Today, the Supreme Court of Canada released its long-awaited judgment in the BCE case. The Supreme Court had previously indicated that it would overturn the decision of the Quebec Court of Appeal but today we found out the bases on which it did so. We also found out the current thinking from the Court on directors duties. The gist of the Court’s decision is two fold. First, it upheld the principle that the board owes its fiduciary duty to the corporation not to any one particular stakeholder group. In addition, the Court held that there is a distinction between the legal considerations applicable to the oppression remedy and CBCA arrangements that the Quebec Court of Appeal had overlooked. The Supreme Court held true to the wording of the corporate statute with perhaps one exception: it introduced the concept of the corporation as a “responsible corporate citizen”, thereby raising questions about what this term means in terms of directors’ duties generally.
As we know, the central fact of the case was that BCE proposed an arrangement in which certain bondholders stood to be disadvantaged because the level of BCE's debt would be increased. The higher level of debt would in turn decrease the value of the existing debt as well as occasion a loss of investment grade status. The QCA held that the bondholders' interests must be considered when the board is discharging its fiduciary duties. But in reaching its decision, the QCA pushed the concept of fiduciary duties into new territory, a move that stretched existing law. In particular, the QCA conceived directors' fiduciary duties extremely broadly, criticizing the BCE board for not considering how the plan of arrangement at issue might be unfair to bondholders.
In today’s decision, the SCC indicated that the QCA had misinterpreted its decision in Peoples v Wise (SCC 2004). The SCC has confirmed that Peoples holds that the board may take into account the interests of a range of stakeholders whereas the QCA suggested that the board must take into account the interests of a broad range of stakeholders, including, in this case, the debentureholders (paras 39, 40). However, the Court does not resolve the conundrum of Peoples which is that when fiduciary duties are conceived as applying (or possibly applying) to a broad range of corporate stakeholders (creditors, suppliers, consumers, employees, environmental groups etc.), the duty is watered down significantly: a duty owed to everyone is in effect a duty to no one.
Despite this issue, in today’s decision, the Supreme Court underscored the importance of the statutory wording which states that in discharging their duties, directors and senior officers must act in the best interests of the corporation. Contrary to at least some speculation, therefore, the Court did not uphold the shareholder primacy norm in Canada. It explained that the board does not owe its duties to shareholders per se or to any other stakeholder group for that matter (para 41). Again, this emphasizes the Court’s point that the language in Peoples regarding the scope of directors’ duties was permissive rather than mandatory.
One conspicuous ambiguity in today’s judgment, however, is that the Court introduces the concept of the corporation as a “good corporate citizen”. The Court states:
Directors, acting in the best interests of the corporation, may be obliged to consider the impact of their decisions on corporate stakeholders, such as the debentureholders in these appeals. This is what we mean when we speak of a director being required to act in the best interests of the corporation viewed as a good corporate citizen. However, the directors owe a fiduciary duty to the corporation, and only to the corporation. (para 66)
At first blush, there appears to be some ambiguity in the scope of directors' duties with the introduction of the notion of "good corporate citizen". Indeed, there seems to be some tension in the decision between the idea that the duty is owed to the corporation on the one hand and the references in the case that the directors should act in the best interests of "the corporation viewed as a good corporate citizen" on the other. Does “good corporate citizen” import the obligations that are associated with corporate social responsibility broadly speaking? The Court has opened the door for speculation in this regard.
However, such speculation may be for naught. The Court is clear throughout the judgment that the duty is owed to the corporation and that the directors have the discretion to determine what such conduct will entail in any given instance. Thus, in some respects, we are where we have been: with a corporate statute that points to the corporation as the object of directors’ fiduciary duties. Boards will thus continue to live with the vagueness that has historically attached to this principle.
Anita Anand, Associate Dean (JD Program) and Associate Professor, University of Toronto
