Make ‘Em Pay (In Advance) - Interim Costs in Corporate Disputes

Complex and protracted litigation has been described by the Supreme Court of Canada as “the sport of kings [Queens]”, in the sense that only the wealthy can afford it.[1] The spectre of a costly legal battle against a well-resourced corporate adversary raises important issues of access to justice for minority shareholders and other corporate stakeholders.

One of the relatively unique features of statutory corporate litigation under the derivative action and oppression remedy provisions of the Canada Business Corporations Act, R.S.C., 1985, c. C-44 (the “CBCA”), and the near-identical provisions in the Ontario Business Corporations Act, R.S.O. 1990, c. B.16. (“OBCA”), is the ability of a “complainant” to obtain an order for interim legal costs and disbursements from a corporation, a subsidiary, and under the OBCA, an affiliate[2], prior to any adjudication of the case on its merits.

This is provided for in section 242(4) of the CBCA as follows:

“In an application made or an action brought or intervened in under this Part, the court may at any time order the corporation or its subsidiary to pay to the complainant interim costs, including legal fees and disbursements, but the complainant may be held accountable for such interim costs on final disposition of the application or action.”

The equivalent provision is contained in section 249(4) of the OBCA.[3]

Interim costs is a powerful remedy for a complainant of relatively modest means to obtain, effectively providing for advance funding to pursue their case against a well-resourced corporate adversary.  

Interim costs orders are not just limited to minority shareholders. Any person that meets the definition of “complainant” (the type of person that has standing to pursue a derivative action or oppression remedy) can apply. The definition of complainant is very broad. It includes current and former shareholders, directors, and officers, and “any other…proper person”. The latter category may include creditors of a corporation and other classes of persons at the discretion of the court.

However, unlike costs arising out of the final adjudication of an oppression or derivative action case on its merits, the court does not have jurisdiction to award interim costs under section 242(4) of the CBCA (or section 249(4) of the OBCA) against the majority shareholders or individual directors or officers of a corporation.[4] Interim costs can still be awarded against individual defendants or respondents for any pre-hearing step in the litigation, just not under those statutory provisions.

The awarding of interim costs to a complaint is discretionary. In deciding whether to do so, the courts generally look at the following two factors:

1.       The merits of the case; and

2.       Whether the complainant is in genuine financial need such that in the absence of such an order the complainant would be precluded from pursuing their claim.[5]

The merits test for interim costs is a low bar. It does not require a complainant to show a strong prima facie case of oppression, etc. Rather, even when there is conflicting evidence, the court must simply be satisfied that the claim has some merit and is not frivolous and vexatious.[6]

Similarly, under the financial needs-based aspect of the test, a complainant must simply show that they lack the financial resources to fund the litigation. A showing of impecuniosity is not necessary. Nor is the complainant required to borrow money or sell assets to fund the litigation.[7]

There appears to be a conflict in the jurisprudence as to whether a claimant must also demonstrate that their financial difficulty arose out of the alleged oppressive acts of the respondent.[8] In the leading case of Alles v. Maurice, [1992] O.J. No. 297 (Gen. Div.), Justice Blair found that to be unnecessary. Instead, the court should be guided by the “inability to fund an otherwise meritorious lawsuit and the advantage which such a situation gives to an ‘oppressive’ majority” in deciding whether to award interim costs. Such an approach is in keeping with the equitable nature of statutory shareholder remedies.[9]

[1] Kerr v. Danier Leather Inc., 2007 SCC 44 at para. 63.

[2] Under section 1(4) of the OBCA, affiliated corporations include those controlled by the same person.

[3] Section 249(4) of the OBCA provides that:

In an application made or an action brought or intervened in under this Part, the court may at any time order the corporation or its affiliate to pay to the complainant interim costs, including reasonable legal fees and disbursements, for which interim costs the complainant may be held accountable to the corporation or its affiliate upon final disposition of the application or action.

[4] Trackcom Systems International Inc. c. Trackcom Systems Inc., 2014 QCCA 1136 at para. 81; Stefaniak et al. v. Murphy et al., 2010 ONSC 971 at para. 15.  

[5] Alles v. Maurice, [1992] O.J. No. 297.

[6] Hames v. Greenberg, 2014 ONSC 245at para. 22; John v. John, 2020 ONSC 5337 at para. 82

[7] John v. John, 2020 ONSC 5337 at paras. 83-84.

[8] Hames v. Greenberg, 2014 ONSC 245 at para. 5; Longo v. Zhang, 2012 ONSC 7144 at para. 27.

[9] Hames v. Greenberg, 2014 ONSC 245at para. 8;