This blog post is the first of a new series looking at recent developments in Canadian corporate litigation, with a slight bias towards Ontario. The goal is to provide regular updates on court decisions that are of interest to the authors and that the authors hope may be of interest to readers. The watchwords of these posts are miscellany, recency and brevity. Hyperlinks are provided throughout for those who wish to take a deeper dive. For this iteration, we are looking at two recent Court of Appeal decisions that addressed shareholder rights under corporate statutes.
First, we look to the Ontario Court of Appeal in Husack v. Husack, 2024 ONCA 117.
The appellant, a holder of non-voting shares in a family HoldCo, sought to exercise dissent rights under ss. 184 and 185 of the Ontario Business Corporations Act in response to the liquidation and winding up of the company.
Ordinarily, the proposed liquidation and winding up would have triggered dissent rights. However, the Ontario Court of Appeal upheld the application judge’s finding that the shareholders’ dissent rights were explicitly waived by the provisions of the USA signed by HoldCo’s shareholders.
Statutory dissent rights conflicted with several provisions of the USA, including the express rights of the family matriarch (as a trustee to the estate that controlled HoldCo) to cause HoldCo to sell all or substantially all of its assets on such terms as she in her “sole and exclusive discretion considers advisable”. The following provisions of the USA therefore successfully limited the appellant’s dissent rights:
It is the intent of the parties that such provisions of The Business Corporations Act or any successor legislation granting rights to shareholders, which may be in conflict with the provisions of this Agreement, are hereby waived, and the provisions hereof shall govern their dealings among themselves (to the extent allowed by law).
In a pithy summary of the ability to contract out of rights under corporate statutes, the Court of Appeal remarked: “…contracting parties are entitled to waive statutory rights, unless they are precluded by public policy”.
The second decision of note is Bhuthal v. Sahsi, 2024 BCCA 73. The BC Court of Appeal rejected an effort by the respondent to do an end-run around the derivative action provisions of the British Columbia Business Corporations Act through Rule 20-3(15) of the Supreme Court Civil Rules on the basis of the allegation that all persons with an interest in the corporations at issue were conflicted out of acting as a corporate representative.
The parties to the dispute equally owned and controlled the companies that were the subject of the litigation. The applicant sought to have the companies represented by an independent third party under Rule 20-3(15), which provides, “The court may give the conduct of a proceeding to any person the court considers appropriate”. The applicant also sought to rely on the Court’s inherent jurisdiction. The relief was granted in the court below.
Reversing the decision, the BC Court of Appeal found that neither the general grant of authority to appoint a representative in the Rules nor the Court’s inherent jurisdiction could be used to appoint a corporate representative in light of the specific regime in ss. 232 and 233 of the BCA, which provides the process for the appointment of a corporate representative to control the conduct of the legal proceeding.
A central argument of the applicant was that there was no “appropriate person” under the corporate statute because all shareholders, directors and officers were adverse in interest to the corporation and already parties to the litigation. After noting that an “appropriate person” need not be constrained to shareholders, directors or officers but can include “any person with at least an indirect interest in the integrity, prosperity and continued existence of the company”, the Court of Appeal nevertheless highlighted the appropriate process to follow in the event no “appropriate person” is available. The proper procedure involves a two-step process by which:
- an interested or adverse person should bring an application to be appointed as representative “for the limited purpose of making a second application”; and
- the second application should be made “for appointment of an independent third party to control the conduct of the proceeding”.