Executive Summary: Key Legal and Evidentiary Issues

• Applicant failed to meet the legal threshold for injunctive relief under the RJR-MacDonald test, lacking evidence of irreparable harm or a favorable balance of convenience.

• The Mareva and Norwich orders sought were found to be unjustified due to insufficient evidence of asset dissipation or third-party involvement.

• Affidavit evidence from the applicant relied on unsupported, AI-generated financial analysis that lacked credibility and detail.

• Respondents successfully rebutted claims of misappropriation, showing payments were for legitimate business expenses.

• The court found no prima facie case of fraud or misconduct to justify the relief sought.

• Leave to commence a derivative action was dismissed as a collateral attempt to advance the applicant’s personal interests.

Facts and procedural background

This case involved a shareholder dispute within a closely held Ontario corporation operating a retail cannabis store in Cochrane, Ontario. The applicant, Alexander William Forrest Milton, was one of three equal shareholders and directors of the corporation, along with respondents Sam Cotton and Yasas Weerasingha. The corporation operated under the brand “High Society Cannabis,” which also included three other stores owned solely by Cotton and Weerasingha. The Cochrane store was the only one in which Milton held an interest.

Milton brought two motions before the Ontario Superior Court of Justice. First, he sought injunctive relief to remove Cotton and Weerasingha from control of the corporation, alleging financial misconduct, exclusion from operations, and misappropriation of corporate funds. Second, he sought leave to bring a derivative action on behalf of the corporation against the same individuals, relying on section 246 of the Ontario Business Corporations Act.

Milton alleged that Cotton and Weerasingha improperly excluded him from the company’s financial and operational affairs, misused corporate funds for personal benefit, and jeopardized the business through mismanagement. He claimed that his expertise in IT and operations was essential to the business’s success and that his exclusion constituted oppressive conduct.

In response, the respondents denied any wrongdoing. They argued that the contested financial transactions were legitimate expenses including rent, repayment of startup loans, and salaries for operational work. They further asserted that Milton had access to financial documents and bank records and had interfered with business operations, causing disruption to payroll and government remittances.

Court’s analysis and outcome

The court found that while the dispute raised serious issues, Milton had failed to meet the legal test for the extraordinary relief he sought. The request for injunctive relief was evaluated under the established RJR-MacDonald test: serious issue to be tried, irreparable harm, and balance of convenience. While a serious issue was acknowledged, the court held that Milton had not shown irreparable harm nor demonstrated that the balance of convenience favored his position.

The court was particularly critical of Milton’s evidentiary approach. His affidavit relied on a self-created AI tool to analyze financial data, generating conclusions about "sham loans" and self-dealing. The court found this method to be conclusory, lacking transparency and detail, and inadmissible as credible evidence. It noted that Milton’s own affidavit was contradictory—he claimed to be shut out from records while also presenting detailed analysis of those same records.

The court accepted the respondents' explanations that the contested payments were for legitimate business purposes. It also found no evidence of asset dissipation or wrongdoing sufficient to justify a Mareva injunction or Norwich order. The judge ruled that the application lacked the evidentiary foundation necessary to disturb the corporate status quo or exclude two of the three shareholder-directors from operations.

Regarding the motion for leave to bring a derivative action, the court dismissed it on the basis that Milton was not acting in the interests of the corporation but was instead using the motion to advance personal grievances. The proposed action substantially duplicated the relief sought in the rejected injunction motion and was found to be an improper use of the derivative procedure.

Final disposition

Both motions were dismissed with costs payable by Milton to Cotton and Weerasingha. The court ordered that the application be converted into an action and set a timetable for pleadings and discovery. It also imposed procedural controls to prevent further motions without prior case management. The court urged the parties to consider a mediated resolution given the limited financial viability of the business and the contentious nature of the dispute.