Shareholder Disputes

Shareholder disputes occur when shareholders feel that their interest is undermined and seek to enforce their rights. Examples where shareholders may pursue legal action include:

• Disputes about share valuation and price;
• Oppression of minority shareholders; and
• Forced buyouts.

Oppression Remedy

Oppression of minority shareholders is a common shareholder dispute and is available to shareholders and other stakeholders in a corporation.

For example, corporations in Ontario may be governed by the Ontario Business Corporations Act or the Canada Business Corporation Act, which both provide for the oppression remedy.

The oppression remedy generally protects against the following categories of misconduct:

• Oppression: When an intentional serious wrong, such as an abuse of power or coercive behaviour, is committed;
• Unfair Prejudice: When a party mistreats another stakeholder, for example, forcing out a minority shareholder; and
• Unfair Disregard: When a party ignores the claimant’s interest without intentionally causing harm, such as breaching fiduciary duties owed to the corporation and other shareholders.

How to prevent Shareholder Disputes

Although the oppression remedy protects against certain misconduct, parties should manage potential problems before becoming a shareholder through measures such as a Shareholder Agreement. A Shareholder Agreement outlines how the corporation will resolve disputes and establishes each shareholder’s duties and responsibilities. It is crucial to establish a Shareholder Agreement early, and ensure it:

• Defines each Shareholder’s role;
• Protects minority Shareholders; and
• Manages disputes.

Hum Law Firm can assist you with shareholder disputes, and how to prevent them.

Real Estate Disputes – When the real estate world is upside down and you’re suing over a closing

Rising interest rates have sent the real estate world into turbulence. It causes people to have second thoughts about their deals. However, when you find yourself considering litigation over closing, there are a few things you may want to consider first.

1. What are the most appropriate remedies for you (or the other side)?

Common remedies include damages, abatement, termination of contract, and specific performance.

For example, if a buyer wants to back off a deal for no good reason, the seller may consider damages or specific performance. If the seller subsequently sells the property to a third party for a lower price, the seller may ask for damages to compensate for the difference (after offsetting the deposit); or the seller can force the other side to close the deal and pay the full price by asking for specific performance.

As a buyer, if you find out the piece of property you are going to buy is different from what you have agreed before closing due to misrepresentations, defects, or newly suffered damages, you may ask for the problem to be fixed, an abatement, or even termination/rescission of contract. However, it is rare to be entitled to termination/rescission of contract. You may find yourself in breach of the contract if you want to rescind the contract due to some minor problems that could have been remedied by an abatement.

2. Is termination/rescission of contract justified?

When a party tries to back off from a deal, it is quite often that the party will try very hard to find a good reason for doing so, such as misrepresentation, defect, damages, or so. However, as mentioned above, it is rare to be entitled to termination/rescission of contract, and it is usually a case-by-case decision. For example, misrepresentation of square footage may be a sufficient reason in one case, where the discrepancy is material and the buyer is inexperienced, while not so when a sophisticated buyer has already inspected the property.

There are situations where a buyer may have to back off from a deal, especially when the buyer could not secure financing as they had expected. This is especially true during a turbulent market (frenzy market when properties are overpriced, or a down-turn market when properties’ prices are dropping quickly), as financing institutions, which are usually more conservative about the appraised value of a property, may give a low appraisal value of the property and refuse to loan sufficient funds to close the deal. If that is the case, the buyer may not have many options but to walk away from the deal.

3. Should I try to get a Certificate of Pending Litigation?

A Certificate of Pending Litigation (CPL) is essentially a notice or warning to the public that the property is the subject of pending litigation. It will make a piece of property almost unmarketable. It will help the buyer to protect their interests in the property. To obtain a CPL from the court, the buyer has to show, among other things, that the land is unique to the buyer, and the buyer’s interests can not be protected or compensated by other means. CPL is a powerful tool, and the court will not allow the parties to abuse it. Improper use of CPL may lead to liabilities.

We are here to assist you protect your business.

Contact Hum Law Firm today for advice if you are dealing with Real-estate Litigation.

Non-Solicitation and Non-Competition Agreements and Breaches

Non-solicitation agreements and non-compete agreements, also referred to as “restrictive covenants,” are designed to protect your business by restricting the behaviour and actions of departing employees.

You would typically include these restrictive covenants in employment agreements or, alternatively, in a separate agreement that an employee will sign before commencing work. They may also form part of purchase agreements, where a party has purchased all or part of a business and the vendor of the business is bound by these restrictive covenants, as described below.

Non-Solicitation Agreements

A non-solicitation agreement’s objective is to prevent former employees or owners from soliciting your clients, suppliers, or other parties relevant to your business. Generally, non-solicitation agreements are easier to enforce that non-compete agreements. A non-solicitation agreement is more likely to be considered reasonable, and therefore enforceable, if:

1. It is temporally limited;
2. It is reasonable in the geographic scope it covers;
3. It is written clearly; and
4. It aligns with public interest and does not unduly restrict competition.

If an employee breaches an enforceable non-solicitation agreement, their employer is entitled to sue them for damages. When assessing damages, the actual business losses caused by the former employee’s breach will determine the damages.

Non-Competition Agreements

Non-competition agreements between employers and their employees are banned in Ontario, subject to the following exceptions:

• The owner sold or leased their business to a new employer, but was immediately made an employee of the business; or
• The employee is an executive of the business.

Absent one of these exceptions, an employer cannot enforce a non-competition agreement on a current or former employee.

As with a non-solicitation agreement, if a former employee breaches an enforceable non-competition agreement, you can sue for damages based on your actual losses.

Hum Law Firm has experience dealing with non-solicitation and non-compete agreements and breaches, both in the employment and business context. We are here to assist protect your business.

Contact Hum Law Firm today for guidance.

Unlawful Intentional Interference with Economic Relations

Unlike perhaps in love and war, all is not fair when it comes to business conduct. Conduct that is unlawful cannot be used to damage the business of your competitor.

For instance, where a plaintiff suffers economic loss resulting from a defendant’s unlawful act against a third party, intended to target the plaintiff, the plaintiff may claim unlawful intentional interference with economic relations against the defendant directly, even though the wrongful act is committed against the third party, not the plaintiff directly.

By way of example of intentional interference with economic relations, in Grand Financial Management Inc. v. Solemio Transportation Inc., 2016 ONCA 175, the plaintiff (“Solemio”) terminated its contract with the defendant (“Grand Financial”). The defendant did not receive this termination well. Its principal threatened to put Solemio out of business, and he told one of Solemio’s customers that they would go after Solemio’s customers to get his money back. As a result, the customer stopped its business with Solemio. The court confirmed that the defendant was liable on the basis of intentional interference with economic relations, because, among other things, the defendant committed an unlawful act by intimidating one of Solemio’s customers and awarded Solemio $175,000.00.

As demonstrated above, even though the unlawful act, intimidation, was committed by Grand Financial against Solemio’s customer, Solemio was able to sue Grand Financial directly as the intimidation was intended to harm Solemio and cause it to lose business with its customer.

As such, the tort of intentional interference with economic relations has three elements:

1. The defendant must have intended to injure the plaintiff’s economic interests. This is an intentional tort, not negligence. Causing harm negligently will not meet this element;
2. The interference must have been by illegal or unlawful means, which is actionable by the third-party. If the act itself is not otherwise actionable, this tort does not apply; and
3. The plaintiff must have suffered economic harm or loss as a result.

The plaintiff may claim damages for their quantifiable financial losses. In addition, if damages for this tort are difficult to measure, the plaintiff may nonetheless ask the court to award damages in an amount that is fair, once the plaintiff manages to prove the tort.

If your economic interests have been harmed by the intentional act of another party, contact Hum Law today for guidance.

Director’s and Officer’s Liability

The law imposes a broad range of duties on the directors and officers of a corporation. If these duties are not fulfilled, the corporation’s directors and officers may face personal liability.

Fiduciary Duty

Directors and officers have a fiduciary duty to the corporation. The fiduciary duty sets the standard of behaviour that a director or officer must follow when acting for the corporation, for example, ensuring that the corporation’s interests come first. In summary, the fiduciary duty requires the directors or officers to act honestly and in good faith with a view to the best interests of the corporation.

There are more specific obligations tied to a director or officer’s fiduciary duty, including:

1. Duty to avoid conflicts of interest and to disclose relevant information; and
2. Duty of confidentiality, confidential information, and continuing confidentiality.

Duty of Care

Directors and officers must perform their duties with the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. This requirement sets out the minimum standard of business competence and ability that every director and officer must meet.

Corporate statutes in Canada set out a number of specific liabilities related to a director or officers’ duty of care. For example, if a director or officer agrees to sell shares for non-monetary payment worth less than the shares’ fair value, they can be held personally liable for the difference between the sale price and fair value.

Generally, directors and officers will not breach their duty of care if they act prudently and on a reasonably informed basis. Directors and officers can further protect themselves by relying on professional advice from lawyers and accountants.

We are here to assist you protect your business.

Contact Hum Law Firm today for advice if you are dealing with failure of a director or officer to meet these obligations.