This from the BCE Supreme Court case. Interesting because it seems to me to be saying that directors of a corporation have a responsibility to all stakeholders including shareholders.Of special interest is this quote from the decision.
"expectations may also be affected by representations made to stakeholders or to the public in terms of promotional material, prospectuses, offering circulars and other communications"
DIRECTORS' FIDUCIARY DUTIES
The case afforded the Supreme Court an opportunity to restate the nature and scope of directors' fiduciary duties in Canada. Under the Canada Business Corporations Act (the CBCA), directors have both a duty to act in the best interests of the corporation and a duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. The debentureholders' challenge in this case put in issue the first of these duties. In far reaching commentary, the Court noted that in exercising the duty owed to the corporation, where the corporation is ongoing, directors should be looking to the long-term interests of the corporation, which duty will vary with the situation at hand.
In considering what is in the best interests of the corporation, the Court went on to note that the directors may look at the interests of inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions. In doing so, the Court confirmed that there is no principle in Canada that one set of interests, for example the interests of shareholders, should prevail over another set of interests. The Court has likely put to rest any suggestion that the Delaware Revlon duty, which directs Delaware directors to prefer the interests of shareholders where there is a cash offer for a company, is the law in Canada. Rather, the Court is clear that Canadian directors should not be confined to priority rules, it being a function of business judgment as to what is in the best interests of the corporation in any particular situation. The Court also made it clear that Canadian courts should give appropriate deference to the business judgment of directors who take into account the various interests referred to above, as reflected by the business judgment rule, provided that the decision of the board lies within a range of reasonable alternatives.
OPPRESSION REMEDY
The CBCA provides for a remedy where the acts or omissions of a corporation have been conducted in a manner that is oppressive or unfairly prejudicial or that unfairly disregards the interests of a stakeholder (which is broadly defined in the Act) of the corporation. The Court noted that the oppression remedy seeks to ensure fairness, namely what is "just and equitable" in the circumstances, which differentiates the oppression remedy from the narrower plan of arrangement approval process discussed below. It follows that when considering claims for oppression, courts should look at business realities and not merely narrow legalities. The Court went on to hold that the cornerstone of the oppression remedy is the "reasonable expectations" of the corporation's stakeholders. The concept of reasonable expectations is objective and contextual, the actual expectation of a particular stakeholder not being conclusive.
In assessing whether a reasonable expectation exists, the Court observed that factors that emerge from the case law include: general 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 between corporate stakeholders.
In terms of corporate practice, the Court held that a departure from normal business practices that have the effect of undermining or frustrating the complainant's exercise of his or her legal rights will generally (although not inevitably) give rise to a remedy. With respect to the nature of the corporation, the Court noted that courts may accord more latitude to the directors of a small, closely held corporation to deviate from strict formalities than to the directors of a larger public company. In terms of relationships, the Court stated that relationships between shareholders based on ties of family or friendship may be governed by different standards than relationships between arm's-length shareholders in a widely held corporation. As for past practice, the Court stated that past practice may create reasonable expectations, especially among shareholders of a closely held corporation, on matters relating to participation of shareholders in the corporation's profits and governance, although the Court went on to note that practices and expectations can change over time. In terms of preventive steps, the Court held that it may be relevant whether the claimant could have taken steps to protect itself against the prejudice it claims to have suffered. The Court also held that shareholder agreements may be viewed as reflecting the reasonable expectations of the parties and that such expectations may also be affected by representations made to stakeholders or to the public in terms of promotional material, prospectuses, offering circulars and other communications.
Taken as a whole, the Court held that the case law confirms that the duty of directors to act in the best interests of the corporation comprehends the duty to treat individual stakeholders affected by corporate actions equitably and fairly. It noted that fair treatment is the essential theme running through the oppression jurisprudence and is most fundamentally what stakeholders are entitled to reasonably expect.
To maintain a claim for oppression under the CBCA, however, the Court went on to hold that not only must the complainant establish that its reasonable expectations have been thwarted, but that the failure to meet those expectations involved unfair conduct or prejudicial consequences within the oppression provisions of the Act. In this regard, the Court noted that not every failure to meet a reasonable expectation will give rise to the equitable considerations that found an action for oppression. Specifically, a court must be satisfied that the conduct in issue falls within the concepts of "oppression", "unfair prejudice" or "unfair disregard" of the claimant's interests. These concepts indicate the type of wrong that the oppression remedy is aimed at and do not represent watertight compartments. |
