May 19, 2026
What happens if you are a stakeholder in a privately held Ontario business corporation, and have a complaint about the behaviour of management?
There are two principal pathways to relief, other directly suing the individuals involved , which has problems as an avenue to a remedy – primarily, that you have to prove that those persons, in their own roles rather than as directors or officers of the corporation, did you some actionable harm that caused your losses. Not easy to do. Your opponents might well succeed in hiding behind their corporate roles.
The most common effective way is to seek an oppression remedy. We have written an entire series of articles about the benefits of an oppression remedies action, and some of the pitfalls. In a nutshell, an oppression remedy seeks relief where you feel that the corporate actions have been unfairly prejudicial against you personally as a stakeholder. Of course, it gets more technical than that.
The other option is to seek leave from the Superior Court to bring a derivative action. We have also written about the nature of derivate actions and when they are the better option. A derivate action allows you to sue others for harm to the corporation in a situation where management fails or refuses to bring the action. So derivate actions are even more exceptional, less common, and need to be extremely focused.
THE ISSUE
What happens when you have already brought an oppression remedy action, then seek leave to bring a derivative action as well?
THE CASE
Mr. Clark, the stakeholder complaining in Clark v. Cen-Ta Real Estate Ltd et al was the largest shareholder in the corporations. He had already sued for wrongful dismissal as a result of his being fired from his job with the corporations, and for an oppression remedy, based on his allegations that the two other directors, the ones who had ganged up on him to fire him, were in breach of their fiduciary duties to the corporation, had paid themselves excessive fees and salaries, and operated the business for their own benefit, driving down the value of his shares.
The oppression remedy claim sought to have his shares purchased by the directors at fair market value. This creates a problem when, allegedly due to the actions of the directors, the value of the corporations have shrunk considerably.
Four years after commencing the oppression remedy claim, he sought leave to bring a derivative action.
Makes sense, because the breach of fiduciary duty if proven would be harm arising from a duty to the corporations, not to Mr. Clark personally. Prior cases going back to a pair of Supreme Court of Canada decisions in 1973 and 1997 have said that a breach of fiduciary duty claim belongs to the corporations, not to an individual claimant.
The proposed derivate action would require the directors to pay damages to the corporations, rather than directly to Mr. Clark. This would increase in the value of the corporations which could then benefit Mr. Clark in his oppression remedy claim.
Without the derivative action, the oppression claim would likely be worthless.
The proposed defendant directors opposed the leave motion, alleging that Mr. Clark was not acting in good faith, and that the proposed derivative action was not in the corporations’ best interests, because it would have to bear the costs of that action, rather than the costs of the oppression action being paid by Mr. Clark.
In support of the lack of good faith argument, they pointed to the delay in bringing the motion. They said that Mr. Clark had failed to show evidence that the fees and salaries were unreasonable, and that he was trying to put financial pressure on the corporation to help him get a settlement of an oppression action that was not a compelling case.
Whether a complainant is acting in good faith is determined based on the particular facts of the case. The court looks at the complainant’s belief in the merits of the action – is it genuine? The court then looks at whether the complainant has an “ulterior motive” – the key question in this case.
What is an “ulterior motive”?
It means that the action is commenced primarily for the benefit of the corporation as a whole, not just to benefit the individual complainant. This can be hard to show when you are talking about a corporation with only a few stakeholders, as in this case.
The judge accepted that Mr. Clark was acting in good faith – there was an arguable case as to whether the directors, faced with declining profits, ought to have reduced the fees and salaries which they received.
Winning the derivative action would benefit the corporation and all of its creditors, not just Mr. Clark.
In response to the ulterior motive allegations about who would have to pay the costs, the judge solved that problem creatively, by ordering Mr. Clark to personally fund half of the cost of the derivative action.
Leave to pursue the two actions in tandem was granted.
TAKEAWAYS
- Derivative actions and oppression remedy claims can both be effective pathways for relief in cases involving privately held corporation disputes.
- They serve different purposes.
- Knowing which one suits your dispute is essential.
- Delay in getting it right may be evidence of a lack of good faith.
- The good news is that sometimes two claims may be combined.
- The test for leave to bring a derivative action is a low barrier.
HOW WEILERS LLP CAN HELP YOU
At Weilers LLP, our litigation team are experienced in and excited by complex corporate disputes. We have the skills to know how to plead your case effectively, and as the case evolves, to shift strategies creatively and flexibly.
We work closely with our experienced corporate lawyers to sort out the issues as early as possible, to save time and expense, and increase opportunities for recovery. If you find yourself on either end of a corporate share dispute, we would be happy to discuss with you whether we are the right lawyers for you.