In Susi v. Bourke, 2014 O.J. No. 11

A Summary

In Susi v. Bourke, [2014] OJ No 11, the Ontario Superior Court of Justice held that when all of the directors of a corporation fail to comply with their fiduciary duties, none of them can seek a remedy for oppression.

The case centred on a corporation, Professional Painting & Decorating Inc. (“PPD”), that had been run as a family business for many years. In 2005, PPD’s bookkeeper (the plaintiff Susi) approached the owner and operator (the defendant Bourke) about purchasing the business. Although various purchase and sale agreements were negotiated and oral agreements entered into, the sale of the business was never completed. While negotiations continued, both Susi and Bourke participated in running the business and Susi became both a director and shareholder. PPD paid salaries and benefits to both Bourke and Susi, which the trial judge determined it was financially incapable of doing. The business encountered significant financial difficulties and, while Susi was on a personal leave of absence, Bourke caused PPD to make an assignment in bankruptcy and then established his own business which was essentially the successor to PPD. Susi sought damages by way of the oppression remedy and Bourke counterclaimed also seeking damages for oppression.

In reviewing the chronology of events that led to PPD’s assignment in bankruptcy, the court noted that both Susi and Bourke continued to draw a salary from the company despite its worsening financial position and that paying themselves put creditors at risk. It found that this was a conflict of interest given the parties’ duties as directors. Moreover, Susi kept vital financial information (a significant debt to CRA and cash flow problems) from Bourke and Bourke made no meaningful inquiries about the financial condition of PPD until it was too late. The court concluded that it was the directors’ neglect and breach of fiduciary duties that led to PPD’s financial crisis and collapse: “[h]ow, then, can either claim oppression? Reasonable expectations cannot be based on neglect or breach of fiduciary duty when such involves both parties although independent of the other.” The directors’ breach of their fiduciary duties was fatal to their claim and counterclaim for oppression.

The court went on to analyze the oppression claim of both parties in the event that it was mistaken that the breaches of fiduciary duty disentitled either party to recovery. It concluded that neither party had established that their expectations were reasonable in the circumstances, noting that the parties’ expectations were based on wilful blindness and the failure to perform any due diligence as to PPD’s future prospects. Having so concluded, the court did not need to consider whether there was a breach of reasonable expectations and whether any breach was oppressive, unfairly prejudicial to or unfairly disregarded either of the parties’ interests.

Moreover, there was no need to consider the appropriate remedy (i.e., what would the oppressed party’s position  be but for the oppressive conduct) although the court’s conclusion that neither party was entitled to relief due to its own failure to fulfil its fiduciary duties could have been dealt with in this context; neither party should be entitled to relief because, even on a finding of oppression, he/she had likewise breached his/her duties to PPD and therefore contributed to its downfall.

Susi v. Bourke serves as an important reminder that oppression is an equitable remedy “seeking to ensure fairness 
… [t]he discretion can only be exercised to rectify the oppression, not to punish or support a different remedy.” A party cannot come to court with unclean hands seeking damages to redress a perceived unfairness.