Strauss et al. v. Wright, 2017 ONSC 5789 (CanLII)

Strauss et al. v. Wright, 2017 ONSC 5789 (CanLII)

By Janice Perri & Anton M. Katz

 

Facts:

In the 1970’s, the appellant, John (Jack) Wright (“Wright”), founded Anjay Limited (“Anjay”). In 2007, an estate freeze occurred whereby the Wright Family Trust was created to hold all of the common shares (and equity) of Anjay. Class A shares were created – the appellant had 6,000, his wife held 3,000 (upon her death, the appellant received a life interest in these shares), and his daughters (Jacqueline Strauss (“Jacqueline”) and Anne Urbanek (“Anne”)) held 500 each. The trustees are Jacqueline, Anne, and the appellant, while its beneficiaries are Jacqueline, Anne, their children and their family trusts. Around this time, Jacqueline and Anne became very active in Anjay. A family dispute developed which led to an oppression application that succeeded.

Issue:

1) Did the application judge err in finding that the appellant’s conduct was oppressive and that the appropriate remedy was to remove him as director and officer of the family business as a trustee of the family trust?

Holding:

The appeal was dismissed.

Reasons:

Section 248(3) of the Ontario Business Corporations Act (OBCA) gives broad discretion to the court to make any order it thinks fit.

Wright did not deny the following four facts that were the basis for the applicant judge’s decision:

1.  Wright’s actions in emptying Anjay’s bank account;
2.  Wright’s attempt to prevent Jacqueline and Anne from accessing Anjay’s bank account for company purposes;
3.  Wright’s expensive advance birthday gift from Anjay funds to his former caregiver turned wife; and
4.  Wright’s use of corporate funds for personal purposes.

Nonetheless, he argued that the application judge failed to consider his explanation for his actions or his reasonable expectations, and ought to have ordered a trial for the oppression issue.

However, the court found that the application judge made no reversible error in finding Wright’s conduct to be oppressive. For example, Wright admitted to: a) withdrawing nearly all the funds from Anjay’s corporate account, which left Anjay unable to meet its expenses for a week, and b) attempted to exclude Jacqueline and Anne from Anjay’s corporate bank account when they were responsible for Anjay’s day-to-day banking – both of which jeopardized the business of Anjay and represented a breach of his fiduciary duties. In light of this, it was concluded that Wright did not have an adequate explanation, his reasonable expectations need not be considered because there could none that grounded the breach of his fiduciary duties to the corporation in the manner he did, and thus no trial was necessary.

He claimed that Jacqueline and Anne could not have reasonably expected to take control of Anjay while he was alive because he maintained the controlling interest was rejected because the  case that Wright relied on (Naneff v. Con-Crete Holdings Ltd.) was distinguished from the facts in this case. In the former, no fiduciary duty to the company was breached while it was in the latter, which allowed the judge to further distinguish that unlike the former, there could be no reasonable expectation to remain an officer and director of the corporation in this case. Therefore, Jacqueline and Anne could reasonably expect his removal. Beyond this, given their personal issues, having the three of them work together would have been divisive, so his claim that there were less intrusive remedies available was also rejected.

Also, the application judge did not err in removing Wright as a trustee of the Wright Family Trust because he was not a beneficiary, allowing him to remain would have been divisive, and it is unclear how he would have been able to meet his fiduciary duties to the trust.

Take Away – Avoiding Oppression Litigation through the use of Shareholder Agreements:

Had there been a shareholder agreement created at the time of the estate freeze, it could have waived the availability of the oppression remedies under s. 248 – though the extent to which such a waiver would be enforceable remains an unsettled point of law.  Beyond this, a shareholder agreement could have set out clauses that would allow minority shareholders to set out restrictions on Wright’s rights and activities during his employment that were necessary to protect the legitimate interests of Anjay, and specific sanctions for non-compliance. Furthermore, a “fundamental dispute” clause provides a mechanism for a shareholder to buy out another when an irreconcilable issue that may injure the business arises. In this way, a shareholder agreement provides an avenue for stipulating remedies rather than relying on the broad discretionary power of judges to determine the most appropriate remedy, which may or may not accord with one’s sense of fairness.