Fiduciary Duties In Commercial Relationships And Conflicts Of Interest: Roussy v. Savage, 2019 BCSC 1669

The British Columbia Supreme Court's recent decision in Roussy v. Savage, 2019 BCSC 1669, addresses several interesting corporate law issues arising in the context of an insolvent business.

Two individuals formed Sonic Drill Systems Inc. ("SDSI") in 2003 for the purpose of manufacturing and selling mobile drilling rig platforms. Those two individuals, referred to in this article as "RR" and "TS", were each an officer and director of SDSI and held the company's shares through their respective holding companies. A receiver was appointed over SDSI in late-2013 and the company was subsequently assigned into bankruptcy in 2014. RR caused two actions to be commenced arising from SDSI's downfall, making allegations against TS, members of his family, and companies owned by them.

In the first action, RR and companies owned by him, including 466372 B.C. Ltd. ("466"), the company holding RR's 50% interest in SDSI, alleged that TS breached a fiduciary duty owed to RR and 466 by, among other things, misappropriating funds from SDSI for the benefit of TS and members of his family.

The second action was commenced by one of RR's companies pursuant to s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3 against TS. In that action, the plaintiff alleged TS breached his fiduciary duty owed to SDSI by using SDSI facilities, materials and personnel for the construction of railway equipment sold to a company owned by TS (the "Conflict") who then sold the equipment to third parties for a profit. The plaintiff sought disgorgement of the profits earned by TS through the Conflict.

The Court dismissed all of the plaintiffs' claims for misappropriation and fiduciary breach in both actions. Two important takeaways from the Court's decision concern: (1) the circumstances under which a shareholder may sue a director; and (2) when a director will be ordered to disgorge profits arising from a conflict of interest. The Court's reasoning on these issues is summarized below.

1. Claims by a shareholder against a director

   In order for RR and 466 to succeed against the defendants, they had to circumvent the well-established principle that a shareholder may not sue for a wrong done to a company unless there is both an "independent relationship" with the director and that the shareholder suffered an "independent loss" separate from any loss suffered by the company (relying on Robak Industries Ltd. v. Gardner, 2007 BCCA 61).

   The plaintiffs alleged their "independent...