Budd v. Gentra Inc.
Raymond Budd, plaintiff, (appellant), and
Gentra Inc., Michael A. Cornelissen, H.M. MacDougall, G.
Drummond Birks, Henry Collingwood, Eggerton W. King, Allen T.
Lambert, Kenneth Leung, Gilbert I. Newman, Pierre Taschereau,
Jean C. Wadds, R. James Balfour, Jean A. Beliveau, Kenneth R.
Clarke, E. Neil McKelvey, Earl H. Orser, Jack L. Cockwell,
James M. Tory, Marshall M. Williams, Melvin M. Hawkrigg,
Richard W. Pound, Roger Phillips, J. Trevor Eyton, Maurice
Riel, Thomas R. Bell, Brian A. Canfield, Adrienne Clarkson,
Gordon R. Cunningham, David I. Donne, Fraser M. Fell, Paul
Gobeil, F. Warren McFarlan, Margaret E. Southern, B. Lee
Bentley, Nicholas W.R. Burbidge, David W.S. Dunlop, Anthony
Flynn, William I. Inwood, Laurent M. Joly, Charles F.
MacFarlane, Ian A.C. McCallum, Ernst & Young, Trilon Holdings
Limited, Trilon Financial Corporation, Great Lakes Groups
Inc., Arteco Holdings Inc., Brascan Limited, Brascan Holdings
Inc., defendants (respondents)
 O.J. No. 3109
111 O.A.C. 288
43 B.L.R. (2d) 27
81 A.C.W.S. (3d) 779
Docket No. C25588
Ontario Court of Appeal
Carthy, Osborne and Doherty JJ.A.
Heard: January 27, 1998.
Judgment: August 4, 1998.
Company law -- Actions against corporations and directors -- Action for oppressive conduct -- Proper defendants -- Directors -- Liability of directors -- Officers and agents -- Liability to shareholders.
Appeal by Budd from a decision allowing an application by the defendant directors, officers and auditors strking an action as against them. Budd was a former shareholder of the respondent Gentra, formerly Royal Trustco. He brought an action under the oppression provisions of the Canada Business Corporations Act seeking to represent himself and the other shareholders of Royal. He sought compensation from the defendant directors, officers and auditors personally pursuant to section 241 of the Act. Nowhere in the statement of claim was there any allegation of specific acts done by any of the defendant individuals. There was no allegation that any specific director or officer was a director or officer when any of the relevant events occurred. As a result, the action was struck against 30 directors, nine officers and Ernst & Young, Gentra's former auditors.
HELD: Appeal dismissed. Section 241 enlarged the common law criteria for finding personal liability on the part of directors or officers. However, in this case, personal liability was not established as the plaintiff failed to plead 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 the appellant relied on in support of his claim. The claims were an abuse of process to needlessly add parties to the proceedings. Even if the pleadings sufficiently alleged specific acts by specific directors or officers, the pleadings failed to disclose a reasonable basis on which a court could decide that the oppression could be properly rectified by a monetary order against a director or an officer personally.
Statutes, Regulations and Rules Cited:
Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 229, 241, 241(1), 241(2), 241(3), 241(3)(g), 241(3)(j).
Class Proceeding Act, S.O. 1992, c. 6.
Ontario Rules of Civil Procedure, Rule 21.01(1)(b) .
Raymond G. Colautti, for the appellant.
James W.E. Doris and Steven B. Sharpe, for director defendants (respondents).
Charles F. Scott and Lillian Y. Pan, for officer defendants (respondents).
The judgment of the Court was delivered by
1 This already protracted litigation is still at the pleadings stage.
2 Farley J. struck certain parts of the appellant's statement of claim.1 His order terminated the appellant's action against 30 individuals described as directors of Gentra Inc. (formerly Royal Trustco Limited) and collectively referred to in the statement of claim as the "defendant directors"; 9 individuals described as officers of Gentra Inc. and collectively referred to in the claim as "management defendants"; and Ernst & Young the former auditors of Gentra. The order did not affect the action against the other defendants, Gentra Inc. and several corporate defendants referred to collectively in the claim as the "controlling shareholder defendants." The appellant appealed the order of Farley J. but subsequently abandoned his appeal against Ernst & Young. The appeal as argued involves only the claims against the director defendants and the management defendants.
3 The appellant's action is brought under the "oppression" provisions in s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (C.B.C.A.). He claims that he and the shareholders he represents were victims of oppressive conduct and he seeks compensation from the respondents personally for the alleged devaluation of his shares flowing from that conduct. He seeks the same relief from the other defendants who are not parties to this appeal.
4 I think the claim as framed fails to reveal a reasonable cause of action against the director defendants or management defendants personally and I would affirm the order of Farley J.
5 The appellant, a former shareholder of Royal Trustco,2 purports to bring this action as a representative of all members of the Royal Trustco Litigation Committee of Public Shareholders. Royal Trustco is a widely held public corporation and the Litigation Committee consists of some of the persons who hold or did hold shares in Royal Trustco at the relevant time. As of the hearing of the appeal, the appellant had not made an application under the Class Proceeding Act, S.O. 1992, c. 6 for certification of the proceedings as a class action.
6 On a motion to strike a statement of claim as not disclosing a reasonable cause of action under Rule 21.01(1)(b), the allegations in the statement of claim must be accepted as true for the purposes of the motion: Prete v. Ontario (1993), 16 O.R. (3d) 161 at 168 (C.A.). The appellant's statement of claim tells the story of the financial downturn of Royal Trustco between 1991 and the spring of 1993 culminating in the sale of most of Royal Trustco's assets to the Royal Bank of Canada. In essence, the appellant claims that the affairs of Royal Trustco were mismanaged, the financial disclosure provided to the shareholders was incomplete and inaccurate in material ways, and the sale of the assets to the Royal Bank of Canada was orchestrated by those in control of Royal Trustco so as to serve their interests to the detriment of the interests of the other shareholders. The appellant says that he, and those he claims on behalf of, should be compensated by payment of the purchase price of their shares, or in the case of those who have sold their shares, by payment of the difference between the purchase and sale prices.
7 The details of the story told in the statement of claim begin in paragraph 6 with a lengthy summary of the financial information released by Royal Trustco in March 1992 as part of its annual report for the year ending December 31, 1991. That information indicated that the company had suffered a decline in its earnings and an increase in its loan losses in 1991, particularly in the United States, but remained profitable. Both problems were attributed to the general economic slump in North America. According to the information provided by Royal Trustco, the decline in earnings and increase in loan losses were temporary conditions and it was expected that improvements would be seen in both areas in 1992. Overall, the material painted a positive picture of Royal Trustco's financial condition as of December 31, 1991.
8 Paragraph 7 of the claim summarizes Royal Trustco's quarterly report for the period ending September 30, 1992. That report was released on November 2, 1992 and reveals substantial losses for the first nine months of 1992. It goes on, however, to describe the company's business as sound and predicts a return to more profitable times. The report also sets out various fiscal and operational measures undertaken to ensure that the company would "emerge from this recession leaner, yet stronger than before."
9 Paragraph 8 of the claim summarizes financial information released by Royal Trustco between March and May of 1993. The company reported large losses for the year ending December 31, 1992 ($852,000,000) and announced that it had agreed to sell substantially all of its Canadian and international assets to the Royal Bank of Canada.3 Paragraph 9 of the statement of claim provides some details of the proposed sale to the Royal Bank.
10 The allegations which are said to constitute oppressive conduct begin in paragraph 10. It is alleged that the company, its directors, and management were effectively under the control of an entity described as the Hees-Edper Group of companies who were said to control the controlling shareholders. The appellant asserts that Hees-Edper's de facto control of Royal Trustco was not disclosed to the other shareholders.
11 Paragraph 10 of the claim asserts that the director defendants and management defendants owed a duty to the appellant. That duty is described in paragraphs 10.04 and 10.05:
The plaintiff pleads that the defendant Gentra (Royal Trustco) had a duty to report to security holders in the position of the plaintiff, and to those members of the investing public who were considering purchasing securities of the company, any change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the company's securities, fully frankly and in a timely manner.
The plaintiff further pleads that the Director defendants, management defendants and the controlling shareholder defendants had a similar duty to ensure that Gentra (Royal Trust), made full, frank and timely disclosure of any change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the company's securities. The plaintiff further pleads that these defendants had a fiduciary obligation to security holders to ensure the company made such disclosure.
12 It is further alleged that the director defendants and management defendants breached that duty in several ways. Those breaches may be summarized as follows:
* The director defendants and management defendants failed to disclose that Royal Trustco had adopted a new loans policy which provided for the making of high risk commercial real estate and construction financing loans;
* Information provided to the shareholders in 1992 understated loan losses, failed to provide adequate loss reserves, overstated assets, and overstated statutory capital;
* The director defendants and management defendants failed to disclose the true financial condition of Pacific First, an American subsidiary of Royal Trustco. They also failed to adequately disclose the specifics of a transaction, whereby $150,000,000 in assets were transferred out of Pacific First;
* The third quarter report for 1992 inaccurately represented Royal Trustco as being solvent, liquid and profitable;
* The director defendants and management defendants failed to disclose that an independent review of Royal Trustco in mid-December 1992 determined that the company was not salvageable without a substantial injection of equity;
* The director defendants and management defendants failed to disclose that the standby facility made available by the controlling shareholders and referred to in the 1991 annual report was either non-existent or had ceased to be available by the end of 1992.
13 Paragraph 10.07(l) and (m) of the statement of claim allege:
Massive loans had been made to participants of the MSPP [management share purchase plan]. Participants in the MSPP included all of the management defendants and some or all of the director defendants (the particulars of which directors are at present unknown to the plaintiff). The effect of the massive loans made to participants of the MSPP was to fetter their free exercise of discretion, and to subject them to conflicts of interests. Officers, directors and executive management consequently had a pecuniary interest to conclude an arrangement or sale of the company's operating assets to another financial institution that would ensure their loans were discharged. Consequently, the plan participants were not free to work in the best interest of the shareholders.
Loans made to MSPP participants were in fact uncollectible, due to the fact that commitments had been made to forego collection on the loans.
14 Paragraph 10.09 alleges that the breach of the duties referred to in paragraph 10 by the director defendants resulted in oppression4 as set out in s. 241 of the C.B.C.A. There is no allegation that the alleged breaches of duty by the management defendants described in paragraph 10 resulted in oppression as defined in the C.B.C.A. Consequently, the allegations against the management defendants in paragraph 10 of the claim do not assist in establishing a reasonable cause of action as against the management defendants.
15 Paragraph 11 of the statement of claim refers to the appellant's claim for the appointment of an investigator under s. 241(2) and s. 229 of the C.B.C.A. That claim is not germane to this appeal.5
16 Paragraph 12 of the statement of claim is headed "Other Acts of Oppressive, Prejudicial or Unfair Conduct" and refers to two separate events. The first involves the termination of a standby facility. It is alleged that two of the controlling shareholders had, for a substantial fee, provided a standby facility in 1989. Under the terms of that facility, these controlling shareholders agreed to arrange the placement or purchase of sufficient securities to ensure the success of each issue of securities made by Royal Trustco to the extent of $1 billion. In March 1993, the controlling shareholders agreed to support the sale of Royal Trustco's assets to the Royal Bank on the condition that the standby facility would be terminated. The facility was terminated in April 1993 by Royal Trustco. The appellant alleges that the standby facility was needed and should have been used in 1991 and 1992 to replace the losses suffered by Royal Trustco. The appellant also contends that the termination of the standby facility in 1993 was not in the best interests of Royal Trustco or its shareholders other than the controlling shareholders. Paragraph 12.04 of the statement of claim reads:
The plaintiff states that the circumstances under which the Standby Facility was terminated, and the failure or refusal to access the Standby Facility constitutes acts or omissions by the director defendants, management defendants and controlling shareholder defendants which effected a result, or were such that the business or affairs of the corporation or its affiliates were carried on or conducted in a manner, or in the case of the director defendants were powers of directors that were exercised in a manner that were oppressive, unfairly prejudicial or unfair in respect of the interests of the minority shareholders of the company.
17 The second allegation in paragraph 12 alleges that the director defendants and management defendants acted oppressively in effectively foreclosing other interested parties from competing with the Royal Bank for the purchase of the Royal Trustco assets. Paragraph 12.05 states:
In March, 1993, the management defendants, controlling shareholder defendants and the director defendants were advised and were aware that another financial institution was interested in pursuing to make an investment in, or purchasing the operating assets of the company. The identity of this financial institution is presently unknown to the plaintiff, but is known to these defendants. The company entered into an exclusivity arrangement with the Royal Bank, which prevented this financial institution, along with other interested purchasers, from completing its due diligence, and bidding on the purchase of the company's operating assets with the Royal Bank, and thus protecting the value of the shares for shareholders. The actions of these defendants in this regard unfairly disregarded the interests of minority shareholders.
18 In summary, the oppressive conduct alleged against the defendant directors consisted of:
(i) Breaches of the duties described in paragraph 10, in the manner described in that paragraph.
(ii) Participation in the decisions not to call on the standby facility and to terminate it in March 1993 to permit the sale of the assets to the Royal Bank.
(iii) Involvement in the creation of an "exclusivity arrangement" with the Royal Bank that foreclosed other financial institutions from competing for the purchase of the Royal Trustco shares.
19 The alleged oppressive conduct by the management directors consists of the second and third items set out above.
20 Nowhere in the lengthy statement of claim is there any allegation of any specific act done by any of the individuals described as defendant directors or management defendants. There is not even an allegation that any specific director defendant or management defendant was a director or officer when any of the relevant events occurred. In fact, there is no allegation that any of the director defendants or management defendants were directors or officers at any point in time during which any of the events described in the statement of claim occurred. The statement of claim simply alleges that these persons "were directors" or "were officers." This may be compared to the allegations against the controlling shareholder defendants who are alleged to have been controlling shareholder defendants "at all relevant and material times."
21 Put simply, the appellant claims that Royal Trustco's business affairs were conducted in an oppressive manner and as a shareholder he is entitled to maintain an action under s. 241 of the C.B.C.A., against anyone in their personal capacity who was involved in the management or decision making process of the company. As a corporation can act only through human agencies, it would seem that if the appellant's approach is sound, directors and officers may be sued in their personal capacity whenever s. 241 is properly engaged.
22 Farley J. struck the claim against the respondents for three reasons. First, he held that directors and officers could only be liable to personally compensate an aggrieved party under s. 241 of the C.B.C.A. where personal liability would attach under the common law according to the principles set down by this court in ScotiaMcleod Inc. v. Peoples Jewellers Limited (1995), 26 0.R. (3d) 481 (C.A.), leave to appeal refused,  S.C.C.A. No. 40 (S.C.C.) (Peoples).6 The pleadings did not bring the appellant's claims within those principles and could not support a cause of action under s. 241 against the officers and directors personally.
23 Secondly, Farley J. held that the claim against the directors and officers personally could not be maintained in the face of pleadings which did not allege any specific act or omission against any identified director or officer and did not identify any specific director or officer as participating in any of the allegedly oppressive acts.
24 Thirdly, Farley J. held that the allegation in paragraph 10.05 that the directors and officers owed a fiduciary duty to the appellant and other shareholders could not be sustained in law absent pleadings of special circumstances giving rise to that duty. I agree with this conclusion (Brant Investments Ltd. v. KeepRite Inc. (1991), 3 O.R. (3d) 289 at 301 (C.A.)), but it determines very little here. If the allegation of a breach of fiduciary duty was the only problem with these pleadings, those references could be struck from paragraph 10.05 without affecting the substance of the claim in that paragraph and certainly without terminating the action against the directors and officers. This appeal turns on the correctness of the first two conclusions reached by Farley J. If he was correct in either, the appeal should be dismissed.
The applicability of Peoples to an action under s. 241 of the C.B.C.A.
25 A corporation is a discrete legal entity. It has rights and obligations, can contract, commit torts, and even commit crimes. When a corporation acts, it must act through the persons who are fixed with the power to act as the corporation, principally, its officers, directors and senior management. Where a director or officer does something which harms another, the questions sometimes becomes - who should be responsible for that action, the company or the individual? Our jurisprudence answers that question by determining whether, in the circumstances, the act is properly attributable to the company or to the individual. The proper allocation of responsibility for such actions as between the company and the individual was considered in Peoples. Finlayson J.A. said, at pp. 490-91:
The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact specific. In the absence of a finding of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal which had gone sour. ... Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.
26 The same approach is taken in Normart Management Limited v. Westhill Redevelopment Company Limited et al. (1998), 37 O.R. (3d) 97 where Finlayson J.A. summarizes the present state of the law at p. 102.
It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity or interest from that of the corporation such as to make the acts or conduct complained of those of the directing minds ...
27 The appellant does not contend that his pleadings meet the Peoples criteria. Instead, he submits that s. 241 creates its own cause of action and that the language and purpose of the section, as well as the case law decided under it, do not justify imposing the Peoples' criteria on the section so as to limit access to what is intended to afford victims of corporate oppression the broadest of remedies. The appellant submits that if Farley J. is correct, the section is effectively neutered in so far as monetary remedies against officers and directors personally are concerned since those remedies would be available only when a free standing common law cause of action against those directors or officers existed.
28 Section 241(1) of the C.B.C.A. provides that the complainant may apply to a court for an order under s. 241. The appellant, as a former shareholder, comes within the definition of complainant. Section 241(2) describes the conduct which must be established to merit the making of an order under that section. It provides:
If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates
(a) any act or omission of the corporation or any of its affiliates effects a result,
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
(c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of. [Emphasis added.]
29 Section 241(3) vests the court with broad remedial powers. It provides that in rectifying the matter complained of "the court may make any interim or final order it thinks fit." Those words are followed by a list of 14 orders which may be made and the express indication that those specific orders do not limit the generality of the remedial power given in the opening language of s. 241(3). The specific orders referred to in s. 241(3) include the power to require "any other person to pay to a security holder any part of the monies paid by him for securities" (s. 241(3)(g)), and the power to compensate an aggrieved person (s. 241(3)(j)). Both orders can be made against the company and/or individuals, including directors and officers.
30 In holding that the Peoples' criteria applied to oppression cases where the plaintiff sought a monetary order against directors or officers personally, Farley J. pointed out that s. 241 of the C.B.C.A. had to be interpreted in the light of the overall corporate legal landscape. He then said:
It would appear to me that it would be inappropriate to allow someone to baldly plead oppression and thereby circumvent the principles with respect to personal liability of directors and officers.
31 I agree entirely with his assessment of the "bare bones" nature of these pleadings. I cannot agree, however, that the Peoples' criteria should be read into s. 241. As indicated above, Peoples provides the mechanism for attributing responsibility for acts as between corporations and the individuals who control, direct and act for corporations. Section 241 applies only where the corporation has acted: Cairney v. Golden Key Holdings Ltd. (No. 1) (1987), 40 B.L.R. 263 at 272 (B.C.S.C.); Aquino v. First Choice Capital Fund Ltd.,  5 W.W.R. 608 at 619-20 (Sask. Q.B.). The phrases "acts or omissions of the corporation", "the business or affairs of the corporation", and "the powers of the directors of the corporation ... have been exercised" all speak of corporate conduct. Actions by directors and officers which are not properly attributable to the corporation could not meet the requirements of s. 241(2).
32 Section 241 provides a statutory means whereby corporate stakeholders may gain redress for corporate conduct which has one of the effects described in s. 241(2). The section serves as a judicial brake against abuse of corporate powers, particularly, but not exclusively, by those in control of a corporation and in a position to force the will of the majority on the minority. Section 241 enables the court to intercede in the affairs and operation of a corporation and to effectively override the decisions of those charged with the responsibility of corporate governance.
33 If the conduct of the corporation is oppressive, unfairly prejudicial to, or unfairly disregards the interest of corporate stakeholders, the court may impose a "fit order." The nature and scope of that order is circumscribed by the requirements that the order "rectify the matter complained of" and address only the aggrieved parties' interests as corporate stakeholders: Nanoff v. Con-Crete Holdings Limited (1995), 23 O.R. (3d) 481 at 489-90 (C.A.). By providing for remedies against individuals, including directors and officers, s. 241 recognizes that the rectification of harm done to corporate stakeholders by corporate abuse may necessitate an order against individuals through whom the company acts. To the extent that the section contemplates that individuals will bear the remedial burden flowing from the oppressive exercise of corporate powers, s. 241 takes a different approach to assigning responsibility for corporate conduct than does the common law. The section permits the court to address the harm done by the conduct described in s. 241 from a broader perspective than that permitted by a simple inquiry into the true identity of the actor.
34 This broader perspective is entirely consistent with the purpose of the section which is aptly described by D. Peterson in Shareholder Remedies in Canada, (loose leaf) at p. 18.1:
The oppression remedy may be considered the Charter of Rights and Freedoms of corporate law. It is a relatively new creature of statute, so it is little developed. It is broad and flexible, allowing any type of corporate activity to be the subject of judicial scrutiny. The potential protection it offers corporate stakeholders is awesome. Nevertheless, the legislative intent of the oppression remedy is to balance the interests of those claiming rights from the corporation against the ability of management to conduct business in an efficient manner. The remedy is appropriate only where as a result of corporate activity, there is some discrimination or unfair dealing amongst corporate stakeholders, a breach of a legal or equitable right, or appropriation of corporate property.
35 Where a plaintiff seeks a remedy against a director or officer personally under s. 241, I do not think it is accurate to suggest that the plaintiff is attempting to "circumvent the principles with respect to personal liability of directors and officers." On the contrary, the plaintiff is making a fundamentally different kind of claim than is contemplated in cases like Peoples. The plaintiff is not alleging that he was wronged by a director or officers acting in his or her personal capacity, but is asserting that the corporation, through the actions of the directors or officers, has acted oppressively and that in the circumstances it is appropriate (i.e. fit) to rectify that oppression by an order against the directors or officers personally.
36 The proposed limitation of personal liability under s. 241 to cases captured by the criteria set down in Peoples is inconsistent with Sparling et al. v. Royal Trustco Ltd. et al. (1984), 6 D.L.R. (4th) 682 (Ont. C.A.), aff.  2 S.C.R. 537. In that case, the Director appointed under the C.B.C.A. brought an oppression application against Royal Trustco, a public company, and some of its directors claiming that an information circular prepared in connection with a takeover bid was misleading and resulted in oppression against the shareholders. The Director sought compensation for those shareholders from Royal Trustco and personally from the directors who had been involved in the preparation and dissemination of the information circular. The company moved to strike the statement of claim.
37 The case raised several issues, most of which are not germane to this appeal. However, one argument centred on the liability of the corporation under the oppression section for losses suffered by the shareholders as a result of the distribution of the misleading circular. The corporation took the position that only the directors involved in the preparation and distribution of the circular could be liable under s. 241 of the C.B.C.A. Cory J.A. rejected that claim in these terms, at pp. 690-91:
... A perusal of the regulation reveals that the directors are required to obtain and set forth a great deal of information pertaining to the corporation and its officers as well as to its directors. The directors in completing the circular, are acting on behalf of the corporation and are acting qua the corporation. In the circular the directors are responding to the take-over bid in their own name but on behalf of the corporation.
The corporation and its directors are, for the purposes of the circular, inextricably intertwined. The failure to disclose the requisite information may be unfairly prejudicial to or disregard the interests of shareholders who, by definition, are included in the term "security holder." It is therefore, appropriate that the action be brought against the corporation as well as its directors. The directors in the preparation of the circular, must obtain corporate information from corporate records, from corporate officers and probably employees as well. They act on behalf of the corporation in obtaining that information. In those circumstances, it is right and proper for the corporation to be as responsible as its directors for any failure to disclose pertinent information in the directors' circular. Thus the argument of Royal Trustco that it should not be a party to the action must be rejected. [Emphasis added.]
38 In dismissing the appeal from this court, the Supreme Court of Canada said, at p. 538:
[A]ll the issues raised in this appeal were fully and correctly dealt with by the Court of Appeal speaking through Cory J.A.
39 Sparling demonstrates that actions of directors which are properly described as corporate conduct may render directors and/or the corporation liable under the oppression provision. The attribution of the conduct to the corporation does not foreclose a remedy against directors personally.
40 In addition to Sparling which speaks directly to the point, this court has on two other occasions warned against overlaying restrictive common law principles on the broad statutory language of s. 241: Re Ferguson and Imax Systems Corp. (1983), 43 O.R. (2d) 128 at 137; Brant Investments Ltd. et al. v. KeepRite Inc., supra . Resort to the Peoples criteria to determine personal liability under s. 241 would have exactly that effect.
41 Two relatively recent decisions demonstrate the proper approach to a s. 241 claim (or its provincial equivalent) brought against a director or officer personally. In Re v. Gottlieb v. Adams (1994), 21 O.R. (3d) 248 (Gen. Div.) the respondent, a director and minority shareholder, made an offer to buy the majority shareholder's shares pursuant to a buy-sell term in a shareholders' agreement. The appellant, the majority shareholder, took the position that the offer did not comply with the terms of the shareholder agreement and refused to respond to it. The respondent then claimed that she was entitled to purchase the shares under the terms of the buy-sell provision and caused the company to take the appropriate steps to transfer the majority shareholder's shares to her. In holding that the action came within s. 248 of the Business Corporations Act, R.S.O. 1990, c. B16 (O.B.C.A.)7, Spence J. said, at pp. 260-61:
It appears to me that this is a proper case for relief under s. 248 given the actions of the respondent. She took steps in her capacity as a director of the corporation to cause the company to give effect to her acquisition of the applicant's interest in the company and his consequent removal from any involvement in its affairs. Since her acquisition was in breach of the shareholders' agreement her use of her capacity as a director to implement the acquisition was oppressive and unfairly prejudicial to the interests of the applicant as a security holder of the company ... The minority shareholder [respondent] employed her capacity as a director to carry out the appropriation of the shares of the majority holder. It is the use of the director's position in this manner, to effect the appropriation, that is oppressive. [Emphasis added.]
42 In determining what remedies should be granted to rectify that oppression, Spence J. said, at p. 261:
... I think it is fit that the applicant should receive compensation under s. 248(3)(j).
The compensation order should be made against the respondent, as the person whose conduct was oppressive and caused the loss to the applicant, and acquired the interest of the applicant. I do not think any order should be made against the corporation, since that could affect unfairly other security holders.
43 Gottlieb v. Adams recognizes that the conduct of directors or officers must be conduct qua directors or officers if it is to afford access to the remedial powers under the oppression remedy. The further question whether the director or officer should be required to rectify that oppression personally is determined by all of the circumstances including the nature of the oppression, the gain if any which flowed to the director or officer, and the effects of other possible orders on other security holders.
44 In Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1995), 131 D.L.R. (4th) 399 (Ont. Ct. Gen. Div.), Blair J. was faced with an oppression application brought by a creditor of a corporation against the corporation and the sole shareholder and director of that corporation. The corporation, through inadvertence, had failed to renew an irrevocable letter of credit in favour of the creditor. The corporation then sold its assets and used the proceeds of the sale to eliminate its debt to the bank. In doing so, it eliminated the liability of its sole shareholder who had personally guaranteed the corporation's debt to the bank. Blair J. found that the corporation's inadvertent failure to renew the letter of credit and subsequent sale of its assets was conduct which came within the terms of s. 248 of the O.B.C.A. In determining the appropriate order, Blair J. observed that orders had been made against those in control of corporations personally, particularly in the case of closely held corporations where the oppressive conduct had directly benefitted the party in control of the corporation. Blair J. went on at pp. 406-407:
Lawyers and judges tend to worry and fuss a great deal about whether or not a given set of circumstances permits the piercing of the "corporate veil". They do so for legitimate reasons pertaining to corporate law. While personal liability of a director in an oppression remedy situation may be founded upon such a base - as it was in the authorities referred to above - the issue, in my view, is not so much one of piercing the corporate veil as it is a question of the overall application of s. 248(2) of the OBCA and the interplay between its various provisions.
When "oppressive" conduct (in the broad sense), has been found to have occurred under s. 248, the court has a very broad discretionary power to "make an order to rectify the matters complained of". That broad discretionary power, under s. 248(3) is to "make an interim or final order it thinks fit", including:
(j) an order compensating an aggrieved person;
In its targeting of the kinds of conduct encompassed by the oppression remedy provision of the Act, the legislature has focused specifically upon the acts or omissions of the corporation (s. 248(2)(a)), the business or affairs of the corporation (s. 248(2)(b)), and the exercise of the powers of the directors (s. 248(2)(c)). In a small, closely held corporation such as Elta, it is the director who is in the position of a Mr. Lin, who is the source of all such conduct. When the power of the director is exercised in a fashion which causes an act or omission of the corporation which effects an unfairly prejudicial result, or a result which unfairly disregards the interests of the complainant - or which causes the business or affairs of the corporation to be conducted in a manner which has the same effect - those powers themselves have been "exercised in a manner" which is caught by the section, in my opinion. Liability therefore lies directly with the director, under the section, in appropriate cases. [Emphasis added.]
45 Blair J. made the order against the director personally on the basis that the director had personally benefitted from the oppressive corporate conduct. His order against the director was upheld on appeal to this court (reasons released July 13, 1998).
46 In my view, Farley J. erred in holding that a director or officer could only be personally liable for a monetary order under s. 241 of the C.B.C.A. where the claim against the director or officer met the Peoples criteria. A director or officer may be personally liable for a monetary order under that section if that director or officer is implicated in the conduct said to constitute the oppression and if in all of the circumstances, rectification of the harm done by the oppressive conduct is appropriately made by an order requiring the director or officer to personally compensate the aggrieved parties.
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.
49 A reading of the statement of claim makes it clear that the company and the controlling shareholders are the true targets of this claim. If the appellant seriously sought a remedy against the defendant directors or defendant officers personally, it is difficult to understand why he has pleaded his claim against them so baldly. Presumably, the financial information referred to in his claim and other public records indicate to some extent, at least, which directors or officers were involved in at least some of the corporate activity said by the appellant to constitute oppressive conduct. The appellant has had two opportunities to amend his pleadings to make specific allegations against the directors or officers, but has not done so, instead insisting that he is entitled to proceed on the claim as framed.
50 I am left with the uneasy impression that the claim against the directors and officers personally is included in the appellant's statement of claim for purposes other than to ultimately establish their personal liability. If this impression is correct, those claims are properly characterized as an abuse of process. A "shot gun" approach to the naming of defendants in a lawsuit which serves to needlessly add parties to the proceedings must be discouraged. It can only further complicate and prolong what will of necessity be lengthy and complicated litigation.
51 I am cognizant of the caution which must be exercised before denying plaintiffs their day in court. Defendants also have a claim to due process. They should not be forced to endure the expense and inconvenience of litigation when the allegations do no more than identify them as having held a certain position at some unspecified point in time.
52 Even if the appellant had alleged specific acts against specific directors or officers, I would still hold that the claim as framed does not reveal a reasonable cause of action against them personally. As indicated above, the remedial reach of s. 241 is long, but it is not unlimited. Any order made must "rectify the matter complained of" by the parties seeking the remedy. 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.
53 The only allegation in this lengthy statement of claim which might possibly afford a basis for an order against the directors or officers personally is that concerning loans allegedly made to the officers and directors for the purchase of shares. Those allegations are found in paragraph 10.07 (l) and (m) and are set out above. They cannot provide any basis for the claim against the officers (management defendants) as there is no allegation that any of the conduct alleged against the officers in paragraph 10 constituted oppression.
54 Nor, in my view, could these allegations support the claim against any of the defendant directors personally. No specific defendant director is identified as having participated in this loan program. Furthermore, the allegations are so devoid of detail as to be meaningless in the context of the other allegations made in the statement of claim. It is alleged that these loans somehow put the defendant directors in a conflict of interest position and gave them a personal interest in concluding an arrangement for the sale of the assets of Royal Trustco which would ensure that those loans were discharged. There is no allegation in the statement of claim that the defendant directors in fact made any such arrangement, or that the sale to the Royal Bank of Canada had that result. At its highest, paragraph 10.07 (l) pleads a hypothetical conflict of interest against the defendant directors. That is not enough. Similarly, the allegation that the loans were "uncollectible" because "commitments had been made to forego collection" cannot, without more, support a finding of director involvement in conduct of the corporation which was oppressive within the meaning of s. 241 of the C.B.C.A. As pleaded, there is no allegation that the commitment was made by the corporation or the controlling shareholders; that it had any effect on the company's financial position or the terms of the sale to the Royal Bank of Canada; that the commitment was in place before that sale was made; or even who made the commitment.
55 I would affirm the order of Farley J. striking the parts of the statement of claim identified by him in his order. The appellant's position for over 2 years has been that the officers and directors are personally liable to compensate him and those he represents under the oppression provision simply because they were at one time directors and officers and therefore must be held responsible for the corporation's conduct. That theory of liability is untenable. I would not, however, foreclose entirely a motion to add one or more of the respondents as defendants. If as the litigation develops the appellant is able to make specific allegations against specific directors or officers which meet the requirements set out above, he can move for leave to add those individuals as parties to the lawsuit.
56 I would dismiss the appeal with costs.
CARTHY J.A. -- I agree.
OSBORNE J.A. -- I agree.
1 Farley J. also granted the plaintiff leave to amend his claim within a specified time period. The appellant chose not to do so. His reasons are reported at  O.J. No. 3515.
2 Since the company was referred to as Royal Trustco when most of the relevant events occurred, I will use that name when referring to either Royal Trustco or Gentra in these reasons.
3 The subsequent court approval of the sale was specifically made without prejudice to the rights of shareholders to bring an action in respect of events preceding or following the court approval.
4 I use the word "oppression" in the broad sense to refer to various effects encompassed by s. 241 of the C.B.C.A.
5 The motion for the appointment of an inspector was dismissed on December 28, 1997 without prejudice to the making of a further application. That order is under appeal in the Divisional Court.
6 The reasons of Farley J. do not specifically limit his holding to monetary orders against directors and officers. Section 241 contemplates non-monetary orders (e.g. compelling a director to perform some corporate function). It seems clear that the Peoples criteria can have no application to those cases and I do not understand Farley J. to have suggested otherwise.
7 The section is indistinguishable for present purposes from s. 241 of the C.B.C.A.