The standards of conduct under both oppression remedies, Canada’s section 241 and South Africa’s section 163, are oppressive conduct, unfairly prejudicial conduct and unfairly disregarding conduct. When drafting the oppression remedy provision the Dickerson Committee said that the changes to section 210 of the 1948 UK Companies Act would include the following under the proposed CBCA.
To the basic criterion [of] “oppressive” is added the phrase “unfairly prejudicial to or in disregard of the interest of”, which makes abundantly clear that the section applies where the impugned conduct is wrongful, even if it is not actually unlawful.255
The intention of the oppression remedy was to broaden the remedy to an extent never provided under section 210 of the 1948 UK Companies Act. Bear in mind that these
253
Refer to Chapter 5 for the oppression remedy provisions under the various Canadian provincial corporate statutes.
254
820099 Ontario Inc. v Harold E. Ballard Ltd (1991), 3 BLR (2d) 113 at 123. 255
standards go hand in hand with the reasonable expectations of the shareholder, discussed below.
3.1 “Oppressive” conduct
This standard describes conduct that is coercive and abusive. Courts have described it as conduct that is burdensome, harsh and wrongful, a visible departure from the standards of fair dealing and an abuse of power which results in an impairment of confidence in the probity with which the company’s affairs are being conducted.256
Bad faith is not a necessary element of the standard; the act can be abusive or harsh without the element of bad faith from the person inflicting the abuse.257 Over the years oppressive conduct in Canada has included “failure on the part of the corporation and its controlling shareholders to take reasonable steps to simulate an arm's-length transaction; lack of good faith on the part of the directors of the corporation; discrimination among shareholders with the effect of benefiting the majority shareholders to the exclusion of the minority shareholders; lack of adequate and appropriate disclosure of material information to minority shareholders; and a plan to eliminate a minority shareholder.”258
From the South African perspective, it may seem as though this is the return of the term “oppressive conduct” to the South African shareholder’s remedy. Section 252 of the
256
Scottish Co-Operative Wholesale Society Ltd v Meyer [1958] 3 All E.R. 66. 257
Oppression and other Related Remedies, supra note 132 at 81 citing Brant Investments Limited v KeepRite Inc, [1991] 3 OR (3d) 289 at 305-306.
258
Stephanie Ben-Ishai & Poonam Puri, “The Canadian Oppression Remedy Judicially Considered: 1995- 2001” (2004) 30 Queen’s LJ 79 at 89.
1973 SA Companies Act had developed from the oppressive conduct259, to the “unfair prejudice” requirement needed to make an application under section 252 of the 1973 SA Companies Act. Under section 111bis the 1926 Union Companies Act the “oppressive conduct”, involved no more than a lack of probity or fair dealing, or a visible departure from the standards of fair dealing, or a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely.”260 This is fundamentally different from “oppression” under the CBCA. In the CBCA the description of oppression “...involving more than a lack of probity or fair dealing...” is used in the context of the oppression remedy as whole. In the Dickerson Report, the Dickerson Committee created a whole oppression remedy not merely a provision for oppressive conduct to address that particular conduct but a wider scope of the remedy. Now that South Africa has adopted this CBCA oppression remedy, it is only fair that the widest possible interpretation of the oppression remedy is provided to the shareholders instead of unnecessarily limiting the effect of the oppression remedy by looking back at an inadequate statutory shareholder remedy merely because the terms are similar or identical.
259
In section 111 bis of the 1926 Union Companies Act. 260
Donaldson Investments (Pty) Ltd v Anglo Transvaal Collieries, [1979] 3 S Afr L 713 (Wit Local Div) at 720 with reference to Elderv Elder and Watson Ltd [1952] SC 49 at 55; Aspek Pipe Co (Pty) Ltd and Another v Mauerberger and Others 1968 (1) SA 517 (Cape Prov Div) at 527.
3.2 “Unfairly Prejudicial” conduct
Conduct that may fall short of “oppression” may still amount to unfairly prejudicial conduct. The conduct described may be prejudicial but not unfair.261 “The normal operations of a corporation must maintain a balance between the interests of corporate stakeholders262, which necessarily means some unequal accommodation.”263 Examples of unfairly prejudicial conduct include but are not limited to the following: failing to disclose related party transactions, changing the corporate structure to drastically alter debt ratios, paying dividends without formal declaration and breach of equitable rights.264
3.3 Conduct that “unfairly disregards the interests of...”
This criterion is viewed as the least stringent of the three statutory categories. Similar to unfairly prejudicial conduct, the interest may be disregarded but not unfairly. For example “a corporation may require additional capital that the shareholders cannot provide. Recapitalisation may dilute their interests or subject their returns to prior claims, but the continued viability of the corporation is ensured.”265
261
Oppression Remedy and Related Remedies, supra note 132 at 81. 262
Similar to the words “company” and “corporation” the words “stakeholder” and “shareholder” differ as well. In this thesis, I equate stakeholder with shareholder.
263
Dennis H Peterson, Shareholders Remedies in Canada, loose- leaf (consulted on 21 May 2009), (Toronto: Butterworths Canada, 1960) at 17-35 para 17.69.
264
Ibid at 17-36 para 17.68. 265