deck_1499407-2 Flashcards
What is the Foss v. Harbottle rule?
Shareholders have no locus standi to sue for a wrong committed against a corporation when that wrong was committed by the directors. Only the directors have standing, and only if they are not a minority.Proper Plaintiff in an action. And about the majority rule principle: if the alleged wrong can be confirmed by the shareholders in a meeting then why should the court interfere?
What are the four exceptions to the Foss v Harbottle rule?
1) Ultra vires acts,2) Fraud against the minority3) Acts requiring special majorities that had not been obtained; or4) Acts giving rise to a personal cause of action. However, even if shareholders win their claim, their winnings would have to be given back to the corporation (since they are suing on the corp’s behalf).
How did the common law respond to the harshness of the Foss v. Harbottle rule?
Courts developed a form of derivative action under equity.
Where is statutory authority for derivative actions found?
s. 238 of the CBCA and s.7 of the Third Schedule. They are virtually identical codifications of the derivative action claim.
How is “complainant” defined for a statutory derivative action in CBCA?
a) A registered holder or beneficial owner, and a former registered holder or beneficial owner of a security of a corporation or any of its affiliates. b) a director or an officer, or a former director or officer, of a corporation or any of its affiliatesc) the Director (or Registrar for NSCA) [the head hauncho in Ottawa (or Halifax)]d) any other person who, in the discretion of a court, is a proper person to make an application under the Act. [Since creditors are not expressly included in the definition, this is where they try to squeeze in]. ** Creditors are expressly included in the NSCA under s.4 of the third schedule. **
What are the conditions precedent for bringing a derivative action?
1) You are a complainant2) You have applied to the court for leave (s.239 CBCA, s.4(1) of Third Schedule)3) Reasonable notice of 14 days given to directors of intention to bring suit4) Must act in good faith and not as a remedy for a personal wrong5) The action appears to be in the best interest of the corporation.
Why is Re: Marc-Jay Investments Inc and Levy important?
It says that when a judge hears an application for a derivative action their role is simply to vet out frivolous or vexatious cases.If there is a better means of dealing with a problem, or a possible breach of duty to the corporation and personal harm with you failing to distinguish the two, then courts are likely to refuse an application.
Why is First Edmonton Place v. 315888 Alberta important?
Numbered company composed of 3 lawyers looking to enter into a long-term lease with First Edmonton Place. The lawyers say they will set up shop for ten years, First Edmonton Place says they will give them $140k, rent for for some months, and not made to sign a lease. They pay three months worth of rent and then take off. First Edmonton Place wants the Numbered Company to go after the lawyers to get the money back. 238(a): needs to be capable of being registered through the registrar.The Court found First Edmonton Place was not complainants since they didn’t own interest in the Numbered Company. 238(d) test: “Would this person reasonably be entrusted with advancing the interests of the corporation?”Derivative action serves to protect minority shareholders, AS WELL AS ensuring managerial accountability. Court of Appeal wouldn’t let First Edmonton be a complainant because there needed to be a trial about whether there was a contract or even any debt. Really what FIrst Edmonton was doing was litigating a debt claim against a numbered company. Why a derivative action for this? Just file a debt claim!
What happened in Abbey Glen Property Corp v. Stumborg et al?
The company won a derivative action against the directors. However, none of the shareholders present during the harm were present and so the new shareholders received a windfall. This was okay as the wrong was to the company- a separate entity regardless of the changing identity of shareholders.
Why is Discovery Enterprises v Ebco Industries important in relation to derivative actions?
Who in practical terms functions as the plaintiff in a derivative action? Who instructs solicitors for the plaintiff, and who advises the company? Is the company the adversary of the minority shareholder, or does it merely look on passively as the minority and majority shareholders fight their battle?ANS: The fact that the company’s name is used as plaintiff, presumably to ensure that it receives any damages or other sums ultimately awarded to it, should not obscure the substance of the litigation, which is a contest between the Class D and majority shareholders.
What is a derivative action?
A suit launched on behalf of a wrong done to the company. It is always a class action.
What happens when the same set of facts can give rise to both a derivative and personal claim?
Personal and derivative actions can be combined so long as they both arise from the same subject matter. (Goldex)
What are the four categories of remedies for protecting an individual shareholder’s rights?
(a) compliance orders - CBCA 247, NSCA 3rd s.6(b) appraisal rights,(c) oppression remedies, and(d) winding up order under the “just and equitable” rule.
What are compliance orders?
Found in s.247 of CBCA and s.6 of the Third Schedule, this says that if somebody is not complying with rules under the memorandum/articles of incorporation, articles of associations/bylaws, or a USA (for CBCA only) then a complainant can apply to the court for an order directing compliance with the provision.
What does Re Goldhar and Quebec Manitou Mines do?
Says that compliance order is there to remedy mechanical omissions, like failing to send out shareholders notices or failing to call an annual meeting. You cannot use compliance orders to deal with allegations of breach of directors’ fiduciary duties.
