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IN THE SUPREME COURT OF BRITISH COLUMBIA
Citation:
Nielsen v. Nielsen,
2015 BCSC 445
Date: 20150324
Docket: S142197
Registry: Vancouver
Between:
Rudolf John Dean Nielsen and Darin Craig Nielsen
Plaintiffs
And:
Rudolf Franz Nielsen also known as
Rudolf Frans Nielsen and Joanne Nielsen
Defendants
Before: The Honourable Mr. Justice MacKenzie
Reasons for Judgment
Counsel for the Plaintiffs:
Counsel for the Defendant Joanne Nielsen:
Place and Date of Trial:
Place and Date of Judgment:
F.G. Potts
C. Martin
R.W. Cooper
A. Crabtree
Vancouver, B.C.
March 2, 2015
Victoria, B.C.
March 24, 2015
Nielsen v. Nielsen
[1]
Page 2
The defendant, Joanne Nielsen, applies to strike the plaintiffs’ Notice of Civil
Claim as against her, pursuant to Rule 9-5(1) of the Supreme Court Civil Rules.
[2]
This is one of four proceedings that have been brought by two sons, Dean
and Darin Nielsen, against their father, Rudy Nielsen. As the applicant submits, all of
the actions involve a significant and lengthy corporate dispute between the plaintiffs
and their father. All three are shareholders in a valuable group of companies,
generally referred to as the Niho Group. Among these proceedings, only this action
names Joanne Nielsen as a defendant. Ms. Nielsen married Rudy Nielsen in 1988.
[3]
The various causes of actions include oppression and a derivative claim,
claims of negligent misrepresentation and breach of contract, as well as claims of
unjust enrichment and breach of a fiduciary relationship between Mr. Nielsen and his
sons. In this particular claim, “the plaintiffs seek equitable remedies including the
imposition of a constructive trust.”
The Pleadings
[4]
In this action, the plaintiffs allege the following facts relevant to their claim
against Ms. Neilson, which, when considering an application to strike, are presumed
to be true:
(a)
Rudy Nielsen is the controlling shareholder, director, and/or president
of the various companies comprising the Niho Group.
(b)
In 1982, Rudy asked his teenage sons to work with him and the Niho
Group for less than market rate, representing to them that they would
become equal partners in the Niho Group in return for their services,
and that he would transfer shares to them in due course.
(c)
In 1983, the plaintiffs were each given 3% of the shareholdings in Niho
Land Ltd. as a Christmas present. They informed their father that this
did not reflect their understanding of the partnership. Rudy represented
to his sons that he was building the Niho Group into a family business
Nielsen v. Nielsen
Page 3
so the actual share structure did not matter, and that their contributions
to the business would be recognized in the future.
(d)
From 1982 to 1986, profits of the Niho Group were used to pay off all
of Rudy’s debts, which the plaintiffs believe exceeded $1,000,000. The
plaintiffs were not paid proportional compensation.
(e)
In 1988, when the cash flow for the Niho Group started to improve,
Rudy, without the knowledge of his sons, took money from the Niho
Group to finance the purchase of a home for himself and his wife,
Joanne.
(f)
In 1992, Darin was frustrated that his father was not living up to his
earlier promises. He sought other employment, but continued to be
involved with business decisions of the Niho Group.
(g)
In 1993, Rudy made Joanne an employee of the Niho Group without
informing his sons. By 2013, she was performing administrative work
for the Niho Group and earning approximately $80,000 per year, plus
benefits.
(h)
From time to time, Rudy would pay himself bonuses from the profits of
the Niho Group. In addition, throughout the plaintiffs’ employment at
the Niho Group, the plaintiffs would sometimes be allocated
employment wages that they never in fact received.
(i)
In 1994, the Niho Group underwent a corporate reorganization and an
umbrella company was incorporated. Rudy held 80% of the common
shares in that company whereas the plaintiffs each held 10%.
(j)
In 1995, Rudy requested that Darin return to the family business to
develop a computer system, representing that he would liquidate the
landholdings of the Niho Group, that they would all profit equally in the
intellectual property being developed, and that the plaintiffs would be
Nielsen v. Nielsen
Page 4
made the shareholders of a new company, the Landcor Data
Corporation. In reliance on these representations, Darin left his
employment and returned to work with the Niho Group. Dean remained
at the Niho Group and did not seek other employment.
(k)
In due course, Rudy informed his sons that his intention was to pay off
the mortgage on his home, registered in Joanne’s name, and put
$1,000,000 or $2,000,000 in the bank. He represented to the plaintiffs
that if he could accomplish these goals, he would leave the Niho Group
to them.
(l)
In 1996, money from the Niho Group was used to pay off the mortgage
on Joanne’s home.
(m)
In 1998, the plaintiffs were again frustrated with their father for not
keeping his promises. As a result they left their employment with the
Niho Group, Darin to work for Microsoft in Washington State, and Dean
to work in the Cayman Islands.
(n)
In 2001, Rudy told Dean that he regretted his sons leaving the family
business and wanted to make amends for how they were treated.
Rudy represented to Dean that he was going to ensure that the
corporate structure of the Niho Group was changed to accurately
reflect the plaintiffs’ contributions, and that the plaintiffs would be equal
partners in the business.
(o)
In 2004, Rudy represented to Dean that he would correct the share
structure of the Niho Group to reflect their partnership, that he would
treat Dean as a partner rather than an employee, and that if he could
achieve his goal of paying off his mortgage, acquiring $1,000,000 in
savings for Joanne and accumulating $2,000,000 to retire with, then
the Niho Group would be left to his sons. In reliance on this
Nielsen v. Nielsen
Page 5
representation, Dean returned to full-time work with the Niho Group at
a lesser rate of pay.
(p)
In 2006, the Niho Group underwent another reorganization wherein
Niho Development Group Inc. was incorporated as the umbrella
company for the Niho Group. Rudy made himself the 80% shareholder
of the umbrella corporation. The plaintiffs were each made 10%
shareholders. Rudy represented to his sons that he had not yet
finalized the restructuring of the Niho Group to reflect their promised
partnership.
(q)
In December 2006, Rudy used corporate funds to purchase a new
home for himself and Joanne, at a cost of $1,650,000. The home was
registered in Joanne’s name. Rudy again represented to Dean that if
he could pay off his mortgage, acquire $1,000,000 in savings for
Joanne, and accumulate $2,000,000 to retire with, then the Niho Group
would be left to the plaintiffs.
(r)
In 2008, Dean suffered a heart attack, incurring medical costs in
excess of $10,000 per year. Although Rudy and Joanne had extended
health plans paid by the Niho Group, Rudy hid this fact from his son.
(s)
In 2010, Rudy approached Darin to see if he would be willing to leave
Microsoft to work with the Niho Group again. Rudy represented to
Darin that if he could pay off the mortgage, acquire $1,000,000 in
savings for Joanne Nielsen, and have $2,000,000 for retirement, he
would ensure that the Niho Group would be left to his sons.
(t)
In 2011, Rudy represented to Darin that he would pay him an annual
salary plus an allowance and a bonus/dividend based on the net profit
of the Niho Group, that Darin would be made Vice President, that the
Niho Group landholdings would be liquidated, and that Landcor Data
Corporation would be developed and sold, with the monies being split
Nielsen v. Nielsen
Page 6
between Rudy and his sons. In reliance on these representations,
Darin left Microsoft and rejoined the Niho Group in September 2011.
(u)
In December 2012, unbeknownst to the plaintiffs, Rudy redeemed
shares in Landcor Data Corporation, receiving $183,000. The plaintiffs
received an employment bonus of approximately $17,000 each.
(v)
On January 11, 2013, Rudy and Darin argued about the direction of
Landcor Data Corporation. The plaintiffs were subsequently stripped of
all executive authority within the Niho Group and Rudy announced to
staff that the plaintiffs would no longer be working there.
(w)
On June 7, 2013, Dean learned that, contrary to his father’s earlier
representations, Rudy’s “Last Will and Testament” did not leave the
Niho Group to the plaintiffs or name the plaintiffs as executors, as in a
previous will.
(x)
To the best of the plaintiffs’ knowledge, Rudy values the Niho Group of
Companies in excess of $39,000,000.
[5]
Relevant to the claim against Ms. Nielsen, the pleadings further allege:
(a)
Rudy Nielsen has been unjustly enriched by the plaintiffs’ contributions
towards the Niho Group, and “justice and good conscience requires
recognition of a constructive trust” in favour of the plaintiffs over the
shares that Rudy holds in the Niho Group, or alternatively, restitution
for unjust enrichment.
(b)
Rudy Nielsen breached a fiduciary duty owed to the plaintiffs, the
circumstances of which include the following particulars relevant to the
claims against Joanne Nielsen:
(1)
Using corporate funds to purchase a home in 1988;
(2)
Using corporate funds to purchase a home in 2006;
Nielsen v. Nielsen
(3)
Page 7
Using corporate funds to pay himself and Joanne higher than
market rate; and
(4)
Using corporate funds to pay for his and Joanne’s medical
expenses.
(c)
To the extent that Rudy gifted money held in trust for the plaintiffs to
Joanne, or used money for Joanne’s benefit, she holds this money and
its proceeds in trust for the plaintiffs. Alternatively, Joanne has been
enriched, and the plaintiffs have been correspondingly deprived,
without any juristic reason.
(d)
Rudy and Joanne are liable to account to the plaintiffs for such moneys
and assets that they hold in trust for the plaintiffs.
(e)
To the extent that Rudy and Joanne have obtained moneys and assets
for which they cannot account, the plaintiffs are entitled to the equitable
remedy of tracing.
Position of the Defendant
[6]
Ms. Nielsen submits the claim against her cannot succeed and should be
struck out in its entirety.
[7]
According to Ms. Nielsen, the plaintiffs, as shareholders, have no cause of
action in any of the claims as against her, including that she owed any equitable
obligation to the plaintiffs. She submits that this dispute is essentially a corporate
dispute between the two sons and their father. As a result, Ms. Nielsen submits that
the only party entitled to seek a remedy in these circumstances is the Niho Group,
not its shareholders. She submits that any claim for loss to the Niho Group in which
the plaintiffs hold shares must be pursued through a derivative action on behalf of
the particular company, as the plaintiff shareholders do not have an independent or
personal right of action to pursue such claims on their own. According to
Ms. Nielsen, the plaintiffs do not have a proprietary interest to the assets of the
Nielsen v. Nielsen
Page 8
corporation in which they hold shares, nor any independent right of action to pursue
claims that have resulted in direct harm to the company. In this regard, Ms. Nielsen
submits that this particular action against either defendant is barred by the wellestablished rule in Foss v. Harbottle (1843), 67 E.R. 189 (H.L.).
[8]
Ms. Nielsen, citing Robak Industries Ltd. v. Gardner, 2007 BCCA 61, submits
that an individual shareholder cannot sue for a company’s injury as the shareholder
has not suffered a direct loss. In this regard, Ms. Nielsen submits that “the plaintiffs
have not alleged any grounds to demonstrate a loss suffered that is independent of
the loss of the companies.” Furthermore, she submits that any claim that company
funds were misappropriated for her benefit is not a claim against her but a claim
involving the company or its director.
[9]
In addition, Ms. Nielsen contends that there are no facts which would allow a
court to conclude that an equitable remedy as against her and any of her assets,
including the family home, would be appropriate or available even if the plaintiffs’
equitable claims were successful, given that this case is focussed solely on the
misappropriation of company funds and money that was not paid to the plaintiffs for
their services. Ms. Nielsen submits:
In either scenario, it is the companies that have suffered financial losses
(through misappropriation of corporate funds) or been unjustly enriched
(through failure to pay its employees market wages). Any action to recover on
these claims ought to be in the name of, or against, those companies.
[10]
In this regard, Ms. Nielsen says the plaintiffs will be unsuccessful at trial when
they seek to impose a constructive trust over her interest in the home purchased by
Mr. Nielsen with company funds, nor will they be successful in obtaining an
accounting for monies or assets held in trust for them. Ms. Nielsen relies on the
following comments of the Supreme Court of Canada in Kerr v. Baranow, 2011 SCC
10 at para. 51:
As to the nature of the link required between the contribution and the
property, the Court has consistently held that the plaintiff must demonstrate a
“sufficiently substantial and direct” link, a “causal connection” or a “nexus”
between the plaintiff’s contributions and the property which is the subject
matter of the trust …
Nielsen v. Nielsen
[11]
Page 9
In this particular case, Ms. Nielsen says the plaintiffs cannot establish a direct
link between their contributions to the companies and the property in question, and
in the absence of alleged wrongful acts on her part, there is no reasonable prospect
the plaintiffs would be successful in their constructive trust claim.
[12]
Ms. Nielsen submits that as there is no allegation of misconduct on her part,
there is no reasonable claim for any relief as against her, especially when the
plaintiffs do not allege that she owed or breached any fiduciary obligations to them.
The fiduciary claim is based on the allegation that Mr. Nielsen misappropriated
corporate assets of the Niho Group, and the unjust enrichment claim is based on the
allegation that the plaintiffs were inadequately compensated for services they
provided. Consequently, Ms. Nielsen submits that while the plaintiffs have couched
their claim in this particular action as a personal claim, it is “inescapable that the
claims all derive from the decisions of the management of the various companies”,
that is, the decisions of Mr. Nielsen.
[13]
Consequently, Ms. Nielsen submits that it is plain and obvious that all claims
relating to her disclose no reasonable cause of action and ought to be struck.
Position of the Plaintiffs
[14]
The plaintiffs resist the application. They submit that while this is a dispute
over a family business where they seek relief against their father and Ms. Nielsen,
this particular action has “nothing to do” with their status as shareholders in the
family business. Rather, the plaintiffs say:
[The present action] is a claim in their personal capacity as against Rudy, in
his personal capacity, for inter alia, breach of his fiduciary duty and other
equitable remedies … in essence the action is about a remedy for the
conduct of Rudy.
They submit that Mr. Nielsen made “repeated representations” to them that they
were partners in the family business, and were entitled to a one-third share of the
shares and proceeds of that business. The plaintiffs say that over a 30-year period,
Nielsen v. Nielsen
Page 10
they relied on their father’s representations that he was “holding legal title of their
interests in the family business, in trust, and that they would receive it in time.”
[15]
Despite these alleged assurances, the plaintiffs claim their father never took
any steps to equalize his sons’ shareholdings in the group of companies or distribute
corporate profits to them in equal shares. They claim Mr. Nielsen has reneged on his
promises, and breached the trust by either taking “their interest in proceeds in the
family business for himself or by gifting or providing a benefit to his wife Joanne.”
The plaintiffs say they are seeking relief for that conduct, and it does not matter
whether their father took monies from the companies properly or improperly. They
say those monies were “impressed with the trust” for their benefit, based on the
assurances of their father that the three family members were equal partners.
[16]
The plaintiffs therefore submit that they have an independent right of action
separate from their claims as shareholders in the companies. They submit they are
entitled to claim against their father in his personal capacity on the basis that there
was a family or special relationship with him and that Mr. Nielsen owed fiduciary
obligations as a result. In this regard, the plaintiffs submit that where there is a family
relationship or special relationship of trust and dependency between a director and
the shareholders, the director can owe a fiduciary duty to the shareholder.
[17]
In support of this submission, the plaintiffs rely on the decision of Valastiak v.
Valastiak, 2010 BCCA 71, where the court acknowledged that although there is
generally no fiduciary obligation owed by a director to shareholders, “some
exceptions to this rule” are found in the case authorities (para. 47). The court went
on to note, at para. 48, the following comments of McEachern C.J. in Malcolm v.
Transtec Holdings Ltd., 2001 BCCA 161:
There are some authorities where directors have been found to have a
fiduciary duty towards other shareholders … In all those cases, however,
there was either a family relationship or a special relationship of trust and
dependency between the plaintiffs and defendants where the latter were
seeking to take unfair advantage of the others for personal gain or profit.
[Underline emphasis in Valastiak.]
Nielsen v. Nielsen
[18]
Page 11
The plaintiffs submit that, with there being only three shareholders, and
because of the special family relationship between them and their father, the
circumstances are such that there was a general fiduciary obligation owed by Rudy
to them as shareholders of companies in the Niho Group.
[19]
As a result, the plaintiffs allege because their father was in a fiduciary
relationship with them, it is not plain and obvious that the claim discloses no
reasonable cause of action against Ms. Nielsen. Because the plaintiffs have pleaded
there was a family or special relationship with their father and can therefore establish
he was acting as their fiduciary, they submit that any breach of these fiduciary duties
allows them to claim a constructive trust on any money or property he has taken
from the companies, and to trace the money or property their father holds in trust for
them if he has disposed of it by giving it to his wife or using it for her benefit.
Discussion
[20]
The following Supreme Court Civil Rules are applicable to this application:
Rule 3-1:
(2)
A notice of civil claim must do the following:
(a)
set out a concise statement of the material facts giving rise to
the claim;
(b)
set out the relief sought by the plaintiff against each named
defendant;
(c)
set out a concise summary of the legal basis for the relief
sought …
Rule 9-5:
(1)
At any stage of a proceeding, the court may order to be struck out or
amended the whole or any part of a pleading, petition or other
document on the ground that
(a)
it discloses no reasonable claim or defence, as the case may
be …
and the court may pronounce judgment or order the proceeding to be
stayed or dismissed and may order the costs of the application to be
paid as special costs.
(2)
No evidence is admissible on an application under subrule (1)(a).
Nielsen v. Nielsen
[21]
Page 12
For an application to strike to succeed, it must be “plain and obvious”, or
“clear beyond doubt”, that the pleadings do not disclose a reasonable cause of
action: McNaughton v. Baker (1988), 25 B.C.L.R. (2d) 17 (C.A.); R. v. Imperial
Tobacco Canada Ltd., 2011 SCC 42 at para. 17; Foote v. Hallen, 2014 BCSC 564 at
para. 17. Put another way, it must be determined whether, in the context of the law
and the litigation process, the claim has no reasonable chance of succeeding:
Imperial Tobacco Canada Ltd., at para. 25.
[22]
The court will not generally accede to an application to strike if the pleading
might, through the furnishing of particulars or through amendment, properly frame a
cause of action: Carr v. Cheng, 2007 BCSC 2043. Where a reasonable prospect of
success exists in the context of the law and the litigation process, the matter should
be allowed to proceed to trial: Imperial Tobacco Canada Ltd., at para. 17, although
the pleadings should be subject to “skeptical analysis” in order to ascertain their
“true character”: see I.J. v. J.A.M., 2014 BCSC 89 at para. 14.
[23]
The court must err on the side of permitting a novel but arguable claim to
proceed to trial, and the fact that a claim has not yet been recognized in law is not
determinative of an application to strike: Imperial Tobacco Canada Ltd., at para. 21.
[24]
In this regard, I note the decision of our Court of Appeal in Dusik v.
Gooderham, 62 B.C.L.R. 1, [1985] B.C.J. No. 18, relied upon by the plaintiffs, where
the court cites, at para. 36, the following comments of the Ontario Court of Appeal in
Goldex Mines Ltd. v. Revill (1975), 54 D.L.R. (3d) 672 at 680:
The principle that the majority governs in corporate affairs is fundamental to
corporation law, but its corollary is also important - that the majority must act
fairly and honestly. Fairness is the touchstone of equitable justice, and when
the test of fairness is not met, the equitable jurisdiction of the court can be
invoked to prevent or remedy the injustice which misrepresentation or other
dishonesty has caused. The category of cases in which fiduciary duties and
obligations arise is not a closed one; Laskin v. Bache & Co., [1972] 1 O.R.
465 at p. 472.
[25]
Even approaching the plaintiffs’ claims with skepticism, I am persuaded that
the pleaded facts regarding the family relationship between Mr. Nielsen and his sons
Nielsen v. Nielsen
Page 13
provide an answer to Ms. Nielsen’s claim, at least insofar as this application to strike
is concerned, that the plaintiffs have not alleged any grounds to demonstrate a loss
suffered that is independent of the loss of the Niho Group. While it may be true that
the plaintiffs’ claim against Ms. Nielsen depends on proof of certain representations
and conduct of Mr. Nielsen, this is not in itself reason to strike the claim against her.
[26]
Our Court of Appeal in Valastiak found that where there is a special
relationship between two parties, there can be circumstances where, because of that
special relationship of trust and dependency, a director of a corporation can be
“acting in a fiduciary capacity” in relation to a shareholder, “in relation to the
corporation and its assets” (para. 51).
[27]
In addition, I note that in Haase v. Vladi Private Islands Ltd. (1990), 96 N.S.R.
(2d) 323, [1990] N.S.J. No. 104, the Nova Scotia Supreme Court, Appeal Division,
concluded that whether or not individual directors could be in a fiduciary position visà-vis shareholders with whom they were dealing must depend on “all of the facts of
the particular case” (para. 11), citing Coleman v. Myers, [1977] 2 N.Z.L.R. 225 at
324 (New Zealand C.A.). The following comments of the court in Haase are
instructive and apropos to the present application:
In considering an application to strike out a pleading it is not the court’s
function to try the issues but rather to decide if there are issues to be tried.
(para. 10)
[28]
In this case, having regard to the totality of the circumstances, I am satisfied
there are issues to be tried with respect to the claim of a fiduciary relationship
between Rudy and his two sons as shareholders. I agree with the plaintiffs that this
action cannot be necessarily characterized as even a novel claim, but rather a claim
based on recognized principles, such that if the facts as alleged by the plaintiffs are
proven at trial, the remedies they seek against Ms. Nielsen could be granted.
[29]
Moreover, it is not a question of whether the claim will ultimately turn out to be
successful. It is rather a question of whether the claim itself is reasonably arguable.
As a result, I am not satisfied that the applicant has established that it is manifestly
Nielsen v. Nielsen
Page 14
clear or “beyond a reasonable doubt” that there is no bona fide triable issue: see
Skybridge Investments Ltd. v. Metro Motors, 2006 BCCA 500 at para. 12 and
Progressive Construction v. Newton, 1980 CanLII 493 (B.C.S.C.) at para. 14.
[30]
The application to strike the plaintiffs’ claims against Ms. Nielsen is
dismissed.
[31]
The plaintiffs have been successful in this application and are entitled to costs
on Scale B.
“B.D. MacKenzie, J.”
The Honourable Mr. Justice B.D. MacKenzie