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Commercial/Contracts: No CBCA Violation of Shareholder Oppression for Use of Share Pricing Method

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Svensrud v Saskatoon Boiler MFG. Co. Ltd., 2014 SKQB 263, presented an recent, interesting issue regarding the accuracy of the pricing method defined in a unanimous shareholders agreement (“USA”).  The Court of Queen’s Bench held that such a provision does not constitute shareholder oppression pursuant to the Canadian Business Corporations Act (“CBCA”).

Plaintiff, one of four corporate shareholders (and a party to the USA in dispute), pursued the challenge. The disputed USA provisions involved the actions following departure of a corporate shareholder.  Specifically, the USA provided that a departing shareholder’s shares would be repurchased at the full market value — as determined by the corporation’s accountant. The Plaintiff took issue with the price determined by the corporation — in particular the combination of book values and values provided by the corporation.  The Plaintiff contended the value was superficially low, and believed that this use of the USA by the corporation constituted an instance of shareholder oppression.  The Plaintiff’s application was brought pursuant to the CBCA, which contains relevant provisions akin to both the Saskatchewan Business Corporations Act (where the corporation was situated), and the Nova Scotia Corporations Act (NSCA).

The Court first held — over a standing challenge by the Defendant — that the Plaintiff was entitled to bring the present action, in his capacity as a corporate shareholder.   Unfortunately, this proved to be the singular victory arising for the Plaintiff out of the Court’s decision.

On the primary issue of whether or not Plaintiff was entitled to a remedy, the Court analyzed the matter by articulating a two-step process:

(1)  Determining whether the complainant’s expectations of the corporation’s actions were reasonable and whether this expectation was breached. If “yes,” then —

(2) Determining whether the activity of the corporation amounts to “oppression”, “unfair prejudice” or “unfair disregard” of the Plaintiff’s interests. This conduct requires coercive, abusive or acts of bad faith on behalf of the corporation.

The Court held that the plaintiff had established the first criteria, i.e., that  he possessed a reasonable expectation to receive full market value for his shares, as evidenced by the USA.  However, the second element was deemed not met as — in this case –the behaviour of the corporation did not rise to “oppression, unfair prejudice or unfair disregard.” The Court classified the discrepancy between share pricing methods as constituting a straightforward dispute, and not as oppressive or bad faith behaviour from the corporation.  Further, the Court found no no evidence of misconduct of the other directors or the corporation’s accountant.  Accordingly, the Plaintiff failed to produce sufficient evidence to overcome the threshold of oppressive or bad faith behaviour required of the corporation in order a CBCA remedy to be granted by the Court.  Consequently, Plaintiff’s application was dismissed.

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