Executive Summary: Key Legal and Evidentiary Issues

• Quorum requirements under Article 11.3 of ALNA's Articles of Incorporation were disputed, specifically whether "two persons" could represent the same shareholder

• Interpretation of the plural word "shareholders" in Article 11.3 was central, with the appellant arguing that s. 28(3) of the Interpretation Act should allow the plural to include the singular

• Validity of resolutions passed at the March 5, 2024 shareholders' meeting and subsequent directors' meeting was challenged due to the absence of the minority shareholder

• Competing oppression claims between the two shareholders complicated the court's exercise of discretion under ss. 186 and 229 of the BCBCA

• The standard of review for interpreting articles of incorporation was determined to be correctness, given their constitutional and legislative character

• Articles 11.7 and 11.8, which allow quorum to be achieved at an adjourned meeting with only one shareholder present, were overlooked by the chambers judge

Background of the dispute

Darryll Frost and Elsie (Hang) Li incorporated ALNA Packaging Co. Ltd. ("ALNA") in 2018. ALNA distributes aluminum can bodies and ends, primarily manufactured in China, to North American buyers. Through the Frost Family Trust, Mr. Frost controls 55% of ALNA's 100 issued and outstanding Class A shares. Through the respondent 1384604 B.C. Ltd., Ms. Li controls the remaining 45%. On incorporation, Mr. Frost and Ms. Li were ALNA's only two directors. Their business relationship deteriorated, leading to competing oppression claims in respect of ALNA. Mr. Frost sued Ms. Li and various corporations she or her parents control, alleging she improperly diverted significant ALNA funds and was responsible for understating ALNA's income, resulting in significant tax liability. Ms. Li also sued Mr. Frost, alleging that he improperly diverted ALNA's funds to a corporation controlled by him, and in which ALNA is a significant shareholder.

The March 5, 2024 shareholders' meeting

In January 2024, Mr. Frost issued a requisition for a meeting of ALNA's shareholders. He issued a subsequent notice that the shareholders' meeting would be held on March 5, 2024, for the stated purposes of increasing the number of ALNA's directors from two to three and electing Murray Lott, ALNA's corporate solicitor, as the third director. The March 5 SHM was attended by Mr. Frost, Mr. Frost's wife (who held a proxy for five of Mr. Frost's shares), and Mr. Lott. Ms. Li did not attend the meeting and was not represented by proxy. Mr. Lott chaired the meeting, determined that the notice had been validly given and a quorum was present, and all of Mr. Frost's ALNA shares — the 55% majority — were voted in favour of increasing the size of the board of directors and electing Mr. Lott as ALNA's third director.

The March 5, 2024 directors' meeting

Mr. Frost also delivered a notice of directors' meeting to immediately follow the shareholders' meeting. Ms. Li did not attend the directors' meeting. Together, Mr. Frost and the newly-appointed director, Mr. Lott, passed a number of resolutions including: electing Mr. Frost as ALNA's president and chief executive officer; revoking Ms. Li's ability to engage in ALNA's operating activities; requiring Mr. Frost's approval, together with Ms. Li or ALNA's controller, for all banking transactions; and appointing a special committee, comprised solely of Mr. Lott, to address issues with ALNA's tax filings and the commencement of proceedings against Ms. Li with respect to the "improper diversion of corporate funds and corporate opportunity."

Events following the March 5 meetings

On March 6, 2024, Ms. Li commenced an oppression action against Mr. Frost and ALNA, alleging that Mr. Frost caused ALNA's affairs to be conducted in a manner that is oppressive or unfairly prejudicial to her and in violation of her reasonable expectations as a shareholder. On the same day, ALNA's bank froze its corporate accounts, citing the ongoing shareholder dispute, and advised that it would only permit ALNA to pay operating expenses with the agreement of both shareholders. By an April 19, 2024 consent order, the parties agreed to appoint a monitor who can decline to approve ALNA's payments and disbursements that are not in accordance with the ordinary operation of ALNA's business or are otherwise improper.

The quorum issue and Article 11.3

The central legal question was whether a valid quorum existed at the shareholders' meeting. Article 11.3 of the Articles states that quorum is established by "two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting." The threshold issue was whether the "two persons" referred to in Article 11.3 could consist of a shareholder (Mr. Frost) and a proxyholder (Ms. Frost as to 5% of Mr. Frost's shares) representing the same shareholder, thereby establishing quorum. ALNA argued that one shareholder would be sufficient to establish a quorum so long as the one shareholder is represented by "two persons" and holds at least 5% of the issued shares entitled to be voted at the meeting. The appellant further argued that s. 28(3) of the Interpretation Act, which provides that "words in the singular include the plural, and words in the plural include the singular," should apply to read "shareholders" in Article 11.3 as including a single shareholder.

The lower court decision

The chambers judge at the Supreme Court of British Columbia, in reasons indexed as Alna Packaging Co. Ltd. v. Frost, 2025 BCSC 387, held that a quorum was not present at the March 5 SHM, and so the resolutions expanding the board and appointing Mr. Lott as a director were invalid. As a result, the resolutions passed at the directors' meeting were also invalid. The chambers judge concluded that the use of the plural word "shareholders" in Article 11.3 implies that more than one shareholder had to be represented to establish quorum. She held that s. 28(3) of the Interpretation Act did not change this conclusion, nor did Articles 12.7, 12.9 and 11.5, which allow for the appointment of proxies and address voting and quorum in certain circumstances. The chambers judge further declined to validate the resolutions under s. 229 of the BCBCA, reasoning that because of the significant overlap between the petition allegations and Ms. Li's oppression action, which is centered on the March 5 SHM, it would be inappropriate to remedy the lack of quorum by validating the resolutions, as Ms. Li's oppression claims had not been tested with the fullness of evidence. Finally, the chambers judge declined to order a shareholders' meeting under s. 186(1) and (2) of the BCBCA, holding that ordering a meeting requiring only one shareholder to be present at quorum would be no different than validating the March 5 SHM resolutions, and that there was no other proposal for the calling, holding, or conduct of a shareholders' meeting.

The appeal and standard of review

On appeal to the Court of Appeal for British Columbia, Mr. Frost challenged both the quorum finding and the refusal to order a shareholders' meeting. The Court of Appeal determined that the standard of review for interpreting the Articles was correctness, noting that the wording of Article 11.3 is not unique and mirrors, for the most part, the wording in the standard form articles of incorporation set out in Table 1 to the BC Business Corporations Regulation, B.C. Reg. 65/2004. The Court also observed that a corporation's articles are more akin to legislation than its by-laws, and cited the Supreme Court of Canada's holding in Duha Printers (Western) Ltd. v. Canada, [1998] 1 S.C.R. 795, that articles of incorporation are "constitutional" in nature. On the quorum issue, the Court of Appeal agreed with the chambers judge, holding that Article 11.3 is not designed merely to prevent participants from being alone at the meeting but rather to ensure that, where there are multiple shareholders, at least two perspectives will be represented. That purpose is not met if only a single shareholder attends, even where that shareholder sends two agents to represent its position. The Court acknowledged that while s. 28(3) of the Interpretation Act must be considered in interpreting the Articles, it should not be allowed to overwhelm the evident purpose of their provisions, and that unless the corporation has only a single shareholder, the Articles require a quorum of two.

The ruling on the shareholders' meeting order and disposition

However, the Court of Appeal found that the chambers judge committed palpable and overriding errors in declining to order a shareholders' meeting under s. 186 of the BCBCA. The chambers judge had overlooked Articles 11.7 and 11.8. Article 11.7 provides that, for any meeting other than a requisitioned meeting, if a quorum is not present within half an hour, the meeting stands adjourned to the same time and place, one week later. Article 11.8 provides that at the adjourned meeting, those present and being, or represented by proxy, one or more shareholders, constitute a quorum. If a meeting were ordered under s. 186, then pursuant to Articles 11.7 and 11.8, Ms. Li would have the opportunity to attend, and if she chose not to attend, it would give ALNA an opportunity to achieve quorum validly under the Articles. The Court also noted that the transcript of the proceeding below demonstrates that counsel for Mr. Frost had brought this possibility to the chambers judge's attention. The Court further held that, to the extent the chambers judge declined to order a meeting as a result of Ms. Li's ongoing oppression action, the existence of that action is irrelevant if the meeting is called in a way that is consistent with ALNA's Articles. The appeal was allowed in part, and the Court ordered an ALNA shareholder meeting under s. 186 of the BCBCA, reasoning that without a shareholder meeting, ALNA is at an impasse and cannot address corporate governance issues, and that an order under s. 186 would allow ALNA to achieve quorum, thereby resolving the impasse. No specific monetary amount was awarded in this decision, as the relief granted was procedural in nature.