Recently we wrote to provide an overview of the Oppression Remedy. There, we learned that the leading case dealing with the interpretation of the oppression remedy was the Supreme Court of Canada’s (SCC) decision in BCE Inc v Debentureholders.
The Divisional Court of Ontario has recently released its decision in APAC Limited v. Cronin which dealt with an appeal from the decision of the applications judge who found oppression after a majority shareholder did not provide the minority shareholder with accurate, complete, and timely disclosure of financial information related to the company.
The company at issue was the Interra Management Group Limited, which was in the business of real estate development and management. Interra was owned by a majority shareholder (65%), whom we will call A, and a minority shareholder- APAC Limited. APAC was wholly owned by its sole shareholder, whom we will call B.
A & B founded Interra in 2004 and were its initial directors. There was no shareholder agreement.
Between 2004 and 2012, Interra bought four commercial properties. Two were sold for a profit, which was split proportionally based on the shareholdings. During this time period, B was the day to day operations manager.
In 2012, A took over the operation as B was moving out of country. B continued, however, to be involved as much as possible. B ultimately returned to Ontario in 2014 after which A & B worked together until 2016 when the relationship began to break down.
B eventually became concerned about the financial health of Interra. He requested updated financial records from A and was given a Financial Overview which revealed a half-million dollar mortgage on one of the two properties. Neither he nor APAC had any prior notice about this mortgage.
B then conducted a property search and discovered two more mortgages, totalling over two million dollars. B also conducted a corporate search and discovered that he was no longer a director of Interra despite there having been no shareholders meeting. B asked A to hold a shareholders meeting but A deferred doing so until the next set of financial statements were available. A also offered to buy B out with a full accounting. Otherwise, A took the position that shareholders were only entitled to financial information that the Ontario Business Corporations Act (OBCA) specifically called for.
Some nineteen months after the end of the 2016 financial year, the financial statements for that year were given to B through delivery to APAC. Notably they revealed:
- No explanation for the mortgages or what had become of the money;
- What appeared to be a loan to an unidentified person for 1.1 million;
- An increased loan receivable form APAC;
- A loan from Interra to A’s family trust for $65,000;
- A series of expenses and fees that were significantly higher than in past years.
APAC brought an application claiming oppression. As of the hearing in April 2018, the 2017 financial statements had not yet been produced as promised, all other requests for financial information had been refused and no shareholders meeting had been called.
It is not surprising that the judge found oppression. He found that the evidence supported APAC’s claim of a reasonable expectation of ongoing access to financial information and involvement in certain categories of business decision making including, specifically, the acquisition of new debt. Clearly, he also found that the reasonable expectations of APAC had been violated. He found that B was treating Interra as his own.
This decision was appealed.
Grounds of Appeal
(i) Whether the application judge erred in conflating the interests of the minority shareholder APAC with the interests of B, giving rise to procedural unfairness; and,
(ii) Whether the requirements of the oppression remedy were fulfilled and capable of supporting the order.
Standard of Review
The applicable standard of review by an appeal court from OBCA oppression decisions was established by the SCC in Wilson v. Alharayeri as follows.
Three principles govern the applicable standard of review:
- First, absent palpable and overriding error, an appellate court must defer to the trial court’s findings of fact;
- Second, an appellate court may intervene and substitute its own decision for the trial courts if the judgment is based on “errors of law … erroneous principles or irrelevant considerations”;
- Third, even if it was not so based, an appellate court may intervene if the trial judgment is manifestly unjust.
The issue of procedural fairness does not deal with the standard of review but whether procedural fairness was provided.
B’s argument was that the judge had erred in conflating A’s expectations with APAC’s and as A was not a party, it was unreasonable, and proceduraly unfair, for B to have to respond to the irrelevant evidence of A’s expectations. Instead, B argued that the judge should have only focused on the reasonable expectation evidence of APAC.
The Divisional Court did not agree. Both A and B filed affidavits on behalf of the companies they spoke through. The grounds of APAC’s expectations were clearly set out in the application and the evidence that followed.
They also agreed with the application judge that although A could have been a party, it was not necessary for him to be so to grant the remedy. APAC was a shareholder of Interra and had a right to seek the oppression remedy it did.
The matter and issue in dispute were clearly set out in the correspondence between the parties and the court proceedings. There was no procedural unfairness.
Requirements for Oppression Remedy
Of note, the Divisional Court also found as follows:
- Oppression was reasonably found despite B’s argument that it was based on only “mere questions and concerns” and not any wrongful conduct or compensable injury. The refusal to provide the requested financial information in light of the unexplained borrowing of millions of dollars;
- That the position of B that only the specific documents specified in the OBCA had to be disclosed ran afoul of the well accepted broad remedial scope of the oppression remedy. The Court make any order it sees fit and the remedy seeks to ensure what is just and equitable;
- That B’s position that an order for disclosure was not a proper ue of the oppression remedy was misguided. APAC had a clear and pressing interest in determining the financial viability of Interra.
At Milosevic & Associates, our team of Toronto corporate commercial lawyers regularly represent clients in complex commercial litigation matters ranging from straightforward contract and partnership disputes to complex multi-party commercial claims including dealing with claims of oppression. Over the years, our team of exceptional litigators has seen it all and has successfully fought for our clients’ rights. Our impressive track record speaks for itself. Call us at 416-916-1387 or contact us online for a consultation.