Casa Margarita Enterprises Ltd. v. Huntly Investments Limited, 2023 BCSC 907, released May 31, involved an oppression claim around plaintiff Casa Margarita Enterprises Ltd.’s efforts as a shareholder in defendant Huntly Investments Limited to divest itself of its shares at a fair value.
The defendant shareholders are members of the same extended family, the Wolverton family. The oppressive conduct was said to have benefited the family and disadvantaged the plaintiff. Casa sought a declaration that Huntley be ordered to purchase all of Casa’s shares at a fair value.
In the 1960s the Wolverton and Cowan families were connected through business. In 1996, Huntly was incorporated and in 1967 when the original allotted shares were transferred to Newton Wolverton, he had 380 shares. In the same year Huntly acquired properties, two of which are still held by it, in downtown Vancouver. Newton and Alan Murray Eyre transferred 16 and later seven more Class A common shares to MacNeil Investments Ltd., whose shares were owned by the Cowan family. MacNeil was renamed Cheyne Property Management Ltd., and later became Casa.
In 1971 the small shareholders, except Casa, transferred their 435 shares into The Pacific Investment Corporation Ltd. (PIC) also controlled by Newton’s family. Newton transferred 217 of his shares into PIC, and later he and Eyre transferred 286 Class A common shares to PIC. After 1971 all shares in Huntley were owned by the Wolverton family except those held by Casa. The current Wolverton shareholders and their corporate entities and trusts hold about 1,243 shares altogether, while Casa holds 23 shares.
Casa’s sole asset is its interest in Huntly, and Huntly had no shareholder agreement except a few articles. Casa is related to the Cowan family, where Margaret Cowan’s mother and uncle provided property management services to Huntly’s properties and to PIC and acquired 100 shares in PIC. Her mother and uncle were directors of Huntly in the 1980s. Cowan received their shares upon their deaths.
In 2016, Cowan passed away. The shares form part of her estate, and her estate administrator is in need of winding up Casa and distributing its value to beneficiaries of her estate. In its allegations of oppression and unfairly prejudicial conduct, Casa submitted the following:
“a) Failing to treat Casa fairly and equitably by:
i.preferring the interests of Wolverton shareholders over those of Casa, including providing Wolverton shareholders with access to information and privileges not provided to Casa;
ii.structuring a special dividend in a manner prejudicial to Casa;
iii.bullying or intimidating Casa for exercising its right to request and obtain audited financial statements.
ii.structuring a special dividend in a manner prejudicial to Casa;
iii.bullying or intimidating Casa for exercising its right to request and obtain audited financial statements.
b) Failing to make adequate disclosure regarding, and failing to permit Casa to vote on, a capital reorganization and a redevelopment of the Stadacona property;
c) Refusing to redeem or arrange for the purchase of the Casa shares upon request.”
c) Refusing to redeem or arrange for the purchase of the Casa shares upon request.”
Justice Wendy Baker was satisfied that the evidence established that Margaret Cowan expected that she would be able to sell or redeem shares Casa held in Huntly. When Huntly was incorporated, it had a number of shareholders outside the Wolverton and Cowan families. All of the shareholders except Casa arranged for the purchase of their shares by PIC, controlled by Newton at the time.
“Preference shares held rights of redemption, while common shares did not,” said Justice Baker. “However, the pattern over the years in Huntly was that shareholders outside the Wolverton family would have their shares purchased by entities or people within the Wolverton family. There was a clear consolidation of interests inside the Wolverton family, and Casa remained an outlier.”
She found that it was clear that Cowan sought to sell her shares in PIC. It was Brent Wolverton, current director of Huntly who arranged for the purchase by Wolverton Securities. While PIC was a separate company from Huntly, it was intimately involved in it Cowan reasonably expected that shareholders in Huntly would be treated in a manner similar to how other shareholders were treated in Huntly.
“I find that when Ms. Cowan approached Brent before her death looking for a similar accommodation with the shares held by Casa, she had a reasonable expectation that he would assist in the purchase of the shares by some person or entity within the Wolverton group. Unfortunately, Brent did not accommodate Ms. Cowan.”
She stated that Casa’s expectation that it could sell its shares to Huntly or to a shareholder in the Wolverton family was reasonable in the circumstances of this case. The shareholders in Huntly held a reasonable expectation that they would not be locked into a position as shareholder forever and, when they wanted to sell their shares, Brent would facilitate such a purchase.
Brent did not meet the reasonable expectation held by Casa, the court found. When Cowan asked Brent, in the last years of her life while she was dying, to redeem or purchase the shares held by Casa, Brent declined. He did not suggest any options for the purchase of the shares nor did he facilitate a purchase by himself, his family or his controlled corporate entities.
“This news was very upsetting for Ms. Cowan. After Ms. Cowan passed away, the only true offer Brent made to Casa was that he would purchase the shares in Casa itself, not that he would purchase the shares in Huntly held by Casa.”
The court found that Brent and Huntley’s refusal to proceed with a fair and informed process where Casa could sell its shares was a breach of Casa’s reasonable expectation, thereby being oppressive to Casa. The company held less than two per cent of Huntly’s shares.
“Without a process whereby Casa can sell its shares in Huntly, Casa is seriously disadvantaged, and its ownership interest is essentially valueless,” said Justice Baker. “Brent and the Huntly Defendants have taken advantage of the position of Casa, to their own benefit. By making it impossible for Casa to sell its shares at fair value, Huntly continues to benefit from the value those shares represent. As such, I find the refusal to entertain and facilitate a fair and informed process whereby Casa could sell its minority position to be oppressive and unfairly prejudicial to Casa.”
Casa was entitled to relief by way of a sale of its shares for fair value. Costs were to be determined.
Counsel for the plaintiff were Ronald Josephson of Singleton Urquhart Reynolds Vogel LLP and Benjamin Clarke of Poulus Ensom Smith LLP.
Counsel for the defendants were David Gruber and Devon Luca of Bennett Jones LLP.
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