When corporate actions or decisions negatively impact those with interests in the corporation (including directors, officer, shareholders, creditors, and debtors) the affected parties may have grounds to request an oppression remedy.
The oppression remedy focuses on the harm done to the legal and equitable interests of a wide range of stakeholders affected by alleged oppressive acts of a corporation or its directors.
The remedy gives a court a broad jurisdiction to enforce not just what is legal but what is fair. Oppression is also very fact specific. What is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play. Conduct that may be oppressive in one situation may not be in another.
The Oppression remedy is found and defined in two relevant statutes:
- The federal Statute is the Canadian Business Corporations Act (CBCA) and the remedy is dealt with in section 241.
- The provincial statute is the Ontario Business Corporations Act (OBCA) which deals with the remedy in section 248.
The definition is essentially the same in both pieces of legislation.
The court to which an Application is brought must be satisfied that:
- any act or omission of the corporation or any of its affiliates effects or threatens to effect a result that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer;
- the business or affairs of the corporation or any of its affiliates are, or have been or are threatened to be carried on or conducted in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer; or
- the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer.
Where any of the above is true, the court may make an order to rectify the matters complained of.
Who Can Seek The Remedy?
The remedy is available to a “complainant” being:
- 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;
- a director or an officer or a former director or officer of a corporation or any of its affiliates;
- any other person who, in the discretion of a court, is a proper person to make an application under this part.
The Supreme Court of Canada’s Interpretation
The leading case dealing with the interpretation of the oppression remedy is the Supreme Court of Canada’s (SCC) decision in BCE Inc. v. Debentureholders.
In assessing a claim of oppression, a court must answer two questions:
(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?
For the first question, useful factors from the case law in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders.
Violation of Reasonable Expectations
For the second question, a claimant must show that the failure to meet the reasonable expectation involved unfair conduct and prejudicial consequences under the statutory definition.
Conflicting Stakeholder Interests
Where conflicting interests arise, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation.
Caselaw on oppression, taken as a whole, confirms that this duty comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly. There are no absolute rules and no principle that one set of interests should prevail over another.
In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations, including — but not confined to — the need to treat affected stakeholders in a fair manner, commensurate with the corporation’s duties as a responsible corporate citizen.
Where it is impossible to please all stakeholders, it will be irrelevant that the directors rejected alternative transactions that were no more beneficial than the chosen one.
Best Interests of the Corporation
The fiduciary duty of the directors to the corporation is best viewed as a broad, contextual concept. It is not confined to short-term profit or share value. Where the corporation is an ongoing concern, it looks to the long-term interests of the corporation.
The content of this duty varies with the situation at hand. At a minimum, it requires the directors to ensure that the corporation meets its statutory obligations. But, depending on the context, there may also be other requirements.
In any event, the fiduciary duty owed by directors is mandatory; directors must look to what is in the best interests of the corporation.
Deference to Director’s Decisions
In considering what is in the best interests of the corporation, directors may look to the interests of; inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions.
Courts should give appropriate deference to the business judgment of directors who take into account these ancillary interests, as reflected by the business judgment rule. The “business judgment rule” accords deference to a business decision, so long as it lies within a range of reasonable alternatives.
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.