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When it’s just not fair: The oppression remedy

shareholderagreementWhile organizations have broad discretion to conduct their affairs as they see fit, courts may intervene if an organization’s conduct is unfair or oppressive. A recent case involving a Saskatchewan non–profit is a brief primer on the statutory oppression remedy, and is reminder that this remedy may be available in both non–profit and for–profit corporate statutes.

The oppression remedy has been applied in a wide range of situations. For example, in for–profit organizations, it has provided relief to minority shareholders who are unfairly prejudiced by decisions of the majority shareholders. In non–profit organizations, it has provided relief in conflict of interest and other governance disputes.

Many corporate statutes include the oppression remedy, for example, in: (i) the Canada Business Corporations Act, in section 241; (ii) Ontario’s Business Corporations Act, in section 248; and (iii) the Canada Not–for–Profit Corporations Act in section 253.

The case

The following case is instructive although, or perhaps because, the complainant was unsuccessful. (See Kroczynski v Regina Soccer Association Inc., 2016 SKQB 133 (CanLII)).

Background: The complainant was the former vice–president of the Regina Soccer Association (RSA), a non–profit incorporated under The Non–profit Corporations Act, 1995 (the “Act”). Mr. Kroczynski alleged that he was forced to resign during an RSA AGM after he was subjected to a “witch hunt” in the period leading up to, and at the AGM.

Among his allegations:

  • The AGM was toxic and confrontational, forcing him to resign under duress, and preventing others from exercising their franchise.
  • There were discrepancies surrounding voter eligibility and the scrutiny and security of ballots.
  • He was unfairly targeted by proposed by-law changes that affected only him and his wife.

He sought an order under the Act, to, among other things: re–instate him as vice–president; declare by–law amendments and the election of directors null; and force the RSA to convene a special meeting to properly conduct the allegedly impugned AGM business.

The Act: The Act provides that any member or director of a corporation may apply to the court to determine any controversy respecting an election or the appointment of a director.

Among the provisions of section 225(1) of the Act, a court may make an order to rectify the matters complained of, where the court is satisfied that an act or omission of the corporation, the manner in which its activities or affairs have been have been carried out or conducted, or the manner in which the powers of its directors have been exercised:

  • is oppressive;
  • is unfairly prejudicial; or
  • unfairly disregards the interests

of any member, security holder, creditor, director or officer, or where the corporation is a charitable corporation, the public generally.

The court may make any order it considers appropriate, including, restraining a director, requiring a new election or determining voting rights.

The decision

The oppression remedy: The Court concluded that Mr. Kroczynski was not entitled to relief and outlined the essential questions, or test to be met, in an oppression claim:

  1. Does the evidence support the reasonable expectation asserted by the applicant?
  1. Does the evidence show that the reasonable expectation of the applicant was violated by conduct falling within the definition of:
    1. Oppression. This includes conduct that is “burdensome, harsh and wrongful…a visible departure from standards of fair dealing…an abuse of power going to the probity of how the corporation’s affairs are being conducted”. This is the most offensive of the three types of conduct;
    2. Unfair prejudice. This is less offensive than oppression. For-profit examples of this conduct include; paying dividends without a formal declaration or paying directors’ fees that exceed industry norms; or
    3. Unfair disregard of a relevant interest?

Applicants must prove wrongful conduct falling within one of these three categories; that the conduct caused compensable injury; and was the conduct of the corporation or those controlling it.

The Court concluded that although Mr. Kroczynski had a reasonable expectation in respect of some of the matters he raised, his interests were not unfairly prejudiced or disregarded. For example, he had a reasonable expectation that there would be proper procedures to verify voter eligibility at the AGM. However, the atmosphere at the AGM did not prevent the proper conduct of business, and ultimately, an overwhelming majority of members voted to change the agenda and the by-laws. Additionally, no one in the RSA took any actions which were oppressive or unfair or disregarded Mr. Kroczynski’s interests.

The Court also determined that Mr. Kroczynski’s actions as chair of the AGM was relevant.  As chair, his job was to maintain order, and as such, he did not have a reasonable expectation that someone else from the RSA would intervene. There was no evidence that he needed, asked for and was improperly refused help from staff or other directors. He did not take all reasonable steps he could have, for example he did not chastise unduly disruptive members during the AGM. Thus, he could not hold the RSA responsible for the outcome of a meeting that he had the authority to control, and he could not expect the Court to save him from the consequences of his own choices, at the RSA’s expense.

Apolone Gentles, JD, CPA,CGA, FCCA, Bsc (Hons)

Apolone Gentles is a CPA,CGA and Ontario lawyer and editor with over 20 years of business experience. Apolone is leveraging 20 years of business and accounting experience to build a commercial litigation practice with an emphasis on construction law. She has held senior leadership roles in non-profit organizations, leading finance, human resources, information technology and facilities teams. She has also held senior roles in audit and assurance services at a “Big Four” audit firm. Apolone has also lectured in Auditing, Economics and Business at post-secondary schools. Read more here

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