When directors of a corporation in which you hold shares act against your interests, it might feel personal. But unless the harm done was unique to you and you alone, you may not pursue an oppression claim, says the Ontario Court of Appeal.
In a ruling yesterday, the court struck an oppression claim after finding the alleged breaches affect all shareholders of a publicly traded company and must proceed by way of a derivative action.
“The claim asserted seeks to recover solely for wrongs done to a public corporation, the thrust of the relief sought is solely for the benefit of that corporation, and there is no allegation that the complainant’s individualized personal interests have been affected by the wrongful conduct,” wrote Justice Robert Blair on the court’s behalf.
In Rea v. Wildeboer, the appellants, including Rea Holdings Inc., brought an oppression claim under s. 248 of the Business Corporations Act alleging misappropriation of funds from Martinrea International Inc. They sought to recover those funds for the corporation.
The ruling brings some clarity around the murky area of whether a complaint qualifies as an oppression claim or must proceed as a derivative action. It’s an area made even more complex by overlaps between personal and corporate interests, according to Monique Jilesen, a partner at Lenczner Slaght Royce Smith Griffin LLP.
“The reason there’s been confusion is that often, it’s not an either or,” says Jilesen, noting the court acknowledges that uncertainty.
“The court is saying in some cases there will be an overlap and we’ll have to look at those on a case-by-case basis,” she adds. “But where the allegations are only in respect of a [party] being a shareholder and every other shareholder has suffered the same damage, you have to proceed by way of a derivative action.”
Derivative actions are a harder step to take, as they require leave of a court, she says.
In Rea v. Wildeboer, the court said the jurisprudence has been “inconsistent” about how to treat cases where there is an overlap of interests, and the topic is cause for a lot of discussion among members of the legal profession.
“While this debate is interesting, it is not necessary to resolve it here,” wrote Blair.
“On my reading of the authorities, in the cases where an oppression claim has been permitted to proceed even though the wrongs asserted were wrongs to the corporation, those same wrongful acts have, for the most part, also directly affected the complainant in a manner that was different from the indirect effect of the conduct on similarly placed complainants,” he added.
“And most, if not all, involve small closely-held corporations not public companies.”
Oppression claims are a lot more common in family businesses, says Jilesen.
“So sister says, ‘Yes, I’m a minority shareholder but I have a reasonable expectation in this closely held family company that I will be part of management, that will receive the same kind of remuneration as everybody,” she adds.
Those complaints could be about being excluded where others are having meetings the complainant is not invited to, Jilesen also says.
While the rules have been clarified, it’s not hard to understand why someone who holds significant shares may want to bring an oppression claim, continues Jilesen.
“Yes, of course, you’d feel personally aggrieved, given your substantial shareholding and the loss that a company suffered as a result of, in this case, the unproven conduct.”