Unoppressed: Newfoundland and Labrador Supreme Court Denies Claim for Oppression Remedy
An oppression remedy is a statutory remedy that courts can apply when the conduct of a corporation or its directors is found to be prejudicial or harmful to the interests of a specific stakeholder of the corporation (i.e., shareholders, officers, directors, creditors, etc.). In rectifying the oppression, courts will consider the reasonable expectations of the stakeholder in the context of the circumstances. Thus, the application of oppression remedies is fact dependent, and conduct that may be oppressive in one situation may not be oppressive in another.
In Redline Automotive Services Inc. v. RMK Services Inc., 2021 NLSC 113, the Newfoundland and Labrador Supreme Court (the “Court”) refused to grant an oppression remedy sought by a creditor against a director of a corporation. In denying the creditor’s claim, the Court applied the test for oppression as provided by the Supreme Court of Canada (the “SCC”) and supplied useful insight regarding the second element of the test; whether the stakeholder’s reasonable expectations were breached because of the oppressive conduct.
The plaintiff, Redline Automotive Services Inc. (“RAS”), contracted with the defendant, RMK Services Inc. (“RMK”), to provide automotive parts and services pursuant to a credit and guarantee agreement (the “Agreement”). Subsequently, RMK failed to pay RAS for its supplied goods and services and RAS obtained a default judgement in the amount of $226,323.02 against RMK and an officer of the corporation, Rodney Bruce (“Mr. Bruce”) on a joint and several basis.
Unable to enforce on its judgment, RAS brought forth an oppression against Mr. Bruce’s wife, Mary Bruce (“Ms. Bruce”) who was the sole director of RMK. RAS’s oppression claim was based on the allegation that collectively, Mr. Bruce and Ms. Bruce had accepted and deposited money into their personal bank accounts (rather than RMK’s account) collected on behalf of RMK. RAS claimed that as Ms. Bruce was a director of the company, collection of the funds was an exercise of her power that unfairly disregarded RAS’s interest as a creditor.
In considering whether the conduct of Ms. Bruce was oppressive, the court affirmed that it was obligated to ensure that such remedy was just and fair and equitable given the facts. Ultimately, it applied the test for oppression as provided by the SCC in BCE Inc., Re, 2008 SCC 691:
- Did Ms. Bruce exercise a power as director of RMK? If so;
- Did Ms. Bruce’s exercise of this power breach RAS’s reasonable expectations? If so;
- Was the conduct oppressive to, unfairly prejudicial to, or did it unfairly disregard RAS’s interests?
Parties’ Reasonable Expectations
RAS was required to establish that it had reasonable expectations that were breached by Ms. Bruce’s conduct as director of the RMK. The Court listed several factors that could establish the reasonable expectations of the parties, including general commercial practice, the nature of the corporation, the relationship between the parties, past practice, steps that the party could have taken to protect itself, representations and agreements, and a fair resolution of conflicting interests between stakeholders.
The Court found that RAS failed to provide evidence in support of its claim, specifically failing to provide any context to its reasonable expectations as a prejudiced creditor. Nonetheless the Court took the time to provide as reference, potential evidence relevant to provide context to the reasonable expectations of the parties in the matter:
- The circumstances around the negotiation and execution of the Agreement;
- Why RAS elected to obtain a guarantee only from Mr. Bruce, who is not a director, and not from Ms. Bruce, the sole director;
- Whether either of the Bruces were contractually bound to work only for RMK;
- Whether RMK was contractually bound to deposit proceeds of its business into a particular bank account;
- When RAS provided RMK with the goods and services;
- Whether, at the time of the complaint of conduct, any of RAS’s product was in the possession of RMK; and
- Whether RMK’s equipment and other assets were available to RMK or to Mr. Bruce.
The Court stated that had RAS established that Ms. Bruce breached its reasonable expectations, the Court would have had discretion to impose a remedy to rectify the consequences of the oppression.
In the end, RAS’s oppression claim against Ms. Bruce was dismissed as RAS did not provide sufficient evidence to establish that its reasonable expectations under the test for oppression were breached.
This case is interesting in that it highlights the importance of the reasonable expectations element of the oppression remedy test, and how context specific the court’s analysis can be when deciding to grant an oppression remedy. For that reason, it is critical, that a party seeking an oppression remedy provide the Court with sufficient evidence to establish context. Moreover, the case serves as a good reference for what type of context specific evidence should be provided when establishing breach of reasonable expectations in support for an oppression claim.
1BCE Inc., Re, 2008 SCC 69.