Friday, 30 March 2012

Direct Actions by Shareholders for Wrongs Done to a Company

Generally, a wrong done to a company is addressed by an action brought by the company or a derivative action under s. 232 of the Business Corporations Act, for which leave was obtained from the court.  Indeed, in numerous cases, actions for misappropriation of corporate funds or oppression claims under s. 227 have been dismissed because the damages were really suffered by the company and not the plaintiff shareholder.

That said, where a company is sufficiently small and closely held, the company and its shareholders have such an identity of interests that an oppression action for what is in effect a wrong to the company may be brought by a shareholder.  This point was recently confirmed in Hundal v. Border Carrier Ltd., 2012 BCSC 447 as follows:
[13]         The plaintiff claims that Bains and Border Carrier conducted the affairs of the company in a manner oppressive to him, contrary to s. 227 of the Business Corporations Act, S.B.C. 2002, c. 57, primarily by diverting Border Carrier’s business and earnings into Royal City. Although a diversion of this kind would amount to a wrong to the company and would usually be brought as a derivative action under s. 232 of the Act, “in a closely held corporation with a small number of shareholders, the same conduct may give rise to either or both remedies because conduct that results in a loss to the company may also have a direct impact on shareholders in their individual capacities”:  Runnallsv. Regent Holdings Ltd., 2010 BCSC 1106 [Runnalls], at para. 44.
It may be noted that, in Runnalssin support of this proposition, Mr. Justice Smith relied on Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, where the court confirmed its earlier decision in Jabalee v. Abelmark Inc., [1996] O.J. No. 260 (C.A.), that:
Equally, although some of the claims in the proposed amended statement of claim could be the subject of a derivative action, they may also make out a case of oppression.  The two are not mutually exclusive.