Fiduciary Duties of Corporate Directors

Fiduciary Duties of Corporate Directors

Ascent One Properties Ltd v Liao 2017 BCSC 1017 dealt with an aborted real estate development project that alleged inter alia a breach of fiduciary duties by a corporate director and officer.

The case outlines the law relating to the fiduciary duties owed by a director and officer of a corporation.

THE LAW

173      It is trite law that directors owe duties to the companies they serve.

174      The Business Corporations Act, S.B.C. 2002, c. 57 (“BCA“) provides in relevant part as follows:

Powers and functions of directors

136(1) The directors of a company must, subject to this Act, the regulations and the memorandum and articles of the company, manage or supervise the management of the business and affairs of the company.

Duties of directors and officers

142(1) A director or officer of a company, when exercising the powers and performing the functions of a director or officer of the company, as the case may be, must

(a) act honestly and in good faith with a view to the best interests of the company . . .

175      The statutory fiduciary duty requires company directors and officers to respect the trust and confidence that have been reposed in them to manage the assets of the company in pursuit of the realization of the objects of the company. They must avoid conflicts of interest and abusing their position for personal benefit: Peoples Department Store Inc. (Trustee of) v. Wise, 2004 SCC 68at para. 35.

176      A director must not usurp for herself a maturing business opportunity.

177      As was stated by the Supreme Court of Canada in BCE Inc. v. 1976 Debenture Holders, 2008 SCC 69:

[37] 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 stakeholder are co-extensive with the interests of the corporation. But if they conflict, the directors’ duty is clear — it is to the corporation . . .

[38] 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 . . . the fiduciary duty owed by directors is mandatory; directors must look to what is in the best interests of the corporation.

. . .

[40] In considering what is in the best interests of the corporation, directors may look to the interests of, inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions. Court should give appropriate deference to the business judgment of directors who take into account these ancillary interests, as reflected by the business judgment rule. The “business judgment rule” accords deference to a business decision, so long as it lies within a range of reasonable alternatives [citations omitted]. It reflects the reality that directors, who are mandated under s. 102(1) of the CBCA to manage the corporation’s business and affairs, are often better suited to determine what is in the best interests of the corporation. This applies to decisions on stakeholders’ interests, as much as other directorial decisions.

. . .

[66] . . . However, the directors owe a fiduciary duty to the corporation, an only to the corporation . . . not to stakeholders, and that the reasonable expectation of stakeholders is simply that the directors act in the best interests of the corporation.

178      The fiduciary duty is to maximize the value of the corporation: Carr v. Cheng, 2005 BCSC 445at para. 25. A director’s interests as a shareholder must be subservient to his fiduciary duty: Polar Star Mining Corp. v. Willock (2009), 96 O.R. (3d) 688 (Ont. S.C.); Peoples Department Stores at para. 43.

179      It is a breach of fiduciary duty to use, for personal advantage or gain, information acquired as a director in order to attempt to take control of the company: Dockside Brewing Co. Ltd. v. Strata Plan LMS 3837, 2007 BCCA 183 at para. 54.

180      In determining whether a director has acted in the best interests of the company, the court will consider whether the director has applied informed judgment which had a reasonable basis: Maple Leaf Foods Inc. v. Schneider Corp., (1998), CanLII 5121 (Ont. C.A.) at p. 42. This “business judgment rule” operates to shield from court intervention business decisions which have been made honestly, prudently, in good faith and on reasonable grounds: Krynen v. Bugg, 2003 O.J. No. 1209 (Ont. C.J.) at para. 74(7).

181      A director will not be liable for breach of fiduciary duty when the conduct at issue is qua shareholder and not qua director: Polar Star Mining at paras. 33-34.

182      The court must scrutinize the circumstances of each case to determine whether the director has acted honestly and in good faith and with a view to the interests of the company. A finding that there was no fraud or dishonesty on the part of a director’s who was attempting to solve the company’s problems stands in the way of a finding of breach of fiduciary duty: Peoples Department Stores at paras. 39 — 40.

183      When assessing whether a breach of fiduciary duty has occurred, the subjective motivation of the director is relevant: Peoples Department Stores at paras. 62 — 63; Dockside Brewing Co. at paras. 54 — 55.

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

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