Agnew v. Village Contractors Ltd.
Edward A. Agnew and Elio Danelon, applicants (appellants), and
Village Contractors Limited, Enzo Deluca, Alfredo Deluca,
Tiberio Mascarin and Colio Wines of Canada Limited,
respondents (respondents in appeal)
 O.J. No. 1201
170 O.A.C. 68
121 A.C.W.S. (3d) 1050
Court File No. 557/00
Ontario Superior Court of Justice
Lane, J. Macdonald and Cullity JJ.
Heard: March 14, 2003.
Oral judgment: March 14, 2003. Released: March 27, 2003.
Company law -- Shareholders -- Shareholders' rights -- Oppressive acts, remedies.
This was an appeal by the minority shareholders of Colio Wines from the dismissal of their application for an oppression remedy. They sought an appointment of an inspector to determine the proper value of their shares. The majority shareholders, who had attempted unsuccessfully to find a purchaser for Colio, had proposed an amalgamation with Village Contractors, a company owned by them and a creditor of Colio for a couple of hundred thousand dollars. At a special meeting of the Colio shareholders, a decision was made by the majority to amalgamate with Village. The result of the amalgamation was to replace the shares of Colio with non-voting Class B shares in the amalgamated company, which shares were redeemed for one cent per share. The minority shareholders alleged that the application's judge had failed to consider certain aspects of valuation of shares as set out in the Price-Waterhouse report. Other evidence before the judge included that there was no market for wineries in 1991 and that there was no likelihood that the assets, if sold, could cover the debt. She found that there was insufficient evidence for this to be a case in which an inspector should be appointed to carry out an evaluation. She further indicated that the evidence did not lead her to believe that there had been oppression or unfair prejudice or unfair disregard of their interests.
HELD: Appeal dismissed. The application's judge applied a correct test in making her decision. So far as appearance was concerned, when something appeared to the Court to exist it had to do so upon cogent evidence, that was to say evidence relevant and persuasive. In this case, that cogent evidence was lacking.
Statutes, Regulations and Rules Cited:
Ontario Business Corporations Act, ss. 161(2), 162, 248.
Raymond G. Colautti, for the applicants (appellants).
P.A. Neena Gupta, for the respondents.
The judgment of the Court was delivered by
1 LANE J. (orally):-- This is an appeal from the judgment of the Honourable Madam Justice Swinton, delivered on August 29th, 2000, dismissing an application for an oppression remedy under s. 248 of the Ontario Business Corporations Act.
2 The applicant sought the appointment of an inspector pursuant to s. 162 of the Act to determine the proper valuation of the appellant's shares. The application turned on the passage of a special resolution and amalgamation agreement in April, 1992, which amalgamated Colio Wines of Canada Ltd. with Village Contractors Ltd. The appellants were minority shareholders in Colio Wines of Canada Ltd.
3 The result of the amalgamation was to replace the shares in Colio with non-voting Class "B" shares in the amalgamated company, which shares were then redeemed at one cent per share which effectively valued the company at a few thousand dollars. The appellants, along with all other shareholders of Colio, were left with a small amount of cash.
4 The appellants claim that this conduct was oppressive to them and unfairly disregarded their interests because the value attributed to the shares was not reasonable. They have filed a report by Price-Waterhouse referring to a number of possible reasons why the value might have been greater. It is important to note that it was not a valuation report but simply a report based on an analysis of some financial statements to indicate that there might be some basis to think that there had been oppressive conduct.
5 At the time of this amalgamation there is no question that Colio was in serious financial difficulty. It had a bank loan of some 1.7 million dollars and had borrowed from its shareholders for almost another million dollars. It had an accumulated deficit of $1,800,000 as at March 31, 1991 and the shareholder's deficiency shown on the balance sheet was $472,000.
6 In February, 1991, the Toronto-Dominion Bank gave notice that it was going to call the company's loan unless the company was sold in ten days, that is by February 28th, 1991 or the loan was paid down immediately to one million dollars with a plan put in place to repay the balance by the end of March.
7 The Company could not meet this requirement. It made a cash call on the shareholders but the applicants were unwilling or unable to put further funds into the company and the company was left in the position of not being able to meet the bank's requirements. In this circumstance the majority shareholders, who had attempted to find a purchaser without success, proposed an amalgamation with Village Contractors Ltd., a company owned by the majority shareholders and a creditor of Colio for a couple of hundred thousand dollars. The amalgamation would benefit Village by permitting it to utilize Colio's tax losses against future profits.
8 A meeting of the Board of Directors of Colio on April 8, 1991, discussed the financial difficulties and gave approval to calling a special meeting of shareholders. At the special meeting of shareholders, a decision was made to amalgamate Colio with Village. One of the applicants voted against the resolution and the other one either voted against or abstained. Subsequent to the amalgamation the amalgamated company paid the indebtedness to the bank.
9 On these facts the applicants sought from Madam Justice Swinton an order for the appointment of an inspector. An inspector is to be appointed pursuant to s. 161(2) in the following circumstances:
"Where, upon an application under subsection (1), it appears to the court that,
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted, or the powers of the directors are or have been exercised, in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of a security holder;
the court may order an investigation to be made of the corporation and any of its affiliates."
10 In Re Ferguson and Imax Systems Corporation (1984), 47 O.R. (2d) 225, the Divisional Court held that in applying this provision,
"The Court must examine the evidence and make a finding that it appears that there has been oppressive conduct. The Court cannot direct that the investigation be made in order to assist the Court in making such a finding. The finding must be made before the investigation can be directed."
That case went to the Court of Appeal and while the end result was that it was reversed, it was not reversed on the point which we are concerned with.
11 In a later case, Mr. Justice Galligan spoke of "good reason to think that the conduct complained of may have taken place" which arguably is a lesser test. We do not think that this comment by Justice Galligan can override the finding of the Divisional Court in Imax, particularly when the statute itself does not say "reason to believe that there may have been" oppressive conduct, but rather that it appears that there has been oppressive conduct.
12 The appellant took us through some portions of the Price-Waterhouse report and submitted that the application Judge had failed to consider certain aspects of valuation of the shares. It was argued that if these matters had been considered it might be the case that there would be some value in this company. It is notable that the report is very guarded in its language using phrases like "may have been". It is somewhat speculative in its concerns.
13 In addition, the learned Judge had before her other evidence: evidence that there was no market for wineries in 1991; and that there was no likelihood that the assets if sold could cover the debt. The learned Judge was entitled to take that evidence into consideration as much as the Price-Waterhouse report. She wrote:
"Nevertheless, neither the report, nor the other evidence before me, are sufficient to lead me to believe that this is a case in which an inspector should be appointed to carry out an evaluation."
"The evidence does not give me reason to believe that there has been oppression or unfair prejudice or unfair disregard of their interests."
14 It was submitted that the Judge employed too high a standard, what was required was only an appearance that there "may have been" oppression. As already noted, the language "may have been oppression" is based on the decision of Justice Galligan but the statute says "has been". So far as appearance is concerned, when something appears to the Court to exist it must do so upon cogent evidence, that is to say evidence relevant and persuasive. Mere allegation is not enough. Mere suspicion is not enough. The language of the Act is not applicable to mere suspicion. In our view, the learned trial Judge applied a correct test in making her decision.
15 The appellant was critical of the applications judge for her statement in paragraph 27 of her reasons that the applicants sought the order in question in order to determine "whether they were given a fair deal in 1991". He submitted that that was a misstatement of the case, that it was whether fair value was paid, which seems only a semantic difference. The Judge found that this was not an appropriate case to order an inspector. We certainly cannot say that she was clearly wrong in making that finding and accordingly the appeal is dismissed.
16 The appeal book is endorsed: "The appeal is dismissed for reasons given orally by Mr. Justice Lane. Costs to be addressed if necessary by written submissions within 30 days."
J. MACDONALD J.