Supreme Court Restates Directors' Fiduciary Duty - A Comment on Peoples Department Stores v. Wise

Abstract

This article considers the implications of the recent Supreme Court of Canada decision in Peoples Department Stores v. Wise for the law of directors' fiduciary duties. The Court’s decision is attacked on two grounds. First, the author criticizes the Court’s interpretation and treatment of the phrase "the best interests of the corporation" as found in the Canada Business Corporations Act. It is argued that the decision in Wise rejects the traditional interpretation of this phrase which was previously accepted to mean "the best interests of the shareholders collectively. " This rejection raises the spectre of the debate between the "shareholder primacy " model of directors' duties and broader "pluralist" alternatives. By undercutting the lynchpin of the "shareholder primacy" model, the author suggests that the Court has left a vacuum in the law because the Court failed to outline what is to replace this traditional interpretation, or even to acknowledge the substantive change being made. At the level of process, it is equally suggested that the revision of important principles in corporate law exclusively through the judiciary is fundamentally undesirable, where the law of directors' duties has such a large element of public policy attached to it. The author also proposes that the decision in Wise has resulted in an unacceptable level of uncertainty in the law, and that this uncertainty was neither necessary nor advisable to resolve the case before the Court. Second, the author criticizes the Court's comments indicating that a breach of fiduciary duty requires mala fides on the part of directors. It is argued that this is inconsistent with pre-existing case law.