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Corporations - Rule in Foss v Harbottle. Tran v. Bloorston Farms Ltd.
In Tran v. Bloorston Farms Ltd. (Ont CA, 2020) the Court of Appeal considered an issue with respect to the rule in Foss v Harbottle [the below reasoning is expanded at paras 29-69]:[1] The rule in Foss v. Harbottle (1843), 67 E.R. 189 (U.K.H.L.) prevents shareholders from suing for a loss in the value of their shares brought about by a wrong done to the corporation. The rule, which is well-entrenched in Canadian law, is a consequence of the separate legal personality of the corporation. Just as shareholders (subject to limited exceptions) cannot be sued for acts, debts, defaults or obligations of the corporation, only the corporation has a cause of action for wrongs done to it.[1]
[2] The primary issue in this appeal is whether the rule should have been applied to deny the claim of the respondent, Sang Thi Tran (“Sang”), for the diminution in the value of her shares in 1835068 Ontario Ltd. (“183”), a corporation she solely owned. The shares lost value because 183 was unable to carry on its restaurant business. It could not carry on that business because Sang’s lease for the restaurant’s premises was terminated by the appellant, Bloorston Farms Ltd. (“Bloorston”).
[3] As I explain below, the wrong in this case was not done to the corporation, but to the shareholder personally. Only Sang was a tenant under the lease and only she had a cause of action for its wrongful termination. In these circumstances, neither the rule in Foss v. Harbottle nor its rationale applied. The motion judge did not err, as Bloorston contends, in allowing Sang’s claim for diminution in share value. Nor did the motion judge err, as Bloorston also contends, in the quantification of that diminution or in finding that Bloorston had breached the lease.
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