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Corporations and Fiduciary Duties

. 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.


[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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