Recent Developments in Shareholder Remedies

Minority shareholders who are dissatisfied with corporate behavior may turn to Canadian corporate statutes such as the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA) and theCanadian Business Corporations Act, R.S.C. 1985, C-44. (CBCA) for various remedies including the oppression remedy and derivative actions. The oppression remedy is an equitable, flexible remedy that gives courts broad discretion to alleviate unfair treatment of minority shareholders (and others such as creditors, directors or officers) by the corporation and/or its majority shareholders. The question of whether corporate conduct has been oppressive is based on assessing the reasonable expectation of the minority shareholders within the context of the existing relationship between the parties. Oppression remedy actions are a common method of asserting shareholder rights, and are often the only plausible option available in private, closely held corporations.

A large number of oppression remedy cases have recently come before the courts, with some significant developments in the law. The Supreme Court of Canada along with the appeal courts continue to refine the various elements of the oppression remedy.

In Wilson v. Alharayeri, 2017 CarswellQue 5230 (S.C.C.), the Supreme Court of Canada considered whether the oppression remedy should be ordered against directors in their personal capacity as opposed to simply the corporation. In this case, the corporation underwent a private placement of shares which had a substantial negative affect on the value of the CEO's shares. The Supreme Court of Canada unanimously upheld the trial judge's decision to attach personal liability to two directors under s. 241(3) of the CBCA. The Court found that both directors had actively led the discussions and decisions surrounding the share placement and that one of the directors personally benefitted from the placement. Further, the Supreme Court found it was a reasonable expectation of the CEO that the impact on his shareholdings be considered in the decision making process. The Supreme Court found both of the directors liable for damages nearing $650,000 which represented the loss of value of the CEO's shares. The Court also cautioned that the broad discretion given to the Court under s. 241(3) was not limitless and should be used within the bounds of the existing case law. The Court also discussed the standard of appellate review in oppression remedy cases and found that the standard of review for findings of fact is palpable and overriding error. Further, an appellate court can intervene and substitute its own decision where the trial judgment is based on errors of law; erroneous principles or irrelevant considerations; or is manifestly unjust.

In Mennillo v. Intramodal inc., 2016 CarswellQue (S.C.C.), the Supreme Court of Canada examined the issue of whether a corporation's disregard for the formalities required by the CBCA could constitute oppressive conduct. The plaintiff in this action was a minority shareholder who owned 49% of the shares. The corporation was run in an extremely informal manner (for example - no shareholders agreement and most dealings between the shareholders and the corporation were not evidenced by writing). The plaintiff resigned his position as an officer and director. The corporation took the position that he resigned as a shareholder as well and sold his shares to a third party. The corporation did not take the appropriate steps as required by the CBCA with respect to the plaintiff's shares. The plaintiff alleged oppressive conduct. At trial, the court found that the plaintiff did, in fact, indicate he was resigning as a shareholder as well as a director and officer. The trial judge found no oppressive conduct based on the reasonable expectations of the plaintiff and the parties' relationship to date. The Court of Appeal and the Supreme Court of Canada upheld the decision. The Supreme Court of Canada found that a breach of the technical requirements of the CBCA is not, in and of itself, a basis for an oppression remedy action. Further, the Supreme Court stated that the trial judge's findings of fact (that the plaintiff expressly wished to no longer be a shareholder) contained no palpable and overriding error and thus could not be overturned.

The Ontario Court of Appeal confirmed the fact that derivative actions and oppression remedy actions are not mutually exclusive in Ernst & Young Inc. v. Essar Global Fund Limited, 2017 CarswellOnt 20162 (Ont. C.A.). In the context of a reorganization of Algoma Steel (Algoma) under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"), the supervising judge authorized the court appointed monitor to commence an oppression remedy action against Algoma's parent corporation under section 241 of the CBCA, based on certain transactions that occurred surrounding Algoma's recapitalization. The trial judge found that the parent corporation had engaged in oppressive conduct and designated a remedy. The parent corporation appealed on the basis that the court appointed monitor did not have standing to bring an oppression remedy action and that the appropriate action in the circumstances was a derivative action, based on the fact that the harm was suffered by Algoma. The Court of Appeal acknowledged that it was only in rare circumstances that a court appointed monitor in this situation should be appointed as a complainant under the CBCA but the Court of Appeal acknowledged that the court had a broad discretion under the CBCA to decide who could be a complainant. The Court of Appeal further ruled that the trial judge's decision allowing that derivative actions and oppression remedy actions are not mutually exclusive was appropriate and noted that the trial judge relied on the earlier Court of Appeal decision of Rea v. Wildeboer, 2015 ONCA 373, 126 O.R. (3d) 178 (Ont. C.A). The Court of Appeal noted that the trial judge distinguished this case on the basis that both individual and corporate interests were affected by the oppressive conduct in the case at bar.

Zanardo v. Di Battista Gambin Developments Ltd., 2019 CarswellOnt 2693 (Ont. S.C.J.(Div. Ct.) involved an oppression claim brought by the estate trustee of the deceased minority shareholder. The trial judge found in favour of the plaintiff and ordered a liquidation of the business. The appellants readily admitted their behaviour was oppressive but appealed the trial judge's choice of remedy, arguing it was overbroad. The Divisional Court agreed that liquidation is a remedy of last resort and the appropriate standard of review with respect to a remedy granted by the trial judge is palpable and overriding error.

In 790668 Ontario Inc. v. D'Andrea Management Inc., 2017 CarswellOnt 20628 (Ont. C.A.), the Ontario Court of Appeal upheld the notion that the clean hands doctrine applies in the context of the oppression remedy as it is based in equity.

The above cases are a few examples of recent developments in oppression remedy jurisprudence.