are clear in that regard. After a reference to

section 229 CBCA , he wrote: [124] La preuve démontre l’imposition démesurée de frais à TSI par l’actionnaire Kavveri. Qui plus est, certains biens de TSI ont été appropriés par une ou des sociétés faisant

partie du groupe de Kavveri soit Til-Tek Canada et DCI Digital Communications Canada, en plus de paiements qui auraient été faits par TSI à celles-ci. [125] Ces deux seuls éléments rencontrent les motifs prévus à l’article 229(2)b). [126] Ainsi, le Tribunal ordonnera une enquête pour traiter des transactions menées par Kavveri pour le compte de TSI notamment quant aux frais d’administration imposés, de même que pour traiter des appropriations soit de biens soit de fonds qui auraient pu être faites par deux compagnies affiliées à Kavveri soit Til-Tek Canada ainsi que DCI Digital Communications Canada. [127] Cette enquête devra être menée par un comptable agréé et visera également la préparation d’états financiers vérifiés pour les années 2009, 2010, 2011 et 2012. [128] En effet, une des firmes de comptable agréé indienne retenue par Kavveri précise à son rapport en 2012 s’être fiée sur des états financiers préparés par les administrateurs de Kavveri en ces termes : « These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audit. » [129] De plus, les états financiers 2010 et 2011 ont été préparés par des firmes de comptables indiennes différentes et comportent des erreurs. Ainsi, pour l’année 2010 la firme M. Venkatachalam and Associates précisait à ses notes à propos de TSI : « The Company is a 100 % subsidiary of Kavveri Telecom Product Limited. »

Ce qui n’est pas le cas en l’instance. [130] Dans les circonstances, la préparation d’états financiers vérifiés s’impose. [131] L’enquête sera menée par un comptable agréé de la firme Ernst and Young proposé par Mambo, aux frais de Kavveri à laquelle s’ajoutera la préparation d’états financiers vérifiés de TSI depuis 2009 jusqu’à ce jour. [ References omitted.] [ 60 ] As can be seen from these reasons, the judge did not, however, consider the third step previously identified.

He did not look at the issue of the usefulness, reasonableness or costs/benefits ratio of the investigation, nor did he consider whether other less costly and as efficient means were available to achieve the same results. I consider this to have been incorrect.

When the issuance of a given order requires the judge to consider three steps and he disregards one, he commits an error of law. [25] Here, the consequences were no doubt important. [ 61 ] In the investigation order, Ernst & Young (Caroline Phisel) was called upon to conduct a wide investigation of the affairs of TSI since 2009 without a budget or even an estimate. The only information available in a letter filed in the record was that professionals at this firm worked at hourly rates ranging from $200 to $500.

While there was no budget or estimate provided, the majority shareholder Kavveri was still ordered to pay for the costs of the investigation, whatever the amount.

The respondents were, in essence, ordered to issue a blank cheque to that end. [ 62 ] In an era where all participants in the judicial system should be concerned with the control of the costs of litigation, access to justice and principles of proportionality, it is not acceptable in my view for a judge to so order an investigation at the cost of the opposing party with no idea as to its real or expected exposure. [ 63 ] Before granting it, the judge should have insisted upon an evaluation of the cost of the investigation and the order should have included precisions on the financial parameters of the mandate.

While he properly identified the inspector appointed once satisfied with her credentials, he should have also required, at the very least, a budget, with clear indications as to the precise hourly rates, the timing of any invoicing, the necessity or not for advances, and a maximum amount after which a return to the authorizing judge for further approval would be required.

There is simply no evidence in the record in this respect. [ 64 ] As well, while the investigation order circumscribed, to some extent, the mandate and rightly fixed a deadline for the filing of a report, clearer modalities with respect to access to documents should have been set forth considering the peculiar context in which some of the affiliates’ operations were being conducted in Ontario and even abroad. [26] These modalities are unfortunately absent in the order as issued and would have triggered large and unrestricted expenses. [ 65 ] Besides this, and perhaps more importantly, had the judge considered the other means available to achieve the investigation’s objectives, it would have been obvious that there were simpler and less expensive remedies, equally good if not better, by which the respondents could attain the same goals and obtain the same information. [ 66 ] With respect to the financial statements of TSI, paragraph 241(3)(

i) CBCA specifically provides for the power of the court to order a corporation to produce the financial statements required by

section 155. Simply put, there was no need to order an investigation under

part XIX for that purpose. A separate order for their preparation would have sufficed. [ 67 ] As stated before, the respondents have a clear entitlement to these audited financial statements pursuant to sections 155 CBCA and 70 to 72 of the relevant regulations. The mere fact that TSI had not prepared audited financial statements in the past is not a valid reason to deny this request.

The audited financial statements TSI provided so far, allegedly in accordance with the accounting rules of India, are useless and contrary to what the CBCA requires. [ 68 ] The preparation of these financial statements should be limited to the March 31, 2010, 2011, 2012 and 2013 year-ends. For the March 31, 2009 year-end, Trackcom was still the sole shareholder of TSI and Kavveri was not yet involved.

The order in that regard should include, of course, proper wording for the access to the relevant documentation by the appointed auditor, as well as a mechanism for the control of the costs by the Superior Court in terms of budget, advances, invoicing and limits. [ 69 ] Pursuant to

section 155 CBCA , the preparation of the financial statements is the responsibility of TSI and its directors. It is certainly not for the minority shareholder to bear their cost. [27] In my view, the appellants should be solidarily responsible for that expense under the circumstances.

There are precedents supporting the issuance of orders for the cost of preparation of financial statements against a corporation and its directors, [28] as well as orders for the cost of an investigation such as the one contemplated here against parties other than the corporation, including its directors. [29] [ 70 ] The judge ordered that the investigation that included the preparation of these financial statements be made at Kavveri’s expense.

Considering the prima facie evidence retained by the judge on the alleged acts of oppression pertaining to the transfer of funds and assets and the excessive management fees, I would not interfere with the exercise of his discretion in that regard, but I would add the corporation and its directors as well as parties responsible for such.

As previously stated, a mechanism for the control of these costs must be included in any order to be issued. [ 71 ] Turning to the order for an investigation on the transfer of funds, the wrongful appropriation of assets and the relevance of the management fees identified by the trial judge, I also agree with the appellants that, in the context of an ongoing litigation as in this case, there were more efficient and less costly remedies available to achieve the same result through a normal discovery process. [ 72 ] What is required here in terms of inquiry into the affairs of TSI is precisely identified at paras. [126] and [156] of the trial judgment.

The goal is to obtain the documentation pertaining to

a) the management fees charged to TSI over the years and

b) the details of the transfers of assets or funds between TSI and Kavveri or affiliates of Kavveri such as Til-Tek Canada and DCI Digital Communications Canada.

[ 73 ] Pursuant to the vast powers of the court under subsection 241(3) CBCA , the judge could have immediately ordered the appellants, at their cost, to provide the respondents all the documentation required in this respect, with the possibility, if need be, for the latter to complete the documentation received through depositions.

The appellants are correct in stating that courts have recognized that when information is otherwise available through the normal litigation process, to order an investigation under sections 229 and 230 to attain the same objective is not the appropriate remedy. [30] [ 74 ] That said, the respondents are right in pointing that the mere filing of the ledger of transfers offered by the appellants as Exhibit D-9 is insufficient to that end. They are entitled to and should receive all the documentation of any nature whatsoever in the hands of the appellants supporting any and all of the entries identified therein.

Again, issuing an order with a proper wording in that regard would have been a better tailored remedy to achieve the objectives sought than the investigation the judge ordered. [ 75 ] I would therefore propose to set aside the investigation order at paras. [156] to [159] of the trial judgment and replace their content by orders along the following lines: APPOINTS Caroline Phisel, C.A., of the firm Ernst & Young, to prepare the audited financial statements of Trackcom Systems International Inc. for each of the financial years ending on March 31, 2010, 2011, 2012 and 2013, in accordance with

section 155 CBCA and sections 70 to 72 of the

Canada Business Corporation Regulations (2001) ; ORDERS the appellants to provide Caroline Phisel with free and unfettered access to the premises and books and records of Trackcom Systems International Inc. for the purposes of the preparation of these audited financial statements; ORDERS that these audited financial statements be completed and filed in the Superior Court record, with a copy to each of the appellants and the respondents, within a maximum delay of six months from the date of this judgment; ORDERS that the costs of preparation of these audited financial statements be borne by the appellants solidarily, in accordance with the budget, retainer, terms of invoicing and maximum amount agreed upon by the parties, and if not, fixed by a judge of the Superior Court following a motion of one of the parties in that regard; ORDERS the appellants, at their cost, to provide the respondents, within a maximum delay of sixty days from the date of this judgment, with any and all of the supporting documentation, of any nature whatsoever, including, without limiting the foregoing, any and all supporting documents with regard to any and all of the entries appearing in the ledger filed in the Superior Court record as Exhibit D-9, pertaining to:

a) any management or administration fees charged to Trackcom Systems International Inc. by any entity, including Kavveri Technologies Inc. or any of its affiliates, during each of the financial years ending on March 31, 2010, 2011, 2012 and 2013;

b) any transfer of funds or assets of any nature whatsoever between Trackcom Systems International Inc. and Kavveri Technologies Inc. and any of its affiliates, and in particular Til-Tek Canada and DCI Digital Communications Canada, during each of the financial years ending on March 31, 2010, 2011, 2012 and 2013. 4. The interim costs order [ 76 ] Turning to the order for the payment of interim costs, the appellants contend that the judge made two decisive errors.

First, they maintain that he incorrectly ordered all of them (including the majority shareholder and the individual directors) to pay these interim costs solidarily with TSI, the corporation under the CBCA . Second, they claim that he failed to properly apply the “but for” test, in that the respondents did not establish that they were impecunious.

According to this test, the applicants must prove that their financial circumstances were such that, without an interim costs award, they would not be in a position to pursue their claim. [31] [ 77 ] I accept that, normally, an interim costs award is discretionary in nature and, thus, requires a substantial degree of deference. Yet, I again agree with the appellants. In my view, the judge could not have ordered the payment of the interim costs claimed pursuant to subsection 242(4) CBCA against the majority shareholder and the directors.

This subsection specifically indicates that interim costs can only be ordered against a corporation (TSI) or its subsidiary. Kavveri is not a subsidiary of TSI pursuant to the relevant

definitions of the CBCA . [ 78 ] In addition, even if an interim costs order may have been issued against the majority shareholder or the individual directors pursuant to the principles developed in Okanagan and the general powers of the Superior Court to issue orders in relation to costs, [32] the conditions to do so were not satisfied in any event.

Pursuant to the criteria applicable under subsection 242(4) CBCA , or the principles set forth by the Supreme Court in Okanagan [33] or by this Court in Hétu , [34] before awarding interim costs, the judge had to be satisfied that the respondents were impecunious based on the evidence before him. This was, however, not established here. Save for the general and unsupported statements that the respondents had limited means, the court record was surprisingly silent and deficient in that regard. [ 79 ] The respondents’ claim for interim costs stood at no less than $250,000.

They argued that this was required for them to be able to bring their case to trial on the merits. The judge rightly qualified the request as “délirant”. Nevertheless, he ended up granting them half of this amount, namely $125,000. To do so, he relied on both subsection 242(4) CBCA and the principles established by the Supreme Court in Okanagan . He explained his reasoning as follows: [133] Le pouvoir d’imposer le versement d’une provision pour frais est tiré de l’article 242(4) de la Loi ainsi libellé : «

(4) En donnant suite aux demandes, actions ou interventions visées à la présente partie, le tribunal peut ordonner à la société ou à sa filiale de verser aux plaignants des frais provisoires, y compris les honoraires légaux et les déboursés, dont ils pourront être comptables lors de l’adjudication définitive. » [134] La Cour suprême dans l’ arrêt B.C . c. Okanagan Indian Band a posé les balises devant guider le Tribunal dans l’exercice de cette

discrétion judiciaire. En voici un court extrait : « Mais normalement, lorsque le Tribunal exerce sa compétence en équité pour ordonner de telles provisions pour frais parce qu’il conclut qu’il y va de l’intérêt de la justice, il doit ressortir que les trois conditions sont réunies : le manque de ressources nécessaire, une cause qui vaut d’être instruite et des circonstances spéciales. » [135] Il apparaît des faits de la présente affaire que ces trois conditions sont réunies.

En effet, Mambo et TS en raison même des gestes posés par Kavveri sont sans ressource dans une cause qui non seulement mérite d’être instruite, mais qui a de sérieuses chances de succès. [136] Enfin, la prise de contrôle de facto de TSI par Kavveri, laquelle constituait le seul gagne-pain de Mambo et Dziuba, pour la réduire à néant en quelques années, constitue des circonstances exceptionnelles nécessitant l’intervention du Tribunal. [137] Mambo et TSI peinent à rencontrer les frais engagés pour faire valoir leurs droits.

De plus, la situation de confusion comptable créée par Kavveri commande une enquête approfondie impliquant tant Kavveri que certaines de ses filiales. [138] S’il est vrai que TS a reçu pour ses actions de TSI quelques 171 000 $ en mai 2009, il n’en demeure pas moins que TS est l’alter ego de Mambo, c’est donc sa situation personnelle ainsi que celle de Dziuba que le Tribunal doit considérer. [139] Rappelons que Dziuba a perdu son emploi chez TSI à compter de décembre 2009.

Quant à Mambo, il voit son salaire de 95 000 $ réduit de 20 % pendant six mois. [140] À compter de mai 2012, Mambo n’a plus de revenus, sa perte depuis cette date, jusqu’en date des présentes représente quelques 125 000 $. [141] Par ailleurs, Kavveri est une filiale à part entière d’une compagnie publique en Inde. [142] Les fins de la justice militent en faveur d’un rééquilibrage des forces, en présence et en conséquence le Tribunal fera droit à la demande de provisions pour frais de TS, Mambo et Dziuba. [143] Dans les circonstances une provision pour frais de 125 000 $ est raisonnable. [ References omitted.] [ 80 ] He then ordered all the appellants, and not only TSI, to pay these interim costs solidarily to the respondents on the basis of the following explanations: [144] TSI et Mambo désirent que semblable ordonnance vise également les autres administrateurs, McBride, Reddy et Avandhani alors que l’article 242(4) ne vise que la société ou ses filiales.

Qu’en est-il? [145] La déconfiture de TSI est due en grande

partie aux décisions unilatérales de McBride, Reddy et Avandhani. Ignorer cette réalité et imposer une provision pour frais uniquement à la «Société ou à sa filiale» alors que celle-ci est à toutes fins pratiques insolvable, serait un non sens. [146] Nos tribunaux ont déjà reconnu et sanctionné semblable situation. [ 81 ] I respectfully disagree with the trial judge’s conclusion that it is possible under subsection 242(4) CBCA to order the payment of such interim costs against a majority shareholder and the individual directors of a corporation. The wording of that subsection is clear.

Parliament has enacted a provision for interim costs that includes legal fees and disbursements stating that it could be obtained from either the corporation or its subsidiary. Neither the shareholders nor the directors are listed in that provision. The two Superior Court judgments on which the judge relied, Mondor [35] and Ain & Zakuta , [36] were not interim orders for costs, but rather judgments on the adjudication of costs on the merits of oppression remedies. [ 82 ] To justify the judge’s ruling, the respondents have pointed to one reported judgment rendered in Boreta v.

Jafar . [37] In that case, the Alberta Court of Appeal ruled that the statutory authority to authorize costs payable only by the corporation or its subsidiary did not preclude the case management judge from granting an order against third parties under the general jurisdiction to award costs as he sees fit. That decision was rendered in the context of the Alberta Business Corporations Act which contains provisions similar to sections 241 and 242 CBCA . [ 83 ] The Ontario Superior Court of Justice, Divisional Court, reached a different conclusion in Stefaniak et al v.

Murphy et al , [38] in dealing with the corresponding provisions of the Ontario Business Corporations Act. It indicated that a plain reading of the

section of the Act similar to subsection 242(4) CBCA specifically excluded an order against an individual. The court expressed the view that this

section narrowed the broad remedies available on an interim or final basis under the equivalent of subsection 241(3) CBCA . It ruled that the court lacked jurisdiction to make an interim costs award against an individual pursuant to the equivalent of subsection 242(4) CBCA . [ 84 ] There are apparently no other reported decisions on this specific issue. [ 85 ] I prefer the reasoning of the Divisional Court of the Ontario Superior Court of Justice on this issue, and I would adopt it.

The general wording of subsection 241(3) CBCA on the powers of the court in oppression remedies cannot allow what is otherwise precluded under the specific wording of subsection 242(4) on interim costs. Martel appears to share this view. [39] As he correctly states, in my opinion, there is a difference between the provisions of the CBCA dealing with an interim costs award and those pertaining to the granting of costs on the merits.

This explains why in Mondor [40] and Ain & Zakuta, [41] the court did indeed rely on subsection 241(3) CBCA to justify awarding final costs against parties other than the corporation or its subsidiary. I find that it is in fact logical for interim costs to be subject to more stringent rules than the granting of costs on the merits, as the determination of the former is made on the basis

of a far less complete record than that of the latter. [ 86 ] That said, this does not entail that an interim costs award in oppression remedies cannot be issued against a majority shareholder or individual directors under the principles developed in Okanagan and the general powers of the Superior Court to issue orders in relation to costs, provided, of course, that the conditions precedent to do so are met. In this case, the appellants claim that one of these conditions is not satisfied: the respondents have not established that they were impecunious.

I agree. [ 87 ] As shown by the foregoing extracts of the judgment, there is not much, if anything, in terms of evidence to establish that the respondents were impecunious or facing financial difficulties. In addition, the judge’s rationale for granting $125,000 appears to be related to the expected value of part of Mr. Mambo’s claim on the merits. He seems to suggest that Mr. Mambo’s likely salary loss since termination is about $125,000. There is, however, no evaluation of that claim or of the potential liability of parties such as a shareholder or the directors in that regard.

Here, the judge clearly did not rely upon paragraph 241(3)(

j) CBCA to make an interim order for the payment of compensation to the respondents. [ 88 ] In Gestion Pirel ltée v. Chouinard , [42] relying on an Ontario Court of Justice decision rendered in 1990 in Wilson v. Conley , [43] the Court expressed the view that for interim costs to be ordered pursuant to subsection 242(4) CBCA , the applicant had to establish that 1) he was in financial difficulty, 2) the financial difficulty arose out of the alleged oppressive action, and 3) he had a strong prima facie case. In Hétu [44] and in Engel General Developers Ltd. v.

Loyaltec inc. , [45] these criteria were cited with approval. [46] [ 89 ] In Okanagan , a judgment rendered well after the enactment of subsection 242(4) CBCA , the Supreme Court listed as follows the criteria that must be present to justify an award of interim cost in public interest litigation: 40 With these considerations in mind, I would identify the criteria that must be present to justify an award of interim costs in this kind of case as follows: 1.

The party seeking interim costs genuinely cannot afford to pay for the litigation, and no other realistic option exists for bringing the issues to trial — in short, the litigation would be unable to proceed if the order were not made. 2. The claim to be adjudicated is prima facie meritorious; that is, the claim is at least of sufficient merit that it is contrary to the interests of justice for the opportunity to pursue the case to be forfeited just because the litigant lacks financial means. 3.

The issues raised transcend the individual interests of the particular litigant, are of public importance, and have not been resolved in previous cases. [ 90 ] It is worth noting that, at para. 36 of that judgment, LeBel J. had summarized in the following terms the conditions identified by the case law as generally relevant to the exercise of the power to order interim costs: 36 There are several conditions that the case law identifies as relevant to the exercise of this power, all of which must be present for an interim costs order to be granted.

The party seeking the order must be impecunious to the extent that, without such an order, that party would be deprived of the opportunity to proceed with the case. The claimant must establish a prima facie case of sufficient merit to warrant pursuit. And there must be special circumstances sufficient to satisfy the court that the case is within the narrow class of cases where this extraordinary exercise of its powers is appropriate.

These requirements might be modified if the legislature were to set out the conditions on which interim costs are to be granted, or where courts develop criteria applicable to a particular situation where interim costs are authorized by statute (as is the case in relation to s. 249(4) of the Ontario Business Corporations Act ; see Organ , supra , at p. 213).

But in the usual case, where the court exercises its equitable jurisdiction to make such costs orders as it concludes are in the interests of justice, the three criteria of impecuniosity, a meritorious case and special circumstances must be established on the evidence before the court. [ 91 ] As appears from these judgments, whether under subsection 242(4) CBCA or the general powers of a superior court as recognized by the case law in particular in Okanagan and Hétu , a condition precedent to the awarding of interim costs was the necessity for the respondents to prove their financial difficulties and their state of impecuniosity.

Even if that burden rested upon them as the parties seeking the interim costs, the evidence they offered in this respect was fragmentary at best. [ 92 ] While it is true that both individual respondents had lost their employment with TSI and did not receive any salary as of the middle of 2012, the court record did not contain any information in terms of documentary evidence with respect to their assets and liabilities or their balance sheets, let alone those of Trackcom.

If someone asserts that he or she is impecunious or in financial difficulty, that party must, in my view, adduce convincing evidence of their financial circumstances so that a court can determine that person’s income, expenses, assets and liabilities. Mere general and unsupported assertions are insufficient in that regard. [47] [ 93 ] In the case of the respondents, the evidence offered was surprisingly silent on this key issue.

Not only that, but the record indicated, on the one hand, that Trackcom had received close to $150,000 for the buyout of 67 of its shares in TSI in July 2009, and, on the other hand, that Mr. Mambo’s house in Dorval had a value, according to Mrs. Dziuba, of some $425,000, with a line of credit of $160 000 secured by hypothec on that property. [ 94 ] This was in my view quite far from establishing that the parties seeking the interim costs order were in financial difficulty or impecunious to the point of being unable to fund their lawsuit with their current means.

Granting interim costs to a party remains an exception to the general rule that costs are normally awarded after a complete hearing on the merits. The conditions required to grant them must be satisfied. The judge did not and could not substantiate the basis upon which he concluded that the respondents had met their burden of satisfying this key condition. [ 95 ] That is not all. Not only was the lack of means of the respondents unsupported by sufficient evidence, but there was also an incomplete demonstration of their needs in terms of the interim costs that they were seeking.

The respondents requested some $250,000, and were granted interim costs of $125,000, with no detailed budget or estimate of the expert and legal fees and disbursements that allegedly needed to be incurred for the prosecution of their lawsuit. This is not acceptable.

[ 96 ] In fact, the limited verbal evidence offered in testimony by Mr. Mambo indicated that the legal fees and disbursements he had paid to that point were less than $15,000. The respondents’ attorneys were authorized to complete this evidence following the hearing in appeal. They filed statements that confirmed that the fees and disbursements invoiced as of June 18, 2013 stood at $15,110, with unbilled fees and disbursements of an additional $7,968 and work in progress of about $20,000 after that date.

These figures fall way short of justifying any amount close to what was claimed or ordered in Superior Court. [ 97 ] I add that in looking at an assessment of interim costs such as the ones requested by the respondents, consideration must be given to the nature of the amounts claimed on the merits, the reasonable expectations of the requesting party in that regard and the reasonable amount of costs that could eventually be granted on the merits.

When one considers that about half of the monetary claims of the respondents relates to moral damages, and that a substantial portion of the balance concerns compensation for their termination, their entitlement to the payment of legal fees and disbursements of the magnitude sought appears to be far from obvious at this stage. [ 98 ] In that regard, I find unconvincing the judge’s reasoning in assessing the amount of interim costs in relation to part of the expected loss of Mr. Mambo as a result of his termination.

As already emphasized, while it is true that the judge could have ordered some interim compensation to the respondents pursuant to paragraph 241(3)(

j) CBCA , this is not the provision that he relied upon to issue his order. The granting of interim costs on the basis of the likelihood of success of a given claim is tantamount to ordering provisional execution of the judgment to be rendered on the merits without a complete assessment of the whole evidence.

In a situation like this one, it is even more questionable, as the parties condemned to pay the costs fixed on that basis included a shareholder and three directors who are normally not liable for termination payments to employees. [ 99 ] I therefore conclude that the judge committed a reviewable error in granting interim costs to the respondents without the condition of their difficult financial circumstances or state of impecuniosity being established.

In any event, even if the fragmentary evidence offered in that regard would have been considered sufficient, which I do not, the amount of interim costs could have hardly exceeded $25,000. As this corresponds to the sum that was received by the respondents following the order of the judge to immediately release the amount held in escrow and that is not at issue in appeal, I conclude that nothing would justify an additional amount of interim costs at this stage.

This conclusion is reinforced by the fact that, as previously explained, any costs in relation to the preparation of TSI’s audited financial statements and the financial information that must be provided will be borne by the appellants. [ 100 ] The respondents’ argument with regard to the need for a proper equilibrium between the means of opposing parties and for access to justice is serious and I do not discard it lightly. [48] While this is indeed an important question, it still remains that a request for interim costs is not automatic and cannot be granted for whatever amount.

As it is an exception to the general rule, it needs to be justified based on convincing evidence offered on the lack of resources of the requesting party. It also needs to be reasonable considering the issues involved and the principles of proportionality. The paying party’s capacity to pay might sometimes require consideration as well. [49] Neither one of these requirements were satisfied here based on the record as it stands. In such a situation, the request must be denied. [ 101 ] To sum up, considering:

a) the insufficient evidence that the respondents were in financial difficulty or impecunious;

b) the amount of $25,000 ordered to be remitted immediately to them that is not challenged in appeal; and

c) the fact that the audited financial statements and the financial documentation to be remitted will be prepared and provided to them at the appellants’ cost, I would propose to set aside the order for the payment of interim costs of $125,000. [ 102 ] As success in the appeal has been divided, I would allow the appeal in part without costs, and modify the conclusions of the judgment under appeal accordingly, with costs to follow in the Superior Court. CLÉMENT GASCON, J.A.