Latest word from Supreme Court of Canada on oppression

Does the failure of a company to follow the legal formalities in the Canada Business Corporations Act, R.S.C. 1985 c. C-44 (“CBCA”) constitute oppression?  The Supreme Court of Canada revisited the oppression remedy and concluded that it did not.

In Mennillo v. Intramodal Inc., 2016 SCC 51, the majority of the court outlined that the failure to follow certain formal requirements of the CBCA did not amount to oppression.  The petitioner, one of two shareholders in the respondent, claimed he was oppressed as he was frozen out of equity participation in the respondent. 

The trial judge concluded that the petitioner had agreed to remain a shareholder in the respondent so long as he guaranteed the respondent’s debts.  The petitioner subsequently decided to stop guaranteeing the debts, resigned as a director and agreed to transfer his shares to the respondent’s controlling shareholder.  Through an oversight of that shareholder’s lawyer, the appropriate paperwork was not completed to transfer the shares.

The affairs of the respondent company were “marked by extreme informality”.  The transfer of the petitioner’s shares was not completed in accordance with the express requirements of the CBCA, including the endorsement of the petitioner on his share certificate. 

However, even though those formalities were not complied with, the court found the petitioner had no reasonable expectation of being treated as a shareholder after agreeing to transfer his shares.  The respondent’s failure to complete the “corporate formalities” did not constitute oppression and did not “strip” the petitioner of his status as a shareholder. 

The decision reflected the equitable nature of the oppression remedy and that cases ought to be judged on the basis of business realities and not technicalities.  However, the majority did not state that non-compliance with corporate legislation will never lead to an oppression remedy.  A larger company, particularly one that is widely-traded, would likely be held to a higher standard with respect to adhering to corporate formalities than the company at issue in these proceedings. 

Family dispute or oppression dispute?

Is the oppression remedy available where the issues are the subject of a family law dispute?  In Ludwig v. Buzz Berry Production II Inc., 2016 BCSC 746, the court confirmed that the oppression remedy in the BCA is not available where the issues are the subject of a family law or personal dispute.

The plaintiff and the personal respondent were husband and wife and were the sole directors of the respondent company.  They owned 49% and 51% of the shares, respectively. The plaintiff brought an oppression action to compel the respondents to take certain steps in respect of banking and corporate records, among other things.

The parties were separated at the time of the petition. They participated in several television series projects together, through single-purpose companies. They entered in to a separation agreement that generally provided for a 49/51 split of any proceeds from two earlier projects for which the single-purpose companies had already been dissolved, despite the fact that the plaintiff was not a shareholder of the first company. 

One of the issues addressed by the court was the plaintiff’s request that a personal hard drive as well as external hard drives related to the various television productions be produced for review and copying, and further that the petitioner be provided access to certain documents. The respondents agreed to provide access to the hard drives and documents for copying at the petitioner’s expense.

As a result, the only evidence of oppression was the insistence that the petitioner bear her own costs for copying. The court decided the issues in the case were not related to the operation of the corporate respondent nor was the personal respondent using his powers as director to prejudice the minority shareholder. The court explained:

This is not a situation such as that discussed in Hui v. Hoa, 2015 BCCA 128, where the reasonably expectation of stakeholders in a corporation may be at risk of being prejudiced by analysing their rights through the lens of a family law dispute.

The court held that the oppression remedy is only available to address oppressive conduct in the person’s capacity as a shareholder, director, officer, even though the person may have other interests that are intimately connected to a transaction.  The court decided that the petitioner’s interests in the records of the dissolved corporations, as well as any interest in her personal hard drive, did not derive from her status as shareholder of the corporate respondent and so the oppression remedy was not available in the circumstances.