News & Blog

What is the Difference between a Director and a Shareholder?

A corporation is a completely separate legal entity from the shareholders who own the shares of the company and the directors who manage the affairs of the company. In many corporations, the shareholders and directors are often the same individuals and the distinction between the different roles can be lost.

 

Most standard Articles of Incorporation grant the board of directors the power to manage the company free from interference from individual shareholders. Unless otherwise specified in the Articles, the directors do not have to be shareholders of the company and can be employees of the company. The directors are primarily responsible for the management of the company including such things as operational decisions to ensure the company meets its financial needs, asset management, and senior staff management. The limits of the directors’ authority will be governed by the Articles of the company. The board of directors is the voice and main representative of the company.

 

A director of a company owes certain fiduciary duties to the company itself. The duty of honesty requires a director to be truthful and open with fellow directors and prohibits any non-approved conflicts of interest. The duty of good faith requires a director to exercise their powers in the best interests of the company and not for their personal benefit.

 

A shareholder is an individual who owns the actual shares of the company. Shareholders are able to vote on resolutions for the company at meetings of the shareholders and it is the shareholders themselves who vote on who the directors of a company should be. Shareholders do not owe any fiduciary duties to the company itself and can act solely in their own best interest.

Unger Estate (Re), 2022 BCSC 189

Can a person who murdered another person inherit from the latter’s estate? If no, who stands to inherit in place of that person? Those were the questions in Unger Estate (Re).

In Unger Estate (Re), 2022 BCSC 189, the Deceased, Lois Unger, died on February 24, 2016. She was survived by her two sons, Clayton and Logan. Sadly, Lois had been killed by Clayton who pleaded guilty to second-degree murder in her death and was sentenced to life in prison.

Eleven days after Lois’s murder, Clayton’s girlfriend gave birth to his child and only heir; a daughter named Adeline.

Lois’s will divided her estate equally between Logan and Clayton. It further stipulated that, if Logan or Clayton died before her with children of their own, those children should inherit their father’s share. Finally, if the gifts to Logan or Clayton failed to vest (ie. because either son died before Lois without children of their own), his share was to be divided equally between two charities.

The executors of Lois’s estate sought the Court’s advice on whether Clayton could still inherit his share of Lois’s estate, or whether his share should go to his brother Logan, his daughter Adeline, or two charities named as alternate beneficiaries in Lois’s will.

The Court quickly concluded that Clayton, by murdering Lois, had disentitled himself to a share of his mother’s estate. The Court based this on a long-standing rule of public policy that prevents a person responsible for the death of another from taking any benefit because of their criminal act. 

The more difficult decision was what to do with Clayton’s share. On a strict interpretation of the will, as Adeline was born after Lois’s death, Clayton’s share would pass to the two charities.

Logan and the Public Guardian and Trustee, on behalf of Adeline, responded to the executors’ court application. Logan argued that he should receive Clayton’s share while the PGT argued that Adeline should receive it. The executors took the same position as the PGT.

In coming to its decision, the Court relied on section 46 of the Wills, Estates and Succession Act, which states:

46   (1)If a gift in a will cannot take effect for any reason, including because a beneficiary dies before the will-maker, the property that is the subject of the gift must, subject to a contrary intention appearing in the will, be distributed according to the following priorities:

(a)to the alternative beneficiary of the gift, if any, named or described by the will-maker, whether the gift fails for a reason specifically contemplated by the will-maker or for any other reason;

(b)if the beneficiary was the brother, sister or a descendant of the will-maker, to their descendants, determined at the date of the will-maker’s death, in accordance with section 42 (4) [meaning of particular words in a will];

(c)to the surviving residuary beneficiaries, if any, named in the will, in proportion to their interests.

(2)If a gift cannot take effect because a beneficiary dies before the will-maker, subsection (1) applies whether the beneficiary’s death occurs before or after the will is made.

In the end, the Court held that Clayton’s share of Lois’s Estate was to pass to Adeline. It did this because Lois clearly intended to benefit her sons and, in the case the one or both failed to survive her, to benefit their children. Further, Adeline, not Logan, was an alternate beneficiary of the gift to Clayton. 

Given that Adeline was a minor, the Court ordered that her share of the Estate was to be paid to the PGT in trust.

Dissolving a Corporation

A corporation is a separate legal entity under the law. In BC, the Business Corporations Act allows for the dissolution of a corporation. The effect of dissolution is that the corporation no longer exists. There are four main ways in which a corporation can be dissolved:

  1. Dissolution for failure to file an annual report;
  2. Dissolution by request;
  3. Voluntary dissolution; and
  4. Court ordered dissolution.

It is a requirement under the Business Corporations Act that a corporation file an annual report each year with the BC registry. If a corporation doesn’t, it can be struck from the provincial company registry resulting in the dissolution of the corporation. Any assets of the company are then transferred to the BC government. As such, it is important to ensure you are filing your annual reports to avoid this result.

If a corporation has no assets or liabilities, the directors of the corporation can file a request for dissolution with the BC registry to have the corporation dissolved.

Conversely, if a corporation has assets or liabilities and the shareholders wish to dissolve the corporation, the shareholders can pass a special resolution to appoint a liquidator to sell the assets of the corporation, pay its liabilities, and then disburse the remaining funds, if any, to the shareholders. Once that is done, the corporation can be dissolved.

A liquidator can also be appointed by the Court on the application of the shareholders, directors, or creditors of the company. The Court may order the dissolution if a triggering event as set out in the corporation’s articles has occurred or if the court considers it just and equitable in the circumstances to order the liquidation.

Increased Court Costs Denied Despite COVID

In Dunn v. Heise, 2021 BCSC 2215, the plaintiff was awarded more than $800,000 in damages after being injured in a motor vehicle accident. Following the trial, the parties returned before the trial judge to resolve the issue of court costs. As we’ve discussed before, costs are an amount of money awarded to the successful litigant to help off-set their legal fees.

At the costs hearing, the plaintiff first sought double costs from ICBC. This was because he had offered to accept less money than what the judge ultimately awarded. As ICBC could have resolved the case for less than what the judge awarded, the court penalized ICBC by awarding double costs against them.

The more interesting aspect of the costs hearing was the plaintiff’s application for further increased costs. Specifically, the plaintiff argued that increased costs were warranted because ICBC forced him to go to trial in the middle of a pandemic. The plaintiff argued that this was particularly egregious given his fragile mental health issues and the extensive efforts he had expended to try to resolve the case.

The court found the plaintiff’s arguments compelling. ICBC had admitted that their insured had caused the accident. They had no expert reports of their own. They knew of the plaintiff was emotionally fragile and had made two suicide attempts. While ICBC’s actions did not amount to misconduct, forcing such an emotionally compromised individual to trial in the middle of a global pandemic qualified as an unusual circumstance thus meeting the first part of the test for increased costs.

The court then considered whether those unusual circumstances were enough to make a regular costs award inadequate or unjust. On this measure, the court found that any increased expenses associated with running the trial would be paid as disbursements. Increased costs beyond those already awarded to the plaintiff were not warranted. 

Share Classes

The shareholders of a company are often referred to as the owners of the company. Shareholders do not have any direct ownership in the assets of the company as the company is a separate legal entity. A shareholder’s ownership rights are instead represented by their shares in the company.

 

When purchasing shares of an existing company or incorporating a new company, it is important to remember that not all shares are created equal. There can be different classes of shares which will impact the voting rights and economic value of the shares. The most important aspect to review with regards to the different share classes are the special rights and restrictions of the specific share class.

 

The special rights and restrictions of the different classes of shares, if any, should be set out in the Articles of the company. The Articles will set out the share rights as they relate to voting, dividends, liquidation rights, and redemptions/retraction.

 

With regards to voting rights, not all shares carry with them the right to vote on matters pertaining to the company. It is possible for some shares to not have any voting rights assigned to them thus leaving the shareholder with no direct voting rights. In addition, the standard practice of “one vote per share” can also be deviated from in the Articles, so it is important to ensure that the voting rights of each share class and not just the shares you are acquiring are considered.

 

Dividends are profits of the corporation paid out to shareholders based upon the number of shares they hold and the type of share. It is possible in the special rights and restrictions to set out priority between different share classes as to who is to receive a dividend, establish guaranteed dividends for some share classes while other share classes will only receive dividends at the discretion of the directors, and set out limits to the amount of dividends that may be paid out to specific share classes. It is essential for minority shareholders to understand the dividend structure as it relates to both their own shares and those of the majority shareholders.

 

When a company is winding down and/or dissolving, it must divest itself of all of its remaining assets to its shareholders after it has paid all its debts and liabilities. Upon dissolution, different share classes can be entitled to both different priority on who is paid out first and the amount paid out per share.

 

Redemption of shares is when a corporation requires a shareholder to sell its shares back to the corporation. Retraction occurs when a shareholder requires the corporation to purchase its shares from the shareholder. Different share classes may or may not have the rights to redemption/retraction and the price at which shares can be purchased and sold in such circumstances can be dictated by the share class.

 

It is important to consider when incorporating a new company, purchasing a company or investing in an existing company to receive legal and accounting advice on your transaction.

Vindictive ICBC Law Struck Down as Unconstitutional

The BC Supreme Court has once again struck down as unconstitutional one of David Eby’s vindictive ICBC laws. This time around it was his scheme to prevent accident victims from fully recovering the expenses they have to incur to prove their claim. These expenses are known as disbursements.  

Disbursements can include things such as the cost of obtaining medical records from a person’s doctor and therapists, expert reports necessary to prove a person’s injuries and limitations, and various administrative costs. It would be virtually impossible for an injured person to fully prove their claim for damages without incurring these disbursements. As such, historically, injured people have been able to recover these disbursements from ICBC providing they were reasonable and necessary. This is an important point: if ICBC ever felt that a person’s disbursements were unreasonable or unnecessary, they could always challenge them in Court and, if the Court agreed with them, have those disbursements reduced.

Unfortunately, this imminently fair and reasonable process wasn’t good enough for David Eby and the BC NDP Government. They proceeded to enact a law that capped what injured people could recover as disbursements. This cap was set at the incredibly low rate of 6% of the amount the person was awarded at trial or settled for. Not only was it subject to few exceptions, it applied retroactively so as to catch disbursements that people with active claims had incurred before the law came into effect. Moreover, the law gave the Court absolutely no discretion to relieve accident victims from the punitive effects of the law.

Several accident victims along with the Trial Lawyers Association of BC challenged the law on the basis that it was unconstitutional. In Reasons for Judgment indexed as Le v. British Columbia (Attorney General), 2022 BCSC 1146 the Court pronounced judgment.

The Court described the various ways in which the law unfairly operated against accident victims:

[17] There is no necessary or direct relationship between the amount of a damages award and the amount of disbursements that had to be incurred to obtain it. I can and do take judicial notice that an obviously severe or catastrophic injury and the resulting large damages may be easier to prove than a relatively less serious but more subtle injury. In the latter type of cases, defendants rarely ignore an opportunity to argue that some portion of a plaintiff’s claim cannot be allowed because the plaintiff has failed to call the appropriate expert.

[33] The final amount of a settlement or judgment is not easily predictable at the time the costs for expert reports and/or testimony are incurred. Plaintiffs and their counsel therefore will not know what amount can be spent without risk of exceeding the 6% limit. The Attorney General acknowledges that this may require plaintiffs to make decisions about what part of their case they wish to pursue or abandon.

[34] The impugned regulation applies a fixed limit only on the recovery of disbursements by plaintiffs and gives the court no discretion to permit exceptions in the circumstances of individual cases. But where a defendant is entirely successful, such as when the plaintiff fails to prove liability, the disbursements recoverable by the defendant are, of necessity, left entirely to the court’s discretion.

[81] Where a plaintiff has incurred disbursements that exceed the 6% maximum, the disbursements will have to paid out of the damage award, reducing the amount the court has found to be necessary to replace lost income or provide necessary future care.

[90] The impact of the impugned regulation on individual plaintiffs will obviously vary depending on the circumstances of each plaintiff and the issues in each case. But I am satisfied, on the basis of the evidence and on those aspects of the civil litigation system of which I am entitled to take judicial notice, that the impugned regulation, in its present form, will prevent or discourage some plaintiffs from accessing the court for a decision of their case on its merits. Some plaintiffs will be unable to marshal all of the evidence necessary to prove all aspects of their case without sacrificing other reasonable expenses or necessary portions of their compensatory damages. Others may have the evidence in the form of the necessary expert reports, but will be unable to proceed to trial because of the additional costs and risks associated with having those experts testify.

The Court also stated it could not ignore the reality that the law operated to the immediate and primary financial benefit of ICBC (which is, of course, the only reason it was enacted).

In the end, the absence of any provision to preserve judicial discretion to relieve accident victims from the consequences of the law was fatal. The Court found it to be unconstitutional and struck it down as having no force or effect. 

This decision represents yet another win for accident victims over the predations of ICBC and its servient provincial government.

Malecek v. Leiren

In certain circumstances, family law and estate litigation claims can intersect. The case of Malecek v. Leiren, 2021 BCSC 1052 is one such example.

In Malecek, the deceased, a man named Hall, died at the age of 79. He was survived by his wife of 37 years, Carol, and four daughters from a prior marriage. He was also survived by two step-sons, who were Carol’s children from a prior marriage. Until Hall’s health deteriorated resulting in him having to live in various care facilities, he and Carol had lived together in a house owned solely by Carol.

Hall had made a will that left his personal effects to Carol and divided the residue of his estate equally among his daughters. However, following his death, it became apparent that Hall’s estate was insolvent such that there was no money for his daughters to inherit.

Not being satisfied, Hall’s daughters alleged that he and Carol had, in fact, separated prior to his death. If that were the case, Hall’s estate would have prima facie been entitled to one-half of all family property including the house owned by Carol. Bringing that and, perhaps, other assets into Hall’s estate would make it possible for his daughters to inherit something. As such, the central issue in the case was whether Hall and Carol had separated prior to his death.

The daughters made many assertions that they said supported their position that Hall and Carol had separated before he died. Among others, they argued that Carol had been in a long-term relationship with another woman; that Carol rarely visited Hall while he was living in care facilities and that, when she did, she did not provide him with sufficient care; that Carol refused to let Hall come home; and that, before his death, Hall had expressed being lonely and wanting to move closer to his daughters.

Before arriving at her decision, the Court reviewed the principles applicable to determining whether spouses have separated, noting that:

 

a) The law does not require a meeting of the minds to find an intention to separate. All that is required is an intention of one spouse to separate and action consistent with that intention;

b) The law does not require an unequivocal communication of separation by one spouse to the other. The court is to assess on the totality of the evidence whether one spouse had a settled intention to separate and communicated that intention through conduct to the other spouse; and

c) The mere living separate and apart of spouses because of enforced long-term residential medical care is not conclusive of an intention to end the matrimonial relationship, nor of an intention to separate permanently.

 

In considering the evidence put forward by the daughters, the Court found that there was not a scintilla of actual evidence that Carol had been in a romantic relationship with another woman. The allegation, itself, was scandalous. The Court further determined that the amount of contact between Hall and Carol while the former was in care and the assistance which Carol provided was entirely sufficient and, in any event, not suggestive of any intention on either or their parts to separate. Given the severity of his medical issues, Hall’s residence in care facilities as opposed to Carol’s house was also entirely understandable. Finally, his expression of loneliness was understandable and, again, not suggestive of an intention to separate from Carol.

Overall, the Court found that the daughter’s had cherry-picked evidence and given an uncharitable interpretation to many other facts. The Court went on to find that the daughter’s had engaged in a long-term campaign to convince Hall to divorce Carol and that, contrary to their assertions, he had resisted those attempts. Furthermore, Carol was still alive to depose that she never separated or intended to separate from Hall, and that the two remained loving spouses up until his death.

In the circumstances, the Court had no problem concluding that Hall and Carol had not separated prior to the former’s death. Neither had communicated an intention to the other to separate permanently and neither of them took any action that might be construed as demonstrating an intent to separate permanently or to otherwise end the marital relationship. To the contrary, the evidence, direct and indirect, was overwhelming that they remained in a marital relationship up to the time of Hall’s death.

As the losing party, costs were awarded against the daughters in favour of Hall’s estate. Given the conduct and serious allegations made by the daughters, Hall’s estate sought an award of special costs. Where a losing party engages in reprehensible conduct, conduct from which the court seeks to dissociate itself, conduct deserving of reproof or rebuke, or conduct that is scandalous or outrageous, they can be liable for special costs.

In reasons indexed as Malacek v. Young, 2021 BCSC 2219, the Court found that special costs were warranted for several reasons. Among them, the Court found that the unfounded and scandalous allegation that Carol had been in a secret same-sex relationship with another woman was reprehensible. Connected with that, the Court admonished the daughters for having made threats to expose the alleged relationship between Carol and the other woman. The Court found that this constituted intimidation and bullying. The Court was also incensed that the daughters had virtually no evidence to suggest that the 37-year marriage between Hall and Carol had ever ended. Finally, the Court saw that the daughters’ true intent was to simply get their hands on Carol’s money.

Vicarious Liability of Employers

When an employee injures someone in the course of their employment, their employer can be held responsible or vicariously liable. The rationale is that it is the employer who introduced an enterprise that carries risk into the community and should bear the loss when that risk materializes.

Employers will be vicariously liable for the actions or their employees if:

  1. The actions of the employee are authorized by the employer; or
  2. The actions of the employee are not authorized by the employer, but are so connected to authorized actions that they may be regarded as modes of doing an authorized action.

Determining whether an unauthorized act by an employee may be regarded as a mode of doing an authorized act can be difficult. If there are precedents that unambiguously determine on which side of the line the case falls, that precedent should be followed. Conversely, if there are no precedents and the case is novel, whether vicarious liability should be imposed will be determined in light of broader policy rationales.

These considerations were at play in the recent case of Sambuev v. Handley, 2021 BCSC 1499 where the Court had to determine whether a trucking company should be held vicariously liable for the actions of its employee who assaulted another driver in instance of road rage. While the Court found that there was some precedent in other provinces that an employer should be held vicariously liable in such a situation, it found it the case was distinguishable and that it was not bound by the decision. 

Nevertheless, in considering broader policy rationales, the Court found that the trucking company should not be held vicariously liable for a number of reasons including:

  • The company did not authorize the employee to use force against others. Rather, it specifically instructed the employee to avoid situations that could cause road rage;
  • The nature of working as a truck driver did not produce an inherent risk of an assault being committed by the employee;
  • The company did not afford the employee the opportunity to commit the assault as it happened on a public road as opposed to the company’s premises;
  • The victim was not a customer of the company and the employee did not stand in a position of power vis-à-vis the victim;
  • The assault did not advance the interests of the company; and
  • Imposing vicarious liability would be unlikely to have a deterrent effect as the company already warned its employees to avoid situations that could cause road rage.

Subject-to Clauses in Real Estate Transactions

Offers to purchase or sell real estate are often conditional on or subject-to something happening. For instance, the offer to purchase could be subject-to the buyer obtaining financing or being satisfied with the results of a home inspection. If the conditions to the purchase and sale are not met, typically the sale will not complete. However, the interpretation and validity of such clauses can often become an issue and lead to litigation when one party is unhappy with that result. Which party will be successful often depends on what class of subject-to clause is at issue.

There are three classes of subject-to clauses:

  1. Entirely subjective;
  2. Clear, precise, and objective; and
  3. Partly subjective and partly objective.

Entirely subjective clauses depend entirely on the subjective state of mind of the party who benefits from the clause. An example would be “subject to how the buyer feels a week from now.” Such clauses do not create a binding agreement, but rather constitute an offer. Without an agreement, there is no obligation to act in good faith to remove the clause and either party can walk away from the deal so long as the condition remains.

A clear, precise, and objective clause result in a completed contract. An example would be “subject to the buyer selling their current home on or before January 1, 2022.” The parties cannot withdraw from the deal and their obligations are held in suspense until the condition is fulfilled. Both parties have a duty to act in good faith to bring the contract to fruition.

Partly subjective and partly objective imply a term that the parties will take all reasonable steps to cause the condition to be fulfilled. An example would be “subject to the buyer obtaining financing on satisfactory terms.” In this instance, satisfactory means satisfactory to a reasonable person in the buyer’s position.

What class a particular subject-to clause falls within will depend on the wording of the clause viewed in the context of the contract and with regarding to all surrounding circumstances. While this task can be difficult, courts will try to find a way to interpret a subject-to clause in a way that supports the existence of a contract. This is because it is assumed that the parties would not have signed the contract of purchase and sale if they didn’t mean to be bound by its terms.    

Slater v. Courtenay (City)

When a person is injured on another person’s property, they may have recourse under the Occupiers Liability Act. The OLA requires that the occupier of a property take reasonable care to ensure that persons on their property are reasonably safe. This includes property owned by municipalities. However, the rather unique case of Slater v. Courtenay (City), 2021 BCSC 1678 is an example of how difficult it can be to successfully sue a municipality for being injured on their property.

In Slater, a young man was on his way to his friend’s house after an evening of drinking. He decided to cut-through city property where he encountered a flight of stairs. However, instead of walking down the stairs, he slid down the bannister using his left hand to steady himself. Unfortunately for him, one of his fingers got caught on the way down and was completely ripped off his hand. While he recovered his severed finger, it was too badly damaged to be reattached.

Following his injury, the City fixed the stairs and bannister to remove the design element that caught the man’s finger.

The man sued the City of Courtenay alleging various deficiencies with respect to the design and condition of the bannister. The City eventually asked the Court to dismiss the case.

After examining the nature of the stairs and bannister, and the man’s description of what happened, the judge found that the man was injured, in part, due to the configuration of the bannister. He then went on to discuss the standard of care to which property owners are held under the OLA. Importantly, he noted that standard is one of reasonableness, not perfection. Owners are not required to ensure that people on their property will be absolutely safe.

In dismissing the man’s claim, the judge found that the bannister was capable of being used safely if used as intended ie. by a person walking up or down the stairs. It was the momentum of the man sliding down the bannister in combination with the design of the stairs that caused his injury. Had he been using the stairs as intended, he would not have been injured. As such, his injury was not reasonably foreseeable and the City should not be held liable.