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Corporations, Partnerships & Associations Law - Corporations - Oppression remedy - Powers of the court

Thursday, July 21, 2016 @ 8:00 PM  


Appeal by 1043325 Ontario, through its principal, Skene, from a partial oppression judgment and remedy in its favour. Skene, through the corporate appellant, was one of two shareholders of a private company, the respondent CSA, an engineering consultancy. Skene held 44 per cent of the shares of CSA. The respondent Jeck held the remaining 56 per cent. Jeck served as the sole director of CSA. Skene filed a petition for an oppression remedy based on Jeck’s conduct. Skene alleged Jeck collected excessive management fees without declaring dividends, breached his fiduciary duty to CSA, misled Skene regarding CSA’s financial condition, failed to provide information, forged Skene’s signature on corporate waivers and resolutions, and forged Skene’s signature on engineering reports. The trial judge found that any oppression was limited to the allegations related to CSA’s financial condition, the failure to provide information, and forgeries of corporate resolutions and waivers. The trial judge ordered Jeck to purchase Skene’s shares at fair value. With respect to the remaining allegations, the trial judge found that they were either personal in nature, out of time, or did not amount to oppressive conduct. Skene appealed on the basis the trial judge erred in failing to find oppression or unfair prejudice with respect to the remaining allegations.

HELD: Appeal allowed in part. The trial judge did not err in finding that the use of Skene’s signature and stamp on engineering reports gave rise to a claim personal to Skene rather than an oppression claim by his company, or as a shareholder qua shareholder. The forgeries were capable of redress in tort or contract and had little connection to the web of interests and expectations between shareholders and CSA. The trial judge erred in failing to find that the excessive management fees Jeck caused CSA to pay him gave rise to unfair prejudice or oppression. The collection of management fees in a closely held corporation disregarded Skene’s interest as a minority shareholder and was tied to the disregard of Skene’s reasonable expectations regarding CSA’s financial position and his participation in CSA’s earnings. Skene suffered particular prejudice or damage arising from Jeck’s appropriation of CSA’s earnings and was not required to sue derivatively for recovery. The excess fees totaled $566,058, leading to a reasonable expectation that Skene would receive its minority share thereof as dividends. The Court requested submissions regarding how to structure the payout, failing which an order would direct payment by Jeck to Skene.