BC Court of Appeal gives Guidance on Evidentiary Standards in Oppression Actions
In the context of a family shareholder oppression action, the BC Court of Appeal clarified the evidentiary standards in oppression actions. On appeal, the Appellants challenged a decision made in a petition seeking shareholder oppression relief under section 227 of the Business Corporations Act, S.B.C. 2002, c. 57. The chambers judge dismissed the petition because the appellants failed to adduce sufficient evidence to meet the test of a reasonable expectation that the respondent’s conduct was oppressive to the appellants as shareholders. The Court of Appeal agreed with the Chambers Judge that the Petition be dismissed. The case sets out a useful list of the issues that arise in oppression cases.
First, the Court of Appeal confirmed the Appellants were required to establish a palpable and overriding error to succeed in this appeal, which raised questions of mixed fact and law.
The Court accepted that the test for shareholder oppression was as outlined by the chambers judge. The test was set out in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, and the decisions of Dalpadado v. North Bend Land Society, 2018 BCSC 835 and Cote v. Milltown Marina & Boatyard Ltd., 2015 BSCC 2033. The Court Accepted this test form BCE:
[95] (1) Does the evidence support the reasonable expectation the claimant asserts? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
Primarily the court considers what is fair and will look at the “business realities” and not just “the legalities”. To assess reasonable expectations, the court reviews general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps party claiming relief could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders.
Evidence must be lead on these issues. Here, reliance on an affidavit attesting that the facts in the Petition were true was insufficient when the Respondents in their Petition Response denied the facts. The Appellants expected that the Respondents would reply to the Petition with substantive evidence. The Respondents did not do so and argued that the Appellants evidence as presented was insufficient to establish the reasonable expectation as required by BCE. The Court confirmed the test is objective, and the subjective expectations of the Appellant did not carry the day.
The Court of Appeal did overturn the Chambers Judge’s decision to impose special costs against the Appellants, concluding the conduct was one of litigation strategy and not reckless indifference. Although the pleadings were “manifestly deficient”, the Appellants approach lacked the “extra element” of pursuing a “meritless claim” and being “reckless with regard to the truth” in order to warrant an order for special costs.
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