Executive Summary: Key Legal and Evidentiary Issues

• Whether the deadlock between shareholders justifies liquidation and dissolution of KSDI under the “just and equitable” standard in the Business Corporations Act.

• Disputes regarding compliance with the Joint Venture Agreement, including alleged improper payments and lack of financial disclosure.

• Application of the quasi-partnership analogy and its relevance to the parties’ corporate relationship.

• Consideration of whether the original business purpose (substratum) of KSDI has been exhausted.

• Relevance of the “clean hands” doctrine and shared responsibility for the breakdown in relations.

• Timing of the application for dissolution in light of ongoing litigation and unresolved financial claims.

Facts of the case

Orian Inc. (“Orian”) and Hartter Holdings Inc. (“Hartter”) are established holding corporations involved in construction and had previously worked together on projects. For a real estate development opportunity in Whitehorse, they formed a joint venture and incorporated Keish Street Developments Inc. (“KSDI”) as the vehicle for purchasing and owning the property. Orian holds 40% and Hartter 60% of KSDI’s shares, with Mr. Gilday (Orian) and Mr. Trotter (Hartter) as its two directors.

The Joint Venture Agreement (“JVA”) dated May 21, 2021, provided that Orian would invest $500,000 and act as general contractor, while Hartter would contribute the remaining capital. Capital contributions would be treated as shareholder loans, to be repaid after construction expenses and before profit distribution. Both parties, through their subsidiaries (NGC Builders Ltd. for Orian and Arcrite Northern Ltd. for Hartter), would provide construction services to KSDI at cost plus 10%. The JVA also set out procedures for dispute resolution, including mediation and arbitration, and allowed for dissolution and winding up of KSDI by agreement, with a specific order of payment for debts.

Construction of the project was completed, residential condo units were sold, and KSDI retained two commercial units with long-term leases generating about $250,000 per year in base rent. Disputes arose regarding accounting for the project: Orian claimed it was owed about $1.9 million for unpaid invoices, and Hartter claimed it was owed about $1 million. Orian alleged that Hartter violated the JVA by withdrawing funds from KSDI to pay off its construction loan with interest, rather than paying third-party debts first. Hartter contended it had not received sufficient documentation from Orian to justify payments for Orian’s cost plus 10% markup and sued Orian for alleged breaches of the JVA.

KSDI had cash of approximately $1.99 million and held equity in the two commercial units, which were subject to a mortgage of about $1.54 million, with monthly payments of $11,500 covered by $21,000 in monthly rent. The parties acknowledged being deadlocked in KSDI’s management, resulting in difficulties paying third-party obligations and requiring communication through counsel for routine matters.

Legal arguments and policy terms

Orian petitioned for relief under section 216 of the Business Corporations Act, RSY 2002, c 20, seeking liquidation and dissolution of KSDI on the basis that it was “just and equitable.” Orian cited grounds including shareholder deadlock, breakdown of mutual trust and confidence, justifiable lack of confidence in KSDI’s affairs, and loss of substratum. Orian also sought the appointment of a liquidator under section 219 to value KSDI’s assets, determine income and expenses, and conduct a forensic audit of payments made during construction.

Hartter did not dispute the legal test but argued the application was premature, that Orian only sought this relief after Hartter commenced its own litigation, and that Orian’s refusal to provide documentation contributed to the dispute. Hartter argued the real issue was financial disclosure, which could be resolved through litigation, and that the original purpose of KSDI had not been exhausted since it continued to own and manage commercial property.

Court’s analysis and outcome

Justice J.S. Little found that while the parties were deadlocked and had lost confidence in each other, the deadlock was not absolute or irrevocable, as essential third-party payments were still being made. The court noted that the relationship did not amount to a quasi-partnership as seen in other cases, and the parties’ collaboration was relatively recent and commercially motivated. The court also found that the original purpose of KSDI had not been exhausted, as the ongoing management of the commercial units remained within the company’s business purpose.

The judge determined that appointing a liquidator or dissolving KSDI would not resolve the underlying disputes, which were already the subject of litigation between the parties. The court was not satisfied that Orian had met the onus to show that liquidation and dissolution would be just and equitable. The petition was dismissed, and the parties were invited to make brief written submissions regarding costs if they could not agree.

Successful party and monetary award

Hartter Holdings Inc. and Keish Street Developments Inc. were successful in opposing the petition. The petition for liquidation and dissolution was dismissed. The total amount ordered in favor of the successful parties cannot be determined from the decision, as the issue of costs was left for further written submissions and no specific monetary award was made.