Executive Summary: Key Legal and Evidentiary Issues

• Alleged oppressive and unfairly prejudicial conduct by majority shareholders against the minority interest of Michael Masters in Masters Development Company Limited.

• Dispute over the validity and process of Michael Masters’ removal as director, including compliance with the corporation’s by-laws and The Corporations Act.

• Issues regarding access to and timeliness of financial information provided to Michael Masters and his estate.

• Claims concerning the non-payment of bonuses, director’s fees, and shareholder loans to Michael or his estate, contrasted with payments made to other family members.

• Consideration of whether the applicant’s expectations were objectively reasonable given the corporation’s informal, family-run structure and historical practices.

• Analysis of the respondents’ equitable set-off claim for losses caused by Michael Masters to the corporation against any amounts potentially owed to his estate.

Facts of the case

Masters Development Company Limited is a family-owned corporation operating a seasonal resort on approximately 118 acres near Petersfield, Manitoba. The land was originally farmed by the family patriarch and, after his death, developed into a resort business by his spouse, Mary Patricia Masters, and their three children: Michael Masters, Richard Masters, and Patricia Jane (“Jane”) Hatter. The corporation was established in or about 1987, with each family member allotted 25 shares and elected as directors. The corporation was intentionally run simply and informally, with cost-saving measures such as no audits of financial statements, informal meetings, and remuneration only for those who worked for the corporation. These principles were incorporated into the by-laws with legal advice.

From as early as 1989, Michael Masters’ conduct caused conflict and financial harm to the corporation. Incidents included unauthorized changes to a corporate loan, forging cheques, causing property damage, making side deals with tenants, and negotiating unauthorized transactions. In 1994, Michael was removed as a signing authority and officer. After a period away, Michael returned in 2004 but resumed disruptive conduct, including damaging property and interfering with corporate operations. In 2010, Michael was removed as a director at a meeting he refused to attend, due to concerns that his continued involvement threatened the corporation’s existence.

Michael passed away on April 30, 2013. Meggan Masters, his daughter, was granted probate as executrix of his estate on November 19, 2013. The dispute between the corporation and Michael continued with Meggan, who sought information and compensation allegedly owed to Michael or his estate.

Claims and legal arguments

Meggan, as executrix, applied under s. 234 of The Corporations Act, alleging that the majority shareholders engaged in conduct oppressive, unfairly prejudicial to, and in unfair disregard of Michael’s minority interests. She claimed improper removal of Michael as director, refusal to provide financial information, non-payment of compensation, bonuses, and director’s fees to Michael or his estate, and refusal to repay Michael’s shareholder loan while paying out director’s fees and bonuses to others. Meggan argued that a sale of the corporation’s assets was the appropriate remedy.

The respondents denied these claims, arguing that Michael was removed for cause due to serious misconduct, and that compensation and bonuses were paid only to those who worked for the corporation. They stated that there were never any dividends or shareholders’ loans paid out, and that financial information had been provided as required. The respondents maintained that the application was an attempt to extract an economically favourable buyout, not a legitimate oppression claim.

Discussion of policy terms and by-laws

The court reviewed the corporation’s by-laws and historical practices, noting that the founders agreed to operate informally, forgo audited financial statements, and limit shareholders’ rights to demand financial disclosure. Section 47 of the by-laws specifically limited the right of a shareholder to demand discovery of corporate documents. The court found that the corporation’s conduct was consistent with these principles and the legal advice received.

Analysis and findings

The court determined that Michael’s removal as director was justified and reasonable, given his conduct and the risk it posed to the corporation. The expectation that he would not be removed, despite his actions, was found to be unreasonable. Regarding financial disclosures, the court held that while Meggan’s expectation for information was reasonable once disputes arose, the corporation’s response—though not immediate—was ultimately reasonable and did not amount to oppression or unfair prejudice. The court noted that the founding shareholders specifically agreed that no shareholder could demand financial disclosure, and while information was not always provided on demand, it was eventually provided.

On the issue of bonuses, director’s fees, and shareholder loans, the court found that payments were made based on work performed, not as disguised distributions of profit. The corporation’s practice of not repaying shareholder loans without unanimous consent was consistent with the founding agreement. The court also addressed the respondents’ claim for equitable set-off for losses caused by Michael, concluding that while the corporation could potentially offset such losses against any amounts owed to Michael’s estate, a reference to the Associate Judge would be required to determine the exact amounts, if any.

Ruling and outcome

The application was dismissed. The court found no evidence that the corporation conducted its affairs in a manner oppressive, unfairly prejudicial, or in unfair disregard of Michael’s or his estate’s interests. The actions of the corporation were consistent with its by-laws, historical practices, and the reasonable expectations of its stakeholders. The application was dismissed with costs. No specific monetary award was granted to the applicant, and any potential entitlement or set-off would require further proceedings before an Associate Judge, if necessary.