2012 QCCA 1901, 2012 QCCA 1901

Unofficial English Translation Garage Technology Ventures Canada, s.e.c. (Capital St-Laurent, s.e.c.) c. Léger 2012 QCCA 1901 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-021031-109 (500-11-032620-086) DATE: October 25, 2012 CORAM: THE HONOURABLE JULIE DUTIL, J.A. RICHARD WAGNER, J.A. JACQUES VIENS, J.A. (AD HOC) GARAGE TECHNOLOGY VENTURES CANADA, S.E.C. (now doing business under the name Capital Saint-Laurent, s.e.c.) and TOM SWEENEY and LOUIS P. DESMARAIS and LURE MEDIA INC. APPELLANTS – Defendants v. MARGIT S. LÉGER and 9120-8207 QUÉBEC INC.

RESPONDENTS – Plaintiffs and GARAGE TECHNOLOGY VENTURES CANADA INC. and GARAGE CAPITAL CANADA, S.E.C. IMPLEADED PARTIES – Defendants JUDGMENT [ 1 ] The appellants appeal from a judgment of the Superior Court, District of Montreal (the Honourable Madam Justice Danielle Turcotte), rendered on August 23, 2010, which condemned the appellants as shareholders and directors of Lure Media Inc. to pay $3,170,000 as relief and $50,000 in moral damages to the respondents, and $150,000 to Margit S.

Léger as compensation in lieu of notice. [ 2 ] For the reasons of Wagner, J.A., with which Dutil and Viens, JJ.A. agree, THE COURT : [ 3 ] ALLOWS the appeal in part, with costs; [ 4 ] SETS ASIDE the trial judgment, except for the award of $150,000 to the respondent Margit S. Léger of compensation in lieu of one year’s notice , with costs.

JULIE DUTIL, J.A. RICHARD WAGNER, J.A. JACQUES VIENS, J.A. (AD HOC) Mtre Sylvain Lussier Mtre Élizabeth Meloche OSLER, HOSKIN & HARCOURT For the appellants Mtre Douglas Mitchell Mtre Sophie Perron IRVING MITCHELL KALICHMAN For the respondents Date of hearing: April 23, 2012 REASONS OF WAGNER, J.A. [ 5 ] Arguing that acts of oppression were committed against them by the shareholders and directors of Lure Media Inc., the respondents (Margit S.

Léger and 9120-8207 Québec Inc.) brought an oppression remedy as complainants , claiming the value of the capital stock of Impact Inc., whose assets were transferred to Lure Media Inc. in the context of a commercial transaction. [ 6 ] On August 23, 2010, the Superior Court of the District of Montreal (the Honourable Madam Justice Danielle Turcotte) condemned the appellants as shareholders and directors of Lure Media Inc. to pay $3,170,000 as relief and $50,000 in moral damages to the respondents, and S. Léger, $150,000 as compensation in lieu of notice. The appellants appeal.

BACKGROUND [ 7 ] The main players in this failed commercial venture are: ▪ Margit S. Léger (Léger) : An experienced businesswoman who has held several positions in the fields of communications and public relations. With Impact Information Inc. , she was part of the team that developed innovative interior design software. ▪ 9120-8207 Québec Inc. ( Québec Inc. ): Léger 's management company. It owned most of the capital stock of Impact Information Inc. ▪ Impact Ideal Solutions Inc . ( Impact IS ): A start-up company founded in 1999 by Léger , in Denver, Colorado. It had eleven employees.

It acquired the intellectual property rights over software development. Its partner, Covestco, withdrew in 2001 and the company went bankrupt in 2002. ▪ Impact Information Systems ( Impact ): A company founded in Montreal by Léger that acquired all the assets of Impact IS and offers two software programs dedicated to inventory management. It was developing a unique platform called Eteriors that would have allowed users to manage their assets and access virtual show rooms through a single portal. ▪ Garage Technology Ventures Canada ( Garage ): A limited partnership specializing in venture capital investment funds.

It invested hundreds of thousands of dollars in Lure Media Inc., the company that was supposed to develop Léger 's project. ▪ Louis P. Desmarais ( Desmarais) : A trained attorney and accountant, he has worked at Deloite Touche, RMP Paribas in Paris, and McCarthy Tétrault. He is president of Garage 's investment fund. ▪ Tom Sweeney ( Sweeney) : One of Desmarais 's partners; he is also one of Garage 's sponsors. He was very involved in developing the project.

He championed Garage 's investment project regarding Léger 's business. ▪ Lure Media inc . ( Lure Media) : The company created as a result of negotiations between Léger and Garage in the hopes of developing and commercializing the Eteriors software. The plan was for Garage and Léger to be the two shareholders of the company. [ 8 ] The factual background giving rise to this dispute was explained as follows by the trial judge: [ translation ] [5] Margit Léger has an impressive track record.

She has occupied various upper management positions in the public relations, communications technology and interior design industries. [6] In 2002, she bought the assets of a company she had joined a few years before. This business held the copyright in software programs used by interior designers and manufacturers offering their products for sale in showrooms. The company founded by Léger,

Impact IS Inc., acquired the intellectual property rights. (IMPACT). [7] Over the years, IMPACT developed a clientèle made up of some of the most prestigious names working in interior design. [8] Léger designed a website that gave users virtual access to showrooms at any time of the day. This project was called Eteriors . [9] The employees of IMPACT worked on this concept for some time.

While there remained milestones to be reached before the product could be launched, capital was required to do so; without this capital, the company would no longer be in a position to further the project. [10] In 2006, Léger reached out to potential investors. She was introduced to Tom Sweeney, who was one of the sponsors of Garage Technology Ventures Canada LP ( GARAGE ), a venture capital fund.

He was immediately thrilled about Léger’s idea. [11] After performing an analysis, however, GARAGE observed that IMPACT's financial situation was far from glowing, which put an end to the matter. [12] Léger continued on her course of action and met people in the industry from the United Arab Emirates who had shown an interest. [13] In the interim, she saw Sweeney again. He still believed in the project and told her why GARAGE had considered it unsuitable to invest in IMPACT. In November of 2006, negotiations resumed between Sweeney, Léger, and the president of GARAGE, Louis P. Desmarais.

The negotiations were serious enough for Desmarais and Sweeney to ask Léger to stop recruiting investors. [14] After re-evaluating this business opportunity, Desmarais felt IMPACT's financial situation to be too precarious. He refused to go forward but Sweeney was insistent: the idea was genius. [15] Desmarais ended up giving in. He prepared a strategy that would entail making a public offering on the Toronto stock exchange. [16] In February of 2007, a letter of intent was executed. GARAGE stated therein that it intended to purchase the shares of IMPACT, subject to certain conditions.

This would provide IMPACT with financing in the amount of $1M. In the interim, GARAGE loaned $200,000 to IMPACT, who guaranteed that amount by granting a movable hypothec against its assets. [17] But a few days before the closing meeting, GARAGE changed its mind. [18] Desmarais proposed that a new company, Lure Media Inc. (LURE), be created instead, in which Léger and GARAGE would be partners.

GARAGE invested $2.5M therein; then, after exercising its hypothecary security, it transferred IMPACT's assets to LURE. [19] A second agreement was then entered into. [20] Desmarais deemed that to make Léger's project a reality, it was essential to go through the Middle East connection. He went with her to Dubai but the trip was disappointing. The business partner turned out to be much more difficult than anticipated regarding a possible partnership. [21] Desmarais, who had always been reluctant with respect to this investment, gave up. He passed the baton to Sweeney.

Sweeney set everything in motion for LURE to launch Eteriors as soon as possible. [22] The hoped-for results were not materializing quickly enough. They were bleeding cash. Desmarais put an end to the project. [23] Five months after LURE had been set up, Desmarais fired everyone, and one month after that, he shut it down permanently. [24] Léger found herself with nothing. In addition to losing her job, she was deprived of the possibility of seeing her project through since she no longer owned the intellectual property rights. [25] LURE was incorporated under the

Canada Business Corporations Act . 4 Léger is availing herself of the provisions of that statute. She is petitioning the Court to interfere in light of the oppression she suffered. [26] GARAGE counters by arguing that she does not qualify as a complainant within the meaning of the Act . Alternatively, there was no oppression since GARAGE respected its undertakings. Finally, the Court may not substitute for the parties and declare that GARAGE should have invested more.

THE TRIAL JUDGMENT [ 9 ] The judge correctly outlined the issues to be decided: [ translation ] [1] Margit Léger submits that the defendants, each in their own way, acted oppressively in the course of their business dealings with her. She deems that in so doing they destroyed the business she founded, a business which was about to take off. [2] The defendants argue that they acted lawfully since they respected the various agreements entered into by the parties. Moreover, it is their view that Léger greatly benefited from the investment. [3] Before the Court is an application for an oppression remedy.

In the event there was oppression, the Court will determine the appropriate relief.

[ 10 ] The case was heard over ten discontinuous days. In a 160-paragraph judgment that is not lacking in firmness, the judge found that Garage , Sweeney , Desmarais and Lure Media did not respect their contractual undertaking to Léger and Québec Inc. and that they ignored Léger and Québec Inc. 's best interests while incidentally favouring their own, without regard for the success of the business.

In putting an end to the activities of Lure Media prematurely, they placed themselves in a conflict of interest. [ 11 ] According to the judge, their personal liability toward the respondents was incurred. [ 12 ] The judge observed that Lure Media ceased to exist as a result of the appellants’ oppressive acts. She attributed to the appellants all the opprobrium of the commercial failure. She assessed the value of the relief sought, espousing the opinion of the respondents' expert, who assessed the value of Impact 's capital stock in 2007 at $3,170,000.

She also awarded Léger moral damages in the amount of $50,000, and compensation in lieu of notice in the amount of $150,000.

GROUNDS OF APPEAL [ 13 ] The grounds submitted to the Court are mostly a reiteration of the defence already decided upon by the trial judge. [ 14 ] For ease of analysis, I rephrase them as follows: 1- Are the respondents complainants within the meaning of the Act ? 2- Is the oppression remedy set out in s. 238 of the Canadian Business Corporation Act ( CBCA ) [1] well founded in the present case? 3- If so, what is the extent of the harm and the value of the appropriate relief? [ 15 ] It is common ground that the oppression remedy under ss. 238 and 241 CBCA is one of the remedies available to minority shareholders and, in some instances, to creditors, to effectively counter the oppressive acts of the majority shareholders, directors, or officers of a corporation subject to the federal statute.

A complainant, within the meaning of the Act , may therefore petition the courts for help and obtain the appropriate remedy from among several available options depending on the nature of the oppression. [ 16 ] Case law is replete with precedents reiterating that this legislation is inspired by fairness and that its criteria for intervention are not easily defined. [ 17 ] It is not disputed that the remedy in ss. 238 and 241 is one of those granting broad discretionary powers to the judge, and that in some respects it defies even the usually acknowledged rules of commercial and corporate law.

Yet, the inherent discretion involved in efficiently applying this statute is not arbitrary, and the petitioner hoping to benefit from the remedy must meet certain requirements. [ 18 ] In the present case, a

summary review of the main events is necessary to correctly assess the value of these grounds. [ 19 ] In the late 1990s, Léger was president of Impact IS , an American company that operated software services for specialized interior design firms and showroom distributors. [ 20 ] In 1999, because of a shareholder dispute, Léger had no choice but to place Impact IS , which was then insolvent, under the protection of the American courts. In May of 2002, she started up another company in Montreal called Impact , which purchased all the assets of the American company, including the intellectual property.

This was another start-up that, very much like its predecessor, never saw a profit and actually accumulated substantial debt over the years. [ 21 ] From 2003 to 2006, Impact , then financed by Léger 's management company, Québec Inc ., invested substantial amounts in research and development. It developed a software program called Eteriors that gave the user remote, virtual access to interior design showrooms. The financing required was significant and the development ran out of steam.

To commercialize the new software program, Léger resolved to find funding via venture capital companies. [ 22 ] This was the context in which, in the spring of 2006, she approached Garage , the company run by Desmarais , almost all of whose investment funds were provided by the Fonds de Solidarité FTQ, the Caisse de dépôt et placement du Québec, the Fier Partners L.P., ( Investissements Québec ) and by Desmarais himself. [ 23 ] Desmarais ' right-hand man was Sweeney , an engineering and business school graduate who worked for the Canadian and American secret services before joining the ranks of Garage in 2005. [ 24 ] Sweeney was very impressed by the commercial potential of the software developed by Impact and asked Léger to present her project to the directors of Garage .

On July 5, 2006, after a

summary due diligence, Garage declined the investment opportunity. [ 25 ] A few months later, they had a change of heart. Sweeney continued trying to convince Desmarais , who then suggested a minority stake investment in Impact , in exchange for a cash injection sufficient to settle the company's most exigent debts, thereby allowing Impact to pursue its development of the Eteriors software.

The objective was then to obtain financing from the stock market. [ 26 ] On February 9, 2007, the parties signed a letter of intent ( Term Sheet ) that, among other things, allowed Garage to withdraw from the proposed transaction at any time following a deeper review of Impact's business model. The agreement also provided for the short-term development of the company's activities.

The conditional nature of the agreement was reflected by the following provision, among others: Except with respect to the sections entitled "Conditions Precedent" , "Confidentiality" , "Fees and Expenses" , "No Solicitation" , "Investment Option" , "Finders" , and "Break Fee" which are intended to be, and are legally binding provisions among the parties hereto, this Memorandum of Terms is a non-binding document prepared for discussion purposes only and the proposed investment is specifically subject to successful completion of due diligence, negotiation and execution of definitive transaction documents and other

conditions precedent set forth herein, all satisfactory to Garage in its sole discretion. Notwithstanding anything to the contrary, the sections entitled "No Solicitation" , "Investment Option" and "Break Fee" shall be non-binding provisions if the full amount of the Bridge Loan is not made available to the Company in accordance with the provisions hereof. [ 27 ] The proposal provided that Garage would invest $1M in Impact in exchange for 25% of the company's capital stock.

The parties also agreed on a pre-investment value of $3M, to be used as a basis for any future profits generated by the company, once distributed. This information is relevant.

Léger submits that this assessment is evidence of the commercial potential of the Eteriors software and, as we will see later, justifies the way in which the expert established the market value of Impact 's capital stock at over $3M. [ 28 ] Desmarais ' examination after defence indicates that he was considering potential sales of $30M over five years, allowing him to accept the figure of $3M in potential profits. [ 29 ] Garage issued a $200,000 loan to Impact upon the latter’s request.

The loan was guaranteed by a hypothec on Impact ’s assets. [ 30 ] The officers of Garage maintain that due diligence revealed that there were significant weaknesses in the company's management, and in April of 2007, a few days before they were to sign the transaction, they concluded that Garage 's contribution to the business would not enable its viable operation. As matters then stood, it would have been impossible to raise interest on the stock market. [ 31 ] On April 6, 2007, a decision was made.

Léger was informed that Garage would not move forward with the proposed transaction, although it was willing to waive reimbursement of the $200,000 loan guaranteed by hypothec. In the wake of this bad news, Desmarais offered somewhat brighter prospects: Garage was ready to negotiate another agreement by setting up a new corporation ( Lure Media ) to which all of Impact 's assets would be transferred.

Garage proposed to invest up to $2.5M in exchange for two-thirds of the capital stock, with the last third going to Léger . [ 32 ] In the minds of Garage 's directors, this way of going forward would allow them to present a more commercially viable company to third-party investors, without being weighed down by past deficits that might make the stock markets gun-shy. [ 33 ] Faced with these new developments, Léger hesitated and talked them over with her spouse, who is also a trained attorney. The other options were not very appealing and, in the end, she accepted their new proposal.

She asked Garage , however, to issue a second loan in the amount of $200,000—once again guaranteed by hypothec - to carry on during negotiations. The agreement was finalized in May of 2007. [ 34 ] According to the agreement, Lure Media undertook to pay $500,000 to cover the debts incurred by Impact , for which Léger and her spouse were personally liable. Garage would remain sole shareholder of Lure Media until such time as Léger exercised her stock option for the amount of $1. Impact 's assets were transferred to Lure Media by means of a judgment of taking in payment rendered on June 14, 2007.

Léger was appointed CEO of the company. [ 35 ] The board of directors of the new company would be composed of Sweeney and Desmarais until Léger exercised her stock option.

Garage undertook to pay $500,000, which included the money already invested in Impact , to purchase Lure Media 's preferential shares, and undertook to invest an additional $1M in the context of its business plan. [ 36 ] In June of 2007, Desmarais realized that the development project in Dubai was in bad shape: he had been counting on the possibility of interesting a foreign investor to develop the Eteriors platform, but he felt that continuing operations would require millions of additional dollars.

The parties tried to find financing with third-party investors, but without success. [ 37 ] There followed a series of incidents that the appellants see as proof of Léger 's poor management, but that Léger perceives to be evidence of the appellants' uncompromising and unilateral attitude.

In short, harmony gave way to reproach, and the relationship between the parties went from bad to ugly. [ 38 ] Thus, it is noteworthy that Desmarais was counting heavily on a successful joint venture with an investor from Dubai to develop the Eteriors Web platform, whereas the file reveals that this foreign investor was hesitant to become further involved with the project. [ 39 ] In the meantime, Sweeney recommended that Gordon Haight be hired to drum up future sales of the software and support the marketing push. [ 40 ] Jean Cantin, a trained chartered accountant, was also hired to assess Lure Media 's financial situation, which worried the members of the board of directors.

Sylvie Rodrigue was hired to support Cantin in his efforts to turn the business around. [ 41 ] Relations were strained between the board of directors and Léger because of their diverging priorities. Haight was named CEO and Léger was relegated to the position of chairman and founder. [ 42 ] In November of 2007, Haight announced that the alpha version of the Eteriors software would likely be completed in January of 2008, but that only the beta version would be marketable, entailing additional investments. [ 43 ] In November of 2007, Lure Media 's board of directors decided to reduce the company staff.

With the exception of the team tasked with continuing to develop the Eteriors prototype, all of the employees - including Léger - were laid off on November 23. Both parties considered ending the relationship and Desmarais proposed that Léger purchase the remaining two-thirds of the Lure Media shares for $1. The evidence also reveals that he offered to give her back the intellectual property held by Lure Media . Léger accepted neither of these proposals. She continued to claim additional investments from Garage that would enable her to market the Eteriors Web platform.

Lure Media ceased its operations on December 31, 2007, and the company abandoned the premises that same day. [ 44 ] These are, in broad strokes, the main events that led to proceedings and the judgment under appeal.

ANALYSIS Status of Léger and Québec Inc. [ 45 ] In this case, are Léger and Québec Inc. complainants within the meaning of the Act ? [ 46 ] It is relevant to reproduce sections 238 and 241 CBCA : 238. In this Part, “action” “action” means an action under this Act; “complainant” “complainant” means (

a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates, (

b) a director or an officer or a former director or officer of a corporation or any of its affiliates, (

c) the Director, or (

d) any other person who, in the discretion of a court, is a proper person to make an application under this Part. 241.

(1) A complainant may apply to a court for an order under this section. Grounds

(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 mannerthat is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of.

(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, (

a) an order restraining the conduct complained of; (

b) an order appointing a receiver or receiver-manager; (

c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement; (

d) an order directing an issue or exchange of securities; (

e) an order appointing directors in place of or in addition to all or any of the directors then in office; (

f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder; (

g) an order directing a corporation, subject to subsection (6), or any other person, to pay a security holder any part of the monies that the security holder paid for securities; (

h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract; (

i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by

section 155 or an accounting in such other form as the court may determine; (

j) an order compensating an aggrieved person; (

k) an order directing rectification of the registers or other records of a corporation under

section 243; (

l) an order liquidating and dissolving the corporation; (

m) an order directing an investigation under

Part XIX to be made; and (

n) an order requiring the trial of any issue.

Duty of Directors

(4) If an order made under this

section directs amendment of the articles or by-laws of a corporation, (

a) the directors shall forthwith comply with subsection 191(4); and (

b) no other amendment to the articles or by-laws shall be made without the consent of the court, until a court otherwise orders. Exclusion

(5) A shareholder is not entitled to dissent under

section 190 if an amendment to the articles is effected under this section. Limitation

(6) A corporation shall not make a payment to a shareholder under paragraph (3)(

f) or (

g) if there are reasonable grounds for believing that (

a) the corporation is or would after that payment be unable to pay its liabilities as they become due; or (

b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities. Alternative order

(7) An applicant under this

section may apply in the alternative for an order under

section 214. [ 47 ] The appellants maintain that Léger and Québec Inc. cannot bring the oppression remedy since they are not shareholders of Lure Media and have not acquired the necessary standing to bring such proceedings. In their view, only an action in damages was possible. [ 48 ] The appellants argue that Léger never exercised her stock option on a third of the capital stock and therefore cannot be characterized as a complainant within the meaning of s. 238 of the Act . They point out that the agreement obliged Léger to exercise her stock option before December 18, 2007.

They add that they were being generous when they granted her an extension to do so until December 20, 2007. As a result of her procrastination, however, she can no longer claim to be entitled to exercise shareholders' rights. [ 49 ] On this matter, the judge observed that it was true that Léger was not a registered holder of the company's securities, but he considered that she was nevertheless the beneficial owner of one-third of the capital stock within the meaning of the Act .

I find that she was correct to make this determination. [ 50 ] The parties had agreed that Léger would remain apart from the company's capital stock to allow the company to develop more harmoniously and attract investments from third parties who would otherwise hesitate to jump in if they knew of Léger 's role in the loss- making companies she had operated in the past.

All the letters and conversations between the parties reflect one reality: Léger was, in actual fact, the future owner of one-third of the capital stock, and had it not been for the particular contingencies upon which the parties had agreed, she would have acceded to the formal status of registered holder of capital stock. The judge stated: [ translation ] [58] That is exactly what happened. In the eyes of third parties, Léger was not a shareholder but, in actual fact, a partner.

Indeed, the symbolic amount of $1 was consideration for her right to exercise the option. [59] The case law argued by the defence refused to grant the status of complainant to an employee with a stock option. [2] The facts of that case differ considerably from those in this one, for example with respect to the price stated to exercise the stock option, which was significantly higher than the one provided in the agreement in this case. Moreover, Léger's right to become a shareholder was not conditional.

It was subject only to a commonplace formality, which can, for practical purposes, be considered to have been fulfilled. [60] For all these reasons, the Court concludes that Léger is the beneficial owner of one-third of the capital stock of LURE. In any event, the Court finds that she is like any other person who is qualified to present a claim under paragraph (

d) of

section 238 of the Act , in the event of oppression. [61] Léger has the status of complainant. [ 51 ] I find that this first ground of appeal must fail. [ 52 ] Québec Inc. , however, cannot claim as much. The evidence does not show that it was a registered shareholder of the company or that it had a stock option. Therefore, it cannot claim the status of complainant within the meaning of the Act, and its remedy must be dismissed.

Although the judge condemned the appellants to pay the amount of $3,170,000 to Léger and Québec Inc. as relief, nowhere in her judgment did she explain her reasons for Québec Inc. 's status in the context of an oppression remedy. [ 53 ] That said, this determination is not sufficient to dispose of the other grounds of appeal because, even though Léger has the legal standing to bring it, the oppression remedy must still be justified, appropriate, and brought against the right persons.

MERITS OF THE OPPRESSION REMEDY [ 54 ] For the following reasons, and with respect for the trial judge, I find that the evidence does not, on a balance of probabilities, ground a conclusion that there were oppressive acts. In any event, awarding the value of Impact 's capital stock as relief for the oppressive acts committed while running Lure Media was wrong.

[ 55 ] Certainly, the oppression remedy under ss. 238 and 241 of the CBCA is inspired by principles of fairness and it must give rise to the appropriate remedy where the evidence shows, on a balance of probabilities, that that complainant was a victim of the oppressive acts of his or her fellow shareholders, directors, or officers in the course of operating a business subject to the Act . [ 56 ] That said, this remedy is not a panacea for every unfortunate venture resulting from a start-up company's commercial failure. [ 57 ] Here, the trial judge should have considered that, despite Léger 's good faith and numerous talents, until 2006, she was running a loss-making start-up business whose insolvent predecessor had been placed under the protection of the American courts.

The new company's survival depended on a significant investment of venture capital. [ 58 ] By definition, the guidelines for the directors and officers of a business that specializes in issuing this type of financing do not follow the usual rules that apply to financing companies in the normal course of business. The judge should have assessed the acts and decisions of Lure Media 's directors and officers in concreto , from the very specific perspective of a start-up company whose survival depended on significant financing.

Certainly, the objectives of the directors and officers of a venture capital company are to ensure the short-term success of the business, but they are not those of a traditional financing company, which assumes longer-term obligations toward their debtors. [ 59 ] In the present case, the issue was not considered from the perspective of this type of investment. [ 60 ] The evidence shows that Garage , Sweeney and Desmarais were concerned with ensuring the short-term viability of the business and could quickly withdraw from the common venture if they thought that continuing the operation required the investment of many more millions.

They decided to withdraw, while offering Léger the opportunity of taking back all Lure Media 's capital stock and the intellectual property rights in the software she had developed. [ 61 ] I agree that the decision by Lure Media’s directors and officers to close shop was quick, to say the least. Nevertheless, and with respect, I find that these actions are not part of an oppression scheme but follow from business decisions made by a business whose financing is proportionate to the risk of emerging companies.

When Garage withdrew, Léger was offered the possibility of taking back what was hers, which meant not only that she would assume part of the risk, but also that she would be free of the debt that had accrued to date. The venture is unsuccessful, but that does not mean that the appellants committed acts of oppression. [ 62 ] The trial judge granted the oppression remedy and decided that the appellants had failed to respect their contractual undertaking to invest at least $2.5M in the company.

Accordingly, she found that the decision to close the business and end the employment contracts of all the employees, including Léger , without prior notice and without first fulfilling the announced investment, caused financial harm to Léger who, as an indirect result, lost the value of the assets she had transferred through Impact . [ 63 ] I find, with respect, that the evidence heard at trial is much more nuanced. [ 64 ] In determining that Garage had failed to respect its undertaking to invest at least $2.5M in the new company, the judge subtracted from that amount the sum of the two loans that were issued to Impact ($400,000), the legal fees incurred for the aborted transaction ($235,641.42), and the legal fees incurred in the context of the transaction with the Dubai investor ($76,226).

In other words, she determined that the financial undertaking of $2.5M was to be computed irrespective of the amounts already invested in Lure Media , an approach that is disputed by the appellants. [ 65 ] Moreover, the appellants submit that their undertaking was limited to $1.5M because of the wording of

section 3.2 of the Option Agreement , which was drafted as follows: 3.2 Phase 2 Subscription. If the conditions set forth in

Schedule 3.2 hereof are met, then within twelve (12) days from the receipt of the issuance of a certificate stating that such conditions have been met and signed by the Board, Garage shall subscribe for and purchase from the Corporation, and the Corporation shall issue to Garage 1,000,000 Preferred Shares at a price of $1 per share for a total subscription price of $1,000,000. [ 66 ]

Schedule 3.2 refers specifically to the development of the Eteriors platform, which it claims to be feasible, in partnership with the Dubai investor. That initiative failed, however. [ 67 ] Apart from the connection submitted by the appellants respecting the undertaking to invest $2.5M or $1.5M in the business, the evidence does not clearly establish, on a balance of probabilities, that the appellants did not respect their contractual undertaking.

In my view, this element alone, even if it were proved, could not be construed as an oppressive act within the meaning of the Act . [ 68 ] Indeed, the expert acknowledged in his report that Garage invested $2.4M between February and December of 2007: On November 24, 2007, Léger and many other employees of Lure media were dismissed without notice. By the end of December 2007, Lure Media had ceased operations.

From February to December 2007, GTVC had invested almost $2.5M in Impact IS / Lure Media ($400K in Impact IS and $2.1M in Lure Media, Appendix 6 (JC-11)), as follows: [ 69 ] By characterizing the actions and decisions of the appellants as underhanded and detrimental to Léger 's financial interests, the judge failed to consider the highly speculative nature of the business and the rights and legitimate expectations of third-party investors in such matters. [ 70 ] The scope of the rights and obligations of the directors, officers, or shareholders of a start-up business must be measured against the operating parameters of an emerging company.

Any other conclusion would risk imposing on them disproportionate obligations that would undermine fairness and the very purpose of the statute, which is to remedy an injustice, not create a new one.

DAMAGES [ 71 ] The damages awarded as relief, which correspond to the market value of Impact 's capital stock as at February 9, 2007, as though that company were viable at the time, constitutes an error of law that justifies the intervention of this Court. Let me explain. [ 72 ] In its expert assessment, RSM Richter Inc. confirmed that it had been mandated to establish the market value of Impact 's capital stock as at February 9, 2007, taking into consideration Léger 's personal investments and the loans from which the business had benefited.

The expert also took for granted that the acts of oppression began on February 9, 2007, when the Term Sheet letter of intent was executed. [ 73 ] Several times in the expert assessment, the expert took for granted that the projections in the February 9, 2007, letter of intent represented the best guide to assessing the market value of Impact 's capital stock as at that date: 4. The GTVC Term Sheet ... We note that the Intangible Value of $4.7M is higher than its book value of $733K.

The difference of approximately $4.0M represents the additional intangible value (including the value of Impact IS' intellectual property and goodwill) that GTVC as an investor was prepared to recognize notwithstanding that such additional value is not reflected in the Company's book value. GTVC's willingness to recognize the additional intangible value was based on the expectation that Impact IS would be able to generate significant positive cash flow in the future (as reflected in its financial projections). 5.3 Fair Market Value of Impact IS as at February 9, 2007 As discussed in

Section 4 above, GTVC and Impact IS agreed to the GTVC Term Sheet that valued Impact IS's equity at $3M. As discussed in

Section 4, this implies an enterprise value of $4.4M. Considering that the $3M equity value was agreed upon between Impact IS and GTVC, we believe that it represents the best indication of Impact IS' fair market value. [ 74 ] The projections in the letter of intent, however, were made with the assumption that the appellants would invest at arm's length; they were also conditional and were not reiterated once the parties came to a new agreement in April of 2007. [ 75 ] In any event, the standard of reference was no longer relevant and its use by the expert truncated the entire assessment.

The exercise became entirely speculative and unreasonable, and it lacked the reliability required for a judge to accept it. [ 76 ] Although the acts of some of Léger 's partners had unfortunate consequences on Lure Media 's earning prospects, they nonetheless occurred in the context of a highly speculative investment where Léger had access to legal counsel but, in an effort to cut her losses, voluntarily chose to waive the prior agreement to embark upon a new

chapter in the development of her products. [ 77 ] I would add, with respect, that the syllogism on which the trial judge based her determination of damages is erroneous.

In theory, the oppression remedy enabled Léger to respond to the appellants regarding the oppressive acts that they directed against her interests as a minority shareholder and to claim the loss resulting from the precipitous closing of the company, which is the value of 33% of Lure Media 's capital stock. [ 78 ] Instead, as a standard of relief, the judge chose to set the market value of Impact 's capital stock as at February 9, 2007, thereby overlooking the most recent transaction between the parties.

In other words, in her assessment of the prejudice claimed by Léger , the judge rewrote the history of the transactions to find that Impact would have found great success had Lure Media 's business not been interrupted. This reasoning is lacking. It is a determinative error that justifies the Court's intervention.

Indeed, the judge conceded in para. 134 of her judgment: [ translation ] [134] Moreover, if LURE's officers had forced GARAGE to respect its undertakings, it is likely that LURE would have been able to reach the launch stage of Eteriors, which might have made it profitable. [ 79 ] Furthermore, the proposed transaction was completely modified afterwards since the parties together agreed (although Léger did not have many options open to her) to start a new company in exchange for the injection of two additional loans ($200,000 and $502,000) to cover the company's debts, which ultimately benefitted Léger and her spouse. [ 80 ] In this case, the remedy was not brought against Impact or its officers and shareholders, but against Lure Media , its shareholders, directors, and officers.

I find that the process of assessing the harm caused to Léger was in some ways circumvented since, under the circumstances, the judge should have based the relief on the market value of Lure Media 's capital stock.

It is always risky to rewrite the financial history of a company by attempting to restore the parties to the state they were in prior to the final transaction, which, by definition, was influenced by several factors that affected the overall picture. [ 81 ] In this case, therefore, confronted with the impossibility of going forward with the agreement entered into in February of 2007, Léger still had the option of withdrawing from the transaction and seeking the necessary financing elsewhere. By accepting to modify the terms of the initial agreement, she was also adjusting her expectations.

The market value of Impact 's capital stock was sacrificed, since it was transferred to the new business with all the inherent advantages and disadvantages of this new strategy. [ 82 ] In exchange, Léger and her spouse immediately benefited from a $200,000 loan and a separate $502,000 investment, which freed them from some debts for which they were liable. This is a clear incentive that the expert failed to take into consideration in his

expert assessment. [ 83 ] In short, we cannot empirically establish the extent of the damage by turning back the clock without also assessing all the vagaries that motivated the parties to act as they did in a business-as-usual context. [ 84 ] In this case, taking for granted that the judge was right to acknowledge the presence of oppressive acts by the directors, officers, or shareholders of Lure Media with respect to the respondents, I nevertheless find that she should have assessed the scope of the harm by performing an accurate assessment of the market value of Lure Media 's capital stock.

She did not do this. The respondents could not claim damages based on the value of Impact 's capital stock in 2007 as compensation. $50,000 MORAL DAMAGES AWARD [ 85 ] In addition to the value of Impact 's capital stock, the judge awarded $50,000 to Léger in moral damages because of the significant consequences on her personal life as a result of the collapse of the business.

For the reasons already expressed regarding liability, I find that this amount was not warranted. $150,000 COMPENSATION IN LIEU OF NOTICE [ 86 ] The judge awarded Léger an amount of $150,000 as compensation in lieu of notice on the basis of one year’s salary from the date of her dismissal in November of 2007. [ 87 ] I note that the appellants do not appeal from this aspect of the judgment but rather ask us to subtract from the award the amount of $13,836.94, representing the sum total of the cheques signed on behalf of Léger or her husband between May and August of 2007.

This ground was not argued at trial. [ 88 ] An award of compensation in lieu of notice in the context of an oppression remedy may seem improbable, but it is not impossible. [ 89 ] The fact of a dismissal does not automatically ground a conclusion of oppression giving rise to the remedy under s. 241 CBCA .

Conversely, the end of an employment relationship in circumstances that may constitute oppression do not on their own allow us to conclude that the dismissal was abusive and damages should be awarded under this head. [ 90 ] The main objective of the remedy under s. 241 CBCA is not to satisfy an employee's unlawful dismissal claim, since this type of petition is usually reserved for the civil courts, whose role is to apply the rules governing employment contracts.

Only in those cases that allow it will a court seized of an oppression remedy determine the compensation payable pursuant to an employment contract. [ 91 ] This does not mean, however, that it is impossible or inadvisable to consider both remedies simultaneously. If they proceed in the same instance, however, each should be analyzed according to their own rules: corporate law rules on the one hand and civil law rules on the other.

The conditions for each remedy must be met independently for there to be an award in one or both cases. [ 92 ] Since the appellants do not appeal from this aspect of the judgment under appeal and the petition to reduce the indemnity was not argued before the trial judge, I do not see any reason to intervene. This condemnation will stand.

CONCLUSION [ 93 ] For these reasons, I find that even though Léger has sufficient standing to bring her oppression remedy under the CBCA , the judge committed an error of law by allowing the remedy and accepting the value of Impact 's capital stock in 2007 as relief for the harm. [ 94 ] I would allow the appeal with costs, set aside the trial judgment, except with respect to the award of compensation of $150,000 in lieu of notice of one year. RICHARD WAGNER, J.A.