Directors' fiduciary duties to shareholders.

Abstract

Since the 1902 decision of Percival v. $Wright\sp1,$ Canadian common law has provided that directors generally have no fiduciary duties to shareholders. Shareholders have continued to assert that directors have such duties, however. Moreover, shareholders have been attracted by the allure of the rigorously restitutionary remedies imposed on fiduciaries. Cases in which share holders have made claims of fiduciary duty against directors since the law reforms of the 1960s and 1970s are examined. The law reformers expected that the courts would develop the law of fiduciary relations within the corporation. Moreover, the nature of securities law reforms confronted the courts with the previously noted gulf between the statutory fiduciary obligations imposed on directors and insiders of widely-held corporations and the lack of such obligations in private companies. This review of judicial decisions begins with an examination of the compulsory acquisition cases which preceded the statutory take-over bid reforms. These cases arise from facts which would constitute take-over bids under the statutory reforms of the 1960s. In these cases, we see a very limited attempt by the judiciary to impose fiduciary obligations of good faith and candour in favour of minority shareholders. The courts' sense of commercial morality seems to have been stirred in these cases, a morality engendered by the arbitrary expropriation permitted by the statutory compulsory acquisition provisions. An examination of latter day cases involving claims of fiduciary duty show that the decisions are sprinkled with references to commercial morality. Despite this moral impetus, the courts seem unwilling to venture beyond the perceived constraints of the corporations statutes. This unwillingness, coupled with the courts' inability to articulate a uniform rationale for imposing fiduciary duties on directors in favour of shareholders contribute to the unsatisfactory state of the law. (Abstract shortened by UMI.) ftn$\sp1$ (1902) 2 Ch 421.