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CORPORATIONS - Oppression remedy - Standing - Grounds

Tuesday, September 01, 2020 @ 6:25 AM  

Appeal by the defendant Milne from an order granting the respondent Dubois oppression relief and compelling the appellant to purchase Dubois’s shares in the corporation. Dubois held a 45 per cent interest as a shareholder in Lucid Distributors. The appellant owned the voting shares. Dubois was the general manager of Lucid until he was terminated by the appellant in 2011. Dubois alleged that the appellant, during and after Dubois’ termination, conducted the affairs of Lucid in a manner oppressive or unfairly prejudicial to him as a shareholder and commenced proceedings for oppression relief. The judge found the appellant engaged in oppressive conduct by terminating Dubois’s employment, failing to purchase his shares in Lucid, improperly removing funds from Lucid through significant salary increases to the appellant and by failing to pay dividends to Dubois. The judge found Dubois had a reasonable expectation that he would receive 45 per cent of the net income after taxes from Lucid, that he would have a role in Lucid’s management, that he would have employment with Lucid for as long as he had shares in Lucid and that the appellant’s salary would be restricted to $60,000 per year. The appellant argued the trial judge erred in finding that Dubois’s expectations as found by the judge were reasonable and that the remedy imposed should be the responsibility of Lucid, not the appellant.

HELD: Appeal dismissed. The trial judge made no error in finding that the company’s failure to pay dividends to Dubois in a timely manner constituted oppressive conduct. The right to annual dividends was established in the company’s articles, and Dubois had a reasonable expectation that they would be paid in a timely manner. The judge did not err in finding that the delay in paying dividends was not a matter of business judgment, but rather constituted oppressive conduct orchestrated by the appellant for putting pressure on Dubois. The judge made no error in characterizing the appellant’s conduct in substantially increasing his own salary as oppressive conduct. The judge was entitled to find that the increases in salary were designed to limit the amount of money available to pay dividends. The Shareholders’ Agreement established expectations with respect to the appellant’s salary, and the thwarting of those expectations was a factor justifying the granting of an oppression remedy. Dubois suffered prejudice and was entitled to bring an oppression action, even though parts of his claim might have been pursued by way of a derivative action. In the circumstances of this case, an individual action based on oppression was available to Dubois. It was not essential to an oppression action that the plaintiff have uniquely suffered from the oppressive conduct. The termination of Dubois’s employment was, however, not properly a factor to be considered in determining whether the appellant acted oppressively. While the appellant expressed the view that he wanted Dubois to have a vested interest in the company when Dubois acquired these shares, that statement, when placed in context, could not reasonably support an understanding that the new investment was linked to permanent employment. There was no indication that there was any discussion, when Dubois originally joined Lucid, of the security of his tenure, nor was his employment, either explicitly or implicitly, tied to his shareholding. The idea that employment would go hand-in-hand with shareholding did not appear to have been the expectation at the time Dubois made his initial investment, nor was such an understanding an element of his subsequent, larger investment. The remedy granted by the trial judge was not outside the range of reasonable outcomes and he did not act beyond his discretion in making the order that he did.

Dubois v. Milne, [2020] B.C.J. No. 1175, British Columbia Court of Appeal, R.J. Bauman C.J.B.C. and H. Groberman and B. Fisher JJ.A., July 24, 2020. Digest No. TLD-August312020004