By Jassmine Girgis
The following abstract is from a paper forthcoming in the Canadian Bar Review and is available on SSRN.
Claiming oppression is easy. Only the low bar of unfairness must be overcome. It seems to arise from any unwelcome conduct in a (usually) closely-held corporation. It can be appended to any corporate misconduct claim. Broad statutory language governs the remedy, making it facially applicable to a broad range of conduct. In addition, the remedy is fact-based, being granted when a party satisfies the court that the corporation or its directors acted in a way that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, any security holder, creditor, director, or officer. In the face of these challenges, courts have struggled to maintain a clear set of applicable rules to govern when oppression has occurred. And, as a consequence, predicting the outcome of an oppression case is difficult.
The lack of clear guidelines exists for two reasons. In addition to the breadth of the statutory language, cases that obtain a remedy for oppression have facts that fairly evidently demonstrate unfairness or wrongful behaviour that necessitates a remedy. This allows decisions to get by without much explanation as to how the outcomes are achieved. So, while courts have expounded on the rules and limitations applicable to assess the harm suffered by a complainant, and several implicit rules and limitations can be identified in the cases, there is more of a “grab-bag” of rules than overarching principles. Specifically, there is no way to determine the level or type of harm that is necessary to demonstrate oppression.
In 2008, in BCE Inc., Re, 2008 SCC 69, the Supreme Court of Canada articulated a two-step framework for the oppression remedy. This framework for analysing cases built on the existing jurisprudence and attempted to inject a straightforward approach into an area known for its ambiguity and lack of clarity. First, it requires a court to determine whether a complainant’s expectations are reasonable. Second, if the complainant’s expectations are reasonable, the complainant will be entitled to a remedy if breach of those reasonable expectations is oppressive, unfairly prejudicial or unfairly disregarding of its interests. The first step of the BCE test and its application are unambiguous and straightforward, but the second step has done little to provide courts with guidance on how to approach these cases.
The BCE test can be enhanced by making two changes. By doing so, this area of law can become more structured, more transparent and less ambiguous.
First, the test needs to clearly articulate how a claimant is eligible to be considered under the BCE test. I suggest the implementation of two principles to streamline this process. These principles derive from the “grab-bag” of rules mentioned above, but they are more structured. The first principle is that the complainant must experience harm arising from its relationship with the corporation, and the harm must be particular to the complainant’s interests. The second principle is that other remedies cannot be capable of addressing this harm.
Once a complainant is determined to be eligible, and that its reasonable expectations were breached, the second step in the BCE test must be met; the complainant must show that the breach of its reasonable expectations meets one of the three statutory components. The problem is that the BCE court failed to clarify and define the harm that must be suffered by a complainant to successfully allege oppression; it failed to show how to meet the second step. To that end, I suggest that the second part of the approach must comprise of discussing the effect of the impugned conduct on a complainant, to show how prejudicial conduct or conduct that disregards the complainant can become conduct that is “unfairly prejudicial” or that “unfairly disregards” the complainant. The legislation does not define the statutory components and the Supreme Court maintained that they cannot be “conclusively defined”, which is correct, as they are simply descriptors of inappropriate conduct. Absent a definition, however, guidelines on how to meet these tests are necessary. Although conduct will meet the statutory tests on a case-by-case basis, depending on the facts and the context, rather than by ascribing legal meaning to the statutory tests, one can nonetheless articulate principles to guide courts in their analysis. Specifically, identifying what effect of the conduct on the complainant is necessary to satisfy the test will clarify the courts’ analysis of why certain behaviour meets the statutory tests, and other behaviour does not.
By implementing these changes, courts can achieve greater clarity in oppression remedy cases.
Jassmine Girgis is an Associate Professor of Law at the University of Calgary.