Source: http://isthatlegal.ca/index.php?name=Corporations
Timestamp: 2019-04-21 06:27:51+00:00

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Corporations are entirely creatures of statute, both at the Ontario level (the Business Corporations Act, commonly the 'OBCA') and the federal level (the Canadian Business Corporations Act, or the 'CBCA'). As well, there are other corporate statutes dealing with non-profits, co-operative corporations, condominiums and others.
Most litigation deals with the business corporate forms, and that is the present focus of the guide.
 There can be no doubt that Beamish was the directing mind and caused the misappropriation and misrepresentation by 647 and the ensuing unjust enrichment. He had sole signing authority over the accounts and authorized the transfer of significant amounts of money, which were supposed to be dedicated to the payment of utility bills, to an Operating Account in the names of himself and a company of which he was the sole shareholder. He expressly directed and caused the wrongful act. Applying the correct test, in these circumstances, effect should be given to the second and third grounds of appeal. There was an unjust enrichment and the corporate veil should be pierced.
 Directors must serve the corporation selflessly, honestly, loyally, and in good faith; they must avoid abusing their position to gain personal benefit: Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII),  3 S.C.R. 461, at para. 35. These fiduciary duties flow from the trust and confidence shareholders repose in the directors to manage the corporation’s assets, including those transferred to the corporation by the shareholders: Peoples, at paras. 34-35.
 As a result, a director owes a corporation a fiduciary duty to act honestly, which includes a duty to disclose material information: see, generally, Kevin P. McGuinness, Canadian Business Corporations Law, 2d ed. (Markham, Ontario: LexisNexis Canada Inc., 2007), at §11.40; 484887 Alberta Inc. v. Faraci, 2002 ABQB 406 (CanLII), 311 A.R. 355, at para. 28, citing Jackson v. Trimac Limited, 1994 ABCA 199 (CanLII), 20 Alta. L.R. (3d) 117, at p. 5.
 Directors owe their fiduciary obligation to the corporation: Peoples, at para. 43; BCE, at para. 66. And, in BCE, the Supreme Court of Canada noted that “[n]ormally only the beneficiary of a fiduciary duty can enforce the duty”: para. 41. The court acknowledged this could work a harsh result because “the directors who control the corporation are unlikely to bring an action against themselves for breach of their own fiduciary duty”: para. 41. However, in light of the availability of several other remedies to shareholders – such as the oppression remedy, a derivative action, or an action based on a director’s duty of care – the Supreme Court has resisted characterizing corporate stakeholders as the beneficiaries of directors’ statutory fiduciary duties: Peoples, at para. 53; BCE, at paras. 42-45.
 That said, a director may owe an ad hoc fiduciary duty to a shareholder, especially in “situations involving a family or other close special relationships of trust and dependency between the claimant and the defendant director, in which the director was seeking to take advantage of that relationship for personal gain or profit”: Kevin McGuinness, Canadian Business Corporations Law, Second Edition, at §11.194; Harris v. Leikin Group Inc., 2013 ONSC 1525 (CanLII), at para. 401-2; affirmed 2014 ONCA 479 (CanLII). However, although the respondents pleaded the existence of an ad hoc fiduciary duty owed by Roberts to Shnaider and Shyfrin, the trial judge made no factual findings that such a duty arose in the circumstances.
(n) an order requiring the trial of any issue.
 Turning to the merits of the oppression ground of appeal, this court has recognized that the oppression remedy contained in s. 248 of the OBCA is a “flexible, equitable remedy that affords the court broad powers to rectify corporate malfeasance”: see Unique Broadband Systems, Inc. (Re), 2014 ONCA 538 (CanLII), 121 O.R. (3d) 81, at para. 107. The granting of an oppression remedy is a discretionary decision.
 In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69,  3 S.C.R. 560, the Supreme Court addressed the oppression provision found in the Canada Business Corporations Act, R.S.C. 1985, c. C-44, which is similar to the provision found in the OBCA. At para. 68, the Court outlined the following two-step test: (1) Does the evidence support the reasonable expectations asserted by the claimant? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
[T]he concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive. In the context of whether it would be “just and equitable” to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.
 In my view, an oppression remedy claim under the OBCA is subject to the general two-year limitation period prescribed by s. 4 of the Limitations Act, 2002. Oppression is not listed under s. 16 as a claim to which no limitation period applies, nor is it exempted under s. 19 of the legislation. Special circumstances are also not available to extend the limitation period.
 I am also of the view that this is not a case where there is ongoing oppressive conduct. The sale was a singular event that occurred many years ago. The refusal to produce documents was made known to the appellant in 2008. It is true that no production was made until this proceeding was commenced, but the continuous refusal to produce documents does not operate to extend the limitation period any more than a refusal to pay an outstanding amount in a collection action extends the limitation period until payment is received. As previously mentioned, limitation periods begin when the cause of action arises, not when it is remedied: Fracassi, at para. 273.
 Courts must be careful not to convert singular oppressive acts into ongoing oppression claims in an effort to extend limitation periods. To do so would create a special rule for oppression remedy claims.
 A party that engages in a series of oppressive acts can always make the argument that it is all part of the same corporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. In analyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that any threatened or actual conduct that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of any complainant can constitute a discrete claim of oppression. The oppression remedy section of the OBCA is drafted in the broadest possible terms to respond to the broadest range of corporate malfeasance.
 To reiterate, Budd provides for a two-pronged approach to personal liability. The first prong requires that the oppressive conduct be properly attributable to the director because he or she is implicated in the oppression (see Budd, at para. 47). In other words, the director must have exercised — or failed to have exercised — his or her powers so as to effect the oppressive conduct (Sidaplex, at p. 567; see also Budd, at paras. 41-44, citing Gottlieb v. Adam (1994), 1994 CanLII 7345 (ON SC), 21 O.R. (3d) 248 (Gen. Div.), at pp. 260-61).
 But this first requirement alone is an inadequate basis for holding a director personally liable. The second prong therefore requires that the imposition of personal liability be fit in all the circumstances. Fitness is necessarily an amorphous concept. But the case law has distilled at least four general principles that should guide courts in fashioning a fit order under s. 241(3). The question of director liability cannot be considered in isolation from these general principles.
 First, “the oppression remedy request must in itself be a fair way of dealing with the situation” (Ballard, at para. 142). The five situations identified by Koehnen relating to director liability are best understood as providing indicia of fairness. Where directors have derived a personal benefit, in the form of either an immediate financial advantage or increased control of the corporation, a personal order will tend to be a fair one. Similarly, where directors have breached a personal duty they owe as directors or misused a corporate power, it may be fair to impose personal liability. Where a remedy against the corporation would unduly prejudice other security holders, this too may militate in favour of personal liability (see Koehnen, at p. 201).
iv) The director acted in good faith and did not obtain a personal benefit.
 In general, the first and fourth scenarios will tend to be clear-cut. If the director has acted in bad faith and obtained a personal benefit, it is likely fit to hold the director personally liable for the oppression. On the other hand, where neither element is present, personal liability will generally be less fitting. The less obvious cases will tend to lie in the middle. In all cases, the trial judge must determine whether it is fair to hold the director personally liable, having regard to all the circumstances. Bad faith and personal benefit are but two factors that relate to certain circumstances within a larger factual matrix. They do not operate to the exclusion of other considerations. And they should not overwhelm the analysis.
 Further, even where it is appropriate to impose personal liability, this does not necessarily lead to a binary choice between the directors and the corporation. Fairness requires that, where “relief is justified to correct an oppressive type of situation, the surgery should be done with a scalpel, and not a battle axe” (Ballard, at para. 140). Where there is a personal benefit but no finding of bad faith, fairness may require an order to be fashioned by considering the amount of the personal benefit. In some cases, fairness may entail allocating responsibility partially to the corporation and partially to directors personally. For example, in Wood Estate, a shareholder made a short-term loan to the corporation with the reasonable expectation that it would be repaid from the proceeds of a specific transaction. Those proceeds were instead applied to corporate purposes, as well as to repayment of the loans made to the corporation by the defendant directors and officer and by another shareholder. D.M. Brown J. held the defendant directors and officer liable for the amounts used to repay their own loans and the shareholder loan, and also ordered the corporation to pay an equal amount towards the balance of the loan. As this last example shows, the fairness principle is ultimately unamenable to formulaic exposition and must be assessed on a case-by-case basis having regard to all of the circumstances.
 Second, as explained above, any order made under s. 241(3) should go no further than necessary to rectify the oppression (Naneff, at para. 32; Ballard, at para. 140; Themadel Foundation v. Third Canadian General Investment Trust Ltd. (1998), 1998 CanLII 973 (ON CA), 38 O.R. (3d) 749 (C.A.), at p. 754 (“Themadel”)). This follows from s. 241’s remedial purpose insofar as it aims to correct the injustice between the parties.
 Third, any order made under s. 241(3) may serve only to vindicate the reasonable expectations of security holders, creditors, directors or officers in their capacity as corporate stakeholders (Naneff, at para. 27; Smith v. Ritchie, 2009 ABCA 373, at para. 20 (CanLII)). The oppression remedy recognizes that, behind a corporation, there are individuals with “rights, expectations and obligations inter se which are not necessarily submerged in the company structure” (Ebrahimi, at p. 379; see also BCE, at para. 60). But it protects only those expectations derived from an individual’s status as a security holder, creditor, director or officer. Accordingly, remedial orders under s. 241(3) may respond only to those expectations. They may not vindicate expectations arising merely by virtue of a familial or other personal relationship. And they may not serve a purely tactical purpose. In particular, a complainant should not be permitted to jump the creditors’ queue by seeking relief against a director personally. The scent of tactics may therefore be considered in determining whether or not it is appropriate to impose personal liability on a director under s. 241(3). Overall, the third principle requires that an order under s. 241(3) remain rooted in, informed by, and responsive to the reasonable expectations of the corporate stakeholder.
 Fourth — and finally — a court should consider the general corporate law context in exercising its remedial discretion under s. 241(3). As Farley J. put it, statutory oppression “can be a help; it can’t be the total law with everything else ignored or completely secondary” (Ballard, at para. 124). This means that director liability cannot be a surrogate for other forms of statutory or common law relief, particularly where such other relief may be more fitting in the circumstances (see, e.g., Stern v. Imasco Ltd. (1999), 1999 CanLII 14934 (ON SC), 1 B.L.R. (3d) 198 (Ont. S.C.J.)).
The point at which relief is justified and the extent of relief are both so dependent upon the facts of the particular case that little guidance can be obtained from comparing one case to another and I would be hesitant to enunciate any more specific principles of approach than have been set out above.
 While the scope of individual liability as distinct from corporate liability is not always clear, it is undisputed that when a plaintiff purports to sue both a corporation and individuals within that corporation (whether officers, directors or employees), the plaintiff must plead sufficient particulars which disclose a basis for attaching liability to the individuals in their personal capacities: Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 1998 CanLII 2447 (ON CA), 37 O.R. (3d) 97, at p. 102.
- personal liability of corporate principal: Truckers Garage Inc. v. Krell (1993), 3 C.C.E.L. (2d) 157, at para. 40.
Unique Broadband Systems, Inc. (Re), 2014 ONCA 538 (CanLII), see para 70+ re 'business judgment rule'.

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