Victory at the Supreme Court of Canada: a hat-trick for Caroline Biron, Neil Peden and Marie-Pier Cloutier!
On December 7, the Supreme Court confirmed the successful result obtained by Woods in the Superior Court and the Court of Appeal in Brunette v. Legault Joly Thiffault, s.e.n.c.r.l., 2018 SCC 55.
Woods represents an accounting firm that was faced with a claim by a trust for $55 million in damages resulting from the bankruptcy of a holding company of which the trust was the sole shareholder. The holding company controlled a group of corporations which had themselves become bankrupt following tax assessments. Our client had provided professional services to the group; it audited the financial statements of the corporations and prepared the financial statements of the trust on a review engagement basis. In its lawsuit, the trust alleged that our client had failed to meet its professional obligations to the trust—notably a duty to advise—in connection with the services rendered to the corporations. Our client made a motion to dismiss the lawsuit on the grounds that the trust lacked the necessary legal interest.
In a majority decision written by Justice Rowe (Justice Côté being the lone dissenter), the Supreme Court confirmed that the lower courts had committed no error in dismissing the trust’s claim. The court noted that it is incumbent upon the plaintiff to establish a sufficient legal interest, which generally must be personal and direct. Moreover, in Quebec civil law as in Canadian corporate law, shareholders have direct right of action in respect of faults committed against the corporation. Although the Supreme Court recognized in Houle c Banque Canadienne Nationale,  3 S.C.R. 122 that shareholders may have a recourse for wrongs committed in relation to the corporation, the Supreme Court has clearly reaffirmed in Brunette that the shareholder must suffer a direct prejudice distinct from that suffered by the corporation, in relation to a distinct obligation. In Brunette, the appellants could not demonstrate that the trust’s cause of action, and damages, were distinct from those of the corporation.
This decision of the Supreme Court is important in that it protects professionals from indeterminate liability when providing services to a corporate group, clarifying the state of the law in Quebec. The decision in Brunette, which clarifies the principles in Houle, is also in line with the common law decision in Deloitte & Touche v Livent Inc. (Receiver of), 2017 SCC 63 which also deals with the interests of shareholders and the professional liability of accountants. The Brunette decision is therefore of interest to Canadian corporate law generally.
The Supreme Court also reaffirms that shareholders cannot disregard the principles of bankruptcy law by arrogating to themselves the rights of creditors of the bankrupt corporation.
From a procedural standpoint, the Supreme Court affirmed that a claimant’s legal interest is not presumed; it must be established by a precise statement of facts. Moreover, the interest of the claimant must be capable of determination at a preliminary stage in the event of a challenge pursuant to art. 165(3) C.C.P. Since a sufficient interest is a condition of admissibility for all claims, courts must be capable of determining its existence. The Supreme Court reaffirmed the need for prudence before dismissing a claim at a preliminary stage, but also noted the scarcity of judicial resources, and emphasised that claims must be dismissed where the alleged interest is found to be insufficient.