- Class Actions and Other Private Actions
- Corporate Litigation
- Securities Litigation
- Shareholder Litigation
In recent years, much attention has been paid to amendments to provincial Securities Acts across Canada that make it easier for shareholders to sue for misrepresentations by public companies in financial statements and other public documents. These amendments have made it easier to certify class actions brought on behalf of shareholders for damages suffered as a result of such misrepresentations, as they create a presumption of shareholder reliance and damages once a misrepresentation is proven. The anticipated proliferation of shareholder class actions as a result of these amendments has been a hot topic among lawyers and senior management for years, especially in the wake of the 2009 certification of a shareholder class action against IMAX Corporation.
During this period significantly less attention has been paid to whether shareholder class actions might be brought under another and potentially much broader statutory remedy: the oppression remedy under one of the provincial or federal business corporations statutes. However, this may be changing.
Last November, British Columbia became the second Canadian province, after Ontario, to have an oppression action on behalf of aggrieved shareholders of a public corporation certified as a class action. In a decision released on November 8, 2010, the British Columbia Court of Appeal overturned a lower court decision and certified as a class proceeding an oppression action brought on behalf of minority shareholders of American Bullion Minerals Ltd. In doing so, B.C.’s highest court agreed with the 1999 Ontario Superior Court decision in Stern v. Imasco that there is no reason why an oppression action cannot be certified as a class proceeding where it otherwise meets the test for certification under the applicable Class Proceedings Act (“CPA”). The Court agreed with the plaintiffs that their proposed action against American Bullion was the perfect candidate for a class proceeding, as it alleged oppressive conduct by a public company that affected numerous small shareholders – each of whom would be unwilling or unable to bring a separate proceeding to remedy the impugned conduct.
In both the B.C. proceeding against American Bullion and the Ontario proceeding against Imasco, the defendants raised the same technical argument on why no class action for oppression could be brought. In particular, both the B.C. and Ontario CPAs exclude proceedings that may be brought in a representative capacity under another Act. In both cases the defendants argued that an oppression proceeding can be brought as a representative action, as it will often seek relief that benefits shareholders other than the complainant. In both cases, this argument was rejected. In Stern v. Imasco, the Court observed that, despite having some characteristics of a representative action, an oppression proceeding was not a representative action and not barred from certification. The B.C. Court of Appeal in Jellema v. American Bullion similarly observed that nothing in the B.C. Business Corporations Act allows an oppression complainant to act as the representative of anyone else and therefore to bring a representative action. The courts of both provinces have thus agreed that an oppression proceeding can proceed as a class action where it otherwise meets the test for certification under the relevant CPA.
While the oppression remedy has in the past been mainly used to remedy harm to shareholders of small or closely-held corporations, these cases illustrate that the oppression remedy can also be a useful means to address the conduct of larger public companies and that it can do so in a class action where the acts of a public company affect a large group of similarly situated shareholders.
Perhaps more significant is the possibility that, in an appropriate case, oppression relief can be sought in the same class proceeding that also seeks damages under the secondary market misrepresentation provisions of one of the provincial Securities Acts. In its 2006 decision in Ford Motor Company of Canada v. OMERS, Ontario’s Court of Appeal awarded damages for oppression of minority shareholders relating to unfair transfer pricing between Ford Canada and its U.S. parent, the Ford Motor Company. The Court found that it was implicit in Ford Canada’s public financial statements that it had negotiated fair transfer pricing with its parent and it was contrary to the reasonable expectations of Ford Canada’s minority shareholders – and therefore oppressive – when the intercompany pricing turned out to be less than fair.
While Ford v. OMERS preceded the enactment of the secondary market misrepresentation provisions under s.138.5 of the Ontario Securities Act (and its counterparts in other provinces), it would not be surprising if a similar proceeding brought today sought statutory remedies for both oppression and misrepresentation. In addition, while Ford v. OMERS was not a class action, its definition of oppression – the failure of a corporation to carry on business in a manner consistent with its public statements and resulting shareholder expectations – lends itself to a shareholder class action for misleading corporate statements that is framed in both oppression and misrepresentation. In fact, there is at least one, as-yet uncertified class action pending in Ontario in which a statutory misrepresentation claim under the Ontario Securities Act is coupled with a claim for oppression relief under the Ontario Business Corporations Act: an action on behalf of shareholders of Sonde Resources Corp. It remains to be seen how many other, similar class proceedings will be brought in the future.