In its decision in Malata Group (HK) Limited v.
Jung, 2008 ONCA 111, the Court of Appeal for Ontario
recently examined the relationship between a derivative action,
which a shareholder may bring on behalf of a corporation, and
the shareholder's personal oppression action.
The decision arose from Henry Chi Hang Jung's motion to
dismiss portions of a lawsuit brought against him by Malata
Group (HK) Limited (MHK). According to the statement of claim,
MHK and Mr. Jung were two of three shareholders in Malata
Canada Ltd. (Malata). Mr. Jung also served as a director and
MHK claimed, among other things, that Mr. Jung had
misappropriated funds of and otherwise breached his fiduciary
duties to Malata. MHK sought a declaration in that regard and
an order that Mr. Jung return more than $1.5 million to
Malata's bank accounts.
Mr. Jung moved to dismiss those aspects of MHK's
lawsuit. He argued that the claims in question related to
wrongs done to Malata, and, as such, could be made only in the
context of a derivative action brought on behalf of Malata with
leave of the court.
The motion judge refused Mr. Jung's motion, holding that
MHK could advance its claims personally as part of an
The Court of Appeal dismissed Mr. Jung's appeal.
Armstrong J.A., writing for the unanimous court, confirmed that
there is not generally "a bright-line distinction"
between the claims that may be made in a derivative action and
those that may be made in an oppression action. He noted that
the oppression section of the Ontario Business Corporations
Act (much like other corporate statutes in Canada)
"is drawn in broad language, both in terms of the harms it
addresses and the non-exhaustive list of remedies it
contemplates." He observed that derivative and oppression
claims will often overlap "where directors in closely held
corporations engage in self-dealing to the detriment of the
corporation and other shareholders or creditors."
McCarthy Tétrault Notes:
The Court of Appeal's decision correctly recognizes that
misconduct by a director of a corporation, particularly a
closely held one, can constitute a wrong to the corporation and
to its shareholders at one and the same time. Provided that the
director's misconduct satisfies the statutory prerequisites
for an oppression action, an affected shareholder should be
able to sue in its personal capacity if it so desires.
The statutory prerequisites for an oppression action will
often be difficult to satisfy, however. Most Canadian corporate
statutes require an act that is either "oppressive"
or "unfairly prejudicial" to a shareholder or that
"unfairly disregards the interests of" a shareholder.
Unless the corporation is closely held, such that a wrong to
the corporation impacts its shareholders very directly, a
shareholder who wishes to sue for this type of wrong will only
be able to do so on behalf of the corporation itself, by way of
a derivative action and with leave of the court.
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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