The focus of this article is the oppression remedy as it relates to shareholder rights in corporations, particularly closely-held private ones.

In its everyday usage, the word “oppression” has a pointedly negative connotation.  In the common vernacular of corporate law, however, the “oppression remedy” is applied to 3 forms of mistreatment of shareholders.  These are, in declining order of seriousness, 1) oppression, 2) unfair prejudice, and 3) unfair disregard.  Under the Alberta Business Corporations Act (or the federal one or any other provincial corporations act for that matter), any of these forms of “oppression” may be remedied by an order of the Court, which has a range of discretion under the legislation.

The first issue in the oppression analysis is whether the evidence supports the reasonable expectation asserted by the claimant.  The second pertains to whether the evidence establishes that the reasonable expectation was violated by conduct and falls within the terms “oppression”, “unfair prejudice”, or “unfair disregard” of a relevant interest.

Determination as to whether an expectation is reasonable requires an objective analysis.  This depends on the facts of the specific case, the relationships at issue, and the entire context.  Useful factors the Court may consider in the analysis include general commercial practice,  the nature of the corporation,  the relationship between the parties, past practice, steps the claimant could have taken to protect himself, any representations and agreements, and the fair resolution of conflicts between corporate stakeholders.

Oppression is conduct that is “burdensome, harsh and wrongful”, “a visible departure from standards of fair dealing”, and an “abuse of power” related to the conduct of the corporations’ affairs. Unfair prejudice describes mistreatment like the squeezing out of a minority shareholder, failing to disclose related party transactions, paying dividends without a formal declaration, preferring some shareholders with management fees, and paying directors’ fees higher than the industry norm.  Unfair disregard includes such mistreatment as improperly reducing dividends or failing to deliver a claimant’s property.

A breach of a reasonable expectation does not arise where other steps were available to the plaintiff to protect against the oppression.  The oppression remedy requires a personal claim.  The alleged harm must not arise simply due to the “complainant’s interest as part of the collectivity of shareholders”. Further, sloppy paperwork on its own does not constitute oppression in the case of a closely-held corporation.  The corporation’s lack of compliance with corporate formalities is not enough to found a legitimate claim of oppression. Indeed, the “business realities”, not “narrow legalities”, determine whether there has been oppression.  The complainant must establish wrongful conduct, causation, and compensable injury.

Invitation for Discussion:

Our litigation lawyers are skilled at litigating shareholder disputes. If you would like to discuss this blog in greater detail, or any other business litigation matter, please do not hesitate to contact Mohamed Amery or one of the lawyers in the Business Litigation Group at Linmac LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.