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Fiduciary Duties - Directors of Corporation to Corporation

Contracts - Interpretation

Unique Broadband Systems, Inc. (Re) (Ont CA, 2014)

In this Court of Appeal case the court stated as follows on the issue of fiduciary duties owed to a corporation by it's directors and officers:
[45] It is undisputed that, Mr. McGoey, as a director and CEO of UBS, owed the company fiduciary duties. The imposition of fiduciary duties on directors and officers of a corporation is consistent with the origins of the doctrine in trust law. A director or senior officer of a corporation is in a position of trust. He or she is charged with managing the assets of a corporation honestly and in a manner that is consistent with the objects of the corporation. Courts will be loath to interfere with the legitimate exercise of corporate duties, but they will intervene where a fiduciary breaches the trust reposed in him or her.

[46] Mr. McGoey’s fiduciary duties included an obligation to act in good faith and in the best interests of the corporation. He had a specific obligation to scrupulously avoid conflicts of interest with the corporation and not to abuse his position for personal gain: Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII), 2004 SCC 68, [2004] 3 S.C.R. 461, at paras. 35 and 42; and BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 (CanLII), 2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 39 and 89.

[47] As Granger J. stated in Moffatt v. Wetstein 1996 CanLII 8009 (ON SC), (1996), 29 O.R. (3d) 371, at p. 390 (Gen. Div.):
Subsumed in the fiduciary’s duties of good faith and loyalty is the duty to avoid a conflict of interest. The fiduciary must not only avoid a direct conflict of interest but must also avoid the appearance of a possible or potential conflict. The fiduciary is barred from dividing loyalties between competing interests, including self-interest.
[48] Disclosure of a directors’ interest in a transaction is just the first step. Disclosure does not relieve a director of his or her obligation to act honestly and in the best interests of the corporation: UPM-Kymmene Corp. v. UPM-Kymmene Miramichi Inc. 2002 CanLII 49507 (ON SC), (2002), 214 D.L.R. (4th) 496 (Ont. S.C.), aff’d 2004 CanLII 9479 (ON CA), (2004), 183 O.A.C. 310 (C.A.).
The court further elaborated on current principles of contractual interpretation, as follows:
[84] In Manulife Bank of Canada v. Conlin, 1996 CanLII 182 (SCC), [1996] 3 S.C.R. 415, at pp. 439-40, quoting Ruth Sullivan, Driedger on the Construction of Statutes, 3d. ed. (Toronto: Butterworths, 1994), at p. 131, L’Heureux-Dubé J., dissenting, described the interpretation of statutes in the following way that applies equally to contractual interpretation:
There is only one rule in modern interpretation, namely, courts are obliged to determine the meaning of [that which is to be judicially interpreted] in its total context, having regard to [its] purpose …, the consequences of proposed interpretations, the presumptions and special rules of interpretation, as well as admissible external aids. In other words, the courts must consider and take into account all relevant and admissible indicators of […] meaning. After taking these into account, the court must then adopt an interpretation that is appropriate. An appropriate interpretation is one that can be justified in terms of (a) its plausibility, that is, its compliance with the […] text; (b) its efficacy, that is, its promotion of the […] purpose; and (c) its acceptability, that is, the outcome is reasonable and just. [Emphasis added by L’Heureux-Dubé J.]
[85] The subjective intent of one party to a contract “has no independent place” in interpreting contractual provisions: Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, at para. 54.

[86] While the plain meaning of the words used by the contracting parties is important, the contract must be read as a whole and in the context of the circumstances as they existed when the contract was created: Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59 (CanLII), 2007 ONCA 59, 85 O.R. (3d) 616, at para. 52.

[87] Courts will avoid a contractual interpretation which results in rendering the agreement unlawful. As Blair J.A. discussed in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 (CanLII), 2007 ONCA 205, 85 O.R. (3d) 254, at para. 57, quoting John D. McCamus, The Law of Contracts (Toronto: Irwin Law, 2005), at p. 729,[3] “where an agreement admits of two possible constructions, one of which renders the agreement lawful and the other of which renders it unlawful, courts will give preference to the former interpretation”; see also Cantor Art Services Ltd. v. Kenneth Bieber Photography Ltd., [1969] 1 W.L.R. 1226 (C.A.).

[88] A commercial contract will be interpreted in a manner that is consistent with commercial principles and that avoids a commercial absurdity. In Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 901, Estey J. stated:
[w]here words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result.
[89] As stated by the House of Lords in Mannai Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd., [1997] 2 W.L.R. 945, at p. 964 (H.L.), commercial contracts should be “interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language”.

[90] The interpretation of a contract is a question of law. Accordingly, the standard of review by an appellate court is correctness: Bell Canada v. The Plan Group, 2009 ONCA 548 (CanLII), 2009 ONCA 548, 96 O.R. (3d) 81.

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