Court of Appeal Confirms Two-Year Limitation Period for Oppression Claims
May 21st, 2018
In a decision that still stands, the Court of Appeal held that oppression remedy claims under the Ontario Business Corporations Act (OBCA) must be commenced within the general two-year limitation period applicable to most civil proceedings in the province. The court did note that if a party engages in misconduct that is based on their earlier oppressive conduct or continues that previous oppressive conduct, there can be a new cause of action for new oppressive conduct.
The case involved three siblings. Beginning in the 1950s, their late father (Maurice) owned an interest in Television Antenna & Service Co (Tasco) through a holding company Kirby-Maurice Company Limited (Kirby-Maurice). Another company, Marlba Investments Limited (Marlba) owned the land on which Tasco operated, and was owned equally by Kirby-Maurice and another holding company owned by the father’s business partner (Sayer).
Maurice was restructured Tasco in the late 1970’s. Equal interests were given to each of his six children and each of Sayer’s six children. Voting control was preserved for the Maurice children by issuing 54% of Tasco’s voting preferred shares to Kirby-Maurice.
In the early 1990’s, litigated between the Maurice and Sayer families over Tasco and Marlba concluded with a settlement agreement that outlined ownership structure of both companies and stipulated that both families would enter in unanimous shareholder agreements (USAs) govern each company.
While the USAs were never executed, the parties governed themselves based on the provisions of the settlement agreement, including:
- a prohibition on the transfer of shares in either Tasco or Marlba unless the transfer was between members of the same family;
- a shareholder’s right to require the corporation to repurchase their common shares for cancellation at fair value; and
- a right of first refusal with respect to the shares sought to be repurchased by the corporation.
The Maurice siblings were each 20% owners of Kirby-Maurice. They later entered into a USA outlining their interests in that company (the KM USA). This agreement outlined a procedure for selling shares, which required a shareholder who was selling shares in Tasco or Marlba to also sell his or her shares in Kirby-Maurice.
In May 1996, one of the siblings, Donald Maurice (Donald), exercised his rights to sell his shares in Tasco and Marlba. As a result of the KM USA he also offered to sell his Kirby-Maurice shares at the same time. The sale of the shares did not close until March 2007, more than a decade after he first exercised this right.
In the interim, although he had offered to sell his shares in Kirby-Maurice, Donald remained a shareholder and director of Kirby-Maurice. A shareholders meeting was called for July 2008. The purpose of the meeting was to discuss a proposed sale of Kirby-Maurice’s shares in Tasco and Marlba. At the meeting Donald learned that:
- his siblings had sold their shares in Tasco and Marlba to a numbered company whose owner was unknown;
- Kirby-Maurice’s preferred shares in Tasco were being sold for redemption at face value;
- Kirby-Maurice’s nominees for the boards of directors of Tasco and Marlba were resigning.
Donald opposed the sale and argued that proceeding without the unanimous consent of all of the shareholders would breach the KM-USA and that his siblings should obtain a valuation before selling their shares.
Despite his objections, after Donald left the meeting, his siblings approved the sale.
After the meeting, Donald requested a valuation of his own shares in Kirby-Maurice and also requested information about how Kirby-Maurice’s preferred shares in Tasco were valued. His siblings ignored all of his requests. He took no further steps to start an oppression remedy claim.
In 2013, the siblings brought an application for the appointment of a valuator to value the issued and outstanding shares of Kirby-Maurice. In response, Donald filed a cross-application seeking (in part) relief under the oppression remedy provisions of the OBCA.
The Original Motion Decision
On a motion for summary judgment, the motion judge held that Donald’s cross-application was barred by the two-year limitation period under the Limitations Act.
The motion judge found that Donald had been aware of the facts giving rise to his oppression claim as of the shareholder’s meeting in July 2008 and noted that even if the oppression was ongoing “such continuation does not operate to extend the limitation period beyond the time of two years from discovery” and emphasized that “it is discoverability that is the key factor in determining when the limitation period begins to run.”
The Court of Appeal Decision
The Court of Appeal noted that an oppression remedy claim under the OBCA is subject to the general two-year limitation period outlined by the Limitations Act. Oppression is not listed as an exception in which no limitation periods apply, and no special consideration were present here to extend the limitation period.
The Court went on to note that the siblings’ sale of their common shares in Tasco and Marlba would not necessarily qualify as oppressive conduct. Instead, the potential oppressive conduct arose from:
- The failure of the siblings to provide Donald with the information he requested;
- The potential impact the transaction may have had on the value of Donald’s shares in Kirby-Maurice.
The Court pointed out that Donald knew in July 2008 that:
- His siblings were selling their common shares in Tasco and Marlba;
- The Tasco preferred shares held by Kirby-Maurice would be sold for redemption at face value;
- The siblings were not disclosing the information he had requested.
The Court noted that:
[Donald] had an obligation to commence a claim based on [his siblings’] 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 [Donald], 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.
The Court went on to say that if Donald had taken the steps needed to pursue the oppression remedy in order to protect his rights based on the non-disclosure in 2008, he would have also been in a position to determine whether he had a potential claim with respect to the siblings’ share sale and could have commenced a claim seeking compensation or other relief.
The Court also noted that this was not a situation where there was ongoing oppressive conduct. Rather, the sale was a singular event that had occurred many years ago and:
…the continuous refusal to produce documents does not operate to extend the limitation period any more than a refusal to pay an outstanding amount in a collection action extends the limitation period until payment is received. As previously mentioned, limitation periods begin when the cause of action arises, not when it is remedied.
The Court warned that courts must be careful not to “convert singular oppressive acts into ongoing oppression claims in an effort to extend limitation periods”.
Despite all of this, the Court of Appeal concluded that the motion judge had erred in concluding that Donald’s oppression claim was out of time since another discrete potentially oppressive act occurred in 2013 when the siblings commenced their application for an order appointing a valuator to determine the fair value of Donald’s shares in Kirby-Maurice.
According to the Court, the siblings “were in effect seeking a valuation process and payout to [Donald] that did not take into account their earlier alleged oppressive conduct.” The Court went on to find that it “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.”
In the Court’s view, the sibling respondents committed a new act of alleged oppressive conduct when they brought their application and attempted to rely upon their previous alleged oppressive conduct as part of the share valuation.
The appeal was allowed and the order dismissing Donald’s oppression remedy claim was dismissed. The parties were directed to proceed to trial on the allegation that the share sale transaction executed by the siblings was oppressive, or unfairly prejudicial to, or unfairly disregarded Donald’s interest in obtaining fair market value for his shares in Kirby-Maurice.
Financial Litigation is a boutique Toronto law firm focused on asset protection. Eli Karp represents individuals harmed by oppressive activities, and regularly advise on oppression claims. He understands what is required to defend these claims and can represent both Plaintiffs or Defendants. Contact Eli online to schedule a consultation, or by calling him at 416-769-4107 x 1.