Shareholder Remedies

• Author: J. Anthony VanDuzer
• Profession: Faculty of Law University of Ottawa
• Pages: 402-463

402

CHAPTER 10

SHAREHOLDER

R EM EDIES

A. INTRODUCTION

In previous ch apters we have discusse d various rights that sharehold-

ers have under statute, at common law, under the corporation’s articles

and by-laws, under directors’ and shareholders’ resolutions, and under

unanimous shareholders’ agreements. These rights def‌ine the entitle-

ments that shareholders have in relation to the corporation and its

directors, off‌icers, and other shareholders. The shareholder remedies

described in this chapter are mechan isms provided i n corporate stat-

utes to ensure that shareholders receive the benef‌it of those entitle-

ments. These mechanisms are important for shareholders because,

unlike some other corporate stakeholders, such as creditors, sharehold-

ers do not have contractual r ights again st the corporation or its d irec-

tors or off‌icers.1 Sh areholder remedies, however, have a broader scope

than contractual rights. Shareholder remedies do not just protect legal

rights; they can provide relief where shareholders’ economic and other

interests have been affected or shareholders have been treated unfairly.

In this regard, shareholder remedies complement other procedural pro-

1 As discu ssed in Chapter 3, under corpor ate statutes based on the Engl ish

Companies Act, s. 14, shareholders ca n sue for breach of contract where provi-

sions of the art icles or memorandum of associ ation have been breached. This i s

still pos sible under the Nova Scotia Companies Act, R .N.S. 1989, c. 81 [NSCA],

s. 24(1) and the British Columbia Bus iness Corporations Act, S.B.C. 2002, c. 57

[BCBCA], s. 19(3).

Shareholder Remed ies 403

tections for shareholders’ interests discussed elsewhere in this book,

like their abilit y to vote for the election of directors and to put matters

on the agenda for discussion at shareholder meetings through share-

holder proposals.

The initial focus of this chapter is procedural. We are concerned

with the procedure s available to shareholders to assert cl aims, rather

than the substantive bases for those claims, which, in large part, are the

subject of the previous chapters of this book. The two main procedures

through which a shareholder may assert a claim for relief are the der iva-

tive action, under which a shareholder may seek the court’s permission

to initiate a lawsuit on behalf of the corporation, and the oppression

action, which allows shareholders to seek relief where actions of the

corporation or its directors oppress the shareholder’s interests. In addi-

tion to these rights, there are some corporate law rights that belong

to shareholders personally. These may be enforced by sha reholders

through an ordinary civil suit. As discu ssed below, before the enact-

ment of t he CBCA, shareholder remed ies were limited. The derivative

action and the personal act ion were subject to certain restrictions, and

there was no oppression remedy available in most Canadian jurisdic-

tions.2 One of the major objectives of the CBCA was to provide greater

access to more effective remedies for minority sha reholders.3

The oppression remedy, however, is more than just a procedure for

making a cl aim. The oppression remedy, which we have referred to

extensively throughout the book, represents an emerging substantive

standard of behaviour that complements and overlaps with t he duties

imposed on directors and off‌icers described in Chapter 9. Increasingly,

the oppression remedy is the operative measure against wh ich all cor-

porate activities must be judged. In par t, thi s is due to the procedur al

advantages of bringing a n oppression claim.

Following a discussion of the se general remedies, we will discuss

brief‌ly the various more specif‌ic remedies found in the CBC A and stat-

utes modelled after it, including the following:

2 The oppression remedy wa s f‌irst introduced in Can ada in 1960 in the British

Columbia Companies Act, R .S.B.C. 1960, c. 67. It was interprete d narrowly until

it was amended to add, “ unfair prejudice” to “oppression” as a ground for rel ief

in 1973 (S.B.C. 1973, c. 18). Both grounds are now prov ided for in the BCBCA,

s. 227(2)(b). The Canada Business Corporatio ns Act, R.S.C. 1985, c. C-44 [CBCA],

sets a broader st andard, providing th at an action of the corporation or its d irec-

tors that is “oppres sive or unfairly prejudicial to or t hat unfairly disreg ards” the

interests prote cted under the statute entitle r elief (s. 241(2)).

3 R.V.W. Dickerson, J.L . Howard, & L. Getz, Proposals for a New Bus iness Corpora-

tions Law for Cana da, vol. 1 (Ottawa: Information Can ada, 1971) at 158–63

[Dickerson].

THE LAW OF PARTNERSHIPS AND COR PORATIONS404

 

unanimous shareholders’ agreement, and orders to rest rain a breach

of these requirements (CBCA, s. 247);

 CBCA, s. 243);

  CBCA, ss. 229–37);

          -

mental changes to the corporat ion and to have her shares bought by

the corporation for “fair value” (CBCA, s. 190); and

 CBCA, s. 214).

B. PERSONAL ACTIONS BY SHAR EHOLDERS

Owning a share carrie s with it certain right s that are clearly personal

to the holder of the shares, such as the right to vote, the right to timely

and informative notice of meetings, and t he right to in spect the books

and records of the corporation. These personal rights may derive from

the governing corporate statute, the ar ticles and by-laws of the cor-

poration, the common law,4 or a shareholders’ agreement. The major

limitation on a personal action to enforce shareholder rights is that the

most important legal constraints on directors and off‌icers, the f‌iduciary

duty and the duty of care, are not obligations owed to and enforceable

directly by shareholders. As a result, breaches of these duties cannot be

the basis of a persona l action by a shareholder.

As di scussed in the next section, in some circumstances, a share-

holder may commence a derivative action on behalf of the cor poration

for breach of these duties or for any other obligation to the corporation,

where the corporation is not taking action to pursue its own rights. This

is not an uncommon situation since, in m any cases, the same people

who have allegedly breached their duties, the directors and senior of-

f‌icers, are the people who must decide whether to cause the corpora-

tion to sue. In such a case, the directors may well have a different view

of whether t heir conduct constitutes a breach of duty. Traditionally, a

shareholder was allowed to pursue a claim on behal f of a corporation

in very limited circumstances and only with leave of the court. In these

cases, the corporation is the real plaint iff. Consequently, in order to

properly plead its claim, a shareholder had to characterize t he claim

correctly as either personal, for which it could sue directly, or derivative,

which required leave of the court.

4 In Liu v. Sung (1991), 13 C.B.R. (3d) 285 (B.C.C.A.), e.g., a shareholder was pe r-

mitted to sue a dir ector in tort and for breach of contract.