Cases Summary

Question 1

Doty v Gorton (1937)

football player

Answer 1

What constitutes the agency relationship:

Where one undertakes to transact some business or manage some affair for another by authority and on account of the latter, the relationship of principal and agent arises. Neither a contract between the principal and agent, an admission of agency, nor compensation, nor formal relations of authority or business purposes are requisite criteria.

Question 2

Friedmann Equity Developments Inc. v Final Note Ltd. (2000)

Sealed contract rule

Answer 2

Problem of the undisclosed principal:

As a general rule, an undisclosed principal may sue or be sued on a simple contract entered into on his behalf by an agent. There is a well-established exception to this rule that when such a contract is executed under seal, the undisclosed principal can neither sue nor be sued upon it.

Question 3

Freeman & Lockeyer v Buckhurst Park Properties Ltd. (1964)

Kapoor’s missing

Answer 3

Nature and kinds of agent’s authority: distinction between actual, apparent, and ostensible authority:

If a person has no actual authority to act on a company’s behalf, then a contract can still be enforced if (1) a representation has been made that the agent had authority to enter contracts of a different but similar kind, (2) the representation was made by a person who has actual authority, (3) the contracting party was induced by these representations to enter the agreement and (4) the company had the capacity to enter into a contract of the kind sought to be enforced.

Question 4

Watteau v Fenwick (1893)

Beerhouse unauthorized purchase

Answer 4

Nature and kinds of agent’s authority: distinction between actual, apparent, and ostensible authority:

The principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority.

Question 5

FHR European Ventures LLP v Cedar Capital Partners LLP (2014)
(Double dipping hotel commission)

Answer 5

How should the law respond to “faithless” or “naughty” agent:

Any benefit acquired by an agent as a result of his agency and in breach of his fiduciary duty is held on trust for the principal. Thus, bribes and secret commissions received by an agent should be treated as the property of his principal, rather than merely giving rise to a claim for equitable compensation.

Question 6

Design Dynamics v Sagaz Industries Canada Inc. (2001)

Backroom deals - sheepskin car seat covers

Answer 6

Distinction between agency and employment relationship: the question of vicarious liability of master (employer) for the torts of its servant (employee) distinguished from the principal’s liability for the agent’s actions:

The first step in establishing vicarious liability is determining whether there was an employee-employer relationship because independent contractors do not give rise to claims of vicarious liability. To determine whether a worker is an employee or an independent contractor, the central question to ask is whether the worker performed the services as a person in business on their own account.

Question 7

Khan v Miah (2000)

Restaurant partners

Answer 7

What is the partnership relationship and when does it arise?:

The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it.

Question 8

Pooley v Driver (1876)

“Creditor” looks suspiciously like a partner

Answer 8

In CVL, indica of the partnership relationship:

Partnership is established by the degree of involvement in the operations of the enterprise. The entire contents of an agreement determines whether it is a partnership agreement. Here, it was a percentage of the profits, the continual nature of the loan, the loan was to end if the lender went bankrupt, and there was an arbitration clause. You cannot have the benefits of a partnership without also facing the liabilities.

Question 9

A.E. LePage v Kamex Developments Ltd. (1977)

Co-owners partners?

Answer 9

In CVL, indica of the partnership relationship:
Co-owners, are they automatically partners?

Co-ownership doesn’t in itself mean that the co-owners are partners.

Question 10

Re Thorne and New Brunswick Workmen’s Compensation Board (1962)
(Partner injured on the job)

Answer 10

Legal nature of the partnership:
Can an injured partner claim compensation?

Partners cannot be employees of a partnership. Partnership is not a legal entity separate and distinct from the identities of its partners.

Question 11

McCormick v Fasken Martineau DuMoulin LLP (2014)

Age limit partnership at Fasken

Answer 11

Nature of the relationship between the partners:

Professional partnerships can but time limits on partners’ ownership. A control-dependency test is used to determine partnership and employment relationships. It is unlikely that an equity partner in a partnership arrangement will be found to be an employee for the purposes of the Code.

Question 12

Meinhard v Salmon (1928)

Big money real estate lease, new opportunity

Answer 12

The duty of partners to one another (one for all and all for one!)

Partnership creates a rule of undivided loyalty and a duty to allow the other partners the chance to benefit or compete when a business opportunity that has a nexus to the business activity of the partnership presents itself.

Question 13

Olson v Gullo (1994)

New opportunity, O cut out of the deal and G tried to have him killed

Answer 13

Nature of the relationship between the partners:
How far does loyalty go and how much is O owed?

Partners owe each other fiduciary duties. If a profit is obtained in breach of this duty, it should be paid over to the firm to be split among the partners according to their stake in the partnership.

Question 14

Strother v 3464920 Canada Inc. (2007) – SCC

Sneaky undisclosed tax shelter

Answer 14

Relationship of the partners to the outside world:

Law firms may act concurrently for different clients in the same line of business when (1) the relationship with the former client is terminated or (2) when the new representation does not put the former client in a vulnerable position (here Strother had a financial interest in the new representation which was enhanced by keeping the former client in the dark).

Question 15

Hurst v Byrk (2002)

1/19 partners trying to get out of liabilities

Answer 15

What is the partnership relationship and when does it arise?
Dissolution of the partnership:

By entering into the relationship of partnership, the parties submit themselves to the jurisdiction of the court of equity and the general principles developed by that court in the exercise of its equitable jurisdiction in respect of partnerships.

They thereby renounce their right by unilateral action to bring about the automatic dissolution of their relationship by acceptance of a repudiatory breach of the partnership contract, and instead submit the question to the discretion of the court.

Question 16

Haughton Graphic Ltd v Zivot (1986)

Print shop went bust, limited partners liable?

Answer 16

Limited partnerships (“societe en commandite” in CVL) and the problem of “control” of the limited partnership by limited partners:

A limited partner becomes liable as a general partner if he takes part in the control of the business.

Question 17

Reference in the matter of the incorporation of companies in Canada (1913)
(Meaning of “provincial objects”, delineates scope of pro authority)

Answer 17

Concurrent pro and fed power of incorporation:

Each province may confer the “rights” of a corporation within the province, but outside of the province it can only confer upon the provincially incorporated corporation the capacity to acquire such rights.

Question 18

Bonanza Creek Gold Mine Co. v The King (1916)

There’s gold in them hills!

Answer 18

Ability of incorporating jurisdictions to grant extraterritorial capacity to its corporations:

A province cannot confer rights to its corporations to act outside its jurisdiction but it can give them (at least to the one created by letter patent – unsure for those created by statute) capacity to act and to receive rights by other territories/provinces.

Question 19

John Deere Plow Co. v Wharton (1915)

This username is already in service

Answer 19

Limits of permissible pro interference with federally-incorporated corps.:

Federally incorporated companies may carry on business anywhere in Canada. The province cannot legislate so as to deprive a Dominion company of its status and powers. The status and powers of a Dominion company cannot be destroyed by provincial legislation. However, a province has the authority to impose rules of a general nature on a federal corporation.

Question 20

Canadian Egg Marketing Agency v Richardson (1998)

Egg monopoly unfairness

Answer 20

Application of the Charter to corps and the standing of corps to challenge leg on the basis of the Charter:

A corporation may invoke the Charter when defending itself in civil proceedings instigated by the state (expansion of Big M exception).

Question 21

Kelner v Baxter (1866)

Wine merchant

Answer 21

Mechanics of creating a corporation, date on which a corp is created, and questioning the validity of incorporation and its effects:

If the stated principle of a pre-incorporation contract doesn’t exist, then the agent is liable for the contract. A corporation cannot ratify the contract after it comes into existence. Section 14(2) CBCA says differently: “A corporation may, within a reasonable time after it comes into existence, by any action or conduct signifying its intention to be bound thereby, adopt a written contract made before it came into existence in its name or on its behalf.”

Question 22

Sherwood Design Services Inc. v 872935 Ontario (1998)

Shelf company suddenly has assets, oops

Answer 22

Mechanics of creating a corporation, date on which a corp is created, and questioning the validity of incorporation and its effects:

If you enter into a contract before the company exists, the company has the option to enter into that contract once it does exist. If it doesn’t take it over the promoter is responsible.

Question 23

Salomon v Salomon Co. (1897)

Salomon the man versus Salomon the corp

Answer 23

Mechanics of creating a corporation, date on which a corp is created, and questioning the validity of incorporation and its effects:

(1) A corporation is a separate legal entity from the shareholders.
(2) Any member of a company acting in good faith is entitled to take and hold company debentures in the same way as an outside creditor.
(3) Motives of the incorporator are irrelevant to the company’s right and liabilities as a separate legal person.
(4) Corporate registration statutes mean what they say; if a corporation is set up following the law, it is a valid corporation.

Question 24

Brunette v Legault Joly Thiffault s.e.n.c.r.l. (2018)

Lawyers and accountants sued for bad advice

Answer 24

Mechanics of creating a corporation, date on which a corp is created, and questioning the validity of incorporation and its effects

S asserting personal rights out of relationships between the corporation and third parties
-Whose loss is it, the S’ personally, the corp, or both?

Shareholders who wish to personally sue third party defendants need to establish a breach of a distinct obligation (than the obligation owed to the corporation) and a direct injury distinct from that suffered by the corporation.

In a bankruptcy context, shareholders cannot pursue a derivative action: only the bankruptcy trustee and the creditors can do this.

Question 25

Sparling v Quebec (Caisse de dépôt) (1988)

Share as a bundle of rights

Answer 25

Corps can be financed through debt or equity (shares). What shares consist of and how they help finance the corp. :

• A share is not an isolated piece of property. It is rather a “bundle” of interrelated rights and liabilities.

(1) A “share” and thus a “shareholder” are concepts inseparable from the comprehensive bundle of rights and liabilities created by the Act.
(2) The very act of purchasing a share, then, is an implicit acceptance of the benefits of this statutory regime.

Question 26

Atco Ltd. v Calgary Power Ltd. (1982)

Public utilities and definition of control

Answer 26

Corps can be financed through debt or equity (shares). What shares consist of and how they help finance the corp. :

Shareholders have no proprietary interest in the assets of the company in which they hold shares. Their proprietary interests is in their shares only.

Question 27

Bowater Canadian Limited v R.L. Crain and Craisec Ltd. (1987)
(Step-down provisions are invalid, rights tied to shares not shareholders)

Answer 27

Corps can be financed through debt or equity (shares). What shares consist of and how they help finance the corp.

Limits on the right to vote set out in the articles:

If a corporation has more than one class of shares, the rights of the holders of the shares of any class are equal in all respects. Rights are attached to the shares not the shareholder and can therefore not change depending on who holds the shares.

Question 28

Attorney General of Belize v Belize Telecom (2009)

Telecom privatization

Answer 28

Corps can be financed through debt or equity (shares). What shares consist of and how they help finance the corp. :

(1) Objective test for the intention of the parties – “the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed.”
(2) The sole relevant question in implying a term is whether the provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.

Question 29

Kelly v Electrical Construction Co. (1907)

directors have the express power to pass by-laws

Answer 29

Management of the corporation (directors not shareholders), shareholder rights, default limitation on the power of a shareholder inherent in a corporation:

Under the Ontario Companies Act, the provisions vesting in the directors’ power to make by-laws respecting certain matters impliedly remove these from the control of the shareholders

Question 30

Automatic Self-Cleaning Filter Syndicate Co. Ltd. v Cunninghame (1906)
(shareholders do not have right to manage the business on behalf of the company)

Answer 30

Management of the corporation (directors not shareholders), shareholder rights, default limitation on the power of a shareholder inherent in a corporation:

The shareholders don’t have the rights to micromanage/make business decisions on behalf of the company. The shareholders can kick management out (new directors) but can’t make the management decisions (except for maybe by special resolution).

Question 31

International Power Co. v McMaster University (1946)

Liquidation of Puerto Rico Power, preferred shareholders

Answer 31

Shareholders’ financial rights in the corporation, their right to dividends, their rights on liquidation:

All shareholders are entitled to equal treatment unless and to the extent that their rights in this respect are modified by the contract under which they hold their shares.

Question 32

McClurg v Canada (1990)

Trucking company, wives have dividend shares

Answer 32

Mechanics of a dividend declaration and payment:

The decision to declare a dividend is within the discretion of the directors, subject to any restrictions included in the articles of incorporation.
The discretionary dividend clause is both a valid means of allocating declared dividends and is sufficient to rebut the presumption of equality among shares.

Question 33

Dodge v Ford Motor Company (1919)

Ford’s grand vision

Answer 33

Limits on the directors’ discretion to issue dividends:

The purpose of for-profit corporations is to maximize profit for shareholders, and courts may interfere with business decisions where profit maximization is not the primary motivation of directors.

Question 34

Wells v Bioniche Life Sciences Inc. (2013)

Risky business move by the board, calling special meeting

Answer 34

What role should shareholders play within corporate edifice besides providing capital? Five fundamental questions re shareholder vote:

1) Which shareholders can vote?
2) When can shareholders vote (regular and special meetings)?
3) On what can shareholders vote?
4) How are votes allocated (are they allocated equally to every vote)?
5) What standard is used to evaluate their vote (simple majority [and of what]?) or higher threshold required?)

Process of scheduling and organizing the vote

• Who calls the vote?
• Who decides what issues are tabled?
• Who pays for the process?

(1) A Board of Directors can reject a requisition for a special meeting if it has already set a meeting date as per s.143 as long as that meeting will take place in a reasonable amount of time considering the matters to be discussed, and the need for the dissident shareholders’ matters to be addressed.
(2) Shareholders may not call a special meeting if one has already been called by the shareholders and the time between the two meetings will incur costs that are unreasonable given the perceived “urgency” of the special meeting.

Question 35

Goodwood Inc. v Cathay Forest Products Corp. (2012) I

Fake Chinese business opportunity

Answer 35

What role should shareholders play within corporate edifice besides providing capital? Five fundamental questions re shareholder vote:

1) Which shareholders can vote?
2) When can shareholders vote (regular and special meetings)?
3) On what can shareholders vote?
4) How are votes allocated (are they allocated equally to every vote)?
5) What standard is used to evaluate their vote (simple majority [and of what]?) or higher threshold required?)

Process of scheduling and organizing the vote

• Who calls the vote?
• Who decides what issues are tabled?
• Who pays for the process?

(1) 112(2) allows for shareholders to call a meeting in order to have directors appointed if directors aren’t dealing with the issue.
(2) 144(1) gives the court the ability to give directions about the manner for calling, holding and conducting that meeting.
(3) 247 gives a shareholder the ability to seek a court order requiring a corporation to comply with its obligations under the CBCA, as well as its own articles and by-laws.

Question 36

Goodwood Inc. v Cathay Forest Products Corp. (2013) II

Who pays the bill?

Answer 36

-Who pays for the process?

To order a meeting of a corporation to be called, held and conducted in the manner that the court directs includes the power to require the company to reimburse the applicant shareholder for “the expenses reasonably incurred” in respect of “requisitioning, calling and holding the meeting”, including securing the court order calling the meeting.

Question 37

Telus Corporation v Mason Capital Management LLC (2012)

Evil NY Hedge Fund

Answer 37

Limits on exercise of shareholder franchise:

Shareholders are able to exercise their voting rights in the manner they see fit without being subject to judicial analysis as to whether their interests are adequately aligned with other shareholders.

Question 38

Meridian Global Funds Management Asia Ltd. v Securities Commission (1995)
(Sneaky traders try to hide their deals from their superiors, is the company to blame?)

Answer 38

Corps can only be said to act when actions natural persons are attributed to them, corporate law requires rules as to which actions are corporate actions and which are personal to the directors.

The rules of attribution include statute and general rules such as agency/vicarious liability. In certain cases, a special rule will be fashioned based on who is the relevant mind of the company for the purposes of the legislation in question (who had supervision over the specific issue at hand, even if not a director).

Question 39

Morris v Kanssen (1946)

Fraudulent election of director

Answer 39

Presumption that the management of the corporation is delegated to a small group of individuals (the board of directors). Structure and makeup of the board:

If there is no appointment, then the purported director has no valid decision-making power whatsoever. The section of the act and the articles of incorporation are designed to avoid questions being raised as to the validity of transactions where there has been a “slip in the appointment of a director” and cannot be utilized for the “purpose of ignoring or overriding the substantive provisions relating to such appointment.”

Question 40

Rhône v Peter A.B. Widener (1993)

Who has governing authority?

Answer 40

Special problem of corp action: criminal liability of the corporation, or how to attribute mens rea to a corp:

The key factor which distinguishes directing minds from normal employees is the capacity to exercise decision-making authority on matters of corporate policy, rather than merely to give effect to such policy on an operational basis.

An individual must have “governing authority over the management and operation” of the corporation to be considered a “directing mind.” The key factor which distinguishes directing minds from normal employees is the capacity to exercise decision-making authority on matters of corporate policy, rather than merely to give effect to such policy on an operational basis.

Question 41

9147-0732 Quebec v Directeur des poursuites criminelles et pénales (2019)
(Crushing fine)

Answer 41

Can a corporation be “executed”? Fundamental rights of a corp in criminal proceedings:

Corporations faced with grossly disproportionate fines may be protected by s.12 of the Charter.

Question 42

Shlensky v Wrigley (1969)

What Ford should have argued

Answer 42

There must be fraud, illegality, or a breach of good faith (conflict of interest) in order to justify the courts’ interfering with the decisions of the directors. The judges are not business experts (business judgement rule). The ultimate objective should always be profit, but the best way to get there is part of managerial discretion.

Question 43

*BCE Inc. v 1976 Debenture holders (2008)

the big tamale

Answer 43

In exercising management power, what objectives should the board of directors aim at? The board is to conduct the affairs of the corporation in engaging in business activity. The board should aim at generating return from the corps assets. What happens if decisions favour some stakeholders over others?

Power to control shareholder votes, modern defensive measure: the poison pill and the staggered board.

What counts are oppressive conduct?

Shares:
An essential component of a corporation is its capital stock, which is divided into fractional parts, the shares. While the corporation is ongoing, shares confer no right to its underlying assets.
A share “is not an isolated piece of property… [but] a ‘bundle of inter-related rights and liabilities.” These rights include:
• The right to a proportionate part of the assets of the corporation upon winding-up.
• The right to oversee the management of the corporation by its board of directors by way of votes at shareholder meetings.

Directors’ Duties:
The directors are responsible for the governance of the corporation. In the performance of this role, the directors are subject to two duties:
1. A fiduciary duty to the corporation under s. 122(1)(a) (the fiduciary duty);
2. A duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances under s. 122(1)(b) (the duty of care).

The fiduciary duty of the directors to the corporation originated in the common law. It is a duty to act in the best interests of the corporation. Often the interests of shareholders and stakeholders are co- extensive with the interests of the corporation. But if they conflict, the directors’ duty is clear — it is to the corporation
• The fiduciary duty of the directors to the corporation is a broad, contextual concept. It is not confined to short-term profit or share value. Where the corporation is an ongoing concern, it looks to the long-term interests of the corporation. The content of this duty varies with the situation at hand. At a minimum, it requires the directors to ensure that the corporation meets its statutory obligations. But, depending on the context, there may also be other requirements.
• In Peoples Department Stores, this Court found that although directors must consider the best interests of the corporation, it may also be appropriate, although not mandatory, to consider the impact of corporate decisions on shareholders or particular groups of stakeholders

Remedies:
• The CBCA s. 239 derivative action, which allows stakeholders (in the name and on behalf of the corporation) to enforce the directors’ duty to the corporation when the directors are themselves unwilling to do so.
• Civil action against directors for breach of the s. 122(1)(b) duty of care. This duty, unlike the s. 122(1)(a) fiduciary duty, is not owed solely to the corporation.
• The CBCA s. 241 action for oppression. Unlike the derivative action, which is aimed at enforcing a right of the corporation itself, the oppression remedy focuses on harm to the legal and equitable interests of stakeholders (e.g., creditors, security holders, directors, and officers) affected by oppressive acts of a corporation its directors.
• S. 192 of the CBCA provides that fundamental changes to the corporation that affects stakeolder rights require court approval.
The s. 241 Oppression Remedy:
• One should first look to the principles underlying the oppression remedy (i.e., reasonable expectations). If a breach of a reasonable expectation is established, one must go on to consider whether the conduct complained of amounts to “oppression”, “unfair prejudice” or “unfair disregard”.
• (1) Oppression carries the sense of conduct that is coercive and abusive, and suggests bad faith. (2) Unfair prejudice may admit of a less culpable state of mind that nevertheless has unfair consequences. (3) Unfair disregard of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders’ reasonable expectations.
• This is an equitable remedy and is therefore fact-specific. However, the concept of reasonable expectations is objective. To determine whether a reasonable expectation exists, court should consider commercial practice, the nature of the corporation, the relationship between the parties, past practice, steps the claimant could have taken to protect itself, representations and agreements, and the fair resolution of conflicting interests.
• The conduct complained of can be that of the directors or other actors, such as shareholders.
• In this case, there was a reasonable expectation that the directors would consider the position of the debentureholders in making their decisions on the various offers under consideration. The directors did do this and concluded that while the contractual terms of the debentures would be honoured, no further commitments could be made. This doesn’t amount to unfair disregard. Thus, a claim for oppression is not available to the debentureholders.

The s. 192 Approval Process:
•	This remedy focuses on whether the arrangement (usually a change of control transaction), objectively viewed, is fair and reasonable and looks primarily to the interests of the parties whose legal rights are being arranged. 
•	Moreover, in an oppression proceeding, the onus is on the claimant to establish oppression or unfairness, while in a s. 192 proceeding, the onus is on the corporation to establish that (1) statutory procedures have been met, (2) the arrangement is “fair and reasonable” and (3) the application is put forward in good faith.
•	In reviewing the directors’ decision to determine whether it is fair and reasonable, courts must be satisfied that (a) the arrangement has a valid business purpose, and (b) the objections of those whose legal rights are being arranged are being resolved in a fair and balanced way.
•	Section 192 generally applies only to security holders whose legal rights stand to be affected by the proposal. This general rule doesn’t preclude the possibility that in some circumstances (e.g., threat of insolvency) interests that are not strictly legal should be considered. 
•	The fact that a group whose legal rights are left intact faces a reduction in the trading value of its securities would generally not, without more, constitute such a circumstance. 
•	Thus, the debentureholders do not constitute an affected class under s. 192.

Question 44

*Peoples Department Stores Inc. v Wise (2004)

Directors and DOC

Answer 44

How will courts review purported exercise of the board’s power? Procedural review? Substantive review? What is the default stance taken in such an inquiry?

*Increasing stringency of DOC in modern corporate law, the shift from subjective to objective standard

Directors owe a duty of care to creditors, but that duty is not a fiduciary duty. A duty of care is simply a duty of diligence on management in supervising and managing a corporation’s affairs.

Question 45

Re Caremark International Inc. (1996) (USA)

Overcharging feds, DOC

Answer 45

Duty of supervision, how much does the DOC require to proactively establish monitoring mechanisms in a corp?

Duty to monitor is breached if (1) the directors knew or (2) should have known that violations of law were occurring and, in either event, (3) that the directors took no steps in good faith effort to prevent or remedy that situation and (4) that such failure proximately resulted in the losses complained of.

Question 46

North-West Transportation Co. v Beatty (1887)

(Fiduciary duty defect in K)

Answer 46

Conflict of interest and DOC, no-profit rule. Interested party transactions.

Any defect in a contract arising from the fiduciary relationship of the defendant can be remedied by a resolution of the shareholders (the breach of duty could be forgiven by a majority vote of the shareholders – ratification). S. 120 CBCA

Question 47

Dunsmuir v Royal Group Inc. (2018)

What do a director’s fiduciary duties include?

Answer 47

Affirming or approving otherwise interested party transactions. What counts as a material contract?

Directors’ fiduciary duty includes (1) a duty to disclose related party transactions and any wrongdoing committed against the beneficiary and (2) a duty not to profit.

Question 48

Regal (Hastings) Ltd. v Gulliver (1942)

Cinema directors have a stake in allocation - conflict of interest

Answer 48

Corporate Opportunity Doctrine:

The complainant need only prove that profit was made and that the opportunity to make the profit was afforded as result of the director’s role as a director. A Director cannot personally profit from their position as director.

Question 49

Peso Silver Mines Ltd. v Cropper (1966)

No deal Howie!

Answer 49

Corporate Opportunity Doctrine:

So long as the board explicitly considers and rejects the opportunity, nothing prevents a director from taking on the opportunity himself.

Question 50

Can. Aero v O’Malley (1974)

Senior managers quit and started competing business

Answer 50

Corporate Opportunity Doctrine:

A fiduciary duty owed by management (directors, officers, executives) may extend beyond their relationship with whom they owe a fiduciary duty.
Directors cannot take opportunities away from whom they owe a fiduciary duty for their own interest, either personally or through a company.
The confidential information that one acquires by virtue of their position cannot be taken advantage of even after one’s resignation.

Question 51

Broz v Cellular Information Systems, Inc. (1996) USA

Broz did not usurp a corporate opportunity from CIS - limits of fid duties

Answer 51

Corporate Opportunity Doctrine:

Reiterates rule in Guth: A director’s ability to take advantage of an opportunity depends on the circumstances at the time the opportunity presented itself and there is no need to consider subsequent events.

Question 52

Teck Corp. v Millar (1972)
(stock dilution legit of junior mining company when faced with poorly managed senior mining company trying to takeover? Yes)

Answer 52

Change of control transactions in public companies. Intro to takeovers:

• Power to issue new shares
• Restrictive English approach and more flex Canadian approach:

A director may resist a hostile take-over so long as they are acting in good faith, and they have reasonable grounds to believe that the take-over will cause substantial harm to the company’s interests. The onus of proof is on the plaintiff.

Question 53

Lee v Lee’s Air Farming Ltd. (1961)

Employee in his own company dies in plane crash

Answer 53

Corporation as a separate legal person, employment by the corporation despite ownership.

An individual in a corporation can have several different roles and can give order to himself or make a contract with himself if he is acting in different capacities. It is possible to have an employment contract with a company that you own.

Question 54

Yaiguaje v Chevron Corporation (2018)

Ecuadorian village polluted by chevron

Answer 54

Shareholders have limited liability.

This case affirms the principle of corporate separateness and the Transamerica two-part test for piercing the corporate veil, even in the context of enforcing a foreign judgment.

Question 55

Transamerica Life Insurance Co. of Canada v Canada Life Assurance Co. (1996)
(Due diligence not done, T wants to sue parent company to recover - can they pierce the corp veil - no)

Answer 55

Legitimate reasons for holding shareholder liable for corporate obligations? AKA Piercing the corporate veil

An accessory breach (i.e., as a 3rd party) to a fiduciary duty requires involvement in the breach with actual knowledge, recklessness or willful blindness to the fraudulent nature of the breach.
The court will disregard the separate legal personality of a corporate entity (i.e., will pierce the corporate veil) where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct

Question 56

VTB Capital plc v Nutritek International Corporation (2013)
(Can there be court-made exceptions to piercing the corp veil? No in this case, later expanded because it allowed too much shadiness)

Answer 56

Legitimate reasons for holding shareholder liable for corporate obligations? AKA Piercing the corporate veil

To pierce the veil, it is necessary to show (1) control of the company by the wrongdoers and (2) misuse of the company by them as a device or façade to conceal their wrongdoing.

Question 57

Prest v Petrodel Resources Ltd. (2013)

Shady husband hiding assets in divorce

Answer 57

Legitimate reasons for holding shareholder liable for corporate obligations? AKA Piercing the corporate veil

Piercing the corporate veil would only be possible when company law had been used to evade liability, although this alone would not be enough, and that even where such impropriety had arisen, it would usually be possible to apply another area of law in order to grant a remedy (in this case, trust principles).

Question 58

Vedanta Resources v Lungowe (2019)

Zambians claiming damages in England, can they? Yes

Answer 58

Legitimate reasons for holding shareholder liable for corporate obligations? AKA Piercing the corporate veil

If a parent company sufficiently intervenes in the management of the subsidiary company such that it owes a common law duty of care to the claimants then they can be sued directly.

Question 59

Walkovsky v Carlton (1996)

Hit by a cab, minimal insurance

Answer 59

Is “thin capitalization” of a corporation a sufficient reason for holding shareholders liable for corporate wrongs?

To hold a shareholder liable for the actions of a corporation, you must show that the corporation is being used to further the individual’s personal needs.

Question 60

Said v Butt (1920)

You’ll never get a ticket to one of my shows again! Shows up

Answer 60

Directors personal Liability:

• Can they be directly sued
• For what? Statutory obligations, K, tort [what kind of tort?]?
• Challenge of suing directors for breach K in the corporation they are directors of is the Said v Butt defence.

If a director/servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has been broken.

Question 61

ADGA Systems International Inc. v Valcom Ltd. (1999)

Poached employees to win a federal prison bid

Answer 61

Directors personal Liability:

• Can they be directly sued
• For what? Statutory obligations, K, tort [what kind of tort?]?
• Challenge of suing directors for breach K in the corporation they are directors of is the Said v Butt defence.

Directors may be held personally liable for torts they commit in the course of their duties, except for the narrow Said v Butt exception. In general, employees/directors/officers are personally liable for tortious conduct causing physical injury, property damage, or a nuisance, even when done in the course of employment or in the company’s best interests. Said v Butt doesn’t apply to economic torts where there is no pre-existing relationship between defendant’s corporation and the plaintiff.

Question 62

Hogarth v Rocky Mountain Slate Inc. (2013)

Quarry failed, misrepresentation - directors personally liable for the lost investment? No.

Answer 62

Directors personal Liability:

• Can they be directly sued
• For what? Statutory obligations, K, tort [what kind of tort?]?
• Challenge of suing directors for breach K in the corporation they are directors of is the Said v Butt defence.

The point is that separate corporate existence, and the resulting limited liability, is not a loophole, at technicality, or a mischievous stratagem; it is an essential tool of social and economic policy.

Personal liability for actions taken in a corporate context is confined to actions that are tortious in themselves, or that exhibit a separate identity or interest from that of the corporation so as to make the act or conduct complained of their own.

Question 63

Hall v Stewart (2019)

Collapsed staircase, Stewart personally sued in tort

Answer 63

Directors personal Liability:

• Can they be directly sued
• For what? Statutory obligations, K, tort [what kind of tort?]?
• Challenge of suing directors for breach K in the corporation they are directors of is the Said v Butt defence.

Directors can be personally sued in cases of personal injury. This is particularly relevant where (i) there are limitation on the liability of the corporation (via contract); (ii) the corporation is insolvent; or (iii) the corporation is immune from suit but the individual is not.

Question 64

Kosmopoulos v Constitution Insurance Co. of Canada (1987)

leathergoods store fire

Answer 64

Shareholders suing directly to enforce rights that belong to the corporation
-S suing to assert a personal interest or right in corporate assets

The number of shareholders in a corporation is irrelevant: an individual shareholder will have an insurable interest in the assets of a corporation if he or she stands to benefit or be prejudiced from the assets (broadens concept of insurable interest).

Question 65

Smith, Stone and Knight Ltd. v Birmingham Corp. (1939)

Expropriation without compensation is nono

Answer 65

Shareholders suing directly to enforce rights that belong to the corporation
-S suing to assert a personal interest or right in corporate assets

This case lays out the criteria for establishing an agency relationship between a subsidiary company and its parent company.

Question 66

Hercules Managements Ltd. v Ernst & Young (1997)

Reliance on accounting info - derivative action? Yes

Answer 66

S asserting personal rights out of relationships between the corporation and third parties
-Whose loss is it, the S’ personally, the corp, or both?

ALSO:

Who can sue and the method/structure/form of the litigation: the Representative/Derivative Action

Shareholders only have a right to bring a claim under derivative action as a group, shareholders do not have this individual right. Shareholders will be prevented from bringing personal claims for losses suffered as a result of harm done to the corporation.

Question 67

Houle v Banque Canadienne Nationale (1990)

piercing the corporate veil or tort? Tort

Answer 67

S asserting personal rights out of relationships between the corporation and third parties
-Whose loss is it, the S’ personally, the corp, or both?

Shareholders cannot sue for an abuse of rights regarding a contract between the company and a third party. They can potentially have a claim in delict, however, if there is a breach of a separate duty (such as in this case, the duty to provide reasonable notice).

Question 68

First Edmonton Place Ltd. v 315888 Alberta Ltd. (1988)

oppression remedy or derivative action appropriate?

Answer 68

Who can sue and the method/structure/form of the litigation: the Representative/Derivative Action.

ALSO

Substantive remedies. Oppression remedy - who is entitled to sue under the oppression remedy?

The court has a broad power to do justice and equity in the circumstances of a particular case, where a person, who otherwise would not be a “complainant”, ought to be permitted to bring an action to right a wrong to the corporation which would not otherwise be righted.

Question 69

Downtown Eatery Ltd. v Ontario (1993)

strip club oppression claim

Answer 69

Substantive remedies. Oppression remedy - who is entitled to sue under the oppression remedy?

Intention to harm is unnecessary for the oppression remedy; as long as a complainant had a reasonable expectation that a company’s affairs would be conducted with a view to protecting his interests, and the conduct resulted in harm to the complainant, recovery may follow.

Question 70

Malata Group Ltd. v Jung (2008)
(misappropriated funds, can they sue under oppression or must they sue under derivative action?) Yes they can sue under oppression.

Answer 70

Distinction between the oppression remedy and the derivative action:

There is not a bright-line distinction between the claims that may be advanced under the derivative action section of the Act and those that may be advanced under the oppression remedy provisions. (Rea v Wildeboer makes the distinction between the two clear).

Question 71

Rea v Wildeboer (2015)

Makes the distinction between derivative and oppression remedy clear

Answer 71

Note: the rule might differ regarding public corporations than with private corporations.

(1) To claim oppression, a plaintiff must plead that they suffered personal harm distinct from that suffered by the corporation itself.
(2) If the relief sought is solely for the benefit of the corporation, then the action will have to be brought as a derivative action (where leave is required).
(3) The causes of action can overlap where the corporation is small and closely-held, and where the impugned conduct directly affects the complainant in a way that differs from the effects on other shareholders. In such cases, a claim may be brought either as a derivative action or a claim for oppression.

Question 72

Galantis v Alexiou (2019)

Answer 72

Limits on oppression:

The oppression remedy cannot be invoked after the dissolution of a company, with respect to oppressive conduct by directors that occurred before the dissolution of the company. This is of particular interest to creditors and security holders with potential oppression claims against a company in circumstances where the company is on the verge of bankruptcy. It provides a strong incentive to move for such a remedy as quickly as possible to avoid losing that potential relief.

Question 73

Naneff v Con-Crete Holdings Ltd. (1995)

Authoritarian concrete dad

Answer 73

Scope of remedies for oppressive conduct:

(1) The court has discretion in fashioning a remedy under oppression but it should still work towards (1) rectifying the oppressive conduct and (2) only protecting the person’s interests as a shareholder, director or officer. It should not be punitive.
(2) The “reasonable expectations” of the minority-oppressed shareholder also have an important bearing upon the decision as to what is a just remedy in a particular case. This is very important in the context of family relationships.