Pick Your Poison: The Court Of Appeal Clarifies The Distinction Between The Oppression Remedy And The Derivative Action

On May 26, 2015, the Ontario Court of Appeal issued its decision in Rea et al v Wildeboer ("Wildeboer"). The decision clarifies the nature, purpose, and difference between two of the most widely-used shareholder remedies in Canadian corporate law: the oppression remedy and the derivative action.

Background and Facts

The oppression remedy and the derivative action are statutory remedies designed to provide minority shareholders (and other complainants) with protections against decisions taken by majority shareholders. However, they protect complainants in different ways. The derivative action allows a complainant to sue on behalf of the corporation for a wrong done to the corporation. Because it allows individual complainants to represent the corporation, and because any successful claim is binding on all shareholders, Canadian corporate statutes require a complainant to first obtain leave of the court before bringing a derivative action. The leave requirement ensures that not just anyone can bring a claim on behalf of the company, and that any such claim is brought in good faith. It thereby prevents both a multiplicity of proceedings as well as unmeritorious suits.

The oppression remedy, by contrast, allows a complainant to sue on behalf of him or herself for a wrong he or she suffers personally as a result of corporate conduct. Canadian corporate statutes do not require leave before seeking relief under the oppression remedy. Under the oppression remedy the complainant is not seeking to represent all shareholders, only him or herself, and any remedy granted by a court is not binding on all shareholders. There is also no concern about a multiplicity of proceedings. The absence of a leave requirement, and the broad, flexible nature of the oppression remedy make it in some respects more appealing to litigants seeking a remedy for alleged corporate malfeasance.

In Wildeboer, the appellant, Mr. Rea, was a former director and significant minority shareholder of Martinrea, a successful, widely-held public company. In 2012 he resigned as a director and sued a group directors and officers, claiming that they misappropriated $50 to $100 million of Martinrea's corporate funds for their own personal benefit. Notably, Mr. Rea sought relief under the oppression remedy, even though he sought to recover funds for Martinrea which he alleges were improperly siphoned from the company. He did not claim to have suffered any personal loss distinct from the loss...