Oppression Remedy vs Derivative Action Essay.
Many people from different corporations are engaged in many legal cases, mostly people uses their influence to win cases which leads to the minority being harmed in the process since they have no options of retaliating. For example, directors of corporation can engage in wrongdoing by taking some of the profits of the corporation for themselves. The corporation can therefore sue the directors like a normal person (Smyth et al.
628). The minorities that get harmed are the board members of minority shareholders.
There are two remedies that minorities can use in protecting themselves from the power of the majority which include the Oppression Remedy and the Derivative Action. The two remedies that are used by the minorities are similar but defer slightly and therefore people need to understand when to use the different remedies. Oppression Remedy is used by shareholders in bringing actions against the companies that conduct unfair practices towards the shareholders.
In cases of oppression remedy, the court is allowed to makes a judgment that is fair and suitable regarding the situation where that complainant has been oppressively and unfairly treated (Smyth et al. 629). The Derivative action is used by the shareholders in taking actions on behalf of the corporation against the top managements of the corporation. When a director of corporation has done any wrong such as violating duties that are fiduciary to the shareholders, the shareholders can take actions by suing the directors of the corporation (Smyth et al. 28). The oppression remedy are usually used when the minority have been frozen out or deadlocked.
The oppression remedy is also used when the relationship between majority shareholder and minority shareholder has broken down. The shareholders that own shares in corporation are empowered by the oppression remedy to sue the corporations in cases where the corporations have oppressed and prejudiced unfairly the shareholders interests as stated by Goddard in the article “Canada: Ontario: The Relationship between the Oppression Remedy and Derivative Action.
Minority have also been affected in the corporations that are run by the rules of the majority since the minorities have fewer contributions to the corporations’ business practices and direction. In this case, many corporations have been found be taken over by the majorities’ shareholder. The majorities also make the decisions of the companies leading to oppression of the minorities. Oppression remedies are used to bring justices in the case where the majorities hand over the company to their children leading to oppression to the minorities.
The oppression remedy is widely used in places such as Canada (Ellyn 15). The real life cases that will be discussed in this paper include the case of Waxman et al. v. Waxman et al. Others cases that will be discussed include the cases of Alizadeh et al. v. Akhavan et al. , Deluce Holdings Inc. v. Air Canada, Knudstrup v. Superior Court, McRedmond v. Est. of Marianelli, Ford v. OMERS and Foss v Harbottle. Definition of terms of Oppression Remedy and Derivative Action Oppressive conducts are conducts that are committed by the majority to the minority shareholders that lead to the use of the oppression remedy.
Court Ordered meetings as stated by the section 106(1) of the Ontario Business Corporations Act are meetings which the court orders to be held as the courts direct when the shareholders have been allowed to be part of the corporation meetings. In the derivative action, a complainant as defined by section 245 of the OBCA is a person such as the director, officer, registered holder who makes the application of bringing the action to court on behalf of the corporation (Ellyn 9). Good faith is a term that has not been defined in the statutes of the corporate law since cases are analyzed on terms of bad faith indications.
Costs are defined according to the Canadian common law as the court power to award the legal expenses of the successful party that are paid by the losing party (Ellyn 11). In the oppression remedy, a complainant according to the section 245 of the OBCA is defined as a person who applies an action that has been conducted by the corporation to the court (Ellyn 15). Investigations are effective exercises that are conducted in case of the oppression to find out the relevant information of the case.
It is provided by section 161(2) of the OBCA that investigations are ordered by the court when corporations have been engaged in unlawful business practices (Ellyn 22). Appraisal remedy is the shareholders’ appraisal right for the company to purchase the shares of the shareholder at a fair value under some circumstances like when the shareholder is holding 10% or less of the shares that are outstanding (Ellyn 24). Winding-up is courts order under the just and equitable doctrines to dissolute the corporation under certain circumstances of the oppression of the minority shareholders (Ellyn 25).
Examples of Oppression Remedy v. Derivative Action that have succeeded or failed One of the cases where the oppression remedy succeeded was the case of Waxman et al. v. Waxman et al. In this case the minority, Morris Waxman recovered around $50 million from the case after he was dismissed and excluded from the family business by the majorities his brother Chester Waxman and others (Ellyn 15). Another case in which the oppression remedy succeeded is the case of Deluce Holdings Inc. v. Air Canada. In this case, Deluce Holdings the minority shareholder was terminated as the CEO by the Air Canada who was the majority shareholder.
The representatives of Air Canada wanted the postponement of the arbitration proceedings of the case but Justice Blair of the Ontario Superior Court ensured that the remedy action was preceded (Ellyn 21). The case in which the oppression remedy failed is the case of Alizadeh et al. v. Akhavan et al. In this case, the minority shareholder was awarded the oppression remedy since the judge of the Ontario Superior Court had restored the management fees payments without making conclusions of the oppression allegations merits (Ellyn 19). The case of the derivative action that has failed is the case of Knudstrup v. Superior Court.
In this case, the minority shareholder was not granted the remedy since the case was brought on behalf of the defendant. One of the cases of the derivative action that succeeded is the case of McRedmond v. Est. of Marianelli. In this case the plaintiff was awarded the verdict. One of the cases of the derivative action that failed is the case of Ford v. OMERS. In this case, the supreme court of Canada rejected the motion to appeal (Koehnen 1).
Lastly, the case of the oppression remedy that failed is the case of Foss v Harbottle as stated by Griggs in the article “He Statutory Derivative Action: Lessons That May Be Learnt from Its Past! Analysis of the Results of Aforementioned Examples In the case of Waxman et al. v. Waxman et al. the minority, Morris Waxman recovered around $50 million from the case after he was dismissed and excluded from the family business by the majorities his brother Chester Waxman and others. In this case, the verdict was fair since even though the minority was oppressed, he ended up being compensated for the oppression since he was awarded the oppression remedy (Ellyn 15). In the case of Deluce Holdings Inc. v. Air Canada, Deluce Holdings the minority shareholder was terminated as the CEO by the Air Canada who was the majority shareholder.
The representatives of Air Canada wanted the postponement of the arbitration proceedings of the case but Justice Blair of the Ontario Superior Court ensured that the remedy action was preceded. In this case, the verdict was also fair and just to the minority due to the fact the minority was awarded the oppression remedy after being oppressed by the majority Air Canada (Ellyn 21). In the case that the oppression remedy failed which is the case of Alizadeh et al. v. Akhavan et al. the minority shareholder was awarded the oppression remedy.
The judge of the Ontario Superior Court had restored the management fees payments without making conclusions of the oppression allegations merits (Ellyn 19). The case of the derivative action that has failed is the case of Knudstrup v. Superior Court. In this case, the minority shareholder was not granted the remedy since the case was brought on behalf of the defendant. One of the cases of the derivative action that succeeded is the case of McRedmond v. Est. of Marianelli. In this case the plaintiff was awarded the verdict. Another case relating to derivative action that failed is the case of Ford v. Omers.
In this case, the supreme court of Canada rejected the motion to appeal (Koehnen 1). Lastly, the case of the oppression remedy that failed is the case of Foss v Harbottle as stated by Griggs in the article “He Statutory Derivative Action: Lessons That May Be Learnt from Its Past! ” Preference of Oppressive Remedy Oppressive remedy intends to correct the anomaly that occurs when minority shareholders are unable to exercise control of a corporation due to nature of these organizations to adopt decisions based on majority shareholder.
It allows the minority shareholders to undertake legal action against the company to correct discriminatory practices (Ellyn 15). The minority shareholders must provide evidence to the court presiding over the arbitration that injustice has been done on them through, discrimination, unfair treatment or isolation from decisions of running the corporation (Smyth et al 629). The court exercise great authority on the matter of oppressive remedy at it own discretion once there is evidence that oppression occurred to the minority party as provided by acts specified in oppressive remedy law.
The court also allows and presides over oppressive conduct that were committed long before this law was adopted and come into force. Additionally, it provides no time limit on which to file a case after it occurs, thereby eliminating loopholes within the act (Ellyn 15). To this effect, a court in addressing oppression in minority has power to overrule the decision and transaction undertaken by the company, and among other things enforce acts as contained in oppressive law remedy .
However the complainant as pertains to oppressive remedy must be able to provide sufficient evidence that proves the company directives or its subsidiaries and affiliates resulted in its oppression, or in the manner in which directors of the company exercised their power (Ellyn 15). The court in oppressive remedy arbitration has the only mandate to determine if oppression occurred to minority party, in so doing; it will disregard actions done in good faith by management in implementing decisions, which can be used as mitigation by the accused. This leeway forms the hallmark in oppressive remedy cases arbitration (Ellyn 15).
The court requires that the plaintiff express reasonable expectations while instigating cases, what it calls legitimate expectation of a shareholder in line with oppressive remedy act. Legitimate expectation in this case refers to valid expected outcomes as provided in the company acts and provisions, and based on general trends of the company. This means while instituting a case the claimant should without prejudice seek to address valid issues as contained in companies statutes and memorandum of understanding, which is left for the court to decide.
This in essence limits the arbitration redress that is sought to what the court consider legitimate expectations (Ellyn 17). However, unlike derivative action, oppressive remedy provides broad spectrum of ruling that might be sought by plaintiff under this act to include such actions like order to seek an appointment of receiver manager, amendment of company act, appointment of addition directors, orders to seek closure of a company, or suspend company transactions. The court can also award payment and provision of legal fees to the plaintiff if it is sought in the dispute (Ellyn 17).
Oppression remedy like, in derivative action provides for proper person to seek a court redress from a company where injustice is committed against. Such circumstances are provided for in the oppression remedy act whereby a creditor or employees sue as proper person. This is allowed when it is shown that the directors of a company engage in illegal activities through the company or where there is contravention of rights to a person by the company (Ellyn 17).
Preference of Derivative Action According to Griggs in the article Statutory Derivative Action, The corporations Act 2001, explains that Derivative action provides shareholders with an avenue to seek redress against company directors based on contravention of companies act and existing memorandum between corporation and shareholders. It allows the plaintiff to seek legal intervention on any company transactions. The underlying conditions of this act require that the plaintiff be able to prove to the court that the management has no freewill to institute any proceedings on itself.
The issue under arbitration must be shown to be in the best interest of the company at large and done out of good faith by the plaintiff. The characteristic feature of derivative action as discussed in Griggs work, Statutory Derivative Action, is that it can cause a third party that has no vested interests to cause legal intercept on behalf of a second party that is disadvantaged by lack of will of corporation to act in favour of the second party.
Therefore the derivative action provides counter measures of regulating the company’s managerial decisions that are deemed excessive. In the same article by Griggs, derivative action acts provides circumstances under which a suit related to it can be instigated. Unlike in oppressive remedy, the conditions which allow a suit to occur are limited in order to protect the independence of corporation to carry out their mandate and prevent unnecessary litigations.
The derivative action is especially relevant when the subjects of the suit are board of directors that are found to be in contravention of a company policy. It is obvious the directors cannot have free will to institute litigation upon themselves. In total, derivative action litigation require the plaintiff to prove that management actions constitutes a fraud to the company or the minority, or there is intrusion on shareholder rights, or an action done by management is deemed as ultra vires in the company acts.
Victory Rates of Oppressive Remedy In execution of oppressive remedy arbitration, the court only purpose is to analyze evidence and determine if actually any oppression took place to the minority party, while disregarding purported or otherwise good faith of the management in implementing decisions, which can be used as mitigation by the accused. This leeway forms the hallmark in oppressive remedy cases arbitration and largely determines the victory of a law suit (Ellyn 15).
The litigations brought on oppressive remedy require the claimant to provide the court with just sufficient indication that there was cause for oppression to occur. This provides the plaintiff with an edge of favourable ruling over the defender since the burden of proof required is minimal. This characteristic should be a consideration when instituting litigation which requires high burden of proof for achieving conviction (Ellyn 22). Finally suit brought about in oppressive remedy must conform to the general requirements of this act as provided in this law.