Litigation Trends In Corporate Canada

• Published date: 11 December 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Directors and Officers, Trials & Appeals & Compensation, Securities, Shareholders
• Law Firm: Torys LLP
• Author: Mr Andrew Gray and Lara Guest

2020 has been a year of change and challenges. In this uncertain environment, corporate litigation has remained active, with disputes being heard electronically and digitally, as opposed to in court rooms.

In this article, we outline trends that have affected Canadian corporate litigation, highlighting risks to corporations and their directors and officers.

1. Caremark claims'coming soon to Canada?

In the United States, there has recently been an increase in "Caremark" claims, with five such claims being allowed to proceed in Delaware in the past two years¹. Caremark claims, which may be initiated after a significant failure of risk management, involve allegations that directors failed to make good faith efforts to oversee corporate operations, and therefore have breached their fiduciary duty of loyalty.

Most recently, in August 2020, the Delaware Court of Chancery held that a Caremark claim against the directors of AmerisourceBergen Corporation (ABC) could proceed². One of ABC's subsidiaries illegally pooled excess drugs it received from a drug manufacturer and used this excess to fill syringes, which it then sold. The Delaware court concluded that directors of ABC faced a substantial likelihood of liability under the Caremark principle'i.e., that they had failed to make a good faith effort to oversee the corporation's operations and exercise oversight responsibilities.

Canadian companies operating abroad may face new and increasing risk of liability in Canadian courts.

Canadian courts have not yet found a similarly articulated Caremark duty of corporate oversight. However, Canadian directors have fiduciary obligations, a duty of care, as well as statutory obligations to "manage" and "supervise" the business and affairs of a corporation³. It is not difficult to imagine that a Caremark claim could be brought against a Canadian director, in accordance with these pre-existing duties.

The recent proliferation of these claims in the United States...