The derivative action or oppression remedy has been interpreted by courts as imposing a general standard of “fair” conduct on each corporation and its management. When this standard has been breached, complainants may apply to court for an order rectifying the oppressive conduct. The court may make any order it thinks fit, including awarding money damages, appointing a receiver, dissolving the corporation, forcing the acquisition of securities and amending charter documents.
A derivative action empowers complainants to commence an action on behalf of the corporation to remedy alleged wrongs done to the corporation itself (although, in certain circumstances, the complainant can request that any damages awarded be paid to current or former shareholders). If the relief sought is for the benefit of the corporation, then the action will most likely have to be brought as a derivative action, and leave will be required.
With leave of the court, a derivative action may be brought by a “complainant,” which includes shareholders and former shareholders; directors or former directors; officers or former officers of the corporation or any of its affiliates; or any other person who in discretion of the court is a proper person to bring the action (s.245 of Ontario Business Corporation Act (OBCA)).
In order to commence a derivative action, one must obtain leave of the court prior to commencing said action. That is, the court must allow for the action to proceed. This often expensive and time-consuming procedural hurdle has in certain cases led complainants to seek to frame alleged wrongdoing against a corporation as personal in nature in order to seek relief under the oppression remedy instead.
Under section 248 of the OBCA and Section 241 of the Canada Business Corporation Act (CBCA), the shareholder (the complainant) has the right to apply to a court of competent jurisdiction for relief if any act or omission by a corporation or any affiliate or by the directors is oppressive or unfairly prejudicial to or unfairly disregards the interest of any shareholder, creditor, director, or officer, if the business or affairs of the corporation or any affiliate are conducted in a manner that has this effect.
To claim oppression, a plaintiff must plead it suffered personal harm distinct from that suffered by the corporation itself. The focus of the oppression remedy is on the effects of the impugned conduct on the complainant, not the corporation.
The causes of action can overlap where the corporation is small and closely-held and where the impugned conduct directly affects the complainant in a way that differs from the effects on other shareholders. In such cases, a claim may be brought either as a derivative action or as a claim for oppression.
There is no minimum percentage of shareholdings that a shareholder must own before it can avail itself of the remedies under corporate legislation. Any shareholder of any amount can commence action in the Superior Court for relief where the shareholder believes the actions of the corporation are oppressive to it, where financial disclosure is refused to the shareholder or where the corporations’ actions are unfairly prejudicial to the shareholder.
