Law Times

Page 8 august 10, 2015 • Law Times www.lawtimesnews.com Rea v. Wildeboer Ruling offers guidance on oppression versus derivative actions By Julius MelniTzer For Law Times he Ontario Court of Appeal's decision in Rea v. Wildeboer earlier this year sug- gests that counsel should think carefully about the nature of the claims they ad- vance in corporate stakeholder litigation. "What this case tells us is that it's hard to do a wrong to a shareholder as shareholder," says Monique Jilesen of Lenc- zner Slaght Royce Smith Griffin LLP in Toronto. "So unless com- plainants have been mistreated in a personal way in a way that impacts them differently from other shareholders, they should proceed by way of derivative action and not by way of an op- pression remedy." The decision refocuses the distinction and, to some extent, restricts a series of rulings that suggested there was a significant overlap between oppression claims and derivative actions. In Rea, the court, dealing with a case involving a public company, struck an oppression claim where the allegations of insider trading and self-dealing involved harm only to the cor- poration and not to the specific interests of an individual share- holder. "Claims must be pursued by way of a derivative action after obtaining leave of the court where, as here, the claim asserted seeks to recover solely for wrongs done to a public corporation, the thrust of the relief sought is solely for the benefit of that corporation, and there is no allegation that the complainant's individualized personal interests have been affected by the wrongful con- duct," the court stated. Rea arose when the plaintiffs brought an oppression claim under s. 248 of the Ontario Busi- ness Corporations Act against Martinrea International Inc., a widely held Canadian public company that manufactures auto parts. The claim alleged the defendants, including directors and an executive of Martinrea, breached their fiduciary duties to the corporation, resulting in the misappropriation of at least $50 million of its corporate funds for their own personal benefit. The appellants argued the "somewhat murky" line be- tween oppression remedies and derivative actions had all but disappeared and that in any event, the two causes of action could overlap and weren't mu- tually exclusive. The motions judge disagreed. He struck the claim, concluding that the plaintiffs should have sought leave of the court to in- stitute a derivative action. Counsel for the defendants, Don Jack of Aird & Berlis LLP in Toronto, submitted that any relaxation in the distinction had occurred, for the most part, in cases involving small, closely held corporations. He cited the necessity for leave in derivative actions in support of his argu- ment that the distinction con- tinued to exist, noting that the requirement serves to prevent meritless suits and helps avoid multiple proceedings. Justice Robert Blair, who wrote the unanimous decision for the Court of Appeal, con- firmed that the derivative ac- tion and the oppression remedy weren't mutually exclusive. He did observe that the law was in- consistent regarding the proper procedure in the case of overlap but he noted that where courts had permitted an oppression claim to proceed even though the wrongs asserted were to the corporation, those same wrong- ful acts also directly affected the complainant in a manner that was different from the indirect effect of the conduct on simi- larly placed complainants. In the instant case, however, the plaintiffs should have pur- sued their claims by way of a de- rivative action as they sought re- lief that was solely for the benefit of the corporation and hadn't al- leged any wrongful conduct had affected their personal interests as opposed to those of the cor- poration. But the Court of Appeal of- fered little guidance for cases that did in fact give rise to a corporate claim and a personal oppression remedy, stating that "the question of whether an op- pression remedy proceeding is available will have to be sorted out on a case by case basis." For his part, Jack believes leaving the overlap issue open was appropriate. "The court did as good a job as it could do in straightening out the law bearing in mind that it did not want to restrict trial judges' discretion going for- ward," he says. LT 'What this case tells us is that it's hard to do a wrong to a shareholder as shareholder,' says Monique Jilesen. 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