Limited Partnerships, Partnerships, Fiduciary Duties

• Published date: 15 February 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Taylor McCaffrey
• Author: Ms Kristen Wittman

The following is a brief paper prepared with the assistance of Lauren Vrsnik, articling student at-law on the topic of fiduciary duties in the context of the partnership relationship.

1. General Overview of fiduciary duties in the corporate setting

Section 97(1) of the MCA states that directors shall manage, or supervise the management of, the business and affairs of a corporation. The scope of a director's power is subject to any unanimous shareholder agreement, the MCA, its regulations, and the corporation's articles and by-laws. Directors may not delegate their duties, although they can create committees to report to them. A director's duties may be fettered by unanimous agreement of the shareholders of the corporation who then take on the liabilities associated with those duties. Although a director's capacity to act can be restricted by the constating documents of the corporation, or by the shareholders themselves, directors are not relieved from the duty to act in accordance with the MCA and regulations or relieved from liability.

Directors, in undertaking their duties, are subject to a certain standard of care, and owe a fiduciary duty to the corporation. The fiduciary duty and duty of care are typically seen to be owed to the corporation rather than the shareholders directly. Directors are under a general obligation to maximize the value of shareholder investment. Directors must consider the interests of the corporation's employees, customers, creditors, and other stakeholders, and not just the interests of the shareholders (Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII at para 42; cited with approval in Manitoba in Matic et al v Waldner et al, 2016 MBCA 60 (CanLII)). However, under certain circumstances, personal liability of directors can extend in favour of shareholders (or other stakeholders), where there has been a personal benefit (in the form of either an immediate financial advantage or increased control in the corporation), or where directors have breached a personal duty they owe as directors, or misused a corporate power. This liability may extend in situations where oppressive conduct against one or more shareholders (or other stakeholders) is found to exist, and where the facts would make a remedy against the corporation inequitable.

Fiduciary Duty

Directors are subject to a fiduciary duty enshrined in section 117(1) of the MCA:

Every director and officer of a corporation in exercising his powers and discharging his duties shall (a) act honestly and in good faith with a view to the best interests of the corporation

A fiduciary relationship, broadly interpreted by the case law, is a relationship between parties where one party is considered to be in a special relation of trust, confidence, or responsibility to the other. Therefore, as a director, one has a duty to act in every circumstance in the way in which that director honestly believes, in good faith, to be in the best interest of the corporation. This is has been the standard jurisprudence since BCE Inc. v 1976 Debentureholders ("BCE"), 2008 SCC 69, when the Supreme Court of Canada clarified that the "best interests of the corporation" does not mean the best interests of the corporation's shareholders. Rather the interests of other stakeholders may be relevant. Following the principles in BCE, Parliament amended the Canada Business Corporations Act to enumerate different stakeholder interests.

The role of the director is likened to that of a trustee so that, just as a trustee owes the fiduciary duties of loyalty and good faith to the beneficiaries of a trust, a director owes those duties to the corporation. The fiduciary duty has several features. First, corporate management must avoid conflicts of interest, except with the company's knowledge and consent. Second, directors and officers are prohibited from taking secret rewards or appropriating an opportunity that should have been available for the company (see CAS v O'Malley, [1974] SCR 592, 1973 CarswellOnt 236). Last, directors and officers must protect the corporation's confidential information. In Matic et al v Waldner et al, 2016 MBCA 60 (CanLII), the Manitoba Court of Appeal considered the fiduciary duty imposed upon directors. In that case, the majority shareholders of Springhill argued that one of their directors had diverted a corporate opportunity for his personal benefit. The Court of Appeal found the director had breached his fiduciary duty by allowing another company that he owned to take on a construction project which Springhill could have performed. In reaching this conclusion, the Court of Appeal acknowledged that determining whether a director has breached his or her fiduciary duty under the corporate opportunity doctrine requires an extensive contextual analysis, considering:

[153] the maturity of the opportunity; whether it was actively pursued by the corporation; whether the corporation was capable of taking advantage of the opportunity; whether the opportunity was in the corporation's line of business or a related business; how the opportunity arose or came to the attention of the director; whether the other directors of the corporation had knowledge of the director's pursuit of the opportunity; and whether the other directors gave their fully informed consent to the director's pursuit of the opportunity. The overall goal of the analysis is to determine whether the opportunity fairly belonged to the corporation in the circumstances.

Furthermore, directors must exercise their powers for a proper purpose. As long as a director's primary motive is the best interests of the company, his or her actions are not necessarily improper simply because the director also benefits from the matter. Directors who breach their fiduciary duty will be held strictly liable, even if there is no evidence of loss...