Executive Summary: Key Legal and Evidentiary Issues

• Dispute between co-directors and equal voting shareholders over alleged misuse of corporate funds and performance as a director/officer.
• Allegation that the respondent withdrew $2,000 from the company account for personal use without authorization, versus his claim of entitlement as back pay.
• Need to determine whether the applicant meets the statutory test under s. 239 CBCA for leave to commence a derivative action on behalf of the corporation.
• Assessment of the applicant’s good faith, including whether the proceeding is a corporate claim and not a personal vendetta in the context of an intense shareholder dispute.
• Consideration of whether the proposed derivative action is in the best interests of the corporation, which is in operational gridlock and facing potential bankruptcy.
• Application of s. 241(d) CBCA to require the company to fund the applicant’s reasonable legal fees for the derivative action, with quantum of fees and costs to be fixed at a later stage.

Background and parties
The case arises out of a closely held federal corporation, 11368621 Canada Inc., which operates a network of 14 Bitcom automated teller machines (ATMs) in convenience stores primarily in the Ottawa area. The two central figures are the applicant, Christophe Desormeaux, and the respondent, Subair Abayomi Oloko. They are the only directors of the company. Each holds 46.6% of the non-voting Class A shares and each owns 50% of the voting Class B shares, giving them equal control over corporate decisions. They are also parties to a shareholders’ agreement dated December 1, 2023. The relationship between the two principals has deteriorated into a serious dispute, with the company effectively paralyzed by their disagreement.
 

Nature of the dispute and allegations
The conflict focuses on alleged misconduct by Oloko in the use of corporate funds and his performance as a director, officer and employee. Desormeaux alleges that Oloko improperly took $2,000 from the company’s bank account to pay personal expenses without authorization. While Oloko does not deny withdrawing the funds for his personal use, he maintains that he was owed back pay and was therefore entitled to the money. Beyond the disputed withdrawal, Desormeaux asserts that Oloko has failed to meet the company’s reasonable expectations for his performance and behaviour in his roles as director, officer and employee. According to Desormeaux, this conduct has contributed to the company’s gridlock and financial jeopardy.
 

Procedural steps and shareholder support
In response to these concerns, Desormeaux followed the procedural steps required to seek leave to bring a derivative action in the name of the corporation. On May 9, 2024, he issued a “Notice of Dispute,” to which Oloko did not respond. On June 14, 2024, he served a formal notice of intention to bring a derivative action. This notice was approved by all the other shareholders of the company. Thus, other shareholders aligned themselves with Desormeaux’s position that the company should pursue a claim arising from Oloko’s alleged misconduct.
 

Legal framework for derivative actions and good faith
The application is governed by s. 239 of the Canada Business Corporations Act (CBCA), which sets out the statutory test for leave to commence a derivative action in the name of the corporation. Three conditions must be met: the complainant must have given at least 14 days’ notice to the directors of the intention to apply for leave; the complainant must be acting in good faith; and the bringing of the derivative action must be in the interests of the corporation. The court accepted that the June 14, 2024 notice complied with the statutory timing requirement. The central focus of the reasons is therefore on the good faith and corporate-interest requirements. In assessing good faith, the court applied the standard that the derivative action must be brought primarily to advance the company’s claim, not to serve a personal agenda or “private vendetta.” The test has both subjective and objective components: subjectively, the applicant must genuinely believe the claim has merit and is being advanced on behalf of the corporation; objectively, the proposed action must not be frivolous, vexatious or abusive. The court found that Desormeaux has a strong subjective belief that the derivative action has merit and is intended to recover losses allegedly suffered by the company due to negligence, breach of fiduciary duty and breach of contract by Oloko. Although the parties have been involved in a heated dispute, Desormeaux swore that his application is not a personal vendetta and is supported by other directors. Objectively, the court noted that Oloko opposed the application but did not offer evidence refuting the specific allegations. On the record before it, the court was satisfied that the good-faith test was met.
 

Interests of the corporation and financial jeopardy
The court then considered whether authorizing the derivative action would be in the best interests of the corporation. The evidence indicated that the company was in a state of gridlock, with the two equal voting shareholders unable to move the business forward. According to the court, without the relief sought, there was a real prospect that the company would go bankrupt. In these circumstances, permitting a derivative action to proceed was seen as a means both to address the alleged wrongdoing and to create a path out of deadlock. The court found that Desormeaux had presented an arguable case on the merits and that the potential benefits to the company justified the costs and inconvenience of litigation. As a result, the interests-of-the-corporation branch of the s. 239 test was satisfied.
 

Funding of legal fees and treatment of costs
The decision also engages s. 241(d) of the CBCA, which gives the court power to order that the corporation pay the reasonable legal fees incurred in connection with a derivative action. Recognizing that a derivative action is brought for the company’s benefit, the judge ordered that the company must pay Desormeaux’s reasonable legal fees related to the derivative action going forward. However, the court did not fix any dollar amount at this stage. Instead, it held that the ultimate determination of legal fees will be made once the derivative action itself has been heard and decided. Similarly, the costs of the leave application were reserved to the trial judge or the court that ultimately decides the action.
 

Ruling and overall outcome
In the result, the Ontario Superior Court of Justice granted Desormeaux leave to commence a derivative action in the name of 11368621 Canada Inc. against Oloko. The company was ordered to fund Desormeaux’s reasonable legal fees for the derivative action until the matter is finally decided, with both those fees and the costs of the present application to be determined at the conclusion of the main action. The successful party on this application is the applicant, Christophe Desormeaux. No fixed monetary award, damages figure or quantified costs were granted in this decision, and the total amount in his favour cannot yet be determined.