When 51.ca was registered as a corporation in 2002, Pingyuan Zhao offered 15% of shares to his brother Pingbo as a gift. But as the website enjoyed growing popularity and financial success, the brothers’ fight over company’s profits escalated. In 2010, Pingbo published an open letter, in which he disclosed the internal clashes between the brothers, revealing the dark side to the company’s glories and success. A costly legal battle ensued that has taken emotional tolls on the brothers and put a strain on their financial resources. After a lengthy court battle that included 14 days of trial, the court issued “reasons for judgement” in April 2016 and “supplemental reasons for judgement” in Nov.2016, putting an end to a stressful and costly legal battle that lasted for almost five years.
The “reasons for judgement” issued in April 2016 concluded that Pingbo did not forge a 40% partnership relationship with the company as he claimed and that he provided services to the company as an independent contractor. It also recognized that Pingbo was a 15% shareholder, with shares given to him as a gift by Pingyuan at the time when the company was incorporated. However, according to the court, no dividends were ever paid, or are expected to be paid on such shares.
Since Pingbo published the open letter in Oct. 2010, his employment as an independent contractor was ended by Pingyuan. But cutting off the service relationship with his brother seemed not enough, as Pingyuan determined to sever all ties with his brother. He sought a court order that 51.ca repurchases all the shares from Pingbo, the only connection he kept with the company and his brother, based on the company’s value on Aug 28, 2010. The court’s estimation of the company’s fair value on that date was $3.45 million, based on the evaluation of company’s earning potentials and assets.
Pingyuan claimed that Pingbo abused his role as director of the company, putting his own interest above the company. He made a slew of accusations against Pingbo in his legal claim: He failed to deposit all advertising avenues into the company’s account; He failed to properly record all revenues, exposing the company to Revenue Canada’s prosecution; He disclosed company’s sensitive and confidential information through open letters; He publicly informed the competitors and customers that “the best day of 51.ca are over”, and published details of the business revenues and advertising model.
The court stated that while some of Pingbo’s actions may have caused Pingyuan some embarrassment, the business did not suffer from them but instead prospered under Pingyuan’s sole management. Moreover, the court says that Pingbo had not profited in any manner from his actions as Pingyuan claimed, and that he may have suffered more embarrassment from them than others.
The court dismissed several of Pingyuan’s allegations, including Pingbo’s failure to disclose cash revenues for tax purposes, stating that Pingyuan was aware of the practices at the time but took no action to change it. It further stated that Pingbo was taking these alleged actions as an independent contractor, rather than a director or an officer who owed a fiduciary duty to the company. Nor did Pingbo owe a fiduciary duty to Pingyuan as a minority shareholder, says the court.
Pingyuan argued that as an 85% shareholder, he and his brother had maintained “irreconcilable differences” to the point that they should wind up their relationship. But the court refuted his argument saying that such a difference between a major and a minority shareholder are a common and that the relationship breakdown has not prevented Pingyuan from continuing to carry on the business since 2010. According to the court, while Pingyuan could end Pingbo’s employment contract, he had no right to request him sell his shares in the company. The court indicated that Pingbo’s conduct did not warrant the court ordering to take away the shares from him. It denied Pingyuan’s request to have Pingbo’s shares sold.
The court battle between the brothers ended on a sad note as neither party had achieved its desired results entirely or is absolutely satisfied with the outcome. It was a battle without a winner at the end. As such, the court declined to award the cost in favor of either party involved.
我们鼓励所有读者在我们的文章和博客上分享意见。We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. Visit the FAQ page for more information.