Recently, in Dubois v. Milne, the B.C. Court of Appeal considered a claim for an oppression remedy in the wrongful dismissal context.
The oppression remedy is a powerful way of addressing misconduct that has harmed a “shareholder.”
(2) A shareholder may apply to the court for an order under this section on the ground
(a) that the affairs of the company are being or have been conducted, or that the powers of the directors are being or have been exercised, in a manner oppressive to one or more of the shareholders, including the applicant, or
(b) that some act of the company has been done or is threatened, or that some resolution of the shareholders or of the shareholders holding shares of a class or series of shares has been passed or is proposed, that is unfairly prejudicial to one or more of the shareholders, including the applicant.
Practically anyone may apply for an oppression remedy, including former employees who do not actually hold shares.
This is because section 227(1) of the Business Corporations Act defines “shareholder” for this purpose as including “any other person whom the court considers to be an appropriate person”.
The oppression remedy gives courts broad, equitable jurisdiction to enforce not just what is legal but what is fair.
Dubois v. Milne arose from a friendship that soured.
In 1996, Mr. Carey Milne incorporated Lucid Distributors Inc., a wholesale distributor of pet food and supplies.
In 1997, he asked Mr. Kelvin Dubois and his wife each to purchase 100 non-voting chares, or 5% of Lucid’s shares. They did so. This allowed them to proportionally share in Lucid’s net income.
In 1997, another investor (W.Sons) purchased 800 non-voting shares, and became entitled to 40% of Lucid’s net income. The shareholders entered into a shareholders’ agreement.
It set Milne’s annual salary at a maximum of $60,000.
In 1998, Milne approached Dubois to come to work with Lucid. Dubois did so.
In 2000, W. Son’s ended its investment in Lucid. It sold its shares back to Milne.
Milne then sold those shares to Dubois. This resulted in Dubois holding a 45% interest.
The business grew and paid out dividends until 2006, when a decision was made to retain earnings for future growth.
Milne began to work less, generally coming in only a couple of days per week.
Dubois increasingly took a greater role in the business. In 2009, his annual salary rose to $100,000.
Milne’s annual salary remained at $60,000.
Dubois’ interests as an employee were closely intertwined with his interest as a shareholder. He worked long hours and conducted himself as an owner would.
In 2009, Milne was hospitalized.
After his release, he became very controlling and began to micromanage Lucid. He made disparaging comments about Dubois and avoided him.
In January, 2011, Milne dismissed Dubois.
After Dubois’ dismissal, Milne appointed himself to three new positions and tripled his salary. He withheld dividends for two years.
The court found that Milne took these steps to force Dubois out of Lucid.
Dubois brought a wrongful dismissal action.
The parties settled the wrongful dismissal.
But there remained the issue of what was to happen with Dubois’ 45% shareholding.
Dubois claimed that Lucid had been conducted, or its directors’ powers had been exercised, in a manner oppressive or unfairly prejudicial to him.
He asked the court to order Milne (rather than Lucid) to purchase the shares held by Dubois.
After a nine day trial, a B.C. Supreme Court judge agreed that Milne had engaged in oppressive conduct. The judge ordered Milne to purchase Dubois’s shares at a value to be determined.
The Court of Appeal dismissed the appeal.
It affirmed that the affected shareholder’s “reasonable expectations” is the cornerstone of the oppression remedy.
Dubois reasonably expected to have continued employment with Lucid, to receive dividends reflecting Lucid’s income, and that Milne’s salary would be restricted to the $60,000 provided for in the shareholders’ agreement.
The Court of Appeal upheld the order requiring Milne to personally purchase Dubois’ shares, quoting from an Ontario decision:
Courts will make oppression orders against directors personally in cases involving small, closely held companies, where the director whose conduct is under review was the sole controlling owner and directing mind of the company, and where the conduct in question has redounded directly to that person.
Chief Justice Bauman observed:
Milne was the controlling mind of this small, closely held company, and benefited from the oppressive conduct through substantial salary increases.
This case affirms that wrongful dismissal by itself does not justify a finding of oppression.
However, when an employee’s interests are closely intertwined with his or her interest as a shareholder, and his or her dismissal is part of a pattern of excluding that person from participating in the business, the dismissal may give rise to an oppression remedy.
The principal may also be held personally liable.
This is a modified version of a October 11, 2020 article appearing in online publications including the Kelowna Capital News. The content of this article is intended to provide very general thoughts and general information, not to provide legal advice. Advice from an experienced legal professional should be sought about your specific circumstances. We may be reached through our website at inspirelaw.ca.