In the dynamic world of entrepreneurship, the importance of a solid foundation cannot be overstated. When embarking on a business journey, whether by creating a new company or continuing a family business, the division of business ownership division is a pivotal decision that can profoundly impact the future success and stability of the enterprise. In Ontario, a province that boasts a diverse and rapidly evolving business environment, the need for clear and unambiguous agreements governing ownership division is paramount. A concrete agreement and mutual understanding of the particular terms are critical to safeguarding your interests and fostering a harmonious business relationship.

In a recent decision, the Court of Appeal for Ontario was asked to determine whether there was an agreement between two feuding siblings over ownership of three family businesses bequeathed to them from their late father. Specifically, the Court was asked to determine whether the trial judge erred in finding there was an agreement and fiduciary duty between the siblings that had been breached, with one sibling being unjustly enriched as a result.

Siblings inherit businesses, disagree on terms of ownership agreement

In Aiello v. Bleta, a dispute arose regarding three companies two siblings inherited from their late father. Following his death, the relationship between the siblings deteriorated. However, the appellants (including one sibling, Leroy Bleta) and the respondents (including the other sibling, Bertha Aiello) remained intertwined through their business interests. An agreement was reached between the parties in the fall of 2014.

The appellant sibling submitted that the agreement merely provided a temporary division of management responsibilities but did not provide for permanent ownership of the companies. However, the respondent sibling claimed that:

• The agreement stated that she would be the exclusive owner of one of the companies, Floriri Village Investments;
• The appellant had breached this agreement and his fiduciary duty to her; and
• This resulted in the appellant’s unjust enrichment at the respondent’s expense.

Agreement set out company ownership

At trial, the respondent (Aiello) asked the Court to make a declaration that she was the beneficial owner of the appellant (Bleta)’s shares in Floriri Village Investments. She also sought an order enabling her to purchase his shares in exchange for the transfer of her shares in the Bleta Family Trust. This transfer would ultimately transfer her ownership in the other two companies, Korce Group and Niazi Holdings, to Bleta.

The trial judge found that there was, in fact, an agreement between the siblings pertaining to company ownership. Further, the Court found that Bleta breached his fiduciary duty to his sister and that he was unjustly enriched.

Bleta appealed this decision, claiming that the trial judge erred in finding that:

• There was an agreement setting out ownership between the parties;
• Bleta was in a fiduciary relationship with his sister, which he breached; and
• The requisite components of promissory estoppel were met, and the claim was statute-barred.

Was the appellant sibling unjustly enriched?

The appellant sibling claimed that the parties had attempted to negotiate a split for business management and had met with a third party to discuss business valuations. The appellants took the position that the agreement and the parties’ conduct showed no consensus as to specific terms. However, the Court of Appeal reviewed the trial judge’s factual findings, which determined that the appellant agreed to release his interest in common shares in Floriri Village Investments in exchange for the respondent’s interest in the Bleta Family Trust. As a result, the Court of Appeal upheld the trial judge’s finding that an agreement was made and subsequently breached.

Was a fiduciary duty owed between the siblings?

The appellant argued that the trial judge erred in finding that he “took advantage of his sister’s vulnerability and attempted to exercise control” through intimidating behaviour towards her. The trial judge noted that a fiduciary duty may exist, absent an express undertaking, in cases where the alleged fiduciary duty:

“… (i) had some scope to exercise discretion or power; (ii) could exercise that power unilaterally to the detriment of the other party’s legal or practical interests; and (iii) the other party was vulnerable to the exercise of that power or discretion.”

The Court also referred to the Supreme Court of Canada’s decision in Galambos v. Perez, which held that “the existence of a fiduciary undertaking on the part of the alleged fiduciary” is necessary. Again, the Court of Appeal upheld the trial judge’s findings, as the relationship between the siblings was one where there was “an implied understanding that Bleta [the appellant] would act in accordance with his duty of loyalty to his sister [the respondent].”

The trial judge noted that the respondent trusted her brother. While the appellant encouraged her to obtain independent legal advice, he would not allow her to use funds from the company to pay for such advice. Finding that the appellant knew the respondent could not afford legal fees without financial assistance, he attempted to “exercise emotional control over her.” Therefore, the appellant owed the respondent a fiduciary duty, which he breached.

Court of Appeal upholds trial judge’s decision

Finally, the Court found that the appellant’s assertion that a promissory estoppel claim cannot be used to enforce a promise through a cause of action was correct and that the claim was statute-barred. However, the Court noted that the dismissal of such a claim did not impact the ultimate outcome.

The trial judge found there was an agreement between the siblings and that the appellant was unjustly enriched after breaching the agreement. The Court of Appeal held that this was sufficient to sustain the respondent’s claim and justify the relief granted.

Contact Campbell Litigation in Kitchener-Waterloo for Trusted Advice on Fiduciary Duty Breaches and Corporate Disputes

Campbell Litigation understands the high-risk and complex nature of business and commercial disputes, particularly when these disputes arise between family members. Whether you have concerns regarding a contract breach, estate dispute, or breach of fiduciary duty, our litigation team, led by Richard Campbell, is ready to help. We encourage parties to explore early dispute resolution opportunities and provide clients with exceptional representation in litigation, if necessary. To learn more about how we can help you with your commercial dispute, contact us at 519-886-1204 or reach out to us online.