03 Juil 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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