John_BA_Framework_Stewart-Biezenbos_Winter2019

 Existence of agency question of fact – Devon Capital  Agency depends upon objective manifestations made by PR – Freeman & Lockyer Test Doiron ; Russelsteel 1. PR makes manifestation  Act or an omission that made third party believe person was their agent?  Explicit representation of authority not required  Rep found where PR created situation is reasonable to infer and rely upon the apparent authority of A – Doiron 2. Manifestation must actually (subjectively) make third party believe agent had authority 3. Third party’s subjective belief must be objectively reasonable  Quality of the manifestation 4. Third party relied on manifestation Duty of Inquiry  If person has means of knowledge reasonably open to them as to limits of A’s authority, cannot hold the PR liable, unless they used ordinary diligence to ascertain validity of A’s authority – Criterion Properties o Distinguishes good faith from blind faith  Example: if acting outside normal or usual duties Notice  Constructive notice determined on basis of reasonableness in circumstances of the business and “agent’s” position No Apparent Authority Where:  Representation comes from A - Hav-A-Kar Leasing  A contract in own name – Fridman  Third party had notice of A’s lack of authority, or ought to have been on guard against lack of authority Torts Respondeat Superior  Vicarious liability that ER/PR owes to third parties for torts of EE/A Scope of Employment  Tortious conduct must have a causal nexus to the employment  Finding that A is IC defense to vicarious liability imposed by respondeat superior  As a general rule: o If a person is subject to the control or directions of another as to his result only, they are an independent contractor o If they are subject to control as to the means used to achieve the results, they are EE  Other criteria for drawing this distinction include: o Chance of profit or loss o Method of payment o Number of employers/clients o Length of service o Tax receipts o Provision and maintenance of tools and equipment Limitation to Losses Caused by Tortious Behavior  Liability under respondeat superior not necessarily limited to tortious acts of EEs  ER may also be liable for negligent, willful, malicious, or criminal acts EEs when acts committed during course of employment and in furtherance of the business of the employer

Things to Consider – Partnership Act s.4  NO (without more) : o a) Co-ownership whether or not share profits made by use o b) Sharing gross returns whether persons sharing have common interest in property from which derived Kamex  Must be something more – some management or other business activity must exist  Was intention of co-owners to carry on business or simply provide by an agreement for regulation of rights and obligations as co-owners of property?  YES o c) Receipt of share of profits of business proof, in absence of evidence to contrary, that person is partner o but NO if  Receipt of share of profits that varies or is contingent on the profits of the business  Specifically NO:  i) if receiving share of profits for debit or liquidated amounts by installments  ii) contract for remuneration of servant or agent by share of profits  iii) survivor of deceased receiving annuity payments  iv) interest to a lender paid from profits  The partner’s rights is to division of profits according to arrangement, and division of proceeds on dissolution after discharge of liabilities - Kamex Is Creditor a Partner? Mallwo  Can be assigned substantial, if not all, of assets of partnership as security for debt o Can even be given some control over business as matter of security  Can be assigned portion of profits as repayment for investment  Is there intention that partners are carrying on business on creditors behalf, and vice versa, and that profit sharing is not due to partnership relation?  Factors indicating creditor actually partner – Pooley v Driver o Interest capital like interest of acknowledged partners o Ability to enforce covenants of partnership agreement o Having return of investment vary with aggregate amount invested in business o Provision terminating relationship of creditor who goes bankrupt o Requirement that creditor pay back all profits received as well as original investment if insufficient partnership assets to pay off all other creditors Relationship to Each Other PA 28  a) Entitled to an equal share of capital and profits and shall contribute equally toward loses b) firm shall indemnify each partner in respect of payments made and personal liability incurred by partner i) in ordinary and proper conduct of business of the firm ii) in or about anything necessarily done for the preservation of the business or property of the firm e) Take part in management of the business g) Need consent of all existing partners to bring someone else into the firm h) Difference arising as to ordinary matters of the business can be decided by a majority i) No change to the nature of the partnership without consent of all the partners j) Each partner can have access to and inspect and copy any of the books

 if no date mentioned in notice, then as from date of communication of notice – PA 36(2) o Death of partner – PA 37(1)(a) o Assignment of property in trust to partner’s creditor – PA 37(1)(b) o Bankruptcy of partner – PA 37(1)(c)  Happening of event that makes unlawful for business to be carried on or for members of firm to carry on business of firm – PA 38  On application by a partner, court may order dissolution if: - PA 39(1) o a) Partner of permanently unsound mind o b) Partner becomes permanently unable to perform partner’s part of partnership contract o c) Partner guilty of conduct calculated to affect prejudicially the carrying on of the business o d) Partner commits breach of partnership agreement or otherwise behaves in matter relating to partnership business that is not reasonably practicable for other partners to carry on business in partnership with that partner o e) when the business of the partnership can only be carried on at a loss o f) when court considers it just and equitable to dissolve partnership Partners’ rights to property  On the dissolution of a partnership, each partner is entitled, as against the other partners 43(1) o a) to have property of partnership applied in payment of debts and liabilities of the firm, and o b) to have surplus assets after that payment applied in payment of what is due to the partners respectively after deducting what is due from them as partners to the firm. Distribution of assets  In settling accounts between the partners after a dissolution of partnership the following rules shall, subject to any agreement, be observed: 48 o a) losses, including losses and deficiencies of capital, must be paid  i) first out of profits,  ii) next out of capital, and  iii) last, if necessary, by the partners individually in the proportion in which they were entitled to share profits. Declaration of dissolution  When a partnership is dissolved, any of the persons who composed the partnership may sign and file with the Registrar a declaration stating 116 o a) the name of the partnership dissolved, o b) its address, and o c) that the partnership is dissolved and the date on which it was dissolved, and signed in the presence of a witness. Winding-up  When a partnership is dissolved, the authority of each partner to bind the firm and the other rights and obligations of the partners continue notwithstanding the dissolution, but only to the extent necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution. 42 Partner Leaving  If no fixed term or end of fixed term, Partner may leave at any time on giving notice to all partners – 30(1) Notice of Retirement or Dissolution  On the dissolution of a partnership or retirement of a partner, any partner 41 o a) may publicly give notice of the dissolution or retirement, and

o c) the certificate is cancelled or so amended as to set out the withdrawal  Subject to sub 1, a limited partner may rightfully demand the return of LP’s contribution 62(2) o a) on the dissolution of the LP o b) when the time specified in the certificate for its return has arrived, or o c) after the LP has given 6 months notice in writing to all other partners, if not time is specified in the certificate either for the return of the contribution or for the dissolution of the LP  Irrespective of the nature of contribution, an LP only has the right to demand and receive cash in return of contribution, unless 62(3) o a) there is a statement to the contrary in the certificate, or o b) all the partners consent to some other manner of returning the contribution Right to dissolve – when 62(4) o a) LP rightfully but unsuccessfully demands the return of the LP’s contribution, or o b) other liabilities of the LP have not been paid or the LP property is insufficient for their payment required under 1(a) and the LP seeking dissolution would otherwise be entitled to the return of the LP’s contribution Rights between LPs  LPs share LP assets in respect of claims for: 61(1) o a) capital, and o b) profits or compensation by way of income on contributions in proportion to the respective amounts of their claim  Can agree amongst themselves as to priority of: 61(2) o a) return on contributions o b) compensation by income o c) any other matter Liability  LP not liable for obligations of LP except in respect of amount of property LP contributes or agrees to contribute to capital of LP – 57  LP not liable as a GP unless the LP takes part in the control of the business – 64; Devon Pitman  An LP acted on behalf of partnership to secure financing for partnership  Third party relied on partners actions and assumed LP was GP  Was sufficient exercise of “control” over business and reliance by third party to convert LP to GP  “Control” is defined “[p]ower or authority to manage, direct, superintend, restrict, regulate, govern, administer, or oversee.” Holzman Actions that changed limited partners to general partners  Had absolute power to withdraw all the partnership funds in the banks without the knowledge or consent of the general partner  Could take control of the business from the general partner by refusing to sign checks for bills contracted by him and thus limit his activities in the management of the business  Required the general partner to resign as manager and selected his successor  Were active in dictating the crop to be planted, some of them against the wish of the general partner o Overruled management decisions o Got manager fired o 2 of 3 partners (2 limited) were needed to sign in order to cut checks  LP liable to partnership 63(1) o a) for difference between amount of LP’s contribution as actually made and as stated in certificate o b) any unpaid contribution that the LP agreed in the certificate to making the future at the time and on the conditions stated in the certificate

Corporations Essential Elements 1. Formal creation as prescribed by law, 2) Legal personality, 3) Separation of ownership and control, 4) Freely alienable ownership interest, 5) Indefinite duration, 6) Limited liability Incorporation  One or more persons may incorporate a corporation by signing articles of incorporation and complying with section 7 – 5  Corporation comes into existence on the date shown in the certificate of incorporation – 9(1) Articles of Incorporation  Articles shall be in prescribed form and set out: 6(1) o a) name of corporation o b) classes and any maximum number of shares corporation is authorized to issue  i) if 2 or more classes, the rights, privileges, restrictions and conditions of each class o c) if rights to transfer shares is to be restricted, a statement about that o d) number of directors or min and max of directors; if cumulative voting is allowed the fixed number o e) any restrictions on the business corporation may carry on  Articles may not require a greater number of votes of shareholders to remove a director than the number required by section 109 (removal of director) – 6(2) Delivery of articles – 7  Incorporator shall send to the Registrar: o a) articles of incorporation o b) documents relating to corporate names prescribed by the regulations under section 12(3), documents regarding the registered office, records office, and address for service by mail under section 20, and appointment of directors at time of incorporation under section 106 Corporate Name  Corporate name must have: 10(1) o Limited , Incorporated, Corporation, or Ltd, Inc, or Corp  Shall set out name on all contracts, invoices, negotiable instruments and orders for goods or services – 10(8)  Subject to subsection 8 and 10, and 12 (prohibited names) and section 110 of Partnership Act, may carry on business under a name other than corporate name – 10(9)  Where a corporation carries on a business under a name other than its corporate name, the name shall not contain the Ltd, Inc or Corp words – 10(10) Dissolution  Corporation that has not issued any shares and that has no property and no liabilities may be dissolved at any time by resolution of all the directors – 211(1)  A corporation that has no property and no liabilities may be dissolved by special resolution of the shareholders or, if it has issued more than one class of shares, by special resolutions of the holders of each class whether or not they are otherwise entitled to vote – 211(2)  (3) A corporation that has property or liabilities, or both, may be dissolved by special resolution of shareholders… if o a) by the special resolution or resolutions the shareholders authorize the directors to cause the corporation to d istribute all property and discharge all liabilities , and o b) Corporation has distributed all property and discharged all liabilities before it sends articles of dissolution to the Registrar pursuant to subsection (4).  Articles of dissolution in prescribed form shall be sent to the Registrar – 211(4)

Determining Shareholders  For dividends and non-voting – can fix a date as record date not precede by more than 50 days before the action - 133(1)  For voting – Directors can fix a date as record date shall not precede by more than 50 days or by less than 21 days the day on which the meeting is to be held – 133(2)  If no record date set – record date for notice of meeting is: o i) at the close of business on last business day preceding the day on which the notice is sent, or o ii) if no notice sent, day on which meeting is held, and o for any purpose other than for right to vote is at close of business day on which the directors pass the resolution relation to that purpose – 133(3)  Unless otherwise provided by bylaws, quorum at shareholder meeting established if majority shareholder present or repped by proxy – 138(1) CANNOT Delegate  No managing director or committee of directors has authority to: 115(3) o a) submit to SHs any question or matter requiring approval of SHs o b) fill a vacancy among the directors or in the office of auditors o b.1) appoint additional directors o c) issue securities except in manner or on terms authorized by directors o d) declare dividends o e) purchase, redeem or otherwise acquire shares issued by the corporation, except in manner or on terms authorized by directors o f) pay a commission referred to in section 42 o h) approve any financial statements referred to in section 155 o i) adopt, amend or appeal bylaws Liability of Directors 1. Employee Wages  Directors are jointly and severally liable to employees of the corporation for all debts not exceeding 6 months wages payable to each employee for services performed for corporation while they were directors – 119(1)  Not liable for EE wages unless: 119(3) o a) corporation has been sued for the debt within 6 months after coming due and wasn’t satisfied, or o b) corporation commenced liquidation and dissolution proceedings, or has dissolved and a claim for the debt has been proved within 6 months  A director who has satisfied a claim under this section is entitled to contribution from the other directors who were liable for the claim – 119(7) 2. Breaches of Fiduciary Duties

SHARE RIGTHS Share Default Rules 26(3)  Shares have the rights to: o a) V ote at any meeting of shareholders of corporation o b) R eceive any dividend declared by corp, and o c) R eceive remaining property of corp on dissolution  No nominal or par value – 26(1)  Articles may provide for more than one class, and if they do: - 26(4) o a) rights, privileges, restrictions and conditions have to set out in the articles o b) the basic rights from (3) have to be attached to at least one class of shares but all of the rights are not required to be attached to one class  Rights in a particular class of shares are equal in all respects – 26(5) Common Shares  Often thought of as owners of company - usually given the three basic rights  Usual characteristics: o Right to receive dividends on apportionment of profits o Capable of being transferred o Ability to be pledged as security or collateral for a debt o Voting rights in proportion to number of shares owned Preferred Shares  Usually don’t vote but have preference relating to: i. Preference as to dividends ii. Preference on dissolution  Almost always accumulative o Ordinarily not entitled to interest on unpaid accumulative dividends  Usually nonvoting shares o Except: Often obtain right to vote for election of specified number of directors if preferred dividends have not been issued for a specified period Voting  One Share = One Vote - Unless articles provide otherwise, each share of a corporation entitle holder to one vote at meeting of shareholders – 139(1) o Resolution okay - A resolution in writing signed by all shareholders entitled to vote on that resolution is valid as if it had been passed at a meeting of shareholders – 141(1)  Power to remove directors – Subject to 107(g) and a USAH, SH have power to remove director by passing an ordinary resolution at a special meeting called for that purpose – 109(1) o Where a director is elected by a particular class or shares the director cannot be removed without the approval of that class – 109(2)  Approve bylaws – 102(2) Meetings  Generally directors call the meetings – 132(1)  But a SH of no less than 5% of the shares that carry a right to vote on the issue in question can requisition the directors to call a vote – 142(1) o Upon receiving requisition, directors shall call a meeting (except if a record date has been fixed, a meeting has already been called, or the matter is one of those under 136(5)(b-e) – 142(3) o If they do not call a meeting within 21 day, a signee of the requisition may call a meeting – 142(4) o Unless the SHs resolve otherwise at the meeting, the corporation shall reimburse the SH for the expenses reasonably incurred by requisitioning, calling and holding the meeting – 142(6)

Annual meeting  Election of directors  Receipt of financial statements and auditor’s report on statements  Reappointment of incumbent auditor Special Meetings  Any business other than that done in a annual meeting Special Resolution – 1(ii)  “ special resolution ” means a resolution passed by a majority of not less than 2/3 of the votes cast by the shareholders who voted in respect of that resolution or signed by all the shareholders entitled to vote on that resolution Things Needing Special Resolution o Amalgamation – 183(5) o Fundamental Change to articles – 173(1) o Liquidation and dissolution of corp – 211(2) All SHs can vote:  Amalgamation – 183(5)  Sale, lease, or exchange of all or substantially all of the property other than in course of ordinary business – 190(4)  Continuance of a corp under another area of law  Liquidation and dissolution of corp – 211(2)  Certain amendments to the articles where a class vote is required Class Vote  All shares of a class that are entitled to vote have a right to vote separately as a class on certain fundamental changes if the shares of that class will be prejudicially affected by the change in ways that are different from the ways that shares of other classes will be affected Cumulative Voting (Section 107 )  Means the number of votes each shareholder has is equal to the number of shares held multiplied by the number of directors to be elected  Each shareholder can allocate their votes to one director or to any number of candidates as they choose  Are simpler ways to achieve the goals of cumulative voting, such as issuing shares that allow votes for more than one director or agreeing to vote for specific directors in the shareholder agreement  A corporation or a shareholder or director may apply to the court to determine any controversy with respect to an election or appointment of a director of the corporation – 144(1)

Pre-emptive Right ABCA 30(1)  If articles or USHA provides, no shares of a class shall be issued unless the shares have first been offered to SHs holding that class of shares, in proportion to their holdings of the shares of that class, at the same price and on the same terms as those shares are to be offered to others  Non no pre-emptive right in respect of shares to be issued: 30(2) o a) For a consideration other than money – [ Can’t get shares for work to be done in the future ] o b) As a share dividend – [ issuing shares as a dividend instead of cash ] o c) Pursuant to exercise of conversion privileges , options or rights previously granted by corporation  [ Transferring from one class to another ] Buying Back  May be done in an attempt to circumvent payment hierarchy o Rather than paying the creditors from the profits, the corp purchases shares from the shareholders o Solvency and Impairment of Capital tests there to stop this – [ in 34(2) ]  Subject to sub 2 and to articles, corporation may purchase or otherwise acquire shares issued by it – 34(1)  A corporation shall not make any payment to purchase or otherwise acquire shares issued by it if there are reasonable grounds for believing that – 34(2) o a) the corporation is, or would after the payment be, unable to pay its liabilities as they become due, or o b) the realizable value of the corporation’s assets would after the payment be less than the aggregate of its liabilities and stated capital of all classes. Proposals  136(1) A registered holder of shares entitled to vote at an annual meeting of shareholders, or a beneficial owner of shares, may [submit a proposal]  No corporation or person acting on its behalf incurs any liability by reason only of circulating a proposal – 136(6) Unanimous Shareholder Agreement  A USHA may provide any or all of the following: 146(1) o a) Regulation of the rights and liabilities of the shareholders, as shareholders, among themselves or between themselves and any other party to the agreement o b) Regulation of election of directors o c) Management of business and affairs of corporation , including restriction or abrogation, in whole or in part, of powers of directors o d) any other matter that may be contained in a unanimous shareholder agreement pursuant to… this Act  If USHA is in effect at the time a share is issued to person other than existing shareholder – 146(2) o a) Person deemed party to agreement whether or not person had knowledge of it when share was issued o b) I ssue of the share does not operate to terminate agreement o c) I f person bona fide purchaser without knowledge of USHA, person may rescind contract under which shares were acquired by giving notice to corporation within reasonable time after receiving knowledge of USHA  A USA may exclude the application to the agreement of all but not part of this section - 146(9) Fundamental Change

 173(1) … the articles of a corporation may by special resolution (2/3) be amended to o a. change its name , subject to section 12 o b. add, change or remove any restriction on the business or businesses that the corporation may carry on o c. change any maximum number of shares that the corporation is authorized to issued. o d. create new classes of shares o e. change the designation of all or any of its shares , and add, change or remove any rights, privileges, restrictions and conditions… in respect of [any shares], whether issued or unissued o f. change the shares of any class or series , whether issued or unissued, into a different number of shares of the same class or series or into the same or a different number of shares of other classes or series o g. divide a class of shares , whether issued or unissued, into series and fix the number of shares in each series and the rights, privileges, restrictions and conditions of that series o h. cancel a class or series of shares where there are no issued or outstanding shares of that class or series o i. authorize the directors to divide any class of unissued shares into series and fix the number of shares in each series and the rights, privileges, restrictions and conditions of that series, o j. authorize the directors to change the rights, privileges, restrictions and conditions attached to unissued shares of any series, k. revoke, diminish or enlarge any authority conferred under clauses (i) and (j) o l. increase or decrease the number of directors or the minimum or maximum number of directors, subject to sections 107 and 112 o m. subject to section 48(8), add, change or remove restrictions on the transfer of shares ,  m.1 add or remove an express statement of unlimited liability of shareholders, or m. add, change or remove any other provision that is permitted by this Act to be set out in the articles . Right to dissent 191(1)  subject to sections 192 and 242, a holder of shares of any class of a corp may dissent if the corp resolves to o a) amend its articles under 173 or 174 to add, change or remove any provisions restricting or constraining the issue or transfer of shares of that class o b) amend its articles under 173 to add, change or remove any restrictions on the business the corp may carry on o c) amalgamate with another corp o d) be continued under the laws of another jurisdiction o e) sell, lease or exchange all or substantially all its property  shareholder of any class entitled to vote under 176, other than 176(1)(a), may dissent to the above – 191(2)  In addition to any other right the shareholder may have, but subject to subsection 20, a shareholder entitled to dissent under this section and who complies with this section is entitled to be paid by the corporation the fair value of the shares held by the shareholder in respect of which the shareholder dissents – 191(3) Extraordinary Sale, Lease or Exchange 190(1) A sale, lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business of the corporation requires the approval of the shareholders in accordance with subsections (2) (notice) to (6).  (2) A notice of meeting of shareholders complying with section 134 shall be sent in accordance with that section to each shareholder and shall [include all relevant information about the deal]  (3) At the meeting referred to in subsection (2), the shareholders may authorize the sale, lease or exchange and may fix or authorize the directors to fix any of its terms and conditions .  (4) Each share of the corporation carries the right to vote in respect of a sale, lease or exchange referred to in subsection (1) whether or not it otherwise carries the right to vote .  (6) A sale, lease or exchange referred to in subsection (1) is adopted when the holders of each class or series entitled to vote on it have approved

Fiduciary Duty Duty of Loyalty  Every director and officer of a corporation in exercising the director’s or officer’s powers and discharging the director’s or officer’s duties shall act honestly and in good faith with a view to the best interests of the corporation – 122(1)(a)  The classic way that Boards protect themselves when conflicts arise is to retain independent legal and financial advisors and to establish independent or special directors’ committees . UPM “Best Interests of the Corporation”  Specific content of DOC contextual, depending on situation will take into account a variety of stakeholders – Peoples  When stakeholder interests conflict, obligation to treat stakeholders fairly and resolve conflicts accordance with fiduciary duty to act in best interests of corporation, viewed as good corporate citizen – BCE  Apply BJR when reviewing compliance with DOC  Not required to promote interests of any particular shareholder 1) Competition by Directors 0. Fiduciary cannot compete with corporation while fiduciary – Sports Villas o Obligation will have some extension beyond termination – VanDuzer o Extends to competition by other corps that fiduciary has interest in - VanDuzer 1. Is the activity actually competition? Sports Villas  Consider: o Distance between businesses o The specific market being targeted o Must actually be competing  It’s a balancing between precluding directors to place themselves in positions of conflict and not overly constraining those with aptitudes and inclinations to involve themselves in a wide variety of business activities  Duty does not preclude multiple membership on the boards of different companies per se 2) Corporate Opportunity  Director or senior officer precluded from obtaining for oneself any opportunity where it was the position fiduciary that led to opportunity – Canadian Aero Service o Includes other people or companies which the fiduciary is associated – Canadian Aero Service  Extends past resignation – Canadian Aero Service  "Top management" can owe the same or similar FD as directors Strength of Corporation’s Interest i. Maturity ii. Specificity  identified by corp?  Same general business area? iii. Significance of opportunity iv. Public or Private opportunity v. Rejection Relationship of Fiduciary to Opportunity i. Position of Fiduciary ii. Relationship between the fiduciary and the opportunity iii. Knowledge as a fiduciary – with regard to the opportunity iv. Use of position v. Time after termination

Test Canadian Aero Service i. Does the opportunity belong to the corporation, considering how closely it is connected to the corporation? ii. What is the relationship of the fiduciaries to the opportunity?  Liability does not depend on plaintiff proving that, but for director’s intervention, it would have obtained opportunity  Not required for plaintiff to establish what profit would have been or what loss due to loss of opportunity Peso Silver Mines  Good faith rejection by directors of offer of mining claims because of strained finances  Subsequent acquisition of claim by managing director, without seeking shareholder approval, held to be proper because company's interest in them ceased 3) Self-Dealing Transactions  Voidable at CL at option of corporation, regardless of whether or not good transaction for corporation – Aberdeen Railway o Doesn’t matter whether fiduciary’s interest is direct, indirect or as trustee  Safe Harbour under 120 has relaxed this  One way of defining the “material interest” threshold is to ask whether the interest is such that there is any reasonable basis for a concern that it may affect their ability to perform their duty Threshold 0. Is the transaction of the type where a duty to disclose is required? (Self-dealing or opportunity?) UPM  No answer to say directors could have discovered this for themselves  D uty to disclose is an absolute one  Disclosure does not relieve director of the duty of loyalty throughout germane dealings Disclosure Duty – sub 1 1. Was disclosure made? 2. Did it follow timing procedure? – sub 2? 3. Was it adequate – sub 7? - Fully informed of the real state of things – Gray in UPM Safe Harbour – Sub 8 5. Was there adequate disclosure (from above) disclosure? 4. Was it approved by directors or shareholders? 6. Was it reasonable and fair to the corporation at the time it was approved? Remedy 7. Shareholder can bring remedy for breach of duty to disclose Disclosure Duty  Director or officer of corporation who: ABCA 120(1) o a) is a party to a material contract or material transaction or proposed material contract or proposed material transaction with the corporation, or o b) is a director or an officer of … any person who is a party to a … material transaction … with the corporation,  Shall disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of the director’s or officer’s interest  No precise formula when director declares interest - UPM  Amount of detail required is contextual – UPM

Timing of Disclosure ABCA 120(2)  Disclosure required by subsection (1) shall be made: o a) at the meeting at which a proposed contract or transaction is first considered o b) if the director was not interested in a proposed contract or transaction at the time of the meeting referred to in clause (a), at the first meeting after the director becomes so interested o c) if the director becomes interested after a contract or transaction is made, at the first meeting after the director becomes so interested, or o d) if a person who is interested in a contract or transaction later becomes a director, at the first meeting after the director becomes a director.  Officer who’s not a director discloses in same manner as director – ABCA 120(4)  If a material contract… is one that, in the ordinary course of the corporation’s business, would not require approval by the directors or shareholders , a director or officer shall disclose in writing to the corporation, or request to have entered in the minutes of meetings of directors, the nature and extent of the director’s or officer’s interest forthwith after the director or officer becomes aware of the contract – ABCA 120(5)  Director with the interest shall not vote on any resolution to approve the contract or transaction - ABCA 120(6) Content of Notice ABCA 120(7)  General notice to directors by a director sufficient disclosure of interest…if o a) States the nature and extent of the director’s interest o b) At time of disclosure extent of interest not greater than that stated in notice o c) Notice given within 12-month period immediately preceding time at which disclosure would otherwise be required  Must make the other directors “ fully informed of the real state of things ” – Gray in UPM Safe Harbour Provision ABCA 120(8) If: 1. Person adequately disclosed interest 2. Contract was approved by directors or shareholders, and 3. It was reasonable and fair to corporation at time it was approved Then:  a) Contract or transaction is neither void nor voidable by reason only that a director with an interest in the contract, and  b) Person to whom profit accrues as result of transaction is not liable to account for that profit by reason only of holding office as a director or officer , If messed up: ABCA 120(8.1)  Even if conditions of subsection (8) not met, a Person not liable for transaction for which disclosure is required under subsection (1), and transaction not void or voidable , if o a) Transaction was approved by special resolution at a meeting of the shareholders o b) Disclosure of interest was made before transaction was approved , and o c) Transaction was reasonable and fair to the corporation when it was approved or confirmed Remedy ABCA 120(9)  If director or officer fails to comply with this section, Court may, on application of the corporation or any of its shareholders , set aside the material contract on any terms that it thinks fit , or require the director or officer to account to the corporation for any profit or gain realized on it, or both. - shareholders can bring an action under section 9 – a direct remedy for shareholders for breach of not providing material information, when the individual was under an obligation to do so Section can be modified by USHA ABCA 120(10)

4) Takeover Bids  A change of control provision is a form of protection for a senior executive. – helps to mitigate loyalty issues ADGA Systems – personal liability for torts Duty of Care Law  Section 122(1)(b) of the ABCA has codified a director’s duty of care  The section states that: o Every director, in exercising their powers and discharging their duties shall “ exercise the care, diligence and skill ” that a reasonably prudent person would exercise in comparable circumstances  The cases of Peoples and BCE have extended this duty to one owed to stakeholders - Peoples; BCE  Statutory DOC does not provide independent foundation for claims, but may be taken into account for tort and extra-contractual liability – BCE Nonfeasance and Misfeasance  There are two ways to breach the duty of care: o Nonfeasance – no decision – not protected by the BJR o Misfeasance – bad decision – Protected by the BJR Standard of Care  Directors must have at least some rudimentary understanding of the business – Francis v United Jersey Bank  Some level of monitoring of the corporation o Keep themselves informed about business and affairs of corporation  May have a positive duty to remedy wrongs in certain circumstances - VanDuzer  Allowed to rely on expert advice . Causation - Peoples 1. Breached duty of care 2. Breach caused injury to plaintiff Can’t contract out of Duties  Can’t contract out of the duties imposed under the statute – ABCA 122(3) o But can indemnify against breaches of DOC  In determining whether a particular transaction or course of action is in the best interests of the corporation , a director … may give special, but not exclusive, consideration to interests of those who elected or appointed the director – ABCA 122(4) DOC CHECKLIST - UPM  Have report before board meeting  Took time to carefully study it o Any reg flags in report creates further duty of inquiry  Ensure author of report present  Considered interests of stakeholders

Business Judgment Rule  May apply to officers – Kerr v Danier Leather ; Brant Investments Step 1: Law  Although different from that of the states, the SCC has recognized that the BJR exists in Canada, although it is not the identical rule to that in the States ( Peoples )  The rule holds that, as long as a director’s decision was made prudently on a reasonably informed basis in light of all the circumstances they have knew or ought to have known, and that it was within a range of reasonable alternatives , the court will defer to that decision – Peoples ; UPM  Despite the American case of Smith v Van Gorkom holding that the rule is exclusively focused on the decision process, not the decision itself, the BJR in Canada is not the same rule as in the states ( Peoples ), and the court has in fact looked to what the decision was in the past ( UPM ) o Therefor it is possible that a Canadian court will also take what the decision was into consideration along with the process  Specifically, ABCA 123(3) states that: o A director not liable for breach of DOC if director exercises care, diligence and skill that a reasonably prudent person would exercise in comparable circumstance s, including reliance in good faith on:  a) financial statements of the corporation represented to the director by an officer of the corporation or in a written report of the auditor of the corporation to reflect fairly the financial condition of the corporation, or  b) an opinion or report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by that person.  Not protected if reliance was on advice from those not of a recognized profession: Peoples o Have regulatory oversight o Independent insurance  Reliance on those not of recognized profession might still be reasonable in certain circumstances - VanDuzer  Perfection is not demanded - Peoples  Can rely on committees, but obligation to make informed decision on a reasonable basis means can’t just abandon decision making to them – UPM Steps 2 – Application i) Did director identify all relevant stakeholders and their interests? ii) Did director carefully consider options open to corporation at time of decision? iii) Did director make informed decision in good faith which existed in a range of reasonable alternatives? Exculpatory Clauses (ABCA)  122 (3) … no provision in a contract, the articles, the bylaws or a resolution relieves a director or officer from the duty to act in accordance with this Act or the regulations or relieves the director or officer from liability for a breach of that duty. - no exculpatory clause in Canada – Smith v Van Gorkam is still alive and well in Canada Director Indemnification – ABCA 124(1)

 …Corporation may indemnify [any of its agents]… against all costs, charges and expenses …reasonably incurred by the director…in respect of any civil, criminal or administrative action or proceeding to which the director is made party by reason of having been a director, if: o a) the director or officer acted honestly and in good faith with a view to the best interests of the corporation , and o b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the director or officer had reasonable grounds for believing that the director’s or officer’s conduct was lawful .  With court approval, a corporation may indemnify a director in an action against the director by the corporation, if director fulfills a) and b) – ABCA 124(2)  Notwithstanding anything in this section, a director is entitled to indemnity from the corporation in respect of all costs, charges, and expenses reasonably incurred by the person in connection with the defence of any civil, criminal or administrative action or proceeding to which the person is made party by reason of being a director , if the person: ABCA 124(3) o a) was substantially successful on the merits in the person’s defence the action or proceeding, o b) fulfils the conditions of a) and b) o c) is fairly and reasonably entitled to indemnity Insurance  Corporation may purchase insurance for the benefit of any person in sub 1 against any liability incurred by person o a) in capacity as director or officer – except in relation to breach of loyalty o b)

REMEDIES Steps 1.a: Are they a claimant? ABCA 239(b)  i) R egistered holder of a security of a corporation or any of its affiliates,  ii) Director or an officer or a former director or officer of a corporation or of any of its affiliates,  iii) Creditor  iv) Any other person who, in discretion of the Court, is a proper person to make an application under this Part o Was the person who, at the time of the act or conduct complained of, was a person toward whom the corporation might have a contingent liability – First Edmonton Place Step 1.b: Were they Claimant at time of Act or Conduct? – First Edmonton Place Step 2: Type of Harm Rea v Wildeboer  Harm to the corporation? = Derivative Action o Breach of fiduciary duty automatically here  Direct and unique personal harm to claimant in their capacity as claimant? = Oppression Remedy  Possible to be both o Most, if not all, involve small closely-held corporations, not public companies – Rea v Wildeboer Step 3.a: Derivative Action – section 240 Rule in Foss v Harbottle :  Where wrong alleged to have been done to company, proper claimant is company Step 1: Did the complainant apply to the court? ABCA 240(1)(a) Step 2: Will court be satisfied that: ABCA 240(2)(a-c)  Have brought reasonable notice to directors of intention to apply to court o When all directors of the crop have been named as defendants, notice to the directors of intention to apply to the court is not required – ABCA 240(3)  Be acting in good faith, and  It appears to be in interest of corporation to bring the action  - “appears” means it has to have the same kind of ideas as to a motion to dismiss  - acting in good faith, appropriate notice, is it even possible to win the issue if it went to trial? Step 3: Remedies ABCA 241  Court may make any order it thinks fit , including an order: o a) Authorizing complainant or any other person to control conduct of action o b) Giving directions for conduct of action o c) Directing that any amount judged payable by defendant shall be paid directly to former and present security holders of corp instead of to the corp o d) R equiring corp to pay reasonable legal fees incurred by complainant in connection to action

Step 3.b Oppression Remedy – section 242  Based on notion that corporations have responsibility to act as good corporate citizens and are therefore accountable to stakeholders who may be affected by corporate action o When corporate conduct affects legitimate expectations of stakeholder , such a party may be entitled to an equitable remedy  - you have a reasonable expectation at the time the decision was made  - had standing at that time – First Edmonton A complainant may apply to the Court for an order under this section. 242(1)  If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates 242(2) o a) any act or omission of the corporation or any of its affiliates effects a result, o b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or o c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner  that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the Court may make an order to rectify the matters complained of.  Although this section seems to limit complaint for OR to just i-iii, the courts have left open the possibility of the “proper person” – First Edmonton Place Step 2: Was there an Oppressive Act – sub 2 operationalized by BCE Test I. Does the evidence support the reasonable expectation asserted by the claimant?  Reasonable Expectation Westfair Foods o Expectations raised in the mind of a party by the word or deed of the other , and which the first party ordinarily would realize it was encouraging by its words and deeds o Protect from unfair actions by the company, can’t cannot stop action that merely impairs an unreasoned expectation of advantage o Fact-specific inquiry BCE o Factors includes: BCE  General commercial practice,  Nature of the corporation,  Relationship between parties  Past practices  Steps claimant could have taken to protect itself  Representations and agreements between parties  Any conflicting interests between corporate stakeholders II. Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest? i. Oppression o involves conduct that is coercive, abusive, burdensome, harsh, in bad faith, an abuse of power , or some other kind of serious wrong. ii. Unfair prejudice o involves a less culpable state of mind , including:  wrongfully squeezing out a minority shareholder,  paying dividends without a formal declaration, or  providing certain shareholders with a disproportionate economic benefit.

- oppression tends to be personal, whereas Unfair Prejudice is more like collateral damage Ferguson v Imax  Was both “ Oppressive ” and “ Unfairly prejudicial ” – classic Squeeze Out situation in a closely held corporation o When evaluating the actions or omissions of a closely-held corporation,  the court may consider the relationship among shareholders and not just the legal rights as such . iii. Unfair disregard  Occurs when corporation ignores claimant's interest in manner contrary to stakeholder's reasonable expectations o Favouring a director by failing to properly prosecute claims, o Improperly reducing a shareholder's dividend o Failing to deliver property belonging to the claimant Arthur v Signum  Breach of “ reasonable expectation ” o Lack of a valid corporate purpose for the transaction; o Failure to take reasonable steps to simulate an arm's length transaction ; o Lack of good faith ; o Discrimination between shareholders with the effect of benefiting some to the detriment of others; o Lack of adequate disclosure ; and o A plan or design to eliminate the minority shareholder. Step 3: Remedy – Sub 242(3)  Court may make any interim or final order it thinks fit including an order: o a) R estraining the conduct complained of o b) A ppointing a receiver o c) Amend a rticles or bylaws o d) Declaring any amendment to articles or bylaws pursuant to clause (c) operates notwithstanding any USHA made before or after the order o e) Directing an issue or exchange of securities o f) A ppointing directors o g) Directing corp. to purchase securities of a security holder o h) Directing a corp. or any other person to pay to security holder any part of the money paid by the security holder o i) Directing a corporation to pay a dividend to its shareholders or a class of its shareholders; o j) V arying or setting aside a transaction or contract ; o k) Requiring a corporation, to produce financial statements ; o l) C ompensating an aggrieved person; o m) Directing rectification of the registers or other records of a corporation under section 244; o n) For liquidation and dissolution of the corporation; o o) D irecting an investigation ; o p) R equiring the trial of any issue ; o q) Granting permission to the applicant to  i) bring an action in the name and on behalf of the corporation or any of its subsidiaries, or  ii) intervene in an action .

Limits on remedies - Ballard  Surgery should be done with a scalpel, and not a battle axe o Even if past conduct of oppressor found to be scandalous  The job for the court is to even up the balance, not tip it in favour of the hurt party  This section does not confer on the Court power to revoke a certificate of amalgamation – 242(4) If Articles or bylaw amendment made, no further change without court consent – 242(5)  If so made, directors shall send articles of reorganization in prescribed form to Registrar – 242(6)  A shareholder is not entitled to dissent under section 191 (SH right to dissent) if an amendment to the articles is effected under this section – 242(7) Appraisal Remedy  Section 191(3) – in Shareholder rights Breach of Duty to Disclose  Section 120(9) – in shareholder section  Corporation can also bring to set aside a contract