The oppression remedy under the Ontario Business Corporations Act1 is a broad remedy, that can be used in a wide range of circumstances. One of these circumstances is where a corporation has acted improperly in attempting to avoid paying a creditor. As seen in the recent Court of Appeal case of Remo Valente v. Real Estate (1990) Limited v. Portofino Riverside Tower Inc.2, it is not every creditor that can take advantage of the oppression remedy.
In Remo Valente, the plaintiff was a real estate company that had a listing agreement to sell condominium units in a project to be constructed by one of the corporate defendants, Portofino Riverside Tower Inc. (“Portofino 1”). Before any units were sold, Portofino 1 was restructured in a way that transferred its interest in the corporation out of Portofino 1 and into the hands of other related companies. The new corporate owners then locked the plaintiff out of the project, replaced it with another real estate agent. The plaintiff then sued the corporations and their principal under the oppression remedy provisions of the OBCA, as well as for breach of contract3.
Although successful at trial, the plaintiffs oppression remedy claim was dismissed on appeal by a three member panel of the Divisional Court. The Divisional Court’s decision was further upheld by the Court of Appeal. One of the issues on appeal was whether the plaintiff was a proper “complainant” under the oppression remedy. In turn, whether the plaintiff was a “complainant” depended on whether the court agreed, as a matter of law, that the plaintiff was a creditor of Portofino 1 at the relevant time. In a typical oppression case, a “complainant” will be either a security holder or a director or officer of a corporation. Section 241 of the OBCA, which defines a “complainant, also has a catch-all provision, where a person can be a “complainant” if they are “any other person who, in the discretion of the court, is a proper person to make an application [under the oppression remedy provisions]”. This has long been interpreted to include a person who is a creditor, provided there is something that satisfies the court that it is more than just a typical debtor-creditor situation. Typically, this will involve a situation where those in control of a corporation have stripped the company of its assets to render it immune from judgment.4
The Remo Valente case shows that this basic concept is not always easily applied by lawyers and judges. At trial, both the lawyer for the defendants and an experienced trial judge accepted, without challenge, that the plaintiff was a creditor, and therefore an appropriate complainant. In the trial decision,5 the trial judge approached the issue on the basis of whether the plaintiff had a reasonable expectation that the defendants would protect its interest. This, as noted by the minority concurring decision at the Divisional Court, as well as the Court of Appeal, missed, in essence, the first step of the analysis: whether the plaintiff was a true creditor at the time of the alleged oppression.
Unfortunately for the plaintiff, it was determined that it was not truly a creditor in the manner required by the oppression remedy. Under its listing agreement, the plaintiff was entitled to a 50% commission once certain conditions precedent were satisfied. Although close, all of the prerequisites were not satisfied, as no formal financing commitment had been finalized at the time of the restructuring. As such, it was only a contingent creditor at the time of the alleged oppression, and was not entitled to avail itself of the oppression remedy.
This case demonstrates one of the pitfalls that a potential plaintiff may face in bringing a claim based on the oppression remedy. While the oppression remedy is a broad remedy, that often leaves a great deal of discretion in the hands of a judge, there are a number of technical aspects to an oppression claim that must be addressed. It is often easy to get lost in considerations of the equities of a case, and lose track of the technical requirements. Care must be taken to ensure that these technicalities are not overlooked.