Interim costs for plaintiff in oppression claims vs. corporations

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is a litigation lawyer practicing at Perley-Robertson, Hill & McDougall LLP in Ottawa, Ontario. He may be reached at 613.566.2823 or obourns@perlaw.ca.

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Few may know that both the Ontario Business Corporations Act (“OBCA”) and the Canada Business Corporations Act (“CBCA”) give plaintiffs the opportunity to apply to the Court for an order requiring a corporation to give that plaintiff money, in the form of “interim costs”, required to sue that same corporation where that corporation has engaged in oppressive conduct against the plaintiff. The bad news for individual plaintiffs, and good news for corporations, is that a plaintiff must satisfy a difficult test if he or she will be successful in securing interim costs. Both the OBCA and CBCA provide for broad remedies against a corporation.  In particular s.248 of the OBCA and s.241 of the CBCA concern oppression remedy claims. The oppression remedy is a flexible remedy accurately described as follows:

The remedy was introduced largely in response to the difficulties encountered by minority shareholders in a corporate environment that runs by majority rules. Where one group of shareholders abuses their power over another group, inequitable results can occur. The oppression remedy amounts to this: the Court has a broad remedial authority where it finds conduct that qualifies as oppressive.  It may make any order it thinks fit to rectify the matters complained of. This explicitly includes setting aside a transaction or contract to which the corporation is a party or amending unanimous shareholder agreements, corporate articles or by-laws. This statutory language is to be given a broad interpretation consistent with its remedial purpose. The great flexibility of the oppression remedy stems from the inclusiveness of its language, which allows any type of corporate activity to be the subject of scrutiny, and which makes the remedy available to a broad class of individuals. Importantly, it has been held that no bad faith is required in order to establish conduct as oppressive. It is the effect of the conduct, and not the intention of the party engaging in the conduct, that is of primary importance in oppression remedy cases.

However, the problem is that potential plaintiffs often lack the necessary financial resources to litigate against a large corporate entity.  This problem is exacerbated where said corporation has in fact acted oppressively and caused, or contributed, to the plaintiffs impecuniosity. Sections s.249(4) OBCA and s.242 CBCA attempt to deal with this problem by giving courts the power to order on a motion that the defendant company pay the plaintiff “interim costs”. Section 249(4) of the OBCA states:

(4)  In an application made or an action brought or intervened in under this Part, the court may at any time order the corporation or its affiliate to pay to the complainant interim costs, including reasonable legal fees and disbursements, for which interim costs the complainant may be held accountable to the corporation or its affiliate upon final disposition of the application or action.

NO INTERIM COSTS PAYABLE BY PERSONAL DEFENDANT The first thing to note is that oppression remedy claims can be made against entities other than just a corporation, such as its directors and shareholders.  However, the same is not true for an order of interim costs.  In Dunn v. Wintergreen the Ontario Superior Court stated:

The applicant claims relief pursuant to Section 249(4) of the OBCA, not for costs payable by the corporation Wintergreen, but costs payable by James Dunn and 899 Ontario Ltd. The court has no jurisdiction to make such an order. Section 249(4) of the OBCA is clear. An order may only be directed with respect to “the corporation (Winter-green) or its affiliate”, not with respect to another party.

The most recent and leading Divisional Court case on s.249(4), Murphy v. Stefaniak, concurred:

A plain reading of s. 249 (4) specifically excludes an order against an individual. This section narrows the broad remedies available on an interim or final basis under s. 248 (3) of the Act. In our view, the court lacked jurisdiction to make an interim award of costs against an individual pursuant to s. 249 (4). For this reason, the appeal by Mr. Stefaniak of the order of interim costs against him is allowed.

INTERIM COSTS AGAINST CORPORATION The leading case on interim costs under s. 249(4) of the OBCA is Alles v. Maurice, (1992) CarswellOnt 132, 5 B.L.R. (2d) 146 (Ont. Gen. Div.) which lays out the test a plaintiff must satisfy.  The test, which was has since been modified and confirmed in the 2010 in the Murphy v. Stefaniak decision, requires the plaintiff (who would be an “applicant” on the motion for interim costs) satisfy a four step test proving that:

•  the applicant is in financial difficulty; •   the applicant’s financial difficulty is connected to the alleged oppressive conduct and his difficulties arise from the pursuit of the law suit; •  but for an interim costs award, the applicant could not pursue the oppression action; and •  the applicant has established a case of sufficient merit to warrant the costs order.

Step 1:  Financial difficulty The financial difficulty potion of the test is typically the easiest to satisfy.  Evidence showing that the plaintiff has fallen on hard times is required at this step, the more the better. Step 2:  Link between financial difficulty and oppressive conduct In Perretta v. Telecaribe Inc. [1999] O. J. No. 4487 (“Perretta“) at paragraph 10, the Court explained that there must be some link between the plaintiff’s financial difficulty and the corporation’s alleged oppressive conduct:

… [i]t is not necessary for the plaintiff to demonstrate a direct causal link between the alleged oppression and the impecuniosity. It is enough, for example (as was the case in Alles) if the alleged oppression has affected the plaintiff’s ability to finance an otherwise meritorious lawsuit. But there must be some connection between the conduct complained of and the plaintiff’s financial inability.

Therefore, according to the decision in Perretta it appears a plaintiff must show, at a minimum, that but for the oppressive conduct of the corporation they would have had access to the equity required to fund a claim against the corporate defendant.  Alternatively, where a plaintiff never had funds to support a claim in the first place, a plaintiff must produce evidence that his or her financial difficulties were further worsened by the corporation’s alleged oppressive conduct.

Step 3:  Necessity of interim costs A plaintiff must then prove that but for an order of interim costs he or she will not be able to proceed with the litigation.  This is the most difficult part of the test to satisfy. In Musicrypt Com. Inc. v. Stark, (2001) CarswellOnt 1624 (Ont. Sup. Ct.) (“Musicrypt“), at paragraph 10, Justice Cullity denied a request for interim costs observing that the plaintiffs had substantial equity in their home, as well as $35 000 in registered retirement savings plans, as well as a line of credit. He noted that;

… understandably, they do not wish to jeopardise their financial position in the litigation, but that is not the test.

The plaintiff must show that they do not have any means to secure the equity necessary to fund a lawsuit. Step 4:  Case of sufficient merit In Perretta at paragraph 11, the Court stated that a Claimant must prove they have “an arguable case with a reasonable chance of success”. Further, if the applicant’s case involves different claims (ie. oppression, wrongful dismissal and intentional interference with contractual relations) then it is specifically the claim(s) for oppression which must have “an arguable case with a reasonable chance of success”. (see Musicrypt Com. Inc. v. Stark, (2001) CarswellOnt 1624 (Ont. Sup. Ct.) at paragraph 7) CONCLUSION Thus, interim costs will be available to certain plaintiffs who have can satisfy the above test including proving their financial difficulties and the likelihood that some oppressive conduct may have occurred by the corporate defendant.  However, what is clear is that interim costs are not awarded simply to maintain the plaintiffs in their current financial position and lifestyle while they sue a corporation.  Rather, interim costs are only available as a last resort for a plaintiff who would otherwise be completely unable to pursue an oppression claim against a corporation with a reasonable chance of success. _______________________________________________________________________ Owen Bourns is a litigation lawyer in Ottawa, Ontario.  He may be reached at 613.566.2823 or at obourns@perlaw.ca.

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