Executive Summary: Key Legal and Evidentiary Issues

• Two business partners in a wine importation venture fell into dispute over unremitted sales proceeds, misappropriated funds, and restricted access to company inventory, leading one partner to seek court authorization to sue the other on the company's behalf.

• The four-part statutory test under s. 233(1) of the Business Corporations Act (BC) governs when leave to commence a derivative action may be granted, with the central issues on appeal being good faith and the best interests of the company.

• Repeated adjournment attempts by the appellant — including sending a family member to read letters in court in lieu of appearing — were found to be delay tactics, and the hearing proceeded in his absence.

• The appellant's conflict of interest application against opposing counsel was dismissed, as no disqualifying conflict was established; counsel acted solely for the respondent and not for the company.

• On appeal, the appellant submitted AI-generated case citations that turned out to be fictitious, though this was corrected before the Court and did not rise to the level warranting special costs.

• Ordinary costs of the appeal were awarded against the appellant; special costs were declined as his conduct, while problematic, did not meet the "reprehensible" threshold required.

A partnership gone sour: The founding of Fino Vino and the breakdown of trust

In 2022, Stuart John Morton and Sami Mohammed Cherkaoui entered into a business partnership to establish Fino Vino Beverages Inc. ("Fino Vino"), a company focused on importing Italian wine packaged in Tetra-Pak for distribution across British Columbia. Because Fino Vino had not yet obtained its own import licence, the parties agreed — as a temporary measure — that Fino Vino would operate under the import licence of SJM Agency Ltd. ("SJM"), a company owned and controlled by Mr. Morton. Fino Vino also stored its wine inventory through ContainerWorld Forwarding Services Inc. under the same SJM licence. By June 2023, Fino Vino had begun shipping wine to stores in British Columbia.

Revenue flow and the seed of dispute

The British Columbia Liquor Distribution Branch ("LDB"), which oversees the importation and distribution of wine in the province, placed bulk orders for Fino Vino's wine and paid the import licence holder directly. Because SJM held the licence, all of Fino Vino's LDB revenue flowed into SJM's bank account, where it was commingled with SJM's own revenue. The parties had agreed that Mr. Morton would remit Fino Vino's share of those proceeds back to the company and that Fino Vino would contribute a portion of SJM's monthly ContainerWorld expenses. Disputes arose over whether these remittances were ever properly paid. Mr. Cherkaoui alleged that sale proceeds were missing, that he could not access the company's inventory, and that the company was unable to operate due to Mr. Morton's conduct. Mr. Morton, in turn, alleged that it was Mr. Cherkaoui and Mr. Gable who owed money to the company and had engaged in wrongdoing.

Procedural history: attempts to resolve and the first proceeding

Before resorting to litigation, Mr. Cherkaoui made numerous efforts to resolve the accounting issues through email, meetings, and mediation. Settlement offers were extended, a neutral third-party accountant was proposed, and non-disclosure agreements were offered to facilitate document sharing. Mr. Morton either did not agree to these proposals, reneged on them, or imposed unreasonable conditions. On August 12, 2024, Mr. Cherkaoui prematurely commenced a derivative action on behalf of Fino Vino without obtaining the required court leave (the "First Proceeding"). He later filed a notice of discontinuance of that proceeding on April 14, 2025, with costs remaining outstanding.

The petition for leave and courtroom conduct

On March 19, 2025, Mr. Cherkaoui filed a formal petition for leave to commence a derivative action against Mr. Morton and SJM on behalf of Fino Vino. On March 27, 2025, Mr. Morton responded with an application to remove Mr. Cherkaoui's counsel on the basis of an alleged conflict of interest. The hearing, originally scheduled for April 17, 2025, was adjourned at Mr. Morton's request and subsequently delayed again due to judicial unavailability. When the hearing was finally set for July 16–17, 2025, Mr. Morton sought yet another adjournment citing medical issues. The court allowed a same-day adjournment application on July 14, which was denied the following day after being heard with both parties present. On the first day of the hearing, Mr. Morton did not appear — instead sending his sister to read a letter citing a medical appointment with an audiologist. The judge delayed proceedings to 2:00 p.m. and ordered that the conflict of interest application would be dismissed if Mr. Morton did not attend. Mr. Morton again failed to appear, again sending his sister, who advised he was resting after an appointment with his family doctor. The conflict of interest application was dismissed, and the hearing of the petition was set for the following morning at 9:00 a.m. to accommodate Mr. Morton's appointment with an ENT specialist scheduled for 4:00 p.m. that afternoon. On July 17, 2025, Mr. Morton still did not attend, and his sister once again read a letter on his behalf. The judge found no evidence from a medical doctor regarding the urgency of Mr. Morton's condition and characterized his repeated absences as "delay tactics." The petition proceeded without him.

The chambers judge's analysis and findings

The chambers judge applied the four-part test under s. 233(1) of the Business Corporations Act, S.B.C. 2002, c. 57. He found that proper notice had been given to the company and Mr. Morton. He noted that Mr. Cherkaoui had not made a formal demand on Mr. Morton before filing either the First Proceeding or the Petition, but acknowledged that doing so would have been pointless, observing that this requirement was nonetheless necessary to comply with s. 233 of the BCA. He accordingly directed Mr. Cherkaoui to send a letter demanding that Mr. Morton take action to prosecute the claim, which Mr. Cherkaoui did. On good faith, the judge found no ulterior motives and was satisfied that the action was being pursued for the primary purpose of recovering the company's sale proceeds and reducing the risk of liability. On the best interests of the company, the judge was satisfied the evidence supported not just an arguable case but one with a reasonable prospect of success, with the pleaded claims — breach of fiduciary duty and misappropriation of funds — well supported by detailed affidavit evidence. Leave was granted accordingly. The judge ordered that Mr. Cherkaoui be indemnified on a solicitor-client basis for costs incurred in respect of the conduct of the claim, with the costs of the Petition payable in the cause of the derivative action.

The appeal: grounds and outcome

Mr. Morton, appearing in person, appealed on four grounds: that the chambers judge erred in refusing an adjournment; in dismissing the conflict of interest application; in granting leave to commence the derivative action; and in his costs determination. The Court of Appeal admitted fresh medical evidence filed by Mr. Morton on consent of the respondent, but found it did not assist him, as the new medical records supported the conclusion that his medical issues should not have interfered with his court attendance or justified an adjournment of a peremptory petition date that had already been adjourned more than once. On the conflict of interest issue, the court found no basis for disqualification — Mr. Cherkaoui's lawyers acted only for him personally, and the erroneous initial filing in Fino Vino's name did not alter the nature of the solicitor-client relationship with Mr. Cherkaoui, who was and remained their only client in the matter. On the derivative action itself, the appellate court applied a deferential standard of review and found no palpable and overriding error in the good faith finding, nor any error in the best interests analysis, noting that Mr. Morton and SJM had not remitted any funds to the company since March 22, 2024, that Mr. Morton had withdrawn funds from the company's bank account and transferred them to SJM, and that Fino Vino's Alberta sales proceeds were being directed to an SJM account.

Supplementary reasons on costs

In supplementary reasons issued May 1, 2026 (Morton v. Cherkaoui, 2026 BCCA 179), the Court addressed whether Mr. Cherkaoui was entitled to special costs on appeal. Mr. Morton had argued that costs should be borne by Fino Vino, not him personally, on the basis that he appeared as a company representative — a characterization the Court rejected, noting that his interests were directly in conflict with the interests of Fino Vino on the appeal. Mr. Cherkaoui argued that Mr. Morton's conduct warranted special costs, pointing to factual misrepresentations about the evidence before the court below, baseless allegations of criminal activity against Mr. Cherkaoui, professional complaints lodged against Mr. Cherkaoui's lawyers, and the submission of AI-generated fictitious case citations. The Court acknowledged that the use of AI-hallucinated authorities was a serious mistake, but one that was corrected immediately when brought to Mr. Morton's attention. While Mr. Morton's description of proceedings below was often inaccurate, the Court was not satisfied that these inaccuracies, individually or cumulatively, amounted to conduct intended to mislead or worthy of rebuke. The court ultimately determined that the appeal, while unsuccessful, was not entirely baseless or brought for an improper purpose, and that Mr. Morton held a bona fide belief in its chances of success. Mr. Morton was ordered to pay Mr. Cherkaoui's ordinary costs of the appeal; special costs were declined. The exact quantum of costs was not specified in these decisions, as the costs of the petition remained to be assessed in the context of the derivative action proceedings.