The Supreme Court Of Canada Confirms That, Barring Rare Exceptions, Shareholders Cannot Bring Proceedings When A Corporation Suffers Damages That Result In A Loss In The Value Of Their Shares

In a recent decision, the Supreme Court of Canada1 confirms that, barring rare exceptions, shareholders cannot bring proceedings when a corporation suffers damages that result in a loss in the value of their shares.

The facts

Mr. Yves Brunette and Mr. Jean M. Maynard, acting in their capacity as trustees of Fiducie Maynard 2004 (the 2004 Maynard trust, or Fiducie) instituted proceedings before the Superior Court of Québec against lawyers and accountants to recover the lost value of Fiducie's patrimony, claiming that the professionals had committed a number of faults (i.e., in setting up the tax structure of Groupe Melior) and, in doing so, had breached their duty to advise Fiducie.

Fiducie was the sole shareholder of 9143-1304 Québec Inc., a holding company that controlled, in whole or in part, the corporations making up Groupe Melior.

Owing to the discovery of a $1.8 million fraud against the corporations and the unexpected notices of assessment issued by Revenu Québec, most of the Groupe Melior corporations went bankrupt, resulting in the total loss of value of the patrimony of Fiducie, which was comprised exclusively of shares in 9143-1304 Québec Inc.

The respondents moved to dismiss Fiducie's claim for lack of sufficient interest on the basis that, as an indirect shareholder of the corporations, Fiducie had no right to claim losses equivalent to the value of the assets that had belonged to the corporations.

Both the trial judge and the Court of Appeal found that the trustees did not have sufficient interest to act for and on behalf of Fiducie, and therefore could not claim damages on the grounds that the right of action, if one did exist, belonged to the Groupe Melior corporations.

The decision

The Supreme Court therefore had to decide whether Fiducie, as a shareholder of Groupe Melior, could sue the lawyers and accountants of Groupe Melior to claim the value of the shares that was lost when 9143‑1304 Québec Inc. went bankrupt.

In its decision, the Supreme Court confirms that the principles of procedural and corporate law in Québec bar shareholders from exercising rights of action that belong to the corporations whose shares they hold. The Supreme Court also indicates in its judgment that the same is true under the common law principles that apply elsewhere in Canada.2 Fiducie was claiming that civil law diverges from common law and that, under the circumstances, it allowed Fiducie to bring this action on the grounds that it had the...