Shareholder Disputes: When a Violation of a Shareholder’s Right Leads to Punitive Damages

The Basis of the Recourse 

In the case of Lafleur v. Lalonde, the plaintiff, Lafleur, brought an action for relief against abuse of power or inequity (an oppression remedy) against the defendants, Lalonde and Bouchard, who refused to recognize his status as a shareholder and director of several companies operating daycare centres subsidized by the ministère de la Famille. 

The plaintiff based his claims on a verbal agreement between the parties. Under this agreement, the plaintiff was to hold 40% of the shares in the companies to be formed to operate subsidized daycare centres and was also to serve as a director of those companies. 

During their partnership, however, the defendants, who were spouses, changed their minds and attempted to force the plaintiff to sign a shareholders’ agreement that violated the partnership agreement previously concluded by the parties and that proved to be particularly disadvantageous to him. In fact, this shareholders’ agreement had never been discussed between the parties and had been drafted unilaterally by the defendants’ counsel.

Shareholder Ousting and Oppressive Acts 

The plaintiff refused to sign the shareholders’ agreement that his co-shareholders were trying to impose on him. They then ousted him from the companies.  

The defendants subsequently took several oppressive actions against him: removing the plaintiff’s name from the corporate registry, failing to invite him to any board of directors’ meetings or shareholders’ meetings of the companies, making decisions behind his back and without his knowledge, and refusing to provide him with the financial statements. In short, the plaintiff was completely ousted from the companies. In this context, the plaintiff filed a claim for relief on the grounds of abuse of power or unfairness against the defendants and the companies involved.  

As part of his lawsuit, the plaintiff claimed, among other things, that he was entitled to punitive damages pursuant to sections 6 and 49 of the Charter of Human Rights and Freedoms, arguing that his property rights with respect to the shares he held in the companies’ capital stock had been infringed. 

The Protection of Shareholder Rights Under the Charter of Human Rights and Freedoms 

The court ruled in favour of the plaintiff, recognizing that the shares he held constituted property whose enjoyment and free use are protected by the Charter of Human Rights and Freedoms.  

As the court acknowledged, this protection is not limited to physical possession of the stock certificate. It also extends to all property rights arising from shareholder status, such as the right to participate in corporate affairs, to exercise the voting rights attached to shares, and to benefit from their economic value.  

In this case, the defendants ceased to recognize the plaintiff’s rights as a shareholder and director without valid justification. In this way, they unlawfully deprived him of the right to use property (the shares) that he continued to own.

An Unlawful and Intentional Act Giving Rise to Punitive Damages 

The court also found that this unlawful infringement of the plaintiff’s rights was intentional on the part of the defendants. The latter were fully aware of the position that the plaintiff held within the companies. For several years, they themselves had identified him as a shareholder and director of the companies, both in corporate documentation and in dealings with financial institutions and government authorities.  

The court therefore concluded that the evidence showed that the defendants intended the consequences of their actions with respect to the rights of the plaintiff. He was thus awarded punitive damages in the amount of $10,000, in addition to the other damages awarded to him in the lawsuit.

Shareholder Disputes: Key Takeaways 

This ruling serves as a reminder that, in cases of unlawful and intentional conduct, the courts will not hesitate to impose sanctions for such behaviour, even in disputes between shareholders. In this type of lawsuit, the court has a wide range of remedies and broad discretion to correct a situation deemed unfair. 

When a dispute between shareholders calls into question the rights of one of the parties, having a clear understanding of the available legal remedies can make all the difference. Read our comprehensive overview of the causes, remedies and strategies applicable to shareholder disputes. To discuss the issues specific to your situation, please contact Isabel Pouliot, a partner in the Shareholder Disputes group at BCF.