Giffin v. Soontiens, 2011 NSSC 404

SUPREME COURT OF NOVA SCOTIA Citation: Giffin v. Soontiens, 2011 NSSC 404 Date: 20111031 Docket: Hfx No. 292594 Registry: Halifax Between: Gordon Giffin Plaintiff and Nicole Soontiens, Ilona MacAlpine, XL Electric Limited, a body corporate, Huntec Limited, a body corporate, and CNCA Holdings Limited, a body corporate Defendants LIBRARY HEADING Judge : The Honourable Justice Gerald R. P. Moir Heard: January 11, 12, 13, 18, 19, and 20, 2010, January 17, 18, 19, 20, 24, 25, 26, 27, and 31, February 1, 2, 3, 4, 8, 9, and 16, 2011 Last Written Submissions: September 14, 2011 Subject: Shareholder oppression; other pleas of breach of fiduciary duty, misrepresentation, promissory estoppel

Summary: Three principals started an electrical contracting company. After some years of hard work, the company became very profitable. A shareholder agreement gave much preference to two of the three principals. They received a disproportionate share of the real profits. The third shareholder alleged that he was promised equal treatment. He left the company and sued for shareholder oppression and the other pleas. It appears that a term in the agreement crucial for valuing the minority shareholder's interest is ambiguous. The ambiguity also had to be resolved. Issues:

(1) Whether the plaintiff established shareholder oppression?

(2) Whether the other pleas were established?

(3) Remedy.

Result:

(1) When the ambiguity is correctly resolved the agreement is not as one-sided as the majority shareholders assert. Inequalities remain apparent. Despite the inequalities, the minority shareholder had a reasonable expectation of equal treatment. Actions by the company, including payment of unequal dividends and a purported unilateral amendment of the share terms to resolve the ambiguity against the minority shareholder, were oppressive.

(2) The other pleas were not established.

(3) The appropriate remedy involves a valuation of the company, and a related company, as of the day Mr. Giffin left the company and an order for purchase of his shares by the defendants. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET . SUPREME COURT OF NOVA SCOTIA Citation: Giffin v. Soontiens, 2011 NSSC 404 Date: 20111031 Docket: Hfx No. 292594 Registry: Halifax Between: Gordon Giffin Plaintiff

and Nicole Soontiens, Ilona MacAlpine, XL Electric Limited, a body corporate, Huntec Limited, a body corporate, and CNCA Holdings Limited, a body corporate Defendants DECISION Judge: The Honourable Justice Gerald R. P. Moir Date of Hearing: January 11, 12, 13, 18, 19, and 20, 2010, January 17, 18, 19, 20, 24, 25, 26, 27, and 31, February 1, 2, 3, 4, 8, 9, and 16, 2011 Last Written Submission: September 14, 2011 Counsel: John A. Keith, Andrew D. Taillon, and Jack J. Townsend, articled clerk, for plaintiff George W. MacDonald, Q.C., Kiersten Amos, and Michael Blades, articled clerk, for defendants Scott Sterns with watching brief for Tibor Berta and Western Electrics

(2004) Ltd. Table of Contents Introduction para. 1 Fact Finding The Berta Family and Business para. 11 Giffin, MacAlpine, and Soontiens in Western Electrics para. 22 Agreement for a Second-Generation Business para. 52 Financing the New Venture para. 81

Loan to Company or Gift to Daughters? para. 108 Incorporation and Articles para. 139 Shareholder Agreement and Share Terms para. 148 Events Leading to Shareholder Agreement and Share Terms para. 168 1999 to 2004 para. 204 Transfer of Class C Shares para. 237 2005 para. 260 2006 and Early 2007 para. 285 XL Purchase of Leftover Tools and Inventory para. 306 Premises para. 319 Issues para. 330 Importance and

Interpretation of the Shareholder Agreement para. 334 Promissory Estoppel para. 365 Misrepresentation para. 367 Shareholder Oppression para. 373 Fiduciary Duty para. 422 Remedy para. 432

Moir, J.: Introduction [ 1 ] Gordon Giffin, Ilona MacAlpine, and Nicole Soontiens worked for the same electrical business. They decided to leave and to start their own electrical contracting company. [ 2 ] Mr. Giffin believed that the company was to be owned and operated by the three as equal principals. Ms. MacAlpine and Ms. Soontiens seemed to agree with that in the formative discussions. [ 3 ] The three left their employment at different times over a period of months, but under a single plan.

Equally, they took the risk of leaving an established business for a speculative venture. [ 4 ] Each took on an equally important role in a newly incorporated company. Each worked hard. They undertook equal liabilities to the bank and the bonding company. They equally accepted modest incomes so as to develop equity in the company. [ 5 ] In one respect only, their contributions were not equal. Ms. Soontiens and Ms. MacAlpine invested $95,000 in start-up costs to Mr. Giffin's mere $5,000.

In the beginning, he understood that he could borrow and invest an equal amount, but he was erroneously told that the bonding company would not recognize as equity an investment of funds that he had borrowed. [ 6 ] The investments were set up as directors' loans and the company paid interest on the excess, $85,000, and eventually it began to substantially pay off the principal. Mr.

Giffin understood that paying off the $85,000 portion of directors' loans would be a priority and his expectation of equality was eroded to that extent. [ 7 ] The shares of the new company were not distributed among the three principals, and no shareholder agreement was prepared, until well after the principals had left their employment, made their investments, devoted much labour to the company, and undertook contingent liabilities to the bank and the bonding company. The shares were not distributed equally, and the shareholder agreement established many inequalities between Mr.

Giffin and his co-adventurers. [ 8 ] The situation improved for Mr. Giffin some years later when about one third of the most valuable shares were transferred by Ms. MacAlpine and Ms. Soontiens to Mr. Giffin. This put him, more or less, on an equal footing for distribution of equity on liquidation. He had equality in management as a director, but a majority would suffice for dividends, and the board of directors had much discretion in that regard. [ 9 ] The company was successful. It reached the point where the principals could take out real profits, over and above normal compensation.

However, the payments were grossly unequal. Mr. Giffin lost faith in the other principals, began looking for other work, and eventually left the company for a lower paying job. [ 10 ] Mr. Giffin alleges various causes against the defendants. As will be seen, only one of them is established. Various actions

taken by the company, including a declaration of grossly unequal dividends, amount to shareholder oppression. Mr. Giffin is entitled to remedies to redress the oppression. The Berta Family and Business [ 11 ] Tibor Berta, the father of the defendants, Ilona MacAlpine and Nicole Soontiens, and the uncle of the plaintiff, Gordon Giffin, was born in Hungary in 1937. He was among the many who came to Halifax about the time of the Hungarian Revolution. [ 12 ] Mr. Berta had obtained a diploma from a mechanical and electrical institute in the old country.

He continued his studies here, became a journeyman electrician, acquired his interprovincial ticket in 1962, and worked for many years with a local contracting company. [ 13 ] Mr. Berta met Diane Berta when he was studying in Halifax. She was a secretary at the school. Later, she went to work for G. I. Smith when he was the finance minister. When Smith became premier, Clarkson Gordon hired her. It was just opening a Halifax office. [ 14 ] The Bertas married in 1968. Ilona Berta was born in 1971, Nicole Berta two years later. Mrs.

Berta sometime worked as her husband's secretary at the firm of electrical contractors but she insisted on being home after the children were born, always when they were very young and after school when they became school-aged. [ 15 ] In 1985, Mr. Berta acquired an established local business, Western Electrics Limited. It was a unionized electrical contractor. By then, Mr. Berta had all the knowledge and skills for estimating, bidding, seeing to performance, and generally running a commercial electrical contracting business. [ 16 ] Mrs. Berta would have preferred to be at home. But, Mr.

Berta said of Western Electrics, "This place needs to be organized." She worked there until they retired. Mrs. Berta did "whatever needed to be done" including payroll, filing, tracking change orders, tracking contract values, and looking after the books. I have the impression that the business profited from close attention to accounting and other important controls. [ 17 ] Western bid for, and obtained, medium to large contracts with commercial, industrial, and institutional clients. For this, it required bonding.

And for that, it required good financial controls, sufficient equity, and auditor prepared financial statements. Financial statements from the mid-nineties show strong financial performance. [ 18 ] I take it that Western Electrics was well run by Mr. Berta and that it showed good financial performance under his ownership. The strong financial showing of the mid-1990s is probably indicative of performance before that. [ 19 ] Mr. Berta spoke of efforts to "revitalize" Western Electrics going into the 1990s. I doubt that it required a financial turn- around.

Rather, he was preparing it for the day he could take out his investment and retire. His daughters and his nephew figured in that plan. Their introduction into the business is part of the backdrop to the formation of their own companies, the subjects of the shareholder oppression claims. [ 20 ] As I said, Western Electrics was unionized. Its was a closed shop. Mr. Berta became a representative of management in industry-wide negotiations. His relationship with the union in his own shop became strained. For his part, Mr.

Berta believed that the union held him back because unionized labour cost more than the cost of labour in non-unionized competitors and because it placed obstacles in his way for contracts outside Halifax, obstacles that did not exist for his non-unionized competitors. Western's relationship

with the union also became backdrop to the formation of the next-generation business. [ 21 ] We will discuss the introduction of Mr. Giffin, Ms. MacAlpine, and Ms. Soontiens into the Western Electrics business. Then, we should discuss their plans for the next-generation business, which was not to be unionized. Giffin, MacAlpine, and Soontiens in Western Electrics [ 22 ] Mr. Giffin maintains he had a very close relationship with the Berta family.

The four immediate members of the family gave evidence which tended to downplay the strength of the relationship. [ 23 ] I find that the immediate members of the Berta family were very closely knit. That continued as the two daughters grew up, were educated, went into business, and had families of their own. It continues to this day, and it now includes sons-in-law and grandchildren. I find that Mr. Giffin looked to the Berta family as a substitute for his own, somewhat fractured, immediate family.

He was an especially close nephew and cousin, who was much under the influence of his uncle from an early age. [ 24 ] While accepting the evidence of the members of the Berta family that Gordon Giffin was not like a son and brother, I find that it was obvious he was closely attached to the family, especially when he followed his uncle into a career as an electrician, and then as an electrician, estimator, and project manager in his uncle's business.

This finding is relevant to the assessment of conflicting evidence about plans for the next-generation business and for findings about expectations. [ 25 ] Gordon Giffin was born in Halifax in 1966. His father is Diane Berta's brother. Gordon Giffin is five years older than his cousin Ilona MacAlpine and seven years older than Nicole Soontiens. [ 26 ] When Mr. Giffin was finishing high school, he decided that the career for him was as an electrician and an estimator. He went to vocational school and was accepted as an apprentice with a non-unionized outfit.

He got his interprovincial journeymen certificate in 1990. He obtained more designations that advanced his qualifications as a construction electrician and an estimator. [ 27 ] Mr. Giffin and members of the Berta family were willing to mislead the Western Electrics union for their own perceived advantage. That helps explain the lengths parties went to, perhaps unnecessarily, to avoid unionization of the next-generation business. The propensity to mislead shows itself in the story of Giffin joining Western. [ 28 ] Mr.

Giffin says that, after some time with his non-unionized employer, he decided he wanted to work in the unionized sector. I think he wanted to work for Western Electrics. [ 29 ] Mr. Berta advised his nephew to create a situation in which it would appear that he got fired by his non-union employer for attempting to unionize it. Mr. Giffin perpetrated a hoax and, eventually, the IBEW directed the Halifax local to take him in. [ 30 ] Mr. Giffin gained union membership in 1988, and he was hired into the closed shop at Western Electrics the next year. He was still an apprentice then. He became a journeyman in 1990.

He was met with some animosity from the unionized employees at Western Electrics, who referred to him as "Tibor's nephew" or "the nephew". [ 31 ] Despite the animosity over his relationship with the owner, Mr. Giffin succeeded in gaining the respect of his co-workers. He also began to move toward management. At an early stage, Mr. Berta invited his nephew to work, from time to time, in the office and taught him how to do take-offs.

[ 32 ] A take-off is the result of the process by which an estimator, or someone working under an estimator, extracts a bill of materials from bid documents, mainly the drawings and specifications. The bill is then costed. This work is combined with a labour estimate, which is often the more challenging component. When the estimator has the diligence and skill to produce an accurate estimate, the contractor is in a position to make a competitive but profitable bid by adding amounts for administration and profit. [ 33 ] It came to pass that Mr. Giffin or another journeyman would prepare the take-offs. These would go to a purchasing agent, who would do the cost extensions. Then, a

summary would be prepared for Mr. Berta or the lead estimator next after him. Mr. Berta, or the lead estimator, would review the materials costs and "labour the job", i.e. prepare the labour estimate. From there, Ms. Diane Berta would "finalize the bid" in consultation with her husband about margins for administration and profit. [ 34 ] The gentleman who acted for many years as Mr. Berta's lead estimator was also the top supervisor of site projects. He was next after Mr. Berta in that capacity also, but Mr. Berta was seldom seen on site during Mr. Giffin's years with the company.

This gentleman was well respected by the workers. [ 35 ] In the mid-1990s, the lead estimator and supervisor of projects decided to retire. Mr. Giffin took over his work. Mr. Berta's role remained as owner, senior estimator, and ultimate authority for business decisions. [ 36 ] Mr. Giffin felt he had a lot on his plate. He was still learning the art of estimating and the business of construction management. Mr. Berta remained his mentor, but Mr. Giffin worked closely with Mr.

Berta on bidding, represented Western at construction management meetings, and provided site management. [ 37 ] Nicole Berta, now Nicole Soontiens, was born in 1973. Growing up, her father taught her respect for money. She learned to save, rather than borrow, for what she wanted. Her mother taught her financial recording. [ 38 ] Ms. Soontiens worked at Western in the summertimes and on weekends when she was a student in high school and college.

She is a graduate of Saint Mary's University holding a Bachelor of Commerce, and she has post graduate education in construction contracting. [ 39 ] In 1994, the purchasing agent decided to leave Western Electrics. Ms. Soontiens took that position. It is evident that she became skilled at recognizing the materials and tools required for electrical contracting, where to get them, the cost, and their use and disposition. She also developed a good knowledge of the electrical contracting business from the perspective of the office. [ 40 ] Ms.

Soontiens began to learn the arts of estimating, negotiating with suppliers, and finalizing bids. She learned much of this from her father and her mother, but I think she also learned about the business from her cousin although present circumstances make it difficult for her to acknowledge it. [ 41 ] Ilona MacAlpine was born in 1971. She finished high school in 1988 and graduated from St. Mary's with a Bachelor of Commerce in 1992. [ 42 ] Ms. MacAlpine attributes her early knowledge of business to her mother.

She shows her mother's skills in organization and financial controls. [ 43 ] During high school and college, Ms. MacAlpine worked in retail sales and food services part-time. She went with Canada Trust after college. When she was laid off from there, her father offered her a job as her mother's understudy. That was in 1996, seven years after her cousin had joined the firm and one year after her sister had done so.

[ 44 ] So, in the mid-nineties Western Electrics had an office of six or seven employees of whom five were family. Mr. Berta was the boss. Mrs. Berta was in charge of administration. Their daughter, Ms. MacAlpine, was Mrs. Berta's understudy. Their daughter, Ms. Soontiens, was the purchasing agent and was quickly learning the business as a whole. Their nephew, Mr. Giffin, was the estimator and the project manager. [ 45 ] The testimony of Mr. Giffin and Ms. MacAlpine makes it clear that the three second-generation employees got along well, worked closely together, and were eager to learn and advance. As Mr.

Giffin put it, they "evolved". [ 46 ] The family dimensions of the Western Electrics business grew more complex, as families tend to do. [ 47 ] Kevin Soontiens is a professional engineer, in the electrical discipline. He graduated in 1996 from the University of New Brunswick. At that time, he heard that Western Electrics was looking for an estimator and he applied for the job. They hired him. [ 48 ] Mr. Soontiens knew nothing of the electrical contracting business. He learned from Mr. Giffin and Mr. Berta. He had the skills necessary for estimation by the time he left Western in 2002.

That was also the year in which he obtained his designation. [ 49 ] Soon after joining Western Electrics, Nicole Berta started dating Kevin Soontiens. They were married in 2001. Mr. Soontiens would become involved with the business in its second-generation incarnation. [ 50 ] Gordon Giffin did volunteer work with the RCMP for many years. Because of that, he met Michael MacAlpine, a member of the force. Because of that, Officer MacAlpine met Mr. Giffin's cousin, Ilona Berta.

They were married in 2004. [ 51 ] The two sisters and their cousin were closely tied to one another, and to the electrical contracting business, when the sisters started thinking about striking out on their own. They started talking about that among themselves in 1997, or thereabouts. This was before Ms. MacAlpine and Ms. Soontiens were married, and after they had moved out from their parents' home. Agreement for a Second-Generation Business [ 52 ] The Berta sisters thought it was time for a change.

Their father would retire soon, and he offered to turn the business over to them. [ 53 ] They saw the union to be a problem, as already explained. More importantly, the two sisters wanted to be their own business women. Everyone would see Western Electrics as their father's business, but they wanted to start something new for themselves. So, they declined their father's offer. [ 54 ] The two sisters discussed operating a travel agency. Then, a restaurant. They sought advice from Mr. Berta.

He said that he had done well in electrical contracting, and they had backgrounds in the field although they were not electricians themselves. So, why go somewhere new? [ 55 ] Both parents were very supportive. The sisters felt free to go in a different direction. They started to consider opening their own non-union electrical contracting business. [ 56 ] From the evidence of Tibor Berta, Diane Berta, Ilona MacAlpine, Nicole Soontiens, and Gordon Giffin, I infer that there were

three significant problems that needed to be solved for the sisters to operate a successful new electrical contractor company: • Stable, profitable work would come from customers who were sophisticated and whose requirements were large. That is, commercial, industrial, and institutional customers known to be good to work for. Tenders for work of that kind had to be bonded. To start with medium level contracts would require equity in the order of $100,000.

So, the first problem was to find $100,000 that would show as equity on the opening balance sheet to be given to a bonding company. • The new business had to immediately employ well qualified journeymen to satisfy the sophisticated customers it would seek. These were not easily available. The competitive disadvantage of non-unionized shops was in a constant shortage of first rate journeymen. In Mr. Berta's words "there were not enough qualified journeymen electricians who [were] non-union". • There would be a serious challenge by the IBEW to the new business' independent status.

Because of the connection between Western Electrics, Ms. MacAlpine, Ms. Soontiens, and Mr. Giffin, and because they were family of Tibor Berta, the union would be keen to have the new business certified as a successor employer. In my assessment, solving each of these three problems was seen to be essential to the success of the proposed venture. None was more important than another. [ 57 ] It was the second of these essential problems that led to discussions with Gordon Giffin. He was not informed that the sisters had been given the opportunity to take over Western Electrics.

The discussion with him centered primarily on the perceived difficulties with the union. The sisters and the cousin shared the same frustration with, and the same predisposition against, unionization. [ 58 ] Mr. Giffin's frustration with the IBEW had recently been inflamed. The union would allow lower wage rates when a unionized contractor bid against non-unionized competitors. On a recent important competition, the union had waited until the last minute to advise Western Electrics of the rates it would permit, and the rates were more than it was allowing to other unionized employers.

Western Electrics lost the competition. [ 59 ] The testimony of Ilona MacAlpine and Nicole Soontiens was often at odds with that of Gordon Giffin on the important subject of the discussions that led to their formation of the new business. This testimony is important for finding expectations, and assessing the reasonableness of them. [ 60 ] I do not accept everything Mr. Giffin told me. In assessing his credibility, I have taken into account his self-interest, as well as somewhat contradictory testimony he provided to the Nova Scotia Labour Relations Board.

Nothing more will be said of the later because the transcripts went undisclosed so as to preserve their surprise value on cross-examination. The Civil Procedure Rules make an exception to disclosure obligations that allows for this, but the Rules severely limit the usefulness of the undisclosed evidence. It can only be used to challenge credibility, and it cannot be used beyond that to support findings of fact: Rule 94.09(2)(c). [ 61 ] On the subject of what was said to Mr. Giffin when the concept of a new business was being formulated, I prefer the testimony of Mr. Giffin to that of Ms. MacAlpine and Ms.

Soontiens when a contradiction appears. As will be seen, some of what Ms. Soontiens asserts is entirely improbable. Mr. Giffin would never have joined the venture if she had said what she claims she said. [ 62 ] Also, time has allowed the two sisters to forget the importance of Mr. Giffin's primary contribution to the venture. Today, the new business is established and, no doubt, it can attract competent journeymen. The opposite was true when the formative discussions were held.

Without a skilled estimator and, equally or more importantly, an experienced project manager with the ability to attract other journeymen, the new venture was impossible.

[ 63 ] Here is one concrete example of this forgetfulness. Ms. Soontiens testified that Mr. Giffin joined the new venture as an estimator; her sister recently described him as a "tag along". A business plan prepared by Ms. Soontiens in 1998 described Mr. Giffin as the "Experienced Electrician/Estimator/Project Co-ordinator". It says that the "key personnel" are Mr. Giffin, Ms. Soontiens, and Ms. MacAlpine. He was more than just an estimator. And, he was not a tag along. [ 64 ] This forgetfulness allows for distorted memories of discussions that took place more than a decade ago. [ 65 ] Ms. MacAlpine and Ms.

Soontiens represent the discussions as occurring after they had decided to form the new business and as presenting to Mr. Giffin the basis on which he could join them if he wanted. Mr. Giffin's perspective suggests that the three of them formulated the plan for the new venture mutually out of frustration with the latest setback delivered by the union. [ 66 ] I find that Mr. Giffin was not told of the discussions between the sisters, and those with their parents.

He was not made aware that Western Electrics had been offered to them, or that they had already decided to try to form their own electrical contracting business, or that Western would be wound down eventually. I find that the impression given to him was one of mutual development of a new idea. [ 67 ] I also find that, at the time Mr. Giffin was drawn into the discussions, the sisters had made no final decision about starting their new business.

In addition to having to arrange bonding, they needed to attract someone who was a qualified electrician and who could head up estimating, do project management, and attract other skilled journeymen. (The bonding company also saw the need for a plan to attract competent staff.) [ 68 ] Ms. Soontiens testified that Mr. Giffin was to receive a small percentage of the shares. She and her sister would allow him to buy more "under the right conditions". She said that whoever put in money would have shares. The more money, the more shares. [ 69 ] The essential role played by Mr.

Giffin belies the terms now asserted by Ms. Soontiens. She said that the only shareholders were to be her sister, Mr. Giffin, and herself. Mr. Giffin was not to be equal "because I wanted to control the company". She said, "It was going to be my company." She said she made that clear. [ 70 ] Had these things been said in 1998, Mr. Giffin would have declined to participate and the new venture would have gone nowhere. It strains credulity to suggest that he gave up his position at Western Electrics to work hard for a speculative venture owned by his cousins on the promise of some unspecified, small share.

His participation was then said to be "key". The suggestion made in testimony a decade later is contradictory and preposterous. [ 71 ] Ms. MacAlpine's testimony was different than her sister's on this point. Let us start with the advice she heard her father give before she and her sister approached their cousin. Tibor Berta had "some concerns". He said more than once that they "may have problems finding good people". [ 72 ] Ms. MacAlpine says that she and her sister approached their cousin, and he agreed to join them. It was to be "our company", but Mr. Giffin "could have a minority position". [ 73 ] If Ms.

MacAlpine and Ms. Soontiens are seen as a single voting block, which their testimony and subsequent behaviour support, then Mr. Giffin's testimony about the terms is consistent with Ms. MacAlpine's. He was to have a minority position. [ 74 ] According to Mr. Giffin, the three formulated the idea for a next-generation business, then sought advice from Mr. Berta. Mr. Berta said he would look into companies available for purchase.

[ 75 ] The group met at the Berta house around June of 1998. The subject was kept secret. Buying an existing company was ruled out. It would be better to start something new, and build their own reputation. [ 76 ] Mr. Berta advised that they would need about $90,000 to start the business. They would try to attract secure clients who paid their bills on time. Specific prospects were identified. [ 77 ] Mr.

Berta asked rhetorically, "How are you going to fund this?" They also discussed the need for good qualified electricians, the competitive disadvantage of non-union contractors on that score, and the difficulty of attracting journeymen necessary to medium and large contracts. [ 78 ] So, the discussion at this formative stage was about the three essential problems already referred to. [ 79 ] Things progressed on financing and staffing. Throughout, Mr. Giffin understood that there would be three equal owners. Thus, Mr.

Giffin thought he would have to raise, and he intended to raise, one third of the equity they would need for bonding. [ 80 ] Before turning to the subjects of financing and staff, let me summarize my findings on the formative discussions: • There had been a discussion, unknown to Mr. Giffin, about the Berta sisters forming their own business. That culminated in a decision to try to form their own electrical contracting business. • Three essential problems were identified: financing, staffing, and unionization. • Gordon Giffin was key to solving the staffing problem. • Mr. Giffin was approached by Ms.

Soontiens and Ms. MacAlpine, and the discussion proceeded in such a way that he understood ownership would be split three ways equally. Financing the New Venture [ 81 ] The Guarantee Company of North America, or a predecessor, provided bonding to Western Electrics for decades. The Halifax branch manger is Mr. Dan Fletcher. He held that position for over two decades. He testified. [ 82 ] Mr. Fletcher discussed the proposed new venture with Mr. Berta, and later with Ms. MacAlpine and Ms. Soontiens. It think it likely that Tibor Berta made the introduction before the summer of 1998. Mr.

Fletcher was of the view that the new business would require $100,000 in equity to support the kinds of bids it would initially make. [ 83 ] When he was on the stand, Mr. Fletcher explained that bonding is a function of equity in, and judgment about, a contractor. Standard multiples of equity will be considered in deciding how large a contract to bond and how much exposure the bonding company would tolerate in aggregate for a contractor, but the work of bonding, like that of commercial lending, involves art in assessing the contractor on broader terms. [ 84 ] Mr.

Fletcher also explained that which would be obvious to anyone experienced in commercial credit. The source of the equity in the business is irrelevant to the credit of the business as such. Whether the equity was retained earnings or shareholder investment did not matter. If it came from shareholder investment, it did not matter whether the shareholder invested cash the

shareholder held or borrowed. (Of course, beyond the assessment of the business as such there is the valuation of guarantees. Debts owed by the guarantor are relevant to that valuation.) [ 85 ] Finally, Mr. Fletcher explained that a newly founded contractor would need to retain earnings or otherwise build equity, so it could bid on larger and larger contracts and, thereby, grow. [ 86 ] Mr. Giffin says he saw his bankers in June of 1998 and, again, later in the summer. Then he met with his two cousins and his uncle.

He reported that he had arranged a line of credit for $35,000, his one third of the needed equity. [ 87 ] Mr. Giffin says that he was told by his uncle and cousins that the Guarantee Company of North America required that the infusion of equity come from "unencumbered" sources "free and clear". It was not enough that the company had no conventional debt against the money, the shareholder could not borrow it either. Ms. Soontiens testified that she said as much to Mr. Giffin at some point. [ 88 ] Mr. Giffin says that Mr. Berta then offered a loan to the three shareholders for $85,000.

The three would put up $5,000 each. (How a loan from Mr. Berta is any better than one from a bank is not explained.) [ 89 ] Mr. Giffin had borrowed money from Mr. Berta in the past. As a lender, Mr. Berta always expected repayment with interest. [ 90 ] Mr. Berta also wanted security of a kind. Except for the union, he could take redeemable shares. Because of the union, the $85,000 loan would be guaranteed by shares held by the daughters. On repayment, they would be surrendered or split equally. (Why the sisters, and not the cousin, is not explained.) [ 91 ] According to Mr.

Giffin, at that same meeting in the summer of 1998, the parties made a plan for starting up the new business. They would have to be selective about their first bids. The three prospective shareholders would leave Western Electrics in an order. Ms. Soontiens would leave before the first bid. Next, Mr. Giffin would leave when a bid was accepted and the work had to be done. Ms. MacAlpine would stay with her father temporarily. [ 92 ] Tibor Berta said that Mr. Giffin did not understand financial statements, but his daughters did. I find that that was so and that Mr.

Giffin lacked sophistication for the financial side of business. I find that Ms. MacAlpine and Ms. Soontiens, with their commerce degrees and their minds for and interest in business, had a sophisticated understanding of commercial organizations and finance. [ 93 ] The difficulty is to determine whether the parties made a commitment to one another, and what was the substance of the commitment. I accept Mr.

Giffin's evidence that a meeting occurred, but I have, for the reasons already pointed out, difficulty understanding the content. [ 94 ] Testimony is consistent that at some point in 1998 the parties agreed on the plan described by Mr. Giffin for starting the business, including the order in which they would leave Western Electrics. They all say that the intended business would require $100,000 in equity. They disagree on where that was to come from. Let us look at the testimony of Mr. Berta, Ms. MacAlpine, and Ms. Soontiens. [ 95 ] Mr. Berta said that Mr.

Giffin first approached him in 1997 about starting his own business. This was after Mr. Berta started to consider retirement. He thought Mr. Giffin would need $70,000. He understood that Mr. Giffin could not raise that much money. [ 96 ] As discussed, Mr. Berta says he saw the new venture to be his daughters' business. They told him that Mr. Giffin would like to work with them and that he wanted to participate in ownership.

[ 97 ] Mr. Berta denies there was any discussion about his making a loan. He claims Nicole Soontiens said that the daughters needed $95,000 and he decided to make a gift to them in that amount. As for Mr. Giffin, Mr. Berta claims to have made it clear to him more than once that the $95,000 "is for the girls". [ 98 ] According to Ilona MacAlpine, she and her sister told their father that Mr. Fletcher was looking for $100,000 in equity and Mr. Giffin was going to come up with $5,000. Mr. Giffin had gone looking for financing and that was the paltry amount he came up with. So, Mr.

Berta wrote a cheque for $95,000 to Ms. Soontiens and said to her that half of it was for Ms. MacAlpine. It was a gift. [ 99 ] In cross-examination, Ms. MacAlpine admitted that there was an understanding in the beginning that Mr. Giffin had the opportunity to buy one third of class B and C shares. She was clear that this understanding was in effect "from the beginning". The exact price was not stipulated, and the option was not carved in stone. [ 100 ] One of the difficulties with Ms.

MacAlpine's testimony about an option to purchase one third of class B and class C shares is that, at the time of the discussions, there were no classes of shares contemplated. That possibility arose first in suggestions Ms. Soontiens made to Guarantee Company of North America. At that time, Ms. Soontiens wrote of special shares for the sisters as "preferred shares". Much later, Ms. Soontiens settled on shares divided into class A, class B, and class C. [ 101 ] Ms.

Soontiens testified that, knowing her father was willing to give Western Electrics to her and her sister, she asked if he had the kind of money Guarantee Company of North America required. He said he did, and he told her to see him when it was needed. This was not done in a meeting with Mr. Giffin present, Ms. Soontiens was alone with her father or with both parents. [ 102 ] Ms. Soontiens knew then that Mr. Giffin had $5,000 to put in. So, she took her father to offer a gift of $95,000. [ 103 ] Mr.

Berta's terms were only that one half would be for his other daughter, the money was to fund equity on an opening balance sheet of a new electrical contracting company, and this was all he would give for the business. Ms. Soontiens said her father said, "Don't screw it up." [ 104 ] Ms. Soontiens testified that it was "always agreed" by her and her sister that their cousin could purchase up to one third of the class C shares. She agreed with her sister's statement that Mr. Giffin had the opportunity to purchase one third of the class B and one third of the class C shares.

They had an understanding "from the beginning". I take Ms. Soontiens to have referred to the period of discussions before anyone left Western Electrics and before incorporation of the new company. We encounter the same problem as with her sister's testimony. [ 105 ] Ms. Soontiens also said that there was no formal option or agreement. "In the right circumstances, down the road, he could buy." "It was possible if we wanted to do that." [ 106 ] I am satisfied that there were meetings in the summer of 1998 as described by Mr. Giffin. Months later, Mr.

Berta drew a cheque for $95,000, which was paid to the new company and recorded as a loan owing by it to Ms. Soontiens. If, between the meetings and the cheque, arrangements between Mr. Berta and his daughter changed, Mr. Giffin was not made aware. [ 107 ] I find that, from the beginning, Ms. Soontiens and Ms. MacAlpine led Mr. Giffin to believe that he could acquire one third of the new company, subject to some terms about repayment of start-up investments that may have remained vague.

I make that finding based upon my assessment of the testimony about the early discussions and the evidence about later events, including the conveyance of almost one third of class C shares to Mr. Giffin for nothing. Loan to Company or Gift to Daughters?

[ 108 ] Mr. Giffin's allegation of a loan to be repaid to Mr. Berta, and Mr. Giffin's alleged expectation that shares securing the loan would be cancelled or distributed three ways on repayment, and the denial of both made it relevant to ask: What did the new company pay to Mr. Berta, Ms. Soontiens, or Ms. MacAlpine on account of the start-up investment? What money was paid by Ms. Soontiens or Ms. MacAlpine to their father between 1999 and 2007? What was the money paid for, if not repayment of the alleged loan? [ 109 ] These questions made relevant every financial transaction between the new company and Ms.

Soontiens or Ms. MacAlpine and every financial transaction between the daughters and their father. It turns out that these were numerous. The defendants were slack about disclosure. This caused unnecessary delay and unnecessary expense. Because of that, suspicions became heightened. Even today, I cannot be satisfied that full disclosure was made. [ 110 ] Ms. Soontiens' responses during cross-examination made it clear that she adopted a passive role toward her responsibility to disclose relevant documents: Mr.

Giffin's lawyers got what they asked for; she gave her own lawyer "whatever he asked for". [ 111 ] So, Ms. Soontiens did not look for documents recording substantial payments by XL to her husband for what had been her father's leftover tools and inventory, payments Mr. Giffin was not told about. Her explanation: the transactions were innocent, they were not for funnelling money to Mr. Berta from the new company. The transactions were relevant, whether they tended to prove or disprove a material fact. [ 112 ] Records of some of the tool and inventory transactions went undisclosed until trial.

This caused a lengthy and costly adjournment and much more digging on the plaintiff's part than should have been necessary. [ 113 ] There was an account held jointly by the two sisters at the Toronto Dominion Bank. Some $10,000 passed into and out of this account, much of it in cash, during the early period of the alleged loan. The plaintiff obtained the account statements only by compelling bankers to testify at trial. Ms. Soontiens did not recall looking for these relevant statements. They were certainly in her control. [ 114 ] Ms.

MacAlpine showed the same attitude toward her disclosure as did her sister. [ 115 ] For example, on discovery Ms. MacAlpine was asked to advise of any bank accounts she used to pay money to her parents. Through her counsel, she advised the plaintiff that only a Scotiabank account that had already been disclosed was used for that purpose. During the first part of the trial, and under the pressure of subpoenas having been served on her bankers, Ms. MacAlpine conceded that two undisclosed Toronto Dominion accounts were used for relevant transactions. Her explanation?

She was never asked to provide details about Toronto Dominion accounts, just Scotiabank accounts. [ 116 ] For another example, Ms. MacAlpine took on the task of disclosing payments made by the new company to Mr. Soontiens for the leftover tools and inventory he got from Western Electrics. Even as the trial was underway, it became apparent that the overall amount was greater than the total of disclosed cheques. The discrepancy was in the tens of thousands. Ms.

MacAlpine went back to her assistant who identified further transactions simply by searching "Soontiens" in the record of vendors on the accounts payable journal. This led to production of the primary documents, more cheques to Mr. Soontiens. Running the search and finding the cheques were not onerous tasks, and they should have been done long before trial and without prompting. [ 117 ] The defendants' attitude toward disclosure led to a long adjournment, an order for production, and late productions even when the trial was about to resume.

Against that background of non-disclosure, we are left to assess numerous transactions to see whether the record proves payments of interest and principle on a phantom loan. [ 118 ] Mr. Berta commonly made loans to his daughters. Sometimes Mrs. Berta participated. These were sometimes recorded through promissory notes if the loans were large and, small or large, records of repayments were often kept.

[ 119 ] Repayment was by bank transfer, cheque, set-off, or cash. The family often dealt in cash, sometimes in the thousands of dollars. [ 120 ] After the new company was formed, when banking with an initially modest line of credit was obtained and bonding for some target jobs was being arranged, Mr. Berta gave Ms. Soontiens the cheque for $95,000. Mr. Giffin put in his $5,000 and the $100,000 was recorded as directors' loans. [ 121 ] (A year later, in October of 1999 after Ms. MacAlpine joined the business, cheques were drawn out to the two sisters and the money was redeposited to show $47,500 as a loan from Ms.

Soontiens and a like amount from Ms. MacAlpine. I find nothing unusual in that transaction.) [ 122 ] Mr. Giffin says that the $100,000 was made up of $5,000 each from the three equal shareholders and $85,000 due to Mr. Berta. Ms. Soontiens and Ms. MacAlpine say that their investment was $95,000. Interest was paid by the company to the sisters, and a round number results from calculations based on $85,000 assumed principle rather than $95,000. [ 123 ] The plaintiff proved two possible sources for payments to Mr. Berta to be credited against the $85,000. One is unusual debits from the accounts of Ms.

Soontiens or Ms. MacAlpine, such as large cash withdrawals. The other is payments made by the new company to Mr.

Soontiens that were accounted as payments for the leftover inventory and tools of Western Electrics, which the plaintiff submits were nearly worthless. [ 124 ] In the years 2003 to 2005, the sisters withdrew about $90,000 in large amounts: July 3, 2003 Soontiens purchases bank draft $9,300 Oct. 14, 2003 Cash withdrawn by Soontiens $3,000 Oct. 31, 2003 Soontiens purchases bank draft $35,870 April 27, 2004 MacAlpine cash withdrawal $7,500 Jan. 5, 2005 Soontiens cash withdrawal $7,700 July 28, 2005 MacAlpine cash withdrawal $5,000 Aug. 25, 2005 MacAlpine cash withdrawal $6,500 Aug. 26, 2005 Soontiens cash withdrawal $4,000 Sept. 22, 2005 Soontiens cash withdrawal $1,000 Sept. 23, 2005 Soontiens cash withdrawal $4,000

Oct. 6, 2005 Soontiens cash withdrawal $2,500 Oct. 14, 2005 Soontiens cash withdrawal $2,700. [ 125 ] Payments for the leftover inventory and tools totalled about $100,000: Jan. 17, 2003 $11,926 June 30, 2003 $21,664 Oct. 29, 2003 $4,800 June 24, 2004 $12,656 Dec. 22, 2004 $24,340 Sept. 30, 2005 $25,000. [ 126 ] The plaintiff submits that this $190,000 should be attributed to repayment of the principal of, and payment of interest on, two debts. In May of 2002, Mr. Berta advanced $36,000 to the Soontienses to help with the purchase or construction of a home.

In November of 2003, he advanced the $95,000 to start up the new business. [ 127 ] The Soontienses signed a note for $56,000 payable to Mr. Berta. According to Mr. Berta, the note was for $36,000 advanced, half by him and half by his wife, in 2002 to assist with the new home and $20,000 owed by Kevin Soontiens to him from sales of some of the leftover Western Electrics inventory and tools. [ 128 ] I cannot say, on the evidence before me, how much of the cash went to Mr. Berta as possible repayment of a loan. There are arguments for doing so, but the evidence does not prove any to a likelihood.

Nor can I say how much of the payments for the leftover inventory and tools may have gone to Mr. Berta. The evidence does not support findings that a loan, rather than a gift, was made by Mr. Berta or that a loan was repaid, even partially. [ 129 ] Mr. Berta's evidence on repayment of the note is illustrative of the kinds of problems one encounters in attempting to unravel the financial dealings within the Berta family. [ 130 ] On discovery, Mr.

Berta said that the note was repaid and the evidence would be in his Scotiabank or Toronto Dominion accounts. [ 131 ] Not long before the trial resumed, and well after Mr. Berta had been ordered to produce relevant documents, his lawyer advised

that $1,000 had been forgiven by Mr. Berta to improve the pool area in the Soontienses' newly constructed home, the Soontienses offered him $40,000 but Mr. Berta forgave it, and the balance was paid off by set-offs. [ 132 ] However, Mr. Berta claims he forgot the fact that half of the $36,000 for the earlier home loan had come from his wife. She did not agree to the forgiveness and, although the note is payable to Tibor Berta alone, $18,100 plus interest of $900 had to be repaid to Mrs. Berta. This is supposed to explain $19,000 of a cash withdrawal by Ms.

Soontiens in December of 2007 in the amount of $22,000. [ 133 ] It is odd for one to withdraw tens of thousands in cash to pay a debt, unless one wishes to make it difficult to see the purpose. That $19,000 transaction was in 2007. I have detailed the large cash withdrawals in the earlier years. [ 134 ] There is evidence of Mr. Berta dealing in large amounts of cash to lend money to, and be paid by, relatives. Further, there is a close financial connection between him and his relatives.

He directly trades for them in their investment accounts, and has access to their passwords for that purpose. [ 135 ] Finally, a lot of money passes around the Berta family. They assist one another in large ways and small. Usually they expect to be repaid, but Mr. Berta has also made some sizable gifts to his daughters. [ 136 ] Further, I accept Mr. Giffin's evidence about discussions of a loan for $85,000. I am satisfied that there was, in the beginning, a promise of a loan by Tibor Berta.

However, I am also satisfied that, at some point, that changed from a loan to a gift, a gift that was used to make a loan to XL. [ 137 ] I find that, after the earliest formative discussions, and after taking Tibor Berta's advice against buying a non-union contractor, and after the discussions with Mr. Fletcher, and after Mr.

Giffin came to believe that he could not borrow money to create required equity for the new company, the two sisters and their cousin agreed to an arrangement under which they would put in $5,000 each and leave Western Electrics. [ 138 ] It has not been proven that money from the new business was used to repay Mr. Berta. I do find that Mr. Giffin understood at the material times that there was a loan of $85,000 from Mr. Berta and that there was to be some connection between repayment of the loan and redemption of shares.

In my assessment, his understanding about repayment and redemption is the more important point, and its importance is not diminished by the fact that the loan to the company was payable to Ms. Soontiens and Ms. MacAlpine, rather than to their father. Incorporation and Articles [ 139 ] Mrs. Diane Berta came up with the name XL Electric Limited. Ms. Nicole Soontiens dealt with Mr. Gregory Baker, Q.C. The company was incorporated on October 2, 1998 under the Nova Scotia Companies Act .

That statute allows for memorandum of association type incorporations. (Judicial authorities from other jurisdictions about corporate powers, and the powers of shareholders and directors, have to be read cautiously in light of the differences among types of legislated incorporation by registration.) [ 140 ] A standard form of memorandum was adopted. It contains provisions for control of shares by the directors and for types of shares.

Article 6 provides: The Directors shall control the shares and, subject to the provisions hereinafter set out, may allot or otherwise dispose of them to such persons at such times, on such terms and conditions and either at a premium or at par as they think fit.

[ 141 ] When XL was incorporated, Mr. Giffin and Ms. MacAlpine were still working for Western Electrics. So, initially Ms. Soontiens was the sole shareholder, officer, and director. [ 142 ] XL eventually created three classes of common shares named A, B, and C. None were designated as preference shares. However, there is evidence that Ms. Soontiens associated the class A shares with preference shares. [ 143 ]

Article 13 prescribes a form for common shares and a form for preference shares. For the later, the "rights, restrictions, conditions, and limitations" are to be printed on the reverse. [ 144 ]

Section 50 of the Companies Act also tells us something of the nature of preference shares. They are subject to redemption or purchase by the company: s. 50(1). A company who issues preference shares must include in its balance sheet a statement of the date when the preference shares may be redeemed or purchased by the company: s. 50(2). [ 145 ] Mr. Giffin left Western and joined XL early in 1999, and Ms. MacAlpine did so in the summer. During this time, Ms.

Soontiens dealt with professionals to develop the share structure and shareholder rights including a shareholder agreement and share terms. [ 146 ] It will be necessary to delve into Ms. Soontiens' dealings with the professionals and the discussions with, and limited participation by, Mr. Giffin. This evidence, as well as the parol evidence about the formative discussions, will be relevant to the issues of oppression and remedy and to resolve an ambiguity in the share terms. [ 147 ] However, it is best to start with the contract and the share terms without reference to the parol evidence.

That way, we can see clearly where the parol evidence is important and where it is not. Shareholder Agreement and Share Terms [ 148 ] On October 4, 1999 Ms. Soontiens, Ms. MacAlpine, Mr. Giffin, and XL Electric Limited executed a shareholder agreement before XL's lawyer, Mr. David Thompson, to whom Mr. Baker had introduced Ms. Soontiens. On that day, the three became the directors of the company, Ms. Soontiens became president, and Ms. MacAlpine became secretary and treasurer. Mr. Giffin was not made an officer. [ 149 ] The shareholder agreement provided for three classes of shares.

Before relinquishing her position as sole director, Ms. Soontiens adopted special resolutions to create new shares and to state the "Terms and Conditions of Class A Special Voting Common, Class B Common and Class C Common Shares". In my view, the share terms are integral to the shareholder agreement and they are crucial to the issues I have to determine about shareholder rights, oppression, and remedy. [ 150 ]

Article 2.01(

a) of the shareholder agreement provides for share ownership in amounts that appear to support the defendants' theory of a minuscule interest for Mr. Giffin and appear to belie Mr. Giffin's claim that ownership was to be equal, in the sense of thirds. The shares were to be distributed: (

i) Nicole - 51 Class A Special Voting Common Shares 10 Class B Common Shares 34 Class C Common Shares

(ii) Ilona - 51 Class A Special Voting Common Shares 10 Class B Common Shares 34 Class C Common Shares (iii) Gordon - 10 Class B Common Shares. [ 151 ] Assuming there is no substantive difference among the classes about income rights (the rights to dividends) or ownership rights (the allocation of equity on liquidation), the distribution supports the defendants' theory of ownership based only on money invested: 95% for the $95,000 invested by the sisters from their father, and 5% for Mr. Giffin's $5,000.

However, the rights attached to shares are different between the classes. [ 152 ] The share terms provide for voting, income, and ownership. The two hundred shares are alike for voting. The same is not so for dividends or, when one takes a penetrating look at the terms, for allocation of equity. [ 153 ] Dividends are to be calculated differently according to class: class term example A "each shareholder's cash invested return on $85,000 paid in the Company (excluding amounts to Ms. Soontiens and invested by all shareholders Ms.

MacAlpine regardless of class)" B "each shareholder's first $5,000 equal dividends for equal invested in the Company or any financial investment and other amounts which are invested dividends for labour equally" or "dividends … in lieu of wages" C "the net profits of the Company" the balance, to the extent that cash flow allows. The Board has a broad discretion to determine the amount to declare for a dividend and discretion to prefer one class over another.

[ 154 ] The terms about allocation of equity require some

interpretation to resolve a textual conflict. It is better to state those terms in full: 1(

c) The holders of the Class A Special Voting Common Shares are entitled to receive the remaining property of the Company, in priority to the holders of other classes of shares, upon the liquidation, dissolution, bankruptcy, or winding-up of the Company or other distribution of its assets among its shareholders for the purpose of winding-up its affairs. 2(

c) Subject to the prior rights of the holders of the Class A Special Voting Common Shares, the holders of the Class B Common Shares are entitled to receive the remaining property of the Company upon the liquidation, dissolution, bankruptcy, or winding-up of the Company or other distribution of its assets among its shareholders for the purpose of winding-up its affairs. 3(

c) Subject to the prior rights of the holders of the Class A Special Voting Common Shares, the holders of the Class C Common Shares are entitled to receive the remaining property of the Company upon the liquidation, dissolution, bankruptcy, or winding-up of the Company or other distribution of its assets among its shareholders for the purpose of winding-up its affairs. [ 155 ] Taken literally, term 1(

c) provides for all the equity to be allocated to class A holders. That would make 2(

c) and 3(

c) meaningless. [ 156 ] Similarly, if one implies a limit on what is payable on liquidation for class A shares, 2(

c) and 3(

c) conflict. One provides that all the equity is to be distributed for class B, and the other provides that all the equity goes according to class C holdings. [ 157 ] Of course, these terms are to be read in context. The terms about dividends may be an important source for context. One could expect rights to income from shares to be consistent with rights to the equity. [ 158 ] The terms about dividends provide a reasonable scheme.

Subject to the Board's discretion, B is the source for an equal return on the small initial investments of $5,000 each or for labour, A provides for a different return on investment in excess the $5,000, and C provides for distribution of profits after payment for work (

B) and returns on investment (B and A). [ 159 ] An

interpretation of the share terms as providing different bases for dividends and similarly different bases for division of equity on liquidation would lead to the conclusion that class A shares, class B shares, and class C shares have different values. Although the shareholder agreement does not define the nature of the different classes, it does provide for valuation of shares in certain situations, such as resignation. Do those provisions assist us in understanding terms 1(c), 2(c), and 3(c)? Do they weigh for or against different values? [ 160 ]

Article 4 regulates sale of shares among shareholders and to third parties. The price for an internal sale under 4.01(b), or for a sale initiated by an external offer under 4.01(c), is determined by the offeror. So, these provisions shed no light on the question of different values for different classes of shares. [ 161 ]

Article 4.04 provides for the buyout of a minority shareholder, defined as one who holds 10% or less of the voting shares regardless of class. Mr. Giffin was in that position until 2004, and he is mentioned by name in

article 4.04(b). Value is determined by the price offered, a negotiated price, or valuation by an arbitrator. This sheds no light on the issue of how the different classes are to be valued. [ 162 ]

Article 5 provides options to remaining shareholders on death, insolvency, retirement, or resignation.

Article 5.05(

a) requires the shareholders to determine the value of shares in the company by reference to "the fair market value of all of the Shares as if all of these Shares were being sold". This is to be achieved by agreement or arbitration.

[ 163 ] I do not read

article 5 as telling us how to value the different classes. In particular, the reference to a notional sale of all shares does not assist us. The value of class B shares, for example, could be higher if the whole of the shares were being sold, instead of just some of the class B shares. In that case, the arbitrator would have to determine the fair market value of all shares assuming a sale of all of them, but there could remain a question about different value for different classes. [ 164 ]

Article 6 is a shotgun clause. Again, price is determined subjectively, sometimes by tactic, bravado, or timidity. It does not assist us to resolve the issue of differing values. [ 165 ] Where are we so far? We have a problem with terms 1(c), 2(c), and 3(

c) of the share terms. On liquidation, the holders of class A shares "are entitled to receive the remaining property of the Company" in priority to the holders of other classes. Subject to that, the holders of class B shares "are entitled to receive the remaining property", and subject to the rights of class A shareholders only, the holders of class C shares also "are entitled to receive the remaining property". The terms for dividends may shed some light on the terms for distribution of equity. Otherwise, the shareholder agreement does not assist us. [ 166 ] None of this would matter much, except Ms.

Soontiens and Ms. MacAlpine transferred virtually one third of the class C shares to their cousin in early 2004. For voting purposes, that gave him 16%, but in the circumstances of this company, there is no difference between 5%, 16%, or 33% for voting. For valuation, what did it give him? [ 167 ] Let us return to the narrative and come back later to the questions of dividend rights, division of equity on liquidation, and their consequences for share value. Events Leading to Shareholder Agreement and Share Terms [ 168 ] Ms. Soontiens left Western Electrics in September, 1998.

It was her job to set up the new company. Her first tasks were to get bonding and banking in order. [ 169 ] As I said, Ms. Soontiens prepared a business plan and presented it to Mr. Fletcher of Guarantee Company of North America. It identified the shareholders and described the shares they were to receive. She and her sister were to hold "Preferred/Common" and Mr. Giffin was to hold "Common". [ 170 ] Ms. Soontiens testified that she understood preference shares were similar to common shares "with extra rights". She did not explain what the "extra rights" might be. In view of Mr.

Giffin's testimony about the formative understanding, the provision in the articles for preference shares, and the reference in the articles to the Companies Act , I think it likely that Ms. Soontiens had redemption in mind when she prepared a business plan that called for preference shares to herself and her sister, and not to Mr. Giffin. [ 171 ] Ms. Soontiens got XL incorporated with the assistance of Mr. Baker. Mr. Baker recommended Mr. Michael Hornby to be XL's accountant. Ms. Soontiens met with him. [ 172 ] Mr. Soontiens made a note of Mr. Hornby's advice.

It included setting the $100,000 up as loans rather than using it to purchase shares. That way, no taxes would be payable "[w]hen the money was taken out of the company". [ 173 ] Mr. Hornby advised about a tax discount available to new companies for the first three years of operations and of the advantages, and disadvantages, of the shareholders taking dividends instead of wages. [ 174 ] Mr. Hornby wrote to Mr. Baker on December 14, 1998 after having had "a meeting with Nicole Berta regarding the proposed share structure for the company".

The letter described the three classes of shares we see in the shareholder agreement and called for the distribution we have seen:

Class A shares are to comprise 51% of the total and they are to be distributed equally to Ms. Soontiens and Ms. MacAlpine, Class C comprise 34% and are to be divided equally between the sisters, and Class B comprise 15% split three ways. [ 175 ] This "proposed share structure" was settled between Ms. Soontiens and Mr. Hornby. Neither discussed it with Mr. Giffin. Not at the time. Not later. He was to find out about it only when Ms. Soontiens delivered a copy of a draft shareholder agreement many months later when she sought execution. [ 176 ] Mr.

Hornby's letter said nothing about division of equity on sale or other liquidation. However, he did give Mr. Baker instructions on the dividends: The Class B shares are to pay dividends based on each of the shareholder's first $5,000 invested in the company or any other amount that may be invested equally by the three shareholders. In addition, this class is to account for dividends being paid in lieu of wages to each of the shareholders. The Class A shares are to pay dividends based on each of the shareholder's remaining cash invested in the company (to be paid at a premium).

The Class C shares are to be taken into account along with the other two classes of shares when a dividend is being paid out of net profits for the year. [ 177 ] When he testified, Mr. Hornby was of the view that class A, at 51%, was designed to ensure Ms. Soontiens and Ms. MacAlpine maintained control, class B was to enable dividends in lieu of salary, and class C would not produce dividends unless they were paid on all three. Given the distribution, this suggests that Mr. Giffin was to be little more than an employee.

He would get something for his small investment and, otherwise, his shares only enabled payment of his wages by dividend. [ 178 ] Mr. Baker referred XL to his colleague, Mr. David Thompson, for regularizaton of the share structure and preparation of a shareholder agreement. Mr. Thompson took instructions exclusively from Ms. Soontiens. He did not meet Mr. Giffin until the day the agreement was signed. However, his correspondence shows that he thought Ms. Soontiens was reporting to Mr. Giffin, as well as to her sister. [ 179 ] Early in January of 1999, Mr.

Thompson drafted documents for the shares, he drafted a shareholder agreement, and he and Ms. Soontiens met over the drafts. In the meantime, Ms. Soontiens had set up the books, she had arranged banking and bonding, and she had successfully bid on two jobs with the assistance of a consultant. And, Mr. Giffin had just left Western Electrics and had just taken up his role at XL. Ms. MacAlpine would join them in the summer. [ 180 ] Ms. Soontiens had two lengthy meetings with Mr. Thompson in January to discuss the draft documents. There is an early draft shareholder agreement in evidence. It was prepared by Mr.

Thompson, and it includes notes by Ms. Soontiens. The notes, a comparison of the draft with the finalized agreement, and notes made by Mr. Thompson show some of the subjects discussed by Ms. Soontiens with Mr. Thompson and some of the instructions she gave. [ 181 ] The notes and changes lead me to find that Ms. Soontiens gave close attention to the drafts. She was more attentive than she admitted on cross-examination.

[ 182 ] Ms. Soontiens and Mr. Thompson discussed the possibility of making the class A shares preference rather than common. I am mindful that "preference shares" can be a vague phrase. However, the evidence satisfies me that the vehicle of preference shares, as understood in Nova Scotia law, was considered as a means of protecting the unequal part of the initial investment ($85,000). That is, the shares would have been redeemable on repayment. [ 183 ] We do not know what was said by Ms. Soontiens and Mr. Thompson about preference shares.

However, the subject appears to have been dropped at this point. [ 184 ] The first draft of the shareholder agreement proposed that many decisions by the company would require unanimous shareholder approval. Ms. Soontiens had those provisions changed so that Mr. Giffin's approval would not be needed. Restrictions on share transfers without unanimous consent were changed to require only majority consent. [ 185 ] After the two lengthy meetings, and Ms. Soontiens' various instructions, Mr. Thompson revised the drafts. He and Ms. Soontiens had a third meeting, which produced a further draft. [ 186 ] Mr.

Thompson forwarded finalized drafts of the agreement and share terms to Ms. Soontiens on February 17, 1999. He wrote about the different treatment of Mr. Giffin and urged independent legal advice. Also, he offered to explain things to all three rather than rely on Ms. Soontiens to pass along his advice as lawyer for the company. "If you feel it would be helpful, I would be happy to have a meeting of all four of us to go through the documentation and explain it." [ 187 ] Yet another revision was made to the shareholder agreement in August, 1999 after Ms. MacAlpine moved to XL. Again, Mr.

Thompson recommended independent legal advice. [ 188 ] No meeting was held until October 4, 1999 when the agreement and share documentation were presented for execution. [ 189 ] Half a year went by after the company lawyer first recommended independent legal advice and offered to meet with all the parties. Ms. Soontiens never suggested Mr. Giffin meet with the company lawyer, never passed along the recommendation for independent legal advice, never showed Mr. Giffin drafts or correspondence from the company lawyer, and never told Mr.

Giffin what she had instructed the lawyer to put in the agreement. [ 190 ] Hence, my finding that Ms. Soontiens and Ms. MacAlpine did not want Mr. Giffin to understand that they had abandoned the theme of equality. [ 191 ] As I said, Mr. Giffin left his job with Western Electrics and joined XL at the end of 1998. XL had secured a large contract that required Mr. Giffin's expertise and a work force that he would be primarily responsible for recruiting and directing. The contract was good for several months of work. [ 192 ] At that time, Ms.

Soontiens held all the shares but she was responsible for dealing with the professionals and getting the share holdings regularized on behalf of XL. Mr. Giffin testified that, and I accept that, he would have been very concerned about, would have insisted on a discussion about, and would have objected to the preparation of a shareholder agreement in which his rights were substantially different from the other shareholders. He said that he thought they were to be equals. [ 193 ] My findings about Mr. Giffin's expectations for equality are based on the evidence as a whole.

However, the following are prominent: the formative discussions, evidence that compensation was roughly equal between 1999 and 2006, evidence that Mr. Giffin contributed equal or greater labour in making the business a success, equal exposure of the three shareholders on guarantees of obligations to the bonding company and the bank, equalization of the class C shares in 2004, and my general preference for Mr. Giffin's testimony on subjects related to this question.

[ 194 ] I find that Mr. Giffin expected equality of income from, and ownership in, XL. I find that that expectation was apparent to Ms. Soontiens and Ms. MacAlpine when Mr. Giffin took the risk of joining XL, and when he worked so hard to make it a success even as Ms. Soontiens worked with the professionals on an agreement that was contrary to his expectations. [ 195 ] I accept the evidence of Mr. Giffin that he was not given the finalized draft until the morning of the day it was signed, October 4, 1999, after he had been working for XL for over half a year and had signed the guarantees. Ms.

Soontiens gave it to him. She said, "We have to go to the lawyer's office to sign this. You should read it." [ 196 ] Mr. Giffin had little understanding of shareholder agreements, the operation of the kinds of provisions one finds in them, or share terms. [ 197 ] Mr. Giffin read over the agreement so he could truthfully say at the meeting that he had read it. He understood little of what he read. He and Ms. Soontiens drove to Mr. Thompson's office. Ms. MacAlpine met them there. [ 198 ] There is some discrepancy between the testimony of Mr. Thompson and that of Mr. Giffin about what happened at the meeting.

We know that it lasted for less than an hour. What stands out in Mr. Giffin's mind is a passing around of numerous documents for signature. [ 199 ] Mr. Giffin claims he said, "You know, these do not reflect the true agreement between us." He claims nothing was said, but Mr. Thompson nodded. I reject that evidence. Mr. Thompson would recall such a thing, if it happened.

And, he would have stopped the process until he was sure the agreement offered for signature was the true agreement of those signing it. [ 200 ] What I do take from this evidence is that, when he signed the agreement, Mr Giffin understood that the shares were not being divided equally, subject to redemption of the class A shares. [ 201 ] I find that Mr. Giffin was asked, at the meeting, whether he had obtained independent legal advice. I find that Mr. Thompson went over important provisions in the agreement. I also find that Mr. Giffin understood little of what was being said. It is likely that Mr.

Thompson assumed that, in the months before the meeting, Ms. Soontiens had passed along his advice, the drafts, and his letters about the need for independent legal advice in light of the preferential treatment of Ms. Soontiens. That is to say, it is likely that Mr. Thompson thought Mr. Giffin had some background information on the issues, when in fact he had none. [ 202 ] I find, however, that Mr. Giffin understood that the agreement treated him unequally.

And, he signed it. [ 203 ] At the same time, the parties signed unanimous shareholder resolutions authorizing the class A, B, and C shares and establishing the share terms. 1999 to 2004 [ 204 ] XL's year end is September 30. Annual profits, compensation to shareholders, and retained earnings went as follows: year profits compensation equity 1999 $152,637 $100,900 $152,637 2000 143,886 156,359 170,713 2001 261,905 252,006 302,479 2002 33,628 157,154 336,107

2003 35,959 194,661 372,066 2004 103,404 290,542 475,470. (The shareholders' investment shows as debt on the balance sheet. So, lenders might add it to retained earnings in assessing equity.) [ 205 ] One sees that XL was successful in maintaining profits, paying comfortable but generally modest compensation to the three principals, and accumulating significant equity.

This success is attributable to investments in the business by the three principals well beyond the $100,000 lent in the beginning. [ 206 ] Let us start by discussing the investment of skill and labour, then the financial investments, then the opportunity created by taking modest compensation. That will lay the groundwork for understanding how the shareholder agreement was administered before there was enough money to cause quarrels. And, that begins to explain why the shareholder agreement was performed as it was. [ 207 ] I must say that I reject the plaintiff's assertion that XL was Tibor Berta's business.

I find that he advised on some bids and that he weighed in on discussions of business issues, such as at annual meetings. Particularly, I find that he influenced declarations of dividends. However, I find that the financial decisions were made by Ms. Soontiens in consultation with Ms. MacAlpine and that, generally, the business was run by the three principals, not Mr. Berta. On issues that mattered to Mr. Giffin, they governed by consensus. [ 208 ] In his attempt to prove that Mr. Berta lent $85,000 to XL, rather than gave $95,000 to his daughters for them to make their own investment, Mr.

Giffin testified to the effect that Mr. Berta ran the XL business. Mr. Giffin claimed that Mr. Berta was always involved in major tenders and that he dominated annual meetings. [ 209 ] In my assessment, Mr. Giffin overstated Mr. Berta's role in XL. After he left, Mr. Giffin threatened to go to the union with information supporting the proposition that XL was a successor employer to Western Electrics. I think his position on Mr. Berta's role attempts to justify that tactic and to bolster his theory of the $85,000 loan. [ 210 ] In my assessment, members of the immediate Berta family understated Mr.

Berta's role and their desire to conceal it. A concrete example of both is found in minutes of the 2006 annual meeting prepared by Ms. MacAlpine which, in my assessment, includes much said by Mr. Berta but with his involvement concealed. His name was left off the attendee list. Much of the minutes is in the passive voice so speakers cannot be identified. [ 211 ] Ms. Ivy Lilly, who was an accounting clerk with XL, testified to the frequency of telephone calls from Mr. Berta, especially around tender closings. I accept her evidence and assess it as contradicting that of Ms. MacAlpine and Ms.

Soontiens on this subject. [ 212 ] When bonding was being set up at Guarantee Company of North America, Mr. Fletcher recorded a "verbal understanding" with Mr. Berta that Mr. Berta would resolve any problems that developed with the new company. [ 213 ] The plaintiff objected to Mr. Berta being recalled to give evidence against such an understanding. I was referred to True Blue Cattle Co. v.

Toronto-Dominion Bank , [2004] A.J. 265 (Q.B.) , in which permission to recall a witness was refused because "proper grounds" had not been shown [para. 9] and the recall "amounts to splitting his case" [para. 10]. [ 214 ] The recall was to give evidence about something in a document counsel had not seen (although the defendants must have been aware of it during the Labour Relations Board hearing). It is sufficient that the testimony was on a new subject and that damage to the order of Mr. Berta's earlier testimony is protected against by the right to cross-examine on the new subject.

Also, I see no splitting of the defendants' case caused by the recall.

[ 215 ] Although Mr. Fletcher can no longer recall the understanding, I am satisfied by the record, and its annual repetition, that there was such an understanding. I reject evidence given by Mr. Berta to the contrary. [ 216 ] The verbal understanding is inconsistent with the evidence tending to diminish Mr. Berta's role. [ 217 ] I am satisfied that Mr. Berta was more involved in XL than he and his daughters said he was. I am also satisfied that Mr. Berta did not dominate the business decisions, as Mr.

Giffin said. [ 218 ] The truth lies somewhere in between the two versions and, for me, it is unimportant to exactly determine Mr. Berta's role. I took this evidence into account when determining the question of repayments on the supposed $85,000 loan. Otherwise, it is enough to see that XL got some input from Mr. Berta on tenders and he had a voice on the issues that were to be determined by the directors or shareholders. [ 219 ] XL operated between 1999 and 2004 with Ms. Soontiens being the ultimate authority and the one to whom all office positions reported. Ms. MacAlpine was in charge of accounting. Mr.

Giffin was the estimator, the project manager, the recruiter of workers, and the primary authority in the field. [ 220 ] I find that business decisions were made by consensus in the office, except financial decisions. Those were mostly made by Ms. Soo

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