Skorchid v. Edgewater Marine Ltd.
Boris Skorchid, Applicant, and
Edgewater Marine Limited, Edward Lee, Jean Lee, Thomas King
Lee, Heuchan Enterprises Limited and Norman Heuchan,
 O.J. No. 470
Action No. 1144/87
Supreme Court of Ontario
March 31, 1988
Raymond C. Colautti, for the Applicant.
Stephen C. Roberts, for the Respondents, Edgewater Marine Limited, Edward Lee, Jean Lee, Thomas King Lee.
Donald A. MacEachern, for Heuchan Enterprises Limited and Norman Heuchan.
CARTER L.J.S.C.:-- This is an application by Boris Skorchid, the applicant herein pursuant to Sections 160 to 166, 206 and 247 of The Business Corporations Act (B.C.A.) S.O. 1982 c. 4 and Section 114 of The Courts of Justice Act (C.J.A.) S.O. 1984 c. 11 together with a motion by the respondents, Edgewater Marine Limited, Edward Lee, Jean Lee and Thomas King Lee to strike out the application and its supporting affidavits and to dismiss the application.
The respondents, Heuchan Enterprises Limited and Norman Heuchan were served with the Application Record and Notice of Application, and with the Motion Record and Notice of Motion and were represented by Counsel, but took no part in the proceedings. The Director of the Companies Branch, Ministry of Consumer and Commercial Relations was also served with the Notice of Application and Application Record, but did not appear.
The applicant Boris Skorchid seeks relief by way of an appointment of an inspector under Section 161 of the B.C.A. to investigate the affairs of the respondent, Edgewater Marine Limited; an oppression remedy under Section 247, a winding up Order under Section 206 and certain ancillary relief, including an injunction restraining dissipation of the Corporate assets and the appointment of a Receiver.
All of the respondents entered Notices of Appearance and intent to respond.
The application came on for hearing on January 6, 1988 and was adjourned on consent for cross-examinations after which the trial co-ordinator was to be contacted for a date.
The Notice of Motion dated February 3, 1988 and duly served on the applicant was returnable on March 15, 1988.
On March 10, 1988 the applicant served the respondents with a Notice of Return of the Application for March 15, 1988, with the result that both the Application and the Motion came before me at the same time.
I decided to deal with the Motion first because if the moving party was successful it would not be necessary to deal with the Application; however, consideration of the Motion of necessity involved consideration of the Application.
The Points in issue in this Motion are as follows:
1) Whether the applicant's claims for an interim receiver and relief pursuant to s. 247 should be dismissed as they disclose no reasonable cause of action and are vexatious and an abuse of the process of the Court?
2) Whether the alleged wrongs are committed against the Company and only affect the applicant incidentally and therefore could only be commenced by a derivative action after obtaining leave from the Court?
3) Whether the applicant's claim for an investigation pursuant to S. 160 should be dismissed as it discloses no reasonable cause of action and is frivolous and vexatious and an abuse of the process of the Court?
4) Whether the applicant's claim for a Court ordered winding up pursuant to s. 206 should be dismissed as it discloses no reasonable cause of action and is frivolous and vexatious and an abuse of the process of the Court?
5) If any of the applicant's claims are allowed to stand:
(i) Should the court issue directions for the trial of an issue?
(ii) Should paragraphs 6-23, 24, 25, 29, 30, 34, 35, 36, 41, 42, 43, 44, 45, 46, 47-52 of the Affidavit of Boris Skorchid be struck out and disregarded?
(iii) Should particulars of paragraphs 24, 25, 26, 28, 29, 30, 31, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 46 of the Affidavit of Boris Skorchid be ordered?
The material filed reveals that when the respondent, Edgewater Marine Limited (Edgewater) was incorporated under Ontario law on January 8th, 1959 Mr. Skorchid became the owner of 200 common shares, representing 10% of the issued common shares. He also became a director, vice-president and employee of Edgewater. On June 27, 1986, he left the employ of Edgewater. At that time he was still the owner of 200 shares (10%) of the issued common stock and a director and vice-president of the Company. The Company was also indebted to him for $ 28,254.00. At the time of Mr. Skorchid's departure from the Company, the respondent, Edward Lee was the owner of 1050 shares (52.5%) of the issued capital stock.
It would appear that Mr. Skorchid wants:
1) to be repaid the $ 28,254.00 owing to him by the Company;
2) either Mr. Edward Lee or Edgewater to buy his shares at a price satisfactory to Mr. Skorchid.
3) to receive something in the nature of "severance pay" which would reflect his 26 years of employment by Edgewater.
The moving parties response to these matters are (as disclosed by Mr. Skorchid's affidavit, and attachment thereto):
1) Edgewater is prepared to pay back the debt of $ 28,254.00 in return for a release of all claims and his resignation as Director, Officer and Employee.
2) They are under no obligation to buy Mr. Skorchid's shares, but were prepared to pay a reasonable price, taking into consideration a fair market valuation they had obtained.
3) Mr. Skorchid is not entitled to "severance pay" as he was not terminated, but "walked out" without cause.
When we turn to the affidavit of the respondent in support of his application under the B.C.A. and the C.J.A. we find it an amalgam of various claims against various respondents, couched in language which to a great extent is irrelevant, lacking in particularity and vexatious. For example:
The applicant sets out the nature of his application as follows in paragraph 5 of his affidavit:
"I make this affidavit in support of an application for an order, pursuant to section 160 of the Business Corporations Act, S.O. 1982, for an investigation of the Corporation, and for an order for an oppression remedy under section 247 of the Act and a further order under section 206 of the Act to wind up the Corporation. I make this application because the conduct of the Respondents, Edward Lee, Jean Lee and Thomas Lee in carrying out the business and affairs of the Corporation is, and has for some time, been oppressive and unfairly prejudicial and has unfairly disregarded the interests of the other shareholders. In addition thereto, these said Respondents, in carrying on the business and affairs of the Corporation, have acted fraudulently in appropriating unto themselves for their own use and benefit, assets and funds belongoing to the Corporation, to the detriment of the minority shareholders. I herein set out, under oath, the facts and evidence I rely on to make these statements."
When one considers the facts and evidence relied on to make these statements it becomes evident that the applicant is complaining about:
1) the wages paid to him (paragraph 23),
2) his suspicion that the Lees were skimming off Corporation cash for their own benefit (paragraphs 24-46),
3) the termination of his employment (paragraph 47),
4) his inability to have Mr. Edward Lee buy his 10% share interest in the Company (paragraph 48).
In the moving parties' Motion Record it is pointed out, and I believe correctly, that the claims of the applicant in so far as the activities of the respondents, Edward Lee, Jean Lee and Thomas King Lee are concerned may constitute wrongs to the Corporation but not wrongs to the minority shareholders. At best there is a mingling of alleged wrongs against the applicant with alleged wrongs against the Corporation.
In Goldex Mines Ltd. v. Revill et al., 7 O.R. (2d) 216, the Court of Appeal at page 221 discusses the distinction between personal actions and derivative actions. They say:
"Where a legal wrong is done to shareholders by directors or other shareholders, the injured shareholders suffer a personal wrong, and may seek redress for it in a personal action. That personal action may be by one shareholder alone, or (as will usually be the case) by a class action in which he sues on behalf of himself and all other shareholders in the same interest (usually, all other shareholders save the wrongdoers). Such a class action is nevertheless a personal action.
A derivative action, on the other hand, is one in which the wrong is done to the company. It is always a class action, brought in representative form, thereby binding all the share-holders."
In Cini et al, v. Micallef et al 60 O.R. (2d) 584, a case decided after the B.C.A. came into force, Sutherland J. considers the Goldex decision, and states at p. 608:
"In my opinion there is nothing in the Goldex decision that blurs or affects the rule that where the shareholders injury arises only indirectly as incidental to a harm done to the corporation the shareholder does not have a personal action but must seek his relief in a derivative action commenced in the name of the Corporation after leave to commence such an action has been obtained from this Court."
Section 247 of the B.C.A. deals with a personal action leading to an oppression remedy; Section 245 and 246 deal with the derivative action.
I am therefore of the opinion that the applicant instead of seeking the oppression remedy under Section 247 of the B.C.A. should have proceeded under Section 245 of the B.C.A. to obtain leave of the Court to bring a derivative action.
The power of the Court to grant a restraining Order, either interim or final is given by Section 247 (3)(a) of the B.C.A. and is "in connection with" an application under Section 247. That such an order is ancilliary to relief sought under section 247 is evident, not only from the wording of the statute but also from the Goldex decision (supra) where, at p. 219, the Court said:
"Apart from express statutory provisions, a receiver is appointed as ancilliary to other substantive relief sought by a plaintiff or applicant."
Where, as here, the substantive relief sought by the applicant i.e., the oppression remedy, cannot be sustained, the ancilliary relief claimed, i.e. a restraining order under Section 247 of the B.C.A. must also fail.
The applicant has also asked for an order under Section 160 of the B.C.A. directing an investigation to be made of the Corporation.
In Re: Baker et al and Paddock Inn Peterborough Ltd. 16 O.R. (2d) 38, Galligan J. was considering an application to appoint an inspector under Section 186(1) of the B.C.A. R.S.O. 1970 c. 53 the predecessor of Section 160 of the present Act.
At page 40 he said:
"In my opinion, the power of the Court to intervene in the affairs of a private corporation is an important and vital one, but is is one that ought to be exercised with caution. The section provides that the application must be prima facie in the interests of the corporation or the holders of its securities. It is to be noted that the applicants Patrick Baker and Tom Brown are directors of the company. I see nothing in the material that suggests that they have been denied access to or production of any of the company's books or records. There is no evidence in the material to make me suspect that the company would prevent or interfere with any inspection of the books and records by an accountant chosen privately by the applicants if they wished to conduct any audit or inspection themselves. It does not seem to me that a Court should appoint someone to inspect and audit the books of a private corporation if the shareholders who wish that relief do not establish that they cannot get it privately.
Accordingly, I do not think it is prima facie in the interests of either the corporation or the applicants to make an order for an investigation or audit."
In the application with which I am dealing, the applicant in his affidavit makes the following statements:
1) "I am the applicant herein and a director and
vice-president of Edgewater Marine Limited......"
2) "Now shown to me and marked as Exhibit "B" to this my affidavit is a true copy of a schedule depicting my wage scale from 1976 along with the Company's gross sales for those periods" (to 1986)
3) "During this period, between the middle of 1984 and the time of my employment termination of June 27, 1986, I was responsible for the entire operation of the business..."
There would also appear to have been an inspection of the Minute Book and other Corporate documentation of Edgewater Marine Limited by a nominee of Mr. Skorchid, and a preparation of a valuation of Mr. Skorchid's shares by his own accountant, in which no attack is made on the accuracy of the Company's books.
I do not see what would be gained by granting the applicant's request for an inspection order under Section 160, as he already has, or has been afforded the opportunity of getting the corporate documentation.
The applicant also seeks an order under section 206 of the B.C.A. to wind up the Company.
I have read Mr. Skorchid's affidavit carefully and can find nothing in it to base such an Order on Section 206(1)(b). When one looks at his major complaints which I have detailed above, I cannot say that I am satisfied that there has been a significant breach of any of the factors set out in Section 206(1)(a) to justify the making of a winding up order. It seems to me that if Mr. Skorchid feels that his services were terminated, he should look to an action for wrongful dismissal to settle the facts and law of that matter, and not to an application under the B.C.A. If he cannot get the price he feels his shares are worth - that does not in my opinion constitute a ground to wind up the Company.
In Re: Anglo Continental Produce Co. Ltd.  1 All E.R. 99, Bennett J. said at p. 102:
"When one gets down to the real facts of the case, the reason for which it is said that it has now become "just and equitable" to wind up this company is that the majority of the shareholders desire to have repaid to them the money which they have got tied up in it. Their money is not at the moment earning for them any interest or any dividend, and it is said that their reason for wanting it back is not capricious. That is the first ground."
and he relates in connection with that submission:
"It is clear, therefore, to my mind, that the mere fact that a majority want to get their money back does not make it just and equitable that the company should be wound up in order that they may get it back."
I also am of the view that Mr. Skorchid's inability to have his shares liquidated at a price satisfactory to him is not a satisfactory reason for granting an order winding up the Company.
Finally I come to the relief sought by the applicant under Section 114 of the C.J.A. That section reads as follows:
114(1) In the Supreme Court, the District Court or the Unified Family Court, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.
(2) An order under subsection (1) may include such terms as are considered just. R.S.O. 1980, c. 223, s. 19(1).
Although I have said that the applicant's request for a restraining order under s. 247 of the B.C.A. must fail, the same does not apply to the interim order sought under the C.J.A. Having held that the applicant should have sought relief under section 245 of the B.C.A. and by way of an action for wrongful dismissal if so advised, and being satisfied, especially in the absence of any counter affidavit from the respondents, that he does have a prima facie case for an order under section 245 of the B.C.A., it would seem unfair to me in these circumstances to dismiss his application without affording him the protection of an interim interlocutory injuntion under section 114 of the C.J.A. restraining dissipation of the Corporate assets to give the applicant an opportunity to apply for an order under section 245 of the B.C.A. if so advised.
I conclude by saying I have studied the Record of the applicant, Skorchid relating to the Motion, in which he submits that the respondents motion should be dismissed in so far as they had taken a fresh step in appearing on January 6th, 1988, and consenting to an adjournment for purposes of cross-examination. I am not satisfied that the actionsof the moving party were such as to bring him within the prohibition of Rule 2.02.
In summary the applicant's application will be dismissed in all respects except that an interim interlocutory injunction order will go as I have indicated.
If Counsel are unable to agree on the question of costs they may speak to the trial co-ordinator who will schedule some time for the matter to be dealt with during my next attendance in Windsor in July of this year.
Apart from the case brief of some 37 cases submitted by the applicant, and 18 submitted by the respondent the following cases were also referred to me in the course of argument:
Ellis et al v. McQueen et al (1967) 2 O.R. 399
Leclerc et al v. St-Louis 11 D.L.R. (4th) 765
Robert McAlpine Ltd. v. Martell 7 C.P.C. 278
Hebb v. Mulock and Newmarket Era and Express Limited (1944) O.W.N. 660
Chatelaine Homes Ltd. v. Miller et al 39 O.R. (2d) 611
Re Erinco Homes Ltd. 3 C.P.C. 227
Bank of Montreal v. Anco Investments Ltd. 9 C.P.C.(2d) 97