Executive Summary: Key Legal and Evidentiary Issues

• Sanovest Holdings Ltd. alleges that Daniel Matthews and Tom Kusumoto engaged in undisclosed self-interested transactions in breach of their fiduciary duties and their obligations under the disclosable interest provisions of the British Columbia Business Corporations Act (BCA), ss. 147–153.

• Matthews applied under Rule 9-5(1)(a) to strike Sanovest's Equitable Compensation Claim, arguing it is essentially a statute-based derivative claim for specific relief under the BCA, for which leave has not been sought, and offends the common law rule in Foss v. Harbottle.

• Whether s. 150(2)(c) of the BCA—authorizing the court to "make any other order it considers appropriate"—is broad enough to encompass equitable compensation presents a complex question of statutory interpretation with no definitive case authority on point.

• A Settlement Agreement between the parties included a $1.4 million holdback from purchase proceeds as security for Sanovest's claims in this action, and striking the claim would gut the purpose of that holdback provision.

• Injunctive relief is unavailable because the impugned transactions have already completed, and Matthews contends there are no profits to account for, which could leave the defendants retaining benefits of their breach if equitable compensation is unavailable.

• The Court dismissed the application to strike, finding the claim is not bound or certain to fail, and that allowing breaching directors to retain the benefits of their breach would defy the restitutionary and deterrence purposes of equitable remedies discussed in Southwind.

The business venture and the partners' dispute

Sanovest Holdings Ltd. ("Sanovest") and 599315 B.C. Ltd. ("599") are partners in a business venture at the Bear Mountain Resort community located near Langford, British Columbia. Their respective principals are Tian Kusumoto and Daniel Matthews. In addition to being partners in Ecoasis Bear Mountain Developments Ltd. ("EBMD"), Sanovest and 599 each own 49.75% of the shares of a related entity, Ecoasis Developments LLP ("Developments"). EBMD is the managing partner of Developments, which in turn owns various corporate entities, directly or indirectly, including Ecoasis Resort and Golf LLP ("Resorts"), which in turn owns BM Mountain Golf Course Ltd. ("BMGC"). This action is one of four actions, falling under the umbrella of a receivership, being tried together. Those actions, along with the receivership proceeding, arise from what the Court described as "highly contentious and intractable disputes" between the two partners.

The alleged self-interested transactions

Sanovest brought this action alleging that between January 2016 and June 2022, Matthews and Tom Kusumoto (Tian Kusumoto's father), in breach of their fiduciary duties and while having disclosable interests in the transactions for which no proper shareholder approval was sought or obtained, caused EBMD and BMGC to sell, assign, or transfer valuable assets to Bear Mountain Adventures Ltd. ("BMA"), a corporation they controlled during the material time period, or to Matthews personally, for no or inadequate consideration. Tom Kusumoto was formerly a principal of Sanovest and a director of some of the entities related to Developments and EBMD. The specific transactions alleged include: (a) an improper assignment of reimbursements from the Capital Regional District totalling over $3.3 million to BMA; (b) sale of property called the "Gondola Property" to BMA for wholly inadequate consideration; (c) improper diversion of loan proceeds, from a $8.125 million construction loan for, and property sale proceeds from, the "Pinehurst Project", used in part by or for BMA to acquire a recreation centre; (d) improper diversion of other funds to acquire that recreation centre; and (e) improper diversion of loan proceeds and other funds to Matthews personally.

The remedies sought by Sanovest

Sanovest sought two forms of relief: claims against Matthews and Tom Kusumoto to pay equitable compensation, not to Sanovest, but to EBMD and BMGC (the "Equitable Compensation Claim"), or alternatively, an accounting for profits they have or will enjoy (the "Accounting Claim"). The Court explained, citing the Supreme Court of Canada's decision in Southwind v. Canada, 2021 SCC 28, that an accounting for profits is a gains-based remedy measured by the fiduciary's gain, intended to undo that gain. Equitable compensation, on the other hand, is a loss-based remedy available when it is not possible to restore the plaintiff's assets in specie, and is the remedy for the loss caused by the breach. Both are restitutionary in nature, and their purpose is to deter wrongdoing.

Matthews' application to strike the equitable compensation claim

Matthews brought an application under Rule 9-5(1)(a) of the Supreme Court Civil Rules, supported by Tom Kusumoto, seeking to strike Sanovest's Equitable Compensation Claim on the basis that it discloses no reasonable claim. His premise was that the claim is essentially a statute-based derivative claim for specific relief under the BCA, for which leave has not been sought, and offends the common law rule in Foss v. Harbottle prohibiting a shareholder from suing for a loss suffered by the company. Part way through his oral submissions, Matthews decided to narrow the focus of his application, seeking to strike only the Equitable Compensation Claim; except for costs, he abandoned the remainder of the relief sought. As for the Accounting Claim, Matthews' position was that there is nothing to account for as no profits have been made from any of the impugned transactions. The Court took it from his submissions that he also contests any obligation under the BCA to account for potential future profits and, in any event, says there will be no future profits or none that can be ascertained.

The statutory framework under the BCA

The Court examined the relevant statutory provisions in detail. Section 147(1) of the BCA defines the scope of a disclosable interest: a director or senior officer holds such an interest where the contract or transaction is material to the company, the company has entered or proposes to enter into it, the director or officer has a material interest in it (or is a director, senior officer of, or has a material interest in a person who has a material interest in the transaction), and the interest is known or reasonably ought to have been known. The category of persons entitled to bring an application under s. 150(1) is broad—it includes the company as well as a director, senior officer, shareholder, or beneficial owner of shares of the company. Under s. 150(2), unless a transaction has been approved in accordance with s. 148(2), the court may make one or more of the following orders if it determines the transaction was not fair and reasonable to the company: (a) enjoin the company from entering into the proposed transaction; (b) order the director or senior officer to account for any profit; or (c) make any other order the court considers appropriate. The central legal question on this application was whether the scope of relief in s. 150(2)(c) is broad enough to include equitable compensation—or whether, as Matthews contends, it is merely supplementary to the injunctive or accounting relief in s. 150(2)(a) and (b).

The Court's analysis of case authorities

The Court found that there is no case authority definitively deciding the issue, a point acknowledged by Matthews. Matthews conceded that "some aspects of Sanovest's claim are arguable" but said the Court must infer from the cases he cited that s. 150(2) does not permit a claim for equitable compensation without leave per ss. 232–233. The Court stated it was unable to draw that inference from those authorities. The Court of Appeal's statement in Sonic Holdings that the BCA was intended "to serve as a complete code governing the contracts or transactions contemplated in Division 3" displaces, at least prima facie, the notion that the common law rule in Foss v. Harbottle applies to the disclosable interest provisions. Bhuthal did not stand for the proposition that the derivative action provisions in Part 8 inform the scope of relief in s. 150(2). EY Holdings did not deal with the specific point in issue, and the disclosable interest provisions of the BCA were not in issue or considered in that case. Hougen offered no guidance as s. 150(2) was not in issue. Treasure Bay addressed a different question—whether a common law derivative action requires leave. The only authority touching on the issue was De Cotiis v. De Cotiis, but Justice Tysoe's comments regarding the scope of relief were obiter dicta, framed tentatively as a belief, and predate Boyar. The Court held it was not bound to follow that characterization as a matter of stare decisis.

The settlement agreement and its holdback provisions

Sanovest advanced what the Court described as a compelling submission regarding a Settlement Agreement reached with 599, Matthews, and the Receiver. Under that agreement, Sanovest backed away from its competing bid to purchase lands falling within the receivership and agreed to support a bid from Groundplay Developments Ltd. ("Groundplay"), an entity in which Matthews is directly involved, which the Court approved on January 21, 2026. The parties agreed in the Settlement Agreement to set aside, and for the Receiver to hold in trust, $1.4 million from the overall purchase proceeds, pending the determination of Sanovest's claims in this action. According to Sanovest, and a point not disputed by Matthews, when it entered into the Settlement Agreement, the only prior notice it had of Matthews' Rule 9-5 application was his intention to strike certain undefined portions of the claim. Sanovest maintained that it agreed in good faith to support the Groundplay bid on the clear understanding that the funds would be held back as security for its claims in this action and that it would be "sandbagged" (Sanovest's term) if the Equitable Compensation Claim were struck, especially if it is true that the Accounting Claim is moot.

The ruling and outcome

Justice P. Walker of the Supreme Court of British Columbia dismissed Matthews' application to strike the Equitable Compensation Claim. The Court held that it is not plain and obvious that the Equitable Compensation Claim discloses no reasonable cause of action, nor that it is bound or certain to fail. The interpretive exercise surrounding s. 150(2)(c) of the BCA was found to be complex, with no definitive case authority on point, and no legislative debates from Hansards or law reform commission reports were cited in submissions. The Court also declined to exercise its discretion to strike the claim, reasoning that doing so would gut the holdback provision of the Settlement Agreement and leave Matthews and Tom Kusumoto to enjoy future benefits of their self-interested transactions, resulting in what the Court characterized as an impermissible escape from the purposes of the disclosable interest provisions of the BCA, their fiduciary duties, and the deterrence purpose of equitable remedies as discussed in Southwind. The Court further observed that Matthews' application was brought at a late stage in the action, after the case was already scheduled to proceed to trial in January 2026, with the trial having been adjourned to January 2027. No specific monetary award was determined at this stage, as the substantive claims are to be adjudicated at trial on a full evidentiary record. The successful party at this interlocutory stage was Sanovest, whose Equitable Compensation Claim was preserved, and the $1.4 million holdback remains in trust pending the determination of its claims.