Supreme Court

Business Associations

Specific matters of corporate organization

Directors and officers

Directors found personally liable for oppression
As result of private placement, proportion of common shares held by CEO of corporation were significantly reduced. Consequently, value of CEO’s A and B shares, which were convertible into common shares, was also greatly reduced. This prompted CEO to file application for oppression under s. 241 of Canada Business Corporations Act against corporation’s directors, including two members of audit committee. Trial judge found that CEO had reasonable expectation that board would consider his rights as A and B shareholder in any transaction impacting A and B shares. Trial judge held that those two directors who were also members of audit committee had personally benefitted from private placement. Trial judge concluded that those two directors were personally liable for CEO’s loss. Court of Appeal dismissed directors’ appeal, holding that imposition of personal liability was justified, given positions of directors on audit committee. Directors appealed before Supreme Court of Canada. Appeal dismissed. Determining personal liability of director required two-pronged approach. First, oppressive conduct must be properly attributable to director because of his or her implication in oppression. In this case, trial judge found that those two directors who were also members of audit committee had played lead roles in board discussions resulting in non-conversion of CEO’s A and B shares. In making that finding, trial judge held that those directors were implicated in oppressive conduct. It was therefore open to trial judge to determine that oppression was properly attributable to those two directors. Second, imposition of personal liability must be fit in all circumstances. In this case, trial judge found that, in addition to lead role he had played, one of directors had accrued personal benefit as result of oppressive conduct. Additionally, remedy went no further than necessary to rectify CEO’s loss. Finally, remedy was appropriately fashioned to vindicate CEO’s reasonable expectations. Therefore, trial judge’s decision did not reflect any errors warranting appellate intervention.
Wilson v. Alharayeri (2017), 2017 CarswellQue 5230, 2017 CarswellQue 5231, 2017 SCC 39, 2017 CSC 39, McLachlin C.J.C., Abella J., Moldaver J., Karakatsanis J., Wagner J., Gascon J., Côté J., Brown J., and Rowe J. (S.C.C.); affirmed (2015), 2015 CarswellQue 13380, 2015 CarswellQue 7661, 2015 QCCA 1350, Morissette J.C.A. (C.A. Que.).
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