In its recent decision 1007374 Alberta Ltd. v. Ruggieri, 2015 ABCA 205, the Alberta Court of Appeal held that efforts to creditor proof a company amounted to oppression under Alberta’s Business Corporations Act. This case illustrates how practitioners can make use of the oppression remedy when dealing with a debtor who is working hard to avoid enforcement of a judgment. It also provides a precedent (i) for holding the director of the corporate debtor personally liable for oppressive acts, and (ii) for claiming a large punitive damages award against an evasive judgment debtor.
The 2011 Trial
In 2003, the plaintiff had entered into a consulting agreement with Ruggieri Engineering. The relationship between the parties soured. In 2011, the plaintiff sued Ruggieri Engineering for breach of contract, and was awarded $337,130 in damages.
Creditor Proofing the 2011 Defendant
Antonio Ruggieri was the controlling mind of Ruggieri Engineering. After trial, but before the judge hearing the matter released her decision, he took a number of steps, which had the effect of making it more difficult for the plaintiff to enforce a judgment against Ruggieri Engineering. Ruggieri Engineering granted general security agreements of $500,000 in favour of Mr. Ruggieri and a related company, and also issued promissory notes to Mr. Ruggieri and the related company. Mr. Ruggieri then started a new company, Alberta Engineering, under whose name he carried out the same business for the same clients and with the same employees.
The Decision Under Appeal - the 2014 Trial
The plaintiff sued again, this time naming a number of defendants: Antonio Ruggieri, Ruggieri Engineering (which was now operating as a numbered company), Alberta Engineering, and another related company. The plaintiff advanced a number of claims, including fraudulent conveyance actions under the Fraudulent Preference Act and the Statute of Elizabeth,conspiracy, unjust enrichment, and oppression.
In a decision released in October 2014, the trial judge found that the plaintiff succeeded on each of its claims. The trial judge awarded the plaintiff damages of $476,498.86, which amounted to the initial judgment, plus pre-judgment interest and costs. Additionally, the trial judge awarded the plaintiff punitive damages of $100,000, reasoning that the defendant’s conduct was “so oppressive, calculating and unremitting and has carried on for so many years, that nothing short of punitive damages will serve to properly condemn and punish this misconduct.”
The Court of Appeal’s Decision & Analysis
The Court of Appeal upheld the trial judge’s decision, including the judgment of $476,498.86, plus $100,000 in punitive damages. It found that the plaintiff had established its claim for oppression, and did not consider the plaintiff’s other claims.
The Oppression Claim
A “complainant” can bring an oppression claim under the Business Corporation Act. The definition of complainant in Alberta’s Business Corporation Act includes creditors. When a creditor brings an oppression claim, the Court must consider if “the effect of the corporation’s conduct is unfairly prejudicial or unfairly disregards the interest of the creditor. The Court must determine the reasonable expectations of the creditor.”
A creditor’s reasonable expectations include the following:
- "A creditor reasonably expects that a corporation will not be used as a vehicle for fraud;
- A creditor reasonably expects that the debtor will not convey away, for no consideration, exigible assets, which will leave the creditor unpaid and unable to realize upon assets to satisfy the debt;
- A creditor reasonably expects that the directors of a corporation will manage the company in accordance with their legal obligations, namely to act honestly and in good faith in the best interests of the corporation and to exercise the diligence expected of a reasonably prudent person; and
- A creditor reasonably expects that the debtor will honour the understandings and expectations which the debtor has created and encouraged."
The Court of Appeal focused on the second and fourth expectations on this list. The Court of Appeal held there was ample evidence upon which the trial judge could conclude that the defendant had engaged in a “deliberate course of conduct to strip Ruggieri Engineering of its exigible assets.” This conduct was “unfairly prejudicial to the plaintiff and disregarded its interests.”
The Personal Liability of the Director
The trial judge held Mr. Ruggieri personally liable for the oppressive acts of Ruggieri Engineering. The Court of Appeal affirmed this aspect of the trial judgment, noting that liability may lie with directors if they “exercise power in a manner that is unfairly prejudicial or unfairly disregards the interests of the complainant.” Furthermore, the Court of Appeal noted Mr. Ruggieri personally benefitted from the oppressive acts, by collecting $800,000 in management fees from the new company, to which Ruggieri Engineering’s business had been diverted.
The Punitive Damages Award
The Court of Appeal affirmed the award of $100,000 in punitive damages against the defendants. It concluded, “that punitive damages are ‘very much the exception’ rather than the rule and imposed only if there has been ‘high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour’, we find no basis to interfere with the award of punitive damages in this case.”
Business Corporations Act, RSA 2000, c B-9.
 1007374 Alberta Ltd v. A. Ruggieri Engineering Ltd, 2011 ABQB 804 at para 148, 61 Alta LR (5th) 193, Bensler J.
 1007374 Alberta Ltd. v. Ruggieri, 2015 ABCA 205 at para 2 [“The Appellate Decision”]; see also the timeline at para 26 of 1007374 Alberta Ltd. v Ruggieri, 2014 ABQB 641, Wilson J [“The 2014 Trial Decision”].
 The 2014 Trial Decision, ibid at paras 18-21.
 Fraudulent Preference Act, RSA 2000, c F-24.
 Fraudulent Conveyances Act, 1571,13 Eliz 1, c 5.
 The 2014 Trial Decision, supra note 3 at paras 95, 107, 116, 120, 127.
 Ibid at para 4.
 Ibid at 131.
 Business Corporations Act, supra note 1, s 239(b)(iii). The Canada Business Corporations Act, RSC 1985, c C-44, s 238 does not include “creditor” in the definition of complainant, but the Court is granted the discretion to allow a creditor, or any other “proper person” to bring an oppression action.
 The Appellate Decision, supra note 3 at para 7.
 The 2014 Trial Decision, supra note 3 at para 119, citing Builders’ Floor Centre Ltd. v Thiessen, 2013 ABQB 23 at para 89, 554 AR 152, Nielsen J, citing MA Springman et al, Frauds on Creditors: Fraudulent Conveyances and Preferences (Toronto: Thompson Reuters Canada Limited, 2009) at 24. In Builders’ Floor Centre Ltd at paras 93-94, the judge affirmed the Masters finding that a corporate debtor acted oppressively when it transferred its only asset, a piece of land, to two related individuals.
 The Appellate Decision, supra note 3 at para 7.
 Ibid at para 8.
 Ibid at para 9.
 The 2014 Trial Decision, supra note 3 at paras 121-23.
 The Appellate Decision, supra note 3 at para 10.
 Ibid at para 10.
 Ibid at para 13.