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Oppressed But Not Betrayed: A Comparative Assessment of Canadian Remedies for Minority Shareholders and Other Corporate Constituents Deborah A. DeMott Law & Contemp. Probs., 1993, at 181 |
ABSTRACT:
Despite the close proximity of the United States and Canada and the noticeable influence of U.S. statutory and caselaw in Canada, there is a striking difference in certain areas of law between the two countries. This article addresses one such difference in corporate law, the existence of the oppression statute in Canadian law and its implications for changes in share ownership and control of corporations.
The central topic of the article is one such difference as it exists in corporate law as an oppression statute in Canada, recognizing the interests of minority shareholders (as well as non-shareholder constituents) of a corporation and providing an individual cause of action against the corporation to prohibit actions that are unfairly prejudicial or that unfairly disregards their interests, and the standards of fiduciary duty in the United States that requires majority shareholders in certain transactions with the corporation and minority shareholders to demonstrate the intrinsic or entire fairness of their dealings. Professor DeMott examines this difference with regard to three main topics: the aspects of corporate law that define the duties of majority shareholders to minority shareholders in the two countries, the vehicles of litigation open to minority shareholders and the prominent role of securities regulation in Canada, and the nature of claims of unfair treatment and how they are resolved in their respective countries.
The article begins with an exploration into the origins of these two separate doctrines; the Canadian tradition as it flows from English majoritarianism and a special Candian penchant for egalitarianism and the United States tradition, steeped in efficiency of the market and the importance of crisp standards that allows for ex ante determinations of the consequences of actions taken by the parties. Professor DeMott then examines the availability of relief for minority shareholders, specifically the right to individual action based on unfair prejudice to or disregard to the interests of the minority shareholders in Canada and the right to appraisal or derivative suits that belong, in theory, to the corporation under U.S. law. The article focuses mainly on the facts in the Brant Investments, Ltd. v. KeepRite, Ltd. case in Canada and the seminal cases defining the duties of majority shareholders to minority shareholders and the limitations of the "intrinsic fairness" in the United States, including Weinberger v. UOP, Inc., Coggins v. New England Patriots Football Club, Inc., Alpert v. Williams St. Corp., Summa Corp v. Trans World Airlines, Inc., Rosenblatt v. Getty Oil, Inc., Citron v. E.I. Dupont de Nemours & Co., and Cinerama, Inc v. Technicolor, Inc. The article then examines the differences in the regulatory frameworks of the two countries and the resultant differences in the norms of corporate litigation in the two countries. Whereas the Candian corporate community tends to rely upon directives from regulatory agencies like the Ontario Securities Commission dictating the appropriate formal requirements to protect parties in specific transactions, the U.S. corporate community is dominated by more general standards of fiduciary duties as defined by case law and concentrates on applying those judicially-defined norms to limit the liability of the actors. In addition, while the oppression statute provides rights for non-equity constituents of the corporation, the U.S. legal culture recognizes only the rights enforceable under contract of such parties. The culmination of these differences provides for sharper demarcation of expected behavior that can be applied ex ante in the U.S. context and a wider, and blurrier, range of actions that can be brought ex post in Canada to challenge an arguable oppressive transaction. Cases illustrating these differences include Palmer v. Carling-O'Keefe Breweries of Canada, Ltd. in Canada and Rothschild Int'l Corp. v. Ligget Group, Inc., Metropolitan Life Insurance v. RJR Nabisco, Inc. and Credit Lyonnais Bank Nederland v. Pathem Communications, Inc. in the United States. The article then concludes with a comparison of the outcome of several of these different cases under the law of the other country and a general recognition of the different goals and objectives of the two systems in their specific cultural contexts.
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