On July 13, 2017, the Supreme Court of Canada (SCC) unanimously reaffirmed that a corporation’s directors may be personally liable in an oppression action, and set out the criteria for imposing personal liability. In Wilson v. Alharayeri, 2017 SCC 39, the SCC confirmed that the two-pronged test from Budd v. Gentra Inc., 1998, 43 B.L.R. (2d) 27 should be used, and elaborated on its application.
The first prong requires the oppressive conduct to be attributable to the individual director.
The second prong requires an analysis of four principles used to determine whether or not the imposition of personal liability is appropriate in the given circumstances.
A personal remedy must be “fair”, with fairness being determined by the presence of several indicia, including whether:
- the directors obtained a personal benefit from their conduct,
- the directors’ conduct increased their personal control of the corporation,
- the directors breached a personal duty as a director,
- the directors’ corporate power was misused, and
- if a remedy against the corporation would prejudice other security holders.
Although personal benefit and increased personal control are hallmarks of conduct attracting personal liability, neither are necessary conditions. Similarly, while bad faith is not required, it also remains an important consideration.
The personal remedy should only rectify the injustice between the parties and nothing more.
As in all oppression actions, the order may only vindicate the reasonable expectations that the aggrieved party held in their capacity as corporate stakeholders.
Finally, the court should consider the corporate law context in exercising its remedial discretion pursuant to section 241(3), whereby an order cannot be a substitute for other appropriate forms of relief.
The case is significant, as it provides the clearest guidance yet to directors as to when they can face personal liability for corporate oppression. Case law following Budd v. Gentra had gone in several directions, and this case provides a unified national approach to this issue.