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CORPORATIONS - Derivative actions - Good faith

Thursday, December 17, 2020 @ 6:18 AM  


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Appeal by 2538520 Ontario Ltd. from the dismissal of its application for leave to commence a derivative action on behalf of the respondent. The appellant, a shareholder of the respondent, sought leave to commence a derivation action on the respondent’s behalf against various past and present directors and officers. It alleged the proposed defendant directors breached fiduciary duties and were negligent in relation to the respondent’s operations, specifically in relation to the respondent’s agreement and related transactions with Union Goal related to the recovery and sale of chrome from stored tailings at one of the respondent’s subsidiary’s mines in South Africa. The appellant alleged the proposed defendant directors preferred their own interests and failed to conduct sufficient due diligence before approving the deal. The appellant’s chief executive officer, Hong, had previously attempted to gain control of the respondent. He had made his own proposal to buy the chrome. The chambers judge found the proposed action in negligence was in the best interests of the respondent but that the appellant had not proven it was acting in good faith.

HELD: Appeal dismissed. The chambers judge properly considered the appellant’s belief in the merits of the action before finding the appellant had not proven good faith. The chambers judge did not treat the onus to prove good faith as higher than the balance of probabilities. There was evidence to support the chambers judge’s finding that the appellant had ulterior motives. The chamber judge’s conclusion Hong was personally motivated, as opposed to acting with a primary purpose of benefiting the respondent, was a reasonable inference. It was not inconsistent for the chambers judge to find the claim was in the best interests of the respondent but that the appellant was not acting in good faith. The good faith and best interest tests were separate, substantive requirements. The chambers judge’s conclusion the proposed claim was in the respondent’s best interests was premature given the gaps in the record. Dissenting reasons were provided.

2538520 Ontario Ltd. v. Eastern Platinum Ltd., [2020] B.C.J. No. 1820, British Columbia Court of Appeal, E.A. Bennett, R. Goepel and S.A. Griffin JJ.A., November 16, 2020. Digest No. TLD-December142020008