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Article

CBCA Oppression Remedy Extends to Non-CBCA Affiliate

Date

August 28, 2008

AUTHOR(s)

Robert D. Chapman
Edward P. Kerwin




What is the scope of the oppression remedy under Section 241 of the Canada Business Corporations Act (CBCA)? That was the question recently considered by the Ontario Superior Court of Justice.

In Manufacturers Life Insurance Company v. AFG Industries Ltd., one of the defendants, a Delaware corporation (USCo) sought an order striking out those portions of the statement of claim pleaded against it and its Canadian subsidiary, a CBCA corporation (CanCo) or, alternatively, for an order dismissing the action against USCo.

The plaintiff’s claim was that it had been oppressed as a result of the actions of USCo in causing CanCo to divest itself of all of its assets. This divestiture, the plaintiff stated, thereby impaired its ability to recover against CanCo in the event that its claim against CanCo for recovery of environmental remediation costs was successful. The plaintiff alleged it had incurred these costs as a result of CanCo’s use of the plaintiff’s property in Ontario between 1969 and 2005.

The plaintiff sought, among other things, declarations that it was a complainant under Section 238 of the CBCA, and that it had been oppressed by USCo under Section 241 of the CBCA. The plaintiff claimed that because of amounts it had expended or would expend on the remediation of its property, it was a creditor of CanCo, a CBCA corporation, that USCo was an affiliate of CanCo as defined in subsections 2(1) and (2) of the CBCA, and that USCo’s actions were unfairly prejudicial to the plaintiff or unfairly disregarded its interests as a creditor of CanCo.

USCo pleaded that the statutory cause of action created by Section 241 of the CBCA does not apply to a non-CBCA corporation, and that the plaintiff could not bring an oppression claim because it was not a creditor of CanCo. In USCo’s view, the plaintiff was at most a contingent creditor, with a claim for unliquidated damages, and would only become a creditor upon obtaining a judgment.

Who is an Oppressor?

With respect to the scope of Section 241 of the CBCA and its application to USCo, the judge determined, as described further below, that the plaintiff’s complaint was made in its capacity as a creditor of CanCo, a CBCA corporation, and that it was complaining of the conduct of an affiliate of CanCo, namely its parent, USCo, which affected the plaintiff’s interests in CanCo. In the CBCA, an "affiliate" is defined to mean an affiliated body corporate, which includes a parent corporation; "body corporate" is defined to include a company or other body corporate, wherever or however incorporated, and thus need not be a CBCA corporation. Accordingly, the court found that such claim may lie against a non-CBCA affiliate, including one that is a foreign corporation.

Who is a Creditor?

With respect to the question of whether the plaintiff was a creditor of CanCo and able to bring the action under Section 238 of the CBCA, the court relied on other Ontario decisions in asset-stripping oppression actions where the court granted to a plaintiff, who was also only a contingent creditor standing as a "proper person" and hence a "complainant," to bring an action under the oppression remedy provisions. Section 238 of the CBCA lists as a "complainant" only a security holder, a director or officer, the Director appointed under the CBCA, and "any other person who, in the discretion of a court is a proper person to make an application under this Part."

An OBCA Perspective

The court paid particular attention to the language of the oppression remedy in subsection 248(2) of the OBCA referring to conduct "that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer." It observed that this language differs from that in the CBCA, where the phrase "of the corporation" appears at the end of the longer phrase. After considering a line of other Ontario court decisions with respect to oppression remedies, the court noted that it remained an open question as to whether a security holder, creditor, director or officer of a non-CBCA affiliate — rather than of its affiliated CBCA corporation — can bring an oppression action against that affiliate, under subsection 241(2) of the CBCA, for oppressive conduct of either the CBCA corporation or the non-CBCA affiliate. The plaintiff in this case was, of course, considered to be a creditor of CanCo, a CBCA corporation. At least one of the other Ontario decisions decided that under the OBCA, the interest affected must be that of a security holder, creditor, director or officer of the OBCA corporation itself.

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