Ma v. Ma et al. [Indexed as: Ma v. Ma]
111 O.R. (3d) 195
2012 ONCA 408
Court of Appeal for Ontario,
O'Connor A.C.J.O., Feldman and Ducharme JJ.A.
June 15, 2012
Corporations -- Oppression -- Assignment -- Minority shareholder bringing oppression action but unable to pursue it because of ill health -- Shareholder making absolute assignment of his shares and of oppression claim to appellant -- Assignment valid and appellant entitled to proceed with oppression action -- Oppression action falling within exception to rule against champerty and maintenance as it was ancillary to assigned property interest.
K, the original minority shareholder in a closely held two- shareholder corporation, brought an oppression action based on the alleged failure of the company and the majority shareholder to pay moneys owed to him as a shareholder. K, who was elderly and resided in China, claimed that he was unable to pursue the action for health reasons. He made an absolute assignment to the appellant of his shares, his contractual rights in respect of those shares and his oppression claim. The appellant obtained an order to continue from the registrar and moved to amend the statement of claim. Holding that the assignment of the cause of action was invalid, the motion judge set aside the order to continue and dismissed the motion. The Divisional Court affirmed that decision. The appellant appealed.
Held, the appeal should be allowed.
There are two categorical exceptions to the rule against maintenance and champerty that prohibits the assignment of causes of action. The first category allows a cause of action to be assigned where it is ancillary to a property interest that has also been assigned. The second category allows a cause of action to be assigned where the assignee has a genuine commercial interest in taking the [page196] assignment. Ultimately, the question of whether a cause of action in tort or contract can be assigned or enforced turns on whether the enforcement action savours of maintenance. Provided that the assignee has a legitimate interest in the action by meeting one of the two tests and cannot be viewed as an officious intermeddler with an improper motive, the trend is for courts to find that the assignee is able to enforce the claim. In this case, the assignment satisfied the first test: the appellant was assigned the cause of action as an incident of the property rights in K's shares. In finding that the oppression claim was not incident to the acquired shares and was a separate cause of action, the motion judge erred in applying principles that flowed from two cases involving the purchase of publicly traded shares on the open market for their fair market value and with no assignment of other rights accompanying the purchase. The appellant's claim did not savour of maintenance.
APPEAL from the order of the Divisional Court (Jennings, Swinton and Durno JJ.) dated June 14, 2011 affirming the order of Wilton-Siegel J., [2010] O.J. No. 3177, 2010 ONSC 1273 (S.C.J.) dismissing a motion to amend a statement of claim.
Cases referred to Ford Motor Co. of Canada Ltd. v. Ontario Municipal Employees Retirement Board (2006), 2006 CanLII 15 (ON CA), 79 O.R. (3d) 81, [2006] O.J. No. 27, 12 B.L.R. (4th) 189, 144 A.C.W.S. (3d) 859 (C.A.) [Leave to appeal to S.C.C. refused [2006] S.C.C.A. No. 77]; Royal Trust Corp. of Canada v. Hordo, [1993] O.J. No. 1560, 10 B.L.R. (2d) 86, 41 A.C.W.S. (3d) 809 (Gen. Div.), distd Frederickson v. Insurance Corp. of British Columbia, 1988 CanLII 38 (SCC), [1988] 1 S.C.R. 1089, [1988] S.C.J. No. 54, 49 D.L.R. (4th) 160, 86 N.R. 48, [1988] 6 W.W.R. 633, 38 C.C.L.I. 161, [1988] I.L.R. Â1-2371 at 9167, 12 A.C.W.S. (3d) 177, affg 1986 CanLII 1066 (BC CA), [1986] B.C.J. No. 366, 28 D.L.R. (4th) 414, [1986] 4 W.W.R. 504, 3 B.C.L.R. (2d) 145, 17 C.C.L.I. 194, [1986] I.L.R. Â1-2100 at 8113, 38 A.C.W.S. (2d) 440 (C.A.); Gentra Canada Investments Inc. v. Lipson (2011), 106 O.R. (3d) 261, [2011] O.J. No. 1920, 2011 ONCA 331, 281 O.A.C. 134, 333 D.L.R. (4th) 666, 84 C.C.L.T. (3d) 74, 5 R.P.R. (5th) 222, 201 A.C.W.S. (3d) 333 [Leave to appeal to S.C.C. refused [2011] S.C.C.A. No. 327]; Lloyds Bank of Canada v. Canada Life Assurance Co., [1990] O.J. No. 953, 1990 CarswellOnt 1552 (H.C.J.); Trendex Trading Corp. v. Credit Suisse, [1981] 3 All E.R. 520, [1982] A.C. 679 (H.L.), affg [1980] Q.B. 629, [1980] 3 All E.R. 721, [1980] 3 W.L.R. 367 (C.A.), consd Other cases referred to Clark v. Werden, [2011] O.J. No. 4277, 2011 ONCA 619, 283 O.A.C. 313; LSI Logic Corp. of Canada Inc. v. Logani, [2001] A.J. No. 1083, 2001 ABQB 710, 204 D.L.R. (4th) 443, [2001] 11 W.W.R. 740, 96 Alta. L.R. (3d) 162, 296 A.R. 201, 19 B.L.R. (3d) 101, 107 A.C.W.S. (3d) 995 Statutes referred to Canada Business Corporations Act, R.S.C. 1985, c. C-44 [as am.] Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, s. 53(1) Authorities referred to Treitel, G.H., The Law of Contract, 5th ed. (London: Stevens, 1979)
J. Gardner Hodder and Yan Wang, for appellant. Jeffrey Radnoff, for respondents. [page197]
The judgment of the court was delivered by
Overview
1FELDMAN J.A.: -- The sole issue on this appeal is whether the appellant can sue the respondents in an oppression action where the original minority shareholder assigned to the appellant his shares, his contractual rights in respect of those shares and the oppression action itself.
2The issue arose in the context of a motion brought by the appellant to amend the statement of claim in the oppression action, after first obtaining an order to continue from the registrar. The motion judge found that the assignment of the cause of action was invalid. He therefore set aside the order to continue and dismissed the motion to amend. The decision of the motion judge was affirmed by the Divisional Court, following which, leave to appeal to this court was granted.
3In my view, the assignment of the shares together with the cause of action is valid and the appellant assignee is entitled to proceed with the oppression action. Therefore, for the reasons that follow, I would allow the appeal. Facts
Facts
4The facts can be briefly stated. The respondent, Steam Sauna, is a closely held two-shareholder corporation which manufactures sauna equipment in Toronto. Sao Nam Kam was the original 40 per cent minority shareholder. He is an elderly gentleman who is a Canadian citizen living in Shanghai. He alleged that the respondents, the company and the majority shareholders, failed to pay moneys owed to him as a shareholder and brought an oppression action against them. In that action, he was ordered to attend for examinations in Ontario but failed to do so, saying that he was unable to attend for health reasons. [See Note 1 below] The issues surrounding these procedural matters, including the possibility of electronic examinations, are not the subject of this appeal.
5The appellant is a former employee of the company, an old friend of Kam, and the sister of the majority shareholder, the respondent Jeffrey Ma. In January 2009, Kam made an absolute assignment in writing to the appellant of his shares, his contractual rights in respect of the shares and his oppression claim [page198] (as well as some other causes of action), following which she obtained an order to continue from the registrar of the Superior Court.
6The appellant then brought a motion to amend the statement of claim and to join further defendants. At the suggestion of the motion judge, the motion was treated as a motion to set aside the order to continue. This was agreed to by the parties.
7The motion judge held that the assignment was invalid to transfer the cause of action for oppression and dismissed the appellant's motion. In dismissing the appeal, the Divisional Court endorsed two legal conclusions reached by the motion judge: (1) based on this court's decision in Ford Motor Co. of Canada Ltd. v. Ontario Municipal Employees Retirement Board (2006), 2006 CanLII 15 (ON CA), 79 O.R. (3d) 81, [2006] O.J. No. 27 (C.A.), leave to appeal to S.C.C. refused [2006] S.C.C.A. No. 77, a current shareholder can seek an oppression remedy for past oppressive conduct against a former shareholder only if the remedy sought is for the benefit of all shareholders; and (2) based on a 1990 decision of the High Court of Justice in Lloyds Bank Canada v. Canada Life Assurance Co., [1990] O.J. No. 953, 1990 CarswellOnt 1552 (H.C.J.), the assignment of the cause of action failed to meet the tests set out in that case. Analysis
Analysis
8Neither the motion judge nor the Divisional Court referred to the leading case in Canada on the validity of assignments of causes of action: Fredrickson v. Insurance Corp. of British Columbia, 1986 CanLII 1066 (BC CA), [1986] B.C.J. No. 366, 28 D.L.R. (4th) 414 (C.A.), affd 1988 CanLII 38 (SCC), [1988] 1 S.C.R. 1089, [1988] S.C.J. No. 54. Nor did they refer to the most recent decision of this court dealing with the validity of a non-debt [See Note 2 below] assignment of a cause of action: Gentra Canada Investments Inc v. Lipson (2011), 106 O.R. (3d) 261, [2011] O.J. No. 1920, 2011 ONCA 331, leave to appeal to S.C.C. refused [2011] S.C.C.A. No. 327. Both cases were, however, cited to this court on appeal.
9A most unusual claim gave rise to the assignment in Fredrickson. Ms. Neilsen was seriously injured while driving Mr. Fredrickson's car with his consent. In her action against him, Fredrickson was defended by his insurer, the Insurance [page199] Corporation of British Columbia. The jury found him 80 per cent liable for her injuries. He had a policy that covered him for $500,000 of liability. The damages were fixed at $1.2 million. Fredrickson claimed that his insurer, the respondent ICBC, was negligent in carrying out his defence. He assigned the right of action against his insurer to the public trustee as committee of the estate of Neilsen to assist her in recovering the balance of her judgment against him, which he was personally unable to pay.
10As the causes of action assigned were pleaded both in contract and tort, the British Columbia Court of Appeal addressed the issue of the assignability of both causes of action.
11Dealing first with tort actions, the court observed that a bare cause of action is not assignable because of the common law rule against maintenance and champerty, although the "exact ambit of the rule is elusive": Fredrickson, at p. 420 D.L.R.
12Assuming as a general rule that causes of action in tort are not assignable, the court noted that there are a number of exceptions to this rule and that the categories of exceptions are not closed. One exception is that the fruits of an action are assignable. A second exception is where the assignee has either a property interest to which the cause of action is ancillary or a legitimate pre-existing commercial interest in the enforcement of the claim [See Note 3 below] -- except in the case of purely personal wrongs such as assault or libel. Owing to the inherently personal nature of such claims, it is said that the assignee can have no legitimate property or commercial interest in recovery: see Trendtex Trading Corp. v. Credit Suisse, [1980] Q.B. 629, [1980] 3 All E.R. 721 (C.A.), at pp. 656-57 Q.B., affd [1981] 3 All E.R. 520, [1982] A.C. 679 (H.L.), at pp. 530-31 All E.R.
13As examples of what would amount to sufficient interests under the second exception, the court included assignments to insurers who have a subrogated claim and an assignment to a performing rights society of the right to sue for copyright infringement. In the latter case, the defendants alleged that it was a classic case of maintenance and trafficking in litigation. The trial judge, however, took the view that the society had a bona fide interest in the result of the litigation. McLachlin J.A., [page200] at pp. 423-24 D.L.R. (Frederickson), summarized the effect of the cases as follows:
An assignment of a cause of action for non-personal tort is generally valid if the assignee has a sufficient pre-existing interest in the litigation to negate any taint of champerty or maintenance. In determining if this test is met, the court should look at the totality of the transaction: Trendtex, supra, per Lord Roskill, at p. 531. A property interest ancillary to the cause of action assigned is sufficient to support an assignment, but not essential. A genuine pre- existing commercial interest will suffice. The term "commercial interest" is used in the sense of financial interest; it need not arise from commercial dealings in the narrow sense.
14Applying these principles, the court considered whether the fact that the assignor and assignee had been in opposition to each other in the previous litigation tainted the assignment. The court concluded that it did not because the assignee possessed "the requisite financial interest at the time of the assignment". The action represented her only means of obtaining the entirety of the judgment. Nor was the cause of action "created by the assignment", in which event it might have been champertous: Fredrickson, at p. 425 D.L.R.
15The court then turned from tort to the assignability of the cause of action in contract. It identified six categories of contract that are considered to be unassignable, and discussed two that were relevant: mere rights of action -- because they savour of maintenance and champerty -- and personal contracts.
16In the case of the first, the same exception applies as in tort assignments: where there is a sufficient pre-existing interest in the cause of action assigned, "the suggestion of maintenance is negated and the assignment is valid": Fredrickson, at p. 427 D.L.R.
17In the case of the second, contracts for personal service, including insurance contracts, are not assignable unless it would make no difference to the other party who carries out the obligation to it. The court went on to note that even if such a contract is not assignable, the question of whether a cause of action for damages for breach of such a contract is assignable was still undecided. Therefore, it adopted, at p. 428 D.L.R., the following conclusion from Treitel's The Law of Contract, 5th ed. (London: Stevens, 1979), at p. 523: "The best approach is to avoid generalisation and to ask in each case whether this assignment savours of maintenance".
18With respect to the assignment in Fredrickson, the court concluded that it did not savour of maintenance nor would it make a difference to ICBC to whom it would pay any damages awarded. Ultimately, the British Columbia Court of Appeal concluded that both the causes of action in tort and contract were [page201] validly assigned and could be prosecuted against ICBC by the public trustee as assignee.
19The result and the reasons of the British Columbia Court of Appeal were adopted by the Supreme Court of Canada in Insurance Corp. of British Columbia v. Fredrickson (S.C.C.), supra.
20Following Fredrickson, the issue of whether there are circumstances where a cause of action against a solicitor in negligence can be assigned was recently decided by this court in Gentra.
21Gentra had been assigned the assets of a restructured company. The cause of action related to legal work that had been done for the restructured company in connection with two large mortgages that were in default and that were included in the assignment. The court referred to Fredrickson as the governing authority. It also referred to both Trendtex decisions (at the Court of Appeal and at the House of Lords) on which the court in Fredrickson had relied.
22In particular, Armstrong J.A questioned the meaning and requirement that a property interest or commercial interest that would justify such an assignment had to be "pre-existing", and noted that in Trendtex the House of Lords did not require that a property right or a genuine commercial interest be pre- existing. On that basis, he concluded that Gentra, as the assignee, had obtained the property rights and the cause of action as part of the same assignment, that it had a legitimate commercial interest in the cause of action, that the cause of action was ancillary to the property interest in the two assigned mortgages, that it was not a personal tort and that the assignment did not savour of maintenance.
23A third case, Lloyds Bank, is useful for the guidance it provides on the particular question of whether an action for a statutory oppression remedy is assignable. Lloyds Bank involved an action for an oppression remedy under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA"). All of the assets of the Continental Bank were assigned to Lloyds Bank, including a loan that Continental had made to Dover Park Development Corporation Ltd. The loan was based on a "support agreement" by the defendant companies, who were shareholders in the company, that they would competently manage Dover Park. Nevertheless, Dover Park defaulted on its loan obligation to Continental. Lloyds, as assignee of Continental, sued the defendants for default under the support agreement and for an oppression remedy under the CBCA.
24Dealing with the question of whether the oppression claim could be assigned, Van Camp J. stated that she was shown [page202] no reason why a statutory right could not be assigned. She concluded that the assignment of the claim was made together with the assignment of the debt: "When the plaintiff held both it had a genuine and substantial interest in the success of the right of action against the defendants": Lloyds, at para. 12. The claim was for the security of the debt and gave Lloyds "a genuine commercial interest in taking the assignment and enforcing it for its own benefit": Lloyds, at para. 12, citing Trendtex (House of Lords), at p. 531 All E.R.
25In my view, the assignability of the cause of action for an oppression remedy in this case is governed by the principles in the above three cases, all of which are rooted in the Trendtex decisions, and all of which place particular emphasis on Lord Roskill's conclusion in the House of Lords Trendtex decision, at p. 531 All E.R.:
The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.
26In this passage, Lord Roskill sets out two categorical exceptions to the rule against maintenance and champerty that prohibit the assignment of causes of action. The first category allows a cause of action to be assigned where it is ancillary to a property interest that has also been assigned. For such assignments, there is no requirement that the property right or interest would have to pre-exist the transfer in order for the assignee to enforce the ancillary cause of action.
27The second category allows a cause of action to be assigned where the assignee has a genuine commercial interest in taking the assignment. Here it is implied that the commercial interest would pre-exist the assignment and that it would not be sufficient for the interest to arise from the assignment itself. This is made clear by Lord Roskill in an earlier passage where he notes that an assignee is entitled to enforce a cause of action provided that "he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself": Trendtex (House of Lords), at p. 531 All E.R. (emphasis added).
28Ultimately, the question of whether a cause of action in tort or contract can be assigned and enforced turns on whether the enforcement action "savours of maintenance". Provided that the assignee has a legitimate interest in the action by meeting one of the two tests referred to above, and cannot be viewed as [page203] an "officious intermeddler" with an improper motive, the trend is for courts to find that the assignee is able to enforce the claim.
29In this case, the appellant was assigned the property rights in the shares in the investment agreement between Kam and Jeffrey, dated May 13, 2002. The investment agreement made Kam the owner of 40 per cent of the shares. The appellant was assigned the cause of action at issue here as an incident of these property rights. Consequently, the assignment satisfies the first test set out in Trendtex (House of Lords). The assignment does not savour of maintenance.
30The motion judge found that the oppression claim could not be assigned as an ancillary cause of action because it was not incident to the acquired shares. Rather, it was a "separate" cause of action "based upon the alleged contractual arrangement or understanding between Kam and Jeffrey". As a separate cause of action, it could not be assigned because the appellant had no legitimate interest in its enforcement. Respectfully, this was an error by the motion judge. While it is correct to say that the appellant did not have a pre-existing legitimate interest in enforcing the oppression claim, it is clear from the assignment document that the shares, the contractual rights that accompanied them, and the oppression claim incident to these property rights were assigned in writing to the appellant by Kam.
31It remains to address the two Ontario cases that discuss the rights of new shareholders to assert the oppression remedy. The motion judge held that these cases precluded the appellant, as a transferee of shares, from asserting the oppression remedy unless she was claiming a remedy that would benefit the entire company.
32In Ford Motor, Ford U.S. had taken its subsidiary, Ford Canada, private. In conjunction with that transaction, Ford Canada sued for a declaration fixing the fair value of the shares of the dissenting shareholders. Some of the dissenting shareholders later counterclaimed in that action based on oppression that had occurred over a ten-year period and that involved inter-corporate transfer pricing of parts and vehicles between the U.S. and Canadian companies.
33One of the issues in the action and on the appeal was whether the dissenting shareholders were entitled to a remedy for oppression for acts that occurred before they became shareholders. Unlike in this case, the transfer of the shares was not accompanied by an assignment of the cause of action for the oppression remedy. As the dissenting shareholders were seeking compensation as aggrieved persons, as opposed to seeking compensation for the corporation, the court on appeal held that they [page204] must show entitlement to such compensation, excluding a windfall "for wrongs done to others in the past": Ford Motor, at para. 113.
34The court reasoned, based on an earlier decision of Farley J. in Royal Trust Corp. of Canada v. Hordo, [1993] O.J. No. 1560, 10 B.L.R. (2d) 86 (Gen. Div.), that when the dissenting shareholders acquired their shares on the market, the market price reflected the financial effect of the transfer pricing on the shares of Ford Canada; that is, they paid less for the shares than they would have had there been no transfer pricing, which was the oppressive conduct. Therefore, to allow them to obtain a remedy for past oppression would overcompensate them and give them a windfall remedy. Instead, the remedy remained with the person who sold the shares. However, had the remedy sought been one that would have benefited the entire company, there would have been no reason not to allow the dissenting shareholders to proceed based on the past oppression. There would be no windfall involved.
35The court also observed that the reasonable expectations of a new shareholder relate to the future actions of the company, not the past: see LSI Logic Corp. of Canada Inc. v. Logani, 2001 ABQB 710, [2001] A.J. No. 1083, 96 Alta. L.R. (3d) 162 (Q.B.). It would not be reasonable for a new shareholder to expect to be able to sue for a windfall that did not relate to true compensation.
36In my view, the motion judge erred in applying the principles that flowed from the Ford Motor and Royal Trust cases to the facts of this case. Those cases involved the purchase of publicly traded shares on the open market for their fair market value and with no assignment of other rights accompanying the purchase. That is why Farley J. stated that the right to the oppression remedy remained with the original shareholder who sold the shares.
37In this case, the corporation is privately held. The investment agreement, which gave rise to the property interest in the shares, and the attendant cause of action were transferred for $1. If the allegations of oppression are true, meaning that the majority is not honouring its obligations to the minority shareholder, the shares are not worth any more than $1 unless a successful oppression remedy can be prosecuted.
38The original owner of the shares says he is ill and not in a position to prosecute the litigation. He has transferred the shares and his rights to an oppression remedy to the appellant so that she can try to obtain the value of the shares based on the rights that the majority owes to the minority in respect of the [page205] shares. Had the owner died, his estate would have been able to pursue the same remedy.
39While a successful oppression remedy might be viewed as a windfall to the appellant because she has only paid $1, she has assumed the risk of the litigation and she might come away with nothing. It is not for this court to decide whether the bargain struck between Kam and the appellant was an appropriate one. There is no double recovery or windfall here. The appellant's claim does not "savour of maintenance". Conclusion
Conclusion
40The appellant is entitled to pursue the oppression action based on the transfer of the shares, and the assignment of the ancillary right to enforce the oppression claim in respect of those shares.
41I would therefore allow the appeal from the judgment of the Divisional Court upholding the judgment of the motion judge and I would set aside the decision dismissing the motion to amend and setting aside the order to continue, with costs fixed at $7,500, inclusive of disbursements and HST.
Appeal allowed.
@7 Notes
Note 1: The respondents brought a cross-motion to dismiss the action for the failure of Kam to attend in Toronto for examination. The order of the motion judge included a term that the motion to dismiss the action was adjourned pending an independent medical examination of Kam.
Note 2: Assignments of debt are explicitly allowed under the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, s. 53(1): see Clark v. Werden, [2011] O.J. No. 4277, 2011 ONCA 619.
Note 3: The court uses a number of formulations to describe this exception. As discussed below, because the conclusion of Lord Roskill in the House of Lords decision of Trendtex Trading Corp. v. Credit Suisse (H.L.), supra, at p. 531 All E.R., is the source for this exception, I have adopted his language here for the sake of clarity.
