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Corporations - Oppression Remedy
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. Vellenga v. Boersma
In Vellenga v. Boersma (Ont CA, 2020) the Court of Appeal set out briefly the corporate oppression provisions of the OBCA:[25] Under s. 248 of the Business Corporations Act, a shareholder or former shareholder may apply to the court for a remedy when the powers of the directors of a corporation have been exercised in a manner that is oppressive, unfairly prejudicial, or in a way that unfairly disregards the interests of the shareholder. In this case, the issue is whether the trial judge erred in finding that Dr. Boersma, as a director of the Corporation, acted oppressively by failing to carry out his fiduciary duties.
[26] The fiduciary duties of directors and officers include the statutory duties under s. 134(1) of the Business Corporations Act, to “act honestly and in good faith with a view to the best interests of the corporation”. Directors and officers are also under a duty to “exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances”. . Wilson v. Alharayeri
In the Quebec case of Wilson v. Alharayeri (SCC, 2017) the Supreme Court of Canada considers the oppression remedies available under the Canada Business Corporations Act (CBCA s.241), which are essentially the same as those set out in Ontario's Business Corporations Act (OBCA s.248):[25] What is at issue is whether the trial judge appropriately exercised the remedial powers provided in s. 241(3) by holding Mr. Wilson personally liable for the oppression. Section 241(3) reads as follows:(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,
(a) an order restraining the conduct complained of;
(b) an order appointing a receiver or receiver-manager;
(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;
(d) an order directing an issue or exchange of securities;
(e) an order appointing directors in place of or in addition to all or any of the directors then in office;
(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;
(g) an order directing a corporation, subject to subsection (6), or any other person, to pay a security holder any part of the monies that the security holder paid for securities;
(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;
(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 155 or an accounting in such other form as the court may determine;
(j) an order compensating an aggrieved person;
(k) an order directing rectification of the registers or other records of a corporation under section 243;
(l) an order liquidating and dissolving the corporation;
(m) an order directing an investigation under Part XIX to be made; and
(n) an order requiring the trial of any issue. . Montor Business Corporation v. Goldfinger [I]
In Montor Business Corporation v. Goldfinger [I] (Ont CA, 2016) the court considers principles applicable to a finding of oppression under the Ontario Business Corporations Act:[98] Turning to the merits of the oppression ground of appeal, this court has recognized that the oppression remedy contained in s. 248 of the OBCA is a “flexible, equitable remedy that affords the court broad powers to rectify corporate malfeasance”: see Unique Broadband Systems, Inc. (Re), 2014 ONCA 538 (CanLII), 121 O.R. (3d) 81, at para. 107. The granting of an oppression remedy is a discretionary decision.
[99] In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, the Supreme Court addressed the oppression provision found in the Canada Business Corporations Act, R.S.C. 1985, c. C-44, which is similar to the provision found in the OBCA. At para. 68, the Court outlined the following two-step test: (1) Does the evidence support the reasonable expectations asserted by the claimant? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
[100] The Court addressed the concept of reasonable expectations under the first part of the test, at paras. 62 and 63:[T]he concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive. In the context of whether it would be “just and equitable” to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.
Particular circumstances give rise to particular expectations. Stakeholders enter into relationships, with and within corporations, on the basis of understandings and expectations, upon which they are entitled to rely, provided they are reasonable in the context. These expectations are what the remedy of oppression seeks to uphold. [Citations omitted.] [101] The court addressed the second stage of the test, at para. 67:Even if reasonable, not every unmet expectation gives rise to a claim under [s. 248]. The section requires that the conduct complained of amount to “oppression”, “unfair prejudice” or “unfair disregard” of relevant interests. “Oppression” carries the sense of conduct that is coercive and abusive, and suggests bad faith. “Unfair prejudice” may admit of a less culpable state of mind, that nevertheless has unfair consequences. Finally, “unfair disregard” of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders’ reasonable expectations. The phrases describe, in adjectival terms, ways in which corporate actors may fail to meet the reasonable expectations of stakeholders. [Citations omitted.] . Maurice v. Alles
In Maurice v. Alles (Ont CA, 2016) the Court of Appeal engaged in an extended discussion of the application of the general two-year limitation period to a corporate oppression remedy claim, here where ongoing oppression was alleged:(b) Applicable Limitation Period
[43] In my view, an oppression remedy claim under the OBCA is subject to the general two-year limitation period prescribed by s. 4 of the Limitations Act, 2002. Oppression is not listed under s. 16 as a claim to which no limitation period applies, nor is it exempted under s. 19 of the legislation. Special circumstances are also not available to extend the limitation period.
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[48] I am also of the view that this is not a case where there is ongoing oppressive conduct. The sale was a singular event that occurred many years ago. The refusal to produce documents was made known to the appellant in 2008. It is true that no production was made until this proceeding was commenced, but the continuous refusal to produce documents does not operate to extend the limitation period any more than a refusal to pay an outstanding amount in a collection action extends the limitation period until payment is received. As previously mentioned, limitation periods begin when the cause of action arises, not when it is remedied: Fracassi, at para. 273.
[49] Courts must be careful not to convert singular oppressive acts into ongoing oppression claims in an effort to extend limitation periods. To do so would create a special rule for oppression remedy claims.
....
[52] A party that engages in a series of oppressive acts can always make the argument that it is all part of the same corporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. In analyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that any threatened or actual conduct that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of any complainant can constitute a discrete claim of oppression. The oppression remedy section of the OBCA is drafted in the broadest possible terms to respond to the broadest range of corporate malfeasance. . Wilson v. Alharayeri
In the Quebec case of Wilson v. Alharayeri (SCC, 2017) the court's particular focus is the criteria for holding directors of corporations personally liable for oppressive behaviour. This makes the case relevant to two major sectors of corporate law, the oppression remedy and piercing the corporate veil:(3) The Principles Governing Orders Under Section 241(3) and the Application of the Personal Liability Test Going Forward
[47] To reiterate, Budd provides for a two-pronged approach to personal liability. The first prong requires that the oppressive conduct be properly attributable to the director because he or she is implicated in the oppression (see Budd, at para. 47). In other words, the director must have exercised — or failed to have exercised — his or her powers so as to effect the oppressive conduct (Sidaplex, at p. 567; see also Budd, at paras. 41-44, citing Gottlieb v. Adam (1994), 1994 CanLII 7345 (ON SC), 21 O.R. (3d) 248 (Gen. Div.), at pp. 260-61).
[48] But this first requirement alone is an inadequate basis for holding a director personally liable. The second prong therefore requires that the imposition of personal liability be fit in all the circumstances. Fitness is necessarily an amorphous concept. But the case law has distilled at least four general principles that should guide courts in fashioning a fit order under s. 241(3). The question of director liability cannot be considered in isolation from these general principles.
[49] First, “the oppression remedy request must in itself be a fair way of dealing with the situation” (Ballard, at para. 142). The five situations identified by Koehnen relating to director liability are best understood as providing indicia of fairness. Where directors have derived a personal benefit, in the form of either an immediate financial advantage or increased control of the corporation, a personal order will tend to be a fair one. Similarly, where directors have breached a personal duty they owe as directors or misused a corporate power, it may be fair to impose personal liability. Where a remedy against the corporation would unduly prejudice other security holders, this too may militate in favour of personal liability (see Koehnen, at p. 201).
[50] To be clear, this is not a closed list of factors or a set of criteria to be slavishly applied. And as explained above, neither a personal benefit nor bad faith is a necessary condition in the personal liability equation. The appropriateness of an order under s. 241(3) turns on equitable considerations, and in the context of an oppression claim, “It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise” (Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360, at p. 379 (“Ebrahimi”)). But personal benefit and bad faith remain hallmarks of conduct properly attracting personal liability, and although the possibility of personal liability in the absence of both of these elements is not foreclosed, one of them will typically be present in cases in which it is fair and fit to hold a director personally liable for oppressive corporate conduct. With respect to these two elements, four potential scenarios can arise:
i) The director acted in bad faith and obtained a personal benefit;
ii) The director acted in bad faith but did not obtain a personal benefit;
iii) The director acted in good faith and obtained a personal benefit; and
iv) The director acted in good faith and did not obtain a personal benefit.
[51] In general, the first and fourth scenarios will tend to be clear-cut. If the director has acted in bad faith and obtained a personal benefit, it is likely fit to hold the director personally liable for the oppression. On the other hand, where neither element is present, personal liability will generally be less fitting. The less obvious cases will tend to lie in the middle. In all cases, the trial judge must determine whether it is fair to hold the director personally liable, having regard to all the circumstances. Bad faith and personal benefit are but two factors that relate to certain circumstances within a larger factual matrix. They do not operate to the exclusion of other considerations. And they should not overwhelm the analysis.
[52] Further, even where it is appropriate to impose personal liability, this does not necessarily lead to a binary choice between the directors and the corporation. Fairness requires that, where “relief is justified to correct an oppressive type of situation, the surgery should be done with a scalpel, and not a battle axe” (Ballard, at para. 140). Where there is a personal benefit but no finding of bad faith, fairness may require an order to be fashioned by considering the amount of the personal benefit. In some cases, fairness may entail allocating responsibility partially to the corporation and partially to directors personally. For example, in Wood Estate, a shareholder made a short-term loan to the corporation with the reasonable expectation that it would be repaid from the proceeds of a specific transaction. Those proceeds were instead applied to corporate purposes, as well as to repayment of the loans made to the corporation by the defendant directors and officer and by another shareholder. D.M. Brown J. held the defendant directors and officer liable for the amounts used to repay their own loans and the shareholder loan, and also ordered the corporation to pay an equal amount towards the balance of the loan. As this last example shows, the fairness principle is ultimately unamenable to formulaic exposition and must be assessed on a case-by-case basis having regard to all of the circumstances.
[53] Second, as explained above, any order made under s. 241(3) should go no further than necessary to rectify the oppression (Naneff, at para. 32; Ballard, at para. 140; Themadel Foundation v. Third Canadian General Investment Trust Ltd. (1998), 1998 CanLII 973 (ON CA), 38 O.R. (3d) 749 (C.A.), at p. 754 (“Themadel”)). This follows from s. 241’s remedial purpose insofar as it aims to correct the injustice between the parties.
[54] Third, any order made under s. 241(3) may serve only to vindicate the reasonable expectations of security holders, creditors, directors or officers in their capacity as corporate stakeholders (Naneff, at para. 27; Smith v. Ritchie, 2009 ABCA 373, at para. 20 (CanLII)). The oppression remedy recognizes that, behind a corporation, there are individuals with “rights, expectations and obligations inter se which are not necessarily submerged in the company structure” (Ebrahimi, at p. 379; see also BCE, at para. 60). But it protects only those expectations derived from an individual’s status as a security holder, creditor, director or officer. Accordingly, remedial orders under s. 241(3) may respond only to those expectations. They may not vindicate expectations arising merely by virtue of a familial or other personal relationship. And they may not serve a purely tactical purpose. In particular, a complainant should not be permitted to jump the creditors’ queue by seeking relief against a director personally. The scent of tactics may therefore be considered in determining whether or not it is appropriate to impose personal liability on a director under s. 241(3). Overall, the third principle requires that an order under s. 241(3) remain rooted in, informed by, and responsive to the reasonable expectations of the corporate stakeholder.
[55] Fourth — and finally — a court should consider the general corporate law context in exercising its remedial discretion under s. 241(3). As Farley J. put it, statutory oppression “can be a help; it can’t be the total law with everything else ignored or completely secondary” (Ballard, at para. 124). This means that director liability cannot be a surrogate for other forms of statutory or common law relief, particularly where such other relief may be more fitting in the circumstances (see, e.g., Stern v. Imasco Ltd. (1999), 1999 CanLII 14934 (ON SC), 1 B.L.R. (3d) 198 (Ont. S.C.J.)).
[56] Under s. 241(3), fashioning a fit remedy is a fact-dependent exercise. When it comes to the oppression remedy, Carthy J.A. put the matter succinctly:The point at which relief is justified and the extent of relief are both so dependent upon the facts of the particular case that little guidance can be obtained from comparing one case to another and I would be hesitant to enunciate any more specific principles of approach than have been set out above.
(Themadel, at p. 754) [57] The four principles articulated above therefore serve as guideposts informing the flexible and discretionary approach the courts have adopted to orders under s. 241(3) of the CBCA. ... . Dewan v. Burdet
In Dewan v. Burdet (Ont CA, 2018) the Court of Appeal contrasted the Condominium Act oppression remedy with that of the CBCA dealt with in the case of Wilson v Alharayeri (SS: see the extract):[6] The very recent decision of the Supreme Court of Canada in Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 S.C.R. 1037 is instructive. There the court found that determining a director’s personal liability under an oppression remedy requires a two‑pronged approach. First, the oppressive conduct must be properly attributable to the director because of his or her implication in the oppression. Second, imposing personal liability must be fit in all the circumstances see paras. 47-57.
[7] We recognize that Wilson was decided under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”). However, the holding in Wilson is apt in the Condominium Act context. Like the oppression remedy provision in s. 241(3) of the CBCA, s. 135(3) of the Condominium Act grants a judge broad discretion in crafting an appropriate remedy. That subsection permits a judge to make “any order the judge deems proper” and lists two non-exhaustive examples. In Wilson, the Supreme Court noted that one of the remedial examples listed in s. 241(3) of the CBCA contemplated “an order compensating an aggrieved person” without specifying against whom such an order may lie: see para. 29. Similarly, s. 135(3)(b) of the Condominium Act contemplates “an order requiring the payment of compensation” without further specification. As the Condominium Act itself does not indicate when it would be “proper” to hold a director personally liable for oppression, guidance can be sought from Wilson. . Siemon v. Perth Standard Condominium Corporation
In Siemon v. Perth Standard Condominium Corporation (Ont CA, 2020) the Court of Appeal set out generally what was 'oppressive' under s.135 of the Condominium Act:[52] The motion judge properly identified the relevant principles for oppression under s. 135 of the Condominium Act, referring to the case cited by the appellants as authoritative, Walia. She also considered and applied the framework for the oppression remedy set out in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560.
[53] In Walia, Harvison Young J. (as she then was), observed that unfair prejudice has been described as “a limitation on or injury to a complainant’s rights or interests that is unfair or inequitable” and that unfair disregard has been described as “unjustly ignor[ing] or treat[ing] the interests of the complainant as being of no importance”: at para. 23. She also noted that s. 135 is meant to protect the reasonable expectations of shareholders and unit owners: at para. 24. On the facts in Walia, Harvison Young J. concluded that the failure to use the weighted voting procedures set out in a condominium corporation’s by-laws and the removal of commercial unit owners from the board of directors was unfairly prejudicial to and unfairly disregarded the interests of such owners. The condominium declaration contemplated a relatively level playing field between commercial and residential owners. The change in the weighted vote, along with the removal of the commercial owners from the board, eliminated an important part of the balance. Her remedy called for the by-laws to be enforced, as this was the “least intrusive and most appropriate remedy in the circumstances”: at para. 31. . Toronto Standard Condominium Corporation No. 2051 v. Georgian Clairlea Inc.
In Toronto Standard Condominium Corporation No. 2051 v. Georgian Clairlea Inc. (Ont CA, 2019) this condominium case the court considered a statutory oppression remedy in the following terms:[2] The summary judgment was granted in the action brought by TSCC 2051 seeking, inter alia, relief under s. 135 of the Condominium Act, 1998, S.O. 1998, c. 19 (“the Act”). Section 135(2) gives the court jurisdiction to grant an oppression remedy within the purview of the Condominium Act. It provides:On an application, if the court determines that the conduct of an owner, a corporation, a declarant or a mortgagee of a unit is or threatens to be oppressive or unfairly prejudicial to the applicant or unfairly disregards the interests of the applicant, it may make an order to rectify the matter. ....
[24] The motion judge applied the two-part test for oppression that the Supreme Court of Canada set out in para. 68 of BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560:In summary, the foregoing discussion suggests conducting two related inquiries in a claim for oppression: (1) Does the evidence support the reasonable expectation asserted by the claimant? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
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