CITATION: Tersigni v. Georgevitch, 2015 ONSC 1454

NEWMARKET COURT FILE NO.: DC-13-540-00

DATE: 20150305

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PAUL J. TERSIGNI

Plaintiff (Appellant)

– and –

DONALD R. GEORGEVITCH

Defendant (Respondent)

J. Botelho, for the Plaintiff (Appellant)

J. Papazian, for the Defendant (Respondent)

HEARD: October 31, 2014

ON APPEAL FROM THE DECISION OF

DEPUTY JUDGE PAUL KUPFERSTEIN DATED FEBRUARY 25, 2013

DOUGLAS J.

[1] This is an appeal from the judgment of the Small Claims Court dated February 25, 2013 at Newmarket by which the Plaintiff’s claim was dismissed on the Respondent’s motion.

[2] This appeal alleges the following errors:

(1) the Deputy Judge erred in striking the Plaintiff’s claim without making any reference or applying the test or requirements as set out in rule 12.02 of the Small Claims Court Rules;

(2) the Deputy Judge erred in failing to consider the oppression remedy set out in s.248 of the Ontario Business Corporations Act, the section under which the Plaintiff brought its action in finding that it disclosed no reasonable cause of action;

(3) the Deputy Judge erred by making findings of fact and law in reliance on affidavit evidence without the benefit of a trial;

(4) the Deputy Judge erred in law by finding the plaintiff’s claim disclosed no reasonable cause of action.

The Claim and Defence

[3] The Appellant and Respondent are equal shareholders in an Ontario corporation.

[4] In the Amended Plaintiff’s Claim the Appellant seeks damages in the sum of $25,000 and advances allegations including the following:

(a) the parties signed a joint and several personal guarantee on behalf of the company for a credit line and as guarantors they agreed to be bound to the terms of the credit line joint and severally should the company default on payment;

(b) the respondent made improper withdrawals from the corporate account and incurred various personal expenses for his own personal benefit and not for any legitimate corporate purpose;

(c) due to the Respondent’s overspending the joint credit line was overdrawn and the company was unable to account for same. The company defaulted on payment and the bank sought recovery from the parties personally, including by way of Statement of Claim;

(d) the appellant was held personally liable for the Respondent’s improper spending of the company’s funds;

(e) as a Director and Officer of the company, the Respondent owes a fiduciary duty to the company which includes the duty to act honestly, faithfully and in the best interests of the company;

(f) the value of the Appellant’s shares in the company have been diminished as a result of the Respondent’s improper withdrawals and expenses;

(g) the manner in which the Respondent conducted the affairs of the company was oppressive and unfairly prejudicial to the Appellant’s interests as a shareholder, director and creditor. The appellant requests this oppression be remedied by judgment in an amount equivalent to the diminishment of the value of his shares. The Appellant pleads and relies upon s.248 of the Business Corporation Act, R.S.O. 1990 c.B16;

(h) in the alternative, the appellant alleges that the manner in which the respondent conducted the affairs of the company was oppressive and unfairly prejudicial to the appellant’s interests as a shareholder, director and creditor. The Appellant requests that his oppression be remedied by a judgement in an amount equivalent to the damages he suffered to the bank as a result of being held personally liable for the Respondent’s over-spending and the company’s over-drawn credit line. Again, the Appellant pleads and relies upon s.248 of the Business Corporations Act R.S.O. 1990 c.B16.

[5] In his Amended Defence the Respondent denied the Appellant’s alleged losses and that the Appellant had standing to bring an action in his own name for damages allegedly incurred by the company.

The Motion to Strike

[6] The Defendant brought a motion for an order striking the Plaintiff’s claim on the basis that it sought damages for wrongs done to the company, a non-party, and on the basis that the claim sought relief under s.248 of the Business Corporations Act while the Small Claims Court does not have jurisdiction to hear such application.

[7] On February 25, 2013 the learned Deputy Judge released his Reasons for Decision which included the following excerpts:

a) The lawsuit is not based on any agreement between the parties or the allegation that there has been a breach of duty owed to the plaintiff by the Defendant. It is pleaded that the duty is owed to the corporation and that this duty was breached.

b) The Plaintiff sues for the diminished value of his shares due to the Defendant’s “unfettered control over the use of the company’s money”. In addition, he claims that the Defendant’s conduct was “oppressive and prejudicial to the Plaintiff’s interests and in the alternative seeks the protection of s.248 of the Ontario Business Corporations Act.

c) The Defendant further argues that the Plaintiff wants damages for the diminishment of value of his shares and for the loss he suffered which he attributes to the conduct of the Defendant. I point out that the conduct complained of took place over a period of approximately seven years during which time it appears that the Plaintiff exercised no rights as a shareholder and no steps were taken to consider the ramification of the Defendant’s conduct. The law in this matter may be ancient but it remains good law. The principle is simple, arising from the concept that the corporation is a separate and independent entity from the shareholders, and it is this: where the corporation has suffered a wrong, it is the corporation which must sue for redress. This rule has always been a legal rule, not an economic or moral one. The rule in Foss v. Harbottle, (1843) 2 HARE 461, 67 E.R. 189 (CH) is cited with approval in Meditrust Healthcare Inc. v. Shoppers Drug Mart, (2002) 2002 41710 (ON CA), 61 O.R. (3d) 786 where Laskin, J.A. states at p.790:

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 [1897] A.C. 22. 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 of Foss v. Harbottle also avoids multiple law suits. 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. Hurst and Young 1997 345 (S.C.C.) and by this court in Martin v. Goldfarb 1998 4150 (ONCA).

d) This remains good law and applies directly to the case before me. As a result of this there is no cause of action in law disclosed by the Plaintiff’s claim as against the Defendant. The Defendant’s motion is granted. The Plaintiff’s claim is struck. Judgment is ordered for the Defendant and the Plaintiff’s claim is dismissed.

[8] In addition the learned Deputy Judge rejected the Defendant’s argument that the oppression remedy may only be claimed by way of application and not by way of Plaintiff’s claim. He further rejected the Defendant’s argument that the amendments made to the original claim introduce separate causes of action which were statute barred by reason of the Limitations Act. The learned Deputy Judge found it unnecessary to address the issue pertaining to whether the Small Claims Court had jurisdiction to entertain a claim for relief under s.248 of the Business Corporations Act.

Issues Raised on Appeal

Issue #1: Did the Deputy Judge make an error of law by failing to consider the oppression remedy set out in s.248 of the Ontario Business Corporations Act, in finding that the claim disclosed no reasonable cause of action?

[9] In this regard the Appellant submits as follows:

(a) The motion judge erred by relying upon the rule in Foss v. Harbottle and concluding that where a corporation suffered a wrong it must be the corporation that pursues redress.

(b) The rule in Foss v. Harbottle must be taken into context with the oppression remedies codified in the OBCA. Section 248 of the OBCA provides relief to complainants with respect to oppressive conduct suffered by shareholders.

(c) The Plaintiff’s Amended Statement of Claim expressly identifies that the claim is being pursued under s.248 of the OBCA.

(d) The Ontario Court of Appeal has held, in Malata Group (HK) Ltd. v. Jung that the rule in Foss v. Harbottle has been substantially diluted by the enactment of the derivative action and oppression action provisions of the OBCA and the case law recognizing that derivative actions and oppression actions are not mutually exclusive.

(e) In Ontario Securities Commission v. McLaughlin the court acknowledged that a proceeding for oppression remedy created a new personal cause of action to which the corporation need not be a party.

(f) In Ford Motor Company of Canada v. Ontario Municipal Employees Retirement Board the court indicated:

Conduct which may result in harm to a company and may therefore be the subject of a derivative claim may also result in oppression to minority shareholders. The presence of a derivative action remedy does not preclude minority shareholders from pursuing their personal remedy. The two are not mutually exclusive.

(g) In Ricco v. Ryan, the court held that it was open to minority shareholders to pursue the statutory remedy of an oppression claim for personal wrongs done to them without regard to whether a derivative action is also pursued on the company’s behalf.

(h) The Appellant was not seeking damages as a consequence of the diminishment in value of his shares; rather, the diminishment in value of the shares was simply a tool used in quantifying the amount of damages sought and did not represent the basis of the Appellant’s claim which has always been made pursuant to the oppression remedy.

[10] The Respondent submits as follows:

(a) An oppression claim is a personal claim made by a shareholder. It is available when the alleged harm is to the shareholder personally. Conversely, when the alleged harm is to the corporation, the appropriate action is a “derivative action”, which, with leave of the court, may be commenced by an aggrieved person, but in the name of the corporation. While it is true that a harm to the corporation is likely to simultaneously cause harm to its shareholders by reducing the value of the corporation and thus the value of the shares, such harm to the shareholder is said to be “indirect” as it is only suffered by the shareholder as a result of the harm suffered by the corporation.

(b) In Goldex Mines Ltd. v. Revill the Ontario Court of Appeal held that in order to have an oppression claim a shareholder must have a personal cause of action. There is no personal cause of action when the shareholder’s damages arise “simply because the corporation itself has been damaged, and as a consequence of the damage to it, its shareholders have been injured”.

(c) In Meditrust Health Care Inc. v. Shoppers Drug Mart the Ontario Court of Appeal specifically rejected a claim by a shareholder in a company based on an allegation of diminution in the value of its shares caused by damage to the company. The shareholder does not suffer a direct loss. Its loss merely reflects the loss suffered by the company.

(d) The motions judge found that the within action was based on a duty as between the Defendant and the company, not as between the Plaintiff and the Defendant. Thus the motions judge was correct in applying the rule if Foss v. Harbottle.

(e) The Malata case is distinguishable from the case at bar in that in Malata the relief sought was not damages to the Plaintiff shareholder for a personal loss, but rather for an order directing the Defendant to return allegedly misappropriated funds to the corporation.

(f) The Ricco case is also distinguishable on the basis that the claim there was advanced by shareholders pursuing an oppression claim for personal wrongs done to them without regard to whether a derivative claim was also pursued on the company’s behalf. The case itself does not disclose the nature of those personal claims.

(g) The Ricco and Malata cases stand for the sole proposition that oppression claims and derivative actions are not mutually exclusive in principle. In an oppression action, the Plaintiff must show that his alleged damages were not merely derivative of damages suffered by the corporation.

(h) In the case at the bar, the motions judge applied the rule in Foss v. Harbottle and in so doing he did not fail to consider the oppression remedy. The motions judge made a crucial finding leading to his subsequent analysis and application of the rule in Foss v. Harbottle, namely that the Plaintiff’s pleadings alleged duty owed by the Defendant to the company.

Analysis

[11] According to s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16:

248. (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

[12] The definition of “complainant” is under s. 245 includes “…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” or even “any other person who, in the discretion of the court, is a proper person to make an application under this Part.”

[13] There can be no question that the appellant, as an “equal shareholder” in the company, fits the definition of a “complainant” under s. 245. The oppression remedy itself is extremely broad, and can be invoked any time the powers of a director are used in a way that is “unfairly prejudicial” or “unfairly disregards the interests” of any shareholder or “creditor”. As such, it would encompass the alleged actions of the defendant in this case. Through allegedly improperly withdrawing funds, incurring expenses and misappropriating funds, leaving the company unable to pay its debts, and leading to the banking collecting on the personal guarantees, it is reasonably arguable that the defendant acted in a way that was “unfairly prejudicial” to the plaintiff.

[14] The respondent successfully argued before the Deputy Judge that, because the damages are essentially “derivative in nature”, then the correct way to proceed was through a derivative action, not an oppression action; however, as is outlined below, the jurisprudence indicates that an oppression remedy and a derivative action are not mutually exclusive and, provided that the appellant is able to show that the acts complained of were “unfairly prejudicial to his interests”, he may elect an oppression action over a derivative action even where his own damages are derived from those done to the corporation.

An Oppression Action and a Derivative Action are Not Mutually Exclusive

[15] While the actions of a director of a corporation may found a derivative action based on harm done to the company, this does not preclude a complainant from proceeding by way of an oppression remedy. According to Henry J. in Ontario (Securities Commission) v. McLaughlin, through enacting the oppression remedy, the legislature intended to provide complainants with a choice of remedy:

…In the OBCA 1982 the legislature repealed the former Act and enacted the new statute to replace it. By sec.245 it continued to provide for a derivative action by shareholders in a revised and more limited form; at the same time it provided shareholders and others with the oppressive remedy in sec.247.[Now s. 248] In all candour I cannot see that these provisions are mutually exclusive; they appear to me to be complementary, giving the applicants a choice of remedy. That is sufficient to preclude striking out the statement of claim.[^1][Emphasis my own]

[16] Further, a complainant who relies on conduct that causes harm at first instance to the company, and only derivative harm to the shareholders, is not precluded from use of the oppression remedy:

There is, however, nothing in the scheme of Part XVII of the new Act that in my opinion makes sec.245 an exclusive remedy merely because the plaintiffs as minority shareholders rely on conduct of the defendants that in the first instance caused harm to the company. I have no doubt that they could have invoked sec.245 and could have applied for leave to do so. But plaintiffs have not chosen that course. Instead they rely on sec.247(2) which embraces conduct of the corporation, its controlling mind or its directors, that is oppressive or unfairly prejudicial to them as minority shareholders. The language of sec.247(2) is quite capable of embracing conduct that is also prejudicial to the corporation and so may overlap sec.245. In the case at bar, the plaintiffs could, with leave, proceed on behalf of and in the name of the corporation to enforce its rights in respect of the alleged misfeasance of defendants. They choose however to take advantage of sec.247 in respect of the defendants' alleged misfeasance within the ambit of sec.247(2) which itself, on a liberal and common sense interpretation can also embrace derivative claims. [^2] (Emphasis my own).

[17] That an oppression action can be used to remedy harms that are derivative in nature is evidenced by the remedies themselves provided under s. 248(3) of the Act. This was recognized by the Ontario Court of Appeal in Ford Motor Co. of Canada v. OMERS:

The OMERS shareholders recognize that the oppression remedy in s. 241 provides for remedies that are derivative in nature and personal in nature. They argue that this case really is about wrongs done to Ford Canada during the entire period. Thus the remedy sought is derivative in nature and the oppression remedy should encompass the entire ten-year period from 1985 to 1995.[^3]

[18] In Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, 89 O.R. (3d) 36 the Ontario Court of Appeal recognized that oppression and derivative claims are not mutually exclusive, and rejected the idea that the rule in Foss v. Harbottle would exclude an oppression remedy in a case with derivative claims:

It appears from my reading of the case law that there is not a bright-line distinction between the claims that may be advanced under the derivative action section of the Act and those that may be advanced under the oppression remedy provisions.

Owing to this overlap between the oppression remedy and the derivative action, a court cannot determine which is the appropriate avenue for a claim to proceed through the simple application of a rule such as the rule in Foss v. Harbottle. Instead, a court must examine the relevant statutory text and the facts of the claim at issue.[^4]

[19] In Malata the Court of Appeal explicitly recognizes that an oppression action might be founded in a situation where one of the directors engages in “self-dealing” to the detriment of the corporation and its shareholders and creditors, such as what is alleged in the current case:

One situation in which the overlap between the oppression remedy and the derivative action can be found is where directors in closely held corporations engage in self-dealing to the detriment of the corporation and other shareholders or creditors. A relevant case in this respect is C.I. Covington Fund Inc. v. White, 2000 22676 (ON SC), [2000] O.J. No. 4589 (Ont. S.C.J.), in which Swinton J. observed at para. 41:

A number of oppression cases turn on the fact that there has been conduct by directors or majority shareholders that amounts to self-dealing at the expense of the corporation or other corporate stakeholders (SCI Systems Inc. v. Gornitzki Thompson & Little Co. (1997), 36 B.L.R. (2d) 207 (Ont. Ct. (Gen. Div.)), aff'd (1998), 1998 17741 (ON SCDC), 110 O.A.C. 160 (Div. Ct.)); Neri v. Finch Hardware (1976) Ltd. (1995), 1995 7412 (ON SC), 20 B.L.R. (2d) 216 (Ont. Ct. (Gen. Div.)); Loveridge Holdings Ltd. v. King-Pin Ltd. (1991), 5 B.L.R. (2d) 195 (Ont. Ct. (Gen. Div.)). For example, in SCI, there was oppression because the directors unfairly removed assets from the corporation so as to prevent the payment of a corporate debt and to benefit themselves.[^5]

[20] Again, the Court of Appeal acknowledges that the oppression remedy can be used to cure harms which are essentially derivative in nature:

Although not identical, the circumstances in Covington are not dissimilar from the circumstances alleged in the statement of claim in this case. The complainant in each case is a shareholder and creditor of a closely held corporation. In both cases, the complainant alleges misappropriation of corporate property by another shareholder and director. In both cases, a loss to the company results in a derivative loss to the complainant.[^6]

[21] It is sometimes argued that the courts must take care not to allow a derivative action through the backdoor of an oppression remedy. It is argued that, since the derivative action has strict leave requirements, allowing an oppression remedy on similar facts would serve to bypass these strict requirements and give rise to a multiplicity of frivolous proceedings. However, in McLaughlin, Henry J. states that leave is not necessary, as the corporation need not be a party in an oppression action:

Under the new Part XVII there is no inconsistency in a derivative action under sec.245 requiring leave and sec.247 not being so limited; leave is required under sec.245 to protect the corporation from frivolous and unwarranted interference by disaffected claimants who seek to inject the corporation into litigation as a party plaintiff for which the corporation may initially have to provide the financing. The proceeding now created by sec.247 on the other hand is quite different; it creates a new personal cause of action to which the corporation need not be a party.[^7]

[22] In Malata the Court of Appeal highlights that there are different threshold tests for allowing an oppression action to proceed as compared to a derivative action which distinguishes the two:

This analysis begs the question of whether there is any meaningful distinction between the oppression remedy under s. 248 of the Act and the derivative action under s. 246 of the Act. In my view, allowing s. 248 oppression claims to proceed where there is harm to the corporation would not nullify s. 246, because the two sections involve different threshold tests. Section 246 simply requires a violation of the corporation's legal rights. On the other hand, s. 248 requires, in the case of harm to the corporation, a violation of corporate legal rights that is oppressive or unfairly prejudicial, or that unfairly disregards the complainant's interests.[^8][Emphasis my own]

[23] The Court of Appeal then goes on to highlight that the cost consequences are also different in each since, unlike a derivative action, the oppression remedy contains no provision allowing a court to order the corporation to pay the costs of the action:

It is perhaps worth noting that another relevant difference between the derivative action and the oppression remedy relates to costs. Subsection 247(d) explicitly allows a court to order the corporation to pay the legal fees or other costs reasonably incurred in connection with a derivative action. The oppression remedy section of the Act, though it invests courts with broad remedial authority, contains no such provision.[^9][Emphasis my own]

[24] Finally, the Court of Appeal highlights that in the case of closely held corporation, such as in the current case, there is less reason to be concerned by a multiplicity of frivolous proceedings going through the oppression remedy as opposed to a derivative action:

In disputes involving closely held companies with relatively few shareholders, such as the case at bar and Covington, 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.[^10][Emphasis my own]

[25] It was for this reason that the Court of Appeal’s ruling in Malata was distinguished by McEwen J. in Rea v. Wildeboer, 2014 ONSC 2740, 242 A.C.W.S. (3d) 79:

On the other hand, it is my view that the Court of Appeal's decision in Malata is distinguishable from the within case. As noted, in Malata, Justice Armstrong stated that in his view, it was important that the corporation at issue was closely-held. This statement, the latest appellate guidance on the issue of derivative actions versus oppression claims, cannot be ignored. …

Martinrea is not a closely-held private company with relatively few shareholders, as was the situation in Malata. Instead, Martinrea is a large, publicly-held company in which the Plaintiffs currently own few shares. This being the case, it cannot be argued, as it was in Malata, that the risk of frivolous lawsuits or a multiplicity of proceedings is minimal. Accordingly, the rationale requiring this claim to proceed as a derivative action remains intact.[^11]

[26] In the current case, where the corporation is a closely held corporation, with only two shareholders, there is no further rationale to have this claim proceed as a derivative action.

[27] The above jurisprudence may at first glance be difficult to reconcile with the cases which uphold the rule from Foss v. Harbottle. According to Laskin J.A., speaking for the Ontario Court of Appeal in Meditrust Healthcare Inc. v. Shoppers Drug Mart the rule in Foss v. Harbottle is still good law:

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 (U.K. 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.[^12]

[28] The Supreme Court of Canada previously upheld the rule in Foss v. Harbottle in Hercules Management Ltd. v. Ernst & Young:

The rule in Foss v. Harbottle provides that individual shareholders have no cause of action in law for any wrongs done to the corporation and that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself (through management) or by way of a derivative action.[^13]

[29] However, it is important to note that neither Meditrust nor Hercules Management dealt with oppression actions. Further, the case of Goldex Mines Ltd. v. Revill (1974), 1974 433 (ON CA), 7 O.R. (2d) 216 (C.A.) (cited by the Respondent) also does not deal with when an oppression remedy is appropriate as against a derivative action. Rather, this case discussed when a “personal action” is appropriate as compared to a derivative action.[^14] The respondent has not cited any Ontario decision where the statutory oppression remedy was denied because the parties should have pursued a derivative action. Rather, the only case cited for this proposition is the B.C. Court of Appeal case of Pasnak v. Chura, 2004 BCCA 221, 27 B.C.L.R. (4th) 50, where the court found that, unless the plaintiff could show he was affected by the defendant’s misconduct in a manner distinct from other shareholders, he would have to seek leave to commence a derivative action.[^15] However, this decision interprets the B.C. oppression remedy, and not Ontario’s oppression remedy under s. 248 of the Act.

[30] According to Laskin J.A. in Meditrust, and citing Hercules Management, the rule in Foss v. Hardbottle does not preclude a shareholder from making a claim for harms done directly to that shareholder:

The rule in Foss v. Harbottle does not, of course, preclude an individual shareholder from maintaining a claim for harm done directly to it. Again, in Hercules Management Ltd., La Forest J. explained the limit of the rule at 214:

One final point should be made here. Referring to the case of Goldex Mines Ltd. v. Revill (1974), 1974 433 (ON CA), 7 O.R. (2d) 216 (C.A.), the appellants submit that where a shareholder has been directly and individually harmed, that shareholder may have a personal cause of action even though the corporation may also have a separate and distinct cause of action. Nothing in the foregoing paragraphs should be understood to detract from this principle. In finding that claims in respect of losses stemming from an alleged inability to oversee or supervise management are really derivative and not personal in nature, I have found only that shareholders cannot raise individual claims in respect of a wrong done to the corporation. Indeed, this is the limit of the rule in Foss v. Harbottle.[^16] [Emphasis in original.]

[31] When dealing with the oppression remedy, Rosenberg J.A., speaking for the Ontario Court of Appeal in Ford Motor Co. of Canada v. OMERS (2006) warns against injecting jurisprudence surrounding formal causes of action into the broad oppression remedy, and the rule in Foss v. Harbottle should not apply. Instead, we must rely on the words of the statutory provision under s. 248:

It seems to me that it would be a serious mistake to attempt to confine the broad discretion granted courts by the oppression remedy within a formal construct of causes of action. To do so could bring with it all the complexities of the common law as to when a shareholder might, notwithstanding the rule in Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189 (Eng. V.-C.) maintain a personal action and thrust those complexities into the oppression remedy. Parliament could not have intended such a result. The breadth of the remedy to which these shareholders are entitled must turn on the wording of the statutory provisions.

While s. 241 contemplates remedies that benefit the corporation or shareholders as a whole, it is nevertheless founded on the principle of a wrong done to a shareholder or identifiable group of shareholders. Section 241(2)(a) [the provision relied upon in this case] is drawn in broad terms but it depends upon a finding that the complained of act or omission by the corporation or any of its affiliates "is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer".[^17][Emphasis my own]

[32] Therefore, in Ontario, one must resist bringing the analysis of “personal causes of action” and the rule in Foss v. Harbottle into an analysis of when it is appropriate to claim an oppression remedy. Rather, one must rely on the words of the Act; whether the plaintiff is a proper “complainant” who has been harmed by an act that is “oppressive or unfairly prejudicial or that unfairly disregards the interests of any security holder, creditor, director or other officer.”

What is the remedy available?

[33] The respondent takes issue with the remedy the appellant has requested; compensation for the diminution of the value of his shares or, in the alternative, the losses the plaintiff sustained due to his personal guarantee. At para. 16 of the respondent’s factum, the respondent seeks to distinguish Malata on the basis that in Malata the relief sought was not damages to the plaintiff shareholder for personal loss, but rather an order for a mandatory injunction to transfer the misappropriated funds back to the corporation.

[34] This attempt to distinguish Malata appears to contradict the respondent’s main argument. The respondent argues that the appellant cannot sue under the oppression remedy for damages that are merely derivative of losses to the corporation; however, here the Respondent alleges that a problem with the appellant’s claim is that he is suing for a remedy personal to him, and that he should only be able to get a remedy for the corporation. Further, there does not appear to be anything in Malata which limits the remedy available to a complainant in an oppression remedy.

[35] The remedies provided under s. 248(3) of the Act are quite broad and, amongst other things, includes compensation for the aggrieved party:

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue

[36] In Covington, Swinton J. confirms that s. 248 confers broad discretion on the Court in determining an appropriate remedy, and mentions instances where compensation orders have been made in small closely held companies where assets or funds have been removed, such as in the present case:

Section 248(3) of the OBCA confers a broad discretion on the Court in determining an appropriate remedy, including "any interim or final order it thinks fit". The purpose of the remedy is to rectify the oppression. The provision has been used to make compensation orders against individual directors where their conduct has been found oppressive in small, closely held corporations such as Delta, and they have personally benefited - for example, by the removal of assets from the corporation (see, for example, SCI; Sidaplex, supra).[^18][Emphasis added]

[37] In Ford Motor Companies the Court of Appeal acknowledges that an appropriate remedy for an aggrieved shareholder is often compensation, sometimes in the form of enhanced share value:

Generally, the remedy for compensating shareholders for past unfair dealings is to provide compensation through an appropriate oppression remedy for the oppression for the time that the shareholders held the shares. As the trial judge recognized at para. 259, there may be circumstances where a shareholder can receive enhanced share value because of past unfairness "if a corporation recovers funds or receives compensation arising from a successful application for oppression in respect of the corporation relating to a time period prior to that person becoming a shareholder".[^19]

[38] There does not appear to be anything to limit the remedy to only those orders that correct the wrong done to the corporation. It might be that compensation for the appellant’s damages suffered to the bank through his lost guarantee might be a more appropriate measure of damages than compensation for the diminution of share value; however, such a question should be left to the trial judge. For all these reasons I conclude that this ground of appeal must succeed.

Issue #2: Did the Deputy Judge err in law by striking out the Plaintiff’s claim without making any reference or applying the test or requirements as set out in rule 12.02 of the Small Claims Court Rules?

[39] In this regard the Appellant submits as follows:

(a) The Deputy Judge erred in law by failing to make any reference to the test or requirements as set out in rule 12.02 of the Small Claims Court Rules.

(b) The Deputy Judge reviewed no evidence when striking out the Plaintiff’s claim.

(c) The court’s ruling is contrary to the intent behind rule 12.02 which involves an analysis of whether a “reasonable cause of action” has been disclosed or whether a proceeding should be ended at an early stage because its continuation would be “inflammatory, a waste of time or a nuisance.” In this case, the Appellant’s claim involves a complex legal argument relating to the oppression remedy and it is not appropriate for a rule 12.02 motion as it dealt with issues that required the training of legal counsel and the hearing of evidence. There is no indication by the Deputy Judge in his reasons that the Plaintiff’s claim was “inflammatory”, a “waste of time” or a “nuisance”.

(d) The Deputy Judge erred in law by striking out the claim and making reference to the Plaintiff’s claim having “no cause of action” when rule 12.02(1)(a) specifically provides that the court may on motion strike out any document that discloses “no reasonable cause of action”. In McEwen v. North-West Coal and Navigation Co. (1889), 1 Terr. L.R. the court noted that there is an important distinction between “no cause of action” and “no reasonable cause of action; “the word “reasonable” must mean something and it means a cause of action which may or may not turn out to be a good cause of action, but which is at least reasonable or probable – one which is not clearly bad but where there is “any question of law to be argued”.

(e) On a motion to strike out a Statement of Claim as disclosing no reasonable cause of action, the facts pleaded in the Claim must be accepted as proven. On such a motion, the court should only dismiss the action or strike out the pleading where the court is satisfied that “the case is beyond doubt” and that “it is plain and obvious that the action cannot succeed”.

[40] On this issue, the Respondent submits as follows:

(a) The motions judge did not fail to consider rule 12.02. At the outset of his decision the judge made reference to rule 12.02 and the deliberations that followed were in the context of rule 12.02.

(b) Rule 12.02 allows the court to strike out a document on the basis that it discloses no reasonable cause of action. There is no “test” under this rule as submitted by the Appellant.

(c) The authority relied upon by the Appellant is distinguishable and only stands for the proposition that the procedure of a motion for summary judgment is not available under the Small Claims Court Rules. It is nevertheless permissible under rule 12.02 to dismiss an action on the basis that it had no chance of success at law.

Analysis

[41] According to R. 12.02 of the Rules of the Small Claims Court, O. Reg. 258/98

12.02 (1) The court may, on motion, strike out or amend all or part of any document that,

(a) discloses no reasonable cause of action or defence;

[42] In the current case, the Deputy Judge applied the rule from Foss v. Harbottle and concluded that there was “no cause of action in law disclosed by the plaintiff’s claim” and therefore struck the claim under R. 12.02(1).

[43] According to the Supreme Court of Canada decision in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, the standard for review on a question of law is correctness. In failing to recognize that a claim for oppression can be made in cases where the damages to the claimant are derivative of those damages to the corporation, the Deputy Judge made an error of law. Therefore, I must substitute the correct decision for that of the Deputy Judge. Since the appellant has disclosed a reasonable cause of action based on the above reasons, the judge’s order striking the claim should be set aside and the appellant’s action shall be restored.

[44] Also, the learned Deputy Judge has erred in apparently relying upon Rule 12.02(1)(a) in his reference in the penultimate paragraph of his Reasons to “no cause of action” having been disclosed in the Plaintiff’s Claim. In fact, the test under Rule 12.02(1)(a) refers to “no reasonable cause of action”. The question is really whether there is a cause of action which may or may not turn out to be a good cause of action, but which is at least reasonable or probable, one which is not clearly bad, but one where there is any question of law to be argued (see McEwen v. North-West Coal & Navigation Co. (1889), 1 Terr. L.R. at para. 7).

Issue #3: Are the reasons sufficient to permit meaningful appellate review?

[45] The Appellant submits that where there is a right of appeal from a decision, reasons must provide a sufficient window into the decision to allow meaningful appellate review to the extent contemplated by the permitted scope of the appeal, describing both what is decided and why that decision was made. It is improper for reasons to contain conclusory statements that require the appeal court to make assumptions regarding the evidence relied upon.

[46] It is further argued that the Deputy Judge’s reasons are insufficient in that they contain conclusory statements and fail to set out his analysis of the facts and law in respect of those conclusions so as to explain why those conclusions were reached and permit meaningful appellate review.

[47] The Respondent submits that the motions judge conducted a thorough review of the relevant authorities and concluded that there was no cause of action in law disclosed by the Plaintiff’s claim. The motions judge’s reasons were sufficient and they addressed the allegations in the Plaintiff’s claim and applied the relevant law in order to come to a reasoned conclusion.

Analysis

[48] The Reasons of the learned Deputy Judge summarize the facts and address each of the arguments raised by the Respondent on the motion to strike. He cites Foss v. Harbottle and Meditrust and states, “This remains good law and applies directly to the case before me. As a result of this there is no cause of action in law disclosed by the Plaintiff’s Claim as against the Defendant.” The reasons are succinct but cogent and sufficiently expansive beyond “mere conclusory statements” as to permit appellate review. This basis of appeal must fail.

Conclusion

[49] For all the foregoing reasons, the appeal is allowed and the order of the learned Deputy Judge is set aside.

[50] The parties may make brief written submissions on costs as follows:

a) Appellant within 3 weeks of release of these Reasons;

b) Respondent within 4 weeks of release of these Reasons; and

c) Appellant, in reply if desired, within 5 weeks of release of these Reasons.

DOUGLAS J.

Released: March 5, 2015

[^1]: Ontario (Securities Commission) v. McLaughlin, 1987 CarswellOnt 2568, [1987] O.J. No. 1247, 11 O.S.C.B. 442 at para. 19 (Ont. H.C.) [McLaughlin]

[^2]: Ibid at para. 20.

[^3]: Ford Motor Co. of Canada v. OMERS (2006), 2006 15 (ON CA), 79 O.R. (3d) 81 at para. 108 (Ont. C.A.).

[^4]: Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, 89 O.R. (3d) 36 at paras. 26-27.[Malata]

[^5]: Ibid at para. 31.

[^6]: Ibid at para. 33.

[^7]: McLaughlin, supra at para. 20.

[^8]: Malata at para. 34.

[^9]: Malata at para. 35.

[^10]: Ibid at para. 39.

[^11]: Rea v. Wildeboer, 2014 ONSC 2740, 242 A.C.W.S. (3d) 79 at paras. 21 & 22.

[^12]: Meditrust Healthcare Inc. v. Shoppers Drug Mart, (2002), 2002 41710 (ON CA), 61 O.R. (3d) 786 at para. 12.[Meditrust]

[^13]: Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165 at para. 59.

[^14]: Goldex Mines Ltd. v. Revill (1974), 1974 433 (ON CA), 7 O.R. (2d) 216 at paras. 22-25 (C.A.). Although the case goes on to consider the common law oppression remedy in para. 31, it does not discuss the statutory oppression remedy which, according to McLaughlin supra at para. 19 (quoted above) was not enacted in its current form until at least 1982.

[^15]: Pasnak v. Chura, 2004 BCCA 221, 27 B.C.L.R. (4th) 50 at para. 27.

[^16]: Meditrust, supra at para. 16.

[^17]: Ford Motor Co. of Canada v. OMERS (2006), 2006 15 (ON CA), 79 O.R. (3d) 81 at paras. 111-112 (Ont. C.A.).

[^18]: C.I. Covington Fund Inc. v. White, 2000 22676 (ON SC), 2000 CarswellOnt 4680, 10 B.L.R. (3d) 173 at para. 46 (Ont. S.C.).

[^19]: Ford Motor Company, supra at para. 136.