NOVA SCOTIA COURT OF APPEAL Citation: Electric Ltd. v. Oickle, 2006 NSCA 41 Date: 20060405 Docket: CA 254776 Registry: Halifax Between: Electric Limited, Ross M. Bunnell and Rosemary Fraser v. Larry B. Oickle and Valorie Oickle Respondents Judges: Bateman, Freeman and Hamilton, JJ.A. Appeal Heard: January 20, 2006, in Halifax, Nova Scotia Held: Leave to appeal granted, but appeal dismissed, as per reasons for judgment of Hamilton, J.A.; Bateman and Freeman, JJ.A. concurring. Counsel: Martin C. Dumke Rubin Dexter, for the appellant Victor J. Goldberg Martha L. Mann, for the respondent Reasons for judgment: [1] This appeal involves falling out among shareholders of closely held company, Electric Limited (the “Company”), one of the appellants. Ross M. Bunnell, the other appellant, and Larry B. Oickle, the respondent, each own or claim to own about 40% of the outstanding shares. Mr. Bunnell and Rosemary Fraser, another shareholder, continue to work for the Company. Mr. Oickle no longer works for the Company. The Company sued Mr. Oickle. He filed defence and counterclaim admitting certain allegations in the statement of claim. [2] On application by Mr. Oickle, Justice Gerald R.P. Moir permitted amendment of his defence to withdraw the admissions and to add claim for an “oppression remedy” to Mr. Oickle’s counterclaim for alleged misdeeds of Mr. Bunnell. The judge also granted leave to Mr. Oickle to commence derivative action in the name of the Company for alleged misdeeds of Mr. Bunnell and Ms. Fraser. Mr. Bunnell and the Company appeal the order permitting these alterations to the pleadings. [3] For the reasons hereinafter set out, I would grant leave to appeal, but dismiss the appeal. [4] The judge sets out some facts at the beginning of his decision, reported as (2005), 2005 NSSC 110 (CanLII), 233 N.S.R. (2d) 244: [1] Larry Oickle and Ross Bunnell were in business together for many years. They founded L&B Electric Limited in 1985, split the shares equally and took positions as officers and directors. They lent money to the company and underwrote its bank debts. Oickle provided labour and skill as an electrical technician. Bunnell was the manager. [2] Apparently the business relationship continued amicably until 2002. In the meantime, Oickle’s legal relationship with the company underwent changes. Not long after incorporation, he resigned as director and he transferred his shares to Bunnell to keep the business out of Oickle’s divorce. (His statement of property in the divorce proceedings was false or misleading.) In 1994, Oickle, Bunnell and group of eleven employees entered into an arrangement under which Oickle and Bunnell took 4000 shares and 3900 shares respectively, about 80% of the shares in the company, and the remaining 20% went to eleven employees. Although he claims he attempted to do so, Oickle never regained spot on the board of directors. Instead, Bunnell and the eleven employees elected the company’s controller, Rosemary Fraser, as director and officer along with Bunnell. [3] Mr. Oickle resigned from the company in early 2003. The company claims to have discovered misconduct after Oickle left and it sued him in March 2003. The statement of claim alleges that Oickle surreptitiously competed against the company during his employment, appropriated opportunities that would have been available to the company, and misused company resources to support his competition. The plaintiff claims an accounting, damages and an injunction on account of alleged breaches of fiduciary obligations and it claims declaratory and injunctive relief to give effect to provision in the shareholders agreement by which shares are forfeited upon termination for misconduct. [4] Mr. Oickle’s former solicitor filed defence and counterclaim. The defence denies the alleged competition. It admits averments in the statement of claim underpinning the claim that Oickle owed fiduciary duties to the company that prevented him from competing with it. The defence also denies the applicability of the provision in the shareholder’s agreement respecting forfeiture upon termination for misconduct. [5] The counterclaim seeks declaration that the company is obligated to purchase Oickle’s shares under buyback provision. It also alleges that, from the beginning, Oickle and Bunnell had agreed to draw equally from the company, an agreement allegedly breached by Bunnell or the company in recent years. So, the counterclaim seeks damages to re-balance the salaries. Finally, the counterclaim alleges Bunnell used his position of administrative control to direct funds to Bunnell’s personal use and to charity of his, the South Shore Waldorf School Association, where Ms. Fraser’s son is student. The counterclaim seeks an order for an audit of affairs of the company pertinent to both the Bunnell and the Oickle allegations of misconduct. [6] Mr. Oickle’s new counsel, Mr. Goldberg, applied for orders adding Ms. Fraser as defendant, amending the defence to remove the admissions of fiduciary duty and to include certain admissions about competition and amending the counterclaim to claim additional relief including shareholder oppression remedies. Further, Mr. Oickle applied for leave to bring derivative action on behalf of the company against Bunnell and Fraser. [5] There are additional relevant facts. [6] Mr. Oickle alleges in his counterclaim that his office at the Company was taken away from him without any notice in early 1995 forcing him to work out of his truck from then on. He alleges this led him to resign in February 1995, which resignation he later withdrew. [7] As set out in of the judge’s decision quoted in above, Mr. Oickle again resigned from the Company in early 2003 and the Company sued him. After commencing its law suit, the Company applied for an interim injunction restraining Mr. Oickle from soliciting the Company’s customers or from competing with it. Mr. Oickle applied for an injunction restraining the Company from holding planned shareholder’s meeting at which it was intended that final decision would be made to terminate his employment and invoke the forfeiture provisions respecting his shares of the Company provided for in the 1994 shareholder agreement. [8] Neither application was heard because the parties reached an agreement and consent order dated April 22, 2004 was granted by Stewart, J. That order provided: 1. The Plaintiff, Electric Limited, may proceed to hold the shareholders meeting on Friday, the 28th day of March, 2003 at 3:00 o'clock in the afternoon for the purpose of making final decision to permanently terminate the employment of the Defendant, Larry B. Oickle, and to invoke the token buy‑back share value of 1.00, as per the terms of paragraph 5.03 of the Shareholder Agreement dated the 3rd day of June, 1994. 2. The Defendant, Larry B. Oickle, hereby waives any notice requirement, formal or otherwise, of the said shareholders meeting. 3. The provisions of paragraph 5.03 of the said Shareholder Agreement: "The date of surrender of shares and payout of TOKEN BUY BACK VALUE shall be within 30 days of employment termination." shall be suspended pending the outcome of the within proceeding and the said thirty days shall commence to run only after the determination by this Honourable Court as to whether the Plaintiff, Electric Limited, had the right to terminate the employment of the Defendant, Larry B. Oickle, pursuant to paragraph 5.03 of the said Shareholder Agreement. 4. All other provisions of paragraph 5.03 shall remain in full force and effect and without restricting the generality of the foregoing, the rights of the Defendant, Larry B. Oickle, as shareholder of the Plaintiff, Electric Limited, are hereby suspended, save that the Defendant, Larry B. Oickle, shall be entitled to copies of any and all offers, if any, to purchase the Plaintiff, Electric Limited. 5. Until further order of this Honourable Court, the Plaintiff, Electric Limited, shall continue to operate in its usual and ordinary course. [9] As set out previously, Mr. Oickle subsequently retained new counsel in August of 2004. This was necessitated as result of his former lawyer’s suspension from the practice of law by the Nova Scotia Barristers’ Society. During discovery of Mr. Bunnell in November of 2004, Mr. Oickle’s new counsel sought an adjournment to allow him to bring the application that gave rise to the order under appeal. [10] Later in November of 2004, Mr. Oickle gave to the Company’s directors, Mr. Bunnell and Ms. Fraser, the notice required by s. 4(2)(a) of the Third Schedule to the Companies Act, R.S.N.S. 1989, c.81, indicating that if they did not cause the Company to commence law suit against themselves for alleged wrongdoings, that he intended to apply to the court for leave to commence derivative action in the name of the Company for this purpose. [11] As result of this notice the shareholders of the Company, other than Mr. Oickle, met on November 28, 2004 and unanimously passed resolution rejecting the suggestion that the Company commence law suit against Mr. Bunnell and Ms. Fraser. Mr. Bunnell and Ms. Fraser were present at the meeting but abstained from voting. At the same meeting the shareholders appointed Carolyn Selig, another shareholder and employee, as third director of the Company. [12] On learning of this resolution, Mr. Oickle made the application that gives rise to this appeal. Standard of Review [13] The standard of review on an appeal such as this is well settled: this court will not interfere with the discretionary interlocutory decision of the judge unless wrong principles of law have been applied or patent injustice would result, Minkoff v. Poole and Lambert (1991), 1991 CanLII 2516 (NS CA), 101 N.S.R. (2d) 143 (N.S.C.A.) at p. 145. An appeal from discretionary order is not an occasion that permits this court to re-weigh the various relevant considerations and exercise its discretion in place of that of the judge of first instance. Cluett v. Metro Computerized Bookkeeping Ltd. (2005), 2005 NSCA 84 (CanLII), 233 N.S.R. (2d) 237 at 2. [14] The four grounds of appeal raised by the appellants are that the judge erred in: (1) permitting Mr. Oickle to amend his defence to withdraw certain admissions he made in his defence; (2) permitting Mr. Oickle to amend his counterclaim to include claim for an “oppression remedy” pursuant to s. of the Third Schedule to the Companies Act; (3) granting Mr. Oickle leave to commence derivative action for and on behalf of the Company against Mr. Bunnell and Ms. Fraser pursuant to s. of the Third Schedule; and (4) imposing the terms he did on the derivative action, specifically the retention by Mr. Oickle of an accountant at the Company’s expense and requiring disclosure to the accountant. Withdrawal of Admissions [15] The first ground of appeal is that the judge erred in allowing Mr. Oickle to amend his defence to withdraw certain admissions he made. [16] In 4, and of the Company’s statement of claim, which paragraphs are set out in 13 of the judge’s decision, the Company described the type of work performed by Mr. Oickle for the Company over the years, alleged that an implied term of his employment contract was that he owed duty of good faith and fidelity to the Company and that he was senior and/or key employee of the Company who owed fiduciary duties to the Company. [17] These were the allegations Mr. Oickle admitted in his defence and later sought to withdraw. [18] In granting Mr. Oickle’s application, the judge stated: [18] Mr. Goldberg offers simple reason for withdrawing the admissions and making the other amendments in this case. new solicitor is seeing the defendants' case with different eyes. Mr. and Ms. Oickle cannot be represented by the counsel of their choice. The Barristers' Society has suspended him. Out of necessity, the Oickles have retained new counsel who clearly has different conception of their case. He is dropping cause of action in defamation. He is turning to legislated causes in commercial law. And, he has different assessment of the place Mr. Oickle truly occupied in relation to the company. The affidavits show that there may be real difficulties characterizing Mr. Oickle's legal relation to the company. The paragraphs at issue in the statement of claim allege duties and responsibilities of employment (para. 4), an implied term for good faith and fidelity (para. 5), and fiduciary duties (para. 6). The same lawyer could easily come to different conclusions on the accuracy of these averments as the lawyer becomes more aware of the evidence. Different lawyers could easily come to different conclusions on the same instructions. [19] In the circumstances of this case, new counsel\'s need to defend according to counsel\'s assessment of the facts is a strong reason for concluding that it would be unjust to hold the defendants to the admissions in the defence drawn by former counsel. There are no equities weighing significantly against the justice of the defendants' request. There was no agreement or undertaking. see no detrimental reliance, no estoppel. If counsel's efforts are lost or need to be duplicated for the plaintiff, the Court can adjust when costs are determined. am prepared to exercise my discretion in favour of the defendants request. (Emphasis added) [19] In their factum the appellants reviewed two lines of authorities specifying the test to be applied by court faced with an application to allow the withdrawal of admissions: the cases such as Phil Whittaker Logging Ltd. v. British Columbia Hydro and Power Authority, [1985] B.C.J. No. 2736 (B.C.S.C.) and Antipas v. Coroneos, [1988] O.J. No. 137 (Ont. H.C.J.) and the cases such as Abacus Cities Ltd. v. Port Moody, 1981 CanLII 402 (BC CA), [1981] B.C.J. No. 1668 (CA) and Norlympia Seafoods Ltd. v. Dale and Co. Ltd. (1982), 1982 CanLII 491 (BC CA), 141 D.L.R. (3d) 733 (B.C.C.A.). They noted that in the present case the judge applied what they state is the less restrictive test approved in Abacus, supra: “...a judicial admission should be allowed to be withdrawn if, in the circumstances, the court is satisfied that it is in the interest of justice to withdraw same.” [20] They also noted that the judge chose that test because he determined that it best fit the words used in Civil Procedure Rule 21.02(4): (4) The court may at any time allow any party to withdraw any admission or denial upon such terms as are just. [21] The appellants do not say the judge applied the wrong test but that the only difference between the two lines of cases is one of semantics not substance, relying on Tymkin v. Winnipeg (City) Police Service, [2003] M.J. No. 284, 20. Instead, they take issue with the result reached by the judge. [22] In light of the appellants’ position, have assumed without deciding, that the judge did not err in the test he applied when he determined that Mr. Oickle should be permitted to withdraw his admissions. [23] What the appellants did argue was that the judge erred by making his decision in the absence of evidence indicating that it was just to do so. They argued there was no evidence before the judge that there was triable issue disclosed in 4, 5, and of the statement of claim. They argued the judge allowed these admissions to be withdrawn solely on the basis there was change of counsel, and that this was an error of law. [24] am satisfied there was evidence before the judge on which he could conclude that it was just to grant the amendment and that there was triable issue with respect to the allegations in 4, and of the statement of claim. The judge concluded there was triable issue in 18 of his decision which is quoted at 18 above: “The affidavits show that there may be real difficulties in characterizing Mr. Oickle’s legal relation to the company.” [25] The judge had before him the affidavits of Mr. Oickle, Ms. Selig and Ms. Fraser. Each affiant was cross-examined before him over the course of nearly full day. The affidavits could be interpreted as disclosing that the nature of Mr. Oickle’s position within the Company was uncertain. Ms. Selig’s affidavit refers to Mr. Oickle’s resignation from the Company in early 1995, the resignation Mr. Oickle alleges occurred after his office at the Company was taken away from him without notice, forcing him to work out of his truck from then on. The affidavits could be taken to further suggest that there was refocusing of the Company to service industrial accounts at the instance of Mr. Bunnell. In she states: “Oickle consistently fought against such move.” An inference that could be drawn from the Selig affidavit is that Mr. Bunnell and Ms. Fraser took control of the refocused Company leaving Mr. Oickle behind. [26] Ms. Fraser indicates in 3. h. of her affidavit that she refused to comply with directions given to her by Mr. Oickle. Mr. Oickle’s affidavit refers to the alleged control Mr. Bunnell and Ms. Fraser had over the Company and its money, to his exclusion. Thus there was evidence before the judge from which he could conclude that there was triable issue raised by 4, and of the statement of claim and, therefore, that it was just to grant the amendment sought. [27] In addition to the affidavit evidence before him, the judge had the pleadings which revealed the fundamental nature of Mr. Oickle’s admissions. From this material the judge was aware of the alleged discord among the parties over long period of time causing him to draw an analogy between disputes of this kind among shareholders of closely held company and the acrimony which often accompanies divorce. For example, Mr. Oickle alleged that in 1986 Mr. Bunnell had encouraged him to transfer his shares of the Company to Mr. Bunnell and to resign as director until his divorce was concluded. Mr. Oickle described his unsuccessful attempts to regain his shares and directorship following the conclusion of his divorce, finally obtaining shares in 1994 but never being reinstated as director. [28] The judge was aware that Mr. Oickle was forced to obtain new counsel through no fault of his own after his defence was filed. He knew that it was during the discovery of Mr. Bunnell that Mr. Oickle’s new counsel decided to seek the amendment. The judge was aware that all of the requested amendments to the defence and counterclaim, which included the deletion of Mr. Oickle’s original claim for defamation, indicated significant change in focus for Mr. Oickle. He knew the action was in its early stages and that Mr. Oickle had not been discovered. He knew there was no agreement between counsel and no undertaking regarding the admissions that could give rise to promissory estoppel as it had in Wilson v. Sears Canada Inc. (1990), 1990 CanLII 2446 (NS CA), 96 N.S.R. (2d) 361 (C.A.). He knew any prejudice to the appellants in the form of lost counsel’s efforts could be compensated for in costs. [29] With this information before him am satisfied the judge did not apply wrong principle or make an unjust order in allowing Mr. Oickle to amend his defence to withdraw his admissions. It was not error for the judge to take into account the significant role that Mr. Oickle’s forced change of counsel had played in refocusing his defence. Rule 21.02(4) permits the withdrawal of admissions at any time. It is broad enough to allow judge to weigh the competing policies of the right of party to have triable issue tried with the need for expedient and responsible litigation, in determining what is just. Oppression Remedy [30] The appellants’ second ground of appeal is that the judge erred in permitting Mr. Oickle to amend his counterclaim to include claim for an “oppression remedy” pursuant to s. of the Third Schedule to the Companies Act. [31] Section of the Third Schedule permits “complainant” to seek redress in court for oppressive or unfairly prejudicial conduct or for conduct that unfairly disregards certain interests: (1) complainant may apply to the court for an order under this Section. (2) If, upon an application under subsection (1) of this Section, the court is satisfied that in respect of company or any of its affiliates (a) any act or omission of the company or any of its affiliates effects result; (b) the business or affairs of the company or any of its affiliates are or have been carried on or conducted in manner; or (c) the powers of the directors of the company or any of its affiliates are or have been exercised in manner, that it 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. (Emphasis added) [32] Section 7(5)(b) of the Third Schedule defines the word “complainant”: (b) “complainant” means (i) registered holder or beneficial owner, and former registered holder or beneficial owner, of security of company or any of its affiliates, (ii) director or an officer or former director or officer of company or of any of its affiliates, (iii) the Registrar, or (iv) any other person who, in the discretion of the court, is proper person to make an application under this Section. (Emphasis added) [33] The appellants argued that the judge erred in exercising his discretion in favour of finding that Mr. Oickle was “complainant” under s. 7(5)(b) of the Third Schedule, and hence under s. 5(1), because he (1) misinterpreted the effect of the April 22, 2004 consent order, referred to in above, on Mr. Oickle’s rights as former shareholder, (2) failed to give proper weight to the lack of temporal connection between the time over which Mr. Oickle owned shares of the Company and the impugned acts of oppression, and (3) failed to consider whether Mr. Oickle had “significant interest” in the impugned acts. [34] After considering the effect of the consent order, the judge determined Mr. Oickle was “complainant” within s. 5(1) on the basis that he was former shareholder of the Company: [23] Mr. Oickle's present status as shareholder of L&B is clouded by both the dispute concerning the treatment of his shares and by the consent order suspending his rights as shareholder. However, his past status is clear. Clearly, he was shareholder of L&B. Indeed, he held the most shares. Whether he can presently assert rights as shareholder, he is plainly within the words "a former registered holder or beneficial owner, of security". His ownership of shares was contemporaneous with the events about which he complains. Therefore, he is within the definition of "complainant" and has status to apply for an oppression remedy. (Emphasis added) [35] The appellants admitted that Mr. Oickle was “former registered holder” of shares of the Company but they argued that the provisions of the consent order suspended any rights he had in that capacity, taking him outside the legislated meaning of “complainant.” [36] Clause 4. of the consent order states: All other provisions of paragraph 5.03 shall remain in full force and effect and without restricting the generality of the foregoing, the rights of the Defendant, Larry B. Oickle, as shareholder of the Plaintiff, L&B Electric Limited, are hereby suspended, save that the Defendant, Larry B. Oickle, shall be entitled to copies of any and all offers, if any, to purchase the Plaintiff, L&B Electric Limited. (Emphasis added) [37] The appellants have not satisfied me that the judge erred in rejecting this argument. The words used in clause of the order are that Mr. Oickle’s rights as shareholder “are hereby suspended.” A reasonable interpretation of these words is that which was given to them by the judge: that Mr. Oickle’s rights as an existing shareholder were suspended by the consent order, and not his rights as a former shareholder. In other words, that the order spoke prospectively not retroactively. Had the parties intended to provide for retroactive suspension, such should have been stated. [38] The appellants stated in their factum that Mr. Oickle was only shareholder from October 1985 to July 1986. Therefore, they say, there was no temporal connection between Mr. Oickle’s shareholding and the impugned acts of oppression. They relied on Jacobs Farms Ltd. v. Jacobs, [1992] O.J. No. 813 (Ont. Ct. Gen. Div.) (Q.L.) to support their argument that there must be temporal connection between the impugned acts and the time during which Mr. Oickle owned shares of the Company. [39] In Jacobs Farms, supra, the court refused to grant leave to former shareholders to bring derivative action where the corporate actions complained of took place after they ceased to be shareholders and where the value of the shares was not affected by the impugned acts: Frans Jacobs is former shareholder and former director of Jacobs Farms Limited. On the surface, then, he would appear to qualify as complainant. It could not have been the intention of the Legislature, however, to clothe every former shareholder and every former director with the status of complainant for purposes of bringing derivative action. Such an interpretation could lead to absurd situations. There must be some parameters within which the concepts of "former" shareholder and "former" director are confined. Those parameters can reasonably be drawn by requiring some connection between the timing of the events which are the subject matter of the proposed derivative action and the position of the applicant as shareholder or director. (Emphasis added) [40] While Jacobs Farms, supra, dealt with the question of who was “complainant” under s. 245(b) the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 in the context of derivative action, rather than who was “complainant” with respect to an “oppression remedy,” the issue in this ground of appeal, the case is relevant because s. 7(5)(b) of the Third Schedule defines “complainant” for both purposes and the definition of “complainant” in the Ontario Act is similar to that in the Companies Act. It is only “complainant” within the meaning of s. 7(5)(b) who can claim an “oppression remedy” pursuant to s. or seek the leave of the court to bring derivative action in the name of company pursuant to s. 4. Therefore similar considerations apply. [41] see no merit to the “temporal connection” argument of the appellants. Paragraph 23 of the judge’s decision, quoted in 34 above, makes it clear he considered this issue: “Mr. Oickle’s ownership of shares was contemporaneous with the events about which he complains.” The evidence before the judge could reasonably support the position that Mr. Oickle was registered shareholder from 1985 to 1986 before his divorce arose and that he was beneficial shareholder from 1986 to 1994. There is also no dispute he became registered shareholder again in 1994 and continued to hold shares of the Company until at least 2003. The alleged oppressive actions Mr. Oickle complains of took place during this time when he was shareholder. Therefore there is a temporal connection. [42] also see no merit to the appellants’ “sufficient interest” argument. They rely on the case of Michalak v. Biotech Electronics Ltd., [1986] Q.J. No. 1882 (Q.S.C.(C.D.)) for this argument. [43] In Michalak, supra, the court refused to order an investigation pursuant to s. 222 of the Canada Business Corporations Act, S.C., 1974-76-76, c. 33, into alleged oppressive actions by the company’s management which was sought by former shareholders who felt they had been earlier induced to sell their shares of the company by fraudulent misrepresentations of management. The definition of “complainant” in s. 231 of the CBCA, similar to s. 7(5)(b) of the Third Schedule, was relevant to the issue before the court. In obiter the court stated that in addition to being former shareholder, an applicant must have sufficient interest to justify allowing them to take certain steps under the CBCA: 22 Quite apart from the foregoing there is further test which the application must meet and that is the test of the interest of the applicants to initiate these proceedings. Quite apart from the fact that the applicants, as former shareholders, may enjoy statutory right to bring these proceedings that right, in my respectful view, does not automatically invest them with sufficient interest. Again if that interest does not appear from the face of the proceedings to be viable one then motion to dismiss will lie. (Emphasis added) [44] The “sufficient interest rule” was restated in Schafer v. International Capital Corp., (1996) 1996 CanLII 6845 (SK QB), 153 Sask. R. 241 at 22; Such rule is required to distinguish between applicants who have bona fide potential financial stake through the corporation in the outcome of the derivative action and applicants who seek leave for an improper purpose. [45] Once again, the evidence before the judge could reasonably support the conclusion that Mr. Oickle has sufficient interest in his claim for an “oppression remedy.” Unlike the situation in Jacobs Farms, the oppressive conduct alleged by Mr. Oickle could materially impact the value of his shares. It could also affect his position as current creditor of the Company and as guarantor of the Company’s line of credit to its bank. If the actions of Mr. Bunnell for instance, are found to come within the paragraph of the shareholder agreement giving rise to forfeiture of his shares, the value of the other shares of the Company including those of Mr. Oickle will rise significantly. [46] It should also be remembered that s. of the Third Schedule does not require leave of the court to commence claim for an “oppression remedy.” If the judge had refused to permit the amendment, Mr. Oickle could have commenced separate action. Therefore, as the judge noted in his decision, in essence the matter before him was one of consolidation of actions: [24] Mr. Oickle needs no assistance to apply for an oppression remedy. He could bring separate proceedings. Because the statute so provides, they would have to be started by way of application rather than action. In effect, Mr. Oickle is, by the present application, applying for consolidation and for trial of the oppression issue. The application is well within the principles for consolidation and for amendment of pleadings. [47] am satisfied the judge did not apply wrong principle or make an unjust prder in permitting Mr. Oickle to amend his counterclaim to include claim for an “oppression remedy.” Derivative Action [48] The appellants third ground of appeal is that the judge erred in granting Mr. Oickle leave to commence derivative action for and on behalf of the Company against Mr. Bunnell and Ms. Fraser pursuant to s. of the Third Schedule. [49] Mr. Oickle sought to commence derivative action to address his allegations that Mr. Bunnell and Ms. Fraser, as the only directors of the Company with unfettered control over the Company’s money, used the Company’s money for purposes other than the benefit of its stakeholders; that they used it as their “personal piggy bank.” The judge described the nature of the proposed derivative action: [29] The facts underpinning the cause would involve those asserted in Mr. Oickle’s personal claim against Mr. Bunnell. In summary: the officers permitted Mr. Bunnell to draw funds from the company for personal use (Defence and Counterclaim para.16), they cause the company to pay his personal expenses to be repaid at his discretion (para.16), they failed to account for revenue or expenses in division of the company (para.17), and they allowed the company to cover cash transactions of Mr. Bunnell without particulars (para.18). [50] The statutory authority to bring an action in the name of and on behalf of company is found in s. of the Third Schedule: (1) Subject to subsection (2) of this Section, complainant may apply to the court for leave to bring an action in the name and on behalf of the company or any of its subsidiaries, or intervene in an action to which any such body corporate is party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the body corporate. (2) No action may be brought and no intervention in an action may be made under subsection (1) of this Section unless the court is satisfied that (a) the complainant has given reasonable notice to the directors of the company or its subsidiary of his intention to apply to the court under subsection (1) of this Section if the directors of the company or its subsidiary do not bring, diligently prosecute or defend or discontinue the action; (b) the complainant is acting in good faith; and (c) it appears to be in the interests of the company or its subsidiary that the action be brought, prosecuted, defended or discontinued. (Emphasis added) [51] As stated in 40 above, it is only “complainant” as defined in s. 7(5)(b) of the Third Schedule who can seek the leave of the court to commence derivative action under s. and who can claim an “oppression remedy” under s. 5. have already dealt with the appellants’ status as “complainant” when dealt with the second ground of appeal. will not repeat it here. Suffice it to say that am not satisfied the judge erred in finding Mr. Oickle was “complainant” within s. 7(5)(b) of the Third Schedule for the purpose of commencing derivative action. [52] The appellants agreed Mr. Oickle met the first criterion in s. 4(2)(a) of the Third Schedule of giving reasonable notice to the Company’s directors. They argued however that the judge erred in his determination that Mr. Oickle met the second criterion of “good faith” in s. 4(2)(b) and the third criterion of being in “the interests of the company” in s. 4(2)(c). [53] will deal first with their argument relating to good faith. The judge found that the “onus”on Mr. Oickle to prove that he was acting in good faith was to satisfy the court by preponderance of evidence, not some higher burden: [52] In my respectful opinion, it is not appropriate to require the applicant to meet burden that is any higher than what the statute provides. The statute provides “No action may be brought under subsection (1) unless the court is satisfied that. (b) the complainant is acting in good faith”. This text is consistent with the ordinary rules on onus and burden. The proponent bears the onus of satisfying the Court. The Court will be satisfied by preponderance of evidence. have already discussed the history of this legislation towards ascertaining its purposes and scheme (see para. 34 to 42 above). With great respect for the contrary view expressed by Puddester, J. in Tremblett, the history, purposes and scheme of this legislation do not support the imposition of higher burden than the statutory text provides. Particularly, there is no indication of Parliamentary or Legislative intent to restrict access to the derivative action out of deference to the principles of indoor management or majority rule. [54] The appellants have not argued that the judge erred in applying the ordinary burden. Accordingly, for the purposes of this appeal have assumed, without deciding, that this is the correct burden. [55] The appellants argue, however, that the judge erred in finding that Mr. Oickle was acting in good faith when, they say, there was no evidence before him that could support such conclusion. They argued the only evidence before the judge supported finding that he was not acting in good faith. [56] The judge considered whether Mr. Oickle was acting in good faith: [53] Mr. Dexter's submission emphasises Mr. Oickle's position as defendant in the initial suit. He says that the allegations against Mr. Oickle are such that putting him in charge of litigation on behalf of the company against directors would be like putting fox in charge of the hen house. Self‑interest does not exclude finding of good faith: Richardson Greenshields of Canada v. Kalmacoff (1995), 1995 CanLII 1739 (ON CA), 123 D.L.R. (4th) 628 (ONCA) at p. 638. must consider all of the circumstances, including that the proposal to bring this suit follows upon the proponent having been sued for his alleged wrongdoing towards the company. [54] We have here breakdown of business relationship in closely held corporation. This is where commercial litigation most resembles contested divorce actions. The required findings are so circumstantial and the circumstances are spread over such long time that the disputes need trial to settle the facts. That is one indication that the disputes should be treated as bona fide. [55] have already found that there is enough substance to Mr. Oickle's allegations that suit is in the interests of the corporation. That there appears to be substance to the claims is factor going to good faith. [56] We have allegations of wrongdoing coming out of broken business relationship that had been almost equal. There is apparent substance to the allegations going both ways. That being so, it is unfair that the resources of the company should back one side and not the other. The fairness of having the company's substantial resources made neutral by being made equally supportive is another factor underlying my finding that the proposal for derivative action is made in good faith. (Emphasis added) [57] The judge’s statement in 55 of his decision quoted above in 55 above, that there appears to be substance to Mr. Oickle’s claims, refers to an earlier paragraph in his decision: [47] Mr. Oickle has presented evidence which, if accepted, could reasonably lead to the conclusion that Mr. Bunnell’s salary has been substantially overpaid. The evidence of Ms. Fraser and Ms. Selig is not so compelling that the claim fails to raise genuine issue for trial. On the contrary, if there was shareholders agreement limiting Mr. Bunnell’s salary, the evidence of Ms. Fraser and Ms. Selig might not undermine that agreement even if their evidence is accepted. Mr. Oickle has also presented evidence of unusual transactions that were to Mr. Bunnell’s benefit or that of his charity and at the company’s expense. Evidence of the kind offered by Ms. Fraser and Ms. Selig might show that these transactions were usual to the company and were authorized, albeit in casual way. However, am in no position to say that evidence will be accepted or, if accepted, will lead to finding that the expenditures were legal. am satisfied that the evidence presented by Mr. Oickle, coupled with that offered in reply and on cross-examination, shows that the company has claims that could reasonably be presented and would require trial to resolve. (Emphasis added) [58] The appellants say the evidence conclusively pointed to lack of good faith on Mr. Oickle’s part: He was in competition with the Company; he only wanted money from the Company for his shares and to equalize payments made to Mr. Bunnell and not the opportunity to run the Company himself (which allegation is denied by Mr. Oickle’s counsel); his application was made too late because he knew when he filed his defence and counterclaim that Mr. Bunnell had received more money from the Company than he had; the allegations he made in his proposed derivative action were the same allegations he made in his counterclaim; the relief sought in the derivative action of getting rid of the present management of the Company would “decapitate” it and he brought his application only after he was sued by the Company. [59] As set out by D. H. Peterson, Shareholder Remedies in Canada (Markham, ON: LexisNexis, 1989) at p. 17.22 “good faith” is question of fact: §17.39 Good faith is said to exist where there is prima facie evidence that the applicant is acting with proper motives, such as reasonable belief in its claim, and is ultimately question of fact to be determined on all of the evidence and the particular circumstances of the case. [60] This principle is restated in Winfield v. Daniel (2004), 2004 ABQB 40 (CanLII), 352 A.R. 82: 16 Section 240(2)(b) of the Act requires that the Court be satisfied that the complainant is acting in good faith. Good faith is said to exist where there is prima facie evidence that the complainant is acting with proper motives such as reasonable belief in the merits of the claim. Good faith is question of fact to be determined on the facts of each case. The typical approach by the Courts is not to attempt to define good faith but rather to analyse each set of facts for the existence of bad faith on the part of the applicant. If bad faith is found, then the requirement of good faith has not been met: D.H. Peterson, Shareholder Remedies in Canada, (Markham, ON: LexisNexis, 1989) at 17.39. [61] The determination as to whether Mr. Oickle was acting in good faith was for the judge as the trier of fact. He made his determination after reviewing the pleadings and the affidavits and after hearing the cross-examination and submissions. In 30 of his decision he commented on his advantage in hearing cross-examination of the affiants. This court will not interfere with finding of fact unless there is palpable and overriding error. Housen Nickolasen, 2002 SCC 33 (CanLII), [2002] S.C.R. 235. [62] In reaching his decision the judge considered relevant factors. There was evidence before him from which he could conclude that Mr. Oickle was acting in good faith. The appellants have not satisfied me that this finding by the judge was palpable and overriding error. [63] The judge took into consideration that Mr. Oickle had been sued by the Company. He stated in the last sentence in 53 of his decision quoted above in 55 above; “I must consider all of the circumstances, including that the proposal to bring this suit follows upon the proponent having been sued for his alleged wrongdoing towards the company.” He also considered that Mr. Oickle had self-interest in bringing the derivative action, but found this did not exclude finding of good faith. This position is supported by Title (Estate) v. Harris (1990), 1990 CanLII 6784 (ON SC), 67 D.L.R. (4th) 619 (Ont. H.C.J.); Winfield v. Daniel, supra, 20; and Schafer v. International Capital Corp. (1996), 1996 CanLII 6845 (SK QB), 153 Sask. R. 241 at 32. [64] The judge considered whether there was genuine issue for trial in the derivative action and whether the proposed action was frivolous or vexatious. These are relevant factors in assessing the issue of good faith, Winfield v. Daniel, supra, at 17 and 27; and Re Marc-Jay Investments Inc. and Levy (1974), 1974 CanLII 786 (ON SC), 50 D.L.R. (3d) 45 (Ont. H.C.). In 47 of his decision quoted in 56 above, the judge reviewed the evidence that led him to conclude that there was genuine issue for trial. There is nothing unjust about the judge’s determination on the facts of this case that the Company’s resources should be equally supportive of both parties. [65] The fact some of the claims in the derivative action are the same as those in Mr. Oickle’s counterclaim is not determinative of bad faith, Winfield, supra, 20. While the claims are similar, the remedies sought in the derivative action are different from those sought in the counterclaim. The derivative action seeks declaration that Mr. Bunnell’s and Ms. Fraser’s employment with the Company be terminated for cause and that the termination fell within the section of the shareholders’ agreement that would cause the forfeiture of their shares of the Company. It seeks mandatory injunction requiring Mr. Bunnell and Ms. Fraser to sell their respective shares to the Company for $1.00 in accordance with the forfeiture provisions of the shareholders’ agreement. It seeks permanent injunction restraining Mr. Bunnell and Ms. Fraser from further participation in the affairs of the Company. These remedies were not available to Mr. Oickle in his personal action. [66] In addition, the only avenue available to Mr. Oickle to pursue remedies against Ms. Fraser was through the derivative action because the judge found, and his finding was not appealed, that the rule is Foss v. Harbottle, (1843), Hare 461, 67 E.R. 1989 (Ch.) prevented Mr. Oickle from adding Ms. Fraser as party to his counterclaim as he had sought to do: [10] The facts alleged by Mr. Oickle do not support any cause of action he personally may have against Ms. Fraser personally. [11] The law articulated in Foss v. Harbottle, (1843), Hare 461, 67 E.R. 1989 (Ch.) was under severe criticism by the mid‑twentieth century. Professor Dickerson referred to it as “that infamous doctrine” in Canada, Proposals for New Business Corporations Law for Canada by Robert W. V. Dickerson, John L. Howard and Leon Getz, vol. (Ottawa: Information Canada, 1971) at p. 161. Professor Gower himself wrote of “The major absurdity of the Foss v. Harbottle rule” in L.C.B. Gower, The Principles of Modern Company Law, 3rd ed. (London: Stevens Sons, 1969) at p. 582. However, the problem was not with the basic law in Foss v. Harbottle. The problem was with the lengths to which the courts, including the court in Foss v. Harbottle itself, had gone in making formalized and categorical rules that were supposed to give effect to the basic law in Foss v. Harbottle. The basic law was that shareholder cannot sue for diminished value of shares or for any other recovery on account of wrong done to the corporation. Any suit is to be brought by the corporation “or in the name of someone whom the law has appointed to be its representative” (Foss v. Harbottle at p. 490 in the Hare report or at p. 202 in the English Reports). That element of the common law was re‑affirmed by the Supreme Court of Canada at the very time that legislative reform was coming to Canada: Burrows and others v. Becker and others (1968), 1968 CanLII 57 (SCC), 70 D.L.R. (2d) 433 (SCC), p. 441. And, it remains sound to this day as long as one allows for the modification brought about by legislation creating derivate actions. “[I]ndividual shareholders have no cause of action for any wrongs done to the corporation and...if an action is to be brought in respect of such losses, it must be brought either by the corporation itself (through management) or by way of derivative action.”: Hercules Management Ltd. and others v. Ernst Young and others (1997), 1997 CanLII 345 (SCC), 146 D.L.R. (4th) 577 (SCC), para. 59. [12] The claims against Ms. Fraser allege wrongs she is said to have done to the company. Not one of these allegations involves “a wrong done to shareholder qua shareholder” in the meaning of Hercules Managements at para. 62. The claims allege wrongs done to the corporation which could only affect Mr. Oickle through the value of his shares. Consequently, decline to join Ms. Fraser as defendant in the existing litigation. [67] Accordingly, the appellants have not satisfied me that the judge erred in finding Mr. Oickle had met the second criterion in s. 4(2)(c) of acting in good faith. [68] will now deal with the appellants’ last argument with respect to the third ground of appeal, that the judge erred in determining that Mr. Oickle met the third criterion in s. 4(2)(c) of the Third Schedule, that the action “appears to be in the interests of the company.” [69] The appellants argued that the judge erred by applying the wrong test when he considered whether the derivative action appeared to be in the interests of the Company, by refusing to apply the presumption set out in Schafer, supra: [25] In determining this issue the "Canadian version" of the sound business judgment rule applies. The rule is in effect presumption that if the directors of the corporation make an informed decision that the disadvantages outweigh the advantages of commencing the action, then this is what is in the best interests of the corporation. The decision to commence or not to commence an action is like any other business decision that is ordinarily matter of internal management to be left to the discretion of the directors absent instruction from the shareholders. Courts seldom interfere with such intra vires discretion unless the directors are guilty of misconduct equivalent to breach of trust, or unless they stand in dual relation which prevents an unprejudiced exercise of judgment. If there is misconduct or dual relation then the presumption that the decision of the directors is in the best interests of the corporation will not apply. (Emphasis added) [70] It is clear the judge rejected the presumption approved in Schafer, supra, based on the wording of s. 4(2)(c) and the history of derivative actions in Canada. The judge determined that the history of this type of action in Canada was unique so that the approach of English and American courts to applications to commence derivative actions was not helpful in Canada. (See 33 to 41 of his decision). He set out his conclusion on this point in 42: [42] In my assessment, the broad purpose of s. is to allow minority shareholders to enforce rights of their corporations when management will not do so. There is no purposive reason to read the restraints in s. more restrictively than the text plainly provides. In my assessment, the scheme underlying s. involves the private use of civil remedies to enforce duties, as the alternative to public regulation. Again, this suggests there is no disharmony between the scheme and the plain text. Therefore, respectfully reject the reasoning in Schafer. There is no presumption in favour of the directors' opinion. Mr. Oickle bears the onus of satisfying the Court that he is acting in good faith and his proposed suit on behalf of the corporation appears to be in the interests of the corporation. Nothing less, but nothing more. [71] Despite his rejection of the Schafer presumption it is clear that his decision would have been the same had he applied it. This is so because the presumption referred to in Schafer, supra does not apply if the directors are partial, as suggested in the last sentence in 25 of Schaffer, supra quoted in 68 above and further explained in 28 of Schafer, supra: [28] The court went on at p. 134 to review whether the directors were impartial or independent to enable them to have reasonably concluded that the disadvantages to the company outweighed the advantages. The court held that the Chambers judge could have found that at the time the directors determined not to sue, they stood in dual relation which prevented them from exercising an unprejudiced judgment. [72] The basis of the judge’s decision not to defer to the directors and shareholders views of whether the action was in the interests of the Company, as disclosed by their rejection of Mr. Oickle’s request that they cause the Company to commence an action against Mr. Bunnell and Ms. Fraser, was that he found the directors and shareholders were partial: [43] The views of the directors are not of assistance in this case. None of them are impartial. Two of the three are the proposed defendants. As in Bellman v. Western Approaches Ltd., the recently appointed independent director is not impartial. As with all the other shareholders, she has sided with management's position that Mr. Oickle's shares have been forfeited on account of Mr. Oickle's wrongdoing. She has substantial interest in the outcome of that claim, as do all the shareholders. [45] Having chosen one claim it is not possible for Ms. Selig or any of her allied shareholders to be impartial. Therefore, am giving little weight to the opinions of the directors or the other shareholders. [73] The judge made his decision not to defer to the views of the directors and shareholders on the basis they were not impartial. The presumption referred to in Schafer, supra, does not apply where the directors are not impartial. Therefore, it is not necessary for me to consider if the judge’s decision not to apply the presumption set out in Schafer, supra, was an error unless am satisfied he erred in his conclusion that the directors and shareholders were not impartial. [74] In coming to his conclusion that the directors and shareholders were not impartial, the judge was entitled to draw inferences from the affidavits and cross-examination before him. The tenor of the pleadings and the affidavits and cross-examination of Ms. Selig and Ms. Fraser provided evidence to the judge on which he could infer that they were partial to Mr. Bunnell and opposed to Mr. Oickle. The November 28, 2004 shareholders’ resolution may suggest no other shareholder was willing to challenge Ms. Fraser and Mr. Bunnell, perhaps for fear of losing their jobs. Ms. Selig deposed that the derivative action would “decapitate” the Company. On cross-examination she testified that if Mr. Bunnell was fired (relief that was sought in the derivative action) the Company would not continue and her livelihood would be lost. The reliance of the directors and shareholders, other than Mr. Oickle, on Mr. Bunnell may have prevented them from acting impartially in determining if the derivative would be in the interests of the Company. None of the shareholders, including Ms. Selig, had independent legal advice. The foregoing was evidence upon which the judge could conclude the directors and shareholders were partial. [75] Accordingly, am satisfied that the judge did not commit reviewable error in concluding that they were not impartial. [76] After determining that the shareholders and directors were not impartial, the judge went on to consider whether there was an arguable issue raised by the proposed derivative action and what the amount at issue was, in order to determine whether it was in the interests of the Company to allow Mr. Oickle to commence derivative action. He concluded: [46] Whether the proposed suit will succeed is relevant to whether it is in the interests of the company. The onus is not “particularly heavy”: Henry v. 609897 Saskatchewan Ltd. (2002), 2002 SKQB 491 (CanLII), 31 B.L.R (3d) 36 (SQB) at para. 20. According to the Ontario Court of Appeal in Richardson Greenshields of Canada Ltd. v. Kalmacoff (1995), 1995 CanLII 1739 (ON CA), 123 D.L.R. (4th) 628 (OCA) at p. 636: “The court is not called upon at the leave stage to determine questions of credibility or to resolve the issues in dispute, and ought not to try. These are matters for trial.” The standard is similar to that on summary judgment application. Mr. Goldberg referred me to RE Marc‑Jay Investments Inc. and Levy (1975), 1974 CanLII 786 (ON SC), 50 D.L.R. (3d) 45 (OHC) where the standard was expressed this way at para. 9: “the intended action does not appear frivolous or vexatious and could reasonably succeed”. The British Columbia Court of Appeal referred to an “arguable case” in Bellman at para. 19, which the Court in Primex Investments Ltd. v. Northwest Sports Enterprises Ltd., [1995] BCJ 2262(SC) at para. 39 took to mean “a reasonable argument which would not be dismissed out of hand”. This is similar to our standard on summary judgment where the proponent must show there is no arguable issue to be tried, which is said to be the same as showing there is no genuine issue of material fact requiring trial: for the standard see United Gulf Developments Ltd. v. Iskandar, 2004 NSCA 35 (CanLII), [2004] N.S.J. 66 (CA) at para. 9. The standard is the same but the onus is not, as the proponent bares it. Thus, should assess the prospects of success by asking whether the applicant has presented evidence demonstrating an arguable issue worthy of trial, genuine issue of material fact requiring trial. [47] Mr. Oickle has presented evidence which, if accepted, could reasonably lead to the conclusion that Mr. Bunnell's salary has been substantially overpaid. The evidence of Ms. Fraser and Ms. Selig is not so compelling that the claim fails to raise genuine issue for trial. On the contrary, if there was shareholders agreement limiting Mr. Bunnell's salary, the evidence of Ms. Fraser and Ms. Selig might not undermine that agreement even if their evidence is accepted. Mr. Oickle has also presented evidence of unusual transactions that were to Mr. Bunnell's benefit or that of his charity and at the company's expense. Evidence of the kind offered by Ms. Fraser and Ms. Selig might show that these transactions were usual to the company and were authorized, albeit in casual way. However, am in no position to say that evidence will be accepted or, if accepted, will lead to finding that the expenditures were legal. am satisfied that the evidence presented by Mr. Oickle, coupled with that offered in reply and on cross‑examination, shows that the company has claims that could reasonably be presented and would require trial to resolve. [48] Having assessed negatively the value of the opinion of the directors and having assessed positively the reasonableness of the proposed claim, have to consider whether anything remains by which the proposed suit would be contrary to the interests of the company. It is prudent business not to authorize suit without weighing the financial cost and intangible costs against the potential gains, financial or intangible. Although know of no authority for it, think this has to be part of the inquiry into the interests of the company in the proposed suit. [49] Mr. Goldberg was unable to give me an estimate of the value of this claim. He says the records produced to the Court do not give the full picture and we will not be able to make an assessment until accounts are taken. He says the amount involved could be very high. am satisfied that the amount involved is not so small as to make pursuit of the action frivolous. However, cannot be satisfied that suit would be in the interests of the company if it went forward unconditionally. If leave is to be granted, an order can be made under s. 4(3) controlling the course of the proceeding in such way that concerns over costs and benefits can be alleviated. With that in mind, am satisfied that the proposed suit is in the interest of the company. [77] The judge’s approach of considering whether there was an arguable issue raised by the proposed derivative action to determine whether it is in the interests of the Company, is in accordance with the cases cited by the judge in 46 of his decision set out above including Marc-Jay, supra, where the court stated in that the standard is that “the intended action does not appear frivolous or vexatious and could reasonably succeed.” [78] The appellants have not satisfied me that the judge erred in concluding that Mr. Oickle met the third criterion in s. 4(2)(c) of the Third Schedule, that Mr. Oickle’s proposed derivative action appeared to be in the interests of the Company. [79] The fourth and last ground of appeal is whether the judge erred by imposing the terms he did on the derivative action, specifically the retention by Mr. Oickle of an accountant at the Company’s expense and requiring disclosure to the accountant. [80] The judge ordered: 3. Larry B. Oickle shall retain an expert at reasonable rates to account for the claims set out in the Originating Notice (Action) and Statement of Claim as attached hereto as Schedule “B”. L&B Electric Limited shall pay for the expert and will make all disclosure the expert reasonably requires. The expert will report to Larry Oickle as representative of L&B Electric Limited in the said derivative action. Larry B. Oickle is to promptly deliver the expert’s report to Martine Dumke and Rubin Dexter after which any party may apply to the Court for new directions should the Court be satisfied that the suit as attached hereto as Schedule “B” is not in the interests of L&B Electric Limited in light of the amount involved. [81] The judge’s decision indicates he imposed these terms as protection against the derivative action continuing if the amount in dispute, once determined, is not large enough to make it in the interests of the Company to continue. [82] Section 4(3) of the Third Schedule provides: (3) In connection with any such action brought or intervened in, the court may at any time make any order it thinks fit including, without limiting the generality of the foregoing, (a) an order authorizing the complainant or any other person to control the conduct of the action; (b) an order giving directions for the conduct of the action; (c) an order directing that any amount adjudged payable by defendant in the action shall be paid, in whole or in part, directly to former and present security holders of the company or its subsidiary instead of to the company or its subsidiary; (d) an order requiring the company or its subsidiary to pay reasonable legal fees incurred by the complainant in connection with the action. [83] The appellants agree s. 4(3) gave the judge broad discretion to make orders with respect to derivative actions. They argued however that his error arose from the fact the respondents’ application that was before him did not seek such an order and because the judge failed to give the appellants notice that he was considering granting such relief. [84] The appellants have not satisfied me that the judge erred in ordering these terms. The judge was satisfied from the evidence Mr. Oickle had been able to obtain about the Company, that it appeared there was substantial amount of money at issue making it in the interests of the Company to allow Mr. Oickle to commence the derivative action. Mr. Oickle’s counsel had estimated the amount may be $1,000,000. [85] At the same time the judge recognized the disadvantage Mr. Oickle was under trying to get full financial information from the Company while it continued to be controlled by Mr. Bunnell and Ms. Fraser. The way of determining the amount at issue was to have an audit done by an independent person. This was the next step. The audit is to be conducted in accordance with the scope of the pleadings and therefore the expert does not have unfettered access to the Company’s information. By granting this order the judge was able to ensure that the derivative action continued to be in the interests of the Company. [86] In light of the provisions in s. 4(3) giving the judge the ability to grant wide ranging directions, the appellants should have anticipated when faced with an application for leave to commence derivative action, the possibility of such an order, and requested the judge to give them an opportunity for input if he was going to make such an order. They did not do so. [87] The judge raised his concern about the amount at issue twice during argument at the hearing, once with each counsel. While it would have been preferable for the judge to have raised these specific terms with the parties more clearly to ensure he had their full input, his failure to do more than he did does not amount to reversible error. [88] Accordingly I would grant leave to appeal, but dismiss the appeal and order costs payable by the appellants to the respondents in the amount of $3,000 plus disbursements payable immediately. Hamilton, J.A. Concurred in: Bateman, J.A. Freeman, J.A.
The plaintiff company commenced an action against a former employee/shareholder for breach of fiduciary and employee duty. The shareholder defended and claimed that one of the directors had misappropriated funds from the company. The shareholder later retained a new solicitor, who successfully applied to amend the defence to withdraw certain admissions and amend the counterclaim to add a shareholder oppression remedy and for leave to bring a derivative action. The court found that, in the circumstances, the new counsel's assessment of his client's case was sufficient to allow the admissions in the defence to be withdrawn, the implied undertaking against the collateral use of discovery evidence did not apply because the pleaded material facts were the same facts material to the shareholder oppression action and the applicant bore an ordinary onus to establish the three statutory prerequisites. The court also directed the employee to retain an expert and for the company to pay that expert and make all reasonable disclosure that the expert reasonably required. The plaintiff company appealed. Appeal dismissed; there was evidence before the trial judge on which he could conclude that it was just that the admissions be withdrawn; with respect to the oppression remedies and the employee's status as a complainant, the wording of the earlier consent order could be interpreted as not suspending his rights as a former shareholder; there was a temporal connection between the impugned acts and his ownership of the shares and he had a sufficient interest in the oppression remedies. The terms the judge imposed were within the broad discretion conferred by the Third Schedule of the Companies Act and there was no breach of natural justice by the imposition of them.