Mennillo v. Intramodal inc.

Mennillo v. Intramodal inc.
Collection
Supreme Court Judgments
Date
2016-11-18
Neutral citation
2016 SCC 51
Report
[2016] 2 SCR 438
Case number
36124
Judges
McLachlin, Beverley; Abella, Rosalie Silberman; Cromwell, Thomas Albert; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard; Gascon, Clément; Côté, Suzanne; Brown, Russell
On appeal from
Quebec
Subjects
Commercial law
Notes
SCC Case Information: 36124
Decision Content
SUPREME COURT OF CANADA
Citation: Mennillo v. Intramodal inc., 2016 SCC 51, [2016] 2 S.C.R. 438
Appeal heard: December 8, 2015
Judgment rendered: November 18, 2016
Docket: 36124
Between:
Johnny Mennillo
Appellant
and
Intramodal inc.
Respondent
Official English Translation: Reasons of Côté J.
Coram: McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ.
Reasons for Judgment:
(paras. 1 to 81)
Concurring Reasons:
(paras. 82 to 89)
Dissenting Reasons:
(paras. 90 to 263)
Cromwell J. (Abella, Karakatsanis, Wagner, Gascon and Brown JJ. concurring)
McLachlin C.J. (Moldaver J. concurring)
Côté J.
Mennillo v. Intramodal inc., 2016 SCC 51, [2016] 2 S.C.R. 438
Johnny Mennillo Appellant
v.
Intramodal inc. Respondent
Indexed as: Mennillo v. Intramodal inc.
2016 SCC 51
File No.: 36124.
2015: December 8; 2016: November 18.
Present: McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ.
on appeal from the court of appeal for quebec
Commercial law — Corporations — Oppression — Reasonable expectations of shareholder — Shareholder resigning as officer and director of corporation — Whether resignation extended to shareholder status and shares transferred accordingly — Whether evidence supported reasonable expectation asserted by shareholder of being treated as such and, if so, whether reasonable expectation was violated — Whether shareholder unlawfully deprived of shareholder status as a result of corporation’s conduct — Canada Business Corporations Act, R.S.C. 1985, c. C‑44, s. 241 .
In 2004, M and R, two friends, discussed the possibility of creating a road transportation company. M would contribute the money to start up the business while R would bring skills to ensure its success. R had the company incorporated on July 13, 2004, and that same day, the company’s board of directors passed a resolution to accept notices of subscription to securities by R and M and to issue 51 shares to R and 49 shares to M. Both the notices of subscription and the resolution were signed by R alone. Thereafter, R and M rarely complied with the requirements of the Canada Business Corporations Act (“CBCA ”) and almost never put anything in writing. They had neither a partnership nor a shareholders’ agreement, and there was no written contract or any other legal formality relating to M’s advances of substantial amounts of money to R.
On May 25, 2005, M sent a letter to the corporation in which he indicated that he was resigning as an officer and director of the company. M asserts that he never intended to stop being a shareholder, but the corporation contends that M also resigned as a shareholder and accordingly transferred his shares to R. Claiming that the corporation and R unduly and wrongfully stripped him of his status as a shareholder, M applied for an oppression remedy pursuant to s. 241 of the CBCA .
The trial judge dismissed M’s oppression claim based on the factual finding that M had undertaken to remain a shareholder only so long as he was willing to guarantee the corporation’s debts and later was no longer willing to do so. A majority of the Court of Appeal dismissed the appeal.
Held (Côté J. dissenting): The appeal should be dismissed.
Per Abella, Cromwell, Karakatsanis, Wagner, Gascon and Brown JJ.: The trial judge’s factual findings are not reviewable on appeal because no palpable and overriding error is present here. M’s oppression claim must accordingly be approached on the basis of the trial judge’s factual findings to the effect that from May 25, 2005 onwards, M did not want to be a shareholder, did not want to be treated as such and, as a result, transferred his shares to R.
There are two elements of an oppression claim. The claimant must first identify the expectations that he or she claims have been violated and establish that the expectations were reasonably held. Then the claimant must show that those reasonable expectations were violated by conduct falling within the statutory terms, that is, conduct that was oppressive, unfairly prejudicial to or unfairly disregarding of the interests of any security holder.
In the present case, M’s oppression claim is groundless. M could have no reasonable expectation of being treated as a shareholder: he no longer was and expressly demanded not to be so treated. As against the corporation, the most that can be said is that it failed to carry out M’s wishes as a result of not observing certain necessary corporate formalities. But in light of these findings, it cannot be said that the corporation acted oppressively or that it illegally stripped him of his status as a shareholder. What happened is that the corporation failed to make sure that all the legal formalities were complied with before registering the transfer of shares to R. The acts of the corporation which M claims to constitute oppression were in fact taken, albeit imperfectly, in accordance with his express wishes.
The fact that a corporation fails to comply with the requirements of the CBCA does not, on its own, constitute oppression. What may trigger the remedy is conduct that frustrates reasonable expectations, not simply conduct that is contrary to the CBCA . In the present case, the failure to observe the corporate formalities in removing M as a shareholder in accordance with his express wishes to be so removed cannot be characterized as an act unfairly prejudicial to the extent that this omission deprived him of his status as a shareholder. The corporation failed to observe the formalities of carrying out his wish not to be a shareholder. Nor can the failure to properly remove him as a shareholder in accordance with his express wishes make it just and equitable for him to regain his status as a shareholder.
Regarding the issue of whether the share transfer could have been retroactively cancelled, it is not possible to do so by way of simple oral consent. An issuance of shares can be cancelled only if (a) the corporation’s articles are amended or (b) the corporation reaches an agreement to purchase the shares, which requires that the directors pass a resolution, that the shareholder in question gives his or her express consent and that the tests of solvency and liquidity be met. Meeting the requirements with respect to the maintenance of share capital cannot be optional, given that it is the share capital that is the common pledge of the creditors and is the basis for their acceptance of doing business with the corporation.
It is common ground that the shares that were transferred were not endorsed by M. Therefore it is true that the corporation proceeded to register a transfer that did not meet all of the criteria stated in the CBCA . Since this was an important formality required by law, it was to be observed on pain of nullity of the transfer. But there is no doubt about the fact that M knew that this formality was not complied with when the company proceeded to register the transfer in the corporate books, and that he was aware that he had not endorsed his share certificate when the shares were transferred to R as the trial judge found. As he was aware of the situation of which he now complains more than three years prior, his claim in that regard was and is still prescribed. Even if the transfer was subject to nullity, it did not mean that it was inexistent.
Finally, regarding the possibility of a conditional issuance of the shares, the condition at issue was a result of an agreement between M and R that the former would be a shareholder only if he guaranteed the corporation’s debts. This agreement was reached by M and R; the corporation was not a party to this agreement. Accordingly, it does not attract the corporate formalities applicable to a conditional issuance of shares.
Per McLachlin C.J. and Moldaver J.: It is not necessary to determine whether there was an effective transfer of M’s shares to R. This appeal can be disposed of on the basis that M has failed to show a reasonable expectation that he would not be removed as a shareholder from the corporation’s books given that he asked to be removed as a shareholder. This is confirmed by the fact that subsequently M ceased to conduct himself as an equity shareholder and advanced money as loans. The trial judge’s finding of fact is supported by the evidence. Consequently, the trial judge did not err in denying M’s oppression claim.
Per Côté J. (dissenting): Two key principles are deeply rooted in Canadian corporate law and cannot simply be disregarded or ignored: the principle that a corporation’s legal personality is distinct from that of its shareholder or shareholders, and the principle or rule of the maintenance of capital. The formalities provided for in corporate legislation are imposed to give effect to these principles, and they are necessary to protect the corporation’s patrimony, the common pledge of its creditors.
These principles cannot be variable. The principle that a corporation has a distinct legal personality and the maintenance of capital principle are just as important in the case of a small company as in that of a large one, if not more so. Although expectations may vary from one shareholder to another in the case of a closely held corporation, this does not diminish the importance of these principles. The same is true of the formalities provided for by law to ensure that they are adhered to.
It follows that the conclusion that shares were issued conditionally in this case or that the agreement between the two shareholders regarding M’s shares was cancelled retroactively, simply by their consenting to its being cancelled, and that this cancellation had some effect on the corporation even though the necessary formalities were not observed, jeopardizes important pillars of Canadian corporate law.
Along the same lines, the fact that one shareholder claims he and his fellow shareholder entered into an agreement for the transfer of shares does not relieve the corporation of its legal duty to make the necessary inquiries before passing a resolution approving that transfer of shares and registering the transfer in its registers. The CBCA imposes some very strict requirements to be met before a transfer of shares is registered, including that the security be endorsed and that the transfer be rightful. The corporation’s failure to make such inquiries in this case was in itself a form of oppression.
M did not, by expressing an intention to withdraw from the corporation as a shareholder, extinguish any reasonable expectations he may have had as regards his remaining on the company’s books as a shareholder. To conclude the opposite would amount to saying that the mere expression of an intention to withdraw from a corporation as a shareholder would also extinguish the reasonable expectation that the corporation in question will act in accordance with the law and with its articles and by‑laws and will make the necessary inquiries before depriving a person of his or her shareholder status, and would thereby defeat the oppression remedy. However, the CBCA itself does not limit access to the oppression remedy in such a manner and, what is more, shareholders are entitled to expect a corporation to act in accordance with its articles and by‑laws and, more generally, with the law. These are, so to speak, presumed expectations.
The question of reasonable expectations is of greater relevance to the determination of a shareholder’s rights that are not specifically provided for in the legislation and in the corporation’s articles and by‑laws. Where, as in this case, a corporation is alleged to have acted unlawfully, the focus of the analysis is not so much on the question of reasonable expectations as on that of whether the corporation’s conduct was in fact unlawful and, therefore, oppressive. Mere irregularities that are not oppressive or unfairly prejudicial will not be sufficient to justify granting the remedy to the complainant. On the other hand, a failure to comply with a mandatory legislative provision or with the requirements set out in the corporation’s articles and by‑laws that relate to the very recognition of shareholder status may justify granting the oppression remedy.
In this case, several aspects of the corporation’s conduct are problematic. The evidence shows that the share certificate in question was not endorsed. It also shows that the corporation made no inquiries before passing the resolution to transfer M’s shares, and that the resolution was passed retroactively and was signed by a single shareholder (namely the majority shareholder). The corporation’s conduct in this regard, which violated express provisions of the legislation and of its own articles and by‑laws, was prejudicial to M: that conduct unlawfully stripped him of his status as a shareholder. It is difficult to imagine how a business corporation could act more oppressively toward a shareholder than by depriving him or her of that status.
The conduct of a corporation that approves a transfer of shares without making any inquiries and that confuses its interests with those of its majority shareholder, as if it were a mere puppet, is not less oppressive simply because another shareholder at some point expressed an intention to withdraw from the corporation without there being any agreement on the terms of such a withdrawal.
Furthermore, the trial judge did not find that the corporation’s shareholders had agreed on a transfer of shares. The interpretation to the effect that he did so find denotes a fragmented reading of the trial judge’s reasons and distorts his conclusions. The trial judge instead concluded that, given that M’s shares had been issued on condition that he guarantee the corporation’s debts, the intention he expressed of withdrawing from the corporation was sufficient for him to be stripped of his status as a shareholder. It is inaccurate to say that the trial judge’s finding that the shares had been transferred was independent of their having been issued conditionally.
The parties characterized the agreement that was alleged to have been entered into by the corporation’s shareholders in several different ways, at times as a conditional issuance of shares, at times as a retroactive cancellation and at times as a contract of sale or a contract of gift. This reflects a more fundamental problem, namely that, without some speculation, no intention in this regard can be found in the evidence. Indeed, the difficulty the courts below had in characterizing the alleged agreement resulted from the fact that there was no evidence of the juridical operation contemplated by the corporation’s shareholders on May 25, 2005 that allegedly resulted in the transfer of M’s shares.
Moreover, it is impossible to find, as a matter of law, that M transferred his shares on May 25, 2005. Whatever conclusion might be reached about the credibility of the witnesses in this regard, the intention expressed by M of withdrawing from the corporation had no effect on his rights as a shareholder. In this case, the intention expressed by M was at most an invitation to contract.
The analysis that is required in the circumstances cannot disregard the interplay between Quebec civil law and the CBCA . It is contrary to basic principles of Quebec civil law to argue that the intention expressed by M in this case resulted in an agreement of wills even though there was no agreement on the juridical operation being contemplated. To conclude that the expression of such an intention bars M’s claim for oppression — thereby approving after the fact the transfer registered by the corporation in its registers — is contrary to the law, to fairness and to common sense.
In addition to having no basis in law, the finding that M had expressed his intention of withdrawing as a shareholder and had transferred his shares in May 2005 is not supported by the evidence and is thus based on palpable and overriding errors. The trial judge erred in rejecting M’s testimony in this regard, since he did so on the basis of an unreasonable interpretation of several pieces of evidence in the record. At most, the evidence shows that M expressed an intention to divest himself of his shares, but no agreement was reached on how he would dispose of them.
Finally, the prescription period applicable to a claim under s. 241 of the CBCA will depend on the basis for the claim. Where — as in this case — the complainant has been acknowledged to be a shareholder at some point and is claiming to have been unlawfully stripped of shareholder status by the corporation, the claim is therefore imprescriptible.
Cases Cited
By Cromwell J.
Applied: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560; referred to: Premier Tech ltée v. Dollo, 2015 QCCA 1159, leave to appeal refused, 2016 CanLII 21792; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Stein v. The Ship “Kathy K”, [1976] 2 S.C.R. 802; Ingles v. Tutkaluk Construction Ltd., 2000 SCC 12, [2000] 1 S.C.R. 298; Martin v. Dupont, 2016 QCCA 475; Inspecteur général des institutions financières v. Assurances funéraires Rousseau et frère Ltée, [1990] R.R.A. 473.
By McLachlin C.J.
Applied: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560.
By Côté J. (dissenting)
Smith v. Gow‑Ganda Mines, Ltd. (1911), 44 S.C.R. 621; Budd v. Gentra Inc. (1998), 111 O.A.C. 288; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560; Journet v. Superchef Food Industries Ltd., [1984] C.S. 916; Martin v. Dupont, 2016 QCCA 475; Paré v. Paré (Succession de), 2014 QCCA 1138; Grusk v. Sparling (1992), 44 Q.A.C. 219; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Bénard v. Gagnon, 2002 CanLII 23768, aff’d 2004 CanLII 73057; Regroupement des marchands actionnaires inc. v. Métro Inc., 2011 QCCS 2389; Greenberg v. Gruber, 2004 CanLII 14882.
Statutes and Regulations Cited
Act respecting the legal publicity of enterprises, CQLR, c. P‑44.1.
Canada Business Corporations Act, R.S.C. 1985, c. C‑44, ss. 24(4) , 25(3) , 34 , 39(6) , 49(4) (a), (13) , 50(1) (c), 53 (d), 60(1) , 64 , 65(3) , 76 , 79(1) (a), 115(3) , 117(1) , 118(7) , 119(3) , 121 (a), 146 , 238 , 241 , 243 , 247 .
Civil Code of Québec, arts. 1378, 1381, 1414, 1416, 1422, 1824, 1825, 2922, 2925, 2927.
Authors Cited
Baudouin, Jean‑Louis, et Pierre‑Gabriel Jobin. Les obligations, 7e éd., par Pierre‑Gabriel Jobin et Nathalie Vézina. Cowansville, Qué.: Yvon Blais, 2013.
Campion, John A., Stephanie A. Brown and Alistair M. Crawley. “The Oppression Remedy: Reasonable Expectations of Shareholders”, in Law of Remedies: Principles and Proofs, Special Lectures of the Law Society of Upper Canada. Scarborough, Ont.: Carswell, 1995, 229.
Crête, Raymonde, et Stéphane Rousseau. Droit des sociétés par actions, 3e éd. Montréal: Thémis, 2011.
Gaudet, Serge. “Inexistence, nullité et annulabilité du contrat: essai de synthèse” (1995), 40 McGill L.J. 291.
Hansmann, Henry, Reinier Kraakman and Richard Squire. “The New Business Entities in Evolutionary Perspective”, [2005] U. Ill. L. Rev. 5.
Karim, Vincent. Les obligations, 4e éd. Montréal: Wilson & Lafleur, 2015.
Koehnen, Markus. Oppression and Related Remedies. Toronto: Thomson/Carswell, 2004.
Lafond, Pierre‑Claude. Précis de droit des biens, 2e éd. Montréal: Thémis, 2007.
Lamontagne, Denys‑Claude. Biens et propriété, 7e éd. Cowansville, Que.: Yvon Blais, 2013.
Lluelles, Didier, et Benoît Moore. Droit des obligations, 2e éd. Montréal: Thémis, 2012.
Martel, Paul. Business Corporations in Canada: Legal and Practical Aspects. Toronto: Thomson Reuters, 2005 (loose‑leaf updated 2016, release 6).
Morritt, David S., Sonia L. Bjorkquist and Allan D. Coleman. The Oppression Remedy. Toronto: Canada Law Book, 2004 (loose‑leaf updated December 2015, release 17).
Peterson, Dennis H., and Matthew J. Cumming. Shareholder Remedies in Canada, 2nd ed. Markham, Ont.: LexisNexis, 2009 (loose‑leaf updated August 2016, release 39).
Wegenast, F. W. The Law of Canadian Companies. Toronto: Carswell, 1979 (reissue of 1931 ed.).
APPEAL from a judgment of the Quebec Court of Appeal (Vézina, Gagnon and St‑Pierre JJ.A.), 2014 QCCA 1515, [2014] AZ‑51101093, [2014] J.Q. no 8429 (QL), 2014 CarswellQue 10625 (WL Can.), affirming a decision of Poirier J., 2012 QCCS 1640, [2012] AZ‑50849648, [2012] J.Q. no 3574 (QL), 2012 CarswellQue 3855 (WL Can.). Appeal dismissed, Côté J. dissenting.
Claude Marseille, Paul Martel and Caroline Dion, for the appellant.
Hubert Camirand and Marie‑Geneviève Masson, for the respondent.
The judgment of Abella, Cromwell, Karakatsanis, Wagner, Gascon and Brown JJ. was delivered by
Cromwell J. —
I. Introduction
[1] In this oppression proceeding under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA ”), the underlying question is whether, as the appellant, Johnny Mennillo, alleges, the business or affairs of Intramodal inc. were carried on or conducted in a manner that was oppressive or unfairly prejudicial to or unfairly disregarded Mr. Mennillo’s interests: s. 241(2) CBCA .
[2] The informal manner in which the parties dealt with each other and their lack of attention to proper documentation gave rise to some technical points of corporate law including how a share transfer can be properly registered and how a share transfer may be cancelled. However, the answer to the fundamental question of whether Mr. Mennillo was oppressed in the corporate law sense turns on which of two sharply different versions of the facts — one supported by Mr. Mennillo and the other by Intramodal’s controlling shareholder, Mario Rosati — ought to be accepted.
[3] Mr. Mennillo claims that he was oppressed because he was an investor in Intramodal who was frozen out of equity participation by Mr. Rosati. Intramodal denies this and says that Mr. Mennillo, far from having been frozen out of the corporation, wanted to be removed as a director and shareholder and transferred his shares to Mr. Rosati.
[4] The trial judge completely rejected Mr. Mennillo’s version of events and substantially accepted Intramodal’s. The judge found that Mr. Mennillo agreed that he would remain a shareholder only so long as he was willing to guarantee the corporation’s debts. He ultimately decided that he did not wish to do so and transferred his shares to Mr. Rosati. The failure to observe the formalities necessary to complete the transfer of the shares, the judge found, resulted from an error or oversight on the part of Mr. Rosati’s lawyer.
[5] If the trial judge’s findings of fact are accepted, as in my view they ought to be, Mr. Mennillo’s oppression claim is groundless. The critical finding is that Mr. Mennillo did not wish to remain a shareholder and told Mr. Rosati to have him removed as such. On those findings, all the corporation can be accused of is sloppy paperwork. But sloppy paperwork on its own does not constitute oppression. Neither does the corporation and its controlling shareholder treating Mr. Mennillo exactly as he wanted to be treated. While some errors were made in the courts below on some points of corporate law, Mr. Mennillo’s oppression claim was properly dismissed and I would dismiss his appeal.
II. Overview of the Legal Context, Parties’ Positions and Issues
A. Legal Context
[6] To understand the facts and issues, it is important to understand the legal framework in which they must be considered.
[7] All of the relief requested by Mr. Mennillo is based solely on his claim of oppression under s. 241 of the CBCA . Other claims that he might have made, but did not make, are irrelevant to this appeal and cannot be considered. That section provides:
241 (1) A complainant may apply to a court for an order under this section.
(2) If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates
(a) any act or omission of the corporation or any of its affiliates effects 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.
[8] The Court set out the nature and constituent elements of an oppression claim in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 53-94. The oppression remedy is inspired by the principles of equity: it gives courts a broad jurisdiction to enforce “not just what is legal but what is fair” (para. 58; see also Premier Tech ltée v. Dollo, 2015 QCCA 1159, leave to appeal refused, 2016 CanLII 21792 (S.C.C.)). Whether there has been oppression is judged according to “business realities” not “narrow legalities”: BCE, at para. 58. Furthermore, “[w]hat is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play”: para. 59.
[9] There are two elements of an oppression claim. The claimant must first “identify the expectations that he or she claims have been violated . . . and establish that the expectations were reasonably held”: BCE, at para. 70. Then the claimant must show that those reasonable expectations were violated by conduct falling within the statutory terms, that is, conduct that was oppressive, unfairly prejudicial to or unfairly disregarding of the interests of any security holder: para. 68; s. 241(2) CBCA .
[10] According to the trial judge’s findings of fact, Mr. Mennillo agreed that he would remain a shareholder of the corporation on the condition that he guarantee its debts. He decided that he no longer wished to guarantee those debts and transferred his shares to Mr. Rosati. He could, therefore, have no reasonable expectation of being treated as a shareholder thereafter. He also could be thought to reasonably expect the corporation to ensure that the corporate formalities to register this arrangement would be observed. But the failure to do so (i.e. the conduct that “violated” those expectations) cannot be characterized as “oppressive, unfairly prejudicial or unfairly disregarding” of his interests. This was a two-person, private company in which the dealings between the parties were marked by extreme informality. As this Court said in BCE, “[c]ourts may accord more latitude to the directors of a small, closely held corporation to deviate from strict formalities than to the directors of a larger public company”: para. 74. In substance, Mr. Mennillo was not oppressed but treated as he wanted the corporation to treat him. The failure of the company’s lawyer to comply with the corporate law requirements to give effect to that intention is not oppression.
[11] Contrary to what my colleague Justice Côté concludes, the fact that a corporation fails to comply with the requirements of the CBCA does not, on its own, constitute oppression: paras. 166 and 195. The oppression remedy is a discretionary one that is equitable in nature: D. S. Morritt, S. L. Bjorkquist and A. D. Coleman, The Oppression Remedy (loose-leaf), at p. 5-10.4; D. H. Peterson and M. J. Cumming, Shareholder Remedies in Canada (2nd ed. (loose-leaf)), at p. 17-14. What may trigger the remedy is conduct that frustrates reasonable expectations, not simply conduct that is contrary to the CBCA . As I see it, my colleague’s approach not only represents a significant departure from our jurisprudence, but as applied here permits Mr. Mennillo to use oppression proceedings as an instrument of oppression rather than as a remedy for it.
B. Parties’ Positions
[12] Mr. Mennillo submits that he was unlawfully removed from the list of shareholders of the corporation through an amended declaration filed with the Registraire des entreprises of Quebec (“REQ”) on July 18, 2005. He also argues that as a shareholder, he had the right to access the corporate records of the company during the usual business hours, a right which was denied to him until the fourth day of the trial in the Superior Court. Simply put, his oppression claim is that he is a shareholder and investor who was frozen out of the corporation.
[13] For its part, Intramodal says that Mr. Mennillo resigned as a director, asked not to be a shareholder and transferred his shares to Mr. Rosati. His advances of funds were fully repaid with a healthy bonus. Putting the corporation’s position in its simplest terms, Mr. Mennillo did not want to be an equity shareholder and, as we shall see, he is no longer one.
C. Issues
[14] Putting aside questions of prescription and remedy, Mr. Mennillo raises two legal points and one factual point on appeal.
[15] In relation to the law, he maintains:
(a) The trial judge erred in finding that he had transferred his shares to Mr. Rosati when no such transfer was validly effected in law (2012 QCCS 1640); and
(b) The majority of the Court of Appeal erred in concluding that a share subscription could be retroactively cancelled by simple verbal agreement and without complying with the required legal formalities (2014 QCCA 1515).
[16] In relation to the facts, Mr. Mennillo relies on the conclusions of the dissenting judge in the Court of Appeal and says that the trial judge erred in rejecting his claim that he is a shareholder of the corporation.
[17] I agree with Mr. Mennillo in relation to the second legal point relating to corporate law. However, this point has no impact on the result of the oppression proceedings. The trial judge found that in May 2005, Mr. Mennillo did not want to remain a shareholder because he no longer wanted to be guarantor of all Intramodal’s debts. Some corporate formalities of the transfer of shares from Mr. Mennillo to Mr. Rosati were not completed as a result of an error or oversight on the part of Mr. Rosati’s lawyer. From that date, Mr. Mennillo agreed to be simply a lender to his friend Mr. Rosati. As of May 25, 2005, Mr. Mennillo ceased to be a shareholder in the corporation. That is exactly how the corporation treated him. In my view, the dissenting justice in the Court of Appeal was wrong to overturn these findings of fact. There was, to be sure, some very sloppy paperwork. But in light of the key findings of fact, the corporation in substance simply treated Mr. Mennillo as he wanted to be treated and he was repaid all of the money he had loaned with a substantial bonus.
III. Analysis
A. The Factual Issue
(1) Preliminary Observations
[18] The main question on which the outcome of the appeal depends is whether the trial judge made a reviewable error in finding that in May 2005, Mr. Mennillo did not wish to remain a shareholder because he no longer wanted to be the guarantor of all of Intramodal’s debts and transferred his shares to Mr. Rosati. If these factual findings stand, Mr. Mennillo’s oppression action is groundless: it was not oppressive, unfairly prejudicial to, or unfairly disregarding of his interests for the corporation to treat Mr. Mennillo as he himself asked to be treated. I recall that, as the Court said in BCE, in considering a claim in oppression, the courts should look at business realities not merely narrow legalities: para. 58.
[19] The appeal also raises some points of corporate law and of the law of prescription. These legal points, however, have no bearing on the ultimate disposition of the appeal. I will briefly address them after I set out my reasons for affirming the trial judge’s fundamental conclusions.
(2) Overview of the Basic Facts
[20] In the winter of 2004, Messrs. Johnny Mennillo and Mario Rosati, two friends, discussed the possibility of creating a company. Mr. Mennillo would contribute the money to start up the business while Mr. Rosati would bring skills to ensure the success of a road transportation company. Mr. Rosati reserved the name “Intramodal” in April 2004.
[21] Mr. Rosati had the company incorporated on July 13, 2004. That same day, Intramodal’s board of directors passed a resolution to accept notices of subscription to securities by Mr. Rosati and Mr. Mennillo and to issue 51 class “A” shares to Mr. Rosati and 49 shares of the same class to Mr. Mennillo. Both the notices of subscription and the resolution were signed by Mr. Rosati alone.
[22] It is worth mentioning at this point that many of the legal difficulties in this case have arisen as a result of the virtually complete lack of formality that accompanied the parties’ business dealings. They rarely complied with the requirements of the CBCA and in fact almost never put anything in writing. They had neither a partnership nor a shareholders’ agreement. They rarely or never exchanged emails or letters. Before Intramodal was incorporated, the roles that Messrs. Mennillo and Rosati respectively intended to fulfill in the company were agreed upon by a simple handshake. Once Intramodal was incorporated (on July 13, 2004), they became its directors and shareholders, but neither of them paid for their shares, contrary to the requirements of s. 25(3) CBCA and Mr. Mennillo’s share certificate was never signed as required by s. 49(4) (a) CBCA .
[23] There was no written contract or indeed any other legal formality relating to Mr. Mennillo’s advances of substantial amounts of money to Mr. Rosati. As evidence of the money provided for Intramodal by Mr. Mennillo, there are only two sheets of a Rolodex, marked up by Mr. Mennillo and initialed by Mr. Rosati.
[24] On May 25, 2005, Mr. Mennillo sent a letter to Intramodal in which he indicated that he was resigning as an officer and director of the company. He and Mr. Rosati give different accounts as to the reasons for and extent of his resignation. Whereas Intramodal argues that Mr. Mennillo transferred his shares to Mr. Rosati, Mr. Mennillo asserts that he never intended to stop being a shareholder of the company. On July 18, 2005, Daniel Ovadia, Intramodal’s lawyer, filed an amending declaration with the REQ to indicate that Mr. Mennillo had been removed as a director and shareholder of the company.
[25] Between September 2005 and December 5, 2005, Mr. Mennillo advanced $145,000 to Mr. Rosati. Intramodal began operating in December 2005, and Mr. Mennillo continued to advance money to Mr. Rosati. The amounts he advanced totalled $440,000, which included the $145,000 that had been paid in 2005. The two men met on two occasions in July 2007, and they do not agree about what took place at those meetings.
[26] According to Mr. Mennillo, he was with Mr. Rosati and another friend at the Rib’N Reef restaurant on July 14, 2007 when he noted that Intramodal was thriving and Mr. Rosati was now living very well. Upset about this, Mr. Mennillo complained that he was not sharing in the company’s success. At a second meeting, on July 21, 2007, Mr. Mennillo asked that the amounts of his loans be repaid and that he receive his share of the profits generated by Intramodal. He rejected at that time an offer to transfer his shares to Mr. Rosati.
[27] According to Mr. Rosati, following the July 14 meeting, Mr. Mennillo was quite unhappy about having received no return on his $440,000 investment that had resulted in the start-up of a lucrative business. Mr. Rosati suggested that they meet a week later to resolve their differences. At that meeting, Mr. Rosati asked Mr. Mennillo what amount might satisfy him in order to put an end to their dispute. Mr. Mennillo fixed the amount at $150,000, which meant that the total debt amounted to $690,000, including interest at the annual rate of 10 percent and a bonus of $100,000.
[28] In October 2007, Mr. Rosati and Mr. Mennillo met several times together with Antoine Papadimitriou, Mr. Mennillo’s accountant. According to Mr. Mennillo, the purpose of these meetings was to fix a price for the redemption of his shares. He claimed that it was at these meetings that his advisers had suggested that his advances ($440,000) be repaid using false invoices. Mr. Papadimitriou had also suggested that the $440,000 principal amount be increased by approximately 35 percent because the tax owing on it would be paid by Mr. Mennillo’s management company, 147488 Canada Inc. This would raise the amount of the repayment to $690,000.
[29] As for Mr. Rosati, he claims to have attended these meetings alone. He also claims that the purpose of the negotiations was instead to increase the amount of the repayment that had previously been agreed upon in July 2007. He maintains that Paolo Carzoli, a tax specialist, suggested that, to enable Mr. Mennillo to claim the capital gains exemption, the company’s books be corrected such that Mr. Mennillo would receive 49 common shares, which he would then sell to Mr. Rosati. Mr. Rosati rejected this.
[30] The money Mr. Mennillo had advanced to Mr. Rosati was repaid in its entirety between July 2006 and December 7, 2009. This was done by means of cheques issued by Intramodal for the payment of false invoices issued by 147488 Canada Inc. for “consultation fees” or “management fees”. The total amount paid by Intramodal to Mr. Mennillo’s management company was $690,000.
[31] On December 7, 2009, at a meeting in a restaurant, Mr. Rosati gave Mr. Mennillo a cheque for $40,000 marked “Full and Final Payment”. A few days later, Mr. Mennillo consulted his lawyer, Israel Kaufman, about this note. According to Mr. Mennillo, that was when he first understood that he was no longer a shareholder of Intramodal.
[32] On February 25, 2010, Mr. Kaufman sent Intramodal a demand letter. Claiming that Intramodal and Mr. Rosati had unduly and wrongfully stripped him of his status as a shareholder, Mr. Mennillo applied for an oppression remedy against Intramodal on September 7, 2010.
(3) Findings of Fact at First Instance
[33] Poirier J. began by stating that the case before him essentially turned on the credibility of the witnesses. He then rejected Mr. Mennillo’s version of the facts in its entirety. He concluded that as of May 25, 2005, Mr. Mennillo
[translation] refused to participate in this venture [that is, to be an equity shareholder in Intramodal] and asked to be removed from the company as a shareholder and a director effective May 25, 2005. As of that date, Mennillo agreed only to be a lender of $440,000 to his friend Rosati. The failure to complete the transfer of Mennillo’s shares to Rosati resulted from an error or oversight on the part of Rosati’s lawyer.
Since May 25, 2005, Mennillo has no longer been a shareholder or director of Intramodal. [paras. 74-75 (CanLII)]
[34] It is clear from a careful reading of the trial judge’s reasons that he understood that Mr. Mennillo would cease to be a shareholder as a result of transferring his shares to Mr. Rosati. In the judge’s view, Mr. Mennillo had more than a mere intention of being removed from the company; he found that Mr. Mennillo transferred his shares to Mr. Rosati and ceased to hold any shares in Intramodal. There was a basis for this conclusion in the evidence notwithstanding that the evidence was admittedly confused and confusing. However, the critical finding for the purposes of the substance of the oppression claim was that as of May 25, 2005, Mr. Mennillo did not wish to be a shareholder and asked to be removed. On that point, Mr. Rosati’s evidence was unshaken and accepted by the trial judge.
[35] The judge’s conclusions and his rejection of Mr. Menillo’s vers