Rea et al. v. Wildeboer et al. Wildeboer et al. v. Rea et al.

[Indexed as: Rea v. Wildeboer]

Ontario Reports

Court of Appeal for Ontario,

Weiler, Sharpe and Blair JJ.A.

May 26, 2015

126 O.R. (3d) 178 | 2015 ONCA 373

Case Summary

Corporations — Derivative actions — Plaintiffs asserting oppression claim under s. 248 of Business Corporations Act alleging misappropriation of funds from public company and seeking to recover those funds for company — Plaintiffs not alleging that their personal interests were affected by alleged misconduct — Motion judge correctly striking claim on ground that it was solely corporation's claim and had to be pursued as derivative action with leave of court — Business Corporations Act, R.S.O. 1990, c. B.16, s. 248.

Corporations — Oppression — Plaintiffs asserting oppression claim under s. 248 of Business Corporations Act alleging misappropriation of funds from public company and seeking to recover those funds for company — Plaintiffs not alleging that their personal interests were affected by alleged misconduct — Motion judge correctly striking claim on ground that it was solely corporation's claim and had to be pursued as derivative action with leave of court — Business Corporations Act, R.S.O. 1990, c. B.16, s. 248.

The plaintiffs asserted an oppression claim under s. 248 of the Business Corporations Act alleging misappropriation of funds from a widely held public company and seeking to recover those funds for the company. They did not allege that their personal interests were affected by the alleged misconduct. The moving defendants brought a motion to strike the claim as against them. The motion judge found that the claim was solely that of the company and that it had to be pursued as a derivative action on behalf of the corporation, with leave of the court. The claim was struck. The plaintiffs appealed.

Held, the appeal should be dismissed.

While there are circumstances where the factual underpinnings will give rise to both an oppression claim and a derivative action and in which a complainant will be entitled to proceed by way of an oppression claim, claims must be pursued by way of a derivative action, after obtaining leave of the court, where, as here, 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. The oppression remedy is not available simply because a complainant asserts a "reasonable expectation" (for example, that directors will conduct themselves with honesty and probity and in the best interests of the corporation) and the evidence supports the claim that the reasonable expectation has been violated by conduct falling with the terms "oppression", "unfair prejudice" or "unfair disregard". The impugned conduct must be "oppressive" of or "unfairly prejudicial" to, or must "unfairly disregard", the interests of the complainant. No such conduct was pled here. [page179]

Jabalee v. Abalmark Inc., [1996] O.J. No. 2609, 64 A.C.W.S. (3d) 754 (C.A.); Malata Group (HK) Ltd. v. Jung (2008), 89 O.R. (3d) 36, [2008] O.J. No. 519, 2008 ONCA 111, 233 O.A.C. 199, 290 D.L.R. (4th) 343, 44 B.L.R. (4th) 177, 164 A.C.W.S. (3d) 94; Waxman v. Waxman, 2004 CanLII 39040 (ON CA), [2004] O.J. No. 1765, 186 O.A.C. 201, 44 B.L.R. (3d) 165, 132 A.C.W.S. (3d) 1046 (C.A.) [Leave to appeal to S.C.C. refused [2004] S.C.C.A. No. 291], consd

Other cases referred to

BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 52 B.L.R. (4th) 1, EYB 2008-151755, J.E. 2009-43, 301 D.L.R. (4th) 80, 71 C.P.R. (4th) 303, 383 N.R. 119, 172 A.C.W.S. (3d) 915; C.I. Covington Fund Inc. v. White, 2001 CanLII 28384 (ON SCDC), [2001] O.J. No. 3918, 152 O.A.C. 39, 17 B.L.R. (3d) 277, 28 C.B.R. (4th) 177, 15 C.P.R. (4th) 144, 108 A.C.W.S. (3d) 826 (Div. Ct.), affg 2000 CanLII 22676 (ON SC), [2000] O.J. No. 4589, [2000] O.T.C. 865, 10 B.L.R. (3d) 173, 22 C.B.R. (4th) 183, 10 C.P.R. (4th) 49, 101 A.C.W.S. (3d) 504 (S.C.J.); Deluce Holdings Inc. v. Air Canada (1992), 1992 CanLII 7654 (ON SC), 12 O.R. (3d) 131, [1992] O.J. No. 2382, 98 D.L.R. (4th) 509, 8 B.L.R. (2d) 294, 13 C.P.C. (3d) 72, 36 A.C.W.S. (3d) 724 (Gen. Div.); Falloncrest Financial Corp. v. Ontario (1995), 1995 CanLII 2934 (ON CA), 27 O.R. (3d) 1, [1995] O.J. No. 4043, 59 A.C.W.S. (3d) 1083 (C.A.); Ford Motor Co. of Canada 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]; Foss v. Harbottle (1843), 67 E.R. 189, 2 Hare 461 (Eng. V.C.); Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, [1997] S.C.J. No. 51, 146 D.L.R. (4th) 577, 211 N.R. 352, [1997] 8 W.W.R. 80, J.E. 97-1151, 115 Man. R. (2d) 241, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115, 71 A.C.W.S. (3d) 169; Hoet v. Vogel, [1995] B.C.J. No. 621 (S.C.); Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, J.E. 90-1436, 49 B.C.L.R. (2d) 273, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105, 23 A.C.W.S. (3d) 101; Meditrust Healthcare Inc. v. Shoppers Drug Mart (2002), 2002 CanLII 41710 (ON CA), 61 O.R. (3d) 786, [2002] O.J. No. 3891, 220 D.L.R. (4th) 611, 165 O.A.C. 147, 28 B.L.R. (3d) 163, 117 A.C.W.S. (3d) 713 (C.A.); Ontario (Securities Commission) v. McLaughlin, [1987] O.J. No. 1247 (H.C.J.)

Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16, ss. 1, 245, 246 [as am.], (2), 248 [as am.], (2)

Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 239 [as am.], 241 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1) (b)

Authorities referred to

Iacobucci, Edward M., and Kevin E. Davis, "Reconciling Derivative Claims and the Oppression Remedy" (2000), 12 S.C.L.R. 87

Koehnen, Markus, Oppression and Related Remedies (Toronto: Carswell, 2004)

MacIntosh, Jeffrey G., "The Oppression Remedy: Personal or Derivative?" (1991), 70 Can. Bar Rev. 29

Welling, Bruce, Corporate Law in Canada: The Governing Principles, 3rd ed. (Mudgeeraba, Australia: Scribblers Publishing, 2006)

APPEAL by the plaintiffs from the order of McEwen J., [2014] O.J. No. 3116, 2014 ONSC 2740 (S.C.J.) striking the claim as against the moving defendants. [page180]

Jeremy C. Millard and Holly V.A. Cunliffe, for appellants.

Don H. Jack and Courtney Raphael, for respondents.

The judgment of the court was delivered by

Introduction

1BLAIR J.A.: — "Oppression remedy" or "derivative action"? What is the nature of these proceedings?

2The appellants have asserted an oppression claim under s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA") alleging misappropriation of funds from Martinrea International Inc. and seeking to recover those funds for the corporation. They submit that they are entitled to proceed on that basis, arguing that the "somewhat murky" line between oppression remedies and derivative actions has all but disappeared. The respondents argue, on the other hand, that the claim is solely Martinrea's claim and that it must be pursued as a derivative action on behalf of the corporation, with leave of the court.

3The motion judge agreed with the respondents and struck the claim as against them. In the context of this claim as against these respondents, I too agree, and for the following reasons would dismiss the appeal.

Background and Facts

Background and Facts

4Martinea is a successful Canadian manufacturer of auto parts. It is a widely held public company, trading on the Toronto Stock Exchange, with approximately 84.5 million outstanding shares.

5The appellant Natale Rea and the defendant Fred Jaekel are the company's principal founders. They became directors, along with the defendants Wildeboer, Orland and Rashid. The defendant Pagliari was a Martinrea executive, but not a board member. All of these defendants are referred to in the appellants' submissions as the "insider defendants".

6Between 2002 (when the company was founded) and 2012, Mr. Rea and his holding corporation, Rea Holdings Inc., were significant minority shareholders of the company -- holding between 12 per cent and 17 per cent of its shares. After the alleged improper transactions discussed below were discovered in 2011, and not dealt with to Mr. Rea's satisfaction, he and Rea Holdings sold their 9,910,009 common shares in 2012. Subsequently -- two weeks before the motion to strike was heard, and after these proceedings had been commenced -- they reacquired approximately 0.1 per cent, or 100,000, of Martinrea's outstanding shares. [page181]

7In substance, the statement of claim alleges that the insider defendants undertook a series of transactions and other activities that involved a breach of their fiduciary and other duties to Martinrea and resulted in the misappropriation of large amounts of Martinrea's corporate funds -- allegedly $50 to $100 million -- for their own personal benefit (the "improper transactions"). The action seeks the recovery of these funds for Martinrea.

8The defendants 1530309 Ontario Limited (sometimes known as "IM") and Martin Pathak are the moving parties and the respondents on the appeal. Mr. Pathak is the principal of IM. Neither he nor IM is a shareholder of Martinrea and Mr. Pathak has never been a director or officer of Martinrea. IM is a supplier of used auto parts.

9The respondents are implicated in the action because they are said to have aided and abetted the insider defendants in two particular aspects of the improper transactions. It is alleged (i) that they sold used equipment to Martinrea over a ten-year period at prices well over market value and on terms unfair to Martinrea, and as a result of which some of the insider defendants received substantial kickbacks; and (ii) that a company controlled by them purchased a parcel of land from Martinrea in 2009 without an appropriate sale process and on terms unfair to Martinrea.

10In 2011, Mr. Rea became aware of some of the alleged improper transactions and brought them to the attention of the defendant Wildeboer (the executive chairman of Martinrea) and the defendant Rashid (head of the audit committee). Rashid was asked to, and did, prepare a report for the board of directors. The appellants say that the report was a complete "whitewash". When Wildeboer protected Orlando (the president and CEO) by refusing to accept his resignation, the differences came to a head. In June 2012, Mr. Rea stepped down as vice-chairman and a director of Martinrea. He and Rea Holdings sold their shares.

11In September 2013, this action was commenced.

Analysis

Analysis

12The general issue raised on this appeal is whether a complainant may assert, by way of an oppression remedy proceeding, a claim that is by nature a derivative action for a wrong done solely to the corporation, thereby circumventing the requirement to obtain leave to commence a derivative action.

13Some understanding of how and why these two forms of statutory redress evolved will help in addressing this issue. [page182]

14At common law, minority shareholders in corporations had very little protection in the face of conduct by the majority (or by directors controlled by the majority) that negatively affected either the corporation itself or their interests as minority shareholders. This handicap was due to two well-entrenched common law principles of corporate law: the notion of a "corporate personality" and the "indoor management rule". Both of these principles can be traced back to a decision of now almost mythical stature -- that of Vice-Chancellor Wigram in Foss v. Harbottle (1843), 67 E.R.189, 2 Hare 461 (Eng. V.C.).

15In law, a corporation is a legal entity distinct from its shareholders. It followed from this that shareholders were precluded from bringing their own action in respect of a wrong done to the corporation. Except as modified by the derivative action, the oppression remedy, and winding-up proceedings, this remains a governing principle in Canadian corporate law: see Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, [1997] S.C.J. No. 51, at para. 59; Meditrust Healthcare Inc. v. Shoppers Drug Mart (2002), 2002 CanLII 41710 (ON CA), 61 O.R. (3d) 786, [2002] O.J. No. 3891 (C.A.). As Laskin J.A. put it, in Meditrust, at paras. 12-14:

The rule in Foss v. Harbottle provides simply that a shareholder of a corporation -- even a controlling shareholder or the sole shareholder -- does not have a personal cause of action for a wrong done to the corporation. The rule respects a basic principle of corporate law: a corporation has a legal existence separate from that of its shareholders. See Salomon v. Salomon & Co. (1896), [1897] A.C. 22, 66 L.J. Ch. 35 (H.L.) A shareholder cannot be sued for the liabilities of the corporation and, equally, a shareholder cannot sue for the losses suffered by the corporation.

The rule in Foss v. Harbottle also avoids multiple lawsuits. Indeed, without the rule, a shareholder would always be able to sue for harm to the corporation because any harm to the corporation indirectly harms the shareholders.

Foss v. Harbottle was decided nearly 160 years ago but its continuing validity in Canada has recently been affirmed by the Supreme Court of Canada in Hercules Management Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165 and by this court in Martin v. Goldfarb (1998), 1998 CanLII 4150 (ON CA), 163 D.L.R. (4th) 639 (C.A.).

16The companion indoor management rule has also played a significant role in restricting minority shareholders' rights to redress. At common law, if an act that was claimed to be wrongful could be ratified by the majority at a general meeting of shareholders, neither the corporation nor an individual shareholder could sue to redress the wrong. The rationale for this was that courts were reluctant to interfere in the internal management affairs of the corporation. [page183]

17It took over a century for legislative reforms to be put in place to temper the restrictive effect of these principles on minority shareholder rights. In the latter part of the 20th century, however, the two statutory forms of relief that are at the heart of this appeal -- the derivative action and the oppression remedy -- were created for this purpose.¹ It is noteworthy that they approached the problem in two different, although potentially overlapping, ways.

18The derivative action was designed to counteract the impact of Foss v. Harbottle by providing a "complainant" -- broadly defined to include more than minority shareholders² -- with the right to apply to the court for leave to bring an action "in the name of or on behalf of a corporation . . . for the purpose of prosecuting, defending or discontinuing the action on behalf of the body corporate": OBCA, s. 246. It is an action for "corporate" relief, in the sense that the goal is to recover for wrongs done to the company itself. As Professor Welling has colourfully put it in his text, Corporate Law in Canada: The Governing Principles, 3rd ed. (Mudgeeraba, Australia: Scribblers Publishing, 2006), at p. 509, "[a] statutory representative action is the minority shareholder's sword to the majority's twin shields of corporate personality and majority rule".

19The oppression remedy, on the other hand, is designed to counteract the impact of Foss v. Harbottle by providing a "complainant" -- the same definition -- with the right to apply to the court, without obtaining leave, in order to recover for wrongs done to the individual complainant by the company or as a result of the affairs of the company being conducted in a manner [page184] that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of the complainant. The oppression remedy is a personal claim: Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board (2006), 2006 CanLII 15 (ON CA), 79 O.R. (3d) 81, [2006] O.J. No. 27 (C.A.), at para. 112, leave to appeal to S.C.C. refused [2006] S.C.C.A. No. 77; Hoet v. Vogel, [1995] B.C.J. No. 621 (S.C.), at paras. 18-19.

20These two forms of redress frequently intersect, as might be expected. A wrongful act may be harmful to both the corporation and the personal interests of a complainant and, as a result, there has been considerable debate in the authorities and amongst legal commentators about the nature and utility of the distinction between the two. In the words of one commentator, "the distinction between derivative actions and oppression remedy claims remains murky": Markus Koehnen, Oppression and Related Remedies (Toronto: Carswell, 2004), at p. 443.

21Yet the statutory distinctions remain in effect.

The parties' positions

The Parties' Positions

22The appellants submit that the distinction between the remedies has been significantly moderated and that a complainant is entitled to pursue an oppression remedy even where the wrong in question is a wrong in respect of the corporation, provided that the shareholder's reasonable expectations have been violated by means of conduct caught by the terms "oppression", "unfair prejudice" or "unfair disregard". They rely on the decision of the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, at para. 68, for this proposition. The rationale, they say, is that the oppression remedy provisions provide stakeholders with "a personal, statutory right" not to have their reasonable expectations violated in this manner.

23The appellants stress that in Malata Group (HK) Ltd. v. Jung (2008), 89 O.R. (3d) 36, [2008] O.J. No. 519, 2008 ONCA 111 and Jabalee v. Abalmark Inc., [1996] O.J. No. 2609, 64 A.C.W.S. (3d) 754 (C.A.), this court acknowledged that there could be a degree of overlap between claims that could be made out as a derivative action and those that could fall under the oppression remedy, and that "the two are not mutually exclusive": Malata, at para. 30; Jabalee, at para. 5.

24The respondents submit, on the other hand, that the distinction between the two remedies remains, and for good reason. They accept -- as did the motion judge -- that there has been some relaxation in the approach to the commencement of oppression remedy actions in cases where the factual circumstances create an [page185] overlap between the two remedies, particularly in the case of small closely held corporations. But they contend that the distinction remains important -- because of the leave requirement for derivative actions -- in the case of publicly held corporations such as Martinrea.

25In such cases, they argue, the leave requirement fulfills its important threefold purpose of (i) preventing strike suits, (ii) preventing meritless suits and (iii) avoiding a multiplicity of proceedings -- all of which may lead to the corporation incurring significant and unwarranted costs, concerns that are less acute for closely held corporations. Relying on Malata themselves, the respondents point to the importance Armstrong J.A. placed in that case on the fact that Malata was a closely held corporation (para. 38) and to his observation, at para. 39, that

[i]n disputes involving closely held corporations with relatively few shareholders . . . there is less reason to require the plaintiff to seek leave of the court. The small number of shareholders minimizes the risk of frivolous lawsuits against the corporation, thus weakening the main rationale for requiring a claim to proceed as a derivative action.

Discussion

Discussion

26I accept that the derivative action and the oppression remedy are not mutually exclusive. Cases like Malata and Jabalee make it clear that there are circumstances where the factual underpinning will give rise to both types of redress and in which a complainant will nonetheless be entitled to proceed by way of oppression remedy. Other examples include Ontario (Securities Commission) v. McLaughlin, [1987] O.J. No. 1247 (H.C.J.); Deluce Holdings Inc. v. Air Canada (1992), 1992 CanLII 7654 (ON SC), 12 O.R. (3d) 131, [1992] O.J. No. 2382 (Gen. Div.); C.I. Covington Fund Inc. v. White, 2000 CanLII 22676 (ON SC), [2000] O.J. No. 4589, [2000] O.T.C. 865 (S.C.J.), affd 2001 CanLII 28384 (ON SCDC), [2001] O.J. No. 3918, 152 O.A.C. 39 (Div. Ct.); Waxman v. Waxman, 2004 CanLII 39040 (ON CA), [2004] O.J. No. 1765, 186 O.A.C. 201 (C.A.), at para. 526, leave to appeal to S.C.C. refused [2004] S.C.C.A. No. 291.

27However, I agree with the respondents that claims must be pursued by way of a derivative action after obtaining leave of the court where, as here, 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.

28It is true that the jurisprudence is inconsistent about how to treat cases where there is an overlap and that there has been considerable discussion amongst legal commentators about this and whether the distinction should be maintained. See, for [page186] example, the following texts and articles and the jurisprudence referred to therein: Koehnen, at pp. 440-448; Jeffrey G. MacIntosh, "The Oppression Remedy: Personal or Derivative?" (1991), 70 Can. Bar Rev. 29; Edward M. Iacobucci and Kevin E. Davis, "Reconciling Derivative Claims and the Oppression Remedy" (2000), 12 S.C.L.R. 87.

29While this debate is interesting, it is not necessary to resolve it here. 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. And most, if not all, involve small closely held corporations, not public companies.

30Waxman is a good example. The company was a family scrap-metal business. Some of the acts complained of, including the wrongful distribution of bonuses, could have been the subject of a derivative action, but it was not disputed on appeal that the complainant "was personally aggrieved by the distribution" and that it "was done at the expense of his interest in the company": para. 526.

31Malata -- a case involving another closely held company -- is also a good example. The misappropriation of funds in that case affected not only the company (and therefore the indirect interests of all shareholders), but the direct interests of the minority shareholder as a creditor of the company.

32Here, however, on the facts pleaded, there is no overlap between the derivative action and the oppression remedy (once one goes beyond the boiler plate repetition of the statutory language from the OBCA describing the oppression remedy). The appellants are not asserting that their personal interests as shareholders have been adversely affected in any way other than the type of harm that has been suffered by all shareholders as a collectivity. Mr. Rea -- the only director plaintiff -- does not plead that the improper transactions have impacted his interest qua director.

33Since the creation of the oppression remedy, courts have taken a broad and flexible approach to its application, in keeping with the broad and flexible form of relief it is intended to provide. However, the appellants' open-ended approach to the oppression remedy in circumstances where the facts support a derivative action on behalf of the corporation misses a significant point: the impugned conduct must harm the complainant [page187] personally, not just the body corporate, i.e., the collectivity of shareholders as a whole.

34The oppression remedy is not available -- as the appellants contend -- simply because a complainant asserts a "reasonable expectation" (for example, that directors will conduct themselves with honesty and probity and in the best interests of the corporation) and the evidence supports that the reasonable expectation has been violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard". The impugned conduct must be "oppressive" of or "unfairly prejudicial" to, or "unfairly disregard" the interests of the complainant: OBCA, s. 248(2). No such conduct is pled here.

35That the harm must impact the interests of the complainant personally -- giving rise to a personal action -- and not simply the complainant's interests as a part of the collectivity of stakeholders as a whole -- is consistent with the reforms put in place to attenuate the rigours of the rule in Foss v. Harbottle. The legislative response was to create two remedies, with two different rationales and two separate statutory foundations, not just one: a corporate remedy, and a personal or individual remedy.

36The derivative action provides aggrieved minority stakeholders with the ability to pursue a cause of action on behalf of the corporation to redress wrongs done in respect of the corporation, provided leave is obtained from the court to do so. As Professor MacIntosh has observed:

The corporation will be injured when all shareholders are affected equally, with none experiencing any special harm. By contrast, in a personal (or "direct") action, the harm has a differential impact on shareholders, whether the difference arises amongst members of different classes of shareholders or as between members of a single class. It has also been said that in a derivative action, the injury to shareholders is only indirect, that is, it arises only because the corporation is injured, and not otherwise. [See, for example, Farnham v. Fingold, 1973 CanLII 523 (ON CA), [1973] 2 O.R. 132 (C.A.); Goldex Mines Ltd. v. Revill (1974), 1974 CanLII 433 (ON CA), 7 O.R. (2d) 216 (C.A.)].

37The requirements for leave are straightforward and are set out in s. 246(2) of the OBCA: the directors must be given 15 days' notice of the intention to bring the application, and the court must be satisfied (i) that the directors will not pursue the claim; (ii) that the complainant is acting in good faith; and (iii) that it appears to be in the best interests of the corporation that the action be brought. In this way, the legislative goals of avoiding strike suits, meritless actions and a multiplicity of proceedings against the corporation -- and the potentially unwarranted costs that accompany them -- are strengthened. [page188] Although they have been the subject of some academic criticism,³ these remain valid legislative objectives and concerns, in my view, particularly in the context of actions against publicly traded corporations.

38Indeed, in para. 28 of their statement of claim, the appellants themselves flagged Martinrea's potential exposure "to legal proceedings by each person or company that acquired or disposed of shares of Martinrea during the period in which the Improper Transactions took place". A judgment in a derivative action, however, if proceeded with and ultimately successful, will be binding on all shareholders.

39Much of the debate here focused on Malata -- this court's most recent consideration of the relationship between derivative actions and the oppression remedy. Does it stand for the proposition, as the appellants assert, that oppression remedy claims and derivative action claims may be collapsed into an oppression remedy claim? Or, as the respondents say, does it stand for the proposition that the remedies may not be conflated when it is a public corporation that is involved? In my view, Malata stands for neither of these broad propositions and, in any event, is distinguishable from the present appeal.

40Like this case, Malata involved the alleged misappropriation of funds from the corporation -- there, by a director, officer and major shareholder. Unlike this case, however, Malata involved a small closely held corporation. The aggrieved minority shareholder was one of only three shareholders of the corporation and, significantly, was also a major creditor of the corporation. On those facts, there was clearly an overlap and coexistence between the wrong caused by the alleged misappropriation to the corporate collectivity and the wrong caused by it to the minority shareholder in its capacity as creditor because the misappropriation threatened the corporation's ability to pay its debt to the minority shareholder/creditor. Martinrea, however, is a large, widely held public corporation and no type of personal wrong is evident.

41To be sure, there are bald allegations in the statement of claim that the improper transactions "caused significant damage to [Martinrea] and its shareholders" (para. 28, emphasis added) and that the defendants "have acted and continue to act in a manner that is oppressive, unfairly prejudicial to, and that unfairly disregards the interests of the Plaintiffs and other Martinrea shareholders" (para. 33, emphasis added). However, [page189] there is no particularized allegation of any wrong done to the interests of the plaintiffs themselves, qua shareholders or otherwise, as opposed to a wrong affecting the "corporate body", i.e., the collectivity of shareholders as a whole.

42In their written and oral arguments, although not in their pleadings, the appellants make three submissions in an attempt to particularize the alleged harm to them individually, and thus bring the claim within the rubric of an oppression remedy. They assert first that the alleged misappropriations "precluded [them] from managing [their] investment[s] or exercising [their] voting rights in an informed manner"; second, that the failure to provide adequate disclosure of material information to shareholders has been recognized as oppressive conduct; and third, that by reason of the director defendants' lack of candour with their fellow directors, "Mr. Rea lacked the full information needed to genuinely exercise his role in governing Martinrea". None of these allegations is specifically pleaded and none suffices to permit the appellants to cross the line -- however "murky" that line may be -- between the derivative reality of this action and its proposed oppression remedy illusion, in my opinion.

43"[M]anaging [their] investments and exercising [their] voting rights" in this context means exercising their role as shareholders in supervising management. The Supreme Court of Canada has held that "claims in respect of losses stemming from an alleged inability to oversee or supervise management are really derivative and not personal in nature": Hercules Management, at para. 62.

44It may be that, in some circumstances, the failure to provide proper disclosure of material information to shareholders can constitute oppressive conduct and, similarly, that in some circumstances wrongfully withholding information from a director may be "oppressive" to the director's ability to carry out his or her role in that capacity. However, no such pleading is asserted here. To the extent that the preparation of inaccurate financial statements and the lack of candour vis-à-vis fellow directors are asserted as facts in the statement of claim, they are pleaded as examples of the insider defendants' breach of fiduciary duty to the corporation, not as something that impacts the interests of the appellants in any individual manner other than what might affect the collectivity of the shareholders. Mr. Rea is the only plaintiff who was a director and he asserts no claim that his interests have been affected in that capacity. As pleaded, these wrongs are relevant as tools used to perpetrate the fraud against Martinrea, not as acts that have any particularized impact on any of the plaintiffs individually. [page190]

45At its heart, the appellants' allegation involves the misappropriation of corporate property by the insider defendants, assisted in some cases by the respondents here (IM and Pashak) and others. The substantive remedy claimed is the disgorgement of the ill-gotten gains back to Martinrea.

46The misappropriation of corporate property was effected through the alleged improper transactions which in essence consisted of (i) payment to the insider defendants of secret kickbacks and improper commissions in relation to services provided and equipment sold to Martinrea, as a result, at inflated prices; (ii) payments by Martinrea to third parties for construction, renovation and other services (including in one case the settlement of potential legal exposure) for the personal benefit of the insider defendants; and (iii) in the case of the respondents IM and Pashak, the purchase of used equipment by Martinrea at inflated prices (feeding kickbacks to the insider defendants) and the purchase of real estate in Kitchener by Martinrea from a related Pashak company, on terms unfavourable to Martinrea. All of these allegations, if proved, will establish losses sustained by the corporation to its financial bottom line -- i.e., to the collectivity of shareholders as a whole -- and not to any particular shareholder, including the appellants, individually.

47For these reasons, I do not accept that the wrongs as pleaded in the statement of claim are wrongs other than wrongs done to the corporation that form the basis of a derivative action. As noted earlier, I do not see this as a case involving overlap between the oppression remedy and the derivative action.

Conclusion and Disposition

Conclusion and Disposition

48I recognize that a party seeking to strike out a pleading under rule 21.01(1)(b) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] must demonstrate that it is plain and obvious the claim discloses no reasonable cause of action. For these purposes, the facts as pleaded must be accepted as true, the pleading should be given a large and liberal interpretation and courts should not, at this stage of the proceedings, strike out claims that are novel or dispose of matters of law that are not fully settled in the jurisprudence: see Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, at pp. 971, 973 and 990-91 S.C.R.; Falloncrest Financial Corp. v. Ontario (1995), 1995 CanLII 2934 (ON CA), 27 O.R. (3d) 1, [1995] O.J. No. 4043 (C.A.), at pp. 5-6 O.R.

49For the reasons outlined above, I am satisfied that the appellants' statement of claim does not disclose a reasonable cause of action based upon the oppression remedy. Nor do I think it is a novel or unsettled principle of law that wrongs [page191] done solely to a corporation, for which remedies are sought on behalf of the corporation, give rise to a derivative action and require leave of the court before an action can be commenced to assert those claims. Where the facts may give rise to both a "corporate claim" and a "personal" oppression remedy claim -- as Malata and the other cases referred to above illustrate -- the question of whether an oppression remedy proceeding is available will have to be sorted out on a case-by-case basis. This task does not arise on the facts as pleaded here, however.

50Accordingly, I would dismiss the appeal.

51The respondents shall be entitled to their costs of the appeal, fixed in the amount of $20,000, inclusive of disbursements and all applicable taxes, as agreed.

Appeal dismissed.

Notes

(a) 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,

(b) a director or an officer or a former director or officer of a corporation or any of its affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

"Security" is earlier defined in s. 1 to mean a share or a debt obligation (e.g., a bond).

End of Document

Footnotes

1. 1In Canada, derivative action relief is embodied in s. 239 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA") and in various provincial business corporation statutes, such as the OBCA, s. 245. The oppression remedy is provided for in s. 241 of the CBCA and s. 248 of the OBCA.
2. 2Section 245 of the OBCA, for example, defines a "complainant" to mean:
3. 3See, for example, Koehnen, at p. 454; Iacobucci and Davis, at pp. 90-110.