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A corporate director may owe an ad hoc fiduciary duty to a shareholder, but this must be supported by factual findings

In its recent decision in Midland Resources Holding Ltd. v. Shatif, 2017 ONCA 320, the Court of Appeal for Ontario declared that, had directors breached their fiduciary duties to the corporation, the shareholders would have had no cause of action since the corporation is the sole beneficiary of those duties. In the same decision, the Court found the directors liable towards the investor on the basis of fraudulent misrepresentation and deceit.

Business associations — Specific matters of corporate organization — Directors and officers — Fiduciary duties — Miscellaneous

Parties were shareholders in two successive corporate ventures to develop oil fields in Russia — During first half of 2006, they carried on venture through M Ltd. — By June 2006 it was apparent that M Ltd. was sham public corporation promoted by defendants IB and SF — Shareholders re-organized their venture using new company K Ltd. — Plaintiff shareholders put up all funds, some US$50 million, for venture — Defendants MS and GR formed part of second group of shareholders — Each group of shareholders lost trust in other — Plaintiffs brought action alleging, principally, that defendants duped them into investing in project they knew was fraudulent from start, and then induced them to throw good money after bad by investing in K Ltd. in attempt to recoup their losses — Action was allowed and damages were awarded — Defendants appealed — Appeals allowed in part — Trial judge erred in finding corporate plaintiff could recover loss as beneficiary of fiduciary duty — GR was under duty to disclose what he knew about IB's criminal background and name change — Such information struck at root of legitimacy of M Ltd. as public company, and GR was required to disclose it regardless of whether plaintiffs had made some, all, or none of their investment in M Ltd. — In keeping silent, GR egregiously breached his duty as director to make timely disclosure of material information to M Ltd.'s board — Although plaintiffs pleaded existence of ad hoc fiduciary duty owed by GR to personal plaintiffs, trial judge made no factual findings that such duty arose in circumstances — On current state of law, trial judge's implicit holding that corporate plaintiff, as shareholder, enjoyed cause of action against GR for his breach of fiduciary duty to M Ltd. was not sustainable.
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