In Mennillo v. Intramodal inc., 2016 SCC 51, the Supreme Court of Canada addressed the application of the oppression remedy under the Canada Business Corporations Act (“CBCA”), which applies to federally incorporated companies. (The Ontario Business Corporations Act, which applies to Ontario incorporated companies, also contains an oppression remedy).
The case involved a private corporation with originally two shareholders. There was no shareholders’ agreement. The Court described the parties’ dealings as being “marked by extreme informality”. One of the two shareholders, Mennillo, eventually resigned as officer and director of the company by providing a notice of resignation. The notice did not address his status as a shareholder. There was conflicting evidence from the parties about whether Mennillo intended to cease being a shareholder. Ultimately, the trial judge accepted that Mennillo’s withdrawal from the company included his intention to no longer guarantee the company’s debts. The trial judge found that Mennillo agreed he would only be a shareholder while he guaranteed the company’s debts. Therefore, the trial judge concluded that the shares were transferred by Mennillo to the other shareholder when Mennillo resigned. However, Mennillo failed to endorse the shares involved in the transfer, as is required by the CBCA. The company nevertheless registered the transfer in its books, despite the failure to comply with the formalities of the CBCA.
Mennillo later asserted that he was still a shareholder, and commenced a claim based on the oppression remedy. Mennillo argued that he was oppressed because the company transferred his shares without complying with the formalities of the CBCA. The trial judge dismissed the claim, finding that the company’s conduct was not oppressive
The majority of the Supreme Court agreed that Mennillo had not been oppressed. Justice Cromwell, for the majority, stated that to succeed on a claim for oppression, a claimant must establish that the corporation’s conduct violated the claimant’s reasonable expectations. The claimant must “identify the expectations that he or she claims have been violated . . . and establish that the expectations were reasonably held”. Justice Cromwell stated that Mennillo could have no reasonable expectation of being treated as a shareholder because he no longer wished to be a shareholder. The fact that the his wishes to transfer the shares were carried out imperfectly by the corporation – i.e. by not complying with the formalities of the CBCA – was not oppressive.
The lawyers at Gilbertson Davis have experience in business disputes, including advancing and defending against oppression claims. Please contact us for an initial consultation.
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