Estate freezes involving the use of a holding company and a family trust are common. Occasionally disputes arise requiring consideration of traditional trust doctrine as well as corporate remedies, usually in respect of the application of the oppression provisions of the governing corporate statute. The recent case of Strauss v. Wright, 2017 ONSC 5789 (Ont. Div. Ct.) is one such case.

Here an estate freeze was implemented using a holding company and a family trust. Shares in the holding company were owned by the testator, his wife, and their two daughters. The trust’s beneficiaries were the two daughters and their children. Some time after the death of the settlor’s wife, the testator remarried (to his caregiver). A dispute arose between the testator and his two daughters. The Application Judge found a number of facts of importance: the settlor withdrew funds from the corporate account without authorization, he sought to prevent the two daughters accessing the corporate account notwithstanding that they ran the business, and that he used corporate funds for his personal benefit and to buy expensive gifts for his new wife before they were married. The daughters brought an application to remove the testator as a director of the holding company and as a trustee of the family trust, which was successful.

The Ontario version of the oppression remedy set out in the Business Corporations Act, R.S.O. 1990, c.B16, s.248(2) provides:

(2)  Where, upon 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 or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be 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 of the corporation, the court may make an order to rectify the matters complained of.

[Emphasis added.]

A number of points are important respecting this provision. First, the oppression remedy is a personal action and not a derivative action; it addresses interference with individual interests by the oppressive conduct of those managing the company or exerting power.

Second, the oppression remedy responds to harm to the legal and equitable interests of a stakeholders and is equitable in character. That is, the court enjoys a broad jurisdiction to enforce not just what is required as a matter of law but what is fair.

Third, oppression is fact specific and must be proven in evidence. Oppressive conduct is proved within the facts of a given case and the remedy responds accordingly. This is very much a contextual exercise.

Fourth, the oppression remedy builds on the core concept of ‘reasonable expectation’, itself a concept drawn from the law of contract. In BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560 (S.C.C.), the Court held per curiam:

62          As denoted by “reasonable”, the concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive. In the context of whether it would be “just and equitable” to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.

Thus, expectations are not subjective wishes but rather objectively-reasonable expectations of the individual stakeholder that must be respected in corporate decisions and action. In determining those reasonable expectations, one looks to various relevant factors that do not necessitate wrongs being proved: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders.’

Last, there must be prejudicial interference with the expectation in question; that is, there must be oppression, unfair prejudice, or unfair disregard each of which are distinct but may over-lap in a given context.

In Strauss v. Wright, the question was whether the settlor’s expectations were not considered by the Application Judge. Akbarali J. held:

[16]           [The Appellant]  argues that the application judge erred by considering only the reasonable expectations of Ms. Strauss and Ms. Urbanek, without considering his reasonable expectations. He states that had she considered his reasonable expectations and his explanations, she would not have found his conduct to be oppressive.

…

[18]           In my view, the application judge made no reversible error in finding that the appellant’s conduct was oppressive. Of particular note, the appellant admits withdrawing nearly all the funds from Anjay’s corporate account. This left Anjay unable to meet its expenses until he returned the money a week later. The appellant also admits attempting to exclude Ms. Strauss and Ms. Urbanek from Anjay’s corporate bank account when they were responsible for Anjay’s day-to- day banking. There was thus evidence available to the application judge on which to conclude that the appellant’s actions imperilled the business of Anjay. By his conduct, the appellant breached his fiduciary duties as a director and officer of Anjay.

[19]           In this context it was not necessary for the application judge to specifically consider the appellant’s reasonable expectations or to order a trial of the oppression issue. The appellant could not reasonably expect to breach his fiduciary duties to the corporation in the manner that he did, no matter what explanation for the breach he may offer.

Strauss v. Wright  is a very useful review of the key considerations in this sort of situation and I commend it to you. I have considered the relationship between trust doctrine and the oppression remedy at some length previously in “Disputes Amongst Multiple Trustees: What Rights Does A Minority Estate Trustee Have Against An Oppressive Majority?” (2012), 32 Estates, Trusts & Pensions Journal 41 – I would be happy to send you a copy of my article if you are interested.

Have a nice day and a good week!

David