ONTARIO
SUPERIOR COURT OF JUSTICE
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ROY BRYAN WONSCH a person under disability by his Litigation Guardian RICHARD WONSCH, RICHARD WONSCH personally, CHRISTOPHER MARK WONSCH, PAUL STEWART WONSCH and DANIEL EDWARD WONSCH |
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William V. Sasso, Craig J. Allen and Robert Barnes, Q.C., for the Plaintiffs |
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GORDON WONSCH, CHARLES F. WONSCH, KENNETH WONSCH, WONSCH CONSTRUCTION COMPANY LIMITED and 414968 ONTARIO LIMITED |
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Gregory A. Campbell and James Renaud, for the Defendants Gordon Wonsch, Charles F. Wonsch and Kenneth Wonsch |
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Gregory J. Verbeem, for the corporate defendants, Wonsch Construction Company Limited and 414968 Ontario Ltd. |
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HEARD: September 29, 30, October 1, 2, 3, 6, 7, 8, 9, 10, 14, 15, 16, 17, 27, 28, 29, 30, November 3 and 10, 2003 |
Rogin J.
AMENDED JUDGMENT
OVERVIEW
[1] Edward and Agnes Wonsch built a successful business consisting of three private corporations:
(a) Wonsch Construction Company Limited;
(b) Wonsch & Sons Limited;
(c) Wonsch Construction & Investments ( Essex) Limited.
[2] Edward died in 1971. Agnes died in 1986. Edward and Agnes had six children. The plaintiff, Roy Bryan Wonsch ( Bryan) was the second oldest. He was convicted of manslaughter arising out of the death of his mother. Bryan has had mental health issues all of his adult life.
[3] Gordon, Charles and Kenneth Wonsch (the brothers) are the three brothers of Bryan. They are presently the major shareholders of Wonsch Construction Company Limited (W.C.C.L.), which is the successor company formed in 1987 by the amalgamation of Wonsch Construction Company Limited, Wonsch & Sons Limited, and Wonsch Construction & Investments (Essex) Limited. Roy Bryan Wonsch and the Bryan Wonsch Family Trust are minority shareholders of W.C.C.L.
[4] Richard Wonsch, Christopher Mark Wonsch, Paul Stewart Wonsch, and Daniel Edward Wonsch are the sons of Bryan, and the beneficiaries of the Bryan Wonsch Family Trust.
[5] The plaintiffs seek a remedy for oppression against minority shareholders, visited upon them by Gordon, Charles and Kenneth (the brothers). The claim for an oppression remedy is based on the following:
(a) The merger of the three companies in 1987;
(b) The purchase by the brothers of the shares of their sisters to the exclusion of Bryan Wonsch and the Trust;
(c) The failure to properly notify the minority shareholders, and failure to provide sufficient information to them, so that they could make informed decisions;
(d) Paying themselves excessive management compensation, to the detriment of the minority shareholders;
(e) Using corporate funds to pay for their personal 5% share of the Victoria Park Place development;
(f) Selling lots from the inventory of the Cabana subdivision to their children to the exclusion of the children of Bryan.
[6] Gordon and Charles were also the estate trustees of the estate of their late mother Agnes Reid Wonsch. In addition to being her estate trustees, she appointed them the trustees of the Bryan Wonsch Family Trust. The Bryan Wonsch Family Trust was a vehicle by which Agnes Reid Wonsch attempted to distribute equally among her children the proceeds of her estate. The plaintiffs sue Gordon and Charles for breach of trust in administering both the estate of Agnes Reid Wonsch and the Bryan Wonsch Family Trust.
THE WITNESSES
[7] The plaintiffs called two of Bryan’s sons, Richard and Paul Wonsch, as well as expert evidence with respect to the value of Bryan’s interest in the Wonsch companies. The evidence of Richard and Paul was limited to background information. They were only peripherally involved with the events giving rise to this litigation, and much of what they could say would have been hearsay. The plaintiffs also relied on the documentary evidence, which consisted of the records of the various Wonsch companies before and after amalgamation. They further relied on the cross-examination of Gordon Wonsch who was the main witness for the defence.
[8] Gordon testified for the defence. Charles and Kenneth did not testify. The defence called its own expert witnesses with respect to the value of the minority interests as well as the issue of management compensation. I have at various times accepted some, none or all of Gordon’s evidence as any trier of fact is entitled to do. Where I have found something to be a fact it is usually because I accepted that part of Gordon’s evidence.
[9] Where I have rejected his evidence I have attempted to state why I have done so, and I have attempted to identify the places where I have rejected his evidence.
THE EVIDENCE
[10] Edward and Agnes Wonsch married and had six children. From oldest to youngest they were:
(a) Charles;
(b) Roy Bryan;
(c) Kenneth;
(d) Twins – Sheila and Sharon
(e) Gordon.
[11] Edward, a man of limited education, was born into a farming family. He himself farmed during the Depression in the early years of his marriage to Agnes in western Canada. Their second son, Bryan, was born in Winnipeg. In addition to his farming skills, Edward Wonsch was a skilled carpenter and worked in construction. He built houses and sharecropped during the 1940’s. In the mid-1940’s he became a small builder.
[12] Agnes, in addition to being a traditional mother and housewife, helped in his business. She worked in the office in their home until 1979. She answered the phone and was eventually the president of Wonsch Construction & Investments ( Essex) Limited, one of the original three Wonsch companies. The other two Wonsch companies of significance to this action were Wonsch Construction Limited (W.C.C.L.) and Wonsch & Sons (Essex) Limited.
[13] The companies, driven by the general contracting company (W.C.C.L.) became very successful in the 1950’s and 1960’s. The family built and managed apartment buildings. They also purchased farms and Edward Wonsch continued farming. Some of the farms were eventually sold or developed in Essex County. Edward Wonsch died in 1971 as a farmer.
[14] As described by Gordon Wonsch, there were almost two families. Charles, Bryan and Ken were somewhat older than Gordon and his twin sisters. The three older brothers grew up in the family business, as eventually did Gordon. Charles was the superintendent on most of the construction jobs from the time he was 22 or 23 years old. He became president of two of the companies when Edward died.
[15] Roy Bryan ( Bryan), the plaintiff, was the second oldest. He worked in construction from an early age as a carpenter or foreman. He worked hard but was never a boss or supervisor. After the death of Edward, he worked for the Wonsch companies until approximately 1977. Unfortunately Bryan’s life was and is marred by mental illness. He has been in and out of mental institutions since approximately 1957 when he was about 24 years old.
[16] Agnes died in 1986. Bryan was convicted of manslaughter as a result of his involvement in the death of his mother. He was arrested sometime in October of 1987 and was remanded to the mental health facility in Penetanguishene pursuant to a warrant dated October 5, 1987. It was unclear when the warrant was executed or when he was transferred. I surmise however that he was in custody somewhere on October 5, 1987.
[17] Kenneth studied architectural engineering in university but did not graduate. He had sufficient skills however to do all of the plans for the medium sized apartments built by the families. He managed a motel owned by the family for approximately five years and came into the family business in approximately 1968.
[18] Gordon worked for the Wonsch group during summer vacations and started full-time in 1969 when he graduated from university. After Edward Wonsch died in 1971, Gordon did the accounting and managed the apartments; he also worked in the field.
[19] Sharon and Sheila, the twins, both trained as nurses, married and had families. They never worked for the Wonsch group. They acquired some shares in each of the Wonsch companies pursuant to the Will of Agnes Reid Wonsch.
[20] Bryan never had any position of authority with any of the Wonsch companies. He worked for the group until approximately 1977. At that time, because of his mental instabilities, he became impossible to work with. Although he no longer worked in the family business, he owned shares in Wonsch Construction & Investments (Essex) Limited and Wonsch & Sons Limited. His share holdings at the date of his mother’s death on May 24, 1986 were as follows: (see Exhibit 6, Tab 21)
(a) Wonsch Construction & Investments ( Essex) Limited: 300.3 shares out of 3000.3 outstanding shares;
(b) Wonsch & Sons Limited: 1 share out of 5 outstanding shares.
[21] At the time of Agnes’ death, the relevant shareholdings in the two above companies were as follows:
(a) Wonsch Construction & Investments ( Essex) Limited:
i) Charles Wonsch 300.3 shares – 10%
ii) Kenneth Wonsch 300.3 shares – 10%
iii) Bryan Wonsch 300.3 shares – 10%
iv) Agnes Wonsch 2102.1 shares – 70%
TOTAL 3003 shares
(b) Wonsch & Sons Limited:
i) Agnes Wonsch 2 shares – 40%
ii) Charles Wonsch 1 share – 20%
iii) Bryan Wonsch 1 share – 20%
iv) Kenneth Wonsch 1 share – 20%
TOTAL 5 shares
[22] Agnes Wonsch obviously recognized Bryan’s problems and the disruptive effect he had on the Wonsch family enterprise. Accordingly, on January 3, 1980 she executed her Will and created an Inter Vivos Trust which attempted to address these issues. The Inter Vivos Trust is Exhibit 6, Tab 1 and the Will is Exhibit 6, Tab 2.
[23] By her Will she clearly attempted to differentiate between Bryan and his siblings. By differentiate I mean that with no derogatory connotation to Mrs. Wonsch, Bryan or the rest of the Wonsch family. In my view she was attempting to address the challenges Bryan’s mental illness posed to the family. She separated Bryan from his siblings by calling the siblings her “five children” and excluding Bryan from that definition. She recognized Bryan as her sixth child by creating the Bryan Wonsch Family Trust.
[24] By the terms of her Will she attempted, as far as her shareholdings in the various Wonsch companies were concerned, to distribute them equally to her six children per stirpes.
[25] She owned two outstanding shares of Wonsch & Sons Limited. She devised one of these shares to Gordon and one to her daughters Sheila and Sharon as tenants in common. None of Sheila, Sharon or Gordon was a shareholder of Wonsch & Sons Limited until that time.
[26] With respect to Wonsch Investments, she devised her 2102.1 shares to her five children and to the Bryan Wonsch Family Trust, so that each of the five children and Bryan and the trust combined would own one-sixth of the shares.
[27] She named Gordon and Charles to be the estate trustees. She also named them the trustees of the Bryan Wonsch Family Trust.
[28] In order to protect the Wonsch companies she made the following provisions in her Will:
a) 3.09.3 – She directed the company and the family solicitors Willson and Barat to draft a shareholders’ agreement that would provide for the orderly transfer of shares among her children and the Trust in the event of the death of one of the children or the sale of shares between any of them. She directed Gordon and Charles to execute such shareholders’ agreement on behalf of the Bryan Wonsch Family Trust.
b) 3.09.4 – If any of the children or the Trust refused to sign the shareholders’ agreement, their bequest of shares would be forfeited to the other five participants.
This clause was poorly drafted by the solicitors.
The Shareholders’ agreement was never prepared or signed by anyone.
c) 3.14 – The trustees were allowed to purchase shares as long as the purchase price and terms of any such transaction were approved in writing by either William A. Willson, Q.C., Arthur Barat (the solicitors) or the accountant James Collins or an accountant nominated by the accounting firm of Deloitte, Haskins & Sells.
[29] The objects of the Trust were similar to those of the Will of Agnes Reid Wonsch. The Trust was to achieve an income for Bryan Wonsch of $1,000 per month until he reached the age of 65, and thereafter $500 per month. He was to be paid these sums subject to indexing. At age 65 the capital of the Trust was to be reduced to $50,000 and the remainder was to be distributed among the children of Bryan and Shirley Wonsch. Those children of course are Richard, Christopher, Paul and Daniel Wonsch.
[30] Again, Agnes Reid Wonsch attempted to give the trustees, Charles and Gordon, some latitude by including the following terms in the Inter Vivos Trust:
(a) Para. 13: The trustees may invest in any investments or securities which they in their absolute discretion feel is advisable; those investments are not to be limited to investments authorized by law for the trustees.
(b) Para. 14: The trustees were able to sell, exchange, etc. securities, property of the trust fund as they considered proper without court approval.
(c) Para. 15: The trustees may:
(a) vote all stocks and shares;
(b) exercise all rights incidental to the ownership of stocks, shares, bonds or other securities and investments and property held as part of the trust fund, and issue proxies to others;
(c) sell or exercise any subscription rights, and in connection with the exercise of subscription rights use trust monies for the purpose;
(d) consent to and join in any plan, reorganization, readjustment or amalgamation or consolidation with respect to any corporation whose stock, shares, bonds or other securities at any time form part of the trust fund, and authorize the sale of the undertaking or assets, or a substantial portion thereof, of any such corporation; and
(e) generally act in respect of the trust fund as fully and effectively from time to time as if the same were not trust property but always for the benefit of the trust fund.
(d) Para. 22: If this trust shall receive or acquire shares of Wonsch Family Companies, presently comprising Wonsch Construction Company Limited, Wonsch & Sons Limited and Wonsch Construction & Investments (Essex) Limited, then the trustees shall vote the shares of the company as the settlor could do in her lifetime and may continue to be officers and directors and employees of the companies and to receive salaries, wages, directors fees and all other benefits in their own right and they shall not be accountable to the trust for such monies received.
[31] Therefore, according to paragraph 22 the trustees could vote the shares as Mrs. Wonsch could do if she were alive.
[32] The Trust initially was funded by $100 provided by Agnes Reid Wonsch. The balance was to be funded by her bequest to it out of her estate upon her death.
[33] As a result of Bryan’s conviction for manslaughter, Bryan himself was found to be disentitled to his share of her estate. However, Patterson J. in his judgment dated October 7, 2002 found that Bryan’s children were entitled to the proceeds of the Trust, as Bryan only had a life interest in it, and his children’s entitlement to the remainder was not affected by his manslaughter conviction. This decision was not appealed by any of the parties.
DECLINE OF WONSCH
[34] The Wonsch companies had worked with a company in Windsor known as Danzig Enterprises. Generally Wonsch acted as general contractor and built apartment buildings for Danzig. By 1978 or 1979 they had built or contracted to build at least two multi-story buildings for Danzig. In or about 1979 Danzig contracted with Wonsch to build a 400 unit, 31 story apartment building in downtown Windsor known as Victoria Park Place. This was to be one of the biggest building projects ever undertaken in the Windsor area. Wonsch was originally to be the general contractor for Danzig. However, in approximately 1980 Danzig needed a partner. Wonsch therefore entered into a joint venture agreement with Danzig in April of 1980 to construct this building (see Exhibit 6, Tab 3). For a 50% interest in the project, Wonsch would build it and find a construction loan, while Danzig would manage it and find equity financing. Bryan Wonsch was not part of this project. Gordon Wonsch said that the project was discussed with Agnes Wonsch. Richard Wonsch testified that his father was against participating in Victoria Park Place. However at this time Agnes Wonsch was alive, and Bryan Wonsch’s dissent was not important.
[35] It is only necessary to illustrate that by this time Bryan, although still a shareholder in the family enterprise, was only an employee and had no role in management decisions. He apparently was never an officer or director of any of the Wonsch companies. In fact, by Exhibit 6, Tab 4, Bryan entered into an agreement with his mother and brothers, binding on the Wonsch companies, not to work on the Victoria Park Place project, not to pledge his shares, or in any way to impede the management activities of the Wonsch group. For this pledge he was to receive $1,000 per month for a period of three years. This contract was either because of his opposition to the project, his irrational activities or both. There was hearsay evidence that around this time Bryan had offered his shares in the Wonsch enterprise to people at Danzig. While there was no direct evidence of that, Gordon Wonsch testified that one of the principals of Danzig told him about such offer. While this is pure hearsay, the fact that it was said to Gordon, and I accept that it was said to Gordon, provides a basis for some of the concerns the brothers had with respect to Bryan’s behaviour.
[36] In my view the joint venture to build Victoria Park Place, was the genesis of the problems that have resulted in this litigation. Although the only Wonsch company which was a party to the agreement at that time was Wonsch Construction Company Limited, this project put all of the Wonsch companies at risk because Gordon, Charles and Kenneth signed it personally. The 50% of the Wonsch interest in the joint venture was to be allocated as follows:
(a) W.C.C.L. 35%
(b) Gordon 5%
(c) Charles 5%
(d) Kenneth 5%
The respective interests of the brothers is one of the problems that must be addressed, as it is alleged that they used corporate funds to fund their personal interests.
[37] Other factors which caused problems for the Wonsch group as a result of participation in Victoria Park Place are:
(a) The project was initiated and completed during a period of extremely volatile and high interest rates in the building and housing industry;
(b) Danzig, to say the least, was an aggressive and litigious partner, and at the most was a dishonest partner;
(c) Victoria Park Place led to protracted litigation between Danzig and Wonsch, which consumed time, assets and cash flow of the Wonsch companies and the brothers;
(d) In order to save the Wonsch companies, and satisfy the various cash calls required to complete Victoria Park Place, it drove the brothers to desperate measures. They sold assets of Wonsch, had to resort to high risk and high interest mortgages, and even diverted the proceeds of the estate of Agnes Reid Wonsch to fund the litigation and stave off bankruptcy;
(e) The brothers personally guaranteed the debts of Victoria Park Place.
[38] Many of the desperate measures they employed to avoid bankruptcy, are alleged to be acts of oppression against the minority shareholders, Bryan and The Bryan Wonsch Family Trust.
[39] I accept for the most part, the evidence of Gordon, that what they did at the time was felt to be in the best interests of the Wonsch group.
[40] I also accept the evidence of Gordon, that the financial statements produced at the time may belie the fact that the Wonsch group was close to bankruptcy at this time. The Wonsch group was having difficulty meeting their obligations. Sadly it was not uncommon for the companies to produce and rely on different financial statements for different purposes: For example, tax purposes versus statements produced to obtain financing. Gordon basically admitted that he and his brothers at that time invented what might be called the Enron-Arthur Anderson School of Accounting so that the financial statements would achieve whatever purpose they wished them to achieve.
THE AMALGAMATION
[41] In 1987 the three Wonsch companies were amalgamated into Wonsch Construction Company Limited. At the time of the amalgamation legal and accounting advice was sought and received. The amalgamation resulted in a significant tax savings to the Wonsch group of companies. The amount of tax saved was six to eight hundred thousand dollars.
[42] Although the timing is curious, I find that Bryan was notified of the amalgamation meeting. Even though he was in custody somewhere, he sent Rick and even a solicitor (Jerry Goldberg) to various company meetings and they participated as his representatives. Gordon admitted in cross-examination that he was not certain if Bryan was served with notice of the amalgamation meeting. He also admitted that he and the brothers intentionally kept him in the dark with respect to the amalgamation, because they were afraid that he would hold it up. They were also afraid that he would demand that they would purchase his shares in the companies; the companies had no money to purchase those shares. I accept the evidence of Gordon that at the time of the amalgamation the companies were in a serious cash flow problem and the companies could not have afforded to purchase Bryan’s shares or in any event they were not worth very much at the time.
[43] I am satisfied that the representatives of Bryan did not make any objection to the amalgamation.
[44] Even if I am wrong on the point as to whether or not he was served, there was a legitimate business reason for the amalgamation and Bryan benefitted from it. The tax saving alone saved the Wonsch group somewhere between $600,000 and $800,000. On the evidence I have heard, Bryan, if capable, would have consented to the amalgamation. If Agnes Wonsch had been alive at the time, I am satisfied that she would have consented to the amalgamation.
[45] I do not find that the amalgamation of the companies amounted to an oppressive act as far as Bryan and the Bryan Wonsch Family Trust were concerned.
REASONABLE EXPECTATIONS OF THE MINORITY SHAREHOLDERS
[46] The analysis of the oppression remedy must start with the reasonable expectations of Bryan Wonsch and/or the Bryan Wonsch Family Trust. It is not disputed that Bryan and the Trust have standing to bring the application for an oppression [1] remedy. The reasonable expectations of a minority shareholder would be:
“…those that are reasonable and which are in existence as the directors make their decisions from time to time.”
See 820899 Ontario Inc. v. Harold E. Ballard Ltd., (1991), 3 B.L.R. (2d) 113 ( Div. Ct.)
[47] Bryan’s expectations as well as those of the Trust must be modified by his special circumstances and the wishes of the late Agnes Reid Wonsch when she set up the Trust and made her Last Will and Testament on January 3, 1980. Agnes Reid Wonsch set the parameters of Bryan’s reasonable expectations in those two documents. I find that her wishes were to divide her estate equally among her six children to the extent that her five children were to receive their approximately one-sixth share of her estate immediately upon her death and that her sixth child, Roy Bryan Wonsch, was to receive his one-sixth share by way of the Bryan Wonsch Family Trust to complement any shares already owned by him. The bequest and the setting up of the Bryan Wonsch Family Trust were done so that Bryan and his heirs could share in Mrs. Wonsch’s estate in the same proportion as Bryan’s siblings.
[48] While this scheme made the two sisters owners of one common share as tenants in common of Wonsch & Sons Limited, Agnes Wonsch compensated them by devising the summer cottage to them to the exclusion of their siblings.
[49] With respect to Bryan Wonsch she recognized the challenges facing him and the dangers to the Wonsch group of companies. She also recognized the danger of him dissipating his share of her estate, by creating the Trust with Charles and Gordon as trustees. She in effect attempted to preserve Bryan’s share of her estate for his children by giving him a life estate, and she protected the Wonsch companies by making Charles and Gordon the trustees of the Trust and her estate trustees. She also attempted to protect both Bryan and the companies by giving wide latitude to the trustees but tempered [2] that latitude by allowing them to:
“15(e) generally act in respect of the trust fund as fully and effectively from time to time as if the same were not trust property, but always for the benefit of the trust fund.”
[50] I accordingly find that Bryan’s and/or the Bryan Wonsch Family Trust’s reasonable expectations were as follows:
(a) To be notified of meetings of the Wonsch companies of which they were shareholders and to be advised of the company activities as any shareholders would be. Bryan and the Trust would have the same rights as any shareholder of any private company in Ontario as prescribed by the Ontario Business Corporations Act. He would be entitled to notice of all meetings, and to be provided with financial information such as annual financial statements.
(b) Consistent with the past practices of the Wonsch companies he would be entitled to employment consistent with his skills but subject to his ability to work. He would not be entitled to participate in the management of the Wonsch companies as officer or director, except to the extent when legally capable, of voting his shares.
(c) He and the trust would be entitled to participate in the profits of the Wonsch companies to the extent of his shareholdings which should have been approximately one-sixth of the issued shares.
(d) He would also be entitled to participate in the growth of the Wonsch companies to the extent of his shareholdings, and in accordance with the wishes of his late mother. This expectation would be passed on to his heirs in accordance with the judgment of Patterson J.
(e) He would be entitled to expect that the directors and officers of the Wonsch companies (his brothers) would conduct the affairs of the company fairly, in the interests of the company, but also in a manner which was not oppressive to him or the Bryan Wonsch Family Trust.
[51] Bryan Wonsch’s reasonable expectations were not honoured by his brothers. They committed acts of oppression against him and the Trust. He is entitled to a remedy, which will be discussed infra.
[52] Some of the acts of oppression which justify the remedy are listed below.
FINANCIAL STATEMENTS
[53] Gordon Wonsch agreed in cross-examination that some of them were not accurate. He admitted that guarantee fees now claimed were never in the financial statements. His rationalization for not putting the guarantee fees in the financial statements was [3] that additional obligations in those statements might hinder the company’s ability to negotiate loans. That being said, they were never disclosed to Bryan or the Trust.
[54] He indicated that some of the statements were incorrect in not listing his mother as a guarantor or a shareholder of Wonsch & Sons Limited.
[55] He agreed that financial information and statements were purposely not disclosed to Bryan for fear that Bryan might commence legal action. Gordon justified this conduct by stating that legal action by Bryan could jeopardize some of the projects in which they were involved, thus impairing the value of all the shares of the company including Bryan’s and the Trust.
[56] While this may have been their practical reason for keeping Bryan in the dark, it is not a legal justification. Bryan or his representatives were entitled to notice and accurate financial statements in order for them to be able to make informed decisions with respect to his continued participation in Wonsch if he wished.
PURCHASE OF THE SISTERS’ SHARES
[57] Notwithstanding Gordon’s admission on cross-examination, that he knew that his mother wanted a shareholders’ agreement to orderly transfer shares on her death so that the five children on the one hand, and Bryan and the Trust on the other, would be equal shareholders, there was never any such shareholders’ agreement prepared. Gordon’s excuse was that this did not extend to Bryan. I reject that position.
[58] Although the brothers sought legal and accounting advice on a regular basis from experts in the various fields, they did not seek legal advice on this crucial issue. He felt this was not required since he presumed that his mother had been given legal advice on the point and the sisters sold the shares to the brothers voluntarily.
[59] That, with respect, was the whole point of the Trust Agreement and the Will – to ensure from Agnes Wonsch’s point of view that all six of her children shared equally in the Wonsch companies.
[60] The brothers continually sought expert legal and accounting advice from the most capable lawyers and accountants; for the amalgamation, for their tax problems, and for the appeal of the Danzig litigation in which they were successful. They hired Earl Cherniak to defend the Danzig appeal, and apologized to their very competent winning trial counsel for doing so, because Cherniak (who comes from a well known family known for its excellent legal abilities), was the “best appeal lawyer around”. Therefore having regard to their past conduct in seeking professional advice when needed, Gordon is either lying about not seeking legal advice on this issue or the brothers were wilfully blind – they were afraid of the advice that they might receive. In either case, when they purchased the sisters’ shares, the brothers breached paragraph 15(e) of the Trust:
(e) generally to act in respect of the trust fund as fully and effectually from time to time as if the same were not trust property but always for the benefit of the trust fund.
[61] Gordon and Charles, as trustees, not only breached the terms of the Bryan Wonsch Family Trust, by purchasing these shares, they also, as the executors and trustees of the Will of Agnes Wonsch disobeyed her express wishes and disregarded section .09.3 of her Last Will and Testament. This breach again benefitted Kenneth, Gordon and Charles to the detriment of Bryan and the Trust, and amounted to oppression under the Ontario Business Corporations Act. The breaches of the Trust and the Will achieve the same result, and under the circumstances constitute oppressive conduct towards Bryan and the Trust.
[62] It was argued that the purchases [4] of these shares were authorized by the Trust document, specifically paragraphs 13, 14 and 15(e) to buy those shares [5]. The argument is therefore made that the trustees’ actions are excused by s. 35(1) of the Trustee Act R.S.O. 1990 c. T.23 . Although titles or headings in Acts are not to be taken as the law, it is nevertheless interesting to note that the heading reads “Relief of Trustees Committing Technical Breach of Trust”.
[63] I have already found that Charles and Gordon were at least wilfully blind in not seeking legal advice with respect to the purchase of the sisters’ shares. As trustees they also breached the terms of the Will by not entering into a shareholders’ agreement. That term of the Will was specifically inserted to protect all of the beneficiaries and their families. Of course Bryan and the Bryan Wonsch Family Trust should have been protected by this section. Even though they were not required to seek court approval for their actions (see s. 14 of the Inter Vivos Trust) they were nevertheless in a conflict of interest. The argument that they were authorized to do what they did because of the terms of the Will must fail because it does not contemplate the all important words in section 15(e) “… but always for the benefit of the trust”.
[64] Any competent legal advice would have had to alert them to the significance of these words. They acted at their peril. They breached the terms of the Will and the Trust and oppressed both Bryan and the Trust. In that regard both section .13 and .14 of the Will reinforce the concept that although they had much latitude in dealing with the Trust and estate, that latitude was tempered by the fact that they could only deal with estate property to the same extent that their mother would have, if alive, (section .13) and as long as the purchase price of those shares, the terms and the prices, were approved by a supposedly independent third party. (Section .14 – William A. Willson, Q.C.; Arthur M. Barat; James Collins, or an accountant).
[65] These safeguards imposed by Mrs. Wonsch, were consistent with her wish that her estate be divided equally among the five children and Bryan and the Trust per stirpes. Gordon and Charles as both trustees of her estate and the Bryan Wonsch Family Trust failed to carry out their mother’s wishes.
EXECUTIVE COMPENSATION
[66] It was admitted by Gordon on behalf of the brothers (Charles and Kenneth did not testify) that the executive compensation paid to them were material interest contracts as defined by s. 132 of the Ontario Business Corporations Act. It was also admitted that neither Bryan nor the Trust were notified that once Wonsch became profitable that the executive compensation was being sought or paid. Section 132(8) of the O.B.C.A. provides for ratification or confirmation of such contracts by shareholders at a special meeting called for the purpose of confirmation. Confirmation is to be by special resolution as long as reasonable detail is provided. None of this was done by the brothers. Not only were Bryan and the Trust not notified that the brothers were claiming and paying themselves executive compensation, Gordon, Charles and Kenneth took the compensation equally although it was admitted that:
1. At times one or some of them were employed outside of the company.
2. Each of the brothers worked different hours.
3. Each of the brothers had different jobs and responsibilities.
4. It was demonstrated by the expert evidence called by each side that the different job descriptions might attract different levels of compensation.
[67] Gordon testified that in the hard times, the brothers talked about eventually paying themselves back wages once the company was able to afford it. I have no doubt that this is true. It would seem reasonable that during the hard times, over coffee or a beer at the end of a busy or difficult day they discussed it. It was clear from Gordon’s evidence that neither Bryan nor any of his family were part of these discussions. Bryan was purposely kept in the dark. Presumably the Trust knew about these discussions because Gordon and Charles were the trustees. However, the discussions of future payment for past wages never made their way into the financial statements [6] of the company as obligations of the company. Nor did they make it in to any of the resolutions of the company. Gordon justified the omission by saying that if Bryan knew and objected, any litigation with respect to the subject would push the financially strapped company into bankruptcy. They were afraid that he might do something in that regard.
[68] In addition, Gordon testified that creating future obligations on the company balance sheet or books might jeopardize financing for the company. This conduct could have been subsequently ratified under s. 132 of the O.B.C.A. if the brothers were the only shareholders of Wonsch. It becomes objectionable when it was done to deceive the minority shareholders Bryan and the Trust. I use the word minority in the sense that although Bryan and the Trust were supposed to have an equal share in Wonsch, the brothers always acted as a unit. Even without the extra advantage, acquisition of the shares of their sisters provided them, they would have had triple the voting power of Bryan and the Trust.
[69] It is clear that the declaration of dividends is a power vested in the board of directors of a company; it is a matter of internal management, within the discretion of the directors. (Sparling v. Javellin International Ltd.[1987] O.J. No. 1070). The directors have this discretion in the absence of fraud.
[70] However when the directors through undisclosed material contracts, pay themselves excessive wages, keeping out any retained earnings so that no dividend can be declared, to the disadvantage of the minority shareholders this is objectionable. The failure to declare a dividend under those circumstances defeated any reasonable expectation of Bryan and the Trust to share in the profits of the company, and therefore the retroactive payment of excessive management compensation was oppressive.
[71] In this case the fact that the brothers wished to be treated equally, notwithstanding that they had different job descriptions, presumably different remuneration rates, and sometimes weren’t even working for the company, fortifies me in the belief that their management compensation payments were actually dividends disguised as wages. Bryan and the Trust did not receive their proportionate share of these dividends. This conduct was oppressive to Bryan and the Trust.
PERSONAL INTEREST IN VICTORIA PARK PLACE
[72] It is alleged by the plaintiffs, that the brothers profited by each taking a personal 5% interest in Victoria Park Place. Gordon admitted this to the extent that they each took 5% personally from the participation in Victoria Park Place. When Victoria Park Place ran into financial difficulties there were cash calls that had to be paid by W.C.C.L. and the brothers personally. In 1991 there was a judgment by Abbey J., that each of the brothers owed $77,431.25, and that W.C.C.L. owed $301,984.57 to the Victoria Park Place Project. There was money available to partially pay these judgments. In addition, the judgment indicates that other participants owed money to the project, and if anybody did not pay his or her share by October 1, 1991 they were deemed to have offered to sell their interests in the project.
[73] While Gordon indicated that there was nothing in the 1980 financial statements to show their respective 5% personal interest in the project, the joint venture contract clearly identified those interests. In addition, Gordon insisted that the company did not pay the personal share of the brothers’ interests. However he could not remember how their personal interests were paid. He admits there was no paper trail showing their personal payment.
[74] The cash calls were paid both on behalf of the brothers and the company. The 1981 financial statement indicates that $340,357 was paid in executive compensation for that year.
[75] Exhibit 5, page 221 is a resolution of the company dated May 8, 1996 declaring that it holds either a .4823% or a .40823% interest in trust for Bonnie Wonsch who supplied the money to purchase some of the forfeited shares of Victoria Park Place.
[76] I have no reason to disbelieve Gordon on this point. There is simply not enough evidence to show that the company paid for the personal interests of the brothers in Victoria Park Place notwithstanding the lack of documentation. I realize that once the material contract is proved to have been entered into, the onus will be on the brothers to ensure that the disclosure requirements of s. 132 must be met.
[77] In this case it was clear that not only did Bryan Wonsch not wish to participate in the Victoria Park Place joint venture, he was also paid $1,000 per month to stay away from it. Although the circumstances may be suspicious, I find that the plaintiffs have not proved that the company paid for the personal interests of Gordon, Charles and Kenneth, and they need not account to the company for the same. Although Gordon’s memory was not good on the point, the 1990 financial statements indicate that approximately $340,000 in revenue was shown on the financial statement coming from the “settlement of the lawsuit.” Gordon had testified and had admitted in cross-examination that he could not find that entry in the financial statements. This entry may show that the company paid and/or was reimbursed.
[78] Accordingly it has not been proved that the company paid for the personal shares of the brothers in Victoria Park Place, such that Bryan and the Trust lost the opportunity to participate. I decline to find that that was oppressive conduct as alleged by the plaintiffs.
EXCESSIVE EXECUTIVE COMPENSATION
[79] I have already found that the brothers’ retroactive payment of executive compensation without proper disclosure was oppressive to the minority. Was it excessive? I find for the following reasons that it was:
1. There was no disclosure of it as a material contract, that could either be ratified by all of the shareholders or challenged by the minority.
2. It, in effect, was a disguised dividend.
3. Bryan was purposely kept in the dark about it.
4. The brothers in addition to treating it as a dividend, (but excluding Bryan) each took the same amount of compensation, even though their job descriptions were different.
5. Notwithstanding that they shared it equally, they all did not work for the company at all times. During the financial hard times of the company Kenneth and Charles at least worked outside the company in order to make ends meet. Gordon also worked on a project in Florida for Charles Mady for which he was well paid.
6. While at some of those times they may have also worked part-time for Wonsch, no attempt was ever made to document who worked where or when. Nevertheless, they shared equally once they decided to pay themselves.
In this regard I reject Gordon’s estimates of the times they worked. His memory was not good on the point. In fact his evidence on this point was very vague and consisted merely of estimates amounting more closely to guesses. On this point his failure to produce his journal has an adverse effect on his credibility. The failure of Charles and Kenneth to testify on this point also adversely affects the defendants’ case on this point.
7. In 1985 they were enjoined from collecting any wages, presumably as part of the Danzig litigation. That trial was completed on December 31, 1987 when Ewaschuk J. gave judgment in favour of the Wonsch interests. This decision was upheld by the Court of Appeal on December 18, 1990. Although there was no evidence from Gordon as to how long the injunction lasted, I infer that it probably was in effect until December 31, 1990. I see no reason why they should be able to retroactively seek compensation for a period when they were enjoined from so doing.
[80] If they had a mind to claiming compensation for this period at least, they should have done so as soon as they were able to do so after the injunction was terminated.
[81] Each party called expert evidence on the issue of excessive compensation. Robert Boulton testified on behalf of the brothers. He is a chartered accountant, a chartered business valuator and a principal in the accounting firm of Low, Rosen, Taylor & Soriano (L.R.T.S.). He produced a report which was Exhibit 16. In his report and evidence he based his calculations on a period starting in 1980 and ending on July 30, 2003. He concluded that there was an overpayment of $775,045 in management compensation during that period. Incidentally, Gordon disagreed with part of the analysis of his expert Mr. Boulton, because Boulton’s calculations only allowed for .5 employees for certain of the years, one employee for other years and 1.5 employees for the years 1991 to 2003. Gordon felt that Mr. Boulton’s calculations should have been based on three employees for the whole period.
[82] In any event, after Mr. Boulton concluded on behalf of the brothers that they had been overpaid from 1980 to 2003 by approximately $775,000, he then proceeded to deduct from that amount guarantee fees on various loans plus compound interest. Ultimately he included that because the brothers (not Bryan) had personally guaranteed the various loans to the company, they should have been paid guarantee fees all along. Since they weren’t so compensated, he notionally compensated them. After the guarantee fees were deducted from the overpayment of management compensation Boulton concluded that the brothers were actually under compensated by 2.26 million dollars at the low end or 3.79 million at the high end.
[83] This is a novel concept. Where I accept that the brothers probably discussed retroactive payment of management compensation during the dark days of W.C.C.L., Gordon himself acknowledged that guarantee fees were never discussed by them until they spoke to Mr. Boulton. This was well after this litigation had been commenced. It affects Gordon’s credibility that he would advance such a claim, and it has a major effect on the credibility of Boulton.
[84] By injecting the concept of guarantee fees into the equation, Boulton crosses the line from expert witness to advocate. This evidence leads to the suspicions that Boulton was hired not to assist the trier of fact to understand the compensation issue, but to retroactively justify the actions of the brothers. I totally reject the concept that the brothers should be compensated for guarantee fees after the fact. The opinion evidence of Boulton therefore must be looked at critically.
PERIOD OF RETROACTIVE COMPENSATION
[85] It is still to be decided, how far back the calculations of the overpayment should go. The brothers wish the reconciliation to commence in 1980. The plaintiff instructed their expert, Mr. Knubitat from Price, Waterhouse, Coopers, to commence the reconciliation in 1995.
[86] According to Schedule 1 of the calculations of Mr. Boulton, his figures indicate an overpayment of executive compensation of approximately $98,000 between 1980 and 1986. The actual compensation paid to the brothers during that period was approximately 1.313 million dollars, when the market value of the remuneration was 1.215 million. I find this amount not to be significant. From 1987 to 1990, the period when the brothers were enjoined from collecting management compensation, the market value of notional compensation according to Boulton was $384,000. The brothers received no actual compensation between 1987 and 1994.
[87] I have already stated that if they were enjoined from collecting between 1987 and 1990 they should have done something about it. Since they overpaid themselves by approximately $98,000 from 1980 to 1986 (an insignificant amount), at a time when W.C.C.L. was in a position to pay and they were enjoined from collecting from 1987 to 1990, I find that the appropriate starting point for the reconciliation is the year 1991.
[88] From 1987 to 1994 there was no management compensation paid to the brothers. They were paid $185,000 in 1985 and nothing in 1986. The significant payment started in 1987.
[89] Assuming that the brothers had been arms length with the corporation, and no acknowledgements were made, I find it difficult to see how anybody could go back any more than six years, because of the Limitations Act.
[90] Mr. Boulton’s approach was to calculate the retroactive compensation back to 1981, which was the year Bryan ceased to be active in the business. This is an artificial commencement date. Even if Bryan’s activities for W.C.C.L. ceased in 1981, he was never part of the management team. He was always an employee. The analysis is to determine the extent of excessive management compensation paid by the brothers to themselves, once the company began to earn profits. Bryan and the Trust were shareholders only, not managers. I therefore reject Mr. Boulton’s starting point.
NUMBER OF EMPLOYEES
[91] The next point to be determined is the number of employees for whom management compensation should be calculated. Gordon says it should be three. Despite the fact that there was little work to sustain all three brothers as employees during the lean years, Gordon felt that the three brothers worked equally for the business. I accept that there was full-time work for at least one of them. While Gordon kept no time dockets for any of them, he personally worked for the company. When the company was not building anything or developing anything, I fail to see how Charles could be superintendent on any building sites. Similarly, there would have been few, if any, plans for Kenneth to draw during those times. If they were working along side Gordon they were duplicating his work. As stated before, both Kenneth and Charles worked outside the company, as did Gordon, to make ends meet. They all had different duties within the company. Gordon’s evidence is in conflict with the opinion of his own expert Mr. Boulton on the point.
[92] Mr. Boulton’s figures from 1980 to partway through 2003, averaged out to 1.84 positions per year. On those same figures using the starting point of 1991, Boulton opined that 1.5 employees would have been required to run W.C.C.L. These employees would have consisted of the president and vice-president.
[93] Mr. Knubitat from Price, Waterhouse, Coopers, (P.W.C.), suggests that the appropriate compensation should be based on only one employee. He says that he bases this estimate on the transcript of the examination for discovery of Gordon Wonsch. Those discoveries in the view of Knubitat, indicated that Gordon played the key role in the development of the Cabana Road property. He criticizes Mr. Boulton’s concept as reflecting payback for prior years, as opposed to being reflective of the actual work performed.
[94] Gordon’s testimony at trial on the point is more consistent with Mr. Knubitat’s observations, as I have already noted. However, despite that testimony and its frailties, it is not inconsistent with the idea that as W.C.C.L. began to become profitable again, that Kenneth and Charles would have resumed greater roles. By 1997 even Mr. Boulton (not taking into account guarantee fees) felt that there was an overpayment of management fees, based on the work done.
[95] It appears therefore that a combination of the two manpower formulae is appropriate. I therefore find that the notional management compensation should be based on one person from 1991 to 1996, and 1.5 people from 1997 to 2003.
[96] This also takes into account the fact that this is a family corporation, where strict adherence to the “bottom line” may be relaxed in favour of some concession to family members who may have contributed to the enterprise.
NOTIONAL SALARIES
[97] The notional salaries should be calculated as if they had been paid to arms length employees. Based on the premise that they should be paid for one person from 1991 to 1996 and 1.5 people from 1997 to 2003, the one person should be the CEO or president (Gordon), and the .5 person should be the vice-president (a combination of Charles and Kenneth). The experts differ in their assessment of what would constitute fair market compensation.
[98] Mr. Boulton criticized the P.W.C. report for starting in 1995 and putting the company in the 25 th percentile. That P.W.C. report is based on annual sales of 1 million dollars. Boulton then calculates the average annual sales as listed in Schedule 8 of the P.W.C. report as 1.4 million dollars and concludes therefore that the compensation should be based on 1.5 million. While his mathematics are correct I disagree with his analysis.
[99] The brothers claim compensation based on a starting point of 1980. Mr. Boulton himself decreases the alleged executive compensation based on the same starting point. It seems that it is disingenuous for Mr. Boulton to criticize the calculations of the P.W.C. report, and then use those same calculations to the advantage to the party which called him as a witness.
[100] If the calculations are to be consistent from the starting point of 1991, the average sales are $842,000. This figure is similar to the figure arrived at by Mr. Knubitat. Although Mr. Knubitat did not calculate the average sales on the same basis as I have, he arrives at much the same conclusion. Knubitat based his calculations on the estimated proceeds from sales of properties under development, not the gross revenues as calculated by Mr. Boulton.
[101] The Doher report commissioned by the brothers, appears to use the same basis as Mr. Knubitat in calculating the revenue of the company. Accordingly, where the evidence of Knubitat conflicts with that of Boulton, on the point, I accept the evidence of Knubitat. The notional management compensation will therefore be based on 1 million dollars.
AMOUNT OF NOTIONAL COMPENSATION
[102] Both L.R.T.S. and P.W.C. accessed data from the Economic Research Institute Incorporation survey database to assess arms length value for management compensation. As stated above, they obviously applied those values to their own estimates of sales by W.C.C.L. This point has been addressed in the previous paragraph, and I have already accepted Mr. Knubitat’s reasoning on the point. I have already decided that appropriate management compensation from 1991 to 1996 should be based on one person, and from 1997 to 2003 on 1.5 people. The only issue therefore is to decide which of the approaches of Mr. Knubitat is appropriate. Reference must be made to Schedule 8 of the P.W.C. report of July 30, 2003.
[103] Approach #1 is ruled out as inappropriate by Mr. Knubitat himself. While it is tempting to make a concession to the brothers for their hard work in saving the company by establishing the notional compensation based on gross sales (Approach #2, Schedule 8) it would again be inconsistent with the accounting method used in the Doher report (Exhibit 15) and accepted by W.C.C.L. The accounting principles which formed the basis of the Doher report, were calculated on gains on sales not gross sales. I find therefore, to be consistent, that the combined salary and incentive approach in example #3, Schedule 8 is the most appropriate model.
[104] The P.W.C. report has no notional figures for the years 1991 to 1996. However Mr. Boulton used the same E.R.I. data, but based his figures on sales of 1.5 million rather than 1 million, and 1.5 employees rather than one employee. (See Schedule 1, Exhibit 16).
[105] To reduce Mr. Boulton’s figures to coincide with those of Mr. Knubitat, would require each of the above figures to be multiplied by two-thirds, for a total of four-ninths. Multiplying the figures in Schedule 1 by four-ninths would produce the following notional compensation rates for one person based on one million dollars in sales:
1991 $143,182 x 4/9 = $63,636.44
1992 $145,333 x 4/9 = $64,592.44
1993 $147,948 x 4/9 = $65,754.66
1994 $148,288 x 4/9 = $65,905.77
1995 $151,464 x 4/9 = $67,317.33
1996 $153,826 x 4/9 = $68,367.11
TOTAL 1991-1996 $395,573.75
[106] From 1997 to 2003 Mr. Knubitat felt that only one employee was required. I found that 1.5 employees would be more appropriate. Those employees should be the president (Gordon), and one-half of a vice-president’s position.
[107] The president’s notional wages from 1997 to 2002 according to approach #3 in Schedule 8 of the P.W.C. report, total $639,565. In 2003 the figure was based on part of the year. Mr. Knubitat assesses the base salary at $87,550 but gave no incentive figure. In the previous year a bonus of $18,886 was notionally paid on a salary of $85,000. Using a proportional bonus to the end of 2003 would result in incentive pay of a further $19,320.38. Accordingly the notional compensation for the president for the years 1997 to 2003 should be $19,320.38 plus $639,565 for a total of $658,885.38.
[108] Because Mr. Knubitat based his calculations on only one management employee, there are no figures available for the vice-president’s position.
[109] Mr. Boulton’s figures for the vice-president were premised on 50% of the annual salary as disclosed by the E.R.I. survey. Those figures of course are based on sales of 1.5 million, and must be reduced by the same formula applied to the notional compensation for the president from 1991 to 1996. Accordingly, the figures from 1997 to 2003 will be reduced by multiplying them by one-third.
[110] Those figures are as follows:
1997 $73,202 ÷ 3 = $24,200.66
1998 $73917 ÷ 3 = $24,639.00
1999 $75,210 ÷ 3 = $25,070.00
2000 $77,263 ÷ 3 = $25,754.33
2001 $79,219 ÷ 3 = $26,406.33
2002 $81,000 ÷ 3 = $27,000,00
2003 $83,004÷ 3 = $27,668.00
TOTAL $180,938.32
[111] Neither Mr. Boulton nor Mr. Knubitat discussed incentives for a vice-president, so none is notionally awarded.
[112] Accordingly I find that during the years 1991 to 2003, the appropriate management compensation which should have been paid to Gordon, Charles and Kenneth if they were at arms length to W.C.C.L. is as follows:
(a) 1991 – 1996 – President $395,573.75
(b) 1997 – 2003 – President $658,885.38
(c) 1997 – 2003 – ½ of Vice-president $180,938.32
TOTAL $1,235,397.45
[113] The total management salaries paid by the brothers to themselves was:
1991 – 1996: From LRTS Report Schedule 1 $ 185,040.00
1997 – 2003: $3,316,800.00
TOTAL $3,501,840.00
[114] Accordingly the overpayment of management compensation by the brothers to themselves at the expense of the Trust and Roy Bryan Wonsch is:
$3,501,840.00
less $ 1,235,397.45
Total: $2,266,442.55
FUNDING THE TRUST AND THE PASSING OF ACCOUNTS
[115] Gordon and Charles passed the accounts of the Trust on August 5, 2003. Notice of the passing of accounts was given to Mr. Robert E. Barnes, Q.C., who accepted the Notice on behalf of the plaintiffs. No objection was made to the passing of the accounts by anyone. Presumably the accounts were approved. (Exhibit 42)
[116] The affidavit verifying the estate accounts was signed by both Gordon and Charles and indicated that the information contained in the application was true. This was not the case.
[117] Gordon testified that when Mrs. Wonsch died she had approximately $250,000 in the residue of her estate. None of it went to the Bryan Wonsch Family Trust. Section 3.10 of the Will directed that the residue of the estate be divided into six equal shares. Each of her “five children” was to receive one share. The Trust was to receive the sixth share. The Trust did not receive its share.
[118] Gordon’s justification for this conduct was that the money destined for the Trust was used to fight the Danzig litigation for the benefit of the Trust and to save Bryan’s shareholdings. They again did not seek legal advice on this point. Gordon claimed to be allowed to do this by paragraph 17 of the Trust document.
[119] To be fair to Gordon and Charles, they and the other siblings contributed their distributive shares of Agnes Reid Wonsch’s estate for the same purpose. (See Exhibit 6, Tab 16). Gordon conceded that these funds helped the brothers as well as the Trust. He also said that he and Charles sought no trustees’ compensation, except for $3,500 in costs. This is an inaccurate statement, which shows that Gordon’s memory is not perfect.
[120] The passing of accounts indicates on page 19:
“Compensation claimed for the period commencing January 1, 1996 and ending December 31, 200:
To Charles Wonsch $3,500
To Gordon Wonsch $3,500
TOTAL: $7,000
[121] I cannot say that Gordon is wrong on this point. It was a gamble to help preserve the Wonsch group and ultimately Bryan’s share. In hindsight the gamble succeeded and Bryan and the Trust are now better off as a result.
[122] This is different from the purchase of the sisters’ shares where there was no benefit to the Trust fund by that transaction. That transaction only benefitted the brothers. It cannot be said that this was not for the benefit of the Trust fund, and incidentally Bryan.
[123] I cannot condone their methods however. I am mindful of the principle that any remedy I fashion should not be to punish Gordon and Charles for their actions, but to restore the aggrieved party to its original position. Bearing in mind however that the brothers benefitted (as well as did Sharon and Sheila) from the gamble, I see no reason why Gordon and Charles should profit doubly from Bryan’s share also. They did nothing to inform Bryan or the Trust of the basis of their decisions and simply as trustees committed Bryan’s share to fight the litigation along with their own and their sisters’ shares. While they and their sisters also ultimately benefitted from their decisions as estate trustees of their late mother, I don’t believe that they should be doubly compensated for it. Their trustees compensation was approved by all of the beneficiaries in accordance with s. 20 of the Trust document. Bryan’s share in addition to contributing to the increase in value of their own shares, was never repaid to him or the Trust once the company became profitable.
[124] Accordingly, Gordon and Charles or either of them will personally repay the Bryan Wonsch Family Trust $50,000 plus interest at the statutory rate under the Courts of Justice Act from the date of Bryan’s 65 th birthday until payment.
SALE OF LOTS TO BROTHER’S CHILDREN
[125] The plaintiffs complain that certain lots in the Cabana subdivision were sold at a discount to the children of Kenneth, Gordon and Charles. Gordon admitted as much.
[126] However, Gordon insisted and I have no reason to disbelieve him, that Bryan’s oldest son purchased a lot in one of the previous subdivisions developed by W.C.C.L. at a discount. Bryan’s son Paul needed money at one time and W.C.C.L. lent him the money.
[127] While Gordon admitted the non-disclosure of these transactions, I do not feel that it is significant. The lots were not given to the children for free. They were sold at a discount to family members, including some members of Bryan’s family. I would expect as part of a family enterprise that, within reason, this could be done. All of the lots were used for the children’s own personal houses.
[128] I decline to find that these transactions oppressed the minority.
REMEDIES FOR OPPRESSION
[129] The guiding principle to redress acts of oppression is not to punish the wrongdoer but to restore the aggrieved party to his proper position before the acts were committed. There is wide latitude given to a trial judge, who must fashion a remedy that is just and equitable. This may very well depend on the ingenuity of the trial judge. (See Naneff v. ConCrete Holdings Ltd. (1993) 11 B.L.R. (2d) p. 218.)
(a) Lack of Notice
[130] The lack of notice and lack of financial disclosure, in effect, keeping Bryan in the dark, are all subsumed in the remedies with respect to the sisters’ shares and excessive compensation. Nothing needs to be done about those acts of oppression.
(b) The Sisters’ Shares
[131] The brothers paid $150,000 to the sisters for their shares. ($75,000 to Sharon; $75,000 to Sheila). Gordon testified that this was probably too much at the time, and a gamble. The gamble paid off.
[132] Had the Will of Agnes Reid Wonsch been adhered to, Bryan and the Trust should have participated in this purchase. His share of the payments would have been $37,500, or $18,750 payable to each sister. The brothers by their actions set the sale price, even though there was no shareholders’ agreement entered into as required by the Will.
[133] This transaction will be set aside as follows:
¼ of the shares purchased by the brothers should be sold to Bryan and the Trust in exchange for a payment by Bryan and the Trust to the brothers totaling $37,500.
As will be discussed in the next paragraph, this can be done either notionally or actually depending on the advice of the accountants.
(c) Excessive Management Compensation
[134] The parties have asked that I only determine the actual excessive management compensation. They have specifically requested that the method of redress be left to the parties and their accountants who will decide whether it is better to purchase the shares of Bryan and the Trust or simply to declare dividends. This will depend on the tax implications of each.
[135] I have found the excessive management compensation to be $2,266,442.55. This amount will be notionally returned to the company, and Bryan and the Trust will be compensated for their share of the value of the company based on this amount being an asset and their respective shareholdings. Bryan’s and the Trust’s existing shareholdings, will be augmented by their share of Sharon and Sheila’s holdings as calculated in the previous heading. This is done to achieve parity [7] and concordance with the wishes of Agnes Reid Wonsch. Mrs. Wonsch wished that her children share equally in the growth of the company, and that if any of them wished to sell their shares, those shares should have been made available to all of the other siblings.
[136] The best way to compensate Bryan and the Trust will be left to the parties to resolve, either by the brothers purchasing the shares or some other method after consultation with the accountants. Consultation with the accountants is necessary to reduce the tax implications of any remedy.
[137] I have not discussed interest on the amount of excessive management compensation. Interest was not addressed in argument by counsel. If the parties cannot agree on whether it is to be awarded or on what basis, further argument will be required. Hopefully this will be dealt with by the accountants as well.
COSTS
[138] The plaintiffs may address costs within 30 days by written submissions of no longer than 20 pages.
[139] The defendants will respond within 30 days, by written submissions no longer than 20 pages.
[140] The plaintiffs will then reply within 15 days of receipt of the defendants’ submissions.
[141] Order accordingly.
