Renvoi: Lex Situs Conflictus

Canadian Conflict of Laws Blawg by Seva Batkin

Posts Tagged ‘lex fori’

Procedural Corporate Law

Posted by Seva on July 10, 2008

In an action involving foreign corporations or corporate-like trusts, how should the question of plaintiff shareholders’ standing to make a claim be decided? This issue was addressed by Madam Justice Newbury confirmed in Everest Canadian Properties Ltd. v. Mallmann, 2008 BCCA 276. Considering the classic rule from Foss v. Harbottle, which dictates that a shareholder cannot sue for injury to the corporation, she confirmed that this is a procedural rule. Thus, a shareholder’s standing is to be determined in accordance with lex fori even if the corporation involved is foreign. I think that it may useful to reproduce the two key paragraphs from the judgment where Newbury J.A. pays heed not only to precedents, but to academic literature on this subject as well:

12 Although the characterization of the rule in Foss v. Harbottle for conflicts of law purposes was not discussed by the court below, it is implicit in Ross J.’s reasons and in counsel’s arguments that the rule is a procedural one and that therefore the lex fori applies to determine a shareholder’s standing to sue. This was the view taken in Heyting v. DuPont, [1964] 2 All E.R. 273, 1 W.L.R. 843 (C.A.), where a shareholder of a Jersey company sought to sue, in England, a corporate director for misfeasance. At the outset of his reasons, Russell L.J. said this:

This appeal is from a decision of Plowman J. that a claim, asserting liability of a director of a Jersey incorporated limited liability company, to the company for damages for misfeasance, could not be put forward by a shareholder suing on behalf of himself and shareholders other than the allegedly liable director, who held the majority of shares and could therefore control a vote on whether the company should be a plaintiff in such a claim. It thus appears that the question is whether this is a case in which a departure from the rule in Foss v. Harbottle is required. I dare say that the rule in Foss v. Harbottle is a conception as unfamiliar in the Channel Islands as is the Clameur de Haro in the jurisdiction of England and Wales. But clearly this is a matter of procedure to be decided according to the law of this forum. [At 848; emphasis added.]

13 Although this reasoning was questioned by one writer (see Anthony Boyle, “A Liberal Approach to Foss v. Harbottle” (1964) 27 Mod. L. Rev. 603), the same author in a later article (“The Shareholders’ Derivative Action in the English Conflict of Laws” (2000) Eur. Bus. L. Rev. 130) retreated from his previous position and agreed that “… the principle of the company as the proper plaintiff (even if it rests upon the concept of corporate personality) should probably be regarded as procedural. Certainly the conditions that govern the use of the derivative actions are essentially procedural.” (At 131.) In Canada, although the matter is not free from doubt, the better view would appear to accord with Heyting v. DuPont. (See, e.g., Baniuk v. Carpenter (No. 2) (1987) 85 N.B.R. (2d) 385, at 393-4, 217 A.P.R. 385 (C.A.) and Teck Corp. v. Millar, [1973] 2 W.W.R. 385 at 388-9, 33 D.L.R. (3d) 288 (B.C.S.C.), at para. 13; cf. King v. On-Stream Natural Gas Management Inc., [1993] B.C.J. No. 1302 (S.C.) (QL) at para. 67.)

While the conclusion reached does not appear to be particularly controversial, it is always useful to have recent and persuasive authorities restating an old rule.

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