The Ontario Court of Appeal (the "Court") recently
provided much needed guidance on the distinction between the
oppression remedy and derivative actions. While both claims can be
used to address corporate misconduct, there are important
differences between the oppression remedy and derivative actions
which should determine the choice of remedy in a particular set of
The oppression remedy allows shareholders (and other appropriate
persons) to apply to court if a company's affairs have been
conducted in a way that is oppressive or unfairly prejudicial to
one or more shareholders. The oppression remedy is an equitable
remedy which gives the court broad discretion to remedy the
oppressive conduct. For example, the court can direct or prohibit
any act, regulate the conduct of the company's affairs and
appoint or remove directors, among other remedies. In contrast, a
derivative action is a procedural step necessary to bring a legal
proceeding in the name of a company. Unlike the oppression remedy,
a derivative action is designed to remedy harm that is done to the
company. There are several procedural requirements that must be met
in order to bring a derivative action, such as the complainant
having made reasonable efforts to cause the directors of the
company to prosecute or defend the legal proceeding.
In Rea v. Wildeboer, the appellants
asserted an oppression claim under the Ontario Business
Corporations Act alleging misappropriation of funds from a
TSX-listed company. The appellants were seeking to recover the
funds on behalf of the company. The appellants argued that they
were entitled to proceed under the oppression remedy because the
distinction between the oppression remedy and derivative actions
has been significantly weakened over time. However, the lower court
disagreed and struck the claim. On appeal, the Court dismissed the
appeal and clarified that the oppression remedy and the derivative
action are two different remedies with separate rationales and
statutory foundations. The oppression remedy is a personal remedy,
whereas the derivative action is a corporate remedy.
Specifically, the Court accepted that the oppression remedy and
the derivative action are not mutually exclusive where the factual
circumstances give rise to both types of claims. In this case,
however, the Court held that a claim must be brought by way of
derivative action in the following circumstances:
the claim only seeks to recover for wrongs done to a public
the relief sought is only for the benefit of the company;
there is no allegation that the complainant's personal
interests have been impacted in a way that is different from other
The Court noted that in most cases where an oppression
claim has been allowed to proceed for wrongs done to a company, the
wrongful acts directly impacted the complainant in a way that was
different from the indirect impact on other complainants. Further,
most of these cases involved small closely held companies, rather
than large public companies. Going forward, where the factual
circumstances may give rise to both a personal claim (oppression
remedy) and a corporate claim (derivative action), the question of
whether the claimant is entitled to proceed under the oppression
remedy will have to be determined on a case by case basis.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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