When Does A Corporation "Discover" A Wrong By The Controlling Board Of Directors?

• Published date: 08 October 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Corporate Governance, Shareholders
• Law Firm: MLT Aikins LLP
• Author: Mr Michael Marschal and Milad Alishahi

Limitation periods set defined time limits on when someone must commence a lawsuit once they discover they have been wronged. If a lawsuit is not brought within the limitation period, it can be dismissed out of hand. It is generally accepted that if the directing mind of a corporation has knowledge of a wrong done to the corporation, that knowledge is imputed onto the corporation.

But what happens when a corporation has been wronged, and the wrongdoers are the corporation's controlling board of directors? If that wrong is discovered by a minority shareholder, is their knowledge imputed onto the corporation? This is an important consideration, given that the claim belongs to the corporation and can generally only be brought by the corporation.

The Saskatchewan Court of Appeal's decision in CPC Networks Corp. v McDougall Gauley ("CPC Networks") sheds light on this issue. In this case, minority shareholders of a company became aware of a wrong carried out by majority shareholders. Years later, the minority shareholders took control of the company and filed a statement of claim (the "Statement of Claim"). One of the matters at issue in this case was...