) ) 1217174 Ontario Ltd. v. Gail, 2017 ONSC 7698

CITATION : 1217174 Ontario Ltd. v. 141608 Canada Inc., 2017 ONSC 7698 OTTAWA COURT FILE NO.: 17-72198 DATE: 2017/12/22 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) 1217174 Ontario Ltd. and Gail Moffatt Applicants – and – 141608 Canada Inc., 2401662 Ontario Inc., 1541 Merivale Road Ltd., Inside Edge Properties Ltd., Paul Hunter, David Hunter, Taylor Hunter, Barry MacDonald, Mary MacDonald, Shirley Hunter, Roger Hunter and Lowell Allison Respondents ) ) ) ) ) ) ) ) ) ) ) ) ) ) Megan E. Shortreed and Lindsay Scott, for the Applicants D.

Lynne Watt and Joel Reinhardt, for the Respondents ) ) ) HEARD: August 15 and September 22, 2017, at Ottawa REASONS FOR decision Ryan bell J. Overview [ 1 ] 1217174 Ontario Ltd. and Gail Moffatt, together with six other co-owners, are minority interest holders in two commercial properties in Ottawa – a strip plaza at 1541 Merivale Road and an office/retail building and adjacent surface lot at 464 Bank Street. 1541 Merivale Road Ltd. holds legal title to the Merivale property; 2401662 Ontario Inc. holds legal title to the Bank property.

Paul Hunter and his sons, David and Taylor Hunter, are the directors of 1541 Merivale and 240 Ontario. Paul Hunter is also one of the eight co- owners of the properties through 141608 Canada Inc. Inside Edge Properties Ltd., the manager of the properties, is run by Paul Hunter and his sons. [ 2 ] Prior to May 2016, the co-owners and Inside Edge had a positive working relationship. The relationship changed for 121 Ontario and Ms. Moffatt in May 2016, when Inside Edge made a cash call on the co-owners. Together, 121 Ontario’s and Ms.

Moffatt’s share of the cash call was approximately $330,000. [ 3 ] The applicants sought additional information and a third-party review of the financial books and records relating the properties. Their requests for access and disclosure and the responses to those requests spanned approximately nine months, and culminated in a consent order providing for disclosure and access and requiring that the applicants’ share of the cash call be paid into trust. [ 4 ] 121 Ontario and Ms. Moffatt seek relief from alleged oppressive conduct, breach of trust and breach of fiduciary duty.

They assert that they have lost complete trust and confidence in Paul, David and Taylor Hunter, and that they are entitled to a buy-out of their co-ownership interests at fair value. [ 5 ] The respondents deny that 121 Ontario and Ms. Moffatt are entitled to rely on

section 248 of the Business Corporations Act , R.S.O. 1990, c. B.16 (“ OBCA ”). They assert that the requests for information and access were an attempt by the applicants to delay the performance of their contractual obligations. The respondents say that other than the need for an infusion of capital from the co-owners, nothing has changed with respect to the way the Merivale and Bank properties have been managed over the years. [ 6 ] The issues to be determined on this application are the following: (

i) Are 121 Ontario and Ms. Moffatt entitled to rely on

section 248 of the OBCA ?

(ii) If the applicants are entitled to rely on

section 248 , did any of the respondents engage in oppressive or unfairly prejudicial conduct or conduct that unfairly disregarded the applicants’ interests in relation to: (

a) access to and disclosure of the properties’ financial books and records; (

b) the Bank property management agreement; (

c) management fees paid to Inside Edge; (

d) CIBC mortgage financing on the Bank property; (

e) Roynat financing on the Bank property and the payment of legal costs from the properties; or (

f) alleged conflicts of interest? (iii) Are Paul, David and Taylor Hunter liable for breach of trust or breach of fiduciary duty? (iv) If there has been oppressive conduct, breach of trust, and/or breach of fiduciary duty, what is the appropriate remedy? (

v) What is the appropriate disposition with respect to costs of the disclosure motion? [ 7 ] For the following reasons, I have concluded that the failure by Inside Edge and Paul, David and Taylor Hunter to provide timely and meaningful access to and disclosure of the financial books and records of the properties was contrary to the applicants’ reasonable expectations and that this conduct was unfairly prejudicial to and unfairly disregarded the applicants’ interests as minority co- owners of the properties.

I have also determined that in the circumstances, the payment from the properties of legal fees associated with the dispute unfairly disregards the interests of the applicants. In my view, the appropriate remedy is one that addresses the specific concerns raised by the applicants, not a forced buy-out of the applicants’ interests. Background (

a) The Parties [ 8 ] 121 Ontario, a company wholly-owned by Jim Harris, and Ms. Moffatt co-own the Merivale and Bank properties with Barry and Mary Macdonald, Lowell Allison, 141 Canada and Roger and Shirley Hunter. [ 9 ] Paul Hunter is an Ottawa-area businessman and a director and officer of 141 Canada. The other directors of 141 Canada are Paul’s sons, David and Taylor Hunter. Roger and Shirley Hunter are Paul Hunter’s parents. [ 10 ] Paul Hunter is the founder of and, through the Hunter Family Trust, a shareholder in Inside Edge, a property management company.

Paul Hunter runs Inside Edge with David and Taylor Hunter. Inside Edge currently has over two million square feet of commercial real estate under its management in the Ottawa area. (

b) The Merivale Property [ 11 ] The Merivale property contains a multi-tenant commercial plaza, with gross leasable space of approximately 22,500 square feet. The plaza has ten commercial tenants, including an anchor restaurant tenant. The previous anchor restaurant closed during the economic downturn and two subsequent restaurant tenants were not successful. As of August 2016, the space has been leased by the Barley Mow restaurant. [ 12 ] The Merivale property was first acquired by a group of investors in March 1998 for $1,725,000. It was appraised earlier this year at $7,500,000.

The Merivale property has generated cumulative net operating income in excess of $1,550,000. [ 13 ] The original co-owners included 121 Ontario and Ms. Moffatt. As of January 2014, the current co-owners of the Merivale Property and their respective percentage ownership interests are: • 141 Canada – 31.38 • 121 Ontario – 29.83 • Mary MacDonald – 7.46 • Barry MacDonald – 7.23 • Roger Hunter – 6.8 • Lowell Allison – 5.96 • Shirley Hunter – 5.67 • Gail Moffatt – 5.67. (

c) The Bank Property [ 14 ] The Bank property is a 30,333 square foot, two-storey building with a leasable basement and includes an adjacent vacant piece of land used for parking. The co-owners purchased the Bank property in January 2014 for $8.1 million in a sale-leaseback transaction.

The purchase of the property was funded by mortgages against the Merivale and Bank properties and cash contributions by Paul Hunter and Mr. Harris. [ 15 ] The Bank property was appraised in 2016 at $9,500,000. The long-term investment strategy is to redevelop the Bank property as a residential condominium, together with premium retail.

In the short-term, the strategy was to establish a stable cash flow through commercial rental, either with a single tenant or with multiple commercial tenants. [ 16 ] The co-owners’ respective percentage ownership interests in the Bank property are: • 141 Canada – 28.0329 • 121 Ontario – 44.5859 • Mary MacDonald – 5.2659 • Barry MacDonald – 5.1035 • Roger Hunter – 4.800 • Lowell Allison – 4.2071 • Shirley Hunter – 4.0024 • Gail Moffatt – 4.0024. (

d) The Governing Documents [ 17 ] Legal title to the Merivale property is held by 1541 Merivale for the co-owners pursuant to an acknowledgement of trust agreement. The co-ownership agreement for the Merivale property (addressed below) describes 1541 Merivale as a “bare trustee”. [ 18 ] Legal title to the Bank property is held by 240 Ontario pursuant to a nominee agreement.

The nominee agreement describes 240 Ontario as a “bare trustee or nominee for and on behalf of the co-owners”. [ 19 ] The co-owners own their interests in the properties as tenants in common. [ 20 ] The co-owners entered into a co-ownership agreement for each of the properties: in March 1998 for the Merivale property and on January 24, 2014 for the Bank property. [ 21 ] Under the co-ownership agreements, the co-owners are entitled to share in any excess of revenue over expenses from the properties; however, the co-owners are also required to contribute additional capital as may be required for the continued operation of the properties.

In the case of a default by a co-owner in an obligation to contribute, the other co-owners have the right to fund the shortfall and to set off from revenues otherwise payable to the defaulting co-owner. [ 22 ] Inside Edge has continuously managed the Merivale property since the co-owners’ acquisition of the property in March 1998. The most current version of the management agreement was made January 2013 between 1541 Merivale and Inside Edge, and was signed by all of the co-owners.

The Merivale property management agreement re-engages and reappoints Inside Edge as property manager, and approves and ratifies all actions by and payments to Inside Edge. [ 23 ] The Bank property management agreement between 240 Ontario and Inside Edge is dated January 24, 2014. Inside Edge is appointed property manager for a five-year term, to be renewed automatically, subject to termination by either party. The applicants assert that the Bank property management agreement is not binding as it was entered into without the express written authorization and direction of the co-owners.

The Bank property management agreement was ratified by a majority of the co-owners in March 2017. (

e) The May 2016 Cash Call [ 24 ] On May 2, 2016, Inside Edge sent a letter to each co-owner advising them that additional funds were needed for the continued operation of the Merivale and Bank properties. With respect to the Bank property, the letter stated that cash was required for construction and leasing costs due to a shortfall in rental income. The cash outlay for the Merivale property was required to fund commissions, tenant inducements and negative cash flow during the lease-up period following the default of the most recent restaurant tenant.

The cash call for the Bank property was payable in two instalments on July 1 and September 1, 2016; the cash call for the Merivale property was payable in three instalments on June 1, September 1 and December 1, 2016. [ 25 ] The total cash call for the Merivale property was $250,000. 121 Ontario’s share was $74,575 and Ms. Moffatt’s share was $14,175. The total cash call for the Bank property was $500,000, of which 121 Ontario’s share was $222,929 and Ms. Moffatt’s share was $20,012. (

f) Applicants’ Requests for Disclosure and Access [ 26 ] The evidence of Mr. Harris and Ms. Moffatt is that they were concerned about the properties’ financial status and wished to satisfy themselves that the cash call was necessary. Paul Hunter’s evidence is that Mr. Harris said he could not afford to pay his share of the cash call at that point in time. In late July 2016, Mr. Harris advised Paul Hunter that if 121 Ontario’s third-party advisors, including legal counsel, were satisfied with the propriety of the cash call, 121 Ontario would pay its share. Mr. Hunter confirmed that he would be happy to speak to

Mr. Harris or his lawyer. All of the other co-owners, other than 121 Ontario and Ms. Moffatt, remitted their respective shares of the cashcall. [27] On August 18, 2016, Inside Edge issued notices of default to 121 Ontario and Ms. Moffatt. Paul Hunter, through 141 Ontario, ultimately paid the applicants’ share of the cash call pursuant to the co-ownershipagreements. [28] Beginning on August 25, 2016, the applicants, through their counsel, made a series of requests for documentary disclosureand access. Dissatisfied with the responses they received, 121 Ontario and Ms.

Moffatt commenced this application in April 2017 andmoved for access and disclosure. On May 11, 2017, on consent, McKinnon J. ordered terms of disclosure and access, and ordered thatthe applicants’ share of the cash call be paid into their lawyer’s trust account. The parties have been unable to agree on the costs of thedisclosure motion and that issue is also before me on this application. [29] The applicants’ accountant, Greg McEvoy, was provided access to the books and records on May 10, 2017, and set out hisobservations in his June 20, 2017 affidavit, filed as part of the record on these proceedings.

The applicants’ shares of the cash call werepaid into and remain in their lawyers’ trust account. [30] I turn now to the issues arising on this application. Issue 1: Availability of the Oppression Remedy [31]

Section 248 of the OBCA provides:

(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 amanner; 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 officerof the corporation, the court may make an order to rectify the matters complained of. [32] The term “complainant” in

section 248 of the OBCA is defined to mean: (

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

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

c) any other person who, in the discretion of the court, is a proper person to make an application under this Part (OBCA, s. 245). [33] The respondents argue that the oppression remedy is not available to 121 Ontario and Ms. Moffatt for two reasons: (i) 121 Ontario and Ms. Moffatt do not meet the test for “complainant” under

section 245 of the OBCA anddo not have a protected interest under

section 248; and (ii) any claim they may have should have proceeded by way of a derivativeaction. I am satisfied that 121 Ontario and Ms. Moffatt are proper complainants under

section 245 and have a protected interest undersection 248 of the OBCA. I am also satisfied that the applicants were not required to pursue their claims by way of a derivative action. (

a) Are the Applicants Complainants and Do They Have a Protected Interest? [34] The respondents argue that the applicants, as property owners holding rights and obligations as set out in the co-ownershipagreements, do not meet the definition of “complainants” under clauses (

a) or (

b) of

section 245 of the OBCA. And, they submit,although the courts have recognized a creditor as a “proper person” under

section 245(

c) to make a

section 248 application, theapplicants are not creditors. The respondents also argue that the applicants’ interests are not a category of protected interest undersection 248. [35] In my view, the approach advocated by the respondents is not in keeping with the equitable nature of the oppression remedy.

Section 248 creates an equitable remedy that “seeks to ensure fairness – what is ‘just and equitable’” and gives the court a “broad,equitable jurisdiction to enforce not just what is legal but what is fair” (BCE Inc. (Re), 2008 SCC 69, at para. 58). Courts consideringclaims for oppression are therefore instructed to engage in fact-specific contextual inquiries looking at “business realities, not merelynarrow legalities” (Wilson v. Alharayeri, 2017 SCC 39, at para. 23, citing BCE, at para. 58). Under

section 245(c), the court has anunfettered discretion to determine who is a “proper person” to commence oppression proceedings under

section 248 (Olympia & YorkDevelopments Ltd. (Trustee of) v. Olympia & York Realty Corp., (ON CA), [2003] O.J. No. 5242 (C.A.), at para.45). Although

section 248 lists the affected interests – those of any security holder, creditor, director or officer of the corporation – I donot read this list of protected interests as closed. To interpret

section 248 in such a manner would be inconsistent with a contextualinterpretation that takes into account business realities; it would also negate the language of

section 245(c). [36] The Court of Appeal for Ontario’s decision in Fedel v. Tan provides an example of a contextual approach to the

interpretationof

section 248 of the OBCA (2010 ONCA 473). “Security holder” is not defined in the OBCA; however “beneficial ownership” isdefined in

section 1 to include “ownership through a trustee, legal representative, agent or other intermediary”. In Fedel, the Court ofAppeal affirmed the trial judge’s finding that in the context of a private, closely-held corporation held by Tan, Fedel’s beneficial share

ownership permitted recourse to

section 248 (Fedel, at para. 69). [37] The applicants also rely on Hurontario Property Development Corporation v. Pinewood Business Interiors Inc., whereMarrocco J. (as he then was) concluded that the plaintiffs were entitled to rely on

section 248 in the context of a factual matrix similar tothat before me (2010 ONSC 260, at para. 81, affirmed on other grounds, 2011 ONSC 5476 (Div. Ct.)). In Hurontario, the plaintiffssigned a joint venture agreement with Pinewood, formalizing a prior memorandum of understanding. The bare trustee of the jointventure property signed the joint venture agreement. The joint venture agreement provided that the plaintiffs and Pinewood owned thejoint venture property as tenants in common.

The trust agreement provided that the plaintiffs and Pinewood were the beneficiaries of thetrust and that decisions concerning selling or mortgaging the joint venture property required the approval of the plaintiffs and Pinewood. Marrocco J. was satisfied that the plaintiffs were complainants within the meaning of

section 245 of the OBCA and concluded that thedefendants had acted in a manner that was oppressive to the plaintiffs. [38] As in Hurontario, 121 Ontario and Ms. Moffatt, together with the other co-owners, own the properties as tenants in commonthrough corporations which hold their interests in trust. As in Hurontario, the Merivale and Bank properties are each the sole asset of1541 Merivale and 240 Ontario, respectively. 121 Ontario and Ms. Moffatt are beneficial owners of interests in the Merivale and Bankproperties.

Although they are not the beneficial owners of shares as in Fedel, they are in a position analogous to beneficial owners ofminority interests in shares and they have a direct interest in how the corporations – 1541 Merivale and 240 Ontario – are managed. Theapplicants’ complaint is that the business and affairs of the corporations have been carried on or conducted in a manner that isoppressive, unfairly prejudicial to or that unfairly disregards their interests. This is the essence of a

section 248 application. Taking intoconsideration the factual context and the business realities, I am satisfied that 121 Ontario and Ms. Moffatt are “proper persons” tocommence oppression proceedings under

section 248. (

b) Are the Applicants Required to Pursue Their Claims by a Derivative Action? [39] The respondents assert that any claims against Inside Edge should have been commenced in a derivative action on behalf of240 Ontario and 1541 Merivale, as the impact of the wrongs alleged falls “proportionately and equitably on all the Co-owners” and thatthe applicants have not been affected in a manner different from the other co-owners. [40] In support of their position, the respondents rely heavily on the decision of the Court of Appeal in Rea v.

Wildeboer, whereBlair J.A., writing for the court, noted: [18] [The derivative action] is an action for “corporate relief”, in the sense that the goal is to recover for wrongs done to the companyitself. … [29] … On my reading of the authorities, in the cases where an oppression claim has been permitted to proceed even though the wrongsasserted were wrongs to the corporation, those same wrongful acts have, for the most part, also directly affected the complainant in amanner that was different from the indirect effect of the conduct on similarly placed complainants. … [35] [T]he harm must impact the interests of the complainant personally – giving rise to a personal action – and not simply thecomplainant’s interests as a part of the collectivity of stakeholders as a whole (2015 ONCA 373). [41] The derivative action provides a complainant with the right to apply to the court for leave to bring an action “in the name andon behalf of a corporation … for the purpose of prosecuting, defending or discontinuing the action on behalf of the body corporate”(OBCA, s. 246(1)).

The respondents advance their derivative action argument while at the same time they deny that the applicants arecomplainants under

section 245 for the purpose of

section 248. They cannot, however, have it both ways because the definition of“complainant” in

section 245 applies equally to derivative actions as it does to oppression claims. [42] In any event, I do not accept the respondents’ argument that the applicants were required to commence their claims by way ofa derivative action, for the following reasons. First, unlike the claims before me, the claims asserted in Rea sought to recover solely forwrongs done to a public corporation. [43] Second, in Rea, the thrust of the relief sought was for the benefit of the corporation. Here, 121 Ontario and Ms.

Moffattcomplain of a lack of timely and meaningful disclosure, and the lack of notice of the resolution to approve the legal fees to be charged tothe properties. These are complaints regarding their individualized personal interests. [44] Third, I agree with Wilton-Siegel J. in Mozas v. Medcan Health Management Inc. that Rea leaves open the possibility of anoverlap between derivative claims and personal claims in situations involving small, closely-held corporations (2017 ONSC 1524, atpara. 16).

There may be overlap between the oppression remedy and the derivative action where directors in closely-held corporationsengage in self-dealing to the detriment of the corporation and other corporate stakeholders (Malata Group (HK) Ltd. v. Jung (2008), 2008ONCA 111 , 89 O.R. (3d) 36 (C.A.), at para. 31, citing Swinton J. in C.I. Covington Fund Inc. v. White, (ON SC), [2000] O.T.C. 865 (S.C.), at para. 41). Similarly, the applicants in this case have made allegations of self-dealing. [45] Fourth, and finally, a principal reason for the approach articulated in Rea is to avoid a multiplicity of proceedings.

I am notpersuaded that there is any such concern in this case as only two co-owners have commenced proceedings. 121 Ontario and Ms. Moffattargue as part of this application that other fiduciary duties have been engaged and breached. Although the respondents deny suchengagement and breach, if the respondents are correct that the applicants ought to have sought leave to bring a derivative action, theresult would be two separate proceedings with increased costs. Issue 2: Oppression, Unfair Prejudice to or Unfair Disregard of the Applicants’ Interests

[ 46 ] The two requirements of an oppression claim are: (

i) the complainants must identify the expectations they claim have been violated and establish that the expectations were reasonably held; and (ii) the complainants must show that these reasonable expectations were violated by corporate conduct that was oppressive, unfairly prejudicial to, or that unfairly disregarded the complainants’ interests ( Wilson , at para. 24 ). [ 47 ] “Reasonableness” is objective and contextual. As the Supreme Court of Canada stated in BCE , it is impossible to catalogue exhaustively situations where a reasonable expectation may arise due to their fact-specific nature (para. 71).

The following factors that are useful in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders ( BCE , at paras. 72-81). [ 48 ] Not every unmet expectation gives rise to a claim under

section 248 . The conduct complained of must amount to oppression, unfair prejudice or unfair disregard of relevant interests.

The phrases describe the ways in which corporate actors may fail to meet the reasonable expectations of stakeholders. “Oppression” connotes conduct that is coercive and abusive; it suggests bad faith. “Unfair prejudice” carries the sense of a less culpable state of mind that, nevertheless, has unfair consequences. “Unfair disregard” of relevant interests extends the remedy to conduct that ignores an interest as being of no importance ( BCE , at para. 67, citing Markus Koehnen, Oppression and Related Remedies (Toronto: Thomson/Carswell, 2004), at pp. 81-88). [ 49 ] With these general principles in mind, I turn to consider the conduct complained of by the applicants. (

a) Disclosure of and Access to the Financial Books and Records [ 50 ] 121 Ontario and Ms. Moffatt assert that they reasonably expected to have meaningful access to and timely disclosure of the records, related statements, accounts and other documents associated with the Merivale and Bank properties. They say that this expectation arises from general commercial practice,

section 5.5 of the co-ownership agreement pertaining to the Bank property and

article 5.02 of both of the management agreements. [ 51 ]

Section 5.5 of the Bank property co-ownership agreement provides: Access to Records and Financial Statements Each Co-owner shall be entitled to access the records and related statements, accounts and other documents associated with the Property and shall also provide such personal data and information as may be necessary to complete returns or financial statements for and on behalf of the 464 Bank Street Co-Tenancy. The Property Managers also agree to arrange for the production and delivery of financial statements (audited and otherwise) at such time and upon such frequency as may be required by the Co-owners. [ 52 ]

Article 5.02 of the management agreement is the same for both properties. It provides: Records and Account The Manager shall keep and maintain full and proper records and accounts regarding all financial transactions involved in the management of the Building and shall forward to the Owner within 60 days after the end of each calendar year or the termination of this Agreement, a statement of receipts and disbursements showing all rents collected and all disbursements for expenses made during the preceding year, or part thereof.

All such records shall be made available to the Owner at the Manager’s offices … at reasonable times upon the Owner giving to the Manager 30 days written notice. In addition to the foregoing, the Manager shall provide quarterly financial reports to the Owner showing the revenue and expenses for the period. [ 53 ] In my view, it was a reasonable expectation of 121 Ontario and Ms. Moffatt, as co-owners of the Merivale and Bank properties, that they would be provided meaningful and timely access to and disclosure of the financial information pertaining to the properties.

In interpreting a commercial contract, the court construes the contract as a whole, in a manner which gives meaning to each term and avoids an

interpretation that would render one or more of its terms ineffective ( Salah v. Timothy’s Coffees of the World Inc. , 2010 ONCA 673 , at para. 16 ). The right to financial disclosure may be rendered ineffective in the absence of meaningful and timely access. [ 54 ] The respondents assert that the level of detail in the financial reporting provided to the co-owners and the form of those reports had not varied since 1998.

The respondents also maintain that by February 2017, Inside Edge had provided the applicants with additional and extensive financial documentation, including copies of all agreements in respect of the properties, financial statements for 2014 and 2015, statements of operating costs and profit and loss statements for 2016, cash flow projections for 2017, details of management fees for 2014-2016, construction documentation, and appraisals on both properties. [ 55 ] The applicants made several requests for access for their accountant to review the books and records of the properties, beginning in November 2016.

On December 30, 2016, counsel for Inside Edge responded to the request as follows: Your clients are not entitled to have a forensic accountant or any third party attend at the manager’s office to review any other records and access to your accountant will not be permitted. If Mr. Harris or Ms. Moffatt would like to attend at the manager’s office personally, the property manager is willing to make arrangements for them to do so. However, to preserve the confidentiality and proprietary rights of the other co-owners, they may not take extracts of any documents or have any third party attend with them.

[ 56 ] The applicants asked the MacDonalds and Mr. Allison to formally approve having their accountant review the books and records at the applicants’ expense. The MacDonalds refused but Mr. Allison provided his consent and suggested to Mr. Hunter that he grant access. Access was not provided. The applicants were provided with a

summary, prepared by Deloitte, of amounts paid or payable to Inside Edge or its affiliated or related entities for a three-year period. [ 57 ] Having reached an impasse with Inside Edge on issues of disclosure and access, the applicants moved for relief. On May 11, 2017, on the consent of the parties, McKinnon J. ordered access to the books and records as follows: THIS COURT ORDERS that the Applicants’ accountants, Greg McEvoy and an associate of Cohen Hamilton Steger (“CHS”), be granted access for one business day on May 10, 2017, or such additional time as the parties agree acting reasonably, to the financial records contained in the list attached to this Order as

Schedule “A”. The Respondents, Inside Edge Properties Ltd., 141608 Canada Inc., Paul Hunter, David Hunter, and Taylor Hunter (the “Hunter Group”) are ordered to provide CHS with copies of the records it requests, at the Applicants’ cost, and to respond to CHS’s reasonable material requests for follow-up information within one week of such request (or such reasonable time thereafter as may be dictated by the request). No such requests are to be made after June 9, 2016 [sic] (unless made in the context of cross-examination on affidavits as contemplated in paragraph 2 of this Order). [ 58 ]

Schedule “A” to the consent order lists 16 categories of financial information for each of the Bank and Merivale properties. As part of the consent order, the applicants agreed to pay their share of the cash call into trust, to be held in an interest-bearing account pending the resolution of the application or earlier release by court order, mutual direction or the applicants’ unilateral direction on notice to the respondents. [ 59 ] The respondents sought to justify their offer of restricted access and the prohibition on the copying of documents on the basis of confidentiality and privacy concerns.

On cross-examination, Paul Hunter agreed that no personal data beyond the co-owners’ names, addresses and ownership percentages was collected from the co-owners. I find that Paul Hunter knew that there were no legitimate confidentiality or privacy concerns at play. [ 60 ] On cross-examination, Paul Hunter testified that “until Jim Harris is going to put money up and show that he had the resources, we were not going to let [Mr. McEvoy] in.” Mr.

Hunter also confirmed that it was not until May 2017 that he requested that the applicants pay their share of the cash call into trust in exchange for allowing access to their accountant. The governing documents do not make the right to access the financial books and records of the properties contingent in the manner proposed by Mr. Hunter. I find that Mr. Hunter’s condition resulted in significant delays in the provision of financial information to the applicants, including information about Inside Edge’s management fees.

The applicants had a reasonable expectation that disclosure of this information would be timely; Inside Edge and Paul Hunter violated this reasonable expectation in a manner that unfairly disregarded the applicants’ interests as co-owners of the properties. [ 61 ] I am also satisfied that the offer of restricted access and the prohibition on the copying of documents prevented a meaningful and timely review of the books and records by the applicants, contrary to their reasonable expectations. The evidence is that Ms. Moffatt resides in Mexico for the majority of the year and has multiple sclerosis.

She is unable to attend personally at Inside Edge’s office and, in any event, lacks accounting expertise. Mr. Harris has no accounting training and health concerns prevent him from travelling to Ottawa where Inside Edge’s office is located. By prohibiting the copying of documents and by prohibiting access to the applicants’ accountant, Inside Edge acted in a manner that was unfairly prejudicial to the applicants. (

b) Bank Property Management Agreement [ 62 ]

Section 3 of the nominee agreement provides that 240 Ontario holds the Bank property on behalf of the co-owners, to deal with the property only as specifically directed by the co-owners and to “do no act relating to … the Property without the express written authorization and direction of the Co-owners.” The applicants argue that they had a reasonable expectation that Paul, David and Taylor Hunter would honour this provision and that their reasonable expectation was violated when the Bank property management agreement was entered into and management fees were paid to Inside Edge, without the express written authorization and direction of the co- owners. [ 63 ] I find that the co-owners, including the applicants, reasonably expected that Inside Edge would manage the Bank property as it had with the Merivale property, and that there was no violation of this reasonable expectation by any of the respondents. [ 64 ] Inside Edge has managed the Merivale property and the Bank property since they were acquired in 1998 and 2014, respectively.

On cross-examination, Paul Hunter testified that when the investment opportunities were first presented by him to the co- owners, it was on the condition that Inside Edge would be the property manager. Consistent with Mr.

Hunter’s evidence, the co- ownership agreements reference the fact that Inside Edge (or its predecessor, Sterling Asset Management), is to be the property manager. [ 65 ] In the January 2013 management agreement for the Merivale property, the co-owners specifically ratified and approved all actions by and payments to Inside Edge. [ 66 ] The Bank property management agreement was entered into between 240 Ontario and Inside Edge on January 24, 2014. David Hunter signed the agreement on behalf of 240 Ontario and Paul Hunter signed the agreement on behalf of Inside Edge.

The applicants maintain that they only became aware of the Bank property management agreement in the fall of 2016. They dispute Mr. Hunter’s assertion that before proceeding with the purchase of the Bank property, he specifically discussed with the co-owners that Inside Edge would be the property manager on the same terms and conditions as were in place for the Merivale property. [ 67 ] Based on my review of the terms of the Bank property management agreement and those in the Merivale property management agreement, I am satisfied that the terms are virtually identical.

It is therefore not necessary for me to make a finding as to whether Mr. Hunter specifically discussed that the terms and conditions of management in relation to the Bank property would be the same as for the Merivale property; it is sufficient that the co-owners agreed that Inside Edge would be the property manager for the Bank property and that the terms and conditions are, in fact, substantially the same as those in relation to the Merivale property.

[68] The Bank property management agreement was ratified by a majority of the co-owners in March 2017. [69] The applicants argue that the Bank property management agreement is not binding as there was no express approval by theco-owners. Express approval, they argue, was “even more critical than usual” because the Hunter family was in an inherent conflict ofinterest.

And, they submit, the ratification of the Bank property management agreement in March 2017 was ineffective because 141Canada, as an interested party, ought not to have voted on the transaction. [70] I am not persuaded by the applicants’ position, considering the following circumstances: • the co-owners, including the applicants, had previously approved the Merivale property management agreement; • the Bank property investment was brought to the co-owners on the basis that Inside Edge would be the property manager; • the Bank property co-ownership agreement specifically references Inside Edge as the property manager; • the Bank co-ownership agreement was signed by all of the co-owners, including the applicants; and • the Bank property management agreement is substantially similar to that for the Merivale property. [71] The applicants’ position is belied by the fact that all of the co-owners, including the applicants, knew that Inside Edge is aHunter family company.

Article 10 of both management agreements provides that although the manager – Inside Edge – can assign themanagement agreement to an entity controlled directly or indirectly by Paul Hunter, “the right to assign the agreement to another partynot controlled by Paul Hunter requires the consent of the Owner” (emphasis added). Although Mr. Harris and Ms. Moffatt did not seethe Bank property management agreement until the fall of 2016, they do not make the same claim with regard to the Merivale propertymanagement agreement. [72] Inside Edge has managed the Bank property for over three years.

The applicants knew that Inside Edge would be entitled tobe paid management fees for its services. The co-owners also knew that Inside Edge is a Hunter company and the investmentopportunities were presented on the basis that Inside Edge would be the property manager. I distinguish the circumstances here fromthose in Faltakas v. Paskalidis where the court ordered a self-interested franchising fee agreement set aside which the majority ofshareholders, also interested in the transaction, had approved ((1983), (BC SC), 21 B.L.R. 246 (B.C. S.C.)).

InFaltakas, the parties had operated with a franchising company for several years without being charged a franchising fee, and the new feewould effectively divert funds to the family owners at the expense of the petitioner, the only non-family part to the arrangement. [73] In

summary, in relation to Bank property management agreement and its subsequent ratification, I find no violation of theapplicants’ reasonable expectations and I reject the applicants’ claim that the fees charged by Inside Edge pursuant to the Bank propertymanagement agreement were paid without authority. (

c) Management Fees [74] 121 Ontario and Ms. Moffatt allege that since 2014, the Hunter family has paid itself a total of $74,422 in fees not specifiedby the management agreements. They reasonably expected that Inside Edge would be paid only the fees specified in the managementagreements and maintain that Paul, David and Taylor Hunter have engaged in self-dealing by paying undisclosed, unapproved andopportunistic management fees to their own company, Inside Edge. On this issue, I find no conduct contrary to

section 248 of theOBCA. [75] The following items are challenged: (

i) a 15 per cent ad hoc fee or mark-up levied on certain contracts for repair andmaintenance under the Merivale property management agreement; (ii) an environmental supervision fee in relation to a claim forcontamination discovered on the Merivale property; (iii) the year-end file preparation fee for pre-audit work; and (iv) Inside Edge’s useof Westview Projects as a contractor, subsequent to David and Taylor Hunter’s acquisition of a minority ownership interest in thatcompany. [76] Dealing first with the 15 per cent ad hoc fee charged on contracts for repair and maintenance, the applicants’ accountant, Mr.McEvoy, deposed that the total repair and maintenance costs charged by Inside Edge include reimbursable costs (recoverable underarticle 5 of the Bank property management agreement), and other costs that do not appear to be repair or maintenance related.

He notedthat the 15 per cent fee had been charged on items such as insurance, professional accounting fees, and overhead costs, as well as certainservice contracts. [77] Paul Hunter deposed that these items are required in order for Inside Edge, as property manager, to contract and oversee workperformed by third parties. On cross-examination, the applicants’ accountant, Mr. McEvoy, agreed that any issue about whether anyitem is, in fact, a repair and maintenance contract is a matter of contract

interpretation or agreement between the co-owners.

Schedule Ato the Merivale property management agreement allows for a 15 per cent ad hoc fee based on “all costs” associated with contracts forrepair and maintenance and third-party contractors. The respondents also rely on

article 5.01 of the management agreement whichprovides Inside Edge the right to be paid all expenses, costs and disbursements with respect to the maintenance, repair, operation andmanagement of the property. Based on the broad language used in the management agreement and the evidence before me, I find thatthe 15 per cent ad hoc fees paid to Inside Edge are in compliance with the Merivale property management agreement. [78] With respect to the environmental supervision fee of $5,000 per year, I am satisfied that this amount is properly recoverableunder the management agreements.

I find that the co-owners were aware of environmental litigation commenced in 2009 in relation tothe Merivale property, the settlement that was reached and the ongoing supervision of the remediation efforts. I accept the respondents’submission that because the lawsuit and the settlement did not exist at the time of the Merivale property management agreement in 1998,that agreement makes no specific environmental fee provision. The Bank property management agreement specifically provides for thepayment by the co-owners of all expenses incurred by Inside Edge in the performance of its duties for the co-owners.

[ 79 ] I am also satisfied that the year-end file preparation fee is properly recoverable by Inside Edge in respect of work above and beyond Inside Edge’s duty to keep and maintain full and proper records and accounts. I accept that the preparation fee charged by Inside Edge is more cost effective than the co-owners retaining Deloitte to undertake pre-audit work. [ 80 ] As for the continued retainer of Westview, there is no allegation that the rates charged by Westview are excessive or not in the best interests of the Bank property.

I am satisfied that these fees too, are properly recoverable under the Bank property management agreement. The continued retainer of Westview is not conduct that is oppressive or unfairly prejudicial to or conduct that unfairly disregards the interests of the applicants. (

d) CIBC Mortgage Financing [ 81 ] In July 2015, Inside Edge renegotiated the Bank property mortgage with CIBC and increased the mortgage by $2,000,000, for a total mortgage debt of $7,000,000. The co-owners acknowledged the refinancing in a CIBC-required document. Of the co-owners, only Paul Hunter on behalf of 141 Canada, and Mr. Harris on behalf of 121 Ontario, saw the term sheet. Ms. Moffatt’s undisputed evidence is that she did not see a copy of the financing documents until this dispute.

Inside Edge did not seek or obtain a written co- owners’ resolution approving the terms of the additional financing. [ 82 ] The applicants maintain that the failure to obtain a written resolution approving the additional mortgage financing was contrary to

section 5.3 of the Bank property co-ownership agreement and contrary to their reasonable expectations.

Section 5.3 states that there will be a mortgage on the Bank property and that the co-owners may agree to renew or refinance the mortgage on such terms and conditions as may be agreed.

Paul Hunter confirmed on cross-examination that the co-owners had to agree to the terms and conditions of a renewal or refinancing on the Bank property. [ 83 ] I have concluded that in all the circumstances, the failure to obtain a written resolution approving the additional mortgage financing on the Bank property is not conduct that is oppressive or unfairly prejudicial to or that unfairly disregards the applicants’ interests as co-owners of the Bank property.

I find that all of the co-owners were aware that construction would be necessary to build out the Bank property to accommodate multiple tenants after a single large tenant could not be found. The $2,000,000 increase in the mortgage financing was intended to be used and was, in fact, used for that construction.

Section 5.3 of the Bank property co-ownership agreement specifically contemplates an increase in the existing $5,000,000 mortgage up to $11,000,000. Paul Hunter and Mr. Harris (the two individuals who saw the term sheet), through their respective companies, guaranteed the increased mortgage and received guarantee fees. And, most significantly, all of the co-owners signed a consent to the new $7,000,000 mortgage. (

e) Roynat Financing and Legal Costs [ 84 ] The applicants argue that the properties are being run by the respondents in a manner that is prejudicial and unfair to their interests. They give as examples the Roynat financing on the Bank property and the agreement by a majority of the co-owners to pay legal costs out of the properties. [ 85 ] On March 16, 2017, Taylor Hunter distributed a Request for Approval, seeking the co-owners’ consent to a January 13, 2017 financing proposal made by Roynat Inc. in respect of the Bank property.

The applicants posed a number of questions in relation to the Roynat replacement financing. Inside Edge responded to those questions on May 1, 2017 and, at the same time, advised that it had entered into the Roynat mortgage on the basis of the other co-owners’ approval.

The applicants maintain that the Hunters and Inside Edge acted improperly in proceeding to take out the replacement financing before the applicants had an opportunity to consider the answers to their questions. [ 86 ] In my view, it would have been preferable for Inside Edge to respond to the applicants’ queries in a more timely fashion and prior to obtaining the approval of the remaining co-owners to the Roynat mortgage.

That said, I find that the conduct of Inside Edge and the Hunters in relation to the Roynat mortgage was not improper for the following reasons. [ 87 ] First, when the information about the replacement financing was sent to the co-owners, including the applicants, Taylor Hunter outlined the reasons and advantages of the new mortgage – a lower monthly payment and no requirement of guarantees from the co-owners.

The co-owners were advised that Inside Edge was prepared to give the sole guarantee in exchange for a guarantee fee; Inside Edge offered to share the guarantee with any co-owner willing to indemnify Inside Edge in respect of the guarantee. A copy of the offer of finance was provided. [ 88 ] Second, the other co-owners approved the Roynat financing on the terms offered. The MacDonalds and Mr. Allison elected to participate in the guarantee fee. [ 89 ] Third,

section 4.6(

b) of the Bank property co-ownership agreement permits decisions to be made by a majority of the co- owners and deems majority approval to be the approval of all. [ 90 ] Fourth, 121 Ontario directly benefitted as a result of the Roynat refinancing by the release of Mr. Harris’ guarantee on the CIBC mortgage. [ 91 ] Turning to the issue of legal costs, the applicants argue that, contrary to the terms of the consent order, Inside Edge’s legal costs in relation to the access and disclosure issue have been paid out of the properties.

The consent order provides: THIS COURT ORDERS that the Respondents are restrained from paying their legal costs of this motion and the application out of the Properties, reserving the determination of that issue to the earlier of a court order, the parties further agreement, or a determination of the Co-owners (pursuant to rights asserted under the Co-ownership Agreements governing the Properties, without prejudice to any of the parties’ arguments or remedies).

[ 92 ] During his attendance to review the books and records in May 2017, Mr. McEvoy identified $17,261 in legal fees charged to the properties that relate to this litigation dispute.

These fees are for the period December 10, 2016 to February 28, 2017. [ 93 ] In June 2017, respondents’ counsel advised that the respondents had collectively approved the payment out of the properties of the respondents’ legal costs associated with (i) “the [applicants’] requests, actions and [the motion]”; and (ii) “the enforcement and demand for payment … pursuant to a request for funds … on May 2, 2016.” These legal costs, inclusive of taxes, total $49,123, for the period September 15, 2016 to May 8, 2017.

I accept that fees have not in fact been charged against the properties since the consent order. [ 94 ] The applicants were not provided with notice of the resolution to approve the payment of the legal fees associated with the disclosure and access issues.

They argue that the failure to provide notice was contrary to the OBCA and the consent order and has an unfair result: in effect, making the applicants responsible for Inside Edge’s fees in denying them disclosure which, ultimately, the respondents agreed to provide. [ 95 ] I agree with the applicants that it would be unfair to require them to pay the legal fees associated with the violation of their reasonably expected access and disclosure. The respondents ultimately agreed to provide disclosure and access in the consent order. (

f) Alleged Conflicts of Interest [ 96 ] 121 Ontario and Ms. Moffatt maintain that they had a reasonable expectation, based on section 132(1) of the OBCA , that the Hunters would disclose any actual or potential conflicts of interest between them and suppliers of services to the properties. The applicants argue that their reasonable expectations have been violated by “[t]he Hunter Family’s complete failure to recognize, disclose, and appropriately address” any conflicts of interest, and that this constitutes oppressive conduct.

The alleged wrongful conduct involves the Hunters’ dealings, as directors of 240 Ontario and 1541 Merivale, with Inside Edge, Tallis Realty and Westview. [ 97 ] I do not accept the applicants’ submissions on this issue. With respect to Inside Edge, I have found that all of the co-owners were aware that Inside Edge is a Hunter company. The investments were brought to the co-owners on the basis that Inside Edge would manage both properties.

The management agreements specifically provide that Inside Edge can assign the agreement to an entity controlled directly or indirectly by Paul Hunter; however, Inside Edge’s right to assign to a third party unrelated to Mr. Hunter requires consent. [ 98 ] I have addressed Westview in the context of the discussion on management fees. There is no evidence that the rates charged by Westview are excessive or not in the best interests of the Bank property.

There is no conduct in relation to Westview that rises to the level of oppression or unfair prejudice of the applicants’ interests, nor do I find that the applicants’ interests have been unfairly disregarded. [ 99 ] Tallis Realty is the brokerage arm of Inside Edge.

It is referred to in the cash call letter in the following terms: “We became the building’s first tenant [in the Bank property], leasing the entire second floor where we now operate Inside Edge Properties, Inside Edge Project Management and our commercial-brokerage business, Tallis Realty.” I conclude that there has been no oppressive or improper conduct in relation to Tallis Realty. Pursuant to the management agreements, the property manager is entitled to receive commissions on leases secured for the Bank and Merivale properties.

Inside Edge never received leasing commissions that were already paid to Tallis Reality. There is no suggestion that the commission amounts paid to Tallis Realty were in excess of those authorized in the management agreements and there is no suggestion that the amounts of which the applicants complain have not been earned. (

g) Summary Regarding

Section 248 of the OBCA [ 100 ] To summarize in relation to

section 248 of the OBCA , Inside Edge and Paul Hunter unfairly disregarded and acted in a manner unfairly prejudicial to the applicants’ interests as co-owners when they denied 121 Ontario and Ms. Moffatt meaningful and timely access to and disclosure of the financial books and records relating to the properties. I have also found that it would be unfair to require the applicants to pay their share of the $17,261 in legal fees actually charged to the properties. I find no other conduct on the part of any of the respondents contrary to

section 248 of the OBCA . Issue 3: Breach of trust or breach of fiduciary duty [ 101 ] The applicants argue that, by failing to account for over eight months, Paul, David and Taylor Hunter committed a breach of trust. The applicants also argue that Paul, David and Taylor Hunter breached their fiduciary duties in failing to comply with the statutory disclosure requirements in respect of conflicts of interest. The applicants’ argument is founded on the following propositions: (

a) Paul, David and Taylor Hunter are trustees to the co-owners, and in that capacity, owe fiduciary duties to the co-owners; and (

b) Paul, David and Taylor Hunter, as directors of 240 Ontario and 1541 Merivale, owe fiduciary duties to the co-owners. (

a) Are the Hunters Trustees? [ 102 ] The applicants’ position is that 1541 Merivale and 240 Ontario are trustees. They allege that Paul, David and Taylor Hunter owe fiduciary duties to the co-owners as trustees because the Hunters control 1541 Merivale and 240 Ontario and have conducted themselves as having independent power, discretion and responsibility qua trustee. [ 103 ] Both 1541 Merivale and 240 Ontario are described in the governing documents as bare trustees. The description of a bare trust is not determinative of the legal substance of the relationship ( 1162740 Ontario Limited v.

Pingue , 2017 ONCA 583 , at paras. 7-8 , leave to appeal to SCC requested); rather, there must be a consideration of the rights and duties involved ( Pallot v. Douglas , 2015 BCSC 1296 , at para. 38 , aff’d 2017 BCCA 254 ). [ 104 ] Any fiduciary relationship must satisfy the test in Frame v. Smith :

• the fiduciary has scope for the exercise of some discretion or power; • the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and • the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power ( (SCC),[1987] 2 S.C.R. 99, at p. 136). [105] Inside Edge owes contractual obligations to the co-owners as property manager. It is not in the position of trustee to the co-owners. Nor, in my view, are Paul, David and Taylor Hunter. There is evidence that Mr.

Harris manages investments for himself andhis family. Both Mr. Harris, through 121 Ontario, and Ms. Moffatt were part of the original group of investors in the Merivale property in 1998. I do notfind that the applicants, as beneficial owners of minority interests in the properties, are peculiarly vulnerable to or at the mercy of theHunters. I also do not find that the Hunters are able to unilaterally exercise power so as to affect the applicants’ legal or practicalinterests. Their interests are governed by the co-ownership agreements and no one party holds a majority interest. (

b) Do the Hunters Owe Fiduciary Duties as Directors? [106] The applicants also argue that Paul, David and Taylor Hunter, as directors of 240 Ontario and 1541 Merivale, have a duty to acthonestly and in good faith with a view to the best interests of the corporation (OBCA, s. 134(1)). They say the Hunters have breachedthis obligation by failing to comply with the statutory provisions regarding conflicts of interest. Their position is that until Mr.

McEvoycompleted his analysis, none of the co-owners could have discerned the actual financial benefit that the Hunter family was obtainingthrough the management agreements: the co-owners were never advised of the brokerage fees being paid to Tallis Realty or theconstruction fees paid to Westview. [107] I find no breach of subsection 134(1) of the OBCA.

The scope of the fiduciary relationship in this case must be circumscribedby the contractual bargain and the co-owners’ knowledge that Inside Edge is a Hunter company and the fact that the investments werebrought to the co-owners on the basis that the properties would be managed by Inside Edge (Sharbern Holding Inc. v. Vancouver AirportCentre Ltd., 2011 SCC 23, at para. 143). There is no evidence that Paul, David and Taylor Hunter, as directors of 240 Ontario and 1541Merivale, have acted contrary to the best interests of the corporations.

Issue 4: Appropriate Remedy [108] Turning to the issue of the appropriate remedy, 121 Ontario and Ms. Moffatt say that they are entitled to (

a) terms on paying thecash call; (

b) a buy-out of their co-ownership interests in the properties; and (

c) in the alternative to a buy-out, guidance from the courtregarding the management of the properties. The issue of entitlement to costs of the disclosure motion is addressed separately below. (

a) Proposed Terms of Payment regarding Cash Call [109] Subsection 248(3) provides the court with a broad power to make any order it thinks fit including, “(

j) an order compensating anaggrieved person”.

With respect to payment of their share of the cash call, the applicants seek an order that no interest be applied, thatthey be compensated for the respondents’ legal fees paid out of the properties, that no further fees from this litigation be charged to theproperties or to the applicants’ account, and that they be compensated for any improperly charged management fees. [110] Dealing with the last item first, I have found that there have been no improperly charged management fees. [111] On the issue of interest, the evidence is that the other co-owners have paid their respective shares of the cash call in accordancewith the May 2016 cash call letter.

Paul Hunter, through 141 Ontario, paid 121 Ontario’s and Ms. Moffatt’s share of the cash call onMarch 14, 2017, pursuant to the co-ownership agreements.

Section 4.3 of the co-ownership agreements provides that interest accruesfrom the date of payment at prime plus three per cent in the case of the Merivale property, and prime plus four percent in the case of theBank property. Although the respondents maintain that the applicants had all of the information they required by March 14, 2017 toassess the need for the additional capital, I disagree. While the respondents had provided extensive documentation to the applicants bythis date, they did not agree to provide meaningful access until the consent order. Mr.

McEvoy was given access to the financial recordsrelating to the properties on May 10, 2017. His report, by way of an affidavit, is dated June 20, 2017. In my view, interest on theapplicants’ respective shares of the cash call should run at prime plus three per cent from June 20, 2017. [112] I have concluded that it would be unfair to require the applicants to pay the legal fees associated with the disclosure and accessissues actually charged to the properties. As of April 12, 2017, 121 Ontario’s share of these fees is $5,406; Ms. Moffatt’s share is $950. These amounts should be credited to the applicants.

Additional fees to be paid by the respondents to their own lawyers should not becharged to the accounts of the applicants. (

b) Proposed Buy-out [113] The purpose of relief under

section 248 of the OBCA is to rectify the conduct that is oppressive or unfairly prejudicial to or thatunfairly disregards the protected interests. The relief granted should not go beyond what is necessary to rectify the wrongful conduct: The provisions of s. 248(3) give the court a very broad discretion in the manner in which it can fashion a remedy. Broad as thatdiscretion is, however, it can only be exercised for a very specific purpose; that is, to rectify the oppression.

This qualification is found inthe wording of s. 248(2) which gives the court the power, if it finds oppression or certain other unfair conduct, to “make an order torectify the matters complained of”. Therefore, the result of the exercise of the discretion contained in s. 248(3) must be the rectificationof the oppressive conduct. If it has some other result the remedy would be one which is not authorized by law (Naneff v. Con-Crete

Holdings Limited (1995), (ON CA), 23 O.R. (3d) 481 (C.A.), at p. 488 (emphasis in original)). [114] As Gillese J. (as she then was) stated in Stapleton v. Fleming Feed Mill Ltd., “[t]he court ought not to intervene in the affairs of acorporation lightly and when it does, surgery is to be by way of a scalpel, not a battle-axe” ([2001] O.T.C. 779 (S.C.), at para. 99). [115] I do not share the applicants’ view that there has been a complete breakdown in trust and confidence between the partiesjustifying a buy-out of the applicants’ co-ownership interests in the properties.

Whether there is a sufficient lack of trust that justifies abuy-out depends on the nature of the oppressive conduct, the reason for it and the expectations of the parties (Koehnen, at p. 353). [116] I find that there was no expectation by the co-owners, including the applicants, that they would be engaged in the day-to daydecision-making in relation to the properties or that they would approve every decision made by Inside Edge. The parties’ relationshipas co-owners is governed by the co-ownership agreements. The parties knew that Inside Edge would be the property manager for bothproperties.

Prior to the cash call letter in May 2016, the co-owners and Inside Edge had a positive working relationship. There is noevidence that the parties have differing goals or views with respect to the function, purpose or operation of the co-tenancies. [117] While I have found conduct that unfairly disregarded and was unfairly prejudicial to the interests of the applicants, I do not findthat conduct to be such a consistent breach of duty or a serious departure from legal and normal business-like practices so as to warrant aforced buy-out (Abraham v.

Inter Wide Investments Ltd. (1985), (ON SC), 51 O.R. (2d) 460 (H.C.), at p. 469). [118] I distinguish Sahota v. Basra, relied on by the applicants, in which the court ordered the purchase of a party’s interest incircumstances where the applicants had been prevented from assessing the financial position of the company due to inadequatedisclosure or record-keeping ((1999), (ON SC), 93 O.T.C. 20 (Gen. Div.), at paras. 10, 28).

Although I have foundthat the disclosure and meaningful access were not timely, there is no allegation that there has been inadequate record-keeping and noallegation that the applicants require any additional evidence to assess the propriety of the cash call. [119] I also distinguish Larmon v. Synergy Hospitality Inc., where the parties, in the early stages of their relationship, failed to finalizean intended shareholders’ agreement and had disagreed from the outset and the court ordered a buy-out ((2004), (ONSC), 1 B.L.R. (4th) 244 (Ont. S.C.)).

The parties before me have been in business together for 19 years and, until the cash call, had beencontent with the management of the properties. In addition, there are written agreements in place governing their relationship. The co-ownership agreements include a mechanism whereby any co-owner can dispose of their interest in either property to a third party subjectto the other co-owners’ right of first refusal. [120] Nor is this a case like Wright v. Donald S.

Montgomery Holdings Ltd., where a buy-out was ordered in the context ofirreconcilable family differences and differing views as to the function and operations of the corporation ((1998), 51 O.T.C. 241 (Gen.Div.), at para. 50). [121] I agree with the respondents that this case is more similar to Jackman v. Jackets Enterprises Ltd. (1977), (BCSC), 2 B.L.R. 335 (B.C. S.C.).

In Jackman, the court found oppression in light of the respondents’ failure to provide financialinformation, failure to hold annual meetings, and the mortgaging of corporate assets and subsequent loan of the funds to the othershareholder’s own corporation. The court, however, refused to order the purchase of the plaintiff’s shares.

The court was unable to findthat the plaintiff had any reasonable expectation of managing the company or that the oppressive conduct amounted to a squeeze-out;instead, the court ordered that the information be provided, that annual meetings be held, and that the loan to the related company beinterest-bearing, secured and guaranteed by the majority shareholder. [122] While Mr.

Harris’ position is that he can never hope to be treated fairly about disclosure requests in the future, in my view, theapplicants’ concerns can be addressed with a more scalpel-like approach, without wielding the battle-axe of a forced buy-out. (

c) Alternative remedy [123] The appropriate remedy in this case is one that will allow the parties to move forward together, addressing the concerns thathave been raised by the applicants. I adopt the following terms proposed by the respondents as the terms, in my view, are consistentwith the remedial purpose of

section 248 of the OBCA: • The co-owners are to be provided with annual financial disclosure that includes all amounts paid to the Hunter family and itsrelated companies, as well as quarterly financial statements which include a balance sheet and a profit and loss statement; • Upon request, the co-owners are to be provided with accountings and supporting documents in relation to the properties. Suchrequests are to be reasonable and not unduly burdensome.

The costs to produce any records in addition to the annual financial disclosureand the quarterly financial statements will be chargeable to the properties; • Annual meetings of the co-owners are to be held, within 60 days of the circulation of the annual financial statements. The co-owners are required to respond to the notice of meeting within 5 days to confirm their attendance, manner of attendance (which may be inperson or by teleconference), or waiver of attendance.

All expenses associated with the annual meetings will be chargeable to theproperties; • Notice of resolutions or approvals requested of the co-owners will be provided and responded to in accordance with

section 5.1 ofthe Merivale property co-ownership agreement and

section 4.7 of the Bank property co-ownership agreement; and • Non-arm’s length transactions will be disclosed promptly to and approval will be obtained from the co-owners. In the context ofthe co-owners’ investments in the properties, all co-owners shall be entitled to vote on such transactions.

Issue 5: Costs of the Disclosure Motion [124] 121 Ontario and Ms. Moffatt seek their costs associated with the disclosure motion from August 2016 to May 11, 2017, the dateof the consent order.

They seek approximately $84,000 on a substantial indemnity basis and $57,000 on a partial indemnity basis. [125] While I agree with the applicants that they are entitled to their costs on a substantial indemnity basis, in my view, $84,000 is notan amount that is fair and reasonable for the respondents to pay, even on a substantial indemnity basis. [126] With respect to the scale of costs, although there were no Rule 49 offers made in this case, I am satisfied that the applicants’requests for disclosure and later, for access by the accountant, are relevant to my consideration of costs of the motion (Elbakhiet v.Palmer, 2014 ONCA 544, at paras. 32-33, leave to appeal to SCC refused, 36099 (22 January 2015)).

In August 2016, the applicantssought only disclosure. In the notice of motion, the applicants also requested access for their accountant, an injunction to restrain therespondents from taking any profits from the properties attributable to the applicants or from selling the applicants’ interests in theproperties, and an injunction to restrain the respondents from paying their legal costs of the motion and the application out of theproperties. These terms were ordered by the court in the consent order. In this sense, 121 Ontario and Ms.

Moffatt were more successfulon the motion than their previous proposal regarding disclosure. [127] In addition, while substantial indemnity costs are not awarded except in special circumstances, “a finding of oppression, bydefinition, almost always provides some foundation for an award of costs above and beyond the [partial indemnity] scale” (Ford MotorCompany of Canada Ltd. v. Ontario Municipal Employees (2006), 208 O.A.C. 125 (C.A.), at para. 9, citing Naneff v. Con-CreteHoldings Ltd. (1993), 11 B.L.R. (2d) 218 (Ont. Gen. Div.), at p. 264).

Although I did not find oppressive conduct, I have found that thedisclosure and access issues amounted to conduct that was unfairly prejudicial to and that unfairly disregarded the applicants’ interests. [128] As to the quantum of the applicants’ costs, I have been provided with a costs outline that summarizes the time spent and ratescharged by counsel and law clerks for three periods: (i) “Demands for Disclosure” (August 12, 2016 to February 14, 2017) - $37,659.75 (substantial indemnity fees) (ii) “Motion for Disclosure” (February 15, 2017 to May 11, 2017) - $30,304.50 (iii) “Disclosure Process under the Consent Order” (May 12, 2017 to May 31, 2017) - $3,327.00. [129] In fixing costs, the overall objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in theparticular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant (Boucher v.

Public AccountantsCouncil (Ontario) (2004), (ON CA), 71 O.R. (3d) 291 (C.A.)). [130] The respondents have directed me to Mr. McEvoy’s affidavit which sets out the respondents’ own legal fees of approximately$17,000 to the end of February 2017. This amount, they say, reflects what is fair and reasonable for the respondents to pay with respectto the disclosure motion. [131] I do not agree with the respondents that $17,000 should be the measure for the applicants’ costs for the entirety of the disclosuremotion.

I do agree that $17,000 is an amount that is fair and reasonable for the respondents to pay for the period from August 12, 2016to February 14, 2017. The

summary provided by the applicants discloses that two counsel spent in excess of 90 hours dealing with thedemands for disclosure. In my view, this amount of time is excessive. I infer (as the applicants’

summary does not provide furtherdetails) that during this period of time, there was considerable overlap in the work done by counsel and that much of the time spentinvolved a detailed review of the documents that were provided. [132] The period from February 2017 to May 11, 2017 involved the preparation of the notice of motion and an extensive motionrecord. The motion was, however, resolved on a consent basis. Three counsel were involved during this period of time for a total of 60hours. For the same period of time, it appears that the respondents’ own legal fees were approximately $24,000.

In my view, the totalamount of time claimed by the applicants for this period is excessive. Again, I infer (as no further details were provided) that there wasoverlap in the work done by counsel. I have concluded that for this period of time, $20,000 in legal fees (40 hours at a substantialindemnity rate of $500) is appropriate. [133] The final period relates to the “disclosure process under the consent order”. Counsel and law clerk time are said to total 14hours. I have been provided with no details as to what work was required by counsel or by two law clerks in relation to the “disclosureprocess”.

I am prepared to allow 2 hours of counsel’s time at a substantial indemnity rate of $500, for a total of $1,000. [134] In

summary, I award the applicants their costs of the disclosure motion on a substantial indemnity basis, fixed in the amount of$46,450, inclusive of disbursements and HST. Disposition [135] In

summary, Inside Edge and Paul Hunter engaged in conduct that was unfairly prejudicial to and unfairly disregarded theapplicants’ interests by failing to provide timely and meaningful disclosure and access to the financial books and records. In addition,payment of the legal fees charged to the properties in relation to the disclosure and access issues is unfair to the applicants. Accordingly,I order as follows: (

i) The applicants’ respective shares of the cash call are to be paid, together with interest at a rate of prime plus three per cent fromJune 20, 2017; (ii) 121 Ontario’s account is to be credited in the amount of $5,406;

(iii) Ms. Moffatt’s account is to be credited in the amount of $950; (iv) The respondents are to pay the applicants’ costs of the disclosure motion in the amount of $46,450, inclusive of disbursements and HST. This amount is not to be charged against the applicants’ accounts in relation to the properties; (

v) The co-owners are to be provided with annual financial disclosure that includes all amounts paid to the Hunter family and its related companies, as well as quarterly financial statements which include a balance sheet and a profit and loss statement; (vi) Upon request, the co-owners are to be provided with accountings and supporting documents in relation to the properties. Such requests are to be reasonable and not unduly burdensome.

The costs to produce any records in addition to the annual financial disclosure and the quarterly financial statements will be chargeable to the properties; (vii) Annual meetings of the co-owners are to be held, within 60 days of the circulation of the annual financial statements. The co- owners are required to respond to the notice of meeting within 5 days to confirm their attendance, manner of attendance (which may be in person or by teleconference), or waiver of attendance.

All expenses associated with the annual meetings will be chargeable to the properties; (viii) Notice of resolutions or approvals requested of the co-owners will be provided and responded to in accordance with

section 5.1 of the Merivale property co-ownership agreement and

section 4.7 of the Bank property co-ownership agreement; and (ix) Non-arm’s length transactions will be disclosed promptly to and approval will be obtained from the co-owners. All co-owners shall be entitled to vote on such transactions. [ 136 ] Success on the application has been divided. The parties are encouraged to try to reach an agreement on costs of the application, failing which they may make written submissions limited to a maximum of five pages, double-spaced, exclusive of a bill of costs, within 45 days of the date of release of this decision. Madam Justice R.

Ryan Bell Released: December 22, 2017 CITATION : 1217174 Ontario Ltd. v. 141608 Canada Inc., 2017 ONSC 7698 OTTAWA COURT FILE NO.: 17-72198 DATE: 2017/12/22

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 1217174 Ontario Ltd. and Gail Moffatt Applicants – and – 141608 Canada Inc., 2401662 Ontario Inc., 1541 Merivale Road Ltd., Inside Edge Properties Ltd., Paul Hunter, David Hunter, Taylor Hunter, Barry MacDonald, Mary MacDonald, Shirley Hunter, Roger Hunter and Lowell Allison Respondents REASONS FOR decision Ryan Bell J. Released: December 22, 2017