Friday, 6 July 2012

Oppression Remedy Can Be Assigned to a Purchaser

Under the B.C. Business Corporations Act, the oppression remedy is a statutory cause of action available exclusively to registered and beneficial shareholders and other persons who the court finds "have an interest that is not dissimilar to that of a shareholder."  As previously discussed, the oppression remedy is not available to directors.  

Other provinces have adopted the Canada Business Corporations Act model, under which the oppression remedy is available to a much broader class of persons.  For example, under the Ontario Business Corporations Act, the remedy is available to a current and former "registered holder or beneficial owner ... of a security of a corporation or any of its affiliates, ... a director or an officer or a former director or officer of a corporation or of any of its affiliates, ... any other person who, in the discretion of the court, is a proper person...".

What neither statutory model expressly addresses is whether the oppression remedy, as a cause of action, can be assigned or sold together with the interests of the complainant, such as upon a sale of a minority shareholding.  In other words, can the new owner sue for oppression to the previous owner's shareholder interests?  In Ma v. Ma, 2012 ONCA 408, the Ontario Court of Appeal answered this question with an unequivocal "yes!":
... the assignment of the shares together with the cause of action is valid and the appellant assignee is entitled to proceed with the oppression action. ...
The court grounded its decision in the following passage from Trendtex Trading Corporation and Another v. Credit Suisse, [1980] Q.B. 629, aff'd [1981] 3 All E.R. 520 (H.L.):
The court should look at the totality of the transaction.  If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest [there is no requirement that the property right or interest would have to pre-exist the transfer] or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit [the commercial interest would pre-exist the assignment], I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.

On the facts of this case, the court found that:
While it is correct to say that the appellant did not have a pre-existing legitimate interest in enforcing the oppression claim, it is clear from the assignment document that the shares, the contractual rights that accompanied them, and the oppression claim incident to these property rights were assigned in writing to the appellant by the [seller].
The court found that the cases relied on by the lower court in dismissing the claim were distinguishable because they involved "the purchase of publicly traded shares on the open market for their fair market value and with no assignment of other rights accompanying the purchase", and therefore no assignment of the oppression remedy.  The fact that the assignment was for $1 did not affect the result:
[37]      In this case, the corporation is privately held. The investment agreement, which gave rise to the property interest in the shares, and the attendant cause of action were transferred for $1. If the allegations of oppression are true, meaning that the majority is not honouring its obligations to the minority shareholder, the shares are not worth any more than $1 unless a successful oppression remedy can be prosecuted.
* * *
[39]         While a successful oppression remedy might be viewed as a windfall to the appellant because she has only paid $1, she has assumed the risk of the litigation and she might come away with nothing. It is not for this court to decide whether the bargain struck between Kam and the appellant was an appropriate one. There is no double recovery or windfall here. The appellant’s claim does not “savour of maintenance”
It is not clear, of course, what impact this decision will have in B.C.  However, two factors indicate that it may be persuasive here as well.  First, the court relied on common law principles rather than specific statutory language of the oppression remedy.  Second, for the applicable common law principles, the court relied on a B.C. decision, specifically, "the leading case in Canada on the validity of assignments of causes of action: Fredrickson v. ICBC (1986),28 D.L.R. (4th) 414 (B.C.C.A.), affirmed, [1988] 1 S.C.R. 1089".

What does this mean in practice? Aside from giving litigators a new cause of action, this should be of interest to solicitors.  Specifically, in drafting share purchase agreements, it may be a good idea to expressly include assignment of oppression remedy rights from the vendor to the purchaser.