Mann v Mann, 2023 SKCA 100

Court of Appeal for Saskatchewan Docket: CACV3649 Citation: Mann v Mann , 2023 SKCA 100 Date: 2023-08-28 Between: James Mann Appellant (Applicant/Cross-Respondent) And Jason Mann Respondent (Respondent/Cross-Applicant) And AgraCity Crop & Nutrition Ltd. Respondent (Respondent/Affected Party (for Notice)) And Farms and Families of North America Inc. (doing business as Farmers of North America) and AgraCity Services Inc.

Non-Parties (Non-Parties/Cross-Respondents) And Genesis Grain & Fertilizer GP Inc., 101187148 Saskatchewan Ltd., Genesis Operating GP Inc., AgraCity Ltd., AgraCity Crops & Nutrition, Inc. (US), MPower Logistics Ltd., 101072498 Saskatchewan Ltd., NewAgco Inc. (Barbados), FNA AgraCity Holdings Ltd., AgrowFuel Ltd., AgrowTerminals Ltd., MPower Management Team Ltd., AgraCity de Mexico, Farmers of North America de Mexico, 101114752 Saskatchewan Ltd., 101119534 Saskatchewan Ltd., 101179684 Saskatchewan Ltd. and FNA Fertilizer GP Inc. Non-Parties (Affected Parties (for Notice)) Before: Caldwell, Leurer and Tholl JJ.A.

Disposition: Appeal allowed in part Written reasons by: The Court On appeal from: QBG 1548 of 2018, Saskatoon Appeal heard: June 15, 2023 Counsel: James Mann on his own behalf Robert Hawkes, K.C. for Jason Mann Khurrum Awan and Allen Berriault for AgraCity Crop & Nutrition Ltd. The Court I. Introduction [ 1 ] This appeal arises from two applications under s. 234 of The Business Corporations Act , RSS 1978, c B-10 [ SBCA ], since repealed by The Business Corporations Act, 2021 , SS 2021, c 6 [ SBCA 2021 ].

It centers around the affairs of AgraCity Crop & Nutrition Ltd. [AgraCity] and Farms and Families of North America Inc., which does business as Farmers of North America [FNA]. However, the litigation that prompts this appeal is but part of a larger portfolio of lawsuits between the two brothers who are shareholders of these companies. [ 2 ] James Mann and Jason Mann are equal shareholders in AgraCity. Although both are also directors and officers of AgraCity, for many years Jason has been responsible for its day-to-day management. James is the sole registered shareholder of FNA and is its operating mind.

Jason has no formal role in FNA. However, he claims an ownership stake in it. [ 3 ] AgraCity’s and FNA’s business affairs intertwine. In short, AgraCity sells agricultural products. Historically, it has done so only to farmers who are members of FNA. All of this also involves many other affiliated corporations. These other companies are sometimes referred to by the parties as the “Affected Corporations”.

However, as we will explain, there are inconsistencies in the lists that purport to identify the affiliates. [ 4 ] James and Jason each served an application under s. 234 of the SBCA naming the other as the respondent. James alleged in his application that he had been oppressed by how Jason had conducted AgraCity’s affairs. For this reason, James asked for an order removing Jason as a director and officer of AgraCity and for the appointment of a receiver or receiver manager of that corporation [receiver], as well as other relief.

For his part, Jason’s application alleged that James had acted oppressively as a director of AgraCity and the Affected Corporations. Jason asked to be declared a 50 per cent owner of FNA. He also asked for an order directing the sale of James’s interests in AgraCity and the other corporations or directing the sale of the companies to a third party, as well as other ancillary orders. [ 5 ] The two applications came before a judge of the Court of Queen’s Bench sitting in Chambers. As a bottom line, the Chambers judge dismissed James’s application but found that James had oppressed Jason.

In the result, the Chambers judge ordered a sale of AgraCity and other unspecified corporations but recognized that many issues would require a trial to resolve: Mann v Mann (30 April 2020) Saskatoon, QBG 1548 of 2018 (Sask QB) [ Chambers Decision ]. [ 6 ] James appeals from the dismissal of his own application and the grant of any relief in favour of Jason. We have concluded that the Chambers judge did not err in refusing to order an investigation or to appoint a receiver. However, he erred in making critical

findings of fact relating to James’s and Jason’s reasonable expectations concerning the management of AgraCity in the face of the conflicting affidavit evidence that was before him. Accordingly, for the most part, James’s appeal must be allowed. We direct that the questions on the disputed issues be remitted to the Court of King’s Bench for trial or other determination in accordance with the rules of court. Our reasons follow. II. Background A. The broad business context [ 7 ] A helpful

summary of the history of the business relationship between James and Jason is found in a judgment of the Chambers judge delivered in an earlier

chapter of the litigation between the two brothers: Mann v Mann / Farms and Families of North America Inc. v AgraCity Crop & Nutrition Ltd. (28 September 2018) Saskatoon, QBG 948 of 2017 / QBG 1336 of 2018 (Sask QB) [ September 2018 Decision ]. In that decision, the Chambers judge explained as follows: [3] FNA started as a company vehicle that established a system allowing it to import into Canada farm products from the United States. Its first success seems to have come from importing glyphosate, a generic form of Roundup.

Originally, glyphosate was a non-discriminate herbicide with much popularity in the farming community. FNA was able to import and sell to farmers glyphosate at much reduced prices. In order to purchase glyphosate and other agricultural products that were added to FNA’s inventory, a farmer had to purchase a “membership” in FNA. [4] FNA’s business grew and more sophisticated systems of product procurement and sales were developed by James and Jason. Eventually, AgraCity was incorporated and appears to be the primary seller of agricultural products to farmers.

In order to purchase products from AgraCity, however, you must be an FNA member. The two corporations are inextricably linked by this relationship. [5] The business model appears to have continued to be nuanced with the addition of other retail suppliers within the business fold and the use of an offshore corporation to maximize business profits. There are significant disputes between who was responsible for the creation of the current business model, how that business model operates, the relationship between FNA and AgraCity, and the responsibilities of James and Jason within those corporations.

James and Jason each have different views of all of the above matters. Each of them seems to grudgingly acknowledge the other one is involved in the operations of the corporations. Each of them maximizes their contribution to the ongoing success of the operations and minimizes the contribution of the other. The reality may fall somewhere between the two truths as each of them perceive them to be, but that is for another time. [6] FNA received its income solely from the sale of memberships to farmers.

AgraCity received its income from the sale of agricultural products to FNA members. [7] James and Jason have differing views as to the agreements by which the two corporations operate with each other. No written agreements respecting the relationship have been presented to the court. No written agreements between James and Jason as to the respective duties and operations within the corporations have been presented to the court. It is not uncommon for this court to see disputes between family members in which no written ground rules exist. That is precisely why the matters end up in court when disagreements arise.

B. Deadlock and the earlier litigation [ 8 ] In his brief of law filed before the Chambers judge, James described the situation in the brothers’ companies as amounting to a “hopeless deadlock”.

Jason said much the same thing in the brief of argument he filed in the Court of Queen’s Bench, when he said that, for several years, he and James “have been unable to work together on any functional level and the Affected Corporations are in a state of deadlock”. [ 9 ] As described in the Chambers Decision , it was “likely that it was a series of matters that culminated in a decision by both [James and Jason] that they could no longer work together [but] what continues to fuel it has been James’ efforts to obtain financial control of AgraCity” (at para 44).

To this end, in 2017, James took steps to oust Jason from positions of authority within AgraCity. [ 10 ] James’s actions resulted in the grant of an order by Danyliuk J. of the Court of Queen’s Bench: Mann v Mann (19 July 2017) Saskatoon, QBG 948 of 2017 (Sask QB) [ Danyliuk Order ]. In substance, the Danyliuk Order preserves the status quo of the business arrangements between the brothers in relation to AgraCity and at least some of the Affected Corporations while matters in dispute are litigated.

One specific part of this is that Jason “shall continue to act as president and managing director of AgraCity and in that role he shall not take any steps or conduct himself in a manner that is outside of the ordinary scope of business” (at para 4). [ 11 ] The Danyliuk Order was later affirmed by an order made by Gabrielson J. on December 21, 2017, who also directed a trial of the issue surrounding the validity of the AgraCity shareholders’ meeting that purported to remove Jason as a director of that company. [ 12 ] In July of 2018, on the without notice application of Jason and AgraCity, Rothery J. granted a further order relating to these matters: Mann v Mann (17 July 2018) Saskatoon, QBG 948 of 2017 [ Rothery Order ].

The Rothery Order : (

a) restrained James and FNA employees from taking certain actions in relation to FNA members; (

b) removed James as a signing authority for AgraCity; (

c) ordered James to repay $60,000 that he had withdrawn from AgraCity’s bank account on July 12, 2018; and (

d) restrained James from causing others to make comments that “disparage Jason Mann or AgraCity to anyone, including FNA members and/or AgraCity customers” (at para 4). [ 13 ] On August 22, 2018, FNA commenced an action by statement of claim against AgraCity and Jason, seeking an injunction requiring AgraCity to continue to make payment in the ordinary course of its business such in sums that are necessary to permit FNA to meet its reasonable operating and other expenses. Shortly thereafter, FNA applied for an order setting aside the Rothery Order and

directing AgraCity to continue to make payments to FNA. This application came before the Chambers judge, who dealt with both requests in the September 2018 Decision . The September 2018 Decision had two broad outcomes. [ 14 ] First, while the Chambers judge left in place the majority of the Rothery Order , he set aside her direction that James must repay the $60,000 he had withdrawn from AgraCity on July 12, 2018.

He found that there was conflicting evidence about this and that further evidence, “and likely viva voce testimony, would be necessary to determine that” issue ( September 2018 Decision at para 32). [ 15 ] Second, the Chambers judge found that it was in the ordinary course of AgraCity’s business to make certain transfers of money to FNA. Therefore, as a matter of enforcement of the Danyliuk Order , he directed AgraCity to make payments to be calculated according to a formula that he set out in the September 2018 Decision .

However, he declined FNA’s request for an order “that the payments not be shown as shareholders’ loans to James or FNA or any other type of loan”. He concluded that the “legal relationship between these companies and the precise basis upon which payments have been flowing from AgraCity to FNA over the last number of years cannot be determined on the affidavit evidence”.

Accordingly, he found that it would “be left for agreement of the parties or a trial determination for a characterization of these payments” (at para 61). [ 16 ] The exact quantification of the payments to be made by AgraCity to FNA and their frequency was later determined by the Chambers judge in decisions rendered on March 6, 2019, and July 8, 2019 [ Payment Determination Decisions ] (see Chambers Decision at para 41). [ 17 ] By way of final prelude to the applications that led to this appeal, in 2018, James commenced an action by originating application under the oppression provisions of the SBCA .

Through it, he sought an order against Jason and AgraCity, affording him access to certain of AgraCity’s business records. That request was satisfied by the grant of a consent order issued on October 25, 2018 [ AgraCity Information Access Order ]. The AgraCity Information Access Order gave to James, his legal counsel, and his financial advisors wide- ranging access to AgraCity’s general ledger and accounting databases as well as supporting accounting records including bank statements, supplier invoices, customer files and borrowing documents. C. The applications leading to this appeal and the evidence 1.

Section 234(2) of the SBCA [ 18 ] Both applications that came before the Chambers judge were largely grounded in s. 234(2) of the SBCA . That provision provided as follows: 234

(2) If, 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 affects a result; (

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

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner; that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of. See now, s. 16 - 6(1) of the SBCA 2021 . 2. James’s application [ 19 ] In 2019, within the procedural context of the action in which the AgraCity Information Access Order was granted, James served a notice of application naming Jason and AgraCity as respondents. James’s notice of application asked for orders: (

a) removing Jason from any position as director and officer of AgraCity; and (

b) in addition or in the alternative, an order: (

i) appointing a receiver of AgraCity pursuant to s. 9 of The Queen’s Bench Act, 1998 , SS 1998, c Q-1.01 and s. 234(3) of the SBCA ; (ii) directing an investigation of AgraCity pursuant to s. 223 of the SBCA ; or (iii) increasing the minimum size of the board of AgraCity to five board members. [ 20 ] James based these requests on the allegation that he had a reasonable expectation to participate in AgraCity’s management and a further reasonable expectation that AgraCity would be operated by Jason in a financially prudent and proper way.

James contended that both of these reasonable expectations had been violated, justifying the grant of the remedies he requested. [ 21 ] James served two affidavits in support of his application. The first was sworn by Sara Jimenez, CPA, CFE on March 25, 2019. The second was his own affidavit, sworn on April 11, 2019. [ 22 ] Ms. Jimenez is a forensic accountant whose firm had been retained by James to analyze AgraCity’s financial statements. We will discuss the details of Ms. Jimenez’s evidence later in these reasons.

For the moment, it is sufficient to know that she conducted a review of AgraCity’s financial statements and some financial records. In her affidavit, she explained that, coming out of the review, “several issues in AgraCity’s financial statements were identified”, which she discussed. These “issues” extended to transactions with three of the Affected Corporations, 101114752 Saskatchewan Ltd. [752], FNA Fertilizer Limited Partnership and NewAgco Inc. (Canada) [NewAgco]. Ms. Jimenez’s affidavit concluded with the following statements: 8.

Based on the information identified, there are serious concerns with respect to the solvency of AgraCity and its ability to meet its ongoing operating commitments. It is entirely reliant on unsecured financing from trade creditors, namely Anhui Huaxing Chemical Co., Ltd., and its most significant asset is amounts receivable from related parties. It is not likely that AgraCity will be able to continue

providing funds to related parties, without the related parties returning the funds to AgraCity so it can remain operational. 9. Other matters such as the negative accounts receivable balance, the massive increases in operating expenditures, and the numerous and significant related party transactions, among other things, all require additional investigation which I cannot complete without access to source documents, bank account information, and information from AgraCity employees. [ 23 ] In his own affidavit, James explained the history of FNA and AgraCity from his perspective.

On his telling, he is the creator and mastermind behind FNA. He explained that he had started AgraCity in 2017 as a “special purpose vehicle” that “grew out of FNA”, and that he had “made” Jason Chief Executive Officer and a 50 per cent shareholder of AgraCity at that time “on the verbal condition and understanding that [Jason] would follow [James’s] lead and the business model of FNA”. He then offered the following description of the breakdown of the relationship between the two brothers: 13. Jason Mann and I ran AgraCity together for several years.

However, starting in 2013, Jason Mann and I began to disagree about the role and mission of AgraCity as an organization. Since that time, Jason Mann has increasingly taken control of the operations of AgraCity and has shut me out of any day-to-day operating decisions of AgraCity leaving my only recourse to the courts. [ 24 ] In his affidavit, James went on to outline difficulties he had experienced in obtaining access to AgraCity’s financial information and its financial management staff. He also explained how he had retained Ms.

Jimenez’s firm, and he summarized his understanding of the issues discussed in her affidavit and provided his perspective on them. James’s affidavit concluded with the following statements: 24. I have recently conducted a review of AgraCity’s accounting in the financial statements and am greatly concerned that large amounts of money, totalling millions of dollars, may have been withdrawn from AgraCity by Jason Mann, which appear to be transfers between Jason Mann, AgraCity, and 752, which I believe needs to be investigated.

I have not agreed to any withdrawals by Jason Mann other than his agreed-to compensation of $10,000 per month. 25. It is clear that AgraCity is being improperly run and operated, to my detriment. As a result of the foregoing, I am concerned about AgraCity’s solvency and ability to meet its operating commitments. I believe that AgraCity will fail financially if it continues the practices outlined above. I am shocked by many of the findings of Ms. Jimenez, and believe that further investigation is required. 3.

AgraCity’s and Jason’s response [ 25 ] In response to James’s application, AgraCity delivered affidavits from six current or former employees or consultants [AgraCity employee affidavits]. The Chambers judge reviewed all of the AgraCity employee affidavits in the Chambers Decision , but we will only mention the two that are referred to in the parts of that decision quoted later in these reasons, being the affidavits sworn by Brian Rumberg, AgraCity’s national sales manager, and by Gail Hoshowsky, AgraCity’s vice-president of treasury and corporate finance.

Taken together, the AgraCity employee affidavits largely responded to the issues raised in James’s and Ms. Jimenez’s affidavits. [ 26 ] Jason also delivered his own affidavit, sworn on May 17, 2019. In it, he advised that his evidence was “in opposition to James’ oppression application and in support of [his] intended oppression application”, stating that he intended to “seek an order for the sale of AgraCity and the Affected Corporations”. Jason addressed James’s allegations of financial impropriety.

Jason also expressed his opinion that the material filed by the two sides “demonstrates a clear and intractable state of deadlock” in connection with what he described as the “AgraCity group” of companies. In this regard, he swore that there were “roughly 30 companies in the AgraCity group”. He identified some of these corporations by name in his affidavit, and some on an organization chart that he appended to his affidavit. He defined all of them, collectively, as the “Affected Corporations”.

Jason then stated that the “AgraCity group of companies is functioning very well at the management and operational level, but the Board is as dysfunctional as it is possible for a board to be”. He indicated that it was for this reason he was applying for an order that James sell his shares in these companies to him or that they both be ordered to sell their shares to the highest bidder in an open sale process. [ 27 ] Shortly after these affidavits were sworn, Jason served a notice of application which he styled as a “cross-application”.

It named James and FNA as “cross-respondents” and several corporations as “affected parties (for notice)”. The list of companies named in this way largely, but not completely, corresponded with the corporations that had been described as the “Affected Corporations” in Jason’s affidavit. The cross-application then referred, in its body, to a slightly different list of companies as being the “Affected Corporations”. [ 28 ] Jason’s cross-application claimed wide-ranging relief. It included a request for declaratory relief and orders that would: (

a) grant Jason a 50 per cent ownership in FNA and AgraCity Services Inc., and would lead to the sale of James’s shares in the “Affected Corporations”; (

b) absolve AgraCity from any obligation to make payments to FNA towards FNA’s payroll; (

c) allow AgraCity to sell its products to any willing purchaser and not just FNA members; (

d) find James to be in contempt of the Danyliuk Order ; and (

e) give directions relating to the operations of AgraCity. [ 29 ] In support of his cross-application, Jason relied on the evidence he had filed in response to James’s notice of application. He also referred to evidence in several of the other proceedings between the parties. Finally, Jason filed an affidavit sworn by a chartered business valuator, Neil Weber. Mr. Weber described his role to be “to consider the feasibility of selling [AgraCity] and other companies related to AgraCity which are owned directly or indirectly” by Jason and James. In his report, that is appended as an exhibit to his affidavit, Mr.

Weber explained the complex business structure that existed surrounding what he described as the “Mann Group of Companies”. He then expressed the view that a “single market for the entire group of companies would be extremely difficult to source” but, in a qualified way, outlined a strategy for the organization of these companies into what he described as “strategic business units”. 4. Other evidence [ 30 ] James swore a reply affidavit. It responded to the evidence filed by Jason, but only to the extent of expressing his belief that Mr.

Weber’s report “omits many companies related to AgraCity which are owned directly or indirectly by [the brothers] which have significant value”. He attached two charts that identified these companies and stated that all of the entities listed on them “ought to be considered as part of any sale or investigation of AgraCity”.

[ 31 ] Ms. Jimenez also swore an affidavit responding to Jason’s affidavit and the AgraCity employee affidavits. In it she explained that she “continue[d] to have concerns related to the sources and uses of AgraCity’s funds and the status of AgraCity’s operations” and stated her belief that “additional financial information is required to address these concerns”. She then outlined the information gaps, as she saw them to be. [ 32 ] Jason then swore an affidavit in response to Jason’s contention that Mr. Weber had failed to account for all of the corporations that added value to the group of companies.

After providing detail about these companies, he stated that “most of these entities do not need to be considered as part of any sale or investigation of AgraCity”. [ 33 ] Finally, AgraCity filed the affidavit of its vice-president of regulatory affairs and products development, Dr. Sunday Ovemurai. Dr. Ovemurai discussed AgraCity’s portfolio of crop protection products, including Jason’s role in relation to those products. D. The outcome in the Court of Queen’s Bench [ 34 ] In the Chambers Decision , the Chambers judge addressed separately the two applications before him.

We will review the pertinent parts of his reasons later in this judgment. For the moment, our focus is on the bottom lines of that decision. [ 35 ] As previously noted, James’s application was based on the allegations that: (

a) he had a reasonable expectation to equally manage AgraCity’s operations and that AgraCity would be operated in a financially prudent manner; and (

b) these expectations had been breached, entitling him to a remedy under s. 234(2) of the SBCA . On the first point, the Chambers judge rejected James’s contention that he had a reasonable expectation to participate in the management of AgraCity but agreed that James had a reasonable expectation that AgraCity would be operated in a financially prudent and appropriate way. However, the Chambers judge found that the evidence did not support a conclusion that AgraCity had been operated in a way that violated that expectation.

For these reasons, the Chambers judge dismissed James’s request for relief under s. 234(2) . The Chambers judge also concluded that it would be inappropriate to appoint a receiver pursuant to s. 9 of The Queen’s Bench Act, 1998 . [ 36 ] Jason based his application on ten specific categories of alleged misconduct by James that he said offended s. 234(2) . The Chambers judge found that four of these allegations had been made out on the evidence.

Based on this, he determined that he was “prepared to make an order for sale of the affected corporations but require agreement from the parties on what affected corporations exist and which ones will be sold and an appropriate process for sale”. He stated that if the “parties cannot agree, the Court will decide” (at para 73). [ 37 ] Contrary to the requirements of Rule 23(1)(

c) of The Court of Appeal Rules , the appeal book does not contain a copy of “the judgment or order issued by the court appealed from”. At the hearing, the parties confirmed that no judgment or order was issued following the Chambers Decision . [ 38 ] The requirement that the appeal book contain a copy of the issued judgment or order appealed from exists because an appeal to this Court is from a judgment or order, not the reasons of the judge whose decision is to be reviewed by this Court, and it is often important in an appeal to have a sharp focus on the relief that was granted.

This is one such occasion. [ 39 ] Although no judgment or order was issued, in oral argument, the parties agreed that we should understand the Chambers Decision as having granted judgment in the following terms: (

a) dismissing James’s requests for relief, based on the Chambers judge’s finding that James had not suffered conduct contrary to s. 234(2) of the SBCA and the further finding that it was inappropriate to make an order for the appointment of a receiver under the authority of The Queen’s Bench Act, 1998 ; (

b) finding that Jason had suffered conduct contrary to s. 234(2) of the SBCA , and directing: (

i) an audit of AgraCity and other, unspecified, related corporations, with the details to be determined by agreement of the parties or, failing that, the Court; and (ii) the sale of AgraCity and other corporations, with the details to be determined by agreement of the parties or, failing that, the Court; and (

c) directing James to pay $5,000 costs to Jason. III. Issues [ 40 ] James’s notice of appeal lists 34 grounds. These are reproduced as “issues” in his factum. Most of the grounds are general allegations of error, lacking any meaningful particularization. Accordingly, we have organized our reasons by first discussing the one ground that relates to both the Chambers judge’s decision to dismiss James’s application and his decision to grant parts of Jason’s application.

After this, we will consider the arguments that relate specifically to the appeal from the orders made in response to the two applications. [ 41 ] Before entering into our analysis, we flag one matter that is not an issue in this appeal. Section 234(1) of the SBCA states that a “complainant may apply to a court for an order” under s. 234 . In turn, s. 241 provides that where the SBCA “states that a person may apply to a court, the application may be made in a

summary manner by petition, originating notice of motion, or otherwise as the rules of the court provide”. As explained in Stromberg v Olafson , 2023 SKCA 67 at para 35 [ Stromberg ], an “action that seeks relief pursuant to s. 241 of The Business Corporations Act on the ground of oppression must be commenced by statement of claim or originating notice”. In this case, both James and Jason initiated their claims for relief under s. 234 of the SBCA by notice of application, rather than by one of the permitted initiating documents. Although this was irregular, it was not raised as a ground of appeal and we are unaware of any prejudice

being suffered by any party because the proceedings were commenced in this way. For these reasons, we have ignored this proceduralirregularity in our decision. IV. Analysis A. Alleged breach of fiduciary duty [42] James’s first argument, which overarches his appeal from both the dismissal of his application and the grant of Jason’sapplication, is that the Chambers judge breached a duty to act as “conservator and/or fiduciary to the parties”.

Elsewhere in his factum,James refers to the Chambers judge as having breached his “fiduciary duty and relationship to James Mann and FNA by rendering rulingsthat favour Jason Mann and AgraCity over James Mann and FNA”. In offering this submission, James relies on Bank of Nova Scotia vSullivan Investments Ltd. (1982), (SK KB), 21 Sask R 14 (QB) [Bank of Nova Scotia]. [43] We cannot accept James’s argument.

It is premised upon misunderstandings of the nature of a fiduciary duty and the properrole of the court in a proceeding such as this. [44] In Hodgkinson v Simms, (SCC), [1994] 3 SCR 377 at 405, La Forest J. described a fiduciary duty, as “but oneof a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others” (emphasis added).He went on to describe the duties which accompany a fiduciary relationship to include “a duty of skill and competence, the specialelements of trust, loyalty, and confidentiality” that “give rise to a corresponding duty of loyalty” (emphasis added).

While there aresufficient nuances to that which can, in some contexts, be misleading, nonetheless it has been said that a “fiduciary is often described assomeone bound to act in the best interests of the person’s principal or beneficiary” (Michael Ng, Fiduciary Duties, loose-leaf (Rel 4,5/2023) vol 1 (Toronto: Thomson Reuters, 2023) at §1:1, 1-3).

The important point is that a fiduciary must subordinate the interests ofothers to those of the beneficiary of the duty. [45] In this case, the Chambers judge’s role was to adjudicate the dispute between the brothers dispassionately, from a perspectiveof neutrality, on the record alone, all in accordance with the law. In other words, the Chambers judge was required to act judicially. TheChambers judge did not owe a duty of loyalty to James. He was not called to act in James’s best interests. He had no personal interest inthe matter, and he had no responsibility to subordinate Jason’s interests to those of James.

In short, the Chambers judge was not a“conservator”. He did not and could not occupy the role of a fiduciary to any party. [46] Of course, this does not mean that the decision of the Chambers judge escapes appellate scrutiny. Other parts of the argumentmade by James illustrate this point. In this regard, James asserts in his factum that the Chambers judge breached the alleged fiduciary dutyby making “suppositions not based upon the evidence”. Elsewhere, he submits that the Chambers judge erred by “disregarding the factsand evidence”.

We agree that if the Chambers judge had acted in this way, he may have committed a reviewable error. However, this is amatter to be determined by examining identifiable grounds of appeal through the lens provided by the standard of review applicable tosuch grounds. [47] Bank of Nova Scotia in no way assists James in any of his arguments under this head. In the statement relied upon by James,Estey J. was simply contrasting the obligations owed by a receiver appointed under an instrument from one appointed by court order.

Inthe latter instance, he found that the receiver was “acting in a fiduciary capacity to all parties who may have an interest in the matter afterthe claim of the debenture holder has been satisfied” (at para 5). The case does not speak to the role of a court in a situation like this one. [48] For all these reasons, we reject the argument that the Chambers judge breached any duty owed to James. B. Appeal from the dismissal of James’s application [49] James appeals against the dismissal of his application. As noted above, he invites this Court to grant the relief he requested infirst instance; that is, an order (

a) removing Jason as a director of AgraCity; and (

b) either appointing a receiver, ordering an investigationinto its affairs or directing a change in the composition of AgraCity’s board of directors. As we will explain, while we cannot agree withmany of the points James makes, we do agree that, because of the existence of unresolved conflicts in the affidavit evidence, theChambers judge should not have made a final determination about the parties’ reasonable expectations in relation to the management ofAgraCity. [50] In our explanation of this conclusion, we will first summarize the Chambers Decision.

We will then review the errors thatJames alleges were made by the Chambers judge and explain why the existence of unresolved conflicts in the affidavit evidence compelthat James’s appeal from the dismissal of his application must be allowed. 1. The Chambers Decision [51] The Chambers judge began his consideration of James’s application by setting out the applicable provisions of the SBCA. Hereviewed BCE Inc. v 1976 Debentureholders, 2008 SCC 69, [2008] 3 SCR 560 [BCE], as well as Wind Ridge Farms Ltd. v Quadra GroupInvestments Ltd. (1999), (SK CA), 180 Sask R 231 (CA).

The Chambers judge agreed that, given James’s status as a50 per cent shareholder in AgraCity and one of its directors and officers, there was “no question that he has standing to bring anoppression application” (at para 10). After his consideration of this case law, the Chambers judge turned to assess James’s allegation thathis reasonable expectations had been breached by Jason. [52] The Chambers judge first dealt with “the statement that James was deprived of management of AgraCity by Jason” (atpara 12). In this regard, the Chambers judge reviewed the evidence pertaining to the history of FNA and AgraCity.

In this context, heobserved that “James was set up as the sole shareholder and director of FNA” (at para 13). He noted that both brothers “agree, however,that James ran FNA” and he summarized aspects of that business. In connection with AgraCity, he highlighted that when it was

incorporated, “Jason was made president and became responsible for its day-to-day operations”. On the other hand, he found that Jason’s claim to be a 50 per cent shareholder in FNA had been denied by James and that this “claim is yet to be proven in court” (at para 14). [ 53 ] Following this, the Chambers judge reviewed the state of affairs that had existed until “James attempted to take over the operations of AgraCity” in 2016.

He noted that up “until that point in time there is little doubt that Jason was primarily responsible for the day-to-day operating control and activities of AgraCity” and there “was no restriction on James’ ability to access financial records or information as he required, but it appears he required little” (at para 15). The Chambers judge then summarized the Danyliuk Order and the AgraCity Information Access Order .

He observed that the “material put forward by Jason suggests that the financial information has been and continues to be readily available to James as part of regular reporting and if any further information is required by way of any additional records it will be provided on request” (at para 16).

The Chambers judge concluded his analysis in relation to this alleged ground of oppression as follows: [17] James has made general allegations that he still is not getting the financial records, but the affidavit material suggests otherwise, and James has taken no steps to claim breach of the consent order or seek further relief by application in respect to the financial records. [18] The reasonable expectation of James, as evidenced by the operation of the company before the dispute, was that Jason would be the president and primary manager of the operations of AgraCity.

That is the way the brothers have set up the organization. Those are the roles that evolved consensually between them. James no longer wishes that to continue. He now says that his reasonable expectation is that as a shareholder and director of AgraCity he would have at least equal control over its operations with Jason. James has changed his expectations as a result of the dispute that he brings before the Court.

He did not have a reasonable expectation of the degree of involvement and control that he currently seeks, and as such the action of Jason in remaining as the operator of AgraCity is consistent with both parties’ reasonable expectations and cannot form the basis of an oppression remedy. [ 54 ] After concluding that James’s reasonable expectations relating to involvement in the management of AgraCity had not been violated, the Chambers judge turned to consider James’s claim that his reasonable expectations that AgraCity be managed appropriately had been violated.

In this regard, the Chambers judge agreed that James’s expectation was reasonable, stating that it could not be said that “Jason’s operating control of AgraCity can be exercised in such a fashion that creates fraud or financial misconduct in the operation of the company or creates out of the ordinary financial risk”.

He also agreed that if such conduct had occurred “that could defeat the reasonable expectations of James that AgraCity would continue to operate in a commercially viable fashion in accordance with generally accepted business operations” (at para 19). [ 55 ] The Chambers judge then examined, in detail, the evidence given by Ms. Jimenez in her two affidavits, as well as that filed by Jason and AgraCity.

He found that AgraCity had provided responses to the concerns expressed in her first affidavit and that the explanations found in the AgraCity employee affidavits “make sense and provide significant detail into what had happened and the reason for it” (at para 26). He gave examples. [ 56 ] The Chambers judge next reviewed Ms. Jimenez’s second affidavit. He observed that, in it, Ms. Jimenez had repeated the concerns expressed in her first affidavit and had found the “explanations given by AgraCity employees to be untenable”. The Chambers judge stated that on “that issue we differ”.

He then explained why her concerns were not “evidence of financial mismanagement and misappropriation”. Instead, he found her evidence to be “a series of questions that she poses given her lack of information and knowledge about the operations of the corporation” (at para 28). He agreed that James “has the right of access to financial information” from AgraCity and its related corporations, but he found there to be “no evidence whatsoever that [James] has attempted to determine from the related corporations that he owns what, if any, issues arise as a result of the inter-company loans”.

The Chambers judge concluded that James’s “lack of any effort in this regard cannot form the basis of a denial of his reasonable expectations” (at para 29). [ 57 ] Finally, the Chambers judge considered, but rejected, the appropriateness of the appointment of a receiver under The Queen’s Bench Act, 1998 . He concluded that, given his “findings in relation to the notion of whether there has been any oppressive behaviour and whether the concerns expressed by Ms. Jimenez on the financial information have been addressed, there is no need for the appointment of a receiver or receiver manager”.

He added that the “appointment of a receiver/receiver manager is not necessary and [in any event would be] likely to significantly devalue both brothers’ interests in AgraCity and related corporations” (at para 30). He determined that a “pre- condition” to the appointment of an inspector was missing (at para 31).

Finally, he held that, as both brothers “recognize and acknowledge the need for audits of the financial operations of AgraCity and related operating corporations for them to move forward either with a sale to a third party of these companies or a sale to either of the brothers”, there was “no immediate need for the appointment of an investigator to look into the concerns identified by Ms. Jimenez” (at para 32). 2. The issues [ 58 ] James contends that the Chambers judge erred by not finding that: (

a) he had a reasonable expectation to equally manage AgraCity; and (

b) AgraCity had been operated in a financially imprudent or inappropriate way. In advancing these submissions, James asserts the existence of several different errors in the Chambers Decision . 3. Alleged evidentiary errors [ 59 ] One of James’s grounds of appeal is that “the lower court erred in relying upon hearsay evidence in support of its Fiat”. Because the Chambers Decision granted a final order, disposing of the parties’ respective applications under s. 234 of the SBCA , Rule 13- 30(1) of The Queen’s Bench Rules applied.

This Rule requires that each “affidavit must be confined to facts that are within the personal knowledge of the person swearing or affirming the affidavit”. However, although James alleges that the Chambers judge erred by relying on hearsay evidence, nowhere in his factum does he identify the objectionable evidence. He also does not explain how the admission of any such evidence affected the Chambers judge’s analysis.

For these two reasons, we cannot give effect to this ground of appeal. [ 60 ] A second of James’s grounds of appeal that raises an alleged legal error is the assertion that the “lower court erred in failing, as a court in equity, to request the evidence that it believed was necessary to render a decision taking into account the equities presented” (emphasis added). However, it was not the Chambers judge’s responsibility to reach out to the parties to elicit evidence. Rather, his duty

was to adjudicate the dispute based on the evidence that was brought before him or, as I will explain, to determine that the issue could not be decided at all based upon the evidence that was introduced in the proceedings. For this reason, we see no merit in this second ground of appeal. 4. Generalized allegations of errors of fact [ 61 ] Many more of James’s grounds of appeal challenge the Chambers judge’s findings of fact.

The Chambers judge’s findings of fact must be upheld by this Court unless they are a product of palpable and overriding error: Yorkton (City) v Mi-Sask Industries Ltd. , 2021 SKCA 43 at para 25 , [2021] 6 WWR 18; and Boutin v Boutin , 2023 SKCA 41 at para 37 . A palpable error is one that is obvious. An overriding error has been described as one that goes to the very outcome of an issue or the case.

See: Arcand v Atsu , 2021 SKCA 81 at para 6 ; and R v Potoreyko , 2022 SKCA 71 at para 16 . [ 62 ] In eleven of his grounds of appeal, James alleges that the Chambers judge “erred in misinterpreting and misapplying the facts”. In an additional seven grounds, he adds the words “and/or ignoring the unrefuted facts and evidence” or “and/or ignoring the facts and evidence”. In another six grounds, James alleges that the Chambers judge “erred in misinterpreting, misapplying and/or mischaracterizing the facts”.

Similarly, James asserts in his notice of appeal that the Chambers judge “erred in fa i ling to consider the evidence already upon the record that supported the relief requested by James Mann”. [ 63 ] If the record established that the Chambers judge misinterpreted, misapplied, mischaracterized or failed to consider evidence, it would be a basis to say that he committed a palpable error, requiring this Court to then to consider if the error was overriding.

However, for the most part, James did not specifically identify any evidence that was allegedly misinterpreted, misapplied, mischaracterized or overlooked by the Chambers judge. For this reason, we set to the side most of these grounds of appeal. [ 64 ] That said, in his factum, James particularizes two alleged errors of fact that require our attention. The first relates to the Chambers judge’s finding that James did not have a reasonable expectation to participate equally with Jason in the day-to-day management of AgraCity.

The second pertains to the Chambers judge’s finding that there was not sufficient evidence of fraud or financial misconduct to warrant the grant of a remedy. We turn to consider these submissions. 5. Findings relating to James’s and Jason’s reasonable expectations about AgraCity’s management [ 65 ] James submits that the Chambers judge erred in holding that he did not have a reasonable expectation to participate equally in AgraCity’s management.

He says that the Chambers judge “simply disregarded the facts and the evidence and came up with a supposition about the mindset of James Mann as to what the lower court thinks he really wanted”. We cannot agree. However, as we will explain, we do accept that the Chambers judge should not have determined this issue in the face of the unresolved conflicts in the affidavit evidence. [ 66 ] Contrary to James’s argument, the Chambers judge did not base his determination as to James’s reasonable expectation regarding participation in the management of AgraCity merely on supposition.

Instead, the Chambers judge rested his finding on the evidence before him relating to the “operation of the company before the dispute” and also how the brothers had “set up the organization” ( Chambers Decision at para 18). In regard to these two matters, the evidence was not contentious. [ 67 ] Dealing first with AgraCity’s “set up”, while both brothers were equal shareholders and directors, their roles were not made equal when the company was formed. It is undisputed that James was made the secretary and treasurer of the corporation and acted in that role throughout.

The roles of those two offices are described in AgraCity’s bylaws as follows: SECRETARY 84.

The secretary shall give, or cause to be given, all notices required to be given the shareholders, directors, auditors and members of committees; he shall attend all meetings of the directors and of the shareholders and shall enter or cause to be entered in books kept for that purpose minutes of all proceedings at such meetings; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the corporation and of all books, papers, records, documents and other instruments belonging to the corporation; and he shall perform such other duties as may from time to time be prescribed by the board.

TREASURER 85.

The treasurer shall keep full and accurate books of account in which shall be recorded all receipts and disbursements of the corporation and, under the direction of the board, shall control the deposit of money, the safekeeping of securities and the disbursement of the funds of the corporation; he shall render to the board at the meetings thereof, or whenever required of him, an account of all his transactions as treasurer and of the financial position of the corporation; and he shall perform such other duties as may from time to time be prescribed by the board. [ 68 ] As previously noted, under the Danyliuk Order , which has preserved the status quo business arrangements surrounding AgraCity pending the outcome of the litigation between the parties, Jason is to “continue to act as president and managing director” of that corporation (at para 4).

The Chambers judge stated that the Danyliuk Order “made Jason the president and managing director of AgraCity” ( Chambers Decision at para 46). [ 69 ] The role of managing director is one of significance in corporate law. Section 110(1) of the SBCA provides that the directors of a corporation “may appoint from their number a managing director who is a resident Canadian or a committee of directors and delegate to such managing director or committee any of the powers of the directors”.

AgraCity mirrored this language somewhat in their bylaws at s. 69, which provides that the “directors may from time to time appoint one or more of their body to the office of managing director or manager”. However, it appears that AgraCity’s directors did not appoint one of their number as managing director. In saying this, we observe that the Danyliuk Order states that Jason “continues” in the role of AgraCity’s managing director. Yet, none of the corporate documents filed in evidence in this matter refer to him as that. As well, Jason does not refer to himself as managing director in his affidavit.

Instead, he describes his position to be that of “President and Chief Executive Officer” of AgraCity. AgraCity’s corporate return also refers to Jason simply as “president”, as do numerous other documents. Other than in his reference to the Danyliuk Order having

“made” Jason the managing director of AgraCity, the Chambers judge consistently referred to Jason as being the president of AgraCity (see Chambers Decision at paras 14, 18 and 46). The Chambers judge also found that the substance of the business arrangement between the two brothers was that Jason would occupy this role, and that this formed part of Jason’s reasonable expectations for the purpose of the required analysis under s. 234 of the SBCA . Based upon all of this, we are satisfied that the Chambers judge properly found that Jason was AgraCity’s president.

He did not find that Jason was its managing director. We can see no error, let alone a palpable and overriding one, in the Chambers judge’s findings on this issue. [ 70 ] Because no general manager was appointed, the powers given to Jason as AgraCity’s president are discernable from the following two sections of its bylaws: PRESIDENT 82. The president shall, when present, preside at all meetings of the shareholders and of the board and shall be charged with the general supervision of the business and affairs of the corporation.

Except when the board has appointed a general manager or managing director, the president shall also have the powers and be charged with the duties of that office. GENERAL MANAGER 83. The general manager, if one be appointed, shall have the general management and direction, subject to the authority of the board and the supervision of the president, of the corporation’s business and affairs and the power to appoint and remove any and all officers, employees and agents of the corporation not elected or appointed directly by the board and to settle the terms of their employment and remuneration.

If and so long as the general manage is a director he may but need not be known as the managing director. [ 71 ] As can be seen from these provisions, as president of AgraCity, James became “charged with the general supervision of the business and affairs of the corporation”.

Because no general manager or managing director was appointed, he became responsible for “the general management and direction, subject to the authority of the board … of the corporation’s business and affairs”, along with the other more specific responsibilities set out in s. 83 of AgraCity’s bylaws. [ 72 ] Of course, the reasonable expectations of a corporate stakeholder are not defined solely by the letter of a corporation’s constating or other organizing documents.

Among other things that may influence them is past practice, which “may create reasonable expectations, especially among shareholders of a closely held corporation on matters relating to participation of shareholders in the corporation’s profits and governance” ( BCE at para 76 ). However, the Chambers judge also considered this. In this regard, he observed that, on the ground, Jason “became responsible for [AgraCity’s] day-to-day operations” ( Chambers Decision at para 14).

As he also later explained, this was the state of affairs for ten years: [15] During the time period of 2006 and for the next 10 years, no disputes had erupted between the parties that required the intervention of the Court. Trouble was brewing in 2016, however, as James attempted to take over the operations of AgraCity from Jason. Up until that point in time there is little doubt that Jason was primarily responsible for the day-to-day operating control and activities of AgraCity.

There was no restriction on James’ ability to access financial records or information as he required, but it appears he required little. [ 73 ] In

summary, as we understand the Chambers Decision , the Chambers judge came to his conclusion that James had no reasonable expectation to participate in the day-to-day operations of AgraCity, and, conversely, that Jason had a reasonable expectation to be solely responsible for the day-to-day operations of AgraCity, because: (

a) the corporation was set up to give this authority to Jason; and (

b) that is how AgraCity in fact was operated until James sought to establish a greater role for himself. [ 74 ] As we have already pointed out, neither of these two points was contentious. It was, and is, agreed that Jason was responsible for AgraCity’s day-to-day operations when it was established and it was, and is, also uncontested that this continued for many years.

More importantly, these two matters did not, and do not, lie at the heart of the dispute between the parties regarding their reasonable expectations concerning the management of AgraCity. [ 75 ] At the center of the dispute between James and Jason is a question as to the purpose for AgraCity. In short, James’s position is that AgraCity exists to serve FNA’s interests. As we noted in our review of the affidavits, James’s evidence was that he set up AgraCity, and he put Jason in charge of it on the “understanding that [Jason] would follow [his] lead and the business model of FNA”.

James says, in effect, that when Jason began to change this basic business deal, he was justified in his attempts to remove Jason. Of course, Jason disagrees with this and says it is more complicated than these few sentences might imply. Nonetheless, this is the core of the substantive dispute that must be resolved to finally determine the parties’ reasonable expectations regarding the management of AgraCity.

Said another way, the points of controversy were why James sought to change the status quo that had existed for many years, what lay behind his attempt to do so and if this attempt to change this status quo was consistent with the business arrangements that underpinned the creation of AgraCity and what reasonable expectations the parties are entitled to hold in the overall circumstances of the companies. [ 76 ] The existence of an evidentiary dispute about these matters was identified in the September 2018 Decision .

In it, the Chambers judge took stock of the competing evidence offered by the brothers as to “who was responsible for the creation of the current business model, how that business model operates, the relationship between FNA and AgraCity, and the responsibilities of James and Jason within those corporations”. He noted that “James and Jason each have different views of all of the above matters” and he observed that the “reality may fall somewhere between the two truths as each of them perceive them to be”. He then added that the resolution of this disagreement was an issue “for another time” (at para 5).

As previously quoted, the Chambers judge also observed that “James and Jason have differing views as to the agreements by which [FNA and AgraCity] operate with each other”. He added that there were no written agreements, but that “is precisely why the matters end up in court when disagreements arise” (at para 7).

We agree and add the important point that the conflict on these issues remained after the parties filed their affidavit evidence in support of their respective applications. [ 77 ] We would also add that, while the evidence was unequivocal that, from its inception, Jason had been put in day-to-day control of AgraCity, past practice is not inviolable. Practices and expectations can change over time. As stated by the Supreme Court, where “valid commercial reasons exist for the change and the change does not undermine the complainant’s rights, there can be no reasonable

expectation that directors will resist a departure from past practice” ( BCE at para 77 , referring to Alberta Treasury Branches v SevenWay Capital Corp. , 1999 ABQB 859 , 262 AR 135, aff’d 2000 ABCA 194 , 261 AR 278). In Stromberg , Barrington-Foote J.A. made much the same point, when he quoted from 820099 Ontario Inc v Harold E. Ballard Ltd. (1991), 3 BLR (2d) 113 (WL) (Ont Ct

J) at para 135 , for the proposition that “one cannot regard expectations as a static matter. Expectations may well evolve from the situation of the shareholder going into the corporation”. [ 78 ] In our respectful view, it was not possible for the Chambers judge to have determined James’s reasonable expectations concerning participation in the management of AgraCity without resolving the matters on which the overall dispute between the brothers turned.

However, he did not purport to do that, nor does it appear from the record that he would have been in the position to do so given that the conflict in the affidavit evidence continued in the record before him. [ 79 ] We accept that, even outside of the

summary judgment context, there are occasions where Chambers judges can weigh evidence, draw inferences and make credibility assessments based on a record that is limited to affidavits.

However, this can only be done “within long-established limits based on the recognized risks associated with affidavit evidence as to contested facts, particularly if the affiant has not been cross-examined and there is a lack of documentary evidence that corroborates their version of events” ( Stromberg at para 80 ). [ 80 ] Ultimately, this judgment is not an occasion to plumb the limits of when it is appropriate for a Chambers judge to resolve contentious issues based on contested affidavits. We say this for two reasons.

First, the parties did not present arguments on the principles applicable in such circumstances. Second, and in any event, the Chambers judge did not purport to resolve the differences in the evidence as it was presented in the competing affidavits. Instead, he treated the status quo arrangement that had existed for many years as establishing the parties’ reasonable expectations respecting the management of AgraCity. Respectfully, this approach ignored the issues that were identified in the September 2018 Decision as requiring resolution in order for the reasonable expectations of the parties to be defined.

This amounts to an error in law, requiring that the Chambers judge’s determination of this issue be set aside. This issue is remitted to the Court of King’s Bench for determination at trial or otherwise in accordance with the rules of court. 6. The request for a receiver or an investigation [ 81 ] As we have explained, the Danyliuk Order exists and serves to preserve the status quo between the parties while other matters proceed to trial or other resolution.

Nonetheless, it is necessary to address James’s second argument that the Chambers judge erred in finding that there was insufficient evidence of fraud or financial misconduct to warrant the appointment of a receiver or the ordering of an investigation into AgraCity’s affairs. [ 82 ] James has not identified any legal error in the Chambers judge’s analysis on this point.

Instead, as we see it, his appeal from this part of the Chambers Decision amounts either to a challenge to the findings of fact made by the Chambers judge, to be assessed against the standard of palpable and overriding error, or a challenge to a discretionary decision, to be reviewed against the standards applicable to such decisions.

Whatever lens it is viewed through, we see no error in the Chambers judge’s reasons on this point. [ 83 ] As we will explain, James’s submission that the Chambers judge erred in finding that there was insufficient evidence of fraud or financial misconduct to warrant the appointment of a receiver or the ordering of an investigation overstates what Ms. Jimenez said in her affidavits and ignores the Chambers judge’s findings relating to her evidence. Ms.

Jimenez raised “concerns” and “issues” with what she saw based on her financial review, but the Chambers judge found that these had been met by sufficient evidence from Jason and AgraCity to assuage any concern on his part. [ 84 ] In this regard, the Chambers judge catalogued the issues identified by Ms. Jimenez in her first affidavit (see Chambers Decision at para 20). He then carefully analyzed the detail of what she had to say about these issues. Because of the nature of James’s challenge to the Chambers judge’s conclusions, it is appropriate to reproduce the entirety of his consideration of Ms.

Jimenez’s initial evidence: [20] The balance of the allegations relate to financial mismanagement as identified by Ms. Jimenez. I will deal with the specific references contained in her affidavit. The brief of law submitted on behalf of James sometimes exaggerates or mischaracterizes the nature of the issue identified as does the affidavit of James. Ms. Jimenez’ examination of the financial records comes from those identified by her and supplied through James. Some financial information, including AgraCity’s business plan and daily sales reports, was not provided to her by James, although available.

The issues identified by Ms. Jimenez are as follows: (

a) Accounts receivable – she notes a decrease in accounts receivable of 34 percent in 2018 from previous years. She questions a large amount from North Element Inc. She also notes that it is additionally classified as deferred business development and so may not belong with accounts receivable. She says there is a large negative balance in accounts receivable and she is unaware if it is due to write-downs of uncollectible receivables or relates to misapplied account payments.

She finds a negative account balance to be odd and without any additional information she cannot determine whether there is a legitimate reason for a negative accounts receivable balance. The affidavit of Myrna Mclvor filed by Jason responds to that issue and provides a satisfactory explanation. (

b) Inventory – Ms. Jimenez states the 2018 inventory doubled from 2017, but it is not known if the inventory on hand is sufficient to cover current outstanding customer orders. She states if there is not sufficient inventory on hand, AgraCity does not have sufficient access to funds required to repay customer deposits. The affidavits of Ms. Hoshowsky and Mr. Rumberg explain the nature of the business which includes product prepayment. They answer this concern. (

c) Deferred revenue – 2018 deferred revenue doubled from 2017 deferred revenue which she says appears to be for customer deposits in advance of receiving product, which may or may not be part of the inventory on hand. She states that if there is not sufficient inventory on hand then AgraCity does not have sufficient access to funds required to repay these customer deposits. AgraCity in response says it has sufficient inventory to meet its commitments and there is not an issue about being required to repay customer deposits as provided for in the affidavits of Mr. Hoshowsky and Mr. Rumberg. (

d) Accounts payable – Ms. Jimenez identifies that accounts payable have been increased by approximately 49 percent from 2017 but only

8 percent higher than 2016, indicating that AgraCity experiences fluctuation in its unsecured liabilities. She is concerned that the accounts payable balance is in excess of AgraCity’s current assets, excluding amounts due from related parties. She identifies that the primary payables to one supplier, Anhui Huaxing Chemical Co. [Anhui]. She says it indicates a strong reliance on one supplier for funding ongoing operations. AgraCity responds in Ms.

Hoshowsky’s affidavit that its banking relationship with Bank of Montreal [BMO] deteriorated significantly when James took steps to control AgraCity’s online banking facilities. After that, AgraCity was not able to get financing from BMO, as well as having its online facilities suspended. AgraCity then turned to its relationship with Anhui and provides credit for input purchased on favourable terms. AgraCity does not have secured creditors or obligations under bank agreements. (

e) Loans – Ms. Jimenez comments that the demand loan with BMO was repaid, however, its rotating credit with Anhui has increased. This is an additional function of the previous discussion from accounts payable and has been explained as to why it has occurred. (

f) Debt to equity ratio – Ms. Jimenez comments that the debt to equity ratio has decreased from an historical amount of approximately 3 to 1 to 5.14 to 1. [21] In respect of all of these items Ms. Jimenez raises them as “issues”. It is clear from her comments that she is limited by the amount of financial information that she has had access to and a lack of detailed knowledge of the operations of AgraCity. Her comments do not state that there is anything wrong with any of the items that she has identified.

For instance, under the accounts payable analysis she concludes by stating that there is a strong reliance on one supplier but does not say in the context of the operation of AgraCity if this is a problem, a concern, an example of mismanagement. [22] Ms. Jimenez also goes on to provide an income statement analysis. She refers to two large one-time transactions if not occurring would have resulted in a significant loss for 2018. She comments on an operations loss for 2018 which is contrary to previous operational profits.

She comments on operating expenses and notes the significant increase from 2017. [23] Other than identifying these issues, she provides no comment as to whether AgraCity is being operated inappropriately, fraudulently, contrary to best business practices or markedly different from other similar organizations. It is also of note the daily sales volumes and reports for 2019 were not viewed by her. Ms. Jimenez also raises related party transactions in respect of 101114752 Saskatchewan Ltd., FNA Fertilizer Limited Partnership and Newagco Inc. (Canada).

In respect of two of the related parties she identifies inter-company transactions that she cannot explain. [24] Unfortunately no effort was made by her to contact the controller or accountants or sales managers of AgraCity to have them provide an explanation of these issues before she provided her first affidavit and report. [25] It is not until her

summary that she described concerns. In paragraph 8 of her affidavit she states that there are serious concerns with respect to the solvency of AgraCity and its ability to meet its ongoing operating commitments. She does not like the fact that it is reliant on unsecured financing from trade creditors, primarily Anhui. She states that its most significant asset is amounts receivable from related parties.

She states that it is not likely AgraCity will be able to continue providing funds to related parties without them returning funds to AgraCity so it can remain operational. [26] AgraCity provides responses to these concerns through the affidavits of a number of employees and consultants. As I have previously indicated, the explanations make sense and provide significant detail into what had happened and the reason for it.

For example, with respect to the question of the increase in operating expenses, it came as a result of a Canada Revenue Agency [CRA] audit and Jason’s change in handling expenses already incurred from shareholders’ loans to operating expenses. This was an appropriate accounting process which more properly reflected how the business was conducted. The CRA accepted the explanation and approach that was taken by Jason. [ 85 ] The Chambers judge next observed that “AgraCity provides responses to [Ms. Jimenez’s] concerns through the affidavits of a number of employees and consultants”.

He indicated that “the explanations make sense and provide significant detail into what had happened and the reason for it” (at para 26). He then gave specific examples of these explanations, and why they resonated with him. [ 86 ] The Chambers judge also recognized that Ms. Jimenez had provided a second affidavit, in reply to the evidence filed by AgraCity. Again, it is appropriate to reproduce the entirety of the Chambers judge’s consideration of Ms. Jimenez’s second affidavit: [28] In that affidavit she repeats her concerns and finds the explanations given by AgraCity employees to be untenable.

On that issue we differ. A new statement was raised in her second affidavit that needs to be addressed. She stated “Simply put, my concern is that if the related parties have no ability to repay these loans, then the receivables need to be written off. Writing off the receivables would drastically impact the value of the company. Further the amount of money that has passed between these related parties raises very interesting questions: Where has all this money gone? What have the related parties done with it? Are the assets available to satisfy the debts of AgraCity, if needed?

If there are intangible assets such as licences what value can be attached to these and what evidence is available to support this valuation?” James takes this statement as evidence of financial mismanagement and misappropriation. It is not. It is a series of questions that she poses given her lack of information and knowledge about the operations of the corporation. [29] I agree that the affidavit material from AgraCity does not fully answer specific issues between the related party transactions. I agree with her that this will have to be completed before a sales process can be completed.

To me, however, this does not impact on the notion of the reasonable expectations that James had in relation to the operation of the company. James is a 50 percent shareholder in all of the related corporations. He has the right of access to financial information from them. There is no evidence whatsoever that he has attempted to determine from the related corporations that he owns what, if any, issues arise as a result of the inter-company loans. His lack of any effort in this regard cannot form the basis of a denial of his reasonable expectations as he has identified.

The application in respect to finding that he has been oppressed is dismissed. [ 87 ] In

summary, the Chambers judge did not ignore, disregard or misapprehend any of Ms. Jimenez’s evidence. To the contrary, he thoroughly reviewed it and found it to be of limited assistance to him in connection with the question as to whether James had a reasonable expectation to participate in the operation of AgraCity. The reason for this is that, at the end of the day, her evidence did not support a conclusion that wrongdoing had occurred in relation to the business or affairs of AgraCity or other entities. Also, James had avenues for

obtaining information that had not been pursued. This obviated the need for an investigation, let alone the appointment of receiver. [ 88 ] We can find no fault in any part of this analysis.

Although, in this appeal, James did not focus on the Chambers judge’s reasons for rejecting the appointment of a receiver pursuant to s. 9 of The Queen’s Bench Act, 1998 , those reasons also merit repetition because they bear on the need for caution in the face of what, at best, was evidence that raised questions: [30] James had also sought the appointment of a receiver/receiver manager pursuant to s. 234(3) of the Act or s. 9 of The Queen’s Bench Act, 1998 , SS c Q-1.01. Given my findings in relation to the notion of whether there has been any oppressive behaviour and whether the concerns expressed by Ms.

Jimenez on the financial information have been addressed, there is no need for the appointment of a receiver or receiver manager. Such an appointment is an extremely intrusive order to be made in relation to a closely held private corporation. The business operation of AgraCity is highly complex. The interrelationship between the various parties and the efforts that are ongoing with respect to expansion of business are not easily assumed. It relies on expertise dealing with government regulatory authorities, a significant relationship with suppliers and the trust of its farmer members for success.

Both parties sought and received a sealing order from Gabrielson J. on these files. They did so presumably because of the potential harm that could come to those relationships if the dispute between the two brothers became public. The appointment of a receiver manager is not necessary and is likely to significantly devalue both brothers' interests in AgraCity and related corporations. [ 89 ] We agree with this analysis. [ 90 ] For all these reasons, we see no error in the Chambers judge’s conclusion that the evidence before him did not justify the ordering of an investigation or the appointment of a receiver. 7.

Conclusion on James’s application [ 91 ] The Chambers judge erred in law by making what amounted to a final determination as to James’s reasonable expectations concerning participation in the management of AgraCity in the face of the unresolved conflicts in the affidavit evidence. This issue is remitted to the Court of King’s Bench for determination at trial or otherwise in accordance with the rules of court. C. Appeal from the grant of Jason’s application [ 92 ] James’s notice of appeal states that he appeals against the whole of the Chambers Decision and asks this Court to dismiss Jason’s application.

At the hearing of this appeal, James tempered this request somewhat, stating that he did not appeal from the ordering of an audit of AgraCity and the other corporations. We therefore take this not to be an issue in this appeal. [ 93 ] Largely for the reasons we have given for setting aside the order dismissing James’s application, the contested orders made pursuant to Jason’s application cannot stand. However, we do not agree that the result should be the dismissal of Jason’s application.

Instead, the question of whether James has committed a breach of s. 234(2) of the SBCA is remitted to the Court of King’s Bench for determination at trial or otherwise in accordance with the rules of court. [ 94 ] In our explanation of this conclusion, we will first summarize the Chambers Decision . We will then review the errors that James alleges were made by the Chambers judge and explain why we believe that the orders made pursuant to Jason’s application must be set aside. 1.

The Chambers Decision [ 95 ] The Chambers judge began his consideration of Jason’s cross-application by reviewing the many heads of relief requested by him. He advised that he intended his decision to be “restricted to the issue of whether James Mann’s conduct has been oppressive within the meaning of the [ SBCA ]” and the “request by Jason and James that in some fashion a sale of AgraCity and one or more of the affected corporations be ordered by the Court” (at para 38).

The Chambers judge then identified three specific heads of relief that he did not intend to address in his reasons. [ 96 ] First, the Chambers judge stated that he did “not intend to inquire into the issue of oppression of Jason as a beneficial owner of FNA or the sale of FNA” (at para 39). This was because the “issue is not one that would be decided by ordinary application”.

Hence, he held that the question of Jason’s ownership of shares in FNA “must be determined before any consideration of whether James has defeated Jason’s reasonable expectations in the operations of that company” (at para 39). [ 97 ] Second, the Chambers judge indicated that he would not be ruling on Jason’s request for a declaration that “AgraCity is not required to make any payments to FNA for any purpose”. He observed that this issue had been addressed in the September 2018 Decision and the Payment Determination Decisions .

He found there to be “nothing in this material that would cause [him] to revisit those decisions”. He also stated his belief that one of those decisions had been appealed by AgraCity and, in that case, he stated he would “have no jurisdiction to further deal with that matter pending its resolution before the Court of Appeal” (at para 41).

We would note that this Court’s records show that this appeal was abandoned by AgraCity in June of 2020, just over one month after the Chambers Decision was rendered: AgraCity Crop & Nutrition Ltd. v Farms and Families of North America Inc. (10 June 2020) Regina, CACV3322 (Sask CA). [ 98 ] Third, the Chambers judge said he would not rule on Jason’s request for a declaration that AgraCity should not be restricted to selling its products only to FNA members.

He noted that “in the ordinary course of business of AgraCity it only sells its product to FNA members”, but there was dispute as to “whether this is a legal obligation and the foundation for such an arrangement”.

He observed that the “ordinary course of business at the time of the Danyliuk Order was that AgraCity product sales were to FNA members only”, and while the issue was “an important one”, it “is not one that can be determined on the evidence provided on the oppression application under the [ SBCA ]” but “it involves instead a final determination of contractual obligations between the parties” (at para 42). [ 99 ] Having identified the matters that he would not rule on, the Chambers judge returned to consider “the substantive oppression application made by Jason” (at para 43).

He reviewed much of the history of the litigation between the parties and reiterated that he was

not prepared to find oppression based on Jason’s claim to have an interest in FNA. He stated that this issue “would have to be determined on a balance of probabilities in Jason’s favour” and that the application before him was not the proper forum to determine this, “given all

[…]