I think it is an issue of corporate law that transcends common law/civil
law.

There is a famous case in which the Supreme Court of Canada seems to have
quite mishandled the issue. Houle v NBC (1990, which can be read in
English or French here http://canlii.ca/t/1fsqf ) is famous in Quebec law
for having recognized a doctrine of abuse of contractual rights (which is
now codified). But it also raises this very issue: the bank, in enforcing
its rights without adequate notice, demolished the business of a
corporation. The plaintiffs were the shareholders who sued the bank for
the loss in value of their shares (which they had sold after the
enforcement proceedings).

On the corporate law point, which one might think of as a question of who
is the proper plaintiff or to whom the duty was owed, the courts below
said the plaintiffs could sue because it was a proper case to lift the
corporate veil (!). In the Supreme Court of Canada, the shareholders
argued that they did not need to lift the veil to succeed: they said they
had a direct right of action.

The Supreme Court of Canada held that the Bank had acted in bad faith and
was liable to the corporation with which it had contracted. This is
considered contractual liability. As for the shareholders, the Court held
that this was not a case in which the veil could be lifted, and moreover
affirmed as a general principle (citing Quebec and CML cases) that
shareholders cannot claim for losses caused to the company. The Court
cited what it described as a leading QC case [translation]: ³The
shareholder of a company has no action against the person who causes
damage to the company. One cannot limit his responsibility by investing in
a company and still consider as a personal damage any damage caused to
such company; the shareholder's damage is indirect.² And L¹Heureux-Dubé
J., writing for the whole court, immediately said: ³This is a clearly
established principle and, I conclude, the correct position concerning
shareholders' recourses.²

Then, somehow, she said that while the shareholders could not rely on the
bank¹s breach of contract with the corporation, they could sue using the
general law of delict, since the bank had committed a fault and thereby
caused a loss to the shareholders. This, even though the position with
which she stated her agreement stated a general rule, not a rule that was
confined to contractual claims.

I think this is pretty incoherent and it might explain why in the new case
the Court wants to see this as an issue of Quebec civil law. Houle is
still considered one of the most important cases in the development of
Quebec law, but on this point it is an epic fail. Interestingly, in the CA
decision of the new case, http://canlii.ca/t/h1s3w which by the way was
decided by a very strong panel, the Court actually cited Houle for the
proposition that the general rule is that shareholders can¹t sue for
damage to the corporation. That looks to me like a subtle way for the
Court of Appeal to say they think Houle is wrong on this point.

Lionel



On 2017-11-16, 19:44, "Harrington Matthew P."
<matthew.p.harrington@umontreal.ca> wrote:

>Yves Brunette v. Legault Joly Thiffault, s.e.n.c.r.l., et al.
>
>Supreme Court of Canada No. 37566: Leave granted 16 Nov 2017
>
>The Supreme Court of Canada granted leave to appeal in a case from Québec
>today concerning whether solicitors and accountants may be held directly
>liable to a shareholder for damage allegedly sustained when the advice
>turns out to be wrong and damage results.
>
>Fiducie Maynard was the sole shareholder of a conglomeration of companies
>operating under the name of Groupe Melior. Melior operated a series of
>for-profit nursing homes in Quebec. It obtained advice about structuring
> its activities in order to minimise its tax liability. For reasons not
>clear in the papers thus far, the advice appears to have been wrong and
>the Province assessed the firms for a large amount money which, the
>plaintiff claims, ultimately resulted in the enterprise going bankrupt.
>
>Fiducie Maynard lost its entire investment in the enterprise, and sued in
>the Québec courts seeking more than $400 million in damages representing
>the loss of the real estate portfolio.
>
>Following, Prudential Assurance Co. v. Newman industries Ltd. (No. 2),
>[1982] 1 All. E.R. 354, the Québec courts rejected Maynard¹s appeal on
>the grounds that « [w]hen the shareholder acquires a share he accepts the
>fact that the value of his investment follows the fortunes of the
>company. »
>
>The Supreme Court granted leave to consider :
>
>
> 1. « Whether there is categorical rule in Quebec civil law to effect
>that shareholder may not sue party for loss in value of shareholder¹s
>shares as result of breach of contract by that party in relation to
>corporation.² This might be too narrow a grant, because, in rejecting
>the claim, the Court of Appeal did not limit the holding to Quebec law.
>On the contrary, the Court declared that the rule was the same in both
>common law and civil law. (« Il s¹agit d¹ailleurs d¹une règle qui
>s¹applique tant en common law qu¹en droit québécois. ») In fact, it
>never cited a single CCQ provision on this point. All the cases cited
>were either English or Canadian common law cases.
>
>
> 1. ³Whether an action may be dismissed at the preliminary exception
>stage, without any substantive analysis of causation, solely because
>injury suffered is considered prima facie indirect.² Here, the SCC seems
>to be curious about the distinction between ³direct² and ³indirect²
>damage caused to a shareholder by those who contract with a company. The
>Québec courts agreed that there might be situations where breach of duty
>to a company might also be actionable by an individual shareholder, as
>where, for example, the contractor might have had simultaneous duties to
>both. The question, therefore, is whether this issue can be resolved at
>the pleadings stage. The SCC seems to want to enquire into how far a
>plaintiff ought to be permitted to go to show a direct injury is involved.
>
>
>The SCC¹s description of the case implies that it is mainly a Québec
>case, but the primary précédents relied upon by the Québec courts are all
>common law cases, including Foss v. Harbottle, (1843) 67 ER 189, (1843),
>Prudential Assurance Co. v. Newman industries Ltd. (No. 2), [1982] 1 All.
>E.R. 354, and Ernst & Young, [1997] 2 R.C.S. 165.
>
>One might suggest, therefore, that the case is of much wider interest,
>since the Québec courts seem to contend that there is no difference
>between the common and civil law on this point. If that¹s true, then
>whatever comes out of Brunette will certainly impact the development of
>the common law on the question of when a shareholder can claim damages
>for breaches of duty owed to the company, as well as the liability of tax
>professionals for malpractise.
>
>
>
>
>
>-----------------------------------------
>Matthew P Harrington
>Professeur
>Faculté de droit
>Université de Montréal
>3101 chemin de la Tour
>Montréal, Québec H3T 1J7
>514.343.6105
>www.commonlaw.umontreal.ca
>----------------------------------------
>