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jeudi 3 juillet 2014

Has the Corporate Veil Been Lifted on Interim Costs Awards in Oppression Remedies?


By Ashley Kandestin 
ZSA Recrutment Juridique 

Last month, the Court of Appeal unanimously overturned the granting of an interim costs award against the directors of a company in the context of an oppression remedy, in Trackcom Systems International Inc. c. Trackcom Systems Inc., 2014 QCCA 1136. In the judgment, the Honorable Justice Clément Gascon analyzes the legislative powers of the court under section 242 (4) of the Canada Business Corporations Act (CBCA), as well as the powers recognized by the courts, most notably in the Supreme Court’s Okanagan ruling. These are the two ways on which to base a costs order in the context of an oppression remedy.

At paragraph 81 of the judgment, Justice Gascon held that under section 242 (4) of the CBCA, it is not possible to order the payment of interim costs against shareholders or individual directors of a corporation:
 
The wording of that subsection is clear. Parliament has enacted a provision for interim costs that includes legal fees and disbursements stating that it could be obtained from either the corporation or its subsidiary. Neither the shareholders nor the directors are listed in that provision. The two Superior Court judgments on which the judge relied, Mondor and Ain & Zakuta, were not interim orders for costs, but rather judgments on the adjudication of costs on the merits of oppression remedies.

A costs sanction against shareholders and directors is thus still available on the merits.

Regarding the general powers of the Superior Court - as elaborated under the Okanagan principles - it is possible to obtain an interim costs award against shareholders and directors in the context of an oppression remedy, provided, of course, that all the requirements are met (as set out in para. 89).
 
A costs order is always discretionary, and whether stemming from the CBCA or the Okanagan principles, hinges on the impecuniosity requirement, which is where the appellants on this motion succeeded:

"[91]  As appears from these judgments, whether under subsection 242(4) CBCA or the general powers of a superior court as recognized by the case law in particular in Okanagan and Hétu, a condition precedent to the awarding of interim costs was the necessity for the respondents to prove their financial difficulties and their state of impecuniosity. Even if that burden rested upon them as the parties seeking the interim costs, the evidence they offered in this respect was fragmentary at best."

It is also important to note that under section 242 (4) CBCA, an additional requirement may be considered: the fact that the financial difficulty arose out of the alleged oppressive action (para. 88).
 
The full judgment can be read here.

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