



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



N-Krypt International Corp. v. LeVasseur,









2018 BCCA 20




Date: 20180118

Docket: CA43887

Between:

N-Krypt
International Corp.

Respondent/
Appellant on Cross Appeal

(Petitioner)

And

Thierry LeVasseur

Appellant/
Respondent on Cross Appeal

(Respondent)






Before:



The Honourable Madam Justice D. Smith

The Honourable Madam Justice Garson

The Honourable Madam Justice Fenlon




On appeal from:  An order
of the Supreme Court of British Columbia, dated
August 23, 2016 (
N-Krypt International Corp. v. LeVasseur
, 2016 BCSC
1539, Vancouver Docket S153418).




Counsel for the Appellant:



D.B. Kirkham, Q.C.





Counsel for the Respondent:



D.C. Cowper





Place and Date of Hearing:



Vancouver, British
  Columbia

September 22, 2017





Place and Date of Judgment:



Vancouver, British
  Columbia

January 18, 2018









Written Reasons by:





The Honourable Madam Justice Fenlon





Concurred in by:





The Honourable Madam Justice D. Smith

The Honourable Madam Justice Garson








Summary:

N-Krypt and Cirius entered
into a subscription agreement whereby N-Krypt purchased shares in Cirius on the
condition that the shares would be held in a voting trust by Ciriuss CEO and
director, LeVasseur. As part of the agreement N-Krypt waived its voting and
information rights. The relationship between the parties deteriorated and
N-Krypt petitioned for relief as a trust beneficiary, including disclosure of
information, return of its shares or removal of LeVasseur as trustee. The
hearing judge declined to terminate the trust or appoint a new trustee, but
ordered LeVasseur as trustee to provide N-Krypt with extensive information
relating to the shares, subject to specific limitations set out in the
subscription agreement. Held: LeVasseurs appeal allowed; N-Krypts cross
appeal dismissed. The judge erred in ordering LeVasseur to disclose information
about the shares which N-Krypt specifically agreed not to receive pursuant to
contract, which exceeded the relief sought and which substantially affected a
non-party.

Reasons for Judgment of the Honourable
Madam Justice Fenlon:

Introduction

[1]

The respondent N-Krypt International Corp. (N-Krypt) purchased shares
in a company controlled by the appellant Thierry LeVasseur. A term of their agreement
required N-Krypt to put its shares into a voting trust with Mr. LeVasseur
as trustee. When the relationship between the parties broke down, N-Krypt,
relying on trust law, petitioned for relief including disclosure of company
information, return of its shares or replacement of Mr. LeVasseur as
trustee. Mr. LeVasseur opposed the relief sought on the basis that it was
contrary to the parties agreement. The hearing judge declined to terminate the
trust or appoint a new trustee, but ordered Mr. LeVasseur as trustee to
provide N-Krypt with extensive information relating to the shares, subject to
specific limitations set out in the subscription agreement
.
The appeal
and cross appeal largely turn on whether trust law prevails over the terms of
the contract.

Background

[2]

Mr. LeVasseur is the president and majority shareholder of Cirius
Messaging Inc. (originally known as 0733660 B.C. Ltd.). Cirius is a B.C. company
that produces technology which enables businesses to send secure email. The
respondent N-Krypt is an Ontario company. In October 2008 N-Krypt became a
distributor of Ciriuss technology by way of a reseller agreement.

[3]

In December 2009 N-Krypt purchased close to 1.7 million shares in Cirius
for $535,000 under a Subscription Agreement which included the following
conditions:

(i)       N-Krypt
would place its shares into a voting trust for ten years with Mr. LeVasseur
as trustee; and

(ii)      N-Krypt
would waive its rights to information normally available to a shareholder.

[4]

A Voting Trust Agreement was attached to the Subscription Agreement as a
schedule and was expressly stated to form part of that agreement. Cirius and
N-Krypt were parties to the Subscription Agreement; Cirius, N-Krypt, and Mr. LeVasseur
as trustee were parties to the Voting Trust Agreement. The Voting Trust
Agreement provided that Mr. LeVasseur was exclusively empowered to
exercise the voting rights associated with the shares, and N-Krypt was entitled
to any dividends or distribution payments.

[5]

Soon after N-Krypt purchased the shares, the business relationship
between Mr. LeVasseur and N-Krypts principal, Asif Choksi, deteriorated. Mr. LeVasseur
claims N-Krypt breached the reseller agreement by holding itself out as the
owner of Ciriuss technology and giving away trade secrets to a competitor. He
also alleges N-Krypt sought and received payments directly from customers
without accounting to Cirius, and defamed Mr. LeVasseur. For its part,
N-Krypt claims Cirius made misrepresentations, improperly calculated amounts
owed to N-Krypt and deprived it of commissions to which it was entitled. In
2011, Cirius terminated its reseller agreement with N-Krypt. N-Krypt demanded
information about its shares and how they had been voted. Mr. LeVasseur
and Cirius declined to provide that information, relying on N-Krypts agreement
to waive information rights.

[6]

N-Krypt then issued the underlying petition naming Mr. LeVasseur as
the sole respondent. It sought, among other things, an order requiring him to account
for his management of the shares and to deliver to N-Krypt information he had
received in his capacity as trustee. N-Krypt also sought return of the shares
under the rule in
Saunders v. Vautier

(1841),
41 E.R. 482 (Ch. D.),
or in the alternative, appointment of a new
trustee. N-Krypt did not dispute the enforceability of the Subscription Agreement,
but argued that trust law, rather than the contract, governed the relationship
between the parties.

Petition Hearing

[7]

The judge began his analysis by observing that he could not resolve the
conflicting claims of wrongdoing on the record before him. He concluded, however,
that a referral to the trial list was not necessary because the central issue
to be resolved was the basis on which Mr. LeVasseur [held] N-Krypts
shares and what (if any) duties flow from it. He also concluded that N-Krypts
failure to name Cirius as a respondent to the petition was not a bar to
proceeding because N-Krypt [was] only seeking to compel Mr. LeVasseur to
take certain actions in his capacity as trustee.

[8]

The judge rejected Mr. LeVasseurs position that the arrangement
between N-Krypt and Cirius did not involve a trust and was more like an escrow
agreement:

[29]      As a threshold issue, I
am unable to accept the submission that Mr. LeVasseur does not hold N-Krypts
shares on a trust basis.
Both the express language used in the agreements
and, more importantly, the critical separation of legal and beneficial
ownership of the shares that has been created allows no other conclusion
.
The fact that Mr. LeVasseur and Cirius benefit from his ability to vote
the shares and that he does not manage them in the usual manner of a trustee
are features of this particular arrangement that do not detract from the
essential characterization of the manner in which the property is held.
[Emphasis added.]

[9]

Turning next to the rights N-Krypt asserted as the beneficiary of the voting
trust, the judge concluded the rule in
Saunders v. Vautier
did not apply
on the facts of this case:

[31]      First,
I do not
think that the rule in
Saunders v. Vautier
applies here
. While, as I
have said, this is certainly a trust relationship, the rule deals with situations
in which a settlor has placed property in the hands of a trustee for the
benefit of a third party beneficiary, who may wish at some point to take legal
title to the property.
A different analysis is necessary when the settlor
and the beneficiary are the same person, and the settlor/trustee has
contractually bound themselves to leave the property in the trustees hands
under certain conditions and for a specific period. [Emphasis added.]

[10]

The judge also rejected N-Krypts contention that a new trustee should
be appointed, finding N-Krypt had not established that Mr. LeVasseur had
acted improperly (at paras. 34-35).

[11]

Finally, the judge addressed the more difficult question of what trust
information N-Krypt was entitled to in light of the restrictions it had agreed
to in the Subscription Agreement. He relied on
Schmidt v. Rosewood Trust
Ltd.
, [2003] UKPC 26,
D.M.M. v. R.J.M.
, 2005 BCSC 207, and
Martin
Estate (Re)
, 2009 BCSC 1407, noting that while a trustee has a fundamental
duty to account for trust property, the extent of the trust information that
will be ordered depends on the particular circumstances. The judge found
N-Krypt was bound by its agreement not to access information normally available
to a shareholder as provided for at article 12 of the Subscription Agreement,
which states:

12.
Information Rights
:  The
Subscriber hereby acknowledges and agrees that the Subscriber shall not have
the right [to] review the minute book of the Corporation or such records that
are required to be kept in the minute book of the Corporation pursuant to the
Business
Corporations Act
(British Columbia) or to review or observe the
Corporations material contracts, as defined by the Corporation from time to
time. The Corporation may from time to time provide such information.

However, he concluded there
was still room to balance the parties interests and to meet Mr. Choksis
legitimate concerns by providing N-Krypt with other information. He then made
the following broad order:

[49]      Accordingly, I order that Mr. LeVasseur
provide to N-Krypt within 14 days of the release [of] these reasons all
information within his possession and control that deals with the following
matters:

           Any
change to the value of N-Krypts shares in Cirius from the original
subscription price (since Cirius is not publicly traded, this will obviously
involve the information on which Mr. LeVasseur relies to determine the
shares value) and any change to other benefits that N-Krypt would receive based
on the shares, such as dividends;

           Any
change in the nature of N-Krypts shares in Cirius since the original
subscription, including any dilution of them; and

           Any
actions undertaken by Cirius in relation to N-Krypts shares that adversely
affected their value or any other benefits that N-Krypt would receive based on
them, or had the potential to do so.

[50]      N-Krypt must be provided with updated information
on these matters immediately whenever any changes occur. Even if no changes
have occurred Mr. LeVasseur must confirm at least once per year that the
situation remains the same.

[51]      By information I mean a fully responsive and
comprehensible narrative of the relevant facts under each subject heading,
together with any documents or relevant portions of documents that support
them. It includes changes to the value of the shares or their related benefits
in themselves, and also in relation to shares and related held by other
shareholders -- for example Mr. LeVasseur himself.

[52]      Supporting documents that fall within the
definitions in paragraph 12 of the subscription agreement may be omitted, as
long as any facts derived from them that are relevant to the subject heading
are included in the narrative and the document is referenced in it. This will give
the non-disclosure provision continued force without depriving N-Krypt of
legitimate trust information.

[53]      Given the care with
which Cirius has defined in the agreement concerning the kind of information
that needs to be protected from disclosure in order to safeguard its interests,
I see no risk to those interests to also require Mr. LeVasseur to provide
N-Krypt with any information or material since N-Krypts subscription that has
been provided to other shareholders, solely in their capacity as shareholders,
that does not fall within the definitions in paragraph 12 of the subscription
agreement. This will continue on an ongoing basis, as any new information or
material is provided to other shareholders and, as in the case of the share
information, if nothing new is provided then Mr. LeVasseur will confirm
that to N-Krypt annually.

[12]

In supplemental reasons delivered on November 21, 2016, to settle the
formal order, the judge clarified that his order required Mr. LeVasseur to
disclose not only information which came into his possession as trustee, but
also information he obtained in his capacity as CEO and director of Cirius. The
judge declined to limit disclosure to material information, or to restrict it
to information which could foreseeably affect share value, requiring instead
disclosure of any information of any corporate actions having potentially
posed a hazard to the value of N-Krypts shares (at paras. 10-12).

[13]

Mr. LeVasseur obtained a stay of the order in this Court pending
appeal.

On Appeal

[14]

On appeal Mr. LeVasseur seeks to set aside the order in its
entirety on the basis that it is inconsistent with the contract N-Krypt entered
into with Cirius as recorded in the Subscription Agreement. In the alternative,
he seeks to narrow the scope of the order to cover only documents a shareholder
would be entitled to see.

[15]

N-Krypt cross-appeals, seeking three orders: first, disclosure of the
information excluded by the Subscription Agreement; second, return of its shares
in accordance with the rule in
Saunders

v. Vautier
; and third, in
the alternative, the appointment of a new trustee.

[16]

The main issues on appeal are thus whether the judge erred in:

1.       ordering
Mr. LeVasseur to disclose certain information to N-Krypt;

2.       refusing
to apply the rule in
Saunders v. Vautier
; and

3.       refusing to replace Mr. LeVasseur
as trustee.

[17]

Both parties also apply to adduce evidence not before the judge when the
petition was heard. Mr. LeVasseur wishes us to consider the alleged
wrongdoing by N-Krypt and Mr. Choksi which the hearing judge determined he
could not resolve. N-Krypt seeks to adduce evidence of its efforts to obtain
business records form Cirius and to serve Mr. LeVasseur with the petition.
I would not admit the new evidence of either party because it does not bear upon
what I consider to be a decisive or potentially decisive issue in these
proceedings:
Palmer v. The Queen
, [1980] 1 S.C.R. 759.

[18]

I turn now to the first ground of appeal.

1.       Did the judge err in
ordering Mr. LeVasseur to disclose information to N-Krypt?

[19]

In my respectful view, the judge erred in making the disclosure order
for three reasons. First, the judge applied trust principles and did not give
effect to the contract between the parties. Second, the order grants disclosure
N-Krypt did not seek in its petition. Third, the order requires Mr. LeVasseur
to disclose information obtained in his capacity as CEO of Cirius even though
the company was not named as a respondent to the petition. I will address each
point in turn.


(a)   The order is inconsistent
with the contract

[20]

The judge ordered broad disclosure based on the general principle that a
trustee has an obligation to report to his beneficiary, even though that
disclosure was inconsistent with the terms of the contract between N-Krypt and
Cirius. In my respectful view the judge was led into error because each party focused
on only one aspect of their arrangement: N-Krypt insisted trust law governed; Mr. LeVasseur
insisted contract law governed. Neither party attempted to reconcile the
apparently conflicting principles of trust and contract, of equity and the
common law. Although, as I have noted, the judge found N-Krypt was bound by its
agreement not to receive the information described in article 12 of the Subscription
Agreement, he ultimately determined N-Krypt was entitled to a vast sweep of other
information as a beneficiary of the voting trust, without further consideration
of the bargain it had entered into. In my view, it was an error in principle to
determine N-Krypts entitlement to information without reconciling the
competing principles of contract and trust law raised in this case. I turn now
to that exercise.

[21]

I begin by considering the trust aspect of the parties arrangement, and
in particular the nature of a voting trust.

[22]

The voting trust originated in the United States and eventually moved
across the border into Canada. It is a commercial trust originally used in
large venture companies, such as those constructing railroads, to protect investors
by ensuring the continuity of management they trusted to get the project
completed, and to insulate the company from the control of special interest
groups for the security of both shareholders and lenders alike: Harry A.
Cushing,
Voting Trusts: A Chapter in Modern Corporate History
(New York:
The MacMillan Company, 1927) at 16 and 22.

[23]

A voting trust differs from personal trusts established by deed or will
in a number of ways. First, it is intended to be a temporary trust, ending on a
particular date or event. Second, it is generally terminable at the discretion
of the trustee. Third, unlike a personal trust in which the trustee is bound to
use the trust property for the exclusive benefit of the beneficiary, the
trustee in a voting trust is empowered to vote the shares to the advantage of
the company. That object may only indirectly benefit the shareholder and will
in some cases work against the shareholders immediate and direct interest 
for example, a vote to defer payment of a dividend so as to invest in a company
project. These characteristics are present in the Voting Trust Agreement entered
into by N-Krypt, which provides:

3.1       Until the termination of this Agreement and
surrender of the Voting Trust Certificate, the Voting Trustee will, in respect
of the Shares deposited with him pursuant to this Agreement, exclusively
possess and be entitled to exercise, in his discretion, in person or by
attorney, all of the voting rights appertaining to such Shares and all rights
in connection with the initiation, taking part in and consenting to any action
as shareholder of the Company, including, without limitation, the execution of
any shareholders agreement, provided that the Voting Trustee (either
personally or in his capacity as a director or officer of shareholders of the
Company) also executes such shareholders agreement at such time.
The
Shareholder hereby authorizes the Voting Trustee to waive all rights the
Shareholder would otherwise have as a shareholder of the Company, provided that
the Voting Trustee also waives such rights at such time
(other than with
respect to shares to be issued to the Voting Trustee under the Companys stock
option plan)
and that any transaction resulting in a subscription for shares
is in the best interests of the Company as determined by the Voting Trustee,
acting reasonably
.

3.2
In exercising the
voting rights attached to the Shares the Voting Trustee will exercise his best
judgment from time to time to secure suitable directors, officers and employees
of the Company to the end that the affairs of the Company shall be properly
managed
but it is hereby declared and agreed that the Voting Trustee
assumes no responsibility in respect of such managing or in respect of any
action taken by him as shareholder and the Voting Trustee shall not incur any
liability or responsibility by reason of any error of law or of any matter or
thing done or suffered or omitted to be done under this Agreement, except only
for his own individual wilful and wrongful neglect or misconduct. [Emphasis
added.]

[24]

Mr. LeVasseur gave evidence that Cirius entered into voting trusts
with all other share purchasers up to 2014 because the company was concerned about
its distributors being in a conflict of interest. The judge regarded these
concerns in relation to N-Krypt as vague and speculative (at para. 46).
In contrast, he viewed N-Krypt as having legitimate reasons for wanting
information about what had been done with its shares and what they were worth. As
I have noted, the judge looked to trust law and determined N-Krypt was entitled
to information as a beneficiary, relying on the general principle that [the] trustee
has a fundamental duty to account for the trust property  and to report on how
it has been dealt with (at para. 38). Having concluded N-Krypt was not
entitled to the information typically available to a
shareholder
because
it was expressly excluded by article 12 of the Subscription Agreement, he determined
that N-Krypt as a
beneficial
owner was entitled to other information
well beyond that scope (at paras. 52-53).

[25]

In my respectful view, the judges focus on a trustees duty to account
to a beneficiary led him away from the fundamental question of the obligations
and rights of N-Krypt and Cirius
in the context of the commercial agreement
they had entered into
. Whether N-Krypt is entitled to information turns on the
terms of that agreement. The question before the judge was therefore whether
the use of a voting trust as a mechanism to give effect to the agreement gave N-Krypt
rights as a beneficiary that overrode its contractual commitments.

[26]

It is helpful at this point to consider the distinct origins of trust
and contract law. Whereas contracts stem from the common law, trusts are a
product of equity. The relationship between equity and the common law, as well
as the origins of the trust are explained in D.W.M. Waters, M.R. Gillen &
L.D. Smith, eds.,
Waters Law of Trusts in Canada
, 4th ed. (Toronto:
Carswell, 2012) at 5-6:


One system of law was interpreted and moulded in
the Kings Courts, and another system of law was gradually being established in
the Lord Chancellors Court, ultimately called the Court of Chancery. The first
is the common law in the strict sense, the second is Equity, a gloss upon the
first
, designed as an act of the Kings residual justice to bring equity to
bear in the application of the laws of the realm. Equity is superior in
authority because it is the Kings personal ruling concerning the application
of his justice in the realm. Equity, like the common law, gradually became
institutionalized, with each system using its own forms and procedures, but
in
matters of substance Equity assumed the existence of the common law, assisting,
modifying, and supplementing it
.




It was out of this
unique state of affairs
, which endured even to the point of separately
administered systems until the latter half of the nineteenth century,
that the
trust was born
. In the eyes of the common law courts if [the trustee] held
the legal title to land or chattels, he had the rights of disposition,
management and enjoyment of that property. But, if [the trustee] had earlier
promised the transferor to hold the property for the enjoyment of a person
other than [the trustee] himself,
the Court of Chancery was asked and
finally agreed to enforce the moral obligation. At law, [the trustee] might be
owner in the fullest sense that the common law recognized ownership, but in
equity  which [the trustee] could not avoid if he were summoned to account 
B, the intended beneficiary, could compel [the trustee] to yield up the
enjoyment in the property and indeed administer it on Bs behalf
. [Emphasis
added.]

[27]

The relationship between equity and the common law is sometimes
described by the maxim equity follows the law: J. McGhee, ed.,
Snells
Equity
,

31st ed.
(Toronto: Carswell, 2005). The author
of
Snells Equity
elaborates on the meaning of the maxim at 95:

Where a rule,
either of the common or the statute law, is direct, and governs the case with
all its circumstances, or the particular point, a court of equity is as much
bound by it as a court of law, and can as little justify a departure from it.

However, the maxim that equity follows the law does not
mean the common law always trumps equitable doctrines. To the contrary,
s. 44 of the
Law and Equity Act,
R.S.B.C. 1996, c. 253, provides
that equity prevails where the rules of law and equity conflict.

[28]

These statements may at first appear contradictory. However, they can be
reconciled by appreciating that the relationship between equity and the common
law is contextual. In
Geffen v. Goodman Estate
, [1991] 2 S.C.R. 353, the
Court considered the relationship between trust law and contract law in the
context of determining whether a trust agreement had been entered into as a
result of undue influence. After considering the framework for determining
whether a presumption of undue influence applies, Justice Wilson turned to the
nature of the particular transaction, saying at 378:

Having
established the requisite type of relationship to support the presumption, the
next phase of the inquiry involves an examination of the nature of the
transaction.
When dealing with commercial transactions, I believe that the
plaintiff should be obliged to show, in addition to the required relationship
between the parties, that the contract worked unfairness
either in the
sense that he or she was unduly disadvantaged by it or that the defendant was
unduly benefited by it. From the courts point of view
this added
requirement is justified when dealing with commercial transactions

because,
as already mentioned, a court of equity, even while tempering the harshness of
the common law, must accord some degree of deference to the principle of
freedom of contract and the inviolability of bargains
. Moreover, it can be
assumed in the vast majority of commercial transactions that parties act in
pursuance of their own self
‑
interest.
The mere fact, therefore, that the plaintiff seems to be giving more than he is
getting is insufficient to trigger the presumption. [Emphasis added.]

[29]

To similar effect is
Buschau v. Rogers Communications Inc.
, 2006
SCC 28, discussed more fully below in the part of this judgment dealing with the
rule in
Saunders v. Vautier
. In
Buschau
,

the employee
beneficiaries of a company pension trust fund sought to have trust funds paid
out to them. Justice Bastarache, in determining whether trust law should
prevail over contract law, said the Court should consider the circumstances in
which the trust was made, including the parties contractual expectations and
the status of the trust as a vehicle to hold and manage funds to give effect to
the pension plan.

[30]

Equity is ultimately concerned with fairness, and equitable relief is
discretionary. As Justice La Forest said in
Canson Enterprises Ltd. v.
Boughton & Co
., [1991] 3 S.C.R. 534 at 585-86:

the maxims of equity can be
flexibly adapted to serve the ends of justice as perceived in our days. They
are not rules that must be rigorously applied but malleable principles intended
to serve the ends of fairness and justice.

[31]

Of significance in the present case is the creation of the voting trust
as a condition of the purchase of the shares forming the trust property. Together
the Subscription Agreement and the Voting Trust Agreement gave effect to the
bargain made by N-Krypt and Cirius, whereby Cirius sold shares to N-Krypt and N-Krypt
waived its right to information about the company and granted Mr. LeVasseur
the right to vote the shares for ten years. As in
Buschau
, the trust was
the mechanism used to give effect to the contract and the two are indissociable.
From N-Krypts perspective, the terms of the trust and Subscription Agreement turned
out to be imprudent in light of the deterioration of the parties business
relationship. Ciriuss concerns about the potential for N-Krypt to be in a conflict
of interest may have been overblown. But there is in my view nothing unfair
about holding N-Krypt to the terms of the agreement it entered into to give up
voting rights and access to corporate information in order to acquire a
significant number of shares in Cirius.

[32]

I note parenthetically that this appeal is not concerned with whether a
shareholders agreement to waive access to information is contrary to the
Business
Corporations Act
, S.B.C. 2002, c. 57. That is so for two reasons. First,
the
Business Corporations Act
applies generally to shareholders, and
N-Krypt does not at this point hold legal title to the shares:
Brio Industries
Inc. v. Clearly Canadian Beverage Corporation
, [1995] B.C.J. No. 1441 (S.C.).
Second, that issue and the extent of a companys obligation to provide
information to its shareholders were neither pleaded nor argued below and cannot
be addressed in the absence of a proper record.

(b)   The order exceeds the relief sought and affects the interests of
a non-party

[33]

In any event, I am of the view that the disclosure order cannot be
upheld for two additional reasons. First, as N-Krypt acknowledges, the order
made goes far beyond what was sought in the petition which covered only what Mr. LeVasseur
received in his capacity as trustee:

Part 1:             ORDERS
SOUGHT

The Plaintiffs
seek the following relief:

a.
An
order that LeVasseur deliver to the petitioner all correspondence, notes, and
records received, executed, or produced by him in his capacity as trustee for
the petitioner, including all
:

i

Shareholders resolutions or agreements
entered into by
LeVasseur in connection with the shares held by LeVasseur as trustee for the
petitioner;

ii

Waivers of shareholder rights
or equities executed by
LeVasseur in connection with the shares held by LeVasseur as trustee for the
petitioner; and

iii

Votes and records of votes cast or not cast
by LeVasseur
in connection with the shares held by LeVasseur as trustee for the petitioner.

b.
An
order that LeVasseur account to the petitioner for his management of the shares
held by LeVasseur as trustee for the petitioner since the formation of the
trust; [Emphasis added.]

[34]

Second, the order cannot be upheld because it effectively compels Mr. LeVasseur
to disclose information obtained in his capacity as director and CEO of Cirius
even though Cirius is not a respondent. As noted earlier, Mr. LeVasseur
objected at the outset of the hearing to N-Krypts failure to name Cirius as a
party, but the judge did not accede to that objection, saying:

[28]       I do not see the
absence of Cirius as a party as a bar in itself to the relief being sought,
since
N-Krypt is only seeking to compel Mr. LeVasseur to take certain
actions in his capacity as trustee
. [Emphasis added.]

However, the order made affects Cirius directly and
significantly. For example, Mr. LeVasseur is ordered to provide N-Krypt
with share valuations and updates on a regular basis, a significant expense for
a company which is not publicly traded. Disclosure of information about
contracts entered into by Cirius could also affect the company given that Cirius
views N-Krypt as a competitor. The obligation to provide a running and updated
narrative of all of Ciriuss actions since 2009 which could possibly affect the
value of shares is also a task which imposes a significant burden on the
company.

[35]

In summary on this ground of appeal, I conclude that the judge erred in
ordering Mr. LeVasseur to produce information to N-Krypt that was not
sought in the petition, significantly affected a non-party, and was
inconsistent with the terms of the agreement N-Krypt had entered into with
Cirius.

[36]

It will be apparent from this conclusion that N-Krypts cross appeal seeking
additional information cannot succeed. I turn to the two remaining issues on
the cross appeal.

2.       Did the judge err in
holding that the rule in
Saunders v. Vautier
does not apply?

[37]

N-Krypt contends the judge erred in holding the rule in
Saunders v.
Vautier
does not apply to the voting trust.

[38]

The rule in
Saunders v. Vautier
allows beneficiaries of a trust
to depart from the settlors original intentions provided they are of full
legal capacity and are together entitled to all the rights of beneficial
ownership in the trust property:
Buschau
at para. 21. If those
prerequisites are met, the beneficiaries may extinguish the trust and call for
a conveyance of the trust property.

[39]

N-Krypt submits that since the Voting Trust Agreement states
unequivocally that N-Krypt is the sole beneficial owner of the shares and is
entitled to their return when the term of the trust expires, the rule in
Saunders
v. Vautier
governs and N-Krypt can demand the return of its shares. This
proposition finds support in an article written by Professor Donovan Waters, Voting
Trust Agreements and the Zeidler Case

(1988) 9 Est. & Tr. 51 at 72:

The instrument should also be
very clear as to the moment at which or the circumstances in which the voting
trust is to terminate. However,
in
Saunders v. Vautier
jurisdictions
the share transferors
or the trust certificate holders for the time being,
as the case may be,
can always agree to terminate the voting trust
; 
[Emphasis added.]

However, this passage does not address the present case
in which the settlor beneficiary
has contracted to create a voting trust
for a set term
as a condition of obtaining the shares which form the
property of the trust
. In my view, the rule in
Saunders v. Vautier
is
inapplicable in such circumstances. N-Krypt contractually bound itself to give
the trustee the right to vote the shares for ten years as a condition to
obtaining the shares. As a result, N-Krypt is not solely entitled to the
beneficial enjoyment of the property during the term of the trust  the voting
rights which form part of the bundle of property rights attaching to the shares
are to be enjoyed by Cirius, and voted by its CEO as trustee and in Ciriuss
interests. It follows that the judge was correct in concluding that:

[33]
the rule is not a
proper means of escaping the overall contractual terms under which the trust
property is held
. I should say in this regard that I do not think it is
possible to analyze the voting trust and subscriber agreements separately in
terms of the restrictions they impose on N-Krypts ability to collapse the
trust, as its counsel submits.
The subscriber agreement provides for the
shares to be delivered to Mr. LeVasseur in trust for N‑Krypt and
requires N‑Krypt to enter into the voting trust agreement. Together the
agreements form the overall trust arrangement and define the rights and
obligations agreed to under it
. [Emphasis added.]

[40]

A similar approach was adopted in
Buschau
. In that case the Court found the
rule in
Saunders v. Vautier
did not apply to trust funds which formed part of an employment pension plan.
Justice Bastarache observed at para. 90 that the
real
question is whether trust law can in effect prevail over the contract and
governing legislation in the present case.

He found at para. 92 that the application of the

rule
in
Saunders v. Vautier
would contradict the reasonable contractual expectations
of the parties  Finally, at para. 94, he concluded:

In my view, the unique
role of the employer in respect of the pension plan and pension Trust cannot be
ignored; and
the terms of the contract at the root of the Trust cannot be
circumvented
; as well, the legislative framework cannot be made irrelevant
by applying the rule in
Saunders v. Vautier
.

[Emphasis added.]

3.       Did the judge err in refusing to replace the trustee?

[41]

I turn next to whether the judge erred in refusing to replace Mr. LeVasseur
as trustee. At the hearing, N-Krypt relied on the
Trustee Act
, R.S.B.C.
1996, c. 464, which provides for the replacement of a trustee by court
order:

31    If it is expedient to
appoint a new trustee and it is found inexpedient, difficult or impracticable
to do so without the assistance of the court, it is lawful for the court to
make an order appointing a new trustee or trustees, whether there is an
existing trustee or not at the time of making the order, and either in
substitution for or in addition to any existing trustees.

[42]

N-Krypt submits in the present case that its welfare as a beneficiary is
the main factor in determining whether it is expedient to appoint a new trustee.
N-Krypt submits further that it is not necessary to show a breach of trust where
a conflict of interest exists, and there is a reasonable basis to conclude
either that the trustee may not act with impartiality and fidelity, or that it
would be difficult for the trustee to do so:
Simpson-Alec v. Ziprick
, [1998]
B.C.J. No. 685 (S.C.).

[43]

N-Krypt made similar arguments at the petition hearing. The judge
concluded that N-Krypt had failed to establish evidence of a conflict of
interest or impropriety, saying:

[35]      Nothing of that nature
has been shown.
The right to vote N-Krypts shares at Mr. LeVasseurs
discretion is the very purpose of the agreements and exercising that right in a
way that may not align with N-Krypts preferences is not the same thing as
devaluing the trust property or otherwise undermining N-Krypts property
interests
. The hostile relationship between the parties, for which no fault
can be ascribed on the current contradictory evidence, and Mr. LeVasseurs
restrictive position on disclosure to N-Krypt, which has some support in the
agreements, are also insufficient reasons to find that he is acting improperly
as the trustee. These conclusions make it unnecessary for me to determine
whether N-Krypt gave sufficient notice of its intention to seek this remedy.
[Emphasis added.]

[44]

The judges assessment of the evidence and his finding in this regard
are entitled to deference. I see no error that would justify appellate
interference with his decision. Further, replacing Mr. LeVasseur as
trustee is contrary to the contractual obligation N-Krypt entered into to
enable Mr. LeVasseur to control the voting rights for ten years.

[45]

In summary, I would dismiss the applications to admit fresh evidence, allow
the appeal, and dismiss the cross appeal.

Costs

[46]

In the usual course it would follow that Mr. LeVasseur as the
successful party is entitled to party-party costs below and on the appeal and
cross appeal. Mr. LeVasseur submits, however, that special costs should be
ordered against N-Krypt on the cross appeal only, based on the outrageous
allegations made by N-Krypts counsel against Mr. LeVasseur in its factum.
N-Krypts factum contains repeated references to Mr. LeVasseur falsely
swearing and making false allegations and accusations. Mr. LeVasseur
relies on
689531 B.C. Ltd. v. Anthem Works Ltd.
, 2009 BCSC 1005, in
which Justice Hinkson, as he then was, ordered special costs against the
defendants in light of the deliberate, inappropriate and potentially damaging
allegations of fraud made against the plaintiffs without foundation.

[47]

Anthem
is distinguishable because unlike that case, in the
present one the judge was unable to make findings about the allegations of
wrongdoing levelled by both sides. In these circumstances, I agree that it
would have been prudent for N-Krypts counsel to frame his submissions in a
manner that acknowledged the unproven nature of the allegations, but I do not
find the submissions reached the level of reprehensible conduct warranting an
award of special costs. In my opinion the appropriate disposition is party-party
costs throughout.

The
Honourable Madam Justice Fenlon

I AGREE:

The Honourable
Madam Justice D. Smith

I AGREE:

The Honourable
Madam Justice Garson


