New Developments On The Oppression Remedy And Bad Faith

• Published date: 12 July 2021
• Subject Matter: Corporate/Commercial Law, Employment and HR, Corporate and Company Law, Directors and Officers, Contract of Employment, Shareholders
• Law Firm: Dentons
• Author: Ms Kelly Osaka and David P. Konkin

Haack v Secure Energy (Drilling Services) Inc., 2021 ABQB 82

The duty of honest contractual performance and the oppression remedy are two key risk areas facing businesses, particularly closely held corporations. The decisions in Haack v. Secure Energy (Drilling) Inc. 2021 ABQB 82, and 2021 ABQB 342, in which Dentons was counsel to the plaintiff, show how a corporation and its directors can run afoul of its unanimous shareholders' agreement, employment contracts and the reasonable expectations of shareholders, resulting in significant liability for damages and solicitor client costs.

Takeaways

This case has key takeaways for corporations and directors on how to handle relationships with minority shareholders and employees and how conduct before and during litigation can result in an award of solicitor client costs:

1. Unanimous shareholders agreements (USA) can create reasonable expectations for how departing shareholders will be treated. When drafting shareholder withdrawal clauses corporations must carefully detail the process for determining share valuation. Breach of those reasonable expectations can result not only in breach of the USA but also findings of oppression and breach of the duty of honest contractual performance
2. How an employee-shareholder is terminated can support a claim for oppression
3. The business judgment rule does not apply where directors fail to act prudently and in good faith, and instead abdicate their responsibilities
4. Directors that act with careless disregard for the truth and accuracy of the information used in decision making can be found personally liable for the consequences
5. Employers must take steps to verify the accuracy of the information on the grounds for termination, which may include an investigation
6. Making false and misleading statements about an employee or shareholder in order to exercise a contractual provision and to ground recommendations to shareholders under a USA, where careless and indifferent to the truth of those statements, may ground a finding of breach of the duty of honest contractual performance
7. Solicitor-client costs may be awarded against defendants for bad faith conduct towards an employee and actions taken in the lawsuit that unnecessarily complicate and delay the resolution of the proceedings

Facts

The predecessor to the corporate defendant, Marquis Alliance Energy Group Inc. (Marquis Alliance), terminated the employment of its Vice President Finance and Accounting (the Vice President), claiming...