Valor Invest et al v. Vista Online et al

2004 BCSC 1787 Valor Invest et al v. Vista Online et al Citation: Valor Invest et al v. Vista Online et al Date: 20041115 2004 BCSC 1787 Docket: S045630 Registry: Vancouver IN THE SUPREME COURT OF BRITISH COLUMBIA Oral Reasons for Judgment The Honourable Mr. Justice Davies November 15, 2004 BETWEEN: valor invest ltd. and ross wilmot petitioners AND: vista online ltd. aka vista online inc., et al. respondents - a-n-d - Docket: S044791 Registry: Vancouver BETWEEN: valor invest ltd. plaintiff AND: vista online inc., clay perreault, konstantin kropivny, and chris herbert defendants Counsel for Valor Invest Ltd.: S.Z. Schwartz Counsel for Vista Online: W.B. Cox [1] This is an application brought by the petitioners in action S045630 and the plaintiff in action number S044791 for relief in two stages. [2] The first application is for an order for the restoration of the respondent Vista Online Corporation (the defendant in the action number S044791), to the registrar of companies. The only issue which remains outstanding in respect of that application is who should pay for the cost of that restoration and whether those costs are payable forthwith. [3] The second application has to do with an application for the commencement of a derivative action under ss. 232(1) and 233(1) of the Business Corporations Act, S.B.C. 2002, c. 57. [4] By way of a very brief background, this is a commercial dispute arising out of a series of agreements entered into between Valor Invest Ltd. and Vista Online Inc. and its principals Mr. Clay Perreault, Konstantin Kropivny and Chris Herbert. [5] The circumstances out of which the present application arises are that as a consequence of alleged defaults under the terms of borrowing arrangements between the parties, Valor Invest Ltd. called upon its security. That occurred in August 2004, when a notice of intention to enforce security was delivered. [6] On August 26th, Madam Justice Boyd made an ex parte order requiring delivery of the assets of Vista Online Inc. to a bailiff on behalf of Valor Invest Ltd. That order did not, however, specifically address the question of the outstanding shares of Vista Online Inc. that had been pledged by its shareholders in favour of Valor Invest Ltd. Those shares were not dealt with in the order either by reason of oversight or the failure to address the issue, [7] On September 3, 2004, the solicitors for Valor Invest Ltd. demanded that Vista Online Inc.'s directors take action to prevent breaches of various agreements between Vista Online Inc. and its shareholders' principals, Mr. Perreault, Mr. Kropivny and Mr. Herbert. [8] Subsequently, on September 13th, Mr. Perreault swore an affidavit in support of an application to dissolve Vista Online Inc. As a consequence, Vista Online Inc. was dissolved giving rise to the restoration issues in relation to these present proceedings. [9] Although the first question that arises is who will pay for that restoration, I intend to deal with that matter at the end of these reasons for judgment. I say that because, in my view, that matter should be determined by reference to the answer to the question of whether a derivative action is appropriate in these circumstances. [10] Sections 232 and 233 of the Act provide the basis upon which a complainant or a shareholder may apply to the court for the approval of the commencement of a derivative action. They also set forth the powers of the court in relation to that derivative action. [11] In s. 232(1) of the Act, a complainant is defined as meaning: In relation to a company, a shareholder or a director of the company. a "shareholder" is further defined as: Having the same meaning as s. 1(1), and includes a beneficial owner of a share of the company and any other person whom the court considers to be an appropriate person to make an application under this section. [12] Assuming that a complainant has status to make the application, the court is empowered under s. 233(1) to grant leave under s. 232(2) on terms it considers appropriate if: (a) the complainant has made reasonable efforts to cause the directors of the company to prosecute or defend the legal proceedings; (b) notice of the application for leave has been given to the company, and to any other person the court may order; (c) the complainant is acting in good faith; and (d) it appears to the court that it is in the best interests of the company for the legal proceeding to be prosecuted or defended. [13] The position taken by the defendants in this matter is basically two-fold. [14] They say, firstly, that the complainant has not made reasonable efforts to cause the directors of Vista Online Inc. to prosecute or defend the legal proceeding. The defendants say that all that is necessary is for Valor Invest Ltd. to act upon a pledge of shares of Vista Online Inc. granted by its shareholders, constitute a new board of directors of Vista Online Inc. and then prosecute the actions on behalf of the company. The defendants' secondary position is that the complainant is not an appropriate party in whom to vest the power to commence a derivative proceeding. [15] As to the first question, I am satisfied that the complainant Valor Invest Ltd. and Mr. Ross Wilmot, one of the directors of Vista Online Inc., have the necessary status under s. 232(1) to apply to commence a derivative action. I need go no further than to make reference to the fact that the petitioner Valor Invest Ltd. is the beneficial owner of shares of the company through its share pledge agreements. It is also a creditor of the company. The authorities relied upon by the petitioner, in particular A E Realisations (1985) Ltd. v. Time Air Inc. (1995), 131 Sask. R. 249 (C.A.) and Levi Russel Ltd. v. Shieldings Incorporated [phonetic], provide additional standing to Valor Invest Ltd. as a creditor. [16] In my view, the real issue in this case is whether the application to commence a derivative action should be denied because of the availability of a possible alternative remedy after the delivery of the shares of Vista Online Inc. and the constituting of a new board of directors to prosecute the action. [17] I am satisfied that the ability to proceed in another way does not necessarily act as a bar to proceeding by way of derivative action. That is all the more so in this situation, where there has been active intervention by the present directors of the company to have the company dissolved. There is at the present time no ability for Valor Invest Ltd. to act upon its pledge agreements because of the dissolution of the company in respect of which those shares are held. That was a step taken by the present directors of the company in response to an application to take action to protect the assets of the company. In those circumstances, I am satisfied that it would be wrong to require that Valor Invest Ltd. await developments with respect to the restoration application before pursuing remedies denied to it by reason of the actions of the defendants. [18] Accordingly, I am satisfied that the plaintiff Valor Invest Ltd. should be granted leave to commence the derivative action against the named defendants in that action. [19] I turn next to the question of the costs of the restoration of this company. [20] Since the plaintiff wishes to avail itself of the status of the restored company, and since the control of restoration rests with the plaintiff, I am satisfied that the costs associated with restoration should be costs in the cause of the derivative action because one of the costs associated with that derivative action will be the costs of the restoration of Vista Online Inc. to pursue that lawsuit. [21] COUNSEL: My Lord, just one question. I assume from what you've just said that that also applies to the costs of the petition to commence the derivative action. [22] THE COURT: The costs with respect to the petition to commence the derivative action will also be costs in the cause of the derivative action. Anything further, counsel? [23] COUNSEL: No, I -- just to clarify, I assume what you're saying is that the costs to restore the company, the costs thrown away to restore the company, are costs to the plaintiff taxable in the cause? [24] THE COURT: No, they are the costs -- they are costs in the cause. [25] COUNSEL: Thank you. [26] THE COURT: Both actions -- both the costs of the petition to commence the derivative actions and the cost of restoration of the company are matters that will be dealt with in the cause of the derivative action. -- [27] COUNSEL: I understand. "B.M. Davies, J." The Honourable Mr. Justice B.M. Davies