The Puzzle of Shareholder Fiduciary Duties

Abstract

In England and Canada the courts have in the main clung steadfastly to the notion that controlling shareholders owe no fiduciary duties either to the company, or to fellow shareholders. This is in marked contrast to developments in the United States, where it has been clear that majority or controlling shareholders bear fiduciary responsibility towards the minority. In a nutshell, this is the puzzle that this article seeks to explain. Why is it, in the face of more widespread inter-investor conflicts of interest, that legal doctrine in Canada has not formally adumbrated fiduciary standards of conduct for controlling shareholders, while the American courts have? The authors suggest a number of answers. Canadian judges, by temperament and training, tend to be more wedded to the common law precedent, which clearly indicates that shareholders owe no fiduciary duties. Second, courts have often been able to finesse the issue in cases in which the controlling shareholder is also a director or officer, since the controller may then be held liable in her managerial capacity, using conventional fiduciary wisdom. Third, minority interests have often been protected in Canada by devices other than shareholder fiduciary duties. In fact, the authors argue that the courts have moved recently to impose de facto fiduciary duties on shareholders under the statutory oppression remedy. The broad drafting of the oppression remedy has supplied the courts with a legislative mandate to break free of the fetters of the common law and construct a new paradigm of majority/minority relations. The authors argue that it is primarily the weight of settled jurisprudence that has kept the courts from explicitly acknowledging that the new duties are fiduciary in substance and character.