Executive Summary: Key Legal and Evidentiary Issues

• Plaintiffs alleged the Ortegas misappropriated funds from Crispar Investments Inc. and its subsidiary, Twin Rivers Motel Inc., to enrich themselves and improve their personal properties.

• Defendants sought to strike the notice of civil claim under the rule in Foss v. Harbottle, arguing the wrongs were done to Crispar, not to the plaintiffs individually.

• Certificates of pending litigation (CPLs) filed against five Ortega properties were challenged on the basis that no interest in land was properly pleaded under s. 215 of the Land Title Act.

• The court considered whether shareholder oppression claims under the Business Corporations Act could overlap with derivative actions in the context of a closely held corporation.

• Fiduciary duty claims against Mr. Ortega were struck because directors owe fiduciary duties to the corporation, not to individual shareholders, as affirmed in BCE Inc v. 1976 Debentureholders.

• On consent and on a without prejudice basis, the court ordered $250,000 paid out of the funds held in trust to each of Mr. Esegbona and Mr. Ortega as partial repayment of their shareholder loans.

The failed business venture behind the dispute

Unuakpor Esegbona and Karen Thompson (the plaintiffs) and Christopher and Erica Ortega (the defendants) incorporated Crispar Investments Inc. on June 30, 2016, to manage real estate investments in the Castlegar area of British Columbia. Mr. Ortega and Mr. Esegbona were both directors and shareholders of Crispar. Ms. Ortega and Ms. Thompson, their then respective spouses, were shareholders. The parties did not have a shareholder agreement. Through Crispar, they acquired three properties in Castlegar: a commercial strip mall, the Twin Rivers Motel (held through a wholly owned subsidiary, Twin Rivers Motel Inc.), and a restaurant.

Breakdown of the business relationship and prior proceedings

The business relationship between the parties broke down in circumstances that are highly in dispute. On November 18, 2021, the Ortegas filed a petition seeking to address the breakdown, including orders for a forensic accounting of Crispar and the liquidation of its assets. On January 21, 2022, the court made a consent order providing, among other things, that the parties would list Crispar's assets for sale, have the Motel valued, and engage an accountant to conduct a forensic accounting of Crispar. On May 13, 2022, Justice Lyster varied the consent order, restraining Mr. Esegbona and Ms. Thompson from managing the Motel and granting the Ortegas the power to manage it pending its sale. On or about June 28, 2022, Crispar sold the strip mall, and the restaurant was also sold at or about that time, with the net proceeds of both placed in trust. On August 24, 2022, Justice Hori held Mr. Esegbona in contempt for failing to provide the username and password to a GoDaddy.com account related to the Motel and ordered him to provide same to the Ortegas.

The plaintiffs' notice of civil claim

On October 19, 2023, Mr. Esegbona and Ms. Thompson filed a notice of civil claim against the Ortegas and Crispar. The plaintiffs alleged that the defendants misappropriated income and assets of Crispar and excluded the plaintiffs from active participation in the company, and that the defendants failed to provide complete or accurate accounting for Crispar. In March 2024, by consent, the Ortegas' petition was converted into an action and the two proceedings were consolidated and ordered to be heard together. Justice Lyster further ordered that Twin Rivers be listed for sale and sold forthwith. The shares in Twin Rivers were sold in or about June 2025, and the net sale proceeds were put in trust. As matters stood at the time of the hearing, approximately $1,300,000 was held in trust as a result of the sale of all of Crispar's assets, and Crispar had ceased to operate in any meaningful sense.

The plaintiffs' allegations of oppression and unjust enrichment

The plaintiffs alleged shareholder oppression under the Business Corporations Act, claiming conduct they defined as "Oppressive Conduct," including that Mr. Ortega instructed the office manager to alter and destroy Twin Rivers' financial ledger to eliminate all reference to defalcated cash payments, that the defendants caused Twin Rivers to under-declare its income and over-declare its expenses, that the defendants caused Twin Rivers to pay inflated salaries to the defendants and closely related family members, and that the Ortegas took up personal residence at the Motel on a gratuitous basis while renting out their own properties for a profit. The plaintiffs further alleged that the defendants used funds misappropriated from Crispar and Twin Rivers to acquire, preserve, maintain and improve their own properties and assets, including five named properties (the "Ortega Properties"), and that by doing so, the defendants had been unjustly enriched to the detriment of the plaintiffs. The plaintiffs claimed entitlement to a constructive trust over the Ortega Properties and caused CPLs to be filed against them.

The defendants' application to strike and the rule in Foss v. Harbottle

The Ortegas applied pursuant to Rule 9-5(1)(a) of the Supreme Court Civil Rules to strike the notice of civil claim, with leave to amend, on the basis of the rule in Foss v. Harbottle. They submitted that the wrongs alleged were wrongs done to Crispar, not to the plaintiffs individually, and that the plaintiffs therefore had no personal claim. They acknowledged that the plaintiffs could apply for leave to file a derivative action on behalf of Crispar but noted that they had not done so. They further submitted that the oppression claim should have been brought by way of a petition, not a notice of civil claim, and that the CPLs should be discharged pursuant to s. 215 of the Land Title Act on the basis that no interest in land had been pleaded.

The plaintiffs' reliance on the oppression remedy

The plaintiffs relied on ss. 227 and 324 of the BCA, asserting the oppression remedy rather than seeking to assert a derivative action. They submitted that an oppression action and a derivative action are not mutually exclusive, relying on Furry Creek Timber Corp v. Laad Ventures Ltd., the Ontario Court of Appeal's decision in Malata Group (HK) v. Jung, Chen v. Dang, and the B.C. Court of Appeal's decision in Yen v. Ghahramani. In Yen, the Court of Appeal held at para. 71 that there are sufficient Canadian authorities that essentially blur the line between oppression and derivative actions in cases involving the misappropriation of assets of closely held corporations, such that it is no longer correct to say these assertions would be "bound to fail."

The court's ruling on the notice of civil claim

Justice Lyster concluded that not all claims made in the notice of civil claim were bound to fail. The claim was, in its essence, an oppression claim, and because Crispar was a closely held company with the individual parties being its sole shareholders, it could not be said that the oppression claims were bound to fail, following Yen. However, the court struck several specific claims. The claims related to Twin Rivers were struck on the basis that the plaintiffs were never shareholders in Twin Rivers, there was no allegation that they were the beneficial owners of the shares in Twin Rivers, and the court was unable to see how the plaintiffs could have an oppression claim with respect to conduct related to a subsidiary company formerly owned by Crispar. The breach of fiduciary duty claims were struck because, as stated in BCE Inc v. 1976 Debentureholders, directors owe a fiduciary duty to the corporation, and only to the corporation — not to individual shareholders. The constructive trust claims over the Ortega Properties were struck because any constructive trust would be for the benefit of Crispar, not the plaintiffs; the funds alleged to have been misappropriated belonged to Crispar, and the plaintiffs' oppression claim could not go so far as to give them an equitable claim over the Ortegas' properties. The court noted that the use of a notice of civil claim rather than a petition was a procedural irregularity but not a fatal flaw, citing Rule 22-7(3). The plaintiffs were ordered to file an amended notice of civil claim conforming to the court's reasons within 30 days.

Discharge of the certificates of pending litigation and final orders

The court ordered all five CPLs discharged pursuant to s. 215 of the Land Title Act. The notice of civil claim did not properly plead an interest in the five Ortega Properties: the plaintiffs did not assert a specific interest in any specific property, did not assert that any particular funds were used to acquire, preserve, maintain, or improve any particular property, and there were insufficient material facts pleaded to support a claim in unjust enrichment and thus to establish an interest in land. The court further noted that a shareholder does not have a proprietary interest in the assets of the company, and still less does a shareholder have a proprietary interest in assets purchased or improved with assets of the company. On consent and on a without prejudice basis, the court ordered $250,000 paid out of the funds held in trust to each of Mr. Esegbona and Mr. Ortega as partial repayment of their shareholder loans, for a total of $500,000 released from the approximately $1,300,000 held in trust. The Ortegas succeeded on their applications to discharge the five CPLs and to strike the fiduciary duty, constructive trust, and Twin Rivers-related claims, while the plaintiffs' core oppression claim survived. The question of costs was not determined; counsel were given 30 days to request to appear for oral submissions on costs if they were unable to agree.