Canada: Feeling Oppressed? Not If It's From A Breach Of Contract, Says Court Of Appeal

In Shefsky v. California Gold Mining Inc., the Alberta Court of Appeal (Court) upheld the chambers judge's decision and dismissed the appeal of Martin Shefsky in a fight for control of the board of directors of California Gold Mining Inc. (CGMI), a public corporation involved in mineral exploration. In dismissing the appeal, the Court determined that not all unfair conduct rises to the level of oppression for which a court can grant a remedy. Specifically, the Court (for the first time in Alberta) rejected the notion that a claim that was essentially for breach of contract could form the basis of an oppression claim. As a result, the decision has important implications for how oppression claims should be cast and how they will be reviewed by the courts in Alberta.


The appellants, Mr. Shefsky and his solely owned holding company, 2350183 Ontario Inc., alleged that the respondents breached Mr. Shefsky's reasonable expectations that he would control the corporation if he raised at least C$5-million in investments for CGMI. In particular, that he would be entitled to name three of five directors on the board and would retain control through the shares owned by him and the investors he introduced to CGMI. The appellants asserted that the respondents engaged in oppressive conduct, including a secret placement of shares that diluted Mr. Shefsky's voting power as well as refusing to allow Mr. Shefsky to appoint a third member of the board when his initial nominee refused to accept the position.


In setting out the foundation of their decision, the Court enunciated the broad governing principles of the oppression remedy:

  1. Not every expectation, even if reasonably held, will give rise to a remedy because there must be some wrongful conduct, causation and compensable injury for the claim of oppression;
  2. Not every interest is protected by the statutory oppression remedy — it cannot be used to protect or advance, directly or indirectly, other personal interests. It is only their interests as shareholder, officer or director that are protected; and
  3. Courts must not second-guess the business judgment of directors of corporations. Rather, courts must decide whether the directors made decisions that were reasonable in the circumstance.

The Court found that the appellant's opportunity to gain control of the board was not sufficient to warrant an oppression remedy. A mere speculation, hope or aspirational belief is insufficient to form the foundational evidence for an extraordinary remedy such as oppression. The Court concluded that an expectation based on a loss of an opportunity, without proof that such opportunity was more than merely speculative, was insufficient to ground an oppression claim because causation and compensable injury had not been established.

The oppression remedy is a personal claim and requires the complainant to identify a personal interest that is alleged to have been violated. It is not enough to allege that shareholders have an expectation that directors, in general, will not act oppressively. As is a common occurrence in junior mining companies, the board of CGMI decided to turn to existing shareholders to try to raise the required funds. The Court agreed with the respondent that a board is entitled to substantial deference and refused to interfere with a board's discretion absent any evidence that would lead them to a contrary view. The Board's decision to approve the private placement was intended to raise money for the corporation, a legitimate business purpose. Even if Mr. Shefsky had a claim for loss of value of shares due to the private placement, that claim belonged to the corporation.

The Court further denied Mr. Shefsky's claim as he was attempting to gain access to an equitable remedy for a personal claim that arose pursuant to the terms of a commercial agreement. At paragraph 74-75, the Court concluded:

At its core, the Term Sheet is a commercial agreement negotiated at arm's-length by sophisticated parties. That commercial agreement must not be rewritten by a court importing notions of "just and equitable". It would be dangerous territory, indeed, and an improper conflation of contract law and equitable principles to suggest that the latter can come to the aid of a claim for breach of any contractual promises made to Mr. Shefsky in his personal capacity....The legal and jurisdictional boundaries which circumscribe, and delineate, resort to an oppression remedy must be firmly set. A party aggrieved, whether by having made an imprudent, or incomplete, or improvident personal bargain, cannot be permitted to seize an oppression remedy and, thus, gain an equitable remedy that was never in the contemplation of the contracting parties.


In a dissenting opinion, Justice F. Slatter determined that the appeal should have been allowed. He concluded that the appellants were able to demonstrate breaches for their reasonable expectations resulting from conduct of the respondents that was unfairly prejudicial and unfairly disregarded their interests.

Overall, the majority decision from the Court is consistent with earlier Ontario Court of Appeal jurisprudence on the necessity of avoiding conflating breach of contract and oppression. As a result, the decision has important implications for how oppression claims should be cast and how they will be reviewed by the courts in Alberta. Claims that are essentially for breach of contract should not be improperly recast as an oppression claim.

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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