Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether a non-binding term sheet created enforceable rights to a 45% shareholding in PowerNorth.

• The court affirmed that Walden was a proper complainant under the OBCA, despite not being a shareholder.

• Reasonable expectations formed the core of the oppression claim but were not found to include guaranteed share issuance.

• Evidence showed substantive performance by Walden, but the formal transaction documents were never finalized or executed.

• Application judge held that awarding shares was inappropriate given the irreparably broken business relationship.

• The court upheld a monetary award compensating Walden for its investment and services, not ownership or profit share.

Background and factual context

Walden Electrical Ltd. and its CEO, Kris Ferguson, partnered with Nicholas Gatien and Brendon Fenton to help launch PowerNorth Utility Contractors Inc., a new high-voltage electrical contracting business. PowerNorth began operations in 2020 from Walden’s premises, with Walden providing financial backing, office space, equipment, and administrative services. The parties signed a “Non-Binding Term Sheet” that anticipated Walden receiving a 45% ownership stake in PowerNorth, contingent upon the completion of several formal transaction documents. While the parties began operating under the terms outlined in the term sheet, the required documents, including a shareholders’ agreement, were never executed.

Over time, tensions escalated, and by early 2022, PowerNorth’s principals refused to finalize the agreement. Walden and Ferguson brought an application under section 248 of the Ontario Business Corporations Act (OBCA), claiming oppression. They argued they had a reasonable expectation of obtaining a 45% shareholding and sought either the issuance of those shares or their fair value.

Legal proceedings and the initial judgment

The application judge found that Walden was a proper complainant under section 245(c) of the OBCA, even though it was not a registered shareholder. The judge emphasized that Walden had contributed $100,000 and provided various services, materially supporting PowerNorth’s growth. However, the judge concluded that issuing shares or awarding a share of profits was inappropriate, particularly given the parties’ now-hostile relationship. Instead, the court awarded Walden monetary compensation of $399,441.90, which covered its cash investment, the value of shared services and equipment, lease of premises, and interest.

The appeal and outcome

Walden appealed the judgment, arguing that the judge had failed to properly consider its reasonable expectations and should have ordered the issuance of shares or their fair value. The Divisional Court rejected the appeal. It affirmed that while the application judge did not explicitly set out the two-part test for oppression (from BCE Inc. v. 1976 Debentureholders), his analysis sufficiently engaged with the expectations and alleged oppressive conduct.

The court held that the Non-Binding Term Sheet remained non-binding, and the parties had never reached a final agreement. It rejected the argument that the conduct of the parties had transformed the term sheet into a binding deal. Moreover, it found no reversible error in the judge’s refusal to grant ownership-related remedies. The monetary award was found to be fair and within the trial judge’s discretion, particularly considering that the parties could not continue as business partners.

Conclusion

The court reaffirmed the flexible and discretionary nature of remedies under the oppression provisions of the OBCA. While the appellants’ contributions to PowerNorth were acknowledged, the absence of a finalized agreement and the deterioration of the relationship meant that compensation—not ownership—was the appropriate remedy. The appeal was dismissed, and costs of $25,000 were awarded to the respondents.