



COURT OF APPEAL FOR ONTARIO

CITATION: Vellenga v. Boersma, 2020 ONCA 537

DATE: 20200828

DOCKET: C66358

Tulloch, van Rensburg and
    Zarnett JJ.A.

BETWEEN

Gordon Vellenga

Plaintiff (Respondent)

and

Peter Boersma, Adrienne Boersma, and

Weijs
    Investment Corp.

Defendants (Appellants)

Blair W.M.
    Bowen, for the appellants

Marc Munro,
    for the respondent

Heard: February 3,
    2020

On appeal from judgment of Justice Paul
    R. Sweeny of the Superior Court of Justice, dated November 28, 2018, with
    reasons reported at 2018 ONSC 6534, and from the costs order, dated January 29,
    2019, with reasons reported at 2019 ONSC 484.

Tulloch
    J.A.:

I.

OVERVIEW

[1]

The appellant, Peter Boersma (Dr. Boersma),
    and the respondent, Gordon Vellenga (Mr. Vellenga), operated a dairy farm
    together. They operated as equal partners from 1989 until 1995, when they
    incorporated under Maple Pond Farm Limited (the Corporation). Dr. Boersma and
    Mr. Vellenga were equal shareholders and directors of the Corporation. The second
    appellant, Adrienne Boersma (Mrs. Boersma), Dr. Boersmas wife, was appointed
    as treasurer.

[2]

In 1999, the Corporation sold the farms milk
    quota and the net proceeds were used to purchase a property, known as the Boundary
    Lake Property. However, instead of ownership being held by the Corporation, it
    was held by the appellant corporation, Weijs Investment Corp. (Weijs
    Investment), which was wholly owned by Mrs. Boersma.

[3]

Mr. Vellenga later commenced an application
    seeking, among other things, an oppression remedy under s. 248 of the
Business
    Corporations Act
, R.S.O. 1990, c. B.16. Among other things, he sought an
    order declaring that the Boundary Lake Property was the property of the
    Corporation, on the basis that the Corporations funds were used for its purchase.

[4]

The trial judge found that the Corporations
    funds had been used to purchase the Boundary Lake Property, in breach of Dr. Boersmas
    fiduciary duty. He declared that the property was held by Weijs Investment in
    trust for the Corporation.

[5]

The appellants now appeal to this court.

[6]

For the reasons that follow, I would dismiss the
    appeal.

II.

FACTS AND PROCEDURAL HISTORY

[7]

In 1989, Dr. Boersma and Mr. Vellenga entered
    into a partnership for the purpose of operating a dairy farm called Maple Pond
    Farm. The partnership was set up as an equal partnership between Dr. Boersma and
    Mr. Vellenga, with each contributing approximately the same amount of equity.

[8]

Dr. Boersma is a retired dentist and businessman.
    He was primarily responsible for the financial and administrative aspects of
    the farm. Mr. Vellenga is an experienced dairy farmer who was responsible for
    the operations of the farm. He has a grade ten education and has no knowledge
    of business or investing.

[9]

In 1995, Maple Pond Farm was incorporated as
    Maple Pond Farm Limited and the partnerships assets were rolled into the Corporation.
    At the time, the partners equity, as recorded on the partnerships financial
    statements, was $176,573. Dr. Boersma and Mr. Vellenga each received shares of
    the new corporation and were appointed as the sole directors. The company also
    appointed Mrs. Boersma to the role of treasurer.

[10]

The appellants entered two agreements of purchase
    and sale and a demand note into evidence, which were allegedly executed around
    the time that the partnership was rolled into the Corporation. The agreements
    of purchase and sale, one for Dr. Boersma and one for Mr. Vellenga, stated that
    the vendors each owned an undivided one-half interest in the property of the
    partnership. For Dr. Boersma, the purchase price was said to be $1,728,322. For
    Mr. Vellenga, the purchase price was said to be $5,764. The demand note
    outlined a debt of $488,185 owed by the Corporation to Dr. Boersma.

[11]

At the hearing below, Dr. Boersma, Mr. Vellenga,
    and Deborah Beveridge, the alleged witness to the signings, testified regarding
    the authenticity of these documents. Dr. Boersma and Ms. Beveridge testified
    that the agreements had been signed and properly executed. While Mr. Vellengas
    purported signature was present on the documents, he denied ever signing them.

[12]

In 1999, the Corporation sold its milk quota for
    approximately $1.7 million. The net proceeds from the sale were approximately
    $1,058,000. At the direction of Dr. Boersma, the money was used to purchase a
    2500-acre property located near Parry Sound, known as the Boundary Lake
    Property. According to the Transfer/Deed of Land, the purchase price was $1
    million. While the capital used to purchase the Boundary Lake Property came
    from the sale of the milk quotas, title was not registered in the name of the
    Corporation but rather in the name of a separate company, Weijs Investment, which
    was wholly owned by Mrs. Boersma.

[13]

Following the Boundary Lake transaction, the
    Corporations financial statements, including the 1999 financial statement and
    all subsequent statements, recorded the transaction as a long-term loan to
    Weijs Investment. There was, however, no documentation to substantiate any such
    loan agreement.

[14]

In March 2004, Mr. Vellenga brought an oppression
    remedy application under s. 248 of the
Business Corporations Act
, seeking,
    among other things, an audit of the Corporation and an order granting leave to
    commence an action for the recovery of monies improperly acquired by the
    appellants. In the alternative, he sought an order that the Corporation be
    wound up, an order appointing a liquidator or receiver/manager for the purpose
    of winding up, an order for an accounting of the shareholders accounts, an
    interim and interlocutory order appointing a receiver/manager, and an
    interlocutory order temporarily preventing the appellants from dealing with,
    disposing of, or encumbering the Boundary Lake Property.

[15]

In June 2004, Festeryga J. issued an order on
    consent, stating that the appellants had agreed not to deal with, dispose of,
    or encumber the property.

[16]

On December 17, 2015, Mr. Vellenga amended his
    notice of application, seeking an order declaring that the Boundary Lake Property
    is the property of the Corporation and appointing a receiver to oversee its
    sale.

III.

DECISION OF THE TRIAL JUDGE

[17]

The application was directed to trial. At the
    hearing before Sweeny J. (the trial judge) in September 2018, the only issue for
    determination was the respondents request for a declaration that the Boundary
    Lake Property was the property of the Corporation.

[18]

Mr. Vellenga argued that, since the loan to
    Weijs Investment had not been authorized, its purchase of the property using
    the Corporations funds had been made on behalf of the Corporation. He sought an
    order that the property was impressed with a trust and held by Weijs Investment
    for the benefit of the Corporation.

[19]

The appellants disagreed, arguing that the loan to
    Weijs Investment was justified on the basis that the Corporation owed Dr.
    Boersma a sum of money in excess of the $1,058,000, by way of the agreements of
    purchase and sale and the demand note. In light of the debt that the
    Corporation owed to Dr. Boersma, he was entitled to loan the funds to Weijs
    Investment for the purchase of the Boundary Lake Property. The appellants also
    argued that, based on the doctrine of laches, Mr. Vellenga was not entitled to
    relief as a result of his delay in raising the issue.

[20]

The trial judge granted the application, finding
    that [t]he use of the net proceeds of the milk quota sale to purchase the
    Boundary Lake Property was an unauthorized breach of fiduciary duty: at para.
    35. The agreements of purchase and sale and the demand note purporting to
    establish a debt to Dr. Boersma were not valid. The trial judge found as fact,
    that Mr. Vellenga did not sign the documents. He provided five reasons: (1) he
    accepted Mr. Vellengas evidence that he did not sign; (2) the purported
    signature bore no resemblance to Mr. Vellengas signature on other
    documents; (3) he found that Mr. Vellenga would have remembered signing
    documents with such large numbers; (4) while Ms. Beveridge, the witness,
    claimed that her signature on the documents indicated that both parties had
    signed, the events took place 22 years earlier and she had no independent
    recollection of Mr. Vellenga signing; and (5) the documents were suspect because
    the amounts did not accord with the partners equity, as shown on the
    partnerships financial statements dated December 31, 1994.

[21]

The Boundary Lake Property had thus been
    purchased, without proper authorization, with the Corporations funds in breach
    of the fiduciary duty owed by Mr. Boersma to the Corporation. In light of this
    finding, the trial judge held that the appropriate remedy was for Weijs
    Investment to hold the Boundary Lake Property in trust for the Corporation: at
    para. 35, citing
Soulos v. Korkontzilas
, [1997] 2 S.C.R. 217, at
    paras. 36, 45.

[22]

The trial judge also rejected the argument that
    Mr. Vellenga was not entitled to relief because of delay. He found that Mr.
    Vellenga had not acquiesced at any point. He initiated his application in 2004,
    alleging that the appellants had improperly used corporate funds to purchase
    the Boundary Lake Property. In 2015, he amended the application to request an
    order declaring that the property was held in trust for the Corporation.

[23]

In a separate ruling on costs, the trial judge awarded
    costs to Mr. Vellenga on a partial indemnity basis, totaling $87,100
    inclusive of HST and disbursements.

IV.

ISSUES ON APPEAL

[24]

The appellants raise four issues on appeal:

1.       Did the trial judge err in finding that Dr. Boersma
    breached his fiduciary duty?

2.       Did the trial judge err in imposing a constructive trust
    over the Boundary Lake Property?

3.       Was Mr. Vellengas claim for
    a constructive trust statute-barred under s. 4 of the
Real Property
    Limitations Act
, R.S.O. 1990, c. L.15?

4.       Did the trial judge
    err in his costs award?

V.

ANALYSIS

(1)

Did the trial judge err in finding that Dr.
    Boersma breached his fiduciary duty?

[25]

Under s. 248 of the
Business Corporations
    Act
, a shareholder or former shareholder may apply to the court for a
    remedy when the powers of the directors of a corporation have been exercised in
    a manner that is oppressive, unfairly prejudicial, or in a way that unfairly
    disregards the interests of the shareholder. In this case, the issue is whether
    the trial judge erred in finding that Dr. Boersma, as a director of the
    Corporation, acted oppressively by failing to carry out his fiduciary duties.

[26]

The fiduciary duties of directors and officers include
    the statutory duties under s. 134(1) of the
Business Corporations Act
,
    to act honestly and in good faith with a view to the best interests of the
    corporation. Directors and officers are also under a duty to exercise the
    care, diligence and skill that a reasonably prudent person would exercise in
    comparable circumstances.

[27]

In his capacity as director, Dr. Boersma
    directed the Corporation to lend Weijs Investment the sum of $1,058,000, which
    was used to fund the purchase of the Boundary Lake Property. On appeal, the appellants
    argue that Dr. Boersma was entitled to facilitate the loan in light of the debt
    owed to him by the Corporation. The fact that the loan was not recorded does
    not invalidate the action, as the practice of the Corporation was informal. The
    trial judge was wrong to find that Dr. Boersma breached his fiduciary
    duty.

[28]

The trial judge considered and rejected these
    arguments. The loan was not justified, as the agreements that purportedly established
    the existence of a debt to Dr. Boersma had not been signed and were therefore
    invalid. The size of the alleged debt was also inconsistent with the financial
    records detailing the partners equity at the time of the rollover. Moreover,
    the trial judge rejected the report and opinion of the appellants accounting
    expert as after-the-fact attempts to justify the assertion that [Dr. Boersma]
    was owed in excess of the net proceeds of the milk quota sale: at para. 33. As
    there was no basis for the loan, as well as no documentation or proper authorization,
    the transfer of a portion of the milk quota proceeds to Weijs Investment
    constituted a breach of the duty to act in the best interests of the Corporation.

[29]

In
Wilson v. Alharayeri,
2017 SCC 39,
    [2017] 1 S.C.R. 1037, at para. 59, the Supreme Court of Canada outlined the
    standard of appellate review in shareholder oppression cases. An appellate
    court must defer to the trial courts findings of fact, absent palpable and
    overriding error. An appellate court can intervene and substitute its own decision
    if the trial courts judgment is based on errors of law, erroneous principles,
    or irrelevant circumstances. Finally, an appellate court can also intervene if
    the judgment is manifestly unjust.

[30]

In this case, I see no error that would justify
    appellate intervention. The trial judge adopted the correct legal approach and properly
    considered the documentary evidence, as well as the evidence of the various
    witnesses. It was within his purview to accept Mr. Vellengas evidence that he
    had never signed the agreements of purchase and sale or the demand note,
    particularly in light of the irregularities with his alleged signature, Ms. Beveridges
    lack of independent recollection in witnessing the documents, and the clear
    discrepancies with the financial statements.

[31]

The trial judge was also entitled to find that
    the alleged interest-free loan by the Corporation to Weijs Investment was
    invalid. Not only was there no legitimate basis for the loan, there was no evidence
    of loan documents, a promissory note, or [Mr. Vellengas] agreement and [Mr.
    Vellenga] did not sign the cheque: at para. 30. Even if the Corporation was
    operated informally, Dr. Boersmas justification for the transfer of monies to
    Weijs Investment was not accepted: he did not establish that he was owed in
    excess of $1,058,000 by the Corporation, or why, when the money was
    transferred, it was characterized as a loan. Both Dr. Boersma, as
    director, and Mrs. Boersma, as treasurer, had a fiduciary duty to the Corporation
    to act honestly and in good faith in the companys best interests, as well as a
    duty to do so with care and diligence. Their actions do not reflect a
    commitment to these duties. Rather, the appellants acted against the interests
    of the Corporation by using an asset of the Corporation to enrich themselves.
    The trial judge did not err in finding a breach of fiduciary duty, and thus,
    oppressive conduct.

(2)

Did the trial judge err in imposing a
    constructive trust over the Boundary Lake Property?

[32]

In
Soulos
, at para. 45, the Supreme
    Court outlined four conditions that should generally be satisfied where a court
    imposes a constructive trust for wrongful conduct:

(1)

The
    defendant must have been under an equitable obligation, that is, an obligation
    of the type that courts of equity have enforced, in relation to the activities
    giving rise to the assets in his hands;

(2)

The assets
    in the hands of the defendant must be shown to have resulted from deemed or
    actual agency activities of the defendant in breach of his equitable obligation
    to the plaintiff;

(3)

The
    plaintiff must show a legitimate reason for seeking a proprietary remedy,
    either personal or related to the need to ensure that others like the defendant
    remain faithful to their duties; and

(4)

There must
    be no factors which would render imposition of a constructive trust unjust in
    all the circumstances of the case; e.g., the interests of intervening creditors
    must be protected.

[33]

The appellants do not argue that there was
    any impediment to imposing a trust over the property in favour of the
    Corporation because this was an oppression remedy application, rather than a
    derivative action. Nor do they argue that the remedial powers under the oppression
    remedy are not broad enough to grant relief in the nature of a trust in favour
    of the Corporation where doing so is necessary to rectify oppressive conduct.

[34]

In this case, the appellants argue that the
    trial judge erred in imposing a constructive trust on the property in favour of
    the Corporation, as he did not apply the law on constructive trusts from
Soulos
.
    In summary, the appellants argue that the trial judge: (1) failed to apply the
    principle that the fiduciarys wrongful act must give rise to an identifiable
    asset; (2) failed to consider the prejudicial impact of the constructive trust on
    Weijs Investment; (3) failed to consider that the trust would constitute a
    windfall for Mr. Vellenga; (4) failed to consider that a monetary remedy would
    be adequate in the circumstances; and (5) failed to consider that Mr. Vellenga
    had breached his duty of loyalty and was, therefore, disentitled to the
    equitable remedy of a constructive trust. I will address each of these
    arguments in turn.

[35]

First, I reject the appellants argument
    that the breach of fiduciary duty did not result in them having obtained an
    identifiable asset. The trial judge found that [t]he Boundary Lake Property
    was purchased with the Corporation's funds: at para. 35. There is no basis on which
    to overturn that finding, and it provides a clear and sufficient connection
    between the property and the breach of fiduciary duty.

[36]

Second, I would reject the argument that
    the imposition of a constructive trust prejudices Weijs Investment. When the Boundary
    Lake Property is sold by the Corporation, Weijs Investment will receive
    proceeds consistent with its contribution. As the trial judge explained, any
    expenses the [appellants] incurred with respect to the Boundary Lake Property
    are properly accounted for in the determination of the distribution of the
    proceeds of the sale: at para. 38. I also note that there is an order
    appointing a liquidator for the Corporation, dated April 4, 2019, which
    was stayed pending this appeal.

[37]

Third, I would similarly reject the
    argument that the declaration of trust awards a windfall to Mr. Vellenga. The
    trust preserves the interest on behalf of the Corporation, not Mr. Vellenga. As
    the trial judge explained, Mr. Vellenga will be entitled to his share of the
    value of that asset when it is sold: at para. 38.

[38]

Fourth, I do not agree that the trial judge
    erred in imposing the constructive trust on the basis that a monetary remedy
    would have been sufficient. The trial judge was entitled to find that the appellants
    acquisition of the Boundary Lake Property with misappropriated corporate funds
    justified an order declaring that the property is held in trust for the
    Corporation. This is in line with the deterrent and remedial functions of
    constructive trusts arising from wrongdoing and breach of fiduciary duty. As
    set out in
Soulos
, at para. 45, a constructive trust may be awarded to
    ensure that others like the defendant remain faithful to their duties.

[39]

Fifth, the appellants argue that Mr. Vellenga had
    unclean hands and was, therefore, disentitled to the equitable remedy of a constructive
    trust. Specifically, the appellants assert that Mr. Vellenga breached the duty
    of loyalty by: (a) living rent-free at the farm; (b) selling farm equipment
    without accounting for the sales to the Corporation; (c) keeping farm equipment
    for himself without paying (e.g. a truck and snowmobiles); (d) retaining rental
    proceeds without accounting for them; and (e) threatening to kill Dr. Boersma in
    relation to a financial disagreement.

[40]

I do not accept this argument. The trial judge
    made no finding of unclean hands and I see no basis on which to make this
    finding on appeal. I also accept that there is an insufficient connection
    between the appellants argument that Mr. Vellenga had unclean hands and
    the remedy that simply ensures that the Boundary Lake Property is held in trust
    for the Corporation. Once the property is sold, and accounts are taken Mr.
    Vellenga and Mr. Boersma will each be entitled to their respective share of the
    proceeds, after their respective claims against the Corporation have been
    addressed.

(3)

Was Mr. Vellengas claim for a constructive
    trust statute-barred by s. 4 of the
Real
    Property Limitations Act
?

[41]

Finally, the appellants argue that Mr.
    Vellengas claim was statute-barred under s. 4 of the
Real Property
    Limitations Act
, which creates a ten-year limitation period for an action
    to recover land:
Waterstone Properties Corporation v. Caledon (Town)
,
    2017 ONCA 623, 64 M.P.L.R. (5th) 179, at para. 31. Since Mr. Vellenga became
    aware that Weijs Investment owned the Boundary Lake Property as of 2004 at the latest,
    the appellants argue that his trust claim in 2015 was commenced after the
    expiry of the limitation period.

[42]

As this argument is being put forth for the
    first time on appeal, this court must consider whether or not to grant leave to
    allow the argument to be heard:
Kaiman v. Graham
, 2009 ONCA 77, 245
    O.A.C. 130, at para. 18.

[43]

The decision to grant leave is discretionary. Appellate
    courts will not generally entertain entirely new issues on appeal, as it is
    unfair to spring a new argument upon a party at the hearing of an appeal in
    circumstances in which evidence might have been led at trial if it had been
    known that the matter would be an issue on appeal:
Kaiman
, at para.
    18. The courts discretion is to be guided by the balancing of the interests
    of justice as they affect all parties: at para. 18.

[44]

In my view, it would not be in the interests of
    justice to grant leave. Mr. Vellenga first commenced his application in
    2004 and later amended his claim in 2015 to specifically include a trust claim.
    The application was not heard until 2018. The appellants had more than enough
    time to consider and raise this argument. They provided no persuasive reason to
    explain their failure to do so.

[45]

Furthermore, this court has explained that [t]he
    expiry of a limitation period does not render a cause of action a nullity;
    rather, it is a defence and must be pleaded:
Beardsley v. Ontario
(2001), 57 O.R. (3d) 1 (C.A.), at para. 21. While this matter was commenced by
    way of application and did not involve formal pleadings, the key point is that the
    limitation argument was not raised at any time prior to this appeal.

(4)

Leave to appeal costs is denied

[46]

The appellants also sought leave to appeal costs.
    The parties did not provide submissions on this point; but I will briefly
    address the issue because it was not expressly abandoned.

[47]

I would deny leave to appeal costs. It is
    well-established that leave to appeal costs is sparingly granted. The trial judge
    made no error in principle, nor is the result plainly wrong. The trial judge
    provided cogent reasons, considering various factors, including: the nature of
    the application, the history of the litigation, the reasonableness of counsels
    conduct, as well as the reasonable expectations of the parties.

VI.

DISPOSITION

[48]

In all the circumstances, I would dismiss the
    appeal and deny leave to appeal costs.

[49]

The respondent is entitled to costs of the
    appeal on a
partial
indemnity
    basis, which I would fix in the amount of $32,500, inclusive of taxes and
    disbursements.

Released: M.T. AUG 28 2020

M.
    Tulloch J.A.

I
    agree. K. van Rensburg J.A.

I
    agree. B. Zarnett J.A.


