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When a relationship deteriorates, parties in business together may disagree over their entitlement to business assets. A flexible approach can be used when corporate issues arise in family litigation. Ontario’s Business Corporations Act can provide additional remedies if both parties are shareholders in a business. However, as a recent case demonstrates, the statute does not resolve family law claims that one shareholder may have against another. It does not provide a basis for one party’s enrichment under an unjust enrichment claim linked to their business dealings.
Appellant Challenges Unjust Enrichment Finding
In Chapman v. Ing, the appellant and respondent were in an “on-again, off-again” relationship and business partners. As their relationship broke, they disagreed over their entitlement to their various real estate interests and business assets. The appellant asked for a court order winding up the parties’ corporate interests and argued that he was entitled to half of the proceeds of the company on the basis that the two were involved in a joint family venture and that they owned the assets on a 50/50 basis irrespective of which name was registered on title. The trial judge disagreed and concluded that the parties were not involved in a joint family venture. Instead, they were business partners who sometimes cohabited in a conjugal relationship. Moreover, an equal division of the proceeds would make the appellant unjustly enriched. This was because one of the properties significantly increased in value due to the resources the respondent invested in. Since the appellant did not contribute to improving the property, the trial judge concluded he was not entitled to share the increased value. The respondent received full ownership of the property in question in exchange for paying $39,000 to the appellant, which represented half of the property’s purchase price.
The appellant challenged the trial judge’s decision that he was unjustly enriched. He claimed there was a juristic reason for the enrichment, namely that he was entitled to share in its increased value as a shareholder of the company that owned the property. He cited section 22(3) of the Business Corporations Act. That section states that “where a corporation has only one class of shares, the rights of the holders thereof are equal in all respects and include the rights… (b) to receive the remaining property of the corporation upon dissolution”.
Act Does Not Address Family Law Claims Against Shareholders
An unjust enrichment analysis considers three elements:
- Whether the defendant has been enriched by the plaintiff.
- Whether the plaintiff has suffered a corresponding deprivation.
- The benefit and corresponding detriment must have occurred without a juristic reason.
In Kerr v. Baranow, the Supreme Court of Canada examined the third element, explaining that it meant that there was “no reason in law or justice for the defendant’s retention of the benefit conferred by the plaintiff, making its retention “unjust”. The court provided some examples where there may be grounds to deny recovery, such as an intention to make a gift, a contract, or the application of law. For the court, this last category included instances where enrichment at the plaintiff’s expense was required by a “valid statute” denying recovery. The court also stressed that this was not a closed list, and it was possible to consider the parties’ autonomy and legitimate expectations.
In Chapman, the Ontario Court of Appeal concluded that section 22(3)(b) of the Business Corporations Act did not provide a juristic reason for the appellant’s enrichment. That section addressed the rights of shareholders of the same class. It did not “purport to allocate the family law or equitable claims that one shareholder may have against the shares registered to another shareholder”. Consequently, the section did not account for the enrichment or deprivation between shareholders, “even if linked to their corporate dealings”. Ultimately, the provision was immaterial since the statute did not address the enrichment that was alleged to be unjust.
Business Corporations Act is Not a Juristic Reason For an Enrichment
This case had similarities to the outcome in Moore v. Sweet. In that case, a deceased named his wife as the beneficiary under a life insurance policy. The two agreed that the wife would pay the premiums in exchange for being designated the beneficiary. However, the deceased changed the designation and named his new spouse the beneficiary. The new spouse claimed that the Insurance Act amounted to a juristic reason for her enrichment and permitted her to retain the proceeds. The judge stated that the statutory provisions did not require that a beneficiary retain the proceeds against a plaintiff in an unjust enrichment claim who was deprived of their “prior contractual entitlement to claim such proceeds upon the insured’s death”. The court in Chapman acknowledged the facts were different, but the point was simply that a “statutory entitlement may have to yield to equitable considerations”.
This was particularly true in family law litigation. On this point, the Court of Appeal considered the 2006 case Wildman v. Wildman. In that case, the judge pierced the corporate veil in a family law case and imposed liability on the husband’s company for child and spousal support amounts. The judge agreed that while individuals can create corporate structures for valid business reasons, courts must ensure these arrangements “do not work an injustice in family law”. Likewise, in Lynch v. Segal, the court emphasized the need to take a flexible approach to corporate issues in family law cases. Especially when the corporations are “controlled by one spouse, for that spouse’s benefit and no third parties are involved”. The circumstances in Chapman required flexibility to reorder shareholder rights. The judge pointed to the fact that courts can reorder the ownership of shares as remedies for oppression and the winding-up of a corporation. The lesson was that shareholder rights are “equal only until a court orders otherwise”.
Looking at the original trial decision, the court did not accept that the trial judge was incorrect in analyzing the parties’ reasonable expectations. The judge concluded that it was not reasonable for the appellant to expect to share the value of the property. This was due to the disintegration of their relationship, the fact that he failed to make contributions that improved the property, and he intentionally tried to undermine the company’s commercial viability. Overall, the Business Corporations Act did not provide a juristic reason for his enrichment
Courts Take Flexible Approach to Corporate Issues in Family Cases
When dealing with an unjust enrichment claim, the Business Corporations Act does not provide a juristic reason for one shareholder to gain following the disintegration of the parties’ relationship financially. Courts have concluded that statutory entitlement may have to yield to equitable considerations in the context of family law.
Windsor Family Lawyers Helping You Protect Your Rights in Complex Family and Business Disputes
When family relationships intersect with business ownership, resolving disputes requires a nuanced understanding of both corporate and family law. At Johnson Miller Family Lawyers, we offer strategic guidance for clients navigating unjust enrichment claims, shareholder disputes, and other legal complexities that arise when business and personal lives overlap.
If you’re involved in a separation where business interests are at stake, our experienced team can help protect your rights and ensure equitable outcomes. Contact us today at 519.973.1500 or complete our online intake questionnaire to schedule a confidential consultation.
