Suits by shareholders will be dismissed at the preliminary stage where there is lack of sufficient interest, absence of a distinct obligation and personal injury.
The present case deals with the procedural and substantive grounds for dismissal of suit at the preliminary stage. Quebec Inc a holding company, controlled in whole or part, corporations of Group Melior. Due to fraud of it’s vice-president and assessment notices by Revenue Quebec, the finances of the corporation became strained resulting in bankruptcy of the Melior group, Quebec Inc and Mr. Maynard. Fiducie as the sole shareholder of Quebec Inc, also suffered a loss of value of its patrimony. Appellants instituted suits to recover loss of fiducie’s patrimony from the respondents comprising of a group of lawyers and accountants, alleging professional faults in setting the tax structure and breach of their duty to advise Fiducie. The Superior Court of Quebec and subsequently the Court of Appeal dismissed the motion to institute proceedings (MIP) for lack of sufficient interest and failure to establish a causal link to personal, distinct injury to the Appellant, whereupon the present appeal has been filed by the applicants.
Locus standi of shareholders, governed by civil procedure and corporate law in Quebec, restricts them from enforcing their right of action against that of the corporation in which they hold shares. Only where there is a distinct obligation and a legal, direct, personal and existing injury from that suffered by the corporation in question, will the suit proceed to the trial stage [Bou Malhab v. Diffusion Metromedia CMR inc, 2011 SCC 9]. In the absence of a distinct obligation resulting in direct, personal injury, their claims of action against the corporation will be dismissed at the preliminary stage. [Houle v. Canadian National Bank, 1990 3 SCR 122] This is not an exception to admissible grounds for institution of suits but a general rule of civil liability.
Defendants can challenge the claim under s. 165 of C.C.P by proving existence of les pendens or res judicata, incapacity of the party, lack of sufficient interest and suit is unfounded in law. In the present case, the court has held that the respondents do not have a distinct legal obligation to Fiducie. The damage suffered by the Appellant is indirect, accruing due to the bankruptcy of the corporation. Further, on a precise statement of facts (s. 85 C.C.P), the Appellant has failed to prove sufficient interest in continuation of the suit to the trial stage.
Justice Cote writing the dissenting judgement held that the appeal should be allowed. Houle recognised loss in value of shares as an exception to the rule of direct and personal loss. Contracts of mandate separate from the corporation were concluded between fiducie and the professionals, in reference to which legal obligations were breached by the professionals causing direct personal damage its trust patrimony. The issue of damage is one of quantum or amount of damages and not of its existence, requiring the court to proceed with the trial to remove and adjudicate upon the ambiguity therein. Since, this relates to a mixed question of fact and law, judges need to caution against dismissing the case in the beginning itself. Scarcity of resources should not become a pretext of limiting accessibility.