Interim Costs on an Oppression Remedy - The Tests to Meet

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It may be a little-known part of the overall arsenal of shareholder remedies that, in an oppression application under the Ontario Business Corporations Act R.S.O. 1990, c. B.16. (the �OBCA�), the shareholder/complainant may bring a motion for a court order requiring the corporation to pay his or her interim costs in the proceeding. In other words, in the right circumstances the corporation may be subject to a court order forcing it to pay the complainant�s short-term costs � including reasonable legal fees and disbursements � which will allow the complainant to pursue an oppression remedy against the corporation in the first place.

Oppression Remedy as Background for Interim Costs Order

This was the complainant�s objective in a case called Hames v. Greenberg 2014 ONSC 245. Richard Hames was the president and shareholder of a window-and-door supply business that he and three other men ran together for 25 years. Hames was now 78 years old, while the three others were all in their 60s.

Hames alleged that when he stated his intention to retire, the three others removed him as president, stopped paying his salary and bonuses, ejected him from the business, and prevented him from having any further involvement in it � all without his consent. He claimed this was not only contrary to their shareholder agreement, but was also contrary to the practice they had followed in their 25 years of business, which required major corporate decisions to be made unanimously, and profits to be shared proportionately.

Hames brought an application for an oppression remedy. Pending its hearing he also brought a motion asking the court for an order requiring the corporation to pay interim costs, in the amount of $300,000.

The Principles Governing an Award of Interim Costs

In considering Hames� motion, the court examined the legal test for granting such an order under the OBCA, noting its authority is set out in s. 249(4) and can be exercised at any time during the course of an oppression remedy application. (And once interim costs are ordered, they may have to be repaid by the complainant if the later oppression remedy determination turns out to be unfavourable).

Disclaimer: The content in this article is provided for general information purposes only. It does not constitute legal advice. All rights are reserved.

To obtain an order under s. 249(4) the applicant must show:

• That there is a case of sufficient merit to warrant pursuit; and
• That the applicant is genuinely in financial circumstances which, but for an order, wouldpreclude the claim from being pursued.The court observed that in previous court decisions, there was some uncertainty around whether the applicant had to show that his or her financial difficulties arose out of the alleged oppressive acts of the corporation, i.e. whether there had to be a link shown between the two. The court decided in the negative: After examining the jurisprudence closely, it concluded there is nothing in the language of the OBCA, or in the purpose behind its provisions, that requires a cause-and-effect relationship between the alleged oppressive conduct and the applicant�s need for funding. This interpretation is most consistent with the equitable nature of the oppression remedy and its supporting provisions.Applying the Test � A �Case of Sufficient Merit to Warrant Pursuit� of the OrderApplying that test to the present case, the court examined the facts. First, the court emphasized that the oppression remedy itself, found in s. 248 of the OBCA, was aimed at ensuring fairness. It looks at business realities, not merely narrow legalities. With that said, that remedy is very fact-specific and the determination of what is just and equitable is to be judged by the reasonable expectations of the stakeholders in the context and with regard to the relationships at play.These considerations played into the first aspect of the test under s. 249(4), namely whether there was a �case of sufficient merit to warrant pursuit� of a remedy. The court noted the phrase was not �crafted with scientific precision�, adding:[22] However, when considering the spectrum of the merits of a claim ranging from �not a hope� at one end to �a slam dunk� at the other, it strikes me that a judge must be satisfied that the claims advanced are well over the �frivolous and vexatious� mark � after all, money is being asked for � but without the need of establishing a claim on a balance of probabilities. ...Here, there had been a series of corporate incidents, decisions, and transactions which left Hames with the impression that his interests were being jeopardized, and which were contrary to his reasonable expectations as a shareholder. These included not being given notice of certain decisions, being unceremoniously expelled from the business, and having his salary unexpectedly cut off.This was tantamount to a �case of sufficient merit� to warrant Hames pursuing his claims of wrongful expulsion from management (among other things), so he met the first branch of the test under s. 249(4).Disclaimer: The content in this article is provided for general information purposes only. It does not constitute legal advice. All rights are reserved.

Applying the Test � The Financial Circumstances of the Applicant

Next, the court had to look at the financial circumstances of Hames � as well as the Hames Family Trust (the �Trust�), which had joined him in both the oppression remedy application and the motion for interim costs. The Trust owned about $500,000 in shares of the corporation and had four beneficiaries: Hames� son and three of Hames� grandchildren. As such, the court noted that Hames and his family all stood to benefit from a potential court order in their favour on the main oppression application, which enabled the court to assess their collective financial wherewithal to fund it.

Specifically, when examining the financial circumstances of Hames and the Trust, as s. 249(4) required it to do, the court had to decide whether those parties would be precluded from pursuing their claims if an order for interim costs was not granted. This required the court to review their respective and collective income, assets and liabilities (including legal costs to date) together with their ability to borrow to fund the litigation.

The problem was that although he was forthcoming about his own financial situation, Hames refused to answer any questions about the finances of the Trust�s beneficiaries. The court found this information should have been provided, as it was relevant to the overall costs determination. For example, from a practical standpoint the court noted that Hames� son � who it estimated had a net worth of $1 million � could be expected to pay some of the litigation costs because he and his children stood to gain from a court order on main issues. The court declared that the Trust had failed in its duty to provide full financial disclosure in this regard.

It then turned to scrutinize the financial information that it did have, from Hames directly. The court said:

Looked at that way, for a 78 year old man with $314,349 in liquid assets and the basic government retirement and old age benefits, potential reasonable legal costs of $190,000 would stand as a significant obstacle to taking this proceeding through to trial. I therefore conclude that Hames has demonstrated that he genuinely is in financial circumstances which, but for an order under OBCA s. 249(4), would preclude his claims from being pursued.

Ultimately the court declined to award the full $300,000 in interim costs sought by Hames and the Trust, but rather made its own calculations as to the appropriate fees and disbursements. It then reduced them by 50 percent to reflect the fact that the Trust had not made full disclosure. In the end, it granted Hames and the Trust were awarded $54,000 to cover some of the legal costs already incurred, as well as future legal costs for the upcoming oppression application.

Disclaimer: The content in this article is provided for general information purposes only. It does not constitute legal advice. All rights are reserved.