3.4.3.2 Developments in the interpretation of oppression

The interpretation of "oppression" was first taken from English case law.1 In some early UK court decisions, oppression was interpreted as "burdensome, harsh and wrongful conduct... a lack of probity and fair dealing in the affairs of a company to the prejudice of some portion of its members; or a visual departure from old standards of fair dealing, and a violation of fair play on which every shareholder who eretrusts his money to a company is entitled to rely."2

Later, in Donahue v. Rodd Electrotype Company of New England, Inc., the Massachusetts court introduced the breach of enhanced fiduciary duty to review oppressive conduct in a close corporation.3 The fiduciary duty required in a partnership or enhanced fiduciary duty required in a close company is more stringent than the fiduciary duty to which director and stockholders of all corporations must adhere in the discharge of their corporate responsibilities.4 To be specific, by this term, the court drew an analogy of the fiduciary duties in a close corporation to those in a partnership where shareholders owe each other "utmost good faith and loyalty".5 Such a standard was imposed and recognized in a close corporation through judicial construction.

Recently the most popular construction of "oppressive conduct" is frustration of minority shareholders' reasonable expectations, which also stems from English case law and gained momentum in the US. The adoption of this interpretation by the New York court in 1984 in In Re Kemp & Beatley inc.6 has obviously been very influential, and set the tone for the later development in this field in the US.

The following subsections examine the two interpretation standards mentioned above, both of which would benefit from an increased judicial understanding of the special nature of close corporations.7 This section further considers the relationship between these two standards.