Dismissal of Oppression Claim: Implications for Minority Shareholders
On November 28th, the Quebec Court of Appeal upheld a decision rendered by the Superior Court¹ regarding a petition for oppression remedies². The applicant and appellant, Olivier Girard, challenged the dissolution of the company 9286-9593 Québec Inc. and the subsequent sale of his shares. However, the Court of Appeal, maintaining the Superior Court’s decision, refused to grant the oppression remedy, thus confirming the validity of the company’s dissolution and the share sale.
Summary of Facts
In 2013, Olivier Girard, the applicant, along with Jean-René Larose, Martin Lavictoire, and Pascal Cyr, the respondents, formed a consulting engineering firm, 9286-9593 Québec Inc. (hereinafter “the company”). They were all directors of the company and decided to divide the share capital equally, 25% per person. Their business structure was rather informal; they did not bother to enter into a unanimous shareholders’ agreement.
However, in 2015, citing Girard’s lack of leadership and collaboration, the three respondents decided to end their business relationship with him.
Girard then left the company and attempted to negotiate the sale of his shares. A deadlock ensued regarding the value of his shares, with the applicant considering their value to be more than double that proposed by the respondents. The applicant then served his oppression claim on the respondents. Nevertheless, the company was dissolved without the parties agreeing on the share price.
Superior Court Decision
Since an oppression remedy is possible under section 450 of the Business Corporations Act³, the Honorable Justice Morrison had to analyze the application of this provision to the specific circumstances. This remedy allows courts to protect minority shareholders against the abusive actions of the majority. Indeed, the Court can issue any order to remedy the situation.⁴
After analyzing the specific facts of the case, the judge concluded that there had been no abuse or oppression by the respondents against Girard. The judge considered several factors, including the informal nature of the initial agreement. The absence of a formal shareholders’ agreement or a non-competition clause contributed to the impasse between the parties. Furthermore, the respondents raised legitimate concerns regarding Girard’s behavior and performance. Moreover, the court found no evidence that the respondents acted in bad faith or with the intention of oppressing Girard. He thus concluded that the oppression remedy was not appropriate to settle the dispute over the value of the shares, considering the claim to be primarily a commercial dispute between shareholders over the value of their respective shares. Dissatisfied with this decision, the applicant appealed to the Quebec Court of Appeal.
Court of Appeal Decision
Recalling the high degree of deference that the Court of Appeal must show to the findings of fact of lower courts, it concluded that the appeal should be dismissed. It reiterated that the oppression remedy is not a tool to force a desired sale price, but rather a mechanism of protection against abuse. Since the appellant failed to demonstrate such abuse, the Superior Court’s conclusions were upheld.
Key Takeaways
These decisions highlight the importance of entering into formal and comprehensive shareholders’ agreements that clearly define the roles, responsibilities, and rights of each party. A non-competition clause can also be beneficial.
Second, open communication and proactive conflict resolution among partners are crucial to avoid costly litigation.
Furthermore, the preservation of complete and well-organized documents is essential to support a position in case of litigation.
Finally, it is crucial to choose the appropriate legal recourse to settle a dispute. The oppression remedy is not a universal remedy for all shareholder conflicts.
In conclusion, it is always advisable to consult legal counsel for a proper analysis of your specific situation. They will be able to put your interests forward while offering personalized solutions.
Written with the collaboration of Laury-Ann Bernier, Law Lecturer at Université de Montréal and Université de Sherbrooke.
¹ Girard c. Larose, 2022 QCCS 4835.
² Girard c. Larose, 2024 QCCA 1592.
³ Business Corporations Act, RLRQ, c. S-31.1.
⁴ Id., s.451.