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Corporations - Oppression (4). E. Automotive Inc. v. Autocorp [evidence of oppression/'share dilution']
In E. Automotive Inc. v. Autocorp (Ont Div Ct, 2026) the Ontario Divisional Court allowed an appeal, this brought against the dismissal of an "oppression application brought under s. 248 of the Ontario Business Corporations Act".
The court considered an OBCA share-dilution 'oppression' issue, here regarding shareholders' reasonable expectations and the evidence required to establish that:[26] The main issue is whether the application judge erred in law in holding that direct evidence of reasonable expectations was required in this case. The related issues are whether the application judge erred in holding that he could not infer reasonable expectations based on s. 168 of the OBCA and because the transaction was justified to save the company.
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[28] There is no issue that there is a two-part test to establish oppression under s. 248 of the OBCA. As set out in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 68, 70 and applied here:(1) the claimant must identify the expectations that they claim have been violated by the conduct at issue and establish that the expectations were reasonably held; and,
(2) the claimant must then show that the reasonable expectations were violated by conduct that was oppressive or unfairly prejudicial to, or that unfairly disregarded the interests of, here, a shareholder. [29] The application judge dismissed the application on the first part of the test. Despite a voluminous record with considerable relevant evidence, the application judge erred in law in finding there was “no evidence” regarding the asserted reasonable expectations of the appellant.
[30] Whether conduct is oppressive or unfairly prejudicial is a fact-based inquiry. However, evidence of an expectation may take many forms depending on the facts of the case: BCE, at para. 70. Relevant factors include the following: the nature of the corporation; the relationship between the parties; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders: BCE, at para. 72.
[31] Although the inquiry into what a party’s reasonable expectations were is a fact-based inquiry, it is well-established that there need not be evidence in the form of testimony from a claimant as to their expectations: Ford Motor Company of Canada, Ltd. v. Ontario Municipal Employees Retirement Board (2006), 2006 CanLII 15 (ON CA), 79 O.R. (3d) 81 (C.A.), at para. 65.
[32] As the Court of Appeal stated in Ernst & Young Inc. v. Essar Global Fund Limited, 2017 ONCA 1014, at para. 154, summarizing statements from BCE, “[e]vidence of an expectation may take many forms depending on the facts of the case. The actual expectation of a particular stakeholder is not conclusive. Furthermore, a stakeholder's reasonable expectation of fair treatment may be readily inferred, because fundamentally all stakeholders are entitled to expect fair treatment” (emphasis added) (references to BCE omitted).
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[35] As the application judge found, there was no question that the respondents were attempting to dilute the number of shares held by the appellant to ensure it could not block a deal with Blossom. The application judge erred in law by requiring subjective testimony that precisely matched the appellant’s expectation at the relevant time. As Ernst & Young holds, it can be reasonably inferred that all stakeholders expect to be treated fairly.
[36] In addition to wrongly saying there was no evidence of this shareholder’s expectations, let alone whether they were reasonable, the application judge erred in holding that the statutory requirement for a special resolution under s. 168 could not ground a shareholder’s reasonable expectation. Section 168 forms part of Part XIV of the OBCA, titled Fundamental Changes. That Part contains statutory requirements for the protection of non-majority shareholders, which do ground the appellant’s reasonable expectations in this case.
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[39] Oppression is about fairness, not technicalities such as submissions based on excerpts of words from different points in time in different contexts. To the extent that the application judge’s finding of no reasonable expectation was a factual error, it was a palpable and overriding error because, as discussed above, there was ample evidence on the factual context that gave rise to the appellant’s reasonable expectations contrary to the application judge’s finding there was “no evidence”.
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[42] As acknowledged by the application judge, there is no question that in certain circumstances the dilution of shares below a certain threshold, especially where the purpose is to block opposition on a vote, may constitute oppression: Decision, at para. 23, citing Markus Koehnen (as he then was), Oppression and Related Remedies (Toronto: Thompson Canada Ltd: 2004) (Oppression), p. 137.
[43] The application judge did not proceed to determine whether this was such a case because he found that it was a business decision that Lemoine was entitled to make. However, Oppression correctly notes, at p. 137, a share issuance may be oppressive even where the directors honestly believe that they are acting in the best interests of the corporation.
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[46] Several oppression cases involving share dilution have been put forward. The application judge cited Darvish-Kazem v. Pazkaz Enterprises Inc., 2022 ONSC 1667, which is an oppression case where the judge held that except for the desire for audited financial statements, the judge did not know where the expectations advanced in that case came from. That conclusion was properly based on the record in Darvish-Kazem and is not analogous to the case before us. Further, in that case, the judge went on to consider the circumstances and found oppression. The judge also noted at para. 34 that the “oppression remedy is designed to ensure that shareholders at least receive their mandatory statutory entitlements.”
[47] The respondents rely on McEwen v. Goldcorp Inc. (2006), 2006 CanLII 37415 (ON SCDC), 21 B.L.R. (4th) 306 (Ont. Div. Ct.) to dispute the proposition that dilution is always prejudicial. The appellant does not submit that dilution is always prejudicial. Further, McEwen was about whether shareholder approval was required to approve a plan of arrangement, not oppression.
[48] The respondents also seek to distinguish other vote-rigging and dilution cases the appellant relies on including Concept Capital Management Ltd. v. Oremex Silver Inc., 2013 ONSC 7820, where the directors wrongly attempted to manipulate the voting process, Keho Holdings Ltd. v. Noble, 1987 ABCA 84, 78 A.R. 131, where a share option at below book and market value would dilute the value of other outstanding shares and was oppressive, Bernard et al. v. Valentini et al. (1978), (Ont. H.C.), a case where shares had been issued for the sole purpose of maintaining control of the company, and Starcom International Optics Corp. v. MacDonald, 1994 CanLII 1956 (B.C. S.C.), in which certain acts that resulted in the consolidating of a control position were found oppressive.
[49] I agree that the above cases turn on their facts. They are relevant to show examples of situations that have been found improper, but no more. They are not needed to support the appellant’s case for oppression.
[50] The applicable law and the record amply demonstrate the reasonable expectation asserted by the appellant both to the application judge and on this appeal. The OBCA itself provides the basis for a shareholder with more than a one-third interest to reasonably expect that it could block a transaction that requires a special resolution. Here, the extensive record also shows that the appellant had a reasonable expectation that it could block the proposed Blossom transaction. It is readily inferred that this includes an expectation that steps will not be taken to rig the vote.
[51] A claimant must then show that the reasonable expectations were violated by conduct that was oppressive or unfairly prejudicial to, or that unfairly disregarded the interests of, here, a shareholder. This is also readily shown based on undisputed facts about the events including the proposed and secret Blossom transactions. I need not repeat the facts as summarized above. Knowing that the appellant shareholder would block a needed special resolution, and had the right to do so under s. 168 of the OBCA, the respondents secretly took steps to rig that vote by issuing warrants for nominal consideration, which left Lemoine and Blossom with just enough common shares for the two-thirds shareholding needed to pass a special resolution.
[52] I recognize that “oppression” generally relates to conduct that is coercive and abusive, where “unfair prejudice” may admit of a less culpable state of mind, but both still lead to unfair consequences: BCE, at para. Here there is a specific finding, unchallenged on appeal, that the respondents were attempting to dilute the number of shares held by the appellant to ensure it could not block a deal with Blossom. In my view, this is oppression. At the very least it shows an unfair disregard of the appellant’s shareholder interests.
[53] The respondents submit that where the reasonable expectations of an individual shareholder conflict with the company’s interests, the company’s interests prevail, relying on BCE. However, BCE holds, at para. 82, that “the duty of the directors to act in the best interests of the corporation comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly. There are no absolute rules.”
[54] “Everything depends on the particular situation faced by the directors and whether, having regard to that situation, they exercised business judgment in a responsible way”: BCE, at para. 84.
[55] Here, we have a single director who has a personal interest in getting the loan, because of his potential tax liability. And instead of proposing the newly structured transaction to the appellant, as he did with the initial Blossom proposal, Lemoine secretly rigged the vote together with the third party lender. This falls well short of the duty on a director “to resolve conflicts between the interests of corporate stakeholders in a fair manner that reflects the best interests of the corporation”: BCE, at para. 111. It is insufficient to say that Autocorp needed the money and there was no other deal. This would mean that vote-rigging is fine so long as the company needs the money, regardless of the fairness principles that apply here.
[56] I find this was an oppressive transaction. .... . Wegmart Ltd. v. Meier
In Wegmart Ltd. v. Meier (Ont Div Ct, 2026) the Ontario Divisional Court dismissed an appeal, this brought against an order which "granted the oppression application .... to enforce [SS: the respondent's] rights as shareholders ... under the Ontario Business Corporations Act".
Here the court considers 'winding-up' as an oppression remedy:Winding Up
[12] There is no issue that the remedy of a winding up is discretionary, as set out in s. 207 of the OBCA. The appellants submit that the application judge erred in failing to order a winding up due to the animosity between them and their sisters. More specifically, they submit that the application judge erred in relying on the decision in Animal House Investments Inc. v. Lisgar Development Ltd. (2007), 2007 CanLII 82794 (ON SC), 87 O.R. (3d) 529 (S.C.), aff’d (2008) 2008 CanLII 27471 (ON SCDC), 237 O.A.C. 261 (Div. Ct.).
[13] The application judge cited the above decision for the proposition that “quarrelling and incompatibility even to the point of a breakdown of the personal relationships between the shareholders of a private company, are not, by themselves sufficient grounds for an equitable winding-up of the corporation.”
[14] The appellants submit that Animal House is distinguishable. Yet Animal House also arose from a dispute among family members who were the shareholders of two corporations. Further, it was the family member who precipitated the conflict between them who then applied for the winding up. It was in that similar context that Justice Wilton-Siegel addressed the role of irreconcilable differences. The factual differences do not justify a conclusion that the application judge improperly applied the reasoning in Animal House.
[15] The application judge not only relied on the above principle from Animal House but also considered other relevant principles and authorities regarding the remedy of a winding up, including the following:(i) The “court is to use a scalpel to tailor carefully the relief ordered to do no more than is necessary to remedy the oppressive conduct. The court is not wielding a battle axe to cleave the parties”: Basegmez v. Akman, 2018 ONSC 812 (Div. Ct.), at para. 8;
(ii) A winding up is an equitable remedy and the court will not reward those who come to court with unclean hands: 790668 Ontario Inc. v. D’Andrea Management Inc., 2017 ONCA 1019, at para. 14.
(iii) The remedy of a winding up is only considered as a last resort when other less drastic remedies will not suffice: Basegmez, at para. 8. [16] The application judge made no appealable error in the exercise of his discretion to refuse a winding up. The application judge found that the sisters reasonably expected to see Wegmart operated in a fair and business-like manner and that the remedies they sought may assist in moving to that result. The appellants are attempting to reargue the facts to seek a winding up, without showing either a legal error or palpable and overriding error in the application judge’s exercise of his discretion. This ground of appeal fails. . Lagana v. 2324965 Ontario Inc.
In Lagana v. 2324965 Ontario Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed a shareholder's appeal, here where the issue was whether "a shareholder demand that a corporation comply with its statutory obligation to provide audited annual financial statements to shareholders [SS: is] subject to the ordinary two-year limitation period".
In this interesting and useful case the court considered the fundamental functional nature of corporate audit obligations, here as either directed to statutory compliance, or alternatively to private shareholder interest (oppression) - this in a limitation application context:[3] In 2021, Mr. Lagana sought to review the corporation’s financial records. Mr. Power provided him with some unaudited financial statements and offered to meet with him. There were no shareholder resolutions exempting the corporation from yearly appointing auditors and producing audited financial statements. Auditors have never been appointed and audited financial statements have never been produced.
[4] Mr. Lagana was dissatisfied and brought an application seeking relief that included the appointment of an auditor pursuant to s. 149(8) of the Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”). Relying on s. 253(1), he also sought an order for the production of audited financial statements going back to 2013.
[5] The application judge granted the relief sought, rejecting the argument that the demand for audited financial statements prior to 2019 was barred by the operation of the Limitations Act, 2002. The application judge found that the demand did not constitute a “claim” within the meaning of the Limitations Act, 2002 to which the two-year limitation period applied.
[6] Mr. Power and the corporation appealed the term of the order that required the production of audited financial statements to shareholders for the years 2013 to 2020. They acknowledged the statutory obligation under the OBCA to provide audited financial statements but renewed the argument on appeal that the Limitations Act, 2002 applies to a compliance order made under s. 253(1) and precludes an order that would require the preparation of audited statements beyond the two-year limitation period.
[7] The Divisional Court allowed the appeal. Although the corporation and Mr. Power, in his capacity as a director, had a statutory obligation to shareholders pursuant to ss. 153 and 154 of the OBCA to provide audited financial statements annually, and did not do this, Divisional Court held that the application judge erred in finding that the Limitations Act, 2002 did not apply to the demand. Accordingly, the order below was varied to vacate the direction to produce audited financial statements outside the limitation period.
[8] The only issue on appeal is whether the Divisional Court was correct in its determination that the Limitations Act, 2002 applies to the compliance provision in s. 253(1) of the OBCA.
The statutory provisions in issue
[9] The OBCA contains various reporting and auditing requirements.
[10] Section 149(1) imposes an obligation on the shareholders and directors of corporations to appoint auditors; if the shareholders fail to appoint an auditor, the directors are required to do so. If the directors fail to do so, the court is authorized to make the appointment on the application of the shareholders: s.149(8). Section 148 of the OBCA allows the shareholders by unanimous resolution made on a yearly basis to exempt non-offering corporations from the audit requirements.
[11] Section 154 requires financial statements to be provided yearly to a corporation’s shareholders. Unless exempted, the financial statements must be audited: s. 148. Section 153(1) requires an auditor of a corporation to make such examination of the financial statements required by this Act to be placed before shareholders as is necessary to enable the auditor to report thereon and the auditor shall report as prescribed and in accordance with generally accepted auditing standards.
[12] In addition to its other remedial provisions, the OBCA includes a general compliance provision applicable to a broad range of persons on whom the OBCA imposes duties, for the benefit of “a complainant or a creditor of the corporation”:253(1) Where a corporation or any shareholder, director, officer, employee, agent, auditor, trustee, receiver and manager, receiver, or liquidator of a corporation does not comply with this Act, the regulations, articles, by-laws, or a unanimous shareholder agreement, a complainant or a creditor of the corporation may, despite the imposition of any penalty in respect of such non-compliance and in addition to any other right the complainant or creditor has, apply to the court for an order directing the corporation or any person to comply with, or restraining the corporation or any person from acting in breach of, any provisions thereof, and upon such application the court may so order and make any further order it thinks fit. [13] A “complainant” is defined in s. 245 as:(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,
(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part. (“plaignant”). [14] Section 1 of the Limitations Act, 2002 defines “claim” as “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission”. The basic limitation period applying to a “claim” is the second anniversary of the day on which the claim was discovered: s. 4.
Analysis
[15] The appellant argues that the failure of a corporation to fulfill obligations imposed on it by the OBCA cannot constitute a claim for the purposes of the Limitations Act, 2002, and the Divisional Court made a legal error in holding otherwise.
[16] At the centre of the appellant’s argument is the proposition that the obligations imposed on corporations and others by the OBCA are “statutory obligations” and do not correspond to rights held by anyone, such as shareholders. On this theory, the purpose of the compliance provision in s. 253(1) is simply to enforce the obligations imposed by the statute on the corporation. The appellant thus draws a sharp distinction between a compliance order and an oppression remedy, whose purpose he characterizes as genuinely providing remedies to individuals. As stated in the appellant’s factum, “the compliance provision corrects a breach of the legislation and brings the corporation into compliance with it, but it does nothing else. It does not punish the corporation for its failures, nor does it provide any form of individual redress or compensation.” Accordingly, the appellant argues, there is no legal right created by s. 253(1) that could qualify as a “claim” of a shareholder for the purposes of Limitations Act, 2002.
[17] The appellant claims support for this argument in Jeffery v. London Life Insurance Company, 2011 ONCA 683, 343 D.L.R. (4th) 6, leave to appeal refused, [2012] S.C.C.A No. 1, where this court distinguished among the three categories of remedies created by the OBCA – derivative action, oppression remedy, and compliance – and noted, at para. 150, that although “there may be some overlap between these statutory remedies”, the three remedies are different.
[18] The gravamen of the compliance order “is to ensure corporate compliance and not to provide an individual fix”: Jeffery, at para. 148. It should be noted, however, that Jeffery was argued on the basis of the availability of an oppression remedy, and the court did not provide a conceptual analysis of the compliance order, beyond noting that although there is some overlap among the three remedies, the oppression remedy is better suited to an “individual fix”. The “individual fix” which the court contrasted, at para. 148, with a compliance order, has to be understood in terms of the relief sought in that case, which involved the allocation of millions of dollars of assets to competing investors pursuant to the Insurance Companies Act, S.C. 1991, c.47.
[19] That remedy was a matter of using judicial discretion to craft a highly particular order to address corporate wrongs. What the court in Jeffery was contrasting was the degree of individuality in the nature of the relief sought (the “individual fix”) with a straightforward order to comply with a straightforward obligation. The difference is in the nature of the relief sought, not the party to whom the remedy is granted. Accordingly, the comment from Jeffery that the appellants rely on does not assist in the resolution of this appeal.
[20] The appellant’s argument overextends the observations of Jeffery – that the three remedies of the OBCA are distinct (yet overlap), and that a compliance provision does not punish a corporation for its failures and does not provide individual compensation – to the unsound categorical proposition that a compliance order does not constitute an individual remedy for a breach of the rights of a shareholder, but rather exists to provide judges with the discretion to enforce statutory obligations of corporations that do not correspond to the legal rights of any person.
[21] The appellant’s argument rests on a misstatement of the legal relations at issue in this appeal. Legal rights are most often expressed using three jural terms: (1) the rights-holder; (2) the person under a duty to the rights-holder; and (3) the thing to be done (or not done) by the duty bearer for the benefit of the rights-holder.[1] The appellant characterizes a compliance order as a two-term duty, involving a person under a duty and a thing to be done, but without any corresponding rights-holder whose claim could be subject to the Limitations Act, 2002. But what the appellant presents as a two-term statutory duty – an obligation of one party (the corporation) to do something (produce audited financial statements) – is actually a three-term statutory right: a right of one party (the shareholder) that the second party (the corporation) do something (provide the audited financial statements to the shareholder). The statute does not create a free-floating obligation, but an obligation that correlates to a right of the shareholders. In this case, it is entirely sensible to understand the obligation to appoint an auditor and to provide audited financial statements as an obligation to the shareholders. The obligation may serve other purposes, but it unquestionably generates a corresponding right on behalf of the shareholders that the corporation or its directors do something for their benefit. That the OBCA generates an obligation to provide shareholders with audited financial statements is well established in the jurisprudence of this court: see, for example, Packall Packaging Inc. v. Ciszewski: 2016 ONCA 6, 344 O.A.C. 180, at para. 28.
[22] Significantly, the legal relations created by the OBCA exist independently of the remedies the OBCA creates to enforce them. Whether a corporation has breached a shareholder’s right is one question. Whether there is an available remedy, or set of remedies, is another. There are three remedies provided by the OBCA, and more than one remedy may be available to remedy the same wrong.
[23] It is this right that grounds the claim that the shareholders can bring against the corporation and directors to be given a remedy. It is a claim that the corporation and directors fulfil its obligation to the shareholders to appoint the auditor (s. 149) and produce the audited statements to the shareholders (s. 153). Regardless of whether the oppression remedy is available (and subject to the two-year limitation period), the compliance provision in s. 253(1) is available. The nature of the three-term claim – that the corporation and directors perform their obligation to the shareholders – is the same regardless of whether the remedy sought is an oppression remedy or a s. 253(1) compliance order. Accordingly, it is entirely sensible that the same limitation period would apply to both remedies.
[24] The nature of the legal relation created by the statute – generating a claim that is then subject to the Limitations Act, 2002 – does not change on the basis that a compliance order can potentially be sought by anyone who can plausibly claim to be “a proper person to make an application”, and that granting the remedy is a discretionary decision of the application judge. The statutory right in question on this appeal is specifically the right of the shareholder. That the compliance provision may also be available to other persons enforcing other rights is irrelevant to whether this shareholder has a right, and whether a particular means of enforcement of that right constitutes a claim.
[25] The Divisional Court was alive to all of this and made no error in characterizing the application as a matter of a claim to remedy a loss, and therefore subject to the two-year limitation period. As the court stated:Mr. Lagana applied to the court to grant a remedy because the respondent violated the law in a manner that caused him loss or harm. That is no different in kind than a lawsuit for damages or an injunction generally. It is a claim for relief consequential upon prejudice being suffered by a plaintiff due to the defendant’s breach of the law. That is the heart of his “claim”. [26] The principled conclusion is also practical; it would be highly prejudicial to the respondents – and perhaps impossible – to now prepare audited financial statements reaching back 13 years. As was the case in Krandel v. 1714176 Ontario Ltd., 2014 ONSC 4615, the appellant was in a position to assert his rights in a timely fashion and did not do so.
[27] The appellant advances a further argument that if statutory obligations are understood as subject to the two-year limitation period, it will be inconsistent with - and potentially undermine - the Superior Court’s interpretation of the Condominium Act, 1998, S.O. 1998, c. 19 - in cases such as Waterloo North Condominium Corp. v. Silaschi, 2012 ONSC 5403; Middlesex Standard Condominium Corp. No. 643 v. Prosperity Homes Ltd., 2014 ONSC 1406, 119 O.R. (3d) 177; Metropolitan Toronto Condominium Corporation No. 1328 v. 2145401 Ontario Inc., 2019 ONSC 733, aff’d on other grounds 2019 ONCA 944; and Waterloo Standard Condominium Corp. No. 399 v. Lee et al., 2023 ONSC 3807. The appellant argues that the order under appeal is not only inconsistent with the reasoning in those cases, but would substantially interfere with the ability of the Attorney General and governmental agencies to enforce statutory obligations through compliance orders.
[28] This appeal is not about the applicability of the Limitations Act, 2002 to compliance orders generally, and it would be reckless for this court to make sweeping generalizations about its applicability to the enforcement of statutory obligations beyond the instant appeal. The application of the Limitations Act, 2002 to any statutory compliance provision is foremost an exercise in statutory interpretation. Its focus is not only on the text of the specific compliance provision but, critically, on the text of the underlying statutory obligation that is being enforced. Not all statutory obligations are cut from the same cloth. Some statutory obligations, as in this appeal, correspond to legal rights held by individual claimants. Remedies for breaches of such legal obligations are readily understood to be the proper object of claims governed by the Limitations Act, 2002. Other statutory obligations, particularly those that are genuinely a matter of public benefit that do not generate a claim to a legal remedy, may not constitute claims for the purposes of the Limitations Act, 2002. An assessment of the particular obligations generated by the statute is required in each case.
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