2013 ONSC 7002, 2013 ONSC 7002

Paul et al. v. 1433295 Ontario Limited et al. [Indexed as: Paul v. 1433295 Ontario Ltd.] Ontario Reports Ontario Superior Court of Justice, Nolan J. December 13, 2013* 120 O.R. (3d) 339 | 2013 ONSC 7002 Case

Summary * This judgment was recently brought to the attention of the editors.

Corporations — Oppression — Majority shareholder following lawful process under Business Corporations Act to breakstalemate with minority shareholders over raising additional funds — Corporation adopting resolution to exchange minorityshareholders' shares for worthless scrip certificates — Issuance of scrip certificates undertaken to squeeze out minorityshareholders without compensation and not for legitimate business purpose — Conduct oppressive — Minority shareholders'damages minimal as they had exercised their rights as dissenting shareholders under s. 185 of Ontario Business CorporationsAct and were paid court-determined value for their shares — Damages set at $45,000 — Business Corporations Act, R.S.O. 1990,c.

B.16, s. 185. Equity — Laches — Limitations Act, 2002 applying to oppression remedy claims under s. 148 of Ontario Business CorporationsAct — Equitable doctrine of laches not applying where claim for oppression remedy is brought within limitation period —Business Corporations Act, R.S.O. 1990, c. B.16, s. 148 — Limitations Act, 2002, S.O. 2002, c. 24, Sch.

B. [page340] In order to break a stalemate between the defendant majority shareholder and the plaintiff minority shareholders over raising additionalfunds, the corporation adopted a resolution to exchange the ten common shares held by each of the plaintiffs to one-quarter of onecommon share and issue scrip certificates for the fractional shares. The plaintiffs brought an action for relief under ss. 185 and 248 of theBusiness Corporations Act ("OBCA"). The defendants sought leave to amend the statement of defence to include a defence of laches. Held, the action should be allowed.

The request to amend the statement of claim was denied. The Limitations Act, 2002 applies to oppression remedy claims under s. 148 ofthe OBCA. The equitable doctrine of laches does not apply where a claim for an oppression remedy is brought within the limitationperiod. Under s. 185 of the OBCA, the fair value of the plaintiffs' shares on valuation day was set at $17,000 per share. While the defendant majority shareholder employed a lawful procedure available under the OBCA to break the stalemate, the manner inwhich he exercised it rendered the plaintiffs' shares worthless.

They could not exchange the fractional share scrip certificates for a fullshare. The real purpose of the resolution was to squeeze out the plaintiffs. The conduct was oppressive under s. 248 of the OBCA. Theplaintiffs' damages were minimal as they had exercised their rights pursuant to s. 185 of the OBCA and were being paid out a court-determined value of their shares. Damages were set at $45,000. Brant Investments Ltd. v. KeepRite Inc. (1987), (ON SC), 60 O.R. (2d) 737, [1987] O.J. No. 574, 42 D.L.R. (4th) 15,37 B.L.R. 65, 5 A.C.W.S. (3d) 69 (H.C.J.), affd (1991), 3 O.R. (3d) 289, [1991] O.J.

No. 683, 80 D.L.R. (4th) 161, 45 O.A.C. 320, 1B.L.R. (2d) 225, , 26 A.C.W.S. (3d) 1261 (C.A.), apld

Cyprus Anvil Mining Corp. v. Dickson, (BC CA), [1986] B.C.J. No. 1204, 33 D.L.R. (4th) 641, 8 B.C.L.R. (2d) 145, 2A.C.W.S. (3d) 162 (C.A.); Nixon v. Trace, [2012] B.C.J. No. 178, 2012 BCCA 48, 315 B.C.A.C. 261, 29 B.C.L.R. (5th) 93, 94 B.L.R.(4th) 175, 211 A.C.W.S. (3d) 332, consd Other cases referred to Abraham v. Inter Wide Investments Ltd. (1985), (ON SC), 51 O.R. (2d) 460, [1985] O.J. No. 2595, 20 D.L.R. (4th)267, 30 B.L.R. 177, 32 A.C.W.S. (2d) 151 (H.C.J.); Ambrozic v. Burcevski, [2008] A.J. No. 552, 2008 ABCA 194, 53 R.F.L. (6th) 242,90 Alta.

L.R. (4th) 247, 41 E.T.R. (3d) 1, 433 A.R. 25, 169 A.C.W.S. (3d) 817; Bank Leu AG v. Gaming Lottery Corp., (ON CA), [2003] O.J. No. 3213, 231 D.L.R. (4th) 251, 175 O.A.C. 143, 37 B.L.R. (3d) 1, 124 A.C.W.S. (3d) 679 (C.A.); BCEInc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 52 B.L.R. (4th) 1, EYB 2008-151755, J.E.2009-43, 301 D.L.R. (4th) 80, 71 C.P.R. (4th) 303, 383 N.R. 119, 172 A.C.W.S. (3d) 915; Calmont Leasing Ltd. v. Kredl, (AB KB), [1996] A.J. No. 283, [1996] 6 W.W.R. 607, 38 Alta. L.R. (3d) 296, 182 A.R. 304, 61 A.C.W.S. (3d) 1088 (Q.B.);Cutajar v.

Frasca, [2009] O.J. No. 5126 (S.C.J.); Diligenti v. RWMD Operations Kelowna Ltd., (BC SC), [1977]B.C.J. No. 1331, 4 B.C.L.R. 134 (S.C.); Domglas Inc. v. Jarislowsky, [1980] Q.J. No. 89, [1980] C.S. 925, 13 B.L.R. 135 (Sup. Ct.);Faulkner v. Faulkner, [1997] A.J. No. 730 (Q.B.); Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board(2006), (ON CA), 79 O.R. (3d) 81, [2006] O.J. No. 27, 12 B.L.R. (4th) 189, 144 A.C.W.S. (3d) 859 (C.A.); Fracassi v.Cascioli, [2011] O.J. No. 2425, 2011 ONSC 178, 204 A.C.W.S. (3d) 65 (S.C.J.); [page341] Joseph v.

Paramount Canada's Wonderland(2008), 90 O.R. (3d) 401, [2008] O.J. No. 2339, 2008 ONCA 469, 294 D.L.R. (4th) 141, 56 C.P.C. (6th) 14, 241 O.A.C. 29, 166A.C.W.S. (3d) 762; K. (K.) v. G. (K.W.) (2008), 90 O.R. (3d) 481, [2008] O.J. No. 2436, 2008 ONCA 489, 56 C.C.L.T. (3d) 165, 294D.L.R. (4th) 202, 238 O.A.C. 282, 41 E.T.R. (3d) 21, 167 A.C.W.S. (3d) 310; LSI Logic Corp. of Canada, Inc. v. Logani, [2001] A.J.No. 1083, 2001 ABQB 710, 204 D.L.R. (4th) 443, [2001] 11 W.W.R. 740, 96 Alta. L.R. (3d) 162, 296 A.R. 201, 19 B.L.R. (3d) 101,107 A.C.W.S. (3d) 995; M. (K.) v. M. (H.), (SCC), [1992] 3 S.C.R. 6, [1992] S.C.J.

No. 85, 96 D.L.R. (4th) 289, 142N.R. 321, J.E. 92-1644, 57 O.A.C. 321, 14 C.C.L.T. (2d) 1, 36 A.C.W.S. (3d) 466; Manitoba Métis Federation Inc. v. Canada (AttorneyGeneral), [2010] M.J. No. 219, 2010 MBCA 71, 216 C.R.R. (2d) 144, 255 Man. R. (2d) 167, 94 R.P.R. (4th) 161, [2010] 3 C.N.L.R.233, [2010] 12 W.W.R. 599; Manning v. Harris Steel Group Inc., (BC SC), [1986] B.C.J. No. 816, [1987] 1 W.W.R.86, 7 B.C.L.R. (2d) 69, 1 A.C.W.S. (3d) 316 (S.C.); McCallum v. Canada (Attorney General), [2010] S.J. No. 112, 2010 SKQB 42,[2010] 2 C.N.L.R. 191, 353 Sask. R. 269; Millar v. McNally, [1991] O.J.

No. 1772, 3 B.L.R. (2d) 102, 29 A.C.W.S. (3d) 793 (Gen.Div.); Paragon Development Corp. v. Sonka Properties Inc. (2009), (ON SC), 96 O.R. (3d) 574, [2009] O.J. No.1278, 59 B.L.R. (4th) 79 (S.C.J.); Pocklington Foods Inc. v. Alberta (Provincial Treasurer), [2000] A.J. No. 16, 2000 ABCA 8, 184D.L.R. (4th) 152, 75 Alta. L.R. (3d) 263, 250 A.R. 188, 2 B.L.R. (3d) 103, 93 A.C.W.S. (3d) 1007; Reinhart v. VIXS Systems Inc.,[2011] O.J. No. 5072, 2011 ONSC 5349 (S.C.J.); Runnalls v. Regent Holdings Ltd., [2010] B.C.J. No. 1564, 2010 BCSC 1106, 72B.L.R. (4th) 297, 12 B.C.L.R. (5th) 364; Sutherland v.

Birks (2003), (ON CA), 65 O.R. (3d) 812, [2003] O.J. No.2885, 174 O.A.C. 29, 125 A.C.W.S. (3d) 992 (C.A.); Toole v. Acres Inc., (ON SC), [2007] O.J. No. 1337, 30 B.L.R.(4th) 133, 59 C.C.E.L. (3d) 200, 156 A.C.W.S. (3d) 374 (S.C.J.); Waxman v. Waxman, (ON CA), [2004] O.J. No.1765, 186 O.A.C. 201, 44 B.L.R. (3d) 165, 132 A.C.W.S. (3d) 1046 (C.A.); Wewaykum Indian Band v. Canada, [2002] 4 S.C.R. 245,[2002] S.C.J. No. 79, 2002 SCC 79, 220 D.L.R. (4th) 1, 297 N.R. 1, J.E. 2003-6, [2003] 1 C.N.L.R. 341,118 A.C.W.S. (3d) 313 Statutes referred to Business Corporations Act, R.S.O. 1990, c.

B.16 [as am.], ss. 57(1), 185 [as am.], (4), (15), (25), (27), 248 [as am.]

Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 190(3) [as am.], 241 Courts of Justice Act, R.S.O. 1990, c. C.43, s. 128 Limitations Act, 2002, S.O. 2002, c. 24, Sch. B [as am.], s. 2(1) Real Property Limitations Act, R.S.O. 1990, c. L.15 [as am.] Authorities referred to Fleming, Jack, et al., Halsbury's Laws of Canada — Limitation of Actions (Toronto: LexisNexis, 2012) Koehnen, Markus, Oppression and Related Remedies (Toronto: Carswell, 2004) ACTION for remedies under ss. 185 and 248 of the Business Corporations Act. William V. Sasso and Jacqueline A. Horvat, for plaintiffs. Dante D. Gatti, for defendants.

NOLAN J. : — Introduction [ 1 ] The plaintiffs, the minority shareholders of the defendant corporation, are seeking two main remedies against the corporation [page342] and the majority shareholder pursuant to the Ontario Business Corporations Act , R.S.O. 1990, c. B.16, as amended (" OBCA "); the first head of relief is found in s. 185 , the dissent and appraisal provision; the second is found in s. 248 , the oppression remedy. They are also seeking an order for pre-judgment interest. [ 2 ] There is no issue between the plaintiffs and defendants that the plaintiffs are entitled to the first remedy.

They disagree, however, on the value to be assigned to the property, a hotel, and thus the proper value to be assigned to the shares of the corporation. [ 3 ] With respect to the second remedy, the majority shareholder denies that he engaged in any oppressive conduct towards the plaintiffs and, thus, asserts that they are not entitled to any relief with respect to that claim. Background [ 4 ] In about 1998, the defendant Parmjit Singh Bahia ("Mr.

Bahia"), a business man and a resident of the United Kingdom who now owns a number of hotels in England and the United States, wanted to look at acquiring a hotel in Canada. This was his first venture into the hotel business. As part of his search, he explored a number of trade newspapers. In one of them, the Western Investor , he came across the name of one of the plaintiffs, Russell G.V. Paul ("Mr. Paul"), a real estate agent/broker who specializes in hotel sales and acquisitions. Mr. Bahia contacted Mr. Paul for the purpose of engaging his services to purchase at least one Canadian hotel.

And thus began an unhappy relationship that culminated more than 13 years later in the trial before me. [ 5 ] After looking at numerous hotels across Canada in the company of Mr. Paul, Mr. Bahia decided to acquire the almost 100-year-old Prince Arthur Hotel (the "Hotel"), in Thunder Bay, Ontario, for $3 million on February 23, 2001. Mr. Paul and Mr. Paul's wife, Doreen G. Downs Paul ("Mrs. Downs Paul"), the other plaintiff, proposed to Mr. Bahia that they would like to acquire an ownership interest in the Hotel. This could be accomplished by Mr.

Paul forgoing his $100,000 commission on the sale of the Hotel with that amount being contributed to the purchase price. In return, Mr. Paul and Mrs. Downs Paul would each receive a 10 per cent interest in the shares of the defendant corporation, 1433295 Ontario Limited (the "Corporation"), which was incorporated in September 2000 for the sole purpose of acquiring, holding ownership of and managing the Hotel. [page343] [ 6 ] The total $100,000 contribution of the plaintiffs was by way of a shareholder loan. The balance of the purchase price of the Hotel was by way of a shareholder loan to the Corporation from Mr.

Bahia in the amount of $1,300,000 and a loan to the Corporation by the Business Development Bank of Canada ("BDC"), in the amount of $1,600,000. Mr. Bahia received 80 per cent of the shares of the Corporation. Mr. Bahia and Mrs. Downs Paul were the directors of the Corporation. [ 7 ] Although Mr. Bahia's financial contribution to the acquisition of the Hotel was 13 to 1 in relation to the contribution of the Pauls, he agreed to the 80/20 split of the shares because Mrs. Downs Paul was going to be involved in the management of the Hotel, allowing Mr.

Bahia to focus on his other business ventures in the United Kingdom where he lived and elsewhere. Even though Mrs. Downs Paul's experience in managing the day-to-day operations of a hotel was little to non-existent and there was no agreement between the parties as to what her exact duties would be and whether she would be paid for those duties, that was the arrangement the parties put in place. [ 8 ] Not surprisingly, this management arrangement did not last long. Mrs. Downs Paul was ousted as the manager by Mr. Bahia and both the plaintiffs were banished from the Hotel by Mr.

Bahia following a phone call to him from Mr. Paul who complained to him about the manner in which the Hotel was being managed by his wife. [ 9 ] Although the lawyer who acted for all the parties on the incorporation of the Corporation prepared a draft shareholders' agreement which he provided to the Pauls and Mr. Bahia, the agreement was never signed. Mr. Bahia was not even sure he reviewed it. Thus, when there was a falling out between majority shareholder, Mr.

Bahia, and the minority shareholders, the Pauls, there was little guidance for any of them or for the court years later, regarding any contemporaneous evidence of their reasonable expectations as between them when they entered into their fateful arrangement. This left the provisions of the OBCA , on which they each relied at trial to justify their respective complaints and actions and their mutual arrangements with BDC. [ 10 ] The contributions by the Pauls and Mr. Bahia were secured by way of shareholder loans to the Corporation.

The Pauls' loan was secured by a demand promissory note dated February 21, 2001, as well as by way of a charge in their favour registered against the Hotel. The conditions of the BDC loan, however, prevented the payment of any interest or repayment of the loan to any of the shareholders while any indebtedness to [page344] the BDC was outstanding. As of the time of the trial, the Corporation remained indebted to BDC. [ 11 ] In spite of the falling out between the parties, annual shareholder meetings were held and there was an attempt on the part of Mr.

Bahia to act in accordance with his legal obligations as a director of the Corporation. In June 2001, he removed Mrs. Doreen Paul as a director at a meeting of the shareholders. The Pauls continued to receive copies of the minutes of the annual shareholder meetings at which they attended or sent proxies and never made any formal complaints about the actions of the Corporation with a few exceptions. In addition, each year from 2003 up to and including 2012 with the exception of 2006 and 2007, the Pauls each received a cheque from the Corporation for interest on their shareholder loans.

Although the agreement with BDC, which all the shareholders were required to enter into, specifically prohibited any payment of interest to the shareholders or any repayment of any shareholder loans while there was any indebtedness to BDC and the Pauls were well aware of this provisions, they accepted the interest payments without complaint.

[ 12 ] There was little direct communication between Mr. Bahia and the Pauls. There was some evidence that from time to time they had discussions about Mr. Bahia buying them out but nothing was finalized. [ 13 ] From Mr. Bahia's standpoint, he found he was in an impossible situation with respect to the ongoing operation of the Hotel and the need for ongoing renovations of and repairs to the almost century old hotel. A stalemate between the plaintiffs and Mr. Bahia continued until December 2006, when Mr. Bahia sent a formal letter to the Pauls requesting they invest more funds in the Hotel for renovations.

That request was refused. Prior to sending that letter, Mr. Bahia had learned from an accountant that the OBCA contained a provision that would permit a corporation to take back shares of minority shareholders for fair value. [ 14 ] On January 5, 2007, Mr. Bahia gave written notice to the Pauls of a special meeting of shareholders called for February 5, 2007. The notice of the meeting included a proposed memorandum which advised that the Corporation needed $700,000 for renovations to the Hotel. That memorandum further advised that Mr.

Bahia, the sole director and majority shareholder, would not advance any further funds without the Pauls contributing a proportionate amount. The proposed resolution called for a reduction in the number of common shares on a 40 to 1 basis. The effect of this resolution when passed would have been that [page345] Mr. Bahia's shares would be reduced from 80 to two, and the ten common shares held by each of the Pauls would be reduced to one-quarter of one common share. Scrip certificates would be issued for the fractional shares.

That meeting did not proceed and the parties entered into negotiations to attempt to agree on a price the Pauls considered to be fair value for their shares. No agreement was reached. [ 15 ] On March 4, 2008, Mr. Bahia sent another notice of a shareholder meeting to be held on March 19, 2008, at which time the original resolution sought in February 2007 would be brought forward to exchange the Pauls' shares for scrip shares that would need to be exchanged for shares before year end.

The Pauls disagreed with the resolution and exercised their rights to dissent and appraisal by way of written notice on April 24, 2008. This was followed, on April 25, 2008, by correspondence from Mr. Bahia in which he offered to purchase their shares at what he determined was fair market value of the assets of the Corporation, that being $6,120 per share as of March 18, 2008. [ 16 ] The Pauls complained at trial about the failure of Mr.

Bahia as the sole director of the Corporation to include in either of the notices of the February 2007 or March 2008 shareholder meetings any notice to them of their dissent and appraisal rights pursuant to s. 185 of the OBCA . According to them, it was not until the special meeting of March 19, 2008 that the Corporation's counsel advised them of that right when they objected to the adoption of the resolution.

While the inclusion of such a notice might be common practice, I was not referred to any part of s. 185 which required such notice. [ 17 ] Following March 18, 2008, what I will refer to in this judgment as valuation day, there were a number of valuations of the Hotel prepared by various experts who testified at trial. Had a proper valuation been completed prior to valuation day, in preparation for Mr. Bahia's offer of $6,120 per share, this trial might well have been unnecessary. [ 18 ] In any event, the parties agree that the relevant date for valuation of the Hotel is March 18, 2008.

Other than that date, the parties agreed on little else. The Pauls commenced this action on August 14, 2008. They were granted leave on August 10, 2011 to amend their statement of claim, which they did on September 1, 2011, to add allegations related to actions of Mr.

Bahia that the Pauls allege both devalued their interest in the Hotel and provided inappropriate benefits to himself in violation of the agreement with BDC, oppressive conduct in violation of s. 248 of the OBCA . [page346] Issues [ 19 ] The main issues to be determined are (1) what is the value to be assigned to the shares held by the Pauls on March 18, 2008, in accordance with s. 185 of the OBCA , based on the value of the Hotel as of that date and determining what, if any, amounts should be deducted from or added to that value to arrive at a proper share value; (2) did the actions of Mr.

Bahia, the majority shareholder, amount to oppressive conduct towards the minority shareholders, thus engaging s. 248 of the OBCA , the oppression remedy; (3) if that question is answered in the affirmative, what is the proper remedy; (4) are the plaintiffs entitled to pre-judgment interest and, if so, in what amount and from what date? [ 20 ] At the conclusion of his submissions at the end of trial, counsel for the defendants raised an additional issue.

He sought leave to amend the pleadings by adding a final line to the statement of defence to include the defence of laches, claiming that the plaintiffs had delayed in bringing their action against the defendant. Thus, the claim is time-barred by reason of the equitable doctrine of laches, asserting that there was some evidence at trial to support that defence. Not surprisingly, counsel for the plaintiffs opposed the request for the amendment. I offered counsel seven days within which to make written submissions on the issue, and should I receive submissions, I would arrange a further attendance.

No further material was received from either counsel. I will deal with that issue in a

summary way in the analysis portion of this judgment. The Evidence [ 21 ] In all, there were 12 witnesses called by the parties and numerous volumes of documents entered as exhibits, including numerous financial statements which were reviewed by almost all of the witnesses, both on direct and cross-examination. The first exhibit filed by the defendants on consent was a document produced by the Sauder School of Business, Real Estate Division of the University of British Columbia entitled Hotel Valuation CPD104 Professional Development Course.

I mention it here only because this document was referred to throughout the trial by the defendants' counsel both in direct examination and [page347] cross-examination of almost all of the witnesses called by both sides and held up as "the Bible" of appraisers of hotels as the proper and only way of assigning value to a

hotel. Indeed, one of the expert witnesses, Monique Rosszell, was credited as a contributor to the course materials. While some of the material was of assistance in understanding the sometimes complex procedures that make up the world of appraisals, particularly of specialized property such as hotels, the exhibit was not determinative of any conclusions I reached in coming to the ultimate share value. Given the prominent disclaimer on the first page of the document, I would have been in obvious error had I done so: DISCLAIMER : This publication is intended for EDUCATIONAL purposes only.

The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein.

Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. [ 22 ] The plaintiffs called two witnesses. The first was Mr.

Ben Lansink, a qualified real estate appraiser who testified as an expert as to the value of the Hotel. In addition to presenting his own report, he was later recalled on consent to present a further report he referred to as a technical review of the reports of the other experts called on behalf of the defendants. The other witness was the plaintiff, Russell Paul. In addition to testifying as to the circumstances under which he and his wife entered into this business venture with Mr. Bahia with respect to the Hotel, he prepared and presented his own report as to the value of the Prince Arthur Hotel.

Not surprisingly, Mr. Paul's value was the highest of all the valuations presented at $8 million. [ 23 ] The defendants called ten witnesses. The first was Monique Rosszell, a principal of HVS Global Hospitality Services, also a qualified appraiser, who prepared an appraisal of the Hotel. [ 24 ] The next witness was Brian Keith Stanford of PKF Consulting, a company which provides appraisal services to a number of business sectors, including hotels. Mr. Stanford, unlike Mr. Lansink and Ms.

Rosszell, was not a qualified appraiser but he had prepared the report after an extensive review of the [page348] property itself and the financial records. The appraisal report was signed off by a certified appraiser, Stephen Raymer, also associated with PKF, who also testified. [ 25 ] The defendants also called as an expert Donna Marie Bain Smith, a chartered accountant and chartered business valuator as well as being qualified as an investigative and forensic accountant. She was retained by the defendants to provide a share valuation. She completed her first report on June 29, 2011.

She prepared a second report January 29, 2013, after receiving the HVS report. [ 26 ] David Kubinec, a public accountant with BDO in Thunder Bay, was called by the defendants to testify as the Corporation's accountant. [ 27 ] The defendants also called Mrs. Downs Paul and Jeffrey Crowe of BDBC (formerly BDC), the manager of the branch centre in Windsor as witnesses. Although Mr. Crowe had no direct involvement with the BDC arrangement with the parties to this action, he testified as to the conditions under which BDC lent money to corporations, including the standard provisions in the contracts.

He testified that BDC's standard loan documents do not prohibit the accrual of interest, just the payment of it. [ 28 ] Mrs. Downs Paul's evidence confirmed other evidence that had been presented: she had been in a management/ oversight role at the Hotel until she was discharged and she and Mr. Paul were removed from the Hotel by the police; she had paid herself a management fee of $10,000 by way of cheque written by herself; Mr.

Bahia at first had reduced her portion of the shareholder loan by $10,000 as a result; she had complained and her portion of the shareholder loan was raised to $50,000; she was emotionally distraught and devastated when she was removed as a director by Mr. Bahia. While giving evidence, Mrs. Paul gave the court unsolicited information about alleged "bad behaviour" on the part of Mr. Bahia at the Hotel, no doubt in retaliation for allegations made against her and Mr. Paul, also for "bad behaviour". To be clear, none of the allegations made by either the plaintiffs or Mr.

Bahia had much relevance to the issues to be determined by me. [ 29 ] Mr. Bahia testified on his own behalf and as the director of the Corporation. Analysis

Summary of the nature of the remedies sought [ 30 ] Pursuant to the dissent and appraisal remedy, s. 185 of the OBCA (see

Schedule A, attached) [schedule omitted], the [page349] plaintiffs have a statutory right to be paid fair value for their shares as of the day prior to the meeting of the corporation which would result in a fundamental change in the structure of the corporation that would create a fundamental change to their rights as shareholders. [ 31 ] This right of dissent and appraisal is meant to result in a relatively quick process for the resolution of the value of the shares.

Within seven days of the receipt of the notice of dissent from the dissenting shareholders and a request to be paid fair value for their shares, the corporation is to make an offer for the dissenting shareholder shares in an amount that directors of the corporation consider to be fair value. That offer is to be accompanied by a statement setting out how the fair value was determined. [ 32 ] If the corporation fails to make an offer or the dissenting shareholders fail to accept the offer, the corporation can apply to the court within a specified period of time for the court to fix a fair value for the shares.

If the corporation fails to apply to the court, as in this case, then the dissenting shareholders have a right to apply to the court to have the value of the shares fixed. From the time the dissenting shareholders give notice of their desire to be paid out the fair value of their shares, they cease to have any rights as a shareholder. [ 33 ] With respect to the oppression remedy provided for in s. 248 of the OBCA (see

Schedule B, attached) [schedule omitted], the court,

should it find on the evidence that there has been oppressive behaviour on the part of the majority shareholders towards the minorityshareholders, may provide a remedy that the court considers fair, just and equitable. When determining whether conduct complained ofis oppressive, unfairly prejudicial or unfairly disregards the interests of any shareholder, the court must consider the acts complained ofwithin the context of the reasonable expectations of the shareholders. The court can then allow for any equitable adjustments to be madeto any amounts owing to the minority shareholders.

It is clear in the relevant case law that both remedies can be sought together. Section185(4) provides that the dissent and appraisal remedy can be sought "in addition to any other right a shareholder may have", in this case,the oppression remedy found in s. 248. [34] With respect to the claim for pre-judgment interest, the plaintiffs are seeking interest on the amount determined to be fair marketvalue for the shares as of valuation day in accordance with s. 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as well as s. 185(27)of the OBCA.

With respect to pre-judgment interest in relation to the oppression claim, the [page350] plaintiffs are seeking it on anyamount of damages back to the first act of oppression they assert, that is the day Mrs. Downs Paul was removed as a director of theCorporation in June 2001. Preliminary issue: Amendment to the statement of defence [35] As referred to earlier in this judgment, at the conclusion of his final submissions, counsel for the defendants sought leave to amendthe defence to include the defence of laches.

He argued that there would be no prejudice to the plaintiffs by allowing the amendmentsince laches is just "the equities version of the Limitations Act". He argued that the allegations of oppression by Mr. Bahia go back to2001. Since the Pauls did not complain before this proceeding was commenced in 2008 and further amended in 2011 to set out in moredetail the allegations of oppression, they are prohibited by the doctrine of laches from maintaining the oppression claim.

Having raisedthis issue at the end of the trial, I will deal with it as a preliminary issue and begin by a brief review of the doctrine itself and the effect ofthe Limitations Act, 2002, S.O. 2002, c. 24, Sch. B (the "Act") on the doctrine. [36] Halsbury's Laws of Canada -- Limitation of Actions (Toronto: LexisNexis, 2012), ch. VI, Equitable Doctrines, 2. Laches andAcquiescence contains a helpful

summary. HLM-50 What constitutes laches. If a proceeding is not subject to a limitation period, or if the limitation period has not expired after alengthy period, the equitable doctrine of laches may apply as a defence to the claim.

Laches permits a defendant to avoid an equitable(although not a legal) claim made against him or her if he or she can demonstrate that the plaintiff, by delaying the institution orprosecution of his case, has either: 1. acquiesced in the defendant's conduct; or 2. caused the defendant to alter his position in reasonable reliance on the plaintiff's acceptance of the status quo, or otherwise permitted a situation to arise which it would be unjust to disturb.1 A remedy is not normally available when the defendant is guilty of wrongdoing.2 [page351] Acquiescence.

In the context of laches, acquiescence is established if, after the deprivation of his or her rights and in the full knowledgeof their existence, the plaintiff delays. It is not enough that the plaintiff knows of the facts that support a claim in equity; he or she must also know that the facts give rise to that claim.3 Delay alone is not sufficient to invoke the doctrine.

The issue of delay alone is dealt with by the appropriate statutory limitation period.Delay accompanied by what has occurred during the delay and the effects on the parties will determine whether the doctrine is to be applied.4 [37] While the defendants referred me to Cutajar v. Fraesca, [2009] O.J. No. 5126 (S.C.J.) to support the claim that laches applies, thereis far more support in the case law for the position that the Limitations Act, 2002 applies to oppression remedy claims. In Cutajar,Master Muir held, at para. 73, that "there is no limitation period applicable to oppression remedy claims under

section 248 of the OBCA".Master Muir came to this conclusion after a review of several cases: Sutherland v. Birks (2003), (ON CA), 65 O.R.(3d) 812, [2003] O.J. No. 2885 (C.A.); Waxman v. Waxman, (ON CA), [2004] O.J. No. 1765, 186 O.A.C. 201(C.A.); Paragon Development Corp. v. Sonka Properties Inc. (2009), (ON SC), 96 O.R. (3d) 574, [2009] O.J. No.1278 (S.C.J.); and Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board (2006), (ON CA), 79O.R. (3d) 81, [2006] O.J. No. 27 (C.A.). [38] This view of the law was expressly rejected in Fracassi v. Cascioli, [2011] O.J.

No. 2425, 2011 ONSC 178 (S.C.J.), in which JusticePepall held that Paragon and Ford do not apply under the new Act. At paras. 271 and 272, Justice Pepall noted that the new Act ismeant to be comprehensive, and went on to find that it applies to oppression remedy claims: The Court of Appeal addressed the new Limitations Act, 2002 in Joseph v. Paramount Canada's Wonderland, supra. The Court statedthat

section 16 of the statute sets out a list of claims to which no limitation period applies. For other claims, the new Act establishes abasic two year limitation period and a maximum limitation period of fifteen years. The Court held that as

section 4 of the new Actmandates a two year limitation period unless the Act provides otherwise, a court must look in the Act for the authority to depart from theapplication of the two year limitation period. As the Court noted, the wording of

section 4 compels the conclusion that the new Act isintended to be comprehensive. There is nothing in the Limitations Act, 2002 that suggests that breach of a fiduciary duty or a claim for oppression escapes the statute'stwo year parameter. Reliance therefore cannot properly be placed on the limitation [page352] conclusion in Paragon Development Corp.v. Sonka Properties Inc. The Ford Motor Co. case was decided under the old limitation statute and in any event, it would appear that theoppression in that case continued until the commencement of the action. Accordingly, given the Court of Appeal's strict

interpretation ofthe Limitations Act, 2002 as reflected in Joseph v. Paramount Canada's Wonderland, I conclude that a two year limitation period appliesto the remaining causes of action in this case.

[ 39 ] In Reinhart v. VIXS Systems Inc . , [2011] O.J. No. 572 , 2011 ONSC 5349 (S.C.J.) , Justice Roberts also distinguished the older cases, and held, at paras. 8-9, that the Limitations Act, 2002 applies to oppression remedy claims: I prefer and adopt the analysis and conclusion of Madam Justice S. Pepall in the recent decision, Fracassi v. Cascioli , that the limitation period begins two years after the day on which the claim for oppression was discovered. As a result, I conclude that a two-year limitation period applies to the plaintiff's oppression claim. [ 40 ] The Act itself, as found in Joseph v.

Paramount Canada's Wonderland (2008), 90 O.R. (3d) 401 , [2008] O.J. No. 2339 , 2008 ONCA 469 , is meant to have broad applicability. A reading of the applicability

section of the Act itself supports this position: 2(1) This Act applies to claims pursued in court proceedings other than, (

a) proceedings to which the Real Property Limitations Act applies; (

b) proceedings in the nature of an appeal, if the time for commencing them is governed by an Act or rule of court; (

c) proceedings under the Judicial Review Procedure Act ; (

d) proceedings to which the Provincial Offences Act applies; (

e) proceedings based on the existing aboriginal and treaty rights of the aboriginal peoples of Canada which are recognized and affirmed in

section 35 of the Constitution Act, 1982 ; and (

f) proceedings based on equitable claims by aboriginal peoples against the Crown. I am satisfied that the new Act applies to oppression remedy claims. [ 41 ] In M. (K.) v. M. (H.) , supra , La Forest J. outlined the test for the doctrine of laches [at para. 98]: Thus there are two distinct branches to the laches doctrine, and either will suffice as a defence to a claim in equity. What is immediately obvious from all of the authorities is that mere delay is insufficient to trigger laches under either of its two branches.

Rather, the doctrine considers whether the delay of the plaintiff constitutes acquiescence or results in circumstances that make the prosecution of the action unreasonable.

Ultimately, laches must be resolved as a matter of justice as between the parties, as is the case with any equitable doctrine. [page353] [ 42 ] M. (K.) does not explicitly preclude laches from being used when a claim is subject to the Limitations Act, 2002 , but does explain that the doctrine of laches was developed because, historically, limitations legislation did not apply to equitable claims [at para. 96]: Historically, statutes of limitation did not apply to equitable claims, and as such courts of equity developed their own limitation defences.

Limitation by analogy was one of these, but the more important development was the defence of laches. While laches must be considered here as in any delayed equitable claim, in my view it does not afford the respondent redress. [ 43 ] This explanation provides support to the findings in the other cases cited above that laches will not apply when an action is subject to and within a statutory limitation period. [ 44 ] Unlike legislation in other provinces, as well as the Real Property Limitations Act , R.S.O. 1990, c.

L.15, the Limitations Act, 2002 does not explicitly state that equitable remedies are still available despite the existence of the limitations legislation. This could be interpreted as an implication by the legislature that, where limitations legislation is applicable to claims in equity, equitable remedies are not to be used. [ 45 ] The oppression remedy is subject to the Limitations Act, 2002 . As such, a claim falling within the limitation period should not be subject to laches given the case law and legislative observations outlined above.

While there is some case law to the contrary, this proposition does seem to follow the most recent case law as well as the purpose of the doctrine of laches as outlined by the Supreme Court of Canada. The defendants did not plead the Limitation Act . The request by the defendants to amend the statement of defence to include laches is refused. Issue 1: Share Valuation Introduction [ 46 ] The most vigorously contested aspect of the trial was the fair value to be assigned to the ten shares owned by each of the plaintiffs on valuation day pursuant to s. 185 of the OBCA . [ 47 ] The OBCA and the

Canada Business Corporations Act , R.S.C. 1985, c. C-44 provide for a dissenting shareholder's right to receive fair value for shares: Business Corporations Act (Ontario): 185(4) In addition to any other right the shareholder may have, but subject to subsection (30), a shareholder who complies with this

section is entitled, when the action approved by the resolution from which the shareholder dissents becomes effective, to be paid by the corporation the fair value of the shares held by the shareholder in respect of which the shareholder [page354] dissents, determined as of the close of business on the day before the resolution was adopted.

Canada Business Corporations Act: 190(3) In addition to any other right the shareholder may have, but subject to subsection (26), a shareholder who complies with thissection is entitled, when the action approved by the resolution from which the shareholder dissents or an order made under subsection192(4) becomes effective, to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents,determined as of the close of business on the day before the resolution was adopted or the order was made. The sections are virtually identical.

The only guidance that is offered with respect to the value of shares is that the shareholder must bepaid "fair value". Accordingly, one must turn to the case law for guidance on how "fair value" is determined. [48] The seminal case on "fair value" is Brant Investments Ltd. v. KeepRite Inc. (1987), (ON SC), 60 O.R. (2d) 737,[1987] O.J. No. 574 (H.C.J.), affd (1991), (ON CA), 3 O.R. (3d) 289, [1991] O.J. No. 683 (C.A.).

Anderson J. wroteabout the meaning of "fair value" and the proper approach for the court in making such a determination in relation to the dissent andappraisal remedy, at paras. 109-11 in the trial decision: For a phrase deceptively simple in terms, "fair value" has occasioned a great deal of judicial and editorial comment. I have concludedthat there should be no premium for forcible taking. I have concluded that no element of value relative to synergistic benefits of theimpugned transaction should be allowed. My reasons for these conclusions have been given.

The conclusions, I hope, make it possiblefor me to approach the problems inherent in determining "fair value" by a route less tortuous than has been found necessary in some ofthe cases. I start from the premise that the appraisal remedy is a statutory right, granted to minority shareholders, to oblige the corporation topurchase the shares of those minority shareholders who dissent from some basic change imposed by the majority. The right as I view it isto recover the value of the investment so that the proceeds may be utilized elsewhere. In such circumstances I see no reason why marketvalue is not "fair value".

Market value (in some comment called "fair value", in some "intrinsic value") is defined as the highest priceavailable in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to act,expressed in terms of money or money's-worth. In my view, on the facts of this case, "market value" will constitute "fair value" withinthe meaning of that term as used in s. 184(3). It is on that basis that I propose to determine the award to the dissenting shareholders.

In this context it is necessary to keep in mind the distinction between "market value" as thus defined and the market value approach tovaluation referred to in the judgment of Greenberg J. in Domglas, supra. The latter has reference to use of the quoted price or prices onthe stock market. Such prices reflect actual transactions of purchase and sale. "Market value" as defined above is a notional orhypothetical concept; an opinion arrived at by evidence, assumptions, calculations and judgment, in the [page355] absence of an actualtransaction.

The distinction is important for the disposition of this case. [49] In Brant, three expert witnesses gave valuations on shares in KeepRite. There was a wide discrepancy between their valuations:Campbell: $9 per share; Louden: $22 per share; and Wise: $28 per share. Anderson J.'s analysis immediately favoured Campbell'svaluation because Campbell had the benefit of speaking with management of KeepRite at the time that the dissent occurred.

The otherappraisers prepared their valuations much later and without the benefit of speaking with management regarding the state of affairs of thecompany. [50] Anderson J. then went on to note the differences between the valuations to determine the basis of the discrepancies. The two majordiscrepancies that accounted for most of the differences were the probable debt level, probable rate of interest to be paid and thecapitalization rate. He then discussed which analysis he preferred within those two areas of discrepancy.

For example, there was adiscrepancy in probable interest rates between Campbell and Louden by roughly 3 per cent. Campbell expected a 13-14 per cent interestrate and Louden expected 11 per cent. Anderson J. found that Campbell's analysis was more realistic because interest rates at the timehad been fluctuating and Louden's estimate was based on the expectation that they would level off. Anderson J. believed that there wasstill significant uncertainty in interest rates and accepted Campbell's number. [51] This analysis favours the following method of completing a valuation:

(1) Assess the experts themselves. Do the circumstances lead to one being more credible?

(2) Find out why there are discrepancies between the valuations. Which inputs led to the greatest discrepancies?

(3) Analyze and select the preferred inputs. Anderson J. found that redoing the valuation is impractical. Thus, it may be that the valuation reached is the one that is closer to thevaluation of the expert who had the most favourable inputs. [52] The challenges for the court in determining fair value on valuation day were also articulated by the court in Nixon v. Trace, [2012]B.C.J. No. 178, 2012 BCCA 48, 315 B.C.A.C. 261 [at para. 12], in which the court referred to an earlier Court of Appeal for BritishColumbia decision, [page356] Cyprus Anvil Mining Corp. v. Dickson, (BC CA), [1986] B.C.J.

No. 1204, 33 D.L.R.(4th) 641 (C.A.) [at p. 652-53 D.L.R.], which states: . . . the problem of finding fair value of stock is a special problem in every particular instance. It defies being reduced to a set of rules forselecting a method of valuation, or to a formula or equation which will produce an answer with the illusion of mathematical certainty.Each case must be examined on its own facts, and each presents its own difficulties. Factors which may be critically important in onecase may be meaningless in another.

Calculations which may be accurate guides for one stock may be entirely flawed when applied toanother stock. The one true rule is to consider all the evidence that might be helpful, and to consider the particular factors in the particular case, and to

exercise the best judgment that can be brought to bear on all the evidence and all the factors. I emphasize: it is a question of judgment. No apology need be offered for that. Parliament has decreed that fair value be determined by the courts and not by a formula that can be stated in the legislation. . . . . . In

summary, it is my opinion that no method of determining value which might provide guidance should be rejected. Each formula that might prove useful should be worked out, using evidence, mathematics, assessment, judgment or whatever is required. But when all that has been done, the judge is still left only with a mixture of raw material and processed material on which he must exercise his judgment to determine fair value. [ 53 ] Both of these cases confirm that valuation is not an exact science, and it will be up to the court to determine how to weigh competing valuations.

In Brant , Anderson J. ultimately assigned a share value of $13. He did not engage in an in-depth analysis of why he arrived at this exact value, but that he generally favoured Campbell's reasoning over the others.

His only criticism of Campbell, thus why he went to $13 instead of accepting $9, was because he found that Campbell put too much emphasis on a temporary crisis experienced by KeepRite, thus driving Campbell's valuation down. [ 54 ] At para. 130, Anderson J. described the method he used to arrive at the $13 valuation: The third [possible method] is to arrive at my own valuation upon my view of the evidence as a whole and without resort to any sophisticated method. Fully conscious of its frailties and the criticisms to which they will give rise, I have selected it as the least of the available evils.

This is in line with the reasoning in Nixon , where the court found that valuation is an imperfect science and it is ultimately up to the trial judge who has a wide degree of discretion in choosing the appropriate method in order to reach a valuation. [ 55 ] The court was presented with three different opinions of value of the Hotel as of valuation day prepared by experts qualified to give such opinions. Every valuation used either an [page357] income approach or combined income and market comparison approach. As referred to earlier in this judgment, Mr.

Paul prepared his own valuation of the Hotel even though he is not a qualified appraiser. In my view, it was presumptuous of him to take that approach to providing the court with evidence required to determine a proper share valuation. His report was not helpful and the presentation of his "opinions" resulted in a considerable waste of court time, both in terms of direct and cross-examinations. While Mr. Paul is an experienced real estate broker who has considerable knowledge about the buying and selling of hotels, his views as an interested party are of no value to the court.

The fact that he assigned the highest value to the Hotel was not surprising, given his interest in the outcome. [ 56 ] Mr. Paul's presentation of a report had another unfortunate result. His own expert, Mr. Lansink, made reference to various aspects of Mr. Paul's "findings" in his technical report prepared to respond to the defendants' experts' reports to rebut their opinions. In doing so, it brought Mr. Lansink's objectivity into serious question. [ 57 ] With respect to the expert reports themselves, I will review each of them briefly in turn. Lansink Report [ 58 ] Mr. Lansink was asked by Mrs.

Downs Paul on December 12, 2011 to provide a report regarding the value of the Hotel for the purposes of this litigation. Mr. Lansink has been a real estate appraiser and a member of the Appraisal Institute of Canada ("AAIC") since 1972, a designation which allows a person so qualified to appraise any kind of property. In that capacity, he has appraised all manner of property, including airports, golf courses, hotels, motels, care facilities for seniors, cemeteries and numerous other kinds of properties in Ontario.

His report concluded that the market value estimate of valuation day was $6,140,000 and a per room value of $51,167. Mr. Lansink attended at the property on December 20, 2011 for the purpose of inspecting it, the neighbourhood and the surrounding community. He also reviewed the financial statements for the period ending February 14, 2008, as well as the statement of income and expense for the periods ending March 11, 2010 and April 8, 2010. [ 59 ] Mr.

Lansink's valuation took into account the desirable waterfront location of the historic hotel built by the Canadian National Railroad in 1911, the number of rooms, the amenities, as well as comparison with other competitors in the community. [page358] [ 60 ] Mr. Lansink described the various methods that can be used to estimate the value of property as compared to other properties: the direct comparison approach; the income approach; and the cost approach. He did not use the cost approach as that approach is more appropriate for new construction. Thus, Mr.

Lansink used the first two methods to come to his final valuation. [ 61 ] When Mr. Lansink was cross-examined on the factors he considered in coming to his ultimate value, he disagreed that a hotel had to be valued in the manner recommended by the Sauder School of Business and insisted that hotels were valued in the same way as any property. Mr. Lansink's report did not make reference to many of the aspects of hotel operation that were considered by the other appraisers such as demand generators, travel forecasts, competition, market performance, supply and demand analysis, and occupancy projections. Mr.

Lansink's valuation also did not utilize the uniform system of accounts used by the other experts to convert reported financial data into a system that could permit comparison among various hotel properties. While this does not mean that one could conclude that Mr. Lansink's approach to valuation was wrong, his approach made it more difficult to compare and contrast the values assigned to the Hotel by the various appraisers. [ 62 ] In arriving at his opinion that the net operating income of the Hotel was $460,860, Mr.

Lansink, unlike all the other experts, did not include a 3 per cent management fee nor a 4 per cent reserve for replacement of assets. It was his view that the amount set aside for repairs and replacement included replacement of assets. As well, the arrangement that the Pauls and Mr. Bahia entered into with BDC included the payment of a monthly amount in excess of $11,000 to be held by BDC and drawn against for the purpose of repairs and

replacements created a reserve. Since this arrangement was already in place, Mr. Lansink determined that a further 4 per cent reserve was unnecessary. [ 63 ] The other significant difference between the value placed on the Hotel by Mr. Lansink and the other experts was the capitalization rate of 7.5 per cent he applied. He arrived at this amount by comparing the capitalization rates for six hotels sold around the time of valuation day, that is, from January to March 2008.

In fact, the Canadian Hotel Transaction Report that was made an exhibit at trial reported 21 hotel transactions during the same period selected by Mr. Lansink for comparison with the Hotel. The average capitalization rate of all the 21 transactions was 10.20 per cent and the median rate 10.9 per cent. [page359] [ 64 ] Even accepting that a number of the 21 transactions were not comparable to the Hotel, there were a number which had been properly used as comparables by the other appraisers and which I find Mr. Lansink should have included.

Had he done so, the average or median capitalization rate would have been in the 10.2 per cent to 10.9 per cent range, in line with that of the other appraisers. Also, if he added a reserve for replacement of 1 per cent of gross sales as suggested by counsel for the defendants, Mr. Lansink's final value would have been between $4,225,000 and $3,953,700, also in line with the value of the Hotel set by the other appraisers. [ 65 ] Before leaving the issue of Mr.

Lansink's opinion that the amounts recorded in the Corporation's financial statements for repairs and maintenance was sufficient to cover the cost of asset replacement, this opinion is not supported by a review of the financial statements of the Hotel including the balance statements.

In addition to the amounts expended for repairs and maintenance, there was an additional $617,845 spent from the time of the purchase of the Hotel to February 28, 2008, which is close to the 4 per cent reserve for asset replacement included by the other appraisers in their opinions of the value of the Hotel. [ 66 ] Support for the inclusion of the 4 per cent reserve for asset replacement in an analysis of the ongoing annual expenses of a hotel is found in the Capex 2007 study of capital expenditures in the hotel industry.

This is a document prepared for hoteliers by the International Society of Hospitality Consultants for the purpose of providing information regarding hotel expenditures for capital needs. In the introduction, it is pointed out that what the data collection revealed in the study was that capital expenditures for a hotel generally increase with the age of the hotel.

The Hotel was built in 1911, and I heard a significant amount of evidence from most of the witnesses about the condition of the Hotel and its physical plant needs. [ 67 ] Counsel for the plaintiffs urged me to find that the monthly payment by the Hotel to BDC provided for in agreements to be held by BDC until drawn down by the Hotel on presentation of satisfactory invoices or estimates had the effect of creating such a reserve. With respect, I disagree. I find that the BDC account could be used for a much wider purpose, including repairs and maintenance, and was not set aside for asset replacement.

I find, therefore, that a 4 per cent reserve for asset replacement should be included in determining the net operating income of the Hotel. [page360] HVS Report [ 68 ] Monique Rosszell, a principal of HVS Consulting and Valuation in Toronto prepared a valuation at the request of Mr. Bahia. Unlike the other valuations, Ms. Rosszell was not made aware of the purpose for which the report was requested. By way of experience, Ms. Rosszell has impressive credentials. Besides having the AACI designation as did Mr. Lansink and Mr.

Raymer, she is a member of the Royal Institute of Chartered Surveyors ("MRICS"), and has both a degree in hotel management from Ecole Hoteliere de Lausame, Switzerland, and practical experience in working in the hotel industry itself with three large hotel chains. [ 69 ] Unlike Mr. Lansink, Ms. Rosszell did not inspect the Hotel during the preparation of her report. It was inspected by an associate, not an AACI-accredited appraiser. Ms. Rosszell testified, however, that she had inspected the Hotel in 2011.

Her report delivered on October 26, 2012 expressed the opinion that the retrospective market value of the Hotel as of March 19, 2008 based on the income capitalization approach was $4,200,000, equating to a $35,000 per room value, considerably below that of Mr. Lansink's appraisal which set a per room value of $51,167. [ 70 ] She also expressed the view that based on a sales comparison approach, the value of the Hotel would be $3,200,000 to $6,400,000. Ms.

Rosszell did not find that given the unique nature of the Hotel, subjective rather than objective adjustments would need to be made between the subject property and other properties, thus diminishing the reliability of the sale comparison approach. In any event, it was her opinion that the typical hotel investor does not approach a purchase from a sales comparison approach except to establish broad value parameters. [ 71 ] Ms.

Rosszell confirmed that her approach to hotel valuation was in accordance with the principles taught at the University of British Columbia Sauder School of Business, Real Estate Division, where she studied and received her AACI designation. Accordingly, she converted the financial documentation she received into the uniform system of accounts used by hotels in which certain expenses are allocated to certain categories to be better able to evaluate the performance of a hotel in comparison to other hotels. As well, Ms. Rosszell included a 3 per cent management fee and a 4 per cent reserve for asset replacement.

To not include such a reserve would result in a loss of market share if the appearance of the rooms and other guest areas were neglected. [page361] [ 72 ] Some of the factors which influenced Ms. Rosszell's valuation included a comparison of the Hotel's performance in relation to the competition in Thunder Bay, including the revenue per available room or "RevPAR" as it is referred to in the hotel industry. This is the average room rate multiplied by the occupancy of the available rooms on an annual basis. Using this calculation, the Hotel had the lowest RevPAR in 2006 and 2007 of comparable hotels.

Other hotels in Thunder Bay had increased their number of rooms which ate into the Hotel's market share. While the Hotel entered into a contract for $300,000 at the end of 2007 with Canadian Pacific for rooms which would increase their projected room nights, it would reduce the average per room cost to $77.61 from $82.24 because the contract was for 300 rooms at $52 each night. [ 73 ] Ms. Rosszell also commented on the dated nature of the Hotel, including older beds and furniture which she found accounted for the fact that the Hotel was not doing as well as its competitors.

She also reviewed the internal financial documents of the Hotel and compared them with the audited financial statements as opposed to the financial statements of the Corporation as the internal Hotel documents were more detailed. She was unaware, however, that Mr. Bahia had been receiving approximately $100,000 per year as management fees and reported that there were no management fees being paid.

[ 74 ] Ms. Rosszell was challenged at length on cross-examination, particularly in relation to her financial conclusions based on the financial statements and other documents. I find that some of the disparity in her financial analysis, particularly in relation to her insistence that a 4 per cent asset replacement reserve was required along with a 3 per cent management fee was based on a rate application of principles without factoring in the particular circumstances of the Hotel.

Even though the Hotel was depositing over $11,000 per month with BDC for revenue for repairs, maintenance and replacement of items, and Mr. Bahia was receiving a management fee of almost $100,000 per year, these undisputed facts were not reflected in her report. PKF Report [ 75 ] Brian Stanford, a principal of PKF Consulting, and Stephen Raymer, also associated with PKF, testified with respect to the valuation of the Hotel completed by that firm on February 26, 2010, effective March 19, 2008, as well as a second valuation submitted the same day which valued the Hotel as of March 1, 2010.

For reasons that were never made clear, the existence of these valuations were not made known until after the plaintiffs [page362] had brought a motion in 2011 to ask the court to appoint an appraiser pursuant to s. 185(25) of the OBCA . I will have more to say about that provision of the OBCA later in this judgment. [ 76 ] Mr. Stanford is not qualified as an appraiser by the AAIC but has been involved with many hotel valuations since 1983, when he joined PKF as an intern with a degree in tourism and hospitality from Ryerson.

He attended at the Hotel, to assess the Hotel, some of its competitors as well as the community and factors that impact on the value of the Hotel. [ 77 ] It was Mr. Stanford who also reviewed the financial statements of the Hotel and pointed out that the Hotel has 121 rooms, not 120, as one room is used for administrative purposes. Nevertheless, he said it should be described as a 121-room hotel as the additional room adds to the value of the property.

Although in need of significant updating in terms of the room furnishing, bathrooms and elevators, it has the advantage of good space for meetings and a waterfront location near the casino. [ 78 ] Like Ms. Rosszell, Mr. Stanford pointed out that the RevPAR of the Hotel was the lowest among the competition and had been for a number of years. Also, like Ms. Rosszell, he converted the financial information he reviewed into the uniform system of accounts for hotels. Unlike Ms. Rosszell, Mr. Stanford reduced the operating expense for administration by $99,000, the amount received by Mr.

Bahia annually, but added a 3 per cent management fee as well as a 4 per cent reserve for asset replacement. Taking into account a number of factors including a review of economic factors impacting on the Thunder Bay economy, tourism statistics and projections, the age of the Hotel and the updating required, he determined that an 11 per cent capitalization was appropriate. Based on his calculations, this resulted in a value of the Hotel on valuation day of $4,100,000.

A report of the same day but effective March 1, 2010, put the value of the Hotel at $3,600,000, a significant decrease in value in just under two years. From Mr. Bahia's perspective, the lower value in 2010 impacted negatively on his ability to get financing, the purpose for which that report was completed. In contrast, the higher value in 2008 impacted on what the Corporation would have to pay the Pauls for their 20 per cent minority interest.

Counsel for the defendants pointed out that this was supportive of the neutrality of the PKF approach. [ 79 ] Stephen Raymer, who is qualified by AAIC, signed the PKF appraisal after spending seven to eight hours reviewing the report. He agreed with the $4,100,000 value. He acknowledged that he had not inspected the Hotel as part of the appraisal and that he had relied on the observations and opinions of [page363] Mr. Stanford in relation to the physical plant. He did say, however, that because of family connections in Thunder Bay, he was very familiar with the Hotel. [ 80 ] Mr.

David Kubinec is a public accountant with BDO Canada, the accountants for the Hotel, and in that capacity his firm had audited the Hotel since 2006. Much of his evidence was related to reviewing the financial statements in exhibit 17 and explaining the limited nature of the BDO report that accompanied Mr. Bahia's offer to purchase the Pauls' shares explaining the difference between repairs and maintenance expenses as opposed to capital expenditures, pointing out that repairs are not considered capital expenditures. The latter are capitalized and identified under plant and equipment on the balance sheet.

There are also different tax consequences for repairs and maintenance as opposed to capital expenditures. Repairs and maintenance expenditures are operating expenditures and are direct deductions from revenue. Capital expenditures, on the other hand, are accrued and deducted (depreciated) over time. [ 81 ] According to a review of the audited statement, the total capital investment in the Hotel since its acquisition has been $795,000. Mr. Kubinec was confident that there were no capital expenditures reported as repairs and maintenance. [ 82 ] On cross-examination, Mr.

Kubinec acknowledged that the BDC reserve account was used over the years for both repairs and maintenance and capital expenditures. In addition, he acknowledged that he did not examine each and every invoice, but rather reviewed a sample of expenditures in various categories, additions to or replacement of furniture and equipment to assess the appropriate category. In 2006, $43,943 was spent on furniture and equipment, $17,802 was spent in 2007 and in 2004 capital expenditures were $13,000. [ 83 ] Mr.

Kubinec was questioned at length about the entries in the financial statements regarding the accrual of interest by Mr. Bahia and the fact that the different treatment of the interest in regard to the Pauls was never confirmed with the Pauls. Mr. Kubinec relied on information he received from Mr. Bahia and the management staff at the Hotel.

Analysis of the different approaches to valuation [ 84 ] The key differences in the case before me between valuations are the capitalization rate, the inclusion of a management fee, the inclusion of a reserve for asset replacement, the treatment of the accrued interest and the time at which the valuations were carried out. [page364] [ 85 ] The Lansink valuation uses a capitalization rate of 7.5 per cent. Counsel for the defendants argued that the median capitalization rate used by Lansink was incorrect and that it should have been 9.6 per cent based on counsel's statistical calculations.

A capitalization rate of 7.5 per cent results in a final value of $6,144,804 while a capitalization rate of 9.6 per cent results in a final value of $4,800,625, with all other factors being equal, using Lansink's numbers. [ 86 ] Counsel for the defendants went on to assert that the report used by Lansink actually shows a median capitalization rate of 10.9 per cent, which is in the 10-11 per cent range used by PKF. This would result in a final value of $4,228,073 as opposed to the $6,144,804.

This appears to be the largest source of discrepancy between the valuations and brings Lansink's valuation closer to that of PKF andHVS. Any further discrepancy can be explained by the inclusion of the management fee and reserve. Of further note, PKF's valuationwas done much closer to the date in question, giving it additional weight following the reasoning in Brant. [87] Overall, the greatest discrepancy in the various values of the Hotel on an income basis is in the capitalization rate used. Mr.

Lansinkapplied a rate that I find was not supported in his report, as he did not consider a number of hotels in the comparison that should havebeen included. Using the correct median capitalization rate, the value of the Hotel comes within the range of the other valuations.Incorporating a management fee and reserve would bring the valuation between $4,100,000 and $4,200,000 as suggested by the PKFreport and the HVS report. I find that $4,100,000 is the value of the hotel to be used in assigning a share value.

While I am aware that thesecond PKF valuation as of March 2010 reduced the value by approximately $500,000, the law is clear that I must use the valuation dayvalue for calculating the fair value of the shares. [88] The defendants called as an expert Donna Marie Bain Smith, a chartered business valuator, to provide a report and an opinion as tothe en bloc share value of the Corporation, which she found to be between $1,226,000 and $1,256,000 using the PKF value of the Hotelof $4,100,000.

In her first report, she used that value to create an asset valuation and arrived at this value by taking the fair market valueof the hotel and subtracting the net book value, tax shield forgone, and future income taxes. [89] Ms. Bain Smith provided a second report on January 29, 2013, based on the HVS valuation of $4,200,000. Using the same[page365] approach as in her first report, she found the en bloc share value to be between $1,326,000 and $1,356,000. It was Ms.

BainSmith's evidence on cross-examination that while she had done an asset-based evaluation, she agreed that she could have approached herevaluation from an earnings-based approach which would not take into account the tax shield forgone. [90] The "asset-based approach" is an accepted approach to determining fair market value (Faulkner v. Faulkner, [1997] A.J. No. 730(Q.B.); Calmont Leasing Ltd. v. Kredl, (AB KB), [1996] A.J. No. 283, 38 Alta. L.R. (3d) 296 (Q.B.)). However, themethod suggested by the plaintiff, the income/ investment method, has more support in the case law (Domglas Inc. v.

Jarislowsky,[1980] Q.J. No. 89, 13 B.L.R. 135 (Sup. Ct.), at paras. 373-74). In Manning v. Harris Steel Group Inc., (BC SC),[1996] B.C.J. No. 816, 7 B.C.L.R. (2d) 69 (S.C.), Justice Proudfoot found [at para. 26]: This value [the income/investment method] seems the method most often used. I refer again to the cases of Cyprus Anvil MiningCorporation v. Dickson et al. (1983), (BC SC), 40 B.C.L.R. 180, Diligenti v. RWMD Operations Kelowna Ltd. (1978), (BC SC), 4 B.C.L.R. 134 as well as Les Investissements Mont-Soleil Inc. v. National Drug Limited (1983), 22 B.L.R.139.

The reason for this method most often being used no doubt being that one is in business to earn income, it must follow that thevalue of a business must depend upon the capacity to generate income. Greenberg, J., in Domglas stated: "The basic concept currentlyaccepted by valuation theorists is that as business is worth only what it can earn except where it is worthless on an earning basis than theamount that would be realized if it were liquidated".

It then seems to become necessary to look at the situation on the basis of the valueof a going concern. [91] Proudfoot J. went on to state that the capitalization of earnings approach is most appropriate to determine the fair market value ofshares. Generally, the income-based approach is used where a business is of "going concern", and the asset-based approach is used forbusinesses that are being liquidated. However, the Alberta Court of Appeal rejected the notion that a trial judge is bound by onevaluation method in Pocklington Foods Inc. v. Alberta (Provincial Treasurer), [2000] A.J.

No. 16, 2000 ABCA 8, 75 Alta. L.R. (3d) 263[at paras. 6-7]: Because share valuation involves primarily the judgment and discretion of a trial judge based on the facts of the case, a lower court'svaluation approach should not be interfered with on appeal unless that technique displays a "manifest error": see Domglas Inc. v.Jarislowsky, Fraser & Co. Ltd. et al. (1982), (QC CA), 138 D.L.R. (3d) 521 at 523 (Que. C.A.); see also Toneguzzo-Norvell (Guardian ad litem of) v. Burnaby Hospital, (SCC), [1994] 1 S.C.R. 114 at 121.

At trial, the learned trial judge heard expert evidence from both parties on the compelling approaches available in the valuation of theshares. Each party advocated that a particular method be employed by the trial judge. [page366] However, after considering the evidenceand determining that there were difficulties in the approaches advanced by each party, the trial judge selected a combination approach asthe most appropriate method of valuation in the circumstances. [92] The average en bloc share value using the asset-based approach at a hotel value of $4,100,000 is $1,240,500.

Using the investmentapproach, the value is higher depending on which Hotel valuation is selected. As indicated above, a value of $4,100,000 to $4,200,000 issupported by the evidence. Since the investment approach is recommended in the case law, I find that this is the approach I should use. Minority discount [93] Generally, a minority discount is applied to shares that are being sold because a willing buyer would be willing to pay less for aminority share than for a majority share due to the lack of control that comes with that share.

While the application of a minoritydiscount is an accepted practice at the discretion of the court and has been applied in some cases, I find that the circumstances of thiscase do not lend themselves to assigning a minority discount, in accordance with the reasoning in Diligenti v. RWMD OperationsKelowna Ltd., (BC SC), [1977] B.C.J.

No. 1331, 4 B.C.L.R. 134 (S.C.), at para. 81: In the first place, while it is true that in the process of the initial step -- determination of the value of the business as a going concern --one must look at what a willing purchaser would be prepared to pay a willing vendor for that business on the open market, in the secondstep -- determination of the actual price for the shares, the situation here is quite different from that of a minority shareholder offeringhis shares on the open market.

In such a situation, which is the approach taken in the revenue cases, including Levitt, supra, thepurchaser would end up as a new minority shareholder, subject to all the disadvantages of the position of the original shareholder:obviously a minority discount would be applicable. But here, where the purchase will be by virtue of an order that existing shareholders,or the company, make the purchase, the result will be that existing shareholders will simply consolidate their positions.

They do notbecome minority shareholders as a result of the purchase -- they are already, as individuals, minority shareholders; in this case theybecome holders of one-third of the shares instead of one-quarter. Their position in relation to each other is not changed. On the basis of

the facts I consider that the arguments as to the application of a minority discount do not apply to these circumstances. [Emphasis in original] Value of the shares [ 94 ] Accepting the approach articulated by Anderson J. in Brant set out earlier in this judgment, that is to arrive upon my own valuation based on my view of the evidence as a whole and [page367] without resort to any sophisticated method, I fix the en bloc value of the shares at $1,700,000 or $17,000 per share. I came to this value by accepting the value of the Hotel at $4,100,000, deducting the mortgage, allowing the accrued interest of Mr.

Bahia and the management fees that were paid to him and approved by the shareholders and also acknowledging the $700,000 required for much needed upgrades to the hotel identified by both the PKF and the HVS reports. Each of the Pauls will receive $170,000 plus $50,000 as repayment of their shareholder loan. The shareholder loans are to be paid out forthwith with the value of the shares to be paid out within 90 days in three equal payments, along with the interest provided for later in this decision. I remain seized of any issues arising from this schedule.

Section 185(25) court-appointed appraisers [ 95 ] Counsel for the plaintiffs submitted that more use should be made of this

section by courts. I agree, particularly because the role of experts in relation to the court is being clarified to emphasize their obligation to be of assistance to the court rather than to the party who hired them. The appropriate time, however, to make such a request is early in a proceeding before one or more of the parties has obtained an appraisal of their own. Sorting through a number of different appraisals prepared by various experts is much less efficient and more costly for the parties involved than having one appraiser who would work under the direction of the court.

Issue 2: Oppression Remedy Introduction [ 96 ] It is clear that an action in oppression can be brought concurrently with an action involving dissenting shareholder rights, as Anderson J. held in Brant , at paras. 40-41: Notwithstanding the anomaly to which I have referred I think it would be wrong to hold that a remedy under s. 234 was closed when the right to dissent under s. 184 was exercised. The variety of circumstances which might give rise to a remedy under s. 234, and the wide range of such remedies, would render such a decision unwise, even if the Act could be construed to give alternative remedies only.

It may be that in a proper case, and upon interlocutory motion at some stage of the proceedings, a court might find it just and convenient to order a stay of one proceeding or the other, but that is a problem for another day and another case. It was open to the dissenting shareholders to bring the oppression action, which has failed on the merits. [page368] [ 97 ] Like shareholder dissent rights, the oppression remedy is codified in the OBCA and the

Canada Business Corporations Act . Business Corporations Act (Ontario) 248(1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

(2) Where, upon 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 or threatens to effect a result; (

b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or (

c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

Canada Business Corporations Act 241(1) A complainant may apply to a court for an order under this section.

(2) If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates (

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of.

As with the dissent and appraisal rights, the federal and provincial legislation are almost identical. [98] In Bank Leu AG v. Gaming Lottery Corp., (ON CA), [2003] O.J. No. 3213, 231 D.L.R. (4th) 251 (C.A.), WeilerJ.A. explained the oppression remedy as follows [at para. 71]: The oppression remedy is designed to afford a remedy when a corporation acts in an oppressive, unfair or prejudicial manner towards aminority shareholder or creditor or in a manner that unfairly disregards their interests. Important underpinnings of the oppression remedy

[…]