Shareholder Disputes

Understanding Shareholder Disputes

Shareholder disputes arise when conflicts develop between shareholders, or between shareholders and directors or officers, concerning the governance, management, or financial affairs of a corporation. These disputes can threaten the stability of a business, disrupt operations, and destroy shareholder value if not resolved effectively and promptly.

Canadian corporate law provides shareholders with a comprehensive framework of statutory remedies designed to protect their interests and hold management accountable. Understanding these remedies and when they apply is essential for any shareholder facing oppressive conduct, breach of fiduciary duty, or exclusion from corporate decision-making.

What Constitutes a Shareholder Dispute

A shareholder dispute typically involves disagreements over how a corporation is managed, how profits are distributed, how shares are valued, or how fundamental corporate decisions are made. The Supreme Court of Canada has recognized that shareholders have legally protected interests that extend beyond mere economic rights. In BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, the Court affirmed that fairness is the touchstone of the oppression remedy and that courts must consider the reasonable expectations of affected stakeholders when assessing challenged conduct.

Disputes often arise in closely held corporations where shareholders are also directors, officers, or employees. In these situations, the relationships between shareholders resemble partnerships, and the informal understandings and mutual trust that characterize such relationships become central to resolving disputes. The leading case on this principle is Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360 (H.L.), which established that courts should look beyond the strict legal form of a corporation to recognize the equitable considerations underlying shareholder relationships in quasi-partnership companies.

Common Types of Shareholder Conflicts

Shareholder disputes commonly involve one or more of the following situations:

• Oppressive conduct by majority shareholders — including squeeze-out transactions, exclusion from management, denial of access to information, and appropriation of corporate opportunities
• Breach of fiduciary duty by directors or officers — self-dealing, conflicts of interest, unauthorized use of corporate assets, and failure to act in the best interests of the corporation
• Deadlock between equal shareholders — where shareholders with equal voting power cannot agree on fundamental decisions, rendering the corporation unable to function effectively
• Disputes over share valuation — disagreements about the fair value of shares in the context of buyouts, mergers, or other fundamental changes
• Mismanagement and corporate waste — decisions that squander corporate assets or expose the corporation to unnecessary risk
• Dividend and distribution disputes — conflicts over whether and when the corporation should declare dividends or make other distributions to shareholders
• Related party transactions — transactions between the corporation and parties related to directors or controlling shareholders that may not be conducted on arm's length terms

In many cases, multiple issues arise simultaneously. For example, a minority shareholder may be excluded from management while the majority shareholder causes the corporation to enter into transactions that benefit the majority shareholder personally at the expense of the corporation.

Legal Framework in Ontario

In Ontario, shareholder disputes are governed primarily by the Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA). The OBCA provides several statutory remedies that allow shareholders to seek court intervention when their rights have been violated or their interests have been unfairly prejudiced.

The most important of these remedies is the oppression remedy, codified in section 248 of the OBCA. This broad and flexible remedy allows a court to grant relief where the corporation's affairs have been conducted in a manner that is oppressive, unfairly prejudicial, or that unfairly disregards the interests of a security holder, creditor, director, or officer.

Other statutory remedies available under the OBCA include the derivative action (section 246), dissent and appraisal rights (section 185), rectification orders (section 250), compliance orders (section 253), and investigation orders (section 160). Each remedy serves a distinct purpose and is subject to specific procedural requirements and substantive tests.

For federally incorporated corporations, similar remedies are available under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (CBCA). The jurisprudence developed under the CBCA and OBCA is generally treated as interchangeable, as the statutory language is substantially similar.

The Oppression Remedy

The oppression remedy is the most important and frequently used shareholder remedy in Canada. It provides courts with broad and flexible powers to remedy conduct that is oppressive, unfairly prejudicial, or that unfairly disregards the interests of corporate stakeholders.

The remedy originated in England and was first introduced into Canadian corporate law in the 1970s. Since then, it has evolved into a cornerstone of shareholder protection, allowing courts to intervene in cases where strict adherence to corporate formalities would produce unjust results.

Overview and Statutory Foundation

Section 248 of the OBCA sets out the oppression remedy. Subsection 248(2) provides that a complainant may apply to the court for an order where:

• any act or omission of the corporation or any of its affiliates effects or threatens to effect a result,
• the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner, or
• the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer.

The corresponding provision in the CBCA is section 241. The language in both statutes is substantially identical, and courts treat the jurisprudence under each Act as interchangeable.

The remedy is intentionally broad and flexible. As the Supreme Court of Canada explained in BCE Inc. v. 1976 Debentureholders, the oppression remedy "is the broadest, most comprehensive and most open-ended shareholder remedy in the common law world." The Court emphasized that the remedy grants judges broad, equitable jurisdiction to enforce not just what is legal, but what is fair.

Grounds for Oppression Claims

There are three distinct but overlapping grounds for granting relief under the oppression remedy: conduct that is (1) oppressive, (2) unfairly prejudicial, or (3) unfairly disregards the interests of stakeholders.

Oppressive Conduct
Oppressive conduct is the most serious ground. It typically involves conduct that is burdensome, harsh, wrongful, or lacking in probity or fair dealing. In Scottish Co-operative Wholesale Society Ltd. v. Meyer, [1959] A.C. 324 (H.L.), Lord Simonds defined oppression as conduct that is "burdensome, harsh and wrongful." The Ontario Court of Appeal in Brant Investments Ltd. v. KeepRite Inc. (1991), 3 O.R. (3d) 289 (C.A.), noted that oppression connotes conduct that is coercive and unacceptable from a reasonable bystander's perspective.

Unfairly Prejudicial Conduct
Unfairly prejudicial conduct is broader than oppression and does not require the same degree of harsh or wrongful treatment. Conduct may be unfairly prejudicial if it causes harm to a stakeholder's interests, even if that harm was not intended. The key question is whether the conduct was fair in all the circumstances. As the Court stated in Westfair Foods Ltd. v. Watt (1991), 79 D.L.R. (4th) 48 (Alta. C.A.), conduct will be unfairly prejudicial where a reasonable person would consider it to be so.

Unfair Disregard
Conduct that unfairly disregards the interests of stakeholders is the broadest ground for relief. It captures situations where the impugned conduct may not be oppressive or prejudicial in a conventional sense, but nevertheless shows a failure to give proper consideration to affected interests. In Deluce Holdings Inc. v. Air Canada (1992), 12 O.R. (3d) 131 (Gen. Div.), affd (1993), 13 O.R. (3d) 131 (Div. Ct.), the court held that unfair disregard involves conduct that represents an unfair failure to accord a person those rights, benefits or treatment that a reasonable person would regard as an entitlement.

Standing and Complainants

Not everyone is entitled to bring an oppression remedy application. Section 245 of the OBCA defines "complainant" to include:

• a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
• a director or an officer or a former director or officer of a corporation or of any of its affiliates,
• the Director appointed under the OBCA, and
• any other person who, in the discretion of the court, is a proper person to make an application

The fourth category is particularly important as it allows courts to grant standing to persons who have a sufficient interest in the corporation's affairs, even if they do not fall within the first three categories. This has been used to grant standing to creditors, employees, and even corporate stakeholders in related entities where justice requires.

In First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 60 Alta. L.R. (2d) 122 (Q.B.), the court held that creditors may be proper persons to bring an oppression remedy application where they can demonstrate a genuine and sufficient interest in the corporation. However, courts are cautious about granting standing too broadly, particularly where the applicant's real interest is in enforcing a debt rather than remedying oppressive conduct.

Reasonable Expectations

The concept of reasonable expectations is central to the oppression remedy. In BCE Inc. v. 1976 Debentureholders, the Supreme Court held that the analysis under the oppression remedy should focus on whether the complained-of conduct departs from the reasonable expectations of affected stakeholders.

Reasonable expectations are assessed objectively, having regard to the entire context, including the history of the parties' relationship, the nature of the corporation, the relationship between the parties and the corporation, past practice, steps the claimant could have taken to protect itself, representations and agreements, and the fair resolution of conflicting interests between corporate stakeholders.

The Court in BCE emphasized that reasonable expectations must be both objectively reasonable and arise from the arrangements that govern the parties' relationship. Merely subjective or unrealistic expectations do not ground a claim under the oppression remedy. In Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481 (C.A.), the Ontario Court of Appeal held that a shareholder's expectation of receiving dividends was not reasonable where the corporation required retained earnings for business purposes and had never declared dividends in the past.

In closely held corporations, reasonable expectations are often informed by quasi-partnership principles derived from Ebrahimi v. Westbourne Galleries. These include expectations of participation in management, access to information, fair treatment by co-shareholders, and an opportunity to share in profits. Courts recognize that in such companies, informal understandings and mutual trust create expectations that differ from those in widely held public corporations.

Available Court Orders

Section 248(3) of the OBCA grants courts exceptionally broad remedial powers upon finding oppression. The section lists seventeen specific types of orders that a court may make, including:

• an order restraining the conduct complained of
• an order appointing a receiver or receiver-manager
• an order to regulate the corporation's affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement
• an order directing an issue or exchange of securities
• an order appointing directors in place of or in addition to all or any of the directors then in office
• an order directing the corporation or any other person to purchase securities of a security holder
• an order directing the corporation or any other person to pay a security holder any part of the money that the security holder paid for securities
• an order varying or setting aside a transaction or contract to which the corporation is a party and compensating the corporation or any other party to the transaction or contract
• an order requiring the corporation to produce financial statements or an accounting
• an order compensating an aggrieved person
• an order directing rectification of the registers or other records of the corporation
• an order winding up the corporation
• an order directing an investigation be made

The list is not exhaustive. Section 248(3) concludes by granting the court power to make "any other order it thinks fit." This gives courts maximum flexibility to craft remedies appropriate to the circumstances of each case.

The most common remedy ordered in oppression cases is a buyout of the oppressed shareholder's shares. Courts will typically order the oppressor to purchase the oppressed shareholder's shares at fair value, determined as of a date prior to the oppressive conduct. In Brant Investments Ltd. v. KeepRite Inc., the Ontario Court of Appeal held that the date of valuation should generally be a date before the oppressive conduct occurred, to avoid rewarding the oppressor with a depressed valuation caused by their own wrongful conduct.

Other frequently ordered remedies include orders directing the payment of dividends, orders requiring the production of financial information, orders removing or appointing directors, and orders unwinding impugned transactions. In extreme cases, courts may order the winding up of the corporation under subsection 248(3)(m), though this is a remedy of last resort given its drastic consequences.

Derivative Actions

A derivative action is a legal proceeding brought by a shareholder on behalf of the corporation to enforce a right or remedy a wrong that belongs to the corporation itself, rather than to the individual shareholder. The remedy allows shareholders to hold directors and officers accountable for breaches of their duties to the corporation when the corporation itself is unwilling or unable to take action.

The derivative action is an exception to the general rule articulated in Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189 (Ch.), which holds that the proper plaintiff in an action to redress a wrong to a corporation is the corporation itself, not an individual shareholder. The derivative action allows a court to grant leave to a shareholder to prosecute an action in the corporation's name where the corporation's management has failed to do so.

Purpose and Nature of Derivative Actions

The purpose of the derivative action is to prevent directors and officers from immunizing themselves from liability by controlling the corporation and preventing it from suing. As the Supreme Court of Canada explained in Goldex Mines Ltd. v. Revill (1974), 7 O.R. (2d) 216 (C.A.), affd [1975] S.C.R. 3, the derivative action exists to ensure that wrongdoers cannot use their control of the corporation to prevent the corporation from seeking redress for wrongs committed against it.

A derivative action is brought in the name of the corporation, but is initiated and controlled by the shareholder applicant. Any damages or other relief obtained in a derivative action are awarded to the corporation, not to the individual shareholder who brought the action. However, because the benefit flows to the corporation, all shareholders benefit indirectly through their ownership of shares in the corporation.

The derivative action is distinct from a personal action brought by a shareholder to enforce the shareholder's own rights. A shareholder who has been personally wronged—for example, through denial of the right to vote or to inspect corporate records—may bring a personal action in their own name. The derivative action, by contrast, is available only where the wrong is to the corporation, and the shareholder is seeking to enforce the corporation's rights on its behalf.

Leave Requirements

Section 246 of the OBCA governs derivative actions. Unlike the oppression remedy, a shareholder cannot commence a derivative action as of right. Instead, the shareholder must first obtain leave of the court. Subsection 246(2) sets out the procedure for obtaining leave:

• The complainant must give notice to the directors of the corporation or its subsidiary of the complainant's intention to apply for leave at least fourteen days before bringing the application, unless the court orders otherwise.
• The court may grant leave if it is satisfied that:

1. the directors of the corporation or its subsidiary will not bring, diligently prosecute or defend or discontinue the action,
2. the complainant is acting in good faith, and
3. it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued.

These three requirements are cumulative. All three must be satisfied before leave will be granted. The onus is on the applicant to establish each requirement on a balance of probabilities.

Directors Will Not Bring the Action
The first requirement—that the directors will not bring, prosecute, or defend the action—reflects the principle that a corporation's affairs should ordinarily be managed by its directors without judicial interference. In Richardson Greenshields of Canada Ltd. v. Kalmacoff (1995), 22 O.R. (3d) 577 (C.A.), the Court held that a court should not grant leave to bring a derivative action if the directors have made a reasonable and informed business decision not to pursue the claim.

However, courts recognize that in many cases the directors will be the wrongdoers or will be subject to the control of the wrongdoers. In such circumstances, it is effectively impossible for the complainant to demonstrate that the directors have made an independent decision. Accordingly, courts do not require the applicant to prove definitively that the directors will never bring the action; it is sufficient to show that the directors are unlikely to do so or that they are in a conflict of interest that precludes them from making an independent decision.

Good Faith and Best Interests

Acting in Good Faith
The second requirement is that the complainant must be acting in good faith. Good faith requires that the applicant's primary purpose in bringing the derivative action must be to benefit the corporation, not to achieve some collateral purpose unrelated to the corporation's interests. In Primex Investments Ltd. v. Northwest Sports Enterprises Ltd. (1995), 13 B.C.L.R. (3d) 300 (C.A.), the British Columbia Court of Appeal held that an applicant lacks good faith where the derivative action is brought for an improper purpose, such as to harass the defendants, to obtain a personal benefit unrelated to the corporation's benefit, or to pursue a personal vendetta.

The fact that the applicant may benefit personally from the derivative action does not necessarily demonstrate lack of good faith. Shareholders naturally benefit when the corporation recovers damages or other relief. What matters is whether the applicant's primary motivation is to benefit the corporation, even if there is an incidental personal benefit.

Best Interests of the Corporation
The third requirement is that it must appear to be in the best interests of the corporation that the action be brought. This requires the court to assess whether prosecuting the claim would benefit the corporation, having regard to all relevant considerations including the strength of the claim, the potential recovery, the costs and risks of litigation, and the impact on the corporation's business and relationships.

In Bellman v. Western Approaches Ltd. (1981), 33 B.C.L.R. 45 (C.A.), the British Columbia Court of Appeal held that the court should consider whether there is a reasonable case to be made, whether the costs of litigation are proportionate to the potential recovery, and whether the litigation would be contrary to the corporation's business interests. The court is not required to conduct a detailed assessment of the merits of the underlying claim, but must be satisfied that there is at least a prima facie case.

Relationship to Oppression Remedy

The derivative action and the oppression remedy overlap in some circumstances but serve distinct purposes. A derivative action enforces rights that belong to the corporation and seeks relief on behalf of the corporation. The oppression remedy, by contrast, protects the interests of individual stakeholders and allows them to obtain personal relief.

In many cases, conduct that gives rise to a derivative action may also constitute oppression. For example, if directors breach their fiduciary duty by diverting a corporate opportunity, the corporation has a claim for breach of fiduciary duty that could be enforced through a derivative action. At the same time, the minority shareholders may have been oppressed by the diversion of the opportunity, entitling them to bring an oppression remedy application.

Where both remedies are available, applicants often plead in the alternative. However, courts have recognized that the oppression remedy is generally preferable to a derivative action because it offers more flexible remedies, lower procedural barriers, and the ability to obtain personal relief. In Jabalee v. Abalmark Inc. (2005), 77 O.R. (3d) 366 (S.C.J.), the court observed that the oppression remedy has largely supplanted the derivative action as the remedy of choice for minority shareholders.

Nevertheless, the derivative action remains important in cases where the primary wrong is to the corporation rather than to individual shareholders, particularly where the corporation is insolvent or where creditors are the primary victims of the wrongful conduct. Section 248(3)(j) of the OBCA recognizes this by allowing a court, in an oppression remedy proceeding, to order that a derivative action be brought in the name and on behalf of the corporation.

Dissent and Appraisal Rights

Dissent and appraisal rights provide shareholders with an exit mechanism when a corporation proposes to undertake certain fundamental changes to which the shareholder objects. These rights allow a dissenting shareholder to require the corporation to purchase the shareholder's shares at fair value, determined through a court-supervised appraisal process if the parties cannot agree on value.

The dissent and appraisal remedy originated in the United States in the 19th century as a response to the problem that fundamental corporate changes—which formerly required unanimous shareholder approval—could be approved by a supermajority vote. Dissent rights were created to protect minority shareholders who might be bound by fundamental changes to which they objected.

When Dissent Rights Arise

Section 185 of the OBCA sets out the circumstances in which a shareholder is entitled to exercise dissent rights. These include:

• an amalgamation of the corporation with another corporation (other than certain specified types of amalgamations with wholly-owned subsidiaries or parent corporations)
• an amendment to the articles to add, change or remove any provisions restricting the issue, transfer or ownership of shares
• an amendment to the articles to add, change or remove restrictions on the business the corporation may carry on
• a continuance of the corporation under the laws of another jurisdiction
• a sale, lease or exchange of all or substantially all of the property of the corporation other than in the ordinary course of business
• a court order permitting a shareholder to dissent in connection with an application for an arrangement under section 182

In addition, dissent rights may arise under a unanimous shareholder agreement or under a court order in oppression remedy proceedings or other contexts.

Dissent rights are available only to shareholders who hold shares of a class entitled to vote on the resolution authorizing the fundamental change. Holders of non-voting shares do not have dissent rights unless the fundamental change affects the rights attached to their shares such that they become entitled to vote on the resolution under subsection 170(1).

Dissent Procedures and Timelines

The procedures for exercising dissent rights are technical and must be followed strictly. Failure to comply with the procedural requirements will result in the loss of dissent rights.

A shareholder who wishes to dissent must send written notice of objection to the corporation before the meeting at which the resolution is to be voted upon. The notice must be sent to the corporation, not to the directors or officers personally. If the corporation gives notice to shareholders that another corporation has adopted a resolution to amalgamate with it, a dissenting shareholder must send notice of objection within twenty-one days after receiving the corporation's notice.

At the meeting, the shareholder (or proxy holder) may vote against the resolution but is not required to do so. However, if the shareholder votes in favour of the resolution, the right to dissent is lost. The shareholder may instead vote against or abstain from voting.

Within twenty days after the shareholders adopt the resolution, the corporation must send notice to each shareholder who has sent written objection, informing the shareholder that the resolution has been adopted. The dissenting shareholder then has twenty days to send the corporation a written notice containing:

• the shareholder's name and address
• the number and class of shares in respect of which the shareholder dissents
• a demand for payment of the fair value of such shares

Upon sending this notice, the dissenting shareholder ceases to have any rights as a shareholder other than the right to be paid fair value, except where the corporation fails to fulfill the conditions for the fundamental change, or the shareholder withdraws the notice before the corporation makes an offer, or the directors revoke the resolution to approve the fundamental change before it becomes effective.

Valuation of Shares

Within thirty days after sending the demand for payment, or within thirty days after the fundamental change becomes effective (whichever is later), the corporation must send an offer to each dissenting shareholder to pay for the shareholder's shares at a price the corporation considers to be their fair value. The offer must be accompanied by a statement showing how the fair value was determined.

If the dissenting shareholder accepts the corporation's offer, the corporation must pay the shareholder within ten days after the offer is accepted. If the shareholder does not accept the offer within thirty days, the shareholder may, within a further twenty days, apply to the court to fix the fair value of the shares.

If no application is made to the court within the prescribed time, the dissenting shareholder is deemed to have accepted the corporation's offer. This is a strict deadline and courts have no jurisdiction to extend it.

Where an application is made to the court, all dissenting shareholders whose shares have not been purchased by the corporation must be joined as parties and are bound by the court's decision. The court will determine the fair value of the shares as of the close of business on the day before the resolution was adopted. In making this determination, the court has broad discretion to consider any factors it considers relevant.

The leading case on valuation in the dissent and appraisal context is Cyprus Anvil Mining Corp. v. Dickson (1986), 8 B.C.L.R. (2d) 145 (C.A.), where the British Columbia Court of Appeal held that "fair value" means the value the shares would have in the hands of a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. The court may consider a range of valuation methodologies, including asset-based valuations, earnings-based valuations, and market-based valuations, depending on the nature of the corporation and the availability of reliable information.

Interaction with Other Remedies

Dissent rights are separate from and cumulative with other shareholder remedies. A shareholder who has dissented and demanded payment for shares may still bring an oppression remedy application or other proceeding challenging the fundamental change on the basis that it is oppressive or otherwise improper.

However, courts have recognized that there may be circumstances where the availability of dissent rights affects the reasonable expectations of shareholders for purposes of the oppression remedy. In Brant Investments Ltd. v. KeepRite Inc., the Ontario Court of Appeal held that where a shareholder has been given dissent rights in connection with a transaction, the shareholder's reasonable expectations may be limited by the fact that the legislature has provided a specific statutory remedy for shareholders who object to the transaction.

Nevertheless, dissent rights do not preclude an oppression remedy claim where the impugned conduct goes beyond the fundamental change itself. For example, if directors breached their fiduciary duty in negotiating the terms of an amalgamation, shareholders may have an oppression remedy claim even though they also have dissent rights in connection with the amalgamation.

Other Shareholder Remedies

In addition to the oppression remedy, derivative actions, and dissent rights, the OBCA provides several other statutory remedies that may be available to shareholders in appropriate circumstances. These remedies are more limited in scope than the oppression remedy but may be useful in specific situations.

Rectification Orders

Section 250 of the OBCA allows a court to make an order for the rectification of corporate records where a person's name is improperly entered, retained, or omitted from the securities register or other corporate records, or where there is a default or error in any entry in the securities register or other records.

The purpose of rectification is to ensure that corporate records accurately reflect the true state of affairs. Rectification may be ordered where a share certificate has been issued in error, where a transfer has been improperly recorded, or where a person's name has been omitted from the securities register despite that person being entitled to be registered as a shareholder.

The court has broad discretion to grant such relief as it considers appropriate. This may include ordering that the register be corrected, that share certificates be cancelled or reissued, or that compensation be paid to persons who have suffered loss as a result of the error.

In Lougheed v. Mabey (1986), 55 O.R. (2d) 87 (H.C.J.), the court held that rectification may be ordered where there has been a mistake or fraud, but that the applicant must establish a clear case for rectification, as the remedy affects the rights of registered shareholders who may be innocent third parties.

Compliance Orders

Section 253 of the OBCA allows a court to make an order directing compliance with the Act or the regulations, the articles or by-laws of the corporation, or any unanimous shareholder agreement. An application may be brought by a director, a shareholder, or any other person the court considers appropriate.

The compliance remedy is narrower than the oppression remedy in that it requires proof of non-compliance with a specific legal obligation. However, it does not require proof of oppression or unfair prejudice, and it does not depend on reasonable expectations.

The court may make any order it thinks fit, including an order restraining any person from acting in breach of any such provision, an order directing any person to comply with any such provision, and, in the case of a director or officer, an order directing the director or officer to resign.

In Goldhar v. Universal Sections & Moulds Ltd. (1989), 43 B.L.R. 294 (Ont. H.C.J.), the court held that the compliance remedy is available where there is a clear breach of the Act or other governing documents, but that the court should exercise its discretion having regard to whether the breach is technical or substantive, whether it has caused prejudice, and whether there are other adequate remedies available.

Investigation Orders

Section 160 of the OBCA allows a court to order an investigation of a corporation and any of its affiliated corporations. An application may be brought by a shareholder who provides security for costs and establishes to the satisfaction of the court that:

• the business of the corporation is being or has been carried on with intent to defraud any person,
• the business or affairs of the corporation are or have been carried on or conducted, or the powers of the directors are or have been exercised, in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of a security holder, or
• the corporation was formed for a fraudulent or unlawful purpose or is to be dissolved for a fraudulent or unlawful purpose, or
• persons concerned with the formation, business or affairs of the corporation have in connection therewith acted fraudulently or dishonestly

If satisfied that one of these grounds is established, the court may appoint an inspector to investigate the corporation and report to the court. The inspector has broad powers to examine corporate records, question directors and officers under oath, and compel production of documents.

Investigation orders are rarely sought because they are expensive and time-consuming, and because the oppression remedy often provides a more direct route to relief. However, investigation orders may be useful where the applicant lacks sufficient information to frame a claim and needs access to corporate records and documents to determine what relief should be sought.

In Catalyst Fund General Partner I Inc. v. Hollinger Inc., [2004] O.J. No. 4369 (S.C.J.), the court ordered an investigation where there was evidence of oppressive conduct but the full extent of the wrongdoing and its effect on the corporation was unclear. The court appointed an independent inspector to investigate and report on transactions between the corporation and related parties.

Election and Appointment Disputes

Section 249 of the OBCA allows a court to determine disputes relating to the election or appointment of directors or auditors. An application may be brought by a shareholder, director, officer, or auditor of the corporation, or by the Director under the Act.

The court may, where there is a controversy with respect to the election or appointment of a director or auditor of a corporation:

• restrain any person from acting as a director or auditor
• declare the result of the disputed election or appointment
• order a new election or appointment, and, where necessary for a new election, give directions for the management of the business and affairs of the corporation until a new election can be held or a new appointment made
• determine the voting rights of shareholders and of persons claiming to own shares

Election disputes often arise where there are disagreements about the validity of proxies, the interpretation of voting provisions in the articles or a unanimous shareholder agreement, or the eligibility of nominees to serve as directors. The remedy provides a mechanism for resolving these disputes without requiring the parties to resort to the more cumbersome and expensive oppression remedy.

In Blair v. Consolidated Enfield Corp. (1995), 23 O.R. (3d) 129 (C.A.), the Ontario Court of Appeal held that the court should resolve election disputes based on the company's constating documents and any relevant shareholder agreements, and should generally defer to the determinations made by the chairman of the meeting unless those determinations were clearly wrong or were made in bad faith.