Improving Access To Justice in Shareholder Oppression Matters

The issue of access to justice has long faced the legal system. The traditional litigation model, with the Trial and its lengthy pre-trial procedures, coupled with the cost of legal fees, has made the pursuit of a judicial determination of an issue a challenge for many.

Popular perception has it that the cost of legal proceedings is an issue for the wage earning individual. This is true in many cases, but, perhaps contrary to public perception, the cost of litigation can be a challenge for business owners too, especially small business owners. When the owners of a business are in dispute amongst themselves, the cost can bring down the business.

The provisions of The Business Corporations Act contain a remedy called the oppression remedy. It may be resorted to by corporate stakeholders, such as a company’s shareholders or directors, for relief when their interests in the corporation have been oppressed, unfairly prejudiced or unfairly disregarded by the corporation or those controlling the corporation. An example may be where a majority shareholder and director runs a company like his or her personal fiefdom and does not provide the minority shareholders with any information, chance to provide input or pay dividends. The Court has a wide range of remedies it can grant, including providing financial information, restraining the conduct complained of or having the oppressed shareholder’s interests purchased at fair value.

As drafted, the oppression remedy provisions in The Business Corporations Act seem to contemplate relief being granted on a summary basis. That is, there is no requirement for a Trial and its pre-trial processes. Instead, the matter may be determined in a hearing before a Judge on sworn affidavit evidence, perhaps with cross-examination. There is, however, provision for directing a trial if appropriate. In practice, it seemed in the past that the traditional litigation model loomed large and a trial was often directed, rather than a summary determination.

As part of its goal to increase access to justice, the Court of Queen’s Bench for Saskatchewan has put in place new Rules of Court for practice and procedures in litigation. A key element are the foundational rules set out at the beginning of the Rules of Court. These emphasize identifying the issues in dispute between the litigants and facilitating the quickest means to resolve disputes at the least expense to the litigants.

The foundational rules have had an effect on oppression remedy cases. In Brooks v. Brooks, [2013] S.J. No. 541 (Sask. Q.B.), Justice Danyliuk, after noting the departure in the past from summary dispositions, said that today, “for smaller family businesses ….. the decided trend is to return to summary adjudications where possible”. The case in question was a messy shareholder dispute between two brothers. As such, there were some issues that just could not be decided on a summary basis. However, with a view to providing some timely relief and pointing the parties toward a resolution of all of their issues, Justice Danyliuk did make some findings of oppressive conduct. He also ordered disclosure of corporate records, required the parties to provide full particulars of their claims against each, ensured transparency and consent in the disposition of assets, ordered a business valuation by a third party accountant who would consider the brothers’ claims against each other, allowing the parties to agree to the valuation and have the one brother be bought out by the other. In the event this process did not work, the dispute could be returned to court. Rather than direct a trial and send the parties on the litigation route, Justice Danyliuk thought “practicality should have immediate application”.

These foundational rules were applied recently in Medve v. Medve, [2015] S.J. No. 176 (Sask. Q.B.) an oppression remedy dispute between father and son shareholders. In response to the plaintiff’s application for oppression relief, the defendant argued that for a proper determination a trial should be ordered as the issues between the parties were contentious. However, Justice Scherman was prepared to grant the plaintiff oppression remedy relief on a summary application. On his review of the sworn affidavits he was able to identify the issues in dispute and there was no significant evidentiary dispute. He also believed that a timely resolution of the dispute was important. As such, Justice Scherman held that it was appropriate to make a final decision on the issues on a summary basis. A trial was not required. His Order included disclosure of the corporation’s affairs and compensation to the plaintiff.

These decisions from the Saskatchewan Court of Queen’s Bench seem to indicate a return to the original purpose behind the oppression remedy; to provide timely relief to inter-corporate disputes. This is part of a larger trend in Saskatchewan for litigation to be proportionate in terms of time and cost with regard to the issues in dispute. This development may be particularly important for owners of small businesses who may be able to obtain relief from the Court without having to destroy their finances and their company in the process.