Peoples Department Stores Inc. (Trustee of) v. Wise
Encyclopedia
Peoples Department Stores Inc. (Trustee of) v. Wise, [2004] 3 S.C.R. 461, 2004 SCC 68, 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 shareholders and creditors.
was a retail store chain whose share 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 bought 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
.
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."
Supreme Court of Canada
The Supreme Court of Canada is the highest court of Canada and is the final court of appeals in the Canadian justice system. The court grants permission to between 40 and 75 litigants each year to appeal decisions rendered by provincial, territorial and federal appellate courts, and its decisions...
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
Canada Business Corporations Act
The Canada Business Corporations Act, also known as Bill C-44, is a Canadian act respecting Canadian business corporations.-External links:*...
(CBCA), the Court held that there is a distinction between the interests of the corporation and those of the shareholders and creditors.
Background
The Wise Stores Inc.Wise Stores
Wise Stores was a department store chain located in Eastern Canada. Founded in 1930 in Montreal by Alex Wise, Wise Stores expanded their presence in the 1950s with the arrival of shopping centres. In 1992, the company acquired the even longer running and competitor Peoples department stores from...
was a retail store chain whose share 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 bought 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
Quebec Superior Court
Quebec Superior Court is the highest trial Court in the Province of Quebec, Canada. It consists of 144 judges who are appointed by the federal government.Chief Justices : [partial listing]* Edward Bowen...
found that the Wise brothers breached their fiduciary duty.
The decision of the trial judge was overturned by the Quebec Court of Appeal
Quebec Court of Appeal
The Court of Appeal for Quebec is the highest judicial court in Quebec, Canada....
.
Opinion of the Court
In a unanimous decision written by Justices Major and Deschamps, the Court upheld the decision of the Court of Appeal. 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. When examining the standard of the duty, they noted that the wording "in comparable circumstances" meant that an objective standard was required:- 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
Business judgment rule
The business judgment rule is a US case law-derived concept in corporations law whereby the "directors of a corporation . . . are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose...
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."