Wednesday, 7 January 2015

Business rule. Canada

Canada: The Canadian Courts’ Perspective On The Business Judgment Rule
September 20 2006
The Delaware approach to the business judgment rule was synopsized in In Re The Walt Disney Company Derivative Litigation, 2005 Del. Ch. LEXIS 113 by Chancellor Chandler at paras. 150-1:
A comprehensive review of the history of the business judgment rule is not necessary here, but a brief discussion of its boundaries and proper use is appropriate. Delaware law is clear that the business and affairs of a corporation are managed by or under the direction of its board of directors. The business judgment rule serves to protect and promote the role of the board as the ultimate manager of the corporation. Because courts are ill equipped to engage in post hoc substantive review of business decisions, the business judgment rule "operates to preclude a court from imposing itself unreasonably on the business and affairs of a corporation."
The business judgment rule is not actually a substantive rule of law, but instead it is a presumption that "in making a business decision the directors of a corporation acted on an informed basis, … and in the honest belief that the action taken was in the best interests of the company [and its shareholders]." This presumption applies when there is no evidence of "fraud, bad faith, or self-dealing in the usual sense of personal profit or betterment" on the part of the directors. In the absence of this evidence, the board’s decision will be upheld unless it cannot be "attributed to any rational business purpose." When a plaintiff fails to rebut the presumption of the business judgment rule, she is not entitled to any remedy, be it legal or equitable, unless the transaction constitutes waste.
He went on to observe at para. 155:
  • Even if the directors have exercised their business judgment, the protections of the business judgment rule will not apply if the directors have made an "unintelligent or unadvised judgment."
  • Where directors have not exercised business judgment, ie: in the event of director inaction, the protections of the business judgment rule does not apply. Under those circumstances, the appropriate standard for determining liability is widely believed to be gross negligence but (one Delaware case has held that ordinary negligence would be the appropriate standard)
Canada too has the business judgment rule.The interpretation of the concept is different, however.In its decision Peoples Department Stores Inc. (Trustee of) v. Wise, [2004] 3 S.C.R. 461, the Supreme Court of Canadare dealt with the question of the business judgment rule in Canada. This decision has been criticized and questioned, but not on the issue of the enunciation of the business judgment rule. Rather the concern has been the expressed inability of that Court to appreciate that the outside world has no difficulty in recognizing when an enterprise is in the vicinity of insolvency, as opposed to insolvency itself. Additionally, the Court alluded to their preferred remedy for approaching situations of this nature, the oppression remedy .The Canada Business Corporations Act (CBCA) at s. 122(1) establishes two distinct duties to be discharged by officers and directors in managing, or supervising the management of, the corporation (the various provincial statutes have essentially equivalent language): s. 122(1) Every director and officer of a corporation in exercising their powers and discharging their duties shall act honestly and in good faith with a view to the best interests of the corporation; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
The (a) part is a "statutory fiduciary duty" (or "duty of loyalty") and the (b) part is a "duty of care" which, generally speaking, imposes a legal obligation upon directors and officers to be diligent in supervising and managing the corporation’s business. The (a) and (b) duties are separate and distinct.

A fiduciary duty owed by directors and officers imposes strict obligations. An example of this isCanadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592 where it was decided that these persons may even have to account to the corporation for profits they make that are not obtained at the expense of the corporation. The Court went on to observe at para. 41 of Peoples:
(41) ... Peoples and Wise were struggling a serious inventory management problem. The Wise brothers considered the problem and implemented a policy they hoped would solve it. In the absence of evidence of a personal interest or improper purpose in the new policy, and in light of the evidence of a desire to make both Wise and Peoples "better" corporations, we find that the directors did not breach their fiduciary duty under s. 122(1)(a) of the CBCA. See 820099 Ontario Inc v. Harold E. Ballard Ltd.(1991), 3 B.L.R. (2d) 123 (Ont. Ct. (Gen. Div.)) (aff’d (1991), 3 B.L.R. (2d) 113 (Ont. Div. Ct.)), in which Farley J., at p. 171, correctly observes that in resolving a conflict between majority and minority shareholders, it is safe for directors and officers to act to make the corporation a "better corporation".
In Ballard, ... directors in exercising their duty of care, had to consider the interests of the corporation generally (made up of all affected interests) including the body of shareholders and not just the controlling shareholder. Further the discretion of directors cannot be fettered, except by virtue of an unanimous shareholder agreement. Nominee shareholders owe their loyalty to the corporation, not to their appointing/nominating shareholder. The nominee director cannot be a "Yes man"; rather he must be an analytical person who can say "Yes" or "No" as the occasion (and the corporation) requires. It is permissible for a nominee director to advance for analysis and discussion the view of his nominee, but this should be in the sense of putting the motion on the table for discussion. I was of the view that the test for considering the objectivity of directors in making a decision was: "The question is, what was it the directors had uppermost in their minds after a reasonable analysis of the situation". The answer to that should be that they were focussing on making the corporation a "better corporation".

Turning to the duty of care under (b), the Court observed at paras. 64-67 of Peoples:
(64) The contextual approach dictated by s.122(1)(b) of the CBCA not only emphasizes the primary facts but also permits prevailing socio-economic conditions to be taken into consideration. The emergence of stricter standards puts pressure on corporations to improve the quality of board decisions. The establishment of good corporate governance rules should be a shield that protects directors from allegations that they have breached their duty of care. However, even with good corporate governance rules, directors’ decisions can still be open to criticism from outsiders. Canadian courts, like their counterparts in the United States, the United Kingdom, Australia and New Zealand, have tended to take an approach with respect to the enforcement of the duty of care that respects the fact that directors and officers often have expertise that courts do not. Many decisions made in the course of business, although ultimately unsuccessful, are reasonable and defensible at the time they are made. Business decisions must sometimes be made, with high stakes and under considerable time pressure, in circumstances in which detailed information is not available. It might be tempting for some to see unsuccessful business decisions as unreasonable or imprudent in light of information that becomes available ex post facto. Because of this risk of hindsight bias, Canadian courts have developed a rule of deference to business decisions called the "business judgment rule", adopting the American name for the rule.
(65) In Maple Leaf Foods Inc. v. Schneider Corp. (1998), 42 O.R. (3d) 177, Weiler J.A. stated, at p. 192:
The law as it has evolved in Ontario and Delaware has the common requirements that the court must be satisfied that the directors have acted reasonably and fairly. The court looks to see that the directors made a reasonable decision not a perfect decision. Provided the decision taken is within a range of reasonableness, the court ought not to substitute its opinion for that of the board even though subsequent events may have cast doubt on the board’s determination. As long as the directors have selected one of several reasonable alternatives, deference is accorded to the board’s decision. This formulation of deference to the decision of the Board is known as the "business judgment rule". The fact that alternative transactions were rejected by the directors is irrelevant unless it can be shown that a particular alternative was definitely available and clearly more beneficial to the company than the chosen transaction. [Emphasis added; italics in original; references omitted.]
(66) In order for a plaintiff to succeed in challenging a business decision he or she has to establish that the directors acted (i) in breach of the duty of care and (ii) in a way that caused injury to the plaintiff: W. T. Allen, J. B. Jacobs and L. E. Strine, Jr., "Function Over Form: A Reassessment of Standards of Review in Delaware Corporation Law" (2001), 26 Del. J. Corp. L. 859, at p. 892.
(67) Directors and officers will not be held to be in breach of the duty of care under s. 122(1)(b) of the CBCA if they act prudently and on a reasonably informed basis. The decisions they make must be reasonable business decisions in light of all the circumstances about which the directors or officers knew or ought to have known. In determining whether directors have acted in a manner that breached the duty of care, it is worth repeating that perfection is not demanded. Courts are ill-suited and should be reluctant to second-guess the application of business expertise to the considerations that are involved in corporate decision making, but they are capable, on the facts of any case, of determining whether an appropriate degree of prudence and diligence was brought to bear in reaching what is claimed to be a reasonable business decision at the time it was made.
I had mentioned before the "oppression remedy". This is a frequently employed provision of our various corporate statutes to deal with alleged wrongdoing in the enterprise. The CBCA has a well developed, if not succinctly defined, oppression remedy provision; most of the provincial corporate statutes have similar provisions, although in some cases, not as well developed; the Quebec statute does not have such a provision (although Peoples was a Quebec based corporation, it was federally incorporated). The CBCA provides:
S. 241(2)(c) authorizes a court to grant a remedy if
(c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer … .
A person applying for the oppression remedy must, in the court’s opinion, fall within the definition of "complainant" found in s. 238 of the CBCA:
a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
a director or an officer or a former director or officer of a corporation or any of its affiliates,
the Director; or
any other person who, in the discretion of a court, is a proper person to make an application under this Part.
The remedy provided in such a case may be selected from an extensive laundry list (a) to (n) at s. 241(3). But importantly this is just an illustrative list as the lead in provides that "the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing". For those of you who may be unduly concerned about a Canadian court going off the dial with a remedy, allow me to observe that in Ballard, I determined that the remedy was to remedy the wrong, not punish the wrongdoer, that it was to be applied as a scalpel not a broad axe, and that it must be applied judicially and judiciously.
An oppression case involving a corporate transaction where the board of a parent proposed to purchase the assets of a subsidiary was dealt with on appeal by the Ontario Court of Appeal inBrant Investments Ltd. v. KeepRite Inc. (1991), 3 O.R. (3d) 289 (C.A.). Minority shareholders objected to the transaction and applied for an order to fix the fair value of their shares to be put to the corporation. At p. 320 McKinlay J.A. for the Court stated in respect of the Ontario statute oppression section 234:
There can be no doubt that on application under s. 234 the trial judge is required to consider the nature of the impugned acts and the method in which they were carried out. That does not mean that the trial judge should substitute his own business judgment for that of managers, directors, or a committee such as the one involved in assessing this transaction. Indeed, it would generally be impossible for him to do so, regardless of the amount of evidence before him. He is dealing with the matter at a different time and place; it is unlikely that he will have the background knowledge and expertise of the individuals involved; he could have little or no knowledge of the background and skills of the persons who would be carrying out any proposed plan; and it is unlikely that he would have any knowledge of the specialized market in which the corporation operated. In short, he does not know enough to make the business decision required. That does not mean that he is not well equipped to make an objective assessment of the very factors which s. 234 requires him to assess. Those factors have been discussed in some detail earlier in these reasons.
It is important to note that the learned trial judge did not say that business decisions honestly made should not be subjected to examination. What he said was that they should not be subjected to microscopic examination. …
In dealing with a poison pill defence situation, Sherstobitoff J.A. in 347883 Alberta Ltd. v. Producers Pipelines Inc., [1991] 4 W.W.R. 577 (Sask. C.A.) at p. 595 stated:
In summary, when a corporation is faced with susceptibility to a take-over bid or an actual take-over bid, the directors must exercise their powers in accordance with their overriding duty to act bona fide and in the best interests of the corporation even though they may find themselves, through no fault of their own, in a conflict of interest situation. If, after investigation, they determine that action is necessary to advance the best interests of the company, they may act, but the onus will be on them to show that their acts were reasonable in relation to the threat posed and were directed to the benefit of the corporation and its shareholders as a whole, and not for an improper purpose such as entrenchment of the directors.
At the very same time I was doing the trial decision in Schneider, Blair J. then of our court was deciding CW Shareholdings Inc. v. WIC Western International Communications Ltd. (1998), 39 O.R. (3d) 755 (Gen. Div.). At para. 57 he observed in respect of this takeover case after making reference to the American "Revlon Duty":
(57) In assessing whether or not directors have met their fiduciary and statutory obligations, as outlined earlier in these Reasons, Canadian courts have generally approached the subject on the basis of what has become known as the "business judgment rule". This rule is an extension of the fundamental principle that the business and affairs of a corporation are managed by or under the direction of its board of directors. It operates to shield from court intervention business decisions which have been made honestly, prudently, in good faith and on reasonable grounds. In such cases, the board’s decisions will not be subject to microscopic examination and the Court will be reluctant to interfere and to usurp the board of director’s function in managing the corporation. …
He noted that those comments applied equally to oppression cases and to takeover cases. He went on to observe at para. 60:
60. The directors’ actions are not to be judged against the perfect vision of hindsight, and should be measured against the facts as they existed at the time the impugned decision was made. In addition, the court should be reluctant to substitute its own opinion for that of the directors where the business decision was made in reasonable and informed reliance on the advice of financial and legal advisors appropriately retained and consulted in the circumstances. See Rogers Communications Inc. v. MacLean Hunter Ltd., supra, at p. 245;Armstrong World Industries Inc. v. Arcand (1997), 36 B.L.R. (2d) 171 (Ont. Gen. Div. [Commercial List]); Olympia & York Enterprises Ltd. v. Hiram Walker Resources Ltd., supra at pp. 270-273.
But, while there is protection for a director relying upon the advice of a professional adviser, that must be bona fide reliance upon bona fide advice from a bona fideprofessional. In other words, a board cannot hire a professional with a view that the professional will act as a "juke box" by playing any tune that he is paid to play (expected to play: wink, wink, nudge, nudge). It is in that light that the practical aspects of the appellate courts’ decisions inPeoples may be questioned (although the enunciation of the principle was sound). In that case the directors (who were the majority shareholders of a related company) apparently on the recommendation of an in-house professional instituted a buying and monitoring policy which would work only one way – to the shareholders’ benefit of the related company whether the program worked financially or failed.
Further it seems to me that the decision of the board must be viewed in light of all the facts reasonably known (or ought to have been known) at the time, not with the benefit of hindsight. That decision should be based upon proper and adequate investigation of those facts and the reasonable alternatives available with an intelligent discussion of the pros and cons of such alternatives. A neutral, objective and reasonable decision should be made. The particulars of the analysis and discussion should be recorded on a "contemporaneous" basis; that and the background material should then be preserved. Rubber-stamping is not a good badge to carry into court; nor are subsequent attempts at coopering up the justification for any business decision. The issue of the prohibition of the use of hindsight may be modified very slightly if rather closely thereafter there is a determination that the facts relied on were substantially different from those then revealed: see discussion in analogous circumstances in New Quebec Raglan Mines Ltd. v. Blok-Andersen (1991), 4 B.L.R. (2d) 71 (Ont. Gen. Div.).
Perhaps the easiest task any judge had in determining a breach of the business judgment rule was that of Lederman J. in Main v. Delcan Group Inc., [1999] O.J. No. 1961 (S.C.J.) where at para. 36, he determined:
(36) …It is difficult to imagine that any decision which runs contrary to both the CBCA and the Shareholders’ Agreement could nevertheless be said to be honest, and in good faith. Accordingly, I must find that the Respondent cannot rely on the Business Judgment Rule as support for its argument.
Lax J. made a perfectly obvious, but often overlooked, observation relating to the business judgment rule in UPM-Kymmene Corp. v. UPM-Kymmene Miramichi Inc., [2002] O.J. No. 2412 (S.C.J.) affirmed [2004] O.J. No. 636 (C.A.), (better known as "Repap" or "paper" spelled backwards), at para. 153:
(153) However, directors are only protected to the extent that their actions actually evidence their business judgment. The principle of deference presupposes that directors are scrupulous in their deliberations and demonstrate diligence in arriving at decisions. Courts are entitled to consider the content of their decision and the extent of the information on which it was based and to measure this against the facts as they existed at the time the impugned decision was made. … Although Board decisions are not subject to microscopic examination with the perfect vision of hindsight, they are subject to examination.
She observed that a contract such as the one between the new self parachuted in Chairman and the corporation should be the subject of careful, objective analysis. She found it was not. Why did she make that finding? At para. 156 she determined:
(156) … In the space of thirty minutes taken up with Ms. Rattner’s presentation, without questions or discussion, with comment from the only director who had served for longer than two months, the Board of Directors of Repap approved an Agreement that gave someone it did not know, had not recruited, and had just met, a generous salary with a lengthy term of employment, an unprecedented bonus structure, termination and change of control protection inconsistent with the employment objective, and stock options amounting to 13.4% of the company. The directors did not fulfil their duties to Repap. Their decision was not an informed or reasoned one. The business judgment rule cannot be applied in these circumstances to protect their decision from judicial intervention.
While the business judgment rule recognizes the autonomy and integrity of a corporation and its board, it relies upon the expertise of those directors who are in the advantageous position of knowing the background of the corporation, its present position in the real world, and of being able to investigate and consider the situation and circumstances in issue. If the board truly does that, then it should therefore be in a far better position to understand the affairs of the corporation and to guide its operation, than the court. Process in coming to the decision is important. I would also respectfully submit that the Canadian courts have perhaps been additionally deferential as to the substance of the decision because of a general lack of business experience in the judiciary. That may change, marginally so, as judges with more commercial experience are appointed and Commercial Lists (or the equivalent) are developed within the court system. I would stress marginally so, as I do not think it a good thing to have even experienced commercial judges attempting to usurp a properly functioning board. However, increased expertise in the judiciary will bring a keener eye to the analysis exercise.
While the business judgment rule has been applied by our Courts in Canada, it does not appear that we have adopted the enhanced scrutiny rule as yet. See Corporacion Americana de Equipamientos Urbanos S.L. v. Olifas Marketing Group Inc. (2003), 66 O.R. (3d) 352 (S.C.J.) at para. 12. Blair J. in WICat paras. 61-64 discussed this and felt that the 347883 case came close to applying the enhanced scrutiny rule when Sherstobitoff J.A. observed in the above quote:
… they may act, but the onus will be on them to show that their acts were reasonable in relation to the threat posed and were directed to the benefit of the corporation and its shareholders as a whole, and not for an improper purpose such as entrenchment of the directors.
(emphasis added)
Blair J. went on to state at para. 63:
63. To the extent that this statement may be said to impose an evidentiary burden on the directors of a target company to justify their actions and their business decisions, I think, respectfully, that it goes too far and does not represent the law in Ontario on these matters. In my view it places the initial burden in the wrong place; and it creates the potential for diluting to a very weak potion, the business judgment approach to review of directors’ decisions.
In Re Stelco Inc., [2005] O.J. 729, 7 C.B.R. (5th) 307 (S.C.J.), I gave an order removing two directors from the Stelco board. This issue blew up quickly in the midst of a turbulent, acrimonious, lengthyCompanies’ Creditors Arrangement Act (CCAA) insolvency restructuring (the rough equivalent to the U.S. Ch. 11 Bankruptcy Code except that the CCAA only has 22 sections, what Gilbert and Sullivan might refer to as the very model of a very pre-Victorian statute except it was originally enacted in 1934). Two representatives of "shareholder value" shareholders possessing to all appearances the attributes of recently involved hedge/vulture funds came knocking on the door of the Stelco board; they advised they had 20% of the vote and they also had a special insight as to Stelco and the world steel industry (shall we assume that the board and management of Stelco did not have any experience in those areas?). While politely put off, these two returned a week later to advise that they were still interested in board positions and, by the way, would the board be interested to know that they now had the support of another 20% from a half dozen other funds. The board, now faced with a 40% effective bloc, reconsidered and appointed them not only to the board but also to be two of the five members of the special restructuring committee. I determined that it would be impossible for a leopard to change its spots so that these newcomers would be able to represent all the interested stakeholders in Stelco and using my inherent jurisdiction as well as the discretion statutorily granted, I removed the newcomers as I found out that their presence would probably be disruptive to the restructuring process. Our Court of Appeal felt otherwise. In Re Stelco Inc. (2005), 75 O.R. (3d) 5 (C.A.), that Court (Blair (now) J.A. for the Court) found that I had exceeded my CCAA jurisdiction and could not rely on my inherent jurisdiction. The CBCA was canvassed. After noting that I had observed that this was a most unusual case which would take it out of the ordinary circumstance, Blair J.A. stated at paras. 65 and 68:
(65) The appellants argue as well that the motion judge erred in failing to defer to the unanimous decision of the Stelco directors in deciding to appoint them to the Stelco Board. It is well-established that judges supervising restructuring proceedings – and courts in general – will be very hesitant to second-guess the business decisions of directors and management. …
(68) Although a judge supervising a CCAA proceeding develops a certain "feel" for the corporate dynamics and a certain sense of direction for the restructuring, this caution is worth keeping in mind. See also Clear Creek Contracting Ltd. v. Skeena Cellulose Inc., supra; Sammi Atlas Inc. (Re), [1998] O.J. No. 1089, 3 C.B.R. (4th) 171 (Gen. Div.); Olympia & York Developments Ltd. (Re), supra; Re Alberta Pacific Terminals Ltd., [1991] B.C.J. No. 1065, 8 C.B.R. (4th) 99 (S.C.). The court is not catapulted into the shoes of the board of directors, or into the seat of the chair of the board, when acting in its supervisory role in the restructuring.
He went on the state at para. 70:
(70) I do not see the distinction between the directors’ role in "the management of the business and affairs of the corporation" (CBCA, s. 102) -- which describes the directors’ overall responsibilities – and their role with respect to a "quasi-constitutional aspect of the corporation" (i.e., in filling out the composition of the board of directors in the event of a vacancy). The "affairs" of the corporation are defined in s. 2 of the CBCA as meaning "the relationships among a corporation, its affiliates and the shareholders, directors and officers of such bodies corporate but does not include the business carried on by such bodies corporate". Corporate governance decisions relate directly to such relationships and are at the heart of the Board’s business decision-making role regarding the corporation’s business and affairs. The dynamics of such decisions, and the intricate balancing of competing interests and other corporate-related factors that goes into making them, are no more within the purview of the court’s knowledge and expertise than other business decisions, and they deserve the same deferential approach. Respectfully, the motion judge erred in declining to give effect to the business judgment rule in the circumstances of this case.
He pointed out that there had been no actual case in oppression claimed or made out. I would merely observe that it is a little late in the chaotic situation of an insolvency to lock the barn door after the horse has been led out.
The employee group which sought the original ouster order sought leave to appeal to the Supreme Court of Canada. I understand that this was abandoned when the Federal Government passed amendments to our insolvency legislation, including the CCAA, as one of the CCAA amendments specifically gives power to the court to remove directors if there are grounds for determining they are likely to impede the restructuring. That legislation has not been enacted – and its future is less than certain as while all four parties supported the legislation, it may be fair to observe that they may well have done so for last minute political election reasons. There was a promise not to enact the amendments for at least a half year to allow for much needed analysis, reflection and debate. Time will tell.
I would also note that the Court of Appeal focused on inherent jurisdiction being restricted to process, whereas in 80 Wellesley St. East Ltd. v. Fundy Bay Builders Ltd. et al., [1972] 2 O.R. 280 (C.A.), the Court of Appeal there stated at p. 282:
… As a superior Court of general jurisdiction, the Supreme Court of Ontario has all of the powers that are necessary to do justice between the parties. Except where provided specifically to the contrary, the Court’s jurisdiction is unlimited and unrestricted in substantive law in civil matters. In Re Michie Estate and City of Toronto et al., [1968] 1 O.R. 266 at pp. 268-9, 66 D.L.R. (2d) 213 at pp. 215-6, Stark, J., after considering the relevant provisions of the Judicature Act and the authorities, said:
It appears clear that the Supreme Court of Ontario has broad universal jurisdiction over all matters of substantive law unless the Legislature divests from this universal jurisdiction by legislation in unequivocal terms. …
Even more recently our Court of Appeal in Kerr v. Danier Leather Inc., [2005] O.J. No. 5388 (C.A.) in dealing with a forecast in an initial public offering prospectus chastised a trial judge for focusing on only one view of whether the forecast was reasonably achieved on a certain date – "his own". At para. 155, the Court stated:
In other words, the trial judge failed to give any deference to the "business judgment" of senior management which, in the end – despite the misgivings of more junior employees and of the trial judge – turned out to be correct. Instead, he applied his own view of what was objectively reasonable as of May 20, without reference to expert evidence supporting the reasonableness of the Forecast on that date, and without regard to what actually happened as of June 27. …
The last proclamation of our Court of Appeal on the subject of the business judgment rule was inFord Motor Co. of Canada v. Ontario Municipal Employees Retirement Board, [2006] O.J. No. 27 (C.A.), a case involving the squeeze out of the 10% minority by the parent, Ford U.S., with a resultant fair value determination. It was observed that the trial judge had summarized the rule and went on to say that: "Absent bad faith, or some other improper motive, business judgment that, in hindsight, has proven to be mistaken, misguided or imperfect, will not give rise to liability through the oppression remedy." Rosenberg J.A. stated at paras. 55-56:
(55) …The significant impediment to Ford Canada’s reliance on the business judgment rule lies in the evidence accepted by the trial judge that the Ford Canada board brought little judgment to bear on the transfer pricing system.
(56) The evidence shows that Ford Canada’s board had little understanding of the transfer pricing system and its impact on the profitability of Ford Canada’s operations. There was little discussion of the system at the board level and Ford Canada did not conduct any independent review of the system. The evidence suggests that Ford Canada simply accepted the system that was put in place by Ford U.S., the majority shareholder. There was no evidence that Ford Canada tried to negotiate an agreement that was more consistent with arm’s-length principles and failed; the attempt was never made. In fact, when Dr. Wright concluded her study shortly before the 1995 transactions and suggested a slight change to the TELO allocation that favoured Ford Canada, the change was made.
Well, if you do have to litigate in Canada, allow me to assure you that the Commercial List in Toronto recognizes the importance of "real time" litigation; while the other major metropolitan areas across our country do not have a formal Commercial List, they too are able to handle such litigation efficiently. As well our courts of appeal are signed on to make certain that such matters are dealt with in a timely fashion.
The Hon. James Farley, Q.C., is Senior Counsel at McCarthy Tétrault LLP.