BUSINESS VENTURE CLINIC
  • Home
  • About
  • Clients
  • Resources
    • Links
    • Videos
  • Blog
  • Contact
    • Clinic Schedule

BLOG POSTS

Duty of Care and the Business Judgement Rule as a Defence

2/13/2023

0 Comments

 
Written by Ivana Palacios
UCalgary Law | JD Candidate 2024

There are many duties to which the directors and officers of a company are subject. It is unlikely that the average businessperson is aware of all of them. While this may be of initial concern for a new director or officer, there is good news. There are factors working in favour of directors and officers in Canada. Significantly, one of them is the defense of the Business Judgement Rule.[1] 

The Duty of Care is one of the fiduciary duties that are owe by directors and officers, the Business Judgement Rule (BJR) provides a defense when this Duty is called into question. In 2004, in what has become known as the People’s case[2], the Supreme Court of Canada officially adopted the BJR. This meant that the courts should give deference to business decisions due to the risk of hindsight bias when considering a decision made in the past. The BJR has three key elements:
  1. Reasonable business decisions based on circumstance,
  2. The court will focus on form of decision not the substance,
  3. Perfection is not required.[3]

In practice this means that courts will not consider alternative decisions that are often developed in hindsight. The Directors or Officers only need to show that their decision was reasonable in the given circumstances. This has been shown to include both substantive and procedural elements.[4] The court will pay attention to whether there is evidence that the board understood the issue and will look at evidence that they analyzed the issue. The courts will consider whether data the board considered and whether the amount of time was appropriate. Additionally they will consider whether retaining independent advisors required if it was done they will consider whether the board engaged with the advisors or passively followed their advice. Ultimately, the court will determine whether the process met the standard of reasonability and from there generally the decision will be justifiable. 

The standard by which a board, director, or officer’s decision will be examined is whether it was made prudently and on a reasonably informed basis.[5] The BJR helps directors and officers’ defended decisions made when they are call in to question in hindsight. There are many duties that directors and officers owe and this is only one of the factors working in favour of Directors and Officers in Canada.
 
 
[1] Bryce Tingle, Start-Up and Growth Companies in Canada, 3rd ed (Canada: LexisNexis, 2018) at 192.
[2] Peoples Department Stores Inc. (Trustee of) v Wise, [2004] SCR 461, 2004 SCC  68.
[3] Ibid., at para 67.
[4] Supra note 1 at 193.
[5] Supra note 4.
0 Comments



Leave a Reply.

    BVC Blogs

    Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.

    Categories

    All
    ABCA
    Agreements
    Civil Liability
    Confidentiality
    Contractor
    Contracts
    Corporate Governance
    Corporate Structures
    Directors
    Dispute Resolution
    Employee
    Employment Law
    Force Majeur
    Franchise
    Income Tax
    Incorporation
    Indemnification
    Jurisdiction
    Licensing
    Non-Compete
    Patents
    Securities
    Security Interests
    Shareholder Agreement
    Shareholders
    Software
    Startup
    USA
    Warranties

    RSS Feed

    Archives

    April 2025
    March 2025
    February 2025
    December 2024
    November 2024
    May 2024
    April 2024
    March 2024
    February 2024
    January 2024
    December 2023
    November 2023
    October 2023
    April 2023
    March 2023
    February 2023
    January 2023
    November 2022
    October 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    August 2020
    May 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    April 2019
    March 2019
    February 2019
    January 2019
    November 2018
    October 2018
    May 2018
    April 2018
    March 2018
    February 2018
    November 2017
    October 2017
    August 2017

Terms and Conditions | Privacy Statement
 © 2023 University of Calgary. All rights reserved.
  • Home
  • About
  • Clients
  • Resources
    • Links
    • Videos
  • Blog
  • Contact
    • Clinic Schedule