Executive Summary: Key Legal and Evidentiary Issues

• Leave granted under OBCA s. 246 to commence derivative action for alleged breach of fiduciary duty by directors.

• Directors accused of self-dealing through excessive and unfair salaries and fees.

• Parallel oppression proceeding underway for same conduct, including claim for share buy-out and damages.

• Court refused to shift costs solely to corporations; ordered equal sharing of application costs.

• Applicant criticized for receiving compensation while not rendering services.

• Final decision on costs deferred to trial judge due to overlapping proceedings and unresolved claims.

Background of the dispute

Chris Clark, a significant minority shareholder in two corporations—Cen-Ta Real Estate Ltd. and Plum Financial Group Inc.—brought an application seeking leave to initiate a derivative action against three directors of the corporations: Robert Veillette, Fernando Bada, and Anthony Bada. Clark alleged that the directors breached their fiduciary and statutory duties by unjustly enriching themselves through excessive salaries and fees, to the detriment of the corporations.

Allegations of director misconduct

The proposed derivative action aimed to recover funds improperly paid to the directors and their affiliated companies. It also sought a court order setting out parameters for future director compensation to prevent further unjustified financial decisions by the board. The court accepted that there was a prima facie case of breach of fiduciary duty sufficient to warrant granting leave to proceed with the derivative action.

Parallel oppression remedy filed

At the same time, Clark had launched a separate oppression proceeding arising from the same set of facts. That action includes claims for damages and a fair market value buy-out of his shares, along with redress for unfulfilled shareholder expectations. The court noted that the two proceedings had overlapping factual allegations and legal issues, and indicated they would likely be heard together.

Positions on cost recovery

Following the decision to grant leave, the applicant sought costs on a partial indemnity basis from the respondent directors in the amount of $33,733.03. He argued that requiring the corporations to share the costs would dilute his reimbursement and place an unfair burden on the companies, which were passive parties in the application.

The respondents contended that costs should either not be awarded or be significantly reduced. They pointed to divided success and raised concerns about Clark’s own conduct, particularly his continued compensation despite a lack of service to the corporations.

Court's analysis of costs

While recognizing Clark’s success in obtaining leave, the court emphasized that costs must be reasonable and fair under rule 57.01 and section 131 of the Courts of Justice Act. The corporations stood to benefit from the litigation and were not the direct wrongdoers, which justified requiring them to contribute to the costs of the application. The court also noted an adverse finding against Clark for drawing pay while not contributing services, further complicating the cost analysis.

Decision reserved for trial

Given the complexity of the overlapping actions and the fact that no substantive proceedings had yet occurred, the court declined to fix costs at this stage. Instead, it deferred the final determination of costs to the trial judge, who would have the full context of both proceedings and be better positioned to assess the reasonableness of the parties’ conduct and expense claims.