Requirements for leave to be granted in derivative application reviewed

In Bennett v Rudek (2008 BCSC 1278, September 23 2008), the Supreme Court of British Columbia has refused to grant leave to one of the respondents to represent Nexus Capital Corporation in the present case and in related proceedings before the Federal Court of Canada.
The parties to the application (three individuals, Andrew Bennett, Victor Vela and Lynette Rudek) used to carry on business under the name Nexus Capital Corporation. A dispute arose over the right to use the name Nexus to identify their business. At the time of filing of the various proceedings opposing Bennett to Vela and Rudek, Nexus Capital had ceased to carry on business.
Bennett, one of the shareholders of Nexus Capital, commenced an action against the two other shareholders, Vela and Rudek, before the Federal Court of Canada for infringement of the NEXUS mark and the Nexus Logo. Bennett also filed a petition before the Supreme Court of British Colombia seeking an injunction restraining Vela and Rudek from using the name Nexus.
Vela and Rudek stated that:
  • Nexus Capital was a defunct company that would never do business again; 
  • all parties were thus entitled to use the name Nexus; and
  • the name Nexus was not an asset of Nexus Capital.
In the context of the underlying petition, Vela filed an application requesting that he be granted leave to represent Nexus Capital in both the petition and before the Federal Court of Canada.
In order to be granted leave, Vela had to establish that:
  • he had made reasonable efforts to cause the directors of Nexus Capital to commence a proceeding;
  • he had given proper notice of this application;
  • he was acting in good faith; and
  • it was in the best interests of Nexus Capital for the proceeding to be prosecuted or defended.
To be considered as acting in good faith, Vela had to demonstrate that his application was filed primarily for the purposes of pursuing a claim on the company’s behalf. The court considered various factors, including the existing disputes between the parties and alleged ulterior motives.
Bennett argued that Vela’s primary motive in this application was in his own interests, and not those of Nexus Capital. It was pointed out that should the present application be granted, Vela would have some advantages before the Federal Court. Although he admitted having mixed motives for filing the application, Vela argued that it did not follow from the fact that he had an incidental personal interest that he was acting in bad faith.
In reaching its decision, the court noted that if successful, the action for infringement initiated before the Federal Court would conclusively establish Nexus Capital’s right to the use of the name Nexus. Should Vela be granted leave to represent Nexus Capital, he would thus have a tactical advantage in the Federal Court litigation.
The court also noted that:
  • Nexus Capital’s benefit with regard to Vela’s application was unclear; and
  • Vela’s change in position as to whether Nexus Capital had rights in the Nexus name and logo raised questions about his good faith in filing the application.
In light of the above, the court found that Vela had not established that he was acting in good faith. His application was thus dismissed.
Catherine Daigle, Léger Robic Richard LLP, Montreal

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