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Corporations - Shareholder Rights [OBCA s.22(3)]. Chapman v. Ing
In Chapman v. Ing (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, this from a trial judge's division of business assets where the parties had an "on-again, off-again" domestic relationship.
In the context of a restitution appeal argument, the appellant argued unsuccessfully [see para 23] that OBCA s.22(3)(b) ['Corporate Finance - Rights of shareholders'] constituted the juridical reason for enrichment:(2) Unjust Enrichment
[20] The first step in the unjust enrichment analysis asks whether the defendant has been enriched by the plaintiff. The second step asks whether the plaintiff has suffered a corresponding deprivation: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 41; Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 36. Those steps are readily satisfied in this case.
[21] The third element of an unjust enrichment claim is that the benefit and corresponding detriment must have occurred without a juristic reason. This means that there is no reason in law or justice for the defendant’s retention of the benefit conferred by the plaintiff, making its retention “unjust” in the circumstances of the case: Kerr, at para. 40.
[22] Kerr elaborates further on the meaning of a “juristic reason”, at para. 41:Juristic reasons to deny recovery may be the intention to make a gift (referred to as a “donative intent”), a contract, or a disposition of law. The latter category generally includes circumstances where the enrichment of the defendant at the plaintiff’s expense is required by law, such as where a valid statute denies recovery. However, just as the Court has resisted a purely categorical approach to unjust enrichment claims, it has also refused to limit juristic reasons to a closed list. This third stage of the unjust enrichment analysis provides for due consideration of the autonomy of the parties, including factors such as “the legitimate expectation of the parties, the right of parties to order their affairs by contract”. [Internal citations omitted.] [23] In this case, s. 22(3)(b) of the OBCA does not offer a juristic reason for the appellant’s enrichment. By its terms s. 22(3)(b) addresses the relative rights of shareholders of the same class vis-à-vis the corporation. It does not purport to allocate the family law or equitable claims that one shareholder may have against the shares registered to another shareholder. There is therefore nothing in s. 22(3)(b) that can account for the enrichment of one shareholder to the detriment of another, even if linked to their corporate dealings. The provision is immaterial.
[24] This is not a situation in which the statute contemplates the very enrichment that is said to be unjust. Consider, for example, the operation of the Excise Tax Act, R.S.C. 1985, c. E-15, considered in Reference re Goods and Services Tax, 1992 CanLII 69 (SCC), [1992] 2 SCR 445 [“GST Reference”]. It required suppliers to collect and remit taxes and to incur expenses in the process. This requirement placed a burden on suppliers and conferred a benefit on the federal government. But since it was “precisely the burden contemplated by the statute”, the Act was a juristic reason that permitted the federal government to retain the benefit unless the statute itself was ultra vires: GST Reference, at pp. 476-77.
[25] This case is more like Moore. In that case, the deceased had named his wife the beneficiary of his life insurance policy. They agreed that the wife would pay the insurance premiums, and in exchange, the deceased would designate her as beneficiary of the policy. Unbeknownst to the wife, the deceased named his new common law spouse as the beneficiary before he died. The wife argued that the new spouse would be unjustly enriched if she retained the insurance proceeds. The common law spouse argued that the Insurance Act, R.S.O. 1990, c. I.8, entitled her to the proceeds and that this was a juristic reason for her enrichment.
[26] The Supreme Court disagreed, explaining at para. 70 that the Insurance Act would have to be much more explicit to deprive the wife of her common law entitlements:Nothing in the Insurance Act can be read as ousting the common law or equitable rights that persons other than the designated beneficiary may have in policy proceeds. As this Court explained in Rawluk v. Rawluk, 1990 CanLII 152 (SCC), [1990] 1 S.C.R. 70, at p. 90, the “legislature is presumed not to depart from prevailing law ‘without expressing its intentions to do so with irresistible clearness’”. [27] And further, at para. 73:Accepting that contractual rights to claim policy proceeds can exist outside of the Insurance Act, can an irrevocable designation under the Insurance Act nonetheless constitute a juristic reason for Michelle’s deprivation? In my view, it cannot. This is because the applicable statutory provisions do not require, either expressly or implicitly, that a beneficiary keep the proceeds as against a plaintiff, in an unjust enrichment claim, who stands deprived of his or her prior contractual entitlement to claim such proceeds upon the insured’s death. [Emphasis in the original.] [28] The facts of this case are obviously distinguishable from Moore. The point to be made is that a statutory entitlement may have to yield to equitable considerations.
[29] This is particularly so when the context involves family law litigation. In Wildman v. Wildman (2006), 2006 CanLII 33540 (ON CA), 82 O.R. (3d) 401 (Ont. C.A.), MacPherson J.A. was willing to pierce the corporate veil in a family law dispute, commenting that: “[t]his is matrimonial litigation, not commercial litigation”, at para. 48. He went on to note that “although a business person is entitled to create corporate structures and relationships for valid business, tax and other reasons, the law must be vigilant to ensure that permissible corporate arrangements do not work an injustice in the realm of family law”: Wildman, at para. 49.
[30] Relying on Wildman in Lynch v. Segal (2006), 2006 CanLII 42240 (ON CA), 82 O.R. (3d) 641 (Ont. C.A.), this court affirmed the need for a flexible approach to corporate issues raised in the family law context. Blair J.A. noted this approach to be particularly important o where “the corporations in question are completely controlled by one spouse, for that spouse's benefit and no third parties are involved”: at para. 36.
[31] This case does not turn on piercing the corporate veil in the traditional sense. It does, however, call for the same degree of flexibility. If the court can pierce the corporate veil to avoid injustice in the family law context, it must also be at liberty to reorder shareholders’ rights. The OBCA contemplates that a court can reorder the ownership of shares through the statutory remedies of oppression and winding-up: see, e.g. BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560. Shareholders’ rights under s. 22(3)(b) are “equal” only until a court orders otherwise.
[32] Nor did the trial judge err in her consideration of the reasonable expectations of the parties. It was not reasonable for the appellant to expect to share in the value of the Wyandotte property, given the disintegration of the parties’ relationship, the appellant’s failure to contribute to the betterment of the property, and his own deliberate efforts to undermine the commercial viability of T.A.C. Canada.
[33] For all of these reasons, I conclude that s.22(3)(b) of the OBCA is not a juristic reason for the appellant’s enrichment vis-à-vis the Wyandotte property.
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