The BC Court of Appeal upheld the trial judge’s dismissal of an action against a corporation’s shareholder for breach of fiduciary duties owed as a director and officer of the corporation (Roussey v Savage, 2019 BCSC 1669).

In order to fill out the corporation’s irregular job pattern, the shareholders had agreed that the personal company of the defendant, a shareholder, would provide jobs to the corporation and compensate the corporation at cost plus a mark-up. After the corporation went bankrupt, the plaintiff brought an action claiming the defendant had misappropriated resources from the corporation for use by his personal company, failed to maintain proper oversight of, or adequate financial records for, the corporation, and failed to fully pay the corporation for the work.

The court found the transactions were both procedurally and substantively fair to the corporation in light of the following:

• both shareholders had initial and ongoing awareness of the transactions and the compensation model;
• no profit was diverted to the separate company from the corporation;
• the separate company compensated the corporation reasonably for the work; and
• the corporation earned in excess of the expected margin.

The defendant had a defense to the fiduciary claims under the conflict of interest provisions of the Business Corporations Act, whereby a director is liable to account for any profit they receive as a result of a contract or transaction in which they have a disclosable interests, unless it is disclosed and approved as per that section (s.148). However, a pre-condition to relief within the Business Corporations Act limits liability to transactions which are substantively and procedurally unfair to the corporation (s.150(2)).

The trial judge further found that the defendant had not breached his duty of care to the corporation and dismissed the action.

The Court of Appeal found the trial judge had not erred in applying the conflict of law provisions of the BCA instead of the common laws of fiduciary obligations. The Court of Appeal also dismissed the appellant’s claim that the trial judge ought to have placed the onus on the respondent to establish the transactions in issue were properly disclosed and consented to. The Court of Appeal found that the question of onus was not relevant in light of the trial judge’s findings of fact.

The appeal was dismissed.

This case was digested by Una Radoja and first published in the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Una Radoja at uradoja@harpergrey.com.