Section 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, provides the statutory authority to either a party, a non-party, or the court itself, sua sponte, to stay any proceeding. This section reads, in its entirety, as follows: “A court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just.” The Ontario Superior Court of Justice, in the decision of Ravelston Corporation Limited (Re), 2007 CanLII 24091 (ON S.C.), outlined the applicable legal principles to be considered in granted such a stay pending the resolution of a foreign proceeding. The court therein (per Cumming, J.) stated the following (at para. 29):
Mr. Justice Farley of this Court in an earlier proceeding involving Ravelston, Sun-Times and Hollinger, has commented upon the framework for determining when a temporary stay is appropriate. In Hollinger International Inc. v. Hollinger Inc. at p. 248, he stated:
It appears that temporary stays pending resolution of a foreign proceeding are typically granted when the foreign proceeding would “substantially reduce the issues to be determined” or if success in the foreign proceeding could render the local proceeding “substantially moot” or otherwise have a “material” impact on the outstanding issues in the case. Courts have considered the following issues in deciding to exercise their discretion in issuing a temporary stay pending the resolution of another proceeding:
whether there is substantial overlap of issues in the two proceedings;
whether the two cases share the same factual background;
whether issuing a temporary stay will prevent unnecessary and costly duplication of judicial and legal resources; and
whether the temporary stay will result in an injustice to the party resisting the stay.
[Citations omitted.]
Accordingly, as is evident therein, the court's discretion to either grant or refuse to grant the stay is fact-based, and driven largely by the need to save on scarce judicial resources.
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provide legal advice or opinion of any kind, and may not be used for professional or commercial purposes of any sort.
No one should act, or refrain from acting, based upon the foregoing information without first seeking appropriate
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In the decision of the Court of Appeal for Ontario in Malata Group (HK) Limited v. Jung, 2008 ONCA 111, the court therein addressed, in the words of Armstrong J.A., the following issue: “This appeal concerns the relationship between derivative actions and oppression complaints under the Business Corporations Act, R.S.O. 1990, c. B.16 (“the Act”), and the impact on that relationship of the rule in Foss v. Harbottle that a shareholder has no personal cause of action for harm done to the corporation.”
The defendant-appellant Mr. Jung was taking the position that the plaintiff-respondent Malata Group (HK) Limited (“Malata HK”), a shareholder of Malata Canada Ltd. (“Malata Canada”), was running afoul of the rule in Foss v. Harbottle by pursuing relief that was for the benefit of Malata Canada on account of harm allegedly done to that corporation. The defendant-appellant took the position that such relief could only be pursued derivatively, which required leave of the court to do so. The motions judge (Ground J.), in the motion below, took the position that the rule in Foss v. Harbottle had been “substantially diluted”.
The Court of Appeal, however, adopted a novel approach to this issue. Armstrong J.A., for the court, stated as follows:
38. It is important in my view that in this case, we have a closely held corporation. It seems to me that if the alleged oppressive conduct is made out when Malata HK is one of three shareholders and, more particularly, is a major creditor of Malata Canada , it is appropriate for Malata HK to seek a return of the monies to Malata Canada under s. 248 of the Act. Malata HK could have proceeded by way of a derivative action. However, given the overlap between ss. 246 and 248 of the Act and the particular circumstances of this case, I do not believe that it was required to do so.
39. In disputes involving closely held companies with relatively few shareholders, such as the case at bar and Covington, there is less reason to require the plaintiff to seek leave of the court. The small number of shareholders minimizes the risk of frivolous lawsuits against the corporation, thus weakening the main rationale for requiring a claim to proceed as a derivative action.
Accordingly, though the rule in Foss v. Harbottle can be said to have been “substantially diluted” in regards to “closely held corporations with relatively few shareholders”, it retains its vigor in regards to corporations with many shareholders. What constitutes a corporations with many shareholders is an issue, however, that needs to be decided on another day.
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The information expressed in the foregoing article is for general information purposes only. It is not intended to
provide legal advice or opinion of any kind, and may not be used for professional or commercial purposes of any sort.
No one should act, or refrain from acting, based upon the foregoing information without first seeking appropriate
legal or other professional advice. Your use of any of this information is solely at your own risk.
Subrule 59.06(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended (the “Rules”), reads as follows:
(2) A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;
(b) suspend the operation of an order;
(c) carry an order into operation; or
(d) obtain other relief than that originally awarded,
may make a motion in the proceeding for the relief claimed.
Paragraph 59.06(2)(a) of the Rules, which deals specifically with setting aside or varying a court order, requires a showing of “fraud or of facts arising or discovered after it was made”. In the decision of Chitel v. Rothbart (1984), 42 C.P.C. 217, which dealt with court orders made on consent of the parties, Master Sandler ruled that a consent order can only be set aside or varied by “subsequent consent, or upon the grounds of a common mistake, misrepresentation or fraud, or on any other ground which would invalidate a contract.” However, the grounds for such a variance or setting-aside were substantially expanded by the decision of the Court of Appeal for Ontario in Stoughton Trailers Canada Corp. v. James Expedite Transport Inc., 2008 ONCA 817. The Court of Appeal in that decision ruled that “the discretion [to vary or set aside] is broader and should be exercised where necessary to achieve the justice of the case”. Accordingly, a consent order can be set aside or varied either on (1) a subsequent consent, (2) any ground that would invalidate a contract (such as fraud), or (3) if the justice of the case requires it.
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provide legal advice or opinion of any kind, and may not be used for professional or commercial purposes of any sort.
No one should act, or refrain from acting, based upon the foregoing information without first seeking appropriate
legal or other professional advice. Your use of any of this information is solely at your own risk.
May 25, 2022
On March 10, 2022, after a more than six-month reserve, the Court of Appeal for Ontario (per
Lauwers, J.A.) rendered its much anticipated decision in Ernst & Young Inc. v. Aquino, 2022 ONCA
202. One of the main issues that the Court therein had to decide was whether the subjective
intentionality of a former director and officer of a company, vis-à-vis that company’s creditors,
could be attributed to the company itself for the purposes of s. 96(1)(b)(ii)(B) of the Bankruptcy
and Insolvency Act (“BIA”). In particular, at para. 51 of the decision, the Court therein stated in
relevant part as follows: “They [i.e., the appellants] assert that the binding principles of the
common law doctrine of corporate attribution set out in [the Supreme Court of Canada decision
in Canadian Dredge] do not permit the imputation of his intention to either defrauded company.
Accordingly, s. 96(1)(b)(ii)(B) of the BIA cannot be used to require John Aquino, or his associates
as “privies” to the impugned transactions, to repay the money they took.” In other words, had the
appellants prevailed in this legal argument, the Judgments that had been rendered against them in
the court below would have been set aside in their entirety.
The Court therein, after acknowledging that this was “a case of first impression”, and stating that “the genius of the common law is in its robust circumstantial adaptability”, proceeded to alter or, in its terminology, “reframe” the corporate attribution doctrine in the bankruptcy context. Accordingly, at para. 74 of its decision, the Court stated, in relevant part, as follows: “The underlying question here is who should bear responsibility for the fraudulent acts of a company’s directing mind that are done within the scope of his or her authority – the fraudsters or the creditors?” Under this “reframed” test, the outcome of the stated contest is of course a foregone conclusion.
The appellants have sought leave to appeal to the Supreme Court of Canada as this “reframed” test constitutes new law in the bankruptcy context, which plays an important role in our economy and is therefore of national and public importance. Whether such leave will be granted remains an open question. However, if leave is denied (or any appeal ultimately dismissed), what is clear is that, at least in the bankruptcy context, the “defences” which had been carefully created by the Supreme Court in Canadian Dredge to protect the company from its own directors and/or officers will have been effectively displaced, either on a de facto if not de jure basis. Needless to say, this change in the law should be carefully scrutinized and, if deemed advisable, subjected to legislative action and codification.
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The information expressed in the foregoing article is for general information purposes only. It is not intended to
provide legal advice or opinion of any kind, and may not be used for professional or commercial purposes of any sort.
No one should act, or refrain from acting, based upon the foregoing information without first seeking appropriate
legal or other professional advice. Your use of any of this information is solely at your own risk.