Ontario Court of Appeal Enforces Contractual Waiver of Statutory Dissent Rights

Overview

Ontario’s Court of Appeal concluded in a recent decision that, subject to limited exceptions, shareholders can contractually waive statutory “dissent rights”, which allow shareholders to dissent in respect of certain fundamental corporate actions and receive the fair value of their common shares (as determined by a court) in cash. While contractually waiving dissent rights is a relatively common practice by shareholders of many private corporations, this is the first time that an appellate court in Canada has confirmed the validity of such a waiver. The decision also contains other lessons for drafting waivers of corporate law statutory rights.

Background

The case of Husack v. Husack involved a family dispute regarding the liquidation of the estate of the family patriarch, Frank Husack. The assets of the estate were held through a corporation governed by Ontario’s Business Corporations Act (the “OBCA”). The unanimous shareholders agreement governing the corporation (the “USA”) authorized Mr. Husack’s wife, Evelyn Husack, in her capacity as estate trustee, to sell all or substantially all of the assets of the estate on terms determined in her absolute discretion. It also contained a broad waiver by each shareholder of all statutory rights under the OBCA that may be in conflict with the USA, without referring explicitly to dissent rights or any other specific statutory rights.

In 2019, all of the estate trustees other than one of Mr. Husack’s daughters (the “Applicant”) voted in favour of liquidating the assets of the estate. The Applicant sought to exercise the dissent rights provided in the OBCA that apply when an OBCA corporation sells “all or substantially all” of its assets.

The Decision

The lower Court held, as a general principle, that statutory rights can be waived by contract unless such waiver is unconscionable or there is an overriding public policy reason not to enforce the waiver. Even though the broad waiver in the USA did not explicitly refer to dissent rights, the Court nonetheless found that the unequivocal discretion granted to Ms. Husack in the USA to liquidate the estate in her absolute discretion, combined with the broad general waiver of any statutory rights that might be in conflict with the USA, clearly and unambiguously waived shareholders’ right to dissent in respect of the estate liquidation. The Court found that the contractual provisions in question were not unconscionable, nor was there a public policy reason to prevent their enforcement. The Court of Appeal affirmed the lower Court’s decision.

Key Takeaways

The decision is helpful to contracting parties and practitioners insofar as it confirms that shareholders generally have the ability, subject to limited exceptions, to waive statutory corporate law rights. At the same time, the fact that the Court inferred a waiver of dissent rights from a general clause that did not explicitly refer to those rights warrants caution when drafting these waivers to ensure that they properly reflect the scope intended by the parties. The fact that the Court relied upon another provision of the USA (i.e., the right of Ms. Husack to liquidate the estate in her absolute discretion) in interpreting the breadth of the waiver underscores the importance of considering the provisions of the agreement as a whole when drafting these clauses. In many cases, it may be preferable for the parties to explicitly state what rights are – and are not – being waived. Finally, neither the lower Court nor the Court of Appeal provided any general guidance on the public policy criteria that might justify a decision not to enforce a contractual waiver of statutory corporate law rights, either generally or in any particular circumstances. As a result some enduring ambiguity remains as to when such waivers may not be enforceable.

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