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Corporations - Fiduciary Duties. Pereira v. TYLT Technologies Inc. (TYLTGO)
In Pereira v. TYLT Technologies Inc. (TYLTGO) (Ont CA, 2023) the Court of Appeal considered the fiduciary status of corporate directors:[29] Directors of a corporation owe a fiduciary duty to act in the best interests of the corporation: s. 122(1)(a) of the CBCA; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 36. In BCE, at para. 40, the Supreme Court confirmed that, in considering the best interests of a corporation, directors may look at the interests of shareholders and employees, amongst others. . Interhealth Canada Limited v. O’Keefe
In Interhealth Canada Limited v. O’Keefe (Ont CA, 2023) the Court of Appeal considered Canaero principles, as they bear on corporate directors breaching their fiduciary duty not to take personal advantage of corporate oppurtunities:B. The core legal principles
[73] At p. 607 of Canaero, Laskin J. wrote that a director or senior officer is disqualified:... from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired. [74] Thus, the issues at trial were: (1) whether Mr. O’Keefe’s resignation was prompted or influenced by a wish to acquire for himself or divert to CHNI a maturing business opportunity which the appellant was actively pursuing; or (2) whether after his resignation Mr. O’Keefe usurped for himself or diverted to CHNI a business opportunity which, before he resigned, was maturing and the appellant was actively pursuing.
[75] Canaero, at p. 620, explains that whether there is a breach of fiduciary duty which survived resignation must be tested against many factors. A non-exhaustive list includes the “position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director’s or managerial officer’s relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or, indeed, even private, the factor of time in the continuation of fiduciary duty where the alleged breach occurs after termination of the relationship with the company, and the circumstances under which the relationship was terminated, that is whether by retirement or resignation or discharge.”: Canaero, at p. 620.
[76] A finding that a defendant has usurped a corporate opportunity does not depend upon proof by a plaintiff that, but for the acts of the fiduciary, the plaintiff would have obtained the opportunity at issue: Canaero, at pp. 621-22.
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F. Different vs. “substantial resemblance” and the “related business” factor
[100] The trial judge did not err in her application of Canaero by considering whether the Cromwell Opportunity and the HIH Opportunity were different from the opportunities which the appellant had sought to pursue. The “substantial resemblances” language in Canaero is merely a factor that may assist in determining whether the opportunity pursued by a fiduciary post-departure is different from one that the company pursued.
[101] In Canaero, Laskin J. considered to what extent the project in relation to which a fiduciary made a post-departure proposal must differ from the project for which the company made a proposal for the fiduciary to evade liability. Liability cannot be evaded merely because the project has “been varied in some details”: at p. 616. The presence of substantial resemblances is “a factor to be considered on the issue of breach of fiduciary duty but they are not a sine qua non.”: at pp. 616-17. In Canaero, at p. 617, the “cardinal fact” was that the departed fiduciary, Zarzycki, pursued the same project as Canaero had been pursuing, through the departed fiduciaries.There is no suggestion that there had been such a change of objective as to make the project for which proposals were invited from Canaero, Terra and others a different one from that which Canaero had been developing with a view to obtaining the contract for itself. [Emphasis added.] [102] In the case of the Cromwell Opportunity, the “project” changed from inquiring about the possibility of a contract to manage a hospital, to acquiring a licence to operate a hospital. In the case of the HIH Opportunity, the “project” changed from being hired by HIH as consultant – a Strategic Healthcare Planner – to acting as HIH’s representative, supervising that consultant and others. The opportunities were not simply “varied in some details”. They were fundamentally different.
[103] Nor did the trial judge err in law by not considering that the Cromwell Opportunity could possibly be described as in a related business as an indicator that it belonged to the appellant.
[104] The question of whether a corporate opportunity has been appropriated is a highly contextual one, which must be tested in each case by many factors. Whether, or the extent to which, the opportunity is in a related business might be a relevant factor [3], it is only one factor. The other factors that the trial judge relied on, and the record, amply supported her conclusion that Mr. O’Keefe did not appropriate a corporate opportunity.
[105] In this case, there was no “opportunity” for Mr. O’Keefe to usurp. In 2003, there was really nothing more than an exploratory expression of interest on the part of the appellant as to whether Cromwell officials might be interested in outsourcing the management of the Cromwell Hospital to the appellant. The trial judge accepted that Mr. O’Keefe and Dr. Muhairi did not discuss the Cromwell Hospital between the time that Mr. O’Keefe submitted his resignation and the effective date of his resignation. Dr. Al Sabti’s inquiries in 2004 did not convert the appellant’s exploratory expression of interest in 2003 into a maturing business opportunity. Moreover, even if there were an opportunity to manage the Hospital, the Cromwell Opportunity was a different opportunity. . Density Group Limited v. HK Hotels LLC
In Density Group Limited v. HK Hotels LLC (Ont CA, 2014) the Court of Appeal commented on the issue of breach of fiduciary duty in the corporate context:[171] In her analysis of the fiduciary duty claim against Mr. Kallan, the motion judge referred to a number of leading Supreme Court of Canada decisions on fiduciary duties: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, which cites the Court’s earlier decision in Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99, and Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 (CanLII), 2011 SCC 24, 2 S.C.R. 261.
[172] In particular, she highlighted the principle from Hodgkinson v. Simms that to establish a fiduciary duty outside the established fiduciary categories “what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party”: pp. 409-10.
[173] She also referred to the requirements set out in Elder Advocates for establishing a fiduciary relationship outside a recognized category. First, there must be evidence that the alleged fiduciary undertook to act in the best interests of the beneficiary. Second, it must be shown that the alleged fiduciary has a discretionary power over a defined person or class of persons. Third, there must be evidence that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary: Elder Advocates, paras. 30 to 34. . Midland Resources Holding Limited v. Shtaif
In Midland Resources Holding Limited v. Shtaif (Ont CA, 2017) the court stated as follows on a director's fiduciary duty to a corporation:[148] Directors must serve the corporation selflessly, honestly, loyally, and in good faith; they must avoid abusing their position to gain personal benefit: Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII), [2004] 3 S.C.R. 461, at para. 35. These fiduciary duties flow from the trust and confidence shareholders repose in the directors to manage the corporation’s assets, including those transferred to the corporation by the shareholders: Peoples, at paras. 34-35.
[149] As a result, a director owes a corporation a fiduciary duty to act honestly, which includes a duty to disclose material information: see, generally, Kevin P. McGuinness, Canadian Business Corporations Law, 2d ed. (Markham, Ontario: LexisNexis Canada Inc., 2007), at §11.40; 484887 Alberta Inc. v. Faraci, 2002 ABQB 406 (CanLII), 311 A.R. 355, at para. 28, citing Jackson v. Trimac Limited, 1994 ABCA 199 (CanLII), 20 Alta. L.R. (3d) 117, at p. 5.
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[156] Directors owe their fiduciary obligation to the corporation: Peoples, at para. 43; BCE, at para. 66. And, in BCE, the Supreme Court of Canada noted that “[n]ormally only the beneficiary of a fiduciary duty can enforce the duty”: para. 41. The court acknowledged this could work a harsh result because “the directors who control the corporation are unlikely to bring an action against themselves for breach of their own fiduciary duty”: para. 41. However, in light of the availability of several other remedies to shareholders – such as the oppression remedy, a derivative action, or an action based on a director’s duty of care – the Supreme Court has resisted characterizing corporate stakeholders as the beneficiaries of directors’ statutory fiduciary duties: Peoples, at para. 53; BCE, at paras. 42-45.
[157] That said, a director may owe an ad hoc fiduciary duty to a shareholder, especially in “situations involving a family or other close special relationships of trust and dependency between the claimant and the defendant director, in which the director was seeking to take advantage of that relationship for personal gain or profit”: Kevin McGuinness, Canadian Business Corporations Law, Second Edition, at §11.194; Harris v. Leikin Group Inc., 2013 ONSC 1525 (CanLII), at para. 401-2; affirmed 2014 ONCA 479 (CanLII). However, although the respondents pleaded the existence of an ad hoc fiduciary duty owed by Roberts to Shnaider and Shyfrin, the trial judge made no factual findings that such a duty arose in the circumstances.
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