Shareholder Oppression In Action

Dispute Resolution doesn't usually publish case comments. But the Supreme Court of British Columbia's decision in Southpaw Credit Opportunity Master Fund LP et al v. Asian Coast Development (Canada) Ltd. et al, 2013 BCSC 187, is worth making an exception for because it contains several points of interest in the shareholder oppression field. It is a useful illustration of the fact-specific nature of the necesary shareholder's objectively reasonable expectations. It is a useful reminder that, before oppression can result in a remedy, it must have actually caused the harm complained of. And it includes an interesting discussion of the concept of accessory liability in the oppression context.

BACKGROUND

Asian Coast Development (Canada) is (now) a British Columbia Company, building a resort and casino complex in Vietnam, the first of its kind in that country, at a total estimated cost of US$4.2 billion. In early 2008 - just in time for the world financial crisis - it obtained from the Vietnamese government the crucial "investment certificate" necessary to proceed with the project. That required Asian Coast to raise a total of $795 million by specific deadlines, failing which the government had the right to withdraw the certificate - and put an end to the company's raison d'etre.

A group of investment of funds we'll call "Harbinger" (and for which the authors acted) was the first institutional, and largest, shareholder in Asian Coast. By 2008 it had invested $42 million. Not surprisingly, it negotiated a host of protections for its investment, including comprehensive security, rights of consent to, and first refusal on, further issues of equity and debt, and remedies for the Asian Coast's default on its commitments which would essentially give Harbinger control of the company. Harbinger did not have any representation on the Asian Coast board of directors at the material time.

Two other groups of investment funds, which we'll call "Bessemer" and "Southpaw", invested $20 million and $4.6 million in Asian Coast later, in full knowledge of Harbinger's position. Bessemer negotiated price protection in its subscription agreement. Southpaw did not.

Needless to say, in the financial climate beginning in the fall of 2008 it proved extraordinarily difficult for Asian Coast to meet the deadlines in the investment certificate. It was unable to attract additional investment. It repeatedly missed those deadlines and defaulted under its arrangements with...