After returning from a week of gorging himself on foie gras and glamping around Charlevoix, a good friend of mine declared, without equivocation, "Quebec is our greatest province."
This is the kind of strong take that launches referendums and, though I love Quebec, I am loath to don the clothes of either Wolfe or Montcalm with a federal election looming. I would rather point to the delightfully implausible fact that Lord Durham's proposal, in his 1839 Report on the Affairs of British North America, to unite French and English Canada did not lead to the English overwhelming the French, but something wonderful and unique.
Though I would like to tell you that the best way to appreciate the historical quirk of our nation's great, unsettled compromise would be to dig into a plate of lobster spaghetti at Montreal's Joe Beef or to settle down on the banks of the Saint Lawrence with some Mordecai Richler, I am a business lawyer, so I'll turn your attention somewhere else: the surprisingly complementary relationship between Quebec's French-derived Civil Code, which focuses on interpreting statutes, and the British-style, case-law-based common law regime that governs the federal law, and which guides the interpretation of Quebec's Civil Code.
Take the way the Superior Court of Quebec analyzed a board of directors' exercise of its duty of care – one of the more vexing issues in Canadian business law – in its recent decision in Groupe d'action d'investisseurs dans Biosyntech c. Tsang, a case notable not only for its result, but for its seamless integration of common and civil-law analysis.
One of the great advantages of corporations is that they have limited liability. The shareholders of a corporation generally cannot sue the individuals who run the corporation, except in certain specific circumstances. The distinct legal personality of a corporation facilitates commerce by allowing the people that run it – its directors – to make business decisions without the fear of having their personal assets confiscated if those decisions go poorly.
Limited liability is not an impenetrable force field. The Canadian Business Corporations Act (the CBCA) specifies that directors are personally liable if they breach certain duties, one of which is called a duty of care (which is what it sounds like – a duty to take reasonable care while running the corporation). Surprisingly, the question of exactly to whom the directors owe this duty of care is one of the great questions of Canadian corporate law.
The traditional common-law answer has always been that the duty is owed to the corporation. The corporation is a legal person, and a violation of the duty of care by the directors causes harm to the corporation. So, the corporation is the proper plaintiff. The Supreme Court of Canada complicated this theory in its decisions in Peoples and BCE, holding that the duty of care "is not owed solely to the corporation, and thus may be the basis for liability to other stakeholders."
If you want to delve deeply into the post-BCE scholarship, feel free, but the upshot is that this is a potential sea change: Individual shareholders may have the right to directly sue a corporation for a breach of the duty of care. If so, this gives aggrieved shareholders a way to circumvent a complicated process of making the corporation sue its directors known as a "derivative action."
This brings us to Tsang, where a group of shareholders attempted to directly sue the board of BioSyntech Inc. for, in essence, causing the company's stock price to fall through their own negligence. Merits of the board's actions aside, this brought up exactly the question that BCE left open: Can shareholders directly sue the corporation for a breach of the duty of care?
It's important to note that an action for a breach of the duty of care isn't brought directly under the CBCA but under local law; for example, a claim for negligence or, in this case, Article 1457 of the Civil Code of Quebec. In its analysis of Peoples and BCE, the court relied on academic commentary to determine whether shareholders could sue – a method of analysis more common to civil than common law – and concluded that the better argument was for allowing shareholders to directly sue the corporation.
But this wasn't the end of the analysis. Figuring out whether the shareholders could sustain their claim required engaging in civil-law-style statutory interpretation of Quebec's Civil Code. Article 1457 requires direct damages for the kind of negligence of which the plaintiffs accused the board. Shareholders cannot claim damages when directors cause damage directly to the corporation, and the shareholders are only harmed par ricochet (indirectly), through their ownership of stock.
The reason for this is simple: Were shareholders to be able to recover directly, the corporation would be faced with the threat of having to pay twice: once to the shareholders, and once to the corporation (from which payment the shareholders would benefit).
In justifying this position, the Quebec court cited the rule in the 1843 case of Foss v. Harbottle, which states that when a wrong is done to a company the proper claimant is the company itself due to the risk of double recovery. So, a shareholder (in Quebec at least) can only claim against the corporation directly under the CBCA for a breach of the duty of care if that breach directly harms the shareholder – fraudulent misrepresentation, for example – and not if that harm only comes to the shareholder indirectly through the corporation.
Think about that: In order to resolve a problem created by the Supreme Court of Canada in its interpretation of a federal statute, as interpreted through the Civil Code of Quebec, which itself is derived from Napoleonic French law, a Quebec court rested much of its decision on a British case decided four years after Lord Durham's Report was presented to the British Parliament and 24 years before Confederation.
Only in Quebec and, by virtue, only in Canada is this kind of analysis even possible. So, next time someone brings up the implausibility of French-English harmony, you can point her to Gretzky threading it to Lemieux in 1987, or you can point her to the decision in Tsang. Almost 150 years on, it's evidence that the English and French aren't incompatible; in the right circumstances, they make each other much better.
Adrian Myers is a lawyer at Torkin Manes LLP.