Oppression Remedy

Ontario: Court of Appeal on the limitation of continuing oppressive conduct

The Court of Appeal decision in Zhao v. Li considers the limitation of continuing oppressive conduct.  It holds sensibly that discrete oppressive acts give rise to discrete claims (subject to discrete limitation periods):

[28]      Maurice stands for the proposition that where what is complained of is a series of singular discrete acts of oppression over a period of time, claims arising from the acts committed or discoverable within two years of the action are not statute barred, even if the series of acts commenced, and claims for earlier oppressive acts in the series were discoverable, more than two years prior to the commencement of the action. A later oppressive act, even if based on or in furtherance of earlier oppressive acts, gives rise to a new cause of action because it is new oppressive conduct: at paras. 3 and 50-54.

 [29]      Although not expressly stated in Maurice, it follows that claims arising from singular discrete acts of oppression (in a series of such acts) that are discoverable more than two years before an action are statute barred. As a result, a series of singular discrete acts of oppression that stretches over a period of time may result in some claims for oppression arising from earlier acts in the series being statute barred while claims arising from later acts in the series are not.
            (ii)        Is this a case alleging singular discrete oppressive acts?

[30]      In my view, the approach in Maurice applies because, as was the case there, what is alleged here are singular discrete oppressive acts, rather than “ongoing oppression”. I reach that conclusion for the following reasons.

[31]      A failure to distribute profits is the alleged act that underpins the profits distribution claim. It is said to have occurred beginning in June 2010. A different act, an unauthorized transfer or sale of the business without at the time of sale accounting for the proceeds, is the alleged act that underpins the sale claim. That act is said to have occurred sometime before September 3, 2011. A still different act, the unauthorized dissolution of the Corporation, is the alleged act that underpins the corporate dissolution claim. It occurred in October 2011.
[32]      These are each singular discrete oppressive acts, because they are different acts occurring at different times and because none of them is dependent upon either of the others having happened for oppression to be said to have occurred. If the respondent had failed to distribute profits but neither transferred the business nor dissolved the Corporation, the appellant would, upon discovery, have had an oppression claim for failure to distribute profits. Similarly, if the respondent had only sold the business and kept sale proceeds, or if he had only dissolved the Corporation, the appellant would still have an oppression claim for these singular discrete acts, even if none of the others occurred. As Maurice points out, conduct may consist of singular discrete acts of oppression even where  the later oppressive conduct was based on or in furtherance of the earlier oppressive conduct: at paras. 3 and 48-54.

[36]     […] The limitation period is not extended for acts of oppression that are actionable in themselves simply because a later singular discrete act of oppression occurs. As Maurice provides: “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”: at para. 49.

[37]      Nor is the limitation period extended because a complainant hopes that the oppression will be remedied: Maurice, at paras. 46-49.

There is perhaps an easier of way of approaching the issue.   If there is a discrete cause of action, there is a discrete claim.  If oppressive conduct gives rise to multiple causes of action, there are also multiple claims; this is regardless of the period over which the conduct occurs.  The basic limitation period will apply to each claim independent of the others.  This analysis applies equally to any misconduct that is continuing.

Ontario: the limitation of oppression claims

In McFlow Capital Corp. v. James, the parties disagreed on whether the Limitations Act applies to oppression claims brought under the Condominium Act and the Ontario Business Corporations Act.  The Court declined to resolve the issue.

I agree with the plaintiff, who argued, in the Court’s words, “that there is a clear jurisprudential consensus that the two year limitation period applies”.  I see no viable argument otherwise.  The Limitations Act applies to all claims pursued in court proceedings.  Whether the claim is statutory is of no relevance.

Ontario: limiting oppressive golf clubs

Noble v. North Halton Golf and Country Club is noteworthy because it’s the first decision to apply the Court of Appeal analysis in Maurice v. Alles to a claim for continuing oppression.  It will also interest people curious about the internal politics of golf clubs.

This is Justice Belobaba’s limitations analysis:

[18]         The defendant says the action is time-barred because the plaintiff has been voicing his concerns and complaints for years at shareholder meetings and otherwise about his inability to sell his Class G share and was fully aware of ongoing developments. There was nothing “new”, says the defendant, in the May and August, 2015 share sale and pricing resolutions. The defendant says that any and all claims of oppression were discovered or discoverable well before June, 2013 – that is, more than two years prior to the commencement of this proceeding. The action is therefore time-barred and should be summarily dismissed.

[19]         I do not agree. As the Court of Appeal recently noted in Maurice v. Alles,[5] where there is an allegation of continuous oppression stretching over many years, any threatened or actual conduct that is oppressive or unfairly disregards the interests of any complainant can constitute a discrete claim of oppression. And if the action is commenced within two years of this “discrete claim of oppression” that is sufficient. Here is how the Court of Appeal put it:

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.[6]

[20]         In my view, even though the plaintiff has been writing letters of complaint and voicing his concerns for many years, the share sale and pricing resolutions in May, 2015 (and again in August, 2015) raised a new and discrete claim of oppression. Indeed, as the plaintiff, noted in his affidavit, the May share pricing resolutions were “the trigger” for his statement of claim.

[21]         The actions in May, 2015 and again in August, 2015 were the first time that the defendant decided to sell treasury shares at prices that were well below the $22,000 price that was paid for the McNally family shares in 2006 or the $32,000 book value price (let alone the price based on current land values.) These decisions reduced the capital of the non-golfing shareholders for the sole purpose of supporting the golfing shareholders and members. By reducing and redistributing shareholder equity, the defendant breached its duty, says the plaintiff, to be even-handed in its treatment of all shareholders and not to oppress the minority who did not play golf.

[22]         The discrete acts of alleged oppression occurred in May and August of 2015. The action was commenced on June 15, 2015. The action is obviously not time-barred. The defendant’s motion is dismissed.

Ontario: The limitation of continuing oppression claims

In Maurice v. Alles, the Court of Appeal confirmed that a claimant must commence an oppression remedy claim within two years of the discovery of the claim.  Conduct that is in furtherance of, or based on, earlier oppressive conduct is new oppressive conduct that gives rise to a new cause of action, and therefore a new “claim” within the meaning of the Limitations Act, and is subject to its own limitation period.

These are the material paragraphs:

[52]      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.

[53]      Where the motion judge erred was in failing to carefully scrutinize the respondents’ conduct to determine whether there were any discrete acts of oppression within the two-year period prior to the commencement of the cross-application.

This is all very sensible.  Discrete causes of action give rise to discrete “claims” within the meaning of the Limitations Act, and accordingly are subject to discrete limitation periods.

The problem with this decision is that it rejects a comprehensive limitations analysis (eg, whether there is a new “claim” within the meaning of the Limitations Act) in favour of a cause of action analysis.  Justice Hourigan states, in paragraph 48, “As previously mentioned, limitation periods begin when the cause of action arises, not when it is remedied”.

This is plainly wrong.  Limitation periods commence on discovery of a claim, and discovery is completely unconnected to the accrual of a cause of action.  The words “cause of action” do not appear in the Limitations Act, and it often happens that the basic limitation period commences before the claimant’s cause of action accrues.  The basic limitation period commences presumptively on the date of the events giving rise to the claim.  A cause of action, at least in tort, requires actionable conduct and damage; whenever the actionable conduct (the events giving rise to the claim) and the resulting damage occur on different dates, the limitation period commences presumptively before the claimant’s cause of action accrues.

It’s troubling that this aspect of the limitations scheme is consistently misunderstood by the Courts.  The effect is to undermine the scheme’s conceptual integrity, and bad law.

The other interesting aspect of the decision is the following paragraph:

[46]      The appellant had an obligation to commence a claim based on the respondents’ failure to produce the information regarding the share transaction within two years of his discovery that they would not produce it to him.  It is not open to this court, as was suggested by the appellant, to look behind his non-action and excuse it based on the fact that this was a family business or that he had a reasonable expectation that the information would eventually be produced. Such an approach would effectively mark the return of the special circumstances doctrine, which has no application under the current limitations regime.

It seems to me that the fact that a dispute arises within the context of a family business or that the claimant has a reasonable expectation that certain information will be produced is relevant to a section 5(1)(a)(iv) analysis under the Limitations Act.  Consider Justice Juriansz’s description of the section 5(1)(a)(iv) requirement in Clarke v. Faust: “That provision requires, in my view, a person to have good reason to believe he or she has a legal claim for damages before knowing that commencing a proceeding would be an appropriate means to seek to remedy the injury, loss or damage.”  Surly there is a persuasive argument that it may take longer for a person to have a good reason to believe she has a legal claim against a family member than against someone else.

 

 

Ontario: The oppression remedy and the limitation period

In Maurice v. Alles et al., Justice Patillo provides a helpful summary of the principles governing the commencement of the limitation period in an oppression claim. It commences on the date the oppression first arises; the fact that the oppression is continuing will not delay commencement:

[54]        In Fracassi v. Cascioli, 2011 ONSC 178 (CanLII), 2011 ONSC 178 (Ont. S.C.), Pepall J., as she then was, held that pursuant to the Limitations Act, the applicable limitation period for an oppression claim begins two years after the day on which the claim for oppression was discovered. In reaching that conclusion, the learned judge relied on the following passage from Professor Koehnen’s text at p. 57:

 

Ordinarily, limitation periods begin from the time the plaintiff knows or ought to know of his cause of action. The fact that certain types of oppression continue until they are rectified has given rise to unusual results with respect to limitation periods. In Hart Estate v. Legacy Farms Inc., [1999] B.C.J. No. 312, the plaintiff complained of oppression in respect of a share issue that was completed more than six years before the action was commenced. The plaintiff knew about the share issue when it occurred. The British Columbia Supreme Court held that the claim was not caught by the Limitations Act because oppression continues until it is rectified. Manitoba courts have reached the opposite conclusion and have held that limitation periods do apply even to continuing conduct. This is generally the preferable approach. The concept that the limitation period does not begin to run until the oppression is remedied is counter-intuitive. Limitation periods begin when the cause of action arises, not when it is remedied. A limitation period for a breach of contract begins when the contract is breached, not when the breach is corrected. The idea that limitation periods begin to run when the oppression stops makes even less sense given the requirement of some courts that the oppression continue until the action is commenced. The combination of these two rules would result in an absurd situation. In essence, the limitation period does not begin to run until the oppression stops. But once the oppression stops, the plaintiff has no cause of action.

 

[55]        While at first blush, the above two excerpts from Professor Koehnen’s text appear contradictory, in my view they are not. The examples in the excerpt relied upon by Robert presuppose that the aggrieved shareholder was not aware of the oppressive conduct giving rise to the damage until sometime later. In that regard, the conduct is continuing. While the act of oppression may be ongoing, I agree with Pepall J. that such continuation does not operate to extend the limitation period beyond the time of two years from discovery.

[56]        There is no question that there are cases where the court has referred to the “ongoing” or “continuing” nature of the conduct to defeat a limitation period argument. See: Waxman v. Waxman, 2004 ONCA 39040 (C.A.) at paras. 534-536; Metcalfe v. Anobile, 2010 ONSC 5087 (CanLII), 2010 ONSC 5087 (Ont. S.C.). When the facts of those cases are viewed closely, however, it is discoverability that is the key factor in determining when the limitation period begins to run.

[57]        A claim for oppression can arise from many different factual situations. It is not until the plaintiff becomes aware of the material facts upon which a claim for oppression can be based that the limitation period will begin to run in respect of that claim. Similarly, if at some later point the plaintiff learns of other oppressive conduct that he or she was not otherwise aware of, the limitation period in respect of a claim for oppression relating to that conduct would only begin to run from the time the material facts giving rise to that claim became known.

Ontario: Discovery of damage in an oppression claim

From Justice Newbould comes Solar Harvest Company v. Dominion Citrus Limited, a decision on the commencement of the limitation period for the oppression remedy.  This is not an especially developed area of limitations jurisprudence, and it’s of interest that Justice Newbould determined, for the purposes of section 5 of the Limitations Act, 2002, that damage in an oppression claim occurs when there is loss attributable to the alleged oppression.

The applicant Solar and Fortune owned preference shares of the respondent Dominion. Solar and Fortune sought oppression relief as a result of, among other things, a Plan of Arrangement involving Dominion that converted its business into an income trust in 2005.

The Arrangement affected Solar and Fortune as preference shareholders:

[10]           […] Prior to [the Arrangement], Dominion had had the option on the retraction of the preference shares to pay for them in common shares of Dominion or in cash, and if Dominion chose to pay for them in cash, there was no debt in priority to the preference shares and thus no concern that cash could not be paid. After the Arrangement, because there was no ability of Dominion to pay with its common shares on a retraction of the preference shares, whether Dominion had the cash to pay for the preference shares depended on whether Dominion had available cash after paying interest on the participating notes. For this reason, the applicants say they were oppressed.

Dominion objected to the application on the basis of the expiry of the limitation period. Its position was that the Solar and Fortune knew of the material facts of the alleged oppression more than two years before bringing the application. Solar and Fortune argued that they did not suffer any damage until they received a letter from Dominion refusing to redeem the preference shares and the limitation period ran from that date.

Justice Newbould noted that in the context of an oppression claim, the word “damage” in section 5 of the Limitations Act is the “condition of being worse off than if the oppressive activity had not occurred and at least some of the loss is attributable to that oppressive activity.” The damage was not Dominion’s refusal to redeem the preference shares, but the effect of the Arrangement on the ability of Solar and Fortune to have their preference shares redeemed, and a 2009 change to the participating notes to make them secured.

Should it be of interest, this is the discovery analysis:

[29]           Prior to the meetings of the shareholders and of the preference shareholders held on December 22, 2005, the preference shareholders were sent an information circular for their special meeting that included the entire information circular for the proposed Arrangement sent to the shareholders. Mr. Fortune, a chartered accountant, received this material. He was made aware that the participating notes would be issued by Dominion to Dominion Fund and was aware from the audited financial statements that the amount of the notes issued on January 1, 2006 was $19,258,000. The interest owing on that liability each year spelled doom for Dominion ever having enough cash to redeem the preference shares without being offside the OBCA solvency requirements.

[30]           As well, whereas before the Arrangement, Dominion had experienced earnings for the past four years of between $2.6 million and $1.3 million, after the Arrangement, Dominion had earnings losses each year, beginning with a loss of $2.4 million in 2006, $399,000 in 2007, $3.978 million in 2008, $2.364 million in 2009, $1.278 million in 2010, $4.152 million in 2011, $249,000 in 2012 and $357,000 in 2013. These were reported in the audited financial statements and known to Mr. Fortune. Mr. Fortune had to know that with these liabilities and losses occurring each year that the ability of Dominion to redeem the preference shares was remote.

[31]           Also known to Mr. Fortune from the audited financial statements was the amount of interest paid by Dominion to Dominion Fund each year. $2.5 to $2.7 million was paid out each year to 2009 when the rate on the notes was 13% and $881,000 was paid out 1n 2011 after the rate was reduced to 5%. In December, 2011 the participating notes were again changed to provide for another interest free holiday to the end of 2013.

[32]           In 2008 Dominion stopped paying interest on the preference shares. Mr. Fortune acknowledged on cross-examination that at that time he realized that there was something going on “that was not quite right”. Taken he was a chartered accountant, that is not a surprising statement.

[33]           In June, 2012, more than two years before this application was commenced, Mr. Fortune said that he opened negotiations with Dominion regarding the upcoming retraction date for the preference shares. He said he was told at that time that there was an issue with the participating notes taking priority over the preference shares. It would be surprising indeed if Mr. Fortune did not realize that before in light of all of the information that he had had since the Arrangement in 2005 and the change to the terms of the participating notes in 2009 that he knew about. If he didn’t know of this issue before, he ought to have, taking all of the information he had been given, but in any event, he knew of it by June 2012. He acknowledged that by that time he felt that his interests and rights or privileges as a preference shareholder had been disregarded, and that they had been disregarded by the restructuring of the notes in 2009.

[34]           Taking all of the evidence into account, I cannot help but find that Mr. Fortune well knew the material facts on which this claim is based before October 6, 2012, two years before he commenced this application. In the circumstances the application must be dismissed as being statute barred.