February 19, 2023
Except, we have yet to write about a case emphasizing the importance of written agreements in resolving the fallout of an oppression claim.
That point is nicely captured in the first paragraph of Basegmez et al. v. Akman et al.
This case demonstrates the need for written documentation to memorialize business arrangements even between the best of friends. The failure to do so here has led to misunderstandings, the collapse of a potentially lucrative development opportunity, and the destruction of decades-long friendships.
The issue in this case was not whether or not oppression had taken place, or even what remedy was appropriate. The land owned by the corporation had already been sold following a finding of oppression against the Akman parties. The issue that remained was the distribution of the proceeds of sale.
The Akman respondents claimed an entitlement to development fees, hotel management fees, and the reimbursement of expenses on top of their shareholder loans.
The Superior Court judge hearing the case had no sympathy for Akman. It did not award any of these amounts. He found instead that there was no agreement to pay the development or hotel management fees as they were not approved by independent directors or shareholders as required by section 132 of the Ontario Business Corporations Act (“OBCA”).
This is the key finding that you need to be aware of. As the judge puts it:
 The challenge here for Akman is that, although he was, in his own mind, supposed to receive management and development fees, he did not reduce any of that to writing, let alone receive the approval of his fellow shareholders. Development agreements are complex agreements. They set out, among other things, the duties and responsibilities of the developer, what the fee is, what it is based on, how the base of its calculation is to be determined and what development standard the developer is to meet.
 Quite apart from the requirements of the OBCA, it is essential to reduce any such agreement to writing because the absence of a written agreement is a recipe for a self-interested party to engineer any fee and profitability level he wanted based on criteria he may chose to select after the fact.
We have also written before about the importance of getting contracts in writing and this is another illustration of the risk of not doing so. Akman might well have succeeded in his claims if he had a written contract. Maybe his co-venturers would have refused to sign the contract, but there is always the possibility that in happier days they would have come to some sort of agreement that benefited Akman.
Akman’s failure to pursue such an agreement was fatal to his efforts to capture the moral high ground which is so essential in this sort of case.
To recover the fees in the absence of written contract, Akman would have to establish:
- that there was an enforceable agreement even though the amount of the fees was not established; or
- that equity required that Akman be paid because it would be unjust for the co-venturers to have the benefit of Akman’s services without payment.
If this point was not clear enough, the judge repeats that one of his reasons for not giving Akman remedy was that in addition to failing to abide by section 132 of the OBCA, Akman failed to set out in writing the terms he claims were agreed upon.
Akman received the right to claim some miscellaneous expenses, but the development fees and management fees which were the bulk of his claim were disallowed.
Although it is possible that this case may be appealed, the sentiments expressed by this judge are no different than what we frequently hear by judges in Thunder Bay and Northwestern Ontario.
- It is one thing to prove that you are the victim of oppression; it is another to establish that you are entitled to a remedy.
- If you are the oppressor, you are in a tougher spot than a victim. You cannot expect the court to be sympathetic to claims that you should receive additional compensation beyond that which is established in writing.
- Oppression remedy cases depend substantially upon the party seeking money showing that they occupy the moral high ground.
- The result in oppression remedy cases, like all court cases, is dependent mainly on the facts as proven in court.
- As in all cases, proving facts depends upon having the evidence.
- Although credible evidence from witnesses is important, credibility itself often depends upon having documentary confirmation of what the witness has to say.
- Complex corporate or other business agreements should always be reduced to writing.
- The best way to reduce the agreements to writing is by seeing a lawyer.
- Even if you do not see a lawyer, reduce your agreement to writing but if there is a problem, expect to spend more later than you would to have the lawyer prepare it in the first place.
WHAT CAN WEILERS LAW DO TO HELP YOU?
Weilers Law has 75 years experience in drafting custom contracts for specific situations. We have precedents available which will reduce your cost, and the expertise to know when to create made-to-measure language. Like a good tailor, we want to make it fit.
Also, if the other party has presented you with a custom drafted contract, we have the experience and expertise to suggest revisions, and to help negotiate for the language that would benefit you the most. Many of our clients are great dealmakers. That is why they are successful. We are successful because we are experts at capturing your deal in clear and concise language.
At Weilers Law, we encourage our clients to take the time to think about the risks that they are accepting under contracts. We know that our clients understand their businesses. We like to work with our clients closely enough to gain some understanding as well.
We are just a phone call or an e-mail away if you have a question about something in one of your contracts. We always appreciate it when you call us before you sign the contract rather than after something bad has happened.
If something bad already happened, our litigation team is experienced in and excited by complex cases. You need lawyers who combine strategic and evidence gathering skills with the flexibility and creativity to shift course effectively. At Weilers Law, our litigation team has these talents. We work closely with our experienced corporate lawyers to sort out the issues as early as possible, to save time and expense, and increase opportunities for recovery. If you find yourself on either end of a corporate dispute, we would be happy to discuss whether we are the right lawyers for you.