Many potential remedies exist for resolving business disputes in British Columbia. The most suitable remedy for a particular dispute depends mainly on the nature and extent of the dispute, the relationship between the parties involved, the terms of any existing agreement(s), and the desired outcome for the parties involved.
Here, we examine the main remedies used in BC by our litigation lawyers for different types of business disputes.
Arbitration
During arbitration, the parties agree to resolve a dispute outside of court in front of a neutral third party known as an arbitrator or “private judge” familiar with the subject area.
This process resembles a court trial but differs in the following ways:
- Arbitration is less formal than litigation.
- It is generally more flexible.
- Matters are usually resolved with fewer delays.
- Matters remain private and confidential rather than public.
Business contracts often include a clause mandating that disputes are settled by arbitration rather than traditional litigation. Disputing parties present evidence to the arbitrator and agree to abide by the “award”. This decision can be registered with the Supreme Court of British Columbia for enforcement.
In British Columbia, the Arbitration Act governs domestic business disputes, while the International Commercial Arbitration Act is used for international cases. Unlike with litigation, the parties are not bound by the rules of court, statutes, or the availability of court resources.
To initiate arbitration in B.C., either or both parties can file a submission with the British Columbia International Commercial Arbitration Centre (BCIBAC), which administers cases.
Buyouts
Buying out the company shares of a shareholder is another potential way to resolve a business dispute in B.C. This outcome can be achieved by:
- Agreement between the disputing parties.
- A court order.
- According to the terms of a “shotgun clause” in a shareholders’ agreement or similar contract.
When a buyout occurs, deadlocked disputes can be resolved by the redistribution of shares, allowing the business to continue to operate and preventing the company’s dissolution.
Under the terms of the B.C. Business Corporations Act, the court may direct the company or another shareholder to purchase all of a shareholder’s shares in certain circumstances. The court usually sets the purchase price of the shares based on the fair market value on the date the claim was filed.
Court Judgments
If a debtor owes you funds and you seek a judgment order from the British Columbia courts, there are several ways to investigate how to collect on the debt.
An examination in aid of execution hearing involves the creditor, the debtor, and counsel. The creditor can question the debtor on a wide range of issues, such as:
- Any matters pertinent to the enforcement of the order.
- The reason for nonpayment or non-performance of the order.
- The debtor’s income and property.
- Whether the debtor intends to obey the order or has any reason for not doing so, etc.
Another method for following up on a judgment is by a subpoena to debtor. With this method, questioning is more restrictive but the hearing is before an examiner, usually a registrar or a master. An order for repayment can be enforced by the courts, often involving long-term monthly payments of low amounts.
Derivative Actions
Derivative actions may be a viable option in British Columbia if a company suffers loss or damage due to the negligence or wrongdoing of its own directors and officers.
Under the terms of the Business Corporations Act, a shareholder, director, or other eligible party can bring a lawsuit on behalf of the company when the company itself has suffered harm. An application can also be brought for such individuals to defend a legal proceeding brought against the company, although this is a much rarer occurrence.
Before bringing an application for a derivative action:
- The complainant must demonstrate reasonable efforts made to convince the directors to either bring or defend the lawsuit.
- The complainant must be acting in good faith.
- Notice of the application must be provided to the company.
- The court must be satisfied that bringing or defending the legal proceeding is in the best interests of the company.
Injunctions
An injunction is a court order directing a company or individual to refrain from activities that cause damage or to take specific action to repair or avoid additional damage.
Injunctions protect rights for a specific and limited period, usually preventing a continuing violation of these rights. However, preventative injunctions can also be sought before any damage has been suffered.
In business contexts, injunctions are often used to:
- Enforce contractual provisions (e.g., in non-competition agreements, non-solicitation agreements, and confidentiality clauses).
- Protect intellectual property (trademarks, copyright, patents, etc.)
- Prevent breaches of duties by former officers or directors, who still owe a fiduciary duty to the company.
Prohibitive and Mandatory Injunctions
Prohibitive injunctions generally require a person or a company to refrain from specific conduct. Mandatory injunctions, on the other hand, order a company or individual to take a specific course of action to right a wrong or repair damage done.
Interlocutory and Permanent Injunctions
Interlocutory injunctions are the most common type and are valid until a case goes to trial. Permanent injunctions are much rarer. Neither type of injunction will be awarded unless the court is satisfied that a monetary award is insufficient and harm may occur to either party before trial.
Force Majeure and Frustration
To settle some business disputes in B.C., a force majeure clause in the contract or “frustration” may be used to end a party’s contractual obligations. In both cases, exceptional and unexpected events must have occurred to prevent a party from fulfilling the terms of the contract.
Force Majeure Clauses
If an event beyond either party’s “reasonable foresight” is serious enough to prevent the performance of contractual obligations, a valid force majeure clause should relieve the parties of these obligations—if the contract is correctly drafted.
If no such clause is expressly stated in the contract, this is a major oversight and parties should seek legal advice. Note that an economic downturn or recession is generally not considered sufficient to trigger a force majeure clause.
“Frustrated” Contracts
When a contract is “frustrated”, unforeseen circumstances prevent parties from fulfilling their obligations as stated in the contract.
This remedy may be triggered by an unforeseen situation or event for which there is no provision in the contract. This must not be self-induced or the fault of either party and must cause a radical change in the fundamental contractual obligations.
Frustration differs from force majeure in several ways, most notably:
- Frustration does not require a specific clause in the contract to be triggered.
- Frustration terminates the entire contract, while force majeure may apply to only part of a contract.
Garnishment of Funds
Another potential remedy for business disputes in B.C. is garnishment, where a court judgment orders specific funds owed or belonging to the debtor to be deducted.
This usually involves garnishment of bank account savings or wages. Special limitations and rules apply to these processes. Multiple garnishing orders may be required if insufficient funds are available to the creditor.
Again, legal assistance is advisable to ensure compliance.
Oppression Remedies
Oppression remedies help shareholders affected by oppression, unfair prejudice, or unfair disregard of relevant interests by a corporation or its directors.
Shareholders are protected by the provisions of the Business Corporations Act. The British Columbia courts can act on oppression if both of the following are true:
- A violation of a shareholder’s reasonable expectation about how the company conducts its business has occurred.
- The expectation was violated by oppressive or unfairly prejudicial actions or because the conduct unfairly disregarded a shareholder’s interests.
Oppressive conduct is usually defined as burdensome, harsh, injurious, or wrongful. It is reprehensible but may not be illegal or contravene one’s legal rights.
A good example is if the majority shareholders vote on an issue that affects all shareholders in a self-interested way or for personal gain, oppressing minority shareholders.
The good news with this type of remedy is that oppression claims usually move through the legal system more quickly than standard lawsuits.
Just and Equitable Division
British Columbia’s Business Corporations Act also provides remedies for shareholders who are in deadlock over critical decisions and are unable to resolve their disputes. The business relationship may have become irretrievably broken, even if the conduct does not rise to the level of being “oppressive” or “unfairly prejudicial.”
In such circumstances, the court has the authority to order the company to be wound up or to grant another remedy that it considers “just and equitable”. This might involve removing a director or directing a company or fellow shareholder to purchase the shares of an aggrieved shareholder.
With all of the business dispute remedies in British Columbia outlined above, it is best to seek legal advice before taking action.
For a free 30-minute consultation about your legal options when faced with a shareholder dispute, contact the team at Legalbird today.
