DIAMOND DOG MANAGEMENT INC., W.B. WILDEMAN HOLD INGS LTD., v. BARMAX ENTERPRISES LTD., 2003 SKQB 145

2003 SKQB 145 Q.B.G. A.D. 200 3 No. 512 J.C. S. IN THE QUEEN’S BENCH JUDICIAL CENTRE OF SASKATOON IN THE MATTER OF AN APPLICATION PURSUANT TO S. 240 OF THE BUSINESS CORPORATIONS ACT BETWEEN: DIAMOND DOG MANAGEMENT INC., W.B. WILDEMAN HOLD INGS LTD., and BARMAX ENTERPRISES LTD. APPLICANTS - and - D.M. BIEHN HOLDINGS LTD, DOUGLAS BIEHN, JADES SECURITIES INC. and JADES CONSULTING SERVICES INC. RESPONDENTS J.A. Hesje for the applicants R.W. Danyliuk for the respondents JUDGMENT KOCH J.

March 26, 2003 [ 1 ] The respondent, Jades Consulting Services Inc. (“JCSI”), is a retail seller of life insurance, mutual funds and related financial products. It carries on business with the public in its own name and also in the name of a wholly owned subsidiary, Jades

Securities Inc. (“JSI”). [ 2 ] The majority shareholder of JCSI is the respondent, D.M. Biehn Holdings Ltd. (“DMBHL”). It owns 610.5 out of a total of 1110 Class A shares of JCSI. DMBHL is owned by the respondent, Douglas Biehn, and by Shirley Biehn.

The balance of the Class A shares of JCSI are owned by the three applicant corporations, each of which is a personal holding company of an individual formerly employed by JCSI or JSI. [ 3 ] There is a subsisting unanimous shareholder agreement of the shareholders of JCSI pursuant to which unanimous shareholder approval is required to transfer voting shares or to issue any new voting shares. Voting shares may only be transferred to parties willing to subscribe to the unanimous shareholder agreement.

The provisions of the unanimous shareholder agreement are not determinative of this application. [ 4 ] As the result of a disagreement with the majority shareholder the three principal owners of the respective applicant corporations, after several years’ employment with JCSI and JSI, quit their employment in April 2001. Thereafter these individuals tried to sell or to have redeemed the shares of JCSI owned by their respective corporations.

So far they have been unable to work out a satisfactory arrangement. [ 5 ] There is separate litigation underway with respect to alleged violation of non-competition covenants and alleged breach of fiduciary obligations. There is a counterclaim alleging minority shareholder oppression. [ 6 ] In February 2003, Douglas Biehn made an offer to the former employees to sell them or their companies the “book” of business of JCSI and JSI. The book consists of the client information and records and may constitute all or almost all of the value of the assets of JCSI.

In the context of apparent inability to come to a deal, JCSI and JSI, through the solicitors for the respective parties, advised the minority shareholders that JCSI and JSI were “seriously contemplating selling the book of the companies to a third party”. Under date February 24, 2003, solicitors for the applicants wrote to the solicitors for the respondents pointing out that any sale of the book of business would have to be approved by a special resolution of the shareholders and comply with the requirements of s. 183 of The Business Corporations Act , R.S.S. 1978, c.

B-10 , as amended, the implication being that the sale of substantially all of the property of the corporation other than in the ordinary course of business would require the approval of the holders of at least two-thirds of the voting shares, being more than DMBHL owned. [ 7 ] The respondents’ solicitors replied three days later stating categorically: “Any sale will be authorized as required by law.” The applicants are not satisfied with this assurance, believing that the majority shareholder may attempt to proceed with the sale of the book of JCSI and JSI without complying with the requirements of s. 183 .

They accordingly apply to the Court for relief in the form of an order pursuant to s. 240 of the Act directing the respondents to comply with the Act and restraining them from acting in breach of the provisions thereof. [ 8 ]

Section 240 provides: 240 If a corporation or any director, officer, employee, agent, auditor, trustee, receiver, receiver-manager or liquidator of a corporation does not comply with this Act , the regulations, articles, bylaws, or a unanimous shareholder agreement, a complainant or a creditor of the corporation may, in addition to any other right he has, apply to a court for an order directing any such person to comply with, or restraining any such person from acting in breach of, any provisions thereof, and upon such application the court may so order and make any further order it thinks fit. (emphasis added) [ 9 ] The respondents contend that the jurisdiction conferred upon the court by s. 240 is only exercisable when non-compliance with the Act has been established; that is, the applicants are not entitled to an order of the Court under s. 240 on the strength of apprehension of a breach.

In the alternative the respondents contend that there is no basis for the applicants to be apprehensive as to a breach of the Act as the respondents have assured the applicants that they intend to comply with the Act in all respects.

[ 10 ] It does not appear to be contentious that the applicants have established an evidentiary foundation for the application of s. 183 , that is that the assets which the respondents wish to sell are all or substantially all of the property of the corporations and that the proposed sales are other than in the ordinary course of business of the corporations. [ 11 ] I agree with the position of the respondents as to the jurisdiction issue.

On the plain reading of s. 240 it does not appear to me to confer on the Court authority to address an apprehended breach of the Act, as distinct from a breach that has occurred. That view is supported by a decision of Baynton J. of this Court in Alexander v. Bar SP Ranches Ltd. (1999), 1999 SKQB 280 (CanLII) , 190 Sask.

R. 1 (Q.B.) , although, as submitted on behalf of the applicants, s. 240 was not at the root of that decision. [ 12 ] As I find for the respondents on the issue of jurisdiction, it is not necessary for me to express any opinion on the s. 183 issues, that is whether the assets the respondents wish to sell are all or substantially all of the property of JCSI and JSI and whether the proposed sale is within or outside of the ordinary course of business of the respective sellers.

Neither is it necessary for me to consider the validity of the applicants’ apprehension as to a future breach of s. 183 of the Act by the respondents. [ 13 ] The respondents are entitled to the costs of this motion. _________________________________ J.