Peoples Department Stores Inc (Trustee of) v Wise

Peoples Department Stores Inc (Trustee of) v Wise^[1] is a major Supreme Court of Canada decision on the scope of the fiduciary duty upon directors and officers of a corporation. When examining the duty of directors under section 122(1) of the Canada Business Corporations Act (CBCA), the Court held that there is a distinction between the interests of the corporation and those of the stakeholders and creditors.

Background

The Wise Stores Inc. was a retail store chain whose shares were primarily held by the three Wise brothers. In 1992 they acquired Peoples Department Store, a competitor. From 1994 their business interests went through a difficult time. To cut down on costs they developed a scheme where certain inventory would be purchased through Peoples and then given to Wise on credit. Soon, Wise owed more than 18 million dollars to Peoples. By 1995, both Wise and Peoples declared bankruptcy. The creditors for Peoples brought an action against the Wise brothers for breach of their fiduciary duties as directors under section 122(1) of the CBCA by implementing the credit scheme.

The Trustees argued that the Wise brothers favoured the interests of Wise Stores over that of Peoples.

At trial the Quebec Superior Court found that the Wise brothers breached their fiduciary duty.

The decision of the trial judge was overturned by the Quebec Court of Appeal.

Opinion of the Court

In a unanimous decision written by Justices Major and Deschamps, the Court upheld the decision of the Court of Appeal, but for different reasons. The Court of Appeal had relied heavily on the SCC's ruling in 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal^[2] in reaching its decision. However, that case was concerned with the corporation's rights, and not with creditors' rights. The reliance was misplaced.^[3]

The Court examined the meaning behind the director duty of care found in section 122(1)(b) of the CBCA. In considering the existence of a fiduciary duty owed by directors the Court examined the wording of s.122(1) and found that the duty was owed to the company, and the interests of the company were not be confused with those of the creditors.^[4] When examining the standard of the duty, they noted that the wording "in comparable circumstances" meant that an objective standard was required:^[5]

To say that the standard is objective makes it clear that the factual aspects of the circumstances surrounding the action of the director or officer are important in the case of the s.122(1)(b) duty of care, as opposed to the subjective motivation of the director or officer, which is the central focus of the statutory fiduciary duty of s.122(1)(a) of the CBCA.

They then noted that the duty of care will be satisfied where the director acts "prudently and on a reasonably informed basis."

They also affirmed the use of the business judgment rule in Canada. They stated that "Courts are ill-suited and should be reluctant to second-guess the application of business expertise ... they are capable, on the facts of any case, of determining whether an appropriate degree of prudence and diligence was brought to bear in reaching what is claimed to be a reasonable business decision."^[6]

Notes

See also

• List of Supreme Court of Canada cases (McLachlin Court)

External links

• case summary