In 1975, I was 12 years old. My world was consumed with daydreaming of having the powers of Steve Austin, The Six Million Dollar Man. Every episode opened with “…we can rebuild him. We have the technology…better, stronger, faster”.
I had no idea, while daydreaming about having the powers of Steve Austin, that there existed a parallel commercial litigation world inhabited by legislators, lawyers, judges and litigants and that the Government of Canada was enacting the Canada Business Corporations Act (“CBCA”), which introduced the statutory corporate oppression remedy.
No 12-year old should be daydreaming about becoming a commercial litigation lawyer or preoccupied with legislative enactments. By that measure, I was a healthy, normal 12-year old living in the pre-video games/internet era relying mainly on television and my imagination for entertainment.
43 years later I find myself living in a (more mature but less exciting) world where I reflect upon the powers of the statutory oppression remedy instead of The Six Million Dollar Man. A “better, stronger, faster” remedy for addressing oppressive shareholder conduct.
When the oppression remedy was incorporated into the CBCA in 1975 it was intended to be a ‘game-changer’. It provided current and former shareholders, directors, and officers of a corporation, and any other “proper person”, in the eyes of the court, with the right to seek judicial intervention to fix any situation where the conduct of the corporation or its affiliates, or the powers of their respective directors, oppressed, was unfairly prejudicial to or unfairly disregarded the interests of any shareholder, creditor, director or officer. The court had maximum discretion to tailor on appropriate remedy in the circumstances by being granted the overall power to make “any interim or final order it thinks fit”.
In 1982 the Government of Ontario enacted the Business Corporations Act (“OBCA”) which largely resembled the CBCA, including the introduction of a provincial statutory oppression remedy. As a result, federal corporations operating in Ontario have been subject to the CBCA oppression remedy provisions since 1975 and Ontario provincial corporations have been subject to similar oppression remedy provisions since 1982. The only substantive difference between the federal and provincial oppression remedy provisions are that the provincial provisions are broader in that they also cover conduct or the exercise of power which threatens to be oppressive. In other words, the OBCA provisions expressly provide for judicial intervention to pre-empt threatened oppressive conduct.
A significant amount of oppression remedy case-law has developed in Ontario over the past 44 years. Since being professionally immersed in this provision since the start of my practice, the following are my high-level takeaways from the case-law on this remedy of maximum judicial discretion:
1. The oppression remedy has lived up to the initial anticipation of being a broadly-based discretionary remedy available to the court to fashion the most appropriate remedy to address corporate unfairness or injustice. It has resulted in aggrieved shareholders, directors, officers, and creditors/other proper persons being afforded an effective and powerful statutory remedy to rectify corporate unfairness and injustice. However, the court will be careful to tailor the relief so as not to do more than is necessary to remedy the oppressive conduct;
2. A settled two-part test has been established for judicial intervention. First, the evidence must establish a reasonable expectation which has been breached. The typical factors to be considered in determining the existence of a reasonable expectation are commercial practice, the nature of the corporation, relationships, past practice, preventative steps, representations and agreements, and the fair resolution of conflicting interests. The second part of the test requires a determination of whether the breached reasonable expectation amounts to oppression, unfair prejudice, or unfair disregard for the interests of the complaining party. To get from the first step, to the second step, the complaining party needs to suffer harm or prejudicial consequences—that is what takes the matter from a breached reasonable expectation to actionable oppressive conduct;
3. The oppression remedy has wider application or relevancy in smaller closely-held corporations. There is a wider range of reasonable expectations, and thus the potential for breaches thereof amounting to oppression, in small closely-held corporations than in large publicly-traded corporations. This is because it is not uncommon in small closely-held corporations for shareholders also to be directors and officers playing a role in managing the business, or otherwise to feel entitled to a ‘say’ in how the corporation is managed or the direction it takes, and, thus, more potential for diverging and conflicting interests;
4. The application of the oppression remedy test is largely fact sensitive—context matters. Whether a court will intervene, and what remedy it will fashion, largely depends on the facts of the case as determined by the presiding court. As such, marshalling and mastering the facts and evidence in an oppression remedy case is essential; and
5. Directors may have personal liability for corporate oppressive conduct. The risk of personal exposure should provide directors with sufficient incentive to manage the business and affairs of a corporation in such a way as to honour the reasonable expectations of shareholders, other directors, officers and creditors impacted by the conduct of the corporation.
There are two important parts to proving or defending against an oppression remedy claim on behalf of a client. First, the lawyer needs to understand the oppression remedy legal framework. Second, the lawyer needs to have a mastery of the relevant facts and evidence. Just like the Six Million Dollar Man, every case needs to be rebuilt and analysed from the ground up.
This post also appeared in the February issue of The Snail,
the Middlesex Law Association’s monthly newsletter.