The Supreme Court Reiterates The Distinction Between A Shareholder's Right Of Action And The Corporation's Right Of Action

The Supreme Court of Canada has reiterated the distinction between a corporation's right of action and its shareholders' right of action. This nuance has an impact on the question of whether a party has sufficient interest to act, which is an essential requirement of any legal action.

Introduction

In the recent decision in Brunette v. Legault Joly Thiffault,1 the Supreme Court of Canada pointed out that the shareholders of a corporation do not automatically possess a right of action in relation to faults committed against the corporation in which they hold shares and in relation to the injury suffered by the corporation. In so holding, the Court gave its opinion on the sufficient interest that is required in order to bring an action and on the criteria that apply to a motion to dismiss for lack of sufficient interest.2

The Hon. Justice Rowe, writing the reasons for the eight-judge majority of the Court, stated the opinion that the Superior Court and Court of Appeal of Quebec were correct to dismiss the plaintiff's action for lack of sufficient interest. The Hon. Justice Côté dissented.

Facts

The appellants were the trustees of Fiducie Maynard 2004 (Fiducie), which was the sole shareholder of 9143-1304 Québec inc. (9143). 9143 was a holding company that owned shares in various corporations that made up Groupe Melior. Until 2010, Groupe Melior owned, renovated and operated seniors' residences.3

In the late 2000s, the success of Groupe Melior "was cut short by two events".4 It was the victim of fraud committed by a vice-president. In addition, Revenu Québec issued unexpected notices of assessment that resulted in the bankruptcy of several of the Groupe Melior corporations, of 9143 and of Mr. Maynard.5 This caused the total loss of value of the patrimony of Fiducie since it was comprised exclusively of shares in 9143.6

The appellants commenced an action against the professionals, accountants and lawyers, who had participated in setting up the tax structure of Groupe Melior. They believed that the professionals had breached their duty to advise Fiducie, since the tax structure violated the law and exposed the corporations to unexpected tax liability that led to the bankruptcies.7 The principal claim was for $55 million, calculated based on the net value of the Groupe Melior residences before the bankruptcies.8

Judgements Below

The respondents asked the Superior Court to dismiss the action under article 165(3) of the former Code of Civil Procedure (C.C.P.), which corresponds to article 168(3) of the present C.C.P. The respondents argued that Fiducie did not have a sufficient interest to bring a claim since the faults alleged were committed against the Group Melior corporations and not Fiducie. In their submission, the right of action belonged solely to the corporations of Groupe Melior.9

The Hon. Justice Danielle Mayrand of the Superior Court allowed the motion to dismiss and put an end to the action.10 The action was based on the lost value of the assets of Groupe Melior and Fiducie had no cause of action11 in relation to faults committed against the corporation by a third-party defendant. Shareholders only have a cause of action if a distinct legal obligation owed to them was breached and they suffered an injury distinct from those suffered by the corporation.12 Justice Mayrand did not identify any distinct fault committed against Fiducie, or any distinct injury suffered by Fiducie, in the allegations in the Motion to Institute Proceedings.13

The Court of Appeal of Quebec (Morrissette, Bich and Hogue JJ.A.) unanimously agreed with Justice Mayrand.14

Reasons Of The Majority Of The Supreme Court

Concept of sufficient interest

Since the ground for dismissal upheld by the Superior Court was the lack of sufficient interest, the majority of the Supreme Court of Canada first considered that concept in Quebec civil procedure.15

The Court noted that in order for an interest to be sufficient, it must be "legal, direct, personal, acquired and existing".16 In an action in civil liability like the one in this decision, sufficient interest is tied to the injury. Citing Bou Malhab,17 the Court stated that "to have the necessary interest to bring an action, a person must have sustained personal injury".18

Sufficient interest is a necessary condition of the...