Background
The Wise Stores Inc. was a retail store chain whose shares were primarily held by the three Wise brothers. In 1992, it acquired Peoples Department Store, a competitor. From 1994, the Wise brothers' business interests went through a difficult time. To reduce costs, they developed a scheme where certain inventory would be purchased through Peoples and then transferred to Wise on credit. Soon, Wise owed more than $18 million to Peoples. By 1995, both Wise and Peoples declared bankruptcy. The creditors for Peoples brought an action against the Wise brothers for breach of their fiduciary duties as directors under section 122(1) of the CBCA by implementing the credit scheme.
The Trustees argued the Wise brothers favoured the interests of Wise Stores over that of Peoples.
At trial, the Quebec Superior Court found that the Wise brothers breached their fiduciary duty. This decision was overturned by the Quebec Court of Appeal.
Opinion of the Court
In a unanimous decision written by Major and Deschamps JJ, the Court upheld the decision of the Court of Appeal, but for different reasons. The Court of Appeal had relied heavily on the SCC's ruling in 373409 Alberta Ltd (Receiver of) v Bank of Montreal [2] in reaching its decision. However, that case was concerned with the corporation's rights, and not with creditors' rights. The reliance was misplaced. [3]
The Court examined the meaning behind the director duty of care found in section 122(1)(b) of the CBCA. In considering the existence of a fiduciary duty owed by directors, the Court examined the wording of section 122(1) and found the duty was owed to the company, and the interests of the company were not to be confused with those of the creditors. [4] When examining the standard of the duty, they noted that the wording "in comparable circumstances" meant an objective standard was required: [5]
- To say that the standard is objective makes it clear that the factual aspects of the circumstances surrounding the action of the director or officer are important in the case of the s.122(1)(b) duty of care, as opposed to the subjective motivation of the director or officer, which is the central focus of the statutory fiduciary duty of s.122(1)(a) of the CBCA.
They then noted that the duty of care will be satisfied where the director acts "prudently and on a reasonably informed basis."
They also affirmed the use of the business judgment rule in Canada, stating, "Courts are ill-suited and should be reluctant to second-guess the application of business expertise... they are capable, on the facts of any case, of determining whether an appropriate degree of prudence and diligence was brought to bear in reaching what is claimed to be a reasonable business decision." [6]
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for example, a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to another party, who, for example, has entrusted funds to the fiduciary for safekeeping or investment. Likewise, financial advisers, financial planners, and asset managers, including managers of pension plans, endowments, and other tax-exempt assets, are considered fiduciaries under applicable statutes and laws. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance, and trust in another whose aid, advice, or protection is sought in some matter. In such a relation, good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.
A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.
The business judgment rule is a case-law-derived doctrine in corporations law that courts defer to the business judgment of corporate executives. It is rooted in the principle that the "directors of a corporation... are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge". The rule exists in some form in most common law countries, including the United States, Canada, England and Wales, and Australia.
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Canadian Aero Service Ltd v O'Malley, [1974] SCR 592, is a leading civil case decided by the Supreme Court of Canada on corporate director and officer liability.
Canadian Union of Public Employees, Local 963 v New Brunswick Liquor Corp, [1979] 2 SCR 227 is a leading case decided by the Supreme Court of Canada. This case first developed the patent unreasonableness standard of review in Canadian administrative law.
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An account of profits is a type of equitable remedy most commonly used in cases of breach of fiduciary duty. It is an action taken against a defendant to recover the profits taken as a result of the breach of duty, in order to prevent unjust enrichment.
York Buildings Co v MacKenzie (1795) 3 ER 432 is an English trusts law case concerning the duty of a fiduciary to act in the beneficiaries' interests, without entering any conflict of interest.
Sun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6, arising from the Ontario courts as Re Indalex Limited, is a decision of the Supreme Court of Canada that deals with the question of priorities of claims in proceedings under the Companies' Creditors Arrangement Act, and how they intersect with the fiduciary duties employers have as administrators of pension plans.
Canadian corporate law concerns the operation of corporations in Canada, which can be established under either federal or provincial authority.
Oldham v Kyrris[2003] EWCA Civ 1506 is a UK insolvency law case concerning the administration procedure when a company is unable to repay its debts.
BCE Inc v 1976 Debentureholders, 2008 SCC 69 (CanLII), [2008] 3 SCR 560 is a leading decision of the Supreme Court of Canada on the nature of the duties of corporate directors to act in the best interests of the corporation, "viewed as a good corporate citizen". This case introduced the principle of fair treatment as an organizing principle in Canadian corporate law.
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd[2011] EWCA Civ 347 is an English trusts law case, concerning constructive trusts. Sinclair was partially overruled in July 2014 by the UK Supreme Court in FHR European Ventures LLP v Cedar Capital Partners LLC.
Daniels v Canada (Indian Affairs and Northern Development), 2016 SCC 12 is a case of the Supreme Court of Canada, which ruled that Métis and non-status Indians are "Indians" for the purpose of s 91(24) of the Constitution Act, 1867.
FHR European Ventures LLP v Cedar Capital Partners LLC[2014] UKSC 45 is a landmark decision of the United Kingdom Supreme Court which holds that a bribe or secret commission accepted by an agent is held on trust for his principal. In so ruling, the Court partially overruled Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd in favour of The Attorney General for Hong Kong v Reid (UKPC), a ruling from the Judicial Committee of the Privy Council on appeal from New Zealand.
In Canada, the duty to consult and accommodate with Aboriginal peoples arises when the Crown contemplates actions or decisions that may affect Aboriginal or Treaty rights. This duty arises most often in the context of natural resource extraction such as mining, forestry, oil, and gas.
Wilson v Alharayeri is a leading case of the Supreme Court of Canada which significantly extends the application of the oppression remedy under the Canada Business Corporations Act to include non-corporate parties.
The oppression remedy in Canadian corporate law is a powerful tool available in Canadian courts, unique in breadth and scope compared to other examples of the oppression remedy found elsewhere in the world.
