Canada: Ontario: The Relationship between the Oppression Remedy and Derivative Action

Many jurisdictions provide shareholders with the right (a) to seek relief in respect of oppressive or unfairly prejudicial conduct, and (b) to instigate legal action on the company's behalf where the company has suffered harm (often described as a derivative action). In Canada, Part XVII of the Business Corporations Act, R.S.O. 1990 (c. B.16) provides shareholders with relief in respect of oppression (Section 248) and the ability to instigate a derivative action (Section 246). The Ontario Court of Appeal in Malata Group (HK) Limited v. Jung, 2008 ONCA 111 has recently considered the relationship and differences between these two remedies, against the background of the English decision Foss v Harbottle (1843) 2 Hare 461 (available here and discussed here). Armstrong JA (with whom MacPherson JA and Epstein JA agreed) observed (paras. [34] - [35]):

"In my view, allowing s. 248 oppression claims to proceed where there is harm to the corporation would not nullify s. 246, because the two sections involve different threshold tests. Section 246 simply requires a violation of the corporation’s legal rights. On the other hand, s. 248 requires, in the case of harm to the corporation, a violation of corporate legal rights that is oppressive or unfairly prejudicial, or that unfairly disregards the complainant’s interests"

"It is perhaps worth noting that another relevant difference between the derivative action and the oppression remedy relates to costs. Subsection 247(d) explicitly allows a court to order the corporation to pay the legal fees or other costs reasonably incurred in connection with a derivative action. The oppression remedy section of the Act, though it invests courts with broad remedial authority, contains no such provision".