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| Emma Lambert |
A recent decision of the Quebec Court of
Appeal (Black c. Alharayeri,
2015 QCCA 1350) provides a comprehensive review of the issue of the
personal liability of directors in the context of an oppression claim. [Please note, the author of
this post, Emma Lambert, was one of the attorneys representing the Respondent.]
This case involved a claim under section
241 of the Canada Business Corporations Act (“CBCA”)
brought by Ramzi Mahmoud Alharayeri (“Alharayeri”), the former
President, Chief Executive Officer and largest minority shareholder of the mise
en cause Wi2Wi Corporation (“Wi2Wi”), against certain directors of
Wi2Wi, specifically Hans Peter Black (“Black”), Andrus Wilson (“Wilson”),
Rob Roy (“Roy”) and David Tahmassebi (“Tahmassebi”), seeking
damages for conduct that Alharayeri deemed to be oppressive, unfairly
prejudicial and that unfairly disregarded his interests.
Though Alharayeri’s oppression claim was
originally wider in scope, the trial judge, the Honourable Stephen W. Hamilton
J.S.C., determined that Alharayeri had succeeded in proving oppression in
relation to two specific acts: the failure to convert Alharayeri’s preferential
Class A and Class B Shares and the failure to ensure that Alharayeri’s rights
as the holder of the Class A and Class B Shares were not prejudiced by a
private placement. In light of the circumstances, the trial judge found that it
was “fit” to order Black and Wilson to personally pay damages in the amount of
$648,310, with interest, the additional indemnity and costs, to Alharayeri as a
remedy to this oppression. The trial judge found that although each of the
defendants had been involved in the oppressive conduct and had benefitted from
changes to the stock option plan, it was Black and Wilson who had played the
lead roles in the discussions at the Board level, participated in the private
placement and benefitted from the dilution of Alharayeri’s preferential shares.
Alharayeri’s action against Roy and Tahmassebi was dismissed.
Black and Wilson appealed the first
instance judgment and Alharyeri filed an incidental appeal on the issue of the
valuation of his Class A and Class B shares. Ultimately, the Court of Appeal
dismissed both the principal and the incidental appeals. A particular issue of
interest in the Court of Appeal’s decision was its treatment of the governing
principles regarding the personal liability of directors, in this case of Black
and Wilson, in matters of oppression.
On the issue of their personal liability,
Black and Wilson had argued in appeal that the trial judge had erred in ruling
that they had played the lead roles in the discussions at the Board level and
that they had personally benefitted from the non-conversion of Alharayeri’s
preferential shares. They maintained that the evidence adduced at trial was
insufficient to demonstrate that they had personally committed the abusive and
prejudicial acts towards Alharayeri. They also argued that the judge had
violated the audi alteram partem rule in finding that they had
personally benefitted from the non-conversion of the Alharayeri’s preferential
shares on the basis of facts that had not been alleged and arguments that had
not been pleaded.
By way of an introduction to the issue of
the personal liability of directors, Justice Yves-Marie Morissette writing on
behalf of the Court of Appeal had the following comments:
[13] Un autre arrêt de principe sur la portée
de la même disposition mérite mention ici. Il s’agit du jugement de la Cour
d’appel de l’Ontario dans l’affaire Budd v. Gentra[1].
Le juge Doherty, au nom d’une formation unanime de la Cour, écrivait:
[47] In deciding whether an oppression
action claiming a monetary order reveals a reasonable cause of action against
directors or officers personally, the court must decide:
Are there acts pleaded against specific
directors or officers which, taken in the context of the entirety of the
pleadings, could provide the basis for finding that the corporation acted
oppressively within the meaning of s. 241 of the C.B.C.A.?
Is there a reasonable basis in the
pleadings on which a court could decide that the oppression alleged could be
properly rectified by a monetary order against a director or officer
personally?
[48] The first requirement seems
self-evident. No person should have to defend a lawsuit absent allegations
which identify the conduct of that person said to render him or her liable to
the plaintiff. This statement of claim utterly fails to deal with the director
defendants or management defendants on an individual basis. Rather, they are
treated as a single entity, each indistinguishable from the other, and all
serving as the cat's paw of the controlling shareholders. Nowhere does the
appellant allege that any named director or officer did or failed to do any
specified act or participated in any identified way in any of the decisions or
manoeuvres which the appellant relies on in support of his claim. The claim
does no more than identify the individuals as directors or officers of Royal
Trustco at some unspecified time. There is no attempt to connect any individual
director or officer to the alleged corporate oppression.
[…]
[52] … To maintain an action for a
monetary order against a director or officer personally, a plaintiff must plead
facts which would justify that kind of order. The plaintiff must allege a basis
upon which it would be "fit" to order rectification of the oppression
by requiring the directors or officers to reach into their own pockets to
compensate aggrieved persons. The case law provides examples of various
situations in which personal orders are appropriate. These include cases in
which it is alleged that the directors or officers personally benefitted from
the oppressive conduct, or furthered their control over the company through the
oppressive conduct. Oppression applications involving closely held corporations
where a director or officer has virtually total control over the corporation
provide another example of a situation in which a director or officer may be
held personally liable to rectify corporate oppression.
[14] L’arrêt Budd v. Gentra a posé plusieurs
jalons utiles dans l’analyse de recours pour abus intentés en vertu de
l’article 241 de la LSA. C’est particulièrement le cas en ce qui concerne
l’hypothèse d’une condamnation personnelle des administrateurs d’une société.
Se fondant sur cet arrêt, qui présente un tour d’horizon de la jurisprudence
alors en existence, un auteur offre la description suivante des situations qui
se prêtent à cette hypothèse[2]:
14.1.1.1. Where directors obtain a
personal benefit financial benefit from their conduct.
14.1.1.2. Where directors have increased
their control of the corporation by the oppressive conduct.
14.1.1.3. Where directors have breached a
personal duty they as directors.
14.1.1.4. Where directors have misused a
corporate power.
14.1.1.5. Where a remedy against the
corporation would prejudice other security holders.
On the first issue regarding Black and Wilson’s lead roles in the
discussions at the board level as justification for their personal liability,
the Court of Appeal determined the following:
[37] Tout d’abord, l’hypothèse d’une
condamnation personnelle d’un ou de plusieurs administrateurs semble bien
admise. L’auteur Markus Koehnen écrit à ce sujet[3]:
Directors and officers can be held
personally liable for corporate oppression. Their liability in this regard does
not depend on the breach of a specific statutory duty or common law tort but is
substantially broader. Personal liability for directors and officers does not
implicate corporate veil principles but involves the proper interpretation of
the oppression remedy. Although the oppression remedy creates a broader
personal basis of personal liability for directors than either the common law
or specific provisions of statutory liability, not all oppression claims
justify orders against directors. The plaintiff must make specific allegations
against directors to found a claim against them; otherwise directors’ liability
would be engaged each time the oppression remedy was invoked.
Le JurisClasseur Québec fait écho à ces
observations[4]. Les auteurs du fascicule
consacré au « Redressement en cas d’abus ou d’iniquité » commentent[5]:
Le recours en cas d’abus peut viser
directement les administrateurs d’une société lorsqu’ils participent au
traitement inéquitable du demandeur. […] De façon générale, il faut prouver que
ces derniers ont posé des actes abusifs ou injustes justifiant une sanction
pécuniaire pour compenser les dommages. Selon la jurisprudence, il y a lieu
d’ordonner un tel paiement lorsque les membres du conseil ont tiré un profit
personnel de l’acte reproché ou lorsqu’ils ont accru leur contrôle sur
l’entreprise.
[38] En outre, si l’on retenait l’argument
des appelants, il deviendrait plus difficile, voire impossible,
d’individualiser la responsabilité des administrateurs afin de départager ceux
d’entre eux qui ne sont pas à l’origine de l’abus (au sens du paragr. 241(2) de
la LCSA) et ceux qui le sont. Lorsque tous les administrateurs ne sont pas
également compromis par leurs agissements, cela risquerait d’engendrer une
forme d’immunité à l’avantage des administrateurs fautifs. Un tel résultat
paraît incompatible avec le large pouvoir discrétionnaire que la LCSA confère
au tribunal (« enforce not just what is legal but what is fair », écrit la Cour
suprême) de même qu’avec la finalité réparatrice du recours régi par l’article
241 de la LCSA.
[39] Une fois ces précisions apportées, cet
aspect du pourvoi se dissout en quelque sorte en une série de questions
d’appréciation de la preuve, pour la résolution desquelles il était loisible au
juge de première instance d’étudier les documents de la société déposés en
preuve, tels que les procès-verbaux et le registre des valeurs mobilières de la
mise en cause, afin de déterminer au(x)quel(s) des administrateurs on pouvait
légitimement imputer une conduite abusive ou inéquitable.
Secondly, on the issue of whether the
trial judge had violated the audi alteram partem rule in
finding that Black and Wilson had personally benefitted from the non-conversion
of Alharayeri’s preferential shares, the Court began its analysis by
distinguishing the facts of Budd v. Gentra from the present
case and then concluding that Alharayeri’s pleadings and allegations in demand
had not been deficient. As such, the Court concluded that there was no basis to
invoke any violation of the audi alteram partem rule.
Furthermore, on the issue of the sufficiency of the evidence of Black and
Wilson’s personal benefit, the Court concluded the following:
[56] Il est vrai que les appelants ne sont
pas les seuls investisseurs à avoir bénéficié du placement privé, mais en leur
imputant une responsabilité le juge ne fonde pas sa conclusion sur leur simple
participation à cette opération de financement par ailleurs légitime. Il y a
beaucoup plus. Eux seuls ont joué un rôle actif, non seulement dans la mise en
place de ce placement privé, mais également dans le refus de convertir les
actions privilégiées de l’intimée, et ce en l’absence de toute mesure parallèle
susceptible de protéger les attentes légitimes de ce dernier. C’est ce faisceau
de circonstances en arrière-plan qui fait du bénéfice personnel direct ou
indirect retiré par les appelants un élément probant dans leur condamnation
personnelle en vertu de l’article 241 de la LCSA.
[57] D’autre part, on ne saurait considérer
que le bénéfice en question se limite à la valeur des actions ordinaires
acquises en conséquence du placement privé. Même s’il est vraisemblable que la
situation financière de la mise en cause à l’automne 2007 et ultérieurement
était précaire et rendait très hypothétique, voire illusoire, la réalisation
prochaine d’un profit tangible en numéraire, un bénéfice personnel ne revêt pas
uniquement la forme d’un gain économique et en espèces. On peut inférer des
quelques décisions recensées sur le sujet que le bénéfice retiré par un
administrateur peut aussi consister en autre chose, comme le fait d’accroître
son contrôle sur le capital-actions de la société et sur la conduite de ses
affaires[6]. L’intimé le soulève aux paragraphes
13.6 et 13.7 de sa requête introductive d’instance, précitée au paragraphe [51]
et la preuve démontre que le placement privé aura permis aux appelants, quoique
surtout à l’appelant Black, d’asseoir leur contrôle sur la mise en cause.
[…]
[61] Il faut conclure de ce qui précède que
les appelants ont tort lorsqu’ils reprochent au juge de les avoir condamnés en
l’absence de toute preuve adéquate - bien au contraire, il y avait au dossier
un preuve prépondérante pour servir d’assise aux conclusions énoncées au
paragraphe [167] de motifs livrés en première instance.
[1] [1998] O.J. No. 3109 (C.A. Ont.).
[2] Markus Koehnen, Oppression
and Related Remedies, Carswell, Toronto, 2004, p. 201 (references omitted).
[3] Markus Koehnen, Oppression
and Related Remedies, Carswell, Toronto, 2004, p. 200.
[4] Raymonde Crête et Philippe D’Anjou,
“Redressement en cas d’abus ou d’iniquité”, in JurisClasseur Québec,
Droit des sociétés, fascicule 14, Montréal, LexisNexis, 2013, p. 14.
[5] Ibid., p. 19.
[6] Budd v. Gentra; Downtown
Eatery, [2001] O.J. No. 1879 (C.A. Ont.), paragr. 62: “Grad and Grosman, in
terminating the operations of Best Beaver and leaving it without assets to
respond to a possible judgment, should have retained a reserve to meet the very
contingency that resulted. In failing to do so, the benefit to Grad and
Grosman, as the shareholders and sole controlling owners of this small, closely
held company, is clear.”
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