Canada: Oppression Remedy Actions: Corporations May Be Held Liable For Statements Made By Their Officers

The Quebec Court of Appeal recently confirmed that representations made by certain officers of a company to an officer of a subsidiary about the terms of a stock option plan, even if inaccurate, may create a reasonable expectation and give rise to an oppression remedy complaint if the representations are subsequently breached.1

The facts

Until he was fired, Christian Dollo was president of Premier Horticulture Ltée, a subsidiary of Premier Tech Ltée. His compensation included participation in Premier Tech's stock option plan. Like many such plans, the Premier Tech plan included a clause to the effect that, upon termination of employment, a participant would immediately forfeit all rights in respect of unexercised option awards, unless the board of directors were to decide otherwise.

During his employment, Dollo accumulated 25,000 shares of Premier Tech and was a party to a unanimous shareholders' agreement that granted a call option to Premier Tech's majority shareholder, Gestion Bélanger Ltée, exercisable in certain circumstances that included termination of an employee-shareholder.

Disappointing financial results in 2010 gave Dollo cause to be concerned that he would lose his job. Upon reviewing the stock option plan text, he realized he would forfeit his options if he were fired. He contacted senior officers at Premier Tech, who reassured him that his employment was secure and that he could exercise his options even if he lost his job.

Dollo was subsequently fired, at which time he had options to purchase 207,619 shares of Premier Tech and owned 25,000 shares. On the day he was fired, he received a letter from Gestion Bélanger advising him that it was exercising its call option under the shareholders' agreement, as well as a letter from Premier Tech informing him of the terms of his temination, but saying nothing about his stock options. A few months later, the board of directors formally denied Dollo the right to exercise his options.

Dollo commenced proceedings against Premier Tech and Gestion Bélanger, seeking the right to exercise his options and to have Gestion Bélanger purchase the shares issued as a result of such exercise in accordance with the shareholders' agreement. Dollo's action was founded on, among other things, section 241 of the Canada Business Corporations Act (CBCA), which allows a complainant to apply for court orders where a corporation has exercised its powers in a manner that is oppressive. The trial judge granted Dollo's action without analyzing section 241 of the CBCA in detail. Premier Tech and Gestion Bélanger appealed.

Appeal court decision

According to the Quebec Court of Appeal, the representations made by officers of Premier Tech before Dollo was fired, confirming that his options would not be at risk if he were dismissed, created a reasonable expectation that could give rise to an oppression remedy based on section 241 of the CBCA.

Since an oppression remedy is based on oppressive or unfairly prejudicial conduct by a corporation, the Court analyzed the relevant provision of the stock option plan and concluded that it was not per se oppressive, but commented that [translation] "the oppression, if any, flows not ... from application of the clause as such, but from the board of directors' refusal to correct any resulting unfairness."2

The appellants argued that Dollo did not have standing as a "complainant" within the meaning of section 238 of the CBCA, as when the board of directors denied his right to exercise his options, he was only an optionee and as such could not obtain "complainant" status. However, the Court remarked that [translation] "an oppression remedy may ... be based on conduct or facts that occurred before the remedy was sought if the unfairness or injustice resulting from such conduct or facts subsists."3

The Court of Appeal relied on the two-stage test articulated by the Supreme Court of Canada in BCE: (i) Does the evidence support the complainant's assertion of a reasonable expectation? and (ii) Does the evidence establish that the reasonable expectation was violated by conduct falling within any of the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest? The Court of Appeal also reiterated certain important principles laid down in BCE, including the fact that a director's duty to act in a corporation's interest includes acting in the interest of the corporation's stakeholders, including its shareholders.

The Court of Appeal thus found that Dollo had been oppressed by Premier Tech in that (i) the conversation between Dollo and certain officers of Premier Tech gave rise to a reasonable expectation by Dollo that he would be able to retain his options even if he were fired by Premier Tech, and (ii) the Premier Tech board, when faced with such promises, refused to remedy the situation by allowing Dollo to exercise his options. The Court noted that since Premier Tech's officers had misled Dollo by telling him he could keep his options, the corporation could not subsequently raise an objection based on the relevant provision of the stock option plan. The appellate court thus affirmed the lower court decision and dismissed Premier Tech's and Gestion Bélanger's appeal.

Conclusion

Corporations and their boards should note that even verbal representations or statements made by their officers may be binding. The courts will not hesitate to intervene if corporations attempt to enforce contractual clauses that contradict such representations or statements if in so doing the parties to whom such representations are made are treated unfairly or suffer oppression.

Footnotes

1. Premier Tech ltée c. Dollo, 2015 QCCA 1159, July 9, 2015.

2. Ibid., para 111.

3. Ibid., para 122.

4. BCE Inc. v 1976 Debentureholders, 2008 SCC 69, para 72 ff.

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